ESSAY WRITING – TACN3
UNIT 1: INTERNATIONAL TRADE
1. What are the advantages and disadvantages of free trade?
With the rapid globalization of world economies, free trade has become an essential
component of the international trade. Both developed and developing countries now change their
international trade policy from trade restrictions to free trade. Free trade enables countries to
concentrate their efforts on manufacturing products or providing services where they have a
distinct comparative advantage, according to David Ricardo. This essay provides details on the
advantages and disadvantages of free trade.
Free trade means that countries can import and export goods without any tariff barriers or
other non-tariff barriers to trade. Essentially, free trade enables lower prices for consumers,
increased exports, benefits from economies of scale and a greater choice of goods. In more detail,
the benefits of free trade include:
1. Free trade in theory increased production of a country. Free trade enables countries
to specialize in the production of those commodities in which they have a comparative
advantage. With specialization countries are able to take advantage of efficiencies generated
from economies of scale and increased output. International trade increases thesize of a firm’s
market, resulting in lower average costs and increased productivity, ultimately leading to
increased production.
2. Free trade improves the efficiency of resource allocation. The more efficient use of
resources leads to higher productivity and increasing total domestic output of goods and services.
Increased competition promotes innovative production methods, the use of new technology,
marketing and distribution methods.
3. Trade also benefits consumers by increasing the number and variety of goods
available domestically.
4. Foreign exchange gains: When a country sells goods overseas by exporting directly, it
receives hard currency from the countries that buy the goods, thereby improve general revenues,
increase profitability and raise consumption.
5. Free trade is an engine of growth. World trade has increased by an average of 7%
since 1945, causing this to be one of the significant contributors to economic growth. Thereby,
free trade helps to raise living standards, increase real incomes and higher rates of economic
growth.
However, it should be clear that free trade is not always good because of some
following disadvantages. Trade liberalization creates losers and winners as resources move to
more productive areas of the economy. Employment will increase in exporting industries and
workers will be displaced as import competing industries fold in the competitive environment.
On the other hand, higher competition levels can create lower revenue potential in the
industries impacted by free trade the most. Some firms, such as Walmart, are large enough to
operate on a massive scale so that they can avoid this disadvantage. Those razor-thin margins
make it a challenge for small business owners to provide meaningful services.
Free trade can lead to pollution and environmental problems as companies fail to include
these costs in the price of goods. Besides, it may also lead to war different countries competing
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with each other in finding out new markets and sources of raw material for their industries and
frequently come into clash.
In conclusion, free trade is the mostly appreciated in a lot of countries nowadays. In
addition to the great benefits and opportunities, many countries, including Vietnam also face with
many obstacles, so it is necessary to change to take advantage of its opportunities and limit risks.
UNIT 2: FOREIGN DIRECT INVESTMENT
1. What are the advantages and disadvantages of FDI to the host country?
Foreign Direct Investment is seen as the fundamental part for an open and successful
international economic system and a major mechanism for development. In last decades, the
importance of FDI has significantly increased due to globalization process, which offers huge
opportunities for mostly developing countries to reach faster economic growth through trade and
investment. It cant be denied that FDI brings a lot of advantages for a host country but there will
also be some drawbacks. In this essay, I will discuss both sides towards this issue.
Foreign direct investment can make a positive contribution to a host economy. Firstly, the
benefit of FDI to the host country is that the resources such as capital, technological and managerial
skills,...can be transfered and give a good effect. The host country can receive the resources given
by the home country, thus it can improve the efficiency of operation and economic development.
Secondly, FDI can increase competition in the domestic economy of the developing country
that has attracted the FDI. It helps to improve the quality of products and processes in a particular
sector.
In addition, FDI can also improve human resources and generate new employment
opportunities for the host country. Employees of a host country in which there is foreign direct
investment get exposure to globally-valued skills. The training and skills upgradation can enhance
the value of the human resources of the host country. FDI brings benefits to the employment and
more available jobs to the employees. For example, Samsung has large plants in Vietnam which
may bring the thousands of jobs available in Vietnam. Thus, it can improve the economy situation.
Lastly, FDI affects the economy of the host country positively by increasing their revenues
in the form of taxes, strengthening the exchange rate of the country and instigating the government
to make policies which would attract more MNCs towards it.
However, FDI also brings some disadvantages to the host country. Many developing
economies have tried to restrict, and even resist, foreign investments because of nationalist
sentiments and concerns over foreign economic and political influence. FDI may result in a form
of modern day economic colonialism, exposing host countries and leaving them and their
resources vulnerable to the exploitations of the foreign company. As another negative effect of
FDI is that inflow of massive FDI can overheat the economy, as shown in the inflation that
occurred in Vietnam over a couple of years.
