Discuss the Advantages and Disadvantages of International Trade for Elecrox PLC
If was a director on the board for the company Elecrox PLC, I would need to decide whether this firm would benefit from manufacturing abroad or if it would be more worthwhile to continue production in Britain. Within this essay, I will be discussing the advantages and disadvantages of international trade/production for Elecrox PLC. Then, I will evaluate the pros and cons of international production for Elecrox PLC before concluding whether international production would be more useful and strategic for the company or otherwise, not.
Advantages: If the company Elecrox PLC were to manufacture their goods abroad, they could produce each of their individual electrical appliances at a cheaper cost (appliances such as fridges, kettles, irons, ovens…) as countries such as China and India have cheaper labour available due to a lower and more affordable living wage threshold. This is because both India and China have a population in excess of 1 billion inhabitants which suggests that there is a constant supply of labour which means that it is cheap. If Elecrox PLC were to manufacture their items in Britain, they would have to pay their workers at least the minimum wage of approximately £6,000 a year which is a lot more than the wages in other countries which have been mentioned above. Another factor which Elecrox PLC would benefit from if they committed to manufacturing their products abroad, is that the expense of raw materials will be reduced as natural resources are found more easily and more abundantly in countries such as China, Brazil and Saudi Arabia than in England. These two factors combined means that if Elecrox PLC manufacture abroad, there can sell their goods at a greater profit margin which will mean that the company will be able to become wealthier. This additional income to the company can allow them to spend more money into research & development and advertising/marketing which will allow Elecrox PLC to make an even larger profit but also, they will create awareness for their brand and trade purposes which will mean that they will develop a larger customer database.
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Another reason why Elecrox would find it beneficial to manufacture abroad is because they would be able to exploit the use of modernised transportation systems to ship and delivery their goods worldwide which would increase the company’s assessability range and hence, it will increase their profits. If Elecrox PLC don’t manufacture abroad, they run the risk of being overshadowed by larger and more competitive businesses which offer a similar service. This could consequently mean that the company don’t earn enough of an income to make a profit and pay all its cost (e.g. wages, rent, transport…) and therefore, the company may have to shut down and liquidate. Finally, international trade would benefit Elecrox PLC due to the theory suggested by Ricardo (a classical economist) of comparative advantage. Comparative advantage is when is the principle that all parties can benefit from international trade when goods are produced at differing relative cost. Elecrox PLC will produce their various appliances at altering process at it is obvious that a fridge will cost more than an iron to manufacture for example.
Disadvantages: On the other hand, international trade mightn’t benefit Elecrox PLC as, when production is situated abroad, the different culture, time zones and skills of the new employees may cause communication issues between the original base in England and the manufacturing factory abroad. Furthermore, customers which are speaking to the factory in a foreign country may not be impressed by the quality of the service as people in different countries will have different speaking attributes such as transparency in their voice and accents. Customers may be put off by the fact that the company they are communicating with has British roots yet the people answering the phone are from a different country. This contrast may put potential buyers off. Another issue which may occur is confusion due to the different time zones of the manufacturing base and Britain. These differing time zones may lead to lower work productivity as the working hours in Britain will differ to the working hours in another country (e.g. China) which means that certain services may not be available to link the two countries together for all 24 hours in a day. Finally, due to the different skill levels of employees which are working abroad, the quality of the appliances being manufactured may differ. If the quality and reliability of a product is being compromised in the wake of profit, then customer satisfaction may be lowered and hence, this will lead to a drop in profits and popularity. Also, Elecrox PLC may not want complete their manufacturing abroad is due to the fact that the company may be deemed to have lost its originality and its British origins and hence, this may not appeal to people in Britain who may feel that the company are maximising on profits rather than exclusivity. Finally, Elecrox may not want to manufacture abroad as the people who have already been employed in England will lose their jobs. If this occurs, people may question the moral section of the company and therefore, the company may lose customers as the ethical values of the business is being overlooked.
In my opinion, I believe that Elecrox PLC should manufacture their goods abroad as the overall outcome of their decision will ensure them to gain bigger profits and therefore, they could stamp their authority in the electrical appliance market by becoming a much larger retailing by delivering internationally. Furthermore, with this larger profit, the company can pay their staff a higher wage which would compensate for initially making their British manufacturing workers redundant.