Competing in a global trade environment

WTO

World Trade Organisation

Help trade run smoothly

Help trade run predictably

Help trade run as freely as possible

Comparative advantage

Absolute

If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage

Relative

Based on the assumption that a country will tend to specialise in the production of the good in which it has a relative competitive advantage

This can be summarised as comparative advantage helps us to understand how countries can gain from global trade by specialism

The Diamond Model

Helps to establish where comparative advantage may be for each country

all countries are characterised by 'differences in national values, culture, economic structures, institutions, and histories that all contribute to competitive success

The Factor conditions (natural resouces)

The demand conditions in the country for a specific industry

The strategies, structure and rivalry of firms within the industry

The quality of related and supporting industries and infrastructures

The Five Forces of Competition

Direct industry competitors

Suppliers

Buyers

Potential entrants

Substitute goods and/or services