...in terms of: d. All of the above 4. Increased foreign competition tends to: c. Place constraints on the wages of domestic workers 5. International trade in goods and services tends to: d. Increase the amount of competition facing home manufacturers Chapter 2 Try to answer the study questions in page 60. Answers of these problems will be provided next week. Try to answer the following multiple choice questions. Page 64-66 1.Mercantilism: Regulation to ensure a positive trade balance.Critics: possible only for short term; assumes static world economy. Absolute advantage (Adam Smith) Countries benefit from exporting what they make cheaper than anyone else But: nations without absolute advantage do not gain from trade. Comparative advantage (David Ricardo) Nations can gain from specialization, even if they lack an absolute advantage 2: Absolute advantage: Countries benefit from exporting what they make cheaper than anyone else But: nations...
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...1.5.2 Defining ‘cross-cultural management’ Unsurprisingly, there is no one clear or definitive answer to the question of what defines cross-cultural management. The answer depends on which perspectives on ‘management’ and the relation of this process to ‘culture(s)’ we choose to emphasise. Mead and Andrews define cross-cultural management as the ‘development and application of knowledge about cultures in the practice of international management, when the people involved have different cultural identities’ (Mead and Andrews, 2009: 16). This can be compared with the definition given by Laurie Jackson in his book International HRM: A Cross-Cultural Approach (2002). He emphasises the importance of ‘examining the contributions of different cultures in interaction’. This emphasis on the complexities of ‘interaction’ or ‘communication’ between ‘cultures’ (i.e. groups of people or stakeholders) is one shared by Mead and Andrews, and it is developed throughout this course, where we discuss several case studies from the field of human resource management (HRM) and international human resource management or IHRM (cf. Briscoe and Schuler, 2004; Harris, et al., 2003). The text Cross-cultural Marketing, edited by Rugimbana and Nwankwo (2003, from which you’ll be reading in Unit 5) highlights the importance of communicating one’s cultural identity in international and cross-cultural management. The book eschews the traditional practice of asking how far marketing ideas that...
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...Absolute Advantage and Comparative Advantage According to the classic model of international trade introduced by David Ricardo (19th-century English economist) to explain the pattern and the gains from trade in terms of comparative advantage, it assumes a perfect competition and a single factor of production, labor, with constant requirements of labor per unit of output that differ across countries. The basis for trade in the Ricardian model is the differences in technology between countries. As a result, there are two different ways to describe technology differences: the first method, called absolute advantage, is the way most people understand technology differences; and the second method, called comparative advantage, is a much more difficult concept. Absolute advantage is the simplest measure of economic performance. It is the ability to produce a good at a lower cost, in terms of real resources than another country. Absolute Advantage is neither necessary nor sufficient for a country to export a good. In other words, a country has an absolute advantage economically over another, in a particular good, when it can produce that good more cheaply or it can produce more of the good than another country can, with the same amount of resources. In fact, absolute advantage appears when multiple products are being considering. For example, if the country “A” has an economic advantage against the country “B” at producing the product “X”, and the country “A” has an economic...
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...What are the differences between absolute advantage and comparative advantage? Answer Study Island: A country has comparative advantage if it can produce a good for less cost than any other nation. Absolute advantage and comparative advantage are two basic concepts to international trade. Under absolute advantage, one country can produce more output per unit of productive input than another. With comparative advantage, if one country has an absolute (dis)advantage in every type of output, the other might benefit from specializing in and exporting those products, if any exist. A country has an absolute advantage economically over another, in a particular good, when it can produce that good at a lower cost. Using the same input of resources a country with an absolute advantage will have greater output. Assuming this one good is the only item in the market, beneficial trade is impossible. An absolute advantage is one where trade is not mutually beneficial, as opposed to a comparative advantage where trade is mutually beneficial. A country has a comparative advantage in the production of a good if it can produce that good at a lower opportunity cost relative to another country. The theory of comparative advantage explains why it can be beneficial for two parties (countries, regions, individuals and so on) to trade if one has a lower relative cost of producing some good. What matters is not the absolute cost of production but the opportunity cost, which measures how much production...
