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Impact of Technology on Local Business

Question:

Discuss About The Integration Enables Free Movement Services?

Globalization has been one of the major factor affecting economies of many nations both developed and developing ones. This factor can positively revive stagnant economies if handled well. On the other hand, if not well addressed it can cripple a country having a thriving economy. Globalization refers to the process of integration that enables free movement of services, ideas, people, capital, goods, information, and technology (Jones, 2013, p. 10). Globalization has been greatly influenced by advances in telecommunication infrastructure such as internet and means of transport such as jet engine and steamship.

Globalization has a great impact on domestic businesses. The following are positive effects of globalization on local businesses. Exchange of Technology is one of the positive effects of globalization. Technology is the primary factor that has led to the manufacturing of quality products and services. The produced goods and services satisfy customer needs and this leads to improved customer loyalty that translates to improved revenues and profits (Barber, et al. 2013, p. 78). Technology has also enabled many domestic businesses to exploit various business opportunities that allow businesses to thrive effectively (Jamal and Camargo, 2014, p.15). Such opportunities include embracing e-commerce which enables companies to expand their markets. Technology has also allowed domestic markets to have access to international markets hence promoting exports.


Globalization has also facilitated the transfer of information and knowledge. In local businesses, information is precious and this forces many companies to spend a significant amount of resources trying to access the information. This knowledge and information enable domestic businesses to adapt well to global markets (Doiz, et al. 2013, p.1415). The exchanged information and knowledge also enables domestic businesses to compete favorably with their competitors and this enables domestic business ventures to do well in international markets. Market dynamics change randomly and that is the reason the local businesses should champion for globalization so that they can gain the information needed to adapt well to the business environment.

Globalization has also led to increased competition. Free movement of goods and services has resulted in domestic markets facing a lot of competition. This competition has forced domestic businesses to adopt the necessary technology that has led to creativity and innovation that has enabled the production of quality goods and services that have led to increased market share and eventually revenues (Asongu, 2014, p.350). Innovation due to competition has also enabled domestic businesses to produce product and services at a cheaper cost. This translates to lower selling prices that attract more customers from both domestic and international markets.

Benefits of Knowledge Transfer for Domestic Businesses

Globalization on the other hand has brought about some negative impacts to domestic businesses. Such effects include increased completion from established foreign businesses. This kind of competition has led to the closure of many domestic businesses which are not able to cope with the competition. This closure of businesses is negatively affecting the process of industrialization (Vahlne and Ivarsson, 2014, p. 230). Globalization has also led to deteriorating economy as investors have opted to close down domestic businesses and starting business ventures in other nations which have lower tax rates.  This also forces the government to raise tax rates so that they can collect more tax revenues from existing business ventures and this continues to hurt the surviving domestic firms.

Absolute advantage theory describes to the ability of a country, individual or even a given party to produce more quantity of products or services than its competitors using the same amount of input or resources. This theory was proposed by Adam Smith who is regarded as the father of economics when elaborating matters of international trade (Chong, 2005, p.2). On the other hand, comparative advantage theory refers ability of any given party or nation to produce products and services at an opportunity cost that is lower than the other parties. This theory is attributed to economist David Ricardo.

Absolute advantage appears to be more practical than the comparative advantage theory. This is because one nation can produce more using the same input as the other country. This leads to efficient use of resources as there are minimal or no wastages. This efficient use of resources leads to lower costs of production which leads to lower selling prices (Bahar, et al. 2014, p.120). The lower selling prices attract more customers and this leads to increased market share in both domestic and international markets.

Absolute advantage also leads to the production of quality goods and services due to specialization. Specialization enables nations to become experts in production of certain products and services as the available skilled labor is directed in that sector of production. This enables a nation to effectively compete with products and services offered by competing nations (Laursen, 2015, p.110). This specialization also leads to innovation and creativity. This creativity also leads to the production of unique products and services that satisfy customers effectively hence giving consumers value for their resources.

Absolute advantage also leads to high output of products and services. This leads to a nation having surplus products that encourage exports. The exports bring foreign exchange which is used to facilitate international trade (Jones, 1980, p.211). The currency earned is used to import the products and services which the nation having absolute advantage does not produce. This exchange also leads to peaceful co-existence between the trading nations and this helps to prevent international conflicts that can affect economies of many nations.

Positive Effects of Competition on Local Businesses

Hours needed to produce a single unit

Country

Computer

Iron ore

Australia

10

20

United States of America

2

50

From the table, it can be clearly seen that the United States of America is best suited to produce computers. This is because with the same resources, USA takes only two hours to assemble a computer while Australia takes 10 hours. On the other side, Australia is best suited in mining Iron ore because, with the same resources, Australia only takes 20 hours to mine iron ore while the USA takes 50 hours. To benefit from trade, this two nations can decide to specialize in the production of the products which they are best suited to produce. Investing all their valuable time and resources in their areas of specialization will lead to surplus production. Surplus production will improve exports which bring the foreign exchange and also improve terms of trade.


