1. International Business: Introduction
Modes of International Business
International Trade
Merchandise or service
Investments
Direct or Indirect (portfolio investments)
Why do Companies Go International?

2. International Trade
Why does trade occur and how can trade benefit both parties to an exchange?

3. Theories of International Trade
1500
1600
1700
1800
1900
2000
Year
Mercantilism
Absolute Advantage
Comparative Advantage
Factor Proportions Theory
International Product Life Cycle
New Trade Theory
National Competitive Advantage

4. Qs: Problems with this theory?
Mercantilism
Holding that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports.
Trade
Surplus
Intervention
Colonization
Qs: Problems with this theory?

5. Qs: 1) Why advantage? 2) Problem?
Absolute Advantage
1 Ton Tea
Gain from
Trade
Riceland
Tealand
RICE
TEA 1 6 5 3
4/5
1/3 Ton Rice
Gain from
Trade
1/6
Making Rice
Making Tea
1/5
1/6
Riceland
Tealand
Qs: 1) Why advantage? 2) Problem?

6. Comparative Advantage
1 Ton Tea
Gain from
Trade
Riceland
Tealand
RICE
TEA 1 6 2 3
1/2
1/3 Ton Rice
Making
Rice
Gain from
Trade
1/6
1/2
Making Tea
1/6
Riceland
Tealand
Qs: Problem?

7. Factor Proportions (Heckscher-Ohlin Theory)
Holding that countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply.
Labor, Land,
and Capital
Equipment
The Leontief
Paradox

8. International Product Life Cycle
Standardized Product Stage
New Product Stage
Maturing Product Stage

9. International Trade and Production in the Product Cycle

10. International Trade and Production in the Product Cycle (cont’)

11. International Trade and Production in the Product Cycle (cont’)

12. New Trade Theory Specialization and Economies of Scale Barriers to
First-Mover
Advantage
Barriers to
Entry
Government
Intervention

13. National Competitive Advantage
Strategy,
Structure,
and Rivalry
Factor
Conditions
Demand
Conditions
The Porter
Diamond
Related and
Supporting
Industries

14. Trade Dependence and Independence
Developing and Transition Nations
Dangers of Trade Dependency
Benjamin Franklin “No nation was ever ruined by trade”.