Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. Africa remains a continent plagued by a continued combination of factors, including competing colonial political and economic interests; poor and corrupt local leadership; war, famine, and disease; and a chronic shortage of resources, infrastructure, and political, economic, and social will.2 And yet, through the bleak assessments, progress is emerging, led in large part by the successful emergence of a free and locally powerful South Africa. U.S.-China strategic rivalry is intensifying, and nowhere more so than in the Indo-Pacific, where East Asia in particular, with the South China Sea and the Taiwan Strait, is the central arena. A few African countries have attracted the bulk of Chinas FDI in Africa: Sudan is the largest recipient (and the 9th largest recipient of Chinese FDI worldwide), followed by Algeria (18th) and Zambia (19th).9, Observers note that African governments can learn from the development history of China and many Asian countries, which now enjoy high economic growth and upgraded industrial activity. These firms themselves have a global competitive advantage. While a simplistic definition, the factors that impact trade are complex, and economists throughout the centuries have attempted to interpret trends and factors through the evolution of trade theories. Here are some real-world examples of the three key types of global strategies: Standardization strategy example Imagine that you want to create a standardization strategy for your luxury purse company. 11. In this firm-based theory, Linder suggested that companies first produce for domestic consumption. In the early 1950s, Russian-born American economist Wassily W. Leontief studied the US economy closely and noted that the United States was abundant in capital and, therefore, should export more capital-intensive goods. What Is a Global Strategy? (With Types and Examples) Firms will encounter global competition in their industries. By working together with these firms the car industry can enhance its national competitive advantage. Porter's Five Forces - The Framework Explained . The threat of new entrants is low. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. 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. What Is Porter's Diamond Model And Why It Matters In Business These theories are referred to as modern and are firm-based or company-based. The best recent historical example of this effect was Germany's turn of the century drive to build a fleet capable of challenging Great Britain's. In this case, a single German policy choice ended an Anglo-French enmity that had lasted over 800 years and turned the British Empire's full attention to the German threat. In 1776, Adam Smith questioned the leading mercantile theory of the time in The Wealth of Nations.Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: W. Strahan and T. Cadell, 1776). Global strategic rivalry theory is about how multinational companies need to gain a competitive advantage against other multinational companies in their industry through activities such as research and development. International Trade - Definition, Theory, Examples, Benefits Product begins to be imported in the innovative country. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. 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. Between 2010 and 2018 People or entities trade because they believe that they benefit from the exchange. In 2007, the UNCTAD (United Nations Conference on Trade and Development) Press Office noted the following: Over the past few years, China has become one of Africas important partners for trade and economic cooperation. the ownership of intellectual property rights, unique business processes or methods as well as extensive experience in the industry, and. In its simplest sense, mercantilists believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. A modern, firm-based international trade theory that states that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. Nearly every country, at one point or another, has implemented some form of protectionist policy to guard key industries in its economy. The effect of one point depends on the others. The difference between these two theories is subtle. In addition, the beginning of exceptional and helpful methods for industrialized as well as scheming the entrance to a raw substance will also come helpful in the way. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. Japan, Taiwan, China, etc. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. 5. Theories of international trade - SlideShare In addition to the four determinants of the diamond, Porter also noted that government and chance play a part in the national competitiveness of industries. Developed in the sixteenth century,mercantilismwas one of the earliest efforts to develop an economic theory. Summit Shows Chinas Africa Clout, BBC News, November 6, 2006, accessed December 20, 2010, http://news.bbc.co.uk/2/hi/business/6120500.stm. In the continuing evolution of international trade theories, Michael Porter of Harvard Business School developed a new model to explain national competitive advantage in 1990. United Nations Conference on Trade and Development, Foreign Direct Investment in Africa Remains Buoyant, Sustained by Interest in Natural Resources, press release, September 29, 2005, accessed December 20, 2010. 2.1 International Trade - Core Principles of International Marketing When two firms are rivals, success often depends on first-mover advantage. Nevertheless, the United States also imports a vast amount of goods and services, as US consumers use their wealth to purchase what they need and wantmuch of which is now manufactured in other countries that have sought to create their own comparative advantages through cheap labor, land, or production costs. Reviews. 