Main Theories of International Trade and Corporate Strategy - Essay Example

Running Head: MAIN THEORIES OF INTERNATIONAL TRADE AND CORPORATE STRATEGY Main Theories of International Trade and Corporate Strategy Nations have been engaged in doing business with each other in order to get profits and cultivate their economies and also for the reason that they are not equipped with sufficient resources like territory, workforce, and resources to fulfill all the requirements of citizens of a country. Trading begins when a state has a product which is needed by some other state. Trade provides a chance to states to acquire those items that they are unable to get without difficulty or affordably manufacture themselves. International trade amongst countries increases standard of living inside the countries since resources are used more competently and a larger selection of items exist. Major Trade Theories The theory of absolute advantage states that a country contains an unconditional advantage in the production of a product when it can produce more of that product with the same amount of resources than another country. (Aghazadeh, 2003) Absolute advantage can also result in higher incomes for a country as one hour of labor output should increase and the country should become more efficient as a result of trade between countries (Herriot and Pemberton, 2006, 34). Realistically, one country should have an absolute advantage over another country in the production of some goods. As an example, Saudi Arabia would have an absolute advantage in the production of oil compared to a country such as Japan. (Beardwell, Holden & Claydon, 2004, 14) The theory of comparative advantage states that a country has a comparative advantage in producing a product when its opportunity costs are lower than another country producing the same product. Opportunity costs are sacrificed in order to consume or produce another good. With comparative advantage, countries can benefit by specializing in trading certain products. Production or total output should boost when countries concentrate in producing and exporting goods and sequentially lead to a further proficient application of resources (Herriot and Pemberton, 2006, 34). The Heckscher-Ohlin factor endowment theory is mainly about the variation in the comparative profusion of factors of manufacture in a variety of states as the most significant indication of the dissimilarity between relative costs of services and proportional benefit (Herriot and Pemberton, 2006, 34). Every country has various amounts and types of resources that will determine what they are able to produce or not produce. The combination of resources such as land, labor, and capital is referred to as a country's factor endowment. Factor endowments can be determined by geographical features such as climate and natural resources; political stability; demographic and social issues; economic development; and the size and quality of a country’s workforce. Varying factor endowments of countries is beneficial in the trade process. When considering factor endowments of trading countries an assumption could be made that countries with different factor endowments will trade with each other. However, the opposite could also occur. Countries with similar factor endowments could engage in trade and exporting if doing so lowers their opportunity costs and gives them a comparative advantage with certain products. Factor endowments and comparative advantage is crucial for countries that have industries based on natural resources and where production is not dependent upon advanced technology or where the workforce is mostly unskilled. (Keegan, 2002, 119) Impediments to Trade International trade may get affected by a number of aspects and relative benefit of a state can be negatively impacted consequently change the trade situation amongst trading states. Culturally, alterations in the expertise levels or extent of the workers can affect production and output. Physically, natural mishaps may take place which influence a country’s capability to make the most using some particular natural assets. (Armstrong and Long, 2004, 90) An economic recession can additionally make the trade more difficult since a country potentially is inadequate in the sum of resources existing to carry on exporting goods at a stable pace. Financially, unbalanced economic policies can affect the trading activities and decrease the quantity of commodities a country is competent to either import or export or both. (Macdonald J, 2007) Lastly, political unsteadiness can obstruct trading and will lead to the enforcement of augmented tariffs and business restrictions. Any one of these or a mixture of these aspects may cause a country to change from having a complete or relative benefit to having a difficulty in its business activities with various countries. (Dowling, 2007, 226) Corporate strategy is dependent upon the implementation of strategic plans in all areas of the business, with everybody focused on the same goals. (Gratton, Hope, Stiles & Truss, 2008, 90) This is referred to as 'best fit' theory. The 'rationalist' strategic approach to obtaining competitive advantage and improving long term organisational performance relies on information collected as to what factors will have an influence on the business and its successes. This usually takes the form of a comprehensive evaluation of the external and internal factors which will affect business strategy. This is questioned by some theorists (Tyson, 2007, 03) as too rigid a framework by which to develop strategy and the view that a more 'emergent' approach which allows for flexibility and adaptation to absorb changes in the volatile market place is more appropriate and more productive. The emergent approach suggests, that the Darwinian concept of evolution can be applied in terms of competitive advantage, in that whoever is quickest to adapt to a new environment will survive and prosper, and the slow will be eliminated. (Beardwell et al, 2004) Conclusion In terms of the notion that international trade is expected to add value to an organisation by means of a motivated workforce of high performers who are committed to achieving corporate objectives, perhaps it would be pertinent to address the issue of approach to strategy in more depth. It is important to bear in mind, that different people are motivated towards commitment and performance, by different things and thus, is a 'rationalistic' approach whereby, external and internal influencing factors are analysed and a long term strategy based on the findings implemented, necessarily appropriate to international trade or is too simple and idealistic? Is it too static to allow for 'real people' to have an influence on corporate strategy? Is perhaps, a more flexible, emergent approach to strategy, which allows for adaptation to change, a more realistic way in which to achieve high performance from the most important component of any business; the people? References Aghazadeh SM, (2003) The Future of Human Resource Management, Work Study, Volume 50, p 7 Armstrong M & Long P, (2004) The Reality of Strategic HRM, London: IPD, 90-98 Beardwell I, Holden L & Claydon T, (2004) Human Resources Management - A Contemporary Approach, Essex: Pearson, 10- 15 Boxall P & Purcell J, (2003) Strategy and Human Resource Management, Hampshire: Palgrave Macmillan, 100-115 Burke RJ & Cooper CL, (2005) Re-inventing HRM, Challenges and New Directions, Oxon: Routledge Dowling, (2007) International Human Resource Management: Managing People in a Multinational Context, South-Western, p226 Foot M & Hook C, (2005) Introducing Human Resource Management, Essex: Pearson, 115-120. 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