International Business
Overview of International Business and Globalization
WHY DO BUSINESSES GO OVERSEAS?
HOW DO BUSINESSES GO OVERSEAS?
WHERE DO BUSINESSES GO ?
COUNTRY ANALYSIS
BECAUSE COMPANIES SELDOM HAVE SUFFICIENT RESOURCES TO EXPLOIT ALL OPPORTUNITIES, TWO MAJOR CONSIDERATIONS FACING MANAGERS ARE
WHICH MARKETS TO SERVE AND
WHERE TO LOCATE THE PRODUCTION TO SERVE THOSE MARKETS.
SCANNING TECHNIQUES AID MANAGERS IN CONSIDERING ALTERNATIVES THAT MIGHT OTHERWISE BE
OVERLOOKED.
Because each company has unique competitive capabilities and
objectives, the factors affecting the choice of operating location
will be different for each.
GLOBALIZATION?
GLOBALIZATION
refers to the widening set of interdependent relationships among people from different parts of a world that happens to be divided into nations
Belgium is renowned for its chocolate, but
a Belgian Neuhaus bonbon includes ingredients from the Ivory Coast, Philippines, Ecuador and Venezuela
Because Apple ships its iPhones from China, they appear to be Chinese products, but less than 4 percent of their value is created in China
HOW DOES INTERNATIONAL BUSINESS FIT IN?
Globalization enables us to get
MORE VARIETY,
BETTER QUALITY, OR
LOWER PRICES.
All of these connections between supplies and markets result from the activities of INTERNATIONAL BUSINESS,
INTERNATIONAL BUSINESS,
defined as all commercial transactions,
including sales, investments, and transportation, that take place between …
TWO OR MORE COUNTRIES.
WHY SHOULD YOU STUDY INTERNATIONAL BUSINESS?
MANY COMPANIES MAY FIND IT
DIFFICULT TO SURVIVE
BY RELYING SOLELY ON
DOMESTIC MARKETS.
THE GREATEST ADVANTAGE OF GOING INTERNATIONAL IS THAT FIRMS CAN GAIN
NEW CUSTOMERS
When China joined the World Trade Organization in 2001, that country AGREED TO RESPECT COPYRIGHT PROTECTIONS
Former U.S. Trade Representative Susan Schwab says,
“This is more than a handbag here or a logo item there; it is often
THEFT ON A GRAND SCALE.”
JOINT VENTURES AND PARTNERSHIPS BETWEEN DOMESTIC AND FOREIGN FIRMS ARE BECOMING
THE RULE
Goodyear battles Michelin, Bridgestone/Firestone
“A GLOBAL STRATEGY” INCLUDES
DESIGNING,
PRODUCING, AND
MARKETING PRODUCTS WITH GLOBAL NEEDS IN MIND,
INSTEAD OF CONSIDERING INDIVIDUAL COUNTRIES ALONE.
MONITORING GLOBALIZATION
IN ONE’S INDUSTRY IS ANIMPORTANT STRATEGIC-MANAGEMENT ACTIVITY
BUT…
… BUT
KNOWING HOW TO USE THAT INFORMATION FOR ONE’S COMPETITIVE ADVANTAGE IS EVEN MORE IMPORTANT.
TO COMPETE SUCCESSFULLY IN WORLD MARKETS,
managers must obtain a better knowledge of historical, cultural, and religious forces that MOTIVATE AND
DRIVE PEOPLE
In Japan, business relations operate within the context of Wa, which stresses group harmony and social cohesion
In China, business behavior revolves around guanxi
In South Korea, activities involve concern for inhwa, or harmony based on respect of hierarchical relationships, including obedience to authority
U.S. managers have a LOW TOLERANCE FOR SILENCE, whereas
Asian managers view extended periods of SILENCE AS IMPORTANT for ORGANIZING AND EVALUATING ONE’S THOUGHTS
In marketing, for example,
Japanese managers strive to achieve “EVERLASTING CUSTOMERS,”
whereas many Americans strive to make
A ONETIME SALE
Americans refer to
“HOURLY EMPLOYEES,”
whereas many Japanese companies still refer to “LIFETIME EMPLOYEES.”
