Premium Essay

Globalization Theory

In: Business and Management

Submitted By margenta
Words 1715
Pages 7
Theories of International Trade & the Multinational Enterprise

Theories of International Trade & the Multinational Enterprise
International trade is the exchange of goods and services across borders. Trade provides people with greater selection of 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 of labour. He illustrates this point with his famous pin factory example. In this example, ten workers, who are all assigned to

Similar Documents

Premium Essay

Globalization What Is Globalization, and What Are Some of the Traditional International Trade Theories That Support the Concept of Globalization? Globalization Is Defined as a Shift Towards an Integrated World Economy (

...Globalization What is globalization, and what are some of the traditional international trade theories that support the concept of globalization? Globalization is defined as a shift towards an integrated world economy (Hill, 2009). Globalization can be explained in many ways, one is the globalization of production. For example, computer hardware or software, cell phones, food, and music are all products that are distributed globally. Globalization is the process in which economies of countries all over the globe become integrated over time leading to organizations having access to a larger market base and customers having access to a greater variety of goods and services. Globalization is also a method of communication and integration among the consumers, organizations, and governments of different nations, which is driven by international trade and investment and assisted by information technology. This process has effects on the environment, culture, political systems, economic development, and on human nature in societies around the world. Supporting the concept of globalization are several traditional international trade theories, including Free Trade, New Trade, and Mercantilism. List the major drivers of globalization and give three examples of each. Several drivers underline the continued trend of globalization in today’s popular culture. The first is the decline in barriers to the free flow of goods, services, and capital (Hill, 2009). Companies...

Words: 276 - Pages: 2

Premium Essay

Globalization Theory

...Shollah Manuel Globalization as a theory, concept and ideology has roots from modernization theories. It has been advanced by industrialized nations and thereupon imposed on the developing nations. This concept is paradoxical where in one hand it is liberating and on the other it is constraining. In this paper, globalization is defined as a set of institutional and ideological relations which brings nations into a global village, fusion of cultures, and advancement of geopolitics, internationalization, increased borderless society and global market economy (Robertson, 1992; Ritzer, 2004; Wallerstein, 1974/2000; Zetlin, 2001). This essay chronicles a heated debate between supporters of globalization and those who are skeptical about it as suggested by the question that globalization benefits small nations while in sharp contrast these small developing nations find it as beneficial to developed nations. A plethora of case studies will be drawn across the globe in assessing these two contrasting views and in the conclusion a judgement will be passed based on the evidence substantiated throughout the entire essay. The assertion that “while promoters of globalization proclaim that this model is the tide that will lift all boats, while citizens movements find that it is instead lifting only yachts” means that globalization is viewed, conceived and interpreted differently by the rich and the poor countries are very sceptical. Globalization is not different from other theories of development...

Words: 2186 - Pages: 9

Free Essay

Theories of Globalization

...The Globalization of Democracy Building: A Polyarchic Dilemma When we look at the Middle East and democratization, we must realize that democracy in its current form is largely a Western concept. Democracy building on the part of the US outwards is a classic example of globalization. This paper will examine two theories of globalization: the interdependency theory of Waltz and Robinson?s view of globalization as one of power politics. It will then move on to examine globalization theory in regards to democracy building. Finally, this paper will seek to examine democracy building initiatives in two countries, Iraq and Lebanon. Theories of Globalization Waltz contends that we view globalization at interdependence, and that ?interdependence [is] again associated with peace and peace increasingly with democracy.? ? People, firms, markets matter more; states matter less,? because it is the economy that drives states to make decisions. As the world becomes more interdependent on one another, decisions are made as a collective whole in the economic field, not the independent political state. In many ways, Waltz suggests that Globalism is really Americanism spread around the globe. As the Cold War ended, it become clearer that the ideology that won out, a capitalist democracy, was the winner and dominant ideology. The theology behind it was that if a country is not transparent, with a flexible free market, then it will crumble. What if a country is looking to open its...