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. Their theory focused BINOCULAR RIVALRY. Global Strategic Rivalry Theory of International Trade - QS Study Literature Review 3.1. Smith offered a new trade theory called absolute advantage, which focused on the ability of a country to produce a good more efficiently than another nation. But, however "normal" it may be, great-power conflict is nonetheless disconcerting and dangerous. Focused on MNCs and their efforts to gain a competitive. Companies in markets with high barriers to entry whether through regulation, high fixed and/or start-up costs, protected intellectual . Global Strategic Rivalry Theory National Competitive Advantage Theory Above are the 7 different types of international trade theories, which are presented by the various authors in between 1630 and 1990. China in Africa: Developing Ties, BBC News, November 26, 2007, accessed December 20, 2010, Chapter 1: Introduction to International Marketing, 1.3 The Motivation for International Marketing, Chapter 2: International Business and Trade, 2.2 International Economic Cooperation among Nations, 2.5 The United Nations and the Impact on Trade, Chapter 3: Social and Cultural Environment, 3.1 Factors Shaping the Global Marketing Environment, Chapter 4: The Economic and Political Environment, Chapter 5: Economic Development in the World, 6.2 Global Market Opportunity Assessment - PESTEL Analysis, 6.3 Global Market Opportunity Assessment - CAGE Analysis, 6.4 Global Market Opportunity Assessment - Scenario Planning and Analysis, 6.7 Using Demographics to Guide Global Marketing Strategy, 9.4 Determinants of Global Brand Structure, Chapter 10: Global Channels and Supply Chains, 12.4 Currency Fluctuations and Global Pricing, Chapter 13: The International Marketing Plan, 13.2 Writing the International Marketing Plan, Core Principles of International Marketing, http://online.wsj.com/article/SB10001424052748704804204575069511746613890.html, http://www.thenation.com/article/why-africa-still-poor?page=0,1, http://www.foreignaffairs.com/articles/65916/deborah-brautigam/africa%E2%80%99s-eastern-promise, http://articles.cnn.com/2010-10-15/world/china.africa.trade_1_china-and-africa-link-trade-largest-trade-partner?_s=PM:WORLD, http://www.chinadaily.com.cn/china/2009-02/11/content_7467460.htm, http://www.ccs.org.za/wp-content/uploads/2010/03/ENGLISH-Evaluating-Chinas-FOCAC-commitments-to-Africa-2010.pdf, http://www.unctad.org/Templates/Webflyer.asp?docID=8172&intItemID=3971&lang=1, http://news.bbc.co.uk/2/hi/africa/7086777.stm, http://news.bbc.co.uk/2/hi/business/6120500.stm, Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, Around 5,200 years ago, Uruk, in southern Mesopotamia, was probably the first city the world had ever seen, housing more than 50,000 people within its six miles of wall. Example Boeing is the most successful aircraft manufacturing because it does a vast amount of study for its competitors by its R&D department. This section has sought to highlight the basics of international trade theory to enable you to understand the realities that face global businesses. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. China Daily, February 11, 2009, accessed April 23, 2011, http://www.chinadaily.com.cn/china/2009-02/11/content_7467460.htm. There are two main categories of international tradeclassical, country-based and modern, firm-based. A firm can gain a competitive advantage through: It is done by brand name, trademark, patent/copyright, unique formula etc. However, his research using actual data showed the opposite: the United States was importing more capital-intensive goods. 13. For every hour Miranda decides to type instead of do legal work, she would be giving up $460 in income. X is a developing nation. 12. A second flaw in the data is that they treat states as equals in the control of resources or favorable access to raw materials. Establishing a thriving business overseas can. 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. A person or a country will specialize in doing what they do relatively better. 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. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. In this case, you would create a strategy to sell essentially the same purses in every location. Tracy Hon, Johanna Jansson, Garth Shelton, Liu Haifang, Christopher Burke, and Carine Kiala, Evaluating Chinas FOCAC Commitments to Africa and Mapping the Way Ahead(Stellenbosch, South Africa: Centre for Chinese Studies, University of Stellenbosch, 2010), 1, accessed December 20, 2010. 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. Find examples of each international strategy for your industry. 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. The theory assumed that production of the new product will occur completely in the home country of its innovation. The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry. 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. Product life cycle theory. (AACSB: Reflective Thinking, Analytical Skills). Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. China in Africa: Developing Ties, BBC News, November 26, 2007, accessed December 20, 2010, http://news.bbc.co.uk/2/hi/africa/7086777.stm. Theories of international trade - iPleaders Porter's Five Forces Example. . While they have helped economists, governments, and businesses better understand international trade and how to promote, regulate, and manage it, these theories are occasionally contradicted by real-world events. This theory focuses on how companies can get a competitive advantage when competing against global firms in the same industry. U.S.-China Strategic Rivalry in the Indo-Pacific | DIIS Ricardo reasoned that even if Country A had the absolute advantage in the production of both products, specialization and trade could still occur between two countries. