CO720 Global and Regional Economic Development

Final Examination for Section 720-2105-1 August 2021

Tan Wei Shen

Q1

a. The world economy has received a positive news in recent months, pointing to a rapid

rebound from the COVID-19 crisis. World merchandise commerce has increased

dramatically and is now far above pre-pandemic levels. Since the middle of last year,

worldwide industrial production has been recovering in a V-shaped pattern. In the second

quarter of 2021, raw resources such as copper, iron ore, and lumber achieved new highs. In

June, crude oil prices surpassed $70 per barrel for the first time in two years. Meanwhile,

capital flows to developing nations have increased since late 2020, owing to extraordinarily

accommodative monetary circumstances, substantial global liquidity, and great investor risk
appetite.

Recoveries are diverging across countries and sectors because every country and sectors has

different policies and patterns. Taking Malaysia for an example, Malaysia has undergone few

rounds of lock down, and re-opened for some of the markets. But this does not help the

country to recover better, but it has causes the case to rise as high from 1k per day to 22k

cases per day. Some countries especially the European countries has speed up on their

move on vaccination process and encourage their people to take the vaccination, for

example UK, has now manage to re-open their usual economic sectors, where else for

countries such as US , human rights are very important to the citizens out there, hence
causing the case to fluctuate up and down as there is a choice for people to take the vaccine

and not encouraged by the government.

Different countries has different culture and different policies that are set by the

government, hence causing different recoveries method to be used in different countries

and sectors. For example, Malaysia has opened up few important sectors when the lock

down just started in order to maintain the needs of citizens during lock down, as the

vaccination rate increase, the government is slowly reopening back more sectors. But to

China, China’s lockdown is different, they lock down everything entirely till the cases went

below a certain level that is agreed by their ministry of health then only they reopen their

markets. But we see differences of how the government of Malaysia and China works,

during the pandemic, Malaysia government gave lots of subsidy to their people where else,

the Chinese government force their citizen to stay home and provide them with the

necessities needed till lock down ends. The action of Chinese government is truly

appraisable.
b.

Few challenges the global economy is currently facing:

Global recover is unequal and incomplete, recovery paths are different across countries.

Besides that it's incomplete because, despite a stronger than expected recovery in the

second half of 2020, GDP in most nations is still considerably below pre-pandemic levels.

Gap between emerging countries and developed countries is growing. With the current

pandemic, there is an increase in poverty. Different countries are having different ways for

recovery resulting in different speed in recovery, for nations who are smaller and poorer,

they do not have the sufficient resources to even undergo vaccination process, hence

making the country not to be able to go back to the pre-pandemic stage.

Exceptional uncertainties, it’s hard to predict when the pandemic is going to be over, it is

uneven for vaccines as well. Virus mutation also cause challenge as it has lower the

efficiency of the current vaccine prolonging the recovery phase. Different countries also face

challenges like the effectiveness of policy as some country has limited fiscal space and high

debts that causes challenges in the short and long run.

A variety of fiscal, monetary, and fiscal policy measures will assist to maintain robust

household incomes, jobs, and cash flows while reducing longer-term economic risks. Due to

differences in the timelines for closing and resuming various sectors, the possibility of

further closures and financial instability, and the uncertainty over the economics of changes

in the business structure, supply and demand, and the associated economic consequences,

policies will need to be flexible and agile. Emerging market economies and developing
countries with credible macroeconomic policy frameworks, such as flexible exchange rate

arrangements, strong foreign asset positions, and manageable exposure to foreign-

currency-denominated debt, can absorb current shocks by combining monetary and fiscal

policy easing.

Then government should come out with structural policies with strong post recovery

performance. To avoid long-term scarring and restore productivity growth, policymakers will

need to develop ways to identify and support sustainable jobs in the short term, while also

giving enough freedom for the progressive reallocation required across sectors. In long term

run, government should invest in education and trainings for low skill workers so that they

are equip with better competitiveness in the future.

c.

