The Success of New Trade Theory in Explaining the Growth and Pattern of International Trade - Assignment Example

International Business By Students Name Course Professor University State Date Question 1 The success of new trade theory in explaining the growth and pattern of international trade over the last 30 years The new trade theory suggestions are that a the substantial economies of scale are the critical factors when it comes to the determination of international patterns of trade. The theory recognises that countries that produce analogous goods and services have a continued engagement in trade with each other although they have nothing to benefit from in terms of standard theories of international trade. The theory has managed to imply conclusively that comparative advantage does not only raise natural differences in climate or resources. Unlike the previous theory, the new theory shows that economies of scale and network impacts that takes place in major industries are also essential determiners of international trade patterns. The other success in the new theory trade is that under its claim it has tried to justify the need for a country to import a particular product other than producing it locally. According to the theory, once a country decides to import a product in its best interest it stands a better chance to specialise in other products, thus attaining economies of scale. This means that the country can achieve a high rate of production at a reduced cost. The theory helps in explaining the cost of economies of scale and globalisation among the developing countries. The theory shows that early global market entrants hold in an inherent advantage in that particular industry. The have more time to achieve economics of scale that makes it hard for new firms to compete. This gives a green light to the industries in the developing world how hard and demanding it is to become deep-rooted in the existing global market. This is because the industrialised countries have already established economies of scale, thus dominating the market. The new trade theory has also managed to offer an extraordinary perception on the subject of government regulation. This has been brought about by the fact that the theory has managed to recognise that due to comparative advantage attribution to not just factors that occur naturally, however, to market and government created factors as well. Therefore, it is often in the best interests of countries to protect new and naive industries. In this case, the tariff production is likely to give the developing industries in developing countries to exploit finally economies of scale and be competing within the global market. Question 2 The factors managers should consider when developing a global supply chain strategy and the role logistics have in such a strategy There are complexities that are connected to the global supply network. Therefore, cautious identification of potential dangers connected to the supply base ought to be an essential thought for administrators when building up these inventory network. These risks can be characterised into two classes; the interior and outer risks, the interior ones result from the usage of the operational technique or components that are in the control of a firm. The outer concerns are those that are past an association's control. In the context of expanded global operational network, a company supply chain, in this case, should adjust in order to accommodate all the intentional risks involved. The internal factors to put into consideration includes, environmental, economic and geographical risks. Each of these risks contains a varying degree of mitigation power. The environmental events include aspects such as natural epidemics political factors, trade restrictions and regional conflicts. The natural disasters are least likely to be controlled by company managers or business as a whole to low prediction probability. The intellectual property laws is another crucial consideration and on how best they protect shared IP from shifting to competitors. The managers should understand the external risk factors probability and come up with a mitigation strategy for the risks that are manageable that allows for a healthy and prospering global supply chain. The internal risk factors must be put into consideration when a firm identifies and manages the external and domestic risks and its inability to execute on strategy. These risks are within the control of a business. These includes aspects such as transportation delay hidden cost, warehousing, and strategies that are nor properly aligned among the business partners and which can in most cases hinder the primary cost benefits that emanate from global sourcing. The part of logistics in the global inventory network method is that it helps in the consideration of every office that contains an impact on cost. It has an essential part to play to verify that the product conveyed adjusts with the necessities of a client. It is likewise concerned with the suppliers, distribution centres, fabricates and stores incorporation. It additionally encompasses business operations from the key, strategic and operational level. Question 3 The usefulness of Hofstede’s framework for understanding culture in international business. This cultural model is recognised internationally and acts as the main tools in identifying and categorising culture. The usefulness of this framework in understanding culture can be explained in a number of areas. Individualism; this refers to the ties strength that exists between people to others in the society. Counties whose individualism is high there is increased lack of interpersonal connection. On the other hand a society where the level of individualism is low there is a study group cohesion and a tremendous amount of respect for the member group. For instance, in case of a marketing campaign hat emphasises on community benefits is likely to be well received and understood clearly. The other area is on masculinity; this is all about how a community sticks and values traditional females and male roles. Once business is conversant with these masculinity levels, they can plan for the business approach to follow in order to survive in such market environments. For instance, in case a business decides to open an office where the rate of masculinity is high with male dominance a pointing a male to lead the team the business would have increased success. Uncertainty or Avoidance Index; This is all about the uncertainty degree that community members have once they are in uncertain situations. The implication here is that when discussing a business project the main areas to investigate should be on options and later present a limited number of choices. From an international business contract, the involved parties can fully understand the cultural differences in a business environment before they embark on business. Long Term Orientation; This viewpoint alludes to how a society that are long standing, are contradicted to short term customary qualities. In the connection of comprehension, society is the regions with low term orientation an individual or business can pretty expect anything from this culture in terms of new ideas and creative expressions. The suggestion here is that individuals inside of the areas where LTO is low they don't have esteem for custom and have an improved probability of willing to help in the execution of the most innovative strategies