Examples of the difference between comparative and absolute advantage in global markets

Instructions:

  • Explain and provide examples of the difference between comparative and absolute advantage in global markets.
  • Identify the six-step approach to achieve a long-term improvement of business ethics

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  1. Explain and provide examples of the difference between comparative and absolute advantage in global markets.

In the global market, different countries have different production cost, may be for the same product, due to the difference in the cost of the raw material and/or other necessary resources. Therefore a global business has to adopt to either absolute advantage or a comparative advantage to produce different products.

A company that requires a smaller input quantity to produce a product has an absolute advantage while a company that has to produce a product or service at a lower opportunity cost is said to have a comparative advantage.

Japan and USA are both car manufacturer. Japan would have an absolute advantage over USA if it can produce better cars at a greater speed than USA. Absolute advantage provides an edge to countries or companies in the production of the products they chose to manufacture.

Different countries may want to be successful in the production and sales of many products, but this may not be the case. For example, one country may have a superiority in producing heavy trucks while other may have a superiority in producing cars. Each of these countries have a comparative advantage in their respective product. Both of them can take advantage of each other production.

The same way, USA has a comparative advantage innovation of technologies. Different other countries are taking advantage of these innovation by getting the innovative product on cheaper rates than if they had to innovate these products and then produce them.                                                     

  1. Identify the six-step approach to achieve a long-term improvement of business ethics.

One of the main goal of each business is to maximize profit for its shareholders. But there has to be a distinction between the ethical and unethical means to achieve profitability.

Unfortunately, some businesses may not consider ethics so important and focus of profit only.

They forget that business ethics could be the key to long term sustainability of the business. Business ethics adds quality that may not be visible in the short term, but it undoubtedly has long term advantages. Smith (2015) has suggested that the six step approach to achieve long term improvement of business ethics must be in place to ensure the compliance of any business with business ethical standards. Following is an overview of the six step approach.

Top Management: Before ethical codes can be in practice, they have to be supported and accepted by the top management. Without their approval and believe in the ethical standards, they would be hard to implement at all. The support of the top management must be unconditional in this regard. If there are ifs and buts by the top management, the lower staff will always remain in confusion about following of these ethical codes and they would be regularly violating these codes of ethics.

Employees: On the part of the employees, it is important that they first understand what the ethical codes and guidelines are. Only then will they be able to apply these ethical codes and act on them. Organizations might have some fancy codes of ethics that look beautiful on paper, but if you ask their employees, they might not even understand these codes. It is important to mention here the employees have a direct contact with the business processes of the organization. Therefore, the application of ethics in the long run depends on their awareness and readiness to these codes.

Managers: Managers are the bridge between the top management and the employees. Top management needs to train their managers to understand the implications of the ethical decision making and applying the ethical standards in the organization. Without this, the employees may not be able to properly understand the ethical codes as the managers may themselves be not able to guide them.

The Ethical Codes: There are two sets of ethical codes, firsts is universal set of ethical codes and second is the set of ethical codes developed by the organizations themselves. Before ethical codes can be applied, there must be a statement of the ethical codes in a documented form that would act as a guide in the corporate business ethics of the organization. This ethical code statement may be a combination of the universal codes of ethics and the home developed ethical codes.

Outsiders: An organization may have outsider suppliers and other contractors that are not a part of the organization but play an important role in facilitating the business process of the organization. It is pertinent to let them know about the ethical codes and request them to abide by these ethical code. Without their agreement, the ethical codes may not be sustainable in the long run.

Enforcement of ethical code: Ethical codes should not be left to the choice of different stakeholders. There must be a mechanism to enforce the application of the ethical code of conduct. This mechanism may consist of reward and punishment for breach and fulfilment of the ethical codes

 

References

Smith, S. (2015). Business Ethics. Faculty.valenciacollege.edu. Retrieved 11 November 2018,  from http://faculty.valenciacollege.edu/srusso/CH4BUS.html