Globalization challenges

1. •Free flow of imports and exports
Receive new technology
Satisfy their customers
Product, Price and Service quality
•Heavy competition and influx of new technology
Wipe out many local business
Prove to be a curse for small business
Manufacturing technology become obsolete

2. The World Trade Organization(WTO) is the most powerful
legislative and judicial body in the world.WTO is the only global
international organization dealing with the rule of trade between
nations. The objective is to help producers of goods and services,
exporters and importers conduct their business. Pakistan is one of
the founder member of the WTO, at present the WTO nearly 150
member of world trade of which there are 100 developing
countries including Pakistan.

3. There are eight arguments for WTO are:
•Promote peace
•Handle disputes
•Life easy for all
•Less cost of living
•More choices
•Increase in income
•Economic growth
•Life become more efficient

4. There are eight criticism against WTO are:
Dictates policy
Free trade without any cost
Priority over environment
Priority over health and safety
Destroy jobs, worsens poverty
Small countries become powerless
Tool of powerful lobbies

5.  The business activities that involve the transfer of resources,
goods, services knowledge, skills or information across national
boundaries.
 May involve
 Individuals
 Companies
 Government bodies
 International institutions

6.  International transactions
 Economic transactions that cross borders
 International trade
 Occurs when companies import or export across borders
 International investment
 Occurs when a companies invests its resources across national
boundaries
 International firm
 Those engaged in international business

8. A multi-domestic firm is an enterprise with multiple
international subsidiaries that are relatively independent
from headquarters. The global firm consists of closely
integrated international subsidiaries controlled and
coordinated from central headquarters.
The MNE is defined by the organization from
economic cooperation and development as an
enterprise that engages in foreign direct
investment and owns or controls value-adding
activities in more then one country

9. What MNEs Have To Offer

10.  International business is the outgrowth of domestic business.
 Most major corporations started their operations in the domestic
market.
 International entrepreneurs
 Individuals or companies that invest and operate in another country
without a home base

11.  Significantly different due to differences in:
 Environmental Dynamics
 Currency, inflation, interest rates, accounting practices, cultures,
language, social customs, laws, political stability
 Operational Nature
 Communication, coordination, motivation, differences in organizational
principles and management philosophies

12.  Firms expand internationally for various motives:
 Market motives
 Economic motives
 Strategic motives
 Motives vary from one business activity to another.

13.  Market Motives:
 Offensive motive – seize market opportunities in foreign countries
through trade or investment.
 Defensive motive – to protect and hold a firm’s market power or
position in the face of threats from domestic rivalry or changes in
government policy.

14.  Strategic Motives
 Capitalize on distinctive resources or capabilities already
developed at home
 Be the first mover in a target foreign market
 Benefit from vertical integration involving different countries
 Follow the company’s major customers abroad

15.  Economic Motives
 Increase return through higher revenues and/or lower costs.
 Enables the company to benefit from the differences in:
 Costs of labors
 Natural resources
 Capital
 Differences in regulatory treatment

16.  International Trade Theory deals with the different
models of international trade.
 Developed to explain the diverse ideas of exchange
of goods and services globally.
 The theories of international trade have undergone a
number of changes.
 An international trade theory can be seen as a
measure to address problems in a country. Since
1970, the time of Adam Smith, economists have
shown that free trade is efficient and leads to
economic welfare.

17.  Mercantilism
 Absolute Advantage
 Comparative Advantage

18.  The trade theory that states that nations should accumulate
financial wealth, usually in the form of gold, by encouraging
exports and discouraging imports is called mercantilism.
 According to this theory other measures of countries' well being,
such as living standards or human development, are irrelevant.
 Mainly Great Britain, France, the Netherlands, Portugal and Spain
used mercantilism during the 1500s to the late 1700s
 This trade theory suggested that a government can improve
economic well being of the country by increasing exports and
reducing imports, but turned out to be a flaw strategy.

19. Mercantilistic countries practiced the so-called zero-sum game,
which meant that world wealth was limited and that countries
only could increase their share at expense of their neighbors.
The economic development was prevented when the mercantilist
countries paid the colonies little for export and charged them
high price for import.
The main problem with mercantilism is that all countries engaged
in export but was restricted from import, another prevention
from development of international trade.

20. To export is good, to import is to be avoided
 When you exported, you receive payment-
currency based on gold standard
Best thing to do is export as much as possible
to gain as much gold as possible
 Problem with theory is that excludes the fact
that in some cases it is good to import
If you completely refuse to import, the
population will have to do without certain
consumer items.

21. A country has an absolute advantage over it trading partners if it
is able to produce more of a good or service with the same
amount of resources or the same amount of a good or service
with fewer resources.

22.  Adam Smith: Wealth of Nations (1776) argued: – Capability of one
country to produce more of a product with the same amount of
input than another country – A country should produce only goods
where it is most efficient, and trade for those goods where it is not
efficient
 Trade between countries is, therefore, beneficial
 Assumes there is an absolute balance among nations.
 … destroys the mercantilist idea since there are gains to be had by
both countries party to an exchange
 … questions the objective of national governments to acquire
wealth through restrictive trade policies
 … measures a nation’s wealth by the living standards of its
people.

23.  Countries should specialize in producing what they are best at-
things they have an absolute advantage in
 Bread / peanut butter, peanut butter/bread
 Incentive to trade is based on each country having an absolute
advantage in a product
 In realty- this is unrealistic and quite uncommon to happen this
way
In most cases, a straight-forward Absolute Advantage does not exist
in the real world. Some countries may have an advantage in one
commodity, and also a slight advantage in another commodity -
however there is still an opportunity for them to trade. This model
focuses perhaps the most important concept in international trade
theory. Countries specialize in producing what they produce best.
Unlike other models, the Ricardian framework predicts that
countries will fully specialize instead of producing a broad array of
goods.

24. Country has a comparative advantage in the production of a good or
service that it produces at a lower opportunity cost than its trading
partners.
Some countries have an absolute advantage in the production of many
goods relative to their trading partners.
It is better for a country that is inefficient at producing a good or service
to specialize in the production of that good it is least inefficient at,
compared with producing other goods
One country is said to have a comparative advantage over another
country in the production of a particular good if it produces that good
with lower opportunity costs.
Two countries can mutually benefit from trade even if one country is at
an absolute advantage relative to another country in the production of
every good.