International Business

Session 2 & 3
a)-Theories of International Business
b)- Concept of multi –national operations

B.S.Pani
Ravenshaw Mangement Centre
MBA-II : Octo- Dec. 2009
 History & Back ground
India –
- All the ancient scripts mention “ Swarna Mudraas” as
the currency of the times.
- There is mention of trading in horse, cattle, silk ,
ornaments and swords and shields.
- Rarely there is any mention of trading in food grains.
- There were small kingdoms/principalities
 History & Back ground
( India- cont.)
• - Distances, communication, systems etc,
prevented trade exchange of goods.
• -So – the trade was – conquer and
plunder!
• Upto 9th/10th/11th century Local rule
remained.
• Then came the Turks- Moguls- Huns-
British- French-Portuguese and what not.
 History & Back ground
( India- cont.)
• What did it do to India and other colonies:
- Subjugated the population
- Plundered only what they needed
(Moguls – slaves: British – Opium;
Protégées – spices; French – silk; Turks –
Gems, etc.)
- India became impoverished !!!
 Defining Wealth of a Nation
• Adam Smith ( 1776) – Trade between two
countries is mutually beneficial if each has an
absolute advantage over the other in the
production of a commodity.
• Richardo (1817) – Trade was mutually even in
the case where one country had an absolute
advantage over the other in the production of
both commodities but where the relative
advantages are at different scales.
 Defining Trade Theories
• Hecksher (1935) and Ohalin (1933) – Trade is
profitable only when countries take advantage of
their different factors of endowment.
• Keesing(1981)- Skill availability is a major
determining factors of international trade pattern.
• Helpman and Krugman (1989)- Trade based on
comparative advantage is complemented and
supplemented by the theory of ‘ increasing
returns’. Global industrialization and higher
capacity to add value to own or traded resources
makes a country a stronger tarding force.
 Porter’s Theory – Questions ?
• Porter (1990) – The Comparative
Advantage of a Nation : - Why some
nations succeed more in an international
competition than others?
• Why do some nations succeed more than
another nation in a particular indutry?
• Why do firms from a nation select a
particular startegy ?
 Porter’s Theory – Answers !
1:Nature of competition and source of competitive
advantage differ widely among industries.
2:Successful global competitors just don’t depend
upon home skill strength but use strengths
available globally and in their own network.
3:Firms gain and sustain competitive advantage
through innovation.
4: Firms that move and utilize new market
technologies faster than the others become more
global market competitive.
 Theory of Absolute – Relative and
Comparative Advantage
• International trade theory of defining “logical
market”.
• A logical Market is one where you can deliver
cheaper than the local suppliers and also
cheaper than other global suppliers of identical,
replacement and alternate products and
services.
• ‘Logical Market Conditions’ can be created.
• You try and create a ‘logical market’ where it
does not exist naturally only when the cost of
creation is justified by economic gains.