International Business - Essay Example

The Cold had ended, with the emergence of one single bloc. The world had become a single ‘market place’ (Eriksen, pp.3, 2007). This was aided by the phenomena, Globalisation. Globalisation is undertaken as a reality, and Renato Ruggeriero has put it aptly, a reality that has overwhelmed all others (Scholte, pp.1, 2000). Globalisation has been aided by free trade and the increment of international businesses. What in essence is free trade? There are various definitions of free trade; free trade is trade that is not held up by national or international laws (Baggini, Fosl, pp.32, 2010). Globalisation is a term that is on everyone’s lips.

However, only a few people have had a clear and definitive definition of the term. However, definitions form the basis of an individual’s perceptions and evaluations (Scholte, pp.42, 2000). The definition of globalisation, according to the European Commission is: “Globalisation can be defined as the process by which markets and production in different countries are becoming increasingly interdependent due to the dynamics of trade in goods and services and flow of capitals and technology” (Held, pp. 92, 2000).

In essence, increased trade, and international economic activity, faster communication networks define globalisation. In a way, globalisation has led to the compression of the world. Due to this, the world has been brought closer, in different ways, for better or for worse (Eriksen, pp.4, 2007). The beginning of the paper will identify the benefits that have been brought due to increased trade and international business. The neo-liberals largely advocate the working of the free market, and in effect promote free trade.

A very common theory that promotes free trade is that of comparative advantage. This theory assumes that there are two countries in the world, each producing one single good. In a way, these two countries will only produce goods in which they are better off, because it will be more profitable, and exchange the goods with each other. Therefore, ‘comparative advantage theory’ is the rationale for free trade. For example, India and China have a comparative advantage in the production of clothing because of cheap labor.

In addition, Japan has a comparative advantage in electronic equipment because it has a technological edge (Gitman & McDaniel, pp.73, 2008). David Ricardo gave this theory. Technically speaking, the consumption frontier of a country will lie outside the production frontier of a company due to free trade (Thirlwall & Lopez, pp.7, 2008). In addition, another rationale for free trade has been the neoclassical factor endowment theory. This theory argues that it is not because of “technological differences that free trade is required, but because different countries are endowed with different factor supplies” (Todaro & Smith, pp.

560-565, 2003). In a sense, neoclassical thinkers suggest that trade has provided nations with the opportunity to capitalize on those resources which are abundant (Todaro & Smith, pp 561, 2003) In addition, although globalisation has received much criticism, a closer look into statistics will also show that globalisation has created wealth and jobs. Because of globalisation, livings standards have greatly improved, because a large consumer market is created. International competition also keeps prices down, therefore keeping the risk of inflation quite low.

For example, since 1997,