Research Korner: International Trading System

Sample Case Analysis on Theories and Applications of International Trade

International Trade                 This paper is about international trade. It discusses the statement “International trade is really, at best, a zero-sum game. For every winner, there is a loser. It is not so much about creating growth in developing economies as it is about finding ever cheaper products for consumers in the developed economies.” Using different theories on international trade, as well as different examples, it criticizes the said statement. Explanations for the said judgments are also given for further evaluation of the statement. As an introductory, the reader is given a background on international trade and the theories related to it. Then the discussion on the statement is presented with examples to apply the theories behind it. As a concluding part, the topic is wrapped up as to the final judgment regarding the said statement.   International Trade: An Introduction             The pure theory of international trade encompasses the determinants of trade and its consequences, the ways of controlling it together with its consequences, and the interaction between international trade and other real aspects of the economy. What is the reason why country A exports good X while country B exports good Y?             According to the Ricardian Theory, trade is attributed to the differences in the countries’ ability to produce different goods. One produced one good relatively cheaply, while the other another good. These differences arise from the differences in labor productivity. This theory is also known as the classical theory of trade, the earliest and the simplest of all trade theories.             Another neo-classical theory is the Heckscher-Ohlin theory. It explains countries’ differing abilities in different goods with reference to the differences in their endowments of their factors of production. It justifies some of Ricardo’s point. This theory remains to be the dominant mode of thought within the theories of international trade and underlies much normative analysis.             The last one is the so-called modern trade theory. It reemphasizes technology on one side; while on the other side, it stresses the role of product differentiation in international trade. The latter is a new, and apparently fruitful, area of research that integrates imperfect competition into international trade theory. It explains the ‘intra-industry’ trade, which is the simultaneous act of importing and exporting (at the same time) of countries, of very similar goods. The explanation for this type of phenomenon is impossible for the earlier trade theories, since they depend only on costs differences of production to be able to generate trade. International Trade Theory of David Ricardo Absolute and Comparative Costs: The Principle of Absolute Advantage             The seed of the modern theory of international trade comes from Adam Smith. His concern lies on the division of labor as a way to enhance efficiency. This is where he is well known to and he further generalizes this to the specialization between trades and between countries.                Thus countries trade, and should trade, in order to acquire their consumption more cheaply. They buy where prices are lower compared to their place. This is due to the fact that prices are considered as immediate determinant of trade.             Another argument relating to international trade that Smith claims is the idea that international trade allows greater specialization and division of labor through market extension. Therefore, it presents possibilities for additional gains through the reduction of costs below their autarky levels. Trade can increase the economic welfare of both countries involved. Thus, not only can absolute advantage describe international trade patterns, it also provides the rationale to prescribe their implementation as a means of raising economic welfare.             Take this example to further explain the principle of absolute advantage. Britain was the least-cost producer of cloth while America is the least-cost producer of food. Britain will export cloth, because he can gain from it due to its low cost of production. On the other hand, he will import food, because producing it will cost him more than importing it. Same is true with America. Nevertheless, if both goods are produced more efficiently in Britain, applying the principle of absolute advantage suggests that both goods be purchased from Britain. However, this is not applicable in the long-term. Therefore, Ricardo proposes the law of comparative advantage to address this type of situation.    The Principle of Comparative Advantage             This theory explains why it can beneficial for two countries to trade, even if one of them is capable of producing both goods more efficiently. What matters for this principle is not the absolute cost of production. Instead, it is focused on the ratio between how easily the two countries can produce different kinds of things.             To illustrate its difference from absolute advantage, take this situation as an example. In Portugal, production of both wine and cloth is possible, compared with England that requires greater work. However, the two countries have different relative costs of production for the two goods. In England, it is very hard to produce wine while it is moderately difficult for the production of cloth. In Portugal, both productions are easy. Therefore, while it is cheaper to produce cloth in Portugal than in England, it is cheaper still to for Portugal to produce excess wine, and trade that for English cloth. Conversely, England will benefit from this trade because it can now get wine at closer to the cost of cloth, with its cost of production for cloth unchanged. In simpler terms, country A exports the good for which its input requirements are relatively lower compared with those of country B.             In conclusion, international trade takes place because some goods are produced more cheaply abroad compared at home. Ricardo’s model explains this pattern of trade through the relation of prices to certain features essential to the economies concerned. However, this requires several assumptions. First, there is only one factor of production, and that is labor. Second, its productivity differs between countries. Third, labor is perfectly mobile between industries within a country but perfectly immobile between countries. Fourth, there are constant returns to scale in each industry. Lastly, there are no impediments to trade, such as tariffs, etc. Extension of Ricardo’s Theory             While Ricardo expressed his theory in terms of the labor theory of value, Haberler re-expressed his theory in terms of opportunity costs. The opportunity cost of good X is the amount of good Y that has to be surrendered in order to obtain a unit of X. In Ricardo’s theory, the transformation occurs by shifting labor from one industry to the other, so opportunity costs are naturally defined in terms of relative labor productivities. The same concept applies to cases involving several factors of production. If the opportunity costs were constant, the whole of the above theory would follow as is. We have just treated the labor requirements as being part of the bundles of factors, with lower requirements indicating greater efficiency.                 