Lesson1:I

nter
nat
ionalBusi
nessandTr
ade
Reference:ht
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ernat
ional
-busi
ness/
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-i
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i
nternati
onal-
tr
ade-th.
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I
nter
nati
onalBusi
ness-i
sdef
inedasbusi
nesst
ransact
ionst
hatt
akepl
ace
acr
ossnati
onalbor
ders.

I
nter
nationalTrade-i
stheconceptoft
heexchangebet
weenpeopl
eorent
it
iesi
n
t
wodi
ff
erentcountri
es.

2Categori
esofInternat
ionalTrade
1.Cl
assical
orCountry-BasedTheor i
es-hi
stori
cal
theor
ies
2.ModernFirm-BasedTheor i
es-perspect
iveofacount
ry

 Cl
assi
calorCount
ry-
BasedTr
adeTheor
ies

 MERCANTI
LISM

Dev elopedi nthesi xteent hcentury,

 mercanti
li
sm wasoneoft heear li
esteffort
s
to dev elop an economi ct heor y.Thi stheoryst ated thata count r
y ’
s weal th was
determi ned byt heamountofi tsgol d and sil
verhol dings.I nit’
ssi mpl estsense,
mer cant i
li
stsbel ievedthatacount ryshouldincreaseitshol dingsofgol dandsi l
verby
promot ingexpor tsanddi scour agingimports.I
not herwor ds, i
fpeopleinot hercountri
es
buymor efrom y ou( exports)thant heysel
ltoy ou( i
mpor ts),thentheyhav et opayy ou
thedi f
fer encei ngol dandsi lv er
.Theobj ectiv
eofeachcount rywast ohav ea  tr
ade
surplus,orasi tuati
onwher et hev alueofexpor t
sar egreat erthanthev al
ueofi mpor ts,
andt oav oida tradedef i
cit,orasi tuati
onwher ethev al
ueofi mportsisgr eaterthanthe
valueofexpor ts.
 ABSOLUTEADVANTAGE(
ADAM SMI
TH)

Smi t
hof fer
edanew t radet heorycal l
ed  absoluteadvant
age,whi chf ocusedon
theabili
tyofacount ryt opr oduceagoodmor eef fi
cient
lythananot hernat ion.Smith
reasoned t hatt r
ade bet ween count r
ies shoul dn’tbe r egul
ated orr estri
cted by
governmentpol icyori nt
ervention.Hest atedt hattradeshouldflownat urall
yaccording
tomar ketforces.Byspeci ali
zation, countri
eswoul dgenerateeff
iciencies,becauset hei
r
l
aborf orcewoul dbecomemor eskilledbydoi ngt hesamet asks.Pr oductionwoul dalso
becomemor eeffi
cient,becauset herewoul dbeani ncenti
vet ocreatef asterandbet t
er
producti
onmet hodst oincreaset hespeci ali
zation.

 COMPARATI
VEADVANTAGE(
DAVI
DRI
CARDO)

Thechal lenget ot heabsol ut

eadv antaget heor ywast hatsomecount ri
esmaybe
bett eratpr oduci ngbot hgoodsand,t herefore,hav eanadv ant
agei many
n   
areas.In
cont rast ,anothercount r
ymaynothav any
e   usefulabsoluteadv antages.Dav i
dRi car
do,
anEngl isheconomi st,i
ntroducedt hetheoryofcompar ati
veadv antagein1817.Ri cardo
reasoned t hatev en ifCount r
y A had t he absol ute advantage int he production
of bot h product s,speciali
zationandt r
adecoul dstil
loccurbet weent wocount ri
es.
Compar ativeadv antage occurswhenacount rycannotpr oduceapr oductmor e
efficientlythant heot hercountry;howev er,it
 can producet hatproductbetterandmor e
efficientlythani tdoesot hergoods.Thedi fferencebet weent heset wotheoriesissubtle.
Compar ative adv antage f ocuses on t he r el
ati
ve pr oductivi
ty dif
fer
ences,wher eas
absol ut eadv antagel ooksatt heabsol ut
epr oduct i
vi
ty .

