International Business Report: Globalization and Trade

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International business
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Contents
INTRODUCTION...........................................................................................................................3
PART 1............................................................................................................................................4
GLOBALISATION.....................................................................................................................4
PART 2............................................................................................................................................6
FACTOR PROPORTION THEORY..........................................................................................6
INTERNATIONAL PRODUCT LIFE CYCLE..........................................................................7
PART 3............................................................................................................................................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11
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INTRODUCTION
Globalisation is a practical aspect which has brought the world together and shrinks it with the
purpose to make the international transaction of goods and services between two or more
countries. It is growing independently due to the merger of different economies, population,
cultures and information. Various countries have made economic partnership to aid the countries
with different technological advancements and availability of goods and services.
This project is going to explain about the globalization and its positive as well as negative
impact on domestic business. The other part of the report includes the theories related to
international business such as factor proportion theory and product life cycle theory with their
limitations. The last part includes views of researchers on imposition of tariffs on Chinese
products to America.
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PART 1
GLOBALISATION
Meaning of Globalisation
The word globalization is used to explain the interdependence of various countries’ economies,
cultures, technologies, population and information has brought cross-border trades in existence
(Krugman, 2017). The effects of globalization are difficult and governmentally affected. Due
the technological development, it has benefited the societies as well.
Definition of Globalisation
“Globalisation is a process of incorporation and interface of people, companies, economies,
cultures, technologies and government worldwide which are connected in a complex way
(Krugman, 2017).”
Impact of Globalisation on domestic businesses
Globalisation has impacted the domestic business in negative manners. There are various affects
due to which the domestic businesses are suffering and getting more and more competition from
international organization which are creating challenges for survival of domestic business. The
impacts are as follows:
 Globalisation has increased the competition for domestic businesses for products and
services, advancement in technology.
 Due to globalisation the small businesses are not able to rise up and gain competitive
advantage from the domestic economy (Mutalemwa, 2015).
 Lack of technological development and knowledge of social and cultural differences are
diminishing the domestic business.
Globalisation has brought the cross country culture together and it has reduced the distances
between the trades of the countries. The impacts of globalisation are as follows:
Positive impacts of globalisation
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Cross-cultural management
Globalisation has brought various cultures together due to export and import of goods and
services. Every country has a separate culture that can influence the people of other countries.
Globalisation has impacted the cultures of the countries in positive manner as the people of USA
will be able to get the products from Indian markets (Mutalemwa, 2015).
Resource imperative
Resource imperatives works as the developed countries require human and natural resources
from developing countries and the developing countries need capital, investments and
technology from other countries. Developed countries are totally dependent manpower and
natural resources of developing country (Nikolova, et al., 2017).
Competitive environment
This is one of the biggest advantages of globalisation as it aids the countries to increase the
competition between the companies by maintaining and improving the quality of the products
and analysing the prices of the products (Gordon, 2018).
Negative impacts of globalisation
Job uncertainty
Due to globalisation the jobs of the native countries people have become uncertain and insecure
due to outsourcing of human capital and white collar job from developing countries (Gordon,
2018).
Price fluctuation
Due to increase in the competition, the developed countries need to lower down their prices of
the products, because the countries like China produces the goods at very cheap prices and this
leads the price fluctuation in markets (Mutalemwa, 2015).
Trade and tariff rates
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Due to the increase in trades the countries put the higher tax and tariff rates on export and import
of the products (Nikolova, et al., 2017).
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PART 2
FACTOR PROPORTION THEORY
Factor proportion theory in international business discusses about the factor of production of
different countries like it says that in two nations, two-factors and two product outlines different
countries are capable with different extents of various factor of production (Ito et al., 2017). This
theory is also known as Hecksher Ohlin theory.
FIGURE 1 FACTOR PROPORTION THEORY
(source: Ito et al., 2017)
Limitation of the theory
The limitation of the theory is that is considers world in static mode while determining the
factors which affect the macroeconomics equilibrium in a certain period of time and doesn’t
include the fact that factors of production of every country is different from other country (Ito et
al., 2017).