as long as they ultimately take an interest. Power/Distance; It is the imbalance degree that its presence is acknowledged by individuals who have and don't have power. In case the rates of PD in a general public are high, it infers that there is an equivalent force circulation where low PD demonstrates that power is scattered and shared well. For instance in nations with high PD a business would just send reports to the top rank administration and hold closed-door gatherings in which just a chosen number of intense pioneers would go to. Question 4 The manner in which political and legal environments affect the operations of the international business. The political and legal environments affect business in a number of ways these includes; Politically, governments seek to protect specific companies because they may either be considered necessary for national security intentions, for instance, telecommunication and infrastructure in the context of who owns the ports within a particular country territory. Therefore, national security setting is one way from a political context that a government impacts on the operations of the international business. In case, any country shows signs of being economically or politically unfair trade is used as a retaliatory measure. International trade can also be used to influence and reward countries for political support. Politics can also influence or impact on a countries export and imports where some nations may not be willing to advance technological information to foreign interest that are considered unfriendly. The other thing to note with the political environment is that it may compel a government to establish trade barriers with the aim of protecting local businesses. The trade barriers culminate of import and export taxes that limits the amount of imports allowed to be carried out within a specific time. These tariffs and import quotas make the process of any business to export goods to foreign market hard and be competitive with the local competition. In he case of legal environments here is certain countries who don't have protection private property and contract rights. That such country does not allow foreigners to own real estate businesses. There are some special licences that are imposed in certain countries upon foreign businesses. In addition, businesses are forced to contend with different tax laws, Labor laws, environmental and other forms of regulations in every country they establish a business. Finally, a portion of the court frameworks within the international business setting are not prone to give the comparable level of assurance that a man or business is provided in their jurisdiction. Numerous controls are contained in import and export regulations, costs exchange, corruption practices and regulation, duties, banned countries, antitrust, seizure and distribution of value, licenses and trademarks Question 5 The various reasons that motivate MNEs to undertake foreign direct investment and the plausible in the 21st Century Foreign direct investment refers to an international investment category resulting from a direct investor who aims to acquire an enduring interest in an entity that is operational in an economy other than that of the investor. This kind of investment has become popular among MNEs and some of the motivating reasons include; FDI is an effectual way that an MNEs can acquire crucial natural resources. For instance, precious metals and fossil fuels. In FDI the cost of production is reduced; This is experienced once the lobar markets are cheaper, and there is the presence of less restrictive regulations within the target foreign market. For instance, the shoe producing companies have managed to reduce their cost of production by moving their operations in the developing countries. The other motivating factors are support from a highly increasing economic growth inside the host economies as well as study corporate performance. There is also growing pressure on MNEs everywhere to take on a listing of locational assets as a root of international competition The final evident motivator is an FDI rapid change in the global market. There various traditional factors that are contributing to this rapid growth these are a continued liberalisation of FDI regimes in the globe, firms competition in all parts of the world, logistical and technological advancement, and the global support and influence from the developed and emergent market MNEs. The most arguable FDI in the 21st century is the Equity capital that is the estimation of MNEs shares interest in a foreign nation. The considered edge for the assets control is in light of a value equity stake of 10% of the common shares. The classification is comprehensive of acquisitions and mergers and also the formation of new offices. It is prominent that mergers and acquisitions are the key sources of FDI for industrial nations, despite the fact that the relative worth shifts considerably. Question 6 Main determinants of the exchange rate risk, methods multinational enterprises may employ to manage exchange rate risk in international business, and the role of international financial system play in this task The exchange rate the most crucial determinant of a country's relative stage of economic health. However, there are risks that surround this rate and are determined by the following; Inflation Differentials; In general a country that has a consistently reduced inflation rate it exhibits an increasing currency value. On the other hand, the purchasing power increases relatively to other currencies. Countries with high rates of inflation their currencies depreciates in relation to that of their trading partners. Interest Rates differences; There is a strong connection between trade rates, interest rates, and expansion. The national bank through premium rates control, it applies impact on trade rates and inflation. Interest rates that are high gives loan specialists inside of an economy expanded return that is with respect to different nations. Thus, high-interest rates cause the conversion rate to ascend by pulling in foreign capital. Current account deficits; A deficiency in a current account infers that a nation spending is more on business than its earning. Public Debt; Once these obligations are huge they are less alluring to remote financial specialists and encourages an inflation increase where adjusting of the obligation is attempted efficiently later in future. The last determinant is Economic Performance and Political Order; foreign investors goes out for stable countries that have study economic performance Methods used in mitigating the risk include; Through foreign exchange forwards; That is exchanging currency for another this alludes to contracts for conveying an accurate measure of foreign currency to a certain future known period. Debt as an alternative of futures; This method involves borrowing in the currency to which the business is invests in interest-bearing assets with an aim of offsetting a foreign currency cost Currency option; The method involves a contract for future money delivery in exchange for another where the option holder holds a right to buy or sell the currency. In general the role of the international financial system can be outlined as regulating banks as well as other financial institutions and its always on the ground in addressing risks associated with exchange rate and it also helps in strengthening economic operations. Read More