SOLUTION MANUAL
SOLUTION MANUAL
, CHAPTER 2 GLOBAL DIMENSIONS OF SUPPLY CHAINS
Learning OBJECTIVES
Appreciate the complex issues facing managers of global supply chains and the
challenges of the more volatile global economy
Understand the rationale for global trade flows (imports and exports) and especially
the concepts of absolute and comparative advantage in explaining international trade
Discuss the role and importance of the Factors of Production in providing a trade
advantage to countries and/or regions for participating in global trade
Appreciate how population size and age distribution differ among various countries
and the impact that they have on their economic growth and vitality
Recognize and understand how the growth in urban areas around the world provides
challenges and opportunities for their countries especially, the development of the so-
called mega-cities
Discuss the challenges and importance of migration for the economies of the world,
especially the developed countries
Understand the internal and external roles of technology and information systems for
economic growth and development
Appreciate and discuss the trade flow volumes (imports and exports) among and
between countries of the world
Recognize and appreciate the importance of the various trading partners of the United
States
Discuss the importance and nature of the major trade agreements that impact the
United States and its trading partners
INTRODUCTION
Global Supply Chains are dependent on the efficient and effective flow of commerce
between and among the countries and regions of the world. There are numerous
factors that can impact and influence the flow of global goods and services, especially
economic and political factors. Before discussing the Global Drivers, the rationale for
global and regional trade will be summarized.
RATIONALE FOR GLOBAL TRADE AND COMMERCE
As European countries advanced economically, particularly during the 18th century,
there was a growing awareness of the potential value of international trade. Adam
Smith in his renowned treatise, THE WEALTH OF NATIONS, provided not only a
rationale for a market economy based upon competition, but also advanced a rationale
for trade among nations called the Theory of Absolute Advantage. Smith argued that
countries would be better off if they would trade commodities where each country had
an economic or cost advantage for one or more of the products that they produced
The underlying logic of Absolute Advantage was also used by Adam Smith to
advance the rationalization what he called “division of labor” or specialization of
labor.
Coyle, Langley, Gibson, and Novack 2-1
,The theory of Comparative Advantage was advanced about 40 years later by several
economists. The analyses were also somewhat simplistic because not all of the
relevant costs were considered. However, the logic was sound as long as total landed
costs were considered. The importance of both Absolute and Comparative advantage
is they demonstrate that global trade and related global supply chain flows can be
based not only upon scarcity of items among countries but also differences in the cost
of production with implicit benefit to all parties involved.
Later economists explored more fully the rational of global trade and specialization.
The Factor Endowment Theory postulates that when a country has more of one of the
four so-called Factors of Production (land, labor, capital and entrepreneurship), they
may have a comparative advantage in producing one or more products.
The current more complex global economy means that there are more variables than
the traditional factors of production that can provide advantages to countries and be a
basis for global trade flows. Some of these factors help to explain the development of
the so-called BRIC (Brazil, Russia, India and China) and VISTA (Viet Nam,
Indonesia, South Africa, Turkey and Argentina) countries. India and China have
developed and prospered in recent years because of improved global transportation,
faster communication systems, population growth, education, and technology
advancement.
CONTRIBUTING FACTORS FOR GLOBAL COMMERCE AND SUPPLY
CHAIN FLOWS
Essential factors for economic growth and increased development of global trade
flows include population growth and age distribution, urbanization, land and
resources, economic integration, knowledge dissemination, labor mobility, financial
flows and investment in infrastructure by public and/or private sources, faster
communication systems, improved financial services for the effective flow of goods
and services. These factors are the driving forces for globalization around the world
and need to be discussed in order to understand the future course of global trade and
development.
Population and Distribution
The top ten countries account for almost 60% of the total world population.
Interestingly, two countries account for about 36% of the total, China and India. The
U.S. is a distant third and China and India have over four times as many people as the
U.S. Another interesting statistic is that India is projected to have a larger population
than China by 2050 and that Russia (#9) and Japan (#10) are projected to have fewer
people in 2050 than they had in 2015.
The sheer size of the populations in China and India will provide these two countries
with a potential economic advantage in terms of labor for growth as long as the
economies can support that population size. The decrease in size for Russia and Japan
reflects an aging population and has the potential of being an economic disadvantage
in terms of labor availability and the social cost to support an aging population.
Coyle, Langley, Gibson, and Novack 2-2
, The median age is increasing, with one exception, over the course of the four years
for all categories. Developed countries have the highest median age in each year, and
the least developed counties have the lowest median age. The differences are
generally explained by the level of education, quality of health care and economic
well-being. The difference in median age between the most developed and least
developed is interesting to note. It is 21 years in 2010 and 2025 but drops to a
projected 18 years by 2050. Overall, however, the challenge is evident that the more
developed countries have a lower birth rate and an aging citizenry which has
implications for future economic development and prosperity.
