4.2 trade

Push factors

Factors that push a business to expand outside of their domestic country

Saturated markets

Markets where the demand for goods and services has reached a peak and it no longer becomes challenging for businesses to grow and expand within the local markets

Intense competition

In a competitive market, businesses need to find ways to differentiate themselves and gain a competitive advantage e.g. exporting goods and services to new markets

Pull factors

Factors which encourage businesses to operate within markets abroad which present significant opportunities e.g. economies of scale and risk spreading

Off shoring

A company moves part of the production process or all of it to another country

Off shoring benefits

• lower labour costs may be available

• Access to specialised supplies

• Economies of scale

Off shoring drawbacks

• public relations and employer/employee relationships may suffer due to relocation as domestic workers lose jobs

• Increased short term costs e.g. relocation, acquiring new premises and training

• Poor customer service due to language and cultural differences between the domestic consumers and foreign workers

Outsourcing

Business hires an external organisation to complete certain tasks or business functions

Outsourcing benefits

• can take advantage of specialist parts that another business has or that can complete a task more efficiently

• Cost effectiveness- avoid having to invest in new facilities abroad

• Can benefit from higher labour productivity in other countries

Outsourcing drawbacks

• Damage to brand image as the values of the two businesses may not be aligned

• Poor communication between the business can cause issues = increased costs and disruptions for businesses choosing to outsource

Product lifecycle

Represents the value of sales from the time a product is introduced to the market until it is no longer sold

Product lifecycle stages

• Development

• Introduction

• Growth

• Maturity

• Decline

PESTLE

Political

Economic

Social

Technological

Legal

Environmental

Assessing new markets abroad

• ease of doing business

• Levels of growth and disposable income

• Exchange rates

• Political stability

• Infrastructure

Infrastructure

• factors such as roads, transportation, communication through internet and mobile coverage

• Good infrastructure improves the production process and delivery of goods and services, reducing the costs and increasing sales

Ease of doing business

• rules and regulations involved in establishing a business in a particular market may be relatively simple or extraordinarily hard

  • Accessing credit, registering properties and enforcing contracts

  • If a business has challenges setting up a business, this may lead to delays in operations and the business generating sales

• the world economic forum WEF has established a ranking of countries by the ease of doing business

Levels of growth and disposable income

• income that individuals have left after paying taxes

• Selling products in a country with higher disposable income is likely to increase sales and vice versa

• Businesses should look at trends in income levels overtime to see if there if potential sales growth in the future

Exchange rates

• price of one currency in terms of another

• Can be subject to extreme fluctuations due to external factors

• Businesses moving to countries with stronger currencies can import raw materials and components for production at a lower price

Political stability

• businesses may be at risk of not gaining a return on their investment in a country with political instability

  • Countries with political instability = subject to corruption, lack of law enforcement and higher crime levels

  • More disruption to trading

• stable politics and economy is seen as less risky

Exchange rate

The rate of one currency in terms of another

SPICED

Stronger Pound Imports Cheaper Exports Dearer

Appreciation advantages

Imported raw materials and components from abroad = cheaper- reduces biz costs.