Part-3(A): The Global Trade and Investment Environment

3.1  Unions in developed nations often oppose imports from low-wage countries and advocate trade barriers to protect jobs from what they consider as “unfair” import competition. Is such competition “unfair?” Do you think that this argument is in the best interests of (a) the unions, (b) the people they represent, and/or (c) the country as a whole?

       It is true that low-wage countries have very less potential incomes they earn so that they would like to work in less amount of money. Conversely, unions in developed countries often oppose imports the jobs from low-wage countries and advocate trade barriers to protect the jobs by thinking it as an unfair competition. As the world is becoming so globalized, it is not fair to advocate such trade barriers because most of business activities these days are operating under the policies of free trade areas, economic integrations, and regional economic blocs for reducing such barriers to achieve a competitive advantage.

In fact, this argument is truly in the best interest of the unions, the people they represent, and the country as a whole. One of the reasons why unions in developed countries oppose is that they avoid the competitions in the marketplace. They think that when there are more competitions, more price wars can take place, unemployment increases and no one can benefits from the trade.

 According to the comparative advantage theory- if a country should specialize in producing those goods that it can produce most efficiently, while buying goods that it can produce relatively less efficiently from other countries. It also tells that opening a country to free trade stimulates economic growth in the country. It is believed that if low-wage countries can produce certain products more efficiently than high wage countries, the low wage countries should produce and export those products. Though trade barriers are supposed to protect workers and the companies, they are only for a short-term fix and they are done in order to create a balance in trade activities. By protecting industries the government is not encouraging companies to be more efficient. Consumers end up losing on this deal because they have to pay higher prices and have fewer choices. Thus, there are lots of other factors considered by the government, these three factors- unions, the people who represent, and countries as a whole- are the best interest of unfair competitions.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

3.2  Who benefits from outsourcing skilled white collar jobs to developing nations and who are the losers? Will developed nations like the US suffer from the loss of high-skilled and high-paying jobs to emerging nations? Is there a difference between transferring high-paying white collar jobs, such as computer programming and accounting, to emerging nations, and sending low-paying blue collar jobs offshore? If so, what is the difference, and should government do anything to stop the flow of white collar jobs out of the US to countries like India?

The wave of globalization has taken place everywhere in the world and it is growing very rapidly. In the past, outsourcing was mainly used to save money and cut costs by moving low skilled, blue-collar manufacturing jobs into poorer, low wage countries, however, currently there has been an increase of higher wage and skilled white collar professions following suit (Hill, 2011).  

The people who benefit from outsourcing skilled white-collar jobs to developing nations are those people who live in the poor countries where goods or services being produced. Outsourcing benefits the poor countries in many ways. For example, it helps to create and advocate jobs that would be beneficial in order to attain sustainable economic growth. It also benefits consumers in developing nations, who can save money by purchasing a variety of goods and services at a cheaper price. Thus, it can help to improve the living standard of people. The people who are the losers in this process of outsourcing of skilled white-collar jobs to developing nations are the producers in more developed nations, who have lost business to enterprises that outsource (Hill, 2011).

I personally don’t think that developed countries like the US suffer from the loss of high-skilled and high-paying jobs to emerging nations. The main reason for this is that developed countries like the US have many industries to produce many jobs, and many high quality education providers so that there will be no loss of high-skilled and high paying jobs. Rather than that, they are more likely to gain more experience and knowledge regarding developing nations.

Yes, there can be a difference between transforming high-paying white collar jobs to emerging nations and sending low-paying blue collar jobs offshore.  Most of high level jobs are done by white collar job holders so that they may earn more money than blue collar job holders do. It is also true that white collar jobs are very important and when they are transformed from developed nations to developing nations then people from developing countries can learn from their skills, abilities and knowledge. However, blue-collar people’s skills, knowledge and abilities are not useful as much as for people from developed countries. It is not reasonable to stop the flow of white collar jobs out of the US to countries like India for the US government because this trend has more advantages than disadvantages for the US. When the US government permits this trend, , of course, most of white collar jobs go out of the US, but it can bring lots of other advantages such as learning new culture, new systems, methods and ways of doing things etc.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

3.3 Given the arguments relating to the new trade theory and strategic trade policy, what kind of trade policy should businesses be pressuring government to adopt?

