Excluding course final exams, content authored by Saylor Academy is available under a Creative Commons Attribution 3.0 Unported license. To explain his theory, Porter identified four determinants that he linked together. Trade is the concept of exchanging goods and services between two people or entities. 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. the ownership of intellectual property rights, unique business processes or methods as well as extensive experience in the industry, and. In contrast to classical, country-based trade theories, the category of modern, firm-based theories emerged after World War II and was developed in large part by business school professors, not economists. This strategy is calledprotectionismand is still used today. The firm-based theories evolved with the growth of the multinational company (MNC). Thebarriers to entryrefer to the obstacles a new firm may face when trying to enter into an industry or new market. Determine which international trade theory is most relevant today and how it continues to evolve. Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity. Globalization itself is a competitive power that determined Volkswagen to be strategic and competitive. 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. In Ghana, a Chinese government loan will be repaid in cocoa beans.8. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. Although mercantilism is one of the oldest trade theories, it remains part of modern thinking. Nations expanded their wealth by using their colonies around the world in an effort to control more trade and amass more riches. For example, small retailers have low costs of doing business relative to larger firms. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. The theory also assumes that labour is homogeneous (Salvatore 2002). 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. 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. The barriers to entry refer to the obstacles a new firm may face when trying to enter into an industry or new market. Global Strategic Management Executive Summary In the international competitive environment the ability of an organization to develop a transnational organizational capability is the key factor that can help the firm adapt to the changes in the dynamic environment. The term was first introduced by Michael E. Porter in his classic 1979 Harvard Business Review article. While these loans certainly promote development, the risk for the local countries is that the Chinese bids to provide the work arent competitive. When there's lots of competition and lots of rivalry, this keeps companies on their toes, and . 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, http://news.bbc.co.uk/2/hi/africa/7086777.stm. Miranda is a Wall Street lawyer who charges $500 per hour for her legal services. Exploiting the experience curve A good example of . Let us look at some examples to better understand global commerce. NAFTA is an example of a trade bloc in which members reduce or remove all trade barriers between themselves, but can have trade . Aviation is one of the most widely talked about industries in the global economy and yet airlines continue to present an enigma. unique business processes or methods as well as extensive experience in the industry, and. In this firm-based theory, Linder suggested that companies first produce for domestic consumption. 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. 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. It turns out that Miranda can also type faster than the administrative assistants in her office, who are paid $40 per hour. 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. Focused on MNCs and their efforts to gain a competitive. Identify the strategies used by companies in other strategic groups. The threat of substitute products is low. 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. 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. Strategic rivalry will colour this relationship for a long time to come. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. People or entities trade because they believe that they benefit from the exchange. 9. 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. 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. Achieving economies of scale or scope ? 10. Global rivalry is a key element in international business (IB). Rather, the state of competition in an industry depends on five basic forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and existing industry rivalry. 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. Taxpayers pay for government subsidies of select exports in the form of higher taxes. Pages 55. Reviews. Examples of such restrictions are putting a 100% tariff on sugar, orange and ice cream . The five competitive forces reveal that competition extends beyond current competitors. Today, technology drives Globalization 3.0. Great power rivalry is again becoming a principal theme of global politics. The continent generates a lot of interest on both the corporate and humanitarian levels, as well as from other countries. For example, China and India are home to cheap, large pools of labor. 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. Global Strategic Rivalry Theory Economists Paul Krugman and Kelvin Lancaster came up with this theory in the 1980s. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. For example, Japan exports Toyota vehicles to Germany and imports Mercedes-Benz automobiles from Germany. In contrast, countries would import goods that required resources that were in short supply, but higher demand. Similarly, China provided nearby Nigeria with oil-backed loans to finance projects that use gas to generate electricity. Shantanu Jadhav Computational Neurobiology UCSD. China Daily, February 11, 2009, accessed April 23, 2011, http://www.chinadaily.com.cn/china/2009-02/11/content_7467460.htm. The theory says a company can get a sustainable competitive advantage by developing barriers to entry. To better understand how modern global trade has evolved, its important to understand how countries traded with one another historically. The product life cycle theory has been less able to explain current trade patterns where innovation and manufacturing occur around the world. Swedish economist Steffan Linder developed the country similarity theory in 1961, as he tried to explain the concept of intraindustry trade. The bargaining power of suppliers is weak. 