Page 111 - GLOBAL STRATEGIC MARKETING

in and export goods made more cheaply at home in exchange for goods
made more cheaply elsewhere:

‘It is the maxim of every prudent master of a family, never to make at home
what it will cost him more to make than to buy. The tailor does not attempt

to make his own shoes, but buys them from the shoemaker. The
shoemaker does not attempt to make his own clothes, but employs a tailor.

The farmer attempts to make neither one nor the other, but employs those
different artificers. All of them find it for their interest to employ their

industry in a way in which they have some advantage over their
neighbours. What is prudence in the conduct of every private family can
scarce be folly in that of a great kingdom. If a foreign country can supply

us with a commodity cheaper than we ourselves can make it, better buy it
of them with some part of the produce of our own industry employed in a

way in which we have some advantage.’

(Adam Smith, 1776, p. 226).

At this point the benefit of trade specialisation can be explained by the
concept of opportunity cost. McDonald and Burton (2002) state that the

greatest opportunity cost gains are made when countries import goods
produced more cheaply than at home, or goods they simply cannot
produce at all in any quantity. They also point out that the absolute

advantage theory indicates that all trading nations can gain from trade,
and the more the countries specialise, the greater the production and

consumption gains to be had from trade. Adam Smith argued that
minimum interference by governments and laissez-faire policies – that is,
free trade and markets – would maximise the gain from trade by allowing

individuals, firms and nations to concentrate on what they do best.
Through specialisation, countries could improve their efficiency because

labour could become more skilled by repeating the same tasks; labour
would not lose time in switching between production of different products;
long production runs would provide incentives for the development of more

efficient working methods. The model of absolute advantage has a
drawback in that there is no basis for trade for a country that can produce