IBUS2301 - Tutorial #2 - Chapter 6 - International Trade Theory
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This tutorial includes an example of how to conduct a case analysis, using the case of Logitech, and an overview of some of the more influential international trade theories and ideologies of the past five hundred years. Particular attention is given to Adam Smith's theory of Absolute Advantage and David Ricardo's theory of Comparative Advantage.
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IBUS2301 - Tutorial #2 - Chapter 6 - International Trade Theory
- 1. IBUS2301: International Business Management Tutorial #2, March 17 and 18 Chapter 6: International Trade Theory Tutor: Preston Teeter, p.teeter@business.uq.edu.au
- 2. IBUS2301: Int’l Business Mgmt Outline • Case analysis: Logitech • Mercantilism vs. Free Trade • Comparative Advantage & Heckscher-Ohlin • Product Life-Cycle & New Trade Theory
- 3. IBUS2301: Int’l Business Mgmt CASE ANALYSIS: LOGITECH
- 4. IBUS2301: Int’l Business Mgmt Logitech First, read the three questions related to the case. Questions for your presentation: 1. How would you begin your presentation? 2. What secondary research would you conduct? From what sources? 3. How would you engage your audience? Note: following are some example slides to help you generate ideas. They are NOT an example of a complete presentation.
- 5. IBUS2301: Int’l Business Mgmt Case Background • Logitech – Global manufacturer of computer peripherals – Founded 1981 in Switzerland • Strategy – Differentiation: 91 new products in 2003 – Maintains low cost structure: global value chain • R&D: Switzerland, USA • Marketing, finance, logistics: USA • Design: outsourced to Ireland • Manufacturing: Taiwan/China
- 7. Source: Logitech 2013 Annual Report Logitech Net Sales and Gross Profit, 2011 to 2013
- 8. IBUS2301: Int’l Business Mgmt Logitech Q.1 – Use one or more international trade theories to explain Logitech’s global operations. Why does the company manufacture in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California?
- 9. IBUS2301: Int’l Business Mgmt Global Operations • Absolute and comparative advantage – SE Asia: more efficient in manufacturing • Low costs: wages, overhead, etc • Manufacturing hubs: Taiwan, Shenzhen, etc – USA/W. Europe: more efficient in R&D/design • Highly educated, creative workforce • High-tech hubs: Silicon Valley – USA: more efficient in marketing/finance • Highly educated, creative workforce • Close to main customers, venture capitalists, stock exchange
- 10. Source: Global Wage Report 2012/13 International comparison of hourly direct pay for time worked in manufacturing 2010 (US$)
- 11. Source: Martin Prosperity Institute The Global Creativity Index Map
- 12. Source: Martin Prosperity Institute The Global Creativity Index Rankings
- 13. IBUS2301: Int’l Business Mgmt Creating Value Q.2 – Which country’s employees create more value for Logitech? Explain with appropriate calculations. $40 - Price • $8 (20%) – Logitech (R&D, marketing, overhead) • $15 (37.5%) - Distributors and retailers • $14 (35%) - Suppliers • $3 (7.5%) - Manufacturers
- 14. Source: Logitech 2013 Annual Report Logitech’s Operating Expenses, 2011 to 2013
- 15. Source: Logitech 2013 Annual Report Logitech’s Consolidated Statement of Operations (in thousands)
- 16. Source: Human Capital Review (URL in notes)
- 17. IBUS2301: Int’l Business Mgmt Employment Effects Q.3 – What are the implications of low wages in China on employment in high labor cost countries such as the USA and Australia? • Comparative advantage for China in labor-intensive work (e.g., manufacturing) • Likely to lower wages globally in these industries – See Samuelson critique • USA and Australia need to focus on their comparative advantages in trade with China
- 19. Source: US News (URL in notes)
- 20. (URL in notes)
- 21. IBUS2301: Int’l Business Mgmt MERCANTILISM VS. FREE TRADE
- 22. IBUS2301: Int’l Business Mgmt Mercantilism vs. Free Trade Mercantilism • 1500s • Best interest to maintain trade surplus • Advocates gov’t intervention Free Trade • 1700s • Specialize under absolute advantage • Laissez-faire What is the argument here? When and how did these ideas develop?
- 23. IBUS2301: Int’l Business Mgmt Adam Smith • An Inquiry into the Nature and Causes of the Wealth of Nations, 1776 • Scottish philosopher • “Father of modern economics” Source: Oxonianreview.org, URL in notes
- 26. Source: Sydney Morning Herald (URL in notes)
- 27. Source: ABC News (URL in notes)
- 28. Source: The Wall Street Journal (URL in notes)
- 29. IBUS2301: Int’l Business Mgmt COMPARATIVE ADVANTAGE & HECKSCHER-OHLIN THEORY
- 30. IBUS2301: Int’l Business Mgmt Comparative Advantage How does the theory of comparative advantage differ from absolute advantage? Where did this theory originate? • Countries should specialize in the goods and services it produces most efficiently, even if this means buying goods from countries that it could produce more efficiently itself
- 31. IBUS2301: Int’l Business Mgmt David Ricardo • Principles of Political Economy, 1817 • British political economist • Broker and speculator Source: biography13.com (URL in notes)
- 33. Source: IMHE (URL in notes) Who benefits from free trade? Gross domestic product (GDP) per capita, 1950-2015
- 34. IBUS2301: Int’l Business Mgmt Heckscher-Ohlin Theory How does Heckscher and Ohlin’s theory differ from Ricardo’s? • Comparative advantage arises from differences in national factor endowments – Land, labor, and capital – NOT productivity • Mixed empirical results
- 35. Source: WTO (URL in notes) Share in world merchandise exports
- 36. Source: WTO (URL in notes) Share in world service exports
- 37. Source: WTO (URL in notes) Trade to GDP ratio
- 38. IBUS2301: Int’l Business Mgmt PRODUCT LIFE-CYCLE AND NEW TRADE THEORY
- 39. 3/18/2014 IBUS2301: Int’l Business Mgmt Product Life- Cycle Theory When did this theory develop? What does it propose? • Raymond Vernon in the 1960s, USA • Explains shift from a product being export- driven to being import-driven • Becoming less relevant in recent years
- 41. 3/18/2014 IBUS2301: Int’l Business Mgmt New Trade Theory What does the New Trade Theory propose? • Economies of scale have important implications for international trade • Some industries may be only able to support a small number of companies • First-mover advantage provides rationale for government intervention
- 42. Source: International Organization of Motor Vehicle Manufacturers (URL in notes) Heavy truck production by country, 2002
- 43. Questions?
Editor's Notes
- http://www.oxonianreview.org/wp/adam-smith-a-moral-philosopher/
- http://biography13.com/david-ricardo-biography-profile-childhood-personal-life.html