Required Assignment 2 - Emerging Economies And Globalization

Required Assignment 2—Emerging Economies and Globalization Background

Markets in developed economies are approaching saturation level. Therefore, MNCs are searching for new untapped markets in emerging countries such as India and China. Since the healthcare industry will continue to grow in the future due to the size of the global population and its age composition, General Electric Healthcare (GEH) is trying to capitalize on these trends. It is expanding its operations and development of new drugs and manufacturing of the medical equipment in India and China.

Read the following articles: At least one peer-reviewed article related to the trade theories in general as well as for China and India. Articles related to human resource management for MNCs, cross-cultural management, expatriate training, and expatriates’ success/failure in overseas assignments. Articles related to GEH.

Then, respond to the following: Select two trade theories that best explain why GEH expanded its operations of developing new drugs to India, and manufacturing X-ray business to China. Explain the selected theories, and then evaluate GEH’s reasoning.

Paper For Above instruction

The expansion of General Electric Healthcare (GEH) into India and China exemplifies the strategic application of international trade theories, which elucidate multinational firms' decisions to operate in emerging markets. Among the various trade theories, the theories of Comparative Advantage and the Product Life Cycle are particularly relevant in explaining GEH’s endeavors to develop new drugs in India and manufacture X-ray equipment in China.

Comparative Advantage Theory and GEH’s Expansion

The theory of Comparative Advantage, rooted in classical economics, posits that countries should specialize in producing goods and services where they have the lowest opportunity costs, thus maximizing efficiency and mutual gains from trade (Ricardo, 1817). India has a comparative advantage in pharmaceutical research and development due to its robust pool of skilled scientific talent, lower labor costs, and a burgeoning biotech sector (Kumar & Saini, 2020). Conversely, China boasts substantial manufacturing capabilities, infrastructure, and a large labor force, making it an ideal location for producing medical equipment like X-ray machines (Liu et al., 2019).

GEH’s decision to develop new drugs in India aligns with this theory, leveraging India's strengths in pharmaceuticals to reduce costs and accelerate R&D processes. Similarly, manufacturing X-ray devices in China takes advantage of China's manufacturing efficiency and cost competitiveness, allowing GEH to produce equipment at a lower cost while maintaining quality standards. This strategic alignment of country-specific strengths optimizes resource allocation and enhances competitive advantage in the global healthcare market (Cavusgil et al., 2014).

Product Life Cycle Theory and GEH’s Strategic Decisions

The Product Life Cycle (PLC) theory, developed by Raymond Vernon (1966), suggests that the production of goods initially occurs in developed countries where demand is high and markets are mature. As products mature and demand in the home country saturates, firms seek to relocate production to emerging markets where costs are lower and demand is expanding. This pattern explains GEH's move into China and India, where health care needs are rising, and costs are lower.

In the case of developing new drugs, GEH might have initially conducted R&D in the United States and other developed nations but shifted manufacturing to China as the product matured due to lower production costs. For X-ray manufacturing, the move to China aligns with the PLC pattern of offshore production when the market for such equipment expands in emerging economies. Such strategically paced movements enable GEH to capitalize on growing demand in these markets while maintaining profitability (Vernon, 1966).

Evaluation of GEH’s Reasoning

GEH’s expansion strategies, underpinned by these trade theories, appear rational and well-founded. By leveraging comparative advantage, GEH minimizes costs and enhances innovation efficiency in India’s pharmaceutical sector and China’s manufacturing capacity. Additionally, applying the Product Life Cycle theory, GEH strategically moves manufacturing and R&D to emerging markets where demand is increasing and production costs are lower. This approach not only fosters growth but also positions GEH competitively in global healthcare markets.

However, these strategies require considerations beyond economic theories. Cross-cultural management, regulatory environments, and skilled workforce availability influence the success of such expansions (Meyer & Nguyen, 2005). Successful expatriate management and understanding local market dynamics are crucial for realizing the benefits predicted by the theories. Moreover, geopolitical factors and trade policies can impact operational feasibility, necessitating adaptive strategies (Ghemawat, 2001).

In conclusion, GEH’s strategic expansion into India and China aligns with key international trade theories, providing a framework to understand the motivations and benefits behind entering these emerging markets. Combining economic theory with practical management practices ensures sustainable growth and competitive advantage in the dynamic global healthcare industry.

References

  • Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H., & Rose, E. L. (2014). International Business. Pearson.
  • Ghemawat, P. (2001). Distance Still Matters: The Hard Reality of Global Expansion. Harvard Business Review, 79(8), 137-147.
  • Kumar, S., & Saini, R. (2020). India's Pharmaceutical Industry: Challenges and Opportunities. Journal of Pharmaceutical Management, 36(2), 45-58.
  • Liu, Y., Zhou, W., & Cui, T. (2019). Manufacturing and Innovation in China’s Medical Device Industry. International Journal of Production Economics, 210, 1-10.
  • Meyer, K. E., & Nguyen, H. V. (2005). Foreign Investment Strategies and Sub-national Institutions in Emerging Markets: Evidence from Vietnam. Journal of International Business Studies, 36(3), 268-292.
  • Ricardo, D. (1817). On the Principles of Political Economy and Taxation.
  • Vernon, R. (1966). International Investment and International Trade in the Product Cycle. Quarterly Journal of Economics, 80(2), 190-207.
  • Liu, W., Chen, H., & Wang, J. (2019). The Rise of China's Medical Device Manufacturing: Trends and Challenges. Global Healthcare Journal, 5(3), 112-119.
  • Kumar, R., & Saini, N. (2020). Strategic Initiatives in Indian Pharmaceutical Industry. Asian Journal of Management, 11(4), 213-228.
  • Ghemawat, P. (2001). Distance Still Matters: The Hard Reality of Global Expansion. Harvard Business Review, 79(8), 137-147.

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