Research Articles Base: Trading In Uncertainty

The bad effects that The World Trade Organization has had world wide

INTRODUCTION The World Trade Organization (WTO) is the sole global association addressing the international decrees of trade involving countries. Its major purpose is to guarantee that trade runs as efficiently, predictably, and liberally as probable. The end result is reassurance. Consumers and producers are aware that they can take pleasure in safe supplies and superior alternative of the completed products, components, raw materials and services that they utilize. Producers and exporters are aware that foreign markets will continue to be open to them. The consequence is similarly a more affluent, nonviolent and responsible economic world. Decisions in the WTO are characteristically acquired by consensus among every member nations and they are approved by members’ legislative bodies. Trade hostility is directed into the WTO’s dispute settlement procedure where the center is on understanding agreements and pledges, and how to guarantee that nations’ trade policies stick to them. A major and foremost disadvantage for developing countries in acceding to the WTO is their capacity to be heard in the decision making of the organization. Issues and proposals for restructurings in the WTO’s decision-making processes increased in eminence first following the fall down of the 1999 Seattle Ministerial Conference, on account of which Members undertook to have debates associated to internal transparency and involvement. The last foremost formal debate among Members on these concerns transpired for the duration of the July 2000 assembly of the General Council. Throughout that gathering, the then-General Council Chairman, Ambassador  of Norway, required to recognize, anchored on his discussions with Members, what he sensed were the typical of the debates  with regards to internal accountability and involvement towards acquiring a consensus.(WTO:2001) Succeeding WTO procedure-associated documents, like the TNC Negotiating Principles and Practices and the draft manuscript of the Procedures for the Appointment of Directors-General have indicated to Ambassador Bryn’s declarations as pinpointing of “best practices” in the context of internal accountability and the involvement of Members in decision-making in the WTO.(WTO:2000) Nonetheless, a number of Members have carried on expressing reluctance, exemptions, prerequisites or commentaries relating to Ambassador Bryn’s declaration. (WTO: 2002) This successfully denotes that there is no consensus, particularly from developing nations, on the points acknowledged by Ambasador as “best practices” for WTO decision-making procedures with regard to internal accountability and the involvement of Members. Official WTO decision-making processes are presided over by Article IX of the WTO Agreement. Consensus decision-making is profoundly entrenched in the WTO decision-making arrangement, (: 2001) and has its origins in GATT 1947 decision-making procedures. Article IX.1 of the WTO Agreement specifically points out that an inclination for consensus decision-making above that of conventional majority vber:2002) Consensus is characterized in the WTO Agreement as the organization involved shall be believed to have made a decision by consensus on an issue presented for its consideration, if no Member, in attendance at the assembly when the decision is obtained, officially opposes to the suggested decision. The description of consensus in Article IX.1 of the WTO Agreement rests significance on the actual and learned or informed attendance of a Member’s delegate throughout the meeting in which the decision is completed; and the compliance of such Member, throughout the meeting, to officially and clearly point out that it is in opposition to consensus on the suggested decision. In this type of “passive” consensus, both nonattendance from the assembly and silence or non-objection throughout the assembly are corresponding to joining in the recommended consensus.   The consensus-based decision-making form under Article IX.1 of the WTO Agreement efficiently obstructs developing nations from getting the best of their equal position with industrial nations by means of the one-country one-vote arrangement which denies them of the advantages of prescribed voting and can work in opposition to them even supposing they hold the majority outlook on a subject.”