Seneca
Sign up

Conditions that Prompt Trade

Business: BTEC Level 3 National Extended Diploma, topic 4.2.4

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.

Push factors

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.
Pull factors

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.

Offshoring

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.
Outsourcing

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.
Life cycle

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.

Test yourself on Conditions that Prompt Trade

  • Over 90% of Americans have a Facebook or Instagram account. Would this factor be a push or pull reason to expand overseas?

  • What is outsourcing?

Practise this topic for free