Japan and three European countries are projected to have populations with median
ages over 50. The aging populations in these countries will result in increased health
care costs and a reduction in the size of the working population. This could result in a
lowering of labor productivity and increased taxes. The consequences of this
phenomenon could mean high unemployment, scarcity of some resources, and a need
for more housing, infrastructure (water, sewers, roads, etc.) education and other
services thus straining their economic viability even more. However, the size of the
potential workforce can attract industries that are labor intensive. Migration to
countries with aging populations is another possibility if not constrained. From the
perspective of world business and global supply chains, this data has some important
implications relative to economic growth, market size and development, capital flows,
labor availability consumer needs and utilization of natural and strategic resources.
A related issue is urbanization with the increase in migration in many countries from
rural areas to cities or urban areas. As one would expect this shift will be most
profound in the less and least developed countries of the world. The United Nations
projects by 2025 that 50% or more of the total Asian population will be in cities with
China having the largest urban population. A new category of city has been identified,
namely, Megacities (10 million or more inhabitants) which is a manifestation of the
migration to urban areas. One of the interesting and important dimensions of the new
Megacities is “where” they will develop.
The private sector can play an important role in the developments of these large urban
communities. The sheer size and density of the cities will require much effort and
innovation. To address the infrastructure shortages of transportation, fresh water,
sewage disposal, health services, educational facilities, etc. Meeting these needs will
require public and private funding. Global trade flows and global supply chains will
be impacted and businesses must be prepared to take advantage and participate for the
welfare of the citizenry.2
Migration can be disruptive and dysfunctional when it occurs with large numbers
under conditions of political upheaval. Absorbing that crush of humanity strains the
existing economic and social systems and causes unstable conditions. However,
humanitarian concerns dictate that every effort possible be made to accommodate this
mass migration from Syria and other nearby countries. The European Union countries
have felt the major impact of migration pattern because of their proximity and
economic status.
The United States should be given some attention. Table 2.4 addresses the U.S.
population (third largest) by age and gender for five years from 2010 to 2014. While
Coyle, Langley, Gibson, and Novack 2-3
SOLUTION MANUAL
, CHAPTER 2 GLOBAL DIMENSIONS OF SUPPLY CHAINS
Learning OBJECTIVES
Appreciate the complex issues facing managers of global supply chains and the
challenges of the more volatile global economy
Understand the rationale for global trade flows (imports and exports) and especially
the concepts of absolute and comparative advantage in explaining international trade
Discuss the role and importance of the Factors of Production in providing a trade
advantage to countries and/or regions for participating in global trade
Appreciate how population size and age distribution differ among various countries
and the impact that they have on their economic growth and vitality
Recognize and understand how the growth in urban areas around the world provides
challenges and opportunities for their countries especially, the development of the so-
called mega-cities
Discuss the challenges and importance of migration for the economies of the world,
especially the developed countries
Understand the internal and external roles of technology and information systems for
economic growth and development
Appreciate and discuss the trade flow volumes (imports and exports) among and
between countries of the world
Recognize and appreciate the importance of the various trading partners of the United
States
Discuss the importance and nature of the major trade agreements that impact the
United States and its trading partners
INTRODUCTION
Global Supply Chains are dependent on the efficient and effective flow of commerce
between and among the countries and regions of the world. There are numerous
factors that can impact and influence the flow of global goods and services, especially
economic and political factors. Before discussing the Global Drivers, the rationale for
global and regional trade will be summarized.
RATIONALE FOR GLOBAL TRADE AND COMMERCE
As European countries advanced economically, particularly during the 18th century,
there was a growing awareness of the potential value of international trade. Adam
Smith in his renowned treatise, THE WEALTH OF NATIONS, provided not only a
rationale for a market economy based upon competition, but also advanced a rationale
for trade among nations called the Theory of Absolute Advantage. Smith argued that
countries would be better off if they would trade commodities where each country had
an economic or cost advantage for one or more of the products that they produced
The underlying logic of Absolute Advantage was also used by Adam Smith to
advance the rationalization what he called “division of labor” or specialization of
labor.
Coyle, Langley, Gibson, and Novack 2-1
,The theory of Comparative Advantage was advanced about 40 years later by several
economists. The analyses were also somewhat simplistic because not all of the
relevant costs were considered. However, the logic was sound as long as total landed
costs were considered. The importance of both Absolute and Comparative advantage
is they demonstrate that global trade and related global supply chain flows can be
based not only upon scarcity of items among countries but also differences in the cost
of production with implicit benefit to all parties involved.
