The product life cycle is a phase which many products go through between their first introduction to the market to the decline of sales which could lead to the cease of production. There are five stages in the product life cycle which are as follows:
- Development - This is when a business invests all their money into to developing a product that will sell well on the market. Ideally, they want to design a product that has a unique selling point(USP) to give them the competitive advantage.
- Introduction- This is when the product first enters the market, a business will apply many marketing strategies and price their product in a way that will achieve the highest sales possible.
- Growth- The number of sales will rapidly increase at this point, a business may not need as many marketing strategies here compare to the introduction stage.
- Maturity- Sales have reached the highest they will possibly go for this product.
- Decline- Sales figures begin to decline here, eventually production of the product will stop because having a large amount of stock is a liability.
Extension strategies- Between the maturity and decline in the product life cycle a business will deploy an extension strategy this sis an attempt to prolong the sales of a product and prevent the decline.
Examples of extension strategies are increasing advertisement, innovation and looking for a new target market.
Economic factors and how these affect businesses
Uncertainty in the economy
Uncertainty relates to possibilities that cannot be quantified and may appear without warning. A new completing product could threaten a business at any time. People will often change their minds about the products that they like to buy, this leads to a reduction in the demand without much warning. Their are also other uncertainties such as natural disasters like the tsunami off the Indian Ocean or unnatural disasters like 9/11. These can also significantly reduce sales because the public are scared around this period of time therefore they will go out a lot less.
Changes in China's economy over the last 30 years
Until current date, there was another group called the G7, these were the most power countries which had the biggest influence on the whole of the world. In 1975, they were seen as France, West Germany, Italy, Japan, the UK and Canada. Now China has emerged as a BRIC economy these are the fastest growing economies in the world.
BRIC economies
In recent years a new concept called the BRIC has emerge in terms of economics, the BRIC consists of four countries Brazil, Russia, China and India. The countries that form this group are considered the four faster growing countries in the world in terms of GDP therefore the influence in years to come will be really significant. Currently, China stands at the 2nd biggest economy base on GDP figures until 2017 when they will surpass the US.
FDI and how this benefits an economy
Economic reform
Economic reform is seen as the changes that occur in an economy throughout a period of time. One of the main changes seen in economic reform is the infrastructure. This is the amount of money invested into building work, development and the running of the country, without infrastructure a country cannot expand. A change that has occurred in many reforms of countries is the barriers of foreign trade. In some countries protectionism occurs to protect the national interest of domestic businesses. However, in some situations their are barriers little or no barriers which allow foreign direct investment(FDI).
Trade agreements and alliances
Trade agreements and alliances are normally set up by governments to establish guidelines for international trade and to set up alliances such as the European Union. When these agreements and alliances are set up they normally allow little or no barriers between trade to help reduce many costs such as distributions. It also allows multinational corporations to expand quicker because they can employ cheaper staff and benefit from lower corporation tax.
How do customers & producers benefit from international trade?
Customer
Competitive pricing can get goods cheaper
High quality products
Wider choice of products
Larger target audience
Producers
More awareness of their product
Cheaper labour/manufacturing costs abroad
More profit to be made by expanding abroad
Protectionism
This is the economic policy of restricting trade between states, as it is within the publics interest and the owners of domestic businesses for their businesses to be protected. There are 3 ways in which this can be done:
Free trade is where there is little or no barries to trade, this is to allow domestic goods to be bought easily. Protectionism is where a government enforces regulations to protect the interest of domestic businesses, this usually varies across different borders. In a rapidly developing country such a China you would expect a lot of free trade however there could be many barriers to prevent trade.
Single markets
A single market is created to allow free trade within a particular area. An example of this is the EU, anyone who lives in the EU is entitle to work in any EU country without any difficulties of a permit. From a business perspective trade occurs very easily because there are low barriers of entry.