 New trade theory emphasizes two important points. First, trade can increase the variety of good available to consumers and decrease the average costs of those goods through economies of scale. Second, in those industries when the output required to attain economies of scale represents a significant proportion of total world demands, the global market may only be able to support a small number of enterprises. Hence, it can be said that world trade in certain products may be dominated by countries whose firms were first movers in their productions.

Strategic trade policy suggests that in cases where there may be important first mover advantages, governments can help firms from their countries attain these advantages. 

 Strategic trade policy also suggests that governments can help firms to overcome barriers to entry into industries where foreign firms have an initial advantage.

Business firms produce exports, and imports the products of other countries. The reason for this is that businesses have a strong influence on government trade policy, lobbying to promote free trade or trade restrictions. Domestic firms always want to have subsidies from government so that they actively do their businesses. Most of businesses will be pressuring government to adopt trade policies in the favor of them so that they can easily earn money within or outside country. For example, In Nepal, when government introduced the “free ticket, free visa” policy to 6 major gulf countries then all manpower were protesting the government to take back this policy because when it takes into effect then of course manpower companies will not earn money as they used to before.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

3.4. Case Study on “Ecuadorean Rose Industry”

  

The Ecuadorean Rose Industry

As attempts to examine the case of the Ecuadorean Rose Industry, lots of article, books related to this case have been studied. As case unfolds the facts of rose industry, in the last 20 years, Ecuador has built its rose industry as one of the major backbones of the economic growth generating $240 million in sales. They basically sell their different types of roses from New York to London so that its market was quite good. Ecuador explicitly has been gaining a comparative advantage due to ideal growing conditions. However, later on, it seems that although its market was good enough to earn on an average of $ 210 a month for Maria, the use of toxic chemicals-pesticides, fungicides and fumigants- may be hurting not only the environment, but also the health of people within industry and outside industry. This paper is likely to present how Ecuadorean rose industry has become successful although it faces many challenges, and come up with a reasonable conclusion.

Ecuador’s comparative advantage in the production of roses

The bases of comparative advantages for Ecuador in the production of roses are easy market access, different types of roses and ideal growing conditions for rose growers. First, Ecuador has very easy market access for selling these roses anywhere from New York to London where the demand for roses are very high. Second, in Ecuador, different types of roses can be produced very easily, including 10 different reds, from bleeding heart crimson to a rosy lover’s blush. Last but not the least, there are ideal growing conditions in which the combination of intense sunlight, fertile volcanic soil, high altitude, and an equatorial location is available for making Ecuador to have a comparative advantage in the production of roses.

The benefits and loses from the importation of Ecuadorean roses in the United States or Europe

It is the fact that most of roses are exported to the US or Europe as its markets is growing as the world’s fourth largest producer of roses. It is true that more and more customers, retailers/intermediaries in these countries are likely to be benefited from this industry. Customers will be benefited because they can buy great quality roses at a lower price with much more variety of choices. Likewise, retailers/intermediaries also may benefit by selling them by keeping a certain amount of margins to its consumers.  On the other side, some of the major rose producers in and outside of these two countries are likely to be suffered due to high competition, higher demand and Supply of Ecuadorean roses, lower labor cost etc.

I personally think that the benefits outweigh its costs because rose industry can produce lots of advantages-quality roses, trade surplus, job creations, utilization of resources- in order to make a positive change in an individual’s earning and country as whole. However, there are some negative things-misuse of pesticides in the flowers, child labor, health problems which are affecting adversely the image of Ecuadorean rose industry. Hence, having said both, benefits can outweigh its costs, and it would be better to reduce negative things to gain even a larger market as a competitive edge.

The benefits and implications of rose export industry for Ecuador, the US and Europe

The rose export industry in Ecuador has benefited the country to some extent that improves the economic growth, living standard of people, more job creations, and development of infrastructure through increased revenues and taxes etc. I agree to some extent that these benefits could be implacable for the US and Europe too.  The US and Europe will have some same advantages like Ecuador has them; for example,  people from these country may likely to be benefited from this industry such as quality product-rose at a cheaper price, job creations, taxes and revenues etc. However, it is not fully possible to get all the advantages that Ecuador has been receiving since the long time ago because Ecuador has more specialized and a full of resources in producing roses there.

