4.2.1 Conditions that prompt trade

Define push factor, give examples

Factors push a business to expand outside of its domestic country, e,g saturated markets or intense competition

What is a saturated market?

A market where demand has peaked, limiting opportunities for growth — businesses expand internationally to find new customers.

How does intense competition act as a push factor?

Businesses may enter new markets to reduce reliance on one competitive market and to diversify revenue streams.

Define pull factors, give examples

Factors that attract a business to operate within markets abroad, e.g. economies of scale or risk spreading

How do economies of scale act as a pull factor?

By producing or sourcing abroad, businesses can access lower costs and expand production, boosting efficiency.

How does risk spreading act as a pull factor?

By selling in multiple countries, businesses reduce reliance on one market and protect against economic or political risks.

Define offshoring

When a company moves part of the production process, or all of it, to another country.

What are the benefits and drawbacks of offshoring?

+ Lower labour costs in other countries, helps keep costs down and increase profits.

+ Access to specialist suppliers and economies of scale, so better quality service or raw materials

- Job losses in the home country

- Risk of poor customer service due to cultural/language barriers

- Increased costs in short term, such as relocation costs, acquiring new premises and training new staff

Define outsourcing

When a business hires an external organisation to complete certain tasks or business functions.

What are the benefits and drawbacks of outsourcing?

+ Access to specialist skills - can complete a task more efficiently

+ Lower costs and higher productivity in other countries

- Damage to brand image as the values of the two businesses may not be in alignment.

- Communication issues can lead to delays or extra costs and disruption.

What is a product life cycle?

The stages a product goes through: Introduction, Growth, Maturity, and Decline.

What is an extension strategy?

A method used to prolong the life of a product — e.g. by selling it in new international markets.

How does international expansion extend the product life cycle?

A product that’s reached maturity or decline in one country may still be in the introduction/growth stage elsewhere, creating new revenue opportunities.