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comparative advantage

superior features of a country that provide unique benefits in global competition typically derived from either natural endowments or deliberate national policies

comparative advantage inherited resources

labor, climate, arable land, petroleum reserves

comparative advantage acquired over time

entrepreneurial orientation, availability of venture capital, innovative capacity

competitive advantage

organizational assets and competencies that are difficult to imitate and thus help firs enter and succeed in foreign markets

national and firm level theories

theories of international trade and investment

national level theory

why do nations trade?

national level theory

how can nations enhance their competitive advantage?

firm level theory

why and how do firms internationalize?

firm level theory

how can internationalizing firms gain and sustain competitive advantage?


the belief that national prosperity is the result of a positive balance of trade achieved by maximizing exports and minimizing imports

neo mercantilism

believes that a trade surplus is beneficial

free trade

the relative absence of restrictions to the flow of goods and services between nations - is generally superior approach and should produce the following outcomes

absolute advantage principle

a country benefits by producing only those products in which it has absolute advantage or that it can produce using fewer resources than another country

comparative advantage principle

it can beneficial for two countries to trade without barriers as long as one is relatively more efficient at producing goods and services needed by the other

international product life cycle

each product and its manufacturing technologies go through three stages of evolution ( introduction, maturity, standardization)

new trade theory

increasing returns to scale, especially economies of scale are important for superior international performances in industries that succeed best as their production volume increases

MP' s diamond model

firm strategy structure & rivalry, factor conditions, demand conditions, related & supporting industries

firm strategy structure

the nature of domestic rivalry and conditions in a nation that determine how firms are created organized and managed

factor conditions

describes the nations position in factors of production such as labor, natural resources, capital, technology, entrepreneurship and know-how.

demand conditions

refer to the nature of home- market demand for specific products and services

related & supporting industries

refer to the presence of clusters of suppliers, competitors and complementary firms that excel in particular industries

industrial cluster

refers to a concentration of business, suppers and supporting firms in the same industry at a particular geographic location, characterized by a critical mass of human talent , capital or other factor endowments

national industrial policy

a proactive economic development plan initiated by the government often in collaboration with the private sector that aims to develop or support particular industries within the nation

internationalization process of the firm

domestic focus
pre-export stage
experimental involvement
active involvement
committed involvement

domestic focus

acquiring business in the home market

pre export stage

management investigates the feasibility of undertaking international business

experimental involvement

initiating limited international activity in the form of basic exporting

active involvement

systematic exploration of international options

monopolistic advantage theory

suggest that firms which use FDI as an internationalization strategy must own or control certain resources and capabilities not easily available to competitors

internationalization theory

firms acquire and retain one or more value-chain activities inside the firm minimizing the disadvantages of dealing with external partners and allowing for greater control over foreign operations

dunnings eclectic paradigm

specifies three conditions that determine whether a company will internationalize via FDI

ownership specific advantages

it should hold knowledge, skills, capabilities, key relationships and other assets that allow it to compete effectively in foreign markets

location specific advantages

the comparative advantages available in individual foreign countries such as natural resources, skilled labor, low cost labor and inexpensive capital

internationalization advantages

the benefits the firm derives from internationalizing foreign based manufacturing, distribution or other stages in its value chain

international collaborative ventures

a form of cooperation between two or more firms; equity and non equity based

networks and relational assets

represent the economically beneficial long term relationships the firm undertakes with other business entities such as manufactures, distributors, suppliers, retailers

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