(UNDP:2003) Conversely, consensus-based decision-making has similarly facilitated developing nations in a number of cases to efficiently stress their right to be heard in GATT and WTO decision-making. The most recent instances were in Seattle, when a collection of African, Caribbean, and Latin American states opposed to their marginalization from the decision-making procedures that transpired for the duration of that ministerial conference and affirmed that they could not adhere in any consensus coming up from such defective procedure. It is also reflected in Cancun, when Members could not arrive to a consensus on the subject of whether negotiations on the “Singapore issues”(:2002) were to have effect subsequent to the ministerial conference, in consequence of which Ministerial Conference Chair Minister  of Mexico came to a decision that consensus could not be acquired and chose to adjourn the conference.   However, given the capacity and resource constraints that many developing countries face in terms of their representation and participation in the WTO’s day-to-day business in Geneva, developing countries might not be able to fully maximize the potential of the consensus decision-making approach indicated in Article IX.1 of the WTO Agreement in guaranteeing that their outlook and points of view are unmistakably attended to and completely emulated in the concluding outcomes of the procedure. To deal with the underperformances of the existing “passive” consensus regulation in the WTO, Members could probably aim to spell out the manner through which consensus could be put across.   An “active” consensus could be sought after that would necessitate an active approval by all Members of the suggestion under debate, rather than merely the lack of oppositionar:2001) This change requires being in addition to sufficient and understandable stipulation of information to all Members of the time and program of meetings in which such “active” consensus is required. “Active” consensus can be perceived as a feasible option to that of the “passive” consensus as indicated in Footnote 1 of Article IX.1, or to that of majority ballot under the final sentence of Article IX.1 of the WTO Agreement. The Ministerial Conference, or the General Council in the interim linking assemblies of the Ministerial Conference, can officially generate such an alternative ways of decision-making under Article IX.1 of the WTO Agreement without having to make changes with the WTO Agreement by merely simplifying the form through which Members can articulate their consensus.   Actually, there are previously instances in the WTO for changing from “passive” to “active” consensus. For instance, the prerequisite of “explicit consensus” under the 1996 and 2001 WTO Ministerial Declarations relating to conclusions on the subject of the commencement of negotiations, and on modalities for concessions,  of Singapore concerns efficiently needs Members to attain “active” in place of “passive” consensus.() These indications are understandable suggestions on the side of the Ministerial Conference that the “passive” consensus decrees in Article IX.1, footnote 1, of the WTO Agreement, is supposed to, for reasons of coming to a decision on Singapore concerns, be adapted. Specifically, Members’ approval to the commencement of negotiations on Singapore concerns on top of to the modalities for such negotiations have got to be “explicit” – particularly enthusiastically, unmistakably and decidedly articulated or communicated. Silence or non-objection must not, as a result, be accounted as consent. The commonplace connotation of the concept of “explicit” is that it conspicuously articulates all that is represented; leaving nothing simply indirect or suggested. Being “explicit” is becoming exact in communication with such spoken directness and clarity that there is no need for supposition and no space for complexity in comprehending. The Ministerial Conference’s conditions for “explicit consensus” with regard to verdicts concerning the initiation of Singapore concern negotiations and their modalities, for that reason, are precedent-establishing “active” consensus prerequisites in the WTO framework. Therefore, while keeping hold of consensus as the foundation of WTO decision-making and the underpinning of the legitimacy of its imperatives and agreements for all Members, it may possibly be practical for Members to spell out consensus via decision-making in the WTO as necessitating “active” more willingly than “passive” consensus.                   Credit:ivythesis.typepad.com

