The Comparative Advantage Gains from Trade   Term Paper ID:27269 Click to get this paper

Essay Subject: Discusses comparative trade theory, wherein nations assess their production strengths & weaknesses & create trade pacts that serve each accordingly.... More...

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Paper Abstract: Discusses comparative trade theory, wherein nations assess their production strengths & weaknesses & create trade pacts that serve each accordingly. Paper Introduction: The Comparative Advantage Gains from Trade Introduction It is important to not confuse the terms "comparative" and "competitive" as they apply to the goals and ideals of world trade. Kennedy and Koelim (1996) find that "despite this wide acceptance in the professional community, the basics of international trade are still poorly understood by many policy makers and casual commentators" (1). The "comparative advantage" theory has been a part of international economic studies since it was created by David Ricardo, an economist who lived in the 17th century. Ricardo's theory was that each nation has good points and bad points in its economy. In the classic example of two countries, Ricardo sets up a model where Germany and France only Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Sloan Management Review 3 :1 29(7) The Role of Corporate Linkages in U.S.-Japan Technology Transfer.(1991) U.S. For instance,Microsoft Inc. The"comparative advantage" theory has been a part of international economicstudies since it was created by David Ricardo, an economist who lived inthe 17th century. By working together, both companies benefit.But does that hold true when the theory is applied to two countries?Situation 1: Japanese Software Development Would Japanese hardware companies benefit from working with the USsoftware industry? New York: University Press Japan's software factories: A challenge to U.S. Since Japaneseindustry does not grow randomly, the Japanese government and industryleaders would first have to decide if the present structure of the economywould likely replicate the evolution of the Japanese semiconductorindustry. B. These countries have these options: A. You could have the most incredible super computerwith the most sophisticated semiconductor technology, but without programsto run on it, it is useless. C. Because of that competition,the Japanese computer industry and the American software industry havebegun functioning in a series of comparative trade agreements, which arehelping both industries within both countries.The Answer for the Future Comparative trade advantages definitely appear in the relationshipbetween the Japanese computer hardware industry and the American softwareindustry. It generally involves further adapting an the software product to meetthe specific requirements of a given geographic market setting (forexample, making sure that Microsoft Word help screens support Kanji text,and adapting communications software to work with any Japanese electronicscommunications protocols, addressing any important cultural factors - forexample eliminating error beeps from a product to be used in Japan'scongested open office environments, etc. management. The Comparative Advantage Gains from TradeIntroduction It is important to not confuse the terms "comparative" and"competitive" as they apply to the goals and ideals of world trade.Kennedy and Koelim (1996) find that "despite this wide acceptance in theprofessional community, the basics of international trade are still poorlyunderstood by many policy makers and casual commentators" (1). Standards and the arrested development of Japan'sPC software industry. This problem does not existfor the Japanese, since the chips and drives, and CPUs it produces are notlanguage-sensitive, but the software the American industry produces issensitive. This fragmentation together with economic and technical trends inJapan and the rest of the world would maintain foreign dominance of theJapanese packaged software market. (1991)Oxford University Press, New York. Both industries have high development costs and it is hard for onecompany to excel in both hardware and software development. Comparative trade, where France and Germany arrange mutual pactsthat solve their problems beneficially and profitably.Comparative Trade Theories In Real Terms The basis for the comparative trade theory is that even if one countryhas an absolute advantage over another one (France's cheese proficiencyover Germany's) that there can still be benefits to both. Harvard Business Review, Note: 9-796-183 Manufacturing innovation: Lessons from the Japanese auto industry(1994). Thereality of comparative trade is an extremely critical element of any firm'smarketing mix, in the context of the Japanese marketplace. HP on the other hand, would not have to gearup to manufacture hardware, but if it wanted a dynamic software program, itwould have to develop one. Firms from this sectorare familiar with the idea of funding the costs of developing a new versionof a product through the reinvestment of earnings derived from currentsales (The role of corporate, 1991, 33). (1996, November 25). References Cottrell, T. That is because one cannotexist without the other. If it decided to develophardware, probably half of that $5 , an hour would end up in R&D,therefore, they would lose. D. Instead, it has chosen to "trade"with hardware manufacturers and "bundle" its software