Page 35 - International Marketing

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BRILLIANT'S Introduction to International Marketing 37

Introduction
Without becoming too deeply involved with the mechanics of
international trade, one should know how it operates and its importance to
the world economy. One should know how monetary systems work because
they relate directly to the ability of the overseas customers to buy from an
international marketer. One should also be aware of how various
governments and international organizations seek to regulate international
trade because this affects how and where one's goods may be exported.
These aspects are discussed below:
Theories of International Trade
The reason for existence for international trade is to be found in the
diversity of economic resources in different countries. All countries have
not been endowed by nature with the same productive facilities. There are
differences in climatic conditions and geological deposits as also in the
supply of labour and capital. Due to these differences, each country finds
it advantageous to specialize in the production of some specific
commodities. Such specialization would not be economically practicable
but for the possibility of exchange of surplus production through international
trade. Thus, a more effective use of world's resources is made possible
through international trade.
1. Theory of Absolute Advantage
Adam Smith has been the first scholar to investigate formally the
rationale behind foreign trade in his book "Wealth of Nations". Smith
used the principle of absolute advantage as the justification for interna-
tional trade.
According to this principle, a country should export a commodity that
can be produced at a lower cost than other nations. On the contrary, it
should import a commodity that can only be produced at a higher cost
than other nations. Consider, for example, a situation in which two nations
are each producing two products. The table below provides production
figures for the United States and Japan based on two products - the
computer and the automobile, which shows that, given certain resources
as labour, the U.S. can produce 20 computers or 10 automobiles or some
combination of both. In contrast, Japan is able to produce only half as
many computers i.e., 10 computer for every 20 the United States produces.
The disparity might be the result of better skills by American workers in
making computers. Therefore, the United States has an absolute advantage
in computers. But, the situation is reversed for automobiles. The United