Theories of International Trade and Business Plan

Theories of International Trade

• Comparative Advantage Theory: a country should specialize in products or services that it can provide more efficiently than other countries, leading to efficient production at a lower cost and more profit
• Example: Brazil specializes in coffee production due to its climate and soil conditions, while India specializes in tea production, leading to mutual trade benefits

Product Life Cycle Theory

• The product life cycle consists of four stages: introduction, growth, maturity, and decline
• The curve represents sales in value or units along with time
• The life cycle of a product is bell-shaped, with four stages:
  1. Introduction: slow sales growth, heavy expenses, and no profits
  2. Growth: rapid market acceptance, substantial profit improvement
  3. Maturity: slowdown in sales growth, stabilized profits due to market acceptance and increased competition
  4. Decline: sales show a downward drift, and profits decrease
• Examples: American fast-food restaurants and soft-drink companies introducing products in new markets during the decline phase

Preparing a Business Plan

• A business plan is a written document that describes the nature of the business, its goals and objectives, and how they will be achieved
• Elements of a business plan:
  1. Nature of the Business: detailed description of products and/or services, industry analysis, target market attractiveness, and competitor analysis
  2. Goals and Objectives: short-term and long-term goals, measurable results, sales volume, profits, sales growth, and market share
  3. Marketing Plan: identifying customers' unsatisfied needs, designing a product/service that satisfies those needs, competitive advantage, pricing strategy, and distribution strategy
  4. Financial Plan: investment needed, estimated revenues, expenses, profit, cash start-up, and cash flow needs
  5. Organizational Plan: legal form of ownership, organization chart, job descriptions, employee skills needed, and physical facilities

Additional Notes

• SWOT Analysis: identifying a company's strengths, weaknesses, opportunities, and threats
• Marketing Mix: the 4Ps (product, price, place, and promotion)
• Pricing Strategies: premium pricing, penetration pricing, skimming, and economic pricing
• Distribution Strategy: using intermediaries (distributors and wholesalers), and retailers to move products from producers to consumers

This quiz covers the theories of international trade, including comparative advantage theory, and the main components of a business plan. It is part of Lecture 3 of a business planning course.