Practise Edexcel Business questions on entering global markets and expanding abroad, applying market evidence, resources and risk to a recommendation.
Sources for use with Extract A Among signs of market saturation, streaming platforms seek new growth The global market for on-demand streaming platforms has shown signs of saturation for some time, forcing businesses to devise new strategies to stop the loss of subscribers and boost revenue and growth. At the start of 2022, Netflix, the market leader, had 221.6 million subscribers. However, by September 2022 it had lost 1.2 million subscribers. Nearly a dozen major streaming platforms, with Netflix and Disney+ in the lead, are locked in a fierce battle for subscribers. Experts predict that some platforms will have to merge or launch cheaper subscriptions with advertising if growth is to happen. One merger has already taken place, with HBO Max merging with Discovery+. It will start operating in the summer of 2023 as a single streaming service with around 100 million subscribers worldwide.
Extract B Outsourcing can be a solution to Australia’s skills crisis Australia has a skills shortage problem that is the worst ever seen. There is a shortage of people as well as skills. This is where outsourcing can help, it provides people to fill the gaps. In Australia, more than 30,000 businesses have outsourced work to different countries. In Australia the outsourcing industry is worth $35bn and growing at 3.3%. This shows that there is a huge demand for it and not just in the traditional areas of finance, telecommunications and banking but now other areas of the service industry. In 2022 we work in a global world where work teams are connected by technology and leadership. Smart businesses will use this to their advantage. Outsourcing is one solution to the current skills crisis – but only if it is done well.
Extract C Malaysia’s 2021 Foreign Direct Investment (FDI) value is the highest since 2016 In 2021 FDI into Malaysia increased to RM* 48.1bn. This compared to RM 13.3bn in 2020 and was the highest since 2016, according to the Malaysian Department of Statistics. The manufacturing sector received the largest inflow of FDI with RM 29.5bn in 2021. The second highest was the services sector, mainly in financial services, followed by the mining sector. RM 22.5bn of the FDI came from other Asian countries, mostly from Singapore, Japan and the Republic of Korea. In 2021 the return on investment for FDI companies increased from RM 0.06 to RM 0.13 for every RM 1 of investment. * RM = Malaysian Ringgit
Explain one disadvantage for a business of operating in a saturated market.
Assess the advantages of outsourcing for a business wanting to improve cost competitiveness.
Assess the importance of the likely return on investment for a business when choosing a production location.
Sources for use with
Extract A
Peru clothing industry welcomes tariff barrier to block large increase in clothing imports
A report by the Peruvian competition authority said that imports of clothing into Peru rose by 254% between 2016 and 2020. As a result, imports have increased their share of the Peruvian clothing market to 13.4%. The report warns that there is a danger of damage to the domestic clothing industry and urges the government to increase tariffs on imports. The clothing industry employs over 420,000 people and is 8% of Peru’s manufacturing output.
Extract B
Branding lessons from Inca Kola, the Peruvian fizzy drink that beat Coca-Cola
Anyone who has visited Peru is aware of the passion that Peruvians have for Inca Kola. With its yellow-gold colour, sweet flavour and secret formula, this fizzy drink is one of the few soft drink brands more popular than Coca-Cola in their home market. Currently, Inca Kola is the market leader in Peru with 26% of soft drink sales, closely followed by Coca-Cola, with 25.5%. Coca-Cola now owns Inca Kola but has found it difficult to sell the Peruvian cola into global markets. One of the challenges for Coca-Cola is the distinctive smell, taste and colour of Inca Kola. Although very popular in Peru, it has not become popular with foreign buyers who seem to prefer black colas to yellow colas. 5 5 10
3
Extract C
How Peru became one of the biggest markets for Foreign Direct Investment (FDI) in South America
Peru has a stable economy with strong growth. In the first quarter of 2021, Peru attracted $3.47bn of FDI, more than all of Peru’s FDI in 2020. The World Bank predicts its GDP will grow by 3.9% in 2022 and that it will be the second-fastest growing economy in South America. Peru has 21 Free Trade Agreements (FTAs) in force. In addition, it has 28 investment agreements with countries including Canada, Brazil, Chile, Japan and Switzerland. Peru has a low public debt to GDP ratio and is predicted to have the second-lowest inflation rate in South America. It has a good infrastructure and a supportive government with a stable legal framework. All this has made Peru a prime location for FDI, particularly in renewable energy, manufacturing, food, tourism, retail and technology. The average salary for an employee in Peru increases by 9% every 17 months. The global average is 3%.
