Professional Documents
Culture Documents
MANAGEMENT
International Business Management -
Overview
foreign markets.
Possibility of identifying niche foreign market
1. Ethnocentric:
Its characteristics are -
Extension strategy is adopted for international
marketing.
Plans are made in home country and by its
personnel and generally operate through
agents.
Export is viewed as a means of disposing the
surplus in the domestic market.
International Business Management -
Overview
Believes home country practices to be superior
and so can be successful everywhere.
Only sees the similarities in the markets.
Does not conduct any systematic International
market research
The approach does not allow a company to be a
major player in International Business.
Many call these types of companies ‘ International
companies’
2. Polycentric
Its characteristics are
Opposite of Ethnocentrism – assumes each
country is unique. Only sees dissimilarities.
International Business Management -
Overview
Each subsidiary develops its own unique
business and marketing strategies (– that is
decentralized)
Focus is on local conditions, laws, culture etc.
Adaptation strategy is followed in marketing.
These are called ‘ Multinational companies/ Multi-
domestic companies / Locally responsive
companies.
3. Regioncentric and Geocentric
Its characteristics are:
Pursues both extension and adaptation
International Business Management - Overview
Basket cases:
Have economic social and political problems
Abject poverty, Reducing income level
Avoided by global marketers.
Economic Environment
What is GDP of a country?
The GDP or Gross domestic product of a country is
verbal statements”.
“Values are those beliefs which are enduring and
where?
The theories also guide the government to decide where
and how much it should interfere with the free flows
keeping the national objectives in mind.
International Trade Theories
Which are the major theories? How do they explain
natural trade between nations and what do they
prescribe for trade relations?
1. Mercantilisms theory
The foundation of the theory dates back to nearly 500 years
ago
The theory focused on increasing trade surplus – which
meant increasing treasure (normally in form of gold)
During colonial rule the theory was used to benefit colonial
power. Colonies were forced to import costly finished
/manufactured goods from the ruling country and export the
raw material at cheap price.
Now instead of treasure (gold ) the country with the trade
surplus holds the currency of the country with the trade
deficit (- or investments in the currency). In other words it
grants credit to the country with deficit trade – this of
advantage only if it can effectively buy sufficient
goods/services with the credit.
International Trade Theories
Neo-mercantilism seeks to achieve social and
political objectives by trade surplus.
2. Absolute advantagism
Adam Smith proposed that consumer in a country will
benefit by buying foreign products if they are cheaper than
domestic ones.
What the theory implies is – every country will specialise in
producing those items that give it competitive advantage.
The specialisation will make the labour more efficient in
producing those items. Economy of scale will also help them
in producing those items at lower cost.
The competitive advantage is either – natural or acquired.
International Trade Theories
3. Natural advantagism theory
Natural advantage can be due to
- natural resources available. Eg:- availability of petroleum
in middle eastern countries.
- climate. Eg:- climate helps in the production of tea in north
east india.
- land fertility and suitability. Eg:- jute in Bangladesh.
Companies can gain by processing the raw agricultural
product and convert it to a form that is more efficiently and
economically transported – thus save transportation cost.
4. Acquired advantage theory
Certain countries have acquired the skill and technology to
produce certain items better than others . Eg:- Japanese in
producing steel and electronic goods.
International Trade Theories
5. Comparative advantage theory:
A country must choose to produce the items it produces
best and import the rest even if it has absolute advantage in
all the products – this is justifiable due to allocation of
limited resources.
Limitations of the theory lies in its assumption of full
utilisation of its resources. Eg:- Full employment may not be
a valid assumption
- Another reason why the strategy advocated by this theory
may not be totally satisfactory – for the risk associated with
over specialisation in certain items and overdependence on
imports of certain items.
- The other limitations of the theories of specialisation are:
sharing of gains between the countries may be a point of
dispute.
- Transort cost may offset the benefits of specialisation.
- Resources are not as mobile as the assumes.
International Trade Theories
6. Theory of country size
Larger countries ( in terms of land) are likely to have more
variety of resources than smaller ones. So they are more self
sufficient hence trade less.
The transportation cost of procuring items from
neighbouring countries is higher than processing it from a
domestic source within the country.
Domestic demand is often large enough for an economic
scale of production.
7. Factor Proportion theory
According to this theory the factors ( of production) which
are more in existence are cheaper while the scarcer factors
are costlier.
- The production factors are – labour land and capital.
Countries produce items requiring the factors available with
them (- how ever technology also decides the amount of the
factors required for a given output).
International Trade Theories
8. Product life cycle theory of trade
Phases of ‘Product life cycle’ are 1. Introduction 2. Growth
3. Maturity 4. Decline.
The production starts in the country where the product was
first researched and developed. These countries are always
industrialised and advanced.
Then the product shifts to other countries ( developing
countries) as the product reaches the stage of maturity in
the country where it originated.
Some exception to the PLC theory of trade are –
(a) When products have very short cycles because of rapid
innovation.
(b) Products where the cost is of little concern to the
customer
(c) Products requiring specially skilled labour – which takes
time to develop.
International Trade Theories
9. Country Similarity theory
Trade takes place among dissimilar countries by the other
theories.
But this theory points out why trade today is mostly
between countries similar in – climate, factor endowment
and innovative capability.
Trade is influenced by :
- Economic power of the consumers in industrialised
countries
- Distance between countries (– transportation costs being
less).
- Similarity in culture
- relationship between the countries.