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...[pic] Logitech Case Study by Esther Rogo & Marjorie Seide International Business GM598 Professor Joan Roberts 1. In a world without trade, what would happen to the costs that American consumers would have to pay for Logitech’s products? The costs that Americans would have to pay for Logitech’s products would be astronomical. This would be due to the fact that the production assembly, resources and the sale of the products would have to be done in the United States. The U.S. labor wage is significantly higher than that of Taiwan or China. Additionally, the company would not be able to manufacture in Taiwan, where manufacturing is cheap and efficient, where the company needs the capacity to produce at high volume and low cost and offer a better designed product-not to mention the Taiwanese factory soon out-producing Logitech’s U.S. facility. Moreover, Taiwan offered a well developed supply base for parts, qualified people, and a locally expanding local computer industry. Without trade, Logitech would be able to rely on China for cheap labor and the assembly of the products with 4,000 employees. In sum, all of these increased expenses and costs would require a rise in the retail price for the consumer. There is also less overall competition in a world without trade, thus allowing Logitech to raise retail price to its consumers. 2. Explain how trade lowers the costs of making computer peripherals such as mice and keyboards? Trade lowers the costs of making...
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...Use the theory of comparative advantage to explain the way in which Logitech has configured its global operations. Why does the company manufacture in China and Taiwan, undertake basic R&D in California and Switzerland, design products in Ireland, and coordinate marketing and operations from California? According to Ricardo's theory of comparative advantage, nations will invest all their resources to produce what they can produce most effectively. They should focus on the product which they can produce most effectively even if they were able to produce a certain product more effectively than other countries. This theory is applied as follows. Regarding China, it is cost effective to assemble and manufacture there. China is the most populous country, and it is important for the Chinese government to provide work environments for its people to earn their living. So a plant for high-volume manufacturing is a good way of employing many people. Even now there are a lot of semi-literature people in China. This resource can manufacture products which need semi-skilled labour most efficiently because of their low wage. Thus, Logitech uses China to manufacture mice. While Taiwan, it is giving land in their industrial parks at very nominal rates. Taiwan’s IT industry is also expanding and the quality is high level. So Taiwan had developed a strong supply base for computer parts, it has skillful people. Logitech is taking advantage of the facilities. As regards California, it is...
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...goods and services to choose from. The importance of international trade to a nation economic welfare and development suggest that economies need to export goods and services in order to generate revenue to finance imported goods and services which cannot be produce indigenously (Coutts and Godley, 1992: McCombie and Thirlwall, 1992). Most theories of international trade such as comparative advantage theory, product life cycle theory, and transaction cost theory are based on trade flows between at least two countries. In theory of absolute advantage, Adam Smith wrote in The Wealth of Nations (1776), "If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage.” (Book IV, Section ii, 12). It means that a country should produce goods where it is more efficient, and trade for those goods where it is not efficient. Therefore, trading will be beneficial between two countries. It is because with the same amount of input, the country which has absolute advantage than others, is able to produce more of a product. Smith’s thoughts on the division of labour constitute the basis for his theory of international trade. For him, it is the division of labour that leads to “the greatest improvement in the productive powers of labour” (WN, I.i.1). As a result of a more advanced division of labour, more output can be produced with the same amount...
