Discuss about the Globalisation the Survival Saviour and Opportunist Strategy.
Many of the local firms grow big over a period of time outgrows the territory to seek more opportunities. Every firm that is operating seeks the profit motive which initially limited to a geographical area, expands with the firm defining the market. This might be true for some firms who want to move away from stagnated or fiercely competitive market while going global may actually can be opportunities galore. In this essay we analyse how globalisation is a survival or an opportunist strategy for firms.
Firms around the world are typically engaged in revenue generation have realised that leadership in market share further leads to conquests of globalisation. The influx of western firms starting from Coca Cola invading the world, showed that core competency and first mover advantage to penetrate a new market with a new product can be worthwhile effort. However, the operations perspective resulting into either profit or loss is totally dependent on external and internal factors and the management affects firm level survival. The use of resources and optimising it to a level to achieve growth can fall short at any time. Loss making firms increasingly can become wary when the number of domestic players is more, while each of them is fighting for the market share and profits. A situation arrives when firm survival is dependent on investing selectively to avoid the losses. Inability to do new product or service development, or lack of new innovation often forces firms to choose either to harvest or divest (Lane, 2013). It also looks for selective markets beyond its geographical boundaries as the PLC (product life cycle) enters the decline phase resulting into losses. The decline in the operations and market response, the ability of trailing firms copying the innovator is a common response of decline as most of the followers are able to produce at fraction of the cost.
The other perspective of firm level expansion, is to ride the boom of its domestic success and exploit the market beyond the national boundaries. The entry into the nearest neighbouring country is typically the first choice of the firms as culture, climate and trends are similar rather than investing in the other side of the globe. Opportunity in other nations happens as FDI (foreign direct investment) as a green field project saving in the form of tax, or through JV (joint venture, M&A (merger and acquisition) (Kuma & Liu, 2005). Opportunity of globalisation of markets can lead to further globalisation of production, which leads to transnational firm to succeed in multiple markets. The key issue here is the cost factor that is ignored when the accessing of international markets yields more profits than that of the domestic market. Opportunity of product development being exported between regional trading blocs is seen as the first step that shows that the model suffices the economic activity justification. Dreher et al. (2008) opined that the firms realising the profit making capability often stop importing, and resort to take opportunities as development prospects. The firm level knowledge therefore benefits from the comparative advantages as exploiting different markets broadens the learning horizon about new markets. Most importantly it is able to manage the survival risk of obsolescence in domestic market and is able to manoeuvre to exploit the profitability through globalisation route (Scholte, 2008).
The blessing is the inequalities of each country that translates into a business opportunity therefore lies in the ability of the firm to scan the external environment. Conversely, globalisation is leading the firms to create a level of interdependency and spreading the risks that saves from failing to survive in just one country. Interestingly, the firms are finding the global forces of demand supply and the international level market competition more significant in terms of profit generation. Neary (2003) added that the argument goes against as the global level of competition that is perhaps more profound but the opportunities are plenty as well. It is evident that there are rise in investment level from the firm level in internationalisation process is outstripped by the gains than domestic operations before.
The globalisation issue thus is a saviour to both ailing and profiting businesses that results in expanding the operations beyond the national limits. The success probability depends on the competition level, economic development and policies between two countries that affect the operations at the firm level. The opportunity of raw material availability, low cost labour is a soon for opportunist firms which override aggregate efforts against the cost advantages of being global. It isalso true that to spread risks, globalisation is the only powerful strategy which can change the firm future. As the world is evolving, the increasing trend is to seek the core competencies that are evident in SMEs unlike large MNC, and striving to globalise that is seen as opportunity.
Essay 2: Advantage and Comparative Advantage trade theories with differences and limitations.
The trade theories of comparative and absolute advantage are firm level decisions which allow how the trading is being carried out by managers to benefit the firm. It is evident that everyone is trying to maximise profits is seeking to increase the geographic boundaries. In this essay we will analyse how both are the cornerstones of firm level operations in economics perspective.
