International Trade and Globalization

Question: Discuss about the International Trade and Globalization. Answer: Introduction The following study covers discusses on international trade and globalization by incorporating several factors that provides economic benefit, environmental and social benefit. International trade refers to the exchange of products or services between the business organizations of different countries across the globe that represents considerable share in the factor of Gross Domestic Product. Global trading between the countries and business organizations provides emphasis on several factors as well as it provides global consumers with several opportunities in terms of market exposure related to various sectors (Antras and Foley 2015). Considering the global market of Starbucks, around two- thirds of stores are owned under joint venture partnership which reported increase in sales by around $990 million.In order to increase to expand the market, Starbucks considered acquisition of 60.5% shares of the unit in Japan that resulted the company in becoming second-largest retailer The present study highlights the discussion on several benefits of international trade that improves global trading, advancement of technologies, advantages in terms of economies of scale and scope. For instance, opening up the stores by Starbucks outside United States created expansion of business and increase in profitability by around $89 million (Starbucks Coffee Company 2017). The analysis covers the discussion on employment opportunities as the countries involves in increasing export trading which eventually requires increase in production of goods and service and as a result will require increased number of human resources. Discussion Trade refers to the concept of economy that involves buying and selling of products and services against the compensation or price in exchange paid to the seller by the respective buyers. Globalization indicates the procedure by which the business organization improves the business influence at an international level considering the interchange of production factors, ideas and cultural views. Each country is involved various level of trading products and services in accordance with the available resources and environmental factors but increase of demand in the economy makes it insufficient to satisfy the needs and requirements (Disdier,Fontagn and Cadot 2015). Accordingly, almost all the countries involve in global trading to exchange goods and services in order to acquire the products it lacks while sell the products that it has in surplus (Burnett and Murphy 2014). Considering the current data, it has been observed that total import in Malaysia amounted to around US$176,174 million while export around US$200,211 million that resulted in growth of GDP to around 70.90%. In the recent years, it has been observed that the uneven distribution of resources, unfavorable climate conditions, uneven growth rate and technological factors resulted in increase of global trading (Jaffee2014). Boddewyn (2015) stated that international trade considers the economic factors of demand and supplyfor export and import business considering the domestic requirements and availability of the products. During the year 2014, international trade in United States was adopted by more than 51% of with export value of around US$18.0 trillion in merchandise products. Similarly, export value from commercial services amounted to approximately US$4.87 trillion during the year 2014 which was accounted by more than 34% of traders from developing economies (Boddewyn 2015). For instance, trade of coffee products in Starbucks international company has been a largest company for coffee. Supply and demand factors for coffee products has affected its trade at international level as the production of coffee is in more than 50 regions hence, the production exceed the level of demand that influence the price structure in the overseas region as well in domestic region (Starbucks Coffee Company 2017). Figure 1: Statistical analysis of Starbucks (Source: Starbucks Coffee Company 2017) However, Baier, Bergstrand and Feng (2014) argued that international trading negatively affects the domestic market since import- export business captures the market share for the domestic products and eventually increase the prices, which affect the consumers benefits. On the contrary, Jorgenson and Rice (2015) provides that international trade reduce the monopoly business structure that eliminates sellers power to increase products price which is unfavorable for the economy and society. For instance, United States and Brazil produce sugar that has demand and supply in the domestic market. It has been observed that Brazil has the advantage of low cost considering the equilibrium level whereas United States has higher cost at the equilibrium level (Epstein and Buhovac 2014). Accordingly, the gap between demand and supply of sugar levels between the countries would be balanced by producing and supplying the product providing overall gains from international trade (Epstein and Buhovac2014). Moreover, international trade also considers the elements of PESTEL analysis that is related to the external environment in terms of international markets. According to Ercin and Hoekstra (2014), PESTEL analysis is essential for global trading as it affects the import and export business between different countries. Considering the business structure of Starbucks, it can be said that acquiring the raw materials coffee largely depends on the political factor as well as economic factors that is rate of exchange and tax level influence the companys production in different regions. Figure 2: PESTEL Analysis (Source: Marchi, Maria and Micelli2013) PESTEL Analysis Political Political factor of a country is different from the other country, which influences the supply level of products together with the price structure and utilization of resources. In case of Starbucks, increased political regulations in developing countries other than US affected the purchase of raw materials to produce coffee. (Starbucks Coffee Company 2017) Economic Economic factor relates to the factors on growth of economy of two different countries, impact of interest rates, rates of exchange as well as inflation rate that differs in each country. (Marchi, Maria and Micelli2013) For instance, inflation rate in Australia has been 4% while in Malaysia the rate of inflation has been 3% whereas interest rate of Australia has been 1.5% and