MNG00723 Global Business Report: Globalization and Trade

This report analyzes the multifaceted aspects of global business, beginning with a definition of globalization and its diverse impacts on domestic businesses, encompassing both positive and negative consequences. It then delves into international trade theories, specifically the Factor Proportions Theory and the International Product Cycle Theory, along with their respective limitations, using real-world examples. The report further explores the complexities of government intervention in international business, using the trade war between the USA and China as a case study to examine the reasons behind the imposition of tariffs on Chinese imports and their subsequent implications for domestic consumers. The analysis incorporates insights from various academic sources to provide a comprehensive understanding of these critical aspects of international business.

Running Head: GLOBAL BUSINESS 0
Global Business
REPORT
Student
7/25/2019

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Contents
Question1: .......................................................................................................................................2
About Globalization.....................................................................................................................2
Impacts of globalization on domestic business in Australia........................................................2
Positive and Negative impacts of Globalization on the domestic Business................................3
Question 2:.......................................................................................................................................5
Factors Proportion Theory...........................................................................................................5
Limitations...................................................................................................................................6
International Product Cycle theory..............................................................................................7
Limitations...................................................................................................................................8
Question 3: Trade War between USA and China............................................................................9
Bibliography..................................................................................................................................11

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Question1:
About Globalization
Globalization promotes cross-cultural communication on the international scale and removes
economic disparities by the integrating laws of nations, thus widening the scope of national and
universal trade. Along with the views of known scholars, famous author Roland Robertson
defined globalization as a development of knowledge regarding different community, economic
and cultural and thus increasing the perspective of the world as a whole (Katerina & Aneta,
2014). Moreover, according to the Swedish journalist, who is an acclaimed author of The Race
of the top: the Real Story of Globalization book, defined global development as a method of
trespassing the barriers, reducing the distances across nations and improving the relations across
boundaries (Cuterela, 2012).
Impacts of globalization on domestic business in Australia
In Australia, Global development has brought overwhelming:
Political Development Globalization includes spreading thoughts, practices and technical
expertise across nations. Its scope is not only limited to modernization but also promotes
liberalization across different nations in which the entrance of globalization in Australia, there
has been has experienced exceptional growth in its economy.
Technological Development: In Australia, advanced communication technology like electronic
media and upcoming wireless network (social media) has enabled the local companies to expand
their market across nation. Moreover, Internet has empowered domestic market of Australia to
launch their products in the world trade market and give competitive edge to other companies.

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Trade development: It has assisted Australia to evolve as one of the top producers of ilmenite,
rutile, iron, and zircon. Due to globalization, Australian manufacturers can source their goods to
a large organization. Thus it can be said that, that the application of development strategy
resulted in fruitful for Australia (Tallman & Pedersen, 2015).
Social Development: Globalization has a positive impact on the society of Australia. Due to
diversity, the citizens of Australia can now experience and relish food, culture and tradition from
the entire globe.
Positive and Negative impacts of Globalization on the domestic Business
Globalization has encouraged the development of undeveloped countries, which has resulted in
improved infrastructure, generation of output, increase production level, has created an
abundance of employment opportunities, thus contribute to the overall development of nations
(Gopinath & Parkar, 2019). Development of the market: It has contributed to the advancement
of technologies, the promotion of tourism industry on the international level, removing
intercultural barriers, and increased the standard of living (Katerina & Aneta, 2014). Moreover, it
empowers nations to focus on and manufacture goods that are available in their domestic market.
Moreover, worldwide collaboration has made it possible for the companies to avail cheap raw
material so that the companies can effectively produce the goods at a low price and generate a
great amount of profit on an annual basis. Competition With the wave of powerful of
globalization, there has been an increment in the cutthroat competition among the companies
who are striving hard to dominate the market with their innovative services, competitive prices,
and eco-friendly manufacturing policies.
Negative impact