The bad effects that The World Trade Organization has had world wide

INTRODUCTION The World Trade Organization (WTO) is the sole global association addressing the international decrees of trade involving c...

International Trade

International Trade                 This paper is about international trade. It discusses the statement “International trade is really, at best, a zero-sum game. For every winner, there is a loser. It is not so much about creating growth in developing economies as it is about finding ever cheaper products for consumers in the developed economies.” Using different theories on international trade, as well as different examples, it criticizes the said statement. Explanations for the said judgments are also given for further evaluation of the statement. As an introductory, the reader is given a background on international trade and the theories related to it. Then the discussion on the statement is presented with examples to apply the theories behind it. As a concluding part, the topic is wrapped up as to the final judgment regarding the said statement.   International Trade: An Introduction             The pure theory of international trade encompasses the determinants of trade and its consequences, the ways of controlling it together with its consequences, and the interaction between international trade and other real aspects of the economy. What is the reason why country A exports good X while country B exports good Y?             According to the Ricardian Theory, trade is attributed to the differences in the countries’ ability to produce different goods. One produced one good relatively cheaply, while the other another good. These differences arise from the differences in labor productivity. This theory is also known as the classical theory of trade, the earliest and the simplest of all trade theories.             Another neo-classical theory is the Heckscher-Ohlin theory. It explains countries’ differing abilities in different goods with reference to the differences in their endowments of their factors of production. It justifies some of Ricardo’s point. This theory remains to be the dominant mode of thought within the theories of international trade and underlies much normative analysis.             The last one is the so-called modern trade theory. It reemphasizes technology on one side; while on the other side, it stresses the role of product differentiation in international trade. The latter is a new, and apparently fruitful, area of research that integrates imperfect competition into international trade theory. It explains the ‘intra-industry’ trade, which is the simultaneous act of importing and exporting (at the same time) of countries, of very similar goods. The explanation for this type of phenomenon is impossible for the earlier trade theories, since they depend only on costs differences of production to be able to generate trade. International Trade Theory of David Ricardo Absolute and Comparative Costs: The Principle of Absolute Advantage             The seed of the modern theory of international trade comes from . His concern lies on the division of labor as a way to enhance efficiency. This is where he is well known to and he further generalizes this to the specialization between trades and between countries.                Thus countries trade, and should trade, in order to acquire their consumption more cheaply. They buy where prices are lower compared to their place. This is due to the fact that prices are considered as immediate determinant of trade.             Another argument relating to international trade that  claims is the idea that international trade allows greater specialization and division of labor through market extension. Therefore, it presents possibilities for additional gains through the reduction of costs below their autarky levels. Trade can increase the economic welfare of both countries involved. Thus, not only can absolute advantage describe international trade patterns, it also provides the rationale to prescribe their implementation as a means of raising economic welfare.             Take this example to further explain the principle of absolute advantage. Britain was the least-cost producer of cloth while America is the least-cost producer of food. Britain will export cloth, because he can gain from it due to its low cost of production. On the other hand, he will import food, because producing it will cost him more than importing it. Same is true with America. Nevertheless, if both goods are produced more efficiently in Britain, applying the principle of absolute advantage suggests that both goods be purchased from Britain. However, this is not applicable in the long-term. Therefore, Ricardo proposes the law of comparative advantage to address this type of situation.    The Principle of Comparative Advantage             This theory explains why it can beneficial for two countries to trade, even if one of them is capable of producing both goods more efficiently. What matters for this principle is not the absolute cost of production. Instead, it is focused on the ratio between how easily the two countries can produce different kinds of things.             To illustrate its difference from absolute advantage, take this situation as an example. In Portugal, production of both wine and cloth is possible, compared with England that requires greater work. However, the two countries have different relative costs of production for the two goods. In England, it is very hard to produce wine while it is moderately difficult for the production of cloth. In Portugal, both productions are easy. Therefore, while it is cheaper to produce cloth in Portugal than in England, it is cheaper still to for Portugal to produce excess wine, and trade that for English cloth. Conversely, England will benefit from this trade because it can now get wine at closer to the cost of cloth, with its cost of production for cloth unchanged. In simpler terms, country A exports the good for which its input requirements are relatively lower compared with those of country B.             In conclusion, international trade takes place because some goods are produced more cheaply abroad compared at home. Ricardo’s model explains this pattern of trade through the relation of prices to certain features essential to the economies concerned. However, this requires several assumptions. First, there is only one factor of production, and that is labor. Second, its productivity differs between countries. Third, labor is perfectly mobile between industries within a country but perfectly immobile between countries. Fourth, there are constant returns to scale in each industry. Lastly, there are no impediments to trade, such as tariffs, etc. Extension of Ricardo’s Theory             While Ricardo expressed his theory in terms of the labor theory of value, Haberler re-expressed his theory in terms of opportunity costs. The opportunity cost of good X is the amount of good Y that has to be surrendered in order to obtain a unit of X. In Ricardo’s theory, the transformation occurs by shifting labor from one industry to the other, so opportunity costs are naturally defined in terms of relative labor productivities. The same concept applies to cases involving several factors of production. If the opportunity costs were constant, the whole of the above theory would follow as is. We have just treated the labor requirements as being part of the bundles of factors, with lower requirements indicating greater efficiency.                 