On the other hand, in the longrun, balance of payments position of the host economy is
jeopardised with the investor outlay. Once the initial investment starts to turn profitable, it is
inevitable that capital will return to the country it originated from.
In conclusion, although there are certain disadvantages but its advantages are much more
considerable. FDI not only serves as a source of capital inflow into host economies, but also helps
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to enhance the competitiveness of the domestic economy through transferring technology,
strengthening infrastructure, raising productivity, and generating new employment opportunities.
2. Why do some countries attract more FDI than other countries?
Foreign direct investment (FDI) is an integral part of an open and effective international
economic system and a major catalyst to development. Yet, the benefits of FDI do not accrue
automatically and evenly across countries, sectors and local communities. Eclectic theory gives
explanation about why do some countries attract more FDI than other countries.
Three determinants of FDI are identified in this paradigm, including Ownership, Location,
and Internalization advantages that determine extent, form and pattern of an company’s
international production, it is also known as the OLI-Model. The ownership advantage is the
precondition for the company to initiate FDI. It can be not only material such as capital and
resource, but also immaterial like technology and managerial skills.
The location advantage refers to a certain location that can provide some specific
advantage refers to a certain location that can provide some specific advantages to be the
company in the host country, e.g. access to cheap inputs, existence of raw material, special taxes
or tariffs.
The internalization advantage is obtained by directly controlling production and
distribution via foreign branches or subsidiaries on the purpose of cost reduction.
Corresponding to the three advantages of host country, in Dunning’s theory, there are three
primary motivations of international investor to invest abroad: market, efficiency (cost reduction),
cost resource. The market-seeking investors aim at acquiring large and fast growing markets. The
efficiency-seeking investors pay more attention on how to minimize the total cost, such as
choosing a location close proximity to home country in terms of geographic distance, in order to
reduce the expense of transportation, or locating in a country with lower labor cost. Resourceseeking investors weigh more of abundant and steady supply of raw materials and energy sources
from the host country.
Vietnam is potential for FDI attractions compared to other countries in the region. Vietnam
did quite well is capitalizing on those fundamental advantages it has such as natural advantages,
geographic location, and the population. About 12,000 different firms are operating here, either
producing or of course also you have companies that are here to sell products to the Vietnamese
market. So there is a lot of inflows and Vietnam has been quite successful.
To sum up, FDI has always been an important factor in the overall development of each
country's economy and it needs to be promoted more strongly. Exploiting the full potential and
national advantages will help some countries attract more FDI than other countries.
UNIT 3: FOREIGN EXCHANGE TRADING
1. “For hundreds of years, the monetary system of most countries has been based on the
exchange of metal coins and printed pieces of paper. However, because of recent
developments in technology, the international community should consider replacing
the entire system of coins and paper with a system of electronic accounts of credits
and debits”. Discuss the extent to which you agree/ disagree with the expression
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above. Support your point of view with reasons/ examples from your own experience,
observations or reading.
The author of the topic states that electronic credits and debits should be used and metal
coins and printed pieces of paper should be totally abandoned. It seems that this is a brilliant idea
at the first glance as it favors environmental protection. From point of my view, the system of
coins and paper shouldn't be entirely replaced with a system of electronic accounts of credits and
debts, even though the explosion in technology is exponential. Though the recent developments
in technology have undoubtedly brought about dramatic changes in many aspects of the society.
However, we cannot take it for granted that technology changes everything in our life.
First of all, the traditional monetary system has deeply rooted in almost all societies.
People have long been used to coins and paper money as a medium of exchange and a standard of
value. Metal coins and printed pieces of paper have high historical and artistic values. They
portray the social culture and image of our time. Metal coins and paper money are often the first
topic for historical to research on. Most countries emphasis on the design of coins and paper
money, as they are the most important way to show national pride. For instance, famous the
image of Vietnamese leader Ho Chi Minh President is shown in every Vietnamese coins and
paper money.
Secondly, developments in technology may have brought great convenience to people, but
convenience is not the only underlying standard or cause for such changes as dramatic as the
entire replacement of the existing monetary system. Such a system, like many other systems in a
society such as language system, political system, has a cultural, historical and social background,
and therefore becomes difficult, and sometimes impossible to change.
Thirdly, technology isn't always foolproof. Disasters involving high-tech like The data
breach of 70 million Target’s customers in 2013, or the Home Depot retail chain is frightened to
discover customer data stolen for more than a month. Credit and debit cards can make it easier for
customers to pay and manage their money when they consume it, but there are potential risks of
leaking personal information. Therefore, it is not wise to totally rely on electronics. When failures
occur in payment devices or systems, coins and paper money are the best alternatives to
electronic transactions.
Last but not least, coins and paper money are freely convertible to gold, a tangible asset.
