Ch.6 Theories of Trade and Investment Flashcards Preview

IBUS > Ch.6 Theories of Trade and Investment > Flashcards

Flashcards in Ch.6 Theories of Trade and Investment Deck (26)
Loading flashcards...
0
Q

Mercantilism?

Neo Mercantilism?

A

A belief popular in the 16th century that national prosperity results from maximizing exports and minimizing imports

“neomercantilism”–idea that the nation should run a trade surplus
+labor unions +farmers +manufacturers who rely exports

1
Q

Competitive Advantage

A
  • describes organizational assets and competencies that are difficult for competitors to imitate
  • explains how firms gain and maintain distinctive competencies relative to competitors, that lead to superior performance
2
Q

free trade

A

refers to the relative absence of restrictions to the flow of goods and services between nations.

3
Q

Absolute advantage principal

A

a country should produce only those products in which it has absolute advantage or can produce using fewer resources than another country

4
Q

What outcomes does Free Trade specifically produce

A

+consumers/firms readily buy the products they want
+import products tend to be cheaper
+lower cost imports reduce company expense
+ consumers save money thereby increasing their living standard
+increase in overall prosperity

5
Q

Comparative Advantage Principal

A

It is beneficial for two countries to trade even if one has absolute advantage in the production of all products; what matters is not the absolute cost of production but the relative efficiency with which it can produce the product

6
Q

International Product Life Cycle (IPLC) Theory

-Harvard Professor Raymond Vernon

A

Each product and its associated manufacturing technologies go through three stages of evolution :1 Introduction, 2 maturity,
3 standardization

7
Q

Explain the three stages of IPLC

A

INTRODUCTION STAGE inventor country enjoys a monopoly both in manufacturing and exports. MATURITY STAGE the product’s manufacturing becomes relatively standardized; other countries start producing and exporting the product; STANDARDIZATION STAGE manufacturing ceases in the original innovator country, which then becomes a net importer of the product.

8
Q

New Trade Theory

A

Argues that economies of scale are an important factor in some industries for superior international performance, even in the absence of superior comparative advantages. Some industries succeeded best as their volume of production increases.

9
Q

Three modern perspectives that help explain the development of NATIONAL COMPETITIVE ADVANTAGE are:

A

The Competitive Advantage of Nations

The Determinants of National Competitive Advantage

National Industrial Policy

10
Q

The Competitive Advantage of Nations

A

Depends on the collective competitive advantages (competencies) of the nation’s firms. Over time, this relationship is reciprocal: The competitive advantages held by the nation tend to drive the development of new firms and industries with these same competitive advantages(i.e. knowledge capabilities skills strategy)

11
Q

Comparative Advantage

A

superior features of a country that provide it with unique benefits in global competition. Also known as ‘location-specific advantage’. Typically, comparative advantage is derived from an abundance in a country of: valuable natural resources/arable or build-able land/favorable climate/low-cost labor/inexpensive capital

12
Q

National Competitive Advantage

A

When a nation has an abundance of comparative advantages in a given industry, and the firms in that industry collectively have abundant competitive advantages

13
Q

The Competitive Advantage of Nations -Michael Porter

Made diamond model; explains the four major elements that competitive advantage at company and national levels originate

A
Firm strategy, structure          < 
			>	and Rivalry				v	Demand
FACTOR	      v								Conditions
CONDITIONS			
		^  >    Related and Supported Industries   <  ^
14
Q

Demand conditions
Factor conditions
Related and supporting industries
Firm Strategy, Structure, and rivalry

A

1) The strengths and sophistication of customer demand.
2) quality and quantity of labor, natural resources, capital, technology, know-how, entrepreneurship, and other factors of production.
3) The presence of suppliers, competitors, and complementary firms that excel within a given industry.
4) The nature of a domestic rivalry, and conditions that determine how a nation’s firms are created, organized, and managed.

15
Q

Industrial Cluster

A

concentration of suppliers and supporting firms from the same industry located within the same geographic area

-strong cluster can serve as an export platform for the nation

16
Q

National Industrial Policy

A

A proactive economic development plan employed by the government to nurture or support promising industry sectors with potential for regional or global dominance. Initiatives can include
+tax incentives + monetary and fiscal policies +rigorous educational systems +investments in Natl. Infrastructure +legal reg

17
Q

Stages in Industrialization

A
domestic focus
pre export stage
experimental stage
active involvement
committed involvement
18
Q

Monopolistic Advantage Theory

A

Argues that MNE’s prefer FDI because it provides the firm with control over resources and capabilities in the foreign market and a degree of monopolistic power relative to foreign competitors…Key sources of monopolistic advantage include proprietary knowledge, patents, unique know how, and sole ownership assets.

19
Q

Internationalization theory -explains how the MNE chooses to acquire and retain one or more…

A

“value -chain activities inside itself”………+such internationalization provides the MNE with greater control over its foreign operations.
+internationalization avoids the drawbacks of dealing with external partners, such as reduced quality control and risk of losing proprietary assets to outsiders

20
Q

Dunning’s Eclectic Paradigm

-three conditions determine whether or not a company will enter a given foreign country via FDI:

A

1) OWNERSHIP SPECIFIC ADVANTAGES
2) LOCATION SPECIFIC ADVANTAGES
3) INTERNATIONALIZATION ADVANTAGES

21
Q

Ownership Specific Advantages

A

Knowledge, skills, capabilities, relationships, or physical assets that the firm owns and which are the basis of its competitive advantages

22
Q

Location-Specific advantages

A

similar to comparative advantages, they are specific advantages that exist in the country that the MNE has entered, or is seeking to enter such as natural resources, low cost labor, or skilled labor

23
Q

Internationalization advantages

A

control derived from internalizing foreign based manufacturing, distribution, or other value chain activities.

24
Q

International Collaborative Ventures

A

a form of cooperation between two or more firms. Partners pool resources and capabilities to create synergies and share risk of joint efforts.
-collaboration provides access to foreign partners’ know-how, capital, distribution channels, or marketing assets, O.E. obstacles

25
Q

Two types of International collaborative ventures

A

+Equity Based Joint Ventures-result in the formation of a new legal entity
+Project-based Alliances-do not require equity commitment from partners but simply cooperate in R&D, manufacturing, design, or any other value adding activity