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International Trade And Enterprise Contemporary

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Discuss about the International Trade and Enterprise Contemporary.



Globalization refers to the process where an organization operates in international trade and therefore has international influence. According to Steger (2009), globalization leads to share or interchanging of culture, ideas and products through individuals, organization or business. In addition, globalization is the ideas based on the migration from domestic or national operation to global operation hence creating global interconnection with other business entities. The trade concept of globalization involves interaction between companies, government organizations and business organization with aim of sharing business ideas aided by information technology. Kochler (2000) explains globalization in the broader perspective is accompanied by both negative and positive effects on trade, culture, economic and political aspects on country organization. Globalization directly connected to sharing of information using information communication technology.

Globalization in the narrow perspective can be defined based on technology acquired by business. The information technology has facilitated the interaction within the international trade and enterprise. Use of internet has turned the world into global market where companies can interact and share ideas and exchange good or services (O'Sullivan, Sheffrin and Steven 2003). Moreover, globalization presents the diversity that exists in terms of business culture, key players, policies that affect international trade and enterprise. Furthermore, diversity in the international trade is facilitated with continuous advance in technology making international trade closer to business than few decades ago. Key players in the international trade can either benefit from globalization or adversely affected by globalization. Though in the broader perspective globalization may seem wider but its impact is felt at the lowest level of supply chain. Effect of globalization is therefore felt by careful observation of economic indicators such as GDP, living standards and subsidies on basic commodities. The following paper explores in details the globalization influence on exchange of ideas, good and services between companies and countries leading to international trade (Sorrells, 2012).


Positive effects of globalization

Globalizing trade and business also comes with certain positive effect on business, trade, nation and organizations. Some of these positive effects of globalization are wider opportunities, increase access to resources and increase international production.

Globalization widens the business opportunities for larger and smaller nations as some surplus products can be sold in the international market. Increase globalization of market widens the market for those industries that are heavy producers and this means that goods and services that would otherwise go waste can be sold in the international trade. Smaller nations on the other hand, find international investors hence increasing their developments. In addition, international market gives the local industries opportunity to access international standards that are then translated to the quality of goods produced locally (Kevin et al 2002).

Increase in access to technologies and other resources have been attributed to globalization. Any person can access the resources such as capital flow, cheaper imports, technology and larger export market for goods produced locally. Adoption of new technologies used in the international market makes the local production to improve in terms of quality and access to services. Less developed countries can find cheaper imports from the market and likewise export larger volume of goods or services (Babones, 2008).

Another positive impact of globalization is the increase in international production as companies put more efforts to produce goods and services for international market. As Kochler (2000) cites with the world turning into global village, main focus of local producers is to produce internationally. International production can be in terms of standards and qualities of goods produced locally with the aim of selling them in the international market. With this focus local industries can increase their production leading to local growth in industries and infrastructures. This international production also increase supply chain and production networks which is the backbone of trade.

East Asian countries have experience economic growth resulting from globalization of trade. The economic growth can be seen in the reduction of poverty level and this is witnessed in the increase of GDP per capital. As a result millions citizens has moved from lower poverty level through high concentration in the international trade. Moreover, increase in economic growth closes the technological gap between less developed nations and developed nations. Manufacturing firms within these nations has expanded their production to services. A good example of these East Asian countries is china that has reduced environmental standards leading to expansion of investment. China therefore gives less developed nations incentives in terms of technology to widen their investment opportunities (Sorrells, 2012).  

Negative effects of globalization

Globalization of the international trade is accompanied by certain negatives effects on the individual, business organizations and countries. Some of the debated negative effects of globalization are increasing income inequalities, low developmental growth, low market accessibility for small countries, high risk of currency crisis, loss of culture and low environmental standards.

Globalization increases completion among many multinational corporations due to quest to increase profit this increase income inequalities among low income earners and high income earners. Globalization has raised a lot of international competition due to liberalization of trade and reduction in trade restriction between nations. Reduction of market restrictions in the international market is creating extreme disparities between industrialized nations and less industrialized nations. This implies that the variation in terms of income earned in the market continues to widen as industrialized nations are delivering much good and services to the market (Larsson, 2001).

Profit maximization is the main objective of transnational companies that has arises as a result of globalization leaving the development at slow rate. Race to globalize trade as left many businesses with high profit expectation with low developmental goal. Every company competes for customers in the market without considering the need to develop their home nations. Slower development is much evident in less developed countries as compared to developed countries (Clayton, 2004).


