Meaning of Globalization to Firms (Essay Sample)

Business and Economics: Question and Answers
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Business and Economics: Question and Answers
Question 1: Meaning of Globalization to Firms
To globalize a firm means to make it completely adopted globally. It means that the firm will be acceptable as an international institution. Globalization is defined as the process of promoting a firm or any institution to a higher acceptable status. The resultant effect will be the expansion of size, scope and productivity. For example, a motor company or any firm might decide to sell their products to other countries rather than only their country. In a real situation many companies like Ford did the same when pursuing the global market. Many global companies like Coca-Cola reached their status after they had decided to target the global market as well. It will therefore necessitate them to produce products that are internationally acceptable.
Moreover, a business benefits from free labor mobilization. That is due to increased labor migration that offers benefits to employees as well as recipient nations. In that case, a nation that accrues high unemployment levels will eventually look for employment from other nations. That also assists in reduction of geographical inequality. For instance, the process has been working across the EU where most of the Eastern European employees have moved towards the West. Moreover, it assists businesses experiencing labor shortages to fill vital positions. A good example is that of the UK health sector that needs to attract more nurses. Another benefit of globalization for businesses is increased economies of scale. That is due to the fact that firms are able to increasingly specialize. The process of globalization assists firms in producing diversified products in different places of the world. That also reduces average costs for businesses and at the same time lowers prices for customers.
Nevertheless, globalization also means costs for business enterprises. Firms can suffer from labor drain. That means that they find it difficult to maintain their employees since they always move to look for greener pastures or into nations where they can get higher incomes. There are also the increased costs of competition for businesses. Businesses in developing nations experience difficulties when competing with those in developed nations. That way, it has been debated that free trade tends to accrue more advantages to developed nations than it does to developing nations.
Question 2: Globalization and its Understanding
Globalization is mostly associated with stiff competition and also improvement of the methods of products` promotion since a newly globalized firm has entered a new strong market. This is the internal influence to the business itself. To other firms globalization of firms means new influence on the current market. Globalization is perceived to come with such expenses as tax systems, regulation rates etc.; this causes the change in financial budgeting to cater for new expenses. For instance, a company that has been producing goods locally must change its mode of production and the finances used to produce the goods must increase since the targeted market will be larger.
Looking deeply into the effects of globalization of firms, there are both advantages and disadvantages of the practice. In terms of benefits, globalization means that there will be increased free trade. In this case, free trade refers to the manner in which nations tend to exchange goods along with resources without any form of barriers such as tariffs. That means that nations can easily specialize in the production of goods in situations where they can gain comparative advantages. For instance, it means that they can easily produce products at reduced opportunity costs. Free trade tends to accrue other benefits for the business including decreased prices to customers, increased choices for products, huge export markets for its domestic producers and increased competition.
Question 3: Difference between Trade and Investment
Trade is an activity that involves buying and selling of goods and services. Trade carries the aspect of change of ownership. Trade can be conducted in the following ways: the traditional way; the barter trade, where goods are exchanged for other goods, for example, exchange of food for jewels. Commercial trade is exchange of goods for money; here money acts as medium of exchange. A situation when a person buys a pair of shoes from a shop describes commercial trade. Trading, however, is regarded as a value adding function.
Investment is the use of money for future profit. In economics, it is usually perceived as an accumulation of newly produced assets like machinery, houses and goods. In finance it is the actual buying or creation of assets with expectations of capital appreciation, profits, rents or some combination of returns. Shares are good example of investment where an investor buys moneyed valued assets and expects some profitable results (appreciation).
Investment is a long term process; it usually occurs after quite a long period of time, while trading is routine as it is what makes a business survive. For example, a shoe selling company will sell shoes every day but it might take a long period of time before the company decides to invest in other regions.
Question 4: Various Levels of Economy Integration
Economic integration is the process of unification of economic policies between countries to provide encouraging and favorable business conditions to business people. Economic integration can be categorized into five distinctive levels;
Free trade: At this level the tax is abolished or greatly reduced. Each member country keeps its own tariffs in regard to third country. The strategy is meant to create an efficient economy between two countries. For example, selling electronics at lower tax rates to another country is a form or free trade.
Custom union: At this level, there are similar external tariffs imposed on member nations in order to enhance easy transactions. For example, a country importing goods to another country needs to pay customs duty if the economic integration involved is custom union.
Common market: It is at this level of economy that the factors of production, like labor and capital, are free to move within the member countries hence expanding the countries` economies of scale. A doctor or a business man moving from one country to another to work is a good example of common market.
Economic union: At this level there is harmonization of monetary and fiscal policies between the member countries. It therefore implies that there exists a kind of political integration. In most of the times the member countries use a common currency. A good example will be where a common currency, be it pound, yen or shilling is used to transact business between different countries, for example, trading in yen in Germany and Japan.
Political union: This is the most advanced kind of integration as there is a common government and the government seems to overpower other rulers of different countries, for example, in federations with a central government and regions with a level of autonomy.
Question 5: The Difference between International Business and International Trade
International business is comprised of all commercial transactions that take place between two or more regions, be it countries or nations to the extent of beyond their boundaries. The players involved range from private corporations to logistic and even transportation sectors. The term describes well activities that involve cross-border transactions of goods and services among various countries. An example is a macro banking institution providing services to the neighboring countries or internationally.
International trade refers to transactions of capital, products and services across worldwide territories. One country selling gold or any form of mined commodities is an example of international trade, for example, a country selling oil to other countries. The main difference is that international business covers a larger scope of activities between various countries while international trade is more about exports and imports.
Question 6: Importance of International Business in the 21st Century
International business refers to the exchange of products among people or businesses from different countries. An international business can also refer to an entity that is involved in conducting business in various countries. International business provides a large market for companies to sell their goods. It is through the effectiveness of international business that one country is able to sell its surplus to other countries. Middle East countries sell oil to others countries since they cannot consume it fully.
Countries involved in international business earn foreign exchange. The foreign exchange is very important in payments for imports. Nowadays, almost all countries need products from other countries. This, in turn, helps to strengthen the countries’ economies.
International business helps in spreading business risk. If a company is international it might be safe to stay in the market since its business might not be affected alone. For example, where there is high supply of farm products a business dealing with selling of the same can sell goods to other countries and hence elude the risk of losses.
Most of the international businesses are well organized and they have bylaws and rules set to manage them. This ensures that a business achieves its goals successfully and efficiently.
Question 7: Difference between FDI and FII
FDI (Foreign Direct Investment) is a form of investment that is usually executed by a company or an organization that is located in one country when it decides to transfer its investment portfolio into another...