Question

Assume that you are the manager for a large U.S. manufacturing firm. Choose one of the classical country-based or modern firm-based trade theories that you would find most helpful in formulating a global strategy for your company. Explain your choice including a description of how you would apply this theory to your company's global operation.

Answer 1

The classical theory explains phenomenon of international trade with relation to old and discredited labour theory of value. The differences in factor endowments are used as attributes with relation to comparative advantage for modern theory.

There is presentation of one factor model for classical theory. There is a blue of relaxation multi factor in the case of modern theory.

There was never consideration of factor price differences for classical theory. Factor price differences were taken into account by modern theory and considered as important cause of commodity price differences. It provided the framework for international trade.

The cause of differences in comparative advantage is not provided by the classical theory. The differences with relation to factor endowments were explained for comparative advantage in the case of modern theory.

The single market theory of value is the classical theory while there is focus on importance of space element for international trade in the case of modern theory.

The understanding of the firm and it's competitive advantage would be able to help while developing the strategy. This will help to pick the theories and use it as a basis for designing global strategy of the firm.

The modern global theory has evolved and it is useful to pick modern firm based theories like country similarity, product life cycle and porters national competitive advantage.

The porters theory is a useful theory that uses determinants like local market resources, demand conditions, suppliers and complementary industries and local firm characteristics.