2 GMS690 - MODULE 2.1 - TRADE & TRADE THEORY

Page 2: Module Overview

• MODULE 2.1: Global Trade and Trade Theory

Page 3: Impact of Global Trade

• Factors influencing trade: Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing.

• Significance of International Trade: Crucial for the continuance of globalization.

• Limitations without Trade: Nations restricted to domestic goods and services.

Page 4: Competitive Strategies

• Competitive Advantage Diamond Model

• Five Forces Model: Key to analyzing competition and market dynamics.

• Market Entry Modes:

  • Wholly Owned Subsidiary

  • Greenfield Investment (Build)

  • Brownfield Investment (Buy)

  • Acquisition (Buy)

  • Joint Venture

  • Strategic Alliance

  • Licensing

  • Exporting

• Strategy Development Approaches:

  • International Strategy

  • Global Standardization

  • Transnational Strategy

  • Localization Strategy

Page 5: Imperatives for Globalization

• Five driving imperatives for companies:

  1. Growth

  2. Efficiency

  3. Knowledge

  4. Meeting customer needs

  5. Countering competition

Page 6: Key Terms in Globalization

• Definition of Globalization: Evolution of an integrated global economy.

• Sovereign Nations: Countries that govern themselves.

• Distinction between a market and a globalized market.

• Global Convergence: Spread of common preferences across borders.

Page 7: Historical Causes of Globalization

• Emergence of sovereign nations in the 1800s led to increased trade.

• Impact of cultural and political differences on trade relations.

Page 8: Effects of Globalization

• Worldwide events have lasting impacts even without direct visitation.

• 1990s notable reforms in:

  • Russia: Opening trade

  • China: Free market reforms

  • India: Major economic reforms post-crisis.

Page 9: 1990s Globalization Trends

• Concept of "The World is Flat;" emphasis on convergence towards a level playing field.

• Recognition of potential threats to globalization.

Page 10: Geopolitical Risks in Globalization

• Local, regional, and international risks:

  • Kashmir conflict between India and Pakistan exemplifying geopolitical tensions.

  • Insight into the Arab Spring dynamics and impact on global relations.

Page 11: Mapping Geopolitical Risks

• Analysis of geopolitical risks in various regions including Pakistan, China, and Ukraine.

Page 12: Risk Assessment Models

• Tools for risk assessment include:

  • In-Country Risk Assessment

  • Near-home Risk Analysis

  • Development of foreign policies.

Page 13: Identifying Transnational Risks

• Assessment of risks in regions such as Saudi Arabia, Iran, Yemen, and Israel.

Page 14: Specific Country Risk Analysis

• Overview of risks in Nigeria and Ukraine, emphasizing geopolitical dynamics.

Page 15: Regional Risks Close to Home

• Examination of risks presented by Cuba's revolution and Brexit in the context of regional geopolitics.

Page 16: China's Belt and Road Initiative

• Expansion plans and economic impact involving Europe and Asia.

Page 17: China's Investment in Africa

• Overview of China's $126 billion loans and $41 billion FDI in Africa.

Page 18: Importance of Understanding Trade Dynamics

• Study of significant companies like P&G and their international strategies.

Page 19: Factors Behind Epic FDI Failures

• Analysis of high-profile failures in foreign direct investment decisions.

Page 20: Case Study: Target's Failure in Canada

• Overview of operational challenges leading to Target's rapid exit from Canada.

Page 21: Case Study: Home Depot in China

• Cultural disconnect and market entry challenges resulting in significant loss.

Page 22: Walmart's German Experience

• Discussion of cultural misalignment leading to Walmart's failure in Germany.

Page 23: Uber in China

• Examination of market entry challenges faced by Uber in the competitive Chinese market.

Page 24: Starbucks in Australia

• Cultural miscalculation impacting Starbucks's market success and adaptations.

Page 25: Best Buy's Experience in the UK

• Insights into market strategy misalignment and failures in the UK market.