While the Ricardian theory is a supply theory of international trade, its differences in supply conditions that give rise to the possibilities of trade. Trade also occurs even when, demand conditions are identical across countries. In any case, the analysis may be completed without the assumption of identical demand without any fundamental differences. The Heckscher-Ohlin Theory of Factor Endowments             Heckscher and Ohlin asked why productivities differed across countries. They also wondered why the possibilities of transformation differed. According to Ricardo, it is due to the differences in technology. Still, they argue that the ability of the countries varies with their endowments of the different factors of production. Provided with demand patterns that do not differ much between countries, the Heckscher-Ohlin theory of trade states that countries will export the goods whose production is relatively intensive in the factors with which they are well endowed.             In this approach, it stresses the role of factor endowments. There are seven assumptions to be taken in this approach. First is that consumption should be determined by identical and homothetic preferences. Second is that technology is the same across countries. These first two assumptions separate endowments as the cause of trade. On the other hand, the next two restrict the technology in important respects. They are: (3) the exhibition of constant returns to scale but diminishing marginal returns to any single factor, of the production functions for each good; and (4) the difference in the requirements of different factor inputs for the said goods. If one good requires more labor compared to the other at one set of factor prices, the same applies to all sets of factor prices. This situation is better known as the exclusion of ‘factor-intensity reversals’. It allows a clear identification of labor-intensive product.             The other two assumptions describe economic behaviour. They are: (5) the presence of perfect competition in all factor and product markets; and (6) the lack of impediments to trade, such as tariffs, etc., although there is no possibility for the migration of the production factors. Lastly, the final assumption that there are only just two factors, two goods and two countries, imposes world restrictions. In addition, there should also be homogeneity between the factors within the countries, identical between them, as well as fixed in supply.                   The first two assumptions are necessary in answering the question regarding the appearance of the ‘factor-endowment-related’ trade. The next three, on the other hand are among the critical ones. The fifth assumption ensures the equality of prices and costs, as well as of consumption prices and marginal utilities. The technical identification of the labor-intensive good is allowed through the fourth assumption. The third assumption, on the other hand, centers on the translation of price signals into quantity changes. The absence of this assumption would not necessarily invert the trade pattern, although it would make it impossible to prove the constant dominance of the H-O result. The Modern Trade Theory             This theory primarily hinge around technology. It also considers the effect of the economies of scale and degree of monopoly to the patterns of trade. The explanation of the ‘intra-industry’ trade is also possible because of this theory. Although this theory returns to the basic approach of Ricardo, it pays more attention to the determining factors of technology. The changing technology is the one that determines trade, that is why a move from equilibrium to disequilibrium theories is necessary for this discussion.             In conclusion, technological differences and changes can provide us further explanation regarding the international trade in manufactured goods. While goods are relatively young, we expect them to be exported by the innovating country. Subsequently trade may end, as knowledge is diffused, or reversed, as factor endowments replaced knowledge being the principal trade determinant. The fact that one innovation frequently leads to another, means that innovations tend to originate in just a few countries. However, changes in relative dynamism can occur, like the case of Western Europe and Japan. There are at least two channels through which research and development is translated into export advantage. Yet, it is not clear which of the two is dominant over the other. Neither does it give a clear explanation why some countries are more dynamic than others do. Therefore, we are not yet in the proper position to develop a more formal model of technology similar to the Heckscher-Ohlin Theory. Trade as a Positive-Sum Game             Trade between economies is not like sports competition. A sports contest is described as a zero-sum game. By that definition, if one competitor does better, its opponents are doing worse. However, because specialization is allowed in trade, each nation can concentrate making the products it produces relatively well (absolute advantage). Trade therefore, simultaneously makes all nations better off. To conclude this statement, trade really is a positive-sum game.             Take the case of Nike and Reebok. These two companies are almost purely rivals that are selling the same products. Only a small fraction of Nike’s sales is to Reebok workers, and vice versa. So one’s success tends to be at the expense of the other. However, for the major industrial countries, despite the fact that they sell products that compete with each other, they are also each other’s main export markets and main suppliers of useful imports. A successful European or Japanese economy helps the US by providing us with larger markets.             In addition to that, the purpose of international trade is not to export. Instead, it is to import, and this makes trade useful for us. What a country really gains from trade is its ability to import the things it wants. Exports are not an objective in and of themselves. The need to export implies a burden that a country must bear. This is due to the fact that import suppliers are crass enough to demand payment from the other party.             Trade patterns influence a number of factors. Among them are: (1) employment in high-wage manufacturing jobs; (2) growth trends relative to one’s productivity; (3) employment shares in the service sector; and (4) the overall wage levels.             Applying that, international trade again, is not a zero-sum game. When productivity rises in Japan, the main result is a rise in the Japanese real wages. American or European wages are in principle at least as likely to rise as to fall, and in practice seem to be virtually unaffected.             It would be possible to belabor the point. However, it is clear that while competitive problems could arise in principle, as a practical, empirical matter the major nations of the world are not in economic competition with each other, to any significant degree. It is normal to have rivalry for status and power, as countries that grow faster will see their political rank rise. Nevertheless, asserting that the growth in Japan diminishes the status of the US is very different from saying that it reduces the standard of living in the US. It is the latter that rhetoric competitiveness asserts.

