IL/U1 Topic 5 International trade, Logistic chain
International trade allows us to expand our markets for both goods and services that otherwise may not have been available to us. It is the reason why you can pick between a Japanese, German or American car. As a result of international trade, the market contains greater competition and therefore more competitive prices, which brings a cheaper product home to the consumer.
International trade is the exchange of goods and services between countries. This type of trade gives rise to a world economy, in which prices, or supply and demand, affect and are affected by global events. Political change in Asia, for example, could result in an increase in the cost of labor, thereby increasing the manufacturing costs for an American sneaker company based in Malaysia, which would then result in an increase in the price that you have to pay to buy the tennis shoes at your local mall. A decrease in the cost of labor, on the other hand, would result in you having to pay less for your new shoes.
Trading globally gives consumers and countries the opportunity to be exposed to goods and services not available in their own countries. Almost every kind of product can be found on the international market: food, clothes, spare parts, oil, jewelry, wine, stocks, currencies, and water. Services are also traded: tourism, banking, consulting and transportation. A product that is sold to the global market is an export, and a product that is bought from the global market is an import. Imports and exports are accounted for in a country’s current account in the balance of payments.
Italy and Greece produce olive oil and wine. Both countries produce 1,300,000 tons of both products, but Italy produces 500,000 tons of olive oil and 800,000 tons of wine annually, whereas Greece produces 900,000 tons of olive oil and 400,000 tons of wine annually. Furthermore, Italy requires 10 hours to produce one ton of olive oil and 5 hours to produce one ton of wine, whereas Greece requires 7 hours to produce one ton of olive oil and 4 hours to produce one ton of wine.
Although both Italy and Greece produce the same quantity of olive oil and wine annually, Greece needs less time to produce one ton per each product – a total of 11 hours as opposed to Italy’s total of 15 hours. Therefore, Italy focuses on the production of wine because it produces more tons in fewer hours and Greece focuses on the production of olive oil because it produces more tons in fewer hours.
In international trade, this is a comparative advantage, and it indicates the specialization of a country on particular products and services that can be produced at a lower cost. Therefore, both Italy and Greece continue to produce a total output of 1,300,000 tons per year, but at the lowest cost.
The logistics chain, defined as the path of goods and information from a creator to an end user, enables any business to turn product into sales. Involving either tangible or intangible goods or services, it is the entire path which results in revenue for a company. Due to this fact, a firm must make sure to maintain a logistics chain which efficiently moves important materials from one place to another.
The logistics chain, explained by some as a simple function of modern logistics software, is a far deeper concept. Its management involves many essential sides to business: accounting, warehousing, packaging, handling, distribution, and even security. Due to the fact that many businesses entire operations can be summed into part of or the entire of the logistics chain, a profession has been created to complete the needs of these businesses. It is called logistics or supply chain management.
A complete business has 2 major departments: marketing/sales and operations. All-in-all, operations is another way to say logistics. So, the logistics chain comprises about 50% of almost any business.
Alejandro is a supply chain management professional. Though his work is taxing, he loves completing the cycle which ends with a happy customer. Alejandro knows the power of the logistics chain because it brings him and everyone he cares about the tools needed to have a happy and successful life.
Alejandro, a consultant who resolves weak links in the logistics chain of businesses, has a large task ahead of him. His client, a food packaging plant, relies entirely on the chain of logistics. They need Alejandro to simplify the cycle they have created. This will be no simple feat.
First, Alejandro uses his logistics chain software to create a layout for the warehouse. The layout maximizes efficiency by placing items where they will be used the most.
He then prepares a training manual for all of the employees. Alejandro knows that he will encounter some resistance but is ready and willing to persuade employees that his method is most efficient.
Alejandro wraps up his work and prepares to meet with the company. He knows he can not change everything, so he resolves to work hard until he can make a significant change in the business.