4.2.1 - conditions that prompt trade Flashcards
what are push factors?
adverse situations that force businesses to look for opportunities in international markets.
how is market saturation a push factor?
as domestic markets become saturated and growth slows, businesses will look for international
markets with high growth potential.
how is competition a push factor?
domestic competition (or other international firms) can make competing at home unprofitable.
how is shareholder pressure a push factor?
pressure for return on investment can cause businesses to seek new opportunities for growth.
what are pull factors?
opportunities for businesses to take advantage of lower production costs or new growing market places.
how is acquiring brands and intellectual property a pull factor?
foreign businesses may own intangible assets that are difficult to develop or replicate so buying them is a more desirable option.
how are economies of scale a pull factor?
there are significant cost savings to increasing the scale of operations, and risk spreading economies can also be gained from operating in several different international markets.
how are cost savings a pull factor?
in some developing countries, certain costs (e.g. labour, tax) are cheaper than in the UK.
what is off-shoring?
moving manufacturing or service industries to a part of the world with lower production costs.
identify the advantages of off-shoring
- lower wage rates.
- access to raw materials.
- access to a skilled workforce.
what are the potential disadvantages of off-shoring?
- damage to business reputation in home country.
- as economies develop, production costs also rise.
- cultural and language barriers.
what is outsourcing?
moving a business function to a specialist external
provider in another country.
what are the advantages of outsourcing?
- allows the business to upgrade.
- takes advantage of a country’s comparative advantage.
- access to specialist facilities and knowledge without having to directly invest.
identify the potential disadvantages of outsourcing
- reliance on third parties - limited control.
- cultural and language barriers.
- businesses are less flexible if tied into a contract with a specialist provider.
how can moving to international markets extend the product life cycle?
it gives the opportunity to extend the life cycle for any products that have reached maturity or have entered the decline phase, which may involve exporting the product to overseas markets or using processes of innovation to ensure the product meets international standards (cultural, social, demand etc).