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...manufacturing is outsourced, whether for goods or services, many companies downsize their work force. This creates a loss of jobs for the American industries while increasing jobs in places such as China, India and Indonesia, just to mention a few. Outsourcing, undoubtedly has its comparative advantages as far as having lower wages but it also has risks such as rising costs and trade barriers. It is some of these challenges that is believed to have created a slow re-routing of manufacturing to return to the US Industry. The global trend in manufacturing and outsourcing is that many countries rely heavily on China and other developing nations for manufacturing. For this reason many countries outsource their manufacturing to China. In the article, “The end of cheap China,” the writer reminds us that, “China is the world’s largest manufacturing power and they account for a fifth of global manufacturing.” The primary reason for this trend is due to the cheap labor. It should be noted that global manufacturing is also advantageous to China and other developing nations, since it facilitates economic freedom and increase productivity and standard of living for their population. The primary comparative advantage of outsourcing is obviously lower production and manufacturing costs. A typical worker can be paid as low as seventeen US dollars ($17) for daily wages. Whereby the same job if it were to be done in the US could cost seventeen dollars ($17) per...
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...1. What are the advantages Blades could gain from importing from and/or exporting to a foreign country such as Thailand? First of all, Blades, Inc. will lower its cost of goods sold from importing from Thailand, leading a increase in the net income due to the fact that the inputs from foreign countries such as Thailand are cheaper than they are in the US. One of the reason making Blades, Inc. ‘s prices to be one of the highest in the roller blade industry is not importing rubber and plastic from foreign countries that their competitors are already doing it. Furthermore, there will be a long rage plans in Thailand that they can seek the opportunities of creating connection which some Thai suppliers. When the chance comes, Blades will be the first firms to sell roller blades in Thailand which its has a huge competitive advantage. 2. What are some of the disadvantages Blades could face as a result of foreign trade in the short run? In the long run? Entering the international business world will bright some potential disadvantages to Blades, Inc. Current fluctuations in the Thai baht is the first problem. Without adjusting the price of the Thai suppliers, the cost of the inputs can become more expensive over time if the bat appreciates. However, if Blades start selling rolling blades in Thailand, the sales would increase in dollar if the baht appreciates, even if Blades does not increase its prices. And the opposite will also be true, when dollar appreciate, it will decrease...
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...Definition of comparative advantage: The ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins. Having a comparative advantage - or disadvantage - can shape a company's entire focus. For example, if a cruise company found that it had a comparative advantage over a similar company, due ito its closer proximity to a port, it might encourage the latter to focus on other, more productive, aspects of the business. It is important to note that a comparative advantage is not the same as an absolute advantage. The latter implies that one is the best at something, while the former relates more to the costs of the particular endeavour. Comparative advantage is an economic law that demonstrates the ways in which protectionism (mercantilism, at the time it was written) is unnecessary in free trade. Popularized by David Ricardo, comparative advantage argues that free trade works even if one partner in a deal holds absolute advantage in all areas of production - that is, one partner makes products cheaper, better and faster than its trading partner. The primary fear for nations entering free trade is that they will be out-produced by a country with an absolute advantage in several areas, which would lead to imports, but no exports. Comparative advantage stipulates...
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...TRADE THEORIES: International trade theories are simply different theories to explain international trade. Trade is the concept of exchanging goods and services between two people or entities. International trade is then the concept of this exchange between people or entities in two different countries. People or entities trade because they believe that they benefit from the exchange. They may need or want the goods or services. While at the surface, this many sound very simple, there is a great deal of theory, policy, and business strategy that constitutes international trade. MERCHANTALISM Developed in the sixteenth century, mercantilism was one of the earliest efforts to develop an economic theory. This theory stated that a country’s wealth was determined by the amount of its gold and silver holdings. In it’s simplest sense, mercantilists believed that a country should increase its holdings of gold and silver by promoting exports and discouraging imports. In other words, if people in other countries buy more from you (exports) than they sell to you (imports), then they have to pay you the difference in gold and silver. The objective of each country was to have a trade surplus, or a situation where the value of exports are greater than the value of imports, and to avoid a trade deficit, or a situation where the value of imports is greater than the value of exports. A closer look at world history from the 1500s to the late 1800s helps explain why mercantilism flourished...
