Trade Management

Trade Management

Sourcing & Optimising Strategies Module 8

Global MarketsIntroduction

Ch. 1: Introduction

International Logistics: The Management of International Trade Operations

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IntroductionInternational Trade Growth

International Trade Milestones

Largest Exporting & Importing Countries

International Trade Drivers

International Trade Theories

The International Business Environment

Ch. 1: Introduction



International Trade Growth

1953 1963 1973 1983 1993 2003 2007

Europe 39.4% 47.8% 50.9% 43.5% 45.4% 45.9% 42.4%

United States 18.8% 14.9% 12.3% 11.2% 12.6% 9.8% 8.5%

Japan 1.5% 3.5% 6.4% 8.0% 9.9% 6.4% 5.2%

China 1.2% 1.3% 1.0% 1.2% 2.5% 5.9% 8.9%

Rest of the World 39.1% 32.5% 29.4% 36.1% 29.6% 32.0% 35%

World Total 84 157 579 1,838 3,677 7,375 13,619

2008 Growth in International Trade and Share of Selected Countries (in current U.S.$ billions)

Source: World Trade Organization

Ch. 1: Introduction



International Trade MilestonesBretton Woods

Conference1944

1945 International

Monetary Fund

1st General Agreement on

Tariffs and Trade 1948

1957Treaty of

Rome

World Trade Organization

1995

1999/2002

Creation of the Euro

Ch. 1: Introduction



Rank Exporting Country Value Share

EU27 6,038.6 33%

1 China 1,898.4 10.4%2 United States 1,480.4 8.1%3 Germany 1,472.3 8.0%4 Japan 822.6 4.5%5 The Netherlands 661.0 3.6%6 France 596.0 3.2%7 Korea 555.2 3.0%8 Italy 523.1 2.9%9 Russia 522.0 2.9%

10 Belgium 476.6 2.6%11 United Kingdom 473.2 2.6%12 Hong Kong 455.6 2.5%13 Canada 452,4 2.5%14 Singapore 409.5 2.2%

Top fourteen exporters

10,827.0 59.4%

Rest of the World 4,999.3 40.6%Total 18,255.0 100%

Largest Exporting Countries (2011)


Brazil = 256.0X 1000000

Ch. 1: Introduction



Largest Importing Countries (2011)Rank Importing Country Value Share

EU27 6,255.6 33.9%1 United States 2.265.9 12.2%2 China 1,743.5 9.4%3 Germany 1,253.9 6.7%4 Japan 855.0 4.6%5 France 713.9 3.9%6 United Kingdom 637.7 3.5%7 The Netherlands 598.6 3.0%8 Italy 557.5 2.9%9 Korea 524.4 2.8%

10 Hong Kong 510.8 2.7%11 Canada 462.6 2.5%12 India 462.6 2.5%13 Belgium 461.3 2.5%14 Spain 374.3 2.0%

Top fourteen importers

9,348.8 61.2%

Rest of the World 4,895.2 38.8%Total 18,438.0 100%


Russia= 323.8Brazil = 236.9

Ch. 1: Introduction



International Trade Drivers• Spread costs over larger number of

units and find low- cost suppliersCost Driver

• Follow competitor to new foreign market or expand market share

Competitive Driver

• Increased uniformity of consumer tastes and preferencesMarket Driver

• Increased access to information and easy access to new customers over the internet

Technology Driver

Ch. 1: Introduction



International Trade Theories

•When a nation can produce a certain good more efficiently than other countries, it will trade for other products

Adam Smith – Absolute Advantage

Theory

•Nations will trade as long as they can produce some goods relatively more efficiently

David Ricardo – Comparative

Advantage Theory•A country will enjoy a comparative advantage if it is naturally endowed with many factors of economic production

Heckscher-Ohlin Factor Endowment

Theory

•During its life cycle, a product will be manufactured in different countries

Raymond Vernon – International Product

Life CycleTheory

• It is critical to have similar firms concentrated in one geographic area

Michael Porter – Cluster Theory

Ch. 1: Introduction



Smith – Absolute Advantage

Liters of Wine Units of Machinery

France 20,000 2Germany 15,000 3

In this case, we assume both countries are using the same amount of labor in the same time frame. France has an absolute advantage in producing wine and Germany has an absolute advantage in producing machinery.

As a result, France will specialize in making wine and Germany in making machinery. They will then trade with each other.

The absolute advantage theory states that when a nation can produce a certain type of good more efficiently than other countries, it will trade with countries that produce other goods more efficiently.

Ch. 1: Introduction



Ricardo – Comparative Advantage

The comparative advantage theory states that nations will trade with one another as long as they can produce certain goods relatively more efficiently than one another.

Tons of Wheat Units of Machinery

UK 25 5Brazil 21 3

The UK has an absolute advantage in both machinery and wheat. However, in the UK, the relative price of 1 unit of machinery is 5 tons of wheat, and in Brazil, it is 7 tons of wheat.

The nations will trade: If the UK sells 1 unit of machinery to Brazil for 6 units of wheat, both the UK and Brazil are better off. The UK has a comparative advantage in producing machinery, Brazil in growing wheat.

Ch. 1: Introduction



Heckscher-Ohlin Factor Endowment

The factor endowment theory holds that a country will enjoy a comparative advantage over other countries if it is naturally endowed with a greater abundance of one of the factors of economic production.

Factors of Economic Production1. Land

2. Labor

3. Capital

4. Entrepreneurship

Country Abundance AdvantageArgentina Grazing Land BeefIndia Educated Labor Call centers

USAEconomic system where entrepreneurship is rewarded

Innovation & development of intellectual property

Ch. 1: Introduction



International Product Life Cycle

Stage 1

• Product is created in developed country, using new technology and serving a market need.

Stage 2

• As sales grow, competitors start to make similar products in other developed countries, responding to local needs.

Stage 3

• Manufacturing of product has become routine and costs need to be reduced, and production moves to developing countries.

The International Product Life Cycle theory explains that, over its life, a product will be manufactured in different types of countries, in stages, generating trade between these countries.

Ch. 1: Introduction



International Product Life Cycle

Ch. 1: Introduction



Porter – Cluster Theory

The cluster theory argues that competitive clusters form when companies in the same industry, as well as their suppliers, concentrate in one geographic area. When this happens, the companies “feed” on each other’s know-how, pushing them to innovate faster.

They become so efficient and innovative that they become world-class suppliers.

Ch. 1: Introduction



Cluster Theory

Cluster Examples:

Silicon Valley, California, U.S. – Information technologySassuolo, Italy – Ceramic tilesLimoges, France – PorcelainGenève, Switzerland – WatchesYiwu, China – Socks & hosieryElkhart, Indiana, U.S. – Recreational Vehicles

Ch. 1: Introduction



International Business Environment

International Business

Marketing

Cultures

Finance

EconomicsTravel

Language Study

Foreign Contacts

Ch. 1: Introduction



International Business Environment

To be successful in international trade management, not only is it important to have an understanding of trade management, but it is also fundamental to understand the international environment.

This can be achieved by learning a foreign language, taking classes in international economics, international finance, inter-cultural communication, and international marketing, but also by traveling frequently, meeting foreign nationals, and making an effort to understand what is happening in foreign countries.

Trade Management

Documents

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