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Memo on Global Business Issues, Coursework Example

Pages: 2

Words: 639

Coursework

The world has changed dramatically in the last few decades due to globalization. Old economic powers such as U.S. and Japan are being challenged by newcomers such as China and India who are rewriting the rules of success. The focus in my memo would be on 1. Tire tariffs in the U.S. and 2. Japanese firms’ export-led business model.

The tariff on tire has been a huge mistake by the U.S. government. First of all, it ignored the fact that the cheap Chinese tires were not directly competing with the U.S. manufactures, thus, there was no basis for tariffs in the first place. The tariffs also violate the economic principles of free competition that have made American manufacturers the envy of the world. The U.S. presents itself as the champion of free trade and this unnecessary tariff has set a bad policy. There are not even indications that the Chinese government has been subsidizing local tire manufacturers which might have provided some justification to tariffs. The fact that the entire burden of the tariff has shifted to the customer also proves that tires have low price elasticity of demand and the government should have known that even though it may not benefit any U.S. tire manufacturer, it would only hurt consumers who are already struggling financially. The U.S. government should also have realized that Chinese government would definitely go for retaliation and may impose tariffs on U.S. products that enjoy huge sales in China. Many U.S. strategic industries such as automobile expect most of their future growth to come from emerging economies including China and Chinese retaliation against U.S. automakers would prove much more costly to the U.S. economy than the cost tariffs on tires may impose on Chinese economy. The factors of production have become mobile and the government should have realized that tariffs are ineffective in most cases now. One outcome would be an increase in export of cheap tires from other countries, thus, it would be almost impossible to protect U.S. tire manufacturers. The U.S. companies have huge stakes in China and free trade is as much important to U.S. as it is to China if not more. Unlike China, U.S. manufacturers have reached saturation points at home and they need China more than Chinese manufacturers need U.S. for growth.

Japan has always been a poor country in terms of natural resources and yet the country became the second biggest economy due to the success of export-led business model adopted by some of its largest companies. Japanese products have been relatively more expensive than other countries such as China but the country had a reputation for quality which allowed it to maintain its competitiveness. But globalization has changed the rules of the game and Japanese companies have no choice but to abandon their export-led business model as a way of reaching international markets and instead switch to foreign direct investment model. This is because China doesn’t only enjoy advantage due to lower production costs but has also earned the reputation of quality products. It is no wonder that some of the world’s most premium brands have outsourced production activities to China because China has achieved world-class quality standards. Certain other factors also justify substituting export-led business model with foreign direct investment business model. First of all, Japanese Yen has high value against many international currencies which translates to lower income from international markets. Second, importing raw materials also involve shipping costs and Japanese company would be wise to lower production costs in any way they can. Thus, Japanese manufacturers should transfer production facilities abroad and can also learn from the experience of American manufacturers. Manufacturing jobs may be lost but services sector may take over and higher profitability of Japanese companies mean the government tax receipts will also increase which could be spent on education and training programs.

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