Presentation%206%20%28Chap%204-IB200%29

Presentation%206%20%28Chap%204-IB200%29 - IB200 Fall 2010...

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1 C HAPTER 4 T HEORIES OF I NTERNATIONAL T RADE AND I NVESTMENT IB200 Fall 2010 1 2 Learning Objectives 1.Theories of international trade and investment 2.Why nations trade 3.How nations enhance their competitive advantage: contemporary theories 4.Why and how firms internationalize 5.How firms gain and sustain international competitive advantage
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2 P ERSPECTIVES OF THE N ATION AND THE F IRM Competitive advantage Is the concept that helps explain how individual firms can gain and sustain distinctive competence vis-à-vis competitors Nokia’s design and technology leadership in telecommunications Samsung’s leadership in flat -panel TV Herman Miller’s design leadership in office furniture(e.g., Aeron chairs) 4 IB200 Fall 2010
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3 W HY N ATIONS T RADE IB600 Summer 2008 Should Iceland grows its own oranges????!!!!!!!!!! Why Saudi Arabia export Oil? Why does Japan automobiles, consumer electronics ? Why does Switzerland export watches? What has made the U.S. a major exporter of commercial jet aircraft? Some explanations : Climate and natural resources Labor productivity Factor endowment Life-cycle First-mover advantage Competitive advantage Government Policy Free Trade (Restricted or Unrestricted) Protectionism T RADE T HEORY : T IMELINE 6 IB200 Fall 2010 Why Nations Trade
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4 M ERCANTILISM 7 IB200 Fall 2010 Three pillars Maintain trade surplus Government intervention Exploit colonies Inherent flaws World trade is zero-sum game Constrains output and consumption Limits colonies’ market potential Nations accumulate financial wealth by encouraging exports and discouraging imports T HE T HEORY OF A BSOLUTE & C OMPARATIVE A DVANTAGE 8 Adam Smith David Ricardo
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5 ABSOLUTE ADVANTAGE In 1776, Adam Smith attacked the mercantilist assumption that trade is a zero-sum game A country has an absolute advantage in the production of a product when it is more efficient than any other country in producing it (given a country’s endowment of factors of production, that is, land, labor, capital, and technology) Absolute advantage principle : Countries should specialize in the production of goods for which they have an absolute advantage (or can produce using fewer resources than another country) and then trade these goods for the goods produced by other countries 9 IB200 Fall 2010 COMPARATIVE ADVANTAGE
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Presentation%206%20%28Chap%204-IB200%29 - IB200 Fall 2010...

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