The government bears the responsibility to ensure that all coins and notes are valuable. This
concept gives confidence to the money holder which ensures social stability. While credit cards
seem to be more risky. Besides, the entire replacement of the present coins and paper money
system will inevitably hurt millions of coin-collectors as well as those so-called "high-tech phobic
people", who feel at a loss when dealing with such things as ATM, computer network and the
Internet.
In sum, although theoretically the replacement may bring convenience to people and can
avoid certain problems, in practice, the recent developments in technology can only change some
aspects of the existing monetary system, not the entire one.
2. Ways of making money in foreign exchange market?
There are three ways to create money through foreign exchange market
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- Arbitrage is the practice of transferring funds from one currency to another to benefit
from rate differentials. For instance, local supply and demand factors may results in a
dollars spot rate in London that differs from the rate in New York. If the spot rate is higher
in London, an arbitrage dealer would quickly buy dollars with pounds in New York and
sell the dollars in London for pounds. In arbitrating, at least two markets are entered.
- Hedging is fundamental method of making money. A hedge is an investment position
intended to offset potential losses/gains that may be incurred by a companion investment.
In simple language, a hedge is used to reduce any substantial losses/gains suffered by an
individual or an organization. For example, if they buy forward thirty days, they should
immediately sell forward thirty days for the same amount. Obviously, traders try to realize
a profit margin between the two transactions.
- Speculation is the act of trading in an asset, or conducting a financial transaction, that
has a significant risk of losing most or all of the initial outlay, in expectation of a
substantial gain. With speculation, the risk of loss is more than offset by the possibility of
a huge gain; otherwise, there would be very little motivation to speculate.
UNIT 4: PAYMENT IN INTERNATIONALTRADE
1. Why is Letter of credit the commonest payment method in international trade?
To succeed in today’s global marketplace and win sales against foreign competitors,
exporters must offer their customers attractive sales terms supported by the appropriate payment
methods.There are four primary methods of payment in international trade that range from most
to least secure. Letter of credit is the commonest method of payment in international trade. LC is
typically used when an importer’s credit rating is questionable. When the exporter needs a LC to
obtain financing, and when the market’s regulations require it. Based on this, the major advantage
of a letter of credit is that it provides security to both seller and buyer.
First and foremost, in LC payment method, very few risks arise for the exporter because
the potential problem areas of the buyer risk and country risk can be eliminated. However, the
exporter must present the correct documents and comply fully with the terms and conditions of
the credit. Failure to do so could result in the exporter losing the protection of the credit. That is
to say, a letter of credit is a payment method used to discharge the legal obligations for payment
from the buyer to the seller, by having a bank pay the seller directly. Thus, the seller relies on the
credit risk of the bank, rather than the buyer, to receive payment.
In addition, LC is useful when reliable credit information about a foreign buyer is difficult
to obtain or if the foreign buyer's credit is unacceptable, but the exporter is satisfied with the
creditworthiness of the importer's bank.
This method also protects the importer from the risk of wrong goods, missing goods or
inferior goods. The bank will comply strictly according to the terms and conditions written in the
L/C. For example, if the goods are damaged, the exporter cannot get a clean bill of lading. Thus,
he cannot take the payment from bank.
To sum up, Letter of credit is the most common choice of all importers and exporters
around the world. When the trust has been built in both parties, they may switch to other less
cost-consuming method of payment.
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2. What are advantages and disadvantages of open account method of payment?
To succeed in today’s global marketplace and win sales against foreign competitors,
exporters must offer their customers attractive sales terms supported by the appropriate payment
methods.There are four primary methods of payment in international trade that range from most
to least secure. Of course, the most secure method for the exporter is the least secure method for
the importer and vice versa. Their key is striking the right balance for both sides. Open account is
one of the method of payment that is only used for the most trusted customers, brings both
advantages and disadvantages.
Open account trading offers several advantages – particularly that it is simple to
administer and involves minimal banking fees or other costs. The system is attractive to buyers
because it affords them the opportunity to examine the goods before they have to make payment,
thus avoiding risks such as non-delivery, late delivery, failure to receive goods or faulty goods.
Open account terms may also help win customers in competitive markets and may be used
with one or more of the appropriate trade finance techniques that mitigate the risk of nonpayment. These techniques include export working capital financing, government-guaranteed
export working capital program, export credit insurance, and export factoring. For example,
exporters may also seek export working capital financing to ensure that they have access to
financing for production and for credit while waiting for programs.
Furthermore, open account trading does not rely on documentation to the same extent as
documentary collections or documentary credits. As a result, it remains a relatively cheap way for
both parties to transact.
