India and the Czech Republic - International Trade Patterns - Assignment Example

Introduction India and the Czech Republic are two developing markets which, overall, have rather similar trading patterns. India has a more well-developed infrastructure for business and industry than the Czech Republic, which gives them much more leverage in terms of dictating foreign business policy to investors or exporters looking to import their products into India. The Czech Republic, however, has much more advanced industrial knowledge in areas of metallurgy and this type of manufacturing and has adopted trading philosophies which focus on rapid growth and improving relationships with foreign investors through various incentive programmes. In some ways, both India and the Czech Republic conform to more traditional theories of international trade, such as those proposed by Adam Smith. However, changing patterns in consumer behaviour across the globe, along with better-developed business and technology infrastructures, have given both emerging markets new focus for trade using more modern theories of international trade. This paper focuses on both markets and compares their international trade objectives. Comparison of both countries In many ways, both countries conform to more traditional theories of international trade, especially those provided by Adam Smith in relation to absolute advantage. Smith called for as much reduction as possible in government intervention in the operations of the business. This basic foundational belief is that business should continue to pursue strength and profitable health, thereby offering better products and services to the communities where they operate because of their successes and ability to transform internal production or marketing. Both countries maintain a clear division of labour. These are internal philosophies which involve corporate social responsibility and also allowing a free trade, free enterprise environment to improve business and governmental revenues. “In old trade theory, the welfare gains from trade are due to specialisation according to comparative advantage” (Bernard, Jensen, Redding and Schott, 2007, p.112). What this essentially means is that the concepts provided by Adam Smith in his more traditional approach to trade and community relations have welfare gains occurring simply as an outcome of improved business success. This seems to dictate the level to which governments involve themselves in corporate business activities related to international trade to avoid over-involvement or the risk of ruining future potential foreign investment. Recognising that social gains occur as a matter of business success in the region drives most trade patterns in both countries, especially in relation to government-to-business relationships. Outside of this traditional trade theory, more modern ideas on trade are being recognised by both emerging countries in adopting the product life cycle theory for international trade. “The growth of international trade has intensified global competition, thereby forcing exporters to raise productivity” (Yusuf, Altaf and Nabeshima, 2004, p.6). The product life cycle theory basically creates the idea at the leadership level that each product or service provided by the country only has a particular time period where it will have relevance on the buyer market. For example, the current social condition might have consumers demanding that they have access to faster Internet connections in their mobile devices. Therefore, the country recognises this trend and invites new businesses who specialise in technology to come into the country and launch a new, faster innovation in mobile Internet technology. This might be done through incentives or other activities to invite foreign investment and manufacturing. However, heavier concentrations of domestic and foreign competition will ultimately innovate a better and faster mobile device, therefore limiting the life cycle of the first innovative product. Both India and the Czech Republic need to be sensitive to changing buyer patterns and behaviours, recognise their demands, and then consider whether these products or services will provide citizens with short-term or long-term satisfaction. Using governmental incentives or other relationship marketing concepts, seeking new business partners who specialise in products which fit the social condition is part of life cycle assessment and planning at the trade level. For example, India invested heavily in technology which occurred as a natural evolution of social education and also foreign business investment into the country. India recognised that the technology sector was going to have a longer product life cycle based on consumer demands and also by assessing the risks of foreign technology imports to domestic production of similar products. Today, the country has a competitive advantage in areas of technology and technology software support because of their decision-making process which recognised long-term growth and expansion potential for the technology sector. The Czech Republic is also involved in the product life cycle theory and has recognised a growing global need for manufacturing and metallurgy expertise for this industry. The country relies on its internal manufacturing to drive revenues but provides most of these products at the domestic level. However, the country is developing strategies to boost total domestic export volume by 20 percent by 2010 (EIU Viewswire, 2008). The intention of this strategy is to create “new competitive alliances, create advantages such as joint distribution of costs for foreign marketing, and a sharing of technologies” (EIU Viewswire, 2008, p.2). Again, the term marketing is important in identifying both countries’ activities related to the product life cycle theory. Regardless of the type of product or service being produced, both domestic and foreign consumers or business-to-business