Globalisation and International Trade

Nowadays, we can purchase products made by different countries easily and we are becoming more difficult to find a local good from the market. This is an phenomenon that here is an increasing trend of  international
trade and globalization. Now, let me explain what is globalization and how the international trade take place. According to Kiely, globalization refers to a world in which societies, cultures, politics and economies have, in some sense come closer together. Globalization affect the whole world but it causes positive and negative influences to different countries. In my own opinion, I think that international trade is one of the main reasons causing globalization. The capital, goods and services from different countries exchange across international borders. In this post, i will investigate why there is an increase in international trade, how countries can get benefit from international trade and how international trade affects different countries.

I believe that the advancement of technology transport, internet, multinational corporations, outsourcing are the main reasons why there is a increasing number of international trade in the world. For example, international electronic commerce companies have been more popular for customer shopping. Using Amazon as an example, its headquarter is located in Seattle, Washington, United States. It set up a lot of software development centers in different countries like Canada, UK, Ireland, Netherlands, Romania, India, Japan, China, South Africa allowing the products of company can be sold in these countries. The goods of Amazon can be delivered all over the world due to cheap shipping costs. Some of the products like kindle will be outsourced to the factory in China for manufacturing due to the cheaper labor cost and resource.  The reasons why Amazon sets up factory in China is that Amazon can enjoy competitive advantages and absolute advantages of  China. With reference to Adam Smith's model, China can produce more of a good than competitors , using the same amount of resources. Therefore, the products of China are more willing to export to other countries which have not absolute advantage in order to gain maximum benefits. This leads to an increase in international trade.

International trade can also lead to the benefits for many countries. Because of the limitation of resources and technologies and high labor costs, many countries are more prefer to import goods instead of making goods. For example, oil and energy are only rich in Middle East. Other countries may need to spend high cost and times to explore the oilfield. Therefore, countries are more likely to buy oil and energy from Middle East
instead of extract by themselves. Another example is that US and European companies own a lot of industrial technologies which can help to produce high quality products with lower cost. Mass production of the factories leads to economies of scale which allows them having competitive advantages. So, people will buy the foreign products from US and European companies because of the cheaper prices than the domestic products.

Here I will share some of my personal experience about the effect of international trade. I live in city which is dangerously dependent on imports, with more than 90% of food supply from foreign countries. First half 20 century, we enjoy benefits from importing goods with cheaper price from China. However, due to the economic growth of China, the goods from China has been increased sharply. Nowadays, we need to buy foods with very high price. On the other hands, I am one of the HongKongeses who prefer to buy foreign goods due to the good quality and good services. Leading to an increase inflow of foreign brands, these companies are more willing to pay a high rent for a shop located in city center. This leads to an increase in the rent of the whole city and the tradition shop like restaurants, clothes shop collapse due to high rents. Nowadays, near 80% of shops are occupied by western companies. Hong Kong starts to be westernized and lost it special cultures.

News about High rents in Hong Kong leading to collapsion of local shops:
http://www.scmp.com/comment/letters/article/1299097/high-rents-not-minimum-wage-are-main-reason-rising-prices

I realize that globalization is an unstopped trend due to the increase in convenience of international trade. Recently, the rapid growth in China's economy will lead to a new trend of chinization. Many Chinese brands appear in the world stage.  However, I hope countries should set up policies to protect itself from westernization and chinization otherwise in the future, there will only exist two or three dominant language and few local cultures.

Here is a video discussing whether globalization is good or bad.

Strategy of an organization

When we talk about strategy, what does it mean? I will think about some decisions made towards the target. For example, when i play chess, i will decide which steps i should take and how i can respond to opponent's move in order to win. So, organizational strategy should be steps that have been decided by organization to achieve its objective. Actually, in a much formal way to explain strategy, it is about how people decide to organize the resource to enhance performance of an enterprise. I know that strategy is very important for an organization to arrange its long term directions. 

I have learnt a lot of useful analysis tools in this month and some of the tools have been mentioned in the previous posts, namely, Porter's five force and PESTLE analysis. However, the Porter's five force and PESTLE analysis are only useful for external environment. Here are some new techniques that i have learnt to analyse the internal environment of an organization.I will use Easyjet as an example.