However, open account is not a popular method of payment and can only be used for
transactions between exporters and importers who have already established a trust-worthy and
long-term business relationship. This is because while open account is the most secure payment
method for importers, it places the risks of non payment on exporters who obtain no security for
payment, and have to rely entirely on the creditworthiness and good faith of the buyer. In the
event of a counter-party failure the importer will have control of the goods, making it difficult for
the exporter to obtain cash. Thereby, the exporter might incur extra costs for debt collection or
even litigation and arbitration, which is more difficult with the absence of documents and banking
channels.
In conclusion, open account is advantageous to the importer in terms of cash flow and
cost, but it is a risky option for an exporter. Though open account terms will definitely enhance
export competitiveness, exporters should thoroughly examine the political, economic and
commercial risks as well as cultural influences to ensure that payment will be received in full and
on time.
UNIT 5: MARKETING
1. Do you think that offering low prices is always good? Why?
"Is offering low prices always good?" - Not quite. While everyone loves a good
bargain, low prices can often have a negative effect on how your product is viewed.
Instead of getting a product for a great deal, customers often believe that you get what you
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pay for. Though everyday low-pricing strategies can work for some businesses, it is not
always a great idea for some lines of business.
Despite all the hype surrounding great deals, it turns out that cheaper isn't always
better: Research suggests that low prices can backfire for retailers because consumers sometimes
see low prices as a sign of a low-quality product.
2. WHY IS “WORD OF MOUTH” AN EFFECTIVE WAY OF ADVERTISING
Advertising provides a direct line of communication to call the public's attention to a
business usually for the purpose of selling products or services to existing and potential
customers, through the use of media. Especially in the age of information, people are exposed to
various forms of advertising every day from a variety of sources such as newspapers, TV
broadcasts, public events, social media. Among these, word of mouth is becoming increasingly
and a must-have component of any ambitious brand’s marketing strategy.
Word-of-mouth occurs when a consumer's interest in a company's product or service is
reflected in their daily dialogues. This free advertising is triggered by customer experiences,
usually something that goes beyond their expectation.
The first advantage of word of mouth is high level of reliability. According to HubSpot
show that 75% of people don’t believe adverts, yet 90% trust suggestions from family and friends
and 70% trust consumer reviews. In addition, word of mouth marketing could create brand
loyalty because of building an engaged fan base rather than a buy and bolt customer. Higher
engaged customers buy more often and recommend their friends more often, extended your return
on time spent on the strategy and generating a high customer lifetime loyalty
Apart from that, word of mouth help grow sales without the ad spend. People who have
used the product are not paid to express their opinions and feelings from personal experience and
evaluation, which save costs for companies compared to investment in other massive and
expensive means of media. Many brands from The Hustle to Bangs Shoes and more use word of
mouth marketing instead advertising spend to increase sales and fanbase.
When case studies were analyzed, researchers found that increase in word-of-mouth could
translate into a specific percentage of sales lifts, which motivates companies to find ways to
master this method of advertisement for their marketing campaigns. For example, foody, KOL.
In conclusion, a word-of-mouth approach costs little while it effectively spreads
recommendations for our business.
UNIT 6: TRANSPORT
1. What are the roles of transportation in the economy?
Transportation plays an important role in today’s modern world. An efficient transport
system is essential for sustainable economic development of the country and plays a significant
role in promoting national and global integration.
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First and foremost, transportation facilitates movement of raw material and other requirement
from the place of supply to the place of production. Without improved modes of transportation it
would have been harder for the industrial producers to produce and then sell their goods to the
wider markets. Therefore, efficient transport is indispensable to the economic development of the
nation.
Secondly, transport also contributes to economic development through job creation. It creates
both direct and indirect employment opportunities. It also facilitates movement of labors and
thereby encourages employment resulting into industrial development and thereby economic
development. On the other hand, transportation has brought the countries closer. It not only caters
to the need of mobility but also provides comfort and convenience. The transport system is doing
a great job by easing the pain of covering vast distance of land thereby bringing the countries
closer.
Next, transport increases the mobility of labour and capital, widens the market that leads to
specialization and division of labour, which helps in stabilizing prices. Without efficient transport
it would not have been possible to procure raw material, gather large number of workers and
distribute the finished goods.
Last but not least, transportation raises the standard of living, making possible improved
housing, clothing, food and recreation.
In conclusion, transportation plays a significant role in the overall economic development. It
helps in removing the distance barrier, increasing productivity and enhances competitiveness of
the economy. Well-functioning transportation systems form the basis for economic prosperity and
social well being of societies.
2. What are advantages and disadvantages of sea transport?
The globalization progress has paved the way for goods to be exchanged beyond national
borders conveniently. Along with this development of free trade, there has been a significant
increase in the demand of global transportation. Each means of transportation has its particular
advantages and disadvantages. However, sea transport is referred as one of the most favorable
and popular modes of transportation in international trade. This essay will provide a thorough
analysis of sea transportation’s pros and cons.
