Conditions that prompt trade Flashcards
Define push factors.
There are some PUSH factors which may force a business to consider selling abroad;
High levels of domestic competition
Saturated markets with only low growth opportunities
Explain a saturated market as a push factor.
A saturated domestic market means that a business or group of businesses has sold a product to just about everyone who will buy one
While R&D is taking place the business needs to continue to trade and to grow and so will look for new markets for the products abroad
E.g. Chinese smartphone manufacturers; Apple, Samsung, Huawei and LG all now sell to overseas markets
Explain high competition in the home market as a push factor.
High levels of competition in the home markets mean that a business will look abroad to where there may be less competition and lucrative market opportunities to trade
An example is the food and drink market in the UK is very competitive but there is a very buoyant market for unusual food imports to other countries
Define pull factors.
There are some PULL factors which may force a business to consider selling abroad;
Significant opportunities to sell to overseas markets
Ability to spread risk across more markets
Ability to gain economies of scale
Explain opportunities in overseas markets as a pull factor.
Exporting is one way for a business to increase sales and this can contribute to increased profits
An export opportunity may arise when demand increases for your product in other countries
A business selling in overseas markets will be able to grow faster than those limited to domestic markets
Explain ability to spread risk as a pull factor.
A key benefit of exporting to other nations is that it allows the business to spread the risk
By selling in other countries the business is less vulnerable to changes in the domestic economy
Different countries may have different growth rates at any time, selling in multiple countries can give a balanced portfolio of growth
Explain ability to gain EOS as a pull factor.
Exporting is an excellent way to drive production to a level that delivers economies of scale, particularly if the product or service is standard across export markets with little or no need for adaptation.
Achieving greater economies of scale will allow the business to become more cost-competitive
What is offshoring?
Offshoring is when a business relocates some of its production process to another country
This may be to cut costs in terms of labour pay rates
This may also be to take advantage of trade blocs or trade deals
What is outsourcing?
This is where a business function, such as payroll, is contracted out to a third party business.
This third party business may or may not be located abroad
May be marketing research, legal work, accountancy or even human resources functions can be carried out by outsourced companies
The most common example is a call centre in India
Explain production outsourcing.
This means sending some of the production to other companies to complete
Some motor manufacturers now outsource not only parts but complete assemblies – steering, transmissions, engines, interior assemblies.
1/5 of Europe’s cars are sub-assembled in Eastern Europe
Explain payroll outsourcing.
Payroll is the most common task that companies outsource to other businesses who specialise in this task
Services include weekly/monthly/quarterly payroll and will involve the completion of the complex HMRC paperwork
Payroll includes the payment of taxes and NI contributions which can be beyond the skills of many self employed business owners
Explain purchasing outsourcing.
Purchasing and maintaining information systems
Hiring and evaluating IT staff and training users can be very costly and time consuming for SMEs
By outsourcing the IT function the business can obtain the latest technology and suitably skilled personnel
Explain delivery outsourcing.
Larger businesses might prefer to contract a major delivery firm rather than maintain their own fleet.
Either way, the business can hire the expertise to keep delivery problems and decisions off their desk
You can probably name at least 3 delivery companies
