Bangladesh University of Professionals Mgt of Int'l Business
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Bangladesh University of Professionals Mgt of Int’l Business 702title style Click to editEB Master Bangladesh University of Professionals Mgt of Int’l Business Lesson Today Click to edit Master title style International Trade and Investment Bangladesh University of Professionals Mgt of Int’l Business Trade title style Click to edit Master Trade is the voluntary exchange of goods, services, assets, or money between one person or organization and another. International trade is trade between residents of two countries. Bangladesh University of Professionals Mgt of Int’l Business Questions Click to Few edit Master title style America has huge reserve of gas, yet pursuing to get gas and oil from other countries, why? Japan buy BMW while German buy Toyota, why? It is war or Cat and Mouse game Never one looks for the betterment of other without self interest Firms that act first often gets first mover advantage German government allows unlimited speed in its highways, why? Bangladesh University of Professionals Mgt of Int’l Business Growth of World Merchandise Exports Click to edit Master title style Total international merchandise trade in 2004 was $9.2 trillion Aprox 22 % of the world’s $40.9 trillion GDP Bangladesh University of Professionals Mgt of Int’l Business Sources of World’s Merchandise Exports, 2004 Click to edit Master title style Quad countries accounted for almost 60 percent of the world’s merchandise exports Exports spark Supplies additional economic Dividend activity in the Wage domestic economy Bangladesh University of Professionals Mgt of Int’l Business Theories Click to Trade edit Master title style sixteenth century Classical country-based Country-based theories are particularly useful for describing trade in commodities—standardized, undifferentiated goods such as oil, sugar, or lumber that are typically bought on the basis of price rather than brand name Firm-based after World War II The firm-based theories are useful in describing patterns of trade in differentiated goods— such as automobiles, consumer electronics, and personal care products, for which brand name is an important component of the customer’s purchase decision. Bangladesh University of Professionals Mgt of Int’l Business Theories of Master International Trade Click to edit title style Country-Based Theories Country is unit of analysis Emerged prior to WWII Developed by economists Explain interindustry trade Mercantilism Absolute advantage Comparative advantage Relative factor endowments Firm-Based Theories Firm is unit of analysis Emerged after WWII Developed by professors Explain intraindustry trade Country similarity theory Product life cycle Global strategic rivalry National competitive advantage Bangladesh University of Professionals Mgt of Int’l Business Mercantilism Click to edit Master title style A country’s wealth is measured by its holdings of gold and silver A country’s goal should be to enlarge holdings of gold and silver by Promoting exports Discouraging imports “Unfavorable” balance of trade—that is, Domestic manufacturers threatened by foreign imports its exports were less than its imports endorsed mercantilist trade Export-oriented manufacturers favored policies, such as those imposing mercantilist trade policies, such as those tariffs or quotas establishing subsidies or tax rebates, Most members of society are hurt which stimulated sales to foreigners by such policies Bangladesh University of Professionals Mgt of Int’l Business Disadvantages of Mercantilism Click to edit Master title style Confuses the acquisition of treasure with the acquisition of wealth Weakens the country because it robs individuals of the ability To trade freely To benefit from voluntary exchanges Forces countries to produce products it would otherwise not in order to minimize imports Neomercantilism has superficial appeal, particularly to patriots who want to strengthen their country’s economy The inefficiencies caused by mercantilism reduce the wealth of the country as a whole, even though certain special interest groups may benefit Bangladesh University of Professionals Mgt of Int’l Business Protectionism Click to edit Master title style Modern mercantilism (neomercantilists) American Federation of Labor-Congress of Industrial Organizations Textile manufacturers Steel companies Sugar growers Peanut farmers Mercantilism does benefit certain members of society it took 40 years of negotiations before Japan grudgingly agreed in the 1990s to allow the importation of foreign rice Nearly every country has adopted some neomercantilist policies to protect key industries Bangladesh University of Professionals Mgt of Int’l Business Advantage ClickAbsolute to edit Master title style Export those goods and services for which a country is more productive than other countries Import those goods and services for which other countries are more productive than it is Smith advocated free trade among countries as a means of enlarging a country’s wealth Assume there are only two countries in the world, France and Japan; only two goods, wine and