It is clear that sea transport has several advantages. First, about 70% of all goods in the
world are carried by sea. Sea transport has medium fixed costs and low variable costs (because of
the ability to transport large volumes of goods, it has the advantage of scale), so this is a mean of
transportation which has the lowest freight rates (1/6 compared with air transport; 1/3 compared
with rail; 1/2 compared with road). Second, due to the suitability for high volume and low-value
goods (construction materials, coal, rubber), for products moved in bulk, like grain or oil and for
cargoes of varying shapes and weights on medium and long routes, sea transport has very high
capacity of load. Nowadays, cargo is frequently packed into containers for quicker handling and
carried in container ships. However, suitable handling facilities must be available at ports of
destination. Moreover, it is also the transport meaning with worldwide operations.
On the other hand, sea transportation also has some inherent weaknesses. The biggest
downside of this means is slow speed. Because of long distances and influences of weather
condition, it often takes a long time to carry the goods between two ports. Even that there is a
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shipment lasting over a month to arrive at destination while the time is just some hours if
shipping by air. Besides, sea transport requires heavier packaging. This is completely easy to
understand because the goods shipped on board are bulk, far transportation and risky. And, sea
transport sometimes makes the shipping delayed due to bad weather or lacks flexibility.
In conclusion, in the era of international trade, sea transport plays an important role. It is
cheap, can carry many goods but it is still slow, risky. So, the parties to the transactions should
know these things to gain from trade and avoid the risks in conveyance.
3. What are advantages and disadvantages of air transport?
The globalization progress has paved the way for goods to be exchanged beyond national
borders conveniently. There has been a significant increase in the demand of global transportation
at present. Among 4 modes of transport including road, rail, air and sea transport, air transport
plays a important role. Although air transport is only responsible for 1% of the total volume of
freight, it accounts for 30% of the total turnover of international trade. This essay provides some
of general features about air transport, with both the advantages and disadvantages.
Transportation of cargoes by air plays a crucial role due to its various advantages. The
biggest to mention is that air transportation is the fastest means of transport and one can travel
from one part of the world to another part of the world within hours. Hence if one wants to
transfer lightweight perishable goods or due to medical emergency one has to travel from one part
of the world to another part of the world, then air transportation is the only option as other modes
of transportation will be useless in such circumstances. Moreover, another benefit of air transport
is lower insurance premium, calculated based on risks of loss or damage during transit, thanks
to its high speed. To be more specific, the less time the consignment spends on the plane, the
shorter periods during which it is at risk, which results into cheaper insurance.
On the other hand, there are drawbacks to consider that make transportation by air a less
suitable option compared to other modes of transport. Firstly, in return for fast speed and high
quality services, freight rates of air transport are the most expensive, which could be explained by
high operating maintenance costs of planes. In addition, Air transport is uncertain and unreliable
as it is controlled to a great extent by weather conditions. Unfavourable weather such as fog,
snow or heavy rain etc. may cause cancellation of scheduled flights and suspension of air service.
Furthermore, it has small carrying capacity which limits its use because it can carry a maximum
of 300 to 500 passengers and also it is not suitable for transportation of bulky and heavy goods.
In conclusion, air transport is one of the most profitable means of transport for humankind,
shortening the distance between all the countries of the world, allowing commercial exchange to
be carried out in a safe and timely manner. It has facilitated the delivery of commodities in many
places on the planet. However, there are some disadvantages of air transport that must also be
considered.
UNIT 7: MARINE CARGO INSURANCE
1. Why do people insure the goods?
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With the quick development of globalization, the demand for delivery of goods and
passengers between countries has been increasing significantly. However, transporting
goods around the world is not without certain risks. When the goods are shipped
somewhere internationally, there would be many things which could go wrong while they
are in transit. That’s where cargo insurance comes in. In this essay, I will discuss the
specific reasons why people often insure their goods.
First and foremost, the handling and transportation of goods always involves the
risk of loss or damage. Especially when it takes a long period of time to move cargo from
one place to another, many events can occur during transit that may cost the owner
substantial sums of money. For example, loss and damage could arise from: fire or
explosion; collision of vessels; pirate, theft or non-delivery; rough handling; natural
disasters; washing overboard; contamination; entry of water into vessel or place of storage,
etc. Therefore, owners of the goods can protect themselves against these risks by insuring
their goods in transit, thus minimizing such impacts as loss of profits, productivity and
goodwill.
Another reason is that it would help business share risks to others. Goods are
exposed to various kinds of risks and uncertainties which may cause large losses.
Insurance is a co-operative device, which helps to share the risks among the insured. Thus,
the insurance company reduces the risk of the insured in exchange for small premium.