“THE SYSTEM DRIVES YOU; YOU CANNOT FIGHT THE SYSTEM OR CULTURE,”
"MOST OF US FEAR CHANGE. TODAY CHANGE IS NORMAL. FOR STRATEGISTS AND MANAGERS TODAY, THERE IS
NO CHOICE BUT TO CHANGE."
In today’s business environment, more than in any preceding era,
THE ONLY CONSTANT IS CHANGE.
Successful organizations effectively manage change, continuously adapting their
BUREAUCRACIES,
STRATEGIES,
SYSTEMS,
PRODUCTS, AND CULTURES TO …
… TO SURVIVE THE
SHOCKS AND PROSPER FROM THE FORCES FROM THE COMPETITION
E-COMMERCE AND GLOBALIZATION
are external changes that are
“TRANSFORMING”
BUSINESS AND SOCIETY TODAY
EVERYBODY IS COMPETING WITH EVERYONE ELSE FOR THE CUSTOMERS’ MONEY.”
“ALL STRATEGISTS HAVE TO BE
CHIEF LEARNING OFFICERS.
We are in an extended period of CHANGE.
STRIKE THE ENEMY WHEN HE IS IN DISORDER.
AVOID THE ENEMY WHEN HE IS STRONGER.
If he is arrogant, try to encourage his egotism.
If enemy troops are well prepared after reorganization, try to wear them down.
If they are united, try to sow dissension among them.
ATTACK THE ENEMY WHERE HE IS UNPREPARED, AND
APPEAR WHERE YOU ARE
NOT EXPECTED.
THESE ARE THE
KEYS TO VICTORY FOR A STRATEGIST.
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FACTORS IN INCREASED GLOBALIZATION
1. Increase in and application of technology
2. Liberalization of cross-border trade and resource movements
3. Development of services that support international business
4. Growth of consumer pressures
5. Increase in global competition
6. Changes in political situations and government policies
7. Expansion of cross-national cooperation
INCREASE IN AND APPLICATION OF TECHNOLOGY :
Success would have been unlikely without the innovations and products from a variety of countries: a super-flexible fiber optics communications cable from Japan, and a special cell phone from South Korea
LIBERALIZATION OF CROSS-BORDER TRADE AND RESOURCE MOVEMENTS :
To protect its own industries, every country restricts the movement across its borders of not only goods and
services but also the resources—workers, capital, tools, and so on—needed to produce them
SERVICES THAT SUPPORT INTERNATIONAL BUSINESS :
When Nike sells sportswear to a French soccer team, a bank in France collects payment in euros from the soccer team when the shipment arrives at French customs (probably from somewhere in Asia) and pays Nike in U.S. dollars through a U.S. bank.
GROWTH IN CONSUMER PRESSURES:
More consumers know more today about products and
services available in other countries, can afford to buy them, and want the greater variety in quality, price, and characteristics that access to them offers.
INCREASE IN GLOBAL COMPETITION :
Many new companies locate in
areas with numerous competitors and suppliers, a situation known as
CLUSTERING OR AGGLOMERATION
CHANGES IN POLITICAL SITUATIONS AND GOVERNMENT POLICIES:
Governments seem more willing to support programs, such as improving airport and seaport facilities to foster speed and cost efficiencies for delivering goods internationally
EXPANSION OF CROSS-NATIONAL COOPERATION:
Companies don’t want to be at a disadvantage when operating internationally, so they petition their governments to act on their behalf.
EXPANSION OF CROSS-NATIONAL COOPERATION:
Multinational Problem Solving :
For instance, trains between Italy and Sweden must
change locomotives three or four times because of different national systems
THE COSTS OF GLOBALIZATION
WHY COMPANIES
ENGAGE IN INTERNATIONAL
BUSINESS?