Struggles to maintain customers in the international market have made smaller countries struggle to access the market. According to Zimring and Etkes (2014), the inaccessibility of the market is caused by larger nations which has developed and are putting trade restrictions. Trade restrictions are in terms of standards for goods and services offered in the market. Many developed nations raise standard of their products that are sold to their markets so as to stop those countries still having lower standard goods and services. Some of the restrictions also include regional restriction that protect certain nations that are not part their regional trade blocks (Kuruvilla and Ranganathan, 2008).

Globalization has effect on volume and volatility of capital flow causing adverse effect on currency and banking. The need to liberalized currency used in the international trade has left many countries on the edge of currency crisis. Banking institutions in smaller countries are growing weaker with the increase of international payment systems. In addition, the need to create a more uniform currency system weakens the local currency for nations involved in the international trade. Changes in the market capital flow are also evidence of the effect of globalization of trade (Lechner, Frank and John 2011).

Another serious effect of globalization of trade is the low environmental standards by nations attracting foreign investors. Many nations especially those less developed nations lower foreign investors to come and invest in their countries. To attract more investors, environmental standards that are required to operate multinational industry are lowered to encourage more investment. According to Low (2002), lower business environment makes the product produced to have low quality or standard as compared to products from other nations. Due to high competitions in the international market, there is need for high quality goods and services. This consequently means products from lower environmental standards do not fit the international market.

Globalization is the cause of cultural erosion in the local business or market. The trans-boundary interaction of between different countries or business has led to erosion of local culture as people compete to adopt other cultures from other nations more so developed countries. Furthermore, some developed countries consider their culture to be superior to other culture and therefore are advancing their culture to less developed countries (Bakan, 2004). As business go beyond country and regions, cultural orientation becomes a barrier to accessing international trade. Culture includes the language used in transnational trade and organizational behavior of individual business. Nevertheless, culture of certain group of people also affects the business operation. Adoption of foreign culture results in diminishing of local culture.

Example of negative effect of globalization

Latin America countries such as Peru liberalized international market in effort to create allow importation of more goods. This had negative effect on the living standard of the citizens, citizens therefore leaves below $1 per day within poverty line. This has created many inequalities between the rich and the poor people.

Globalization of trade can be measured in terms of volume of export to the global trade to the GDP of that particular country. Volume of the product that crosses the boundary of a country and the number of employed people within the external trade. In other word terms of trade can also refers to proportion of import price to that of the export prices. At the broader perspective terms of trade in the global view include total world trade volume to the total world production. In the international trade terms of trade can exist between two countries in which case imports of one country can be export of another country (Salvatore, 2008).

Countries such as Australia has greatly benefited from globalization of trade. According to Staggenborg (2011), Australia having many primary industries produces many raw materials that account for 50% of exports. This gives Australia a world market of approximately 6.5 billion people raising the value of exports. From statistics, the period by 1981 the GDP was slightly 10% and this has increase to 20% by 2000. In addition exports pay about 25% as compared to other non-export goods and services. Export growth has therefore double in the recent years as compared to the 1970s indicating that Australia has benefited from globalization. The terms of trade between Australia and china forms an index of 93.67 by February 2017 (Babones, 2008).

China on the other hand, has its economy growing bigger and bigger though this growth is also characterized by negative effects. The main disadvantage of globalization on china is lower Chinese enterprise at the lowers value chain due to its comparative advantage on labour and exploitation of industrialization. At a narrow perspective only few individual China firms has experience growth due to globalization of trade. Between 1970s and 1980s china suffered from lack of market liberalization (Bakari, 2013).

Terms of trade between Australia and Japan stands at the index of 101.90 as compared to index of 57.90 with India. This shows that the terms of trade between Australia and Indonesia remains the highest at 107. 58. Some countries also forms medium trade index with Australia such as UK 101.10 and US 99.82. According to Babones (2008), trade balance for Australia’s export currently stands at 32405.00 while imports stand at 28832. The overall terms of trade for Australia stand at the index of 102.90.


Subsidies in Agriculture, Car industry and solar energy/wind

Globalization has positive effect on subsidies that the government gives ton agricultural sector, car industry and solar or wind energy. Firstly, as a country goes beyond its boundaries international trade is widen and high income is earned that is then given to other sectors such as agriculture. Secondly, car industry is some of the beneficiary of globalized market since car and other automotive products are exported for good prices. This is brought back into the industry as subsidies (Hopkins, 2004). Finally, solar or wind energy are also beneficiaries of international trade since government will always finance them from income earned from foreign trades. Example countries with globalization effect on subsidies in agriculture, car industry and solar energy/wind are India, China and America.

However there are also negative effects of globalization on Subsidies for Agriculture, Car industry and solar energy/wind. Firstly, the only challenge that exists for agriculture is the need to major on other exports that fetch high price in the global market.  Agricultural products sometime fetch low prices in the international market and their durability is lower as compared to other products. This discourages government from offering subsidies to agricultural sector of the country. Secondly, conversions of wind or solar energy into services or goods that can be sold in the international market make it difficult to get more investors in this industry (Vujakovic, 2010). Other countries that are affected by globalization in subsidies in agriculture, car industry and solar energy/wind are Syria, Lebanon and Iraq.