Extract D
Remittances*: the hidden engine of globalisation
According to the World Bank, the number of people in the world who live outside the country where they were born has risen from 153 million in 1990 to 270 million in 2020. It is estimated that these migrants from around the world will send a combined $689bn back home. For the first time these remittances will overtake foreign direct investment (FDI) as the biggest inflow of funds to developing countries. The large difference in income between developed and low-income countries means that job opportunities abroad will continue to be attractive. The World Bank expects another 550 million people to become migrant workers by 2030. The global trend is towards more migration, not less and the push from poor countries will be met by a pull from the rich ones. *A remittance is the term used for money that migrants send back to their home country
Assess the importance of the level and growth of disposable income for a business when considering entering a market such as Peru.
Source for use with Extract E Vietnam’s emerging cosmetics industry Growing disposable income, changing beauty standards and the spread of social media have all contributed to the increasing demand in Vietnam for beauty products. Vietnam’s skin care product market was valued at $850m in 2019 and is expected to reach $1.9bn by 2027. Vietnam has an increasing middle-income class who are allocating more of their income to cosmetics products. A middle-class female in Vietnam spends an average of VND* 450 000 – VND 500 000 (US$19 – US$21) monthly on makeup and skincare. Since 2018, the percentage of women in Vietnam using cosmetics has increased from 76% to 86%. In the next decade, Vietnam’s cosmetics market is projected to grow by 15–20% annually. Vietnamese people are becoming more health-conscious, and are paying closer attention to the ingredients of beauty products in the market. The natural cosmetics sector holds immense growth potential in the medium term. Many Vietnamese consumers see foreign brands of cosmetics as having higher quality. Major foreign cosmetics companies such as Unilever, L’Oréal and Beiersdorf have all recently entered the market there. The market is highly price sensitive. Since a large proportion of consumers are young people with a low income, they tend to buy products from the low-end rather than the high-end of the market. * VND = Vietnamese Dong
Evaluate the usefulness of Porter’s matrix to a business considering entry into the Vietnamese cosmetics market.
Sources for use with Extract A Among signs of market saturation, streaming platforms seek new growth The global market for on-demand streaming platforms has shown signs of saturation for some time, forcing businesses to devise new strategies to stop the loss of subscribers and boost revenue and growth. At the start of 2022, Netflix, the market leader, had 221.6 million subscribers. However, by September 2022 it had lost 1.2 million subscribers. Nearly a dozen major streaming platforms, with Netflix and Disney+ in the lead, are locked in a fierce battle for subscribers. Experts predict that some platforms will have to merge or launch cheaper subscriptions with advertising if growth is to happen. One merger has already taken place, with HBO Max merging with Discovery+. It will start operating in the summer of 2023 as a single streaming service with around 100 million subscribers worldwide.
Extract B Outsourcing can be a solution to Australia’s skills crisis Australia has a skills shortage problem that is the worst ever seen. There is a shortage of people as well as skills. This is where outsourcing can help, it provides people to fill the gaps. In Australia, more than 30,000 businesses have outsourced work to different countries. In Australia the outsourcing industry is worth $35bn and growing at 3.3%. This shows that there is a huge demand for it and not just in the traditional areas of finance, telecommunications and banking but now other areas of the service industry. In 2022 we work in a global world where work teams are connected by technology and leadership. Smart businesses will use this to their advantage. Outsourcing is one solution to the current skills crisis – but only if it is done well.