Words: 4353 - Pages: 18

Premium Essay

The Theory of Globalization in Dubai

...The Theory of Globalization in Dubai William Jackson Jr Keller School of Graduate Management Abstract This paper will explore Dubai, the world’s fastest growing city on the Arabian Gulf which features the most amazing projects, that appears to be the new tourism model for the world. Mega-resorts featuring golf courses, marinas, hotels, housing estates, super-malls and entertainment facilities are mushrooming along coastlines in all continents. The globalization in Dubai will be presented utilizing examples from South Africa, Vietnam, the Bahamas and Mexico. Many of those Mega-resort and housing complexes are built by Middle Eastern companies utilizing capital from the Middle East. The city of Dubai tourism-related projects are called “bubbles set to burst”. One analyst, called Dubai “the harshest of lessons in the perils of rampant property speculation”. The property, tourism and golf industries have already suffered downturns as a result of the global credit crunch, and the majority of the ambitious resort projects may not survive the current economic crisis. Developers and speculators will lose money, but the major losers will be local communities and the environment. In addition to concerns about the economic risks, there are growing worries about the global food shortage crisis and how it impacts of climate change. But decision-makers are careless when it comes to giving the green light to constructing monstrous resorts and housing...

Words: 4760 - Pages: 20

Free Essay

Ghgfh

...Multinational Business Finance, 13e (Eiteman/Stonehill/Moffett) Chapter 1 Current Multinational Challenges and the Global Economy 1.1 Financial Globalization and Risk True/False 1) BRICs is a term used in international finance to represent assets that are considered to be inexpensive and sturdy, but fundamentally unsound and and incapable of coping with the upheavals now apparent in international financial markets. Answer: FALSE Diff: 1 Topic: 1.1 Financial Globalization and Risk Skill: Recognition 2) Multinational enterprises (MNEs) are firms, both for profit companies and not-for-profit organizations, that have operations in more than one country, and conduct their business through foreign subsidiaries, branches, or joint ventures with host country firms. Answer: TRUE Diff: 1 Topic: 1.1 Financial Globalization and Risk Skill: Recognition 3) Ownership, control, and governance changes radically across the world. The publicly traded company is not the dominant global business organization—the privately held or family-owned business is the prevalent structure—and their goals and measures of performance differ dramatically. Answer: TRUE Diff: 2 Topic: 1.1 Financial Globalization and Risk Skill: Recognition 1.2 The Global Financial Marketplace Multiple Choice 1) A well-established, large U.S.-based MNE will probably NOT be able to overcome which of the following obstacles to maximizing firm value? A) an open market place B) high...

Words: 2643 - Pages: 11

Premium Essay

Dell Theory of Conflict Prevention

...Dell Theory of Conflict Prevention I feel that Globalization has been able to help the world tremendously. Globalization has also brought the whole world together in the sense that people can now integrate and engage in different activities throughout the world. Barriers that existed between communities and societies have been gradually broken by globalization. Today, people can engage in business activities throughout the world without problems of business contact because of technological innovations that have contributed to globalization. In the book The World is Flat, Thomas Friedman argues in support of the Dell Theory of Conflict Prevention. On the other hand, William Duiker is not sure about the trend that globalization sets. He argues that globalization may be caused by a simultaneous trend towards fragmentation. In the Dell Theory of Conflict, Friedman states that the world has an economic interdependence that has a possibility of war. However, he says that when two countries or states engage in business together, they are less likely to go into war when they are equal parts of the same global supply chain. He clearly states that the two countries are unlikely to go to war because they have invested heavily in the business. Therefore, according to Friedman, the success of the business between the two countries involved depends on the supply chain. William Duiker in his book, Contemporary World History links social, cultural, economic and political history of the...

Words: 887 - Pages: 4

Premium Essay

Week 1 Questionaire

...Globalization Questionnaire Globalization can be seen more prominently now than in recent years and has put pressure on major businesses who once dominated their respected industry. Now those once mighty titans must look out for the smaller competitors who are looking to produce products and services cheaper, more up to date, and faster. Boundaries have been lowered and the business battle field is becoming more level with each passing year with the evolution of technology. According to (Hill, 2009), globalization can be defined as the reference of the shift toward a more integrated and interdependent world economy. The term globalization can be divided into the globalization of markets and the globalization of products. Adam Smith proposed a theory in 1776 known as Adam Smith’s theory of absolute advantage. This theory sheds light on the unrestricted free trade and how it is beneficial to any given country (Hill, 2009). Smith’s theory states that imports and exports should be influenced by the invisible hand rather than by policy established by the government. This theory was a break through because it was the first of its kind at the time. An earlier theory that supports globalization includes mercantilism which states that a country should maintain its best interest with regard to trade by limiting the trades that they import and maximize its exports, this would allow the country to accrue more gold and silver, increasing its wealth, rather than “sending” its wealth to...