buyers are being exposed to relationship marketing materials in advertisements or other direct marketing forms. This is becoming commonplace business activities at the international level and many companies are adopting this marketing-focused perspective rather than product-focused orientation. Recognising that these products have specific life cycles on the consumer market, they must use promotions to maximise the duration by which they can achieve profit on a single product or service concept. Therefore, strengthening relationships with other businesses and combining expertise not only saves costs, but ensures that strong trade alliances and agreements can be made at the relationship and professional levels. This knowledge creation and strength of marketing presence (often called brand building) can extend product life cycles of all varieties, therefore the Czech Republic conforms to the product life cycle theory of trade. Indian product manufacturers, especially in the pharmaceutical industry, face a great deal of rather unethical competitive activities at the marketing level which cause problems with earnings and sales. Asian market expertise in drug development has improved as technology and investment has improved, therefore India is able to export its pharmaceutical products at a reasonable price. Global drug producers which rely on earnings from exporting now have competitive risks as Indian drug performance and price improves. “Multinationals…have realised that if they have to make a dent in the Asian markets and not just feed off the US and Europe, they will need to play their quality card. An easy way is to label Indian drugs as counterfeit” (Nair, 2009, p.18). Using reputational damage or word-of-mouth efforts at the promotional level to discredit Indian drugmakers at the international level is a tactic to stave off competition for other international pharmaceutical companies. Therefore, in this environment, the product life cycle can be quickly shortened by unethical business activities at the competitive level. In relation to international trade of pharmaceuticals, the importance of product life cycle for drugmakers and potential export opportunities strongly influences whether governmental leadership should invest long-term in supporting drugmakers. When considering what types of trade policies to create or revise, India’s opportunity to earn profit from drug exporting is strongly impacted by these competitive tactics. Export volumes can be severely reduced if competitive international drugmakers are able to effectively persuade consumers or businesses that their drugs are inferior quality to other international drug brands. Therefore, India must consider issues of absolute advantage regarding the volume of demand for pharmaceuticals at the domestic level and, if not sufficient for economic growth, work to strengthen their marketing presence across the globe or improve business-to-business relationships. This again shows how the product life cycle theory of trade drives business and governmental relationships in India. Though it is the foundational belief that government should be largely separated from business, when competitive and highly-profitable industries use attack campaigns to try to drive consumer perceptions of inferior quality in competing brands, India must consider the long-term advantages of promoting or supporting pharmaceutical industry importing and exporting and whether to invest in a more sustainable product or service. The Czech Republic does not produce products which are highly marketable for consumers, therefore they are not dealing with reputational damage being created by competing free enterprises, like the situation in India. In many ways, the Czech Republic has astounded people across the world for being able to manage such important economic and social gains so shortly after its liberation. It does not deal with long-standing negative publicity or negative brand damage in areas of manufacturing or metallurgical quality. “The Czech Republic’s open economy has managed to lure in some of the world’s leading manufacturing companies, attracted by traditional Czech engineering skills” (Cienski, 2008, p.6). Because this country relies on the absolute advantage created by industry and business success and they are not producing products which deal with promotional competition, this country provides a more stable opportunity for foreign investors which deal directly with products such as steel or iron work. The trickle-down advantage of using Adam Smith’s concepts of governmental non-interference and strengthening the domestic capability of businesses and its workers makes this environment an incentive for foreign investors and business owners. Unlike India, this country is not investing time and effort at the business, social and governmental level into industries which are constantly on the mindset of the consumer such as technology or pharmaceuticals. The Czech Republic recognises that long-term growth and advantage, in terms of a product variety which will likely not have a short life cycle created by slowing demand or changing buyer sentiment, this country also conforms to the product life cycle theory of trade by understanding the long-term value of manufactured products over consumer products. For example, retail sales in the Czech Republic have been hard-hit by an unstable international economy. Sales in this industry contracted 4.3 percent in the first quarter of 2009 (OEF, 2009). This represents an industry which is open to speculation and instability and is largely affected by consumer spending. As far as the life cycle is concerned, retailers are forced to use different advertising and differentiation strategies in order to make their products stand out from competition. Some retailers focus on quality while others focus on the consumer lifestyle and using integrated messages to build a sense of buyer loyalty before