United Nations Conference on Trade and Development, Asian Foreign Direct Investment in Africa: United Nations Report Points to a New Era of Cooperation among Developing Countries, press release, March 27, 2007, accessed December 20, 2010. The bargaining power of suppliers is weak. When they explore exporting, the companies often find that markets that look similar to their domestic one, in terms of customer preferences, offer the most potential for success. Nevertheless, the United States also imports a vast amount of goods and services, as US consumers use their wealth to purchase what they need and wantmuch of which is now manufactured in other countries that have sought to create their own comparative advantages through cheap labor, land, or production costs. Why Protectionism considered as barrier in International Trade? This strategy is called protectionism and is still used today. They are: 1. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. Ricardo's theory of comparative advantage is based on the labour theory of value (Salvatore 2002). Great power rivalry is again becoming a principal theme of global politics. For example, Japan exports Toyota vehicles to Germany and imports Mercedes-Benz automobiles from Germany. Almost every country at some point in time follows this approach of protectionist policies, and this is definitely important. Strategic Trade Policy In the early 1980s, James Brander and Barbara Spencer (1983, 1985) created a considerable stir with an analysis of trade policy under imperfect competition. Thebarriers to entryrefer to the obstacles a new firm may face when trying to enter into an industry or new market. This is particularly true in high-technology industries where substantial sunk costs are committed to R&D. The same applies to marketing-intensive industries where firms invest in trademarks and brands. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. Japan, Taiwan, China, etc. The difference between these two theories is subtle. As an. Summarize the classical, country-based international trade theories. China: Trade with Africa on Track to New Record, CNN, October 15, 2010, accessed April 23, 2011. Local rivalry forces firms to move beyond basic advantages that the home country may enjoy, such as low factor costs. Literature Review 3.1. CASE STUDY ALDI STRATEGIC MANAGEMENT f Case Study - ALDI Brief Overview of ALDI: In Essen Germany, Aldi was founded by 2 brothers Karl & Theo Albrecht in 1013. U.S.-China strategic rivalry is intensifying, and nowhere more so than in the Indo-Pacific, where East Asia in particular, with the South China Sea and the Taiwan Strait, is the central arena. To answer this challenge, David Ricardo, an English economist, introduced the theory of comparative advantage in 1817. His theory stated that a nations wealth shouldnt be judged by how much gold and silver it had but rather by the living standards of its people. Similarly, China provided nearby Nigeria with oil-backed loans to finance projects that use gas to generate electricity. Matt Ridley, Humans: Why They Triumphed,Wall Street Journal, May 22, 2010, accessed December 20, 2010,http://online.wsj.com/article/SB10001424052748703691804575254533386933138.html. This is particularly true in high-technology industries where substantial sunk costs are committed to R&D. The same applies to . To explain his theory, Porter identified four determinants that he linked together. The United States has ample arable land that can be used for a wide range of agricultural products. In more recent centuries, economists have focused on trying to understand and explain these trade patterns. The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. China in Africa: Developing Ties, BBC News, November 26, 2007, accessed December 20, 2010, Chapter 1: Introduction to International Marketing, 1.3 The Motivation for International Marketing, Chapter 2: International Business and Trade, 2.2 International Economic Cooperation among Nations, 2.5 The United Nations and the Impact on Trade, Chapter 3: Social and Cultural Environment, 3.1 Factors Shaping the Global Marketing Environment, Chapter 4: The Economic and Political Environment, Chapter 5: Economic Development in the World, 6.2 Global Market Opportunity Assessment - PESTEL Analysis, 6.3 Global Market Opportunity Assessment - CAGE Analysis, 6.4 Global Market Opportunity Assessment - Scenario Planning and Analysis, 6.7 Using Demographics to Guide Global Marketing Strategy, 9.4 Determinants of Global Brand Structure, Chapter 10: Global Channels and Supply Chains, 12.4 Currency Fluctuations and Global Pricing, Chapter 13: The International Marketing Plan, 13.2 Writing the International Marketing Plan, Core Principles of International Marketing, http://online.wsj.com/article/SB10001424052748704804204575069511746613890.html, http://www.thenation.com/article/why-africa-still-poor?page=0,1, http://www.foreignaffairs.com/articles/65916/deborah-brautigam/africa%E2%80%99s-eastern-promise, http://articles.cnn.com/2010-10-15/world/china.africa.trade_1_china-and-africa-link-trade-largest-trade-partner?