Why Do Business Internationalise?. International Trade

1181 WordsMar 4, 20175 Pages
Why do business internationalise? International trade can be traced back to ancient years. Our ancestors, with the purpose of increasing the variety of local products, had been trying their best for decades to trade cross border. With the development of international business, international trade theories was developed to explain the benefit nations can get from utilizing free trade pattern and participating in the multilateral trade via opening up strategy by eliminating import control, export support and other types of anti-trade approaches (Georges, 2013, pp213-231). In this essay, two major parts of the evolution of international trade theory (traditional international trade theory and new international trade theory) were compared and…show more content…
Like Smith’s and Ricardo’s theory, Heckscher-Ohlin claims that every country engaging in free trade gain advantage. Unlike Ricardo’s theory, Heckscher-Ohlin stresses that the major determinants that form the law of trade theory is factor endowment, instead of difference in productivity (Hill, 2012). Compare and Contrast Among New International Trade Theories After World War II, with the appearance of multinational corporations, intra-industry trade and the increase of horizontal trade within developed countries, some situations can no longer be explained by traditional theory. Such as why United State who is abundant in capital imports more capital-insentive goods than its export of that (known as Leontief Paradox). During that time, new international trade theory enslaved the global market, among which, new trade theory points out that a firm’s ability to attain economies of scale and to enter an new market first gain advantage of trading abroad over other countries. Following that, Porter’s new comparative advantage theory states that the competitiveness of a firm in an industry bases on the combination of four mutually reinforcing attributes containing firm characteristics, demand condition, factor endowment, related and supporting industries. New trade theory stresses the role of luck and capacity of innovation, while Porter’s theory states that a firm’s competitive performance results from four components

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