Page 26: Mattel's Challenge in China

• Analysis of cultural misalignment impacting success in product offerings.

Page 27: Coca-Cola in Spain

• Marketing missteps regarding consumer preferences leading to product withdrawal.

Page 28: General Foods in Japan

• Challenges faced in market penetration due to cultural differences in cooking practices.

Page 29: General Foods in France

• Insights into habitual consumer behavior leading to product failure.

Page 30: KFC's Market Strategy in China

• Overview of KFC's pioneering influence on fast-food culture in China.

Page 31: International Case Studies of Cultural Adaptation

• Detailed studies including KFC’s operations across different cultures.

Page 32: Stages of Globalization

• Historical perspective on the evolution of globalization spanning three major global economies.

Page 33: Forms of Market Entry

• Description of various types of market entry strategies including joint ventures and mergers.

Page 34: Components of Foreign Direct Investment (FDI)

• Detailed explanation of components constituting FDI including equity capital and reinvested earnings.

Page 35: The Global Value Chain

• Analysis of integration in global production processes via vertical and horizontal integration.

Page 36: Strategic Positioning

• Overview of competitive strategies focusing on cost leadership and differentiation technique examples.

Page 37: Cost Leadership Examples

• Case studies highlighting successful businesses adopting cost leadership in their strategies.

Page 38: Differentiation Strategy in Business

• Insight into Starbucks’s approach to local cultural integration in store designs.

Page 39: Defining Global Strategies

• Overview of adaptation strategies and their specific market context relevance.

Page 40: Multidomestic and Transnational Strategy

• Exploring the balance of responsiveness and standardization in global market strategy.

Page 41: Meganational Strategy

• Focus on gaining efficiencies through standardization in global markets.

Page 42: Cultural and Infrastructure Differences

• Discussion of regional differences affecting globalization and factors impacting international trade.

Page 43: Pressures for Cost Reduction

• Focus on producing standardized products and capitalizing on economies of scale.

Page 44: Four Basic MNE Global Strategies

• Overview of the structured approach to global strategies highlighting cost reduction and responsiveness.

Page 45: Assessment of Global Competition Among Firms

• Exploring competition and the role of operational complexity across foreign markets.

Page 46: Assessing Pressure Dynamics in Market Strategy

• Analyzing dynamic pressures affecting MNE strategies in various markets.

Page 47: Characteristics of International Strategy

• Examining the elements of leveraging core competencies through internationalization.

Page 48: Brands with Minimal Market Adaptation

• Examples of products that do not require adjustment based on local markets.

Page 49: Global Standardization Strategy

• Examining the significance of price competitiveness in global markets.

Page 50: Recognizing Diversity Among Countries

• Investigating different preferences, regulations, and cultural contexts affecting businesses.

Page 51: Localization Strategy in International Business

• Emphasizing high local responsiveness in diverse international markets.

Page 52: Transnational Strategy Analysis

• Caterpillar’s successful implementation of transnational strategies and adaptations in local markets.

Page 53: Classification of Transnational Strategies

• Features and risks involved in pursuing a transnational strategy in multinational business.

Page 54: Market Attractiveness Assessment

• Key parameters for assessing market potential concerning cultural and economic dimensions.

Page 55: CAGE Framework Overview

• Tool for comparing markets by examining cultural, administrative, geographic, and economic distances.

Page 56: Cultural Differences in Trade

• Assessment of various factors impacting cultural distance in trade relations.

Page 57: Administrative Distance Factors

• Elements leading to administrative financial assessments in foreign markets.

Page 58: Geographical Distance in Trade Dynamics

• Overview of geographical factors limiting trade flow and market access.

Page 59: Economic Distance Metrics

• Analyzing economic disparities affecting trade value and operational strategies.

Page 60: PEST Analysis Purpose and Components

• Framework for identifying and analyzing business opportunities and threats.

