Conditions that Prompt Trade (4.2.1) Flashcards
(24 cards)
What are push factors?
Factors that push a business to expand outside of their domestic country
Why would businesses consider expanding out of their domestic country?
If a market becomes saturated 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 Saturated markets?
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
What does this often prompt businesses to do?
Explore opportunities in other global markets which can help sustain their growth and profitability
How can businesses solve having intense competition?
In a competitive market, businesses need to find ways to differentiate themselves and gain a competitive advantage. One way to achieve this is by exploring new markets and expanding their customer base. By exporting goods and services to new markets, businesses can reduce their reliance on a single market and diversify their revenue streams.
What are Pull factors?
Encourage businesses to operate within markets abroad which present significant growth opportunities
What are two pull factors that can prompt trade?
Economies of scale and risk spreading
When do economies of scale occur for a business?
Usually occur when a business expands its production in new markets abroad.
How can having access to multiple markets spread risk for a business?
By accessing multiple markets, businesses can diversify their customer base and reduce their exposure to risks associated with operating in a single market. If one part of business fails still have rest
What do businesses use to develop their international trade?
Offshoring and Outsourcing
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 which helps keep costs down and increase profitability
-Access to specialised suppliers who can provide better quality services, raw materials or components
-Economies of scale as businesses sell to larger international market
What are the disadvantages of Offshoring?
-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
-Could be poor customer service due to language and cultural differences between the domestic consumers and foreign workers
What is Outsourcing?
Business hires an external organisation to complete certain tasks or business functions
What’s a real-life example of outsourcing?
Apple outsources the production of the iPhone to Foxconn in China
What are the key reasons for a business choosing to outsource?
-Reduced costs
-Allows business to focus on core competencies
-Easier to comply with rules and regulations in other countries as they are often less demanding
What are the advantages of Outsourcing?
-Businesses can take advantage of specialist skills another business has
-Cost effectiveness as business 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 values of two businesses may not be in alignment
-Poor communication between businesses can cause issues which can lead to increased costs and disruption for business
What is the main difference between Offshoring and Outsourcing?
Ofshoring is still carried out under the same business, whereas outsourcing is done by a completely different business
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
What does the Product Life Cycle look like? What are the stages?
Product Life Cycle in word
What is an extension strategy?
Method used by a business to lengthen the life cycle of a product or service
What’s an example of an extension strategy?
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.