_s=PM:WORLD, http://www.chinadaily.com.cn/china/2009-02/11/content_7467460.htm, http://www.ccs.org.za/wp-content/uploads/2010/03/ENGLISH-Evaluating-Chinas-FOCAC-commitments-to-Africa-2010.pdf, http://www.unctad.org/Templates/Webflyer.asp?docID=8172&intItemID=3971&lang=1, http://news.bbc.co.uk/2/hi/africa/7086777.stm, http://news.bbc.co.uk/2/hi/business/6120500.stm, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, Around 5,200 years ago, Uruk, in southern Mesopotamia, was probably the first city the world had ever seen, housing more than 50,000 people within its six miles of wall. Trade (exports and imports) between Africa and China increased from US$11 billion in 2000 to US$56 billion in 2006.with Chinese companies present in 48 African countries, although Africa still accounts for only 3 percent of Chinas outward FDI [foreign direct investment]. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. The objective of each country was to have a trade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid a trade deficit, or a situation where the value of imports is greater than the value of exports. The PC was a new product in the 1970s and developed into a mature product during the 1980s and 1990s. For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. 3. What are the modern, firm-based international trade theories? 6. In this section, we'll look at a full worked example of Porter's Five Forces model to help you make effective business decisions. Outline :. This strategy is calledprotectionismand is still used today. Global Strategic Rivalry Theory of International Trade. 6. (AACSB: Reflective Thinking, Analytical Skills). Heckscher-Ohlin Theory (Factor Proportions Theory), Porter's National Competitive Advantage Theory, Creative Commons Attribution 3.0 Unported. The barriers to entry that corporations may seek to optimize include: Porters National Competitive Advantage Theory. For example, Google has already done so through products like Nexus smartphones. In addition, the beginning of exceptional and helpful methods for industrialized as well as scheming the entrance to a raw substance will also come helpful in the way. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. The best recent historical example of this effect was Germany's turn of the century drive to build a fleet capable of challenging Great Britain's. In this case, a single German policy choice ended an Anglo-French enmity that had lasted over 800 years and turned the British Empire's full attention to the German threat. Taxpayers pay for government subsidies of select exports in the form of higher taxes. Companies in markets with high barriers to entry whether through regulation, high fixed and/or start-up costs, protected intellectual . are the best examples of such countries. However, his research using actual data showed the opposite: the United States was importing more capital-intensive goods. Download Free PDF. With this investment, Angola hired Chinese companies to build much-needed roads, railways, hospitals, schools, and water systems. This lecture is about global strategic rivalry theory.This theory explains how MNCs wins their competititors by using various strategies. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. In the early 1950s, Russian-born American economist Wassily W. Leontief studied the US economy closely and noted that the United States was abundant in capital and, therefore, should export more capital-intensive goods. Strategizing on the Indo-Pacific region . Porters theory, along with the other modern, firm-based theories, offers an interesting interpretation of international trade trends. The four determinants are (1) local market resources and capabilities, (2) local market demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics. It is a fact that Porter (1990) never focused primarily on the factors determining the pattern of trade, yet his theory of national competitive advantage does explain why a particular country is more competitive in a particular industry.If, for example, Italy maintains competitive advantage in the production of ceramic tiles and Switzerland possesses the competitive advantage in watches, it . For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. People or entities trade because they believe that they benefit from the exchange. This theory focuses on how companies can get a competitive advantage when competing against global firms in the same industry. According to Michael Porter's five competitive forces industry analysis, an attractive industry has the following characteristics. is shared under a CC BY-NC-SA 3.0 license and was authored, remixed, and/or curated by Anonymous via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request. 5. