NATIONAL COLLEGE OF BUSINESS AND ARTS

Fairview Branch, Regalado Avenue, Commonwealth, Quezon City

1. What are the principle factors that explain the sustained growth in globalization in
the past decades? What Indication can one use to demonstrate the increased in
globalization?

A. Containerization
 The costs of ocean shipping have come down, due to containerization, bulk shipping,
and other efficiencies. The lower unit cost of shipping products around the global
economy helps to bring prices in the country of manufacture closer to those in export
markets, and it makes markets more contestable globally
B. Technological change
 Rapid and sustained technological change has reduced the cost of transmitting and
communicating information – sometimes known as “the death of distance” – a key factor
behind trade in knowledge products using web technology
C. Economies of scale
 Many economists believe that there has been an increase in the minimum efficient scale
(MES) associated with some industries. If the MES is rising, a domestic market may be
regarded as too small to satisfy the selling needs of these industries. Many emerging
countries have their own transnational corporations
D. Differences in tax systems
 The desire of businesses to benefit from lower unit labor costs and other favourable
production factors abroad has encouraged countries to adjust their tax systems to attract
foreign direct investment (FDI). Many countries have become engaged in tax competition
between each other in a bid to win lucrative foreign investment projects.
E. Less protectionism
 Old forms of non-tariff protection such as import licensing and foreign exchange controls
have gradually been dismantled. Borders have opened and average import tariff levels
have fallen.
 That said, it is worth knowing that, in the last few years, there has been a rise in non-tariff
barriers such as import quotas as countries have struggled to achieve real economic
growth and as a response to persistent trade and current account deficits.
F. Growth Strategies of Transnational and Multinational Companies
 In their pursuit of revenue and profit growth, increasingly global businesses and brands
have invested significantly in expanding internationally. This is particularly the case for
businesses owning brands that have proved they have the potential to be successfully
globally, particularly in faster-growing economies fueled by growing numbers of middle
class consumers.
 COMMERCIAL AND FINANCIAL GLOBALIZATION
 The participation of all developing countries in world exports went from 20%
in 1970 to 43% in 2005; and their participation in the global product in terms
of purchasing power parity, which corresponded to 80% at the end of the
eighteenth century, thanks mostly to China and India, was reduced to 20% in
1950, as a consequence of the imperialism to which were submitted those
two countries, but in the last 25 years it rose again and represented already
45% of world GDP in 2005. Globalization is, therefore, producing a
reorganization of the whole world production. Rich countries, as well as a
great number of developing countries, are growing at higher rates than in the
past, but among them the dynamic middle-income Asian countries, Russia,
and Argentina are growing faster and catching up. Asia, which for centuries
was the world's richest region, regains importance in the world economy.

2. What are the essential features of the different levels of economic integration
possible between two or more countries?
Economic integration can be classified in five additive levels, each present in the global
landscape:

 Free trade - Tariffs (a tax imposed on imported goods) between member countries are
significantly reduced, some abolished altogether. Each member country keeps its own
tariffs in regard to third countries. The general goal of free trade agreements is to
develop economies of scale and comparative advantages, which promotes economic
efficiency.
 Custom union - Sets common external tariffs among member countries, implying that
the same tariffs are applied to third countries; a common trade regime is achieved.
Custom unions are particularly useful to level the competitive playing field and address
the problem of re-exports (using preferential tariffs in one country to enter another
country).
 Common market - Services and capital are free to move within member countries,
expanding scale economies and comparative advantages. However, each national
market has its own regulations such as product standards.
 Economic union (single market) - All tariffs are removed for trade between member
countries, creating a uniform (single) market. There are also free movements of labor,
enabling workers in a member country is able to move and work in another member
country. Monetary and fiscal policies between member countries are harmonized, which
implies a level of political integration. A further step concerns a monetary union where a
common currency is used, such as with the European Union (Euro).
 Political union - Represents the potentially most advanced form of integration with a
common government and were the sovereignty of member country is significantly
reduced. Only found within nation states, such as federations where there is a central
government and regions having a level of autonomy.

