The Hyundai case can be found on pages 100-115 The FIVE case questions can be found on page 115.

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The Hyundai case can be found on pp. 100-115. The FIVE case questions can be found on page 115. Please include the work cited.


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No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Chapter 6 Theories of International Trade and Investment https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 3 of 11 Learning Objectives In this chapter, you will learn about the following: 1. Why do nations trade? 2. How can nations enhance their competitive advantage? 3. Why and how do firms internationalize? 4. How can internationalizing firms gain and sustain competitive advantage? MyManagementLab® Improve Your Grade! Over 10 million students improved their results using the Pearson MyLabs. Visit mymanagementlab.com for simulations, tutorials, and end-of-chapter problems. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 4 of 11 Source: © Giles Robberts/Alamy https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 5 of 11 Apple’s Comparative and Competitive Advantages Apple products were once made in the United States. Today, however, almost all of the 70 million iPhones, 30 million iPads, and 60 million other products that Apple sells globally each year are manufactured outside the United States. How did that happen? Apple (annual revenues: $110 billion) has expanded internationally from its humble roots in the United States to more than 70 markets worldwide. In terms of total sales, North and South America account for about onethird, and Europe and Asia generate about one-quarter each. After the United States, Japan is Apple’s best country market, producing about 5 percent of total sales. Apple orchestrates its value chains via contractual relations with suppliers around the world—some 700,000 people engineer, build, and assemble its products under contract. One of Apple’s goals is to obtain comparative advantages from specific countries. Comparative advantage refers to superior features of a country that provide distinctive benefits, typically derived from either natural endowments or deliberate policies. Comparative advantage includes inherited resources, such as labor and land, and acquired resources, like entrepreneurial orientation and innovative capacity. An iPhone contains hundreds of parts, about 90 percent of which are manufactured in countries outside the United States. Apple sources semiconductors from Germany, memory chips from Korea, display panels from Taiwan, and rare metals from Africa. All these components are assembled in China, which offers comparative advantages for manufacturing. Much of China’s success is explained by its superior factor proportions. According to factor proportions theory, each country should specialize in making products that intensively use production factors (such as labor, land, capital) that it has in abundance and import goods that intensively use relatively scarce production factors. Because China has abundant low-cost labor, its firms specialize in producing labor-intensive products. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 6 of 11 Apple exemplifies superior innovation. Apple suppliers excel at developing new product designs, innovative production processes, and new ways of organizing. Innovation promotes productivity, the value of output produced by a unit of labor https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 7 of 11 PRINTED BY: ncastater@mail.barry.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. or capital. The more productive a firm is, the more efficiently it uses its resources. Productivity is vital to the success of firms and nations alike. Over time, improving productivity is raising living standards in emerging markets such as China, India, Mexico, and Poland. Configuring its value chains on a global scale enables Apple to produce the best possible products and maximize its competitive advantages. Competitive advantage refers to assets and competencies that are difficult for competitors to imitate and thus help firms succeed. Apple management believes the economies of scale of overseas factories as well as the diligence, flexibility, and industrial skills of foreign workers have outpaced counterparts in the United States. Apple enjoys a monopolistic advantage by controlling cutting-edge knowledge in the development of smartphones, computers, and other products. The firm does most of its own R&D and product development in company-owned facilities in California. Another key to Apple’s success is its ability to engage in global free trade. Free trade produces the following outcomes: (i) consumers and firms can obtain the products they desire at lower cost; (ii) parts and other inputs obtained in this way reduce company expenses, which translates into higher profits; and (iii) consumers pay less for the products and services they need, which increases their living standards. Apple has struggled to ensure sustainable conditions at its Chinese contract factories. Apple’s biggest supplier is Foxconn, a leading electronics manufacturer. Workers in Foxconn’s China factories have complained about long hours, low wages, and living in overcrowded dormitories. Some have even committed suicide. In response, more than 250,000 protesters signed a petition demanding better labor conditions for Apple contract workers abroad. Foxconn raised wages and moved some production to India, in search of cheaper labor. Foxconn also installed robots in several factories, laying off thousands of workers. Apple is https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 8 of 11 struggling to strike the right balance between low-cost manufacturing and ensuring the safety and happiness of the thousands of workers who build the Iphones, Ipads, and other products that consumers love around the world. Sources: Apple Inc., Form 10-K (Annual Report) 2011, accessed at http://investor.apple.com; Colin Campbell, “Foxconn’s Robot Empire,” Maclean’s, November 21, 2011, p. 41; Charles Duhigg and Keith Bradsher, “How the U.S. Lost Out on iPhone Work,” New York Times, January 21, 2012, accessed at www.nytimes.com; Hoovers.com, profile of Apple, Inc.; Adam Lashinsky, Inside Apple: How America’s Most Admired—and Secretive—Company Really Works (New York: Business Plus, 2012); Adam Satariano, “Protesters to Target Apple Supplier Conditions,” Bloomberg, February 8, 2012, accessed at www.bloomberg.com; Paul Theroux, “How Apple Revolutionized Our World,” Newsweek, September 5, 2011, pp. 36–37; Jessica Vascellaro and Owen Fletcher, “Apple Navigates China Maze,” Wall Street Journal, January 14, 2012, pp. B1–B2. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 9 of 11 The opening story explains the trade, investment, and performance achievements of Apple, Inc. The technology giant benefits enormously from international business. The advantages provided by suppliers and nations in Asia, Europe, and elsewhere have propelled the firm to global success. China, Japan, Germany, South Korea, and numerous other countries have taken proactive steps to enhance their standing in the world economy. Emerging markets are reaping the rewards of various comparative and competitive advantages. In this chapter, we review theories and explanations of why nations and firms undertake international activities.1 We explain comparative and competitive advantages, and how such resources support nations and firms in global commerce. We address the underlying economic rationale for international business activity and explain why global trade and investment take place. We address such questions as: • What is the underlying economic rationale for international business activity? • Why does trade take place? • What are the gains from trade and investment? Comparative advantage Superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or deliberate national policies. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 10 of 11 Comparative advantage describes superior features of a country that provide unique benefits in global competition, typically derived from either natural endowments or https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 11 of 11 PRINTED BY: ncastater@mail.barry.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=135&to=136 9/25/2017 Page 1 of 8 https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 2 of 8 PRINTED BY: ncastater@mail.barry.