Moreover, who insures the goods? The terms of the purchase contract normally
determine at which point the risk transfers from seller to buyer and who will responsible
for insuring the goods. For example, for FOB contracts the buyer is obliged to insure the
goods once they pass the ship's rail at the port of origin. Otherwise, when the terms are
CIF the seller has to provide minimum insurance cover from the warehouse to the port of
destination.
Last but not least, buying insurances for goods is often a contractual requirement. It
also frees the traders from anxiety and worries when moving their cargos to somewhere
thousands of miles away, especially cargos of high value.
In conclusion, insurance is used depending on the commercial terms of the
agreement, to protect cargo owners from the risk of lost or damaged goods by financially
compensating for partial or total loss according to the terms of insurance policy. Business
should consider buying cargo insurance if these advantages are what they are looking for
in trade.
UNIT 8: MULTINATIONAL CORPORATION
1. Why do only some countries put red carpets to welcome multinational companies?
Multinational companies (MNCs) have been engines of global economic
development, technological transfer and deepening globalization. However, in fact, only
some countries put red carpets to welcome multinational companies with best possible
deals that country can provide so that the problems like unemployment, growth in all the
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sectors of the market, stabilization of economy, etc. can be fixed. Even poor and
developing countries sometimes criticize multinational companies for some following
reasons.
First and foremost, it is denied that multinational companies brings the outstanding
advantages for poor and developing countries. They provide the capital which poor
countries need for their economic growth, together with local savings, finances their
industries. Besides, they share technology with local business, introduce scientific and
technical methods to production increaseing the productivity of their workers. Lastly, the
advantage of multicompany is that they produce a wide variety of goods, emply thousands
of people all over the world, pay good wages and are responsible for raising living
standards.
However, some poor and developing countries sometimes criticize multinational
companies. The big corporations are not major suppliers of capital. In Latin America, for
example, multinational companies have mostly used capital provide by local banks and
investors, and have not bought in capital from the United States and Europe. Because of
this, there is a shortage of money to finance local businesses. Foreign firms have taken the
lion’s share of the available capital.
Technology applied to production is unsuitable for developing countries. It’s too
expensive and complicated and especially makes workers unemployed or employing fewer
and fewer workers.
On the other hand, their market dominance makes it difficult for local small firms to
thrive. In developing economies, big multinationals can use their economies of scale to
push local firms out of business. Finally, in the pursuit of profit, multinational companies
often contribute to pollution and use of non-renewable resources which is putting the
environment under threat. For example, some MNCs have been criticised of outsourcing
pollution and environmental degradation to developing economies where pollution
standards are lower.
In conclusion, we cannot deny the importance of welcoming and engaging
multinational companies to invest in our country for the purpose of economic growth, job
creation and social stability. However, this is still a lot of difficulties and high potential
risks. That's why only a few countries put red carpets to welcome multinational companies
to their countries to do business.
2. If you want to sell goods overseas, you can either export directly from your own country
or you can set up a factory in the foreign market. What are the advantages and
disadvantages of one of these methods?
As soon as a business starts operating internationally, there are many additional factors
which can have a huge impact on its success. Exporting is the most traditional and well
established form of operating in foreign markets. Exporting is not just the core of any large,
successful business; it also helps national economies grow and expand. Therefore, if companies
want to sell goods overseas, exporting directly from their own country is considered as the best
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choice to reach bigger markets and learn new skills that increase profitability, and raises
consumption. There are some advantages and disadvantages as follows
ADVANTAGES
- Increased Sales and Profits: Exporting products can ensure increasing sales and profits in
general. Businesses that focus on exporting expand their vision and markets regionally,
internationally or even globally. Instead of earning money by selling their offerings on the local
market, these businesses are focused on discovering new opportunities to present their work
abroad. Over the long term, once the expenses for introducing the product in the international
market have been covered, increasing sales abroad will improve general revenues since the
company will have greater capacity and production volume .
- Lower Per Unit Costs: Capturing an additional foreign market will usually expand production
to meet foreign demand. Increased production can often lower per unit costs and lead to greater
use of existing capacities.
- Diversification: Selling to multiple markets allows companies to diversify their business and
spread their risk. Companies will not be tied to the changes of the business cycle of domestic
market or of one specific country.
- Cultivate new knowledge and experiences: one of the most valuable advantages of
penetrating the international market is access to information on new technologies, marketing
methods and foreign-competitor strategies.
- Extend the Product Life Cycle: In the domestic market, your product might be approaching
the end of its life cycle. In such an instance, finding an export market, usually less developed
countries, would be ideal in order to extend the life cycle of the product.
DISADVANTAGES
- Lack of market information: Finding information on foreign markets is unquestionably more
difficult and time-consuming than finding information and analyzing domestic markets. In less
developed countries, for example, reliable information on business practices, market
characteristics, cultural barriers may be unavailable.