Page 61: PESTEL Analysis Breakdown

• Detailing core issues affecting political, economic, social, technological, environmental, and legal factors in trade.

Page 62: Variations of PESTEL Analysis

• Overview of different variations of PEST frameworks to understand market environments.

Page 63: OLI Framework Overview

• Explanation of John Dunning's OLI model consisting of Ownership, Location, and Internalization advantages.

Page 64: Ownership Advantages in Global Markets

• Identifying key ownership advantages that firms leverage in international expansion.

Page 65: Location Factors for Foreign Investment

• Discussion on strategic incentives and benefits of location for businesses.

Page 66: Internalization Advantages Overview

• Examining internalization strategies that control quality and manage risks in foreign investments.

Page 67: Market Entry Forms Explained

• Overview of different forms of market entry including FDI, exports, and licensing.

Page 68: Ghemawat's AAA Framework

• Framework categorizing adaptation, aggregation, and arbitrage strategies in global business.

Page 69: Evaluating Importance of Global Strategies

• Metrics to assess a company's adaptation, aggregation, and arbitrage efforts in international markets.

Page 70: Tools for New Market Analysis

• Discussing essential metrics for understanding and entering new markets effectively.

Page 71: Concepts of Global Value Chain

• Definition and purpose of constructing value chains across global businesses.

Page 72: Primary Activities in Global Value Chain

• Overview of key activities involved in maximizing outputs across global production cycles.

Page 73: Transformation of Global Trade via Technology

• Investigating the impacts of technological advancements on trading practices.

Page 74: Emerging Economies and Historical Perspectives

• Understanding the BRICS nations in the context of historical global economic trends.

Page 75: The Role of Government in Global Trade

• Implications of sovereign wealth funds on global investment strategies.

Page 76: Measurement of Globalization Trends

• Overview of international metrics based on trade, capital, information, and people movement.

Page 77: World Bank's Ease of Doing Business Index

• Methodology and importance of ease of doing business rankings.

Page 78: Worldwide Governance Indicators

• Analyzing governance indicators to assess market stability and business climates globally.

Page 79: Corruption Perceptions Index Overview

• Examining how corruption impacts economic performance and business operations.

Page 80: Measuring Political Rights and Civil Liberties

• Insights into the implications of political freedom scores on business environments.

Page 81: International Trade Volume Insights

• Analysis of record-high global trade values and growth in developing countries.

Page 82: Definitions of International Trade

• Considerations distinguishing between visible and invisible trade.

Page 83: Classical Definition of International Trade

• Emphasizing the evolution and importance of international trade in global economics.

Page 84: Key Trade Definitions and Metrics

• Importance of GDP in determining trade impact on economies.

Page 85: Factors Influencing International Trade

• Analysis of contemporary factors shaping the international trade system.

Page 86: Levels of International Trade Explained

• Distinguishing various levels of international trade engagement.

Page 87: Accidental Exports Overview

• Explanation of unintentional exports arising from domestic sales.

Page 88: Active Exports Overview

• Definition and operational considerations in active exporting.

Page 89: International Marketing Importance

• Commitment of resources to international market promotion.

Page 90: International Production and Distribution Considerations

• Setting up distribution channels in foreign markets.

Page 91: Foreign Direct Investment Overview

• Definition and significance of FDI in multinational enterprises.

Page 92: Comprehensive International Trade Levels

• Detailed description of five levels of international trade activity.

Page 93: Types of International Trade

• Explanation of export, import, and entrepot trades.

Page 94: Free Trade Theory Basics

• Understanding of trade theory that advocates for no barriers.

Page 95: Overview of Trade Theories

• Classification of classical and modern trade theories.

Page 96: Exchange of Goods in International Trade

• Discussion on the mechanisms of trade theory and its applications.

Page 97: Mercantilism Overview and Historical Context

• Historical overview of mercantilism and its impact on trade policies.

