QCAA Business Competitive markets

Answer(s) could include:

• hedging is a method used to reduce losses from exchange rate variations
• hedging entails a business making an investment which makes a return that can be used to offset any losses from another investment
• two forms of hedging are forwards and options
• forwards are when the exporter and the customer sign a contract that sets an exchange rate for the transaction. When a payment is made the agreed exchange rate will apply
• options are when an exchange rate is set which can be used instead of the current exchange rate at the time of payment. If the exchange rate is better for the business, it can be used in the transaction instead of the agreed rate.

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Stability of foreign governments:

• lack of political stability in a country will affect business operations. If a country is unstable there may be riots, protests or corruption and this may hinder or complicate business operations. For example, due to the unrest in Hong Kong it would not be wise to start business operations there, whereas countries such as Canada or Denmark are seen to have stable governments
• businesses should assess how stable a government is, what type of government the country has, how they will be impacted by changes in government and the legal environment within the country.

Relationship of foreign governments with the Australian government:

• the relationships between governments can have a big impact on a business’ success in a global market
• if the Governments share good relationships, and usually hold agreements such as free trade agreements and partnerships, this would be positive for a business
• if the Governments have disagreements or restrictions on trade, this can cause difficulties for business operations. For example, Australia and Indonesia suspended live animal trade due to cruelty to animals, causing friction between the governments.

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• Different countries have different laws in relation to product liability. When a business is operating in a global environment they must research and abide by the laws in relation to product liability
• Laws of some countries hold the business responsible for any loss, damage or injury caused by any product
• Legal liability travels with every product that is exported and sold overseas.
• Consumers can exercise rights by filing product liability suits against exporters, manufacturers and suppliers of products
• Businesses need to be aware of different policies and regulations in different countries in which they operate in order to manage product liability.

If businesses don’t abide by laws in different countries in relation to product liability they may encounter:

• fines and penalties for breaching laws and regulations
• civil damages
• boycotts and negative social media campaigns
• costly court actions
• product recalls
• loss of market share
• loss of sales
• damage to the business public image, in the event of a product failure.

A liability claim can put severe financial strain on a business.

Answers could include:

Financial gain:

• innovation could allow Fizzology to charge premium prices to their unique, new drinks like the business' kombucha and fizzy flavoured teas. This will allow Fizzology to increase profit margins
• Fizzology could enjoy higher revenue growth if the business offered low-sugar and organic drinks. These drinks could attract health-conscious consumers and increase the business' overall sales revenue
• if Fizzology uses innovative manufacturing technologies (such as energy-efficient machinery), this could reduce costs and improve the speed of production. This would allow the business to streamline its production process and reduce operational costs, allowing higher profits to be earned.

Expansion of global market presence:

• innovation allows Fizzology to differentiate itself, creating a competitive advantage in the Australian and global market by offering unique, healthier drinks and eco-friendly packaging that meet current consumer trends and tastes. Fizzology can do this by offering their kombucha range, fizzy flavoured tea drinks and reducing sugar in their popular Fizzology flavoured drinks
• with many new products tailored to global consumer trends and tastes, Fizzology could expand its reach. Fizzology could also appeal to international customers across the globe more effectively
• brand image plus loyal clients may come from Fizzology striving to be ecologically mindful in processes and packaging. By launching items that reflect wants from consumers for health plus sustainability, Fizzology may get global praise for its sustainability, quality and uniqueness.

Increased market share:

• innovation can attract new customers, build brand loyalty and help the business compete against established global brands. Introducing low-sugar, organic drinks caters to health-conscious consumers, providing a distinct market edge with the potential to increase profit
• innovation can help Fizzology tap into new markets as well as a new customer base that prioritises sustainability, health and special product offerings. For example, launching certain kombucha drinks can attract younger, more eco-conscious consumers valuing ecological responsibility.

