International Trade And Comparative Advantage Business Essay


The strategy of any business in competitive markets is driven by the company's competitive advantage, which is described as the "rare ability to create, distribute, or service products valued by customers" (Hirschey, 2009, p. 562). Comparative advantage, on the other hand, is the relative advantage in the production of a given product. More specifically, it is the ability to produce something at lower cost than anyone else. Comparative advantage is not a comparison of absolute advantages, but better reflected by comparing opportunity costs. The cost of producing something is the opportunity cost or "the value of what is given up" (Library of Economics and Liberty, 2007). Companies in the United States have an enormous potential workforce of highly educated people, capital goods, and investment resources. Thus the U. S. is in a good position to export relatively good position to export highly technical equipment to other countries. While emerging nations like China and India have enormous, relatively untapped markets to leverage. These nations may not have the resources and expertise to design and build complex technical products. They do however have other advantages, such as unskilled labor resources necessary which can mass fabricate and assemble these types of products. The key is for each company to focus on skills where they possess an advantage and purchase other goods and services from companies that can produce them at comparatively lower costs.

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HP offers its products to over 1 billion customers in over 170 countries. HP has roughly 332,000 employees worldwide. It is a truly global company. HP business practices have certainly considered and leveraged comparative advantage in building one of the largest technology vendors in the world. For example, The HP Global headquarters is in Palo Alto, California and U.S. operations are headquartered outside of Houston, TX. As of May, 2012 the company had approximately 87,000 employees in the United States working in research, design, development, supply chain, marketing, and administration.

However, the vast majority of HP employees are based in countries outside the U.S. Much of the manufacturing of HP products is actually done by Chinese firm Foxconn (Muncaster, 2012). This company provides the expertise and human resources necessary to meet HP's required volumes at the lowest possible cost. Ironically, Foxconn also produces technology components and products for two of HP's biggest competitors Dell and Apple (Muncaster, 2012). In this case, HP has leveraged its comparative advantage in skilled workforce along the Foxconn advantage of unskilled labor resources and manufacturing expertise to provide their products at the lowest possible opportunity cost.

There are many advantages and disadvantages involved in global business. For instance, many businesses have capacity to create surplus goods and services. This is certainly the case with HP. The company is able to offer products and services that are unavailable but in high demand in other parts of the world. By expanding operations into these markets, HP is able to can establish a "new base of consumers with potentially limited competition" (Joseph, 2013). Governments in other countries potentially even offer incentives for expanding business to their regions because the new businesses could "boost its economy and possibly create badly needed jobs" (Joseph, 2013). In addition, businesses operating in saturated markets have the potential of finding new outlets for their products and services in other countries.

There are many disadvantages of globalization as well. For instance, companies such as HP need to be cautious in their support of non-democratic systems. Businesses can create severe issues in other countries by causing a negative impact in regards to land use and surplus production. It is very important to consider the well-being of the native population. There could also be potential issues in regards to safety standards, wages, worker's compensation and insurance. These are social welfare issues that cost businesses money but are important social welfare factors. Products can be produced cheaper, but at what cost? There are moral and ethical implications to doing business on a global scale.

Hewlett Packard has used many techniques and strategies to become a global IT power. For instance, the company has done a tremendous job with research and development of its products on a global scale. HP has established HP labs in multiple nations "to build relationships with diverse technical and academic communities around the world" (Hewlett-Packard Development Company, L.P., 2013). HP Labs has sites in the United Kingdom, Israel, and Japan. More recently, they have focused on emerging economies around the world such as India, China, and Russia. This creates a path to intellectual capital and research challenges.

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Each site has a different agenda that caters to the demands of that region or capitalizes on particular technical strengths. For instance, in India, researchers are "addressing the IT needs of people in rapidly growing regions" (Hewlett-Packard Development Company, L.P., 2013). Ultimately, the labs analyze emerging trends to understand where the technology industry, and the world, is headed. These labs tap into resources that have insights into vast new markets that HP can potentially expand into.

From the future strategy perspective, I believe that HP needs to continue its expansion into emerging markets. Its HP Labs and superior market research techniques, such as HP Market Vision, could be leveraged to provide not only insight into these regions, but also exposure within them. The U.S. market is saturated with technology options and a relatively limited number of consumers in comparison with countries like China and India. By exploring the needs of these markets, researching potential technical solutions, and in collaboration with local experts, developing products that can meet local needs, HP has a tremendous opportunity to expand its global market share. There are certainly unique needs in these emerging markets. HP has the skilled workforce, capital resources, and business infrastructure to fill these gaps and expand its consumer base.