Impact Of Globalization On Domestic Businesses And Theories Explained

Positive and negative impacts of globalization on domestic businesses

Globalization refers to the worldwide integration of financial, economic, trade and communication services. It means to open up the economy for international trading. It gives a broader look of the world with free transport of movement of goods and services worldwide (Sonnemann, 2015). Globalization has created a high impact on the world’s economy. There are financial impacts, economic impact, Ecological impacts as well as cultural Impacts.  There was an integration of all the financial norms and alignment to all the standards. Due to globalization, the government norms, rules and regulation started affecting the other country’s or the whole world’s economy in direct or an indirect way. There is a high understanding of cultural values and bring technological advancement also. Now people belong to a different culture started respecting the culture of other people. They actually understood now that how to create international relationships with the help of globalization. Globalization has also created an impact on the availability of resource and irreversible damage to ecosystem. So it is a contradictory point for all the benefits of Globalization (Schilling, 2017). Some countries are very much affected by globalization and it has been discussed on international level.

Globalization is impacting domestic economy in a broad way. There are so many local traders who are unable to do their business efficiently because there is a high competition. Now the people started using international brands and they have given a preference to the same. Due to this all the domestic brands are suffering a lot. People usually think that the international product are much better in quality if compare to the domestic products and it is not the reality. There is a direct increase in the promotional cost for domestic companies due to the launch of international brand. Such international brands have a high brand image in the market and they have invested a high capital in the market. There are some positive as well as negative impacts of globalization (Barannyk, 2017).

Positive impacts-

1. It helps in enhancing the free trade opportunities for the domestic as well as international dealers and they started in investing different countries.
2. There is an easy exchange of information and fast transit of goods due to globalization.
3. As economies involved in international trade, the opportunities of war has been decreased (Matsumoto et al., 2017).
4. It helps people in creating an understanding about different cultures and to adopt them in a positive manner.

Negative Impact-

1. With the initialization of globalization, there is a reduction in job opportunities because of international trade. People became so unsecure about their jobs. Organizations get their work done from other countries where there is an availability of cheap labor (Sears and Hoetker, 2013).
2. There are some countries where there are no rules and regulation regarding protection of environment so developed countries utilized the same by carrying on their production activities in such countries and providing harm to the environment (Engen and Elisabeth Holen, 2014).
3. Globalization creates a high fluctuation and it also leads in increase in competition. Developed countries are forced to reduce the prices of the product as per the rates of same product in other countries. It is harming social welfare in the countries.

Explain Factor Proportions Theory and International Product Cycle Theory. Also discuss one limitation for each of these two theories using real examples.

Factor Proportions Theory- This theory is also known as Heckscher-Ohlin Theory. This theory basically states that there are different factors of production and availability of these factors varies from country to country (Davidson, Griffin and Baxter, 2006). Every country has special factors and it leads to differentiate the same in terms of availability of resources. This theory focuses on two factors of production- labor and capital. There is a two countries model that states that the countries which have abundant capital can export the capital intensive resources or raw material and the countries that possess cheap labors can export labor intensive commodity. There should be a proper selection of products according to the availability of factors of production. There are different advantages that help in leading an organization by the sale of a particular product as they have the availability of resources that are not available to every organization (Franklin, 2011).

Factor Proportions Theory – Explanation and real-life example

The countries where there is a cheap labor and expensive capital are known as capital rich country and the countries that possess cheap capital and expensive labor is known as labor rich country. There is an example of US and England, these two countries possess a high amount of capital but still import of goods is more expensive for them in comparison to the exports. US is known for the usage of innovative methods of production by using latest technology. In India, there is an availability of cheap labor so it basically tries to adopt labor intensive methods of production (De Toni, 2016).

