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4.2.1 Conditions that prompt trade - Coggle Diagram
4.2.1 Conditions that prompt trade
Push factors
saturated home market
when it becomes impossible to expand sales further in that particular market
fierce competition in domestic market
competition from foreign imports
product is in the mature or decline stage of the product life cycle
Pull factors
potential for increase in sales and profits
economies of scale
risk spreading
global sourcing
increasing trade liberalisation
expanding trade blocs
Offshoring
involves the relocation of business activities from the home country to a different international location
why offshore?
manufacturing costs lower
potentially better skilled + higher quality
to be closer to customer + demand
to overcome protectionism
potential drawbacks
longer lead times for supply
implications for CSR (supply chain management
additional management costs
more exposed to changes in exchange rates
communication: language + time zones
Outsourcing
Delegating one or more business processes to an external provider, who then owns, manages and administers the selected processes to an agreed standard
benefits
access specialist suppliers with greater capabilities and higher quality
reduce costs if outsourcing supplier is able to provide at lower costs (e.g through economies of scale)
focuses the business on its core activities - where it can add value
makes operations more flexible - e.g easier to change capacity when needed
drawbacks
risk that outsourcing supplier will fail to meet quality standards or otherwise not deliver
potential loss of expertise from busienss
no guarantee that costs will be lower
extending the product life cycles by selling in multiple markets
a new market can increase profitability of firm and provide potential for increased sales
a good or service that is in the declining stage may be new for an overseas market