Relationship and Application of Concepts to Article - Essay Example

Part I: Summary of Assigned Chapter - The Global Economic Environment [Chapter 2] The book’s second chapter istitled the Global Economic Environment. The author begins the chapter by highlighting the goals that the chapter hopes to achieve, these include a discussion on the manner in which the global economic environment happens to be different from the domestic economic environment, An analysis on a number of different international trade theories and their impact on government policies supporting or constraining trade, a discussion on how the balance of payments is a lead indicator of a given country’s international economic health, a description of how UNCTAD, the WTO as well as other international trade organizations tend to influence trade, details on the five established levels of economic integration and their overall implications for the international marketing manager. In discussing the global economic environment, the author emphasizes on the importance of international trade theories. There are three key international trade theories; these are absolute advantage, comparative advantage and product life cycle. These theories generally emphasize that firms seeking to expand internationally need to ensure that they appreciate how their various international activities tend to match with a given country’s goals for international trade. The balance of payment is widely considered to be a lead indicator of the international economic health of a given country and as such, it may tend to have a direct influence on a firm’s expansion decisions. This is it essentially indicates how money is currently going into and out of a given country and whether this movement of currency has resulted into deficits or surpluses for the country. BOP data can aid firms in identifying their competitors as well as possible consumer locations and evaluate the possibility of trade restrictions. Government policy and trade is also another crucial aspect to be considered as firms are directly impacted by government in a wide range of areas such as tariffs and non-tariffs barriers. According to the authors, some of the government policies and trade that might impact a firm include specific duty, tariff engineering, ad valorem duty, exchange controls, quotas and non-tariff barriers (NTB’s). Institutions such as the WTO and UNCTAD had a great influence on trade policies. In this respect, the authors are keen on stressing that they can heavily influence a given firm’s global strategy. Whereas the WTO essentially serves to provide a crucial forum that can be used by countries for mediation, consultation as well as in the provision of ruling on trade disputes between the different members, UNCTAD on the other hand has implemented a number of measures designed to further the development of emerging nations. Other important organizations affecting international trade include the IMF, the OECD and the WB Group. The book also highlights that firms should also take into considerations certain aspects of the international financial system such as foreign exchange rate and exchange rate instability as these can have the effect of affecting the way that they are able to trade on a global scale. Firms stand to reap a number of relatively great benefits from countries forming and engaging in economic integration as this can result in reduced costs of doing business. However, economic integration also has the drawback that it can at times result in increased and stronger competition. Part II: Summary of WSJ Article - More iPhones, Fewer Sony’s Mean more Deficits for Japan [September 18, 2014] In the journal article appearing in the Wall Street Journal on September 18, 2014, Obe highlights just how the growing iPhone market in Japan has negatively impacted the market for Sony products, this has in turn resulted in there being more deficits for Japan. Obe (2014), starts the article by pointing out that as Sony continues to struggle with its smartphone business, Apple on the other hand is currently expected to release the iPhone 6 to its eager Japanese fans. The stark contrast between these two companies is of great aid in helping to explain the problems that Tokyo policy makers are facing; these include rising imports, persistent trade deficits and declining exports. These factors have contributed to slowing down the country’s growth rate. In the article Obe clarifies that although strong iPhone sales do tend to help the Japanese manufacturers that are contracted to produce most of the device components before they are shipped to Chinese and Taiwanese companies for assembly, these exports are too small to sufficiently cover the costs of importing finished iPhones. As compared to Sony’s 12.1% share in the Japanese mobile phone market, IPhone’s 35.2% market share as at 2013 is noted to mark the company as the country’s largest supplies of mobile phones. When Apple launched the iPhone 6 in Japan in September 2012, imports of telecommunications equipment were noted to soar to a high of 90.4% causing a significant increase to the total value of imports by the country. From a low of ¥200 billion in 2008, Japan’s mobile phone imports surged to ¥1.6 trillion in 2013. Japan’s currency is currently weak and this is expected to further negatively impact the country’s overall trade deficit as imports continue to become progressively more costly. The Yen is noted to be at a six-year high against the dollar and in August, the country posted what is a net trade deficit. This was the 26th deficit in as many straight months. Total imports shrunk by 1.5% while imports shrunk by 1.3% from a year earlier. The declining sale in electronics has also caused the country to experience considerable difficulties in paying for fossil-fuel imports that have considerably increased since the Fukushima nuclear accident. Prime Minster Abe’s efforts to revitalize exports through aggressive monetary easing has futher served to compound the problem as exports have largely remained sluggish. Admitting that its smartphone strategy has largely failed, Sony expects to post a staggering loss of ¥230 billion ($2.15 billion) in the year ending 2015. Part III: Relationship/Application of Concepts to Article While reading the Wall Street Journal article, I was able to draw parallels between the article and the topic in chapter two of the textbook. These include Balance of Payment, government policy and trade, and comparative advantage. Balance of Payment: This factor is highlighted in the article as the launch of iPhone 6 is expected to negatively affect Japan’s balance of payment similarly to how it affected it when the iPhone 5 was launched in 2012. In 2012, the 90.4% increase in total value of telecommunications equipment value of imports negatively affected the country’s balance of payment in light of its reducing exports. The country’s balance of payment is also affected as although some Japanese manufacturers are contracted to produce certain device components for Apple Iphones, these components are shipped to other countries such as Taiwan and China for assembly and the finished product is then shipped back into the country at a much higher price. The prevailing negative BoP is further highlighted by the fact that Japan posted a net trade deficit in August for the 26th straight month. Government Policy and Trade: The aspect of government policy and trade is evidently clear in the article as highlighted by the fact that Prime Minister Abe implemented a raft of policies designed to revitalize exports through aggressive monetary easing. The implementation of these measures was based on the belief by many policy makers that the Yen’s continued excessive strength was the key cause of Japan’s persistent economic slump since the 2008 financial crisis. However the implementation of these measures has not been as successful as had been anticipated as exports continue to remain sluggish. Comparative Advantage: Comparative advantage refers to a country’s overall ability to produce a given good at a much lower cost, relative to the production of other goods compared to another country. Countries import those goods in which they enjoy least comparative advantage while exporting those that it has the greatest comparative advantage. This is reflected in the article as the assembly of iPhones in Taiwan and China is cheaper as compared to the assembly of these phones in Japan. This has forced Japan to Import Apple IPhones as it generally has a low comparative advantage in their production. Exchange Rate Instability: This refers to any significantly large changes in the current exchange rate between a given country’s currency and that of another given country. Exchange rate instability is noted to cause doing business in the affected country to become decisively more difficult. This factor is alluded to in the article journal article as it briefly mentions that this week, the Yen is at what is a six-year high against the dollar. Read More