Later economists explored more fully the rational of global trade and specialization.
The Factor Endowment Theory postulates that when a country has more of one of the
four so-called Factors of Production (land, labor, capital and entrepreneurship), they
may have a comparative advantage in producing one or more products.
The current more complex global economy means that there are more variables than
the traditional factors of production that can provide advantages to countries and be a
basis for global trade flows. Some of these factors help to explain the development of
the so-called BRIC (Brazil, Russia, India and China) and VISTA (Viet Nam,
Indonesia, South Africa, Turkey and Argentina) countries. India and China have
developed and prospered in recent years because of improved global transportation,
faster communication systems, population growth, education, and technology
advancement.
CONTRIBUTING FACTORS FOR GLOBAL COMMERCE AND SUPPLY
CHAIN FLOWS
Essential factors for economic growth and increased development of global trade
flows include population growth and age distribution, urbanization, land and
resources, economic integration, knowledge dissemination, labor mobility, financial
flows and investment in infrastructure by public and/or private sources, faster
communication systems, improved financial services for the effective flow of goods
and services. These factors are the driving forces for globalization around the world
and need to be discussed in order to understand the future course of global trade and
development.
Population and Distribution
The top ten countries account for almost 60% of the total world population.
Interestingly, two countries account for about 36% of the total, China and India. The
U.S. is a distant third and China and India have over four times as many people as the
U.S. Another interesting statistic is that India is projected to have a larger population
than China by 2050 and that Russia (#9) and Japan (#10) are projected to have fewer
people in 2050 than they had in 2015.
The sheer size of the populations in China and India will provide these two countries
with a potential economic advantage in terms of labor for growth as long as the
economies can support that population size. The decrease in size for Russia and Japan
reflects an aging population and has the potential of being an economic disadvantage
in terms of labor availability and the social cost to support an aging population.
Coyle, Langley, Gibson, and Novack 2-2
, The median age is increasing, with one exception, over the course of the four years
for all categories. Developed countries have the highest median age in each year, and
the least developed counties have the lowest median age. The differences are
generally explained by the level of education, quality of health care and economic
well-being. The difference in median age between the most developed and least
developed is interesting to note. It is 21 years in 2010 and 2025 but drops to a
projected 18 years by 2050. Overall, however, the challenge is evident that the more
developed countries have a lower birth rate and an aging citizenry which has
implications for future economic development and prosperity.
Japan and three European countries are projected to have populations with median
ages over 50. The aging populations in these countries will result in increased health
care costs and a reduction in the size of the working population. This could result in a
lowering of labor productivity and increased taxes. The consequences of this
phenomenon could mean high unemployment, scarcity of some resources, and a need
for more housing, infrastructure (water, sewers, roads, etc.) education and other
services thus straining their economic viability even more. However, the size of the
potential workforce can attract industries that are labor intensive. Migration to
countries with aging populations is another possibility if not constrained. From the
perspective of world business and global supply chains, this data has some important
implications relative to economic growth, market size and development, capital flows,
labor availability consumer needs and utilization of natural and strategic resources.
A related issue is urbanization with the increase in migration in many countries from
rural areas to cities or urban areas. As one would expect this shift will be most
profound in the less and least developed countries of the world. The United Nations
projects by 2025 that 50% or more of the total Asian population will be in cities with
China having the largest urban population. A new category of city has been identified,
namely, Megacities (10 million or more inhabitants) which is a manifestation of the
migration to urban areas. One of the interesting and important dimensions of the new
Megacities is “where” they will develop.
The private sector can play an important role in the developments of these large urban
communities. The sheer size and density of the cities will require much effort and
innovation. To address the infrastructure shortages of transportation, fresh water,
sewage disposal, health services, educational facilities, etc. Meeting these needs will
require public and private funding. Global trade flows and global supply chains will
be impacted and businesses must be prepared to take advantage and participate for the
welfare of the citizenry.2
Migration can be disruptive and dysfunctional when it occurs with large numbers
under conditions of political upheaval. Absorbing that crush of humanity strains the
existing economic and social systems and causes unstable conditions. However,
humanitarian concerns dictate that every effort possible be made to accommodate this
mass migration from Syria and other nearby countries. The European Union countries
have felt the major impact of migration pattern because of their proximity and
economic status.
The United States should be given some attention. Table 2.4 addresses the U.S.
population (third largest) by age and gender for five years from 2010 to 2014. While
Coyle, Langley, Gibson, and Novack 2-3
