Competitive Advantages in International Trade and International Business

1. Competitive Advantages in International Trade and International Business Frederick University 2012

2. Michael Porter’s Theory of Competitive Advantage Firm strategy, structure and rivalry government Factor conditions Demand conditions Related and supporting industries chance

3. Factor Conditions Human resources: • Quantity • Skills • Cost of personnel (including management)

4. Factor Conditions Physical resources: • Abundance • Quality • Accessibility • Cost of the nation’s land, water, mineral, or timber deposits, hydroelectric power sources, fishing grounds, and other physical traits.

5. Factor Conditions Knowledge resources: • Accumulated scientific knowledge • Technical knowledge • Market knowledge

6. Factor Conditions Capital resources: • The stock of capital available in a country • The cost of its deployment

7. Factor Conditions Infrastructure resources: • Type • Quality • The cost of using the infrastructure available

8. Factor Conditions • Basic: natural resources, climate, location, unskilled or semi-skilled labor, and debt capital • Advanced factors: highly educated personnel, modern digital data communications infrastructure

9. Factor Conditions • Generalized factors:deployed in a wide range of industries • specialized factors: have a narrow field of application due to a high degree of customization to the needs of a particular industry

10. Demand conditions • Home Demand Composition • the segment structure of demand • the level of buyers’ sophistication • anticipatory buyer needs • Demand Size and Pattern of Growth • Internalization of Domestic Demand • mobile or multinational local buyers • the influence exerted on foreign needs

11. Related and Supporting Industries • downstream industries (innovation and upgrading) • exchange of R&D • joint problem solving • transmitting of information through suppliers to different firms • pulling through demand for complementary products and services

12. Firm Strategy, Structure, and Rivalry - the context in which firms are created, organized and managed and the nature of domestic rivalry • Firm strategy and structure are reflective of company goals and individual goals as well as national prestige and national priority. • Company goals are most strongly determined by ownership structure, the motivation of owners and holders of debt, the nature of the corporate governance, and the incentive processes that shape the motivation of senior managers

13. THE DIAMOND: DUNNING’S CONTRIBUTION

14. Dunning’s Eclectic Paradigm • Ownership-specific Advantages • Internalization Advantages • Location Advantages

15. Types of FDI • natural-resource seeking • market-seeking • efficiency-seeking • strategic asset-seeking investment

16. Natural-Resource Seeking Investment • MNEs seeking physical resources • MNEs seeking plentiful supplies of cheap and well-motivated unskilled or semi-skilled labor • MNEs prompted by the need to acquire technological capability, management or marketing expertise and organizational skills.

17. Market-seeking Investment • To follow major suppliers and customers overseas • The need for adaptation of products to local tastes or needs, and to indigenous resources and capabilities • The reduction of transaction costs • The necessity imposed by the firm’s global production or marketing strategy to have a physical presence in the leading markets served by its competitors • The actions of host government

18. TYPESOF INTERNATIONAL PRODUCTION