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Free Trade Benefits Large Multinationals Organization and Harm Small Business, Essay Example

Pages: 5

Words: 1250

Essay

Large multinational are capable of controlling price of the product through controlling its demand and supply. The ability to collaborate in a manner they exert control over the supply and demand process is the competitive advantage, which benefits them. The demand of a product can be decided by marketing strategies especially where people are convinced that they need the product. Large companies are always able to carry out such intensive advertisement that increases the demand of the product. Most large companies can meet these growing demands due to the fact they have access to larger capital. When a large company dominate the market and especially where such company can afford to lower the price they tend to attract more customers. Small business in the same industry may not be able to lower the price, so they lose their customers.

Multinational organizations can control the price of a product by controlling the number of products released.

Large corporations are able to more adequate meet the supply needs of the populace market, whereas small businesses are limited in terms of what they can be produced due to size restrictions.

Small businesses are unable to participate in monopolistic activities. Large multinations are able to reduce price competitions through trade agreement. For instance, coca-cola and Pepsi are large multinational companies. The two companies have entered into territorial agreement that ensures that they do not compete with each other. This agreement hinders small companies from entering the market (Naoi & Urata, 2013, p.330).

Argument against

Those who belive that the free trade supports the existence of the small business fail to acknowledge business aspect that interfere with the free market. They assume that in practice, the principle of free market are not bias and apply to large multinationals and small business equally. Based on this understanding the following are the arguments against:

  1. Free market principles are not bias, they apply to both large multinational organization and small business.
  2. Small business are also capable of controlling the price of the commodity
  3. Large corporations are able to more adequate meet the supply needs of the populace market, whereas small businesses are limited in terms of what can be produced due to size restrictions.

Evaluation

Large multinational are capable of controlling price of the product through controlling the supply of their product.

Evaluation: Free trade generally opens up new markets, since the big multinational have more capital, they are able to produce more to satisfy these markets, and at the lowest cost. Small business may not have potential to produce more at lower price. This result to the reduction of the market leading companies due to take over of the small business by these large multinational.

Multinational organizations can control the price of a product by controlling the number of products released.

Evaluation: forces of demand and supply normally control price. This means that, if the supply of a product is reduced while its demand increases or remains the same, the price of that product will increase. Meanwhile if the supply of a product increase, while the demand reduce or remain the same the price of the product will reduce. Large multinationals are capable of controlling the supply of the product and thus control its price.

Large corporations are able to more adequate meet the supply needs of the populace market, whereas small businesses are limited in terms of what they can be produced due to size restrictions.

Evaluation: As stated eelier Free trade, generally open up new markets. Since different people have different taste and preferences, the companies have to provide differentiated products to cater for all its consumers. Large multinationals have capacity to meet this varying customer need more easily. However, small businesses are limited in term of, capital and technical knowhow. The inability to satisfy the needs of many customers may push these small businesses out of the industry (Kiyotaki & Miyakawa, 2013, p.540).

Small businesses are unable to participate in monopolistic activities. Large multinations are able to reduce price competitions through trade agreement. For instance, coca-cola and Pepsi are large multinational companies. The two companies have entered into territorial agreement that ensures that they do not compete with each other. This agreement hinders small companies from entering the market.

Evaluation:  As stated earlier small business, do not have access to large amount of the resource as large multinational do. When these large multinationals start to engage in monopolistic activities, small business in the same industries may suffer in term of lost income. In some cases, they may be forced to close.

Argument against

Free market principles are not bias, they apply to both large multinational organization and small business.

Evaluation: Since the principle of the free market is not bias, they affect both large multinationals and small business equally and thus both have a level playing field (Jora & Butiseacă, 2014, p. 25). This means that both large companies and small business should thrive together, in the market.

Small business are also capable of controlling the price of the commodity

Evaluation: Like large multinational organization, Small businesses also have potential of controlling the supply of the products and thus the price. In a free market, small business can produce, as many products as they wish into the market and assuming the demand of the products is unchanged, the price of the commodity will reduce.

Small businesses are also capable to compete with large multinationals since they can offer goods and service of high quality due to their more personalized touch.

Evaluation: too often large multinational companies’ loss customers touch because people who make decision do not interact with the customers. Data from research indicates that, annually such business may lose up to 20% of their customers due to failure to address their needs (Liu & Ornelas, 2014, p.33). In small businesses, managers who make decision are constantly interacting with the customers. Asking for their opinion, feedback and making necessary adjustment. Normally, in businesses where decision makers interact with customers on regular basis, offers greater level of customer service. Small business are thus in better position to satisfy their customer and can easily increase their market share.

Conclusion

Those who belive that the free trade supports the existence of the small business fail to acknowledge business aspect that interfere with the free market. They assume that in practice, the principle of free market are not bias and apply to large multinationals and small business equally. However, this is not true. In practice free trade, benefit large multinationals and kills small business. Free trade generally opens up new markets and increases the demand of a product. Such markets are slightly differentiated because different people have different taste and preferences. For these reason, companies have to provide differentiated products to cater for all its consumers. Large multinationals have capacity to meet this varying customer need more easily. Again, since the big multinational have more capital they are able to produce more to satisfy these markets and at the lowest cost. Small business may not have potential of this result to the reduction of the market leading companies due to take over of the small business by these large multinational.

References

Liu, X., & Ornelas, E. (2014). Free Trade Agreements and the Consolidation of Democracy. American Economic Journal: Macroeconomics, 6(2), 29-70.

Jora, O., & Butiseacă, A. (2014). “Free Trade Semantic Disagreements”: Why Wto-Style Multilateral Liberalization And Ftas Stand Much Closer To Protectionism. 9(2), 7-28.

Kiyotaki, F., & Miyakawa, T. (2013). Barriers to Global Free Trade through Bilateral Agreements. Review Of International Economics, 21(3), 536-548.

Naoi, M., & Urata, S. (2013). Free Trade Agreements and Domestic Politics: The Case of the Trans-Pacific Partnership Agreement. Asian Economic Policy Review, 8(2), 326-349.

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