CH3-MODERN FIRM-BASED THEORIES OF INTERNATIONAL TRADE Flashcards
The ability of the country or company to offer greater value to customers either by means of lower prices or offering more benefits and services at the same time.
Competitive Advantage
Combination of Cost Advantage and Quality Advantage.
Competitive Advantage
In his theory, he states that a nation’s competitiveness in an industry deoends in the capacity of the industry to innovate and upgrade.
Michael Porter
Model by Michael Porter introduced in his book, aka The competive advantage of nations.
Porter’s diamond
Combination of absolute and comparative advantage
Competitive Advantage
Porter’s four stages of development in the evolution of a country.
- Development based on factors
- Development based on investment
- Development based on innovation
- Development based on prosperity
Four determinants that will help Nations to gain competitive advantage
- Local market resources and capabilities
- Local market demand conditions
- Local suppliers and complementary industries
- Local firm characteristics
What are the new list of advanced factors Porter added to the basic production factors such as land, labor and capital?
- Human resources/skilled labor
- Material resources (natural, vegetation, space)
- Investments in education (knowledge and research on universities)
- Technology
- Infrastructure
It shows how a company attains competitive advantage through its main activities that provide cost advantage and the support activities that will provide the firm quality advantage.
Porter’s competitive advantage chain value
It is a theories that speak of differences in resources and demand or supply conditions as a necessary condition for trade between countries.
Traditional trade theories
It is built upon similarities or identical features of nations for them to trade with each other.
Country similarity theory
Who developed country similarity theory and explained the concept of intra-industry trade between and among countries with identical characteristics?
Steffan Linder
What are the following features common to certain countries that will make them trade with each other?
- Stage of development
- Cultural milieu
- Geographical features
- Political and economic interests
The exchange of goods produced in different industries among countries.
Inter-industry trade
The exchange of goods produce in the same industry
Intra-industry trade
A tool used to developed to compare and determined the similarity of countries.
Geert Hofstede model
Six Dimensions to compare countries in Geert Hofstede Model.
- Power distance
- Individualism
- Masculinity
- Uncertainty avoidance
- Long-term orientation
- Indulgence
Is power in the country distributed unequally?
Power distance
Is it the want to be the best versus liking what you do (feminine)
Masculinity
It is the degree of interdependence of the members of a society
Individualism
Are members of a society feeling threatened by unknown situations?
Uncertainty Avoidance
The society has links with the past and deals with the challenges of the present and the future.
Long-term orientation
Do members of a society control their impulses and desires?
Indulgence
The series of stages through which a living thing passes from the beginning of its life until its death.
Life cycle
The length of time a product is introduced in the market until it is removed from the shelves.
Product life cycle
Who developed product life cycle theory to explain the pattern of international trade and foreign direct investment that follows the product life cycle.
Raymond Vernon
The process of managing a product’s life cycle from inception, through design an manufacturing to sales, service, and eventually retirement.
Product life cycle management
A product life cycle in which the underlying goal is to gain widespread product awareness and brand recognition and big money is spent on distribution and promotion, but sales is low and profitability is negative.
Introduction stage
Price setting strategy in which they charge an initially high price and gradually reducing the price as the market grows.
Price skimming
Price setting strategy in which they charge a low price to penetrate the market and capture market share,before increasing prices in relation to market growth.
Price penetration
At this stage, the demand for the product begins to increase and sales usually grows exponentially from the takeoff point. Profitability reaches the highest level. Economies of scale are now in order as sales revenue increases faster than costs and production reaches capacity.
Growth stage
At this stage, sales increase continues in a decreasing pattern, product differentiation and generating brand awareness become a must, and retaining customer brand loyalty is the key.
Maturity stage
A product enters this stage when no amount of marketing or promotion can prevent the sales figures from declining.
Decline stage
What are some strategies to employ in the decline stage?
- Milking or harvesting
- Slowly Reducing the Distribution Channels and pulling the product from underperforming geographic areas.
- Selling the product to a niche operator or subcontractor
A theory forwarded in 1980 by economists Paul Krugman and Kevin Lancaster that focused on multinational corporations (MNCs) and how they get a competitive advantage by taking advantage of the barriers to entry for a particular industry.
Global strategic rivalry theory
The obstacles a new firm may face when trying to enter into an industry or a new market.
Barriers to entry
What are the barriers to entry?
A. Research and Development
B. Ownership of intellectual property rights
C. Economies of scale
D. Unique business processes or methods
E. Extensive experience in the industry or exploiting the experience curve
F. Control of resources or favorable access to raw materials
Activities engaged in by companies for the invention of new products or services to remain competitibe. It is an important driver of economic growth and companies have their own ______ departments to be able to actually gain competitive advantage.
Research and Development
Refers to creation of the mind, a work or invention that is the result of creativity such as manuscript, design, to which one has rights and for which one may apply for a patent, copyright, trademark, brand name, and the like.
Intellectual property
An exclusive right granted for a new, inventive and useful product, process or technical improvement to an existing invention.
Patent
A word, group of words, sign, symbol, or a logo that distinguishes your business goods or services from those of other traders.
Trademark/brand name
The exclusive legal right to reproduce, publish, sell, or distribute the matter and form of something such as literary, musical or artistic work.
Copyright
A proportionate saving in costs (cost advantage) gained by an increased volume of production.
Economies of scale
Economies that are unique to a firm
Internal economies of scale
Economies of scale enjoyed by an entire industry
External economies of scale
It produces competitive advantage over those without experience in any endeavor.
Experience
