International Trade - Lesson Summary
The Bartlett and Ghoshal model indicates the strategic options for businesses wanting to manage their international operations based on the local responsiveness and global integration pressures.
A multinational corporation is a company incorporated in its home country that carries out business operations beyond that country in many other foreign countries.
In the centralized model, companies put up ana executive headquarters in its home country and then build various manufacturing plants and production facilities in other countries.
The regionalized model states that the company keeps its headquarters in one country that supervises a collection of offices that are located in various countries.
Liberalization refers to the relaxation of government regulations and restrictions in the economy in exchange for a free flow of goods and services between the countries for the greater participation of private entities.
Privatization is defined as a transfer of ownership and management of an enterprise from the public sector to the private sector.
Globalization is described as the process by which regional economies, societies and cultures have become integrated through a global network of communication, transportation and trade.
The Laissez-faire approach to exports and imports is one that allows market forces to determine trading relations as some countries believe that government programs lead to inefficiency.
Mercantilism is a trade theory holding that a country’s wealth is measured by its holding of treasure which usually means its gold.
A country that practices neomercantilism attempts to run an export surplus to achieve a social or political objective.
Free trade refers to a situation where a government does not attempt to influence through quotas or duties what its citizens can buy from another country or what they can produce and sell to another country.
Adam Smith argued that a country has an absolute advantage in the production of a product when it is more efficient than another country in producing that product.
According to Ricardo’s theory of comparative advantage, it makes sense for a country to specialize in the production of those goods that it produces most efficiently and buy the goods that it produces less efficiently from other countries. This is done even if this means buying goods from other countries that it could produce more efficiently itself.
The law of comparative advantage refers to the ability of a country to produce a particular good or service at a lower opportunity cost than another party.
The theory of comparative advantage suggests that trade is a positive-sum game in which all countries that participate realize economic gains.
The Heckscher-Ohlin theory predicts that countries will export goods that make intensive use of those factors that are locally abundant, and import goods that make intensive use of factors that are locally scarce.
The international product life cycle theory of trade states that the location of the production site for certain kinds of products shifts as the go through their life cycles, which consists of four stages.