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Answer the following 3 questions (each approximately 500 words):
- What is globalisation and how does it affect domestic businesses? In your discussion, include both positive and negative impacts of globalisation. (6 marks)
- When you compare Absolute Advantage Theory and Comparative Advantage Theory, which one appears to be more practical, and why? Also, explain how benefit from trade arises based on this theory using a numerical example of 2 countries producing 2 products. (6 marks)
- Donald Trump, president of United States of America, announced the imposition of tariff on Chinese imports in the recent past. Based on your understanding of the first 3 topics of this unit, (i) what could have been the reason/logic behind such a comment/decision, and (ii) what are the implications of such an intervention on domestic consumers? (8 marks)
You are expected to use at least 5 academic sources (excluding the textbook) to support your viewpoints.
Please place the word count for this assignment on the cover sheet. 10% more or less than 1500 words is acceptable. The marker may, at their discretion, discontinue marking if you go above 10% of the recommended word limit.
Globalisation and its Effect on Domestic Businesses
Globalisation is characterised by a set of economic phenomena which are intrinsically interlinked. These factors include economic liberalisation, market deregulation, privatisation, technological advancements, cross border production and supply, foreign direct investment, integration of financial markets, organisational changes, , variations in the standard of living, creation of an international labour pool, industrialisation, cultural changes and environmental concerns (Reich 2001) and (Ch et al. 2011). It refers to the global distribution of production, sales and business process with the utilisation of the international labour force. It is the elimination of federal policies that restrict the cross-border trade of goods and services (Potocki 2010).
Globalisation offers an opportunity for domestic businesses to expand the target market worldwide with the implementation of e-Commerce (IMF Staff 2002). Production facilities are expanded to low-cost countries that offer a competitive advantage to the cost of goods sold. When entering into outsourcing contracts, domestic companies are at the receiving end due to pricing disadvantage. The business model often adopted is low-cost production with little margin for goods manufactured but with high sales volume. This offsets the domestic players and allows the multinationals to flourish, impacting the competitive equilibrium (Dey 2014). Domestic companies have to adapt themselves with strategic initiatives for long-term survival in this business environment.
Positive and Negative Impacts of Globalisation
Globalisation has a positive effect on economies and companies with the effective allocation of domestic resources, technology dispersal, enhancing productivity and capital augmentation. Harmful effect is also reported in countries with political instability and weak institutional setup (Samimi & Jenatabadi 2014). Experts have identified that globalisation has a positive impact on the economic and social dimensions, while political effects have both positive and adverse influences. It is determined that the impact of globalisation on economic growth is higher than its effect on investment growth (Samimi & Jenatabadi 2014).
The positive influences or advantageousness of globalisation are the developments in economic processes, technology, political structure, advancements in health systems, societal changes, improvements in legal framework and rise in environmental sustainability (Štefko & Sojka 2015). It has generated new opportunities for countries; especially internet has enabled the easy access of markets, enhanced productivity and raised living standards. The major advantage of globalisation is the deployment of transport and communication facilities are playing a vital role in the development of free trade between countries, thereby decreasing war between countries.
Despite the positivity, globalisation is reported to increase the inequality between high income and lower-income people. Also, the benefits of globalisation are not universal and are reported to concentrate on specific economic groups. Though investment opportunities have increased with globalisation, it has increased the risk in terms of high competition, growth in non-employment, lack of direct interaction between buyers and sellers and political changes.
Though globalisation has many disadvantages, it is reported to have brought more benefits to developing countries (Hamdi 2013). The key opportunity from globalisation is that companies from both developed and developing countries are able to sell goods to the maximum number of end markets.
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