It refers to the distinctive assets competencies and

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It refers to the distinctive assets, competencies, and capabilities that are developed or acquired by the firm. The collective competitive advantages held by the firms in a nation are the basis for the competitive advantages of the nation at large. International Business: The New Realities 6-10
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Examples of Firm Competitive Advantage Dell’s prowess in the management of its global supply chain Samsung’s technological leadership in flat-panel televisions Cadbury’s capabilities in international marketing and distribution Herman Miller’s design strengths in office furniture (e.g., Aeron chairs) International Business: The New Realities 6-11
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Absolute Advantage Principle International Business: The New Realities 6-12 A country should produce only those products in which it has absolute advantage or can produce using fewer resources than another country (Labor Cost in Days of Production for One Ton)
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Adam Smith (1723-1790) 6-13
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Comparative Advantage Principle International Business: The New Realities 6-14 It is beneficial for two countries to trade even if one has absolute advantage in the production of all products; what matters is not the absolute cost of production but the relative efficiency with which it can produce the product (Labor Cost in Days of Production for One Ton)
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Comparative Advantage Principle (cont’d) International Business: The New Realities “Two men can make both shoes and hats, and one is superior to the other in both employments, but in making hats he can only exceed his competitor by one fifth or 20 percent, and in making shoes he can excel him by one third or 33 percent; Will it not be for the interest of both that the superior man should employ himself exclusively in making shoes and the inferior man in making hats?” David Ricardo, 1817
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Comparative Advantage Principle (cont’d) While Germany can make both items cheaper than France, it is still beneficial for Germany to trade with France. The key is the ratio of production costs. In the exhibit, Germany is comparatively more efficient at producing cloth than wheat: it can produce three times as much cloth as France (30/10), but only two times as much wheat (40/20). Germany should specialize in producing cloth and import all the wheat it needs from France. France should specialize in producing wheat and import all its cloth from Germany. Each country benefits by specializing in the product in which it has a comparative advantage and importing the other product. International Business: The New Realities 6-16
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Limitations of Early Trade Theories Fail to account for international transportation costs. Governments distort normal trade by selectively imposing protectionism (e.g., tariffs) or investing in certain industries (e.g., via subsidies).
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