While export-oriented companies usually support protectionist policies that favor their industries or firms, other companies and consumers are hurt by protectionism. Compare and contrast different trade theories. 2. The barriers to entry that corporations may seek to optimize include: Porters National Competitive Advantage Theory. Firm Strategy, Structure, and Rivalry - Apple was founded in arguably the most innovative and entrepreneurial country in the world, with early rivals such as IBM, Xerox, Commodore, and Tandy all competing for a slice of the emerging consumer electronics market. Criticized by some and applauded by others, its clear that Chinas investment is encouraging development in Africa. The four determinants are (1) local market resources and capabilities, (2) local market demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. Comparative advantage occurs when a country cannot produce a product more efficiently than the other country; however, it can produce that product better and more efficiently than it does other goods. Great power rivalry is again becoming a principal theme of global politics. . Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Hence these countries have become the optimal locations for labor-intensive industries like textiles and garments. We also acknowledge previous National Science Foundation support under grant numbers 1246120, 1525057, and 1413739. Nevertheless, they remain relatively new and minimally tested theories. The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry. In Globalization 1.0, nations dominated global expansion. Countries dont have absolute advantages in many areas of production or services and, in fact, the factors of production arent neatly distributed between countries. China is accused by some of ignoring human rights crises in the continent and doing business with repressive regimes. Furthermore, the benefit to local workers may be diminished as Chinese companies bring in some of their own workers, keeping local wages and working standards low. The objective of each country was to have atrade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid atrade deficit, or a situation where the value of imports is greater than the value of exports. Global rivalry is a key element in international business (IB). One way that many of these new nations promoted exports was to impose restrictions on imports. Today, the PC is in the standardized product stage, and the majority of manufacturing and production process is done in low-cost countries in Asia and Mexico. Chinas success in Africa is due in large part to the local political environment in each country, where either one or a small handful of leaders often control the power and decision making. 5. Global Strategic Rivalry Theory, Sample Cover Letter For Magazine Editor, Top Article Review Ghostwriting Services For School, What Makes A Good Curriculum Vitae, How To Structure A Professional Essay Fonts, Bon Star Hotel Case Study, Cheap Cheap Essay Ghostwriter Services Uk . The collective strength of these forces determines the profit potential of an industry and thus its attractiveness. Andrew Rice, Why Is Africa Still Poor?, The Nation, October 24, 2005, accessed December 20, 2010. These examples show that there are large companies that have the potential to directly compete against Apple Inc. They may need or want the goods or services. For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. However, what remains clear is that international trade is complex and is impacted by numerous and often-changing factors. To answer this challenge, David Ricardo, an English economist, introduced the theory of comparative advantage in 1817. The focus was on how multinational firms sought to gain a competitive advantage in the global marketplace. Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. 8. Global Strategic Rivalry Theory The continuous evolutionary behavior of international trade theories brings us back in the 1980's. Where Kalvin Lancaster and Paul Krugman introduced the concept of strategies, based on global level rivalries, targeting multinational corporations. This theory is often most useful in understanding trade in goods where brand names and product reputations are important factors in the buyers decision-making and purchasing processes. The Instruments used in Protectionism Policy. The PC was a new product in the 1970s and developed into a mature product during the 1980s and 1990s. In practice, governments and companies use a combination of these theories to both interpret trends and develop strategy. International trade is the concept of this exchange between people or entities in two different countries. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010. In contrast, another country may not have any useful absolute advantages. 2. 3. To better understand how modern global trade has evolved, its important to understand how countries traded with one another historically. 4. In the end you will have gained great knowledge on both: the strategy concept as well as Uber (in one . First, global strategic rivalry theory was developed to examine the impact of trade flows arising from global competition between multi-national corporations. What are the differences between these theories, and how did the theories evolve? As professor and author Deborah Brautigam notes, Chinas current experiment in Africa mixes a hard-nosed but clear-eyed self-interest with the lessons of Chinas own successful development and of decades of its failed aid projects in Africa. 4, According toCNN, China has increasingly turned to resource-rich Africa as Chinas booming economy has demanded more and more oil and raw materials.5 Trade between the African continent and China reached $106.8 billion in 2008, and over the past decade, Chinese investments and the countrys development aid to Africa have been increasing steadily.China-Africa Trade up 45 percent in 2008 to $107 Billion, 6 Chinese activities in Africa are highly diverse, ranging from government to government relations and large state owned companies (SOE) investing in Africa financed by Chinas policy banks, to private entrepreneurs entering African countries at their own initiative to pursue commercial activities.7, Since 2004, eager for access to resources, oil, diamonds, minerals, and commodities, China has entered into arrangements with resource-rich countries in Africa for a total of nearly $14 billion in resource deals alone. Part 2: An in-depth, real-world example focusing on a single company - in this case: Uber. Developed in the sixteenth century,mercantilismwas one of the earliest efforts to develop an economic theory. Let us assume that there are two countries, X and Y. X produce rice at a very low price (in comparison to Y). Ricardo reasoned that even if Country A had the absolute advantage in the production ofbothproducts, specialization and trade could still occur between two countries. . 7. 6-22. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010, http://www.foreignaffairs.com/articles/65916/deborah-brautigam/africa%E2%80%99s-eastern-promise. In this section, we'll look at a full worked example of Porter's Five Forces model to help you make effective business decisions. For example, factor disadvantages will not lead firms to innovate unless there is sufficient . When they explore exporting, the companies often find that markets that look similar to their domestic one, in terms of customer preferences, offer the most potential for success. Mercantilism The oldest of all international trade theories, Mercantilism, dates back to 1630. These advantages in the factors of production have helped the United States become the largest and richest economy in the world. For example, Durand and Wrigley (2009) reports that Walmart and Carrefour compete to penetrate into new markets to expand market share. The theory assumed that production of the new product will occur completely in the home country of its innovation. By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. This theory focuses on how companies can get a competitive advantage when competing against global firms in the same industry. A firm can gain a competitive advantage through: It is done by brand name, trademark, patent/copyright, unique formula etc. Discuss which strategy seems to be the most successful in your selected industry. Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an economic theory. A HIERARCHICAL MODEL FOR VISUAL COMPETETION. His theory focused on explaining why some nations are more competitive in certain industries. It also has extensive access to capital. Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Third-party materials are the copyright of their respective owners and shared under various licenses. Porter's Diamond Model, also known as the Theory of National Competitive Advantage of Industries, is a diamond-shaped framework that focuses on explaining wh. Almost every country at some point in time follows this approach of protectionist policies, and this is definitely important. China in Africa: Developing Ties, BBC News, November 26, 2007, accessed December 20, 2010, http://news.bbc.co.uk/2/hi/africa/7086777.stm. 12. By having not just excellent engineering, but also excellent IT raises the bar of entry for potential competitors. 2.1 International Trade by BABU JOHN MARIADOSS is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted. The threat of new entrants to the market. Production would also become more efficient, because there would be an incentive to create faster and better production methods to increase the specialization. Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity. He studied firms that were successful in competing in international markets and concluded that; Firms struggle to dominate world markets by - Owning intellectual property rights - Investing in research & development - Achieving economies of scale & scope 4. We hire a huge amount of professional essay writers to make sure that our essay service can deal with any subject, regardless of complexity. In the Republic of the Congo, Chinese teams are building a hydropower project funded by a Chinese government loan, which will be repaid in oil. In the 1960s this was a useful theory to explain the manufacturing success of the United States. Product Life Cycle Theory. His theory focused on explaining why some nations are more competitive in certain industries. In contrast, another country may not haveanyuseful absolute advantages. They may need or want the goods or services. Hire a Writer. The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. After reading this section, students should be able to , Foreign companies have been doing business in Africa for centuries. -Global Strategic Rivalry Theory : focuses on firms' competitive advantage. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. For example, to illustrate rivalry in oligopolistic markets, the authors look at rivalry between United and American . In this case, you would create a strategy to sell essentially the same purses in every location. By the mid-twentieth century, the theories began to shift to explain trade from a firm, rather than a country, perspective. Nevertheless, they remain relatively new and minimally tested theories. Our worked example is based on a fictitious business owner called Martin. Porter's Five Forces is one of the most traditional, well-known, and most widely used strategic macro analysis models.Used in conjunction with a PESTLE analysis, it helps you understand the competitive forces at work in an industry and how they affect the profitability of your business. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010, http://www.foreignaffairs.com/articles/65916/deborah-brautigam/africa%E2%80%99s-eastern-promise. In subsequent years, economists have noted historically at that point in time, labor in the United States was both available in steady supply and more productive than in many other countries; hence it made sense to export labor-intensive goods. Anarchism Pluralism refers to a political philosophy which asserts that: both public and private groups are important in a well-functioning political system. Nevertheless, whether to access the regions rich resources or develop local markets for Chinese goods and services, China intends to be a key foreign investor in Africa for the foreseeable future.12. This is particularly true in high-technology industries where substantial sunk costs are committed to R&D. The same applies to marketing-intensive industries where firms invest in trademarks and brands. Example #1. Her productivity and income will be highest if she specializes in the higher-paid legal services and hires the most qualified administrative assistant, who can type fast, although a little slower than Miranda. 2004 Prentice Hall 6-2 Chapter Objectives_1 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 For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. Their theory is based on a countrys production factorsland, labor, and capital, which provide the funds for investment in plants and equipment. These theories are referred to as modern and are firm-based or company-based. He stated that trade should flow naturally according to market forces. In reality, the world economy is more complex and consists of more than two countries and products. As a result, its not clear that any one theory is dominant around the world. Place your order by filling in the form on our site, or contact our customer support agent requesting someone write my essay, and you'll get a quote. In contrast to classical, country-based trade theories, the category of modern, firm-based theories emerged after World War II and was developed in large part by business school professors, not economists. This will in turn help shape the strategic moves of your own organization. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Factors that were in great supply relative to demand would be cheaper; factors in great demand relative to supply would be more expensive. In reality, the world economy is more complex and consists of more than two countries and products. With this investment, Angola hired Chinese companies to build much-needed roads, railways, hospitals, schools, and water systems. sample size be of sufficient size to provide a good estimate of the actual population under study (in this case, countries following export oriented policies). In other words, if people in other countries buy more from you (exports) than they sell to you (imports), then they have to pay you the difference in gold and silver. Essentials of Strategic Management - J. David Hunger 2013-08-27 .
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