International Trade to a Point Essay

Pages: 7 (2113 words)  ·  Bibliography Sources: 6  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business


The theory of comparative advantage may apply in that situation, given that China has a comparative advantage in building companies for the Chinese market, but the cluster theory does not hold.

Another limitation of the use of international trade theories to determine a business location is that the theories may not hold over the long-term. The IT company in question may choose a location based on the infant industry theory, seeking protections in order to help it become established. By this trade theory, it would be good to be in a country with infant industry protections in the short run. However, should those protections evaporate, the decision would have been a poor one.

This also illustrates another reason why these theories are limited in their value -- sometimes they contradict one another. This makes it difficult for the firm to make a sound decision, with two mutually exclusive choices that could be argued using different theories. In addition, the theories might be too subjective. Comparative advantage itself is subjective -- the firm still needs to determine what area has a comparative advantage in what trait, and then make a subjective determination of how that impacts on the firm.

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The role that international trade theories should play is that the firm can use them to help make decisions between sites that have other appeal. The firm can use the theories to help understand in loose terms what the antecedents of success are for an area, and use that information to evaluate whether an area meets those criteria. Using international trade theories, therefore, can help a firm to narrow down its options, especially in a situation such as that with Silicon Valley where the cost is high. Other areas may look attractive from a cost standpoint, but the international trade theories like absolute advantage, the Solow Growth Model and Porter's theory about clustering help to illustrate some of the intangible benefits that come from operating in Silicon Valley, many of which may offset the higher cost of doing business there.

TOPIC: Essay on International Trade to a Point, Assignment

Ultimately, the responsible firm needs to ensure that its decision-making process takes all factors into account. Trade theories can contribute generic factors for success; the firm also needs to consider the firm-specific factors for success. If the firm determines that having access to the best minds in the business is essential to success, then it should locate in the Valley. If the firm determines that it is to be a low-cost producer, then the Valley would probably not score as well. Only by considering both the generic, macro-level factors and firm-specific factors can a firm come to the best decision as to where to locate.

It is important in the globalized world that companies realize they are competing against firms from anywhere and everywhere. The decision of where to locate should not reflect a narrow view of the competitive environment, but rather a broader view where the firms sees the need to compete globally. Once a company understands that it is in a globally-competitive environment, then it must understand how best to compete globally. That means understanding the nature of international trade and using the knowledge about how best to compete internally as part of the criteria for making the location decision.

Works Cited:

Alexander, (2006). Solow growth model. Iowa State University. Retrieved November 7, 2011 from

Gromov, G. (2011). Silicon Valley history. Net Retrieved November 7, 2011 from

Investopedia. (2011). What is international trade? Retrieved November 7, 2011 from

Porter, M. (1998). Clusters and the new economics of competition. Harvard Business Review. Nov-Dec 1998. [END OF PREVIEW] . . . READ MORE

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How to Cite "International Trade to a Point" Essay in a Bibliography:

APA Style

International Trade to a Point.  (2011, November 8).  Retrieved December 1, 2021, from

MLA Format

"International Trade to a Point."  8 November 2011.  Web.  1 December 2021. <>.

Chicago Style

"International Trade to a Point."  November 8, 2011.  Accessed December 1, 2021.