3.2.1 conditions that prompt trade Flashcards
What are push factors?
Factors which push firms out of a domestic market.
What are some examples of push factors? [3]
- Poor trading conditions in a market
- A saturated market
- Excessive competition
Why is a saturated market a push factor?
A crowded market makes it hard to establish a business and remain competitive.
When does a market become saturated?
When it is not possible to expand sales volumes any further.
Why can excessive competition push a firm out of a market?
Each firm will constantly be watching other firms in an attempt to remain competitive.
What are pull factors?
Factors which can pull firms into a new market.
What are some examples of pull factors? [3]
- Lots of potential for business growth in new markets
- Take advantage of economies of scale
- Risk spreading
Why is potential for business growth in new markets a pull factor?
They gain the potential to earn higher profits as a result.
What is risk spreading?
When a firm diversifies into another market, so if one market loses sales, the firm has another to fall back on. This makes business safer and more stable.
What is offshoring?
Having some of a firm’s processes or services abroad.
Why might some firms offshore? [3]
- To take advantage of lower labour costs
- Can enter a new market and use resources which may not be available on the domestic market
- Overcome regulations in the domestic market which could be limiting their business
What is outsourcing?
A business hires a third party to run the service of produce the products.
Why can expanding into a new market extend product life cycle?
Because a new market can increase profitability of the firm and provide the potential for increased sales. A good which is in the declining stage of domestic market might be new for an overseas market.
