4.2.1 conditions that prompt trade

push factors

cause the business to leave the market in which they currently operate to look for new income streams in the future

examples of push factors

• competitiveness within a market

• saturation; the potential for growth

pull factors

attract a business to a global market

examples of pull factors

• economies of scale

• risk spreading

difference between a competitive and saturated market

• competitive market has a lot of businesses selling similar items

• saturated market has no more room for growth

theorist used to present arguments on competitiveness

Porter’s

1. generic strategy

• neither low cost or highly differentiated

2. 5 forces

economies of scale

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• Risk-spreading: Spreading risks across a wider range of products or markets.

• Financial: Larger firms can borrow money at lower interest rates.

• Managerial: Employing specialised managers to increase productivity.

• Technical: Using advanced machinery and specialised labour.

• Marketing: Spreading advertising costs over a larger output.

• Purchasing: Bulk-buying materials to secure discounts.

diseconomies of scale

as output grows unit cost also rises

off-shoring

business relocated production to another countryre

reasons for off-shoring

• cost minimisation

• proximity to consumers

outsourcing

a business contracts out production to another business

reasons for outsourcing

• quality control

• match supply to demand

extending the product life cycle

• business can increase life cycle by introducing it to other, mainly less mature markets

• may require adapting the product to suit local tastes

• large promotional budget to raise awareness

• might extent the life for a number of years

• requires local knowledge if it is to be successful