Country Similarity Theory

1.
Country Similarity Theory

Linder’s Country Similarity Theory founded by British economist named Steffan Linder in
1961. Linder’s theory proposed that consumers in countries that are in the same or similar
stage of development would have similar preferences.
In this theory Linder explained the intra industry trade refers to the export and import of
similar but differentiated products between countries. Those countries have similar needs,
preferences, income level and etc. would results in more trade opportunities among countries.
International trade takes place among the countries that are at the same stage of economic
development
First example, Finland is a major exporter to Russia due to less transportation cost.
Countries prefer to export to the neighboring countries in order to have the advantages of less
transportation and that is the have a similarity of location.
Second example, export and imports among European countries, between USA and
Canada, among Asian countries and among Islamic Countries because those countries prefer to
export those who have the same or similar culture to them.
Third Example. For similar in political and economic interest enables the countries to enter
into agreements for import and exports. The USA and Cuba disputes resulted in the USA
importing of sugar from Mexico and abandoned the sugar import from Cuba.
2) Product Life-Cycle Theory

Raymond Vernon developed the international product life cycle theory in the 1960s. The
international product life cycle theory stresses that a company will begin to export its product
and later take on foreign direct investment as the product moves through its life cycle. The
theory suggests that early in a product's life-cycle all the parts and labor associated with that
product come from the area in which it was invented. After the product becomes adopted and
used in the world markets, production gradually moves away from the point of origin. In some
situations, the product becomes an item that is imported by its original country of invention.
Example in New product stage: The product is produced and consumed in the US like
the computers. No trade takes place. Maturing product stage: mass production techniques are
developed and foreign demand (in developed countries) expands. At this stage the US exports
the product to other developed countries. Standardized product stage: Production moves to
developing countries, which then export the product to developed countries.
Computer Industry - International product life cycle theory can be applied to the computer
industry. Based on stages in the product life cycle, it is evident that computers were first
introduced by American companies such as Apple and Microsoft.
1. At the introduction stage the computers were targeted for American markets. Apple and
Microsoft produced related products in the same industry.
2. Growth is the second stage where the product is produced in other regions as the
demand of the product increases. Currently, Microsoft creates most of the computer
software from other regions such as Canada and England (Charles 2011).
3. In maturity stage Apple has diversified its product lines to meet the changing needs of
the consumers in the global market. For example, the company’s initiative to focus on
the production of phones and electronic devices such as cameras is a competitive
strategy aimed at improving the performance of the products in international markets.
Maturity stage is characterized by increased competition in the market. However, the
company that relies on economies of scale can withstand the competition in the market.
With regards to economies of scale, Microsoft tends to master the game. The company
produces a variety of software programs at low cost.
4. In the decline stage the product is forced to enter the markets in developing countries
(Ball 2008). The two companies tend to apply the requirements of the stage.
For example, Microsoft is currently working with other software companies in developing
countries to produce software programs that can meet the needs of the consumers. Apple has
been very slow in its quest to enter the developing markets. However, the company has
developed effective distribution channels that will ensure its success in developing countries
(Charles 2011).
3) Global Strategic Rivalry Theory

It focusses on firm’s strategic decision to acquire and develop competitive advantage in
order to compete internationally
1) Owning intellectual property:
It is done by brand name, trademark, patent/copyright, unique formula etc. Example – Unique
formula of Coca-cola
(2) Investing in Research & Development:

It is the procedure of gaining a competitive advantage by R&D systems. Example – Boeing is the
most successful aircraft manufacturing because it does a vast amount of study for its
competitors by its R&D department
(3) Achieving economies of scale or scope:
At the time of international trade, the manufacturer increased. For this cause cost per unit
reduces and new sector/scope is being created for investment consequently, various sized and
typed product can be produced.
(4) Exploiting the experience curve:
Sometimes competitive advantage can be increased by injecting the experience. Very

frequently firms employ experienced inhabitants for their need.
4) Porter’s National Competitive Advantage

 Firm Strategy, Structure and Rivalry - The national context in which companies operate
largely determines how companies are created, organized and managed: it affects their
strategy and how they structure themselves. Moreover, domestic rivalry is instrumental to
international competitiveness, since it forces companies to develop unique and
sustainable strengths and capabilities. A good example for this is the Japanese automobile
industry with intense rivalry between players such as Nissan, Honda, Toyota, Suzuki,
Mitsubishi and Subaru. Because of their own fierce domestic competition, they have become
able to more easily compete in foreign markets as well.
 Factor conditions in a certain country refer to the natural, capital and human resources
available. Some countries are for example very rich in natural resources such as oil for
example (Saudi Arabia). This explains why Saudi Arabia is one of the largest exporters of oil
worldwide. With human resources, we mean created factor conditions such as a skilled
labor force, good infrastructure and a scientific knowledge base.
 The presence of sophisticated demand conditions from local customers also pushes
companies to grow, innovate and improve quality. Nations thus gain competitive advantage
in industries where the local customers give companies a clearer or earlier picture of
emerging buyer needs, and where demanding customers pressure companies to innovate
faster and achieve more sustainable competitive advantages than their foreign rivals.
 The presence of related and supporting industries provides the foundation on which the focal
industry can excel. A nation’s companies benefit most when these suppliers themselves are,
in fact, global competitors. It can often take years (or even decades) of hard work and
investments to create strong related and supporting industries that assist domestic companies
to become globally competitive. However, once these factors are in place, the entire region or
nation can often benefit from its presence. We can for example see this in Silicon Valley,
where all kinds of tech-giants and tech-start-ups are clustered in order to share ideas and
stimulate innovation.

Country Similarity Theory

Uploaded by

Copyright:

Available Formats

Country Similarity Theory

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Country Similarity Theory

Uploaded by

Copyright:

Available Formats

1.

Country Similarity Theory

2) Product Life-Cycle Theory

3) Global Strategic Rivalry Theory

1) Owning intellectual property:

(2) Investing in Research & Development:

(3) Achieving economies of scale or scope:

(4) Exploiting the experience curve:

Sometimes competitive advantage can be increased by injecting the experience. Very

4) Porter’s National Competitive Advantage

You might also like