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International Marketing ­ MKT630
VU
Lesson # 6
INTERNATIONAL TRADE & INVESTMENT THEORIES
Classical Country Based Theories
International merchandise trade in goods in 2006 was $8 tr. & in services 3 tr. (20% of the world GDP).
Exports spark additional economic activity in domestic economy as companies of country can expand
their sales and profits by selling to foreign markets.
Imports can pressure domestic economy as foreign products flood domestic markets and result in
closing down of non-competitive local businesses.
Some countries in the world are successful in exporting manufactured and non-manufactured goods as
well as services to other countries and have become prosperous. While there are other countries that
have ton been so successful and hence have remained poor. Due to international trade's significance to
businesses, consumers & workers, scholars have attempted to develop theories to explain & predict the
forces that motivate such trade.
Mercantilism:
This is an old 16th century economic philosophy that attempted to explain how countries may become
prosperous and strong. Salient points of this philosophy are in the following;
·
Country's wealth is measured by its holdings of gold & silver (reserves of modern era)
·
Country's goal should be to enlarge those holdings
·
To do this a country should maximize difference between its exports & imports
·
A country should then promote exports & discourage imports - if exports are more than imports
foreigners have to pay the difference in gold & silver
· Today's "unfavourable balance of trade" when exports of any country are less than its exports, is the
extension of the same idea
· With larger holdings of gold and silver kings could have more wealth ­ and hence could afford larger
armies to expand kingdoms
· This approach would make exporters happy and domestic manufacturers of export products would
also be happy as their businesses grow
Arguments against `Mercantilism' Approach:
By following this philosophy in a country more members of society are at loss as export subsidy is
·
paid by taxpayers and import restriction leads to higher domestic prices
In the age of imperialism the burden of the subsidy was shifted to colonies and colonies were made
·
producers of raw materials and markets for empire's manufactured products
Mercantilism actually weakens a country as the subsidized and protected export sector fails to
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become efficient and the domestic economy suffers to provide support to the exports.
Country's true wealth is in fact measured by the wealth of all its citizens not just that of its king or
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only the exporters
Country's real wealth is dependent on production of goods & services rather than accumulation of
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gold reserves
More wealth of more citizens will provide more tax base & hence a wealthy king
·
Mercantilism causes inefficiencies, some special interest groups may benefit, reduces wealth of
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country as a whole
Free trade among countries enlarges a country's wealth (specialize in production of some goods &
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services while import others) (unrest in britain's american colonies and their subsequent
independence was due to the "mercantilist" policies of uk )
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International Marketing ­ MKT630
VU
Theory of Absolute Advantage:
This theory was forwarded in 1776 by Adam Smith. Salient features of this theory are in the following;
· It advocates free trade among world countries to maximize citizens' wealth
· Free trade enables a country to expand the amount of goods and services available to it by
specializing in production of some goods and services and trading of others
· A country can have certain advantages over other countries
­ Natural advantage: climatic conditions, natural resources, abundant cheap labor-force etc
­ Acquired advantage: development of product or process, skills development etc
· A country should export those goods & services for which it is more productive than others
· Import those goods & services for which other countries are more productive
What if a country has absolute advantage in all products? Large countries like USA and China can have
absolute advantages in manufacturing many types of products. Extent of value addition and profits on
various products vary. Some types of products allow better return on resources deployed than others
products. Should these countries then produce and export all such products in which they have
advantage? Or concentrate more on such products where they may earn comparatively better profits?
Theory of Comparative Advantage:
Forwarded in early 19th century, the theory of Comparative Advantage resolves the above issue. A
country should produce and export such products where it has comparatively more advantage and hence
can earn better margins. Salient features of this theory are in the following;
· A country should produce & export those goods & services for which it is relatively more productive
than other countries
· Implement concept of opportunity cost (what a country gives up to get / produce a certain good) in
determining which goods a country should produce
· Factor ­ Proportions concept (identifies which products may offer comparative advantage to a
country)
­ Factor (resources) vary among countries i.e. Oil cheaper in Saudi Arabia, china has cheaper labor,
Singapore has capital and funds
­ A country will have comparative advantage in producing products that intensively use resources
it has in abundance
Country Similarity Theory:
Most trade today occurs among apparently similar countries
­ Same per-capita income
­ Similar infrastructure / distribution systems
­ Same language / culture / religion / tastes etc.
Similarity among countries on the above aspects allows their products and services to be sold easily in
each others markets.
