How the International Business Affect Infant Firms (Essay Sample)

International Business
Author
Institution
Introduction
International trade is often measured on its merits toward its partners. On rational perspective, international exchange are based on rules and guidelines that are moderate towards the involved partners. The skeptical guidelines should be put in place to assist since policies and rather beliefs varies on how international trade can be beneficial. The level of barriers towards international trade often affect the economic growth rate of a particular country. The approaches define to specify on the history of economic thought since the skeptical views is less associated with the vast literature of trade and development. The arguments are based on the impact of international trade on the infant industries, cultural diversity and dumping off in respect with trade policies, merits and demerits, supply and demand and geographical components.
The theory of modernization by Rostow categorize economic growth into five stages. These stages includes traditional society, transitional stage, take off, drive to maturity and mass consumption. The theory highlighted that economic growth is influenced by the availability of resources such as land, capital, labour and enterprise. These factors of productions correlate with the economic growth in that, fall in quality and quantity of resources conversely leads to economic decline.
Big partners of trade like Europe and North America prevail their policies on the current history of economy. On the contrary, multilateral institutions such as World Bank, IMF based their view on the belief that Openness is the key to economic growth. This is due to the fact that open and outward-oriented economic value on the statistic done indicate countries with restrictive trade policies experience less growth and development.
International trade is bad for infant industry
International trade affects the infant industries on the law of supply and demand. Aggregate demand and supply have substantial impact on the economy of a country. In this case, aggregate demand refers to the total demand of goods and services in an economy by consumers while aggregate supply is the total amount of goods and services supplied in an economy. For this reason, the two economic variables affect the growth and prosperity of an economy in a third world countries. From the above concept, developed nations will import a lot of commodities with low prices to a developing countries. This is because most policies formulated by the developing countries are often influenced by the developed states.
Infant industry argument warrants protection for a small new firm in the market especially those from developed countries. In such instances, international trade will be unfit for new firms in the third world countries since most of established firms in developed countries will dominate their products with low prices hence creating unstable market for the infant industries. Most of the firms in developed countries have been in the market for long and over time they have been able to advance in their efficiency of production. They also have higher capital and technologies which provide them with better information and knowledge about market characteristics, labour and production process. This has enabled them to compete competitively with other upcoming industries and still remain profitable. In this case, to create a stable environment for the infant industries, import tariffs should be formulated and implemented. Perhaps, without import tariffs, the domestic price of the product will fall hence the domestic firm will not be able to cover up for their higher production cost. At the same time, inflation of import globally will be experienced.
The protective tariff will provide a conducive market for the infant firms where they will gain production and management experience over time. The costs of production will reduce significantly and enable them realize their own production proficiency growth. As the time goes by, the protective tariff will be gradually be reduced as the firms improve their production efficacy.
On the other hand, the demerits encountered as a result foreign trade has caused detrimental effects on the global economy. For instances, obvious views based on the fact that industrialized countries will take advantage of the developing nation has vastly contributed to the declination of the international trade. This reflects how infant industries have been exploited by the stable industries. In order to curb this bad behavior, there is need to formulate trade policies that will ensure that the infant industries are not affected or dictated by the foreign policies. This involve introducing trade tariffs that protect and helps the infant industries to grow. In addition, other policies relating human rights should be implemented and action taken against violators. This include, child labour and undermining underprivileged individuals with low wages among others.
On the other hand, international trade is very advantageous to the developing countries especially in job creations, distribution of resources and even further in our daily life fulfillment. From a rational perspective, the idea of free trade can bring together the developing countries on a fair competitive platform and economic parity with the developed countries. Another positive perspective of free trade aim to create a world in which people are free to do proper business activities, investment and production in a propitious conditions with no trade restriction within and across national borders.
Trade policy is a factor that should be put in place to ensure that infant industries are protected from stiff competition imposed by the foreign trade. As such, formulation of trade barriers is very critical as this will help reduce inflation of market with foreign commodities. On the other hand, Trade policies should be categorical depending on the type of good imported into the country. This will therefore ensure that healthy relationship among the trading partners is uplifted.
Cultural diversity
At the crossroad of the economic trade as well as societal social value, trading in cultural products is at risk. The production and consumption of cultural products are very significant in improvement and development of national identity and culture. This therefore raises the need for cultural protection. In this case, taste formation is an endogenous process that is often manipulated by the suppliers and is a solid argument in support of cultural protection. Restriction of demand will come about when individuals may not develop a taste for them (Rao, 2012)
The effect of trade correlate especially with the audiovisual sector and primarily to television sectors, films and advertising. To protect this activities, several financial and regulatory strategies are employed to provide a solid support. In this case, many countries have put in place cultural policy to ensure that domestic production of cultural products, especially audio-visual products are protected from import competition. For instance, GATT Uruguay Round negotiation, where France failed to reach into affirmative agreement with other countries to exempt audiovisual products from GATS rule and regulations. The proponent of cultural exemption was basically argued in connotation with the significant of cultural value of cultural goods and service as compared to a mere economic commodities (Mark & Bee 2012).
Free trade is a possible detrimental impact of globalization on cultural diversity. Without a proper trade policies in relatively developing countries, free trade may result in demise of cultural diversity. This is because developed countries have different preferences patterns.
From a purely geographical perspective, based on the theory of evolution (biological theory of evolution) it's applicable to developing country today. This is based on two animals of the same species on the same ecological areas having different food chain. Their survival will depend on the availability of food and it will be by no means the only way in which natural selection of preference due to scarcity or abundance arise.
Based on merits and demerits of international trade, the trade policies of a developing countries will be dictated by develop countries hence influencing the diversification of culture.
Dumping off
In international trade, dumbing off refers to export of a product by a country or company at the price that is lower in the international market than the price charged in domestic market. Since dumping involves a significant export of a large volume of goods or commodities, it has greatly affected the financial variability of the producers of the commodities in the developing countries. From a purely economic perspective it refers to an act of offloading a stock in little regards of its price.
Most nation especially those from third world continent are against the practice. On the contrary, some organization such as World Trade Organization still dwell on opinions on whether it is unfair competition in international trade. Basically, the argument ab