Sample Article Review On Answers

Individual Case Study

Summary of the case study
The closing case “H&M: Choosing between Global and Regional Free Trade” deals with the brief description of current situation at the clothing retailer market as well as with the H&M’s business model and challenges. The main idea of the study is to highlight the trends and potential obstacles for business actors in the field of producing and distributing of the apparel. The study also touches upon the two international agreements which influenced significantly this particular market sector - the Multi Fibre Arrangement (MFA) and the Outward Processing Arrangement (OPA). At the beginning the study informs the readers of H&M firm in general and the main strategies employed by the firm .Next the situation in Romania is depicted in a nutshell, the following matters are presented – the role of fashion industry in the state economy, the OPT contracts and European market, the MFA and trade in textiles. Further the issue of outward processing agreements and labor outsourcing is discussed. Finally, the case study emphasizes H&M’s dilemmas: whether this large clothing retailer should pay more attention to the European business possibilities – factories, labor – ,the example of Romania is given, (the question is whether H&M should choose regional resources) or it should try to play primarily internationally – to search for better options at Asian markets, for instance.
I think the special attention while reading the case study should be paid to the correlation between the developments in international regulation of business and regional integration, on the one side, and the fashion industry, on the other side. The case study gives the incentives to analyze the certain market sector on the H&M’s example and to provide own vision of the future development and trade tactics. The background information is given to help us access the potential benefits and risks while developing best options for the company.

1. As we know, free trade constitutes an open trade policy, assuming free movement of goods between countries without any trade barriers. Nowadays internationally and regionally numerous organizations and associations (free trade areas and customs unions) are founded to stimulate free trade. The universal version of such an organization is the World Trade Organization, which aimed to boost international trade while eliminating or at least minimizing certain trade barriers (state protectionism, unreasonable high customs duties and other charges, etc). Generally, the WTO system promotes free trade; however, the concept is far from becoming reality. I’m a supporter of the concept and share David Ricardo’s point of view that
if a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage (As cited in Suranovic).
Indeed, free trade can improve the welfare of trading nations as a result of international specialization of production and exchange based on the principle of comparative advantages. Besides, free trade contributes to the quality of the products due to the increased international competition and optimizes the distribution of productive resources. Nevertheless, I must admit that there are certain drawbacks – free trade makes equal national and international business, so that national ones will suddenly lose their advantages, and starting a new business requires money and effort. From my point of view, the idea of free trade is good, but it should be implemented step by step, and the existence of OPTs demonstrated the trends in regional trade liberalization.
2. First of all, let’s define the outward processing trade within the European Union. As one of the European business portal states,
the outward processing trade allows EU businesses to export Community goods for processing or repair with the aim to re-import said goods into the European Union (EU). The company will be fully or partially exempted from customs duties upon the re-import of said goods. Resorting to outward processing requires authorization from the Customs Department at the Customs and Excise Agency (Business Portal, n.d.)
Thus, the regime of the outward processing trade makes it possible for the European countries to outsource certain business or industry, to be more exact – particular operations and tasks. In our case Romania benefited greatly from this policy and the outward processing trade turned out to become one of the economy’s pillars, since a lot of new work places were created all over the country and it also constituted the investment flow. But at the same time, there is a significant disadvantage – by benefiting from the OPT and counting on it as on a strong investment source, there is always a risk that the European firms will change the country of outsourcing power or reduce dramatically the investments. Such scenario can result in economic stagnation and highly increasing unemployment rates.
3. I believe Romanian government has many instruments to create new work places and prevent economic crisis. Firstly, there is an option of employing community (public) works, which should be paid by state. It is recommended that these works focus on the developing of industrial and social infrastructure (roads, hospitals, etc.) to provide subsequently new jobs possibilities. The main thing is to employ people for the sake of social stability. Secondly, the system of strategic measures to revive market conditions should be developed in order to form a competitive market and build an appealing image for foreign investors. There are a number of tools to help attract foreign investments to the country. To start with, this mechanism involves the development of attractive legal framework to ensure the investors basic internationally recognized guarantees (e.g. equitable treatment, prohibition of expropriation, etc.) Next, special investment zones can be created within the country, which will be excluded from the taxes – porto franco (incluing airports), customs warehouses, various free economic zones. Finally, the political stability must be maintained to show the investors there are no political risks.
The government should be aware of the goals when attracting foreign investments. Thus, foreign investments should contribute to the creation of new jobs; they should be aimed to introduce modern and advanced resource-saving and environmentally friendly technologies. Products made by virtue of foreign investments must be competitive on international markets. All this will generally increase the country’s economy without just making it dependent on other countries as in case of the OPT.
4. Concerning H&M’s challenges and possible options, I guess the company should, first of all, ensure its competitiveness in the fast fashion sector in Europe. H&M could find suitable counties for outsourcing, not only Romania is to be considered, there are many European countries, which however are not the EU member and have very cheap labor force, Ukraine, for instance. H&M should also react as quickly as possible to the latest fashion trends from catwalk, because it’ll help gain customers. At the same time it could be very challenging for H&M to compete with the constantly growing flow of cheap apparel from developing countries. The main thing in this regard, in my opinion, is to develop the right PR concept and advertising campaign, for example under the motto, “In European quality we trust” or something like that to highlight the producer’s origin. Generally, to ensure future survival and successes, H&M should develop competitive tactics and business models to be able to flourish while international trade becomes more and more liberalized.
ReferencesFarole, T. (n.d.). Special Economic Zones: What Have We Learned? Retrieved February 26, 2015, from http://siteresources.worldbank.org/INTPREMNET/Resources/EP64.pdf
Outward processing - Export and processing of goods with a view to their re-import - Entreprises // Luxembourg. Business Portal (n.d.). Retrieved February 25, 2015, from http://www.guichet.public.lu/entreprises/en/marche-international/import-export/exportation/perfectionnement-passif/index.html
Shah, A. (n.d.). The WTO and Free Trade. Retrieved February 26, 2015, from http://www.globalissues.org/article/42/the-wto-and-free-trade
Suranovic, S. (n.d.). The Theory of Comparative Advantage. Retrieved February 25, 2015, from http://internationalecon.com/Trade/Tch40/T40-0.php
What Is Foreign Direct Investment? - Definition, Advantages & Disadvantages. (n.d.). Retrieved February 26, 2015, from http://education-portal.com/academy/lesson/what-is-foreign-direct-investment-definition-advantages-disadvantages.html