Lastly, companies can source cheaper and/or better raw materials from import making them more sustainable and profitable. More choices & competitive price: Monopolies or oligopolies are reduced in certain industries because international trade encourages greater competition which leads to more competitive prices. Consumers not only have the access to the new products or services that are not available in their country but also they get bigger bang for the buck ("The benefits of international Trade,” n.d.). Some negative aspects of international trade:
Free trade creates larger markets which inevitably leads to better economies of scale (the proportionate savings in cost from an increased level in production). Open markets allow for the most efficient use of productive resources and foster competition. Free trade thus leads to higher production, higher consumption and higher per-capita income (Rogowski, 2006, p. 2). One reason for this, and the one most often cited as the main reason why free trade is positive is comparative advantage. The Heckscher-Ohlin model of international trade argues that comparative advantage arises from differences in factor endowments (Rogowski, p. 3).
Modern technological advancements have driven this trend by making global communication easier and information more accessible. However, there are both benefits and disadvantages to international trade. The main consequences of foreign trade are job loss and higher worldwide inequality. However, the first of those is more a consequence of technology than trade, and the second is being quickly remedied through the spread of technology and Internet use. Also, if we are able to further level the playing field by implementing balanced standards of international trade, it would alleviate some of the trade disagreements and controversies.
To gain market share a lower price is set and once it is established a higher price can be set. Cheaper prices can get them higher sales and that recover the cost as business benefit for bulk buying. Advantages and disadvantages of using this strategy (analysis): Organizations use this strategy to gain customers and increase their sales. Another advantage of this strategy is it can also reduce competition as weak competitors might withdraw. The disadvantages include if they plan to increase the price customers would switch to another company so it is harder to increase prices.
However, when there is market failure, vertical integration is more efficient than market governance. This is due to some dimension of transactions which push up the transaction costs. These dimensions are specific assets, uncertainty and transaction frequency (Williamson 1975, 1985). The transaction cost theory states that economic organisation align transactions which do not match their attributes with governance structures, which in turn differ in their costs and competences in a discriminating way (Williamson, 1991 :71). A further explanation on the dimensions are given below: 1.
These costs include the losses of consumer surplus because of higher prices and the resulting deadweight losses as import volume is reduced, lost economies of scale as opportunities for further trade are foregone, and the loss of incentives for technological development because of the pressure of import competition (Carbaugh, 2009). So if the government realizes that the cost of protectionist policies are going to increase the cost to society, the more likely that the policies would not be implemented. This is another disadvantage that the protectionism could cause to society, compared to free trade. Moreover, the industry which uses imported materials for production also have to pay more because of the implemented tariffs. That is why the cost to manufacture a product increase.
Outsourcing involves transaction costs, which make outsourcing cost more than performing the activities ourselves. Lower operational and labour costs are among the primary reasons why companies choose to outsource. Secondly, Outsourcing enables companies to tap in to and leverage a global knowledge base, having access to world class capabilities. Thirdly, Freeing up internal resources that could be put in to effective use for other purposes is also one of the primary benefits realized when companies outsource or offshore. Finally, by delegating responsibilities to external agencies companies can wash their hands off functions that are difficult to manage and control while still realizing their
The major advantage of globalization in the context of economy and businesses are firstly cheaper production costs and secondly more consumers or a wider market. Let’s discuss cheaper production costs first, big and even small businesses go to popular destinations like China, India, Brazil, Mexico and eastern European countries. Increased profit is a direct result of lower production costs. This helps businesses gain competitive edge over their counterparts. Secondly, more consumers are available when a business sells its products or services worldwide; this again leads to higher profits.
Ownership advantages refer to the competitive advantages of the specific firm. They are part of Dunning’s (1979) OLI-Framework containing three components: Ownership, Location and Internalization advantages to invest abroad. Thus global economy leads to firms exploiting location-specific factors (Kogut, 1983). Ghemawat (2007) demonstrated that MNE’s invest in regions geographically and economically distant while Ramamurti (2004) claims that they have to focus to closer countries with a lot of economic similarities but Ghemawat (2007) added that investments into distant regions in seek for differences in order to exploit them and acquire new strategic assets instead of going to similar countries. Firms will gain more from a dissimilar environment than
Q1: Competitive advantages are conditions that enable an organization to deliver a good product with lower cost or in more desirable manners for clients. These conditions enable the gainful substance to create a larger number of offers or unrivaled edges that is competitors .comparative advantages are created from different factors ,there factors are the cost structure ,products, quality, brand ,network of distribution ,protected innovation and client support. As a nation, relying on one type of industry has its advantages and disadvantage, as a public sector government role is to create suitable circumstances. These disadvantages are can lead to more risks than benefits. Concentrating on one type of industry and discouraging other investments