Recommending an outward-oriented trade policy based on such limited data is a questionable use of statistics. Consequently, these firms dominate the world market for high-performanceautomobiles. 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. Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. Global Strategic Rivalry Theory Based on the work of Kelvin Lancaster and Paul Krugman, this theory focuses on multi-national corporations and how they can get a competitive advantage. To explain his theory, Porter identified four determinants that he linked together. By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. 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. Trade is the concept of exchanging goods and services between two people or entities. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. Global Strategic Rivalry Theory of International Trade. His analysis became known as the Leontief Paradox because it was the reverse of what was expected by the factor proportions theory. Developed in the sixteenth century,mercantilismwas one of the earliest efforts to develop an economic theory. Standardized Product Stage: The market for the product stabilizes. 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. 12. The theory, originating in the field of marketing, stated that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. Example Boeing is the most successful aircraft manufacturing because it does a vast amount of study for its competitors by its R&D department. Thebarriers to entryrefer to the obstacles a new firm may face when trying to enter into an industry or new market. Similarly, China provided nearby Nigeria with oil-backed loans to finance projects that use gas to generate electricity. Focused on MNCs and their efforts to gain a competitive. Uruk, its agriculture made prosperous by sophisticated irrigation canals, was home to the first class of middlemen, trade intermediariesA cooperative trade networkset the pattern that would endure for the next 6,000 years.Matt Ridley, Humans: Why They Triumphed, Wall Street Journal, May 22, 2010, accessed December 20, 2010, http://online.wsj.com/article/SB10001424052748703691804575254533386933138.html. United Nations Conference on Trade and Development, Asian Foreign Direct Investment in Africa: United Nations Report Points to a New Era of Cooperation among Developing Countries, press release, March 27, 2007, accessed December 20, 2010, http://www.unctad.org/Templates/Webflyer.asp?docID=8172&intItemID=3971&lang=1. Initial capital outlay varies, but it is typically high in terms of funding for business space, human resources, and equipment, among other variables. The country-based theories couldnt adequately address the expansion of either MNCs orintraindustry trade, which refers to trade between two countries of goods produced in the same industry. 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. After reading this section, students should be able to , Foreign companies have been doing business in Africa for centuries. . France, the Netherlands, Portugal, and Spain were also successful in building large colonial empires that generated extensive wealth for their governing nations. Even though research and development is typically associated with the first or new product stage and therefore completed in the home country, these developing or emerging-market countries, such as India and China, offer both highly skilled labor and new research facilities at a substantial cost advantage for global firms. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Strategic rivalry will colour this relationship for a long time to come. For every hour Miranda decides to type instead of do legal work, she would be giving up $460 in income. 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. 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. This article is structured in 2 parts: Part 1: Explanation of the 5 Forces concept with a large number of short examples from different industries. Let us look at some examples to better understand global commerce. The main historical theories are called classical and are from the perspective of a country, or country-based. The challenge to the absolute advantage theory was that some countries may be better at producing both goods and, therefore, have an advantage in many areas. 7. Linders country similarity theory then states that most trade in manufactured goods will be between countries with similar per capita incomes, and intraindustry trade will be common. Read this introduction to mercantilism and the difference between classical country-based theories and modern firm-based theories. To better understand how modern global trade has evolved, its important to understand how countries traded with one another historically. Pages 55. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Over time, economists have developed theories to explain the mechanisms of global trade. 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. Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory in the 1960s. Miranda is a Wall Street lawyer who charges $500 per hour for her legal services. This strategy is called protectionism and is still used today. The firm-based theories evolved with the growth of the multinational company (MNC). 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). 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. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Essentials of Strategic Management - J. David Hunger 2013-08-27 . 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. 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. It turns out that Miranda can also type faster than the administrative assistants in her office, who are paid $40 per hour. Strategizing on the Indo-Pacific region . Customers, suppliers, substitutes and potential entrantscollectively referred to as an extended rivalryare competitors to companies within an industry. 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. In Globalization 1.0, nations dominated global expansion. For example, the below Venn diagram shows the tension for Apple, Inc. As a result, its not clear that any one theory is dominant around the world. So Germanautomakers such as Daimler-Benz, Porsche, and BMW have chosen to compete on thebasis of quality and high performance that can withstand the stresses of high speeddriving. By working together with these firms the car industry can enhance its national competitive advantage. The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. The barriers to entry refer to the obstacles a new firm may face when trying to enter into an industry or new market. The theories of Smith and Ricardo didnt help countries determine which products would give a country an advantage. are the best examples of such countries. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Global Strategic Rivalry Theory Economists Paul Krugman and Kelvin Lancaster came up with this theory in the 1980s. But, however "normal" it may be, great-power conflict is nonetheless disconcerting and dangerous. The ultimate goal is to identify the opportunities and threats that could impact a business. Determine which international trade theory is most relevant today and how it continues to evolve. 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.
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