Reasons for engaging in international business:
• Expanding sales
• Acquiring resources
• Reducing risk
Volkswagen (Germany), Ericsson (Sweden), IBM
(United States), Michelin (France), Nestlé (Switzerland), and Sony (Japan)—
derive more than half their
SALES OUTSIDE THEIR HOME COUNTRIES.
Most automobile manufacturers, for example, hire design companies in northern Italy to help with styling.
Many companies establish foreign R&D facilities to tap additional scientific resources.
They also LEARN while operating abroad, and they ACQUIRE product knowledge for entering new markets at home, such as what PepsiCo is doing in order to enter the fast-growth U.S. yogurt market.
By operating in Japan, for instance, Procter & Gamble (P&G) delayed foreign expansion on the
part of potential Japanese rivals by slowing their amassment of resources needed to enter
into other international markets where P&G was active.
MODES OF OPERATIONS IN INTERNATIONAL
BUSINESS
SERVICES
constitute the fastest growth sector in international trade and take many forms.
Tourism and Transportation
Williams sisters, Venus and Serena, and
some U.S. tennis fans take Air France from the United States to Paris for the French Open tennis tournament.
Their tickets on Air France and travel expenses in France are SERVICE EXPORTS for France and service imports for the United States.
Obviously, then, tourism and transportation are important sources of revenue for airlines, shipping companies, travel agencies, and hotels.
Service Performance
On an international level, for example, companies may pay fees for engineering services rendered as so-called
TURNKEY OPERATIONS,
which are construction projects performed under contract and transferred to owners when they’re
operational.
Asset Use
When one company allows another to use its assets—such as trademarks, patents, copyrights, or expertise—under contracts known as LICENSING AGREEMENTS, they
receive earnings called ROYALTIES.
27 MAY 2019
WHY INTERNATIONAL BUSINESS DIFFERS
FROM DOMESTIC BUSINESS
Physical factors (such as a country’s geography or demography)
Social factors (such as its politics, law, culture, and economy)
Competitive factors (such as the number and strength of a company’s suppliers, customers,
and rival firms)
THE COMPETITIVE ENVIRONMENT
Products compete by means of COST OR DIFFERENTIATION
STRATEGIES
International Business : Culture
International business, of course, involves people from different national
cultures, which affects every business function — managing a workforce, marketing and
transporting output, purchasing supplies, dealing with regulators, securing funds.
In international business, the major problems of CULTURAL COLLISION arise under two conditions:
When a company implements practices that are less effective than intended
When a company’s employees encounter distress because of difficulty in accepting or adjusting to foreign behaviors
The Saudis, meanwhile, had less compulsion
to wrap things up; they regarded time spent in small talk at a café as a means to identify good business partners. They also put dealings with friends ahead of business dealings, a
situation typical in a
RELATIONSHIP-FOCUS (RF) CULTURE.
Countries with a
DEAL-FOCUS (DF) CULTURE,
where people are primarily task-oriented.
Some people seem to have an innate ability to say and do the
RIGHT THING AT THE
RIGHT TIME,
while others offend unintentionally or seem ignorant
The AVERAGE Scandinavian may be uncomfortable with bargaining,
but assuming that an IKEA buyer from Sweden doesn’t expect to bargain on prices could be a GRAVE MISTAKE
NATION
provides a workable definition of culture because similarity among people is both
a cause and effect of national boundaries.
Some people (probably a growing number) are BICULTURAL OR MULTICULTURAL,
meaning that they have internalized more than one national culture. This occurs because
They hold dual or multiple nationalities, have parents from another country, or have lived
Abroad at an impressionable age.
HOW CULTURES FORM AND CHANGE
Examining this evolution explains
HOW A CULTURE COMES TO ACCEPT (OR REJECT)
certain BUSINESS PRACTICES
The important thing here is
CHANGE,
which may result from either choice or imposition.