Value chain analysis 

calculates the value added at each stage of a manufacturing or service process

SWOT analysis

summarizes the internal and external issues and help identify potentially useful development

Using Easyjet as an example,   

Strengths: 

1.    Lower training and supervisory costs due to usage of two aircrafts models

2.    Low fares due to greater seat occupancy

3.    Strong e-business

4.    Flights to main terminal airports throughout Europe

Weaknesses:

1.    Only focus on price and convenience

2.    Only focus on Europe

3.    Lack of attracting business travelers

Opportunities:

1.    More people take flights

2.    Vertical and horizontal expansion

3.    Fleet growth with low cost

Threats

1.    High costs due to the increase in the environmental taxes

2.    Increase in the price of aviation fuels

3.    the price and route competition will become more intense. 

Followed by identifying the external and internal environment of an organization, I can make a choice on deciding strategy. The decision making can be made at two different levels, corporate level and business unit level. 

Corporate level  - Overall direction of the organization by using Ansoff''s matrix. The matrix allows marketers to consider ways to grow the business via existing and/or new products, in existing and/or new markets 

Ansoff''s matrix 

Using Easyjet as an example, it uses to three different strategy choices of Ansoff's Matrix.

Market Penetration: 

Easyjet is targeting business travellers with its low cost airfares and frequent flights to popular destinations. The best way to achieve this is by gaining competitors' customers. Other ways include attracting non-users of your product to use more of your product/service, with advertising or other promotions.

Product Development: 

Easyjet has grown by introducing new flight routes 

Diversification: 

Easy group is bringing forward new business ideas for its existing market segment such as easy Internetcafe, and the latest venture easy money.

Business Unit Level - How to compete by using Porter generic competitive strategy. It allows marketers to consider to compete with the rivals in three ways: cost leadership, differentiation and focus. 

Using Easyjet as an example,

It targeted businesses and travel bookers in its UK home market, as well as Zurich and Paris. Easyjet enjoys the cost advantage; therefore, it will choose the strategy in the way of cost focus.

Above, i have pointed out the process of an organization to make strategy decision. We need to keep in mid that the analytic tools for market environment are only reliable in the stable environment. However, the market environments are unpredictable and many factors may affect the organization. For example, clothing industry can be easily affected by the fashion trends and the customers' style.  Therefore, organization should try to adapt the new environments instead of just following the original strategies. I realize that when the organization run their business with their strategies, there will be a lot of problems that will appear. In order to make a flexible management of the organization, organization sometimes need to give up their old strategy by implementing a new strategy that fit in the present. Replacement of strategies will never stop due to rapid change of market environment.

Macro-environment PESTLE analysis

   Before having the lecture of this week, I knew that all organizations need to face the changes of external environment like customer buying style, economic condition and new technologies. However, I did not know how to summarize all the influences into specific terms. After the lecture of this week, I found PESTLE analysis is a technique for identifying the changing macro-environment which will affect all organizations. There are six dimensions of macro-environment, namely political, economic, socio-cultural, technological, environmental and legal. The table on the left provides some factors with related to respective dimensions. Through identifying these factors, companies can help a clear perspective about general influences leading to an easier decision for making  future strategies.

Here is a video defining what macro-environment is: 

   Using H&M as an example, the macro-environment can be identified easily.

Firstly, the political factors of H&M are the areas like business legislation, tax policy, trade restrictions of different countries. Secondly, industrial structure, income distribution, purchasing power, economic growth  can affect how H&M operates and makes decisions. Thirdly, recognizing the needs and wants of different customers and following the fashion trends are the socio-cultural factors which H&M needed to consider.

Fourthly, with related to legal, H&M must obey the National Laws and International and Business Law like H&M needs to avoid using child labor in their production line. Fifthly, innovation, research and development, new products and processes are treated as technological factors. Also, maintaining 10-15% expansion growth is an technique to maintain its expansion permanently. Finally, environmental factors are really effectively affect the decision making of H&M. For example, climate change can lead to change in H&M's production.

   However, I am not really sure that whether PESTLE can be accuracy and useful for an organization. I think that the external factors considered during PESTLE analysis are dynamic and they can change at a fast rate. It will be very tricky to predict how these factors may affect in the future. The uncertainty effects of the factors may also a problem because same situation may not lead to the same effects. Besides, I don't really believe that just simply listing the environmental factors can be a strong reference for making future strategies and I cannot identify the degree of influence of different factors. If I can find the accurate figures and information to prove and support my PESTLE analysis, the figures will be quickly out of data. The cost of maintaining the newest information of macro-environment will be costly. I strongly believe that PESTLE analysis is not an useful tool when I do strategy planning.

   I personally suggest that if there are accuracy of the data collected, timely updates to accommodate changes, PESTLE analysis can be a viable technique. I also emphasize that during the strategy planning, macro-environment is one of the factors we need to consider. Internal environment and micro-environment need to be investigate simultaneously in order to produce an better future plan.