clock radios; and only one factor of production, labor. In France 1 hour of labor can produce either 2 bottles of wine or 3 clock radios. In Japan 1 hour of labor can produce either 1 bottle of wine or 5 clock radios. Bangladesh University of Professionals Mgt of Int’l Business Comparative Advantage Click to edit Master title style What happens to trade if one country has an absolute advantage in both products? David Ricardo, an early-nineteenth-century British economist, solved this problem by developing the theory of comparative advantage Produce and export those goods and services for which it is relatively more productive than other countries Import those goods and services for which other countries are relatively more productive than it is Absolute Absolute vs Comparative Advantage Click to edit Master title style Comparative Bangladesh University of Professionals Mgt of Int’l Business Export those goods and services for which a country is more productive than other countries Import those goods and services for which other countries are more productive than it is Produce and export those goods and services for which it is relatively more productive than other countries Import those goods and services for which other countries are relatively more productive than it is Bangladesh University of Professionals Mgt of Int’l Business Comparative Advantage Click to edit Master title style with Money One is better off specializing in what one does relatively best Produce and export those goods and services one is relatively best able to produce Buy other goods and services from people who are better at producing them Bangladesh University of Professionals Mgt of Int’l Business Relative Factor Endowments Click to edit Master title style Heckscher-Ohlin Theory What determines the products for which a country will have a comparative advantage? Factor endowments vary among countries Goods differ according to the types of factors that are used to produce them Heckscher and Ohlin developed their theory: A country will have a comparative advantage in producing products that intensively use resources (factors of production) it has in abundance Wheat requires fertile land, oil production requires crude oil reserves, and clothing requires unskilled labor Bangladesh University of Professionals Mgt of Int’l Business Development of Firm-Based Theories Click to edit Master title style Growing importance of MNCs Inability of the country-based theories to explain and predict the existence and growth of intraindustry trade Failure of Leontief and others to empirically validate country-based Heckscher-Ohlin theory Firm-based theories incorporate factors such as quality, technology, brand names, and customer loyalty into explanations of trade flows Bangladesh University of Professionals Mgt of Int’l Business Firm-Based Tradetitle Theories Click to edit Master style Country Similarity Theory Product Life Cycle Theory Global Strategic Rivalry Theory Porter’s National Competitive Advantage Bangladesh University of Professionals Mgt of Int’l Business Country Click to editSimilarity Master titleTheory style Explains the phenomenon of intraindustry trade (as opposed to interindustry trade) Trade between two countries of goods produced by the same industry Japan exports Toyotas to Germany Germany exports BMWs to Japan Intraindustry trade accounts for approximately 40 percent of world trade Linder’s country similarity theory suggests that most trade in manufactured goods should be between countries with similar per capita incomes Bangladesh University of Professionals Mgt of Int’l Business Product Cycle Click to editLife Master titleTheory style Describes the evolution of marketing strategies as a product matures Stages New product Maturing product Standardized product Raymond Vernon of the Harvard Business School, international product life cycle theory traces the roles of innovation, market expansion, comparative advantage, and strategic responses of global rivals in international production, trade, and investment decisions Bangladesh University of Professionals Mgt of Int’l Business Stages in the Product Life Cycle Click to edit Master title style New Product Stage firm develops and introduces an innovative product Maturing Product Stage demand expands as consumers recognize its value Standardized Product Stage market for the product stabilizes Bangladesh University of Professionals Mgt of Int’l Business International Product Life Cycle: Click Innovating to edit Master style Firm’s title Country Bangladesh University of Professionals Mgt of Int’l Business International Product Life Cycle: Other Click toIndustrialized edit Master title style Countries Bangladesh University of Professionals Mgt of Int’l Business International Product Life Cycle: Less Click to Developed edit Master title style Countries Less Other Developed Industrialized Country Country Innovating Firm’s Country Bangladesh University of Professionals Mgt of Int’l Business International Product Life Cycle: Comparative in Countries Click to edit Master title style Bangladesh University of Professionals Mgt of Int’l Business A Master Question Click to edit title style Product