Push and pull factors

Push factors drive a firm out of its home market:

• Saturated markets — everyone who wants the product already has one, so growth can only come from taking share.
• Competition — intense domestic rivalry compressing prices and margins.

Pull factors attract a firm towards overseas markets:

• Economies of scale — a larger total market spreads fixed costs (R&D, machinery, brand-building) over far more units, cutting average cost.
• Risk spreading — selling in several countries means a recession or a shock in one does not sink the firm.

Offshoring is moving the firm's own activity abroad (opening your own factory in Vietnam). Outsourcing is contracting an activity to another firm, at home or abroad. They are often confused — the distinction is ownership, not geography.

Extending the product life cycle by selling in multiple markets: a product in maturity or decline at home may be in the growth phase in an emerging economy, so its sales life is extended without any R&D cost.

Offshoring or outsourcing?

Assessing a country as a market

Edexcel's five factors:

• Levels and growth of disposable income — can enough people afford the product, and is that number rising? Look at the target segment, not the national average.
• Ease of doing business — how long does it take to register a company, enforce a contract or get a licence? Corruption and red tape are direct costs.
• Infrastructure — roads, ports, power, telecoms and internet penetration determine whether you can physically deliver and market the product.
• Political stability — instability means uncertainty, and uncertainty deters the long-term, sunk investment that market entry requires.
• Exchange rate — a volatile or depreciating currency erodes the sterling value of repatriated profits and makes pricing unpredictable.

Your turn — sizing the market

Assessing a country as a production location

Edexcel's factors, and what each really means:

• Costs of production — wages, land, energy and materials. But the right comparison is unit labour cost, not the wage rate: a cheap but unproductive workforce may cost more per unit than an expensive, highly productive one.
• Skills and availability of the labour force — a low wage is useless if nobody can operate the machinery.
• Infrastructure — ports, roads, reliable power. Frequent outages destroy the savings.
• Location in a trade bloc — producing inside the tariff wall gives duty-free access to the whole bloc.
• Government incentives — grants, tax holidays, enterprise zones.
• Ease of doing business and political stability — the risk that rules, taxes or property rights change after the investment is sunk.
• Natural resources and the likely return on investment — the decision should ultimately be tested with NPV and ARR.

Do not forget the hidden costs: shipping, tariffs, longer lead times (which force higher buffer stocks and tie up cash), quality control at a distance, and reputational risk if labour conditions are poor.

Your turn — the relocation saving

Evaluating the relocation

Push, pull, or production location?

Tap a factor, then tap the category it belongs to.

Why firms combine across borders

A joint venture is a new entity jointly owned by two firms, each contributing something the other lacks — typically a Western brand and technology paired with local market knowledge, distribution and political relationships. In some countries a JV with a local partner is a legal requirement for market entry.

Edexcel's reasons for global mergers or joint ventures:

• Spreading risk over different countries and regions.
• Entering new markets or trade blocs — buying inside the tariff wall.
• Acquiring national or international brand names and patents — instantly, rather than building them over a decade.
• Securing resources and supplies — backward vertical integration into raw materials or components.
• Maintaining or increasing global competitiveness — scale, technology and cost.

The risks: culture clash, disputes over control and profit-sharing, and the loss of intellectual property to a partner who may become tomorrow's competitor. Many international JVs end in separation.

Match the reason for a global JV or merger

Tap an example on the left, then the reason it illustrates on the right.

Exchange rates, cost and differentiation

The impact of exchange rate movements: a depreciation of sterling makes UK exports cheaper abroad and improves price competitiveness, but raises the cost of imported components. An appreciation does the reverse. Remember SPICED: Strong Pound = Imports Cheap, Exports Dear.

Two routes to global competitive advantage (Porter, applied internationally):

• Cost competitiveness — the lowest unit cost, achieved through scale, productivity, cheap inputs and efficient logistics. It wins price-sensitive, undifferentiated markets, but a firm can rarely out-cost an economy with structurally lower wages.
• Differentiation — brand, quality, design, technology and service. It commands a premium and is far more defensible: it does not evaporate when a cheaper country appears.

Skill shortages undermine international competitiveness directly: they raise wages, cap productivity, delay projects and limit the firm's ability to adopt new technology. This is why firms and governments invest so heavily in education, training and (where politically possible) skilled migration.

Your turn — pricing for export

Exchange rates and competitiveness

Cost or differentiation abroad?

Choosing between two markets

The big ideas to know

You have covered the conditions for trade, market and location assessment, JVs and global competitiveness. Press Finish to see your score.