Einheit 4

• Mercantilism


  A nationalist economic policy that is designed to maximize the exports and minimize the imports for an economy
• Belief in the Static Nature of Wealth

  Global wealth is static, and a nation's economic health relies heavily on its supply of capital and gold
• Mercantilism was popular


  16th to 18th century
• Neomercantilism


  The idea that the nation should run a trade surplus
• Supporters of neomercantilism


  • Labor unions (want to protect domestic jobs)
  • Farmers (want to keep crop prices high)
  • Some manufacturers (that rely on exports)
• Mercantilists


  • Try to restrict trade with other nations (maintain trade surplus) and impose tariffs
• Examples of mercantilism in the past


  • Great Britain passed the Navigation Act of 1651 that forbade its colonies from trading with the colonies of other European countries
  • Spain's mercantilist policies were heavily focused on its colonies in the Americas, particularly in extracting wealth through the exploitation of resources such as gold and silver
• Examples of neomercantilism today

  • China is considered a neo-mercantilist nation in the contemporary era with economic policies defined under the neo-mercantilist paradigm
  • US entails a resurgence of protectionist policies (since Trump) aimed at bolstering domestic industries and reducing reliance on foreign goods
• Absolute advantage


  A country's ability to produce a good more efficiently (using fewer resources) than another country
• Comparative advantage


  A country's ability to produce a good at a lower opportunity cost than another country
• Factor proportions theory (Heckscher-Ohlin model)


  Each country should produce and export products that intensively use relatively abundant factors of production while importing goods that intensively use relatively scarce factors of production
• Leontief Paradox
• Leontief Paradox example
• Take-away from trade theories
• Policy-related reasons for FDI have a diluting effect
• Role of advanced economies

  Produces the new product and the mature product (at first), exports the new product to other advanced economies, imports the standardized product, produces the mature product and the standardized product (at first), imports the new product and the standardized product from developing economies, exports the mature product to developing economies
• Role of developing economies

  Produce the standardized product, import the new and mature product from advanced economies, export the standardized product to the inventing and the other advanced economies
• Advantages of pioneering firms (first movers and early followers)

  • Select the most lucrative business opportunities
  • Establish robust distribution networks
  • Shape consumer preferences
  • Accumulate valuable location experience
  • Create barriers to entry for subsequent entrants
• Disadvantages of pioneering firms (first movers and early followers)

  • Bear high initial costs
  • Face high uncertainty with regards to market acceptance
  • Venture into uncharted territory with a higher risk of failure
  • Encounter regulatory hurdles, as regulators may not have clear guidelines for the new technologies or products
  • Struggle with immature markets
• Challenges for late movers

  • Difficulty in establishing a strong foothold due to established competition and high levelling-up costs
• Advantages of late movers

  • Reduced uncertainties
  • Leverage market insights gained by early entrants
  • Refine offerings based on evolved preferences
  • Allocate resources more efficiently
• New Trade Theory (NTT)


  An economic theory that emerged when empirical evidence contradicted assumptions of traditional models (comparative advantage; Heckscher-Ohlin model)
• Key concepts of NTT

  • Economies of scale: Firms gain & sustain a competitive advantage from lower (fixed) costs per unit with larger sales volumes
  • Product differentiation: Firms gain & sustain a competitive advantage by addressing heterogenous consumer preferences
  • Imperfect competition: Firms gain & sustain a competitive advantage by understanding that they have some degree of market power (firms can set prices above marginal cost)
  • Trade Policies: Firms gain & sustain a competitive advantage by using subsidies, trade barriers & IP rights to their advantage
• Competitive advantage of nations

  Explains why certain firms outperform their competitors in a specific industry and country
• Industries


  • Start becoming more specialized and gain economies of scale in niches
• There are some limitations to early trade theories
• Limitations of early trade theories

  • Fail to account for international transportation costs
  • Fail to account for taxes and non-tariff barriers (quotas, subsidies, standards and product regulations, environmental & labor regulations, etc.)
  • Fail to consider further considerations: For many firms, scale economies and superior business strategies provide efficiencies and other advantages

