Global economic development Essay
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If Gwlad want to achieve any economic growth and attain a strong economy as its neighbors in Western Europe it must carry out detailed SWOT analysis. Such an analysis involves determining the country’s strength, weakness, opportunities and threat. One of the major strength that Gwlad enjoys as a country is it strategic location. Being close to the most developed nation in the world then it will be easier to access and export goods abroad to a market which is willing and able to buy.
The second strength is the relative peace that the country enjoys and that of the surrounding nation which means that foreign investors will be willing to set up businesses (Anderson, 2007). One of the main weaknesses in this country is low level of industrialization which will translate to low out put and therefore less export compared to other country in the surrounding. Also with a population of just 3 million people it means that the aggregate demand is very low and for multinational who want to venture into such country and market their produce, the low demand expected for their products may discourage them.
Furthermore this country seems to be expecting poor infrastructure and this raises the cost of doing business which discourage foreign direct investment (root 2006). The low level of services may be another hindrance to foreign direct investment. Foreign investors Global economic development 2 values a strong financial system that is able to allocate capital efficiently, mobilizing saving, monitor firms, share and diversity risk with the low level of GDP the consumers’ purchasing power is weak and therefore this further reduces the aggregate demand and output levels in the country.
Also the country relies on few sectors to support the economy and there is a need to expand on such areas (Carroll, 2006). One of the major threat that the country faces is competition form rivals who are well established and their industries have become stable such that they are able to supply goods in the global market at low cost. Secondly since the country is not a member of European Union then members may impose both tariff and non tariff barriers to trade from goods exported from Gwlad which will increase the prices of good exported on members country.
High prices will discourage consumers’ consumption of such goods which will ultimately reduce export and affect the country’s balance of payment. The country should take steps to proceed with privatization of most public corporations since such move encourage foreign direct investment and also improves on transparency and good governance of such companies (ridout, 2005). Since the financial system play a pivotal role on the growth of an economy the government should implement policies designed to streamline the sector.
To encourage investment in the country then it is also vital to revise its taxation policies and develop a scheme geared towards benefiting foreign business. Entry of multinationals in the domestic market have some adverse effects in that some of the domestics firm are not strong enough to compete favorably with foreign firms such that they require protection from the government. Therefore the government Global economic development 3 should develop policy geared towards protecting domestic firms and also protecting capital flight which mostly affect the balance of payment of the country if not taken into consideration.
To ensure that employment level in the country rises and that multinational does not take advantage of lack of employment policies to bring in expatriate even in areas where local can work then labor policies should be drawn which includes issues of minimal wages to be paid. Regional trading blocks such as the EU and others aid international trade by reducing or eliminating both tariff and not tariff barriers to trade therefore incase Gwlad want to participate more in the global market then it should realign its foreign policies which will enable it to be accommodated in such trading blocks.
Active signing of both bilateral and multilateral agreement is necessary in improving penetration to foreign market thereby improving on export which translates to a higher GDP (melchet, 2005). CASE STUDY 2 Though strategic location and the issue of wages rate are considered by a foreign investor in determining whether to invest in a certain country or not, there are other major factors which are first considered. The availability of energy and associated cost are given priority in manufacturing industries since energy cost comprises a huge percentage of manufacturing cost hence one of the main determinants in making investment decision.
The level of infrastructure is also considered by business. The possibility of growth and political stability should also be an integral part of such a marketing strategy since these two factors will determine whether a business will grow in foreign market. Through most of the study conducted it has also been proved that vibrant financial system Global economic development 4 also plays a major role in encouraging FDI (zedillo, 2005). On marketing Gwlad I would include such issues as tax system which benefit inventors e. g. tax allowance on investment.
To increase foreign income from tourism then issues such as beautiful scenery and variety of wildlife have to be included. Further more technology play a major role in global market and therefore a mention of the technological achievement and possible advancement in technology should be included in the countries marketing strategy as firms currently rely on technology in performing it core business. Case Study 3 Technology advancement have led countries like china and Japan to be the most industrialized and leading exporters in the global Market.
Consequently their economy have grown and a country like china with a population higher than the whole of Africa have been able to support its citizen and even offer loans and grant to other nations. Though technological advancement is key to economic development it has to be matched with good governance and visionary leaders who are able to inspire their people to reach new height (Polanski, 2004). In developing the economic policy there are others sectors which should be considered.
This includes, health, financial sector which includes among other banks, insurance market, and the capital market and aerospace and automotive sectors in the transport industry. Case Study 4 One of the major strength of developing domestic companies is that it protects capital Global economic development 5 freight which adversely affects the balance of payment and the exchange rate. Domestic companies mostly employ people from within the country which reduces the level of unemployment. The income generated by domestic firms is usually re invested back thereby improving in economic growth.
Some of the other income which is distributed as dividend to the owner increases the level of aggregate demand and saving levels due to increase in disposable income. Where aggregate demand increases business will be forced to produce more goods which lead to their growth and expansion (McDonnell, 2003). As saving levels increase businesses will have available capital for investment and through the multiplier effect where investment increase the GDP will also increase therefore accelerating the economic growth of the country.