While the Ricardian theory is a supply theory of international trade, its differences in supply conditions that give rise to the possibilities of trade. Trade also occurs even when, demand conditions are identical across countries. In any case, the analysis may be completed without the assumption of identical demand without any fundamental differences. The Heckscher-Ohlin Theory of Factor Endowments             Heckscher and Ohlin asked why productivities differed across countries. They also wondered why the possibilities of transformation differed. According to Ricardo, it is due to the differences in technology. Still, they argue that the ability of the countries varies with their endowments of the different factors of production. Provided with demand patterns that do not differ much between countries, the Heckscher-Ohlin theory of trade states that countries will export the goods whose production is relatively intensive in the factors with which they are well endowed.             In this approach, it stresses the role of factor endowments. There are seven assumptions to be taken in this approach. First is that consumption should be determined by identical and homothetic preferences. Second is that technology is the same across countries. These first two assumptions separate endowments as the cause of trade. On the other hand, the next two restrict the technology in important respects. They are: (3) the exhibition of constant returns to scale but diminishing marginal returns to any single factor, of the production functions for each good; and (4) the difference in the requirements of different factor inputs for the said goods. If one good requires more labor compared to the other at one set of factor prices, the same applies to all sets of factor prices. This situation is better known as the exclusion of ‘factor-intensity reversals’. It allows a clear identification of labor-intensive product.             The other two assumptions describe economic behaviour. They are: (5) the presence of perfect competition in all factor and product markets; and (6) the lack of impediments to trade, such as tariffs, etc., although there is no possibility for the migration of the production factors. Lastly, the final assumption that there are only just two factors, two goods and two countries, imposes world restrictions. In addition, there should also be homogeneity between the factors within the countries, identical between them, as well as fixed in supply.                   The first two assumptions are necessary in answering the question regarding the appearance of the ‘factor-endowment-related’ trade. The next three, on the other hand are among the critical ones. The fifth assumption ensures the equality of prices and costs, as well as of consumption prices and marginal utilities. The technical identification of the labor-intensive good is allowed through the fourth assumption. The third assumption, on the other hand, centers on the translation of price signals into quantity changes. The absence of this assumption would not necessarily invert the trade pattern, although it would make it impossible to prove the constant dominance of the H-O result. The Modern Trade Theory             This theory primarily hinge around technology. It also considers the effect of the economies of scale and degree of monopoly to the patterns of trade. The explanation of the ‘intra-industry’ trade is also possible because of this theory. Although this theory returns to the basic approach of Ricardo, it pays more attention to the determining factors of technology. The changing technology is the one that determines trade, that is why a move from equilibrium to disequilibrium theories is necessary for this discussion.             In conclusion, technological differences and changes can provide us further explanation regarding the international trade in manufactured goods. While goods are relatively young, we expect them to be exported by the innovating country. Subsequently trade may end, as knowledge is diffused, or reversed, as factor endowments replaced knowledge being the principal trade determinant. The fact that one innovation frequently leads to another, means that innovations tend to originate in just a few countries. However, changes in relative dynamism can occur, like the case of Western Europe and Japan. There are at least two channels through which research and development is translated into export advantage. Yet, it is not clear which of the two is dominant over the other. Neither does it give a clear explanation why some countries are more dynamic than others do. Therefore, we are not yet in the proper position to develop a more formal model of technology similar to the Heckscher-Ohlin Theory. Trade as a Positive-Sum Game             Trade between economies is not like sports competition. A sports contest is described as a zero-sum game. By that definition, if one competitor does better, its opponents are doing worse. However, because specialization is allowed in trade, each nation can concentrate making the products it produces relatively well (absolute advantage). Trade therefore, simultaneously makes all nations better off. To conclude this statement, trade really is a positive-sum game.             Take the case of Nike and Reebok. These two companies are almost purely rivals that are selling the same products. Only a small fraction of Nike’s sales is to Reebok workers, and vice versa. So one’s success tends to be at the expense of the other. However, for the major industrial countries, despite the fact that they sell products that compete with each other, they are also each other’s main export markets and main suppliers of useful imports. A successful European or Japanese economy helps the US by providing us with larger markets.             In addition to that, the purpose of international trade is not to export. Instead, it is to import, and this makes trade useful for us. What a country really gains from trade is its ability to import the things it wants. Exports are not an objective in and of themselves. The need to export implies a burden that a country must bear. This is due to the fact that import suppliers are crass enough to demand payment from the other party.             Trade patterns influence a number of factors. Among them are: (1) employment in high-wage manufacturing jobs; (2) growth trends relative to one’s productivity; (3) employment shares in the service sector; and (4) the overall wage levels.            Applying that, international trade again, is not a zero-sum game. When productivity rises in Japan, the main result is a rise in the Japanese real wages. American or European wages are in principle at least as likely to rise as to fall, and in practice seem to be virtually unaffected.             It would be possible to belabor the point. However, it is clear that while competitive problems could arise in principle, as a practical, empirical matter the major nations of the world are not in economic competition with each other, to any significant degree. It is normal to have rivalry for status and power, as countries that grow faster will see their political rank rise. Nevertheless, asserting that the growth in Japan diminishes the status of the US is very different from saying that it reduces the standard of living in the US. It is the latter that rhetoric competitiveness asserts.                                  Credit:ivythesis.typepad.com