I am currently working in Samsung Malaysia Electronics IT & Mobile team, as a tablet

product manager, the company is still doing good even during pandemic, as a MNC

company, Samsung has many channel in terms of their businesses. Unfortunately, due to

the current Covid Pandemic, Samsung’s sales has drop drastically comparing to 2018.

Samsung used to be replying on their master dealers in distributing all their products in the

past, causing Master dealers to always be in charge in terms of pricing, if the pricing given to

master dealers aren’t bringing them good profitability, they would have just changed to

other brands, hence in the past Samsung has been given them a very low profit prices in

order to secure them distributing our brand stocks. But due to the pandemic, with chipset

shortage, supply of the products became lesser, but the demand has grown in the market as

many people are stocked at home during lock down. Hence now Samsung is focusing more

towards the online channel.

The online channel is solely by Samsung without any dealer’s interreference, plus due to

lock down the access of internet shopping has become much easier, Samsung’s move on

changing their focus to online channel is smart and effective. The education to consumer of

staying safe not going out from their house but able to still buy Samsung products with

extensive review on YouTube and medias.

Besides that, Samsung should participate more in government initiative campaigns, thought

the margin of profit is lower, but it would be a great marketing tool for the brand itself.
Prihatin and Jendela program was initiated by the Malaysian government to help students in

rural areas to have access to E-Learning in rural areas.

Samsung should have more collaboration with universities and colleges to introduce them

discounted purchase for the students who are currently studying in order to replace the lost

of sales during this pandemic.

Q2

There are 3 strategies that the companies used to compete in the situation mentioned in

the system.

Adaptation strategy

This strategy improves market share and revenue by changing some aspects of a company's

business strategy to meet local preferences and needs. To gain access to a new consumer

base in a new market, businesses apply tactics and practices that are popular in the area.

Customers are more likely to accept as a result of this. For example, McDonald launched

Paneer Salsa wrap and Curry burgers to suit Indian customer’s preferences.

Aggregation strategy

This strategy aims to produce economies of scale and scope through achieving global

efficiencies in general. Typically, this involves the standardization of a part of the value offer,

which may lead to the assemblage of production and development processes. To gain a

significant cost advantage by centralizing the supply of raw materials and the production of

finished goods. For example, most Toyota cars are produced in Japan, as well as worldwide,

the huge scale of production allows lower cost, higher efficiency, and have quality control.

Arbitrage strategy

These strategies do not include bridging the disparities across markets or responding to

local needs. Rather, they instil the strategy of creating global value by exploiting market
differences, usually by benefitting from the margin of difference in the various segments of

the supply chain in different locations. For example, Walmart sells products worldwide that

they bought from China and earns the price differences.

In my opinion, globalization will continue to occur in the future. Business is always about

making money, companies tend to lower their cost to make additional profit from it, as we

see many companies from the developing countries are moving out their production to

countries like China, India, Vietnam that has a cheaper alternative in terms of labour to

lower down their cost, it helps to make their product cheaper, more competitive although it

brings disadvantages as well. With more businesses arise due to more opportunities arises,

globalization helps them to start-up and sustain especially when knowledge and technology

are easily shared in the current world. With globalization, companies can sell their product

to more markets, consumers are enjoying the result globalization is bringing, as they can

enjoy more products and services provided with different ranges and choices.

Pros of globalization

1. Globalization gives more access to goods and services

a. People can buy various products and services that are provided or manufactured

from different countries

2. Globalization helps to reduce poverty

a. With globalization, more business arises creating more job opportunities. With more

job opportunities in the country, wages are paid, welfare can then be improved.

3. Information and technology are transferred easier.

a. With the help of globalization and access to the internet, people can learn more

things from others. Knowledge and technology can be easily transferred to all around the

world especially bringing more opportunities for developing countries

4. Productions are more affordable

a. A global market provides businesses with greater access to manufacturing

opportunities and consumers, resulting in more goods being accessible at a wider range of

prices.

Cons of globalization

1. Large companies can exploit tax

a. When companies place their business in other countries to avoid tax, this causes

their main country to lose significant incomes.

