Growth and Importance of International Trade, Migration, Investment, and Technology - Assignment Example

Globalization Name Institution Globalization Q. 1.Analyse to what extent we live in a truly globalised world economy. The Concept of Globalization Globalization is the propensity of businesses, technologies, or philosophies to stretch to the whole world or the course of making this occur (Pelez, 2009). Also, it is process of interaction and incorporation among companies, persons, and governments of various countries- a process triggered by international trade and investment and assisted by information technology. Globalization has an impact on culture, environment, political systems, and economical development, and people’s well-being in the world over (Graham, Gilly & Cteore, 2010). Technological developments have stimulated cross- border trade, investment and migration. For instance, the costs of transport, costs of travel, and costs of communication have tremendously been reduced as a result of the presence of fax, internet, email, world-wide web, personal computers, satellites, and cell-phones(Pelez, 2009). All these systems are cheap and accessible to people, and they have dramatically transformed economic life. As a result of that, consumers, investors, and businesses have abilities to identify economic opportunities, involving quick and more informed analyses of trends of economy, manageable transfer of assets, and collaboration with business partners around the world. Growth and Importance of International Trade, Migration, Investment, and Technology Foreign trade, investment, migration, and technology advancement have developed globally enhancing movement of goods and services around the world. After the Second World War, international trade has been advanced by establishment of international agencies like European Union(EU), World Trade Organization(WTO), and the North Atlantic Free Trade Area(NAFTA)- a Union between Canada, the US and Mexico(Helpman & Krugman, 1989). The EU represents 40% of the world trade and 68% of trade between member states). NAFTA represents 18 % of the world trade and approximately 56% of trade among the three member countries. There is also emergence of custom unions which consists of free trade areas (regional trade blocks), where a common tariff is established to protect member countries from importing from non-member countries. These trading organizations create opportunities for deeper integration, such as tax harmonization policies and reduction of political conflicts (Mikic, 1998). The regional trading blocs include: MERCOSUR in South America and it consists of a collection of Latin America countries like Brazil, Argentina, Paraguay, and Uruguay; Association of South East Asian Nations (ASEAN); and Australian and New Zealand (ANZCERTA). ASEAN and ANZCERTA are expected to unite with NAFTA, Japan, China, South Korea, and New Guinea to form an open trade and an investment area, which is expected to form a trade bloc responsible for over 45% of the world trade goods (Bonser & Audretsch, 2002). Globalization has triggered worldwide indirect and direct investments. Indirect investment involves investment in products or services that invest in properties. Indirect investment helps to increase integration of financial markets. Indirect investment expanded in 1990s by more than 20% per year Mikic, 1998). Financial institutions (in the UK) like HBOS and Barclays purchase Bonds or company shares quoted on foreign stock exchange like Tokyo or New York. In addition to that, investors choose from one of the following three ways to invest money in international organizations, each with increasing risk: purchasing into developed organizations which have sizeable businesses in the upcoming economies (for instance Heinz); choosing international organizations which trade on recognized international exchanges( for instance, India’s Tata motors); or delving into international organizations trading only on their home exchange (for example, Brazilian Food multinational JBSS.A) (Helpman & Krugman, 1989). Foreign Direct Investment (FDI) occurs when an organization establishes, acquires, or increases production facilities in a foreign country. Countries such as Western Europe and the US, which form large affluent markets, are major recipients of FDI in developed countries (Mikic, 1998). Multinational corporations have done investments in these countries and their infrastructure so as to gain from natural resources, labor, and currency transactions (Helpman & Krugman, 1989). Additionally, improvement in technology in communications and reduction of transport costs has promoted movement of goods, people, capital, and services. Also, migration has facilitated literacy skills, mobility and transport links. Globalization is associated with several benefits which include: a) Meeting needs- through international trade, countries with excess goods and services supply them to countries with inadequacies. This ensures that countries obtain goods and services in which they have shortages; b) Job creation- services and goods traded internationally creates jobs for the citizens of countries