Disadvantages Of Market Imperfection Theory

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Market imperfection theory: Companies are always looking for opportunities to capitalize on what they can offer, which are not being offered by another indigenous company. Each one advantage a company has to its advantage is explained and justified by an imperfection found in a foreign market. This theory doesn’t tell us why foreign production is viewed as the most favoured means if harnessing a company’s advantage. International Production theory: Buckley suggests that, ‘a company may locate itself in a foreign country is the advantages and resource implications outweigh those available indigenously.’ (Morgan. E, Katsikeas S. Pg: 70) This theory also suggests that foreign governments play a role when companies are making the decision in moving…show more content…
These include human, physical, knowledge, skills, infrastructure and capital. Utilizing all factors at their disposal, a nation can maintain its competitiveness. Within the article Porter explains that “factor conditions determine the flow of trade. Nations export the goods that make the most of the factors. Not only that but that a nation creates its most important factors of production. That means nations succeed in industries where they are good at factor creation” (Porter. M, pg77,78) This shows a country that identifies its resources and uses them right will prosper and that local disadvantages will lead to…show more content…
When the local firms decide to export the product they gain a competitive advantage of foreign companies. This means they gain a national advantage and can help identify global trends. Porter’s article explains in detail the effects stating “that a nation gains a competitive advantage where home demand give companies a clearer image of global trends and goes on to explain that sophisticated home market buyers can pressure home firms to innovate faster than its competitors” (Porter, M. pg 79) Supporting industry: When the local supporting industries are competitive, companies achieve the lowest costs and high innovations opportunities arise. Porter writes “by using a close-by supportive industries a company creates a competitive advantage. The example he uses is the Italian footwear market. A leather worker will share secrets of leather work with a shoe designer and allow them access to new design. This would not be the case if the firms were in international markets.” (Porter, M. pg 80). A nation’s companies will benefit the most from suppliers are involved in global

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