International Marketing, 5th Edition

The United States has relatively more land, capital, and technology than most other countries. As such, it can be expected that the United States will have a comparative advantage in products which extensively utilize these factors of production. In fact, the United States does have a relative advantage in such temperate-zone agricultural commodities as wheat, corn, and soybeans. Although these commodities are labor-intensive (at least in many countries), the United States is not at a disadvantage because the high labor cost can be minimized by substituting technology and capital (i.e., machinery) for the labor content. The strength of the United States in the high-tech area also makes it possible for the United States to have an edge in a number of high-tech manufactured goods (e.g., computers and capital goods).

As expected, the United States has a relative disadvantage in products which are labor intensive. Textile products are a prime example. Furthermore, the United States seems to have lost its comparative edge in such low-tech manufactured goods as consumer electronics products. The United States also imports mineral fuels (e.g., oil) due to its high level of consumption coupled with other countries' better endowment of such fuels.

According to the U.S. Department of Commerce, Latin America and the Caribbean are attractive markets for traditional U.S. exports. Based on both dollar volume and expected growth, the best prospects for sale of U.S. products are: auto parts and service equipment; oil and gas field equipment; telecommunications; computers, peripherals and software, food products and packaging equipment; machine tools and metal working equipment; pollution control equipment; medical equipment; mining equipment; consumer goods; electrical power equipment; and aircraft and equipment. Apparently, these products are based on the relative strengths of the United States.

Although relatively well endowed, the United States still greatly benefits from international trade. Many countries are better endowed than the United States in terms of labor. Even though the United States has an absolute advantage in most products, it still should concentrate on those that are most promising and should leave other countries to supply other products at lower costs to satisfy U.S. consumers' needs. Without trade, it is reasonable to expect that the prices of most products will be significantly higher and that the innovations will slow. The protectionist measures considered by Congress can thus do more harm than good.

The United States, Japan, and Germany are the countries with high labor cost. The success of Japan and Germany in world trade, however, has clearly shown that the high labor cost and content can still be reasonably managed in a number of ways.

A country can reduce the labor content by investing in automation. The idea is to change or adjust factors of production. For example, capital is substituted for labor. The quality of the factors of production is another consideration. Workers should be well trained in order to increase the productivity or efficiency with the emphasis on reducing the rate of defective products.

Another strategy is to shift the production of certain components to labor-rich countries in order to gain those countries' comparative advantage. Moreover, high-cost countries should keep innovating in order to keep the comparative advantage in the area of high-tech products.

Last but not least, the marketing phpect must be emphasized in order to shift the battle from the disadvantageous commodities to the area of value-added, branded products which the United States, Japan, and Germany seem to have psychological advantage as far as consumer perceptions are concerned.

This assignment is highly related to the previous one. The United States needs to devise strategies to cope with the loss of comparative advantage in several products. First of all, it needs to consider automation while shifting workers from low-skilled production areas to jobs requiring greater skills. Research in technological improvement must continue so that the United States may choose to specialize on sophisticated products.

Whenever possible, U.S. firms can minimize the relative disadvantage by switching to the assembly operation which uses parts made in countries with lower labor cost. Marketing is required to endow U.S. products with desirable psychological images so that the cut-throat competition common for undifferentiated commodities can be avoided. Finally some kind of systematic planning as discussed at the end of the chapter should be considered.

The purpose of this assignment is to encourage students to think about both the pros and cons of a regional trading arrangement. It should be noted that a trend toward regional integration is continuing. A strong interest in regionalism has to do in part with nations' frustration with the multilateral process. But there are also other political and economic motives.

A country wanting to join a regional trade group faces several problems. For example, it must cede substantial sovereignty to the trade group. As a result, it may have to adopt restrictive policies. It should also be apparent that regional trade blocs endorse trade liberalization internally but that they achieve trade protection externally.

According to an IMF study, several factors have contributed to the impetus toward regional arrangements, and they are as follows:

1. growth-related incentives, particularly the opportunity to exploit economies of scale, regional specialization, and learning-by-doing, as well as to attract investment by expanding the regional market
2. noneconomic objectives, such as enhancing regional political cohesion, managing immigration flows, and promoting regional security
3. the slow progress under the Uruguay Round and the desire to strengthen negotiating positions
4. the opportunity to preempt future restrictions on market access and create a more stable and predictable trading environment
5. the ability to ‘lock in’ domestic policy reforms
6. the opportunity cost of remaining outside regional trading arrangements

In spite of the advantages of regional trade arrangements, it must be concluded that the first-best policy should be global, instead of regional, free trade.

France's law requires companies with more than 20 employees to institute a 35-hour workweek by 2000 and smaller firms to do so by 2002. A working paper of the IMF compared the behavior of workers in large firms (treatment group) and small firms (control group) before and after the new rules (treatment) went into effect. The effects of the law could be analyzed in terms of economic and psychological factors.

With regard to the economic effects, the law had several unintended consequences. Instead of increasing overall employment for workers directly affected by the law, the 35-hour requirement actually reduced it. Workers in large firms had to look for second jobs or were compelled to move to small firms. Furthermore, in 2000, employment growth in large and small firms was at a similar pace, implying that there was no overall increase in employment.

Psychologically, French workers did not appear to be happier after the enactment of the law. Based on surveys measuring satisfaction and quality of life, French workers were not any more satisfied after reduction of their workweek than their counterparts elsewhere in Europe.