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However, there are various disadvantages of globalization as well. This policy is majorly
practiced in the powerful countries that were and still dominating the global market from the
decades. In the industry, the least developed countries play an important role in providing cheap
personnel and raw ingredients and sources. Fluctuation in the prices: With the increase in
competition, there has been instability in the prices. For example: While trading the goods in the
international market, the USA faced difficulties in setting the prices of their products as China
was offering the same products at lower prices. The reason for such price differentiation was that
the production cost of China is lower in comparison to the USA. With the introduction of
globalization in the system, the fear of job insecurity has been increased amongst the people
(Katerina & Aneta, 2014). Before its application, personnel with great talent and expertise used
to hire by the government and private sectors. However, globalization reduced physical barriers
and employees are looking for the job. This has allowed employers to take unfair advantage of
the cheap worker, dismiss the personnel at the slightest mistake, and exploit them according to
their needs (Pudelkoa et al., 2015).

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Question 2:
Factors Proportion Theory
Figure 1: Factors Proportion Theory
(Saylordo, 2019)
In the early 1990s, Two Swedish economic scholars, Eli Heckscher, and Bertil Ohlin discovered
this theory of international trade, which states the percentage of gain a country can attain by
manufacturing its final products with the efficient utilization available resources in the country.
The foundation of this theory is based on various productive resources: land, workers, and
investment, which are an asset and are accumulated together to generate capital for modern
technology and equipment (Saylordo, 2019). It is based on the assumption that the cost of these
factors depends on the present status of demand and supply in the market. For example, if the
supply of determinants is higher relative to the demand than the factors can easily be availed at

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lower prices. On the contrary, if, these accessible productive factors are short in supply in
comparison to demand, then it will be available at an expensive rate (Anand, 2019)
Limitations
However, this theory has a number of limitations. One of the major limitations of this theory is
that it highlights a highly unrealistic approach to commence trade on the global level (Kalu et al.,
2016). The impacts of such an approach can be observed in the trading pattern of Kenya and
India where the labors have a contrary relation with the production level of both the companies.
Many economists suggested that an increase in the working force implies an increase in the
production output of the company. However, in Kenya, the working system is highly unstable.
On the other hand, there is a scope of advancement in labor-intensive nations like India. Such
mismatch increases the dependence of nations, decreases the productivity level, and increases the
crime rates (Kalu et al., 2016).

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International Product Cycle theory
Figure 2: 4 Life Cycle Stages
Source: (Claessens , 2017)
It is an economic theory, which was developed by Raymond Vernon in the early 1960s.
Professor Raymond discovered this model as the Heckscher-Ohlin theory was unsuccessful in
explaining the comparative cost and consequent global specialization production. One of the
basic assumptions of this theory is that the manufacturing of the products will be performed
entirely in the nations where the innovations have occurred. After the product is launched in the
market, its production outlet generally shifts across different regions. For an example Personal
computers in United states. It is most effective model of trade as it causes labor saving and
efficient utilization of capital to elite group (Kalu et al., 2016)

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This theory is has been originated from the field of marketing which involves the procedure of
three major step:
 New Product
 Maturing Product
 Standardized Product
Limitations
Fluctuations in sales data: One of the major issues all the companies face while practicing this
theory is that the graph is entirely depended upon the sales of the company, thus occurrence of
any fluctuations in the value of sales shows variations in the graph due to which the scope of
accuracy becomes zero. Production issues and seasonal sales are the major reasons for such
instability. Such instability is observed in a well-known automatic car brand Tesco where its
market share has been reduced to 8% after the company overlooked and neglected the profits for
the upcoming year. Such attitude endorsed weak trading in Poland and Thailand (Merchant,
2019).