International Product Cycle Theory- Raymond Vernon has described in detail about the international product cycle theory that was discovered by him in 1960s. It basically elaborates that whether a product is suitable for the exposure in the international market. It explains the full life cycle of a product that consists of various stages. The three stages are-

1. New product Introduction stage- This is known as the first stage of product life cycle. It is the introductory stage when a product is launched in the market and introduced to the public (Hill et al., 2018). For creating a new product, firstly it is important to create an innovative idea. It starts from targeting a small segment of the market and then grabs more chances of development of that product n the world’s economy. There is a high possibility to make the product successful in developed countries because in such nations, public possess a high disposable income. In order to maintain a balance, organization creates products on a local level so that they can get the feedback and reviews of customers and modify the product as per their likes and demand. As per the increase in sales, companies simultaneously increases the production practices and starts exporting the products to other countries. It leads in increase in revenues also. By doing the whole procedure, companies decrease the chances of risk (Pérez-Llantada, 2012).
2. Product mature stage- Product mature stage is the stage when the product becomes famous and people start buying the same. In this stage the demand of the product is high and manufacturer starts expanding production process to fulfill the demand of the customers (Warner, 2010).
3. Product Standardization- It refers to the export of products from domestic market to less developed market. High competition leads to saturation in the market and to boost up the product, there is a need of some innovation or adding new features to the products. Sometimes, companies need to reduce the process of the products.

Donald Trump, president of United States of America, announced the imposition of tariff on Chinese imports in the recent past. Based on your understanding of the first 3 topics of this unit, (i) what could have been the reason/logic behind such a comment/decision, and (ii) what are the implications of such an intervention on domestic consumers?

Donald Trump is the US president and he has announced a very different tariff on the import of Chinese items. The memorandum signed by him related to this imposition of 60 billion dollars of imports that has been done from China creates a very high impact because it has also restricted the investments done by people of China in USA. Donald Trump has decided this because according to him Beijing had adopted unfair trade practices to get the benefits in US that majorly includes the tax observation of intellectual law of property. It was also observed that the import from China was very high and people of US started using Chinese products a lot because they are comparatively cheaper. It has also created impact on domestic consumers and they suffered due to this because the prices got increased due to the applicability of tariff. They are paying a higher amount for a product that they got in a very low amount sometimes back. It has created a very high impact on the prices of some products like accumulators, batteries and electrical appliances. US imports a high amount of products from China and the tariff imposed directly create inflation on the prices of the products. There is an increase in prices of machineries, vehicles and construction industry material. For coping up with this issue, US manufacturer started import from some other countries but still they have to remain concern about the prices. Manufacturers have to make some evaluations on continuous basis to evaluate the supply chain.

References-

Barannyk, L. (2017). The impact of globalization challenges on pension provision development. Geopolitics under Globalization, 1(2), pp.34-44.

Davidson, P., Griffin, R. and Baxter, A. (2006). Management. Milton, Qld.: John Wiley & Sons Australia.

De Toni, A. (2016). International operations management. London: Routledge.

Engen, M. and Elisabeth Holen, I. (2014). Radical Versus Incremental Innovation: The Importance of Key Competences in Service Firms. Technology Innovation Management Review, 4(4), pp.15-25.

Franklin, M. (2011). Managing business transformation. Ely, Cambridgeshire, U.K.: IT Governance Pub.

Hill, C., Hult, G., Richardson, T. and McKaig, T. (2018). Global business today. [Whitby, Ont.]: McGraw-Hill Ryerson.

Matsumoto, M., Masui, K., Fukushige, S. and Kondoh, S. (2017). Sustainability Through Innovation in Product Life Cycle Design. Singapore: Springer Singapore.

Pérez-Llantada, C. (2012). Scientific discourse and the rhetoric of globalization. London: Continuum International Pub.

Schilling, M. (2017). Strategic management of technological innovation. New York, NY: McGraw-Hill Education.

Sears, J. and Hoetker, G. (2013). Technological overlap, technological capabilities, and resource recombination in technological acquisitions. Strategic Management Journal, 35(1), pp.48-67.

Sonnemann, G. (2015). Life Cycle Management. Dordrecht: Springer.

Warner, A. (2010). Strategic analysis and choice. New York [N.Y.]: Business Expert Press.