that of Malaysia 3%, which represents that the Malaysian country is appreciating country. Social Social factors related to the growth of population, preferences and employment opportunities that has direct impact on the foreign markets. Starbucks notably considered the tastes and preferences of consumers, which helps in improving the brand value and product quality as well as increase in sales approximately by $990 million. (Starbucks Coffee Company 2017) Technological International trade is affected with the technological factor, which differs between the countries (Yarbrough and Yarbrough 2014) Further, technological factor also improved global trading due to changes in infrastructure and devices that helps the business organizations in trading from anywhere at any place for example, through internet technology. Environmental Environmental factor is significant element for international trade that incorporates evaluation of resource scarcity, pollution and climate factors and other governance factors that impacts the demand and supply of the products within the country. (Marchi, Maria and Micelli 2013). For instance, oil production in Middle East region is highest that produces around 27.9 million oil barrels, exports oil to different countries with high demands and low supply of oil due to climate factors and factors of resource scarcity. (Yarbrough and Yarbrough 2014) Legal Legal factor provides impact on the international business with respect to the business opportunities, safety measures for manufacturing process, standards for publicity or marketing and rights and obligations of consumers (Laursen2015). However, the potential threats for Starbucks include consumer awareness, inflation rates and increase in the currency exchange that affects the marketability of the company across the border. As the elements of macro- economic influence trading across international boundaries in different sectors, performance of export- import business results in strong competition among the organizations and industries (Yarbrough and Yarbrough 2014). According to J. Contractor (2013), trade competitiveness among the business organizations across the international boundaries has increased over the years for generating higher incomes, better job opportunities and better availability of products at fair price. On the contrary, Disdier, Fontagn and Cadot (2015) argued that international business or trade affected the domestic market adversely and discouraged competitiveness among the local industry as well as business entities having low capital flows or low investments. In case foreign trade or international trade, entry of business in the developing countries creates job opportunities, for instance, opening of new law firm based in United States in the new markets of China creates employme nt opportunities for the local people of China in a different sector. Such opportunity eliminates the mobilization of individuals to other countries in search of job or employment that increases cost of living, cultural differences and other unfavorable differences (Xiaojun, Lingsha and Yanhua2014). Lee, Biglaiser and Staats (2014) stated that international trade under the direct export mode of entry assists the organizations as well as countries in capitalizing the economies of scale in terms of income level and production level. On the contrary, Johanson and Mattsson (2015) provide that import or export mode of entry requires compliance of several trade policies of both the exporting as well as importing countries along with the exporting countries. International joint venture is carried by the business organizations to share trade and business risk, to improve economies of scale and to improve market access by creating different channels of distribution (Shiet al.2014). Starbucks, originally a US company entered into the market of Japan by considering Joint Venture as a mode of entry. The company opted to enter the Japanese market via joint venture since it involves low rate of risk as well as the benefits of knowing the Japanese market structure as the partner of the company held 50% share. Starbucks in Japan contributes to the global economy growth along with the creation of job opportunities for different class of individuals. It has been noted that international trade of the company in Japan assists in creating around 700,000 jobs, which eventually help in creating $450- billion value in the global market. In the recent years, Starbucks has been a largest chain for coffee products in the region of Japan that shares around 48.0% market while the stores have reflected growth of around 7.3% in a year since the past several years (Starbucks Coffee Company 2017). In addition, it has been noted that the organization has more than 1000 stores in the co untry with the aggressive expansion of 10% growth annually in the future years. Additionally, it is also been a non- smoking zone which attracted the young generation in Japan resulted in revenue growth by around 25% during the financial year 2013- 14 (Starbucks Coffee Company 2017). The international growth of Starbucks has been uneven in the recent years, which projects the economic troubles across the region. Due to the impact in foreign currency exchange, it has been projected that the organizational revenue might result in decline at least by 10% over the years. Another major threat for Starbucks in Japan is the unstable price of the product coffee that is based on the price of Arabica beans and Robusta beans that are used for instant coffee as well as the supermarket brands (refer to appendix 1). Rising competition by the other organizations like Dunkin Donuts, across the Japan region is another threat that may affect the strong presence of the organization over the coming five years (Starbucks Coffee Company 2017). On the contrary, it has been observed that the organization incorporates strong record of growth in terms of top- line as well as bottom- line from the period 2010- 2014 which reflected a growth of 53% in the revenue and 50% growth in the value of earnings per share (refer to appendix 2). In the recent years, international trade of Starbucks in Japan reflected full control over the business and predicted that the revenue would increase over $1 billion. Owever, growth of the organization would be affected due to acquisition of Starbucks in the region of Japan as well as due to the affect of weak currency value against dollar. In addition, the slowdown rate of economy in the region of Japan might influence the companys