logging in or signing up Int Trade Theories rushhh Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 416 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: March 29, 2010 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... By: shruti_1308 (19 month(s) ago) hey ths presentation is vry useful n information, i need a copy of it..........please mail me on shruti_1308@ymail.com..... make its as soon as possible........ Saving..... Post Reply Close Saving..... Edit Comment Close By: archumaddy (26 month(s) ago) The presentation is apt and i need a copy of it...kindly can you send me to my mail id - archumaddy@gmail.com. Please... Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Slide 1: International Trade Theory 5-1 Chapter Objectives : Chapter Objectives Explain trade theories Discuss how global efficiency can be increased through free trade Introduce prescriptions for altering trade patterns Explore how business decisions influence international trade 5-2 Dr Subhash Gupta International Trade : International Trade The purchase, sale, or exchange of goods and services across national borders. International Trade: Provides a country’s people with a greater choice of goods and services Important engine for job creation Trade in goods and services is one means by which countries are linked economically Dr Subhash Gupta Volume of International Trade : Volume of International Trade World’s Top Merchandise Exporters US - USD693blln (10.7%) Germany – USD613.1 blln (9.5%) Japan – USD416.7 (6.5%) World’s Top Service exporters US – USD272.6 blln (17.4%) UK – USD123.1 blln (7.8%) Germany – USD99.6% (6.3%) Dr Subhash Gupta Slide 5: Degree of Dependence Independence—complete economic independence Country has no reliance on other countries for goods, services, or technologies Price of independence is having to do without goods that cannot be produced domestically Hinders country’s ability to borrow and adapt existing technologies Interdependence— trade based on mutual need Neither trading partner is likely to cut off supplies or markets for fear of retaliation Governments may be pressured to sustain trade Dependence—developing countries rely heavily on: The sale of one commodity for export earnings 25 % of emerging countries sell one commodity One country as supplier or customer Industrialized countries Dr Subhash Gupta General Types of Trade Theories : General Types of Trade Theories Descriptive: the natural order of trade Laissez-faire conditions Which products, how much, and with whom a country will trade in the absence of restrictions Prescriptive: questions whether governments should interfere with the free movement of goods and services Both types of theories provide insights about markets for exports and potentially successful export products help companies determine where to locate production facilities 5-3 Dr Subhash Gupta Mercantilism : Mercantilism Initial trade theory that formed the foundation of economic thought from 1500 – 1800 Based on concept that a nations wealth is measured by its holding of treasure (gold) Nations should accumulate financial wealth by encouraging exports and discouraging imports. Favorable balance of trade: country is exporting more than it is importing Unfavorable balance of trade: country is importing more than it is exporting, i.e. a trade deficit 5-4 Dr Subhash Gupta Slide 8: Nations often imposed restrictions on imports since they did not want “their” treasure moving to another country to pay for the imports Intended to benefit colonial powers colonies supplied commodities to the mother country mother country tried to run trade surpluses with their own colonies Mercantilism faded after 1800 Dr Subhash Gupta Mercantilism-Zero-Sum Game : Mercantilism-Zero-Sum Game In 1752, David Hume pointed out that: Increased exports lead to inflation and higher prices Increased imports lead to lower prices Result: Country A sells less because of high prices and Country B sells more because of lower prices In the long run, no one can keep a trade surplus Dr Subhash Gupta Neomercantilism : Neomercantilism Current term to describe the approach of countries that try to run favorable balances of trade to achieve some social or political gains 5-5 Dr Subhash Gupta Theory of Absolute Advantage : Theory of Absolute Advantage Adam Smith argued (Wealth of Nations, 1776): Capability of one country to produce more of a product with the same amount of input than another country can vary A country should produce only goods where it is most efficient, and trade for those goods where it is not efficient Trade between countries is, therefore, beneficial Assumes there is an absolute balance among nations Example: Ghana/cocoa Dr Subhash Gupta Absolute Advantage : Absolute Advantage Absolute advantage holds that different countries produce some goods more efficiently than other countries A nation with an absolute advantage can produce greater output of a good or service than other nations using the same amount of, or fewer, resources. Thus, global efficiency can be increased through international free trade 5-6 Dr Subhash Gupta Country Specialization : Country Specialization Under the concept of absolute advantage countries could increase efficiency because: Labor could become more skilled