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Once again, the major aim here is for turnover maximization for those companies and the social and environmental aspects are not addressed. the control of resources or favorable access to raw materials. Criticized by some and applauded by others, its clear that Chinas investment is encouraging development in Africa. 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 Over time, economists have developed theories to explain the mechanisms of global trade. The ongoing COVID 19-pandemic has only heightened tensions and mistrust further between Washington and Beijing. It turns out that Miranda can also type faster than the administrative assistants in her office, who are paid $40 per hour. Although mercantilism is one of the oldest trade theories, it remains part of modern thinking. In a hypothetical two-country world, if Country A could produce a good cheaper or faster (or both) than Country B, then Country A had the advantage and could focus on specializing on producing that good. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. Similarly, if Country B was better at producing another good, it could focus on specialization as well. They are: 1. This condition makes it possible for many smaller retailers to compete against Walmart. Countries such as Japan, China, Singapore, Taiwan, and even Germany still favor exports and discourage imports through a form of neo-mercantilism in which the countries promote a combination of protectionist policies and restrictions and domestic-industry subsidies. Martin Meredith, The Fate of Africa (New York: Public Affairs, 2005). NAFTA is an example of a trade bloc in which members reduce or remove all trade barriers between themselves, but can have trade . Andrew Rice, Why Is Africa Still Poor?, The Nation, October 24, 2005, accessed December 20, 2010. Global strategic rivalry theory emerged in the 1980s and Trade is the concept of exchanging goods and services between two people or entities. Global Strategic Rivalry Theory Economists Paul Krugman and Kelvin Lancaster came up with this theory in the 1980s. Andrew Rice, Why Is Africa Still Poor?, The Nation, October 24, 2005, accessed December 20, 2010, http://www.thenation.com/article/why-africa-still-poor?page=0,1. They may need or want the goods or services. 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. Firm Strategy and Rivalry is the competition in the home market that drives innovation and quality. Comparison of theories of International Trade advantage against other global firms in their . The PC was a new product in the 1970s and developed into a mature product during the 1980s and 1990s. Strategic group analysis is used to examine the competitive environment and the rivalry among competitors within an industry. Theories of international trade 1 of 19 Theories of international trade Apr. International Trade Theory - All You Need to Know - eFinanceManagement As a result, its not clear that any one theory is dominant around the world. Global Strategic Rivalry Theory Strategic rivalry theory was presented in the 1980s by American economists Paul Krugman and Kelvin Lancaster. Both of these categories, classical and modern, consist of several international theories. Customers, suppliers, substitutes and potential entrantscollectively referred to as an extended rivalryare competitors to companies within an industry. Strategy 1: Porter's Diamond explained with an example - LinkedIn Thus, the overall threat of new entry is moderate. You'll also find short examples of applying each of the Forces separately in the sections above. Firms struggle to develop sustainable competitive advantage. Some countries have a disproportionate benefit of some factors. Determine which international trade theory is most relevant today and how it continues to evolve. Free-trade advocates highlight how free trade benefits all members of the global community, while mercantilisms protectionist policies only benefit select industries, at the expense of both consumers and other companies, within and outside of the industry. The focus was on how multinational firms sought to gain a competitive advantage in the global marketplace. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. The difference between these two theories is subtle. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Global Strategic Rivalry Theory: This theory was forwarded in 1980 by Paul Krugman. Source: China in Africa: Developing Ties, BBC News, last updated November 26, 2007, accessed June 3, 2011,http://news.bbc.co.uk/2/hi/africa/7086777.stm. It helps, Identify the strategic direction of the direct rivals in the industry. Trade is the concept of exchanging goods and services between two people or entities. Why Africa Is Poor: Ghana Beats Up on Its Biggest Foreign Investors, Wall Street Journal, February 18, 2010, accessed February 16, 2011. For this cause cost per unit reduces and new sector/scope is being created for investment consequently, various sized and typed product can be produced. Matt Ridley, Humans: Why They Triumphed,Wall Street Journal, May 22, 2010, accessed December 20, 2010,http://online.wsj.com/article/SB10001424052748703691804575254533386933138.html. Porter's Diamond of National Competitive Theory 8 . 6. Porter Diamond Theory of National Advantage (with real world examples To explain his theory, Porter identified four determinants that he linked together. Great power rivalry is again becoming a principal theme of global politics. In 1776, Adam Smith questioned the leading mercantile theory of the time inThe Wealth of Nations.Adam Smith,An Inquiry into the Nature and Causes of the Wealth of Nations(London: W. Strahan and T. Cadell, 1776).
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