Change by imposition—sometimes called CULTURAL IMPERIALISM—
involves imposing certain elements from an alien culture, such as a forced change in laws by an occupying country that, over time, becomes part of the subject culture.
When the change results in mixing cultural elements, we have
CREOLIZATION
In the United States, the popularity of Mexican tortillas led to U.S. innovations in their use, such as tortilla chips and burritos.
Why English Travels So Well
English-speaking countries account for a third of the world’s production, much more than any other language group—
explaining why English is the world’s most IMPORTANT SECOND LANGUAGE.
Religion as a Cultural Stabilizer
McDonald’s serves neither beef nor pork in India to keep from offending its Hindu or Muslim populations.
El Al, the Israeli national airline, does not fly on Saturday, the Jewish Sabbath
RELIGION HAS AN IMPACT
ON ALMOST EVERY BUSINESS FUNCTION
In predominantly Muslim countries, for example, Friday is a day of worship, whereas in Turkey (a secular Muslim country that adheres to the Christian work calendar to keep in step with European business activity) it is a
WORKDAY
SOCIAL STRATIFICATION
dictates a person’s class, status, and financial rewards within that culture.
In business, this practice may entail ranking members of managerial groups more highly than production group members
Japan stresses cooperation over competition in the workplace more than the United States does, companies in Japan generally place
MORE WEIGHT ON SENIORITY
for employee promotion, thus favoring older employees
Some cultures place more value on leisure time than others.
They push for working shorter hours, take more holidays and vacations, and generally
spend more time and money on leisure activities.
The French had 30 days mandated vacation; Americans had none.
The French also spent more time per day
eating and sleeping than Americans.47
Where trust is high, business costs tend to be lower because managers spend less time fussing
over every possible contingency and monitoring every action for compliance and
MORE TIME PRODUCING, SELLING, AND INNOVATING
LOW CONTEXT CULTURES
Businesspeople will spend little time on small
talk and tend to get to the point.
HIGH-CONTEXT CULTURES
They tend to follow these patterns in written communications as well, even in emails,
and take them into account in international litigation
Japan is a high-context culture in which subordinates understand superiors’ INDIRECT INSTRUCTIONS,
Japanese managers have been challenged in conveying work expectations to their low-context United Kingdom subordinates, who expect more explicit explanations
IN MONOCHRONIC CULTURES
people may prefer to work sequentially, such as finishing transactions with one customer before dealing with another
POLYCHRONIC PEOPLE
are more comfortable when working simultaneously on a variety of tasks, such as dealing immediately with multiple customers who need service
Potential misconceptions when
MONOCHRONIC BUSINESSPEOPLE
see their polychronic counterparts as uninterested in doing business with them because they don’t bother to give them their undivided attention.
Cultures in which people focus more on
details than on abstract principles are said to be PRAGMATIC.
In a culture of PRAGMATISTS
(as in the United States), labor negotiations tend to focus on well-defined issues—say, hourly pay increases for a specific bargaining unit
In an IDEALIST CULTURE
(as in Argentina), labor disputes tend to blur the focus on specific demands as workers tend to rely first on mass action, such as general strikes or political activities, to publicize basic principles.
Communications
Poor translations, however, can cause commercial DISPUTES
Silent Language
yellow cabs in the United States and
black ones in the United Kingdom
In the United States pink is used to denote femininity, while in Japan it denotes masculinity
United Airlines’ promotion of a new
Passenger service in Hong Kong is an example of an effort that backfired because of color.
Why?
It handed out white carnations to its best customers, but Hong Kong residents give white carnations in sympathy for a death in the family.
DISTANCE :
In the United States people customarily
maintain a higher distance between each other than is typical in Mexico or elsewhere
in Latin America.