Answer(s) could include:

Step 1: Create urgency/create a sense of urgency – create a sense of urgency by convincing team members of the need to act immediately by demonstrating the potential risks. There needs to be a compelling case for change, so people understand why change is necessary. Fizzology needs to:

• communicate the risks of not adapting its product range. If it does not adapt its product to be healthier or show environmental consciousness in its packaging and processes, it may lose market share and fall behind competitors
• highlight the growing consumer demand for healthier and sustainable products, motivating resistant team members to recognise the necessity for change
• collate research and data on consumer trends and behaviour and link it to sales results directly impacting the success of Fizzology
• build support for the new initiatives so that the sense of urgency is shared – so much so that the team members would no longer be happy with the current state of the business.

Step 4: Communicate the vision/enlist a volunteer army – share the vision throughout the business, clearly and consistently by using multiple channels to build understanding and support for the vision. Fizzology needs to:

• win the hearts and minds of its team members in order to get everyone on board with the new vision; a business that creates drinks that are healthy and upholds environmental and sustainable processes and practices
• communicate the vision and strategy clearly to all levels of senior and middle management through staff meetings and email updates
• provide training and information sessions on the new products, so that team members have a shared understanding about the benefits of the new product range
• use clear and consistent messaging to address concerns about job security and emphasise how the innovation will benefit employees and Fizzology's future success as a business.

Answer(s) could include:

Timing:

• timing for product development is important in order to align with consumer trends and tastes. If Fizzology can launch new products that meet current market tastes for more healthy and eco-friendly beverages, it might catch consumer interest and build brand loyalty with speed. However, if Fizzology launches products too early or late, it risks missing chances. That leads to poor sales and missed opportunity
• if Fizzology does not adapt to the current trends and the tastes it may risk other competitors establishing themselves with similar products. However, rushing such process could lead to poorly developed products that fail to meet consumer expectations as well as tastes
• launching products ahead of competitors can give the advantage of being into the market first, allowing Fizzology to establish brand leadership into niche segments such as kombucha and fizzy tea drinks. However, if it delays entry to the market, established competitors might already have caught an important share of the market, making it difficult for it to compete
• timing can be impacted by government regulations and industry standards. Investing in research and development at such a time can position Fizzology ahead of compliance requirements as well as improve their sustainability credentials.

Costs:

• innovation requires substantial upfront investment, including hiring experts, acquiring technology and conducting trials
• high costs could then strain Fizzology's financial resources plus impact on profitability in the short term
• the total costs of innovation can be huge; businesses need to invest in research, prototype development, testing, and also the actual creation of new production processes. In the event Fizzology does not allocate enough budget or needs to then cut the research and the development spending due to financial constraints, the quality of innovation could possibly suffer, resulting in underdeveloped products that may fail among consumers
• innovation investments take time to gain returns financially. Fizzology may need to stop if costs are too high across a longer time frame, leading to lost opportunities. It can also damage Fizzology's reputation
• introducing newer products will usually require investment in new machinery, training for staff, as well as sourcing sustainable materials for these products
• financial forecasting and cost analysis are key to ensure the innovation and the production remains profitable for the business. If Fizzology can effectively increase production and purchase resources in bulk, the business' overall cost per unit decreases, contributing to higher profit margins.

Answers could include:

Threat of new entrants:

• this force looks at how easily new entrants can go into the market and disrupt existing businesses
• high barriers to entry, including high capital needs or strict rules, can reduce the threat, while minimal barriers can add to threats
• new competitors that enter into the market can increase the competition, driving the prices down and reducing the market share. Several barriers such as economies of scale and strong brand loyalty can help Fizzology overcome that threat
• existing big brands may deter other new entrants to the market
• new entrants that offer similar ecologically friendly and health-conscious products could now limit Fizzology's ability for establishing itself on a global scale
• Fizzology could focus on markets that have high entry barriers. Such markets have strict regulations and also important start-up costs; their new kombucha and fizzy tea products can give Fizzology a competitive edge over new entrants that are less resourceful.

