Global Business and Multinational Firm Module - Essay Example

Globalisation is a term that is used to describe a series of economic, political, and social changes that have occurred as technology has increased the interaction between countries at various points on the globe. It has created a world where different countries rely on other for different things, based on supply and demand, all in the name of creating wealth for multination corporations because they are able to market their products globally. While the main benefactors thus far have been western countries that were not under the grip of Communism for the better part of the 21st Century, there are corporations developing in other countries that have begun to aggressively assert themselves in the global economy in an attempt to further their own monetary interests. What this means is that while the ideology of globalisation used to only benefit a few countries, it is now benefiting many more and that is allowing for globalisation to be accepted in many more places than it was previously. Globalisation is no longer just a one-way process of benefits going from East to West, but it is now an ideology that can benefit all parts of the world equally if growth continues. If China was to become the world’s largest economy, the changes that would occur would be minimal, since China has a labour-based economy. International trade is something that will always be debated because it is interesting to see who has the advantages and why. The most common manner by which to explain the advantages that certain countries have over others in trade in by using a comparative advantage model. There will always be different scales because of the various differences between countries’ finances, education levels, population, demographics, resources, and other factors. China is a country that has traditionally been used for its labour, due to its extremely high population and its lack of good paying jobs. The variable in this situation is that Chinese companies are beginning to use globalisation to their advantage, with one such company being Acer, which is a computer company. Acer is the world’s fourth largest personal computer manufacturer and it also builds servers, storage devices, LCD monitors, high-definition TVs, peripherals, as well as provides “e-business solutions for business, government, education, and home users” (About Acer). Acer also has developed a unique business model called the Channel Business Model which uses supply-chain management to ensure that new technologies, competitive pricing, and quality service are always readily available to the customer. Acer products are available in more than 100 countries and the corporation reached US$9.7 billion in revenues in 2005. This shows the China’s accession into the World Trade Organization will be a positive for the country. It will allow for entrepreneurs within the country to expand their horizons into more lucrative markets. This money, in turn, will be put back into the Chinese economy. Also, the borders will be opened up to more international investment. This investment will bring about more jobs and will, therefore, help stimulate growth in the Chinese economy. By moving towards a free market economy, China will be able to utilize its strengths effectively. These strengths are the pure population numbers that this country has and the number of people that it can contribute to the global workforce. By 2050, if this accession into the WTO is handled correctly by the Chinese government, China could become a superpower because with that many people, the odds of certain individuals creating something great is higher than in any other country. China’s role in establishing a new monetary system would be difficult to predict, since cooperation would be needed amongst a number of governments. Even though China contains one fifth of the world’s population, it is still largely an export based economy, with labour being one of its main exports. In fact, “establishing such a new system would require intervention by, and cooperation among perfectly sovereign national governments, to put the existing monetary-financial system through government-directed bankruptcy-reorganization” (LaRouche, 2002). This would take more than just the emergence of China to completed, as the country is still just beginning to become strong financially. Currently, China has a fixed exchange rate for the Yuan, which has purposely undervalued it in comparison to other currencies. This means that Chinese exports will be cheaper when sold in other countries and that goods imported from other countries will be more expensive in China. This has created an unfair trade balance between China and its partners because it basically means that China is not a free marketplace, since there is no market for its currency. This system gives Chinese importers an unfair advantage, but the is a loophole in the WTO that allows them to do so because it is considered a subsidy for their economy. The problem with this, however, is that over investment in China’s economy can lead to inflation that the country is not ready to handle yet and this is what is currently happening. By 2050, the economy should be able to handle some inflation, as long as it is brought along slowly. In today’s marketplace, the overall demand, which is defined as “a curve, or a table, of price and corresponding quantities demanded” (Baker, 1998), for luxury consumer goods is largely dependent on how much disposable income the population has. In the past, recessions have caused for luxury good to be in less demand, due to that fact that most of the population will only spend its disposable