International Business (5) Huang Huiping Economic School. Whut

Part 3 Cross-Border Trade and Investment Learning Objectives (Chapter 4,5)  Review different theories that explain trade flows between nations;  Review the various policy instruments used to restrict imports and promote the exports;  Understand the implications that the International trade theories and the policies hold for business practice.

4 International Trade 4.1 International Trade Theory  Mercantilism  Absolute Advantage Theory  Comparative Theory  H-O Theory  The Product Life-Cycle Theory  The New Trade Theory  Nation’s Competitive Advantage  Implication for Business

(1) Product Life Cycle theory Many manufactured goods undergo a predictable trade cycle. During this cycle, a nation initially is an exporter, then loses its export markets, and finally becomes an importer of the product. A product goes through five stages: (1) new-product phase (2) product-growth phase (3product maturity phase (4) product decline stage (5) product decline stage

production Stage 1 (New product) Stage 2 (Product growth) Stage 3 (product maturity) Stage 4 (product decline) Stage 5 (abdicate market) Time Quantity 0 A B C D consumption Innovating country production imitating country export import export The product cycle model

Implications of the Product Life Cycle theory  Offers an accurate explanation of the international trade pattern.  For international business: - the location of production; - the time to enter foreign market; - the entry way

(2) The New Trade Theory Theory of Increasing Returns to scale Main views (1)There is still a basis for mutually beneficial trade based on economies of scale, even if two nations are identical in every respect. (2)The benefits will be from increasing productivity and declining of unit cost. (3) Learning effect: cost saving from learning by doing. (4) If the output required to realized significant scale economies represents a substantial proportion of total world demand of that product, the world market may be able to support only a limited number of firms producing that product.

Implications of Theory of Increasing Returns to scale  First-mover advantage :the economic and strategic advantage that accrue to early entrants into an industry.  Where does the First-mover advantage come from? - good luck? - Innovation? - Entrepreneurship? - Government intervention?  Airbus & Boeing examples  The required minimum scale of production and the maximum demand of the product in the world.

生 产生 产 生 产生 产 空中客车公司 不 生 产不 生 产 不 生 产不 生 产 波音公司 －5－5 －5－ 表 1 两家企业竞争

生 产生 产 生 产生 产 空中客车公司 不 生 产不 生 产 不 生 产不 生 产 波音公司 －5－ 表 2 补贴对空中客车公司的影响 政府每年向空中客车公司提供 25 单位的补贴：

(3) National Competitive Advantage  In 1990, Michael Porter of the Harvard Business School, The Competitive Advantage of Nations  The essential task was to explain why a nation achieves international success in a particular industry.( Japan’s automobile industry,Switzerland’s precision instruments,Germany and the United States chemical industry )

four broad attributes of a nation shape the environment:  Factor endowments - Basic factor - Advanced factor - relationship  Demand conditions - Are domestic consumers sophisticated or demanding?  Relating and supporting industries - Spillover effects from investment in advanced factor of production in relating and supporting industries  Firm strategy, structure, and rivalry - different management ideology; - Vigorous domestic rivalry may result persistent competitive advantage

Porter’s Diamond

Two additional variables :  chance :can reshape industry structure and provide the opportunity for one nation's firms to supplant another's.  government. can detract from or improve national advantage.

企业战略、结构 和竞争 需求条件 生产要素 相关及支持产业 机遇 政府

Evaluating the theory:  The degree to which a nation is likely to achieve international success in a certain industry is a function of the combined impact of the four (six) factors.  Government can influence each of the four components of the diamond-either positively or negatively.

Implications  Location implications - Different countries have particular advantages in different production activities.  First-mover implications - Firms that establish a first-mover advantage with regard to the production of a particular new product may subsequently dominate global trade in that product. - Strategic Trade Policy  Policy implications - Firms involved in international trade can and do influence government policy toward trade. By lobbying government, business firms can promote free trade or trade restrictions. - Invest education, infrastructure, basic research; - Improve the level of competition

4.2 International Policy (1) Instrument of trade policy  Tariff;  Subsidies;  Import quotas and Voluntary Export Restraints  Local content requirement;  Administrative policies;  Antidumping policies;

(2). The implications 1. Company’s Strategy  Tariff vs. cost;  Quote system vs. A firm’s entry strategy;  Local content regulation vs. market number;  Antidumping vs. price strategy. 2.Policy implication  Regulation vs. Deregulation

Assignments  Chpt 4 : 以目前发生在中国的某件违背商业道德的 事件为例，分析其产生的深层原因和解决问题的途 径。  Chpt 5: 章末案例 (p124)  Chpt 6: 研究性任务 2 ( p150)