involved; c) Attraction of investment- since investment follows trade, most foreign companies invest in offices, factories, or distribution warehouses to ease their trade and minimize costs; and d) New technology and materials- international trade triggers advancement of technology so as to produce goods and services mare efficiently, but which are competent in the international markets (Bultiterman & Slot, 2004). Some economies are barred from global business due to legal framework issues, import restrictions, and political issues. Most economies discourage external entry of businesses, which may interfere with their domestic businesses (Helpman & Krugman, 1989). They discourage that by, for instance, imposing high tariffs; more so, when businesses enter into new markets in foreign countries, they are unknowledgeable about the new market environments, and therefore, they may purchase raw materials expensively from wrong suppliers leading to low profitability; the companies trading in foreign markets have little or no know-know about consumer behaviors, and therefore, they end up not meeting the customer preferences; some economies lack suitable infrastructures such as transport and communication networks, water ,electricity and other necessities, which discourage foreign investors; some countries political instability which is an important factor required by foreign traders. Foreign investors need a politically stable environment free from corruption and dictatorship, so as to minimize investment risks and uncertainties; finally, some countries lack insufficient visible markets for their goods and services (Helpman & Krugman, 1989). References Bonser, C, F., & Audretsch, D. B. (2002).Globalization and Regionalization: New York: The MIT Press. Bultiterman, M., & Slot, P. J. (2004). Globalisation & Jurisdiction. Alphen aan den Rijn: Kluwer Law International Helpman, E. & Krugman, P. (1989). Trade Policy and Market Structure. New York: The MIT Mikic, M. (1998). International Trade: Texts in Economics. New York, N.Y: Palgrave Macmillan. Pelez, C. M. (2009). Globalization and the State: Volume I: International Institutions, Finance, the Theory of the State and International Trade. New York: Palgrave Macmillan Q.2.   Argue the case that companies, wishing to invest in production facilities abroad need to pay attention to the cultural environment. Influence of Cultural factors on International Trade Culture is a system of shared beliefs, values, customs, and behavior prevalent in a society and transmitted from generation to generation. Norms and values embedded in national culture are powerful influence, and therefore, various approaches are required to manage people from different cultures (Torelli, 2014; Rhee, 2003). Economies with low levels of uncertainty prevention and high levels of trust are attractive points for international investors. On top of that, since cultural values trigger business practices, they are reliable economical explanations for cross-national variations in the real FDI inflows, which are not attributes of economic, policy-based, institutional, and authoritarian aspects (Hanssens, Derudder, & Taylor, 2010). Similarly, small countries, for instance, in Western Europe, have different cultures based on ethnic group, but not regional. There are different cultural differences between Eastern and western regions of the world as a result of varied social environments. EPRG framework For effective launching of international business, Permutter produced the EPRG framework, which the managements should follow in approaching international businesses. The ethnocentric approach- this is a behavioral pattern where one ethnic culture feels superior and show contempt over other countries’ cultures (Dumez & Jeunemaitre, 2014). As a consequence, all positions in a subsidiary are occupied by nationals of the mother company; polycentric approach – where host country nationals are employed to manage the subsidiaries (Rhee, 2012). To avoid intercultural management problems, the multinationals take low profile in sensitive economic and political situations; geocentric approach- the multinationals use the best people for the core job positions, regardless of their nationality or geographical positional of the job; and regiocentric approach- the multinational distributes its operations geographic regions and transfers its staff within particular regions rather than between regions. References Dumez, H., & Jeunemaitre, A. (2014).Understanding and Regulating the Market at a Time of Globalization: The Case of the Cement Industry. London: Palgrave MacMillan Hanssens, H. Derudder, B., & Taylor, P. J. (2010). The changing geography of globalized service provision. The Service Industries Journal, 31(4): 2293-2307 Rhee, C. (2003). Principles of International Trade (Import - Export): The first step toward globalization. Milton Keynes: AuthorHouse Rhee, C. (2012).Principles of International Trade (Import-Export): The First Step Toward Globalization. Milton Keynes: AuthorHouse Torelli, P. (2014).International Economics Understanding the Forces of Globalization for Managers. New York: Business Expert Pr Q. 3.Using