Sample Case Analysis on Theories and Applications of International Trade

International Trade This paper is about international trade. It discusses the statement “ International trade is re...

How does Imports and Exports Improve the Economy or Hurt the Economy

Introduction Today, import and export centric industries are the most exciting markets for foreign trade. International trade is the exchange of goods and services between two or more countries. When goods (services) are brought in, it is called an import. When goods are carried out, it is called an export. International trade is essential in all countries, because the scare resources in a particular country are distributed unevenly between different countries and thus some countries are better producing some products than other is. Likewise, exporting is one of the key elements of international trade, which is the purchase, sale, or exchange of goods and services across national borders. One country’s exports become another country’s imports. The small and medium enterprises in exporting Small and medium enterprises (SMEs) must carefully assess the advantages and disadvantages of exporting before committing their ventures in the export business. While some SMEs enter the export business unintentionally after receiving a request to purchase from a foreign buyer, others make a deliberate move and conduct thorough research before entering a new market. Whether it is unintentional or deliberate move, SME need to evaluate and carefully assess the advantages and challenges of exporting before committing resources. SMEs must realize that entering an export business requires careful planning, some capital, market expertise, a quality product, competitive pricing, management commitment, and realizing the challenges and opportunities of foreign markets (2001). While there are no concrete rules that can help companies make decision to export or not and to become successful in exporting,  understanding the advantages and challenges of exporting can help a smooth entry into new markets, keep pace with competition and eventually realize profit. Businesses enter the export market for a variety of reasons and it depends on the needs of the enterprise. However, internationally, their key goal is to promote growth. Exporting can help businesses to utilize their capacity more efficiently, expand their growth, and gain economies of scale and even out seasonal fluctuations in demand for their products. Exporting also lets them exploit technology & expertise. Exporting enables businesses to exploit unique advantages in technology and other areas such as pricing, packaging, delivery and after-sales service ( 2003). It also enhances competitiveness through interaction with international clients; partners, and investors, businesses develop knowledge of different cultural environments, insights into customer requirements, exposure to new technologies & ideas and competitors. The risks of exporting A particular element of risk is involved in all business activity and this needs to be recognized and managed to avoid or at least lessen future mishaps. Potential export risks involve greater complexity within the said business. Complex documentation and administration, the protection of intellectual property and geographical remoteness from markets and customers will be faced eventually by the enterprise in venturing internationally. Exporters will need to address more cultural, political, and legal issues ( 2002).  Exporting may influence a business’s domestic activities and it may reveal capacity and productivity constraints and highlight the need for specific skills, so there will be a pressure on resources. Their financial exposure may be at risk too. Businesses must recognize that exporting will initially involve expenditure, which may affect cash flow and render them vulnerable to financial crisis. The In and Outs of Importing A country has demand for an import when domestic quantity demanded exceeds domestic quantity supplied, or when the price of the good (or service) on the world market is less than the price on the domestic market. There are two basic types of imports: 1. Industrial and consumer goods, 2. Intermediate goods and services. Companies import goods and services to supply to the domestic market at a cheaper price and better quality than competing goods manufactured in the domestic market (2005). Companies import products that are not available in the local market. There are three broad types of importers: the one looking for any product around the world to import and sell; someone looking for foreign sourcing to get their products at the cheapest price and one who uses foreign sourcing as part of their global supply chain.  Importing helps SMEs in broadening their entrepreneurial horizons.  Conclusion Starting an import business can be extremely profitable, especially during periods of global monetary fluctuations we are having now.  Long-term success and profitability, however, will generally go to those entrepreneurs smart enough to understand that they need to learn how to take advantage business opportunities in times like these and start thinking about how to utilize their resources. Finding information on foreign markets is unquestionably more difficult and time-consuming than finding information and analyzing domestic markets.

