3.2.1 Conditions that prompt trade

Question 1

market saturation

Answer 1

Impossible to expand sales further in that market

Question 2

Emerging economies

Answer 2

Large economic growth → increases in manufacturing output and increased standards of living

Question 3

Under utilised capacity

Answer 3

Business could increase output (labour or capital available to do this)

Question 4

saturated markets

Answer 4

Hard to increase sales in domestic market
- Few new customers to target with product and services
- Sales come from existing customers replacing old products or attracting customers away from a rivals product → market saturation

Question 5

communication

Answer 5

Businesses compete vigorously to increase sales at expense of rivals → based on price/non price factors
- Competing businesses will be watching eachother to differentiate and get larger market share
- Value for money and competitve advantage techniques
- Can be an expensive process → constant innovation/intensive marketing to increase market share
- Imported products can compete on price → low foreign labour costs and can give them CA (inferior, elastic)
- International markets contain new customers → expansion and profit possibilities

Question 6

economies of scale

Answer 6

• Increased sales and profits in emerging economies → growth
• Profit motive for large businesses
  International trading increases business size
• Greater chance of achieving economies of scale
• Leads to higher CA → opens up markets with lower incomes if prices fall

Question 7

risk spreading

Answer 7

• Diversified markets reduce risk → stability if there is a problem in one country (international)
• Wider spread risk, better for the firm

Question 8

push

Answer 8

• Saturated domestic market
• Fierce competition in domestic market
• Competition from imports
• The product is in the mature/decline stage of product life cycle

Question 9

pull

Answer 9

• Potential for increased sales and profits
• Economies of scale
• Risk spreading
• Global sourcing
• Increased trade liberalisation
• Expanding trade blocs

Question 10

possibility of offshoring and outsourcing

Answer 10

• Buying inputs from an independent supplier → independent may be more cost efficient → outsourcing
• Offshoring: locating production abroad, due to lower wage rates → cut labour costs for labour intensive firms

Question 11

extending product life cycle –> selling in multiple markets

Answer 11

• Saturated market = maturity in life cycle
• Extension strategy → prolong maturity stage
• International markets and exporting → extension strategy
• Need market research to ensure it succeeds

Question 12

raising capacity utilisation

Answer 12

• Under utilised capacity make better use of resources by expanding into new markets
• Finding new export markets creates more demand for the product
• Output can expand up to capacity limits without increased capital costs
• Existing capital production spread to higher quantity of output
• Applies to all businesses with fixed costs
• Finding overseas market can increase capacity utilisation → reduce average costs, increase competitiveness and profitability