Trade theories and Globalisation strategy

The following theories help explain why TNCS go global Comparative advantage Heckscher ohlin model Product life cycle Dunning oli Flowers theory oligopolistic interaction Kojima export orientated industrialisation

TNCS in emerging markets

Membership of the WORLD TRADE ORGANISATION and open trade has led to more firms in emerging markets , G20 meetings should help open up markets and help safeguard currencies FDI activity in emerging markets including China and India will surpass FDI inflows in USA for the first time in 2010 and this may continue due to the slow recovery in Western Europe and USA There is an emergence of Chinese TNCS resource seeking in Africa and an increase in acquisitions. TNCS from Korea have increased and Indian firms have bought into the Korean car market Indian TNCS are on the increase in the pharmaceutical and information technology sectors The biggest European investors in mainland China are Germany then France though the UK is the largest investor if you include Hong Kong and main land China

Theories of internationalisation
Dunning OLI, EVALUATE EMERGING MARKET COMPONENTS OWNERSHIP, ECONOMIES OF SCALE(LARGE INCHINA) TECHNOLOGY (SOME LIMITATION WITH SKILL) MARKETING(SOME LIMITATION) MANAGEMENT SKILL(LIMITED) CAPITAL(EASIER TO ACQUIRE BUT HIGH INTEREST RATE)

These are all factors that give market power for the firm and are linked to industrialisation theory Firms maximise these factors by engaging in international business

LOCATION
MARKET ACCESS(LARGE) AVOIDANCE OF TARIFFS(SOME) LOW COST LABOUR(EVIDENT IN THESE MARKETS) RESOURCES(MUCH ACTIVITY FROM CHINAINTO AFRICA) INCENTIVES(SOME TRADE ZONES LOW TAXES) POLITICAL/ECONOMIC STABILITY(SOME) These factors are linked to Ricardo comparative advantage

INTERNALISATION
CONTRACTURAL ARRANGEMENTS IN INTERNATIONAL BUSINESS THESE INCLUDES ALSO THE ENTRY MODE AND THIS HAS OFTEN BEEN RESTRICTED IN EMERGING MARKETS WHICH HAS THE MOST CERTAINTY AND LOWEST TRANSACTION COSTS? EXPORT , LICENCE, STRATEGIC ALLIANCE,SUBSIDIARY SEE WILLIAMSON O 1981 OTHER THEORY , OLIGOPOLISTIC INTERACTION PRODUCT LIFE CYCLE STAGE OF DEVELOPMENT APPROACH RESOURCE BASED VIEW PORTER DIAMOND, DEMAND CONDITIONS ,FACTOR CONDITIONS, RIVALRY, RELATED SUPPORTING INDUSTRIES DOUBLE DIAMOND ANDITS LIMITATIONS

Brander spencer, SOMETIMES GOVERNMENT PROTECT THEIR MARKETS TO DEVELOP THEIR OWN TNCS EG KOREA, CHINA,EUROPE, USA
Protectionism can work in some cases See Krugman International Economics Subsidy is given to firms eg airbus This leads to growth if the subsidy can be paid back and the product reaches the market on time The prisoners dilemma concept Risk of other firms asking for subsidy eg banks , cars , extension of subsidy

Critique
Culture is left out of trade theories Internalisation theory may not be appropriate Sometimes no choice of entry mode when government is restrictive If the market is small export may be best Some countries trade more due to historical and political ties Intra industry trade increases where costs are less important Porter competitive advantage view

OTHER THEORY
PORTER DIAMOND FACTOR CONDITIONS DEMAND CONDITIONS RELATED SUPPORTING INDUSTRIES STRATEGY STRUCTURE RIVALRY

Flowers Oliopolistic interaction