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Table of Contents:
  1. OVERVIEW OF INTERNATIONAL MARKETING:Domestic marketing, Multinational marketing, Globalization of markets
  2. INETRNATIONAL MARKETING PROCESS:Situation Analysis, Implementation and Control, Relationship
  3. INETRNATIONAL MARKETING PROCESS:The Product Concept, The Societal Marketing Concept
  4. INETRNATIONAL MARKETING PROCESS
  5. ENGAGING IN INETRNATIONAL MARKETS:Expansion of technology, Merchandize export and import
  6. INTERNATIONAL TRADE & INVESTMENT THEORIES:Theory of Comparative Advantage, Country Similarity Theory
  7. INTERNATIONAL TRADE & INVESTMENT THEORIES:Global Strategic Rivalry Theory,
  8. INTERNATIONAL MARKETING INFORMATION REQUIREMENTS:Foreign exchange info
  9. INTERNATIONAL MARKETING INFORMATION REQUIREMENTS:The Product
  10. FOREIGN NATIONAL ENVIRONMENTS:Political systems in the world, Political risks in international markets
  11. FOREIGN NATIONAL ENVIRONMENTS:Types of legal systems,
  12. FOREIGN NATIONAL ENVIRONMENTS:Conciliation, Mediation, Global relevance
  13. ROLE OF GOVERNMENTS IN INTERNATIONAL MARKETS:Industry-level needs, Promotion of exports by governments
  14. INTERNATIONAL CULTURAL AND SOCIAL ENVIRONMENTS:The concept of culture, Attitudes & beliefs,
  15. INTERNATIONAL CULTURAL AND SOCIAL ENVIRONMENTS:Culture is a human medium
  16. DETERMINING EXPORT POTENTIAL IN INTERNATIONAL MARKETS:Political Environment
  17. DETERMINING EXPORT POTENTIAL IN INTERNATIONAL MARKETS:Product Potential
  18. INTERNATIONAL MARKETING RESEARCH PROCESS:market structure, Implementing the research plan
  19. INTERNATIONAL MARKETING RESEARCH PROCESS:Identify alternative information sources
  20. INTERNATIONAL MARKETING RESEARCH PROCESS:Issues with primary global research:
  21. INTERNATIONAL MARKETING RESEARCH PROCESS:Problems with data, Comparative Analysis
  22. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Export intermediaries, Export and import management
  23. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Licensing contract, Licensing risks
  24. MODES OF ENTRY INTO INTERNATIONAL MARKETS:The franchiser’s balance,
  25. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Forms of countertrade, Specialized entry modes
  26. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Demand factors, Political factors
  27. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Drivers behind successful joint ventures
  28. MODES OF ENTRY INTO INTERNATIONAL MARKETS:Distribution agreements, Critical mass & optimism traps
  29. INTERNATIONAL STRATEGIC ALLIANCES:Impetus for international alliances, Management of strategic alliances
  30. INTERNATIONAL CONSUMER MARKETS:Model of Consumer BehaviorThe Buyer Decision Process
  31. INTERNATIONAL BUSINESS MARKETS:Nature of buying unit, Major influences on international business buyers
  32. INTERNATIONAL TARGET MARKETING:Market segmentation, Market positioning
  33. INTERNATIONAL MARKET SEGMENTATION:Geographic, Behavioral, Situational factors
  34. INTERNATIONAL MARKET SEGMENTATION:Basis for country segmentation, Stages of economics development
  35. INTERNATIONAL MARKET SEGMENTATION:Cultural Variables,
  36. INTERNATIONAL MARKET SEGMENTATION:Market coverage strategy, Socio-economic variables
  37. INTERNATIONAL MARKETING MIX - PRODUCT POLICY:Individual product decisions, Branding
  38. INTERNATIONAL MARKETING MIX – PRODUCT POLICY:
  39. INTERNATIONAL MARKETING MIX - PRODUCT POLICY:Modular Approach
  40. INTERNATIONAL MARKETING MIX – PRODUCT POLICY:Issues in labeling, Pricing, Distribution
  41. INTRODUCING NEW PRODUCTS IN INTERNATIONAL MARKETS:The new product development process
  42. PRICING IN INTERNATIONAL MARKETS:Factors influencing international pricing,
  43. ITERNATIONAL MARKETING CHANNELS:Channel membership, Vertical marketing, Control over distribution
  44. PROMOTING IN INTERNATIONAL MARKETS:Advertising, Direct marketing, Public Relationing
  45. REVISION