Globalization can benefit small countries with less population and GDP yet the country also suffers. Advantages of globalization to a smaller country include access to business opportunities, low poverty rate and increase GDP (Bridges, 2002). Since the population is less as compared to large countries wider opportunity opened by international trade is shared among the low population of that country. Secondly, improved technology that results from globalization improves living conditions of people due to low population. This lowers poverty rate among the citizens of that country. GDP of that country increase since globalization make smaller countries increase production of goods and services (Reinsdorf and Matthew 2009).  Living standards of people living in smaller countries with less population improve due to increasing income earned from export of goods and services. This income earned is distributed among the citizens because low population causes low challenges.

However, there are some challenges that are caused by globalization on a smaller country with less population. Firstly, less population poses labour challenge and for the smaller country to increase manufacturing industry or production there is need to hire labour from other countries. Secondly, low population of a small country makes that country to have less manpower to carry out services such as research on the international market. Industries in the smaller countries suffer from lack of labour even though resources are there to produce goods. Example of countries with less population is Greenland and Vatican City.

Comparative advantage refers to the economic theory where a country that produces a certain product for international trade produces such product at lowest cost. In the comparative advantage terms of trade can exist between two countries each producing a different product at a relatively lower cost makes trade easy due to cheaper goods and services hence gains. For instance, one country may be good producer of cloth as compared to another country that is good in wine production. Suppose this two countries agree to form a good terms of trade, the overall world production of this two different products will rise. Therefore the two countries will each benefit from free trade though each country is inferior to the other on these two products (Maneschi, 1998).

Reasons for comparative advantage

There are many reasons that enable country to have comparative advantage for producing certain goods or services. Some of these reasons include: diversity of skills, abundant of resources, demographic factors, rates of capital investments, non price competitiveness, institutions and import control tariffs.  

Firstly, diversity of skill makes one country to produce what they are good at producing. With the diversification of skills employees in industries are employed in job they are good at and this lowers the cost of labor used in production of good in this industry. Therefore the greater the diversity of skill, the greater the opportunity for production of good hence trade (Juris, 2008).

Abundant production of natural resources such as mineral that are used in manufacturing of export products makes manufacturing of product easy. Country that produces export product from local abundant resources uses low cost of production. For instance oil producing countries are capable of producing chemicals from oil products. Therefore, these oil producing countries will be manufacturing chemical at a relatively low cost as compared to other countries that does not produce oil but manufacture chemicals. Demographic factors such as population structure and education level of citizens affect quality of labour. This lowers the cost of production for some industries participating in the international trade. Country with cheap labour and therefore, produces goods and services at a relatively lower cost can specialize on such productions hence comparative advantage (Storper, 2000).


Example of comparative advantage

There are several countries that has comparative advantage in the international trade some of this countries include china and America, England and Portugal. Firstly, comparative advantage between China and United States was based on the provision of cheap labour. United States produces goods and services at lower cost due to specialized capital intensive labour. In addition, United States offers low investment opportunity cost with cheaper labor form China. Secondly, England major in production of clothes as compared to Portugal that majored in the production of wine. England and Portugal entered terms of trade with Portugal in exchange of wine for clothes (Golub and Hsieh, 2000).

Comparative advantage can exist between two companies that are also trading on goods and services. There is comparative advantage between American IT Company and call Center Company. India specializes in information communication technology, India therefore has comparative. On the other hand America though good in spoken English trade with India for call center. Therefore, America IT Company and India call Center Company has cheaper trade agreement (Deardorff, 2005).


In conclusion, globalization is a phenomenon that transcends boundaries of economic, political and social factors. Effects of globalization can be felt in individual country, business organization or individual person. Positive cases of globalization are increase business opportunity, access to global market, increase international production and access to resources. Negative cases of globalization are erosion of local culture, poor access of market by less developed countries, slow local growth high risk of currency crisis and low environmental standards. Another effect of globalization is based on it determination of economic growth and country’s GDP due to expanded market and consequently local production.

Globalization of trade influences the terms of trade between two or more countries that are trading together. The terms of trade is closely impacted by the comparative advantage that one country may have for production of goods and services. Globalization has both positive and negative effect on subsidies for agriculture, local industries such as car industry and solar or wind energy. This comparative advantage may create mutual benefit between two countries trading on different product they have comparative advantage for its production. Finally, globalization of international trade and enterprise offers possibility of future fluctuation in technological capabilities.



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