Extract C Malaysia’s 2021 Foreign Direct Investment (FDI) value is the highest since 2016 In 2021 FDI into Malaysia increased to RM* 48.1bn. This compared to RM 13.3bn in 2020 and was the highest since 2016, according to the Malaysian Department of Statistics. The manufacturing sector received the largest inflow of FDI with RM 29.5bn in 2021. The second highest was the services sector, mainly in financial services, followed by the mining sector. RM 22.5bn of the FDI came from other Asian countries, mostly from Singapore, Japan and the Republic of Korea. In 2021 the return on investment for FDI companies increased from RM 0.06 to RM 0.13 for every RM 1 of investment. * RM = Malaysian Ringgit
Explain one disadvantage for a business of operating in a saturated market.
Sources for use with Extract A Among signs of market saturation, streaming platforms seek new growth The global market for on-demand streaming platforms has shown signs of saturation for some time, forcing businesses to devise new strategies to stop the loss of subscribers and boost revenue and growth. At the start of 2022, Netflix, the market leader, had 221.6 million subscribers. However, by September 2022 it had lost 1.2 million subscribers. Nearly a dozen major streaming platforms, with Netflix and Disney+ in the lead, are locked in a fierce battle for subscribers. Experts predict that some platforms will have to merge or launch cheaper subscriptions with advertising if growth is to happen. One merger has already taken place, with HBO Max merging with Discovery+. It will start operating in the summer of 2023 as a single streaming service with around 100 million subscribers worldwide.
Extract B Outsourcing can be a solution to Australia’s skills crisis Australia has a skills shortage problem that is the worst ever seen. There is a shortage of people as well as skills. This is where outsourcing can help, it provides people to fill the gaps. In Australia, more than 30,000 businesses have outsourced work to different countries. In Australia the outsourcing industry is worth $35bn and growing at 3.3%. This shows that there is a huge demand for it and not just in the traditional areas of finance, telecommunications and banking but now other areas of the service industry. In 2022 we work in a global world where work teams are connected by technology and leadership. Smart businesses will use this to their advantage. Outsourcing is one solution to the current skills crisis – but only if it is done well.
Extract C Malaysia’s 2021 Foreign Direct Investment (FDI) value is the highest since 2016 In 2021 FDI into Malaysia increased to RM* 48.1bn. This compared to RM 13.3bn in 2020 and was the highest since 2016, according to the Malaysian Department of Statistics. The manufacturing sector received the largest inflow of FDI with RM 29.5bn in 2021. The second highest was the services sector, mainly in financial services, followed by the mining sector. RM 22.5bn of the FDI came from other Asian countries, mostly from Singapore, Japan and the Republic of Korea. In 2021 the return on investment for FDI companies increased from RM 0.06 to RM 0.13 for every RM 1 of investment. * RM = Malaysian Ringgit
Assess the advantages of outsourcing for a business wanting to improve cost competitiveness.
Sources for use with Extract A Among signs of market saturation, streaming platforms seek new growth The global market for on-demand streaming platforms has shown signs of saturation for some time, forcing businesses to devise new strategies to stop the loss of subscribers and boost revenue and growth. At the start of 2022, Netflix, the market leader, had 221.6 million subscribers. However, by September 2022 it had lost 1.2 million subscribers. Nearly a dozen major streaming platforms, with Netflix and Disney+ in the lead, are locked in a fierce battle for subscribers. Experts predict that some platforms will have to merge or launch cheaper subscriptions with advertising if growth is to happen. One merger has already taken place, with HBO Max merging with Discovery+. It will start operating in the summer of 2023 as a single streaming service with around 100 million subscribers worldwide.
Extract B Outsourcing can be a solution to Australia’s skills crisis Australia has a skills shortage problem that is the worst ever seen. There is a shortage of people as well as skills. This is where outsourcing can help, it provides people to fill the gaps. In Australia, more than 30,000 businesses have outsourced work to different countries. In Australia the outsourcing industry is worth $35bn and growing at 3.3%. This shows that there is a huge demand for it and not just in the traditional areas of finance, telecommunications and banking but now other areas of the service industry. In 2022 we work in a global world where work teams are connected by technology and leadership. Smart businesses will use this to their advantage. Outsourcing is one solution to the current skills crisis – but only if it is done well.
