4.2.1 - Conditions that prompt trade

Question 1

What are push factors?

Answer 1

Factors that push a business to expand outside of their domestic country

Question 2

What is a saturated market and why is it a push factor?

Answer 2

Saturated markets occur when the demand for goods and services has reached a peak and it becomes challenging for businesses to grow and expand within the local market
- Explore more opportunities that can help sustain growth and profitability

Question 3

Why is competition a push factor?

Answer 3

High competition can reduce sales and profitability
- To gain advantage they could explore new markets
- Exporting goods to new markets allows them to diversify revenue streams

Question 4

What are other push factors?

Answer 4

• Government policies
• Changes in local tastes
• Decrease in demand

Question 5

What is a pull factor?

Answer 5

Something which makes it attractive for a business to trade abroad

Question 6

How is spreading of risk a pull factor?

Answer 6

• Selling in overseas markets reduces the risks of a downturn in one market
• More spread makes business more stable
• Also can diversify customer base

Question 7

How is economies of scale a pull factor?

Answer 7

Global economies of scale reduce unit costs
- Lower raw materials and labour
- Allows better opportunity for growth and therefore survival

Question 8

What is offshoring?

Answer 8

When a company moves part of the production process, or all of it, to another country

Question 9

Reasons for offshoring?

Answer 9

• Access to specialised/skilled labour
• Low labour costs
• Access to raw materials

Question 10

3 advantages of offshoring

Answer 10

1. Low labour costs
2. Specialised suppliers of labour
3. Economies of scale

Question 11

3 disadvantages of offshoring

Answer 11

1. Public relations may suffer (underpaying staff or domestic loss of jobs(
2. Short term increased costs (relocation etc)
3. Potential for poor customer service (language and cultural differences)

Question 12

What are India specialised in?

Answer 12

Communications and IT services

Question 13

What are China specialised in>

Answer 13

Cheap and skilled labour alongside strong infrastructure

Question 14

Non financial benefits for locating abroad?

Answer 14

• New jobs in that country (increases standard or living and income)
• Invest in host country (factories and roads to be built etc alongside taxes)

Question 15

What is outsourcing?

Answer 15

When a business hires an external organisation to complete certain tasks or business functions

Question 16

Reasons for outsourcing?

Answer 16

• Reduced costs
• Can focus on core competencies
• Easier to comply with rules and regulations in other countries

Question 17

3 advantages of outsourcing

Answer 17

1. Take advantage of specialised skills
2. Cost effectiveness (dont have to spend money on facilities abroad)
3. Labour productivity

Question 18

2 disadvantages of outsourcing

Answer 18

1. Damage to bran image (values may not align)
2. Poor communication could occur

Question 19

Why do some businesses sell the same product in more than one country?

Answer 19

• May be in different stages of product life cycle
• Enables extension strategy to maintain growth and sales