Bargaining power of buyers:

• this force is to do with the influence in which customers hold over any business
• it can also relate to the number of buyers, switching costs, purchasing size and price sensitivity
• buyers gain power when they have lots of options or when switching costs are minimal, allowing buyers to demand reduced prices or superior-quality products
• consumers and retailers have increased bargaining power due to access to multiple alternatives, especially in the soft drink industry. Buyers may demand lower prices or higher quality, forcing Fizzology to continually innovate and maintain competitive pricing
• to reduce buyer power, Fizzology should emphasise the uniqueness of its kombucha and fizzy tea flavoured drinks and promote its environmental and sustainable processes through its marketing campaigns. This will improve its chance of successful expansion.

Rivalry among competitors:

• this force examines the amount and strength of competition within the industry
• high rivalry results from factors like numerous competitors, industry growth or similarity of products offered in the market
• established global brands with significant resources can intensify competition through competitive pricing, extensive marketing and product innovation. This would be prevalent in the soft drink industry with high profile brands
• Fizzology may need to allocate substantial resources to marketing and research and development to maintain relevance
• Fizzology should focus on countries where the market for sustainable and low-sugar drinks is underserved and differentiate its brand by continuously innovating and responding quickly to changing consumer trends and tastes if they are to expand successfully.

Recommendation:

• while the global market presents challenges, such as big soft drink brands being highly competitive, the rising demand for health-conscious and environmentally-sustainable products aligns with Fizzology's new focus
• expansion is feasible if the company targets countries where its unique kombucha and fizzy tea flavoured drinks can differentiate it from its competitors
• it could be argued that with high profile brands with huge resources it may not be feasible to expand globally and that Fizzology should focus on being successful in the Australian market.

Answers could include:

• when Australian businesses choose to use Australian resources and labour, businesses contribute towards local job creation, supporting the Australian economy
• for example, Australian farmers and manufacturers benefit from businesses demanding locally sources materials
• Australian made products are associated with high quality, safe and ethical standards, thus businesses can leverage the 'Australian Made' logo which appeals to consumers who prefer to buy and support domestic industries
• home grown production and manufacturing reduce reliance on international suppliers which in turn reduces risks from global disruptions such as pandemics, political conflicts and shipping delays. This ensures more efficient production
• home-grown products reduce transport distances supporting environmentally sustainable practices
• Australian businesses can often charge a premium price for locally made products as customers a willing to pay a higher price for Australian craftsmanship
• Australian businesses creating home grown products can sometimes access government incentives such as grants and tax benefits and receive strong community support
• local production can allow businesses to maintain a better oversight of the manufacturing processes ensuring higher quality products, as well as maintaining better treatment of staff.

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A business may consider the following points when making decisions about using offshore labour:

• ethical businesses will ensure there are fair labour practices, ensuring offshore workers receive fair wages and work under safe conditions, avoiding exploitation
• businesses, in their decision making, should choose suppliers or factories adhering to international labour standards to avoid negative publicity
• if business do not consider the role of ethics in their global business decisions, they risk reputational damage. Poor labour practices, such as employing underage workers or unsafe conditions, can lead to consumer boycotts and legal consequences thus making ethical decisions can reduce reputational and financial risks.

Answers could include:

Grant: Export Market Development Grant (EMDG) provided by Austrade

• gives qualifying businesses funding for costs such as market surveys, advertising campaigns, and for attending international trade fairs
• assists small to medium-sized businesses to overcome financial barriers toward international market entry
• aids businesses via its eligible promotional expenses, helping them to expand their market presence globally
• provides financial support in order to develop sustainable export strategies.

Taxation: Research and Development Tax Incentive (R&DTI)

• offers a tax offset for companies conducting eligible R&D activities
• encourages investment in R&D to help a business to grow and innovate, which generates benefits for the Australian economy
• depending on the business' annual turnover, the R&DTI provides either a refundable or non-refundable tax offset.

Customs duty:

• can be claimed on excise equivalent goods (EEGs)
• businesses can claim a refund of some or all the customs duty that they have paid on EEGs in some situations. For instance, if they can prove that EEGs were damaged while they were in customs before delivery into the Australian market
• businesses are not able to claim a refund or drawback on fuel if they are eligible for a fuel tax credit.