The ways developed nations respond to reports of poor working conditions

Yes, I strongly agree that importers should certify Ecuadorean producers which strenuously adhere to strict labor and environmental standards. In order to improve the environmental safeguards, some of Ecuadorean growers have joined a voluntary program for recognizing responsible growers. The reason why it is necessary is to ensure that signifies the growers who have used protective gear, trained workers for using chemicals, and hired doctors to visit workers at least once a week. In addition to that, stronger sanction such as trade sanctions should be made environmental-friendly as certified by a reputable agency.

Summary and Conclusions

Having discussed all the above, although it seems that Ecuadorean rose industry has changed the economic conditions of Ecuador by bringing positive changes in the lives of people, there are lots of labor, environmental, and health standards the growers must adhere. When they do so, the problems such as labor issues, health issues, and other environmental problems can be fully removed, and a win-win situation may likely to occur for consumers, growers, employees and country as a whole. Thus, I strongly recommend Ecuadorean Rose industry to maintain both employee concern and social responsibility while producing roses and selling them all over the world.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

Activity:

Short Paper: Write a short paper (up to 6 pages double-spaced) addressing the following: The world’s poorest countries are at a competitive disadvantage in every sector of their economies. They have little to export, no capital, their land is of poor quality, they often have too many people given available work opportunities, and they are poorly educated. Free trade cannot possibly be in the interests of such nations! Discuss. (You are to use academic sources in support of your argument.) 

Introduction

I agree with given statement that the world’s poorest countries are at a competitive disadvantage in every sector of their economies. In other words, they have no efficient usages of land, labor and capital for producing goods and services. However, some critics disagree with the later view that free trade cannot possibly be in the interests of poor nations. In this paper, I would like to discuss why poorest countries are not gaining the competitive advantages in every sector of their economies, and I will also present a debate on whether free trade is working in the favor of poorest nations, and strive to come up with a reasonable conclusion.

Body Paragraphs

World’s poorest countries are at a disadvantage in every sector of their economies

It is obviously true that the world’s poorest countries are at a competitive disadvantage in every sector of their economies. The main reasons for this are that there are lots of hurdles or problems related to Political, legal, economic, socio-cultural and technology in the poorest countries. For instance, Nepal is also one of the poorest countries in which here are a larger number of barriers, more dependent on other countries (especially India and China), and lack of resource utilizations. Other major reasons for this are explained as follows:

Lack of capital formation: In the poorest nations, there are a few numbers of industries and investors so that capital formation cannot be possible for the economic development of a country.  In these countries, there is less available of infrastructure such as reads, electricity, transport that can be used in developing good technology and production.

Lack of raw materials: In these poorest countries, there is less or unavailable of raw materials so that a country cannot be strong economically as compared to developed countries. For example, Qatar has oil mining industry so that it could be developed like other developed countries.

Poor technological Development: In the poorest countries, they do not have sufficient fund to invest on R&D so that it is almost impossible to develop new technology and innovation. They do not have good infrastructure and skillful employees for rapid development of economic conditions.

Lack of Human Resources: Unlike developed countries, the poorest countries have no or less competent human resources available to work for.  In these countries, people are not well educated; they have less knowledge, skills and abilities so that they lack effective people for producing goods and services. Without competent human resources, it is not possible for operating any business organizations and these countries are less developed. If there are competent people, they have not been treated fairly by giving low compensations and facilities so that there is very high discontentment among employees.

Too Many people: In the poorest countries, there are higher population growth rate and most of them are unemployed so that problems remain even bigger problems for the economic development of the country. When there are too many people, the need for people is also higher and to fulfill these needs take more incomes but the problem is that they don’t earn money or they have very less Per Capita Income or less GDP.

Other factors: The poorest countries are more critical in the time of natural disasters or epidemics. They mainly depend upon international blocks such as UNO, WHO, World Bank etc. they have very high debts and their value of currency is so low. They have very less production exports and they are more dependent on their neighbor countries for fulfilling their basic needs.  In addition to these, they have very low literacy rate so that intelligent people are not there for developing and transforming the developing countries into developed countries. Basic problems- poor resources, low infrastructures, unfavorable business environment, high custom duties and complexities of procedures- are there which are not allowing the foreign firms and investors to expand their markets in these countries so that they always remain poor.