- Trade barriers: Almost every government have protectionism to conserve local manufacturers.
They tend to impose tariffs, quotas and complicated technical requirements on imported goods to
their countries. Furthermore, Export Licenses and other documentations have to be obtained.
- Product Modification: When exporting, companies may need to modify their products to meet
foreign country safety and security codes, and other import restrictions. At a minimum,
modification is often necessary to satisfy the importing country's labeling or packaging
requirements.
Entering the foreign market, an export business requires careful planning, some capital,
market know-how, access to quality product, competitive pricing strategy, management
commitment and realizing the challenges and opportunities While there are no hard-and-fast
rules that can help companies make decision to export and to become successful, understanding
the advantages and disadvantages of exporting can help smooth entry into new markets, keep
pace with competition and eventually realize profit.
UNIT 9: MERGERS AND ACQUISITIONS
1.The advantages and disadvantages of mergers and acquisitions.
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Undoubtedly today we live in a time of significant economic change. Mergers and
acquisitions have become common business tools, implemented by thousands of companies in
world. The key factor contributing to the explosion of this innovative form of restructuring
is the massive number of advantages it offers to the business world. However, there are
also some disadvantages of resulting business that put the merged firms into troubles.
Mergers and Acquisitions (M&As) is a widely used strategy by the companies
throughout the world to strengthen their foothold in the market. M&As have many
potential benefits. The initial advantage of M&As is that it provides a synergy that allows
increased performance. Once the corporations get together, it ensures tremendous profit in
terms of monetary gains and work performance.
Second, Cost potency is another useful facet of merger and acquisition. Increasing
profit margins of the company..
Next, A combination of two corporations or two businesses definitely enhances and
strengthens the business network by rising market reach. This offers innovative
opportunities and new areas to explore. With of these edges, a merger and acquisition deal
will increase the market power of the corporate that successively limits the severity of the
powerful market competition, benefiting from economies of scale. This allows the united
firm to require advantage of high-tech technological advancement against degeneration.
Though M&A are seen as tools to boost business in today's international
marketplace, they have a low success rate with the high risks involved. A recent study
showed that around 87% of the consolidations have failed. The first thing is that
diversification can damage the company’s image, good will and shared values such as
quality, good service, innovation, etc. Staff redundancy is also a big problem if what made
the company special was human capital rather than its products and customer base. When
the top executives are replaced, it may have an effect on motivation. Furthermore, there
may be a conflict of objectives between different businesses, meaning decisions are more
difficult to make and causing disruption in running of the business.
In conclustion, mergers and acquisitions become an essential tool for corporate
development in today’s global marketplace, with both advantages and disadvantage.
Therefore, the companies need to consider carefully when making M&As with partner
companies, to minimize risks.
2. Why do companies merger with each other?
Mergers are processes whereby two or more previously autonomous companies come
together under a common control. Mergers are important features of corporates structural
changes. They have played an important role in the external growth in most of the leading
countries in the world. This essay provides details on five main reasons for question: “Why do
companies merger with each other?”
- Economics of large scale production
It brings about bulk purchases discount or negotiating strengths in dealing with supply. This is so
because after merging, a bigger company is formed. Also, it can bring about standardized product
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specifications, enabling value analysis to be applied giving economics in tooling costs or
improving after sales services and thus share of suppliers economies of scale.
- Increased market power: Avoid excessive competition and achieve larger market share
- the potential growth of the business when breaking into new markets worldwide. A merge may
expand two companies' marketing and distribution, giving them new sales opportunities. A
merger can also improve a company's standing in the investment community: bigger firms often
have an easier time raising capital than smaller ones.
- Overcome entry barriers. Mergers can also be a solution for larger companies looking
to lower their tax burden. For example, if the larger company is in a country with a high corporate
tax rate, they could merge with a company in a location with a lower rate. While this action is
often criticized, it is very effective in lowering a company's taxes.
- Increased diversification: Another reason for merging companies is to complement a
current product or service. Two firms may be able to combine their products or services to gain a
competitive advantage over others in the marketplace.
- Reduce the cost of new product development and increased speed to market:
Product development is expensive, risky and has a high failure rate.When two companies have
similar products or services, combining can create a large opportunity to reduce costs. By
merging, the smaller companies benefit from the research and finances of the larger companies to
develop new items. Mergers can also provide more predictable returns and faster market entry
(product and geographic)
In a nutshell, merger is a potential way for businesses to pursue fast growth and other
targets. However, seemingly good deals can go bad and merger is no exception. Besides the
attractive prospect of a merger, a deal of risks are waiting simultaneously. Business owners have
to carefully weigh up the pros and cons before making a deal.