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Rationale:

• a joint venture involves two or more businesses pooling resources with the aim of achieving a common goal, while still focusing on their core business. This type of structure is often used to access new markets and to share expertise.

Benefits:

• businesses could share financial risks and resources, reducing the burden on each party
• gaining access of knowledge to local markets, which helps to navigate through cultural and regulatory difficulties
• each partner of a joint venture brings specific skills, assets and expertise to the venture, which should help the business reach goals more efficiently
• collaboration promotes innovation through a combination of the creative and technical capabilities of multiple parties
• combining resources allows for bulk purchasing, shared production facilities, as well as reduced costs. This allows joint ventures to achieve higher economies of scale
• local partners of a joint venture can help navigate complex legal and regulatory environments, ensuring compliance and potentially avoiding delays through penalties.

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Rationale:

• an acquisition occurs when one business takes over another to expand its market share or acquire valuable assets. This strategy allows businesses to grow quickly and establish a presence in new or competitive markets.

Benefits:

• the ability to quickly enter new markets through an already established brand
• the potential for cost savings through economies of scale, as operations can be streamlined which could result in a potential increase in profit
• an acquisition can enable a business to enter new industries or expand its product/service offerings, reducing dependence on a single market
• acquisition of well-known brands can enhance the company's overall reputation and market appeal which could result in increased sales
• by eliminating a competitor or acquiring a complementary business, the company can strengthen its competitive position in the industry
• acquisitions allow businesses to grow much faster by leveraging the established infrastructure, customer base and operational processes of the acquired company
• acquiring a company often includes its experienced workforce, saving time and resources on recruiting and training.

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Product features:

• global brands could adapt product features to meet local consumer needs and cultural preferences
• adapting features ensures products stay competitive and relevant
• products may need to be adapted to local considerations such as environmental or social factors
• local laws, as well as regulations, may mandate changes to product features
• consumers within most markets demand eco-friendly products, forcing most brands to adapt.

Positioning:

• brands might adapt their positioning to align with cultural values
• adapting their position ensures the brand connects with target audiences effectively
• adapting the location can prove vital to feature some affordability or such premium quality under market expectations together with consumer perceptions
• marketing messages can be adapted so they align with linguistic and cultural subtleties, language and communication styles
• businesses can choose to shift positioning to address social issues relevant in certain markets.

Answer(s) could include:

• A patent can give Smoothex exclusive rights to manufacture and sell any device, substance, method or process that is new, inventive and useful. When Smoothex expands globally it can apply for a patent in countries individually. This might be a good option if it only sells in a few countries.
• Alternatively, Smoothex can register a patent in multiple countries under the Patent Cooperation Treaty (PCT).
• The PCT is administered by the World Intellectual Property Organisation (WIPO), of which there are 148 participating countries. If the WIPO approves the patent, the intellectual property (IP) is protected in the countries that are members of the treaty. A patent is maintained if annual fees are paid. Patents must also be updated if there are any changes to the device, substance, method or process. In addition, Smoothex would have to file individual patent applications in the countries that are not members of the PCT.
• If Smoothex does not register for a patent, it is at risk of others stealing or using its idea, creating a loss of income and competitive advantage.

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Corporate social responsibility:
Corporate social responsibility requires Smoothex to achieve its business goals in the context of the broader system in which it operates, thus giving due consideration to the community, society, triple bottom line and environment of a range of stakeholders. For example, Smoothex could support local charities (through donations/corporate sponsorship) in Indonesia and Malaysia. This could build positive relationships with the local communities and also help develop a positive business image in these countries.

Environmental sustainability:
Environmental sustainability requires Smoothex to adopt environmentally responsible operations such as use of dyes, recyclable packaging, waste of materials and recycling of supplies where possible. Smoothex could apply these to its operations to develop a positive public image and engender staff loyalty due to the respect demonstrated for their local country and its environment.

