Analyzing a Major Business in the International Sector - Rolls-Royce Group Company - Case Study Example

Name Professor Title Date Introduction This report aims at analyzing a major business in the international sector. This enterprise will help analyze certain concepts and theories in international trade. The experience of this major international enterprise is useful in this study as it has been in the sector for a long time. Multinational enterprises are those companies that involve themselves in trade outside countries (Devons 2013). They have worldwide loom to markets all over the world by producing products or offering their services to the rest of the globe. There are various theories and concepts relating to international trade. Various companies are working towards being multinationals while others are already there. Companies like General Motors, Samsung, Rolls-Royce Group and Shell among others are examples of famous successful multinationals. The major international enterprise relevant to this study is Rolls-Royce Group. This is a business which operates in most parts of the world today, with its head offices in the United Kingdom. With its headquarters in Britain, it has been able to spread its wings to many other parts of the world. All this has been with the aim of satisfying the needs of the market in terms of power systems demands. Rolls-Royce Group deals with power systems like aircrafts. Rolls-Royce Group comes second in a recent ranking worldwide as it manufactures the best aircrafts engines. Far from that, it also manufactures marine engines and in the energy area. Rolls-Royce Group Company Several factors have led to settling at this international company for this research. Its role in global trade has been great, in comparison to many other enterprises. Research shows that in 2010, Rolls-Royce Group contributed about 34% of the international market share. This shows it effectiveness in global trade. In its home country, the same enterprise is listed in their London Stock Exchange as one of the top most businesses. By the end of December 2011, Rolls-Royce Group recorded a high market capitalization of about 12.89 Euros. Information from a recent research indicates that this company makes an average of 11.9 Euros with a net income of 61.2 Euros. In the past five years, it has been on an increasing trend in terms of total returns per year (Gilpin 2011). This makes it an ideal company for this research that aims at presenting a report on international trade. This company will also be of help in this report because it applies certain theories and practices of international trade. Rolls-Royce Group ranks among the top companies in the world in the sector of aerospace and defense (Devons 2013). Some of the products it manufactures include gas turbines for use by military all over the world. It also deals with manufacture of engine for aircrafts like jets and helicopters. Rolls-Royce Group supplies these products to outside countries for use by the armed forces due their complexity. Over 67% of its clients come from outside countries, therefore, that contributes to the high sales and contribution to the global market. Rolls-Royce Group role in global trade pattern It plays a major role in international trade pattern. This is because it contributes much to the world through providing employment opportunities to people. In the year 2010, Rolls-Royce Group created job opportunities to more than 35000 people in more than 45 countries in the globe. This shows the great role it plays not only in improving economic status of its home country but also of the globe at large. The globe pattern today aims at improving the economic status of other countries in the globe. Most companies are slowly embracing the pattern by creating job opportunities for workers in outside countries. Job creation for workers in outside country branches will ensure that a company becomes responsible to outside countries. Research shows that around three quarters of its employees are from foreign countries (Jones & Wren 2012). That means that they have given priority to foreign countries, therefore, plays an important role in global trade pattern. Another important role that Rolls-Royce Group plays in the world today is supplying safe products to the world. This is a social responsibility to ensure that consumers consume safe products. This role also involves producing safe products for the environment. There are certain standards set by some bodies in the world regarding some global trade patterns and the manner in which companies comply with them. For instance, Rolls-Royce Group manufactures engines and aircrafts safe to the environment and those that are free from any form of pollution. It is a common global trade pattern in these recent times due to the emerging trend of environmental pollution and consumer safety. For instance, Rolls-Royce Group supplies its services, engines and helicopters to around 158 armed forces and 597 airlines in the globe. Comparative and competitive advantage and its implications in international trade patterns Comparative advantage means that a company is able to manufacture its products or services at lower costs than other similar companies. Comparative advantage of a company involves incurring less costs of production like opportunity cost and marginal cost than other companies in the same field. It is happens regardless of whether a firm has absolute advantage or not. When a firm has comparative advantage over another, it becomes easy to trade with them. This happens in the case where both firms have various relative efficiencies. There is a difference between comparative advantage and competitive advantage of a company in international trade. Rolls-Royce Group faces competition form many other companies in the world today. Rolls-Royce Group applies this theory in international trade so that it gets to enjoy the benefits of trade. This theory is very important in international trade as it assists firms in their production process. Rolls-Royce Group tries to create value of international trade by producing aircraft and engines using fewer factors of production than other industries of the same (Jones & Wren 2012). However, this company uses the competitive advantage theory more than it does with the comparative advantage approach. Competitive advantage on the other hand aims at solving limitations of comparative advantage. This is a theory that tries to give possible solutions to the theory of comparative advantage. It stresses much on maximization of products that it is best at producing by a firm (Frederking 2010). A firm using this theory aims at giving its consumers value for their prices by reducing cost of products or increasing their value. Under this theory in international trade, firms aim at specializing in manufacturing and offering services that it is best at. This makes a company stand a better position that its competitors in the foreign market. There are various aspects of competitive like the technological strategy of it. For instance, in this case, this company uses high technology than its competitors. Therefore, the strategy helps it to record high sales because its products are of good quality. Rolls-Royce Group uses the theory of competitive advantage by using special resources to manufacture its products. These resources are not used by its competitors; therefore it has competitive advantage over its competitors (Fung & Zhang 2002). Another policy by the same company under this theory is proper