CHAPTER TWO: Theoretical Foundations

CHAPTER OVERVIEW

As more firms enter the international marketplace, the competitive environment is more complex than ever. How can firms determine their level of competitiveness in a marketplace of expanded and increasingly intense rivalry? This chapter seeks to answer that question in a multi-faceted manner. First, the concepts of country-specific and firm-specific advantages are presented from the theories of international trade and the multinational firm. Firms must be aware of which advantages they can utilize in operationalizing their competitive advantages. The extent to which these advantages are transferable to other markets and not bound only to the markets in which a firm already operates will determine how successful that firm may be in new foreign markets. Then the Porter's Five Forces model is adapted as a systematic framework for analyzing the competitive environment in any market of the world. Finally, market-based and resource-based marketing strategies are compared. By skillful application of both perspectives, an organization may be well on its way to a profitable multinational presence.

QUICK REFERENCE CHAPTER OUTLINE

A. Introduction

B. Country-Specific Advantages (CSAs) 1. Comparative Advantage & Absolute Advantage 2. International Product Cycle 3. National Competitive Advantages 4. The New Trade Theory 5. CSAs and Country-of-Origin Effects

C. Firm-Specific Advantages (FSAs) 1. Knowledge-based FSAs 2. Marketing-Related FSAs 3. Transferability of FSAs 4. FSAs and Internalization 5. FSAs and Transaction Costs 6. FSAs in the Value Chain 7. FSAs, CSAs, and Regionalization

D. Extending Porter’s “Five Forces” Model 1. Rivalry 2. New Entrants 3. Substitutes 4. Buyer Power 5. Supplier Power