This follows into the older model of competitive advantage for organizations; mergers and acquisitions. The paper concludes by evaluating the economics of each mode and understanding its need for businesses in the international arena.
The confusion around globalization makes it harder to concretely define the term itself. In many cases, it is the prominent catchphrase for describing the process of international economic integration’ (Scholte, 2005, 16). In the context of the argument presented in this paper, globalization is viewed as an amalgamation of liberalization, universalization and westernization. Hence, it could be defined as the process of removing restrictions on movements between countries, creating a synthesis of cultures and spreading experiences to people in all corners of the world (Scholte, 2005).
The birth of trade can be traced back to the time of the barter system – entities trading goods with one another, each valuing the other’s item equivalent to their own by a certain numerical degree, i.e. 1 is to 1, or 1 is to 10. With time, as trade expanded to larger volumes, the basic concept of valuation remained embedded in certain form.
Inter-industry trade, where one country tends to export one good and import a wholly different type of good, is dominantly explained by comparative advantage. Prior to this concept, Adam Smith in 1766 proposed the theory of absolute advantage for international trade, where a country exports products that are produced cheaply compared to trading partners, and imports products produced more expensively. Hence, each country would hold absolute advantage in a product over the other. David Ricardo in 1817 brought about a different insight claiming international trade depends on opportunity costs (prices of one good expressed in terms of amount of other good needed to forego in order to purchase it) (Tayeb, 2000).
Like other classical political economists, Ricardo’s