SAW ch6

10/13/2012

International Business: The New Realities by Cavusgil, Knight and Riesenberger

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Learning Objectives
1. Theories of international trade and investment 2. Why do nations trade?
3. How can nations enhance their competitive advantage? 4. Why and how do firms internationalize?
5. How can internationalizing firms gain and sustain competitive advantage?
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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Theories of International Trade and Investment

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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Mercantilism and Neomercantilism
• Mercantilism: A belief, popular in the 16th century, that national prosperity results from maximizing exports and minimizing imports.
• Today, some argue for neomercantilism—the idea that a nation should run a trade surplus.
• Supporters of neomercantilism include:
 Labor unions (want to protect domestic jobs)
 Farmers (want to keep crop prices high)
 Some manufacturers (rely on exports)

But is neomercantilism best for all?
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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Free Trade
The absence of restrictions to the flow of goods and services among nations

• Free trade is usually best because it leads to:
 More and better choices for consumers and firms
 Lower prices of goods for consumers and firms
 Higher profits and better worker wages (because imported input goods are usually cheaper)
 Higher living standards for consumers (because their costs are lower)
 Greater prosperity in poor countries
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

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Comparative Advantage
• The foundation concept of international trade; answers the question of how nations can achieve and sustain economic success and prosperity
• Refers to the superior features of a country