by repeating the same tasks Labor would not lose time in switching from the production of one kind of product to another Long production runs would provide incentives for the development of more effective working methods 5-7 Dr Subhash Gupta Natural Advantage : Natural Advantage Countries have inherent advantages Climate Natural resources Labor forces Two countries that have opposite natural advantages should favor trade with one another 5-8 Dr Subhash Gupta Acquired Advantage : Acquired Advantage Most contemporary trade is manufactured goods and services rather than agricultural goods or natural resources Countries with an acquired advantage produce manufactured goods and services competitively Product technology- Danish Silver tableware Process technology – Japanese steel 5-9 Dr Subhash Gupta Theory of Comparative Advantage : Theory of Comparative Advantage David Ricardo (Principles of Political Economy, 1817): Extends free trade argument Efficiency of resource utilization leads to more productivity Should import even if country is more efficient in the product’s production than country from which it is buying Look to see how much more efficient If only comparatively efficient, than import Makes better use of resources Trade is a positive-sum game Dr Subhash Gupta Comparative Advantage : Comparative Advantage There are still global gains to be made if a country specializes in products it produces more efficiently than other products Regardless of whether other countries can produce those same products even more efficiently A country has a comparative advantage when it is unable to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good. 5-11 Dr Subhash Gupta Basic Assumptions : Basic Assumptions Full employment Economic efficiency is sought Division of gains Two countries/two commodities Transportation costs Mobility Statics and dynamics Services Country size/variety of resources 5-13 Dr Subhash Gupta Heckscher (1919)-Olin (1933) Theory : Heckscher (1919)-Olin (1933) Theory Export goods that intensively use factor endowments which are locally abundant Corollary: import goods made from locally scarce factors Note: Factor endowments can be impacted by government policy - minimum wage Patterns of trade are determined by differences in factor endowments - not productivity Dr Subhash Gupta Slide 20: Countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. Land-labor relationship Labor-capital relationship Technological complexities 5-14 Dr Subhash Gupta Product Life-Cycle Theory - R. Vernon (1966) : Product Life-Cycle Theory - R. Vernon (1966) As products mature, both location of sales and optimal production changes Affects the direction and flow of imports and exports Globalization and integration of the economy makes this theory less valid Dr Subhash Gupta Slide 22: Introduction Growth Maturity Decline Production Location Market Location Competitive Factors Production Technology 5-16 Dr Subhash Gupta Slide 23: Dr Subhash Gupta Slide 24: Product Life Cycle Theory of Trade (PLC) Raymond Vernon—the production location for many products moves from one country to another depending on the stage in the product’s life cycle Stage 1: Introduction Innovation, production, and sales in same country new products developed in response to nearby observed need and markets for them early production occurs in domestic location Location and importance of technology most new technology that results in new products and production methods originates in industrial countries Exports and labor export small part of production production process likely to be labor intensive capital machinery for large-scale production develops later in industrialized countries Dr Subhash Gupta Slide 25: Stage 2: Growth Increases in exports by the innovating country More competition Increased capital intensity growing sales offer incentives to companies to develop process technology Some foreign production Stage 3: Maturity Decline in exports from the innovating country More product standardization More capital intensity Increased competitiveness of price Production start-ups in emerging countries Stage 4: Decline Production increased in emerging economies Innovating country becoming net importer Dr Subhash Gupta Slide 26: Verification and limitations of plc theory High transportation costs limit export opportunities, regardless of the life cycle stage Shifts in production site do not change for many types of products innovating country maintains its export ability throughout the life cycle products with very short life cycles luxury products for which cost is not a concern for the consumer products used to promote differentiation strategy products requiring specialized technical labor to evolve MNEs increasingly introduce new products at home and abroad simultaneously Dr Subhash Gupta Country-Similarity Theory : Country-Similarity Theory Economic similarity of industrial countries Most of the world’s trade occurs among countries that have similar characteristics country similarity theory—once a company has developed a new product to serve needs in a local market, it will turn to markets it sees as most similar to those at home Similarity in location, culture, political and economics interest Dr Subhash Gupta Slide 28: most