The Theme of International Trade - Essay Example

Executive Summary

This paper is aimed to critically assess the theme of international trade and the type of challenges that business face in international trade, which will take much consideration on industry 4.0. However, other types of organisations will be considered as well as give realistic examples. First the paper will give a background of the principles that characterises international trade, and the manner that international is related to business activities. The description and the overview of the industry 4.0 will also be discussed and the relation with international trade. The main part of this will be deliberations on the challenges that industries face while trading on an international basis and this will be backed by specific illustrations. The threats and opportunities that that industries and businesses face while trading on an international basis will also be assessed. The final section will give conclusions and recommendations on the challenges, threats and opportunities that businesses face from an international trade perspective.

Introduction

The main aim of this paper is to critically analyse the purpose of international trade from a business perspective. Industries 4.0 and other businesses will be used to assess the opportunities, threats, and challenges that accrue a business as a result of internationalisation. The fact that international trade has various advantages, the business is prone to face various challenges since that foreign country has different mode of doing business. The focus of industry 4.0 in this paper is because of its relevance in the automation and data exchange in respect to manufacturing industry. Therefore, the role of international trade in business will be investigated and the manner in which a business can cope with the challenges associated in international trade will be assessed. In addition to using industry 4.0 as an example, other industries and businesses will be used as illustration to investigate the role of international trade in business.

Background of International Trade

International trade can be described as the exchange of goods and services between one country and another. International trade has enhanced globalisation and the principle of division of labour in the international sphere. There are various reasons that prompt the rise of international trade such as the fact that production of different kinds of goods and services requires different types of resources used in various proportions; various types of economic resources are unevenly distributed throughout the world; and international mobility of resources is extremely limited. Therefore, the importance of international trade in various industries and business in order to maximise on the market and profit. However, despite the opportunities that businesses have while trading from an international basis there are also various challenges and threats (Sen, 2010). The businesses are faced with uncertainties since they are operating in foreign countries that have different ways of doing business and culture.

International trade has enhanced globalisation since there are integration of trade and interdependence of countries. The concept of protectionism has been used in the area of international trade, which has hindered development of international trade among industries 4.0 and other businesses. Protectionism is the implementation of policies that restrict the free flow of goods and services internationally (Evenett and Fritz, 2015). However, some theories such as the theory of comparative advantage advocate for free trade and specialisation. A country can be said to have a comparative advantage over another country if in producing a commodity it can do so at a relatively lower opportunity cost in terms of forgone alternative commodities that could be produced. Therefore, some business are capable of producing a particular product in a certain country more effectively than in another country (Evans and Annunziata, 2012).

The term commonly used to describe international trade in business is ‘internationalisation,’ which is the process of increasing involvement of enterprises in the international markets. Before a business embarks on internationalising its operations it is important that it assesses its ability to think globally and have an understanding of international cultures. The business should also be able to critically comprehend the various beliefs, values, behaviours, and business models and strategies of enterprises within other countries. This is because this will determine the manner in which the business will cope with challenges that it will face in those countries (Bernard et al., 2007). International activities comprise of importing, exporting and trading, which are very difficult with numerous challenges. The factors that determine international activities are mainly the capabilities and resources that a business possesses that allows it to overcome the sunk costs of competing in foreign markets. Internationalisation has transformed the manufacturing industry which can be attributed to industry 4.0. Technology has made international trade to be more efficient and effective, and this is the why some studies have indicated that the major push to early internationalisation is high technology since the global market highly specialised (Bryan et. al., 1999; McDougal et al., 1994).

