Conditions that Prompt Trade - PDF File - Summary & Questions

Push factors Definition: Domestic market A domestic market is the home market. If the business is a UK business then the domestic market is the UK. Every other market would be an ‘international’ market. #1 Saturated markets A saturated domestic market means that a business or group of...

Push factors Definition: Domestic market A domestic market is the home market. If the business is a UK business then the domestic market is the UK. Every other market would be an ‘international’ market. #1 Saturated markets 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 Research and Development (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 E.g. Chinese smartphone manufacturers; Huawei, Xiaomi now sell to overseas markets #2 Competition in the domestic market High levels of competition in the domestic market means that a Food and drink export sales soar in Brexit boost - GOV.UK 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 exported to other countries The UK exports £22 billion a year in food and drink, demonstrating a desire for British taste around the world The international export market for food and drink Pull factors Pull factors explained A PULL factor means something that is forcing the business to look at trading in another country. The business is being pushed into trading internationally. The two PULL factors that Edexcel would like you to know about are: 1. Economies of scale 2. Risk spreading Pull factors means opportunities in overseas markets 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 the product in other countries A business selling in overseas markets will be able to grow faster than those limited to domestic markets #1 Ability to gain economies of scale 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 Types of economies of scale Marketing economies of scale; A business can spread the cost of one advertising campaign across several countries or products Bulk buying; A business can reduce the cost of raw materials by getting discounts from suppliers for buying goods in bulk quantities Technical economies of scale; A business can spread the high fixed cost of buying large equipment over the production of more goods Financial economies of scale; As a business grows they will be able to negotiate better lending rates with banks, reduces fixed costs Risk bearing; The larger the company becomes the more likely it is to survive a downturn in the economy Can you design a poster to show this information? #2 Ability to spread risk 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 Click graphic to see UK export guides on www.gov.uk website Research: Doing business guides This website has free PDF doing business guides to help UK businesses when they are thinking of exporting abroad Choose a country, read the guide and tell the class why your country presents opportunities for UK companies Click the graphic to access the free PDF guides Offshoring and outsourcing Definition: Offshoring Offshoring is when a business relocates some of its business process to another country. This is usually manufacturing, or a supporting process such as accounting. Benefits of offshoring Offshoring can offer companies a range of benefits and prompt trade, these include: A. to take advantage of lower minimum wage levels in other countries B. to take advantage of trade blocs or trade deals C. to take advantage of tax and other benefits offered by the host nation D. access to a larger talent pool IBM (an American MNC) has been present in India since 1951 and has 140,000 employees there Research: Minimum wage Minimum wage rates around the world differ greatly Find out what the average UK minimum wage for someone over 25 is in dollars (so you can compare with other countries) Now find out what the hourly minimum wage rate is in: South Korea Luxembourg Mexico Click the graphic to see a table with this data on Offshoring discussion, good or bad? Watch the two videos and discuss the two very different perspectives Definition: Outsourcing Outsourcing is where a business function, such as payroll, is contracted out to third-party businesses. These may, or may not, be in another country. Benefits and examples of outsourcing Outsourcing examples: A. Marketing research B. Accounting C. Legal services D. Call centres E. Office cleaning F. Website development Benefits include 1. Flexibility 2. Lower cost 3. Get experts 4. Allows business to focus on core What are the drawbacks of outsourcing? #1 Outsourcing - production Image result for BMW x3 This means sending some (or all) of the production to other companies to complete Some motor manufacturers now outsource not only parts but complete assemblies – steering, transmissions, engines, and interior assemblies. 1/5 of Europe's cars are sub- Are BMW’s made in Germany? assembled in Eastern Europe #2 Outsourcing - payroll Payroll is the most common task that companies outsource to other businesses that 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 National Insurance contributions which can be beyond the skills of many self- employed business owners #3 Outsourcing - purchasing Purchasing and maintaining information systems Hiring IT staff and training computer users can be very costly and time-consuming for small to medium businesses By outsourcing the IT function the business can obtain the latest technology and suitably skilled personnel #4 Outsourcing - delivery 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 Can you name at least 3 Did you know that the Yodel name is a delivery companies? contraction of the words “your delivery”?