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. 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. Once again, the major aim here is for turnover maximization for those companies and the social and environmental aspects are not addressed. Product begins to be imported in the innovative country. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry. In the end you will have gained great knowledge on both: the strategy concept as well as Uber (in one . Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. 6-22. Discuss which strategy seems to be the most successful in your selected industry. 6. China: Trade with Africa on Track to New Record, CNN, October 15, 2010, accessed April 23, 2011. Compare and contrast different trade theories. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. US manufacturing was the globally dominant producer in many industries after World War II. In reality, the world economy is more complex and consists of more than two countries and products. Martin Meredith, The Fate of Africa (New York: Public Affairs, 2005). After reading this section, students should be able to , Foreign companies have been doing business in Africa for centuries. These unrealistic assumptions Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. The ultimate goal is to identify the opportunities and threats that could impact a business. 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. Finished Papers. Let us assume that there are two countries, X and Y. X produce rice at a very low price (in comparison to Y). The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry. We also acknowledge previous National Science Foundation support under grant numbers 1246120, 1525057, and 1413739. Governments can, by their actions and policies, increase the competitiveness of firms and occasionally entire industries. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Customers, suppliers, substitutes and potential entrantscollectively referred to as an extended rivalryare competitors to companies within an industry. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. 100% Success rate. Initial capital outlay varies, but it is typically high in terms of funding for business space, human resources, and equipment, among other variables. Japan, Taiwan, China, etc. advantage against other global firms in their . Trade cannot be explained neatly by one single theory, and more importantly, our understanding of international trade theories continues to evolve. There will be disagreement and friction. Why Africa Is Poor: Ghana Beats Up on Its Biggest Foreign Investors, Wall Street Journal, February 18, 2010, accessed February 16, 2011. This is particularly true in high-technology industries where substantial sunk costs are committed to R&D. The same applies to . For example, Durand and Wrigley (2009) reports that Walmart and Carrefour compete to penetrate into new markets to expand market share. This theory focuses on how companies can get a competitive advantage when competing against global firms in the same industry. International trade theories are simply different theories to explain international trade. 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. China: Trade with Africa on Track to New Record, CNN, October 15, 2010, accessed April 23, 2011, http://articles.cnn.com/2010-10-15/world/china.africa.trade_1_china-and-africa-link-trade-largest-trade-partner?_s=PM:WORLD. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010. 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. However, this simplistic example demonstrates the basis of the comparative advantage theory. A second flaw in the data is that they treat states as equals in Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. 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 Identify the political philosophy which contends that individuals should control political activities and public government is both unnecessary and unwanted. Example Boeing is the most successful aircraft manufacturing because it does a vast amount of study for its competitors by its R&D department. What Are the Different International Trade Theories? Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010. China even hosted a summit in 2006 for African leaders, pledging to increase trade, investment, and aid over the coming decade.11 The 2008 global recession has led China to be more selective in its African investments, looking for good deals as well as political stability in target countries. These theories are referred to as modern and are firm-based or company-based. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. Both of these categories, classical and modern, consist of several international 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 The theories of Smith and Ricardo didnt help countries determine which products would give a country an advantage. 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. Their theory focused on multinational corporations and their efforts to gain a competitive advantage against other global firms in their industry. 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. In this case, you would create a strategy to sell essentially the same purses in every location. Barriers to trade may exist, and goods must be transported, stored, and distributed. They are: 1. 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. This will in turn help shape the strategic moves of your own organization. Their theory, also called the factor proportions theory, stated that countries would produce and export goods that required resources or factors that were in great supply and, therefore, cheaper production factors. In Globalization 2.0, multinational companies ascended and pushed global development. One example is IT suppliers such as Siemens and SAP. 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.
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