Lecture 2

Bases of International Marketing

International Trade Theories

Classical Theory Factor Proportion Theory Product Life-Cycle Theory

Classical Theory

Related to trade partners according to economic advantage.

Produce in domestic when it is cheaper than abroad, import when it is expensive in domestic

Exclude transportation cost, marketing cost, individual firm profits.

Three Situations in Classical Theory

Absolute Advantage Comparative Advantage Equal Advantage

Absolute Advantage

One country has cost advantage over another country in producing of one product

And second country has cost advantage over first country in producing of another product

exchange

Comparative Advantage

One country has absolute advantage over another country in the production of all products, trade is better if domestic exchange ratios are dissimilar.

This country has superior advantage

Equal Advantage

When one country has an absolute advantage over another in production of all products but no superior advantage

No difference in exchange ratios

Factor Proportion Theory

Export product: very cheap input is used

Import product: very expensive input is used.

Product Life-cyle Theory