Globalization and Its Negative Impact on Doing It Right
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Globalization refers to the worldwide phenomenon of technological, economic, political and cultural exchanges, brought about by modern communication, transportation and legal infrastructure as well as the political choice to consciously open cross-border links in international trade and finance. It is a term used to describe how human beings are becoming more intertwined with each other around the world economically, politically, and culturally. Although these links are not new, they are more pervasive than ever before. This widespread economic trend has, although minimally, impacted our e-commerce business.
Doing It Right™ sells worldwide on eBay. In many ways it has benefited from the globalizing mode that has swept over America. Acceptance of american pop culture and interesting fashions and antiquities has helped increase international sales on eBay. However, because of American companies are now outsourcing entites such as manufacturing plants and labor, it is difficult to compete with the sale of brand new items on eBay and most e-commerce sites. Globalization has negatively impacted SYSs attempt to expand their business with the sale of brand new items at fixed prices rather than an auction-style format. Their competitors are companies that have outsourced their manufacturing plants in countries like China and Ireland. These companies are now able to sell the same item for almost 60% less than SYS. The item goes directly from the manufacturing plant to eBay for sale–no middleman, or extra transportation costs (Chapter 1).
Comparative advantage was first described by Robert Torrens in 1815 in an essay on the corn trade. He concluded that it was to Englands advantage to trade various goods with Poland in return for corn, even though it might be possible to produce that corn more cheaply in England than Poland. The theory of comparative advantage is perhaps the most important concept in international trade theory. After analyzing organizational structure of SYS, one can assert that the theory of comparative advantage does not negatively impact the business. It does still impact it at the level of actual shipping costs and costs of goods (merchandise). For example, SYS decides to purchase wholesale lots of the latest consumer electronics, such as the iPod, digital cameras, and DVD players. Their decision to go with an overseas supplier was based on two factors, purchase price per unit and shipping costs. It would be less expensive to ship a lot of 40 cameras from Idaho, than from Hong Kong. However, because of the purchase price per unit, it is still cheaper to order from the company located in Hong Kong (Chapter 37).
During times in which the American economy is satisfactory and the value of dollar is even the slightest strong, this decision would be made without hesitation. However, it is very important that Doing It Right™s CFO keep track of the current foreign exchange rates with Asia. In instances where the United States economy is not stable, or the dollar is weak when compared to Hong Kong, it may be more beneficial for SYS to purchase their inventory from the company in Idaho (Williams). The purchase price per unit in this case may increase significantly and begins to aggressively compete with an American company. If one analyzes this process more thoroughly, one will find that since most electronics are manufactured in Asia, buying these electronic items from the company in Idaho may or may not reflect the change in the value of the dollar when compared to Asian currency. Because of this companys massive purchasing volume from the company in Hong Kong, the American companys purchase price per unit to SYS will have a significantly lower inflation cost than what would be applied to the lots bought by SYS from the company in Hong Kong.
Competition on eBay is guaranteed regardless of the type of items you have up for auction or fixed price sale. eBay is an enormous global marketplace. In order turn the problem of the increase in direct competition with the sale of brand new items into a business opportunity Doing It Right™s top officials contacted the Hong Kong company directly and tried to establish a relationship with lead managers. During a conference call, top officials from both companies met and talked about the current situation with SYS and other small businesses supplied by their company. SYS approached them by letting them know they want to continue to be business partners however, because of the recent economic trends it is difficult to continue to do business with them. SYS came up with the idea of a “drop-ship” program than can be beneficial to both companies. Doing It Right™ will be in charge of doing the listing for eBay and accepting payments from the buyers. Selling a brand new item at a fixed price (this price will include what the company in Hong Kong would like to sell the camera for, this