example of global strategic rivalry theory example of global strategic rivalry theory

Download Free PDF. The barriers to entry that corporations may seek to optimize include: Porters National Competitive Advantage Theory. Porter's Diamond Model, also known as the Theory of National Competitive Advantage of Industries, is a diamond-shaped framework that focuses on explaining wh. France, the Netherlands, Portugal, and Spain were also successful in building large colonial empires that generated extensive wealth for their governing nations. In a hypothetical two-country world, if Country A could produce a good cheaper or faster (or both) than Country B, then Country A had the advantage and could focus on specializing on producing that good. In the Republic of the Congo, Chinese teams are building a hydropower project funded by a Chinese government loan, which will be repaid in oil. Global Strategic Rivalry Theory of International Trade. Summit Shows Chinas Africa Clout, BBC News, November 6, 2006, accessed December 20, 2010. are the best examples of such countries. China in Africa: Developing Ties, BBC News, November 26, 2007, accessed December 20, 2010, http://news.bbc.co.uk/2/hi/africa/7086777.stm. the control of resources or favorable access to raw materials. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. In order to face the rivalry, Volkswagen group, which comprises of diverse nature of organisations, from different countries around the world has been enlarged. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010, http://www.foreignaffairs.com/articles/65916/deborah-brautigam/africa%E2%80%99s-eastern-promise. Let us assume that there are two countries, X and Y. X produce rice at a very low price (in comparison to Y). In contrast, another country may not have any useful absolute advantages. 7. According to Michael Porter's five competitive forces industry analysis, an attractive industry has the following characteristics. Why Africa Is Poor: Ghana Beats Up on Its Biggest Foreign Investors, Wall Street Journal, February 18, 2010, accessed February 16, 2011. In other words, if people in other countries buy more from you (exports) than they sell to you (imports), then they have to pay you the difference in gold and silver. Legal. Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory in the 1960s. In 1776, Adam Smith questioned the leading mercantile theory of the time inThe Wealth of Nations.Adam Smith,An Inquiry into the Nature and Causes of the Wealth of Nations(London: W. Strahan and T. Cadell, 1776). In this section, youll learn about the different trade theories that have evolved over the past century and which are most relevant today. It has also been used to describe how the personal computer (PC) went through its product cycle. the control of resources or favorable access to raw materials. The term was first introduced by Michael E. Porter in his classic 1979 Harvard Business Review article. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. Recent versions have been edited by scholars and economists. US manufacturing was the globally dominant producer in many industries after World War II. In addition to the four determinants of the diamond, Porter also noted that government and chance play a part in the national competitiveness of industries. 2. Porter's Diamond of National Competitive Theory 8 . Initial capital outlay varies, but it is typically high in terms of funding for business space, human resources, and equipment, among other variables. Accessibility StatementFor more information contact us atinfo@libretexts.orgor check out our status page at https://status.libretexts.org. 6. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. There are several examples of how Porter's Five Forces can be applied to various industries. Once again, the major aim here is for turnover maximization for those companies and the social and environmental aspects are not addressed. The barriers to entry refer to the obstacles a new firm may face when trying to enter into an industry or new market. 6-22. Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010. sample size be of sufficient size to provide a good estimate of the actual population under study (in this case, countries following export oriented policies). It focuses, however, on planned decisions that firms implement as they participate globally. Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Global Strategic Rivalry Theory: This theory was forwarded in 1980 by Paul Krugman. Linders theory proposed that consumers in countries that are in the same or similar stage of development would have similar preferences. The Export-Import Bank of China (Ex-Im Bank of China) has funded and has provided these loans at market rates, rather than as foreign aid. Product begins to be imported in the innovative country. In one example with Angola, China provided loans to the country secured by oil. . -Country Similarity Theory : theory that incorporates brand, customer loyalty, technology, and quality in the understanding of trade flows. 5. Firm Strategy and Rivalry is the competition in the home market that drives innovation and quality. Despite this, they can still reach a more measured tone of engagement, and greater . 