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External Environment Of Japanese Business

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In recent decades, the world economy has undergone an unprecedented level of integration. Previously, I have provided a list of knowledge management tools that can be utilized to analyze many questions and trends, as well as the reason why these tools are important in the global economy. These tools are essential of international relations as being able to examine global problems beyond the headlines. This paper further demonstrates how these tools could be applied to solve the problem or to bring the business opportunity to fruition in today's Japanese business environment.

During the 1990s, Japan has been exposed to one of the most difficult structural transition periods in its post-war history, in terms of social and economic conditions. There have been two major changes: one is a substantial decline in economic growth in real terms, and the other is a changing social structure characterized by the declining birth rate and the ageing population. Under the pressure of changes in the economic environment caused by globalization and innovations in information technology, Japanese business corporations are forced to adapt to the new situation. While companies faced with fierce international competition, it became more critical to understand the basic knowledge of complicated legal, cultural, economic, and social issues. Engaging in international trade also requires attention to international regulations, international business planning, international market research, funding, distribution and other areas that must be considered separately from domestic business issues. The paper suggests some of the basic tools that can apply to solve the problem or to bring the business opportunity to fruition in today's Japanese business environment

International Trade Theory

Export trends have been an important factor during Japan's present economic adjustment period, and the structures of Japanese exports, together with the imports, have been changing substantially in recent years. The changes in the country's export and import structures during the 1990s can be characterized by the following three key developments: (1) the weight of IT-related goods has been rising in both real exports and imports; (2) real imports of consumer goods from East Asia has been increasing; and (3) the US remains Japan's largest trading partner as a single country. Due to these factors, maintaining its comparative advantage became the priority in the current global economy.

Comparative advantage is a dynamic concept. It can and does change over time. Some businesses find they have enjoyed a comparative advantage in one product for several years only to face increasing competition as rival producers form other countries enter their markets. For a country, the following factors are important in determining the relative costs of production.

* The quantity and quality of factors of production available (e.g. the size and efficiency of the available labor force and the productivity of the existing stock of capital inputs). If an economy can improve the quality of its labor force and increase the stock of capital available it can expand the productive potential in industries in which it has an advantage.

* Investment in research and development (important in industries where patents give some firms significant market advantage).

* An appreciation of the exchange rate can cause exports from a country to increase in price. This makes them less competitive in international markets.

* Long-term rates of inflation compared to other countries. This worsens their competitiveness and causes a switch in comparative advantage.

* Import controls such as tariffs and quotas that can be used to create an artificial comparative advantage for country's domestic producers.

The Heckscher-Ohlin model is another great tool in international trade. It is a general equilibrium mathematical model of the macro-economy in international trade, which builds on David Ricardo's theory of comparative advantage by predicting the pattern of trade in the types of goods that particular countries will specialize in exporting.

Relative endowments of the factors of production (land, labor, and capital) determine a country's comparative advantage. Countries have comparative advantage in those goods for which the required factors of production are abundant. This is because the prices of goods are ultimately determined by the prices of their inputs. Goods that require inputs that are locally abundant will be cheaper to produce than those goods that require inputs that are locally scarce.

Growths and Trade

The 1990s are often referred to as the "lost decade" for Japan's economy. Average growth declined from the mid-three percent in the 1980s to the mid-one percent in the 1990s. The recoveries in the 1990s were not strong enough to lead to self-sustained growth. The recessions were deep and long enough to weaken the economic fundamentals. Now the Japanese economy is finally reaching the end of the long and painful path of the post-bubble adjustments.

The phenomena of globalization are extending and have a great impact on the economic environment. Governments around the world have liberalized trade and financial markets leading to intensified international flows of goods, capital and services. Thus, it is important to understand that the impact of growth depends upon its bias. If a nation experiences relatively fast expansion of output of is export good, then the price of its export tends to fall on the world market. If a nation experiences relatively fast expansion of output of its import good, then the relative price of its export tends to rise on the world market.

Trade Policy

Although Japan's exports and share of world trade has grown remarkably, it has resulted in increasing bilateral trade disputes. Too many regulations directly contribute to Japan's large trade surplus. Although, Japan has lowered tariffs on many foreign products, there are still remaining high tariffs on many products with great interest for the US. Such product include lumber, lumber products, tobacco, chocolate, beef, diary products, leather, leather products, citrus fruits, cardboard, processed copper, etc.

Public policy affects the economy's output, price level, and level of employment, both in the short run and in the long run. Therefore, it is important to examine the effects of trade restrictions, how the international payments system hinders or facilitates trade, how domestic



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