Overview of Industry 4.0

Industry 4.0 has been intensively debated in the recent time due its relevance by research centres, universities, and companies. It has been suggested that the networking within an ‘internet of things, services, data and people’ is bound to transform the future of manufacturing (Baur and Wee, 2015). Industry 4.0 is the fourth industrial revolution that is characterised by automation and data exchange in the technologies related manufacturing, and it comprises cyber-physical systems, cloud computing, and internet of things. Industry 4.0 can be arguably be the most influencing factor in terms of international trade. Industry 4.0 is likely to change the manner in which factories operate, and the manner that goods and services are transported across the globe. Baur and Wee (2015) define industry 4.0 as the next level in the digitization of the manufacturing sector, which is influenced by four disruptions: computational power and connectivity, the extremely rise in data volumes; the emergence of analytics and capabilities of business intelligence; new types of human-machine interaction; and the improvements in transferring digital instruction to the physical world. There are various challenges and opportunities that industry 4.0 face as a result of operating from an international basis will be analysed in the ensuing section. The main aim of this paper is to critically analyse the challenges that industry 4.0 face on an international basis and what specific business have risen to the challenges. The importance of fourth industrial revolution is the fact that it has influenced majority of business that have penetrated the global market (Lasi et al., 2014).

Challenges that Industry 4.0 Face While Trading on an International Basis

Business trading on an international basis in the industry 4.0 face major challenges inherent in the need to design and develop business models that are highly interactive and allow for effective exchange of information for purposes of achieving optimal economic potential (Bucherer et al. 2011). This type of activities allow trade and financial procedures between international companies and other entities at the different levels including design, manufacturing, logistics, services and intermediaries, thereby facilitating international trade in a more rapid way. The efficiency of these activities has great importance in support, manufacture and value creation as the manufacturers benefit from an enhanced ability to trace their products across national, regional and international boundaries and get support derived from the data gathered for value creation and addition throughout the entire value chain (Mejtoft, 2011).

One of the greatest challenges faced by businesses in the industry 4.0 is the differences in the technology between the past and the new era. The challenge is aggravated by the fact that technology continues to strive through an evolutionary path for purposes of improvement of technological processes. Consequently, this leads to a speedy creation of new technological structures which can be more efficient that the previous versions. In the context of businesses operating in this industry, the consequence is strong pressure for businesses to develop and structure their businesses in a way that enhances operational capability. Moreover, since the facilitation of international trade in this industry requires that the participating countries have competent technological capabilities, businesses face many challenges of integrating the different technological levels in different countries. This allows businesses to benefit from efficient management of the progressively complex systems that link connections between equipment and components of trade (Hekkert et al., 2007). For international trade in the different countries to operate as a whole system, businesses need to overcome these complex challenges and implement an operating system that is compatible with the trading countries. The need for this type of integration obliges businesses to reinvent their operations for purposes of transition, fusion and integration of the old and new business models in the different operating countries.

Businesses set in industry 4.0 trading on an international basis also experience the challenge of the new decentralized philosophy utilized in production. In this case, international businesses utilizing the new decentralized production philosophy have their basis on the technological collaboration, which is achieved through operational network. This challenge emanates from the fact that the traditional physical space engaged in regional and international trade is no longer efficient for achievement of business competitiveness, which reduces the economic productivity of a company. The modern trends in international trade in industry 4.0 requires the replacement of the traditional operating space with the integration capacity where the technological level of businesses allows for consequent virtualization of the whole structural space through the introduction of a virtual factory (Foidl and Felderer, 2016). The effectiveness of the supply chain and the value chain in these businesses is determined by the extent to which the virtual factory is enhanced with the competence to manage the integration of operating systems with supply chains and logistics through systems that are highly productive, designed and managed to provide fast response to the needs of the market (Bathelt, 2010). Moreover, there is a major challenge of ensuring that virtual factories are efficient and flexible enough at all technological stages required. This ensures that the entire supply chain procedure allows for timely and efficient processes from production to delivery of the final product to their final destination in a way that allows for satisfaction of the market demands. The philosophy of decentralization also faces the challenge where the operations of a business are located in different countries such that the designing, manufacturing, assembly and delivery is done in different countries (Bessey et al., 2009). An effective virtual factory in industry 4.0 allows businesses real time support for the managements, for purposes of ensuring that production, control, distribution and monitoring of essential information is achieved through a productive decentralized network.