The principle of absolute advantage is defined by the ability of a party to produce product or services in larger volumes than its competitors deploying same amount of resources. Laid down by Adam Smith, this principle in the context of international trade states that labour is an input and is the key differentiator i.e. to show ability to produce specific items at lower opportunity cost. For a country, it can mean to be more productive and also cost effective from firm perspective (Neary, 2003). An example of Japanese car manufacturer Toyota has less than 5 defects in its cars against the US average of 125 forced the Toyota to import from Japan instead of choosing suppliers in US. The Yen against dollar hence led to profits for importing OEM Japanese automobile spares of highest quality.
The principle of comparative advantage is about how the countries determining the process of what to produce as goods and services. Propounded by Ricardo, this principle is about the capability of the firm to produce goods or services that has lower marginal cost and opportunity cost against the other one (Costinot, 2009). For a firm perspective it allows the company to sell goods at a much lower price than that of the competitors.
The comparative advantage has been criticised as there can be situations where the firm level competition in the global market can result in export subsidies, import restriction that debars foreign players to compete with national firms which is protectionist in nature. On the contrary the ability to define trade and blocks as free (Japan, Taiwan) trade zones fuelling success in Asia is justified as the value driven society are more methodical in approach to work (Costinot et al. 2015). It has also the other side of ability to produce at low cost is tied to the manner in which inputs like resources, employee competencies are defined in any firm. Going by the perfect competition theory, therefore states that no firm can have cost advantage, if they lack the ability to buy at low (raw materials, avail employee competencies). So comparative advantage can be turned into a competitive advantage if the external environment is scanned and internals are aligned to produce increased value output relative to competitors. Hence, Hunt & Morgan (1995) argued that the competition is a tug of war, between firms and nations that are able to seek comparative advantage in seeking and deploying resources to defined a competitive advantage market place position. Therefore, the there can be comparative advantage to produce at lower opportunity cost, while country can have absolute advantage in it but still have comparative advantages. Though, it assumes that markets are perfectly competitive and is too simplistic for empirical analysis and is ideal between two countries, not for multi country, multi trade models (Costinot, 2009). It is too short term where the relative low cost is sought in labour, raw materials fluctuates as is dependent on management, technology at national or firm level.
The world trade and its trends, patterns show the comparative advantage theory ignores the exchange rates or relative prices and that the markets are competitive which changes with time. It is however, vital issue as no country has comparative advantage that changes over time. Bernard et al. (2007) stated that Vietnam is leading coffee production that it did not have earlier, so it developed comparative advantage as a country after researching on the world markets. This leaves us to the choice and manner in which a country, firm or an individual perceives to use these theories. The above discussion therefore is in duality with the comparative advantage that is more dynamic as absolute state of advantage may not last forever.
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Hunt, S.D. & Morgan, R.M., 1995. the Comparative Advantage Theory of Competition. Journal of Marketing, 59(2), pp.1–15. Available at: ://WOS:A1995QQ63900001.
Dreher, A., Gaston, N. & Martens, P., 2008. Measuring Globalisation: Gauging Its Consequences, Available at: https://books.google.de/books?hl=en&lr=&id=gQLacTLUbzEC&oi=fnd&pg=PA1&dq=axel+dreher+globalization+index&ots=AnZmqp77h6&sig=X3KtETTIfCIUgujOJ1wMYVWSsY0.
Kuma, S. & Liu, D., 2005. Impact of globalisation on entrepreneurial enterprises in the world markets. International Journal of Management and Enterprise Development, 2(1), pp.46–64. Available at: https://www.scopus.com/inward/record.url?eid=2-s2.0-33645156249&partnerID=40&md5=6d4e3a1878483d972863bc0c524d3503.
Lane, P.R., 2013. Financial Globalisation and the Crisis. Open Economies Review, 24(3), pp.555–580.
Scholte, J.A., 2008. Defining globalisation. In World Economy. pp. 1471–1502.
Costinot, A., 2009. An Elementary Theory of Comparative Advantage. Econometrica, 77(4), pp.1165–1192.
Neary, J.P., 2003. Competitive versus Comparative Advantage. World Economy, 26(4), pp.457–470. Available at: 10.1111/1467-9701.00532nhttps://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=10090720&site=ehost-live.