4.2.4

Conditions that Prompt Trade

Test yourself

Conditions that Prompt Trade

A push factor is a factor which pushes a business out of its own market into a new market, and a pull factor is a factor which pulls a business into a new market.

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Push factors

  • Saturated markets are markets which are populated by many competitors and gaining new market share in these markets is difficult.
  • Saturated markets can force a business to grow outside of its current market.
  • When Facebook signed up almost everyone in the USA, it moved its focus towards developing nations like India.
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Pull factors

  • Economies of scale refer to the reduction in the unit cost of production.
  • If a business enters a new market, its output increases, and it may benefit from economies of scale.
  • The benefit of economies of scale can pull a business towards a new market.
  • Risk spreading can pull a business towards a new market if it wishes to spread risk by operating in two or more different markets.

Off-Shoring, Outsourcing and a Product's Life Cycle

Off-shoring and outsourcing could be used to help a business expand.

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Offshoring

  • Off-shoring refers to a business moving part of its operations overseas.
  • Off-shoring has advantages and disadvantages:
    • Off-shoring can reduce a business’ costs. This increases competitiveness or profitability.
    • Off-shoring can lead to quality problems if strict standards are not enforced.
  • For example, Ford used off-shoring to move its customer services division to India to reduce cost.
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Outsourcing

  • Outsourcing refers to a business using the services of a third-party external supplier.
  • Outsourcing has advantages and disadvantages:
    • Outsourcing can lead to increased quality if a third party has greater expertise than the business in a specific element of its operations.
    • Outsourcing can lead to quality problems if strict standards are not enforced.
  • For example, many schools and hospitals outsource their IT network management as they lack the expertise to run these services securely and cost efficiently.
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Life cycle

  • Selling in different markets can extend a product’s life cycle as a product may be declining in one market but be growing in another market.

Jump to other topics

1Exploring Business

2Marketing Campaigns

3Business Finance

4International Business

5Principles of Management

6Business Decision Making

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