management of accounts. Therefore, it has policies and practices that it uses to be able to satisfy needs of its consumers in the globe and compete relatively with its competitors. Examples of its competitors in the globe include Cobham PIc which is the nearest competitor. They also have to maker the competition a healthy one. Regardless of the number of competitors in the market, Rolls-Royce Group manages to stand out. All this is made possible by presence of its competitive advantage. Having a competitive advantage in the market with its competitors implies that a company is able to manufacture and sell its products and still make it to stand out from its competitors. Competition is crucial, especially in the case where a company decides to go out to the outside market. Rolls-Royce Group has competitive advantage over other aerospace and defense companies because of the policies it uses. It applies strategies favorable to them so that they still remain in the international market. It is important that a company analyzes the policy of comparative and competitive advantage. Activities of Rolls-Royce Group represent an aspect of new trade theory in so many ways. This approach is vital in determining patterns of global trade (Gilpin 2011). This is because this theory is one of those that apply to the pattern of international trade. With this theory, firm owners aim at putting together several economic models in international trade. Rolls-Royce Group applies the new trade theory for its success in the international trade. It uses the approach to increase its returns of scale and improving network effects. Experts in this field advocate for the application of this theory in global trade. This is because it encourages increasing returns from a constant rate. There are certain implications of new trade theory on Rolls-Royce Group and other firms in global trade. The implications are positive, unlike when a company uses the traditional method of comparative advantage (Frederking 2010). This is because this approach has many limitations. Increasing network effects in other countries and economies of scale or returns for Rolls-Royce Group has had positive impacts. With the use new trade theory, this company gets network advantages from all its consumer countries due to specialization. Specialization in one area of production also increases returns of the company and its economies of scale. This is because it is able to reach a large market in many countries, unlike other firms in similar area of production. Another impact of this apprioach on Rolls-Royce Group is that it benefits early entrant companies in the marketplace. Rolls-Royce Group was in existence before its competitors, therefore, it dominates the aerospace and defense market. This company enjoys large economies of scale so that other companies find it difficult competing with them (Fung & Zhang 2002). This explains the reason behind growth of globalization in international trade. This approach gives a comparative advantage for first entry firms in the market. However, some experts argue that it is an unfair advantage because it does not favor small and upcoming industries. Rolls-Royce Group dominates the aerospace and defense industry because of its capital intensive nature that regulates other firms from joining. That means that the new trade theory has its share of limitations in the international trade patterns. Theories of Foreign Direct Investment and the Eclectic Paradigm Eclectic Paradigm is an approach that has its basis on another approach known as internalization. However, experts in Economics have developed it to accommodate changes in the world on the area of international trade and economics. The theory of internalization is developed to incorporate any relevant changes by Economics like John Dunning. The theory of Eclectic Paradigm incorporates several other approaches that economist view to be minor (Jones & Wren 2012). Many people ignore and isolate some of these approaches. This theory talks of three basic advantages that a firm might have over others. They include location, ownership and internalization advantages of a company. Net ownership Rolls-Royce Group has a net ownership advantage over its competitors because it enjoys favor from outside and unknown markets in the globe. It applies the approach by venturing into new markets and establishing contacts with them. Rolls-Royce Group must have enough resources to venture in new markets. This is because they have to equip their staff with knowledge on foreign languages so that interaction is easy. Other aspects like licensing fall under Eclectic Paradigm. Rolls-Royce Group enjoys internalization advantage, therefore, it invest more capital in foreign market than it does in its home country. Foreign Direct Investment is another theory that applies in international trade (Gilpin 2011). This theory explains investment of capital in foreign countries as long as it ahs location advantages there. Fir instance Rolls-Royce Group has location advantages in a foreign country like Germany. That means that it can invest its capital in such a country without much fear. It is not the case for the same country in other countries in the world where they do not enjoy location advantages. Experts explain that Foreign Direct Investment is an expensive capital venture as it involves buying or constructing branches in outside countries. This firm represents stages models of internalization because it ahs internalization advantages over most of it competitors. It has been able to invest massive capital in foreign countries. Rolls-Royce Group experiences certain effects of culture, legal and economic systems in its foreign market. This is because of the diverse cultures that each market that it ventures into (Fung & Zhang 2002. Rolls-Royce Group operates in many countries which have a variety of cultures and different legal systems. This implies that the company has to change some of its strategies to fit in the community and meet regulations set by the government like taxes and other regulations. Conclusion The report analyzes Rolls-Royce Group as an example of a major international business enterprise that makes use of several theories in international trade. Other firms also apply some of these theories in a bid to reach the international market and dominate it to increase their returns. They all aim at satisfying their clients by offering the best of their products (Devons 2013). However, some international trade theories give advantage to some firms while to others they seem unfair. This is because some theories like the internalization theory require investing much capital in a foreign country. It seems unfair because not all companies have enough capital to the favor of this theory. However, economists have come up with other the new trade theory to curb such disadvantages. Bibliography Carbaugh, R. J. 2010: International Economics: Cengage Learning: Pg. 356-456. Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., and Freeman, S. 2012: International Business: The New Realties. Australasian Edition: Pearson. Devons, E. 2013: Planning in practice: essays in aircraft planning in war-time: Cambridge University Press: Pg. 12-67. Dunning, J. H & Gray, H. P. 2003: Extending the Eclectic Paradigm in international business: essays in honor of John Dunning: John Harry Dunning: Pg. 89-106. Frederking, J. 2010: Comparative cost advantage and factor endowment: GRIN Verlag: Pg. 23- 43. 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