International concern is a term derived from international trade and used to depict all signifiers of concern minutess that take topographic point between two or more states. Either these concern minutess can be private based. semi-government based or authorities based. International trade involves the constitution of production installations by manufacturers in foreign states ( Buckley. 2005 ) . It besides incorporates all little houses that import or export really little measures to merely a individual state every bit good as large planetary companies with strategic confederations and integrated operations all over the universe.

International concern has experienced growing from early 20th century and this has been attributed by the liberalisation of both investing and trade in the international market. Trade liberalisation came approximately because of the debut of the General Agreement on Tariffs. Trade ( GATT ) . and World Trade Organization ( WTO ) . Advanced engineering has allowed the transportation of money electronically and made conveyance and communicating efficient hence playing a large function in the liberalisation of international concern ( Daniels & A ; Radebaugh. 1997 ) South Africa is one of the states in the universe that provides the best environment for international concern. This is attributed by the country’s good substructure. good wellness attention services. advanced engineering and other factors that attract foreign investors. The state has entered into trade understandings with the U. S. European Union and other states all over the universe to guarantee that the merchandises come ining the state are duty free or are charged lower rates ( Kauser & A ; Shaw 2004 ) .

Assorted Theories of International Business

A figure of theories have been formulated to explicate assorted issues refering international concern. The theories further compare the international concern environment in India and South Africa. The absolute advantage theory

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Adam Smith formulated the theory back in 1776. Smith had the position that each state has an absolute advantage over another one sing the production of specific goods and services. This is attributed to the fact that some states have the advantage of skilled labour. inexpensive labour. fertile land and the handiness of inexpensive natural stuffs. Such states are hence capable of bring forthing some peculiar merchandises at a cheaper monetary value. For illustration. South Africa finds absolute advantage in the extraction and exportation of Pt. gold diamonds and other minerals to other states because of the handiness of natural stuffs and inexpensive and skilled labour. On the other manus. India does non hold the absolute advantage of these peculiar merchandises because the state lacks the natural stuffs to bring forth them ( Punnett & A ; Ricks. 1997 ) . Smith besides had the position that a state like South Africa that has the absolute advantage produces more merchandises than other states while utilizing same resources.

The theoretician argues that quotas and duties should non be a hinderance to international concern but the market forces should order trade. Harmonizing to Smith. for trade concern to be successful a state should specialise in the production of goods and services it has absolute advantage on. South Africa is an illustration of this signifier of forte because it big leagues in the exportation of minerals and imports consumable goods that can be the state a batch of money if manufactured locally ( Punnett & A ; Ricks. 1997 ) . On the other manus. India that has an absolute advantage in the exportation of petroleum crude oil strives to export its agricultural merchandises like fish. bananas and wood coal. By exporting consumable goods. the people in India lead a low criterion of life as compared to South Africa. Adam Smith’s position is that the wealth of a state is determined by people’s populating criterion but non the sum of exports it makes. This implies that the populating criterion in South Africa is higher as compared to India. This theory entirely is non capable of to the full analysing the international concern environment in India and South Africa and that is why it is necessary to utilize other theories for the analysis ( Welch & A ; Wilkinson 2004 ) . The comparative cost theory

A theoretician known as David Ricardo formulated this theory in eighteenth century. The theoreticians had the position that two states should transport out concern between each other if one of the states is capable of bring forthing a specific merchandise more than the other ( Riad. 2006 ) . For case. if South Africa can bring forth 20 dozenss of coal and 10 dozenss of fabrics daily by utilizing all its resources and India can merely bring forth 2 dozenss of coal and 5 dozenss of fabric by utilizing the same resources used by South Africa. Harmonizing to the absolute advantage. theory there should be no concern between these two states. On the other manus. comparative cost theory argues that South Africa should specialise in the production Coal while India produces fabrics. By making this. the theory argues that international concern could boom between the two states because South Africa could import fabric from India and Export coal to the same state ( Riad. 2006 ) .

