Trade is the exchange or the transfer of ownership of goods and services from a seller to a buyer and gets back something for an exchange. Trade exists because of specialization and division of labor, which is to concentrate on a specific part of production of goods, and trade the finished goods for other finished goods with others. A country’s economy may gain from buying certain products for other countries than to produce at home because international trade allows a country to specialize in manufacture and export their most efficient manufactured goods, and on the other hand import manufactured goods that produced or manufactured more efficiently from other countries. Trade exists in between regions or countries as they got an absolute advantage or a comparative advantage in production of specific tradable goods through their mass production. An absolute advantage for a specific country is the more efficient on production of a product than other countries. A comparable advantage for a specific country is to produce the most efficient goods and buy goods that it produces less efficient from other countries, even though they can produce more efficiently by themselves. Different factors of production (i.e. land, labor, capital) are available in different countries and regions, and together with different proportions are needed to manufacture particular goods. A more abundant of the above factors of production lead towards a lower cost. Through international trade, a manufacturing firm able to gain an economy of scale and for the ultimate goal of cost reduction. An economy of scale is a cost of reduction based on a large scale of output, the two reasons behind are a large production volume able to spread the fixed cost to a lower level, and through the utilization of specialized employee and equipment which able to obtain a high productive output. International trade helps Logitech lower the cost of manufacturing their computer peripherals such as mice and keyboards. As refer to Logitech’s case, their biggest sellers’ product, Wanda, a wireless optical mouse. Logitech utilized a global sourcing strategy and obtain their materials at a lower cost, their mouse’s chip are procured from a Motorola plant in Malaysia and Agilent Technologies, an American company, supplies the optical sensors from a plant in the Philippines. Logitech’s basic research and development, the key to their product’s success, takes place in Switzerland and Fremont, California, USA, both countries got expertise in software programming. The ergonomic design of the Logitech’s product, such as look and feel, is done by an outside design firm in Ireland. Logitech’s manufactures and assembles their products in countries such as China and Taiwan to gain a lower cost at a high volume. Finally, through Logitech’s headquarter in Fremont, California, USA, for their corporate global marketing, finance, and logistics operation, which they can able to integrate their functional organization structure and to market their products to customers globally. Through international trade, Logitech will able to obtain their best available resources in different countries for its lowest cost and gain an advantage among their competitors.
David Ricardo’s theory of comparative advantage is for a country to specialize and produce its most efficiently goods and buy goods from other countries that they produce less efficiently, even though they can produce more efficiently by themselves. Under his theory of comparative advantage, there is a greater world production from nations with un-restricted free trade, and consumers from all nations able to benefit and consume more. Under freedom of trade, all participated countries are able to have economic gains. Comparative advantage appears because of differences in factor endowments in each nation. Each nation got varies and differences in factor endowments (such as resources in land, labor, and capital) and lead...
References: Charles WL Hill, Chou-Hou Wee, Krishna Udayasankar, International Business - An Asian Perspective, McGraw Hill 2012
Study Units – International Business Management MKT B390, OUHK 2012
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