life cycle (PLC) theory traces the roles of innovation, market expansion, comparative advantage, and strategic responses of global rivals in international production, trade, and investment decisions. Considering Bangladesh perspective, what should be the right strategy according to the PLC theory? Discuss your view with arguments. Bangladesh University of Professionals Mgt of Int’l Business Global Strategic Rivalry Theory Click to edit Master title style Firms struggle to develop sustainable competitive advantage Advantage provides ability to dominate global marketplace Focus: strategic decisions firms use to compete internationally Global strategic rivalry theory predicts that intraindustry trade will be commonplace Bangladesh University of Professionals Mgt of Int’l Business Sustaining Competitive Advantage Click to edit Master title style Owning intellectual property rights Investing in research and development Achieving economies of scale or scope Exploiting the experience curve Economies of scale occur when a product’s average costs decrease as the number of units produced increases Economies of scope occur when a firm’s average costs decrease as the number of different products it sells increases Another source of firm-specific advantages in international trade is exploitation of the experience curve Bangladesh University of Professionals Mgt of Int’l Business Porter’s Diamond of Click to edit Master title style National Competitive Advantage Firm Strategy, Structure, and Rivalry Factor Conditions Demand Conditions Related and Supporting Industries Bangladesh University of Professionals Mgt of Int’l Business Summary of International Trade Click to edit Master title style Country-Based Theories Country is unit of analysis Emerged prior to WWII Developed by economists Explain interindustry trade Mercantilism Absolute advantage Comparative advantage Relative factor endowments Firm-Based Theories Firm is unit of analysis Emerged after WWII Developed by professors Explain intraindustry trade Country similarity theory Product life cycle Global strategic rivalry National competitive advantage Bangladesh University of Professionals Mgt of Int’l Business Types of International Investments Click to edit Master title style Does the investor seek an active management role in the firm or merely a return from a passive investment? Foreign Direct Investment Portfolio Investment Bangladesh University of Professionals Mgt of Int’l Business International Investment Theories Click to edit Master title style Canada and the United Kingdom are both major sources of FDI in the United States and important destinations for FDI from the United States U.S. firms had invested $5.3 billion in the chemical industry in Belgium, while Belgian firms had invested $2.9 billion in the U.S. chemical industry This pattern cannot be explained by national or industry differences in rates of return Ownership Advantages Internalization Dunning’s Eclectic Theory Bangladesh University of Professionals Mgt of Int’l Business Ownership Advantages Click to edit Master title style A firm owning a valuable asset that creates a competitive advantage domestically can use that advantage to penetrate foreign markets through FDI. Why FDI and not other methods? A superior technology, a well-known brand name, or economies of scale Ownership advantage theory does not explain why a firm would choose to enter a foreign market via FDI rather than exploit its ownership advantages internationally through other means, such as exporting its products, franchising a brand name, or licensing technology to foreign firms Bangladesh University of Professionals Mgt of Int’l Business Theory ClickInternalization to edit Master title style FDI is more likely to occur when transaction costs with a second firm are high. Transaction costs are costs associated with negotiating, monitoring, and enforcing a contract. Bangladesh University of Professionals Mgt of Int’l Business Dunning’s Eclectic Click to edit Master titleTheory style Three conditions for FDI Ownership advantage: Brand name, Ownership proprietary tech, Economies of scale, etc (Caterpillar in Brazil) Location advantage: Labor cost, tariff wall, market proximity, etc. Internalization advantage: Firm must benefit more from controlling the foreign business activity (Reputation, Brand name) Bangladesh University of Professionals Mgt of Int’l Business Factors Affecting the FDI Decision Click to edit Master title style Supply Factors Demand Factors Political Factors Bangladesh University of Professionals Mgt of Int’l Business Availability of Natural Resources: Click editIndustry Masterintitle style The to Tuna Indonesia Bangladesh University of Professionals Mgt of Int’l Business Click to edit Master title style Thanks Bangladesh University of Professionals Mgt of Int’l Business Click to edit Master title style Watch Video A Quiz After Mid Term Next Week 0630 Bangladesh University of Professionals Mgt of Int’l Business Click to edit Master title style Voluntary exchange of goods, services, assets or money between one person or organization to another. Parties to the transaction must believe they will gain from the exchange
