Globalization in Daily Life - Assignment Example

?Global Business Table of Contents Question 3 Question 2 6 Question 3 8 Question 4 11 Question 5 13 Reference 15 Question Senator Wockenfuss is the newly elected representative from Michigan. An English literature professor by occupation, Wockenfuss knows everything about Shakespeare but nothing about business. Explain to Senator Wockenfuss what globalization is by both definition and examples from daily life and provide a recommendation for her about whether to support President Dennison’s proposed free trade agreements with South Korea for the increased importation of KIA automobiles. With the enhancement of human civilization, there have been a number of changes taken place in global society. In fact, in this process, the most important and notable factor is the development and emergence of growth oriented thought process in the mind of the people. People have realized that necessity of interdependence and corporation among the world economies. This has brought a significant improvement in the every aspect of human activities including social and economic condition. This overall improvement can be covered into one umbrella term i.e. ‘Globalization’. Many scholars and economist have tried to explain the term globalization as per their own view and opinions. For example, Jos Berghman commented that “globalization refers to a growing global interconnectedness” (Berghman, 2005, p.6). The term, ‘interconnectedness’ itself explains the core essence of the globalization. The UK Department for International Development (DFID) has given a broad definition of globalization. DFID has identified that the “increased flows of goods, services, capital, people and information” are the major determinants of globalization which is “driven by technological advances and reductions in the cost of international transaction” (Zajda, 2005, p.294). Therefore, primarily, international trade and technological advancements have facilitated the process of globalization and this has developed medium for exchanging ideas, views, tangible & intangible capital, factors of productions etc. This process has created the better scope for the development of economic, social, cultural and international relation. In our every step of daily life, we can feel of presence of this development encouraged by globalization. For example, the product developed using Japanese technologies like Japanese cars are dominating in the global automobile sectors. On the other hand, the Italian cuisine like ‘Pizza’ is one of the popular food items of the people living in American and Asian countries. Moreover, Chinese cost effective production process have led to encourage many manufacturers like Nike to expand their business in China, and many multinational corporations are trying to enter in emerging marketing like India, Taiwan, China etc. These examples are proper reflection as an outcome of globalization. In order to facilitate the process of international trade, the trade agreement between and/or among different countries have played a very significant role as it helps to grow a country with significant amount of foreign direct investments (FDIs) which creates industrialization causing growth in aggregate demand and supply, and an economy can achieve equilibrium growth. Recently, U.S. and Korea have entered into free trade agreement known as KORUS FTA, according to which the U.S. MNCs can have greater accesses in Korean market, and Korean automobile manufacturer can enjoy a significant reduced tariff in U.S. automobile market (U.S. International Trade Commission, 2011). The U.S. automobile sector is already crowded with a number of domestic and foreign automobile companies. However, as per this agreement, the Korean companies can have better access to automobile market as they are able to offer cars at much reduced cost increasing the competition. The competition is one of the healthy sign for an economic development. On the other hand, U.S. companies can also enter in Korean market that can be interpreted as a compensation for U.S. car maker by getting a better opportunity in emerging Korean market. Therefore, this trade agreement must be supported for the development of both countries and better international relation. Question 2 Does innovation exist in the global business market and, if so, what are the market pressures to stimulate this activity? Are there first-mover advantages or first-mover disadvantages that an entrepreneur needs to be cognizant of before investing? Innovation can be interpreted as the one of the core factors for the development of trade and commerce. Managing the international trade and business always has been a challenging task than managing a domestic business. In this process, innovation plays an instrumental role in business development. Innovation is the primary source of the new business through the development of the new product and services that means to meet the demand and necessity of the target consumers. “Innovation opens up new vistas of knowledge and new dimensions to our imagination to make everyday life more meaningful and richer in depth and content” (Dept of Information Technology, n.d.). Innovation in business can be divided into a number of areas including innovation for product or service development, process development (R&D), and management development. As the competition in the global