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...Explain Mercantilism. Mercantilism refers to an economic system, which was used in trade between the 16th and 18th century. The Mercantilism system was based off the Mercantilist theory and theorists believed that the size or amount of wealth in the world is static. In this case, European countries took significant strides to ensure that each nation garnered as much wealth as it could to increase the national wealth. Some of the ways they used to achieve this include imposing government regulation in countries where commercial interests had been established. More so, the theorists believed that national strength could be increased by minimizing the imports with high tariffs and maximizing the exports. 2. Describe the World Trade Organization including its function and numbers of members. The World Trade Organization is also known as the WTO. It is a global organization, which handles issues revolving around the rules and standards of trade between nations, which are referred to as member states. The organization currently comprises of 164 member states that have agreed to the WTO trade policies and commitments. Furthermore, the operations and functions of the World Trade Organization are guided by agreements, which have been negotiated upon and signed by a high number of trading partners in the world. As such, member states benefit from the agreement since trade is much easier. 3. Explain consumerism. Consumerism refers to the socioeconomic ideology, which promotes the acquisition...
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...economies. Currently, the world economies are being benefitted by the disappearance of trade borders. The world as we knew it is not the same. Dependence on other countries products or services is more relevant than ever before. With new technological developments and faster modes of transportation, communication and distances between countries have been reduced significantly. They can move their products faster and efficiently. Countries that did not have any important interest or participation in the markets are now being rewarded by concentrating their resources particularly on what they best produce, giving them a comparative advantage in the global economy. This is one of the benefits found in this new structure of the world economy. Even though some countries are worse off and affected by this type of trade, nearly all countries have a comparative advantage in producing goods that can be exploited for a greater benefit. And by applying this regulation, countries can maximize their gains from trade and reduce their losses in the global market. Global markets that once were controlled and restricted directly by government policies are becoming less tied through the formation of networks of production, trade and international businesses. Development and...
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...are larger for an MNC than for a purely domestic firm because managers of foreign subsidiaries may be tempted to focus on making decisions to serve their subsidiaries rather than the overall MNC. b. MNC’s with subsidiaries scattered around the world may experience more agency costs because it is much more difficult to monitor managers in foreign countries, foreign subsidiaries may not follow the same uniform goals, the size of the subsidiaries themselves leads to more conflicts, as well as the beliefs that employees should come first in decision making prior to shareholders. 2. a. Explain how the theory of comparative advantage relates to the need for international business. The theory of comparative advantage relates to the need for international business because it suggests that each country should use its comparative advantage to specialize in its production and rely on other countries to meet other needs. Therefore all countries would need to trade with each other competitively for the products they are not able to produce. b. Explain how the product cycle theory relates to the growth of the MNC. The product cycle theory suggests that after firms are established in their home countries, they commonly expand their product specialization in foreign countries. This would therefore lead to the growth of the MNC. 3. a. Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets. The existence...
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...International Trade Simulation Week 8 Eco 212 The international simulation report is a compilation of the findings and outlines that reflect advantages and limitations of international trade as a whole. After reading the international trade simulation I did find that there are four distinct points that represent the elements that make up the report. I will be reviewing each point in depth along with providing a compare and contrast of the influences and advantages. I will finally end with a discussion that brings to light the issues surrounding the international trade report and provide a summary. The economy of Rodamia relies on three main areas: agriculture, industry and services. The country is surrounded by neighbors who produce similar and different products. Uthania is specialized in making chocolate and confectionary, but also produces goods such as minerals, coals and corn. On the other hand, Suntize is a tourist attraction which is good at producing electronic goods. Lastly, Alfazia is an agrarian economy and produces goods like corn, rice and cotton. On global interaction there is an economic characteristic where a nations exchanges goods and services to others. Globally this is known as importing and exporting production. Those nations with an open economy in the world is involved such processes with other nations, but they need to make sure they have positive interactions with the nations trading with and some of the traits would be to trust...
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