  
• Restrictions


  • US on steel, solar panels, and washing machines
  • EU on steel and metal products and US consumer products
• Japan lacks comparative advantages, but Japanese firms succeeded anyway, via superior strategies
• Some services cannot be traded internationally while other services can be traded freely via the internet, global telephony, or travel
• Competitive advantage of nations


  The unique attributes or capabilities that allow businesses of certain countries to outperform its rivals in another market
• Competitive advantage


  The edge a company has over its competitors, enabling it to generate superior value, attract customers, and achieve higher profitability
• Sources of competitive advantage

  • Cost leadership (being able to produce goods or services at a lower cost than competitors)
  • Differentiation (offering unique and valued products or services)
  • Innovation
  • Effective marketing
  • Superior distribution channels
  • Strong customer relationships
• Sustainable competitive advantage


  The advantage is not easily replicated by competitors (long-term position of strength in the marketplace)
• Apple


  • Differentiation – Apple products are seen as a status symbol customers want to be associated with
  • Innovation – Developing new drinks with Vanilla/Stevia taste does occur, but is not success defining
  • Effective marketing – Keynotes are watched by millions and advertisements are short and concise
  • Superior distribution channels – Apple stores in the best locations attract customers with high purchasing power and allow the firm to extract rents from other stores in the mall, simply because the store attracts customers
  • Strong customer relationships – Perfectly harmonizing products lead to customers owning multiple products (avg. American household 2.6 products from Apple), which will be replaced with Apple products again, cult like following of Steve Jobs
• Coca Cola


  • Cost leadership – Unlikely as Pepsi can produce with equal economies of scale
  • Differentiation – Pepsi offers similar product for almost all sodas, Costa Coffee has competition in Starbucks, Innocent smoothies are not unique
  • Innovation – Developing new drinks with Vanilla/Stevia taste does occur, but is not success defining
  • Effective marketing – Highly efficient marketing presents brand as premium, famous advertisement battles with main competitor Pepsi, extreme marketing efforts hinder competition from entering market at all
  • Superior distribution channels – Some sports events/restaurants only serve Coca Cola, however most also serve main competitor Pepsi
  • Strong customer relationships – Some customers have been accustomed to the taste and stay with the brand
• Google


  • Cost leadership – Many employees in expensive Silicon valley
  • Differentiation – Despite having stand out products, none are particularly unique in the way they operate (Yahoo, Apple Maps, Twitch Video Streaming)
  • Innovation – Google Page rank algorithm
  • Effective marketing – Little need for marketing, mostly mouth to mouth propaganda
  • Superior distribution channels – Browser and other applications often not installed on devices
  • Strong customer relationships – Being accustomed to searching on Google builds habit
• Tesla


  • Cost leadership – Competition such as BYD, NIO can produce way cheaper, facilities in US and Germany not cost leading
  • Differentiation – Electric vehicles not unique, in the car industry hardly any unique features exist
  • Innovation – Despite not inventing EVs, clearly force behind their mainstream adaptation
  • Effective marketing – Known for globally discussed model reveals and marketing stunts (Cybertruck vs Porsche)
  • Superior distribution channels – Showrooms save costs and allow display of products to a multitude of potential customers
  • Strong customer relationships – Due to the persona Elon Musk, cult like following that reminds of Apple's Steve Jobs
• Amazon


  • Cost leadership – Unique economies of scale with distribution network
  • Differentiation – Websites such as Alibaba offer almost identical service, Streaming services not unique, AWS has competition Microsoft in cloud computing
  • Innovation – Being the first all in one online shop and "inventing" next day delivery
  • Effective marketing – Very little marketing as existence is common knowledge, excellent offerings and customer service lead to mouth to mouth propaganda
  • Superior distribution channels – USP of Amazon is it being a one stop shop with almost instant delivery
  • Strong customer relationships – Customers still buy books, food, clothing, electronics in stores, however if ordered online Amazon is often the first choice
• Resource Based View (RBV)


  Suggests that organizations must develop unique, firm-specific core competencies that will allow them to outperform competitors