griffin06_final_im - CHAPTER 6 International Trade and...

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CHAPTER 6 International Trade and Investment Theory After studying this chapter, students should be able to: > Understand the motivation for international trade. > Summarize and discuss the differences among the classical country-based theories of international trade. > Use the modern, firm-based theories of international trade to describe global strategies adopted by businesses. > Describe and categorize the different forms of international investment. > Explain the reasons for foreign direct investment. > Summarize how supply, demand, and political factors influence foreign direct investment. LECTURE OUTLINE OPENING CASE: Caterpillar: Making Money By Moving Mountains The opening case describes the operations of a truly international firm, Caterpillar. The company is involved in many forms of international business, including both international trade and international investment. Key Points The world’s largest producer of heavy earth-moving and construction equipment, Caterpillar is a complex international firm that has a 30% share of the global market. The company’s operations are spread over five continents, more than a quarter of its employees work outside of the United States, and nearly half of its output in 1996 was purchased by foreign customers. The two competitive advantages that have enabled Caterpillar to attain its position in the market are a commitment to quality and a worldwide network of dealers who sell and service the company’s products.
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80 Chapter 6 Caterpillar is both an importer and an exporter, an international investor and borrower, and it is involved in international licensing and franchising agreements. In spite of Caterpillar’s international position, it faces strong competitive challenges from rival firms, particularly Japan’s Komatsu (see the closing case for more information on Komatsu), and pressures from its labor force. Additional Case Application Caterpillar is an interesting case study because the company is so involved in international business. It is involved not only in international trade and investment, but also international licensing and franchising. Students can be asked to debate the merits of such an extensive involvement in the international marketplace, particularly considering the opportunities and threats Caterpillar has as a result of its position as a global company, and what opportunities and threats face a company that is not as involved in the international marketplace. CHAPTER SUMMARY Chapter Six examines the underlying economic forces that shape and structure the international business transactions of firms. It discusses the major theories that explain and predict trade and investment. I.
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griffin06_final_im - CHAPTER 6 International Trade and...

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