trade takes place among industrial countries because: growing importance of acquired advantage as opposed to natural advantage markets in industrial countries can support products and their variations importance of industrial markets due to their size incomes are high and people buy more Few emerging countries trade with each other Dr Subhash Gupta Slide 29: Similarity of location Distances among countries accounts for many world trade relationships Methods to overcome distance disadvantages are difficult to maintain Cultural similarity Importers and exporters find it easier to do business in a country perceived as being similar Historic colonial relationships explain much of international trade Similarity of political and economic interests Political relationships and economic agreements among countries may discourage or encourage trade between them or their companies Military conflicts disrupt trade patterns Political animosity may interfere with trading channels Dr Subhash Gupta New Trade Theory : New Trade Theory There are gains to be made from specialization and increasing EOS The companies first to the market can create barriers to entry First-mover advantage Government may play a role in assisting its home companies. Dr Subhash Gupta Strategic Trade Policy : Strategic Trade Policy Governmental role and influence in affecting the acquired advantage of production within their borders Alter conditions for industries in general change conditions that affect factor proportions, efficiency, and innovation Dr Subhash Gupta Slide 32: Target conditions for a specific industry typically results in no more than small payoffs hard to identify and target appropriate industries too many countries identify the same industry, leading to excessive competition relative conditions change, causing relative capabilities to change as well have been a few notable government successes in targeting a specific industry Dr Subhash Gupta Theory of National Competitive Advantage : Theory of National Competitive Advantage The theory attempts to analyze the reasons for a nation’s success in a particular industry Porter studied 100 industries in 10 nations Postulated determinants of competitive advantage of a nation were based on four major attributes Factor endowments Demand conditions Related and supporting industries Firm strategy, structure and rivalry Dr Subhash Gupta Porter’s Diamond : Porter’s Diamond Success occurs where these attributes exist More/greater the attribute, the higher chance of success The diamond is mutually reinforcing Dr Subhash Gupta Porter’s Diamond : Porter’s Diamond Dr Subhash Gupta Factor Endowments : Factor Endowments Factor endowments: A nation’s position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry Basic factor endowments Advanced factor endowments Dr Subhash Gupta Basic Factor Endowments : Basic Factor Endowments Basic factors: Factors present in a country Natural resources Climate Geographic location Demographics While basic factors can provide an initial advantage they must be supported by advanced factors to maintain success Dr Subhash Gupta Advanced Factor Endowments : Advanced Factor Endowments Advanced factors: The result of investment by people, companies, and government are more likely to lead to competitive advantage If a country has no basic factors, it must invest in advanced factors Dr Subhash Gupta Advanced Factor Endowments : Advanced Factor Endowments Communications Skilled labor Research Technology Education Dr Subhash Gupta Demand Conditions : Demand Conditions Demand: creates capabilities creates sophisticated and demanding consumers Demand impacts quality and innovation Dr Subhash Gupta Related and Supporting Industries : Related and Supporting Industries Creates clusters of supporting industries that are internationally competitive Must also meet requirements of other parts of the Diamond Dr Subhash Gupta Firm Strategy, Structure and Rivalry : Firm Strategy, Structure and Rivalry Long term corporate vision is a determinant of success Management ‘ideology’ and structure of the firm can either help or hurt you Presence of domestic rivalry improves a company’s competitiveness Dr Subhash Gupta Porter’s Theory-Predictions : Porter’s Theory-Predictions Porter’s theory should predict the pattern of international trade that we observe in the real world Countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable Dr Subhash Gupta Implications for Business : Implications for Business Location implications: Disperse production activities to countries where they can be performed most efficiently First-mover implications: Invest substantial financial resources in building a first-mover, or early-mover advantage Policy implications: Promoting free trade is in the best interests of the home country, not always in the best interests of the firm, even though many firms promote open markets Dr Subhash Gupta Slide 45: Thank You Dr Subhash Gupta You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.
