贸易实务

Unit 4

International Trade Theories II: Product Cycle Theory

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Discussion In your point of view, do you think a nation’s prosperity created or inherited? Why?

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Factor endowment要素禀赋 endowment要素禀赋Stocks of physical capital, human capital, and natural resources. Physical capital: machinery, factories, highways, railways, harbors, and other equipment and facilities used in production. Human capital: investment in the labor and management force through education, on-the-job training, and work experience.

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Technology: the methods of producing goods and services that determine efficiency in production. Economies of scale/economies of mass production.

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HeckscherHeckscher-Ohlin theory (H(HO): factor proportionThe amounts and costs of labor, capital and natural resources used----production costs---prices of goods. Each country possess a specific mix of labor, capital and other ‘factor endowments”---differences in factor endowments determine differences in comparative advantage----shape the pattern of international trade. 从要素禀赋差异及其引致的要素价格差异来寻求国家比较 优势及贸易发生的原因

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Discussion QuestionAccording to what you learned just now, analyze the ‘factor endowments’ for Japan. Discuss with your partners and share your results with the class

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Product Cycle TheoryBy Raymond Vernon in 1966. Focus on product, instead of country, technology, or factor proportions.

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Product cycle theoryTechnological innovation requires large quantities of capital and highly skilled labor. Available especially in highly industrialized capital-intensive countries. The product and the methods for its manufacture go through three stages: A: the new product B: the maturing product C: the standardized product

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The implication of the product cycle (P43)Shows how specific products were first produced and exported from one country, but through product and competitive innovation, shifted their location of production and export to other countries over time.

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Significance of product cycle theoryHelps to explain why international investment takes place. Mobility of capital across countries The focus is shifted from country to the product Match the product by its maturity stage with its production location to examine competitiveness

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Limitations of the theoryMost appropriate for technologybased products, not for resourcebased products or services. Only relevant to products that eventually fall victim to mass production and cheap labor forces.

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Porter’ Porter’s “diamond model” model”Porter is a famous Harvard business professor. He conducted a comprehensive study of 10 nations to learn what leads to success. Porter believes standard classical theories on comparative advantage are inadequate (or even wrong). According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements

to the product or to the production process. Used for assessing relative competitive strength of nations, and by implication of their industries:

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I.

Factor Condition: production factors required for a given industry, e.g. skilled labor, logistics and infrastructure. (created, not inherited) Demand Condition: extent and nature of demand within the nation concerned for the product or service. Related Industries: the existence, extent and international competitive strength of other industries in the nation concerned that support or assist the industry in question. Corporate Strategy, Structure and Rivalry: the conditions in the home market that affect how corporations are created, managed and grown; the idea being that firms that have to fight hard in their home market are more likely to be able to succeed in international markets.

II.

III.

IV.

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Expressions you need to knowProduct Cycle Theory Competitive advantage Mass production Economies of scale/economies of mass production Factor endowment Factor proportion Capital-intensive, labor-intensive

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Discussion Discuss with your partners the following question: In what sectors does China have national-level competitiveness? Explain them.