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Globalization is a major process of communication and incorporation between the people, business organizations, and governments of different nations. Globalization is an only process that is obliged by international trade & investment; and also served by the advanced information technology. The globalization process has broad effect on the culture, environment, economic development, political systems, and prosperity of nations around the world. Along with this, this research essay would be helpful to describe that globalization is not only an imperative but also an opportunity for the growth of businesses. Moreover, this essay would also be useful to discuss absolute and comparative advantage trade theories in a proper way.
In today’s rapidly changing business era, globalization is essential for the endurance of business organizations. The main reason behind it is that the globalization process plays a major role to provide financial, economic, and competitive advantages to the business organizations (Lawal, 2006). Apart from this, globalization is not only an essential for survival, but also an opportunity for future growth and success of businesses. There are numerous reasons behind this. The major reason is that globalization provides numerous innovative and explicit business opportunities to the business organizations. For case, globalization is helpful for the business firms in order to establish business operations not only in the domestic market but in the global market also (Victor, 2012).
On the other hand, with the help of globalization process, business firms become able to improve their business sectors in both the local and global markets. Moreover, globalization offers innovative business plans for the growth and success of the businesses. Globalization improves the production capacities of the business; so they can provide right products to the right customers at the right time and place (Shahiduzzaman and Alam, 2014). Along with this, globalization offers numerous options to the business organizations; so they may enhance their positions in the marketplace. The current wave of globalization has been opened economic opportunities to the businesses domestically and globally. Moreover, globalization offers business opportunities from the economies of scale and business firms can use these opportunities to accomplish competitive scope in an effective way. Globalization makes more prominent open doors for the growth and success of the domestic businesses.
In addition to this, globalization also plays a significant role to increase the funds, capital, human resources and to reduce the costs or expenses in order to improve the productivity, profitability, and revenues of the businesses (Égert, 2015). Globalization contributes in the development of innovations; so business firms may enhance their operational procedures in the domestic market. Globalization plays a major role to improve the benefits of businesses. For case, it is helpful for the business firms; so they may carry out innovations in their operations to be more competitive in the market. Innovation plays a critical role to offer quality products at the lowest costs. For this reason, it can be said that, globalization is not only essential for survival, but also prospect for future growth of household businesses (Geiersbach, 2010).
In economics, Absolute advantages and competitive advantages are two important theories of international trade.
Absolute Advantage: Absolute advantage theory provides innovative and effectual ideas of production to the business firms. The theory also enhances the competence and prospective of the businesses; so they may use less resources to manufacture products and services in an effective and an appropriate manner (Schumacher, 2012). For case, UK and USA uses fewer resources than India to produce goods in more quantity.
Comparative advantage theory improves the production activities of business firms; so they may produce products & service at a very lower cost. The theory also provides important economic development opportunities to the nations (Tian, 2008).
There are numerous differences between absolute and comparative advantage trade theories. For case, the major difference is that absolute advantage theory portrays the differences in the production of nations, whereas comparative advantage theory shows the distinctions in the opportunity costs of nations (Anderson and Strutt, 2014). Moreover, the other difference is that the absolute advantage theory presents an efficient comparison of the production of different producers/nations. This theory is advantageous for those manufacturers who are enthusiastic to utilize small quality of inputs to manufacture goods/products. In contrast, comparative advantage theory improves the aptitude of manufacturers; so they can manufacture particular goods or products at very lower opportunity costs. The theory encourages the countries to manufacture goods or products for which they have the lowest opportunity costs (Helpman, Itskhoki and Redding, 2010). Apart from this, comparative advantage theory is mutually advantageous for all the occupied businesses/countries. But, absolute advantage theory is not mutually beneficial for the producers/business/nations.
There are some limitations of absolute advantage and comparative advantage theories of trade. These are as below:
The major limitation of the absolute advantage theory is that it does not include transportation costs in advertising costs that a firm or nation spends on the advertisement of the product. The other limitation is that the theory is based on the belief that Moreover, this theory is based on the notion that rates of exchange are stable. But, it is not true because of rates of exchange change time to time (Abbas, Bouhga-Hagbe, Fatás, Mauro and Velloso, 2011). In addition, the theory believes that producers can switch and also can do things easily and with same capacity; this is also the other major limitation of this theory.
The major limitation of comparative advantage theory is that it only considers preset advantages and also disregards the dynamic advantages. But, in real, business firms consider the dynamic advantages that may occur any time of the business cycle. The other limitation is that the management of a nation may confine trade among nations (Tian, 2008). The theory contains different restrictions that bound the business firms/ nations to trade.
On the premise of above discussion, it can be assumed that, globalization is essential for the survival and growth of the business. Moreover, absolute advantage and comparative advantage are the two major trade theories that offer business opportunities to the nations.
Abbas, S. A., Bouhga-Hagbe, J., Fatás, A., Mauro, P. and Velloso, R. C. (2011). Fiscal policy and the current account. IMF Economic Review, 59(4), 603-629.
Anderson, K. and Strutt, A. (2014). Emerging economies, productivity growth and trade with resourceâ€rich economies by 2030. Australian Journal of Agricultural and Resource Economics, 58(4), 590-606.
Égert, B. (2015). Public debt, economic growth and nonlinear effects: myth or reality?. Journal of Macroeconomics, 43, pp. 226-238.
Geiersbach, N. (2010). The Impact of International Business on the Global Economy. Business Intelligence Journal 3(2), 119-129.
Helpman, E., Itskhoki, O. and Redding, S. (2010). “Inequality and unemployment in a global economy. Econometrica, 78(4), 1239-1283.
Lawal, G. (2006). Globalisation and Development: The Implications for the African Economy. Humanity & Social Sciences 1(1), 65-78.
Schumacher, R. (2012). Adam Smith’s theory of absolute advantage and the use of doxography in the history of economics. Erasmus Journal for Philosophy and Economics 5(2), 54-80.
Shahiduzzaman, M., and Alam, K. (2014). Information technology and its changing roles to economic growth and productivity in Australia. Telecommunications Policy, 38(2), pp.125-135.
Tian, Y. (2008). A New Idea about Ricardo’s Comparative Advantage Theory on Condition of Multi-Commodity and Multi-Country. International Journal of Business and Management 3(12), 155-160.
Victor, P. A. (2012). Growth, degrowth and climate change: A scenario analysis. Ecological Economics, 84, pp. 206-212.
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