The international contexts u7 p13

Ignoring protective legislation, then thinking to Exxon etc in a previous post; in each sector, the terms and conditions of trade for local providers of goods and services are affected by the most efficient potential providers of each product/service.

Typically, the bigger the provider, the greater their resources, better economy of scale, and hence greater efficiency.

Internationalisation allows this position to be reached. It has happened in consumer electronics, retailing, coffee shops, restaurants, wine, cleaning services, media, advertising, energy, utilities, insurance, healthcare and children's toys.

Everyone can think of small local stores trying to stay in business against the greater product choice and cheapher prices of the new supermarket.

The basis for competition for these stores has changed to convenience.

Many not for profits are also international in scope.

Examples of successful international firms include BP, Wal-Mart, Ikea, Honda.

There is a traditional view that international trade is based on the principle of comparative costs between nations, and gains from trade result from specialisation on the basis of comparative cost.

Comparative advantage can be expressed as international differences in the opportunity costs of goods. In other words, the quantity of other goods (B, C, D etc) sacrificed to make one more unit of good A in one country rather than another country.

For years this principle underlaid internatioanl trade, which was mostly in commodity goods. Countries are differently endowed with land, labour and capital. Exchange between countries should therefore be possible to the advantage of all.

Porter (1990) stresses (u7 p16)

internationally mobile factors of production - labour and capital are no longer physically fixed, unlike land.
fast-changing technology
mobility barriers - powerful ones include know-how or immovable strategic assets, or trusted brands - see also 5 forces model.

He argues that only "advanced factors" now lead to competitive advantage, such as Human Resources, Physical Resources, and Knowledge Resources, capital resources and infrastructure.

It is important not to forget the difference between comparative advantage and competitive advantage.