The Attractiveness of International Markets (AQA A Level Business): Revision Note

Factors influencing the attractiveness of international markets

• When a business is deciding whether to move into a new country, it needs to determine whether it will support it in meeting its long-term strategic objectives

• Managers weigh up several key features of the target economy before committing time and money

Why international markets are attractive

1. Market size and growth rate

   • Large populations with rising incomes, or smaller markets growing quickly, offer more potential customers and fast sales growth

2. Economic and political stability

   • Low inflation, steady government policies and the absence of conflict reduce the risk of sudden losses or business disruption

3. Legal and regulatory environment

   • Clear, business-friendly laws on property rights, taxes and product standards make it easier and cheaper to operate

4. Competitive intensity

   • Entering a market with few strong rivals can be more attractive than trying to compete with established global brands

5. Cultural and consumer similarity

   • When tastes, language and buying habits are similar to those at home, a business can adapt its product and marketing with less cost and risk

6. Quality of infrastructure

   • Reliable transport, power, internet and supply networks cut delays and costs, helping a business meet customer demand efficiently

Offshoring production

• Offshoring occurs when a business sets up operations in another country to carry out certain business processes so as to:

  • Take advantage of lower labour costs

  • Gain access to specialised skills

  • Expand into new markets

• Common examples of offshoring practices include call centres in foreign countries, software development teams or manufacturing plants established in countries with cheaper labour

Evaluating the use of offshoring

Reshoring

• Reshoring occurs when a business brings back its production activities to its home country from abroad

• It involves reversing the previous decision to offshore or outsource those activities to another country

• There are several reasons why a company may choose to reshore its operations

Reasons to reshore

1. Cost considerations

   • The initial cost advantages of offshoring may reduce due to factors such as rising labour or transportation costs in the foreign country

2. Quality control

   • By reshoring, companies can have better control over the manufacturing processes and ensure higher quality control standards, which may lead to improved customer satisfaction

3. Intellectual property protection

   • By bringing manufacturing back to their home country, they can reduce the risk of intellectual property theft

4. Supply chain resilience

   • The COVID-19 pandemic highlighted the vulnerabilities of global supply chains when disruptions in transportation, logistics and international trade led to delays and shortages of critical goods

   • Reshoring reduces dependence on foreign suppliers

5. Market proximity

   • Can allow companies to be closer to their target markets, which can lead to faster delivery times, reduced transportation costs and improved responsiveness to customer demands