Why do businesses trade internationally?

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  • What makes a business want to trade internationally?
    • PUSH FACTORS
      • Saturated domestic market
        • Occurs when it becomes impossible to expand sales further in that market.
      • Fierce competition in domestic market
        • New markets
        • Price/non-price factors
        • Differentiation / reliability / reputation have higher market shares
        • Innovation is expensive
        • Foreign suppliers=Lower labour costs
      • Competition from imports
        • Price/non-price factors
        • Differentiation / reliability / reputation have higher market shares
        • Innovation is expensive
        • Foreign suppliers=Lower labour costs
        • New markets
      • Product is mature/decline stage of the product life cycle
        • Development, introduction, growth, maturity, decline
        • Saturated market=Maturity stage
        • Extension strategy (moving to international markets is one)
          • Saturated market=Maturity stage
    • PULL FACTORS
      • Potential for increased sales and profits
        • Emerging economies
      • Economies of scale
        • Trading internationally  means the size of the business increases
        • Competitive advantage
          • Lower costs, lower prices
      • Risk Spreading
        • Diversified markets reduce risk
        • Wider the risk spread, the safer the business
      • Global sourcing
        • Find goods/services from a global market
        • Buying cheaper sources aborad
          • Low labour costs
        • Low labour costs
        • Offshoring
      • Increase trade liberalisation
      • Expanding trade blocs
        • Free trade area
          • Access member countries' markets easily
          • Push specialisation and open new markets
          • Free trade- NAFTA
        • Common market
          • EU

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