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Understanding the PEAM Model

The PEAM model summarizes four theories of international trade: 1. Productivity - Firms gain an absolute advantage by improving productivity through labor or capital investment. Excess production can then be exported. 2. Efficiency - Over time, firms develop efficient operations through talented workers, technology, management, and R&D, allowing them to meet foreign demand. 3. Abundance - Firms leverage natural resources available in their country to produce goods, like Ecuador's rose flowers or Argentina's beef. 4. Mass - Firms reduce costs through large-scale production or retail operations to gain competitive advantage in international trade.

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366 views3 pages

Understanding the PEAM Model

The PEAM model summarizes four theories of international trade: 1. Productivity - Firms gain an absolute advantage by improving productivity through labor or capital investment. Excess production can then be exported. 2. Efficiency - Over time, firms develop efficient operations through talented workers, technology, management, and R&D, allowing them to meet foreign demand. 3. Abundance - Firms leverage natural resources available in their country to produce goods, like Ecuador's rose flowers or Argentina's beef. 4. Mass - Firms reduce costs through large-scale production or retail operations to gain competitive advantage in international trade.

Uploaded by

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  • Title Slide
  • PEAM Model Overview
  • Explanation of PEAM Model

PEAM Model

ATW 395 International Business


Semester 1, 2019/20
PEAM Model

ABUNDANCE MASS
(Factor Proportion Theory) (New Trade Theory)

EFFICIENCY PRODUCTIVITY
(Comparative Advantage Theory) (Absolute Advantage Theory)
Explanation of PEAM Model
 A firm can operate in the “productivity” model where the firm is fully dependent on
either labor or machine intensive to improve their productivity. The more productive the
firm become, it is able to export the excess of production to another country.
 Sometimes the firm able to hire talented workforce, possesses know-how, effective
management team, purchases high-tech machines, and starts to form R&D centers after
years of establishments. This firm enables “efficiency” in its operation and able to meet
growing demand in foreign market.
 A firm can leverage and optimize the “abundance” natural resources available in the
country to manufacture products or create services. The firm just can produce more
volume and usually with some advantages such as amazing fragrant rose flower in
Ecuador due to abundance of suitable soil, high quality lean meat in Argentina due to
abundance of alfalfa grass, establishing high capital aviation company Boeing in US due
to abundance of fund, operating R&D by Glaxo or Novaratis due to availability of funds,
flourishing Silicon Valley of Banglore, California, and Bayan Lepas that has many talents
readily available, and producing fine palm oil by Malaysia due to fertile land etc.
More often, firms tend to build big plants or huge retail outlets to reduce cost per unit to
create a “mass” in either production or service, such as IKEA, Intel in Vietnam, Spritzer
mineral water, textile in China, Walmart etc.

PEAM Model ATW 395 International Business Semester 1, 2019/20
PEAM Model ABUNDANCE (Factor Proportion Theory) MASS (New Trade Theory) EFFICIENCY (Comparative Advantage Theory) PRODUCTIVIT
Explanation of PEAM Model A firm can operate in the “productivity” model where the firm is fully dependent on either labor

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