课 18, 主题 1

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4-2-1-conditions-that-prompt-trade

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Push factors

Push factors are factors that push a business to expand outside of its own country
When faced with saturated markets 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
There may be adverse conditions within a domestic market, which may cause a business to look at opportunities in countries abroad
- E.g. due to the UK leaving the European Union, some businesses have decided to move their operations outside the country
  - Sony has moved its headquarters from the UK to the Netherlands
  - Honda closed a production plant in Wales in 2021
  - HSBC chose to move its London base to France

Saturated markets occur when the demand for goods and services has reached a peak, so it becomes challenging for businesses to grow and expand within the local market
This often prompts businesses to explore opportunities in global markets, which can help sustain their growth and profitability

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, thereby reducing their exposure to market volatility and competition

Pull factors encourage businesses to operate within markets abroad that present significant growth opportunities
Two pull factors that can prompt trade are economies of scale and risk spreading

Economies of scale usually occur when a business expands its production into new markets abroad
Businesses may also be able to purchase raw materials and labour at lower prices than within their domestic markets
- E.g. Ikea expanded into China as there was opportunity for growth with families demanding more furniture due to the removal of the one-child policy
- Producing furniture in China helped to reduce transportation and distribution costs

By accessing multiple markets, businesses can diversify their customer base and reduce their exposure to risks associated with operating in a single market
This can include economic, political and other types of risks that could impact their operations and profitability
- E.g. Aston Martin produces motor cars in the UK, but it exports them to multiple markets to reduce exposure to risks associated with operating in a single market
  - There may be a recession in the UK but not in the USA

Businesses use offshoring and outsourcing to develop their international trade

Offshoring is when a company moves part of the production process, or all of it, to another country
Reasons for offshoring include:
- Lower labour costs
- Access to raw materials
- Access to skilled labour

Advantages of offshoring	Disadvantages of offshoring
Lower labour costs may be available in other countries, which helps businesses keep costs down and increase profitability	Public relations and employer/employee relations may suffer due to relocation as domestic workers lose jobs
Access to specialised suppliers in countries abroad that provide better quality service, raw materials or components	Increased costs in the short term, such as relocation costs, acquiring new premises and training new staff
Economies of scale as businesses sell to a larger international market	Possibly poor customer service due to language and cultural differences between the domestic consumers and foreign workers E.g. in 2011, Santander moved its call centre back to the UK from India after customers expressed dissatisfaction with the quality of service they were receiving

Outsourcing occurs when a business hires an external organisation to complete certain tasks or business functions
- E.g. Apple outsources the production of the iPhone to Foxconn in China
The key reasons for a business choosing to outsource include:
- Reduced costs
- Allows businesses to focus on core competencies
- Easier to comply with rules and regulations in other countries, as they are often less demanding for a local business
The main difference between offshoring and outsourcing is that offshoring is still carried out under the same business, whereas outsourcing is done by a completely different business

Advantages of outsourcing	Disadvantages 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	Damage to brand image, as the values of the two businesses may not be in alignment E.g. Foxconn workers producing Apple products were committing suicide due to the low pay and poor working conditions Poor communication between the businesses can cause issues, which can lead to increased costs and disruption for the business choosing to outsource

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

The stages of the product life cycle include introduction, growth, maturity and decline
An extension strategy is a method used by a business to lengthen the life cycle of a product or service
- E.g. a business could sell its 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