TIME AND PUNCTUALITY :
U.S. businesspeople usually arrive early for business appointments, a few minutes late for dinner at someone’s home, and a bit later still for large social gatherings
BODY LANGUAGE
A Greek, Turk, or Bulgarian may indicate “yes” with a sideways movement of the head that
could be construed as “no” in the United States and much of Europe
Dealing with
Cultural Differences
When staying overnight in Jeddah, Western female flight attendants can wear types of clothing publicly that local women cannot.80 In other instances, local citizens may actually feel their cultures are being mocked when foreigners bend over backward to make adjustments, such
as dressing in local traditional garb
HOST CULTURES DO NOT ALWAYS EXPECT FOREIGNERS TO ADJUST TO THEM.
For instance, the United Kingdom is
culturally close to the United States while China
IS CULTURALLY DISTANT
Disney had much more success in opening a theme park in Japan than in France, even though France is culturally closer to the United States.
Why?
France was very concerned about its separate identity, especially vis-à-vis the United States—encroachment of American English words into the French language, fast-food restaurants’ threat to customary long lunches with traditional cuisine, U.S. companies’ acquisition of French firms considered focal to French distinctiveness.
The Japanese were more
receptive to Disney because (1) both Japanese children and adults perceived Mickey Mouse
as a wholesome, nonthreatening figure, (2) the Japanese had a tradition of buying souvenirs
on family excursions, and (3) Disney’s reputation for super-cleanliness and smiling faces fit
well with Japanese preferences for harmony and order.
The French, in contrast, knew Mickey
Mouse only as a comic-book conniver who’d been reformulated for the French market. They
regarded Disney souvenirs as tacky and policies requiring personnel to dress uniformly and
smile mindlessly as violations of personal dignity
Ability To Adjust: Culture Shock
In fact, some people experience
REVERSE CULTURE SHOCK
when they go back home, having become partial to aspects of life abroad that are not options back home.
Company And Management Orientations
Strategies For Instituting Change
1. VALUE SYSTEMS
In Eritrea, for example, people eat less seafood than those in many other countries, despite having suffered several periods of agricultural famine while boasting a long coastline rich in seafood.
One reason is ECONOMIC.
Because much of the population has traditionally not been
able to afford the ice and refrigeration to prevent seafood spoilage, many adults have never developed a taste for seafood
SEMINAR:
Does International Business Lead to Cultural Imperialism?
2. Cost-Benefit Analysis of Change
When U.S.-based Cummins Engine wanted to improve employee commitment in its Mexican plant, it succeeded by shutting down one day a year so workers could observe a religious holiday. On that day, Cummins hosts a celebration for employees and families at a cost that is much less than the benefits it has gained from IMPROVED PERFORMANCE.
3. Learning Abroad
The merger between Renault and Nissan brought complementary strengths together.
Renault brought its better financial management (typical of French firms) to Nissan. Meanwhile, Renault is learning more about Nissan’s (and Japanese companies’) ability to have functional groups work together to meet a common company objective.
International Business : Governmental and Legal Systems
The goal of the
POLITICAL SYSTEM
is integrating the diverse elements of a society.
Individualism versus Collectivism
Individualism
champions the primacy of the rights and role of the individual.
Collectivism
refers to the primacy of the
rights and role of the group.
Countries with an individualistic
orientation, such as Australia, Canada, Netherlands, New Zealand, the United States, and the United Kingdom, shape their marketplace with the idea of
laissez-faire.
Literally meaning,
“LEAVE IT ALONE,”
a laissez-faire approach holds that the government should not interfere in business affairs
Today, we see collectivism in a range of countries, including Argentina, China, Vietnam, Japan, South Korea, Egypt, Brazil, Taiwan, and Mexico.
Business decisions are made by the group for
the benefit of the group
Japan is a high-context culture in which subordinates understand superiors’ INDIRECT INSTRUCTIONS,
Japanese managers have been challenged in conveying work expectations to their low-context United Kingdom subordinates, who expect more explicit explanations
International Business : Economic Systems and Market Methods
New Markets, New Perspectives
Managers
TRACK CHANGES,
EVALUATING EVENTS and
TRENDS to spot opportunities and preempt difficulties.
