why do businesses seek international markets? HARRIET BENNETT

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  • Why do businesses seek international markets? 3.3.1
    • Push Factors
      • Saturated dom. market
        • First stimuli to start marketing abroad.
        • Very difficult to increase sales in dom. market.
        • Few consumers left to target.
        • Sales from existing customers or rival consumers
        • MARKET SATURATION
      • Fierce competition in dom. market
        • In saturated markets, businesses compete to increase sales at the expense of rivals
          • Competition can be price or non-price factors.
        • Competing businesses are trying to differentiate their products & increase market share.
          • Providing value for money is key.
          • Innovative product design, reliability, reputation & clever marketing increase competition
          • This can be expensive as it needs innovation/ intensive marketing to increase market share.
        • International markets contain many potential new customers, the scope for expansion & increasing profits.
      • Competition from imports
        • Imported products can compete on price. Foreign suppliers may have lower labour cost
          • For some products, this gives them a competitive advantage
      • Product in mature/ decline stage of P.L.C
        • A saturated market is in the mature stage. Sales plateau & cannot be increased.
        • A business will develop an extension strategy to increase the maturity stage by bringing out a new/ improved version
        • The next stage is decline, no matter what the business does, sales & profits will fall
        • In a foreign market, the product can be placed earlier in the cycle (in the introduction or growth stage) so the P.L.C is extented.
    • Pull Factors.
      • Potential for increased sales & profits
        • Access to markets in emerging economies creates potential for increased sales, profits & growth
        • The profit motive is huge, especially for large businesses with a significant body of shareholders.
      • Economies of Scale
        • Trading internationallywill mean the size of the business will increase.
        • Greater chance of achieving economies of scale.
        • Increasing economies of scale can lead to a competitive advantage: lower costs may make lower prices possible
        • Sometimes economies of scale are so significant that the most efficient level of output is greater than the level of demand in any but the largest economies.
      • Risk Spreading
        • Diversified markets reduce risk.
          • If one market fails, they may still be successful or remain stable in another.
            • This is an economy of scale which is achieved by selling one or a range of products in a range of different markets
            • Trading internationallycreates greater stability: a problem is one country can be compensatedby growth in another
        • the wider the risk is spread, the safer the business
      • Global Sourcing
        • Global Sourcing is the practice of finding goods & services from the global market.
        • It can be buying from cheaper sources abroad, or setting up production facilities abroad to take advantage of lower costs of production (offshoring)
          • Savings include low labour costs, low costs of raw materials & other economic factors such as tax breaks & low tariffs on trade.
      • International trade liberalisation
        • Making international trade easier by reducing trade barriers.
        • The WTO supervises world trading arrangements& trade negotiations
        • The IMF & World Bank were set up in 1940's to provide adequate finance for world trade to continue & fund projects to help raise incomes & make economies more efficient.
      • Expanding trade blocs
        • The creation & growth of trade blocs has made it easier to access member countries' markets.
        • They encourage specialisation& open up new markets
        • They encourage/ increase trade amongst member states (TRADE CREATION)
        • Trade blocks create TRADE DIVERSION because member states trade more with each other & less with the outside world. This can be a barrier to true worldwide free trade.

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