Process of International Integration

Question: Discuss about the Process of International Integration. Answer: Introduction: The process of international integration that arises from the interchange of worlds views, ideas and other perspectives of culture is termed as globalization (Dunning 2014). There are certain factors that lead to the increasing effect of globalization. These factors are advance technology, better communication technology, advances in transportation systems and several such factors. It is the impact of globalization that has helped in generating further independence of economic and cultural activities as well. There is no doubt that globalization affect the business and work of a particular country. It is only due to the emergence of globalization that many countries have been able to emerge their business outside their homeland. The focus of the essay is on the process of globalization and how advantageous is the process for the advancement and development of domestic industries. Apart from this, the essay will also aim at understanding the concepts of absolute and competitive advant age in the global economy. A comparison of both the economic terms will be highlighted in the essay. Globalization has been gaining momentum since World War II when the World has seen a unique linkage in terms of economic transaction. The focus from nation-state has been deviated to internationalization of the domestic industries (Al Ariss and Sidani 2016). Globalization has put great positive impact on small and large scale industries. Few advantages of globalization that it has over the growth of domestic industries can be pointed here: It is with the advent of globalization that countries are able to sell their products worldwide. They are not bound within a particular boundary and they have the opportunity to spread their wings far and wide (Guthey 2005). Local business that might go bankrupt due to insufficient selling of the product. These businesses can retrieve from their sorrow if they take advantage of the globalization process. Globalization resulted in free trade activities between different countries. Several businesses throughout the world have seen increase in the capital liquidity. This has made the businessman of the developed countries to invest in business to operate in other countries Globalization has also helped in eradicating cultural barriers and opened up the horizon for a mixed culture. When it calls for cultural activities, it definitely imply in the extension of the domestic business in the international forum (Howorth 2014). Globalization creates the opportunity for the domestic industries to come out from their limited boundary and show their competence all over the globe. Globalization has marked the importance of interdependency of the domestic and international market. The process has brought with it the multinational nature of sourcing, trading, manufacturing and increasing frequency of cross-border transaction. Advancement of technology and better communication method has fuelled the process of Globalization (Nachum 2012). There are uncountable examples of success stories of various companies that have gained huge profit as a result of globalization. For example, fast food giant KFC or McDonald saw a huge increase in their revenue only when they spread their business wing out of their domestic boundary. This is a clear and significant example of Globalization that the world has witnessed. On one hand that reflects several advantages of globalization, there are a number of disadvantages of the process as well. Globalization has made everything competitive in the recent world scenario (Beck 2015). Therefore, if an industry stays unprepared to fight with the intense competition of the globalized world, chances of its failure in the global perspective is very high. It might become challenging for the domestic industries to compete and fight with the industries at an international level. Globalization threatens those like stay confined within the narrow domestic boundaries. Global linkage also put pressure on the industries to think of better opportunities and innovative product ideas to compete with the realities of the global competition. Globalization might also result in decrease of the life cycle of the product (Baylis, Smith and Owens 2013). In adverse condition, if the industry does not remain prepare for the competition, the competitive situation might lead to the extinction of the industry as well. Famous Economist Adam smith proposed the concept of absolute advantage. According to him, it is important for a country to find out what they can produce more efficiently than other countries. Once it is known, the country should specializes in what they are best at and carry trading with other countries who are also specialized with their respective products or services. Absolute advantage for a country depends on certain factors like availability of resources that makes the country different from the other. On the other hand, the concept of comparative advantage is based on the ability of a country to produce a particular product or service at a cost lower than the other country. It is due to the existence of comparative advantage that allows both the countries to benefit from trading. When two countries use each others resources and capability to produce a particular product or service then each country leads to better productivity. Certain assumptions have been put forwarded that would help a country to gain its absolute advantage. These assumptions on the other hand stand out to be the limitation of the theory. These are: The production factors must not move between countries. Therefore, the assumption excludes the possibility of any kind of migration between the countries and the presence of multinational companies as well (Schumacher 2012). There should not be any kind of barriers in the trading activities There should be a balance between import and export. This clearly excludes any kind of trade imbalances such as trade deficits or surpluses. Availability of labour is the only relevant factor of production. David Ricardo pointed out that the cost of a product is compared in different countries to understand the availability of opportunity of benefit of cost over the product in other countries. In order to gain comparative opportunity, it is important to abide by the terms and condition of the other country of operation. It is also advisable to keep a check on the competition activities of the country of operation to avail the opportunity of better competitive advantage. Absolute and comparative advantage trade theories largely influence the trade relation on the international platform; there are certain major differences between the two trade theories as well. Absolute advantage tells about the sole advantage gained by a particular country but competitive advantage is all about reducing the opportunity cost of the industry (Cuat and Melitz 2012). Opportunity cost of a firm is equal to the benefits gained by the firm that could have been achieved by gaining other alternatives. Competitive advantage comes into action only when other countries also plan to manufacture same kind of product or service. On the other hand, absolute advantage completely depends on one country and the ability of the country to utilize its resources. For example, it can be said that countries like Thailand and China both are leading producers of electronic equipment such as cell phones and computers (Levchenko and Zhang 2016). Therefore, if both the countries join hand and ai ms at manufacturing computer and mobile phones then it can gain a competitive advantage of its ability over other nations. The idea of taking comparative advantage of various countries and to apply the same in the global trade and business has arrived quite a long time back. In fact, the idea became the basis for international trade that we witness today. It might happen that a country has limited resources but has efficient availability of technology with the help of which they can produce goods more efficiently than the country enjoying absolute advantage. For example, countries like Africa or India have abundant supply of naturally rich resources which can be considered as the absolute advantage of these countries. However, these countries are found to utilize the resources properly. The resources are in fact exploited by other developed nations like America and enjoy the benefits of comparative advantage. In taken into consideration, Ghana is the largest exporter of Cocoa, the raw material of chocolate (Kim et al. 2012). However, this raw material is used by European and Western countries to manufact ure different types of chocolates and the products are sold throughout the globe at a much higher rate. It has to be kept in mind that every country has certain comparative advantages but not necessarily would have absolute advantage. Absolute advantage shows the capability of a country but comparative advantage determines what a country specializes in. Today, companies from all over the World have been participating in the process of Globalization and have been reflecting in economic and business prosperity. 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