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International Expansion - Essay Example

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1. Compare and contrast the main theories of international expansion by means of examples from global organisations present in your case studies or other sources, highlight the strengths and weaknesses of these theories.
According to Richardson (2007), there are four main theories of international trade…
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International Expansion
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International Expansion

Using a common standard, which was gold in early times, a nation is wealthier if it possesses more gold. It receives gold for the products it imports and pays for its imports with gold. Therefore, the more it exports over those it imports, the more gold it will possess. The problem with this theory is that it excludes the fact that in some cases it is good to import. And if you completely refuse to import, the population would have to do with some consumer items (Richardson, 2007). In terms of business organizations, this theory was used by many companies in Japan after the second world war, to increase exports. Toyota started operations in the 1930s and was supported by the Japanese government during WWII because of the company's capability to produce trucks for military applications. Because of the scarcity of domestic resources at that time, the Japanese government stopped almost all imports. By 1945, after the allied forces won the war, Toyota was given permission by the US military to start peacetime production. In 1957, Toyota set up a sales office in Hollywood and started selling Toyopets and Land Cruisers (Toyota, n.d.). However, even for Toyota, the purist application of the mercantilist theory was not effective. The design of Japanese cars were not those desired in the new markets they opened up in other countries. Toyota could not force the Americans to buy their Japanese cars, which defeated the purpose of exporting to increase exports versus imports. Instead, what Toyota did was to localize both production and design of its products. By 1967, Toyota had become a well-established automotive company in the United States (Toyota, n.d.).
The Theory of Absolute Advantage theorizes that countries should specialize in producing what they are best at (Richardson, 2007). A country has an absolute advantage over another, if it can produce that good using fewer resources than the other (Absolute Advantage, 2008). In the 16th century the Swiss watch and clock industry was very active in Geneva and to this day, the reputation of Swiss watches is the highest worldwide. Geneva itself was already exporting more than 60,000 watches annually by 1790 (Swiss Watch, 2008). Switzerland's expertise in watch making may be considered as an absolute advantage. One of the most successful Swiss watch companies is Omega, founded in 1848 by Loui Brandt. Four years later, Omega was the largest producer of watches in Switzerland with 240,000 units produced annually (Omega, n.d.). "Today, seven out of ten people throughout the world are familiar with the OMEGA watch brand" (Hamel, n.d.). Omega has been applying the absolute advantage theory in its international expansion drives. Its absolute advantage is the reliably fine quality of its watches which has stood the test of time. However, that absolute advantage may be true for Omega as a brand, in general, but may not be applicable on a product to product basis. This is because other Swiss watch companies, and many other watch companies around the world strive to compete with Omega products to make their own brand the alternative choice.
The Theory of Comparative Advantage, on the other hand, is an extension of the range of possible mutually beneficial exchanges. The theory says that it is not necessary to have an absolute advantage to gain from trade, only a comparative advantage. As long as one can produce certain goods at a lower cost, even if other ... Read More
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