demand for the product finally begins to decline. The Czech Republic seems to recognise that retail trends are unpredictable and the global market for competition is heavily saturated with fashion competitors. Investment into manufacturing, which if promoted through quality relationships with other investors or industry players, can witness extended life cycles on certain industrial products since they are not influenced by the ever-changing consumer mindset and buying behaviour. Part of recognising the absolute advantage of allowing free enterprise is making decisions at the import and export level which will provide the best long-term growth for the community and in terms of the country’s overall reputation among the global community. Again, this is another example where the product life cycle theory of trade applies, especially in the Czech Republic, and its leaders are making sound decisions about which industries to invest in, support, and regulate in terms of import and export guidelines. Michael Porter, a noted business theorist, developed Porter’s Diamond of National Advantage which describes certain factors which impact decisions about trade. One of these factors is known as factor conditions, which states that a country should “create its own skilled resources and technological base” (quickmba.com, 2007, p.1). The Czech Republic managed to emerge from a communist background to a capitalist background in a very short period of time, using voucher-focused social programmes to invite interactivity with citizens and business. These vouchers, purchased for a low price, acted as stimulus for business growth and could be exchanged for stock in various companies in this country (Weidenbaum, 2006). The Czech Republic used innovation in finance and investment in order to strengthen the capitalist base for business, creating a positive outcome in terms of social responsibility. This tends to show that the Czech Republic is more involved in business than in India, especially in terms of developing new policies which will bring better economic strength at the national level. Because many citizens are now shareholders in companies, better relationship management and community business reporting are necessary. Also, both countries are part of the World Trade Organization (WTO) and have adopted similar focus on intellectual property laws (Deloitte, 2008). Both countries recognise that certain trademarks or other identifying brand signatures have competitive importance and should therefore be protected. This again reinforces that both countries have adopted a more modern trade practice which assesses the product life cycle and seeks to conform to these laws as they relate to exported merchandise. In East Asia, there is a large counterfeiting problem in the retail industry and the government consistently intervenes to stop this activity and protect retail profitability. Strict focus on intellectual property guides both countries’ decision-making in international trade as they recognise that intellectual property infringements can create problems with profit and growth in certain industries, especially those which offer products and services to the consumer. Conclusion In terms of international trade patterns, both India and the Czech Republic blend traditional trade concepts with more modern product-focused trade philosophy in order to stay competitive in the global trade community. India has invested in products and services which are expected to have a long-lasting life cycle and devotes policies to protect the intellectual property of these businesses and thereby improve the outcomes on society with better products having higher sales volumes. India works with some industries that face competitive brand reputation problems when competing businesses attempt to discredit Indian-made quality, therefore altering the decision-making regarding whether to become more involved or let free enterprise essentially work itself out. The Czech Republic, being a relatively new player in the global trade market, has a significant advantage over India and does not have to concern itself with this type of damage at the social level. In many ways, Adam Smith would be proud of the trade philosophies of both countries and would offer that they had performed well in terms of remaining less-regulatory in business operations and allowing companies to develop their own style of relationship for international trade efforts. Experts in trade theory which support the importance of a product life cycle-focused trade pattern would also support both India and the Czech Republic for their efforts in recognising the longevity of various products or services and then developing an infrastructure to support these potential growth industries. References Bernard, A., Jensen, J., Redding, S. and Schott, P. 2007. Firms in international trade. Journal of Economic Perspectives, 21(3), pp.105-130. Cienski, J. 2008. Home-grown groups being to branch out, Financial Times, London. 11 September, p.6 Deloitte.com. 2007. International Tax and Business Guide. Connecting you to worldwide information – Czech Republic. Deloitte Touche Tohmatsu. Viewed 29 November 2009 at http://www2.deloitte.com/assets/Dcom- Global/Local%20Assets/Documents/ dtt_tax_guide_czechrepublic.pdf EIU Viewswire. 2008. Czech Republic: Trade regulations. 1 December. Nair, A. 2009. Report from India, Pharmaceutical Technology, 33(7), pp.18-20. OEF. 2009. Czech Republic, Oxford Economic Country Briefings, Oxford Economic Forecasting. June 4, p.1-7. Quickmba.com. 2007. Porter’s Diamond of National Advantage. Viewed 29 November 2009 at http://www.quickmba.com/strategy/global/diamond/ Weidenbaum, M. 2006. An American Look at the Czech Republic, Vital Speeches of the Day, 72(25), pp.735-739. Viewed 28 November 2009 at www.ebscohost.com. Yusuf, S., Altaf, A. and Nabeshima, K. 2004. Global Change and East Asian Policy Initiatives, World Bank, p.6. Read More