“THE FORCES DRIVING GLOBALIZATION”
explained how an economic environment responds to technology, trade, competition, consumer attitudes, and cross-border
relationships.
CONNECTIONS, CHANGE, AND CONSEQUENCES
Globalization CONNECTS countries.
Choice in one has CONSEQUENCE
in others.
SO COMPANIES
MONITOR CHANGES
IN COUNTRIES WHERE IMPROVING MACRO TRENDS OR REVISED POLICIES OPEN MARKETS OR STRENGTHEN COMPETITORS
ECONOMIC FREEDOM
holds that one has the
RIGHT TO
work, produce, consume, save, and invest in the way that one prefers.
Driving change was the fact that nations with
FREE MARKETS CONSISTENTLY OUTPERFORMED UNFREE COUNTRIES
Managers watch key events to gauge the CONTEST between ECONOMIC FREEDOM AND
STATE CONTROL.
These include how the government
• Regulates The Economy
• Protects Property Rights
• Sets Fiscal And Monetary Policies
• Enforces Antitrust Regulation
THREE TYPES OF ECONOMIC SYSTEMS:
THE MARKET,
MIXED, AND
COMMAND ECONOMIES
An economic system whereby individuals, rather than the government, make most decisions is a
1. MARKET ECONOMY.
Eg. Hong Kong, Singapore, Australia, Switzerland, Canada, and the United States, for instance, grants people the economic freedom to decide where to work, what to do and for how long, how to spend or save money
2. COMMAND ECONOMY
in which the government owns and controls resources, taking on the authority to decide what products to make, in what quantity, at what price, and in what way.
For example, in a market economy, if
the government wants computers, it collects taxes and buys computers at market prices from
privately held companies
3. A MIXED ECONOMY
is a system in which economic decisions are principally market driven and ownership is largely private, but the government intervenes, from a little to a lot, in allocating resources
For example, U.S. President Obama reasoned that it is the government’s responsibility to make “strategic decisions about strategic industries”
SOCIALISM
Advocates regulating economic activity with an eye toward
social equality and fair distribution of wealth
Gross National Income (GNI)
Gross National Product (GNP)
Gross Domestic Product (GDP)
Both Samsung and Sony TVs made in South Korea contribute to South Korea’s GDP, but TVs made in Japan by Samsung do not.
SUSTAINABLE DEVELOPMENT proponents encourage interpreting economic activity in terms of its capacity to “meet the needs of the present without compromising the ability of FUTURE GENERATIONS
to meet their own needs
Happynomics
calls for moving “from the concept of financial prosperity to the idea of emotional prosperity.
Eg. Bhutan, for instance, calls for making its citizens happier, not richer, every year; goals include the happiness of society, people’s satisfaction with their lives, and national wellbeing independent of monetary achievement
INFLATION
measures the increase
in the cost of living.
The Base of the Pyramid
is the largest, but poorest, socioeconomic group in the world.
The BALANCE OF PAYMENTS (BOP) is a system of recording all of a country’s economic transactions with the rest of the world.
International Business : Trade and Factor Mobility Theory
Trade theory helps managers and government policymakers focus on these questions:
• What products should we import and export?
• How much should we trade?
• With whom should we trade?
According to MERCANTILISM,
countries should export more
than they import.
NEOMERCANTILISM
A country may aim for increased employment by setting economic policies that encourage its companies to produce in excess of the demand at home and send the surplus abroad
This theory of
ABSOLUTE ADVANTAGE
holds that different countries produce some goods more efficiently than others, and questions why the citizens of any country should have to buy domestically produced goods when they can buy them more cheaply from abroad.
Smith reasoned that unrestricted trade would lead a country to specialize in those products that gave it a COMPETITIVE ADVANTAGE.
Its resources would shift to the EFFICIENT INDUSTRIES because it could not compete in the
INEFFICIENT ONES.