If steps are taken to develop domestic companies then they may grow to a level of being multinationals which will generate foreign income to the country. One of the major threats in developing domestic companies is that in case of harsh economic condition they may not withstand and therefore collapse. There are also possibility of political interference in the management and operation of such firms. Due to the limited fund available it may not be possible to avail all the required capital for expansion which means that such business will be operating below capacity and there will be under utilization of resources.
Further more the economy can grow at a very low rate if only the domestic business are relied upon to accelerate growth. Lack of competition will be another weakness in that business will not improve on core area of performance such as technology therefore products will be of low quality and higher Global economic development 6 price with inability o compete in global market. Where competition lack then there is low level of creativity and innovation in products and service development therefore the economy will lag behind (Coparosa, 2004).
Where the country is able to attract foreign direct investment then it is able to improve on technological advancement since such investors transfer technology to the host country. Further more since the country is experiencing a capital rationing this foreign firms do not require any form of financing from government and the funds available could be used to develop other sectors where foreign companies are unwilling to invest. Furthermore this foreign firm introduces competition which forces business to produce goods effectively and efficiently.
The major threat of encouraging multinationals to invest in the country is that they can kill local industries incase where such firms are not able to compete favorably. Some of the multinational which occupies a greater stake in the economy sometimes dictate or influence the policy made by government to their advantage since where e government fail to comply they threaten to withdraw. One of the main weaknesses of using FDI is the issue of capital flight. Most usually send the profit generated from its operation back to it parent company which adversely affect the economy.
However such businesses are able to sustain harsh economic condition and also improve the level of infrastructure in the host country. In using combination strategy the government ensures that domestic firms grow while at the same time attracting foreign direct investment which steers the economic growth. There should be a balance between protecting domestic firms and maintaining Global economic development 7 environment which enables foreign firms to compete fairly with domestic firms (Roca, 1983)
Due to shortage of funds that the country experience and other benefits that accrue from having FDI it is advisable that the country employs a combination of strategy if it aim to achieve faster economic development. Case study 5 In persuading multinationals to develop local supply chain then the country have to change policies on taxation of this foreign firms. Issues such as tax allowance on investment can encourage such multinational to set up business to take such advantages of allowance.
Also policies that streamline the financing system are also important since the financial system is a factor considered by multinational before venturing into any market. To encourage multinational to undertake research and development in the country then the country should have a well designed policy concerning copyright, trade marks or use of intellectual property. Also where commercial services such as advertising, local research firms and professional service are established and well regulated then multinational can be motivated to use such services.
Furthermore policies concerning regional integration are important since it assist business to supply it commodity to other international market without barriers to trade both tariff and non tariff therefore improving on it competiveness in the global market. In addition the transport system is necessary for efficient operation of any supply chain therefore policies should be designed to improve such systems. Global economic development 8 CASE STUDY 6
Where a country is a member of the EU then there is no obstacle on free movement of goods, people and capital therefore the country can easily market and export its goods to members countries thereby improving on its balance of payment. Through the European social fund then the country will be able to improve on its level of employment thereby raising the standard of living of its citizen. The creation of European investment bank will facilitate the economic expansion of the country through creation of new resources.
The EU has also developed a well established system of ensuring that competition is fair in the common markets which will therefore means that weak members states such as Gwlad are not exploited or taken advantage of by other strong and developed nations. However being such a member of EU then you have to adopt a common custom tariff and common commercial policy towards non members which may therefore reduce the country aggressiveness to participate in the global market.
Countries such as China, Brazil and Australia are the new fastest growing economy in the world hence they provide a ground on which new market can be found. Further more bilateral and multilateral agreement with such country can be more beneficial than joining a trading block for a country with a weak economy (godison, 1988). For a country like Gwlad which need to achieve faster economic development it need to develop free trade agreement with this growing economies as they present a better opportunity for growth than a trading block. CASE STUDY 7 Global economic development 9
One of the merit of having a cluster development policy is having a balanced economy in that you do not allow foreign firm to dominate the local market but also give chance for domestic business to grow and reach a level at which they can compete in the global market . having both local and foreign firm present multinational from influencing government policy with threat to with draw since their position will be taken up by local firms. One of the problems inherent in such a cluster development policy is development of policy which attracts foreign entity while at the same time ensuring protection to domestic firms.
The best option of organizing sector development is having specific policies that take special need of each sector rather than general policies which just give a general outlay instead of specific guideline for sector development (madon, 1997). CASE STUDY 8 As the company is ready to employ 30,000 people this will be a great boost to the economy as it will reduce the level of unemployment and ultimately increase the GDP. However where foreign suppliers are contracted to supply good rather than local suppliers this will lead to loss of business and capital flight from the country.
Furthermore the demand by this firm that the country liars with the host country of these suppliers to request for a tax break may be an added cost to the country as they may in return ask for other favors which may hurt the economy. The government should agree to give research and development grant but not succumb to demand of allowing foreign supplies to be contracted as this will erode most of the benefit generated. Global economic development 10 References Anderson, AT 2007, ‘Developing m-services: lessons learned from the developers
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