income on luxury goods, with the rest of its income going towards the necessities. It has been shown, however, that “ten years ago, the personal savings rate among Americans was 7% of disposable income; now its close to zero” (Crossen, 2001), which shows that Americans are now spending more of their money on these luxury goods. This, of course, leads to a high demand for these goods, which is good for the corporations that manufacture them. Americans have also become much more used to living their lives in a luxurious type of way, so it would be very difficult to give these things up should another recession hit. This article does, however, also state that during past recessions, “less meat, smaller cars, fewer telephone calls, lower thermostats and lapsed insurance policies. During the recession of the 1970s, morticians even reported more requests for cremations, which are less expensive than burials. In the downturn during the materialistic 1980s, the usual consumer goods were hit hardest -- refrigerators, washers, dryers and stoves -- but people also cut back on carpeting, furniture, tools and liquor. Many workers also agreed to salary freezes or reductions rather than lose their jobs” (Crossen, 2001). This raises the possibility that if a major recession were to hit in the near future, that “there would be less spending on vacations, swimming pools, boats, jewellery, pedicures, fine art, cameras, DVD players, spa visits, expensive wine, restaurants, private schools, home improvements, landscaping, philanthropy, tips, club memberships, country houses, fur coats and luxury cars” (Crossen, 2001). This would lead to a decrease in demand for these products, which would greatly affect the industries that they are a part of. Another factor that impacts the consumption of luxury goods is the price of them. The more money that something costs, the less likely people will be to buy it and this is something that European and American companies thrive upon. The Heckscher-Ohlin theorem is based on a model that was created by Eli Heckscher and furthered by Bertil Ohlin at the Stockholm School of Economics in Sweden. This theorem is one of four critical theorems that are found in the Heckscher-Ohlin model and it basically says that countries with more resources will export these resources and counties with more labour will export the intensive-intensive goods. What this assumes is that the two countries that are exporting these different goods are exactly the same, but they have different types and amounts of resources. This includes differing supplies of natural resources and different populations. This can also include the number of skilled workers that each country has, as the United States has more university graduates than many countries across the world, even if those countries have a greater population. This theorem also assumes that the countries have the same economic goals as each other, which would imply that they have the same economic ideology. If these factors are true, then the country with the most resources will be able to produce these products cheaper than the other country and the country with the most available labour in a particular field will be able to produce that labour at a cheaper cost. If these two countries happen to not be trading, then the price of the resources in the capital endowed country will go down because supply must meet demand and if there is too much surplus, then it must be sold off for cheaper. Likewise, the same resource in the other country will not go down as much because it is not profitable to do so. The same happens to the price of labour in the other country, as workers will be forced to work for less because there will not be enough jobs to go around. If the two countries are trading, then the country with the excess capital will not have to worry about having too much surplus so they can sell it at a regular price. Likewise labour intensive goods can be exported so the price of these does not have to be reduced either. This means that the prices of commodities would not be altered much, since China is a based-based economy. The most effective manners of exploring international trade now take into account research and technology, as information is quickly becoming just as valuable, if not more valuable, than actual goods. There was a time when this theory could be given a chance, but that time has passed because the world is so much more different than when it was created. While it is still acceptable to use it when evaluating across the board trade for essential goods and services, it is no longer feasible to consider it with regards to all trade because there are so many different types of trade now. It is much more feasible to create an ideology that includes all of these new variables when discussing international trade. In order for China to significantly impact globalisation and the economy of others, it must become more information based, rather than simply a source of cheap labour. Works Cited About Acer. “Overview“. Retrieved 20 March 2007 From: http://www.global.acer.com/about/index.htm Baker, S.L. (1998). “Demand. Economics Interactive Lecture“. University of South Carolina, Columbia, SC. Retrieved 20 March 2007. from: http://hadm.sph.sc.edu/COURSES/ECON/Demand/Demand.html Crossen, Cynthia (2001). “Psychology of Spending: Where Does Belt-Tightening Begin? --- "For Some Consumers, High-End `Wants Can Soon Turn Into `Needs" Wall Street Journal. New York, N.Y.; Feb 8, 2001, p. B1 LaRouche, Lyndon H. (30 August 2002). "China in a Changing World". Executive Intelligence Review. Viewed 20 March 2007 From: http://www.larouchepub.com/lar/2002/2933isss_keynote.html Read More