3. Why is there a high percentage of failure in mergers and acquisitions?
Along with the fast pace of globalization, a lot of business owners have the ambition of
breaking into new markets worldwide. One of the most effective ways to overcome entry barriers
and expand markets is merger. However, merging with another entity is always a risky venture no
matter how extensively the negotiating process is conducted. In fact, a high rate of mergers have
experienced failure due to the following main reasons.
First and foremost, a clash of cultures may gradually lead to the breakdown of mergers.
Even companies in the same industry, serving the same customer segments, and possessing the
same core values can suffer from cultural differences. The employees are unable to communicate
and convey the ideas efficiently to others. As a result, a lack of synergy in teams is marked and a
low productivity is observed.
The second cause of mergers’ failure is unrealistic expectations about the future success of
the new company. When business owners set over-confident financial targets, they tend to tensely
fight over limited resources. Any negative economic outcome can lead to frustration and, more
seriously, result in a steady decline in the share price.
Last but not least, a high percentage of mergers are unsuccessful because of the ways the
companies are integrated. Two businesses often have very different strategies and growth models.
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This requires the board of directors to comprehensively understand the aim of merger then
combine strategies suitably. Weakness or over-optimism in management can push a new
enterprise into a common trap.
In conclusion, seemingly good deals can go bad and merger is no exception. The success
of mergers depends on how realistic the deal makers are and how well they can integrate two
companies while maintaining day-to-day operations.
UNIT 10: ARBITRATION
1. Why do businessmen prefer arbitration to litigation when dealing with their disputes?
Nowadays, there has been a diversity of commercial activities worldwide in order to
satisfy the incredible increase in human demands. However, commercial disputes have also
become more complicated, especially international-related cases. Arbitration and litigation are
two popular legal techniques for settling disputes among parties today. In general, arbitration has
still been considered as the most favoured dispute resolution mechanism for international matters.
This essay below explains why businessmen prefers arbitration to litigation when dealing with
their disputes. (This essay explains why parties often seek to resolve their disputes through
arbitration because of the potential advantages over the courts (litigation).
First and foremost, it takes less time to settle a dispute by arbitration than litigation in
court. While litigation officially goes through lots of procedures, the procedure of arbitration is
flexible and can be altered to suit the specific circumstances of each case. The arbitrators examine
evidences then render awards as fast as possible. The awards are final and binding, normally there
are very limited opportunities for either party to appeal. In contrary, the court often allows
appeals and retrials, which prolong the resolution time.
Secondly, Arbitration can be cheaper and more flexible, more commercial and less formal
than court.. Basically, with a quicker and less complicated process, resolving cases by arbitration
costs a smaller amount of money for both sides. However, arbitration does not always reduce the
costs of resolving a legal problem. This is because arbitration can vary in complexity and can
take many forms, some of which may actually be more likely to increase the costs versus
litigation.
Thirdly, one of the most outstanding strengths of arbitration is the ability to keep disputes
away from the public eye. Unlike litigation in the court, arbitration takes place in private.
Confidentiality is required of the arbitration. It provides terrific values to companies which prefer
to keep their business secrets confidential as well as protecting their reputation and prestige. A
public court hearing cannot guarantee such privacy.
Last but not least, reliability contributes to the popularity of arbitration. Unlike in court,
parties can select an arbitrator with an appropriate degree of practical experience. They are
specialists in that business field, tend to be more knowledgeable than juries. Moreover, there is no
fear of home-bias advantages because arbitrators are appointed by both parties according to
specific international rules.
Besides the main advantages, it is noted that the arbitration process is often less adversarial
than litigation which helps to maintain business relationships between the parties. Especially, it
avoids national courts which may be perceived as corrupt and/or inefficient.
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In conclusion, Arbitration can be used to replace the traditional way of litigation in court.
Thanks to four main advantages mentioned above, arbitration deserves to become a mainstay in
resolving legal disputes.
What are the disadvantages of arbitration?
• Unlike judges, arbitrators’ fees must be paid by the parties. This can be expensive compared to
conventional court fees in many jurisdictions.
• Arbitration can be more expensive and time consuming than court proceedings for larger, more
complex disputes.
• Arbitration can be more time consuming because of problems with the availability of arbitrators,
especially if they are based abroad. In court proceedings, any available judge can hear a case.
• Avenues for appealing and/or challenging awards are limited if you lose.
• Arbitrators sometimes lack the power to make certain interim orders against the parties before
publishing the final award.
• Unlike mediation, arbitration is an adversarial process. It is less likely that a commercial
relationship will survive after the process has ended.
• In disputes involving more than two parties, arbitration can be difficult to manage, particularly
where some aspects of the dispute are subject to arbitration and others to litigation.
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