3. The Instruments used in Protectionism Policy. The LibreTexts libraries arePowered by NICE CXone Expertand are supported by the Department of Education Open Textbook Pilot Project, the UC Davis Office of the Provost, the UC Davis Library, the California State University Affordable Learning Solutions Program, and Merlot. Miranda is a Wall Street lawyer who charges $500 per hour for her legal services. By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. Andrew Rice, Why Is Africa Still Poor?, The Nation, October 24, 2005, accessed December 20, 2010. Andrew Rice, Why Is Africa Still Poor?, The Nation, October 24, 2005, accessed December 20, 2010, http://www.thenation.com/article/why-africa-still-poor?page=0,1. The bargaining power of the buyers, all airlines, is fairly high. A person or a country will specialize in doing what they dorelativelybetter. . Lets look at a simplified hypothetical example to illustrate the subtle difference between these principles. Global strategic rivalry theory is about how multinational companies need to gain a competitive advantage against other multinational companies in their industry through activities such as research and development. Sometimes competitive advantage can be increased by injecting the experience. He stated that trade should flow naturally according to market forces. People or entities trade because they believe that they benefit from the exchange. Firms will encounter global competition in their industries. In Globalization 1.0, nations dominated global expansion. -Global Strategic Rivalry Theory : focuses on firms' competitive advantage. 2004 Prentice Hall 6-2 Chapter Objectives_1 Understand the motivation for international trade Summarize and discuss the differences among the classical country-based theories of international trade Use the modern firm-based theories of international trade to describe global strategies adopted by businesses Miranda is a Wall Street lawyer who charges $500 per hour for her legal services. Today, the PC is in the standardized product stage, and the majority of manufacturing and production process is done in low-cost countries in Asia and Mexico. What is the historical significance of mercantilism for international trade patterns? When they explore exporting, the companies often find that markets that look similar to their domestic one, in terms of customer preferences, offer the most potential for success. Production would also become more efficient, because there would be an incentive to create faster and better production methods to increase the specialization. In this case, you would create a strategy to sell essentially the same purses in every location. As an example, the airline industry has fierce competition among the two producers, Airbus and Boeing. Porter's five forces model is merely a framework. Global Strategic Management Executive Summary In the international competitive environment the ability of an organization to develop a transnational organizational capability is the key factor that can help the firm adapt to the changes in the dynamic environment. Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. The theories covered in this chapter are simply thattheories. Theories of international trade 1 of 19 Theories of international trade Apr. Trade (exports and imports) between Africa and China increased from US$11 billion in 2000 to US$56 billion in 2006.with Chinese companies present in 48 African countries, although Africa still accounts for only 3 percent of Chinas outward FDI [foreign direct investment]. By working together with these firms the car industry can enhance its national competitive advantage. Strategic Trade Policy In the early 1980s, James Brander and Barbara Spencer (1983, 1985) created a considerable stir with an analysis of trade policy under imperfect competition. Saylor Academy, Saylor.org, and Harnessing Technology to Make Education Free are trade names of the Constitution Foundation, a 501(c)(3) organization through which our educational activities are conducted. Standardized Product Stage: The market for the product stabilizes. Companies in markets with high barriers to entry whether through regulation, high fixed and/or start-up costs, protected intellectual . See detailed licensing information. Even though research and development is typically associated with the first or new product stage and therefore completed in the home country, these developing or emerging-market countries, such as India and China, offer both highly skilled labor and new research facilities at a substantial cost advantage for global firms. In all these factors, a methodical study and timed developmental steps are essential. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. Strategizing on the Indo-Pacific region . China: Trade with Africa on Track to New Record, CNN, October 15, 2010, accessed April 23, 2011, http://articles.cnn.com/2010-10-15/world/china.africa.trade_1_china-and-africa-link-trade-largest-trade-partner?_s=PM:WORLD. To better understand rivalry in the competitive business setting, many researchers have relied on the sport setting to study the phenomenon. Global Strategic Rivalry Theory Strategic rivalry theory was presented in the 1980s by American economists Paul Krugman and Kelvin Lancaster. Excluding course final exams, content authored by Saylor Academy is available under a Creative Commons Attribution 3.0 Unported license. the ownership of intellectual property rights. For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. Example Boeing is the most successful aircraft manufacturing because it does a vast amount of study for its competitors by its R&D department. The theory, originating in the field of marketing, stated that a product life cycle has three distinct stages: (1) new product, (2) maturing product, and (3) standardized product. In contrast, another country may not haveanyuseful absolute advantages. Rather, the state of competition in an industry depends on five basic forces: threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products or services, and existing industry rivalry. For example, global companies even conduct research and development in developing markets where highly skilled labor and facilities are usually cheaper. It also has extensive access to capital. 