The next area in economics deals with economic globalization.
What does that mean?
That means the globe is getting smaller, right?
The world is getting smaller.
So in dealing with this, what we're looking at is more cross-border movement between country
and country and country, and in doing so they're reducing some of those trade restrictions.
Remember we talked about a tariff, a quota, an embargo.
We're trying to get rid of a lot of these things so that way we can work more closely
with other countries, and then the whole world benefits.
It says here economic globalization refers to the increasing economic interdependence
of national economies across the world to a rapid increase in cross-border movement
of goods, service, technology and capital.
It�s led to a single world market which has developed economies with integrated, they�ve
integrated with less countries, wait, they�ve integrated with less developed countries by
means of foreign direct investment, a reduction of trade barriers, like we said tariffs, quotas,
embargoes and the modernization of developing countries.
Now, the comparative advantage of natural resources and low-cost labor attract business
to go overseas because overseas they have all these natural resources, maybe their forests
still exist where ours may not, and labor is a lot less expensive.
So it's very attractive.
Companies in developed countries, such as ours, are able to compete with those other
countries because we will make, let's say, a better quality product.
So, some the advantages of a developed country: use of sophisticated technology.
Why is that beneficial?
Because that'll help reduce some of our production costs.
Effective process management.
So we're managing the entire production process.
Innovative, innovation in PERT products or services, the quality of our products at least
used to be much higher than others, customer service.
Again, you call up our client, call up the company, and you get someone to help you.
And also, adopting a global strategy.
Now.
It�s also important if you're dealing overseas, you need to understand the culture, the customs,
the values, the behavior because you want to be careful that you're not insulting, right,
the companies overseas.
It says here that in looking at a global strategy, we also need to think about some of the benefits.
Some of the benefits are pooling international production to one or a few locations.
That helps us to increase our economies of scale.
What was economies of scale?
Remember, we had economies of scale.
It looked kind of like this where we had that picture earlier...where we talked about...whoosh...like
that.
We talked about production.
Here, output is greater than input.
Here, input equals output.
Here, input is greater than output.
So we talked about great better economies of scale.
So, in other words, the optimum size of a production facility.
Manufacturing costs can be cut quite a bit.
Why?
Because overseas labor costs are a lot lower.
A firm can switch production among different countries.
That has increased bargaining power over labor, supplies, the government as well, and worldwide
access because we have all of this globalization available to us.
So as we look at this globalization of economics, we�re talking about economics, micro-, macro-,
but we're also looking at the world as a whole where if we were to do an outsource things,
like a lot of companies lately are outsourcing, right?
HP, �Let�s outsource jobs overseas.� All the sudden, it benefits that country,
it sometimes benefits us because it helps to reduce the cost.
The downside is that it outsources some of the jobs that we would have done here, which
means now we have more unemployment, which means now those people have to find a different
type of job.
Hopefully they're not structurally unemployed, which means that they have skills, but we'll
just have to re-adjust them in another area.
So, again, that's what it kind of looks at.
Let's try a question on this, number 25.
It says, �All of the following are ways that companies in developed countries like
us, U.S., generally may compete with companies in developing countries except:� So what
does that except mean?
It means, that what are some of the ways that we can compete, but what is one way we don't
really compete.
A: technology?
Yes.
We're usually pretty good in technology.
Customer service?
Yes.
You make a phone call, you get someone here to help you.
Quality?
Yes.
We keep the quality up.
Low-cost resources?
No because usually low-cost resources, such as resources or labor, those costs are usually
less expensive in developing countries, not here in a developed country.
So in a developed country, U.S., Japan, that's where labor costs are going to be high.
In a more undeveloped country, labor costs are a lot lower, but again, why is there always
recalls on goods that come in from China?
Because they use less expensive dye that causes cancer, they're using plastics that break.
You know, with us we have windshields that are supposed to be a certain law that if they�re
hit, they�re impact resistant, so they don't just get break in...They break into little
pieces, but they're not sharp, whereas someone else may manufacture a less expensive sheet
of glass, but when there's a car accident, people die because they get stuck with the
glass.
So, again, it's less expensive but the quality isn't there.
So, again, these are some of things you have to worry about, especially if you have a company
and you�re going to outsource to other countries, you�ve got to be concerned.
What other potential risk reliability are you exposing yourself to?
That my friends is economics.
Again, this is like 1 or 2 years of college economics in one class.
It is about 16 to 20% of the exam.
It's an area that I understand is difficult, but it's kind of interesting because as you
get more involved in understanding it, all the sudden all these different investment
opportunities make sense to you, and you too can became an economic genius.
Alright, study hard!
See ya soon!