Nations gain by producing goods at relatively low costs and exchanging their outputs for different goods produced by others at relatively low cost. Thus, consumers can gain enormously through appropriate specialization and exchange. A country has an absolute advantage in producing a good if production of the good absorbs fewer resources than are required in other countries or by other individuals or firms.
Specialization leads to economies of scale (Globalization) where more units of a good or a service can be produced on a larger scale, yet with (on average) less input costs. An increasingly competitive global economy drives companies to gain larger global market shares so that they can exploit the benefits of economies of scale (Daniels, Radebaugh, and Sullivan, 2007).
Of course, a harmonious political climate and international embracement of free trade are foundations which allow international trade to flourish (Daniels, Radebaugh, and Sullivan, 2007). This condition is clearly evidenced by the success of the World Trade Organization (WTO), an organization for liberalizing and supervising free trade. Today, the WTO has 153 members, representing more than 95% of total world trade (Fergusson, 2007). Cross-national cooperation is seen as in the best interest of its members who want to retain reciprocal advantages, to attack problems jointly that one country acting alone cannot solve, and to deal with areas of concern that lie outside the territory of any nation (Daniels, Radebaugh, and Sullivan, 2007).
Most notably, trade liberalization and technology have transformed the business value for operating in multiple countries. This revolution has been accompanied by services that make it easier than ever before to conduct international business. A large global market and intense competition promote specialization and encourage its economies of scale while individual countries increasingly see free trade as in their best interest. All these factors have made global business an imperative in today's economy.
Bibliography
Comparative advantage and absolute advantage. EconomicsInteractive.com. Retrieved from http://www.unc.edu/depts/econ/byrns_web/Economicae/Essays/ABS_Comp_Adv.htm
Daniels, J.D., Radebaugh, L.H., & Sullivan, D.P. (2007) International business: Environments and operations. Upper Saddle River, NJ: Pearson/Prentice Hall. ISBN: 0131869426
Fergusson, I.F. (2007, May 9). The World Trade Organization: Background and issues. http://www.nationalaglawcenter.org/assets/crs/98-928.pdf
Globalization. http://bovination.com/cbs/globalization.jsp
Schifferes, S. (2007, January 24). Multinationals lead India's it revolution. BBC News. http://news.bbc.co.uk/2/hi/business/6288247.stm
Spar, D.L., and Yoffee, D.B. (2000). A race to the bottom or governance from the top?, in Prakash, Aseem and Jeffrey a. Hart (eds.), Coping with Globalization, Routledge, New York
