EXAMPLES OF ANSWERS HW – CH.

Quick Study 5 (p. 163)

1. Q: What is the new trade theory? Explain what is meant by the term first-mover advantage.
A: The new trade theory argues that: (1) there are gains to be had from specialization and
increasing economies of scale; (2) those companies first to market can create barriers to entry;
and (3) government may have a role to play in assisting its home-based companies. A first-mover
advantage is the economic and strategic advantage gained by being the first company to enter an
industry.

2. Q: Describe the national competitive advantage theory. What is meant by an “advanced” factor?
A: National competitive advantage theory states that a nation’s competitiveness in an industry
depends on the capacity of the industry to innovate and upgrade. An “advanced” factor is
indicative of factors such as skill levels of workers and the quality of technology in a nation.

3. Q: What are the four elements and two influential factors of the Porter diamond?
A: The so-called Porter Diamond consists of four elements that form the basis of competitiveness,
plus the roles of government and chance. Factor conditions include a nation’s basic factors (e.g.,
land, labor, and natural resources) and advanced factors (e.g., skills of the workforce,
technological infrastructure). Today, advanced factors are increasingly important to
competitiveness. Demand conditions refer to the sophistication of buyers in a market—finicky
buyers help a nation to be more competitive. Related and supporting industries that spring up
around a competitive industry form geographic clusters of related economic activity that reinforce
productivity and competitiveness. Firm strategy, structure, and rivalry also influence
competitiveness. Managers committed to producing quality products and an industry structure
that intensifies firm rivalry will help improve competitiveness.
Government and chance play roles in fostering the competitiveness of industries.
Government policies toward industry and export and import regulations can hurt or help
competitiveness. Chance events also can influence national competitiveness.

300 words