Introduction to Business
The purpose for developing free trade agreements
Free trade allows specialization. Countries can produce goods which they have a comparative advantage in producing. Specialization helps increase production and improves on the quality of products that are produced (Ready, Bognanno, 1993).
Prices in the domestic market reflect the international prices under free trade system. International prices are in most cases lower than the domestic prices. Consumers within a country can buy cheaper products under the free trade system. Domestic industries improve on their production efficiency so as to compete with the products in the international markets. This improves the quality, quantity and the price of products being offered in the domestic markets (Wilson Roberts, 1996).
How the establishment of free trade areas represents both a threat and an opportunity for global corporations
Free trade increases production. Countries can produce according to comparative advantage. This increases the quantity of output since each country produce products at the lowest cost. Economies of scale enable countries to increase production. In addition, it expands the market for goods (Ready, Bognanno, 1993).
Consumers gain from free trade in that they can access a variety of products. The prices of products are reduced since competition between domestic and foreign products results into reduction in prices (Taussig, 1920). Free trade creates efficiency in production. Resources are allocated optimally due to specialization. Efficient use of resources results into increased productivity. Free trade enhances competition, hence increasing innovation in production and marketing of products (Conti, 1998). Other benefits are gain in foreign exchange, increased employment and general economic growth (Hoctor Thierauf, 2003).
However, free trade creates domestic economic instability. Countries become over dependent on international economy. This leads to economic crises which affect most economies due to over reliance on global markets (Taussig, 1920).
Developing industries find it difficult to grow in the free trade market. International competition from well established companies leads to closure of small industries. Free trade creates harm to the environment since countries follow the idea of massive production and do not include the factors of environmental conservation in their prices. Dumping of products is a problem that is related to free trade. Countries dump their surplus products in the international markets to avoid loss. Structural unemployment is likely to be encountered in the short run by most economies practicing free trade (Wilson Roberts, 1996).
How and why the forms of business organization used to manage business commerce changed over time
The changing business environment has compelled many businesses to change their management styles. Increasing competition in the business arena has caused many organizations to adopt new marketing and overall performance of their activities. Technological change has challenged most organizations and this has led to change in the management styles (Eoyang Olson, 2001).
New forms of management are e-commerce. This involves the use of electronic media in the running of activities within the business (Hoctor, Thierauf, 2003). A customer-oriented management style has been adopted by many organizations. This has been caused by the increasing competition in business. The customer is the most important aspect in any business. For a company to succeed, it must capture this aspect with a lot of care (Eoyang Olson, 2001).
Free trade involves removal of all barriers to trade. Many countries have benefited from trade. For a country to succeed, it must employ some amount of protectionism. These measures will protect the domestic economy from international interference and overdependence. Modern businesses should develop new strategies of operation since there are many changes that are coming up in the production and marketing. Companies must conduct continuous market research and development so as to develop an integrated market.