The body of economic thought that seeks to explain why and how countries engage in international trade and

the welfare implication of that trade, encompassing especially

the Ricardian Model, theHeckscher-Ohlin Model, and theNew Trade Theory. Mercantilism is the economic doctrine that government control of foreign trade is of paramount importance for ensuring the prosperity and military security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse [1] from the 16th to late-18th centuries. Mercantilism was a cause of frequent European wars in that time and motivated colonial expansion. Mercantilist theory varied in sophistication from one writer to another and evolved over time. Favors for powerful interests were often defended with mercantilist reasoning. High tariffs, especially on manufactured goods, are an almost universal feature of mercantilist policy. Other policies have included: Building a network of overseas colonies; Forbidding colonies to trade with other nations; Monopolizing markets with staple ports; Banning the export of gold and silver, even for payments; Forbidding trade to be carried in foreign ships; Export subsidies; Promoting manufacturing with research or direct subsidies; Limiting wages; Maximizing the use of domestic resources; Restricting domestic consumption with non-tariff barriers to trade.

efinition of 'Mercantilism'
The main economic system used during the sixteenth to eighteenth centuries. The main goal was to increase a nation's wealth by imposing government regulation concerning all of the nation's commercial interests. It was believed that national strength could be maximized by limiting imports via tariffs and maximizing exports.

Investopedia explains 'Mercantilism'

This approach assumes the wealth of a nation depends primarily on the possession of precious metals such as gold and silver. This type of system cannot be maintained forever, because the global economy would become stagnant if every country wanted to export and no one wanted to import. After a period of time, many people began to revolt against the idea of mercantilism and stressed the need for free trade. The continued pressure resulted in the implementation of laissez faire economics in the nineteenth century.

National Competitive Advantage Porters Diamond

Micheal Porter's Theory of Competitive Advantage of Nations against the Theory of Competitive advantage sought to examine the issue of why some nation's business firms succeeded high in international/global competition.

The theory of competitive advantage probes into three major aspects of trade phenomenon: i. Why does a nation succeed international in a particular industry? ii. What influence does a nation carry on competition in specific industries and their segments? iii. Why do a nation's firms choose particular strategies of business? Porter's analysis begins with following premises: 1. The nature of competition and the sources of competitive advantage differentials in the industries. 2. Successful global enterprises draw competitive advantages through their value chain of worldwide network. 3. Innovation is the pillion of gaining/sustaining competitive advantage. 4. Pioneering and aggressive competitors in exploiting new market/technology are most successful. Porter undertook intensive research of 100 industries in ten countries. On the basis of empirical investigation, Porter identified for attributes of nation which determine (promote, impede) its competitive advantage referred to as Porter's Diamond in.

1990, Michael Porter seeks to answer the question of why a nation achieves international success in a particular industry. Based on four attributes:
o

Factor endowments

Basic factors natural resources, climate, location, demographics Advanced factors communication infrastructure, sophisticated and skilled labor, research facilities, and technological know-how Advanced factors are a product of investment by individuals, companies, and governments Porter argues that advanced factors are the most significant for competitive advantage

Demand conditions if customers at home are sophisticated and demanding, companies will have to produce innovative, high quality products early, which leads to competitive advantage

Relating and supporting industries If suppliers or related industries exist in the home country that are themselves internationally competitive, this can result in competitive advantage in the new industry.

Firm strategy, structure, and rivalry

Different nations are characterized by different management ideologies, which can either help or hurt them in building competitive advantage If there is a strong domestic rivalry, it helps to create improved efficiency, making those firms better international competitors

Porter also notes that chance (such as new breakthrough innovations) and government policies (such as regulation, investments in education, etc.) can influence the national diamond

The Scottish economist Adam Smith developed the trade theory of absolute advantage in 1776. A country that has an absolute advantage produces greater output of a good or service than other countries using the same amount of resources. Smith stated that tariffs and quotas should not restrict international trade; it should be allowed to flow according to market forces. Contrary to mercantilism Smith argued that a country should concentrate on production of goods in which it holds an absolute advantage. No country would then need to produce all the goods it consumed. The theory of absolute advantage destroys the mercantilistic idea that international trade is a zero-sum game. According to the absolute advantage theory, international trade is a positive-sum game, because there are gains for both countries to an exchange. Unlike mercantilism this theory measures the nation's wealth by the living standards of its people and not by gold and silver.

Comparative Advantage
The most basic concept in the whole of international trade theory is the principle of comparative advantage, first introduced by David Ricardo in 1817. It remains a major influence on much international trade policy and is therefore important in understanding the modern global economy. The principle of comparative advantage states that a country should specialise in producing and exporting those products in which is has a comparative, or relative cost, advantage compared with other countries and should import those goods in which it has a comparative disadvantage. Out of such specialisation, it is argued, will accrue greater benefit for all. In this theory there are several assumptions that limit the real-world application. The assumption that countries are driven only by the maximisation of production and consumption, and not by issues out of concern for workers or consumers is a mistake.

Mercantilism
According to Wild, 2000, the trade theory that states that nations should accumulate financial wealth, usually in the form of gold, by encouraging exports and discouraging imports is called mercantilism. According to this theory other measures of countries' well being, such as living standards or human development, are irrelevant. Mainly Great Britain, France, the Netherlands, Portugal and Spain used mercantilism during the 1500s to the late 1700s.

Mercantilistic countries practised the so-called zero-sum game, which meant that world wealth was limited and that countries only could increase their share at expense of their neighbours. The economic development was prevented when the mercantilistic countries paid the colonies little for export and charged them high price for import. The main problem with mercantilism is that all countries engaged in export but was restricted from import, another prevention from development of international trade.

SWOT Analysis Strengths Wide Varieties under a Single roof Locational convenience Value for Money Weakness

Customer Service Advertising Opportunities Scope for Expansion Scope for Strategic alliance / Merge Threats In close proximity to large no of Direct & IndirectCompetitors