A tariff is a form of tax that is charged on imported goods for various reasons. The president of United States of America Donald Trump in the recent past imposed a tariff on Chinese imports. There are various reason behind this bold decision and they include; protection of infant industries. In the recent past, China has been dumping a lot of products in the USA in this was killing many industries. These tariffs increase the prices of the imported goods because before such taxes the goods are usually cheap (Rodriguez, 1974, p.296). This enables the domestic industries to charge competitive prices that enable them to grow and compete effectively.

Tariffs are also imposed to protect domestic employment. Due to the dumping of goods, some industries are shut down or they perform poorly. This forces industries to retrench workers to cut costs. This leads to increased number of citizens being unemployed (Rodriguez, 1974, p.296). This unemployment leads to social problems such as robbery and insecurity. To prevent this from happening, the president had to impose tariffs on Chinese products. The Chinese goods become expensive to import and this gives domestic industries an opportunity to control the prices and this enables them to thrive and continue employing many citizens.

The tariffs have been imposed to protect consumers and national security. China in the recent past has been branded as a nation that produces fake goods. USA president felt that such goods could be imported into the country and be consumed by many people because they are very cheap. This could cause health problems to many people. These tariffs also prevent importation of products that can cause national security.

Negative Effects of Competition on Domestic Businesses


here are various implications of the imposed tariffs and they include retaliations. In most cases, the affected nation will also impose tariffs on the imposing and in this case, USA. This will increase the cost of doing business and exchange rates will be affected as this raises the cost of living and the domestic consumers will be negatively affected. Retaliation also results to reduced aids as the tariffs result to bad blood between nations (Dal Bianco, et al. 2015, p.35). Domestic consumers who depend on such foreign aid will be affected and they may opt to engage in criminal activities to fill the gaps. Retaliation will also result in unemployment as domestic citizens working abroad will also lose their jobs in other countries and this will also lead to increased unemployment rate.

Another implication is that due to reduced competition, domestic industries will opt for the production of low-quality goods that do not satisfy consumer needs. Such low-quality goods may even pose hazardous health problems that increase the mortality rate. Another implication of tariffs on the domestic consumer is that tariffs may lead to misallocation of resources. (Dal Bianco, et al. 2015, p.35) This leads to wastage of resources as a lot of valuable resources are directed towards reviving certain industries which may not perform well in the long run. This will lead to increased cost of living to finance such industries and this hurts domestic consumers.

References

Asongu, S., 2014. Globalization (fighting), corruption and development: How are these phenomena linearly and nonlinearly related in wealth effects?. Journal of Economic Studies, 41(3), pp.346-369.

Bahar, D., Hausmann, R. and Hidalgo, C.A., 2014. Neighbors and the evolution of the comparative advantage of nations: Evidence of international knowledge diffusion?. Journal of International Economics, 92(1), pp.111-123.

Barber, M., Donnelly, K., Rizvi, S. and Summers, L., 2013. An avalanche is coming: Higher education and the revolution ahead (p. 78). London: Institute for Public Policy Research.

Chong, L.I., 2005. On Super Absolute Advantage of International Trade [J]. International Trade Journal, 3, p.002.

Dal Bianco, A., Boatto, V.L., Caracciolo, F., and Santeramo, F.G., 2015. Tariffs and non-tariff frictions in the world wine trade. European Review of Agricultural Economics, 43(1), pp.31-57.

Doiz, A., Lasagabaster, D. and Sierra, J., 2013. Globalization, internationalisation, multilingualism and linguistic strains in higher education. Studies in higher education, 38(9), pp.1407-1421.

Jamal, T. and Camargo, B.A., 2014. Sustainable tourism, justice and an ethic of care: Toward the just destination. Journal of Sustainable Tourism, 22(1), pp.11-30.

Jones, R.B., 2013. Globalization and interdependence in the international political economy: rhetoric and reality. Bloomsbury Publishing.

Jones, R.W., 1980. Comparative and absolute advantage. Swiss Journal of Economics and Statistics (SJES), 116(III), pp.235-260.

Laursen, K., 2015. Revealed comparative advantage and the alternatives as measures of international specialization. Eurasian Business Review, 5(1), pp.99-115.

Rodriguez, C.A., 1974. The non-equivalence of tariffs and quotas under retaliation. Journal of International Economics, 4(3), pp.295-298.

Vahlne, J.E. and Ivarsson, I., 2014. The globalization of Swedish MNEs: Empirical evidence and theoretical explanations. Journal of International Business Studies, 45(3), pp.227-247.

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