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MNG00723 SCU Sample Assignment

HI6006 Competitive Strategy

MNG 00723 Assessment 1

Short written response (20 marks) 1500 words

Due: Monday 9 am Week 5

Answer the following 3 questions (each approximately 500 words):

  1. What is globalisation and how does it affect domestic businesses? In your discussion, include both positive and negative impacts of globalisation. (6 marks)
  2. When you compareAbsolute Advantage Theory and Comparative Advantage Theory, which one appears to be more practical, and why? Also, explain how benefit from trade arises based on this theory using a numerical example of 2 countries producing 2 products. (6 marks)
  3. Donald Trump, president of United States of America, announced the imposition of tariff on Chinese imports in the recent past. Based on your understanding of the first 3 topics of this unit, (i) what could have been the reason/logic behind such a comment/decision, and (ii) what are the implications of such an intervention on domestic consumers? (8 marks)

You are expected to use at least 5 academic sources (excluding the textbook) to support your viewpoints.

Please place the word count for this assignment on the cover sheet. 10% more or less than 1500 words is acceptable. The marker may, at their discretion, discontinue marking if you go above 10% of the recommended word limit.

Introduction

In this report we are going to discuss about globalization and its advantages and disadvantages. We are also going to discuss relative and absolute advantage theory with example and at the end we are also going to discuss the impact of policies of Mr. Trump on consumers of America (Albrew, 2009).

 

Question 1

Introduction

Globalization is a way to transform the whole world into a big global community. Globalization refers to a process which has been going on for a while in order to integrate all regional economies, societies and culture into a global network running through communication and trade. The factors which helps globalization to grow are rapid advancements in technology, development in political scenarios and also development in the transport facilities. This helps in creating better opportunities in terms of products and market capitalization. This also provide companies with competitive advantage in the form of lower operating costs or innovation. Globalization has both positive as well as negative impacts on domestic businesses. Both are explained below (Stever, 2007).

Positive Impacts:

  • Globalization helps in poverty reduction as far as developing countries are concerned. This is true for fast developing countries too like India and China. It has significantly improved the living standards of people living below poverty line in these countries.
  • It also plays a very important role in reducing the unemployment level by providing new job opportunities all over the globe. This involves the concept called outsourcing where developed countries provide work to developing countries for competitive advantage.
  • Technology has helped a lot in integrating the whole world by means of communication, travel and transport. This could be possible with the help of globalization which allows organizations to obtain knowledge from different places.
  • Another positive impact of globalization is higher education level in developing countries by improving the access of higher education for reducing the knowledge gap. Now, every person can opt for any institute all over the world without any restrictions. The factors which have supported all of this are greater participation from women, increased output from secondary schools etc.
  • Globalization has bought trade to the developing countries. By this, people from domestic market can trade goods in exchange of money. It includes laws pertaining to international trade. Globalization has helped in reducing the tax of goods import and also has reduced the cost of trade all around the world (Martiny, 2015).
  • The most upfront result of globalization is foreign investments. With the help of foreign investments, domestic markets get resources, capital and technology which supports them in developing economically. This also helps in improving the employment level in the country.

Negative Impacts:

  • Although globalization has helped in improving the employment level in some countries but in other countries the job level has gone down significantly due to migration of jobs from one country to another. The countries having flexible labor laws, liberal reforms and pursued politics, more firms tries to set up their business and consequently keeps the employment level high.
  • Due to the advent of globalization, the small businesses present in domestic markets have been largely replaced by large chains and industries from other countries. Like for examples large food chains consume more than half of the food market in almost every part of the world leaving behind the home cooked food businesses.
  • The cultural invasion had been at its peak in last few years as a part of globalization. It is largely spreading the western culture all over the globe due to their high influence on the world market.
  • Due to the effect of globalization, the average tariff rates are in higher side for the countries which have recently experienced the trade reforms (Frankle, 2010).

Question 2

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01:30

Two of the most important concepts of international trade are absolute and comparative advantages. These concepts shows the reason why and how a country devote limited efforts to a particular sets of products. This can be explained by taking the example of food industry.This is to be known that a country cannot import every food products from other countries and it has to produce some products on their soil in order to sustain its people. The factors that affects the choice of food to grow are climate, topography, politics and region of the country. In case of Spain, they can produce fruits better than the Iceland. So, the factor which forms the basis of absolute advantage is difference in the abilities of different countries in producing various varieties of food products (Kevin, 2011).