How does Imports and Exports Improve the Economy or Hurt the Economy

Introduction Today, import and export centric industries are the most exciting markets for foreign trade. International trade is the exc...

( Multinationals) Using historical examples, present and evaluate the main theories which explain the decision to embark on a multinational investment

Introduction             It is difficult to integrate the economic framework of the contemporary times to the ancient and early international trade primarily because of the difference in the methods imposed to attain an economic goal.  Thus, a presentation of evolutionary stages of multinational investments of active participants across different periods from ancient times until recently is necessary to at least have a grasp on where such integration difficulties stemmed.  Since the modern definition of multinational investment expelled the coercive and military means of acquiring assets offshore, the historic examples was operating differently and oftentimes in opposite of such.             Presented in the paper are summary of historical facts that were related to factors that affect decision of a certain country or company to obtain multinational investment.  To wit, the paper highlights the foreign trade relations of the ancient people, Dutch colonization acts and trade modernization in foreign countries and British-owned multinational company.  Conclusions are provided at the end of each data presentation to cite main theories that can evaluate the motivating factors of a country or company in embarking multinational investment.              The paper limits its scope when it avoided mentioning at least two foreign countries wherein the multinational investment should be directed by the home country to be called as one to concentrate in evaluating their investments, prevent too much factual presentation and give way to minimal historical compilations.  However, the historical evidence will concretize that these capitalist countries, especially when colonization was rampant, had indeed travel to different lands backed by their coastal vessels’ superiority.             The Evolution of Ancient Foreign Investment             The Old Stone Age or Paleolithic could be considered incapable to ensue, at the periphery, foreign trade or if it was, which would be considered an extreme thinking, rare anthropological evidences had conceded.  People were characterized as hunters who used simple wooden tools and primarily concerned survival of individual and family lives.  Although tribes were introduced, no formal property ownership was established making trade an impossible scenario.  In later part of the period, however, jewelry had been argued to travel from one place to another but no concrete evidence that exchange of goods happened, at best, there was the intention from the parties to profit from such situation.  With the absence of capital in people’s daily works, the factor of labor served as the greatest achievement in this period ( 1957).             In the book, only at the start of Mesolithic and Neolithic Ages the term investment was vividly utilized to describe how people of this middle and new age saw the potential of human labor to create wealth which was a breakthrough to withdrew from the traditional subsistence hunting and food gathering.  As people discovered to organize its value, labor was invested in plant production for a specific harvesting season, tree cultivation to be used by future generation and domestication of cattle for future gains in trade.  Although the system was largely pioneered in the local setting and informal communities, this served as the trigger that would later ignite, at least, foreign exchange of goods.  Labor, then, could be considered as the pillar of capital accumulation that was destined to be transported across nations, ultimately, to be as an investment tool (1957).  In the period of Ancient Orient which started in 5,000 BC, export trade became very active.  As a result, the need to formalize mode of money was applied, loan was introduced, and eventually, the formation of cities and civilizations began.  With this, no doubt that ownership rights was officially protected by the state that encouraged people to engage in foreign trading to possess unique and valuable endowments from other countries.  Babylonia exported salt as it imported perfume from Arabia.  Metal, gold, silver and bronze became popular export trade although few regions were able to produce them  1957). With the trend, if foreign investment would be defined as the movement of capital across national frontiers wherein the investor retain the control over the acquired asset , then the motives of retired merchants of this era could be acknowledged as one of the oldest and non-armed and non-violent feat to profit abroad.  These retired merchants had foreign exchange career outside national borders and would hire competent agents to continue their efforts abroad.  In such course, they provided the necessary capital to make the expedition possible including the financing for the acquisition of local goods to be traded.  These agents, in return, should arrive to the home country with both the principal and profit on hand, or else, face state sanctions from the frustrated capitalists.  Although no factories or headquarters were built in the host lands at that point in time, agents profited amidst their vulnerability to local seizures and imitation.  They had fought hardships in the journey through mobility and restless travel (1957).              The era, although was not explicitly shaped in foreign direct investment, had industrialized mining, quarrying and other manufacturing sites.  