Analyzing Globalization's Impact on Domestic Business & Trade Theories

This report examines the concept of globalization and its effects on domestic businesses, highlighting both positive aspects like foreign trade and investment, and negative aspects such as dumping and increased competition. It delves into the Factor Proportions Theory and the International Product Cycle Theory, discussing their assumptions and limitations. Furthermore, the report analyzes the implications of the tariffs imposed by the U.S. on Chinese products, including the potential rise in prices and impact on domestic industries. The conclusion emphasizes the importance of globalization in today's business environment and its role in driving international expansion and growth.

Global Business
Globalization
7/19/2018

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Table of Contents
Introduction................................................................................................................................2
Globalization..........................................................................................................................2
Impact of Globalization on Domestic Business.................................................................2
Factor Proportions Theory.....................................................................................................4
Assumptions.......................................................................................................................5
Limitation of Factors Proportions Theory or Heckscher Ohlin's H-O Theory..................5
International Product Cycle Theory.......................................................................................5
Limitations of the theory....................................................................................................6
Imposition of Tariff on Chinese Products by the USA..........................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................9

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Introduction
Gone are the days when companies would restrain their processes to regional or local market.
With the fast advancements in the technology and expanding trade, companies are
incentivized to vend service and products in international markets. As such, conducting a
business on an international level supports firms to expand their share of the market, decrease
costs, and become competitive (Green, 2017). This report is being prepared to discuss the
concept of globalization and its effect on the domestic business. Besides this, the report will
highlight the concept of factor proportion theory and international product cycle theory with
examples. Along with this, it will talk about the imposition of a tariff on the Chinese products
by the president of USA i.e. Donald Trump.
Globalization
Globalization is the procedure of communication among the people, businesses, and
governments of diverse countries, a procedure driven by global trade and investment and
assisted by information technology (Beck, 2018). This procedure has effects on the culture,
prosperity, on political systems, environments, on economic development, and on the well-
being of humanity in societies across the world. The concept of Globalization is not atoll
new. For last many years, people and later companies have been purchasing from and
vending to each other in lands at boundless distances, like by the well-known Silk Road
across Central Asia that linked Europe and China for the time duration of the Middle Ages.
Similarly, for years, companies and people have financed businesses in different nations.
Besides this, several of the aspects of the present globalization wave are alike to those
prevalent before the eruption in 1914 of the First World War (Levin, 2018).

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Impact of Globalization on Domestic Business
Globalization has carried benefits for the domestic business in the countries as well as
negative effects.
Positive Effects
The positive effects comprise various factors such as education, capital flows, investments,
organization structure, technology, and culture. It would be slightly hard to discuss the range
of the positive effects that globalization has had on the whole world. Still, here are few of the
globalization’s positive effects it had on various demographic segments of the society (Peng,
2016).
Foreign Trade- Globalization has expanded and made a foreign trade in the whole world.
Products or activities that were found in the developed nations can be today owned in other
various nations around the world. People can receive all the things they desire and from any
nation. People can now get whatever they want and from any country.
Foreign investment- The most noticeable positive effects of the globalization in the whole
world is the free flow of international or foreign capital. Many businesses are investing
directly in other countries, through their production units.
Culture- There is various positive effects of Globalization on culture. Not every good
practice was established in one civilization. In the world where we live is an outcome of
various cultures coming together. Individual of a single culture, if accessible incline to see the
faults in their culture and select a culture, which is right or adjust with the changing time
(Vaish, 2010).
Negative effects
Globalization has its negative effects on different nations. It comprises a few factors such as
fluctuations in prices, dumping, unemployment, and competition, etc.

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Dumping- Dumping has arisen as a large issue in front of a domestic business in the
countries. Through dumping, the nation exploits the business in the developed as well as
developing countries by charging a cheap price for their products, on which price the
domestic manufacturers cannot vent their products.
Unemployment- Globalization supported various nations in developing technologies
quickly. Because of the invention of advanced technology, the utilization of labor decreases,
significantly due to which the unskilled workers lost their work or job.
Competition- For the globalization of the economy countries unlocked their market for the
international businesses and these businesses were very big and making use of advanced
technologies. Domestic businesses were not capable enough to manufacture products on the
cost, which eventually raise a question mark on the survival of these businesses.
Factor Proportions Theory
The Eli Heckscher who is the Swedish economist developed the theory of factory proportion
and later elaborated by his previous student of graduate Bertil Ohlin, shaped the main theory
of international trade and is broadly acknowledged (Saif, 2018). Ohlin and Hechsher forecast
the categories of products in which nations would have a comparative advantage. They
projected that nations would incline to export products that used production factors, which
were comparatively plentiful in their nation.
The theory of Factor proportions states that nations manufacture and export products that
involve resources that are more in quantity and import products that involve resource in short
supply. Hence, the emphases are provided by the theory to the productivity of the procedure
of production.

