4.2.1 Conditions that Prompt Trade Flashcards
What are push factors?
- Factors that push a business to expand outside of their domestic country
- When faced with saturated markets or intense competition, businesses may consider engaging in international trade as a way to access new markets, diversify their customer base, and gain a competitive advantage
What are the two factors involves in the push factors?
- Saturated Markets
- Intense Competition
What are Saturated Markets?
- Saturated markets occur when the demand for goods & services has reached a peak & it becomes challenging for businesses to grow & expand within the local market
- This often prompts businesses to explore opportunities in other global markets, which can help sustain their growth & profitability
What is intense competition?
- In a competitive market, businesses need to find ways to differentiate themselves & gain a competitive advantage
- One way to achieve this is by exploring new markets & expanding their customer base
- By exporting goods & services to new markets, businesses can reduce their reliance on a single market & diversify their revenue streams, thereby reducing their exposure to market volatility &` competition
What is a pull factor?
- Pull factors encourage businesses to operate within market abroad which present significant growth opportunities
- Two pull factors that can prompt trade are economies of scale & risk spreading
How can you benefit from economies of scale?
- Economies of scale, usually occur when a business expands its production in new markets abroad
- Businesses may also be able to purchase raw materials & labour at lower prices then within their comestic markets
What is meant by spreading risk?
- By accessing multiple markets, businesses can diverify their customer base & reduce exposure to risks associated w operating in a single market
- This cna include economic, political & other types of risks that could impact their operations & profitability
What is offshoring?
- When a company moves part of the production process, or all of it, to another country
What are the reasons for offshoring?
- Lower labour costs
- Access raw materials
- Access skilled labour
What are the advantages of offshoring?
- Lower labour costs may be avaliable in other countries, which help businesses keep costs down & increase profitability
- Access to specialised suppliers in countries abroad who provide better quality service, raw materials or components
- Economies of scale as businesses sell to a larger international market
What are the disadvantages of offshoring?
- Public relations and employer/employee relations may sufferdue to relocation as domestic workers lose jobs
- Increased costs in short term, such as relocation costs, acquiring new premises and training new staff
- Possibly poor customer service due to language and cultural differences between the domestic consumers and foreign workers
E.g. In 2011, Santander moved their call centre back to the UK from India after customers expressed dissatisfaction with the quality of service they were receiving
What is outsourcing?
- Outsourcing occurs when a business hires an external organisation to complete certain tasks or business functions
What are the key reasons for a business choosing to outsource?
- Reduced costs
- Access to specialist expertise
- Allows businesses to focus on core competencies
- Easier to comply with rules & regulations in other countries as they are often less demanding
What are the advantages of outsourcing?
- Businesses can take advantage of specialist skills that another business has or that can complete a particular task more efficiently
- Cost effectiveness as businesses avoid having to spend money investing in new facilities abroad
- Businesses can benefit from higher labour productivity in other countries
What are the disadvantages of outsourcing?
- Damage to brand image as the values of the two businesses may not be in alignment
E.g. Foxconn workers producing Apple products were committing suicide due to the low pay and poor working conditions
- Poor communication between the businesses can cause issues, which can lead to increased costs & disruption for the business choosing to outsource
What is the product lifecycle?
- Represents the value of sales from the time a product is introduced into the market until it is no longer sold
- Four stages of product life cycle include: Introduction, growth, maturity & decline
What is an extension strategy?
- A method used by a business to lengthen the life cycle of a product or service
e.g. a business could sell the product in new international markers
- A product could reach maturity in one market but could then be introduced into another market
- This allows the business to generate more revenue