Extract C Malaysia’s 2021 Foreign Direct Investment (FDI) value is the highest since 2016 In 2021 FDI into Malaysia increased to RM* 48.1bn. This compared to RM 13.3bn in 2020 and was the highest since 2016, according to the Malaysian Department of Statistics. The manufacturing sector received the largest inflow of FDI with RM 29.5bn in 2021. The second highest was the services sector, mainly in financial services, followed by the mining sector. RM 22.5bn of the FDI came from other Asian countries, mostly from Singapore, Japan and the Republic of Korea. In 2021 the return on investment for FDI companies increased from RM 0.06 to RM 0.13 for every RM 1 of investment. * RM = Malaysian Ringgit
Assess the importance of the likely return on investment for a business when choosing a production location.
Source for use with
Extract E
Inside Thailand’s electric vehicle revolution
Thailand is the world’s tenth largest vehicle manufacturer. The government has a range of policies to encourage investment in this industry. These include tax breaks, grants, subsidies and other incentives. Toyota of Japan, Great Wall Motor and SAIC Motor of China have all recently taken advantage of these incentives to expand production in Thailand. Mercedes, the German carmaker, has chosen Thailand as the location to manufacture its new electric car, the EQS. The batteries will come from its joint venture with local partner Thonburi Automotive Assembly Plant (TAAP). Foxconn has set up a joint venture with Thailand’s state-owned oil and gas giant PTT. It plans to invest between $1bn and $2bn to build electric vehicles for other manufacturers.
the benefits of entering a joint venture for a global business such as Mercedes. (20)
Extract A
Selected history of Maxion Wheels
Maxion Wheels, based in Brazil, was started in 1908 and is now the world's largest wheel manufacturer. It has grown through a series of takeovers including Hayes Lemmerz and Fumagalli, both major manufacturers of wheels and automotive components. Since designing the first wooden-spoke wheels for the Model T Ford car, Maxion Wheels has been responsible for nearly every major wheel innovation in automotive history. Over the course of the last 100 years, it has grown to supply vehicle manufacturers with a wide range of products.
Extract B
Maxion Wheels Opens New Aluminium Wheel Plant in Brazil
In 2016, Maxion Wheels opened a new light vehicle aluminium wheel plant in Limeira, Brazil. The new plant, next to the company's existing steel wheel plant, will create an additional 500 new jobs by 2020. Brazilian motorists are following the global trend for more sophisticated and stylish vehicles. This includes a growing demand for aluminium wheels on new cars and the new factory will enable Maxion Wheels to meet this increasing consumer demand. The new Maxion Wheels Limeira aluminium plant will open in two phases. In the first phase, production will reach 800,000 wheels per year. Phase two will complete the project, bringing production to two million wheels per year by 2020.
Extract C
Selected financial data for Maxion Wheels - third quarter 2021 (Brazilian Reals)
Extract D
Dongfeng and Maxion Wheels form joint venture
In 2019, Maxion Wheels announced an agreement to form a new joint venture with Dongfeng, one of China's largest automotive parts companies. The new joint venture will build a plant in Hubei Province, China, with a capacity to produce 2,000,000 wheels a year. Construction of the plant started in 2020. The joint venture operation is expected to initially bring more than 450 new jobs to the region. It will produce low pressure die cast aluminium wheels, including high-end wheel finishes, as well as other innovative wheel features.
Extract E
Extracts from Maxion Wheels' Code of Conduct - suppliers
- Maxion Wheels requires ethics, integrity and transparency in its supply chain and its relationship with suppliers
- Maxion Wheels' employees, directors and officers must act ethically when selecting, contracting and maintaining suppliers
- Maxion Wheels' suppliers must not allow child labour or any type of slave or forced labour or compulsory labour
- The relationship between Maxion Wheels and its suppliers must be formalised by means of the proper documentation, containing specific details regarding each suppliers' obligation to comply with this Code
- Maxion Wheels is committed to sourcing the materials used in the manufacture of its products in a manner that does not support, contribute to, aid or facilitate armed conflicts or human rights violations.