Industry 4.0 set organisations trading on an international basis also face a challenge of the industrial environment in which they operate. This is one of the greatest concerns in international trade and deals with the extent to which firms are able to get and streamline an efficient interoperability between the produced goods, the systems and processes and production, as well as direct applications and controls (Harris and Li, 2005). The achievement of such an effective scenario requires the application of communication and information technologies, which is realized in an independent and autonomous manner through software, tools and methodologies designed with the capacity of synchronizing all the essential components so that the system achieves a safe and consistent exchange of information. International businesses face a challenge of operating in a digital sphere where information obtained from the market through various means is highly exponential in terms of volume and complexity (Varghese and Tandur, 2014). This information is required by businesses in order to determine how to effectively and efficiently deliver the required quality and quantity of goods and services within the right time. Enhancing the timelines of information allows firms to be highly responsive to the changes in the different markets where it operates. This helps achieve competitiveness especially in a saturated market (Willcocks, Leslie, and Sauer, 2003).

There are several businesses that have risen to the challenges of industry 4.0 in the context of international trade despite the threats they face in the international spheres. Uber and Apple Inc. are examples of companies that take advantage of the opportunities in the industry to enhance international trade.

Uber is rideshare company that has risen to the challenges faced by industry 4.0 to become a success in many international market. However, it is worth noting that Uber is one of the businesses that has experienced the challenge of incompatibility in technological processes in the past and new era as well as lack of technological incompatibility between various countries in which the company operates. The issues emanate from the fact that industry 4.0 has a great need to operate in different countries where technological advancement is a different levels coupled with the need to consistently upgrade its technological capacities to achieve optimal performance in the industry (Batra, 2015). Moreover, the company faces the threat of integration with other networks for purposes of achieving monitoring sensors that would direct Uber drivers to real-time data around traffic for purposes of devising effective intelligent models for customer ordering and billing databases. The company’s internationalisation efforts are also limited by the obstacles imposed by the concept liability of foreignness (Johanson and Vahlne, 2009). Liability of foreignness is the uncertainty in relation to the foreign markets in psychic distance. This happens when companies trading internationally are forced to enter international markets by complying with the preferences of the local people. Legal/regulation issues is another aspect that can be regarded as a risk in Uber’s internationalisation model primarily due to regulation in taxi market segment is dynamic and is prone to change from time to time (Morgan and Katsikeas, 1997).Some of the taxi markets are unregulated and Uber’s entry into such market is viewed as a threat by the locals (Arnott, 1996). Uber is a taxi service that is very different from the old taxi operation model, and therefore from regulatory point of view, Uber is not a car and a driver but rather a network that links a willing rider to a willing, ready driver for a fee that is pre-arranged. Therefore, the company is at risk if the regulation is reviewed (Feeney, 2015).

Despite these challenges, the company benefits from the opportunities in their business model that allow the overcoming of the challenges of operating in industry 4.0. For instance, the company has been able to utilize the data from the customers and the drivers to power and algorithm that helps in the computation of a dynamic pricing model and surge pricing, making it easy for their operating system to adjust the prices upward and downward depending on the demand in the market. The key to understanding the development of digital platforms in international trade in the context of rideshare businesses like Uber lies in the integration of a platform where the business is able to interact with customers directly through the creation of “two-sided markets”. The company strives to achieve the integration of the international market by establishing a triangular relationship between its markets through digitalization. Moreover, Uber has been able to increase its flexibility in the international market by diversifying its service. (Dumitrache et al., 2013). In addition to operating taxi services in more than fifty countries across the globe, the company is also into auto leasing. Recently, Uber launched its own auto-leasing company, a move that injected Uber directly into the financial services sector with the objective of providing drivers with more flexibility than that offered by secondary leasing companies. Additionally, the company entered a business partnership with Microsoft, a move that saw the latter transfer map-generating activities to Uber (Shanker, 2003). These opportunities has been key to helping Uber enhance its international trade across its many operating countries.

