Conditions that prompt trade 4.2.1 Flashcards
What are push factors?
Factors that push a business to expand outside of their domestic country
Saturated market
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. This often prompts businesses to explore opportunities in other global markets, which can help sustain their growth and profitability
Intense competition
High levels of competition can reduce sales and profitability to the point where firms are forced to go abroad so then can reduce reliance on a single market and diversify revenue streams
What are pull factors?
Encourage businesses to operate within markets abroad which present significant growth opportunities
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 and labour at lower prices than within their domestic markets
Spreading risk
By accessing multiple markets, businesses can diversify their customer base and reduce their exposure to risks associated with operating in a single market. This can include economic risks, political risks, and other types of risks that could impact their operations and profitability
What is offshoring?
When a company moves part of the production process, or all of it, to another country
Advantages of offshoring
- lower labour costs - reduce costs and increase profitability
- access to specialised suppliers - better quality
Disadvantages of offshoring
- public relations and employer/employee relations may suffer due 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
What is outsourcing?
When a business hires an external organisation to complete certain tasks or business functions
Advantages of outsourcing
- take advantage of specialist skills
- cost effectiveness as they don’t need to invest in new facilities abroad
- higher labour productivity
Disadvantages of outsourcing
- damage brand image as values may not be in alignment
- poor communication can cause issues and increase costs
What is the product life cycle?
Represents the value of sales from the time a product is introduced into the market until it is no longer sold
Extension strategy
A method used to extend the life cycle of the product. For example, sell the product in new international markets to extend the life of the product.
