Economic Factors in Business Expansion

What Economic Factors in Business Expansion covers

Economic Factors in Business Expansion is examined in Paper 2, Competing in the global economy, and in Paper 3, The economic environment and business. It covers push factors: saturated markets and competition, pull factors: economies of scale and risk spreading, offshoring and outsourcing, extending the product life cycle through overseas markets, raising capacity utilisation, assessing a market: disposable income and exchange rates, ease of doing business, infrastructure and political stability, location of production: costs, labour and natural resources and location of production: trade blocs, incentives and return on investment.

The 9 subtopics

Each one has its own page.

• Push factors: saturated markets and competitionPush factors in international expansion, saturated markets and how to recognise them, squeezed margins, market penetration, rising domestic competition, mature products in developing economies, other pressures to move abroad, replacement demand, the UK grocery market, mergers, price cutting, and a strong competitor entering a niche.Open →
• Pull factors: economies of scale and risk spreadingPull factors in international expansion, internal economies of scale and purchasing and technical economies from selling abroad, calculating average cost, the long-run average cost curve and minimum efficient scale, diseconomies of global scale, risk spreading across markets and production sites, and its costs.Open →
• Offshoring and outsourcingOffshoring, outsourcing and offshore outsourcing, activities commonly offshored, unit labour cost against the wage rate and calculating it, core competences, time zones and customer service, the supply, reputational and intellectual property risks, reshoring, automation, and hidden costs of offshoring.Open →
• Extending the product life cycle through overseas marketsThe stages of the product life cycle and sales and cash flow at introduction, extension strategies, selling abroad to extend the life cycle, different stages in emerging and developed economies, other extension strategies, the international product life cycle, balanced portfolios, the limits of extension, unit costs, and selling older technology abroad.Open →
• Raising capacity utilisationCapacity utilisation and its formula, calculating utilisation and maximum output, lower average cost at higher utilisation and fixed cost per unit, export orders and offsetting seasonal demand, the problems of near-full capacity, spare capacity, low utilisation and competitiveness, raising utilisation without more sales, rationalisation, and fast-growing export demand.Open →
• Assessing a market: disposable income and exchange ratesDisposable income and its growth, misleading averages, discretionary income, income elasticity and choosing a market, purchasing power parity, how appreciation and depreciation affect exporters and investors, exchange rate risk and ways to reduce it, volatility, calculating the sterling value of overseas earnings, pegged currencies, and changing product mix.Open →
• Ease of doing business, infrastructure and political stabilityThe ease of doing business and what firms examine, corruption, contract enforcement, infrastructure and the costs of poor roads, ports, electricity and digital networks, political stability and political risks, expropriation, higher required returns, managing political risk, and why weak institutions can still attract investment.Open →
• Location of production: costs, labour and natural resourcesThe costs firms compare between countries, why the lowest wage is not the lowest cost, unit labour cost, capital against labour intensive industries, labour availability and skills, clusters, extractive industries and siting near raw materials, bulk-reducing industries, the risks of resource exploitation for host countries, and rising labour costs.Open →
• Location of production: trade blocs, incentives and return on investmentLocating inside a trading bloc for access to the whole market, low-wage members, countries leaving a bloc, government incentives for inward investment, special economic zones, competition for multinationals and its criticisms, bloc subsidy rules, the formula for return on investment and calculating it, hurdle rates, payback, and accepting a lower first return.Open →

What you need to know

Answer each one before you reveal it.

Take Economic Factors in Business Expansion further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Offshoring vs Outsourcing

  Offshoring: moving a business activity to another country, whether the firm carries on doing it itself or hands it to someone else. Outsourcing: Contracting an activity that was previously performed in-house to a separate business, which may be in the same country.

• Capacity utilisation vs Productivity

  Capacity utilisation: the proportion of a plant's maximum possible output that is actually being produced, expressed as a percentage. Productivity: Output per worker or per hour worked in a given period.

• Disposable income vs Discretionary income

  Disposable income: what households have available to spend or save once direct taxes have been deducted and state benefits added. Discretionary income: What is left once essential spending such as housing, food and utilities has been met, and it is what buys non-essentials.

Questions from this topic

Each one with the model answer underneath.

1. 1

   What is meant by a push factor in a firm's decision to trade internationally?

   Model answer

   A push factor is a condition in the firm's home market, such as weak growth or intense competition, that drives it to look for sales abroad.

2. 2

   Define a saturated market.

   Model answer

   A saturated market is one in which almost all potential customers already own or buy the product, so sales growth comes only from replacement demand and from taking share from rivals.

3. 3

   How can a firm tell that its domestic market is approaching saturation?

   Model answer

   Total market sales stop growing, penetration is already high, price competition and promotional spending intensify, and most purchases are replacements.

4. 4

   Why does a saturated home market squeeze a firm's profit margins?

   Model answer

   With no new customers available, firms compete for each other's share through price cuts and heavier marketing, which lowers the price received per unit and raises costs.

5. 5

   Define market penetration.

   Model answer

   Market penetration is the proportion of the potential market that already buys the product, usually expressed as a percentage.

6. 6

   Why does a rising number of competitors in the home market push a firm overseas?

   Model answer

   More rivals means a smaller share and lower prices for each, so the firm looks for markets where competition is weaker and margins are wider.

What is inside Levo

Six ways to work the same material.

Economic Factors in Business Expansion revision questions

What does Economic Factors in Business Expansion cover in Edexcel A-Level Economics B?

9 subtopics: push factors: saturated markets and competition, pull factors: economies of scale and risk spreading, offshoring and outsourcing, extending the product life cycle through overseas markets, raising capacity utilisation, assessing a market: disposable income and exchange rates, ease of doing business, infrastructure and political stability, location of production: costs, labour and natural resources and location of production: trade blocs, incentives and return on investment. Each one has its own page with questions and model answers.

How is Economic Factors in Business Expansion organised?

By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.