Page 98: Jean-Baptiste Colbert's Contributions

• Insights from the French economist on trade-derived national wealth.

Page 99: Neomercantilism Explained

• Conceptual updates on trade protectionism in modern contexts.

Page 100: Absolute Advantage Concept

• Examination of Adam Smith's influence on trade policy evolution.

Page 101: Efficiency in Trade via Absolute Advantage

• Concepts surrounding efficiency in trade practices.

Page 102: Production Scenarios for Absolute Advantage

• Hypothetical scenarios outlining advantage dynamics.

Page 103: Gaining by Specialization

• Benefits of production specialization leading to improved trade outcomes.

Page 104: Gains from Trade Conclusion

• Summary outlining the advantages of trading within specialized production frameworks.

Page 105: Understanding Absolute vs. Comparative Advantage

• Conceptual distinctions between forms of trade advantages.

Page 106: Factor Mobility and Trade Dynamics

• Analysis of factor mobility in production processes across industries.

Page 107: Basics of Comparative Advantage

• Introducing David Ricardo's theory and its applications in trade.

Page 108: Conclusion Factors of Production

• Characteristics of essential inputs in economic production.

Page 109: Comparative Advantage in Practice

• Practical examples of comparative advantage in global settings.

Page 110: Ricardo's Trade Theory Details

• Explanation of opportunities and trade-offs in production.

Page 111: Comparative Advantage in Service Sectors

• Specifics on how businesses leverage comparative advantages.

Page 112: Call Center Example of Comparative Advantage

• Examining US companies outsourcing to India for cost benefits.

Page 113: Comparative Advantage and Value Chains

• How companies utilize comparative advantages in business models.

Page 114: Specialization Implications in Trade

• Trade efficiency in the context of comparative advantage.

Page 115: Historical Context of Comparative Advantage

• Assessment of initial groundwork established by David Ricardo.

Page 116: Productivity Calculation Overview

• Evaluating productivity metrics and trade outcomes.

Page 117: Comparison in Production Possibilities

• Utilizing production possibilities to assess trade advantages.

Page 118: Economic Applications of Comparative Advantage

• Analyzing the intersection of opportunity costs and trade.

Page 119: Conclusion on Comparative Trade Advantages

• Final insights into trading advantages derived from specialization.

Page 120: Burt et al. Summary

• Overview of how trade practices reflect and exploit economic benefits.

Page 121: Market Mechanisms in Absolute vs. Comparative Advantage

• Detailed examination of market dynamics and trade outcomes.

Page 122: Heckscher-Ohlin Theory Overview

• Discussion on resource allocation in global trade.

Page 123: Understanding Capital and Labor Dynamics

• Factors affecting trade based on production capabilities.

Page 124: New Trade Theory Development

• Examination of why countries engage in mutually beneficial trade.

Page 125: Economic Impacts on New Trade Dynamics

• Analysis of market structure and competitive advantages.

Page 126: Firm Behavior in New Trade Theory

• Entities’ efficiency in maximizing production and market reach.

Page 127: Insights into Economies of Scale

• Evaluation of production efficiencies leading to reduced costs.

Page 128: Implications of Economies of Scale

• Understanding average costs and competitive market advantages.

Page 129: Product Life Cycle Theory Overview

• Stages illustrating product evolution in global markets.

Page 130: Country Similarity in Trade

• Insights into consumer preference dynamics across similar nations.

Page 131: Global Strategic Rivalry Analysis

• Understanding the competitive landscape among multinational corporations.

Page 132: Porter’s Competitive Advantage Theory

• Assessment of national competitiveness and innovation.

Page 133: Components of Porter’s Diamond Model

• Exploring determinants affecting national competitive advantages.

Page 134: Competitive Rigor in Economies

• Discussion of industry rivalry and its role in market positioning.

Page 135: Trends in Trade Theory Evolution

• Historical shifts in trade theories affecting globalization policies.