Japan and US, both have the capability to manufacture cars but the advantage with Japan is that it can manufacture quality products at a very fast pace. So we can say that Japan has an absolute advantage in the car manufacturing industry. The absolute advantage clearly impacts the choice of goods produced by a country. So in the above example, US need to use all its resources and manpower in order to get an absolute advantage there instead of just competing with Japanese companies.

Specialization can be defined as focusing on the production of those goods for which the country’s resources are best suited. Another concept called comparative advantage is based on the opportunity cost. Here, opportunity cost can be defined as the benefits associated with a given option which could have been gained by choosing the other alternative instead of the option they have been chosen now. A comparative advantage is said to be there if opportunity cost associated with production of a particular good is not same for all the countries (Manfred, 2016).

The example through which both the concepts can be explained is given as follows. For example, France and Italy both have the resources enough for producing wine or cheese. They cannot produce both. In case of France, it can produce 20 units wine and 10 units cheese. Therefore, the opportunity cost for producing cheese and not wine is 10/20 which is 0.5 units of cheese. For cheese, this figure is 2 units of wine. Similarly, Italy can produce 30 units of wine and 22 units of cheese. As per these figures, Italy has absolute advantage over France in the case of wine and cheese production.

Here, Italy will have to bear 30/22 which is 1.36 units of wine,of opportunity cost in case of cheese. Similarly, cost for wine is 0.73 units of cheese. France is said to have comparative advantage over Italy because its opportunity cost is less than Italy. Although Italy’s production process is more efficient. Italy has both comparative as well as absolute advantages in case of cheese due to lower opportunity cost.But both the nations cannot produce wine and cheese both. So by seeing above figures, France should specialize in wine production and Italy in cheese production (Monetary Fund, 2016).

Question 3

US has suffered from the negative impacts of globalization. Cost of labor is very high in US and that is due to the growth of the country. So that has also affected the cost of manufacturing goods negatively. With the advent of globalization, manufacturing companies are migrating to the nations which have lower cost of labor in order to get a competitive advantage. It reduces the overall cost of production for the companies. So, China has very low labor cost as compared to US and that is why production of manufacturing goods are declining in US. This has given a big opportunity to China where they produce goods in the country and then export it to US. This is because people of US have high disposable incomes and thus can buy products in bulk. These factors together made China as the manufacturing hub and increased the trade deficit for US with China (Bridges, 2008).

Another reason in this list is China’s relaxed environment and taxation laws. So it puts US in disadvantage. In order to stop all of this, US has decided to put tariff on the import of cheap Chinese products which will affect the prices of these goods negatively (Salvatore, 2014).

As per the previous conditions, US citizens had very high disposable income and cheap Chinese products in the market but now the situation has changed for the better. Now, the prices of Chinese products has increased and they have come in the category of expensive products due to the tariff. So now people can buy only few Chinese products from their limited income sources. Thus demand will fall in coming years. This is expected that in coming few years, manufacturing will return to US and companies will not have to go to other countries for the competitive advantage. This would increase the employment level in the country and will also boost the demand of manufacturing products.

Conclusion

Here in this report we have discussed phenomenon called globalization and its advantages and disadvantages. We have also discussed relative and absolute advantage theory with example and at the end we have discussed the impact of policies of Mr. Trump on consumers of America.

References

Albrew (2009). Globalization, Knowledge and SocietyLondon: Sage. ISBN 9780803983236

Stever, M. Guyford (2007). “Science, Systems, and Society”. Journal of Cybernetics. 2 (3): 1–3.

Martiny (2015). “Shaping Globalization” (PDF). Finance & Development. 51 (3): 22–25.

Frankle (2010). ReOrient: Global economy in the Asian age. Berkeley: University of California Press. ISBN 978-0520214743

Kevin; Y. (2011). From=fulltext “When did globalisation begin?” Check |url= value (help). European Review of Economic History. 6(1): 23–50. ISSN 1361-4916.

Manfred R. (2016). “A Genealogy of globalization: The career of a concept”. Globalizations. 11 (4): 417–34.

Monetary Fund (2012). “Globalization: Threats or Opportunity.” 12 April 2012: IMF Publications.

Bridges, N. (2008). “Grounding Globalization: The Prospects and Perils of Linking Economic Processes of Globalization to Environmental Outcomes”. Economic Geography. 78 (3): 361–86.

Salvatore Baboon (2014). “Studying Globalization: Methodological Issues”. In George Ritzer. The Blackwell Companion to Globalization. John Wiley & Sons. p. 146. ISBN 978-0-470-76642-2.

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