2.1 conditions that prompt trade

• economies of scale

  A proportionate saving in costs gained by an increased level of production
• Push factors

  something that is forcing the business to look at trading in another country

  being pushed into trading internationally
• the 2 Push factors are :

  1. Saturated markets with any low growth opportunities
  2. high levels of domestic competition
• Domestic markets

  The home markets depends on where the business is situated
• Saturated markets (1)

  a saturated domestic market means that a business or group of businesses has sold a product to just about everyone who will buy one
• saturated markets (2)

  R&D taking place business needs to continue to trade and grow so will look for nw market for products abroad
• competition in domestic market

  high level of competition in domestic market means that a business will look abroad to where there may be less competition and lucrative markets opportunities
• competition in domestic market example

  food and drink market in UK is very competitive but there is a very buoyant market for unusual food exported to other countries
• Pull factors

  means something that is forcing the business to loo at trading in another country
• The two pull factors are:

  • Economies of scale
  • risk spreading
• Opportunities overseas markets

  • increase sales = increased profits
  • demand increases for product in other countries
  • grow faster than those limited to domestic markets
• gain economies of scale 


  drive production to level delivers economies of scale, if P/S is standard across export markets with little or no adaption

  achieving greater economies of scale = more const-competitive
• Types of economies of scale (5) - Marketing economies of scale

  business can spread cost of one advertising campaign across several countries or products
• ypes of economies of scale (5) - bulk buying


  reduce cost of raw materials by getting discounts from supplies for buying goods in bulk quantities
• types of economies of scale (5)- Technical economies scale 


  Business groups spread the high costs of buying large equipment over the production of more goods
• types of economies of scale (5) - Financial economies of scale


  Business groups will be able to negotiate better lending rates with banks, reduce fixed costs
• types of economies of scale (5) -risk bearing

  large companies becomes thee more likely it is to survive a downturn in the economy
• offshoring


  when a business relocates some of its business process to another country. e.g manufacturing, accounting
• benefits of offshoring

  lower minimum wage levels in other countries

  take advantage off trading blocs or trade deals

  advantage of tax and other benefits offered by host nation

  access to a larger talent pool
• outsourcing

  Where a business function, such as payroll, is contracted out to third-party businesses. May or may not be in another country
• Benefits of outsourcing

  flexibility, lower costs, get experts in field, allows business to focus on core
• drawbacks of outsourcing

  won't be able to manage them
• Product lifecycle extension

  where a mature or even declining product could be sold into international markets. Rather than withdrawing the product from sale and can continue to make and distribute it
• product life cycle

  1

  A)

  B)

  C)

  D)

  E)

  
• why use extension of product lifecycle

  if declining in the UK can sell abroad to a market where not in decline