International Marketing Issues. Проблемы международного маркетинга, страница 5

Various theories of international trade are important to understand because they help predict actual patterns of trade. On a broad level, these theories can help the decision maker choose among foreign opportunities, but on a more practical level, they are useful to know because political decisions about tariffs, quotas, investment incentives, and monetary controls are based in principle on assumptions contained in these theories. For example, Congress might vote for an increase in tariffs on imported oil based on the belief that it will stimulate domestic producers to bring larger quantities to market at higher prices. These principles then provide insight into the behavior of firms in the world marketplace and into the external environment that influences their behavior.

The major theories used in international marketing are:

● The law of comparative advantage;

● The product life cycle of international trade;

● Direct investment theory;

● The oligopoly model;

● Interest rate parity theory.

The law of comparative advantage is a theoretical explanation of the motives for and nature of international trade. Its basic assumption is that production specialization and trade will generate higher world standards of living, if every country specializes in trade of the products in which it has a comparative production advantage. Comparative advantage suggests which products, and in what amounts, will be traded between countries. There are problems in using the law of comparative advantage to predict actual trading patterns, but it is the basis upon which trade regulations are structured. In our complex world of national protectionism, differing political ideologies, special-interest groups, and needs for national defense, actual trade patterns do not always follow the direction predicted by trade theory. Language and other cultural barriers are not taken into account by the theory. Furthermore, the theory is based on commodities trade, and not that of manufactured, branded products. It does not explain intracompany movements of goods across national boundaries, such as when Ford sends automotive parts from a plant in Michigan to another plant in Argentina for further processing.

The product life cycle of international trade is another useful tool for understanding world markets. In the early stages of a product's life, production and marketing decisions are most influenced by the innovator's needs for access to easy transportation and communication networks and a large potential market. Later, cost considerations and access to markets in similar economies become essential to production and marketing. Ultimately, as costs of production become preeminent in location decisions, the original market in an advanced country is often served from an underdeveloped one.

Direct investment theory, for example, explains capital flows from one country to another according to the marginal productivity of capital.

Interest rate parity theory uses differentials in short-term interest rates to predict international movements of short-term capital.⁵

The oligopoly model states that foreign investment is motivated by a firm's desire to exploit whatever quasi-monopolistic advantages it has in technologies, capital, products, management techniques, or marketing strategies.⁶ All these theories contribute to our abilities to predict, explain, and monitor the dynamic world of international marketing.

2. Read the text again and complete the following sentences using your own words as much as possible.

1) Various theories of international trade are important to understand because…

2) The major theories used in international marketing are ... .

3) The law that gives a theoretical explanation of the motives for and nature of international trade is called … .

4) According to the text, comparative advantage suggests that…

5) Another useful tool for understanding world markets is …