Conditions that prompt trade: push and pull factors

Push factors

• Saturated markets: the home market has stopped growing because most potential customers already own the product (mobile phones in developed countries) or the population is small or falling. To grow sales, the firm must look abroad.
• Competition: intense rivalry at home squeezes prices and margins; overseas markets may be less competitive.

The June 2024 series paper used a Finnish dairy business: Finland's small population (about 5.5 million) and a home market providing about 60% of sales were the push factor. Marks came from linking the factor to the context, not from defining it.

Pull factors

• Increased sales and profitability: fast-growing foreign markets, especially emerging economies with rising middle classes; possibly higher prices or margins.
• Risk spreading: selling in several countries means a downturn in one is offset by others.
• Economies of scale: producing for a global market lowers average costs, as fixed costs (R&D, brand building) are spread over more units.

Off-shoring and outsourcing

Off-shoring means moving a business activity to another country. It can be done by the firm's own overseas subsidiary or by another firm.

Outsourcing means contracting an activity to an external business (at home or abroad), such as manufacturing, IT or customer service. Off-shore outsourcing combines both.

Both aim at cost competitiveness: lower labour and other costs, specialist suppliers who are more efficient, flexibility, and focus on core competencies. Risks: loss of control over quality and ethics, communication problems, longer supply chains, damage to reputation, and hidden costs.

The October 2023 series examiner report noted that weaker answers wrongly assumed overseas labour is always cheaper and confused outsourcing with simply locating overseas.

Extending the product life cycle

A product in the maturity or decline stage at home may be at the introduction or growth stage in another country. Launching it abroad adds a new growth phase and extends the life cycle, making more return on the original development cost.

Worked example

A firm's home sales have been flat at $50 m for three years. It expects overseas sales of $8 m in year 1, growing 25% a year. What will total sales be in year 3 if home sales stay flat?

1. Overseas year 2 = 8 x 1.25 = 10
2. Overseas year 3 = 10 x 1.25 = 12.5
3. Total year 3 = 50 + 12.5 = 62.5

Answer: $62.5 m

Check yourself

1. Which is a push factor for international expansion?
   • Fast-growing demand in a foreign market
   • The chance to spread risk
   • The home market is saturated
   • Economies of scale from global production
   Show answer

   The home market is saturated. A push factor is a problem at home driving the firm abroad.

2. A UK bank contracts an Indian IT firm to run its customer helpline. This is
   • off-shore outsourcing
   • a joint venture
   • a merger
   • exporting
   Show answer

   off-shore outsourcing. An external firm (outsourcing) in another country (off-shoring).

3. A firm's fixed costs are $12 m a year and variable cost is $4 per unit. Calculate the average cost per unit at 3 million units.
   Show answer

   $8.00. (12,000,000 + 12,000,000) / 3,000,000 = $8.00.

4. Same firm: by exporting it sells 5 million units. Calculate the new average cost per unit.
   Show answer

   $6.40. (12,000,000 + 20,000,000) / 5,000,000 = $6.40. Spreading fixed costs over more units lowers average cost.

5. Explain how selling in several countries spreads risk for a business.
   Show answer

   If demand falls in one country, for example in a recession, sales in other countries can make up for it, so total revenue and profit are more stable.. Markets do not usually all decline at the same time.

6. How can entering a new country extend a product's life cycle?
   • It always lowers production costs
   • The product may be at an earlier stage in the new market, giving a new period of sales growth
   • It removes all competition
   • It makes the product new to the home market
   Show answer

   The product may be at an earlier stage in the new market, giving a new period of sales growth. A mature product at home can be new and growing abroad.

7. Explain one risk of outsourcing production to an overseas supplier.
   Show answer

   The business loses direct control over quality and working conditions, so faulty products or unethical practices at the supplier could damage its reputation.. Outsourcing trades control for cost savings.

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Sources

• Pearson Edexcel International Advanced Level in Business specification (first teaching 2018)
• Pearson Edexcel IAL Business WBS14/01 mark scheme, June 2024 series (published August 2024)
• Pearson Edexcel IAL Business WBS14/01 examiner report, October 2023 series (published January 2024)

Last updated 8 November 2026. Spotted a mistake? Tell us.