International business

Module 9 Trade

Globalization

Globalization is the tendency for the world economy to work as one unit, led by large international companies doing business all over the world.

Some of the things that have led to globalization are the end of trade barriers, free movement of capital, cheap transport and the increased use of electronic systems of communication such as the Internet. But in fact globalization is much more complicated. Globalization increased speed and efficiency of movement not only for goods, but for people, capital and information. But what has really crucial influence on the world is increased interdependence of national economies and businesses. Nowadays many economists define globalization: firstly, as integration of the world economy; secondly, the increased interdependence of countries; thirdly, the increasing tendency for products and services to be available on a global basis. All these tendencies became possible due to industrial achievements and highly developed information technology.

As any process globalization has both advantages and disadvantages. On one hand, globalization increases competition. Companies have to be careful in their affairs so that they compete in a global market. But it hurts the local government’s ability to deal with issues like welfare benefits, wages and taxes. It takes out of the hands of government the ability to control country’s economy. This is not so bad as long as there is some negotiation between governments and companies. But more and more in recent years the companies have started to rule the roost. They can now dictate to the governments and there are some give-and-take agreements between governments and corporations.

Another problem is the problem of unemployment in the western world. As companies want to improve their profitability, they are looking for low-cost, low-wage centers, which they can find in China and India, for example. Therefore we are going to see a major change in the global economy because China and India are going to provide not only cheap labor but also good infrastructures for the companies tat are going to go out there. So we are going to see a flight of capital from the West, which can be sudden and dramatic if not managed properly, and this can cause severe problems in the western world.

International business

Most countries realize the advantages of world trade. Countries have developed their economies, increased production of goods, and met market demands through increased world trade. The interdependence among trading nations has provided increased business opportunities.

International trade develops because certain countries are able to produce some goods more efficiently than other countries. They exchange goods to satisfy their needs and wants. Efficient production may be the result of several factors. A certain climate in a particular country may allow that country to grow agricultural products in abundance. For instance, the climates in the United States and Canada are suitable for production of large amounts of wheat. Natural resources such as oil or coal are abundant in other countries. Countries with a large pool of unskilled laborers are able to produce products which are labor-intensive more cheaply than countries with highly-paid, skilled labor forces. Another factor is geographical location. Countries like Singapore and Panama engage in banking and trading because they are located on world trade routes.

The Scottish economist, Adam Smith, theorized that in a free market countries produce whatever they can efficiently grow or manufacture, or what is of the greatest advantage to them. Smith’s theory was a theory of absolute advantage. The English economist, David Ricardo, refined Smith’s theory to one of comparative advantage. He theorized that an exporting country does not to be the most efficient producer of the product; it only has to be more efficient than the country which imports the product. Mutually beneficial trade arises when one country has a comparative advantage.

There are several reasons why governments try to control the imports and exports of a country. One reason is that country enjoys an advantage if it exports more than it imports. Wealth accrues to the exporting country. Some countries have special programs to encourage exports. They may be programs that provide marketing information, establish trade missions, subsidize exports, and provide tax benefits or incentives. Government subsidies allow companies to sell products cheaply. Sometimes these subsidized companies export their products and sell them cheaply overseas. This practice is known as dumping. Dumping is selling on a foreign market at a price below the cost of production.

On the other hand, governments affect foreign trade imposing tariffs and quotas. A tariff is a tax on imported goods, and a quota is the maximum quantity of product that can be imported into the country. A tariff increases the price of the item, raises revenue for the government, and controls consumption through market forces. A quota has a different effect on the market because it limits the number of items imported. While under a quota there may be a higher price because of limited supply, under a tariff it is the tax that creates a higher price: the supply is not limited. These are called protectionism measures.

Protectionism supports strategic industries that are necessary for countries’ survival in the case of a war. Besides, tariffs and quotas help to avoid structural unemployment in industries where countries do not have comparative advantages as well as shield from dumping, protect infant industries and reduce a balance of payments deficit.

1. Find English equivalents for the following words:

торговые барьеры; абсолютное/сравнительное преимущество; вводить тарифы и квоты; развивающиеся отрасли; дефицит торгового баланса; взаимозависимость; квалифицированная рабочая сила; конкуренция; правительственные субсидии; безработица; удовлетворять нужды и потребности; мировые торговые пути; налоговые выигрыши; иметь дело с к-л/ч-л; в изобилии; неквалифицированная рабочая сила; социальные пособия; прибыльность; переговоры; государственный доход; командовать/распоряжаться; взаимные уступки/компромисс; потребление; трудоемкий; взаимовыгодная торговля; доставаться к-л

2. Answer the questions:

1. What does globalization mean? How do economists define globalization?

2. What things have led to globalization?

3. What advantages and disadvantages does globalization have?

4. Why does international trade develop?

5. What factors are important for efficient production?

6. What does the theory of comparative advantages imply?

7. How do governments encourage exports?

8. What is dumping?

9. What is protectionism? What does it support? What protectionism measures do you know?

Up to you …

You work as a marketing manager at a factory that produces ball bearings and spare parts for machinery. It employs 20 people with only 4 managers to deal with customers, suppliers, production and managerial problems. Your product is comparatively cheap and that is why may be popular with foreign companies. That is why the idea of entering foreign markets seems reasonable. You have to choose a suitable export strategy among the suggested: 1) Passively filling orders from domestic buyers who then export the product; 2) Seeking out domestic buyers who represent foreign end users or customers; 3) Exporting indirectly through intermediaries; 4) Exporting directly. Give your reasons.

Links

Russiajournal.com is a good resource on Russian issues.

Дата добавления: 2015-10-29