ibus week 7 - LISA YANG IBUS20002 Business in the Global Economy COMPARATIVE VS COMPETITIVE ADVANTAGE \u25cf Apple manufactures all of its products outside

ibus week 7 - LISA YANG IBUS20002 Business in the Global...

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LISA YANG IBUS20002 Business in the Global Economy COMPARATIVE VS. COMPETITIVE ADVANTAGE Apple manufactures all of its products outside US → core operations: value adding, marketing, product development Apple orchestrates its value chains via contractual relations with suppliers around the world Some 700 000 people engineer, build and assemble its products under contract. One of Apple’s goals is to obtain comparative advantages from specific countries. Comparative advantage: Refers to superior features of a country that provide distinctive benefits, Inherited resources: such as labour and land Acquired resources: such as entrepreneurial orientation and innovative capacity Apple suppliers excel at innovative production and assembly processes Innovation promotes productivity, the value of output produced by a unit of labour or capital. Improved productivity is raising living standards in EMs such as China, India, Mexico and Poland. Apple enjoys a competitive advantage by: controlling cutting-edge knowledge in the development, design and marketing of smartphones, computers and other products cutting the cost of outsourced value chain activities; increased profit earnings help it invest in and maintain competencies Competitive advantage: Refers to assets and competencies that are difficult for competitors to imitate and which therefore help firms to succeed. Also known as firm-specific advantages CLASSIC TRADE THEORY (1) Mercantilism (1550s) → “Exports are good, imports are bad” National prosperity results from maximising exports and minimising imports → Positive balance of trade Trade as zero-sum game “The ordinary means (‘way’) therefore to increase our wealth and treasure is by foreign trade, wherein we must ever observe this rule: to sell more to strangers yearly than we consume of theirs in value” (Thoman Mun, 1630) Flaws of Mercantilism David Hume (1752) English trade surplus leads to inflow of gold → high inflow leads to inflation in England Outflow of gold leads to cheaper prices in France → France buys fewer English products (becoming more expensive) but England buys more French products (as they are becoming cheaper) English surplus would disappear → no country can sustain a trade surplus in the long-run More exports strengthens currency but weakens international competitiveness for exporting industries CLASSIC TRADE THEORY (2) Adam Smith (1776): → specialisation and trade using absolute advantage “Every man lives by exchanging.” Notion of a country’s absolute advantage : efficiency in producing product X (favourable climate, soil, skills…) Countries specialise and trade their specialised output:
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