Such stagnation was largely caused by the principle of national solidarity as the domain of many regions, which was noted as “dangerous”, that formal establishments to host countries was deemed profitable but highly risky venture with host native’s discriminatory and hostile clauses.  Several daring merchants and gallant explorers, however, in the likes of naval superior Phoenicians stayed in coastal areas of host countries profiting from seaport trades, and possibly resorted to, because of their relative advantage in the sea; say, when intruders post threats, they can be easily saved by the waters from attacks.  Nevertheless, the foreign investment portrayed by retired merchants, although labor-intensive, seemed to be a relatively stable and profitable foreign investment (1957).                    At the unfolding of the AD centuries, colonization was the focal point of a home country’s foreign investment which was largely on coastal expeditions, warfare equipments, human labor and even human lives.  Since the states, empires and governments were the ones who frequently initiated the act, funding came from the coffers of the country.  Being politically motivated and absence of long-term trade, foreign lands that were founded and colonized either diplomatically or violently against the existing settlers remained a blurred foreign investment in economic sense.  The absence of private ownership in terms of the funds used to raise the capital needed for the expedition and unpopularity of exchanging goods between the colonizers and the subjects prompted some economic researchers to exempt the extent of the evolution of foreign investments, particularly multinational ones, on the later centuries particularly at the onset of the seventeenth century.               Conclusion             The need to exchange what was abundant and retain or outsource what was scarce remained the motivation of the ancient traders to invest, primarily in human labor, abroad.  With the presence of political risks ( 2003), especially in an established region, ancient merchants relied heavily in the host country’s openness to trade, or on their part, the investors level of endowments given as a gift to the ruling empire for a possible license to operate in its borders, if not obtain monopoly in certain commodities.  Economic risks (2003) could be observed by host countries capability to establish commercial complex, provide a hostile-free environment for the investor to maximize its profits and realize surplus from the value of his investments by bringing back home the unique line of commodities of host country for dearer value.                          Dutch Multinational Investments from 1600-1800 The VOC Period of Colonization             The idea of  (1999) about the crucial role of the home government intervention was best reflected on how the Dutch States General organized a group of merchants to explore wealth across different nations.  This announcement brought into being the oldest multinational company (MNC) () Verenigde Oost-Indische Companie (VOC) on 1602 tasked to conduct colonial activities in Asia.  The control granted to VOC succeeded through monopolizing oil and spices like nutmeg in the South Eastern part.  Other Dutch naval explorers and colonizers followed which constituted national strategy to systematize the firms’ voyage by granting exclusive rights to respective multinational companies within specified regions.              The initial attempt of Dutch MNCs was characterized by suppression and mass murder to acquire forcefully natural resources of other nations especially those situated in Asia.  Where was then the Dutch foreign investment?  Truly, this period of colonization expelled the requirement of financial or physical capital from the home country to be able to establish MNCs in host countries.  However, VOC had deployed human resources in the form of military personnel including transportation resources like naval ships that was used to arrive in Asian lands.  The investments did not involve trade in the sense that acquisition of host resources was not paid but stolen through coercion ( 1999).             Using dependency theory  the advancement in Dutch coastal navigation and probably their military troops succeeded in the conquest to extract wealth from naturally-rich poorer countries.  The dependency, however, was not merely conducted to acquire cheap labor or transform the local market as customers instead colonization was used as means to achieve the ends of MNCs.  Since the host country was relatively less advanced in terms of weapons and less organized in terms of military infantry, Dutch colonizers exploited their vulnerability.  This market imperfection (1991) between the colonizers and the colony in several competencies served as an incentive for the home country to invest heavily in MNCs and disincentive for the host countries to invest and try to interrupt Dutch MNCs’ objectives of colonization.              The fruits of foreign investments and expeditions were equated trade gains for the home country.  The natural resources they had acquired from colonized countries were traded to European and Russian countries that traveled a long way to purchase relatively precious merchandise.  In effect, Netherlands created surplus basically in the hands of group of merchants which had invested not only within the country through real estate, banks and lotteries but also outside by financing export goods and establishment of enterprises abroad (  1999).             