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. deliberate national policies. Also known as country-specific advantage, comparative advantage includes inherited resources, such as labor, climate, arable land, and petroleum reserves, such as those enjoyed by the Gulf nations. Other types of comparative advantages are acquired over time, such as entrepreneurial orientation, availability of venture capital, and innovative capacity. Competitive advantage describes organizational assets and competencies that are difficult for competitors to imitate and thus help firms enter and succeed in foreign markets. These competencies take various forms, such as specific knowledge, capabilities, innovativeness, superior strategies, or close relationships with suppliers. Competitive advantage is also known as firm-specific advantage. Competitive advantage Distinctive assets or competencies of a firm that are difficult for competitors to imitate and are typically derived from specific knowledge, capabilities, skills, or superior strategies. In recent years business executives and scholars have used competitive advantage to refer to the advantages possessed by nations and individual firms in international trade and investment. To be consistent with the recent literature, we adopt this convention as well. Exhibit 6.1 categorizes leading theories of international trade and investment into two broad groups. The first group includes nation-level theories. These are classical theories, widely accepted since the sixteenth century. They address two questions: (1) Why do nations trade? (2) How can nations enhance their competitive advantage? The second group includes firm-level theories. These are more contemporary theories of how firms can create and sustain superior organizational https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 3 of 8 performance. Firm-level explanations address two additional questions: (3) Why and how do firms internationalize? and (4) How can internationalizing firms gain and sustain competitive advantage? We organize the remainder of our discussion according to the four fundamental questions. EXHIBIT 6.1 Theories of International Trade and Investment https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 4 of 8 PRINTED BY: ncastater@mail.barry.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. Why Do Nations Trade? Why do nations trade with one another? The short answer is that trade enables countries to use their national resources more efficiently through specialization. Trade allows industries and workers to be more productive. These outcomes help keep the cost of many everyday products low, translating into higher living standards. Without international trade, most nations would be unable to feed, clothe, and house their citizens at current levels. Even resource-rich countries like the United States would suffer immensely without trade. Some types of food would become unavailable or very expensive. Coffee and sugar would be luxury items. Petroleum-based energy sources would dwindle. Vehicles would stop running, freight would go undelivered, and people would not be able to heat their homes in winter. In short, not only do nations, companies, and citizens benefit from international trade, modern life is virtually impossible without it. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 5 of 8 Classical Theories Six classical perspectives explain the underlying rationale for trade among nations: the mercantilist view, absolute advantage principle, comparative advantage principle, factor proportions theory, international product life cycle theory, and new trade theory. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 6 of 8 Mercantilism The earliest explanations of international business emerged with the rise of European nation-states in the 1500s, when gold and silver were the most important sources of wealth, and nations sought to amass as much of these treasures as possible. Nations received payment for exports in gold, so exports increased their gold stock, while imports reduced it because they paid for imports with their gold. Exports were seen as good and imports as bad. Because the nation’s power and strength increase as its wealth increases, mercantilism argues that national prosperity results from a positive balance of trade achieved by maximizing exports and minimizing or even impeding imports. Mercantilism The belief that national prosperity is the result of a positive balance of trade, achieved by maximizing exports and minimizing imports. Mercantilism explains why nations attempt to run a trade surplus—that is, to export more goods than they import. Today many people believe that running a trade surplus is beneficial. They subscribe to a view known as neomercantilism. Labor unions (which seek to protect home-country jobs), farmers (who want to keep crop prices high), and certain manufacturers (those that rely heavily on exports) all tend to support neo-mercantilism. However, mercantilism tends to harm firms that import, especially those that import raw materials and parts used in the manufacture of finished products. Mercantilism also harms consumers, because restricting imports reduces the choice of products they can buy. Product shortages that result from import restrictions may lead to higher prices—that is, inflation. When taken to an extreme, mercantilism may invite “beggar thy neighbor” policies, promoting the benefits of one country at the expense of others. By contrast, free trade is a generally superior approach. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 7 of 8 Free trade refers to the relative absence of restrictions to the flow of goods and services between nations. It typically produces the following outcomes: Free trade Relative absence of restrictions to the flow of goods and services between nations. • Consumers and firms can more readily buy the products they want. • Imported products tend to be cheaper than domestically produced products (because access to world-scale supplies forces prices down, mainly from increased competition, or because the goods are produced in lower-cost countries). • Lower-cost imports help reduce company expenses, thereby raising their profits (which may be passed on to workers in the form of higher wages). • Lower-cost imports help consumers save money, thereby increasing their living standards. • Unrestricted international trade generally increases the overall prosperity of poor countries. Absolute Advantage Principle In An Inquiry into the Nature and Causes of the Wealth of Nations, a landmark book published in 1776, Scottish political economist Adam Smith attacked the mercantilist view by suggesting that nations benefit most from free trade. Smith argued that https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 8 of 8 PRINTED BY: ncastater@mail.barry.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=137&to=138 9/25/2017 Page 1 of 8 https://jigsaw.vitalsource.com/api/v0/books/9780133558036/print?from=139&to=140 9/25/2017 Page 2 of 8 PRINTED BY: ncastater@mail.barry.edu. Printing is for personal, private use only. No part of this book may be reproduced or transmitted without publisher's prior permission. Violators will be prosecuted. mercantilism deprives individuals of the ability to trade freely and to benefit from voluntary exchange. By trying to minimize imports, a country wastes much of its national resources in the production of goods it is not suited to produce efficiently. The inefficiencies of mercantilism end up reducing the wealth of the nation as a whole while enriching a limited number of individuals and interest groups. Relative to others, each country is more efficient in the production of some products and less efficient in the production of other products. Smith’s absolute advantage principle states that a country benefits by producing primarily those products in which it has an absolute advantage, meaning goods it can produce using fewer resources than another country. Each country thus increases its welfare by specializing in the production of certain products, exporting them, and importing others. This approach allows the nation to consume more than it otherwise could, generally at lower cost. Absolute advantage principle A country benefits by producing only those products in which it has absolute advantage or that it can produce using fewer resources than another country. Exhibit 6.2 illustrates how the absolute advantage principle works in practice. Consider two nations, France and Germany, engaged in a trading relationship. Panel (a) of the exhibit shows a hypothetical example in which France has an absolute advantage in the production of cloth, and Germany has an absolute advantage in the production of wheat. Assume labor is the only factor of production used in making both goods. (Firms employ factors of production—for example, labor, capital, entrepreneurship, and technology—to produce products and services.) It takes an average worker in France 6 days to produce one ton of cloth and 8 days to produce one ton of wheat. 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NicholasI
School: UIUC

