Americans drive cars made in Germany, use DVD’s made in Japan and wear clothing made in China. Japanese watch American movies, Egyptians drink American cola and Swedes jog in American running shoes. The world economy is more integrated than ever before. This chapter illustrates the operations of activities, we live in and with the increase of projects, due to Foreign Trade, makes you acquaint about the basic concepts of trading. And next time, when you are talking with your counterparts abroad, you will be discussing with more conscience of your business economies of scale. This chapter is indeed intresting, especially when you are involved with global projects

Many large Projects are “multinational” in that they have branches and subsidiaries all over the world. By some estimates, intra-firm trade, or trade between branches of the same Project in different countries.

Many Projects buy and sell goods overseas and others form partnerships with foreign companies so that cooperation replaces competition. This has a profound effect on how companies operate in the global marketplace. Businesses around the world work side-by-side to produce and market products and earn Projects, thereby reducing the economic risks of global production and marketing.

For instance, there may be a running the Project:

Multinational Projects shift resources from one country to another to maximize profits and productivity.

To remain competitive, individuals, businesses and governments need to adapt to the changing global market.

Projects practices vary from country to country and may require new approaches to making profits. In the United States, a signed contract is considered all but sacrosanct; in the Far East, southern Europe and the Middle East, the spirit of the agreement can sometimes matter more than the letter.

What is Foreign Trade?

Foreign Trade shapes our everyday lives and the world we live in. Nearly every time we complete Projects we are participating in the global economy. Products and their components come to our store shelves from all over the world.

Foreign Trade is the system by which countries exchange goods and services. Countries trade with each other to obtain things that are better quality, less expensive or simply different from what is produced at home.

World Trade is Diverse

Most Foreign Trade consists of the purchase and sale of industrial equipment, consumer goods, oil and agricultural products.

World exports increased sharply

Trade: Important for economic well being:

With the increase in volume, trade has become very important to the economic well-being of many countries. In early 1960s, the United States bought less than $1 billion of foreign cars and parts. By 2001, this figure had increased to more than $189 billion.

Financial ties between United States and the rest of the world have grown significantly over time:

Foreign direct investment is the amount of money individuals invest in companies, assets and real estate of another country.

If stocks on the New York Stock Exchange plummet in value, the news is transmitted instantly worldwide, and stock prices all over the world might change. This means that countries have to work together more closely and rely on each other for prosperity.

 

 

Investment Environment

Primary Market

When a corporation issues securities, cash flows from investors to the firm.

Usually an underwriter is involved

Secondary Markets

Involve the sale of “used” securities from one investor to another.

 

 

Trade: Why do it?

Trade takes place because individuals, businesses and governments are willing to purchase goods and services a country produces a different country.

Trade also provides a wider variety of goods to consumers: cars from Japan, salmon from Scandinavia, bananas from South America, are just a few.

 

Law of comparative advantage

Even if a country can produce everything more efficiently than another country, there is still scope for trade. A country can maximize its wealth by putting its resources into its most competitive industries, regardless of whether other countries are more competitive in those industries. This is called the law of comparative advantage.

Law of Comparative Advantage

Take India produces both cloth and furniture better than in China:

 

Bales of cloth per day Pieces of furniture per day

India

10 05

China

2 3

India has an absolute advantage—is more efficient—in the production of both cloth and furniture. However to achieve greater wealth, each country should specialize in the item in which it enjoys greatest advantage among all the products it produces—comparative advantage.

With regard to opportunity cost or the cost to transfer of resources, India is twice as efficient in the production of furniture with a cloth.

India China

Opportunity Cost1 piece of furniture = 2 bales of cloth 1 piece of furniture = 2/3 bales of cloth

Since China’s opportunity cost for producing furniture is less than India’s, it makes economic sense for China to focus on furniture. India should continue producing cloth and trade for China’s furniture. Whereas, China should concentrate on furniture and trade it for cloth with India. Channeling resources into the most productive enterprise in each country will result in more products to trade.