The Emergence of Modern Trade What was exemplified by VOC was rather an indirect mechanism of foreign investment because violence was the focal point in acquiring resources. Although it had headquarters, issued stocks and bonds () to represent ownership, applied firm strategies and processed inputs to build ships, the actual deployment of investment in the foreign soil did not suggest modern approach to foreign investment.  It was characterized by distorted, if not barbaric, form of foreign direct investments and inapplicable portfolio investment () scheme.    After a decade, however, the country learned to adapt to nations in which its MNCs will invest suggesting a shift of strategy away from Asian experiences. An example is the Noordsche Companies short lived-history () which situated a manufacturing facility in the island of Spits Bergen to process marine inputs from America and produce soap and lamp oil that gave rise to one of the first foreign direct investment (FDI) of Netherlands. Another prominent MNC West-Indische Company (WIC) certified on 1621 obtained sole rights to operate in North America and established posts in the region to trade firearms, bullets and iron ware.  These foreign endeavors marked the modernization of the country in terms of foreign investments.  Eclectic theory (1991) was found in Asian exploration as Dutch had ownership advantages because they were the proprietor of colonization on several regions.  However, as early as 1589, English had colonized North America () exploiting its aquatic, tobacco, sugarcane and corn endowments.  Thus, Dutch can no longer maximize potential to own natural resources and could only maximize its investment through cooperative strategies with the original colonizers.  In effect, the capital it used in the expedition fell short compared to the Asian gains.  If this will continue, similar North American expeditions would be non-profitable and could only cause conflict from the already established English government.  The imperfections in good and factor markets ( 1991) were not favorable to its side that internalization ( 1991) of English activities was resorted.  Instead of stealing and invoking violence, it built facilities to manufacture raw materials into merchandise in which it was known (1999).  It sympathized with the political environment through strictly trading and manufacturing endeavors.  It also utilized its coastal trade experience, in effect, gave rise to marine manufacturing and export of reclamation knowledge abroad.  With this, it optimized foreign coastal areas that served as location advantages (1991). In respect to metal trade, political intervention from the host country stimulated the competence of Dutch investors.  The primary Dutch investor that succeeded in foreign investment through portfolio strategy (), particularly lending, was De Geer.  When the King of Sweden cannot afford to repay De Geer, it compensated the merchant with iron and copper industry monopoly in the ruled lands.  Striking how a king ran out of money, it was more interesting how De Geer used political lobbying to own an industry.  The story of was almost the same with the Emperor of Austro-Hungary as non-liquid debtor providing mercury and cooper monopoly to the Dutch and Italian creditors (1999).  Again, political disruptions (1991) dictated the Dutch fortune.  However, the initiative came from the host country.                            Conclusion             Using Wilkins Model ( 1991), the VOC exploration in Asia can be described with low market but high resource opportunities and low degree of political stability of conquered Asian regions, low extent of cultural similarity of the Dutch and Asian inhabitants, and fairly Dutch experienced foreign investment strategies.  As the lands were endowed with rich spices and wares (China), Dutch conducted colonization albeit unfamiliarity of the newly explored lands.  To their disadvantage, Asian inhabitants were relatively subsistence settlers and did not impose substantial threat to impede Dutch colonization.  The latter had the modern tools both in knowledge and equipment and advanced naval capabilities that gave them the strength and speed over the subjects. In addition, the resources that were acquired in the process would be diverted back in the harbor of Amsterdam where international trade occurred (1999).  Hence, the price of the Asian products, rare at this point in time, was maximized from the pockets of the willing-to-pay foreigners.  With this, the Dutch could have exercised vertical foreign investment that linked explored unique commodities to their country’s international ports.  Exploited resources were driven back to Netherlands to sell at a high price.  Also, with the presence of Dutch manufacturing firms in near their seaport trade complex, converting raw materials saleable merchandise was possible and done in an efficient manner through minimal of transportation costs.  Because of these facts, savings equated to higher returns and more surpluses for the companies and the government.             In a different approach, the North American exploration did not gave Dutch the advantage of tapping unique natural resources instead the ideal strategy was to exercised expertise in building and maintaining factories that can process raw materials.  Because of this, they could transform the English-owned natural resources into a new kind of merchandise, probably profiting in the rent for the manufacturing services, and perhaps, due to their coastal expertise, transportation.  In the case of metal-based products, the acquired monopoly in other countries provided the merchandise sold in the region.  As a result, they offset the lost opportunity to personally exploit the North American unique endowments by exposing these unique products.   The British East India Company 1600-1858                Its two and a half centuries of prosperous trade monopoly in India () was sparked by giving gifts to the ruler of mainland India.  