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Levels of education:

• This can affect each country's economic environment. Levels of education differ depending on whether the country is more developed or industrialised, less developed, or a newly industrialising or emerging economy.
• Smoothex will need to consider the level of education in the countries to which it intends to export.
• if there is a skills shortage in a country, Smoothex will need to base employees overseas and use financial packages to attract staff. There may be issues in using technology, inability to fill positions or an understanding of how to store or sell Smoothex skincare and cosmetics.

Customs:

• When doing business in another country, Smoothex will need to consider cultural differences that may be presented.
• Cultural differences could include basic customs, mannerisms and gestures. For example, if a salesperson approaches a meeting with knowledge of a custom's cultural background, then his/her words, body language and actions can all be adapted to better suit those of the customers.
• Understanding cultural differences and adapting to these differences will allow Smoothex to be better liked by customers in Indonesia and Malaysia.

Holidays and celebrations:

• Smoothex can use this to provide content to put on their social media pages for marketing purposes, such as Christmas holiday sales or using a celebration as a background to sell products or services for Chinese New Year or Halloween.
• Indonesia and Malaysia have a multi-cultural background and people celebrate a wide variety of holidays.
• Smoothex will need to be aware of the holidays and celebrations in the countries in which it is hoping to do business to ensure its success.

Religious beliefs:

• The main religion of a country can influence the way Smoothex conducts its business.
• Although very few religions influence business activities directly, the impact of religion on human value systems and decision-making is significant. Thus, religion exerts a considerable influence on people's actions and outlook on life, as well as on the products they buy.
• Smoothex will need to be aware of the religious beliefs of Indonesia and Malaysia to ensure that it does not offend its customers.

Business etiquette:

• The formality of address is an important consideration when dealing with colleagues and business partners from different countries.
• Consider if they prefer titles and surnames or being on a first name basis.
• While it can vary across organisations, Asian countries such as Indonesia and Malaysia tend to use formal 'Mr/Ms Surname', while Australians and Americans tend to use first names.
• Smoothex will need to be aware of business etiquette in the countries in which they choose to operate.

Communication protocols:

• It will be important for Smoothex to understand the importance of subtle non-verbal communication between cultures as this can be equally crucial in international business.
• What might be commonplace in one culture – be it a firm handshake, making direct eye contact, or kiss on the cheek – could be unusual or even offensive to a foreign colleague or client.
• Where possible, Smoothex will need to research in advance the professional protocols required with individuals from the Indonesian and Malaysian cultures.
• Staff will need to be perceptive to body language, and when in doubt, to ask. While navigating cross-cultural communication can be a challenge, approaching cultural differences with sensitivity, openness, and curiosity can help to put everyone at ease.

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Economic activity:

• Both Indonesia and Malaysia are countries in the Association of South East Asian Nations (ASEAN) thus having a positive impact on business operations.
• Australia has free trade agreements in force currently with both Indonesia and Malaysia, which promotes economic activity between Australia and both of these countries.
• Low inflation in Australia means interest rates are likely to be kept low, which will allow local consumers to continue to purchase products from Smoothex. This will help maintain or increase revenue from Smoothex to support its investments overseas.
• Consumption patterns and income levels will influence pricing and distribution strategies for Smoothex.
• Indonesia and Malaysia have a growing number of women in the workforce who earn enough disposable income to buy cosmetics from Smoothex, thus improving opportunity for successful business operations in these countries.
• Fluctuations in exchange rates between the three countries have been low, thus, providing attractive pricing of products and making them more attractive to potential customers.

Discretionary spending:

• As the economies of countries develop there are people earning acceptable wages in stable employment. Therefore, consumers may have more discretionary income.
• The stimulus material states there is 'growing number of females who are becoming a part of the workforce in those countries'. So 'there is likely to be a high demand for Smoothex skin care and make-up products'. This is due to the increased discretionary income.
• An increased discretionary income in Indonesia and Malaysia could impact Smoothex in a positive way, as it could lead to increased sales.
• If the discretionary income is reduced, then customers are less likely to buy products from Rani and they are more likely to spend their income on essentials such as food rent, clothing or education. The current global economy could cause customers in Malaysia and Indonesia to have reduced discretionary income. This would impact Smoothex in a negative way.