4.2 Global markets

Push factors -

 Conditions that make a business’ current market/location less desirable and may cause it to leave and move elsewhere e.g. a saturated market or rising costs. 

Product life cycle -

 

A theoretical model which describes the stages a product goes through over its life 

Saturated market -

Where the market for a product or service has reached the point where all customer demand is being satisfied. 

Pull factors - 

This is something that makes it attractive for businesses to  trade internationally, e.g. the potential for significant sales growth, or the possibility of making substantial cost savings. 

Economies of scale  - 

Falling unit costs as business output increases.  

Examples of push factors

• A saturated domestic market means that the market for a product or service has reached the point where all demand for a product or service is being satisfied. 

• This means that to grow within the domestic market, businesses must attract customers away from rivals.

• Competition - High intensity of rivalry means it is hard to make good profits. The business environment could have become more competitive, e.g.  because  

  • new entrants have joined the market,  

  • close substitutes have emerged 

  • Rivals have become stronger (e.g. due to a merger) 

  (Think Porter's 5 Forces - a really useful model for analysing the competitive environment).    

• Product Lifecycle - a product may be in the decline phase in its domestic market. To avoid an expensive and risky new product development, a business may decide to enter one or more new markets globally. This may well be in emerging markets where rival/substitute goods may not already be trading.   

Examples of pull factors

Economies of Scale - this when the unit (average) cost of making a product or providing a service falls, as output increases. 

Risk spreading - this means that a business can become less reliant on one market therefore less vulnerable to a change in that market, e.g. a change in the PESTLE environment. Of course, market development is not risk-free, partly due to lack of understanding of the new market, although this can be reduced with effective market research).  

Off-shoring  -

 When a business moves activities abroad, e.g. its call centres to India or coding to Poland. 

Reshoring -

Moving production or service provision back to the business's domestic base.  

Near shoring -

Where a business off-shores business processes or production to a location that is geographically close to its home country, rather than offshoring to a more distant, typically lower-cost location.  

Outsourcing -

When a business contracts out part or all of its production (or another function) to another business, often located in a lower cost country. 

Businesses may choose to reshore for several reasons, including: 

Cost considerations: Rising labour and transportation costs in foreign countries, coupled with increased automation and productivity at home, may make it more cost-effective to produce goods or deliver services domestically. 

Quality control: Companies may reshore to have better control over product quality, as managers can oversee operations more effectively. 

 Supply chain resilience: The COVID-19 pandemic and the Ever Given Suez blockage exposed vulnerabilities in global supply chains, leading some companies to reshore in order to reduce their dependence on foreign suppliers. 

Intellectual property protection: Reshoring can help protect a company's intellectual property, as it may be easier to safeguard trade secrets. 

Customer preferences: Some businesses reshore to align with customer preferences for locally produced or "Made in [Country]" products, as this can be a selling point in marketing and branding efforts. 

Pros and cons of outsourcing

Pros- expert expertise, cost savings, focus on core important areas

Cons- Lack of control, increased power of supplies, ethical concerns

EXCHANGE RATE -

The value of a currency in terms of another e.g. £ : $.   

COST COMPETITIVENESS -

The ability of a business to offer a good or service at the lowest cost possible giving it a competitive advantage.

DIFFERENTIATION -

Being able to offer a product that is distinctively different from competitor products.

• GLOBAL COMPETITIVENESS –

• Measures the ability of a business to succeed against both domestic and foreign competitors in international markets.   

DISPOSABLE INCOME -

The total income an individual has available to spend after paying income taxes and any other statutory payments.

EASE OF DOING BUSINESS  -

How accessible markets are for a business/how easy and quickly it is to set-up and operate. 

POLITICAL STABILITY -

The resilience and honesty of a current government

INFRASTRUCTURE - 

The physical external systems that a country or business require to operate effectively.  This will include transport e.g. roads, railways and airports, communication. 

Factors to consider when increasing globalisation to different countries

costs of production  

o skills and availability of labour force  

o infrastructure  

o location in trade bloc  

o government incentives  

o ease of doing business  

o political stability  

o natural resources  

o likely return on investment 

  

why do affluent countries want to spread their risk into another country<?

• Spreading risk over different countries/regions  

• Entering new markets/trade blocs  

• Acquiring national/international brand names/patents  

• Securing resources/supplies  

• Maintaining/increasing global competitiveness  

Methods of internal economies of scale

Managerial, purchasing, marketing

6 ways to assess a production location

Infrastructure, cost of production, natural resources, location, political stability, ease of doing business

5 ways of assessing a country as a market

competition, political stability, trade bloc/ locations, disposals incomes, exchange rates