Int Trade Theories rushhh Download Post to : URL : Related Presentations : Share Add to Flag Embed Email Send to Blogs and Networks Add to Channel Uploaded from authorPOINT lite Insert YouTube videos in PowerPont slides with aS Desktop Copy embed code: (To copy code, click on the text box) Embed: URL: Thumbnail: WordPress Embed Customize Embed The presentation is successfully added In Your Favorites. Views: 416 Category: Education License: All Rights Reserved Like it (0) Dislike it (0) Added: March 29, 2010 This Presentation is Public Favorites: 0 Presentation Description No description available. Comments Posting comment... By: shruti_1308 (19 month(s) ago) hey ths presentation is vry useful n information, i need a copy of it..........please mail me on shruti_1308@ymail.com..... make its as soon as possible........ Saving..... Post Reply Close Saving..... Edit Comment Close By: archumaddy (26 month(s) ago) The presentation is apt and i need a copy of it...kindly can you send me to my mail id - archumaddy@gmail.com. Please... Saving..... Post Reply Close Saving..... Edit Comment Close Premium member Presentation Transcript Slide 1: International Trade Theory 5-1 Chapter Objectives : Chapter Objectives Explain trade theories Discuss how global efficiency can be increased through free trade Introduce prescriptions for altering trade patterns Explore how business decisions influence international trade 5-2 Dr Subhash Gupta International Trade : International Trade The purchase, sale, or exchange of goods and services across national borders. International Trade: Provides a country’s people with a greater choice of goods and services Important engine for job creation Trade in goods and services is one means by which countries are linked economically Dr Subhash Gupta Volume of International Trade : Volume of International Trade World’s Top Merchandise Exporters US - USD693blln (10.7%) Germany – USD613.1 blln (9.5%) Japan – USD416.7 (6.5%) World’s Top Service exporters US – USD272.6 blln (17.4%) UK – USD123.1 blln (7.8%) Germany – USD99.6% (6.3%) Dr Subhash Gupta Slide 5: Degree of Dependence Independence—complete economic independence Country has no reliance on other countries for goods, services, or technologies Price of independence is having to do without goods that cannot be produced domestically Hinders country’s ability to borrow and adapt existing technologies Interdependence— trade based on mutual need Neither trading partner is likely to cut off supplies or markets for fear of retaliation Governments may be pressured to sustain trade Dependence—developing countries rely heavily on: The sale of one commodity for export earnings 25 % of emerging countries sell one commodity One country as supplier or customer Industrialized countries Dr Subhash Gupta General Types of Trade Theories : General Types of Trade Theories Descriptive: the natural order of trade Laissez-faire conditions Which products, how much, and with whom a country will trade in the absence of restrictions Prescriptive: questions whether governments should interfere with the free movement of goods and services Both types of theories provide insights about markets for exports and potentially successful export products help companies determine where to locate production facilities 5-3 Dr Subhash Gupta Mercantilism : Mercantilism Initial trade theory that formed the foundation of economic thought from 1500 – 1800 Based on concept that a nations wealth is measured by its holding of treasure (gold) Nations should accumulate financial wealth by encouraging exports and discouraging imports. Favorable balance of trade: country is exporting more than it is importing Unfavorable balance of trade: country is importing more than it is exporting, i.e. a trade deficit 5-4 Dr Subhash Gupta Slide 8: Nations often imposed restrictions on imports since they did not want “their” treasure moving to another country to pay for the imports Intended to benefit colonial powers colonies supplied commodities to the mother country mother country tried to run trade surpluses with their own colonies Mercantilism faded after 1800 Dr Subhash Gupta Mercantilism-Zero-Sum Game : Mercantilism-Zero-Sum Game In 1752, David Hume pointed out that: Increased exports lead to inflation and higher prices Increased imports lead to lower prices Result: Country A sells less because of high prices and Country B sells more because of lower prices In the long run, no one can keep a trade surplus Dr Subhash Gupta Neomercantilism : Neomercantilism Current term to describe the approach of countries that try to run favorable balances of trade to achieve some social or political gains 5-5 Dr Subhash Gupta Theory of Absolute Advantage : Theory of Absolute Advantage Adam Smith argued (Wealth of Nations, 1776): Capability of one country to produce more of a product with the same amount of input than another country can vary A country should produce only goods where it is most efficient, and trade for those goods where it is not efficient Trade between countries is, therefore, beneficial Assumes there is an absolute balance among nations Example: Ghana/cocoa Dr Subhash Gupta Absolute Advantage : Absolute Advantage Absolute advantage holds that different countries produce some goods more efficiently than other countries A nation with an absolute advantage can produce greater output of a good or service than other nations using the same amount of, or fewer, resources. Thus, global efficiency can be increased through international free trade 5-6 Dr Subhash