Advantages and disadvantages of single market
Advantages
Easy to trade
More availability of raw materials
Distribution costs lower
Low barriers of entry
Disadvantages
Could damage domestic businesses
Some countries could grow faster than others with this policy
Businesses could monopolize the market
Factors affecting businesses moving into international markets
Levels of corporation tax
Protectionism
Laws and legislation
Ease of distribution
Bureaucracy
Investment rate of country
Infrastructure
Employment/Unemployment levels
Literacy rate
Exchange rates
Trade alliances
The impact of Globalisation on consumers
More variety in their products
More value for money
Tough regulations on foreign companies could raise the price for all products, because small domestic businesses need to match the same price of large foreign businesses to be able to compete
Better customer service
Better ability to potentially barter
Advantages and disadvantages of businesses that trade across international borders
Advantages
More profit
Access to a new market
Increase market share/ brand awareness
Government limitations
Disadvantages
Protectionism
Copyright issue
Joint Ventures
Lack of availability for workforce
Mergers and takeovers with examples
A merger is when two businesses join together and a takeover is when one business takes over another business. There are two types of mergers there is a voluntary merger, this happens when a business agrees terms for a takeover and there is a non-voluntary merger is when no real terms have been agreed between two businesses. The other type of merger is a forced merger by forced such as buying the majority shares in a business. Mergers and acquisitions are often a term used to give reference to different type of takeover, with integration used to describe mergers. Acquisition is where a company enters a market by taking over another business.
Vertical and horizontal integration
The terms horizontal and vertical integration are usually associated with the mergers and takeovers. The first type of integration is horizontal integration, this is where both firms are on the same line of production. They both undertake one part of the same production line and they both produce very similar products. Vertical integration is where there are two businesses who are in different parts of the production process and produce very different products. An example, of this is farmers setting up selling produce rather than selling their products as a wholesaler.
The different economies of scale that apply to businesses as they expand
Technical economies of scale: When businesses invest in expensive and specialist capital machinery, this will lower the unit cost for production.
Marketing economies of scale:More power in the market bringing better negotiation power, they can get lower prices for advertisement.
Financial economies of scale: Have better access to credit facilities, easier to take loans.
Managerial economies of scale: They have specialization of labour, employ specialist workers which are more efficient.
Commercial economies of scale: Purchasing economies occur when a business buys goods in bulk and benefits from discounts.
Research and development economies of scale: Research more efficient methods of production, allows changes to the production process.
There are many factors that the business cannot control
such as interest rates, inflation rates, and exchange rates. These
are mainly depending on the success of the country and the strategies the
government aim to use to maximize potential profits for businesses. For an
example, currently in the recession interest rate is at a low of 0.5 % to
encourage people to spend. Another factor that is important is exchange rates
because you don’t want a strong currency as that would cause fewer
opportunities for trade and lower tourism. Governments have methods in place to devalue their currency, this is to encourage more countries import goods from Britain into their countries. Finally, there are economic factors that a business must comply by
such as fiscal legislation this includes minimum wages.
Uncertainty in the economy
Uncertainty relates to possibilities that cannot be quantified and may appear without warning. A new completing product could threaten a business at any time. People will often change their minds about the products that they like to buy, this leads to a reduction in the demand without much warning. Their are also other uncertainties such as natural disasters like the tsunami off the Indian Ocean or unnatural disasters like 9/11. These can also significantly reduce sales because the public are scared around this period of time therefore they will go out a lot less.
Changes in China's economy over the last 30 years
Until current date, there was another group called the G7, these were the most power countries which had the biggest influence on the whole of the world. In 1975, they were seen as France, West Germany, Italy, Japan, the UK and Canada. Now China has emerged as a BRIC economy these are the fastest growing economies in the world.
since the
1970’s where China was a rather poor nation, the rapid expansion and
infrastructure which took place in China was mainly down to the change of how
they made business in other countries. In 1991 China allowed international
trade to take place by introducing Foreign Direct Investment (FDI’s). Foreign Direct investment is allowing
business to occur with other countries, which can range from import and exports
to expanding businesses so that they become multinationals. Multinational
Corporations are businesses that are known throughout the world because the
product is sold in multiple countries an example of this would be Coca-Cola.
In 1994, inflation was at its peak at around 20% for the stimulation of growth
in the Chinese economy. This could have been risky because such a sharp rise
from around 3.1% in 1990 could have dramatically slowed the economy down if
customers weren’t buying the same amount of basket goods. China made special economic zones. A special
economic zone is a region where the economic trading laws and other laws are
considered free-market and differ from national laws. Therefore, this makes
China on a whole hard to sell to because if you are trying to expand the sales
of a product throughout these SEZ’s in China you have to be familiar with the
regulations of each of these SEZ’s.
BRIC economies
In recent years a new concept called the BRIC has emerge in terms of economics, the BRIC consists of four countries Brazil, Russia, China and India. The countries that form this group are considered the four faster growing countries in the world in terms of GDP therefore the influence in years to come will be really significant. Currently, China stands at the 2nd biggest economy base on GDP figures until 2017 when they will surpass the US.