Discuss the likely benefits to Maxion Wheels of a joint venture with Dongfeng.
Extract A LVMH Moët Hennessy Louis Vuitton (LVMH) LVMH Moët Hennessy Louis Vuitton, commonly known as LVMH, is a multinational conglomerate specialising in luxury goods. Its headquarters are in Paris, France. In April 2023, LVMH became the first European business to have a value greater than $500bn.
LVMH has around 60 businesses that manage 75 prestigious brands. These businesses are managed independently in six separate business divisions with a decentralised organisational structure: Wines and Spirits, Fashion and Leather Goods, Perfumes and Cosmetics, Watches and Jewellery, Selective Retailing and Other Activities.
LVMH's portfolio of luxury brands includes Louis Vuitton, Fenty Beauty and TAG Heuer watches. Bernard Arnault, one of the original founders of the business, is the Chairman and Chief Executive Officer (CEO).
Extract B Revenue for LVMH by business division 2022 and 2023
Extract C LVMH's revenue by region as a percentage of its total revenue in 2023
LVMH has 118 production facilities and craft workshops in France and 26 in Italy. It has over 213,000 employees and a retail network of 6,000 stores worldwide.
Extract D LVMH takeover of Tiffany & Co On January 2021, LVMH bought all Tiffany & Co shares for a total of $16.1bn. The purchase of the iconic Tiffany & Co jewellery brand has reinforced LVMH's position in the high-priced segment of the jewellery market and further expanded its presence in the US.
Brand value (\$m) of Tiffany \& Co from 2010 to 2023
Extract E Succession planning at LVMH LVMH's CEO Bernard Arnault, 74, is one of the world's wealthiest people, with a fortune of about $161bn. He has been preparing his five children to take over by having them working in a variety of roles at different business divisions at LVMH. Arnault has been developing a succession plan for the luxury empire he founded.
In February 2024, Arnault nominated his sons Alexandre, 31, and Frédéric, 29, to join the board at LVMH. These board nominations are subject to a vote at the company's Annual General Meeting in April. The appointments demonstrate the family's control of LVMH. Arnault and his family own about 48% of LVMH shares and nearly 64% of voting rights.
In 2022 Arnault raised the age limit for the Chief Executive Officer to 80, extending the time he could remain as CEO.
Extract C LVMH's revenue by region as a percentage of its total revenue in 2023
LVMH has 118 production facilities and craft workshops in France and 26 in Italy. It has over 213,000 employees and a retail network of 6,000 stores worldwide.
31% Rest of Asia Rest of Europe Other markets United States France Japan 25% 17% 12% 8% 7%
LVMH manufactures in France and Italy, which both use the euro as their currency.
Using Extract C, discuss the possible effects on LVMH of changes in the euro
exchange rate.
Sources for use with
Extract E
Half of businesses lose competitive advantage due to skills shortage
In 2022, the World Economic Forum estimated that 150 million new technology jobs would be created globally by 2027 and that 77% of all jobs will require digital skills from workers by 2030. However, businesses currently face a global shortage of digital skills, with only 33% of technology jobs worldwide filled by the necessary skilled workers. In a recent survey of 500 businesses, 59% said that they lacked qualified individuals in digital skills and 54% said that they had lost their competitive advantage because of this.
Extract F
How South Korea is maintaining its competitive advantage
South Korea has changed from a war-torn and poor nation to a global industrial powerhouse in just two generations. The country relied on US aid until the 1960s. It is now investing tens of billions of dollars in the US to build new electric vehicles, next-generation batteries, and semiconductors. South Korea has major challenges too. These include the demographic problem of having the world’s lowest fertility rate and being one of the planet’s fastest-ageing societies. It faces all-around economic competition from China, vulnerable supply chains, and much lower growth rates. If these were not enough, South Koreans also face a neighbouring country with an increasing arsenal of nuclear weapons and a growing Chinese military footprint nearby.
the advantages of inorganic growth for a global business such as Valio.