mba 713 - chapter 06
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Chapter 6 - 1
Chapter 6
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
International Trade and Investment
Chapter 6 - 2
• Learn the motives for international trade
• Summarize and discuss the differences among classical country-based theories of international trade
• Use the modern firm-based theories of international trade to describe global business strategies
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Learning Objectives
Chapter 6 - 3
Learning Objectives• Describe and categorize the different
forms of international investment
• Explain the reasons for foreign direct investment
• Summarize how supply, demand, and political factors influence foreign direct investment
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Chapter 6 - 4
International Trade and the World Economy
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Chapter 6 - 5Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Both Parties Benefit
Why Does International Trade Occur?
Chapter 6 - 6
USA8.5%
Canada2.5%
Others38.0%
China9.6%
Japan4.7%
EU36.7%
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Sources of the World’s Merchandise Exports
2009
Chapter 6 - 7
Summary of Discussion
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Chapter 6 - 8
Classical Country-Based Trade Theories
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Chapter 6 - 9Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Mercantilism• Gold and Silver• Increased Exports• Reduced Imports
Chapter 6 - 10Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Effects of Mercantilism
Opportunities Challenges
Stimulates Sales
Manages Competition
Higher Taxes
Higher Prices
Chapter 6 - 11
Modern Mercantilism
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Protectionists
Neomercantilists
Chapter 6 - 12
Absolute Advantage
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Country’s Level of Productivity
Import Goods and
Services
Export Goods and
Services
More Productive Than Other Countries
Less Productive ThanOther Countries
Chapter 6 - 13
Comparative Advantage
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Country’s Level of Productivity
Import Goods and
Services
Export Goods and
Services
Relatively More Productive Than Other Countries
Relatively Less Productive Than Other Countries
Chapter 6 - 14
Comparative Advantage with Money
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Specialization
Producing and Exporting
Buying Goods and Services
Chapter 6 - 15
Comparative Advantage with Money: An Example
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Products
Cost of Goods in France
Cost of Goods in Japan
FrenchMade
JapaneseMade
FrenchMade
JapaneseMade
Bottle of Wine €3 €8 ¥375 ¥1,000
Clock Radio €2 €1.6 ¥250 ¥200
Chapter 6 - 16
Heckscher-Ohlin Theory
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Theory of Relative Factor Endowments
Comparative Advantage
Abundant Factors of Production
Scarce Factors of Production
Yes
No
Chapter 6 - 17
Leontief Tests the Heckscher-Ohlin Theory
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Abundant Capital+
Labor Scarcity
Exporting Capital-Intensive Goods=
Assumptions About U.S. Economy
Chapter 6 - 18
The Leontief Paradox
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Chapter 6 - 19
Summary of Discussion
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Chapter 6 - 20
Modern Firm-Based Trade Theories
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Chapter 6 - 21
Product Life Cycle Theory
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1. New Product Stage
2. Maturing Product Stage
3. Standardized Product Stage
Chapter 6 - 22Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Types of Trade
Intraindustry Interindustry
Chapter 6 - 23
Country Similarity Theory
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Intraindustry Trade in Goods
Similar Consumer Preferences
Similar Per Capita Incomes
Chapter 6 - 24
Economies of Scale
• Owning Intellectual Property Rights
• Investing in Research and Development
• Achieving Economies of Scope
• Exploiting the Experience Curve
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New Trade Theory
Chapter 6 - 25
Porter’s Theory of National Competitive
Advantage
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•Factor Conditions
•Demand Conditions
•Related and Supporting Industries
•Firm Strategy, Structure, and Rivalry
Chapter 6 - 26
Summary of Discussion
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Chapter 6 - 27
An Overview of International Investment
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Chapter 6 - 28
International Investing
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Foreign Portfolio
Investments
(FPI)
Foreign Direct
Investments
(FDI)
Chapter 6 - 29Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Stock of FDI for the United States, end of 2010 (billions of dollars)
Categories Total
FDI in the United States $2342.8
FDI from the United States $3908.2
Foreign Direct Investment and the
United States
Chapter 6 - 30
1998
2002
2006
2010
$0 $800 $1,600 $2,400 $3,200 $4,000 $4,800
Foreign FDI US FDI
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Outward and Inward U.S. FDI (in billions of USD)
Chapter 6 - 31
Summary of Discussion
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Chapter 6 - 32
International Investment Theories
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Chapter 6 - 33
Ownership Advantages
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SuperiorTechnology
Well-KnownBrand Name
Economies Of Scale
Penetrate Foreign Markets
Chapter 6 - 34
Internalization Theory
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Internalize
InternationalizeLow
High High
Low
Tran
sact
ion
Cost
s Transaction Costs
Chapter 6 - 35
Dunning’s Eclectic Theory
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Ownership Advantage
Conditions for FDI
Internalization Advantage
Location Advantage
Chapter 6 - 36
Summary of Discussion
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Chapter 6 - 37
Factors Influencing Foreign Direct
Investment
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Chapter 6 - 38Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
ProductionCosts Logistics
NaturalResources
KeyTechnology
Supply Factors
Chapter 6 - 39Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
CustomerAccess
MarketingAdvantages
CompetitiveAdvantages
CustomerMobility
Demand Factors
Chapter 6 - 40Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
Political Factors
Trade Barriers
Economic Incentives
Chapter 6 - 41
Summary of Discussion
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Chapter 6 - 42
Chapter 6
Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
International Trade and Investment
Chapter 6 - 43Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall
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