The theory encourages states in the international concern to specialise in the production of goods and services in which they have a greater comparative advantage. This can be done by comparing the ratio between the production costs of the two merchandises in one state with the ratio of production cost in the other state. South Africa has adapted this theory in the production of minerals as compared to India. Comparative cost theory indicates that South Africa can bring forth merchandises at a low cost compared with India because of the handiness of inexpensive natural stuffs. natural resources. human resources and good climatic conditions. Therefore. South Africa presents the best environment for transporting out international concern ( Ehud & A ; Amit. 2007 ) . South Africa produces big sum of merchandises of good quality as compared to India hence being able to vie good in the international concern. As a consequence. the populating criterion in South Africa is higher as compared to India because people in South Africa have a higher buying power. Increased societal public assistance and economic growing is being experienced in South Africa who are actively involved in the international concern as compared to India whose degree of engagement in the international concern trade is low ( Laszlo & A ; Timothy. 2012 ) .

This theory overlooked some of import factors and David Ricardo did non analyze how international trade affects income distribution in a state. Ricardo footing his theory on the premise that all states are similar and they merely differ in resource gift. In world. states do non merely differ in their factors of production but besides in the methods. they use to accomplish productiveness. These failings of comparative cost theory led to the preparation of chance cost theory ( Monir. 2000 ) .

Opportunity cost theory

Gottfried Haberler proposed Opportunity cost theory in 1959. The theory is based on the rule of chance cost. which is the value of options that have to be forgone with the purpose of to obtain a specific merchandise. Harmonizing to Gottfried Haberler. the chance cost of a merchandise is the sum of another trade good that must be given up for another trade good to be capable of bring forthing another extra unit of the first merchandise. For case. if the resources needed to bring forth a individual unit of merchandise W. is the same with the resources needed to bring forth 2 units of merchandise K. the chance cost of one unit of W is two units of K ( Vaghefi & A ; Paulson. 1991 ) .

Therefore. harmonizing to the above analysis of chance cost theory. a state that is involved in the international concern and has a lower chance cost for a certain merchandise has a comparative advantage in that peculiar merchandise and a comparative disadvantage in the other merchandise. For illustration if the chance cost of one unit of coal is 2 units of diamond in South Africa and 1. 5 unit of coal in India so South Africa is required to specialise in the production of diamond and import coal from India. On the other manus. India should specialise in the production of coal and import diamond from South Africa because this will be cost effectual ( Feenstra. 2004 ) .

This theory has non been adapted by South Africa because there is no individual state that would trust on the exportation of one or few merchandises to prolong its economic system. South Africa allows the import and of export of merchandises in and from different parts of the universe therefore. being a good environment for international trade. If a state relies on one merchandise. it becomes vulnerable to international alterations like recession. new engineerings. new trade Torahs and pacts. The state is besides susceptible to altering market forces like sudden bead in demand or the handiness of a inexpensive alternate merchandise in the international market ( Maneschi. 1998 ) .

For case. a state like India that to a great extent depends on the export of petroleum crude oil merchandises is extremely affected by the alterations in planetary oil market. On the other manus. a state like South Africa that deals with the export of many merchandises runing from coal. diamond. Ti. fabrics and other agribusiness merchandises is non affected to a great extent by alterations in the international concern. Therefore. it is recommended that India should develop a diversified economic system to be able to vie good in the international concern ( Maneschi. 1998 ) .

The blowhole for excess theory or theoretical account on international trade

The theory has the position that if a state has more green goodss than its domestic demand. the excess merchandises should be exported. or else portion of the country’s productive labour should discontinue taking to the diminishing of its one-year value. Therefore. if there were no international concern. surplus productiveness in a state would be experienced. The theory assumes that the excess production of a state should be exported by another state hence the evolvement of international concern. Harmonizing to the theoretician. all the factors of production are to the full utilized in developing states and the unemployed labour is productively employed in developing states when the excess merchandises are exported in such a state ( London & A ; Hart. 2004 ) Harmonizing to this theoretical account when the factors of production in a state are doubled. an addition in production is experienced necessitating the state to look for international market. Large houses experience a higher degree of efficiency than little houses do. South Africa is among the states in the universe that has large houses and this creates a good environment for international bargainers.