2. Unequal economic growth

a. While globalization tends to boost economic growth in many countries, the benefits

aren't distributed evenly, normally richer countries benefit more than poorer countries.

3. Job displacement

a. Globalization does not create more employment; rather, it redistributes them by

shifting production from high-cost countries to low-cost countries. When a result of

globalization, developing countries often lose jobs as production moves outside.

Q3.

FDI acts as an important role for developing and emerging economies, especially in long-

term prospects. There does not only be a role as a source of capital but also helps to

enhance the competitiveness of the domestic markets. This is due to when FDI inflows, it

brings technology transfer to the country, help to strengthen or develop the country’s

infrastructure to be more modernized as a good infrastructure is one of the factors for

foreign investors to invest as well as raising productivity because FDI inflows bring in more

advance system which makes the business more effective and efficient, last but not least

reduce unemployment, new FDI inflows create more opportunities of business hence

require a lot of manpower that helps the country to increase more working opportunities.

FDI is an important catalyst for economic growth in developing countries. (Mittal,

2015)Most importantly FDO helps stimulates economic development, it helps to the

revenue of a country by providing investing, labour force, and material is utilized, hence

large scale employment results leads to better lives and improves the standard of living

which will help more people able to pay taxes and then become an investment for the

nation’s development. (Angel One, 2020)

Investment by multinational corporations (MNCs) can lead to an integration of global

economies by reducing global poverty and inter-country disparity in income levels directly

and indirectly. FDI can have direct effects on global poverty through spill over effects. MNCs

provide training assistance and technology transfer to the local companies which helps to

improve their quality, hence causing productivity and economic growth to increase then

contributing to the growth of national welfare. According to endogenous, neoclassical,

modernization, and dependency theories, FDI indirectly affects poverty when they affect

economic growth as it helps to create job opportunities which increases employment rates.

( Tsaurai, 2018). The effect of FDI on poverty in India and SAARC countries was empirically

investigated by Agarwal et al. Using ARDL and time-series data from 1981 to 2011, it was

discovered that FDI had a negative impact on poverty in India. Meanwhile, utilizing panel

data from 1981 to 2011, studies in SAARC countries produced different conclusions. In Sri

Lanka and Nepal, the regression results show that FDI reduces poverty, but it also increases

poverty in Pakistan and Bangladesh.

FDI, according to dependence theorists, increases income disparity. Tsai (1995) claims that

the problem of inequality is rooted in the global economy and historical context. The

influence of a country's relative place in the global economy determines its income

distribution. Tsai examines the relationship between FDI and income inequality in 33 least

developed countries (in Latin America and South-East Asia) using cross-country data and

finds that FDI leads to more unequal income distribution in the host least developed

countries, particularly in countries in South-East Asia. (Tsai, 2005)

Hence, in conclusion, FDI does have a different impact on global poverty and disparity of

income levels but depending on a few factors, such as the policy of the country, regulatory

framework, quality of investment, etc. (Review of Integrative Business and Economics

Research, Vol. 10, Supplementary Issue 1, 2021)

Bibliography

Angel One. (2020, August 31). FDI ADVANTAGES AND DISADVANTAGES. Retrieved from

Angel One: https://www.angelone.in/knowledge-center/share-market/advantages-

of-fdi

Mittal, D. I. (2015). Role of Foreign Direct Investment in the Development of Indian

Economy. Role of Foreign Direct Investment in the Development of Indian Economy,

132-137.

Review of Integrative Business and Economics Research, Vol. 10, Supplementary Issue 1.

(2021). How Does Foreign Direct Investment (FDI) Reduce Poverty? Application of the

Triangular Hypothesis for the Indonesian Case, 400.

Tsaurai Kunofiwa. (2018). Investigating the Impact of Foreign Direct Investment on Poverty

Reduction Efforts in Africa. Revista Galega De Economia, .27 (2), 139-154

Tsai, Pan-Long (1995). Foreign direct investment and income inequality: further evidence.

World Development, vol. 23, No.3, pp. 469-483.