Sample on Implications of New Trade Theory


New trade theories and strategic trade policies have emerged in recent years to explain changes in international trade and investment flows. However, current theories of internationalization of enterprises do not adequately account for the role that strategic and pro-competitive assistance from the home country government plays in the internationalization decision, foreign market choice, and internationalization entrance mode of domestic firms. Although the concept of local government has gained some traction in recent years, it still has some significant obstacles to overcome. Despite the familiarity with supporting multinational enterprises (MNEs) in worldwide marketplaces, no unified model exists to describe the effect of such backing on the internationalization process. However, the paper’s conceptualizations provide depth and breadth to our knowledge of the modern internationalization patterns among businesses.

Purpose of the research

Domestic companies’ efforts to expand internationally have become increasingly important to compete in today’s more globalized marketplace and reap the benefits of globalization. Few major multinational enterprises (MNEs), economies of scale at the firm level, trade in similar products among economies with similar characteristics, and political economy impacts are all features of today’s global marketplace. This paper attempts to theorize a strategic path toward internationalization within the existing framework of global markets. Initiating and facilitating the internationalization initiatives of domestic enterprises, this strategy process combines the theoretical reasons produced under modern trade theory. Despite the criticisms of the new trade theory, this theory of internationalization provides new paths for study.

Literature review

New trade theory’s theoretical underpinnings urge a strategic trade policy that adapts to regional variations in demand and the globalized nature of competition. These activist approaches to trade policy acknowledge the externalities that result from international corporate activity while providing pro-competitive support measures to national champions. Brander and Spencer’s seminal 1985 article “Strategic Trade Policy: Notion and Evidence” is the seminal study that proved the concept. It sparked massive literature investigating the possibility and implementation of corporate strategy trade policy in numerous markets. Reimer and Steigert’s (2006) study provides a useful synopsis of the existing literature on strategic trade strategy and the new trade theory.

Different people place different meanings on the term “strategic trade,” but according to Brander’s (1983) research, strategic trade occurs when organizations understand their mutual dependency on one another. To be more precise, the decisions made by other companies directly impact the bottom line of every company. Alternative definitions of strategic trade have been proposed by various scholars, for example, when governments favor industries with high levels of “dynamic externalities” (Markusen & Venables, 1995). The analysis’ strategic component is the government’s effort to proactively pinpoint the industries, subsectors, and companies within those sectors that could reap the benefits of economies of scale in foreign markets. Strategic trade policy influences enterprises’ decisions on which international strategic options to pursue in light of competitors’ plans and government initiatives to assist those options. The most important factor is a legitimate pre-commitment that benefits the home-grown business. In light of the government’s prior pledge, it is clear that any policy helps domestic companies compete overseas. The pre-commitment is often portrayed as a governmental intervention.

Practical application

From this discussion, we draw two conclusions on the internationalization of enterprises. Internationalization can be thought of as a strategic process that results from the interactions of competing enterprises in global markets. The term “strategic” also suggests that this method is best used by businesses competing in oligopolistic or monopolistic markets where differentiated products are sold. Some examples of these sectors include the electronic industry, the pharmaceutical industry, the space sciences, etc. The second conclusion represents a normative expansion of the first. Proof that the strategic process of domestic enterprises’ internationalization can be influenced by the home government’s pro-competitive support to local champions in imperfect markets. The domestic government’s “pre-commitment,” as the new trade theory calls it, is crucial to the success of an export, which is carried out through deliberate commercial policy.


Understanding the dynamics of an internationalization strategy in light of the changing nature of global markets is facilitated by the theory and model of business internationalization established here within the framework of the industrial organization paradigm. As a result of using this model, we have a better grasp on the dynamics at play when companies in the elevated and differentiated products sectors decide to go global. In oligopolistic marketplaces, the “why,” “how,” and “where” questions of internationalization strategy are best understood via the lens of strategic interactions, which the strategic view of internationalization of enterprises investigates. Supporting domestic enterprises’ internationalization strategy in imperfect markets, we also identify strategic trade policy factors of internationalization.


Brander, J. A., & Spencer, B. J. (1983). Strategic commitment with R&D: the symmetric case. The Bell Journal of Economics, 225-235.

Markusen, J. R. (1995). The boundaries of multinational enterprises and the theory of international trade. Journal of Economic Perspectives9(2), 169-189.

Reimer, J. J., & Stiegert, K. (2006). Imperfect competition and strategic trade theory: Evidence for international food and agricultural markets. Journal of Agricultural & Food Industrial Organization4(1).

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