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A nation must select what to manufacture depending on the relative shortage of labor, capital,
and land. On this sight, the relative shortage of a factor or of factors defines the comparative
advantage of the nation.
Labor-capital- Egypt, and India harvest wheat with the techniques that are labor intensive,
Canada harvest wheat with the techniques that are capital intensive.
Assumptions
 Competition in every market
 Every factor is completely engaged in every country with or without trade
 Two production factors (examples, capital, and labor)
 There is the absence of information or transportation costs
 Both the nations manufacture both products with or without trade (Sailor, 2018)
Limitation of Factors Proportions Theory or Heckscher Ohlin's H-O Theory
Leontief Paradox- Economist of America Dr. Wassily Leontief verified H-O theory in the
situations of USA. He identified that export of goods from the USA is of labor-intensive
products and importing of goods is of capital-intensive goods, then the USA, as a capital
abundant nation should export goods that are capital-intensive and import goods that are
labor-intensive in spite of creating them at home. This condition is known as the Leontief
Paradox that disproves H-O Theory (Akrani, 2011).
International Product Cycle Theory
The international life cycle of a product is an academic model explaining how a business or
an industry grows with time and across domestic boundaries, this model also graphs the
growth of the marketing program of the company when opposing on both national and
foreign fronts. The concept of International product lifecycle syndicate the principles of
economics, like economies of scale and market development, with the product life cycle

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marketing and other different standard models of business (Ayal, 2012). The four main
essentials of the theory of International product life cycle are the demand structure for the
market, international competition, marketing strategies, and manufacturing. These
fundamentals are considered based on the stages of the product in the traditional life cycle of
the product. The basic stages of the product lifecycle are Introduction, growth, maturity, and
decline (Baack, Harris and Baack, 2012).
Source [(Martec International, 2012)]
Limitations of the theory
Not appropriate for all brands or services- Product Lifecycle theory is normally applicable
to the products and not to the services or brands. For instance- Microsoft Company has
various products that have come in the market and gone but this does not reflect that the
Microsoft brand is in the stage of decline or maturity (Bhasin, 2018).
Imposition of Tariff on Chinese Products by the USA
The administration of Trump will enforce tariffs on the Chinese good with the value of $34
billion. As projected, China is to be expected to answer by introducing tariffs on a
corresponding amount of American belongings.

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The reason behind this decision of the American president as announced by the White House
is the prejudicial rivalry from the state-led economy of China. Due to this announcement, the
stock market of US closed at a low price as the response of the investors. For example, The
Dow Jones finished the day at 23,957.89, which was a fall of around 2.9%. It was the fifth
major points drop ever (BBC News, 2018).
Besides this, the review was done on the Chinese products and it was identified that China
enforces prejudicial terms on the companies of US, directs investments in the United States to
some targeted industries, and supports, and conducts cyber-attacks. The White House showed
a list of around 1000 products that can be directed by the 25% of tariffs.
The implications of the tariff imposition
For example, In the United States, a tariff is generally a tax on the imported goods and it
increases the prices of the imported aluminum and steel by the tariff amount. Hence, 25% of
the tariff on the steel imports of worth, $30 billion is going to make steel more expensive in
the United States and it applies to the aluminium (Llling, 2018).
This will support few of the companies who are giving each other very close competition
with the producers of foreign as they could now ask for higher prices in the market of United
States selling to the consumers of United States who are no longer is capable to get the cheap
foreign imports (Bryan, 2018).
Conclusion
In the conclusion, it can be said that global business is today not a new concept for the
businesses hence every small or big organization are thinking to move internationally in order
to get more profit and increase market share and to more internationally Globalization has
shown the path to the businesses today's development and growth. The above report has

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talked about the concept of globalization and its negative and positive impact. Besides this, it
has discussed two theories and their limitations i.e. Factors Proportion theory and
International Life Cycle Theory. In the end, the report has also highlighted the tariffs imposed
by Donald Trump on Chinese products.

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References
Akrani, G. (2011) Introduction To Heckscher Ohlin's H-O Theory [online]. Available from
http://kalyan-city.blogspot.com/2011/03/heckscher-ohlin-ho-modern-theory-of.html
[accessed 20 July 2018]
Ayal, I. (2012) International Product Life Cycle: A Reassessment and Product Policy
Implications. Journal of Marketing, 45(4), 91-96.
Baack, D.W., Harris, E.G., and Baack, D. (2012) International Marketing 1st ed. U.K: SAGE
Publications.
BBC News (2018) Trump announces tariffs on $60bn in Chinese imports [online]. Available
from https://www.bbc.com/news/business-43494001 [accessed 20 July 2018]
Beck, U. (2018) What Is Globalization? 3rd ed. U.S: John Wiley & Sons.
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https://www.marketing91.com/benefits-and-limitations-of-product-life-cycle/ [accessed 20
July 2018]
Bryan, B. (2018) Trump's newest economic move could cause the price of everything from
cars to beer to rise [online]. Available from https://www.businessinsider.in/Trumps-newest-
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Green, A. (2017) Why Is Global Business Important? [online]. Available from
https://bizfluent.com/info-7886307-global-business-important.html [accessed 20 July 2018]

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Levin, S. (2018) What Is Globalization? [online]. Available from
http://www.globalization101.org/what-is-globalization/ [accessed 20 July 2018]
Llling, S. (2018) Why you should give a shit about Trump’s tariffs, explained by an economic
historian [online]. Available from
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american-workers [accessed 20 July 2018]
Martec International (2012) Gross Margin [online]. Available from http://www.martec-
international.com/demos/cpgdemo100/key04/06key04.htm [accessed 20 July 2018]
Peng, M.W. (2016) Global business 4th ed. U.S: Cengage Learning.
Saif (2018) Factor Proportions Theory Explained [online]. Available from
https://owlcation.com/social-sciences/FACTOR-PROPORTIONS-THEORY [accessed 20
July 2018]
Sailor (2018) Heckscher-Ohlin Model Assumptions [online]. Available from
https://saylordotorg.github.io/text_international-trade-theory-and-policy/s08-02-heckscher-
ohlin-model-assumpti.html [accessed 20 July 2018]
Vaish, V. (2010) Globalization of Language and Culture in Asia: The Impact of
Globalization Processes on Language 1st ed. U.K: A&C Black.