Example: Medical Specialist is also the best medical secretary. Should this doctor spend any time on the secretarial part of the business? No? Why?
Lets continue with SL and the USA...
This time the terms have changed to give the USA the absolute adv. in both tea and wheat...
Real world: many countries and many goods
Transportation costs may decline with specialization
Prices in different countries can be (are) effected by exchange rates. Wheat and Tea are not necessarily a one-to-one swap
resources can move from country to country: labor (Mexico to US), capital
(constant returns to scale: specialization does not effect the amount of resources required to produce one ton of wheat or tea) both diminishing and increasing returns to specialization exist
assumed fixed stock of resources in each country. Trade can change the efficiency with which the resources are used and the stock of resources may change too (more people, more natural resources, more efficient use due to technology)
Full employment implies use of resources at full efficiency...
Commercial jet industry: studies show that 3 major manufacturers can survive. Boeing, McDonnell Douglas and Airbus already there... New entries discouraged... however, the largest potential customer is China and they want the capacity to produce... hence the battle Boeing is having with unions... either give China some of the value added activity to keep them out of mainline or lose out to Airbus or to a non-economic decision to start an industry.
Luck: DeHaviland in 50s. Comet fell out of sky. 707 captured the market. (some say it was not only luck but resources. B. had produced 707 on the back of technology developed for US military--spillover effect?? what of our claim that Airbus was subsidized??)
Factor Endowments:
basic factors: natural resources, climate, location, demographics
advanced factors: communications infrastructure, sophisticated and skilled labor, R&D, technological know-how
advanced factors are most important: they are the result of investment by individuals, companies and government (education, general skill and knowledge stimulation, basic R&D support)
Demand conditions: sophisticated home demand can create impetus for enhancing competitive advantage (Japanese consumer knowledgeable on cameras pushed J. industry to create advantage)
Related and Supporting industries:
internationally competitive suppliers. Creation of clusters of related industries. ex. German textile and apparel sector (high qual. cotton, wool, synthetic fibers, sewing machine needles, textile machinery)
Firm Strategy, Structure, and Rivalry within a nation:
Management ideologies: predominance of engineers in TMTs of Germ. and J. cos. helped improve manufacturing processes and product designs (Porter found top execs with finance backgrounds in US 70s. most CEOs of the 40 companies I studies were marketing specialists).
Vigorous domestic rivalry creates persistent comp. advantage in and industry: impr. efficiency and leads to international competitiveness.
Location: To produce laptop four stages:
Basic research and development of product design (US, Japan: Apple, IBM, Motorola, TI, Toshiba, Sony)
manufacture of standard electronic components (capital intensive, semi-skilled labor, high unit cost pressures: Sing., Taiwan, Malaysia)
manuf. of advanced components (screens) (cap. intensive, high skilled labor, no cost pressure: Japan)
final assembly (labor intensive, low skill, intense cost pressures: Mexico)
First mover implications: high initial investment with years of losses... Japan LCD displays, US abandoned early tech. leadership in this technology.
Policy:
Apple and IBM lobbied against tariffs on LCD display imports: J. was the low cost producer, A. and IBM used these displays, the increase in import duty would reduce the world competitiveness of the A. and IBM products...
Auto industry induced govt. to negotiate voluntary restraints in machine tools. result: limited competition from world-wide efficient suppliers caused the US companies to lose their WW competitive edge and lost its WW share since 85.