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Question 3: Trade War between USA and China
It is one of the biggest trade disputes that has arisen in the history of the world trade market. To
put more emphasis on the issue, from the given 3 topics, topic 2 Part (d) has been chosen so the
government intervention in the international business can be analyzed. To describe the
government intervention Economic Contemporary Theory is adopted. Economic
Contemporary theory suggest that international trade and investment has positive on both the
economy (Cadogan, 2012).
Reason/logic behind such a comment/decision
In May 2019, American president Donald Trump worsened their trade relations with China when
they raised the bar of tariff on $200 billion worth of Chinese goods. One of the major reasons for
taking such an extreme step was that Beijing attempted to renegotiate the business deal over
which Donald Trump showed a great sign of disobedience. Before the dispute, there was the
hope that the deal of both countries would open the doors for the Chinese market in the
American business hub and strengthen their base in the country. However, due to sudden
changes in the agreement debate was fall apart (Tung & Verbeke, 2010).
Implications of such an intervention on domestic consumers
This resistance adversely affected China’s economy as American officials increased the existing
duty with 25% and levied additional duties on $325 billion worth goods. This was of the biggest
trade action so far, as high levies will affect the potential customers across the nation who rely on
seafood, luggage, and electronic devices that are marketed from Beijing (Lu, 2018). After the
announcement made by Mr. Trump, there was a brisk fall in the stock market. In response, China

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has threatened to take action against the unprofessional attitude of America. Moreover, it was a
favorable decision for the majority of the business and entrepreneurs too approved with Mr.
Trump that China indulges in unfair trade practices. However, this decision was opposed by the
organizations as they were depended upon China for the transportation raw material and other
services (Swanson & Rappeport, 2019). Various government officials and analysts are also given
their consent, that Beijing has been applying the strategies which can give them a competitive
advantage over the American market in the technical industry which involves artificial
intelligence and other technical devices. However, such actions also affected the purchasing
power of the customers as it increased the cost of imported goods and as the substitute consumer
unwillingly purchase the goods that are available in the market at the higher prices. Such conflict
not only the hit the customers but also disturb the market intermediary countries like South
Korea, Taiwan, Vietnam and Malaysia who were engaged in the dealings of both the countries
(Pudelkoa et al., 2015). However, this war had already begun in 2016, but took an ugly turn,
which has affected the trade relations of both the countries but affected other industries
(Swanson & Rappeport, 2019). After the imposition of the tariffs, many businesspersons shared
their struggling experience in which Shanghai executives that started their wrenching business on
Amazon.com told the reporters that now he has to bear the additional cost, as he cannot afford to
lose its customers. Thus such decision affected the economy on the broad scale (Lu, 2018).
.

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Bibliography
Anand, V., 2019. The Heckscher-Ohlin (H-O Model- With Diagram ). [Online] Available at:
http://www.economicsdiscussion.net/articles/the-heckscher-ohlin-h-o-model-with-diagram/
6583 [Accessed 24 July 2019].
Cadogan, W., 2012. International marketing, strategic orientations and business success.
International Marketing Review, Vol. 29(4), pp.340-348.
Claessens , , 2017. Character of the product life stages and their marketing Implications.
[Online] Available at: https://marketing-insider.eu/characteristics-of-the-product-life-cycle-
stages/ [Accessed 6 August 2019].
Cuterela, S., 2012. Globalization: Definition, Processes and Concepts. [Online] Available at:
http://www.revistadestatistica.ro/suplimente/2012/4/srrs4_2012a22.pdf [Accessed 24 July
2019].
Gopinath, G. & Parkar, C., 2019. An economist explains the pros and cons of globalization.
[Online] Available at: https://www.weforum.org/agenda/2019/04/an-economist-explains-the-
pros-and-cons-of-globalization-b2f0f4ae76/ [Accessed 2019].
Kalu, U., Nwanosike, & Ogbuabor, , 2016. Factor Proportion Theory: Evidence from Kenya.
Saudi Journal of Business and Management Studies, 1(4), pp.162-68.
Katerina, R. & Aneta, , 2014. The Impact of Globalization on the Business. Economic Analysis,
42(3-4), pp.83-89.