MGT211 Theme 8 by VUBuddy

Introduction to Business – MGT211 Short Notes By VU Nexus · Theme 8 · Global Business Competition: Strategies and Challenges · Introduction to Global Trade

Global Trade means the exchange of goods and services across international borders.

It allows countries to specialize in products where they have a competitive advantage (competitive advantage = ability to produce at lower cost or better quality).

Example (Pakistan):

Pakistan exports textiles and rice and imports oil and machinery.

Exports: Goods sold to other countries

Imports: Goods bought from other countries

Importance of Global Trade:

Expands consumer choices

Reduces costs through economies of scale (economies of scale = lower cost due to large-scale production)

Promotes technology and cultural exchange

Improves economic growth

Theories of International Trade

1. Mercantilism (16th–18th Century)

Focus on trade surplus (trade surplus = exports > imports)

Maximize exports, minimize imports Used high tariffs (tariff = tax on imports)

2. Absolute Advantage (Adam Smith)

Countries should produce goods they make most efficiently

Example:

Bangladesh → textiles Saudi Arabia → oil

3. Comparative Advantage (David Ricardo)

Countries specialize in goods with lowest opportunity cost (opportunity cost = value of next best alternative)

Example:

Pakistan produces rice instead of electronics

4. Heckscher–Ohlin Theory

Trade based on resource abundance

Labor-rich countries export labor-intensive goods

Capital-rich countries export machinery

Example:

Pakistan → textiles Germany → machinery

5. Porter’s Diamond Model (Michael Porter)

Competitive advantage depends on:

Factor conditions (skilled labor, resources)

Demand conditions (local customer demand)

Industry rivalry (competition)

Example:

Japan’s automobile industry

Modern Theory: Gravity Model

Trade increases between large economies and nearby countries

Example: European Union (EU)

Barriers to Global Trade

Tariffs & Quotas

(quota = limit on import quantity)

Subsidies

(subsidy = government financial support)

Technical Standards

(quality/safety rules)

Political Barriers

(sanctions = trade restrictions)

Cultural Differences

(language, symbols, preferences)

Pakistan-specific issues:

Currency devaluation (devaluation = fall in currency value)

Regional tensions (e.g., trade bans with India)

Strategies to Enhance Global Trade

1. Trade Agreements

o FTA – Free Trade Agreement

o WTO – World Trade Organization

o SAFTA – South Asian Free Trade Area