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COMPETING IN A GLOBAL TRADE ENVIRONMENT (Global Trade Environment…
COMPETING IN A GLOBAL TRADE ENVIRONMENT
IMPORTANT for understanding and practicing business & management
Global trade environment
dynamics of competition within
countries
business organisations
consumer: buying something produced in another nation
employee: working for a multinational company
entrepreneur: internationalising company
Global Trade Environment
modern day global economy features
ICT (information & communication tech)
social networks
increase interconnecteness
features
international trade
global institutions to govern trade
e.g. WTO
local, regional, (supra) national factors are also important
e.g. locally produced products, coalition of countries to create trading blocs
Competition & Trade Among Countries
theories which help to understand why countries trade with each other
COMPARATIVE ADVANTAGE
Absolute comparative advantage
(Ref: Adam Smith)
countries should by products from foreign countries if they can produce it for less
Relative comparative advantage
(Ref: David Ricardo)
countries should specialise on production for which it is relatively more efficient
i.e. price efficiencies
e.g. If Britain can produce cloth for £10 less than Portugal, but Portugal can produce wine for £15 less than Britain, it makes sense for Britain to focus on cloth manufacturing, and Portugal to focus on wine production
to understand why countries have comparative advantage in some goods/ services & why the economies of some countries enable businesses' to grow and perform faster and better
Diamond Model
(Ref: Porter 1980)
better understanding of competitive position of a country
overcomes limitations of absolute & relative comparative advantage
i.e. governed by availability of natural resources which enables countries to specialise in industries which use those resources
foundations of the model
competitive success incorporate multiple factors
values
culture
economic structure
institutions
history
Quality & availability of each factor
industry specific demand conditions
industry specific competition characteristics - structure, strategies, direct competitors
quality of related & supporting industries & infrastructures
Governmental impact also important (KEY ROLE)
can influence all four factors
e.g. subsidies, providing infrastructure, favourable tax conditions, effective educational policies to improve skills of labour force
explains the benefits of global trade i.e. cost effective
Competition among Business Organisations
Porters Five Forces Model
helps to identify competitors
helps to understand nature of competition existing in global trade environment
conducted at industry/ market level
assess competitive position and market attractiveness
characteristics of the model
2. Direct industry competitors
firms offering same type of product in the market
analysing market share
if there are many firms with equal market share the market is close to 'perfect competition'
diversification among competitors
cost structures
1. Suppliers
all firms supplying the materials needed to manufacture the product and/or provide a service
bargaining power important
considerations to assess this
brand reputation
geographical coverage
product/ service quality of supplier
management of bidding process
considering issues such as
pricing power
agreements among suppliers to control the market, size, and existence of substitutes
3. Buyers
customers
risks associated to restricted customer base vs less risk of broader customer base
4. Potential Entrants
concurrent firms which may attempt to enter the market
factors which prohibit entry
sunk costs
past costs associated to entering a market but cannot be recovered upon exit of the market
e.g. high upfront capital costs
Substitute goods/ services
goods or services which can meet customers needs in a different way
characteristic differences may exist by industry and/ or sector