Page 41 - International Marketing

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BRILLIANT'S Introduction to International Marketing 43

competitiveness. A firm operating in a country where the domestic market
is large will be able to reach a high output level, thereby leaping the
advantage of large scale production. The lower cost of production will
increase its competitiveness enabling the firm to make an easy entry into
export markets. While primafacie this logic appears to be valid, this
hypothesis cannot be generalized because it is possible that the pull of
the domestic market will be so strong that export would not be promoted,
as is the case in India for certain products.
8. Identical Preferences
All the theories so far discussed concentrate on cost and supply factors
as the determinants of the import-export structure. Linder, on the other
hand, has focused on the role of demand as an explanatory variable.
A domestic industry can flourish and reach technologically and
commercially optimal level of production, if and only if the domestic demand
is large enough. Also it is found that countries at similar levels of economic
development have similar demand characteristics. It is, therefore, postulated
that, trade opportunities are more among countries at similar stage of
development with similar demand structure. For example, consider two
countries viz., the USA and Japan. Both are highly industrialized: both have
similar demand characteristics, viz., Color TV, VCR, fashion garments, etc.
Firms in both the countries are highly export competitive because they have
already grown big by first catering to the domestic demand. So trade
between the USA and Japan is so substantial, in fact, the USA is the largest
trade partner of Japan. In general, this theory provides an explanation for the
rapid growth in trade among the industrialized countries themselves.
A Synthesis
Whether a country would export certain type of products would depend
upon a number of factors - natural resources, availability of labour and its
productivity, technical skill and equipment, adequacy of capital, enterprise
and industrial traditions. Comparative advantage is the combined result of
all these factors. For example, the advantage of plentiful and cheap labour
may be offset if high cost labour is provided with modern capital equipment
to result in increased labour productivity and lower per unit labour cost.
Wages in the USA are higher than India or S. Korea but due to higher
productivity in the USA, the per unit labour cost in some industries may
be lower. Korean manufacturers can compete most successfully in the
USA and other markets in completely finished articles, such as knitted
sweaters, men's suit and plastic household goods, where cheap labour in
final processing stages gives them an advantage. But where largely
automatic process can eliminate labour, the USA will have an advantage.