examples, explain the links between a global/international external macro environmental analysis and the porters 5 force model. External Macro-environmental Analysis (PESTLE Analysis) Pestle analysis involves in-depth analysis of economic, political, social, environmental, technological, and legal economic factors impacting international businesses. Each of these factors affect the performance of business on different dimensions. Political and Legal factors Political and legal factors play a very significant role in shaping global businesses. Foreign investors prefer stable multiparty political system, which discourages corruption and grubbing of foreign properties. A stable political system is able to fairly deal with problems of security and other issues concerning violation of rights (Pitman &B iukovic, 2011). This is uncommon in politically turbulent countries. Adding to that, foreign investors prefer economies with flexible employment regulations based on wage determination, cessation, recruitment, and employment working conditions. On top of that, foreign investors prefer countries which impose fair tariffs on international businesses so as to prevent the international investors from realizing low profits or losses (Feenstra, 2003). Economic factors Despite high profits realized by investors in developing economies as result of cheap labor, the investment returns are highly determined by currency fluctuations and restrictions on the transfer earnings, which are constantly changing. Similarly, transport systems and social amenities such as roads, schools, and electric power are underdeveloped in such countries, and therefore, they discourage foreign investments. In developed economies, transport and communication networks are well developed, but there are inflexible employment regulations and labor is expensive (Feenstra, 2003). Technological factors Communication systems are very important in the world of business, particularly the present advanced technological systems like telephone, internet, and others. For example, through video conferencing technology, face- to - face meetings can be held from different parts of the world. This type of communication facilitates global communication between businesses. The presence of internet, telephone, computers, and other communication facilities are vital elements in promoting international businesses. On top that advanced technology has transportation system such as air, water, and others to be faster and cheaper than previously. Therefore, businesses are able to order for goods or services from another country through the website, which are then, transported fast and cheaply (Koh & Ching, 2008). Cultural and social factors According to Pitman and Biukovic (2011), culture is composed of forces of a society impacting values, beliefs, and actions of distinct groups of people. In some parts of the world, it is difficult to find people of different cultural backgrounds work together. There is an element of power distance in places with diverse cultures. The magnitude of power distance increases with the amount of ethnicity (Feenstra, 2003). Some countries take into account the aspect of masculinity and femininity in employment and business systems According to Feenstra (2003), masculinity is associated with assertiveness, performance-orientation, success, and competitiveness. Feminine is connected with quality of life, close personal relationships, and caring. Additionally, some countries are collectivist while others are individualistic. Another factor involves uncertainty avoidance, where people are flexible and ready to change, and therefore, they can make great entrepreneurs, than the rigid people in others countries. Porters Five Forces Model Porters five forces model is an important tool for accessing the potentiality of profitability in an industry. It is used to explore competitive environment in which a product or a company operates (Grossman, 1992. This model focuses on the strength of five important forces that affect competition, and they include: a) supplier power- the power of suppliers to drive up prices of consumers’ inputs; b) buyer power- power of consumers to drive down prices; c) competitive rivalry- the strength of competition in the industry; d) threat of substitution- extent to which different products and services can be used in place of others; e) the threat of new entry- the ease with which new competitors can enter the market when they see their rivals are making good profits( Rhee, 2003). References Feenstra, R.C. (2003). Advanced International Trade: Theory and Evidence. New York: The MIT Press. Grossman, G. M. (1992). Imperfect Competition and International Trade (Readings in Economics). New York: The MIT Press. Koh, L., & Ching, S. (2008).Logistics Economics and Globalization. International Journal of Logistics Economics and Globalisation, 5(4):177-200 Pitman, B. P & Biukovic, L. (2011).Globalization and Local Adaptation in International Trade Washington, D.C. University of Washington Press. Rhee, C. (2003). Principles of International Trade (Import - Export): The first step toward globalization. Milton Keynes: AuthorHouse Read More