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. The ability to forge a government-level partnership has enabled Chinese businesses to have long-term investment perspectives in the region. In a hypothetical two-country world, if Country A could produce a good cheaper or faster (or both) than Country B, then Country A had the advantage and could focus on specializing on producing that good. Identify the strategies used by companies in other strategic groups. A firm can gain a competitive advantage through: It is done by brand name, trademark, patent/copyright, unique formula etc. It raises the chance of a major, "systemic" war that could have . Andrew Rice, Why Is Africa Still Poor?, The Nation, October 24, 2005, accessed December 20, 2010, http://www.thenation.com/article/why-africa-still-poor?page=0,1. While export-oriented companies usually support protectionist policies that favor their industries or firms, other companies and consumers are hurt by protectionism. Import restrictions lead to higher prices for consumers, who pay more for foreign-made goods or services. Initial capital outlay varies, but it is typically high in terms of funding for business space, human resources, and equipment, among other variables. Read this introduction to mercantilism and the difference between classical country-based theories and modern firm-based theories. China Daily, February 11, 2009, accessed April 23, 2011. the control of resources or favorable access to raw materials. This theory is often most useful in understanding trade in goods where brand names and product reputations are important factors in the buyers decision-making and purchasing processes. Criticized by some and applauded by others, its clear that Chinas investment is encouraging development in Africa. This chapter discussed Kia and other automakers. Global rivalry is a key element in international business (IB). The theory says a company can get a sustainable competitive advantage by developing barriers to entry. Porter's Diamond Model, also known as the Theory of National Competitive Advantage of Industries, is a diamond-shaped framework that focuses on explaining wh. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. The bargaining power of the buyers, all airlines, is fairly high. Examples of such restrictions are putting a 100% tariff on sugar, orange and ice cream . Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. These examples show that there are large companies that have the potential to directly compete against Apple Inc. Porter's Diamond of National Competitive Theory 8 . Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. For example, factor disadvantages will not lead firms to innovate unless there is sufficient . What Are the Different International Trade Theories? Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. Similarly, if Country B was better at producing another good, it could focus on specialization as well. In this firm-based theory, Linder suggested that companies first produce for domestic consumption. In reality, the world economy is more complex and consists of more than two countries and products. France, the Netherlands, Portugal, and Spain were also successful in building large colonial empires that generated extensive wealth for their governing nations. After reading this section, students should be able to , Foreign companies have been doing business in Africa for centuries. 12. Each group should select a different industry. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. Describe how a business may use the trade theories to develop its business strategies. We also acknowledge previous National Science Foundation support under grant numbers 1246120, 1525057, and 1413739. In order to face the rivalry, Volkswagen group, which comprises of diverse nature of organisations, from different countries around the world has been enlarged. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. In contrast, countries would import goods that required resources that were in short supply, but higher demand. While the countries often open bids to many foreign investors, Chinese firms are able to provide low-cost options thanks in large part to their governments project support. While its labor pool may not be the cheapest, it is among the best educated in the world. 8. In reality, the world economy is more complex and consists of more than two countries and products. Countries such as Japan, China, Singapore, Taiwan, and even Germany still favor exports and discourage imports through a form of neo-mercantilism in which the countries promote a combination of protectionist policies and restrictions and domestic-industry subsidies. Both theories assumed that free and open markets would lead countries and producers to determine which goods they could produce more efficiently. The five competitive forces jointly determine the strength of industry competition and profitability. Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. This will in turn help shape the strategic moves of your own organization. But, however "normal" it may be, great-power conflict is nonetheless disconcerting and dangerous. sample size be of sufficient size to provide a good estimate of the actual population under study (in this case, countries following export oriented policies). He identified four key determinants: (1) local market resources and capabilities (factor conditions), (2) local market demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics. The ongoing COVID 19-pandemic has only heightened tensions and mistrust further between Washington and Beijing. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. This section has sought to highlight the basics of international trade theory to enable you to understand the realities that face global businesses. Swedish economist Steffan Linder developed the country similarity theory in 1961, as he tried to explain the concept of intraindustry trade. Trade is the concept of exchanging goods and services between two people or entities. