Conditions that prompt trade

Push factors = factors which push firms out of the domestic market e.g 2008 financial crisis affected many western businesses and made it harder for firms to survive in that market

• the market may be saturated- making hard to  establish a business and remain competitive, a market becomes saturated when it is not possible to expand sales any further
• excessive comeptition can also push a firm out of the market 
• high marketing cost trying to increase market share

BY EXPANDING INTO NEW MARKETS, FIRMS CAN TAKE ADVANTAGE OF LOWER PRODUCTION COSTS AND A NEW MARKET OF CONSUMERS

Pull factors = factors which can pull firms into a new market (there is a lot of potential for business growth in new, emerging markets)

• firms gain the potential to earn higher profits
• new markets can be relatively unsaturated
• trade can result in business growth, firms can take advantage of economies of scale, may result in lower average costs of production, then be passed on to consumer in form of lower prices, might make firm more competitive
• risk spreading (business is safer and more stable in more than one market)

Offshoring = loacting all or part of production process in a foregin economy where costs are low. 

• it can be strategic, enabling firm to enter new markets and use resources that may not be available in domestic market
• used to overcome regulations in domestic market
• firm could benefit from cheap labour (depnding on location)

Outsourcing = general term for buying inputs from independent suppliers, either within the same  economy of abroad

Firms could export goods or services by selling into a new market, therefore extending life cycle of good or service.

• A new market can increase the profitablilty of a firm and provide increased sales.
• A good or service which is the declining stage of the domestic market may be new for an overseas market, so the produst life cycle can start again

Finding a new market is an effective way of of increasing capacity utilistaion and reducing costs. Many businesses export in order to survive.

This extra production could be sold on the domestic market if there is sufficient demand, or on the overseas market. Average costs of production could fall and the firm may become more competitive.