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Running head: HYUNDAI CASE

1

Hyundai case
Student’s Name
Institution
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HYUNDAI CASE

2

1 What are the roles of comparative and competitive advantages in Hyundai’s success?
Illustrate your answers by providing specific examples of natural and acquired advantages
that Hyundai employs to succeed in the global car industry
Comparative and competitive advantage has a major role in the success of the Hyundai. The
company has the ability to get cheap labour compared to competitors. As a result, it can be able
to sell the cars at affordable prices. It is important to note that affordable and quality products
attract consumers. Hyundai ensures that its products are of good quality through continuous
research and development strategies. It also has an advantage due to the weak Korean currency
which makes it affordable for consumers in Europe and other countries.
2. In terms of factor proportions theory, what abundant factors does Hyundai leverage in
its worldwide operations? Provide examples and explain how Hyundai exemplifies the
theory. In what ways does Hyundai’s success contradict the theory? Justify your answer.
In terms of factor proportions theory, some of the abundant factors that Hyundai leverages in its
operations are new technology, high quality cheap labour, and the savings rate is also high due to
massive inward FDI that ensures that capital is available for carmakers. In addition, the various
materials which include tires, engines and other major inputs are bought from suppliers who
offer the lowest cost. The success of Hyundai differs with the theory since the company does not
entirely focus on labour and capital. It also focuses on other ...

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