As the level of economic integration increases, so does complexity. This involves a set of
numerous regulations, enforcement and arbitration mechanisms. Complexity comes at a cost
that may undermine the competitiveness of the areas under economic integration since it
less flexibility to national policies. A devolution of the economic integration could occur if the
complexity it creates is no longer judged to be acceptable by its members.
3. How to choose a country to manufacture? Engage in Business? What criteria and
measures be adopted?
 Your products could also reach the market faster than if you choose an international
manufacturer. However, this depends on the locations of your major consumer. If
your customers are located on the other side of the world, it may be a bad idea to
manufacture your products in your home country.
 Let’s look at international manufacturers. Many products are made in East Asia where
there are more factories and cheaper equipment and labor costs. Unfortunately,
moderate regulations mean some manufacturers can get away with producing low quality
products.
 Some countries also have lax copyright laws which mean your unique product could
easily be copied and reproduced in the same factory. Additionally, much like with local
manufacturers, your product could rack up customs charges depending on where it is
manufactured and where your main consumer is located. However, with adequate
research and proper knowledge of the country’s laws, it’s unlikely you’ll run into this
trouble.
 Consulting other small business owners is also a foolproof alternative. Manufacturers
that come highly recommended from businesses like yours will likely be able to
accommodate your needs from prior experience with similar companies.
 Once you have found a manufacturer, it’s always best to have a second option. Factors
beyond your control could affect the company’s ability to complete your order. When this
happens, turning to a previously researched alternative could save you a lot of time.
 When using an international manufacturer, it’s advisable to meet them before they start
to make your products. It’s important you have as much information on factors like their
production methods and their treatment of factory workers. You don’t want to be stuck
with shoddy goods and you certainly don’t want to be using illegal labor like sweatshops.

4. What are case? And or bases for government interventions in trade policy? And
what determinants of economic development?
Policies that affect sustainability are of five types (FAO n.d., 48-9):

 General economic and social policies intended to influence overall economic growth,
trade, price levels, employment, investment and population, attained chiefly by utilizing
monetary and fiscal instruments.
 Policies relating to agricultural and rural development. Policies of this type are usually
intended to influence such factors as the agricultural resource base, agricultural
production, consumption of agricultural products, agricultural price levels and variability,
rural incomes and the quality of food. They are usually implemented via instruments such
as taxes and subsidies, direct government production and provision of services, and
direct control through regulation.
 Policies relating to markets, including the establishment of market institutions and rules,
and circumscription of
 Policies aimed at establishing a democratic and participatory process designed to involve
all interested groups in decision making and implementing SARD.
 Policies designed specifically to influence natural resource use and protect the
environment. These policies utilize command and control (effected, for example, by
prohibiting or limiting certain resource uses or establishing limits on emissions, with
penalties for non-compliance economic incentives such as taxes and subsidies; and
persuasive measures such as education and advertising.
 The first four categories above are not primarily intended to achieve SARD, and are adopted to
accomplish other goals. Yet all are essential for SARD. Therefore, the challenge in policy
making is to integrate sustainability and environmental considerations into mainstream policy
making both within the agricultural sector and generally.

5. Explain why firms choose foreign direct investment over other types of selling
their products?
Companies choose to invest in foreign markets for a number of reasons, often the same
reasons for expanding their operations within their home country. The economist John Dunning
has identified four primary reasons for corporate foreign investments (Global Capitalism, FDI
and Competitiveness, 2002):
 Market Seeking: Firms may go overseas to find new buyers for their goods and
services. The top executives or owners of a company may realize that their product is
unique or superior to the competition in foreign markets and seek to take advantage of
this opportunity.
 Resource Seeking: Put simply, a company may find it cheaper to produce its product in
a foreign subsidiary- for the purpose of selling it either at home or in foreign markets. The
foreign facility may be able to obtain superior or less costly access to the inputs of
production (land, labor, capital, and natural resources) than at home.
 Strategic Asset Seeking: Firms may seek to invest in other companies abroad to help
build strategic assets, such as distribution networks or new technology. This may involve
the establishment of partnerships with other existing foreign firms that specialize in
certain aspects of production.
 Efficiency Seeking: Multinational companies may also seek to reorganize their
overseas holdings in response to broader economic changes. For example, the creation
of a new free trade agreement among a group of countries may suddenly make a facility
located in one of those countries more competitive, because of access for the facility to
lower tariff rates within the group. Fluctuations in exchange rates may also change the
profit calculations of a firm, leading the firm to shift the allocation of its resources.

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