Apple Inc. is another business that has risen beyond the challenges facing industry 4.0, especially with regards to decentralized production philosophy. The company has faced major challenges in its international trade as the company strives to ensure that products manufactured appealed to an international market. The success of the company has been achieved through a balance between threats and opportunities that they encountering with regard to their international trade. With regards to threats, Apple’s international trade has been threatened by factors related to the deployment of technology for purposes of influencing the production of quality products on a timely manner. Given the volatility of the electronic industry, the main focus of the threats is on competitors, which threatens to reduce or limit the company’s profitability. The most notable threats of Apple’s effectiveness in international trade include imitation, aggressive competition and the rising cost of labour in countries where the company’s plants are located (Bonekamp and Sure, 2015). Apple competes with international companies such as Samsung, which are also much endowed in terms of utilization of modern technology and innovation (Clausen et al., 2011). The large number of competitors in the market exposes the company to the threat of imitation of the company’s products or designs. It is also prudent to note that the rise of labour costs in some of the countries in which the company’s plants are located has an effect in the reduction of the profit margins of the company. To counter these threats, Apple has continuously invested in R&D and worked towards overcoming these threats so that the performance of the company in the international sphere surpasses that of the competition.

Despite the threats that Apple Inc. faces in the international market, the opportunities inherent in its operating area has provided the company with avenues to flex industrial muscles by ensuring that the production of new designs is not only characterized by deployment of new technologies, but also have an effect on the development of society in entirety. Factors that continuously provide the company with unsurpassed opportunities in the international trade include a high innovative capacity, enhanced complexity and greater flexibility (Hekkert et al., 2007). Industry 4.0 in Apple’s context and that of international trade relies heavily on the additional of individualization and flexibility in the manufacturing processes. For example, Apple has been able to take advantage of the opportunities of its enhanced flexibility to solve the challenge of decentralized production philosophy. For instance, the company benefits from the production of 1 million iPhones daily from the electronics contract manufacturer Foxconn of Taiwan. Nevertheless, Apple applies the aspects of complexity and flexibility in altering the design and components of the iPhone lines produced by the Foxconn in order to ensure that the company can effectively address the needs of the market in various destinations. As part of enhancing the flexibility of its designs and product lines, Foxconn is adopting the move to alter its manufacturing processes and lines in order to increase the application of the computer numerical control (CNC) machines, which creates a conducive environment for the company to enhance is international trade (Chan et al., 2013).

The Opportunities and Threats that Businesses are facing in International Trade

One of the major opportunities that a business accrue as a result of engaging in international trade is the fact that the business will have a global market due to the international expansion. Expansion means that the business have the opportunity to make more sales and have its brand known all over the world. For instance, through the fourth industrial revolution, retail business have been digitalised, where goods and services are sold on the internet. Some of the business that have succeed in this form of retail, which is referred to as e-commerce and they include Amazon and Otto Group. The Otto Group is reported to own at least 123 companies, and it operates in 27 countries. The success of a company like the Otto Group can be attributed to its expansion in an international basis. Businesses seek global markets because the markets at home might be highly competitive or saturated. Therefore, such business gets the opportunity of operating in markets that are less saturated and less competitive in various parts of the world. Expansion in oversees is not easy and the top management of the company has to consider whether the expansion will add value to the shareholders. When the move to expand in the international market is not well thought the entire operations of the business can be put to jeopardy. The business has also the opportunity of improving the cost-effectiveness of their operations, they global markets give them new customers, and they are able to diversify risks all over the world as a result of international expansion. For instance a company like microprocessor that makes Intel, utilizes the production capability in china to take advantage of less cost of production in the country.

