1. The Environment of Global Trade
capital movements (not trade) are driving forces of the world economy
production is ‘uncoupled’ from employment e.g security guards in India using webcams
primary products have become uncoupled from the industrial economy e.g steel from South America into Europe
the world economy is in control
75-year contrast between capitalism and socialism is over

2. Barriers to Trade Tariff barriers - direct taxes on imports
Bahamas has 30% on all goods
Australia and US impose on cars and agricultural goods e.g Japanese manufacture in Australia
Average now 5% was 25% in1945
Non-tariff Barriers
Increased govt. participation, US wheat subsidy
Customs entry procedures
Quotas (quantitative restriction) US textile imports from China

3. Forms of Market Agreement
Free Trade Area - remove all tariffs amongst members
e.g NAFTA USA/Canada Mexico
e.g EEA (European Economic Area) EU, EFTA and LAFTA
Customs Unions - as above but with common external barriers
e.g EC prior to 1993.

4. Common Market - as above but also the free flow of all factors of production
e.g EU since 1993
Economic Union -
common market characteristics are combined with the harmonisation of economic policy.
Supranational authority to design policy for a group of nations
objective of Maastricht Treaty in EU was formed in 1993.Monetary Union commenced in Now political union in 2000’s? More convergence and less national autonomy?

5. Five forces analysis Potential entrants Threat of entrants Suppliers
COMPETITIVE
RIVALRY
Buyers
Bargaining
power
Bargaining
power
Threat of
substitutes
Substitutes
Source: Adapted from M. E. Porter, Competitive Strategy, Free Press, 1980, p. 4. Copyright by The
Free Press, a division of Macmillan Publishing Co., Inc. Reproduced with permission.

6. Competitive Rivalry Entry is likely Substitutes threaten
Buyers or suppliers exercise control
Competitors are in balance
There is slow market growth
Global customers increase competition
There are high fixed costs in an industry
Markets are undifferentiated
There are high exit barriers

7. Competitive Rivalry - motor industry

8. Buyer power There is a concentration of buyers
There are many small operators in the supplying industry
There are alternative sources of supply
Components or materials are a high percentage of cost to the buyer leading to “shopping around”
Switching costs are low
There is a threat of backward integration

9. Bargaining power of buyers - Wal-Mart

10. Supplier power There is a concentration of suppliers
Switching costs are high
The supplier brand is powerful
Integration forward by the supplier is possible
Customers are fragmented and bargaining power low

11. Bargaining power of suppliers - Bill Gates - Microsoft

12. Threat of substitutes Substitutes take different forms:
Product substitution - Bt for Orange
Substitution of need - international not local calls (satellites not wires)
Generic substitution - mobiles for land based telephones
Doing without - no communication

13. Threat of substitutes - KFC China

14. The threat of entry Dependent on barriers to entry such as:
Economies of scale
Capital requirements of entry
Access to distribution channels
Cost advantages independent of size (eg the
“experience curve”)
Expected retaliation
Legislation or government action
Differentiation

15. New Entrants - Citibank

16. Citibank - ‘Firstmover’
High brand recognition
More positive brand image
More customer loyalty
More distribution
Longer market experience

17. Country- Specific Advantages (CSAs)
E.g low cost production of Volkswagens in Portugal
Comparative advantage - e.g France apples, UK lamb
International Product Cycle (IPC) - Raymond Vernon 1966
USA production shifted over time to new locations
USA begins to export goods and technology
Countries such as Korea then become low cost producers and export back to USA

18. Porter’s Determinants of National Advantage (1990)
Firm strategy,
structure,
and rivalry
Factory
conditions
Demand
conditions
Related and
supporting
industries

19. National Competitive Advantages
Factor conditions e.g skilled labour, infrastructure
Demand conditions e.g. ‘home’ demand for the product of service
Related and supporting industries e.g raw materials, components
Firm strategy, structure and rivalry