Gupta Country Specialization : Country Specialization Under the concept of absolute advantage countries could increase efficiency because: Labor could become more skilled by repeating the same tasks Labor would not lose time in switching from the production of one kind of product to another Long production runs would provide incentives for the development of more effective working methods 5-7 Dr Subhash Gupta Natural Advantage : Natural Advantage Countries have inherent advantages Climate Natural resources Labor forces Two countries that have opposite natural advantages should favor trade with one another 5-8 Dr Subhash Gupta Acquired Advantage : Acquired Advantage Most contemporary trade is manufactured goods and services rather than agricultural goods or natural resources Countries with an acquired advantage produce manufactured goods and services competitively Product technology- Danish Silver tableware Process technology – Japanese steel 5-9 Dr Subhash Gupta Theory of Comparative Advantage : Theory of Comparative Advantage David Ricardo (Principles of Political Economy, 1817): Extends free trade argument Efficiency of resource utilization leads to more productivity Should import even if country is more efficient in the product’s production than country from which it is buying Look to see how much more efficient If only comparatively efficient, than import Makes better use of resources Trade is a positive-sum game Dr Subhash Gupta Comparative Advantage : Comparative Advantage There are still global gains to be made if a country specializes in products it produces more efficiently than other products Regardless of whether other countries can produce those same products even more efficiently A country has a comparative advantage when it is unable to produce a good more efficiently than other nations, but produces the good more efficiently than it does any other good. 5-11 Dr Subhash Gupta Basic Assumptions : Basic Assumptions Full employment Economic efficiency is sought Division of gains Two countries/two commodities Transportation costs Mobility Statics and dynamics Services Country size/variety of resources 5-13 Dr Subhash Gupta Heckscher (1919)-Olin (1933) Theory : Heckscher (1919)-Olin (1933) Theory Export goods that intensively use factor endowments which are locally abundant Corollary: import goods made from locally scarce factors Note: Factor endowments can be impacted by government policy - minimum wage Patterns of trade are determined by differences in factor endowments - not productivity Dr Subhash Gupta Slide 20: Countries produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. Land-labor relationship Labor-capital relationship Technological complexities 5-14 Dr Subhash Gupta Product Life-Cycle Theory - R. Vernon (1966) : Product Life-Cycle Theory - R. Vernon (1966) As products mature, both location of sales and optimal production changes Affects the direction and flow of imports and exports Globalization and integration of the economy makes this theory less valid Dr Subhash Gupta Slide 22: Introduction Growth Maturity Decline Production Location Market Location Competitive Factors Production Technology 5-16 Dr Subhash Gupta Slide 23: Dr Subhash Gupta Slide 24: Product Life Cycle Theory of Trade (PLC) Raymond Vernon—the production location for many products moves from one country to another depending on the stage in the product’s life cycle Stage 1: Introduction Innovation, production, and sales in same country new products developed in response to nearby observed need and markets for them early production occurs in domestic location Location and importance of technology most new technology that results in new products and production methods originates in industrial countries Exports and labor export small part of production production process likely to be labor intensive capital machinery for large-scale production develops later in industrialized countries Dr Subhash Gupta Slide 25: Stage 2: Growth Increases in exports by the innovating country More competition Increased capital intensity growing sales offer incentives to companies to develop process technology Some foreign production Stage 3: Maturity Decline in exports from the innovating country More product standardization More capital intensity Increased competitiveness of price Production start-ups in emerging countries Stage 4: Decline Production increased in emerging economies Innovating country becoming net importer Dr Subhash Gupta Slide 26: Verification and limitations of plc theory High transportation costs limit export opportunities, regardless of the life cycle stage Shifts in production site do not change for many types of products innovating country maintains its export ability throughout the life cycle products with very short life cycles luxury products for which cost is not a concern for the consumer products used to promote differentiation strategy products requiring specialized technical labor to evolve MNEs increasingly introduce new products at home and abroad simultaneously Dr Subhash Gupta Country-Similarity Theory : Country-Similarity Theory Economic similarity of industrial countries Most of the world’s trade occurs among countries that have similar characteristics country similarity theory—once