Words: 632 - Pages: 3

Premium Essay

Globalization Questionnaire

...Globalization Questionnaire University of Phoenix MGT/448 Globalization Questionnaire Globalization is a theory established to bridge cultural, geographical, economical gaps to facilitate trade. Globalization is interconnectedness, interaction, and connectivity of world markets, economies, and businesses (Hill 2013). Trade theories that support globalization: 1. Free Trade: removal of restrictions on trade, resulting in free, unhindered flow of goods. 2. Mercantilism: Insists the amount of silver and gold are the benchmarks of a country’s wealth. 3. New Trade theory: a set of models that boost profits. 4. Product Life Cycle theory: in the early stages of life a product is made using resources from the area of origin. Major drivers of globalization 1. Technological drivers: Technological advancements connected the world through improved transportation particularly computers, and telecommunications and the internet. 2. Cost drivers: Labor, raw material. Costs vary from country to country. Used to lower production cost to increase returns. 3. Political drivers: Political stability can boost investor and importer confidence. Liberalized trade rules, lowered tariff, direct foreign investment, and privatization. Four affects of globalization Power of WTO, World Bank Power of WTO, World Bank, etc. are to regulate trade: decide tariffs, provide capital, help out countries by providing loans. Technological progress A huge flare up of competition...

Words: 386 - Pages: 2

Free Essay

Thomas Green: Power, Office Politics, and a Career in Crisis

...Globalization and its Aftermath By Douglas Kellner Globalization has been one of the most hotly contested phenomena of the past two decades. It has been a primary attractor of books, articles, and heated debate, just as postmodernism was the most fashionable and debated topic of the 1980s. A wide and diverse range of social theorists have argued that today's world is organized by accelerating globalization, which is strengthening the dominance of a world capitalist economic system, supplanting the primacy of the nation-state by transnational corporations and organizations, and eroding local cultures and traditions through a global culture. Contemporary theorists from a wide range of political and theoretical positions are converging on the position that globalization is a distinguishing trend of the present moment, but there are hot debates concerning its nature, effects, and future. Moreover, advocates of a post-modern break in history argue that developments in transnational capitalism are producing a new global historical configuration of post- Fordism, or postmodernism as an emergent cultural logic of capitalism (Harvey 1989; Soja 1989; Jameson 1991; and Gottdiener 1995). Others define the emergent global economy and culture as a "network society" grounded in new communications and information technology (Castells 1996, 1997, and 1998). For its defenders, globalization marks the triumph of capitalism and its market economy (see apologists such as Fukuyama...

Words: 1697 - Pages: 7

Premium Essay

Global Warmng

...Running Head: Globalization Analysis of Globalization with Theoretical Approaches in Sociology [Name of student] [Name of institute] Analysis of Globalization with Theoretical Approaches in Sociology Globalization: Globalization is the process of trade between richer and low labor countries without limitation of boundaries and distance. After the Second World War countries with rich economies and strong social security system open their trade border for globalization, especially in last two decades. A study says, costly labor results in expensive social security. Some organization and firms tend to limit their work in high labor cost countries and divert their activities to those countries where labor cost is less and the social security system is weak. A risk factor of social security in such rich countries increase due to the forces of globalization. Rich countries offer imports from low labor countries and remain competitive by enforcing lower social security standards to the labor. These tricks develops a pressure to scale back the countries having higher social security system. Resultantly, competitive pressures arising from globalization is slowly destroying the social security. However, if the situation prevails, social achievements of industrialized countries could be destroyed and their ability to generate income would become unfavorable (1). Sociology The study of social relationship of human in any aspect of life that is family, friends, religion...

Words: 1660 - Pages: 7

Premium Essay

Business

...Chapter 1 Globalization and the Multinational Enterprise ( Questions 1-1. Globalization and the MNE. The term globalization has become very widely used in recent years. How would you define it? Narayana Murthy’s quote is a good place to start any discussion of globalization: “I define globalization as producing where it is most cost-effective, selling where it is most profitable, and sourcing capital where it is cheapest, without worrying about national boundaries.” Narayana Murthy, President and CEO, Infosys 1-2. Globalization and Value Creation. What does an MNE need in order for it to create value through the globalization process? Global business, like any business, is the social science of managing people to organize, maintain, and grow the collective productivity toward accomplishing productive goals, typically to generate profit and value for its owners and stakeholders. A multinational enterprise (MNE) needs three fundamental elements in order to build firm value: (1) an open marketplace; (2) high quality strategic management; and (3) access to capital. 1-3. Value Creation and the Concept of Capitalism. How does the concept of capitalism actually apply to the globalization process of a business, as it moves from elemental to multinational stages of development? Open markets and insightful leadership is all for nought if the MNE cannot gain ready access to affordable capital. It is capital that allows the investment...

