What are the conditions that prompt trade?

The conditions that prompt trade can be categorized into 'push' factors and 'pull' factors. Push factors refer to reasons why it may make sense to leave unfavourable domestic markets. Pull factors are attractive features of trading abroad.
Push factors include:. Saturated domestic markets . Competition. Need to extend the product life cycle
An example of what I would say for saturated domestic marketsA key objective for most businesses is growth. Therefore when a business has managed to sell its products to just about everyone in a market, the only routes for growth are to sell a wider range of products or find new markets where the existing product can be sold. In markets for consumer durables, such as televisions, phones or toasters, a saturated market can mean falling sales. If every potential consumer has already bought a durable the only scope for further sales is replacements or upgrades. Often this forces a business into entering new geographical markets. Typically, a business looking to escape a saturated market through entering new countries will tend to look for markets where consumers share similar characteristics. UK firms may find success in Australia rather than France for example.
Pull factors include:. Economies of scale. Possibility of offshoring and outsourcing. Risk spreading
An example of what I would say for economies of scaleOften production facilities for a multinational enterprise (MNE) become widespread but fragmented as the business grows into more markets. Moving production onto a single site covering a whole continent, or even the global market, will allow the company to operate production on a huge scale offering it the chance to enjoy economies of scale.
Even without centralizing facilities, growing into new international markets will allow a firm to operate at a larger scale, therefore gaining economies of scale. For example, Jaguar Land Rover made a decision to build a new plant in China in addition to its existing plants in the UK. This provides them with purchasing economies of scale through bulk buying.