The Heckscher-Ohlin Theory of International trade

Heckscher-Ohlin bases his premise on perfect competition. domestic mobility. one fixed factor gift and changeless returns of graduated table. The theoretical account farther explains that counties have factor difference in the sense that the ability degree of one state could be higher compared to the other. The other strongest premise under this theoretical account is that states are the same with exclusion of their gifts. Ohlin continues to suggest that even if the country’s penchants. gift and engineering are the same. its degree of productiveness sing a peculiar merchandise can non be the same in the two states. He therefore proposes that for a state to be successful in the international market. it should specialise in bring forthing trade goods whose factor of production is higher. This is the theoretical account that South Africa uses to boom in the international concern ( Heckscher & A ; Flanders. 1991 ) . Heckscher-Ohlin explains his theoretical account by utilizing an illustration. In this study. South Africa and India are the two states used for the illustration.

Assume that the two states can bring forth pharmaceuticals and fabrics. South Africa is endowed with skilled labour while India is endowed with unskilled labour. Pharmaceuticals need a batch of skilled labour while fabrics need a batch of unskilled labour. In this. sort of a state of affairs Pharmaceuticals will be cheap in South Africa while fabrics will be cheaper in India. Therefore. South Africa will export pharmaceuticals to India and import fabrics while India will export fabrics and import pharmaceuticals. This implies that in South Africa skilled labourers will profit more while in India unskilled workers will profit more ( Czinkota. 2008 ) . By accommodating this theoretical account. India has suffered a large blow because most of the skilled persons in the state be given to travel to other states to look for occupations. The loss of professionals in India has led to a retarded economic growing in the state hence doing it a hapless environment for international concern. On the other manus. South Africa attracts more workers that are skilled and it is hence offers a good environment for international concern ( Aswathappa. 2010 ) .


A good environment for international concern is determined by a figure of factors harmonizing to the above international concern theories. Developed states for case. supply good environment for international concern than less developed states or 3rd universe states. This is why it more convenient to transport out international concern in South Africa as compared to India. The South African’s economic system is classified as free-market and therefore it attracts many investors from other states. Business policies in India are more complicated and they discourage foreign investors to put in the state hence organizing a hapless environment for international concern.

The political environment in South Africa is stable for smooth running of both international and local concerns. Language and faith are among other factors in India that discourages foreign investors from puting in India as compared to South Africa whose civilization is more liberalized. Therefore. harmonizing to the different international concern theories. South Africa has a good environment for transporting out international concern than India. It is hence recommended that India should accommodate concern policies that will do it a good environment for international concern.


Aswathappa. K. 2010. International concern. New Delhi: Tata McGraw Hill Education. Buckley. P. 2005. What is International Business? Basingstoke. Hampshire ; New York: Palgrave Macmillan. Czinkota. M. 2008. Fundamentalss of international concern. N. Y: Wessex Press. Daniels. J & A ; Radebaugh. H. 1997. International Business: Environments and Operations. Reading. MA: Addison-Wesley. Ehud. M. & A ; Amit. M. 2007. International concern. London: Sage. Feenstra. R. 2004. Advanced international trade: theory and grounds Princeton. New jersey: Princeton Univ. Press. Heckscher. E. & A ; Flanders. J. 1991. Heckscher-Ohlin trade theory. Cambridge: Mass Press. bull. Kauser. S. & A ; Shaw. V. 2004. “The Influence of Behavioural and Organisational Characteristics on the Success of International Strategic Alliances. ” International Marketing Review. Vol. 21 ( 1 ) page 17–52. Laszlo. T. & A ; Timothy. D. 2012.
Torben Pedersen Institutional theory in international concern and direction. U. K: Emerald. London. T. & A ; Hart. S. 2004. “Reinventing Schemes for Emerging Markets: Beyond the Transnational Model. ” Journal of International Business Studies. Vol. 35 ( 5 ) . page 350–370. Maneschi. A. 1998. Comparative advantage in international trade: a historical position Cheltenham: Elgar. Monir. T. 2000. International concern: theories. policies. and patterns. New York: Pearson Education. Punnett. B. & A ; Ricks. D. 1997. International Business. Cambridge. Ma: Blackwell Publishers. Riad. A. 2006. International concern: theory and pattern. N. Y: Sharpe Pub. Vaghefi. S. & A ; Paulson. K. 1991. International concern: theory and pattern New York: Taylor & A ; Francis. Welch. C. & A ; Wilkinson. I. 2004. “The Political Embeddedness of International Business Networks. ” International Marketing Review. Vol. 21 ( 2 ) . page 216–231.


I'm Niki!

Would you like to get a custom essay? How about receiving a customized one?

Check it out