by Brad Storm

Created on: May 02, 2008

Globalization is a connection to all of the worlds markets. Countries around the world and corporations alike benefit from globalization. Instead of relying on national economies self-contained within the borders of the country, time zone, languages, cultures, or distance, countries are branching out to allow cross border trade and investment. More than $1.2 billion in foreign exchange transactions occur every day (Hill, 2005). One such example of this globalization is in the retail industry and we will use this industry to discuss globalization and its impact on a company's future. The issue, or problem, for retailers is simple: All retail operations may have to expand their operation to global marketplaces because of competition in the U.S. marketplace and for growth potential.

Trade and Comparative Advantage

The retail industry is very good at what it does in the United States. Wal-Mart, for example, had realized that by about 1990 competition was growing fiercely within the US and that potential for growth domestically was becoming more difficult (Hill, 2005). Studies showed that within 10 years, market saturation would be so great that their growth opportunities would be severely hindered. The company decided it would expand globally to take advantage of trade across borders.

Trade allows nations to enhance their resources more efficiently, acquire more goods and services, and to specialize their production (Brue, 2005). Nations can gain the most by specializing in the products it can produce the most efficiently and trade for the products it cannot produce as efficiently. The principle of comparative advantage states that when each good is produced by the nation that has the lowest opportunity cost for that good then the total output for the good will be the highest. With all of this in mind, it is easy to say that Wal-Mart should do well globally: Wal-Mart produces a service better than almost anyone else and a country would benefit from its experienced retail services. The company knows how to leverage its production efficiency and lower its opportunity costs.

Barriers to free trade exist, however. These barriers can be in the form of tariffs, import quotas, non-tariff barriers, or voluntary export restrictions. Tariffs are imposed either to protect the domestic market from competition or to provide income to the government. Import quotas are imposed to slow down the import of a specific good. Non-tariff barriers require special licenses to be optioned

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