2. By the mid-twentieth century, the theories began to shift to explain trade from a firm, rather than a country, perspective. International trade is then the concept of this exchange between people or entities in two different countries. 5. Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity. Source: China in Africa: Developing Ties, BBC News, last updated November 26, 2007, accessed June 3, 2011,http://news.bbc.co.uk/2/hi/africa/7086777.stm. 1. The theory says a company can get a sustainable competitive advantage by developing barriers to entry. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. In the early 1950s, Russian-born American economist Wassily W. Leontief studied the US economy closely and noted that the United States was abundant in capital and, therefore, should export more capital-intensive goods. Anarchism Pluralism refers to a political philosophy which asserts that: both public and private groups are important in a well-functioning political system. 12. Over time, economists have developed theories to explain the mechanisms of global trade. In Ghana, a Chinese government loan will be repaid in cocoa beans.8. Globalization itself is a competitive power that determined Volkswagen to be strategic and competitive. In practice, governments and companies use a combination of these theories to both interpret trends and develop strategy. This is comparative advantage. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. The challenge to the absolute advantage theory was that some countries may be better at producing both goods and, therefore, have an advantage inmanyareas. This theory focuses on how companies can get a competitive advantage when competing against global firms in the same industry. Tracy Hon, Johanna Jansson, Garth Shelton, Liu Haifang, Christopher Burke, and Carine Kiala, Evaluating Chinas FOCAC Commitments to Africa and Mapping the Way Ahead(Stellenbosch, South Africa: Centre for Chinese Studies, University of Stellenbosch, 2010), 1, accessed December 20, 2010, http://www.ccs.org.za/wp-content/uploads/2010/03/ENGLISH-Evaluating-Chinas-FOCAC-commitments-to-Africa-2010.pdf. . Free-trade advocates highlight how free trade benefits all members of the global community, while mercantilisms protectionist policies only benefit select industries, at the expense of both consumers and other companies, within and outside of the industry. To explain his theory, Porter identified four determinants that he linked together. Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. Taxpayers pay for government subsidies of select exports in the form of higher taxes. Swedish economist Steffan Linder developed the country similarity theory in 1961, as he tried to explain the concept of intraindustry trade. the ownership of intellectual property rights, unique business processes or methods as well as extensive experience in the industry, and. However, what remains clear is that international trade is complex and is impacted by numerous and often-changing factors. Trade is the concept of exchanging goods and services between two people or entities. Linders country similarity theory then states that most trade in manufactured goods will be between countries with similar per capita incomes, and intraindustry trade will be common. Determine which international trade theory is most relevant today and how it continues to evolve. To explain his theory, Porter identified four determinants that he linked together. 10. . The objective of each country was to have atrade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid atrade deficit, or a situation where the value of imports is greater than the value of exports. Porters theory stated that a nations competitiveness in an industry depends on the capacity of the industry to innovate and upgrade. You'll also find short examples of applying each of the Forces separately in the sections above. Chapter 1 "Introduction", Section 1.4 "The Globalization Debate" discussed how Thomas Friedmans flat-world approach segments history into three stages: Globalization 1.0 from 1492 to 1800, 2.0 from 1800 to 2000, and 3.0 from 2000 to the present. The threat of substitute products is low. With this investment, Angola hired Chinese companies to build much-needed roads, railways, hospitals, schools, and water systems. Trade cannot be explained neatly by one single theory, and more importantly, our understanding of international trade theories continues to evolve. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. These examples show that there are large companies that have the potential to directly compete against Apple Inc. Firms struggle to develop sustainable competitive advantage. For example, the below Venn diagram shows the tension for Apple, Inc. The PC was a new product in the 1970s and developed into a mature product during the 1980s and 1990s. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. A HIERARCHICAL MODEL FOR VISUAL COMPETETION. In 2007, the UNCTAD (United Nations Conference on Trade and Development) Press Office noted the following: Over the past few years, China has become one of Africas important partners for trade and economic cooperation. This chapter discussed Kia and other automakers. In Globalization 2.0, multinational companies ascended and pushed global development. Recommending an outward-oriented trade policy based on such limited data is a questionable use of statistics. The 1500s marked the rise of new nation-states, whose rulers wanted to strengthen their nations by building larger armies and national institutions. Their theory focused on multinational corporations and their efforts to gain a competitive advantage against other global firms in their industry. Comparative advantage occurs when a country cannot produce a product more efficiently than the other country; however, it can produce that product better and more efficiently than it does other goods. Whereas, having the total ownership rights of rational properties is also essential. These firms themselves have a global competitive advantage. Global Strategic Rivalry Theory Global strategic rivalry theory emerged in the 1980s and was based on the work of economists Paul Krugman and Kelvin Lancaster. United Nations Conference on Trade and Development, Asian Foreign Direct Investment in Africa: United Nations Report Points to a New Era of Cooperation among Developing Countries, press release, March 27, 2007, accessed December 20, 2010. 8. Smith offered a new trade theory called absolute advantage, which focused on the ability of a country to produce a good more efficiently than another nation. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. While at the surface, this many sound very simple, there is a great deal of theory, policy, and business strategy that constitutes international trade. Around 5,200 years ago, Uruk, in southern Mesopotamia, was probably the first city the world had ever seen, housing more than 50,000 people within its six miles of wall. The four determinants are (1) local market resources and capabilities, (2) local market demand conditions, (3) local suppliers and complementary industries, and (4) local firm characteristics. However, this simplistic example demonstrates the basis of the comparative advantage theory. The firm-based theories evolved with the growth of the multinational company (MNC). Product life cycle theory. Compare and contrast different trade theories. Lets look at a simplified hypothetical example to illustrate the subtle difference between these principles. This lecture is about global strategic rivalry theory.This theory explains how MNCs wins their competititors by using various strategies. Barriers to trade may exist, and goods must be transported, stored, and distributed. Much of the trade history of past centuries has been colored by European colonial powers promoting and preserving their economic interests throughout the African continent.1 After World War II and since independence for many African nations, the continent has not fared as well as other former colonial countries in Asia. Recent versions have been edited by scholars and economists. The critical ways that firms can obtain a sustainable competitive advantage are called the barriers to entry for that industry. What is the Binocular Rivalry - the cognitive phenomenon Achieving economies of scale or scope ? Deborah Brautigam, Africas Eastern Promise: What the West Can Learn from Chinese Investment in Africa, Foreign Affairs, January 5, 2010, accessed December 20, 2010. His analysis became known as the Leontief Paradox because it was the reverse of what was expected by the factor proportions theory. For example, China and India are home to cheap, large pools of labor. Their theory focused on MNCs and their efforts to gain a competitive advantage against other global firms in their industry. Firms will encounter global competition in their industries and in order to prosper, they must develop competitive advantages. It is a fact that Porter (1990) never focused primarily on the factors determining the pattern of trade, yet his theory of national competitive advantage does explain why a particular country is more competitive in a particular industry.If, for example, Italy maintains competitive advantage in the production of ceramic tiles and Switzerland possesses the competitive advantage in watches, it . Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity. In this firm-based theory, Linder suggested that companies first produce for domestic consumption. 3. As professor and author Deborah Brautigam notes, Chinas current experiment in Africa mixes a hard-nosed but clear-eyed self-interest with the lessons of Chinas own successful development and of decades of its failed aid projects in Africa. 4, According toCNN, China has increasingly turned to resource-rich Africa as Chinas booming economy has demanded more and more oil and raw materials.5 Trade between the African continent and China reached $106.8 billion in 2008, and over the past decade, Chinese investments and the countrys development aid to Africa have been increasing steadily.China-Africa Trade up 45 percent in 2008 to $107 Billion, 6 Chinese activities in Africa are highly diverse, ranging from government to government relations and large state owned companies (SOE) investing in Africa financed by Chinas policy banks, to private entrepreneurs entering African countries at their own initiative to pursue commercial activities.7, Since 2004, eager for access to resources, oil, diamonds, minerals, and commodities, China has entered into arrangements with resource-rich countries in Africa for a total of nearly $14 billion in resource deals alone. By increasing exports and trade, these rulers were able to amass more gold and wealth for their countries. Classical or Country-Based Trade Theories, Heckscher-Ohlin Theory (Factor Proportions Theory), Porters National Competitive Advantage Theory, http://online.wsj.com/article/SB10001424052748703691804575254533386933138.html, source@https://2012books.lardbucket.org/books/individual-finance, status page at https://status.libretexts.org. Swedish economist Steffan Linder developed thecountry similarity theoryin 1961, as he tried to explain the concept of intraindustry trade.