Summary of Main Issues Discussed within the Case Study
Further, the author talks about OPT contracts and how they have been beneficial to countries located within Europe. OPT contracts refer to agreements through which firms within the Euro Zone are protected from stiff competition from other regions such as China due to the production costs differential. One of the privileges they enjoy is the freedom to export temporarily. One of the countries that have gained from OPT agreements is Romania, which is one of the poorest countries in Western Europe. This is because OPT agreements led to a significant increase in the orders made from Europe. This in turn led to increased job opportunities as a result of increased number of firms within the country. Lastly, the author mentions about H&M dilemmas in 2004. There was a need to shift production to Asian countries due to cost efficiency measures. Nonetheless, H&M maintained Europe as its production hub for fast moving fashions due to skills availability.
Question 2.1
I think free trade should be allowed to take its natural course in particular cases. As such, OPT and other similar agreements should be restricted. Free trade enables retailers to import goods from the most cost efficient suppliers. I think free trade should be allowed to take its natural course as it will ensure cost minimization and profit maximization to firms. This will in turn lead to increased foreign income and a favourable balance of payments in countries where the cost efficient suppliers are located. Therefore, a country will only produce goods on which it incurs lower costs of production. This will be beneficial to consumers as they will access quality goods of lower prices.
On the other hand, I think free trade should not be allowed to take its natural course. This is because of the negative impacts that the free trade has on both individuals and countries at large. Firstly, free trade can lead to unemployment in various countries. This will lower the quality of life in the affected countries. For instance, in case of free trade was allowed to take its natural course in Romania, most people would still be unemployed. Secondly, free trade leads to dumping of low quality goods.
Question 2.2
Advantages and Disadvantages of OPT to Romanian Firms
The Romanian firms benefitted from OPT Contracts as it allowed them to export temporarily. Additionally, Romanian firms were able to shift to cut-make and cut-make-trim production designs which required fewer skills and knowledge. This in turn led to reduced production and labour costs.
Advantages and Disadvantages of OPT to Romania as a Country
OPT contracts protected countries within the Euro Zone. As a country, Romania benefited from OPT contracts since the contracts led to increased exports and reduced unemployment. Increased exports benefits a country as it leads to increased foreign income and a favourable balance of payments. Moreover, with increased exports, Romania`s unemployment rates significantly reduced since there was more labour demand by various firms. This in turn led to job creation.
Question 2.3
The Romanian government can help keep jobs in Romania through various means. Firstly, the Romanian government should retain the existing investors within Romania in order to keep the job opportunities. Secondly, the government should also attract more investors who will help in creating more job opportunities in Romania. This can be done through the provision of incentives and subsidies such as reduced taxation and tax holidays. This will in turn reduce the costs of manufacturing and production. Reduced production costs will maintain and create new job opportunities as more investors would be attracted. Thirdly, the Romanian government should ensure peace and stability within Romania. This will help keep more jobs in Romania as investors are attracted to peaceful countries in which their safety is ensured. Economic stability can also be achieved through political stability.
The Romanian government should try to attract more foreign investment into Romania. This is because foreign investment leads to increased job opportunities and hence economic stability. Foreign investment should also be attracted to Romania as it leads to improved quality of life. This is due to increased job opportunities which will enable citizens to earn some income. Additionally, it is essential to attract foreign investment in order to improve the global position of Romania as a country. Moreover, foreign investments lead to the production of quality goods within the country. This is because foreign investment increases competition. This challenges local firms that would otherwise produce goods of poor quality.
In order to attract foreign direct investment, the Romanian government can carry out various steps. Firstly, it should offer tax incentives to foreign investors. Tax incentives vary from one country to another and include tax holidays, reduced corporate taxes, tax credits, industrial buildings allowances, investment allowances, and accelerated depreciation. Additionally, investors can be attracted through the exemption of indirect taxes such as import duty, VAT, and export duty. Specific areas such as export processing zones can also be given tax incentives that will in turn attract foreign direct investment. Secondly, the Romanian government can attract foreign direct investment through enforcement of law and regulations that protect the intellectual property and rights of foreign investors. Thirdly, foreign direct investment can be attracted through ensuring political stability within Romania. Investors are attracted to countries in which their safety is ensured. As such, ensuring political stability is essential as it also ensures economic stability. Fourthly, the Romanian government can attract foreign direct investment in Romania through creating a conducive environment required for quality production. This can be achieved through addressing issues such as development of infrastructure and the human resources. The human capital can be developed through the promotion of relevant education that can be applied in the job market. On the other hand, infrastructures such as transport, communication, and electricity systems should also be developed. These are essential amenities as they facilitate the production and manufacturing exercises. Lastly, the Romanian government can attract foreign direct investment through improvement of technology necessary for research and development.
Question 2.4
H&M should maintain healthy competition between it and its Spanish Rival Zara. This is because it is relatively smaller in size and Zara enjoys economies of scale in its production process. A healthy competition can be realized through different means. Firstly, H&M should minimize its manufacturing and operating costs at large despite its small size. Cost minimization can be achieved through efficiency within the firm and through the production of only what is required. Moreover, H&M can ensure the existence of healthy competition through the attraction of more customers through advertisements, ethical production process and the production of quality goods. The production of quality goods can be achieved through employment of skilled workers. Further, H&M can expand its size in order to compete favourably with Zara. Expansion will enable H&M to enjoy economies of scale just like Zara. Economies of scale lead to reduced production and material acquisition costs.
In order to counter the flood of low cost apparel from China, H&M should not only reduce its production costs, but also set up production and manufacturing bases in China. This is because labour costs in China are significantly lower and readily available. Setting up of manufacturing bases in China will enable H&M to counter the flood of low cost apparel from China since it will also be in a position to produce its goods cheaply. Nonetheless, quality should be maintained in order to retain old customers and attract new ones.
In order to ensure future survival and success, H&M should do various things. Firstly, H&M should maintain the production of quality goods. Consumers will only be retained and attracted to quality products. As such, it is essential for H&M to maintain and improve the quality of its products. Secondly, there is a need for H&M to market its products globally. Marketing can be carried out through acts such as advertising. This will make H&M famous and known worldwide. Thirdly, there is a need to employ and retain highly skilled workforce. This can be done through motivation. Employees are motivated through good pays and time to time training that would improve their skills and knowledge. Thirdly, H&M can ensure future survival and success through customer satisfaction. Customer satisfaction is essential as it leads to the attraction of more consumers. This can be realized through monitoring of market trends. This enables firms to produce goods that meet the tastes and demands of the consumers. Fourthly, in order to ensure future survival and success, H&M can enter into agreements such as mergers with one or more of its competitors. Agreements such as mergers and acquisitions have numerous advantages to smaller firms. These include reduced competition and reduced costs of production that would eventually lead to increased profit maximization. Lastly, H&M can ensure future survival and success through cost minimization and profit maximization. Cost minimization, as mentioned earlier can be achieved through various means. These include shifting of production to cost efficient suppliers such as China, production of what is needed, and production of quality goods.
References
Liebscher, K. (2007). Foreign Direct Investment in Europe: A Changing Landscape (Illustrated ed.). Northampton, Massachusetts: Edward Elgar Publishing.
S, C. T., R, K., & R, R. J. (2014). International Business (3 ed.). Essex Endland: Pearson Education Limited.