 HECKSCHER-
OHLI
NTHEORY(
FACTORPROPORTI
ONSTHEORY)

Intheear l
y1900s,t woSwedi sheconomi sts,EliHeckscherandBer ti
lOhl in,
focused t heirat t
enti
on on how a count r
y coul d gai n compar at
ive adv antage by
produci ngpr oductsthatut i
lizedf act
or sthatwer ei nabundancei nt hecount ry.Thei r
theor yisbasedonacount r
y’spr oductionfactors—l and,labor ,
andcapi tal
,whi chprovide
thef undsf orinvestmentinpl antsandequi pment .Theydet ermi nedthatt hecostofany
factororr esour cewasaf unct i
onofsuppl yanddemand.Fact or
st hatwer eingr eat
suppl yrel
at i
vetodemandwoul dbecheaper ;factor singr eatdemandr el
ativetosuppl y
woul dbemor eexpensive.Thei rtheory,al
socal ledt he factorpropor t
ionst heory,stated
thatcount rieswouldpr oduceandexpor tgoodst hatrequi r
edr esourcesorf actor
st hat
werei ngreatsuppl yand,ther efore,cheaperpr oduct i
onf actors.Incont rast,count r
ies
woul di mpor tgoodst hatr equired resourcest hatwer ei nshor tsuppl y
,buthi gher
demand.

 Moder
norFi
rm-
BasedTr
adeTheor
ies

 COUNTRYSI
MILARI
TYTHEORY
 Swedish economi stSt effan Linderdev eloped t he countr
ysi mi l
ari
tyt heory i
n
1961, ashet r i
edt oexplaint heconceptofi ntra-
industr
yt rade.Linder’stheoryproposed
thatconsumer si ncount r
iest hatarei nt hesameorsi mi l
arst ageofdev elopmentwoul d
hav esi mil
arpr eferences.Int hisfir
m- basedt heory,Lindersuggest edt hatcompani es
fi
rstpr oducef ordomest icconsumpt ion.Whent heyexpl oreexpor t
ing,thecompani es
oftenf indthatmar ketsthatl ooksimi lartotheirdomest icone,int ermsofcust omer
preferences, offerthemostpot enti
alforsuccess.Li nder’scount r
ysimi l
arit
ytheoryt hen
statest hatmostt r
adei nmanuf acturedgoodswi llbebetweencount ri
eswi thsimilarper
capitai ncomes,andi ntr
ai ndust rytradewi l
lbecommon.Thi st heoryi sof t
enmost
usefuli nunder standingtradei ngoodswher ebrandnamesandpr oductr eputati
onsar e
i
mpor t antfactorsint hebuy ers’decision- maki
ngandpur chasingpr ocesses.

 PRODUCTLI
FECYCLETHEORY

Ray mondVer non,aHar v

ardBusinessSchoolpr of
essor ,devel
opedthe product
l
ifecy cl
et heor
y  
inthe1960s.Thet heory
,origi
natinginthef ieldofmar ket
ing,stated
thatapr oductl
ifecyclehasthr
eedisti
nctstages:(1)newpr oduct,(2)maturi
ngproduct,
and( 3)standardizedproduct
.Thetheoryassumedt hatproduct i
onofthenewpr oduct
willoccurcompl etel
yinthehomecountryofitsinnovati
on.

 GLOBALSTRATEGI
CRI
VALRYTHEORY

Globalstrategicrivalr
yt heor
yemer gedi nthe1980sandwasbasedont hewor k
ofeconomi stsPaulKr ugmanandKel vinLancaster.Thei rt
heor yfocusedonMNCsand
thei
reffortstogainacompet i
ti
veadv antageagainstot hergl obalf ir
msi ntheiri
ndust ry
.
Fir
mswi l
lencount erglobalcompet iti
onint hei
rindustriesandi nor dertopr osper,they
mustdev elop compet i
ti
v e advantages.The cr iti
calway st hatf irms can obt aina
sustai
nablecompet iti
v eadv antagear ecal l
edt hebar rier
st oent r
yf orthatindust ry
.
The barri
erstoentr y
 refertotheobst aclesanewf ir
m mayf acewhent ryi
ngtoent erinto
anindustryornewmar ket.Thebar rierstoent r
ythatcor porationsmayseekt oopt imize
i
nclude:
1.r esearchanddev elopment ,
2.theowner shipofi ntel
lectualpropertyri
ghts,
3.economi esofscal e,
4.uni quebusinesspr ocessesormet hodsaswel l
asext ensiv eexperi
encei nthe
i
ndust ry
,and
5.thecont r
olofr esourcesorf avorableaccesst orawmat erials.

