Chapter 5.

Trade Theories
• The Chinese have absolute advantage in both products,
• The US has comparative advantage in bicycle production and
• The Chinese have comparative advantage in computer production.
Porter sees four broad areas in a nation that lead to international competitive
companies in different industries. These include:
• Firm strategy, structure, and rivalry: how a company is run and how it competes.
• Related and supporting industries: the existence of suppliers and related talents.
• Demand conditions: the home country demand for the industry’s output.
• Factor endowments: similar to HO theory but with additional possibilities.
He argues that these areas form a national diamond of interrelated factors, and
that an industry must have advantages in most or all to achieve and maintain
competitive success.