Explains conditions that prompt trade (e.g. push factors, extending the product lifecycle by selling in multiple markets, etc.) and the key considerations when considering a country as a market or production location
Theme 4 Topic 4
Global Markets
Conditions That Prompt Trade
Push Factors
Push Factors – adverse factors in the existing market encouraging a firm to seek international opportunities
Examples of Push Factors:
Saturated Markets – sales are limited in the domestic market due to most customers already having
the product
Competition – high competition in the domestic market may force firms to look for opportunities
overseas
Pull Factors
Pull Factors – factors that entice firms into new markets, they are opportunities that can be taken when
moving to overseas markets
Examples of Pull Factors:
Economies of Scale – where larger scale production enables lower unit costs
Risk Spreading – overseas trade reduces dependence on one market so if one market faces economic
difficulties there are others to fall back on
Possibility of Off-Shoring and Outsourcing
Off-Shoring – moving manufacturing or service industries to a location with lower costs
Outsourcing – moving an entire business function or project to a specialist external provider
Disadvantage of Outsourcing – reliance on third parties can leave a firm vulnerable to poor quality or
communication difficulties between the firms
Extending the Product Lifecycle by Selling in Multiple Markets
Selling in overseas markets enables the product lifecycle to be extended by finding new sales opportunities –
this acts as an extension strategy although the firm needs to decide whether to sell a standardised product or
alter the product for local market conditions
Assessment of a Country as a Market
Key considerations when deciding whether an overseas country could be a good market to enter:
Disposable Incomes Political Instability
Ease of Doing Business Exchange Rate
Infrastructure
Assessment of a Location as a Production Location
Key considerations when deciding whether an overseas country could be a good production location:
Cost of production Location in trade bloc
Skills and availability of labour force Political stability
Ease of doing business Natural resources
Infrastructure Likely return on investment
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