Please enable JavaScript.
Coggle requires JavaScript to display documents.
Session 2: Competing in a Global Trade Environment - Coggle Diagram
Session 2: Competing in a Global Trade Environment
Understanding Global Trade Environment
Global Economy is 'an economy with the capacity to work as a unit in real time on a planetary scale'.
(Castells, 1996, p. 92)
Global Economy has lead to International Trade
Doesn't mean that national, regional and local differences don't matter.
Local and regional economic and social patterns are strengthening into 'glocalisation'.
Global Economy has lead to new institutions to govern international trade.
For example, World Trade Organisation (WTO)
Criticised for doing agreements with countries that do not respect human rights and democratic processes.
Competition and Trade Among Countries
Absolute Advantage - if a country can supply a good at a cheaper price than other countries, it is better that the latter buy the good from the country able to supply it at cheaper price.
Comparative Advantage - a country will specialise in the production of the good in which it has the to make a specific product more efficiently than another product, and better than another country.
Global trade environment should support this theory.
Why do countries have a comparative advantage in some goods and services over others?
Porter's 'diamond model' helps to analyse why...
Porter states that countries' competitiveness depends on not only the availability and quality of factor conditions but also on...
Better interpreted as the outcome of the interlinked effects of the four factors presented in the diamond model:
Factor conditions (i.e. natural resources).
Demand conditions in the country for a specific industry
Strategies, structure and rivalry of firms within the industry.
Quality of related and supporting industries and infrastructures.
Government can also be considered an additional factor.
Competition Among Business Orgs
Orgs need to identify their competitors and nature of competition existing in global trade environment.
Porter has 'five forces' model to analyse nature of competition.
Focus on a market/industry level.
Tool used to assess competitive position and market attractiveness.
Five elements
Direct industry competitors - firms that offer same type of product in the market.
Rivalry among existing firms.
Market shares of firms, larger market share means more control over market prices.
Diversity in competitors - which firms are targeting which consumer bases?
Suppliers - firms from which a business can purchase all materials needed to carry out production process and/or to offer services.
Need to evaluate relations of power between business org and its suppliers How big in size are the suppliers and how much does the market rely on them?
Brand reputation.
Geographical coverage.
Product quality
Bidding process.
Buyers - customers.
Who are the customers for business organisations and how many are there?
More customers means lower risk on reliance on customers, if one customer than really high risk on customer staying loyal and purchasing your product.
Potential entrants - concurrent organisations that may want to enter the market.
If a market is profitable, new entrants will come.
New entries require 'sunk costs'
Higher 'sunk costs' means higher initial investment which means barriers to market entry.
Deterrent to enter new markets.
Role of internet reducing barriers to entry, e.g. online shopping.
Substitute goods/services - goods/services that in a different way can meet same customers needs.
Threat of another business offering a more attractive alternative to same customers, offering more choice and expanding the market.