market is highly intensified and the business organizations always need to innovate their business process so that they are able to sustain in the foreign market by acquiring a significant amount of the market share. Therefore, innovative strategies are always very helpful achieving competitive advantage. Gilbert has defined that “innovation strategy determines to what degree and in what way a firm attempts to use innovation to execution its business strategy” (Strecker, 2009, p.16). However, in order to implement and introduce the innovation in business, a company has to face a number pressure. Firstly, the increasing competition is one of the primary stimuli in determining the level of innovation. Secondly, implementation of innovation requires an intensive amount of capital expenditure that may increase the cost of product for short term. However, for long term, innovation always helpful in achieving cost effective production. In order to achieve a greater success through implementing innovation in the market, it is very necessary for entrepreneurs seeking new business development to identify the stage of innovation and try to achieve the first mover advantage. In this respect, Roger’s adoption of innovation theory is very helpful in explaining this fact. According to Roger, introduction of innovation in a specific market is gradual and the early adopters are always having an upper hand position as they can skim the market share. The following diagram presents a model of innovation adaptation curve. Figure 1: Innovation Adoption Curve of Roger (Source: Nelson, National Association of College Stores & ECAR, 2006, p.5) As per the above diagram, after innovators, the early adopters are more profitable and after the point, ‘adoption chasm’ market does not remain effective. Question 3 If you represent an entrepreneur seeking to penetrate the American market for the importation of wine, would this be smart investment to make? The wine market of America always has been an attractive market due higher demand of the product. Especially, the wine market of America indicates a better opportunity for the exporters. One of the primary reasons for the high demand of wine is the higher level of income of people. U.S. is one of the wealthiest countries with GDP purchasing power of $14.66 trillion and per capita GDP of $47,200 (CIA, 2011). People’s spending power is quite high and they are able to afford and like to spend for expensive wines from different countries. According to a report presented by Datamonitor, the average consumption of wine in U.S. increased from 7.9 liters in 2000 to .1 liters of wine in 2007. However, comparing to average beer consumption of it lags significantly. In comparison to the major world economies, U.S. is placed in 31st position in terms of per capita wine consumption and this indicates a significant growth opportunity for wine manufacturers and wine suppliers in U.S. market (New Zealand Trade and Enterprise, July 2008). In order to justify the investment in U.S. wine industry, certain factors like projected demand, pricing, quality, competition etc must be taken into consideration. After the economic shock of the global meltdown, the income is expected to rise and it is presented in the following diagram. Figure 2: Improving Income of U.S. (Source: Moody's Analytics, Inc, 2010) However, in spite of increasing income level, U.S. people are more preferring low wine products and to maintain the higher rate of sales growth, price of wine has been decreased as it is presented in following figure. Figure 3: Falling Prices Keep Wine Sales Afloat (Source: Moody's Analytics, Inc, 2010) Many foreign suppliers have identified this opportunity and they already started supplying wine in U.S. Countries like Argentina and China. The importation of wine from countries in U.S. with their respective market share is given below. Figure 4: Low-Cost Wine Imports Will Gain Market Share (Source: Moody's Analytics, Inc, 2010) As per the above diagram, low cost providers are enjoying a greater percentage of market shares. Dietel has presented negative views and perceives that U.S. wine market has lost its attractiveness due to certain factors like demand of low cost product, increasing competition from the foreign suppliers and popularity of other types of alcoholic beverages like beer. Moreover, the regulatory tax duties and opposition regarding alcohol from human rights is also major obstacle for new entrants (Dietel, n.d.). However, these challenges do not seem to be too severe to earn a better profitability as demand of low cost wine is increasing. Therefore, it can be considered as smart investment for the importation of wine in U.S. market. Question 4 What are the benefits and costs of FDI to a host country? How does ideology play a role in weighing the balance of encouraging FDI? FDI is considered to be one of the most crucial factors that ensure the economic growth and prospectus, and rather is can be termed an important tool for the economic development. Specifically, “FDI can be defined as an investment made by a resident of one economy in another, and it is of long term nature of lasting interest” (United Nations, 2009, p.3). Empirically, it has been proved that FDI has always been playing an instrumental role in bring growth in developing countries. The primary motivation behind the FDI is the interdependence and interconnectedness. No