 PORTER’
SNATI
ONALCOMPETI
TIVEADVANTAGETHEORY

MichaelPort
erofHar vardBusinessSchooldev elopedanew modelt oex plai
n
nati
onal compet i
ti
ve adv antage in 1990.  
Porter’
st heory
 st
ated t hat a nat ion’
s
compet i
ti
venessinanindustrydependsont hecapaci t
yoft heindustrytoinnovateand
upgrade.Histheoryfocusedonexpl ai
ningwhysomenat i
onsaremor ecompet i
tivein
cert
ainindustri
es.Toexpl ainhist heory,Port
eri dent
ifiedfourdet er
mi nant
st hathe
l
inkedtogether.Thefourdeter minantsare(1)localmar ketresourcesandcapabi liti
es,
(2)l
ocalmarketdemandconditi
ons,(
3)l
ocalsuppl
i
ersandcompl
ement
aryi
ndust
ri
es,
and(4)l
ocal
f i
rm char
act
eri
sti
cs.

1.Localmar ketr esourcesandcapabi li

ti
es( factorcondi ti
ons).
Port
err ecognizedt hev alueoft hef act
orpr opor t
ionstheory,whichconsider
s
anation’sresour ces( e.g.
,nat uralr
esour cesandav ai
lablelabor)askeyf act
orsin
deter
mi ni
ngwhatpr oduct sacount r
ywi llimpor torexpor t
.Por t
eraddedt othese
basicfactorsanew l istofadv ancedf actors,whi chhedef inedasski l
ledlabor,
i
nvestment si n educat i
on,t echnology,and i nfr
ast r
ucture.He per ceiv
ed these
advancedfact orsaspr ov i
dingacount rywi thasust ainablecompet i
ti
veadv ant
age.

2.Localmar ketdemandcondi tions. 

Port
erbel ieved thata sophi st i
cat
ed homemar ketiscr i
ti
calto ensur i
ng
ongoing innov at
ion, thereby cr eat ing a sust ai
nable competit
ive adv antage.
Compani es whose domest i
c mar kets ar e sophist
icat
ed, tr
endsetti
ng, and
demandingf orcescontinuousi nnov ationandt hedevelopmentofnewpr oduct sand
technol
ogies.Manysour cescr editt hedemandi ngUSconsumerwi t
hf orcingUS
software compani es t o cont inuousl yi nnovat
e,t hus creat
ing a sust ainabl
e
compet i
ti
veadv antageinsof t
war epr oductsandser vi
ces.

3.Localsuppl i
ersandcompl ementaryi
ndustr
ies.
 
Tor emai
ncompet i
ti
ve,largegl
obalf
ir
msbenef i
tfr
om havingst
rong,eff
ici
ent
supporti
ngandr el
atedindustri
estoprovi
det heinputsrequi
redbyt heindustr
y.
Certai
n i ndust
ri
es cluster geographi
cal
ly, whi
ch pr ovi
des effi
cienci
es and
producti
vi
t y.

4.Localfi
rm charact
eristi
cs. 
Localfirm characteri
sti
cs incl
ude fir
m strat
egy,industry st
ruct
ure,and
i
ndustr
yrival
ry.Localstrat
egyaf f
ectsaf i
rm’scompetit
iveness.Ahealthylevelof
ri
val
rybet
weenl ocalf
ir
mswi l
lspurinnovat
ionandcompetiti
veness.

Inaddit
iont othef ourdet er
minantsoft hedi amond,Por teralsonot edt hat
gover
nmentand chancepl ayapar tinthenat i
onalcompet iti
venessofi ndustri
es.
Gover
nmentscan,byt heiracti
onsandpol ici
es,incr easet
hecompet it
ivenessoff i
rms
andoccasi
onallyenti
reindustr
ies.Porter
’stheory ,alongwiththeot hermoder n,fir
m-
based t
heori
es,of f
ers an interest
ing i
nter
pr et
at i
on ofi nt
ernationalt r
ade trends.
Never
thel
ess,t
heyremainr el
ati
v el
ynewandmi nimallytest
edtheories.