Question

Be sure to use graphs and economic models/tools to support your response to each of the bullet points.

All questions are in regards to Automobile or parts manufacturing

• How does international trade affect a company, both domestically and in international markets in regards to Automobile or parts manufacturing?

• How can existing or potential changes in trade policies affect a companys operations?

• Does it make sense for a company to outsource or offshore the production of any of its inputs or any of its operations? Why or why not?

• In what other ways might globalization affect a company, both positively and negatively? In your response, consider the effects on a company’s prices, output, and profits.

• What can a company do to better position itself to benefit, or protect itself, from globalization?

Answer 1

a) If you have high prices of automobile in your country, international trade can help you getting that in lower prices if international prices are less. International trade might result in profit of at least one company otherwise it would not take place. Assume if international prices are less, at that prices consumption > supply, then that shortage would be imported.

b) Assume you have higher prices of automobile parts in your country and you can import those parts from other countries at lower prices. Thus trade helps you in importing those parts and reducing your cost of manufacturing a car or raise your profit level. If the excise duties in trade are removed, then these parts will cost you even more cheaper. Trade policies can affect business operations positively as well as negatively, it is nothing specified with the trade.

c) Yes it makes completely sense to offshore because a car cost you in thousand of dollars. If you find countries where you can produce the parts at cheaper rates or give it a final assembly by collecting all parts, that would cost you low and raise your benefits. You have to find those countries where you can find cheaper labor, cheaper raw material etc. Globalization helps big companies in reducing their cost by offshoring their products while sometimes it gives huge loss from competition of foreign firms which are producing cars at lower prices. Your firm will start loosing the market and output and profit level would fall.

d) To protect themselves from globalization, they must:

• Provide best quality to their customers such that even if any foreign based firm provides the product at lower prices, your customers are not ready to leave you for the quality you provide.
• Keep your prices low such that customers rely on buying a domestic reliable product rather than trying a new product.
• Have some government support so that they helps domestic market to save rather than infusing market with foreign firms.