What has made the UK a trading nation?
The UK dominated the world economy throughout the 19th century.
The UK also became a leader in international banking and other financial services.
Membership of the European Union has stimulated trade in recent years.
Also, there is the creative and entrepreneurial drive in the UK to seek out international markets.
A skilled UK workforce that contributes by providing high quality goods and services.
UK film industry #1. Details here.
UK film industry #2. Details here.
Firms may be motivated to trade overseas for a number of reasons.
"Push factors"
Push factors relate to phenomena in a company’s domestic market that motivate it to enter into new markets.
An example: High levels of competition and a saturated domestic market.
Market saturation is a situation that arises when the volume of a product or service in a marketplace has been maximised.
At the point of saturation, a company can only achieve further growth through:
Moving into international markets.
New product improvements.
By taking existing market share from competitors
Through a rise in overall consumer demand.
Which countries may now have a high demand for Smart Phones? Details here.
Products may have to be adapted for international markets. Click on the picture.
A domestic recession may be another push factor.
(2 or more quarters of negative GDP growth)
New legislation, such as changing the rules on selling tobacco.
Trends and fashions reducing demand in the domestic market.
High costs to produce in the domestic market.
Dyson moves production to Asia. Details here.
Pull factors: these entice firms into new markets.
A new international market may have an emerging middle class with increased spending power, presenting a potential opportunity for a company to exploit.
Pull factors can include market size, economic and social conditions.
New or bigger markets may be very tempting for UK firms.
Lower cost or secure resources, such as minerals, land or labour could be pull factors.
The possibility of benefiting from economies of scale could also be a pull factor.
If a factory expanded its operations, many of its fixed costs would decline relative to output.
Risk spreading could also be a pull factor.
By expanding into other countries and markets, a firm may be able to limit the risks it faces.
Trading internationally minimises the risks of a recession in the home country.
Possibility of off-shoring and outsourcing.
Off shoring is moving jobs to other countries.
Moving manufacturing or service industries to a location with lower costs.
Many UK call centres moved to India in the 1980's and 1990's.
Off shoring is controversial. One example here.
This could damage the reputation of the business.
Quality could also suffer.
Outsourcing:
Moving jobs to other organisations.
Moving an entire business function such as IT to another business.
This will aim to save costs and allow the business to concentrate on its core activities.
Details here.
Extending the product life cycle by selling in multiple markets.
A new international market may have an emerging middle class with increased spending power, presenting a potential opportunity for a company to exploit.
Pull factors can include market size, economic and social conditions.
New or bigger markets may be very tempting for UK firms.
Lower cost or secure resources, such as minerals, land or labour could be pull factors.
The possibility of benefiting from economies of scale could also be a pull factor.
If a factory expanded its operations, many of its fixed costs would decline relative to output.
Risk spreading could also be a pull factor.
By expanding into other countries and markets, a firm may be able to limit the risks it faces.
Trading internationally minimises the risks of a recession in the home country.
Possibility of off-shoring and outsourcing.
Off shoring is moving jobs to other countries.
Moving manufacturing or service industries to a location with lower costs.
Many UK call centres moved to India in the 1980's and 1990's.
Off shoring is controversial. One example here.
This could damage the reputation of the business.
Quality could also suffer.
Outsourcing:
Moving jobs to other organisations.
Moving an entire business function such as IT to another business.
This will aim to save costs and allow the business to concentrate on its core activities.
Details here.
Extending the product life cycle by selling in multiple markets.
In decline stage:
Production could be moved to a lower cost country to improve the profit margin on lower sales.
A business may wish to enter new markets with perhaps a slightly modified product.
In maturity:
A business may enter a new market where the product would be in the introductory phase.
This would be a good way of spreading risk.
Production could be moved to a lower cost country to improve the profit margin on lower sales.
A business may wish to enter new markets with perhaps a slightly modified product.
In maturity:
A business may enter a new market where the product would be in the introductory phase.
This would be a good way of spreading risk.