economies are self sufficient in terms of capital and resources or availability of better market place. Some of advantages and disadvantages are given below. Advantages: It is helpful in shifting capital to one country to another stimulating the economy activity. Availability of necessary capital leads to industrialization that further results in increasing employment and aggregate demand and supply. The MNC can have access to a greater market opportunities leading to organizational growth and success. Government will be able to generate greater tax revenue that can be used for better public investment Disadvantage: Due to increase in the production and employment, the overall money supply increases that finally results in higher inflation. As FDI increases the number of MNC increases causing intensive competition. Mainly, the domestic companies suffer due to this competition as they are capable in terms of capital and technology as MNCs. MNCs are often blamed for exploiting the host countries’ market and resources. In order to achieve the highest optimal outcome from an inflow and outflow of FDI, the proper ideology and conservatism is very necessary. In this respect, the political orientation is a crucial factor in determining the flow of FDI. The governing political parties are responsible for the framing the major economic policies for economic development. Ideology includes three major areas i.e. radical, free market and pragmatic nationalism. Among these radical ideology is discourages FDI as its root lies in Marxist theory that perceives FDI as a means of exploitation of indigenous market. On the other hand, free market and pragmatic nationalism opine FDIs are crucial for economic growth. Question 5 Global businesses, which focus on production of goods, are more efficient than global companies that deliver services. Evaluate. Since last one and a half decades the activities in the global economy and business has changed significantly. As an effect of globalization, many new industries have been developed in accordance to the necessity to prevailing economies. In the course of this evolution, the servicing industry has becomes one of the significant contributors to the growth of economy. Traditionally, in the global market place, the manufacturing industry was dominating as servicing industry has developed very recently. The manufacturing firm is engaged in production of goods; whereas, in servicing firm delivers services. Production of good results in developing tangible goods and delivering services is act though which services are delivered to the direct customers. Some of the differences between the production of goods and delivering services are given in the table below. Table 1: Differences between Production of Goods and Delivering Services (Source: McGraw-Hill Higher Education, 2007) As per the above table, some of the characteristics of production of goods and delivering services are given in the table, and by evaluating these characteristics, it can be interpreted that in the global level, the manufacturing goods are more efficient than the delivering services. There are several factors that enable manufacturing companies to operate in a more flexible outcome. For example, manufacturing firms can maintain inventory considering the projected demand. Moreover, in manufacturing business, the companies can make forward or backward integration that makes their task more efficient and effective; whereas in case of servicing firm there is very little scope for such strategies. Besides, serving industries are more labour intensive but in case of manufacturing, companies can implement machineries that leads to increase the frequency and effectiveness of production (Hilton, Ramesh and Jayadev, 2008 p.17). Reference Berghman, J. (2005). Social protection globalised. Leuven University Press. CIA. (May 26, 2011). The World Factbook: United States. Retrieved June 06, 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/us.html. Dept of Information Technology. (No date). Innovation and Business. Retrieved June 06, 2011 from http://business.gov.in/innovation/index.php. Dietel, J. E. (No date). America’s Wine Industry: A Global Success. Retrieved June 06, 2011 from http://www.cosmosclub.org/web/journals/2000/dietel.html. Hilton, R. W., Ramesh, G. and Jayadev, M. (2008). Managerial Accounting. 7th ed. Tata McGraw-Hill Education. McGraw-Hill Higher Education. (2007). Introduction. . Retrieved June 07, 2011 from http://highered.mcgraw-hill.com/sites/0073041912/student_view0/ebook/chapter1/chbody1/introduction.html. Moody's Analytics, Inc. (April 2010). Wine Industry Insider 2010. Retrieved June 06, 2011 from http://www.sonoma-county.org/edb/pdf/2010/wine_industry_insider.pdf. Nelson, M,R. National Association of College Stores & ECAR. (2006). Digital Content Delivery Trends in Higher Education. Retrieved June 06, 2011 from http://www.dmproject.org/docs/28%29%20DCD1-ECAR_RB.pdf. New Zealand Trade and Enterprise. (July 2008). Market Profile for Wine in the United States. Retrieved June 06, 2011 from http://www.nzte.govt.nz/explore-export-markets/market-research-by-industry/Food-and-beverage/Documents/Wine-market-in-the-United-States.pdf. Strecker, N. (2009). Innovation Strategy and Firm Performance: An Empirical Study of Publicly Listed Firms. Gabler Verlag. United Nations. (2009). 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