long- term growth (refer to appendix 3). Challenges for Starbucks Opportunities for Starbucks The major challenge for the organization under international trade in Japan is rising cost of the coffee beans and other food products as raw materials that might affect the production cost Among the identified potential challenges for Starbucks, opportunity for new acquisition within the Japanese market expects to increase the growth and sustainability by more than 45%. External market risk of the business is another major challenge in Japan since many small business firms would provide the similar product at lower price affordable by the younger generation of Japan over Starbucks (refer to appendix 4). It has been observed that the growing demand for fast foods and beverage products would influence the growth in market share for the organization over the subsequent years by more than 8%. Other than the economic challenges, changes in the technological factors that influence the entire industrial growth between 39% and 22%. Changes in market as well as new and improved market trends would reflect growth opportunity for Starbucks organization by more than 35% to 50%. Table 1: Challenges and opportunities of Starbucks (Source: Created by author) Considering the opportunities and challenges for the organization it can be said that if the cost of production increases, the quantity of the production will be lowered and the profit margin might also decline. As the price of coffee beans expects to rise, it will influence the cost of production at higher rate, which will lower the profitability. On the contrary, if the organizations considers low price of raw materials, it is expected to increase the product supply by around 70% by the end of two subsequent years. In Japan, it is possible that the local government may not support the trade of coffee products while the consumer preference might shift to other beverage product, hence the company will have to reduce the sales price. Consequently, the company is recommended to allocate the sales price at moderate level so that the sales through younger generation improve, as their income level is comparatively lower. Other than the joint venture mode, international business trade includes mergers and acquisition, which refers the transfer or combination of business ownership consisting of assets and liabilities (Lee, Biglaiserand Staats2014). As per the latest reports, business strategy of Starbucks included acquisition of Teavana Holdings valued to around $620 million while a buy of $40 billion in tea products to boost its overall market economy (Jackson and Nei2015).This step by Starbucks in international trade reflects impact on coffee premium price, which increased to 53%. In the recent year, merger and acquisition between Shire and Baxalta within a pharmaceutical industry occurred for an amount of $32 billion deal including cash offer as well as stock offer. Shire based in Dublin, Ireland acquired Baxalta based in United States to create biotechnology globally in order to serve patients with severe diseases or other specialized conditions. Consequently, the organization acquired the foreign market for providing diversified services for critical disease, which eventually resulted in business growth by more than 50%. The growth experienced by the organization was due to incorporation of advanced technologies and equipment available in United States helped in identifying and curing critical dieses. Accordingly, mergers and acquisitions across the borders provide effective business operation opportunities with respect to access to the local markets across the globe. On the contrary, Kander et al. (2015) stated certain drawbacks of merger and acquisitionin terms of loss of experienced employees that incorporates business loss. Due to the Teavana acquisition it was noted that the sales of local market in coffee and tea sector declined by 28%- 35% whereas the cost of the organization increased by 40% approximately. Another form of entry of business organizations international trade involves strategic alliances, which incorporates agreement between the organizational parties to conduct business for agreed objectives (Kastneret al. 2014). As the strategic alliance occurs between the partners from different countries, it involves a disadvantage related to foreign confiscation due to the government policies and differences in regulations that affects the co- ordination between the organizations (Cumming et al. 2016). International trade provides global benefits for allocating and utilization of resources in efficient manner together with the utilization of improved technologies (Feenstra2015). One of the major advantages of international trade includes increase of employment within the country due to the establishment of new industries and organizations that diminishes the unemployment rates (Disdier, Fontagn and Cadot 2015). On the other hand, Lee, BiglaiserandStaats (2014) stated that international trade involves higher business cost and economic dependence for the underdeveloped countries since they might be exploited by the developed countries. International trade incorporates barrier to the business development in domestic industries because of the foreign competition and free import trade policies (Lee, Biglaiserand Staats2014). Involvement of political dependence, government regulations and trade policies affect the business organizations to conformimport or export trade with the other cou ntries (Becker, Chen and Greenberg 2013). Conclusion As demonstrated in the discussion, international trade has been growing in the recent years to meet the consumers demands as well as to improve the economy of the countries. Different countries have been involved in international trade considering the environmental, social, political, technological, economic and legal factors that influence the trade regulations and policies. Most common entry mode that traders or organizations consider to conduct business globally is the import and export business, which requires compliances of trade regulations and policies of the respective countries. Therefore, international trade has been considering by various organizations to avail the benefits for the development of business and economy together by satisfying consumer demands. References Antras, P. and Foley, C.F., 2015. Poultry in motion: a study of international trade finance practices.Journal of Political Economy,123(4), pp.853-901. 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