4.2.1 Conditions That Prompt Trade Flashcards
What push factors may force a business to consider selling abroad?
-High levels of domestic competition.
-Saturated markets with only low growth opportunities.
What is a saturated market?
A business or group of businesses has sold a product to just about everyone who will buy one.
Why is a saturated market a push factor?
While R&D is taking place the business needs to continue to trade and to grow and so will look for new markets for the products abroad.
What is ‘high competition in a home market’?
Where a business will look abroad to where there may be less competition and lucrative market opportunities to trade.
What are the 3 pull factors which may force a business to consider selling abroad?
1.) Significant opportunities to sell to overseas markets.
2.) Ability to spread risk across more markets.
3.) Ability to gain economies of scale.
Why would a business want to sell in an overseas market?
A business selling in overseas markets will be able to grow faster than those limited to domestic markets.
Why would ‘ability to spread risk’ force a business to sell abroad?
-By selling in other countries the business becomes less vulnerable to changes in the domestic economy.
-Selling in multiple countries can give a balanced portfolio.
Why may ability to gain economies of scale force a business to consider selling abroad?
-Exporting is an excellent way to drive production to a level that delivers economies of scale.
-Achieving greater economies of scale will allow the business to become more cost-competitive.
What is offshoring?
When a business relocates some of it’s production process to another country.
What are the two reasons for offshoring?
1.) To cut costs in terms of labour pay rates.
2.) To take advantage of trade blocs or trade deals.
What is outsourcing?
This is where a business function, such as payroll, is contracted out to a third party business.
What are some areas that could be outsourced?
Production, pay roll, purchasing and delivery.
How is the product life-cycle benefited from overseas trade?
A product that may be decline in one country could be brought into a new international market as a new product.
E.g. Spam US - UK and Disney comics that are popular in the Netherlands.
Outsourcing - production
-Sending some of the production to other companies to complete.
Outsourcing - delivery
-Large businesses might prefer to contract a major delivery firm.