Through specialization, it could increase its efficiency for
THREE REASONS:
1. Labor could become more skilled by repeating the same tasks.
2. Labor would not lose time in switching production from one kind of product to another.
3. Long production runs would provide incentives for developing more effective working methods.
A COUNTRY’S
NATURAL ADVANTAGE
in creating a product or service comes from climatic conditions, access to certain natural resources, or availability of certain labor forces.
Eg. Costa Rica’s climate and soil support the production of bananas, pineapples, and coffee
Countries that are competitive in manufactured
goods have an
ACQUIRED ADVANTAGE,
usually in either product or process technology
Eg. For example, Denmark exports silver
tableware, not because there are rich Danish silver mines but because Danish companies have developed distinctive products.
Free trade will bring
• Specialization.
• Greater efficiency.
• Higher global output.
COMPARATIVE ADVANTAGE
says that global efficiency gains may still result from trade if a country specializes
in what it can produce most efficiently
Nontradable Goods
—products and services
(haircuts, retail grocery distribution, etc.) that are seldom practical to export because of high
transportation costs—are produced in every country
Most large countries (such as Brazil, China, India, the United States, and Russia) import much less of their consumption needs and export much less of their production output than do small nations (such as Uruguay, Belgium,
and Taiwan).
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WITH WHOM DO COUNTRIES TRADE?
COUNTRY-SIMILARITY THEORY,
which says that companies create new products
in response to market conditions in their home market.
Specialization and Acquired Advantage :
Germany, is traditionally strong in machinery and equipment
Bangladesh has succeeded in exporting shirts, trousers, and hats, but not bed linens or footballs, which
Pakistan has successfully exported
Product Differentiation
For instance, both Boeing from the United States and Airbus from Europe produce
The Effects of Cultural Similarity :
ease in doing business in countries that are culturally similar to home, such as those that speak a common language.
Eg. France’s colonial history in Africa has given Air France an edge in serving the continent’s international air passenger markets
The Effects of Distance :
Wine exports from Australia can reach the United Kingdom (UK) by container ship for about the same cost as wine exports shipped overland to the UK from southern France
According to the PLC theory of trade, the production location for many products moves from one country to another depending on the STAGE IN THE PRODUCT’S LIFE CYCLE.
THE DIAMOND OF NATIONAL COMPETITIVE ADVANTAGE
is a theory showing four features as important for competitive superiority:
Demand Conditions; Factor Conditions; Related And Supporting Industries; And Firm Strategy, Structure, And Rivalry
Limitations of the Diamond of National Advantage Theory
1st Limitation : The existence of the four favorable conditions does NOT GUARANTEE THAT AN INDUSTRY WILL DEVELOP IN A GIVEN LOCALE.
Eg. Conditions in Switzerland would seem to have favored success if companies in that country had become players in the personal computer industry.
However, Swiss companies
PREFERRED TO PROTECT THEIR GLOBAL POSITIONS
in such product lines as watches and scientific instruments rather than downsize innovation efforts in those industries by moving their highly skilled people into developing a new industry
WHY PRODUCTION FACTORS MOVE
CAPITAL AND LABOR
move internationally to
Gain more income.
Flee adverse political situations.
Historical mass immigration, Australia, Canada, and the United States would have greatly
REDUCED POPULATIONS TODAY
Many immigrants brought human capital
with them, thus adding to the base of skills that enabled those countries to be
NEWLY COMPETITIVE
in an array of products
What Happens When People Move?
A situation known as a BRAIN DRAIN
The Relationship Between Trade And Factor Mobility
SUBSTITUTION :
eg. China with the highest population and little available unfarmed land. About 400 thousand Chinese are now working on Russian farms, and much of the output is shipped to China
6. International Business : Trade Protectionism
Collectively, governmental restrictions and support to influence international trade competitiveness are known as
PROTECTIONISM.
Economic Rationales for Governmental Intervention