MELISSA GUEVARA
March 25, 2013
International Business Management
The new trade theory and the theory of national competitive advantage emphasize a role for governments in helping domestic companies become strong internationally. Do you think governments should undertake such efforts or let markets, on their own, decide who should succeed or fail?
Government actions, whether intentional or unknown, impact domestic companies either positively or negatively. Examination of the new trade theory and the theory of national competitive advantage indicates that government actions can reinforce and contribute to the success of domestic countries in the international marketplace. One of a governments’ responsibility is to look after the interest of the citizens of the country. In this regard, governments’ must provide assistance to develop strong internationally competitive domestic companies which will also serve to contribute to the economic growth and development of the country.
New Trade Theory
This theory suggests that countries can benefit from trading with each other although their resource endowments or technology are the same. It states that there are advantages to specialization and economies of scale which can be realized by trade as it enables countries to specialize in production of a few products they can export which decreases costs and increases the variety of goods available to consumers. Countries then import the products they do not produce.
This theory also indicates that because the international market can sustain only a limited number of firms, the companies that market their products first will create barriers to entry. The first mover advantage suggests that it is easier for companies that enter a market first to gain a great amount of market share which results in reduced costs and improved technical expertise. Initial cost for new entrants to this market is high so many are discouraged from entering the market. However,...