International-Business-Environments-and-Operations

Copyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-1PartThreeTheoriesandInstitutions:TradeandInvestmentInternationalBusinessEnvironmentsandOperationsCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-2ChapterSixInternationalTradeandFactorMobilityTheoryCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-3ChapterObjectives•Tounderstandtheoriesofinternationaltrade•Toexplainhowfreetradeimprovesglobalefficiency•Toidentifyfactorsaffectingnationaltradepatterns•Toexplainwhyacountry’sexportcapabilitiesaredynamic•Tounderstandwhyproductionfactors,especiallylaborandcapital,moveinternationally•ToexplaintherelationshipbetweenforeigntradeandinternationalfactormobilityCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-4TradeTheoryHelpsmanagersandgovernmentpolicymakersfocusonthesequestions:•Whatproductsshouldweimportandexport?•Howmuchshouldwetrade?•Withwhomshouldwetrade?Copyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-5InternationalOperationsandEconomicConnectionsCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-6WhatthemajortradetheoriesDoandDon’tdiscussCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-7InterventionistTheoriesMercantilisttheoryproposedthatacountryshouldtrytoachieveafavorablebalanceoftrade(exportmorethanitimports)Neomercantilistpolicyalsoseeksafavorablebalanceoftrade,butitspurposeistoachievesomesocialorpoliticalobjectiveCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-8FreeTradeTheories•AbsoluteAdvantageSuggestsspecializationthroughfreetradebecauseconsumerswillbebetteroffbuyingforeign-madeproductspricedmorecheaplythandomesticones•ComparativeAdvantageAlsoproposesspecializationthroughfreetradebasedonthebeliefthattotalglobaloutputcanincreaseevenifonecountryhasanabsoluteadvantageintheproductionofallproductsCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-9TheoriesofSpecialization•Bothabsoluteandcomparativeadvantagetheoriesarebasedonspecialization•Assumptionspolicymakersquestion:fullemploymenteconomicefficiencydivisionofgainstwocountries,twocommoditiestransportcostsstaticsanddynamicsservicesproductionnetworksmobilityCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-10TradePatternTheoriesTheoryofCountrySizeFactor-ProportionsTheoryCountrySimilarityTheoryProductLifeCycleTheoryDiamondofNationalAdvantageCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-11TheoryOfCountrySize•Countrieswithlargelandareasareapttohavevariedclimatesandnaturalresources•Theyaregenerallymoreself-sufficientthansmallercountries•Largecountries’productionandmarketcentersaremorelikelytobelocatedatagreaterdistancefromothercountries,raisingthetransportcostsofforeigntradeCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-12Factor-ProportionsTheory•Acountry’srelativeendowmentsofland,labor,andcapitalwilldeterminetherelativecostsofthesefactors•FactorcostswilldeterminewhichgoodsthecountrycanproducemostefficientlyCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-13WorldwideTradeofMajorManufacturedGoodsCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-14Country-SimilarityTheory•Mosttradetodayoccursamonghigh-incomecountriesbecausetheysharesimilarmarketsegmentsandbecausetheyproduceandconsumesomuchmorethanemergingeconomies•Muchofthepatternoftwo-waytradingpartnersmaybeexplainedbyculturalsimilaritybetweenthecountries,politicalandeconomicagreements,andbythedistancebetweenthemCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-15ProductLifeCycle(PLC)Theory•Companieswillmanufactureproductsfirstinthecountriesinwhichtheywereresearchedanddeveloped,almostalwaysdevelopedcountries•Overtheproduct’slifecycle,productionwillshifttoforeignlocations,especiallytodevelopingeconomiesastheproductreachesthestagesofmaturityanddeclineCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-16LifeCycleoftheInternationalProductCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-17TheDiamondofNationalAdvantage•Fourconditionsareimportantforcompetitivesuperiority:demandconditionsfactorconditionsrelatedandsupportingindustriesfirmstrategy,structure,andrivalryCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-18LimitationsoftheDiamondofNationalAdvantage•Domesticexistenceofallconditions:DoesnotguaranteeanindustrywilldevelopIsnotnecessarywithglobalizationCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-19FactorMobilityTheoryCapitalandlabormoveinternationallyto:•Gainmoreincome•FleeadversepoliticalsituationsCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-20EffectsofFactorMovements•Factormovementsalterfactorendowments.•Factormovementsaresubstantialformanycountriesandinsignificantforothers.•Althoughlaborandcapitalaredifferentproductionfactors,theyareintertwined.•ProsandconsofoutwardandinwardmigrationCopyright©2011PearsonEducation,Inc.publishingasPrenticeHall6-21TheRelationshipbetweenTradeandFactorMobility•Capitalandlabormoveinternationallytogainmoreincomeandfleeadverse