From then on, the Elizabeth I chartered company established somewhat fair trade in an Asian region relative to VOC doings in the south east part.  It flourished by establishing factories primarily in the mainland which competed the spices industry the Dutch companies had topped as an export good.  In several points in time, it faced financial difficulties and armed threats from other foreign military and industrial states.  However, it had seemingly impressed the British parliament in its performance and created a strong lobbying position to its favor.  This resulted greater autonomy in the region as British imports accounted 15% of purely Indian trade from the company operations.             As its corporate history unfolded, it kept expansion up to small states of the country amidst the resistance of native and foreign settles and other traders who were unwilling to be driven away.  In the process, the company strengthened its military force with the most monumental warfare observed against French counterparts.  With several experiences through industrial-related battles, the company matured not only in military but also operational efficiency of its plants with the support from local chieftains as political influence of British had spread into the local government particularly in the mainland.  In effect, the company conquered more states all over the country integrating them under the umbrella of its ambitious trade goals ().             However, the company shelter, especially in Bengal, seemed to exaggerate its competence particularly in the production of basic needs leading to a catastrophic death of 10 million people in the province due to famine.  Because of this, the Crown identified the inability of the company to take over such enormous number of lands and providing the inhabitants sufficient commodities for a living.  This prompted to impose a formal control of the British Empire over the Indian country which slated the drought for the company.  Blurred established jurisdiction in administering states between the Crown and the company ensued, as the latter was officially confined strictly in industrial matters amidst its military presence across India ().              As the end drew near, it tried to surpass financial bottlenecks relying in the capability of the host country to produce opium which was exported to China.  The refuge was short-lived, however, as China imposed war in such trade that entirely opened the door for the company to exit Indian trade monopoly.  This event was completely realized as mutiny of Indian Soldiers happened in 1857 and other succeeding acts that deteriorated its operations ().      Conclusion             Unlike the early missions of Dutch in Asia which could be described as violent and intimidating, British resorted to diplomatic ways fairly throughout the company life with exception of relatively fewer armed coercion.  A signal of the emergence of modernization theory (), the company helped the country to attain its economic competence and independence by transferring the knowledge of enterprise management and efficiency in production ().  Although there was no doubt that ethnocentric influence of Western values had infiltrated the Indian culture, this was limited largely in the mainland and positive gains could somehow outweigh the mechanism of cultural imperialism.              Not so much competitive advantage in terms of navigation unlike Dutch and Portuguese (), British was known by its diplomatic and systematic mercantilism policies ().  There was absence of ownership advantages but location foothold ( 1991), as factories were situated within mainland, prevented unnecessary collision against the better foreign counterparts on the coastal areas.  The British company produced in-land crops like cotton and tea and internalized ( 1991) the operations of the firm in the local state’s norms that equate to efficiency.              Implication of theory of the obsolescing bargain ( 1991) was observed in the increased military forces of the company across time and its continuous lobbying in the home country.  As there was local resistance from the unwilling Indian states, the company had imposed pressure to them to recuperate its investments.  It also increased its host exports for the home consumption and re-export rejuvenating its parliamentary influence and lobbying presence at times of financial problems.  One indication of this was the increase of its export in North America for Indian produced tea through the Tea Act ().              The motivation is parallel and the stimulus was the same.  British government saw opportunity in the country, amidst established Indian states and the presence of foreign traders and colonizers, which prompted the Crown to send MNC there.  Implications of Wilkins model ( 19991) suggested political stability in Indian government and chieftain-ruled states that the Crown succeeded in their diplomatic way of doing business and lobbying to the host country rulers.  In terms of strategy, it had established networks in North America that served as the market of Indian commodities.  As it counted the years of operation, its experience curve had increased that showed during Industrial Revolution and French War wherein the company exercised efficiency in its operations to produce more due to threats of factory seizing and operation’s block-out.  In aggregate, embarking a multinational investment in India gave the company and Crown alike their ambitions both in industry and administrative aspects that made the exploration a successful one.      Interesting News Credit:ivythesis.typepad.com

