4.2 Flashcards
What are push factors?
Factors which may force a business to consider selling abroad.
A business looking to grow may be unable to do this in their domestic market which then pushes them into trading internationally.
Examples of push factors?
- high levels of domestic competition
- saturated markets with only low growth opportunities
- attempting to extend the product lifecycle
What is involved in the push factor of high levels of domestic competition?
- Where all of the brands are able to compete in a market, the business are forced to differentiate their products or move to a market where the competition is less fierce.
- Competitors could be selling products at a lower price or a higher quality, which may make selling the original product difficult or unprofitable.
- A business may be forced to look at markets abroad which may involve changing the product to meet new needs e.g. changing the design, colour, slogan etc
What is involved in the push factor of saturated markets with low growth opportunities?
A saturated market is one where most of the consumers who would buy a product already have it or there is low growth opportunity.
E.g. cycle manufacturer may have limited opportunities to sell in countries where cycling is very popular, however it may be able to find a new market in a country where the sport is just taking off
What is involved of the push factor of extending the product life cycle?
- A business may find that it’s products have reached the maturity stage of the product life cycle and is beginning to enter the decline phase.
- In order to extend it’s life cycle, the business may look at moving into newer international markets in order to boost its sales and avoid decline.
- This benefits a business in terms of it requires lower investment and less risk than attempting to design a new product to launch in it’s domestic market.
What is offshoring?
Moving manufacturing or service industries to a part of the world with lower production costs.
Benefits of offshoring?
- lower wage rates
- access to raw materials
- access to a skilled workforce
Drawbacks to offshoring?
- damage to businesses reputation
in home country - as economics develop, production costs also rise
- cultural and language barriers
What is outsourcing?
Moving a business function to a specialist eternal provider in another country.
Benefits of outsourcing?
- allows business to upgrade
- takes advantage of a country’s comparative advantage
- access to specialist facilities and knowledge without having to directly invest
Drawbacks of outsourcing?
- reliance on third parties meaning limited control
- cultural and language barriers
- business less flexible if tied to a contract with a specialist provider