Benefits of Diversification

Even though it makes economic sense to allocate resources to the most productive industries, no country wants to rely on only a few products. This makes the country vulnerable to changes in the world economy, such as recession, new trade laws and treaties, and new technologies.

A country that relies too heavily on one product is especially susceptible to market forces. If demand suddenly drops or if a cheaper alternative becomes available, the economy of that country could be damaged.

Many Middle East countries that are largely dependent on their oil exports see their economic fortunes rise and fall in tandem with the oil market.

 

The degree to which countries specialize is influenced by that country’s terms of trade—i. e. the relative prices of a country’s imports and exports. It is most advantageous to have declining import prices compared with the prices of exports. Exchange rates and productivity differences affect the terms of trade more than any other factors.

Developing a diversified economy, is able to guarantee that even if some of the other industries are suffering, competitive industries maintain a relatively healthy economy. The United States is competitive in the financial, entertainment, aerospace, industrial equipment, pharmaceuticals and telecommunications, among others.

Competitiveness

Competitiveness is used to describe the relative productivity of businesses and industries. If the company can produce better products at lower prices than the others, it’s like to be competitive. It is the Government, as it is non-competitive industry difficult to survive.

In the long-term competitiveness depends on:

Natural resources are predetermined and must be used efficiently, but a country’s infrastructure and its workers’ skills have to be developed over time. The ability of a society to do this effectively determines whether it can remain competitive in the global economy.

Economies of Scale

The law of comparative advantage says that a country can become more competitive by directing its resources to its most efficient industries. This enables a country to achieve economies of scale—increasing its output in a particular industry so that its costs per unit decrease. Such lower-cost goods are more in demand in international markets.

Certain industries that require heavy research and development or capital expenditures cannot be competitive unless they can spread the costs over many units. If a sophisticated weapons industry knows that it has access to foreign markets and could export, it may increase the scale of its manufacturing operations and become more efficient and competitive in the international markets.

Other factors, which the state may be difficult to trade competitiveness.

Knowledge-Intensive Products Contributed to a U. S. Export Boom

From 1986 to 2001 there was an enormous boom in U. S. exports, especially in manufactured goods. Exports went up from $227 billion to $731 billion. One of the driving forces behind the increase in exports was the success of U. S. companies in selling “knowledge-intensive” manufactured goods to other industrialized countries.

The value of knowledge-intensive products depends on the skills that went into producing them, rather than the actual cost of the components. For example, while producing a new compact disc, the expenses of paying the artist, advertising, marketing and legal and other fees far outweigh the actual cost of the physical disc.

Production of such knowledge-intensive goods relies more on a well-educated and skilled workforce than on natural resources. A number of products fit this description, from computer software to custom-built aircraft engine parts. Such products are produced for specific market niches and substitutes are not easy to come by.

These knowledge-intensive products are becoming a major force in Foreign Trade and a source of wealth for economies well positioned to compete in those markets.

Importing & exporting

Being a POME specialist, have you got acquainted about the  operations of the Projects by importing or exporting goods? There are strict regulations on importing and exporting goods based upon the regions, so it is vitally important that you find out what applies to you.

Exports to measure the physical movement of goods throughout the domestic country abroad, whether the goods in warehouse, customs warehouse or in the Foreign Trade Zone is being imported into . Total exports are the sum of two types of exports:

Imports include commodities of foreign origin or domestically produced goods that are returned to the Domestic Country with no change in condition or after having been processed and/or assembled in other countries. There are two measurement styles for imports:

 

Bonded Warehouses are authorized by Customs for storage or manufacturing of goods on which payment of duties is deferred until the goods are removed into Customs Territory. These goods are not subject to duties if reshipped to foreign points. Foreign Trade Zones are enclosed areas, operated as public utilities, under control of Customs with facilities for handling, storing, manipulating, manufacturing, and exhibiting goods. The merchandise may be exported, destroyed, or sent into Customs Territory from the zone, in the original package or otherwise. It is subject to Customs duties if sent into Customs Territory, but not if reshipped to foreign points.

 

Types of services:

Gautam Koppala,

POME Author

 


Article Source:China Sourcing Blog

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