with certainmanufacturer's computers (Management innovation, 1994, 31). Assume Microsoft andHewlett Packard can both produce both software and hardware. In the classic example of two countries, Ricardo sets up amodel where Germany and France only have two products -- beer and cheese.Kennedy and Koelim (1996) argue that "the resources in each country arefinite, implying that each can produce only a limited amount of goods.Increasing production of one good means reducing production of the other.Each country can produce either good, but Germany is more efficient brewingbeer than France and France is more efficient at making cheese thanGermany" (1). A final aspect of the benefits of theever-shifting comparative trade advantages between the Japanese hardwareindustry and the American software industry is the most basic of culturaldeterminants -- language, and the problems connected with restructuringsoftware codes to fit the Japanese language. Finally, Japanization frequently involves theelimination of hard coded fonts or font sizes. As the authorsof the article state: "The gains made from trade depend on relative, notabsolute productivity levels" (Kennedy & Koelim, 1996, 7). The economic gainsfrom trade: Comparative advantage. This is especially true when those industries are toall external appearances totally different -- hardware versus software --but whose very market life depends on cooperation with each other. Ricardo's theory was that each nation has good points and bad pointsin its economy. Competitive international trade, wherein both countries couldcompete and try to sell their surplus beer and cheese to the world. Thissituation creates a wealth of interesting applications of the comparativetrade theories. Since in 1996, foreign firms and especially US firms had about 75% ofthe Japanese packaged software market, there is a strong possibility thatpercentage figure could be reduced as Japanese firms with governmentsupport allocate more resources to this industry. In this sense,both the industries and the countries described above match that basicrequirement to entertain a situation of comparative trade advantages. In conclusion, the aspects and benefits of comparative trade advantagenot only exist between countries but within companies within thosecountries as well. Isolationism or autarky, wherein they both try to maintain theirown production quotas which would result in expensive domestic beer inFrance and expensive domestic cheese in Germany. It also generally involves designing theproduct to allow for more flexible field widths (for data entry and output,for example allowing menu boxes or help screens) and to handle vertical aswell as horizontal writing, as well as both left to right and right to leftreading schemes, etc. could take some of its incredible cash reserves and throwthem into R&D for new computer hardware. In the software industry, the term Japanization refers to the processof recoding or otherwise adjusting a North American market software productto allow it to handle both single and double byte character sets (likethose in the Japanese language). Hewlett-Packard can earn $2 , an hour selling its hardware and Microsoft canmake $5 , an hour selling its software. There were severalstudies that hypothesized Japanese production methods were applicable tosoftware and would prove quite competitive. & Koelim, N.F. That is a big philosophical question. To test thistheory, the computer software industry in America (a definite situation ofabsolute advantage) will be weighed against the computer hardwaremanufacturing industry in Japan (also a definite absolute advantage). Often the most economic path for both countries' industries is tolicense the software codes to a Japanese affiliate rather than the Americansoftware manufacturer assuming the recoding costs. Competitive intercountry trade, wherein Germany would try to forceboth its beer and cheese on France, and wherein France would try to pushits beer onto Germany. A constant topic of discussionamong Japanese hardware manufacturers and American software manufacturerswho meet regularly and communicate daily (and even have reps on staff ateach other's firms) is the dual question of what software to Japanize andto what degree (Cottrell, 1993, 14). Can theybenefit from "comparative trade?" Consider this assumption. Both of thosecompanies have an absolute advantage in the U.S. (1993). This is because the trend for the future in Japan seems to bethat the Japanese software industry's development will be influenced bylarge customers coming together with large integrated systems producers andpursuing software strategies that would continue to emphasize customizationand that in turn would promote industry fragmentation. First here is an overview of the strategicrelationships between the software and hardware industries.Hardware and Software: A Symbiotic Relationship These two industries were chosen because, even if done in the samecountry and completely ignoring the idea of finding trading partners theyshow the benefits of comparative advantage. industry. Department of Commerce. The tremendously complex relationships between these twoindustries, combined with the complex trade relationships of the twocountries creates many interesting situations for analysis (Japan'ssoftware factories, 1991, 29). That is Ricardo's theory in domestic practice. Kennedy, R.E. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.