4.2.1 - Conditions that prompt trade

Question 1

What are push factors

Answer 1

• There are some PUSH factors which may force a business to consider selling abroad;
• High levels of domestic competition
• Saturated markets with only low growth opportunities

Question 2

How is saturated products a push factor

Answer 2

• A saturated domestic market means that a business or group of businesses has sold a product to just about everyone who will buy one
• While R&D is taking place the business needs to continue to trade and to grow and so will look for new markets for the products abroad

Question 3

How is high competition in home market a push factor

Answer 3

• High levels of competition in the home markets mean that a business will look abroad to where there may be less competition and lucrative market opportunities to trade
• An example is the food and drink market in the UK is very competitive but there is a very buoyant market for unusual food imports to other countries

Question 4

What are pull factors

Answer 4

• There are some PULL factors which may force a business to consider selling abroad;
  1. Significant opportunities to sell to overseas markets
  2. Ability to spread risk across more markets
  3. Ability to gain economies of scale

Question 5

How are opportunities in overseas markets a pull factor

Answer 5

• Exporting is one way for a business to increase sales and this can contribute to increased profits
• An export opportunity may arise when demand increases for your product in other countries
• A business selling in overseas markets will be able to grow faster than those limited to domestic markets

Question 6

How is ability to spread risk a pull factor

Answer 6

• A key benefit of exporting to other nations is that it allows the business to spread the risk
• By selling in other countries the business is less vulnerable to changes in the domestic economy
• Different countries may have different growth rates at any time, selling in multiple countries can give a balanced portfolio of growth

Question 7

how is ability to gain economies of scale a pull factor

Answer 7

• Exporting is an excellent way to drive production to a level that delivers economies of scale, particularly if the product or service is standard across export markets with little or no need for adaptation.
• Achieving greater economies of scale will allow the business to become more cost-competitive

Question 8

What is offshoring

Answer 8

• Offshoring is when a business relocates some of its production process to another country
• This may be to cut costs in terms of labour pay rates
• This may also be to take advantage of trade blocs or trade deals

Question 9

What is outsourcing

Answer 9

• This is where a business function, such as payroll, is contracted out to a third party business.
• This third party business may or may not be located abroad
• May be marketing research, legal work, accountancy or even human resources functions can be carried out by outsourced companies
• The most common example is a call centre in India

Question 10

What is production outsourcing

Answer 10

• This means sending some of the production to other companies to complete
• Some motor manufacturers now outsource not only parts but complete assemblies – steering, transmissions, engines, interior assemblies.

Question 11

What is payroll outsourcing

Answer 11

• Payroll is the most common task that companies outsource to other businesses who specialise in this task
• Services include
  weekly/monthly/quarterly payroll and will involve the completion of the complex HMRC paperwork
• Payroll includes the payment of taxes and NI contributions which can be beyond the skills of many self employed business owners

Question 12

What is purchasing outsourcing

Answer 12

• Purchasing and maintaining information systems
• Hiring and evaluating IT staff and training users can be very costly and time consuming for SMEs
• By outsourcing the IT function the business can obtain the latest technology and suitably skilled personnel

Question 13

What is delivery outsourcing

Answer 13

• Larger businesses might prefer to contract a major delivery firm rather than maintain their own fleet.
• Either way, the business can hire the expertise to keep delivery problems and decisions off their desk

Question 14

What would be the advantages of moving a call centre to india

Answer 14

• India is a hub of talent. It has skilled call centre professionals who can provide businesses with efficient services at fraction of the UK cost.
• Indian call centres utilise the best of technology, software and infrastructure.
• The time zone difference between western countries and India makes it possible for companies to offer customers quality services on a 24x7 basis.
• A vast majority of the Indian population speaks English. They also have workers who can speak other foreign languages like French, German, Spanish.
• India also has a growing pool of technical talent, making it an ideal location to outsource call centre services to.
• India’s highly advanced satellite-based telecommunication network helps in highspeed transfer of voice and data from all over the world.
• The Indian government is very supportive of the IT industry and does all it can to nurture it.

Question 15

What are the disadvantages of moving a call center to India

Answer 15

• One of the biggest disadvantages of outsourcing is the risk of losing sensitive data and the loss of confidentiality.
• Losing management control of business functions mean that businesses may no longer be able to control operations as well as if the were in domestic markets.
• Problems with quality can arise if the outsourcing provider doesn’t have proper processes and/ or is inexperienced in working in an outsourcing relationship.
• Since the outsourcing provider may work with other customers, they might not give 100% time and attention to a single company. This may result in delays and inaccuracies in the work output.
• Hidden costs and legal problems may arise if the outsourcing terms and conditions are not clearly defined.
• Not understanding the culture of the outsourcing provider and the location where the business outsources to may lead to poor communication and lower productivity.

Question 16

What is extension of a product lifestyle

Answer 16

• Extending the product lifecycle by selling in multiple markets
• This means being able to sell a product that might be in decline in the UK into a new
  international market as a new product
• Developing nations often see our “mature” or “declining” products as new and exciting