Words: 2103 - Pages: 9

Premium Essay

Advantages and Disadvantages of Globalization

...a war against each other since each got its McDonald's.” This quote of Thomas L. Friedman, a well-known US-American foreign affairs and globalization expert, shows two of the main results of globalization: Companies that are becoming more international and a world in which the countries start cooperating more and more instead of fighting wars. People start in-teracting borderlessly and politicians and newspapers mention the “world community.” There are mainly three forces that are contributing to the process of globalization: the liberalization of capital movements, the opening of global markets to trade and invest-ment, and the increasing use of information and communication technologies. If you want to define globalization you have to emphasize that Globalization is a multi-dimensional phenomenon that not only touches political, economic, social and cultural spheres of any society but also reshapes the traditional way of studying the “social world and human nature” first. At political and economic level, globalization is the process of denationalization of markets, politics and legal systems, it is the rise of global economy. Good examples for this development are e.g. the European Union or the negotiations of the European Union with the United States to create the biggest trade zone of the world. At the business level, globalization is when companies decide to take part in the emerging global economy and establish themselves in other countries’ mar-kets. They adapt their...

Words: 2370 - Pages: 10

Premium Essay

Albert Einstein

...Globalization and Organization “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.” Albert Einstein Devin Brown Economics 2015-2016 How I interpret this quote by Mr. Einstein is that humanity will one day annihilate themselves close to extinction, by the weapons they have and will create in the future. When it happens, the remaining inhabitants will have to repopulate and use the ancient methods of living again. In this assignment, the key debates are the socialist against the capitalist system respectively, how it affects the political, economical and cultural aspect of globalization, with reference to theories and examples to illustrate them. The dependency theory states that the poverty of low-income countries stems from their exploitation by wealthy countries and the multinational corporations that are based in wealthy countries. This is used due to the example of Coca-Cola (a multinational corporation from the west) abusing India’s water supply in villages to make their products because of the capitalist system of minimizing production costs without governmental interference (as India is quite high in terms of corruption) and the pollution it created. This situation got so problematic that India had to shut down the factories that produce the product, which may end up hurting their political ties with United States of America (U.S.A) and the economic as it losses jobs for the low...

Words: 1278 - Pages: 6

Premium Essay

Globalization

...Globalization is defined as “the shift toward a more integrated and interdependent world economy” (Hill, 2009, p. 6). There are different aspects involving globalization. One primary facet includes the globalization of markets that merges “historically distinct and separate national markets into one huge global marketplace” is classified as the globalization of markets (Hill, 2009, p. 6). The advancement of technology has increased international communication, resulting in the fall of national barriers, and the escalation of cross-border trade. Consumer preferences are crossing international borders and cultures enhancing global market trade. Products such as Coca-Cola soft drinks, McDonald’s hamburgers, and Sony PlayStation games are examples of the success of global market creation. Another primary aspect of globalization is the globalization of production. This process includes “the sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (such as labor, energy, land, and capital)” (Hill, 2009, p. 7). Globalizing production allows businesses to compete more effectively, resulting in higher product quality and lower overall costs. There are quite a few traditional international trade theories that support the concept of globalization. One is Adam Smith’s theory of absolute advantage proposed in 1776. Smith’s theory explained “why unrestricted free trade is beneficial to a country”...

Words: 569 - Pages: 3

Premium Essay

Globalization Questionaire

...Globalization Questionnaire MGT/448 Globalization Questionnaire Globalization is conceivably the essential idea of the current international goods and services market. It is difficult for some to define the idea of globalization. Unlike most concepts, which focus on diverse facets of emergent interdependencies, such as technological, cultural, and economical aspects, globalization refers to the combination of all of the factors and many more to develop more of an interconnection rather than interdependency (Stanford Encyclopedia of Philosophy, 2010). Globalization refers to the shift toward a more assimilated and interdependent global economy. Globalization possesses many diverse aspects including the globalization of production and the globalization of markets (Hill, 2009). Explaining the patterns of international trade, is not easily done using any single theory, the combination of the theories of, Mercantilism, Life-Cycle, Free Trade, New Trade and Porter's Theory do propose which influences are of importance to the international trade market and back the idea of globalization. Diminishing trade and investment obstacles, communication, technology, and demographic changes are the ultimate contributors to globalization. Trade barriers are being reduced, and have shifted the global economy from being primarily closed end to a more open end. The lowering of barriers to international trade enables firms to view the world, rather than a single country, as their...

Words: 619 - Pages: 3