a company has developed a new product to serve needs in a local market, it will turn to markets it sees as most similar to those at home Similarity in location, culture, political and economics interest Dr Subhash Gupta Slide 28: most trade takes place among industrial countries because: growing importance of acquired advantage as opposed to natural advantage markets in industrial countries can support products and their variations importance of industrial markets due to their size incomes are high and people buy more Few emerging countries trade with each other Dr Subhash Gupta Slide 29: Similarity of location Distances among countries accounts for many world trade relationships Methods to overcome distance disadvantages are difficult to maintain Cultural similarity Importers and exporters find it easier to do business in a country perceived as being similar Historic colonial relationships explain much of international trade Similarity of political and economic interests Political relationships and economic agreements among countries may discourage or encourage trade between them or their companies Military conflicts disrupt trade patterns Political animosity may interfere with trading channels Dr Subhash Gupta New Trade Theory : New Trade Theory There are gains to be made from specialization and increasing EOS The companies first to the market can create barriers to entry First-mover advantage Government may play a role in assisting its home companies. Dr Subhash Gupta Strategic Trade Policy : Strategic Trade Policy Governmental role and influence in affecting the acquired advantage of production within their borders Alter conditions for industries in general change conditions that affect factor proportions, efficiency, and innovation Dr Subhash Gupta Slide 32: Target conditions for a specific industry typically results in no more than small payoffs hard to identify and target appropriate industries too many countries identify the same industry, leading to excessive competition relative conditions change, causing relative capabilities to change as well have been a few notable government successes in targeting a specific industry Dr Subhash Gupta Theory of National Competitive Advantage : Theory of National Competitive Advantage The theory attempts to analyze the reasons for a nation’s success in a particular industry Porter studied 100 industries in 10 nations Postulated determinants of competitive advantage of a nation were based on four major attributes Factor endowments Demand conditions Related and supporting industries Firm strategy, structure and rivalry Dr Subhash Gupta Porter’s Diamond : Porter’s Diamond Success occurs where these attributes exist More/greater the attribute, the higher chance of success The diamond is mutually reinforcing Dr Subhash Gupta Porter’s Diamond : Porter’s Diamond Dr Subhash Gupta Factor Endowments : Factor Endowments Factor endowments: A nation’s position in factors of production such as skilled labor or infrastructure necessary to compete in a given industry Basic factor endowments Advanced factor endowments Dr Subhash Gupta Basic Factor Endowments : Basic Factor Endowments Basic factors: Factors present in a country Natural resources Climate Geographic location Demographics While basic factors can provide an initial advantage they must be supported by advanced factors to maintain success Dr Subhash Gupta Advanced Factor Endowments : Advanced Factor Endowments Advanced factors: The result of investment by people, companies, and government are more likely to lead to competitive advantage If a country has no basic factors, it must invest in advanced factors Dr Subhash Gupta Advanced Factor Endowments : Advanced Factor Endowments Communications Skilled labor Research Technology Education Dr Subhash Gupta Demand Conditions : Demand Conditions Demand: creates capabilities creates sophisticated and demanding consumers Demand impacts quality and innovation Dr Subhash Gupta Related and Supporting Industries : Related and Supporting Industries Creates clusters of supporting industries that are internationally competitive Must also meet requirements of other parts of the Diamond Dr Subhash Gupta Firm Strategy, Structure and Rivalry : Firm Strategy, Structure and Rivalry Long term corporate vision is a determinant of success Management ‘ideology’ and structure of the firm can either help or hurt you Presence of domestic rivalry improves a company’s competitiveness Dr Subhash Gupta Porter’s Theory-Predictions : Porter’s Theory-Predictions Porter’s theory should predict the pattern of international trade that we observe in the real world Countries should be exporting products from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable Dr Subhash Gupta Implications for Business : Implications for Business Location implications: Disperse production activities to countries where they can be performed most efficiently First-mover implications: Invest substantial financial resources in building a first-mover, or early-mover advantage Policy implications: Promoting free trade is in the best interests of the home country, not always in the best interests of the firm, even though many firms promote open markets Dr Subhash Gupta Slide 45: Thank You Dr Subhash Gupta