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. Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. Nevertheless, they remain relatively new and minimally tested theories. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. A person or a country will specialize in doing what they do relatively better. Global rivalry is a key element in international business (IB). 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. The ultimate goal is to identify the opportunities and threats that could impact a business. Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. 2. Literature Review 3.1. 1. . 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. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. Why Africa Is Poor: Ghana Beats Up on Its Biggest Foreign Investors, Wall Street Journal, February 18, 2010, accessed February 16, 2011. Recent versions have been edited by scholars and economists. Smith reasoned that trade between countries shouldnt be regulated or restricted by government policy or intervention. International trade theories are simply different theories to explain international trade. NAFTA is an example of a trade bloc in which members reduce or remove all trade barriers between themselves, but can have trade . 8. 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. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. People or entities trade because they believe that they benefit from the exchange. 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). Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. The LibreTexts libraries arePowered by NICE CXone Expertand are supported by the Department of Education Open Textbook Pilot Project, the UC Davis Office of the Provost, the UC Davis Library, the California State University Affordable Learning Solutions Program, and Merlot. The Five Forces Threat of Substitute Products or Services Bargaining Power of Suppliers Bargaining Power of Buyers Threat of New Entrants Rivalry Among Existing Competitors The Five Forces is a framework for understanding the competitive forces at work in an industry, and which drive the way economic value is divided among industry actors. Despite this, they can still reach a more measured tone of engagement, and greater . People or entities trade because they believe that they benefit from the exchange. 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. But, however "normal" it may be, great-power conflict is nonetheless disconcerting and dangerous. Strategic Trade Policy In the early 1980s, James Brander and Barbara Spencer (1983, 1985) created a considerable stir with an analysis of trade policy under imperfect competition. Compare and contrast different trade theories. 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 A closer look at world history from the 1500s to the late 1800s helps explain why mercantilism flourished. 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, http://www.ccs.org.za/wp-content/uploads/2010/03/ENGLISH-Evaluating-Chinas-FOCAC-commitments-to-Africa-2010.pdf. 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. Nearly every country, at one point or another, has implemented some form of protectionist policy to guard key industries in its economy. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. is shared under a CC BY-NC-SA 3.0 license and was authored, remixed, and/or curated by Anonymous via source content that was edited to the style and standards of the LibreTexts platform; a detailed edit history is available upon request. Standardized Product Stage: The market for the product stabilizes. The ongoing COVID 19-pandemic has only heightened tensions and mistrust further between Washington and Beijing. Pages 55. 13. 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. 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. the control of resources or favorable access to raw materials. Excluding course final exams, content authored by Saylor Academy is available under a Creative Commons Attribution 3.0 Unported license. 6. They determined that the cost of any factor or resource was a function of supply and demand. International tradeis then the concept of this exchange between people or entities in two different countries. One way that many of these new nations promoted exports was to impose restrictions on imports. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. 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 on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. The threat of substitute products is low. Trade is the concept of exchanging goods and services between two people or entities. 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. 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. Download Free PDF. In practice, governments and companies use a combination of these theories to both interpret trends and develop strategy. Their theory is based on a countrys production factorsland, labor, and capital, which provide the funds for investment in plants and equipment. Theories of international trade 1 of 19 Theories of international trade Apr. 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. 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. 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. What Are the Different International Trade Theories? By increasing exports and trade, these rulers were able to amass more gold and wealth for their countries. China Daily, February 11, 2009, accessed April 23, 2011, http://www.chinadaily.com.cn/china/2009-02/11/content_7467460.htm. The British colonial empire was one of the more successful examples; it sought to increase its wealth by using raw materials from places ranging from what are now the Americas and India. Each group should select a different industry. 2. Taxpayers pay for government subsidies of select exports in the form of higher taxes. Martin Meredith, The Fate of Africa (New York: Public Affairs, 2005). X is a developing nation. His theory stated that a nations wealth shouldnt be judged by how much gold and silver it had but rather by the living standards of its people. Example #1. 10. It also has extensive access to capital. These firms themselves have a global competitive advantage. Strategic group analysis is used to examine the competitive environment and the rivalry among competitors within an industry. 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. The bargaining power of the buyers, all airlines, is fairly high. (AACSB: Reflective Thinking, Analytical Skills). While its labor pool may not be the cheapest, it is among the best educated in the world. In the US, the economic circle is a strong market-based economy, and the culture is individualistic as compared to China,. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010. 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. 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. In more recent centuries, economists have focused on trying to understand and explain these trade patterns. In this firm-based theory, Linder suggested that companies first produce for domestic consumption. Firm Strategy and Rivalry is the competition in the home market that drives innovation and quality. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Recent versions have been edited by scholars and economists. 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. Linders theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences. 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. advantage against other global firms in their . However, this simplistic example demonstrates the basis of the comparative advantage theory. 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.