Free trade

Before deciding whether free trade is in the favor of poorest nations or not, it should be clear about free trade. Free trade is the process of liberalization of business activities from governments’ intervention. Some of the major characteristics of free trade are: trade of goods and services without any kind of barriers; free movement of factors of production, and free access to markets.

Free trade in the favor of poorest nations

There can be lots of benefits of free trade not only for wealthy nations, but for all of them. As globalizations are growing rapidly than ever before, more and more countries nowadays are going to adopt free trade policies for the growth of a country. It is true that no all countries are self-sufficient so that reducing the business restrictions could be a wonderful way of stimulating national enterprises to go for globally new markets. Furthermore, free trade strengths the laws of the country by supporting multilateral relations between nations and thus making the government engaged in such relationship is likely to improve the country’s national recognition in international markets. In order to support those poorest nations will also gain some of the advantages from the free trade policies; I would like to present some cases regarding it. When the NAFTA came into effect in 1994, Mexico was suffering one of the biggest economic crises in all of its history but it was possible for Mexico to come up with a stable economy by 1996. The opening of Mexican politics towards the world made it impossible for the current party to maintain corruption in the voting process. On the other hand, when Burma was under British rule, it had been considered as one of the wealthiest countries in South Asia. However, when it got independent and become isolated nation, obviously it is not affiliated to any free trade treaty with an authoritarian military system and then it suffers economically in order to survive by being isolated from free trade.

In an ASEAN region, Thailand was considered as very poorest nation in the world 50 years ago, which after a bilateral FTA with China, was able to increase on 117 percent for apple imports, 346 percent for Chinese pear imports and 4,300 percent for grape shipments? However, they also experienced an increase of 986 percent for fresh longan exports, 21,850 percent for durian exports, 1,911 for mangosteen and 150 percent for mango. As a result of free trade area, the income in Thailand has been greater than the outcome and Thailand has thus, increased its Gross Domestic Product.

Free trade not in the favor of poorest nations

Although a free trade is good for some of the countries in the world, its cons far outweigh its pros. The practice of free trade agreements will give market access to much richer country for producing and delivering goods and services. It is quite obvious that when developed countries’ big companies take place in the market then there will be higher risks in the poorest nations. When free trade is introduced in the poorest nations, then some of the problems such as a trade deficit, lose of sovereignty, lack of job creations, market controls may arise in the poorest nations like Nepal.

In many cases in Africa, it seems that over the last 50 years, a lot of its local industries were died because they have not matured when they were exposed to foreign competition. As a result of free trade, those that survived become too specialized while the others went extinct. In the free trade, deregulations and liberalization of markets will be very high so that there will be no equal competitions and small local companies need to be shut down that in turns resulted in increase in trade deficit decreased in economic growth, and abuse by foreign presence in the country.

Summary and Conclusions

Hence, Having said all the above, it seems obvious that the world’s poorest countries are at a competitive disadvantage in most of the sectors due to underutilizations of available resources such as Men, machine, material, methods, management for producing goods and services. Poor countries still live in the old periods due to these basic problems. Thus, these poorest countries are facing a competitive disadvantage in every sector of economy due to aforementioned reasons.

 Talking about whether free trade treaties are in the favor of the poorest nations, it depends on other various factors such as political, legal, economical and technological which will have potential impact on operation of business activities and implementing such policies effectively. In my view, considering on its both pros and cons it would be an advantageous for both rich and poor countries to adopt free trade, but companies whenever a free trade agreement is applied, left alone to compete without government’s protection, will never develop and then in the long run will die. Thus, sometimes, the wheel of the poorest nations’ economy that are being the worst hit by free trade, and at that moment, free trade will not be free at all for the poorest nations.

References

Hill, C. W. (2011). International Business: Competing In the Global Marketplace. New York: McGraw- Hill .

(n.d.) Retrieved August 8, 2015 from http://www.econlib.org/library/Enc/EconomicGrowth.html