John Felix Bacalso

BSA-II

ASSESSMENT 5

1. Summarize the classical, country-based international trade theories. What are

the differences between these theories, and how did the theories evolve?

a. Mercantilism: Focuses on collecting gold and silver, selling more than buying.

Evolution: Shifted to theories about making and using things to get rich.

b. Absolute Advantage: Says countries should focus on making what they're best at to trade
freely.

Evolution: Led to the idea that not everything can be made best in one place.

c. Comparative Advantage: Suggests making what's cheapest to make, even if not best at
making it.

Evolution: This idea is the basis for understanding trade benefits.

d. Heckscher-Ohlin Theory: Looks at what countries have a lot of to decide what they should
make.

Evolution: Now considers not just stuff, but also people, technology, and other things.

e. Leontief Paradox: Noticed the U.S. was sending out goods needing lots of money and bringing
in stuff needing more people, which doesn't fit with Heckscher-Ohlin.

Evolution: Later, people saw that other things like how fast workers work also matter, making
trade more complicated.
2. Discuss the main concepts of international trade theories.

a. Mercantilism: Countries should encourage exporting and limit importing to amass more gold
and silver, resulting in trade surpluses.

b. Absolute Advantage: Nations should focus on making goods they're best at producing more
efficiently than others.

c. Comparative Advantage: Countries should specialize in making goods where they're

comparatively more efficient, even if not the best overall.

d. Heckscher-Ohlin Theory: Nations will export goods using their plentiful resources and import
those requiring scarce resources.

e. Leontief Paradox: Despite having lots of capital, the U.S. was importing goods needing more
capital and exporting those needing more labor.

f. Country Similarity Theory: Countries with similar income levels tend to have similar
consumer preferences, leading to trade within the same industry.

g. Product Life Cycle Theory: Products move through stages of introduction, growth, and
standardization, with production shifting to other countries as they mature.

h. Global Strategic Rivalry Theory: Multinational companies compete globally by building

advantages like research and development and economies of scale.

i. Porter's National Competitive Advantage Theory: A nation's competitiveness in an industry

relies on its ability to innovate and improve, influenced by factors like resources, demand,
related industries, and company strategy.
3. Describe how a business may use trade theories to develop its business

strategies. Use Porter‘s four determinants in your

a. Factors of Local Market Strength: A company can evaluate its own resources and capabilities
compared to those of other countries to gauge its competitive edge. For instance, if a company
has access to skilled labor, advanced technology, or abundant natural resources, it may opt to
focus on products or services that capitalize on these advantages globally. This assessment can
influence decisions regarding product development, manufacturing processes, and investments in
technology and infrastructure.

b. Local Market Demand: Grasping local market demand aids a company in spotting
opportunities for innovation and product enhancement. By studying consumer preferences and
behavior in various markets, a business can customize its offerings to address specific needs,
thus gaining a competitive advantage. This understanding also informs decisions about pricing,
marketing strategies, and distribution channels to effectively reach target markets.

c. Local Suppliers and Allied Industries: Cultivating strong ties with local suppliers and allied
industries can boost a company's competitiveness. Collaboration with suppliers and partners
offering top-notch inputs or support services enhances a company's own product or service
quality. This collaboration fosters production efficiencies, cost reductions, and enhanced product
quality, all of which bolster a competitive edge.

d. Characteristics of Local Companies: Understanding local industry dynamics, such as

competitive rivalry, industry structure, and business strategies, helps a company position itself
strategically. By scrutinizing competitors' strengths and weaknesses, a company can identify
areas for differentiation and market capture. This insight guides decisions on pricing tactics,
marketing endeavors, and product positioning to stand out in the market.
4. What are the country‘s problems so that it cannot attract substantial FDI?

I believe the following factors significantly contribute to the challenges faced by the country,
particularly in the Philippines, in attracting substantial Foreign Direct Investment (FDI):

a. Constitutional constraints on foreign investment: The Philippines' constitution imposes limits

on foreign investment, potentially dissuading investors who desire more flexibility and control
over their investments.

b. Terrorism concerns: The presence of terrorism threats in certain areas of the country may raise
security apprehensions for foreign investors, impacting their willingness to invest in those
regions.

c. Corruption: The prevalence of corruption in the Philippines could deter foreign investors due
to concerns regarding transparency, accountability, and the ease of conducting business. d.
Insufficient infrastructure: The Philippines encounters obstacles in developing infrastructure,
including transportation, energy, and communication systems, which could diminish the
country's appeal for foreign investment.

e. High electricity costs: Electricity expenses in the Philippines are relatively elevated,
potentially escalating operational costs for businesses and diminishing the country's allure as an
investment destination.

f. Limited legal security: Worries about the dependability and consistency of the legal system in
the Philippines might dissuade foreign investors seeking assurances of impartial treatment and
safeguarding of their investments.

g. Tax regulations and restrictions on foreign ownership: Intricate tax rules and limitations on
foreign ownership in specific sectors may pose additional obstacles for foreign investors aspiring
to enter the Philippine market.