Conditions that prompt trade

• Push factors

  factors that push a business to expand outside of their domestic country
• Push factors - saturated markets

  when demand for goods and services has reached peak and it becomes challenging for businesses to grow and expand within local market

  businesses may consider engaging in international trade as a way to access new markets, diversify customer base

  and sustain their growth and profitability
• Push factors - intense competition

  businesses need to find ways to differentiate

  businesses may consider engaging in international trade as a way to gain competitive advantage

  new markets can reduce reliance on a single market and diversify their revenue streams reducing volatility to competition
• Push factors - adverse condition

  negative or harmful conditions that could affect their business therefore look at countries abroad to get away from this
• Pull factors

  encourage businesses to operate within markets abroad which present significant growth opportunities
• Pull factors - benefiting from economies of scales

  proportionate saving in cost gained by increased level of production

  usually occur when a business expands its production in new markets abroad

  may also be able to purchase raw materials and labour at lower prices than within their domestic markets
• Pull factors - spreading risk

  by accessing multiple businesses can diversify their customer base and reduce their exposure to risks associated with operating in a single market

  can include economic, political and other types of risks that could impact their operations and profitability
• Examples of pull factors - risk spreading

  if one market fails other one can offset the loss in the failed one

  UK might experience shock that impacts sales of some businesses by moving into different markets can negate such risks
• Offshoring and Outsourcing

  businesses use them to develop their international trade
• Offshoring

  when a company moves part of the production/process or all of it to another country

  reasons include:

  lower labour costs

  access to raw material

  access to skilled labour
• Advantages of offshoring

  lower labour costs may be available in other countries, which help businesses keep costs down and increase profit

  access to specialised suppliers in countries abroad who provide better quality service, raw materials or components

  economies of scale as businesses sell to larger international market
• Disadvantages of offshoring

  public relations and employee relations may suffer due to relocation as domestic workers lose jobs

  increase costs in short term such as relocation costs acquiring new premises and training new staff

  possible poor customer service due to language and cultural differences between domestic and foreign workers
• Outsourcing

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

  reasons include:

  reduced costs

  outsource business might be specialised

  allow business to focus on core competencies and demand

  easier to comply with regulations as other countries often less demanding
• 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
• Disadvantages of outsourcing

  damage to brand image as the values of the two businesses may not be in alignment

  poor communication between the businesses can cause issues which can lead to increased costs and disruption for the business choosing to outsource
• Product life cycle extension

  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
• Stages of the product life cycle

  introduction

  growth

  maturity

  decline
• Extension strategy

  method used by a business to lengthen the life cycle of a product or service e.g business could sell the product in new international markets

  a product could reach maturity in one market but could then be introduced into another market

  this allows the business to generate more revenue