why do businesses seek international markets? HARRIET BENNETT
- Created by: Harriet
- Created on: 07-04-15 09:38
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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.
- In saturated markets, businesses compete to increase sales at the expense of rivals
- 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
- Imported products can compete on price. Foreign suppliers may have lower labour cost
- 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.
- Saturated dom. market
- 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
- If one market fails, they may still be successful or remain stable in another.
- the wider the risk is spread, the safer the business
- Diversified markets reduce risk.
- 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.
- Potential for increased sales & profits
- Push Factors
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