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. Very frequently firms employ experienced inhabitants for their need. In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of Nations.Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). It turns out that Miranda can also type faster than the administrative assistants in her office, who are paid $40 per hour. Global Strategic Rivalry Theory Strategic rivalry theory was presented in the 1980s by American economists Paul Krugman and Kelvin Lancaster. Absolute advantage China even hosted a summit in 2006 for African leaders, pledging to increase trade, investment, and aid over the coming decade.11 The 2008 global recession has led China to be more selective in its African investments, looking for good deals as well as political stability in target countries. The theory, originating in the field of marketing, stated that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. His analysis became known as the Leontief Paradox because it was the reverse of what was expected by the factor proportions theory. Global Rivalry Theory describes numerous ways in which Multinational Enterprises can develop a competitive advantage over its competitors. This theory stated that a countrys wealth was determined by the amount of its gold and silver holdings. As a result, its not clear that any one theory is dominant around the world. It has also been used to describe how the personal computer (PC) went through its product cycle. Similarly, if Country B was better at producing another good, it could focus on specialization as well. Global Strategic Rivalry Theory 6. But supporting such protectionist policies comes at a cost, like high taxes and other such disadvantages. Divide your class into four or eight groups, depending on the size of the class. 10. In contrast to classical, country-based trade theories, the category of modern, firm-based theories emerged after World War II and was developed in large part by business school professors, not economists. 7. By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. (3) Achieving economies of scale or scope: At the time of international trade, the manufacturer increased. The objective of each country was to have atrade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid atrade deficit, or a situation where the value of imports is greater than the value of exports. The British colonial empire was one of the more successful examples; it sought to increase its wealth by using raw materials from places ranging from what are now the Americas and India. In addition to the four determinants of the diamond, Porter also noted that government and chance play a part in the national competitiveness of industries. It turns out that Miranda can also type faster than the administrative assistants in her office, who are paid $40 per hour. Africa remains a continent plagued by a continued combination of factors, including competing colonial political and economic interests; poor and corrupt local leadership; war, famine, and disease; and a chronic shortage of resources, infrastructure, and political, economic, and social will.2 And yet, through the bleak assessments, progress is emerging, led in large part by the successful emergence of a free and locally powerful South Africa. However, his research using actual data showed the opposite: the United States was importing more capital-intensive goods. His theory focused on explaining why some nations are more competitive in certain industries. Global strategic rivalry theory is about how multinational companies need to gain a competitive advantage against other multinational companies in their industry through activities such as research and development. 2. Although mercantilism is one of the oldest trade theories, it remains part of modern thinking. In the 1960s this was a useful theory to explain the manufacturing success of the United States. In 2007, the UNCTAD (United Nations Conference on Trade and Development) Press Office noted the following: Over the past few years, China has become one of Africas important partners for trade and economic cooperation. Determine which international trade theory is most relevant today and how it continues to evolve. In all these factors, a methodical study and timed developmental steps are essential. Comparative advantageoccurs when a country cannot produce a product more efficiently than the other country; however, itcanproduce that product better and more efficiently than it does other goods. The Instruments used in Protectionism Policy. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. International tradeis then the concept of this exchange between people or entities in two different countries. Focused on MNCs and their efforts to gain a competitive. For every hour Miranda decides to type instead of do legal work, she would be giving up $460 in income. the control of resources or favorable access to raw materials. Compare and contrast different trade theories. In a hypothetical two-country world, if Country A could produce a good cheaper or faster (or both) than Country B, then Country A had the advantage and could focus on specializing on producing that good.

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