Globalization and Trade Economics

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The response addresses the queries posted in 1917 words.

//Before analyzing the Globalization and Economics, it is essential to have knowledge about the exact meaning and basic concept of 'Globalization'. One should know about the key factors of Globalization, which further will assist in analyzing this process for business//

Ans. 1 Globalization is a set of processes leading to the integration of economic, cultural, political, and social systems across geographical boundaries. It means the generalized expansion of international economic activity which includes increased international trade, growth of international investment (foreign investment) and international migration, and increased creation of technology among countries. Globalization is the increasing world-wide integration of markets for goods, services, labor, and capital. Basically it describes the idea that the world is becoming a single global market. It describes the idea that time and space have been shrunk as a result of modern telecommunications technologies which allow almost instantaneous communication between people almost anywhere on the planet.

//Above is the discussion of basic concept of Globalization. As per the instructions, I will discuss about the four attributes and the evaluation of the Porter's 'Diamond Theory'.//

Ans.2 Porter is a famous Harvard business professor. In his book The Competitive Advantage of Nations, he mentions "Porter's Diamond Theory". Porter believes standard classical theories on comparative advantage are inadequate. According to him, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process. So in Porter Diamond Theory he mentions four determinants of national competitive advantage. They are as follows:-a) factor conditions, b) demand conditions, c) related and supporting industries, and d) firm strategy, structure and rivalry.

Now explanation of these four attributes is like this: - here factor condition means the inputs which is used in production such as labour, land, natural resources, capital and infrastructure. But Porter also argues that the "key" factors of production (or specialized factors) are created, not inherited. In his view specialized factors of production are skilled labour, capital and infrastructure. While the general factors such as unskilled labour and raw materials can be obtained by any company and hence, they do not generate constant competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable. Porter also argues that sometimes lack of resources often actually helps the countries to become competitive because such countries are forced to innovate to overcome their problem of scarce resources.

Demand conditions are the second attribute of Porter's Diamond Theory. Here he says that a sophisticated domestic market (customers) is an ...