Mgt 448 - Globalization

Globalization

Chiquita Massey

MGT/448

December 3, 2018

Dr. Ken Cromer

Globalization

Our text defines globalization as “globalization refers to the shift toward a more integrated and interdependent world economy” (Hill, 2017).  The process of globalization raises the chances of a company’s business opportunities and growth taking it beyond its local community therefore creating a global economy. Several theories have been developed proposing how countries can benefit from participating in world trade. I will briefly explain three of these theories; free trade, product life cycle, and mercantilism. Along with major drivers that support globalization, I will also discuss outsourcing and Foreign Direct Investment.

Supportive Trade Theories

Mercantilism, free trade, product life cycle, and comparative advantage. The product life cycle theory was developed in 1960s by a Harvard Business School professor named Raymond Vernon. Originating from the marketing field, the product life cycle has four stages; introduction, growth, maturing product and decline. There is no set length of time for each cycle, each can range from a day to decades.

The introduction stage is when a new product is successfully developed and introduced to gain consumers. The growth stage occurs when sales have increased due to the demand for the product. Maturing product stage is when the product is widely known, and innovations take place. The decline stage unfortunately is when the product sales decline which can result in it being discontinued or can be revived with innovations.

From the sixteenth and seventeenth centuries, the mercantilism theory is the beginning of world trade as we know it. This theory believes that by concurrently encouraging exports and discouraging imports countries could thrive through conducting trade with each other. This of course has since been discredited but is a constant debate in political trade policies discussions.  According to our text it is defined as “an economic philosophy advocating that countries should simultaneously encourage exports and discourage imports” (Hill, 2018).

This takes us to the theory of absolute advantage, free trade. The free trade theory gives no government influence as to what can be sold and bought between other countries. This theory is old and was discredited long ago when it was realized that unrestricted free trade encouraged exports and discouraged imports which only benefited the one country, not the other. Through regulations and agreements amongst countries, global trade has been beneficial to many country’s around the world.

   Another way to think of comparative advantage is on Investopedia.com, it states, “If you're comparing two different options, each of which has a trade-off (some benefits as well as some disadvantages), the one with the best overall package is the one with the comparative advantage”, ("Comparative Advantage", 2018). A countries ability to produce a good or service more competently and at a bargain price than another is the main advantage of globalization. This is how most countries compete or are selected by a business, who can make more for less.