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For example: according to the theory the factors of production of two countries for a commodity
at a particular time are same, but when we compare factors of production of USA are more
reliable and powerful then the factors of production of UK inn producing the clothes and other
garments.
INTERNATIONAL PRODUCT LIFE CYCLE
This theory is introduced by Raymond Vernon in 1960. In this theory the life cycle of a product
has been explained with the stages through which the product has been gone to reach to the
international market (Samli et al., 2017). The cycle explains about the four stages they are as
follows:
Initial stage is the first stage where the product has been launched or introduced in the market by
the entrepreneur. The product is developed and brought to the market with new features.
The second stage is growth stage in which the product stars growing in market like people start
purchasing the products. The product is bringing the competition in the market by improving its
market growth (Samli et al., 2017).
FIGURE 2. INTERNATIONAL PRODUCT LIFE CYCLE
(Source: Samli et al., 2017)
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The third stage describes about the maturity level of the product, where the product is fully
developed in the market and the sales of the product has reached to the peak and it cannot be
increased more than that (Ito et al., 2017).
The last stage is decline stage in which sales of the product declines and the usage of these
products has been discontinued. This makes the negative impact on the similar products in the
market and also on the sister products of the company (Ito et al., 2017).
Limitation of the theory
One of the biggest limitations of the theory is continuous changes and fluctuations in the sales
data of the company. Due to this fluctuation in sales the graph of product life cycle is useless and
it cannot be used to estimate the movement of the products in markets (Chacholiades, 2017).
For example: the electric vehicles were on growth in product life cycle stage, but now it’s not
that necessary to use those products by the people (Chacholiades, 2017)..
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PART 3
In Donald Trump, the president of United States of America has imposed and increased the
tariffs on the imports of Chinese products in the year 2017. He asked the officials to draft a plan
of additional tariffs for more than $200 billion on Chinese products. This has been known as the
biggest trade war between two countries due to which the economies of several countries
affected for a long time (Bown, 2019).
The reason behind this decision
The reason and logic behind this decision of trump was to protect the jobs of America and to
rearrange the US trade deficits with several countries of the world. The country was suffering
from the largest trade deficit in the world that means the country buys more goods and services
from other counties instead of selling more to overseas (Bown, 2019). In this scenario China was
the only country which is importing more goods to USA in bulk amount and sold them in
cheapest prices ever.
China was also accused of unfair trade practices with USA and due to these reasons the president
took the decision increase the rate of tariffs up to 10% on Chinese product to cut the trade deficit
with China.
Effects of the decision of imposition of tariff on domestic consumers
The potential customers and the consumers have to face certain effects of the imposition of tariff
on Chinese products; the impacts of this trade war are as follows:
The trade war has led the domestic companies of the countries to have fair competitive
advantages and protected it from the unfair trade practices (Bown, 2019). But it has affected the
consumers of the chines products in a negative way as now they have to pay more price of the
product due to increased charges in the products.
The consumers will have to use the substitute products of the Chinese products (Li et al., 2018).
They unwillingly have to use the substituted items with higher rates, which are produced in the
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country only even they have to sacrifice with price of the products but not with the quality of the
product.
This has increased the demand for the domestic products, but also reduced the choices for the
products of the country for consumers (Li et al., 2018). This may have decreased the trade deficit
of the country and improved it, but it dissatisfied the consumers of the Chinese product who
were expecting to buy the goods, commodities and services in cheaper rates from China.
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CONCLUSION
The above project report has been prepared by keeping in mind about the Globalisation and
international business. The report has described about the globalization with its definition and its
impacts on domestic business. It also has certain positive and negative impacts. The second part
briefs about the two theories one is factor proportion theory and other is product life cycle theory
with their limitations. The third part of the product includes practical aspect of imposition of
tariff on Chinese product by USA president Donald Trump, the reason behind this decision and
the impact of this decision on domestic consumers.
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