( Multinationals) Using historical examples, present and evaluate the main theories which explain the decision to embark on a multinational investment

Introduction It is difficult to integrate the economic framework of the contemporary times to the ancient and early interna...

How does Imports and Exports Improve the Economy or Hurt the Economy

Introduction Today, import and export centric industries are the most exciting markets for foreign trade. International trade is the exchange of goods and services between two or more countries. When goods (services) are brought in, it is called an import. When goods are carried out, it is called an export. International trade is essential in all countries, because the scare resources in a particular country are distributed unevenly between different countries and thus some countries are better producing some products than other is. Likewise, exporting is one of the key elements of international trade, which is the purchase, sale, or exchange of goods and services across national borders. One country’s exports become another country’s imports. The small and medium enterprises in exporting Small and medium enterprises (SMEs) must carefully assess the advantages and disadvantages of exporting before committing their ventures in the export business. While some SMEs enter the export business unintentionally after receiving a request to purchase from a foreign buyer, others make a deliberate move and conduct thorough research before entering a new market. Whether it is unintentional or deliberate move, SME need to evaluate and carefully assess the advantages and challenges of exporting before committing resources. SMEs must realize that entering an export business requires careful planning, some capital, market expertise, a quality product, competitive pricing, management commitment, and realizing the challenges and opportunities of foreign markets (2001). While there are no concrete rules that can help companies make decision to export or not and to become successful in exporting,  understanding the advantages and challenges of exporting can help a smooth entry into new markets, keep pace with competition and eventually realize profit. Businesses enter the export market for a variety of reasons and it depends on the needs of the enterprise. However, internationally, their key goal is to promote growth. Exporting can help businesses to utilize their capacity more efficiently, expand their growth, and gain economies of scale and even out seasonal fluctuations in demand for their products. Exporting also lets them exploit technology & expertise. Exporting enables businesses to exploit unique advantages in technology and other areas such as pricing, packaging, delivery and after-sales service ( 2003). It also enhances competitiveness through interaction with international clients; partners, and investors, businesses develop knowledge of different cultural environments, insights into customer requirements, exposure to new technologies & ideas and competitors. The risks of exporting A particular element of risk is involved in all business activity and this needs to be recognized and managed to avoid or at least lessen future mishaps. Potential export risks involve greater complexity within the said business. Complex documentation and administration, the protection of intellectual property and geographical remoteness from markets and customers will be faced eventually by the enterprise in venturing internationally. Exporters will need to address more cultural, political, and legal issues ( 2002).  Exporting may influence a business’s domestic activities and it may reveal capacity and productivity constraints and highlight the need for specific skills, so there will be a pressure on resources. Their financial exposure may be at risk too. Businesses must recognize that exporting will initially involve expenditure, which may affect cash flow and render them vulnerable to financial crisis. The In and Outs of Importing A country has demand for an import when domestic quantity demanded exceeds domestic quantity supplied, or when the price of the good (or service) on the world market is less than the price on the domestic market. There are two basic types of imports: 1. Industrial and consumer goods, 2. Intermediate goods and services. Companies import goods and services to supply to the domestic market at a cheaper price and better quality than competing goods manufactured in the domestic market (2005). Companies import products that are not available in the local market. There are three broad types of importers: the one looking for any product around the world to import and sell; someone looking for foreign sourcing to get their products at the cheapest price and one who uses foreign sourcing as part of their global supply chain.  Importing helps SMEs in broadening their entrepreneurial horizons.  Conclusion Starting an import business can be extremely profitable, especially during periods of global monetary fluctuations we are having now.  Long-term success and profitability, however, will generally go to those entrepreneurs smart enough to understand that they need to learn how to take advantage business opportunities in times like these and start thinking about how to utilize their resources. Finding information on foreign markets is unquestionably more difficult and time-consuming than finding information and analyzing domestic markets.       Credit:ivythesis.typepad.com

How does Imports and Exports Improve the Economy or Hurt the Economy

Introduction Today, import and export centric industries are the most exciting markets for foreign trade. International trade is the exc...

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