FDI and how this benefits an economy
Economic reform
Economic reform is seen as the changes that occur in an economy throughout a period of time. One of the main changes seen in economic reform is the infrastructure. This is the amount of money invested into building work, development and the running of the country, without infrastructure a country cannot expand. A change that has occurred in many reforms of countries is the barriers of foreign trade. In some countries protectionism occurs to protect the national interest of domestic businesses. However, in some situations their are barriers little or no barriers which allow foreign direct investment(FDI).
Trade agreements and alliances
Trade agreements and alliances are normally set up by governments to establish guidelines for international trade and to set up alliances such as the European Union. When these agreements and alliances are set up they normally allow little or no barriers between trade to help reduce many costs such as distributions. It also allows multinational corporations to expand quicker because they can employ cheaper staff and benefit from lower corporation tax.
How do customers & producers benefit from international trade?
Customer
Competitive pricing can get goods cheaper
High quality products
Wider choice of products
Larger target audience
Producers
More awareness of their product
Cheaper labour/manufacturing costs abroad
More profit to be made by expanding abroad
Protectionism
This is the economic policy of restricting trade between states, as it is within the publics interest and the owners of domestic businesses for their businesses to be protected. There are 3 ways in which this can be done:
- Tarriffs- This is a tax on imported goods
- Restricted quotas- This is a yearly limit on the number of goods a business can import each year.
- Other regulations which allow fair competition rather than that market being monopolised e.g. giving additional funding to domestic businesses through the tax on foreign investment.
Free trade is where there is little or no barries to trade, this is to allow domestic goods to be bought easily. Protectionism is where a government enforces regulations to protect the interest of domestic businesses, this usually varies across different borders. In a rapidly developing country such a China you would expect a lot of free trade however there could be many barriers to prevent trade.
Single markets
A single market is created to allow free trade within a particular area. An example of this is the EU, anyone who lives in the EU is entitle to work in any EU country without any difficulties of a permit. From a business perspective trade occurs very easily because there are low barriers of entry.
Advantages and disadvantages of single market
Advantages
Easy to trade
More availability of raw materials
Distribution costs lower
Low barriers of entry
Disadvantages
Could damage domestic businesses
Some countries could grow faster than others with this policy
Businesses could monopolize the market
Factors affecting businesses moving into international markets
Levels of corporation tax
Protectionism
Laws and legislation
Ease of distribution
Bureaucracy
Investment rate of country
Infrastructure
Employment/Unemployment levels
Literacy rate
Exchange rates
Trade alliances
The impact of Globalisation on consumers
More variety in their products
More value for money
Tough regulations on foreign companies could raise the price for all products, because small domestic businesses need to match the same price of large foreign businesses to be able to compete
Better customer service
Better ability to potentially barter
Advantages and disadvantages of businesses that trade across international borders
Advantages
More profit
Access to a new market
Increase market share/ brand awareness
Government limitations
Disadvantages
Protectionism
Copyright issue
Joint Ventures
Lack of availability for workforce
Mergers and takeovers with examples
A merger is when two businesses join together and a takeover is when one business takes over another business. There are two types of mergers there is a voluntary merger, this happens when a business agrees terms for a takeover and there is a non-voluntary merger is when no real terms have been agreed between two businesses. The other type of merger is a forced merger by forced such as buying the majority shares in a business. Mergers and acquisitions are often a term used to give reference to different type of takeover, with integration used to describe mergers. Acquisition is where a company enters a market by taking over another business.
Vertical and horizontal integration
The terms horizontal and vertical integration are usually associated with the mergers and takeovers. The first type of integration is horizontal integration, this is where both firms are on the same line of production. They both undertake one part of the same production line and they both produce very similar products. Vertical integration is where there are two businesses who are in different parts of the production process and produce very different products. An example, of this is farmers setting up selling produce rather than selling their products as a wholesaler.
The different economies of scale that apply to businesses as they expand
Technical economies of scale: When businesses invest in expensive and specialist capital machinery, this will lower the unit cost for production.
Marketing economies of scale:More power in the market bringing better negotiation power, they can get lower prices for advertisement.
Financial economies of scale: Have better access to credit facilities, easier to take loans.
Managerial economies of scale: They have specialization of labour, employ specialist workers which are more efficient.
Commercial economies of scale: Purchasing economies occur when a business buys goods in bulk and benefits from discounts.
Research and development economies of scale: Research more efficient methods of production, allows changes to the production process.
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