Another opportunity that accrue a business as a result of internationalising its business operation is that it will be prompted to have a global strategy. There are various advantages that are associated with global strategy (Stock and Seliger, 2016). A global strategy is centralized and controlled by the home office, for instance a company like Uber have its head offices in San Francisco, California, United Sates. When the company adopts a global strategy it ensures that its products are standardised rather than tailoring the product to suit the local market. Therefore, when a company adopts a global strategy it becomes very easy to attain economies of scale. When a business has economies of scale, there are great opportunities that are related to innovations developed at the corporate level in one country in other markets. Risk are also minimized when the business adapts a global strategy.

The international trade provides a marketplace to business with about 7 billion people, which is the reason that business are prone to succeed while they go international. The opportunities that are prone to face businesses in international trade are numerous. First, the business will have an increase sales that will boost their revenues. When the company concentrates in operating in one country, it have the propensity of experiencing periodic fluctuations and downturns in that country. However, when the business operates from a global perspective it has the opportunity of managing risks that are related economic fluctuations and downturns in that country. The business is also able to capitalize on cost saving, since some governments around the world might perceive the business as a form of foreign direct investment (FDI). A business can choose FDI over exporting since the main opportunity is that it will avoid transportation costs especially if they exceed the fixed cost of establishing capacity in that market. The other opportunity is the aspect of exclusivity, where the business’ management is capable of having exclusive market information in relation to foreign prospects or market situations that are not known to others. The last opportunity as indicated previously is the concept of economies of scale, which is mainly due to the fact that exporting is an excellent technique of expanding a business since the goods or services are more widely accepted around the world. Industry 4.0 has enhanced economies of scale in the manufacturing industries since smaller companies have are able to operate from a global perspective.

Despite these opportunities, there are a wide range of threats to international trade that face the 4.0 industry. One of the threats is related to wage inequality between different countries. Research shows that international trade with developing countries widens the wage inequality in industrialised countries (Koushik, Saunders, and Thomas, 2012). Another challenge, especially mostly face by companies that have relocated their manufacturing activities offshores such as Apple Inc. is the threat of emergence of anti-off-shoring and proliferation measures by governments across the globe. This threatens the growth of international trade in the 4.0 industry as it is a major means of achieving optimal use of resources for purposes of achieving a competitive advantage in the highly competitive global market. The 4.0 industry has revolutionised the off-shoring tendency by promoting the development and growth of service offshoring, which is attributed to greater international prosperity and economic growth. However, the emergence of this tendency has also contributed majorly to intensified fears related to protectionist measures at the national and international levels. The threats emerging from the concerns include disruption of business productivity and innovation, wage inequality and reduction and loss of domestic jobs (Sao and Gupta, 2013).

Conclusion and Recommendation

This paper has critically analysed the challenges, threats, and opportunities that a business is prone to accrue as a result of internationalising its operations. The importance of industry 4.0 in relation to international trade has been also assessed. Industry 4.0 is very vital since it enables various industries and business to engage in international trade. International trade is responsible to activities such as export and imports, and this help in raising economies of countries around the globe. However, the challenges that are associated with international trade are numerous since when a business actively participates in international trade it is prone to face certain risks. One of the major challenge that the business might face in international trade is stiff competition in the international market. Businesses trading on an international basis in the industry 4.0 face numerous challenges inherent in the need to design and develop business models that are highly interactive and allow for effective exchange of information for purpose of achieving optimal economic potential (Bucherer et al., 2010). The fact that there are different economies in the world, such as emerging and developing and developed economies ensures that there is no standardisation of markets. For instance, it might be very difficult for a business to apply a particular technologies in all parts of the world, which makes it difficult to operate in various parts of the world. Nonetheless, business have been able to rise to the challenges that are associated with international trade and capitalised on the opportunities that are characterised by the international trade. Therefore, it is very important for a business to consider internationalisation so long as it understands the challenges that the business is likely to face and capitalise on the opportunities that are associated with international trade.