case 8

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Dennis Agyemang Case study 8 INTBN 500 8-25. China's economic miracle rested on its abundance of low-cost, unskilled labor. What type goods would China likely export, given the predictions of the Heckscher-Ohlin theorem? Why? Based on the Heckscher-Ohlin theorem, I foresee a labor-abundant China should specialize in exporting labor-intensive goods. Labor-intensive goods like clothes, footwear, bags, and simple customer electronics. Based on the theory of comparative advantage, goods production requires low-cost and unskilled labor. China has all the attributes under comparative advantage (Griffin and Pustay, 2015). 8-26. China faces a cruel problem. The factors that were the foundation for its economic success will no longer work. What should China to do? To help China deal with its cruel issue, they need to consider altering its one-child-per- family approach. This change will permit its residents to determine the number of children they want. This simple yet significant change will entitle families to have more children and fix the low expansion acceleration encountered by working people. Further, as a benefit to families having more children, all the corporations in the metropolitan regions in China should preserve the same capacity of earnings. This preservation to pay will discourage employees from vacating careers and jumping from one corporation to another due to a slight rise in their wages (Griffin and Pustay, 2015). 8-27. Why is China trying to keep the value of its currency from rising? What would be the impact on the Chinese economy, Chinese workers, and Chinese consumers if the Yuan were to rise in value?

Dennis Agyemang Case study 8 INTBN 500 The value of China's currency determines the economy of China. China keeps its currency from rising to prevent investors or factories from leaving the country due to increased labor. Once there is an increase in currency, the standard of living increases, so the work pay is supposed to grow. An increase in the Yuan will hurt the economy because taxes will rise, and factories will move to the country with cheaper labor and taxes. Factories leaving China will then lead to unemployment and poverty. The domestic companies will shift, causing the cost of goods and services to rise. Customers will then rely on expensive imported goods (Matsangou, 2018). 8-28. If you were a representative of the Vietnamese or Bangladeshi government, would you support the efforts of U.S. and European diplomats to pressure China to raise the value of its currency? Why? If I were a Vietnamese or Bangladeshi government representative, I would support the U.S. and the European diplomats to pressure China to raise the value of its currency. A rise in the Yuan will force some companies to relocate to Vietnam or Bangladesh. Establishing these companies in Vietnam or Bangladesh will increase employment, factory taxes will help the economy grow, and citizens can access direct goods and services (Feenstra and Wei, 2010). 8-29. Suppose you are an official with Mexico's economic development agency. Write a one- page memo detailing why firms selling to North American customers should relocate their Chinese factories to Mexico. As an official with Mexico's economic development agency, firms to North American customers should relocate from China to Mexico because

Dennis Agyemang Case study 8 INTBN 500 Firstly, the labor cost in Mexico is cheaper than in China, which means that if the factories shift to Mexico, there will be a lower cost of production hence more profits. If labor is cheaper, the factories can hire many workers, increasing production and, therefore, high returns. As such, Chinese-based companies should consider relocation to Mexico. Secondly, companies should relocate to Mexico because of its geographical position of Mexico. Mexico is to the south of North America. The geographical part of Mexico will make it easy to transport manufactured goods to North America. The cost of transportation will be low, leading to an increase in revenue. When transportation costs are low, factories enjoy the low price in the final production costs but also increase production. The transport roads in Mexico are excellent, leading to easy and faster transportation of goods and products to customers. Customers and producers establish confidence and trust if the customer receives products in time. This trust will boost the trade between the producers in Mexico and the consumers in North America. The increase in business will impact the companies as profits will grow (Hunkar, 2018). 8-30. Some experts suggest that China will need to transition from its export-manufacturing based economy to an economy based on domestic consumption and an enhanced service sector.

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Dennis Agyemang Case study 8 INTBN 500 To make this transition, what changes in China's economic and other public policies need to be made? For China to make this transition, China needs to increase its real estate sector in both rural and suburbs domestically. Building houses will provide shelter for citizens, and that will minimize domestic migration. In addition, China needs to consider changing the policy of its one-child-per-family approach. This change will permit its residents to determine the number of children they want. An increase in population means the domestic consumption rate will increase; hence, citizens will consume whatever they produce (Matsangou,2018).

Dennis Agyemang Case study 8 INTBN 500 References Feenstra, R. C., & Wei, S.-J. (2010, March 19). China's growing role in World Trade . NBER. Retrieved June 20, 2022, from https://www.nber.org/books-and-chapters/chinas-growing- role-world-trade Griffin, R. W., & Pustay, M. W. (2015). International Business: A Managerial Perspective . Pearson. Hunkar, D. (2018, May 12). Topforeignstocks.com. Retrieved June 20, 2022, from https://topforeignstocks.com/2018/05/12/manufacturing-labor-costs-in-mexico-vs-china Matsangou, E. (2018, April 23). China's transitioning economy . World Finance. Retrieved June 20, 2022, from https://www.worldfinance.com/markets/chinas-transitioning-economy

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