Bases of International Marketing Lecture 2 Bases of International Marketing

International Trade Theories Classical Theory Factor Proportion Theory Product Life-Cycle Theory

Classical Theory Related to trade partners according to economic advantage. Produce in domestic when it is cheaper than abroad, import when it is expensive in domestic Exclude transportation cost, marketing cost, individual firm profits.

Three Situations in Classical Theory Absolute Advantage Comparative Advantage Equal Advantage

Absolute Advantage One country has cost advantage over another country in producing of one product And second country has cost advantage over first country in producing of another product exchange

Comparative Advantage One country has absolute advantage over another country in the production of all products, trade is better if domestic exchange ratios are dissimilar. This country has superior advantage

Equal Advantage When one country has an absolute advantage over another in production of all products but no superior advantage No difference in exchange ratios

Factor Proportion Theory Export product: very cheap input is used Import product: very expensive input is used.

Product Life-cyle Theory