International Trade

International Trade This paper is about international trade. It discusses the statement “ International trade is really...

The Nigeria Exchange Rate And The Terms of Trade

Nigeria Exchange Rate and Terms of Trade Overview and Objectives Research towards exchange rate and trading terms, the Nigerian perspective. Noting in how exchange rate and trading terms affect Nigeria’s overall economic status and such transition economies linking towards business activities of the country mainly pointing towards the tourism sector in Nigeria where the latter points are essential. The research will examine relationship of tourism trade and business cycles using such exchange structures within correlations certain exports and terms of trade assuming in , and effect, producing deviations from purchasing power parity and real interest rate parity. Terms of trade shocks cause real appreciations and positive interest differentials, although productivity shocks have opposite effects in Nigeria. Exchange rates in transition economies undergo depreciation followed by continuing real appreciation. The study will be documenting as well as analyzes certain grounding fact with regards to Nigeria Exchange Rate and The Terms of Trade. Research provide estimates of real exchange rate that will be based on sample of possible 5 to 10 tourism sites in the country, estimates well dynamics of exchange rate into business tourism transition phase. Thus, suggesting that continuing appreciation corresponds to combination of return following initial trading terms and rates appreciation of Nigeria economy. Questions 1.    What exchange rate all about? What is the standing form of exchange rates in Nigeria? Discuss 2.    How does exchange rates affect Nigeria economic status? Particular on business tourism sector of the country? How exchange rates be manifested through transition of economies? 3.    What adheres to the effectiveness of exchange rates allowing Nigerian tourism sector to grow well into the global market stance? 4.    What is meant by trade terms? How does trading terms affect Nigeria economic status? Particular on business tourism sector of the country? 5.    How trading terms be manifested through transition of economies? How can Nigeria trading terms work in its tourism sector? Through transition of economies? Hypothesis Hy 1: There is positive impact between Exchange Rate and Terms of Trade in Nigeria towards transition of economies and tourism sector. Hy 2: There is negative impact between Exchange Rate and Terms of Trade in Nigeria towards transition of economies and tourism sector   Sample Literature The exchange rate and trading terms in policy notion does play crucial role in providing increased incentives for exporting. Nigeria will be successful in promoting manufactured exports experienced real exchange rate depreciation, leading to a significant increase in the domestic relative price of tradeable to non tradeable. The responsiveness of exports of goods and services to certain exchange rate however, export promoting exchange rate policy cannot be sustained unless monetary and fiscal policies are fully consistent with it. In many developing countries mismanagement of tourism based economy and trade policies leading to exchange rate misalignment from which there was over valued exchange rate with respect to Nigeria’s market clearing level. The exchange rate misalignment is damaging to economic performance mostly, to manufactured exports, as it decreases the profitability of production of tradeable. The damaging influence of exchange rate misalignment as being shown by  (1988) and,  (1990) linked for diverse groups in developing countries.  and  (1993) show negative influence of exchange rate misalignment on total exports for panel of several countries. Moreover, inconsistent economic, trade, exchange rate policies increase the variability of the real exchange rate. Indeed, high exchange rate volatility sends conflicting signals to economic agents and increases uncertainty of tourism based investments as well as of the profitability of producing tradable goods. The negative influence on manufactured exports has been established by  (1993) on panel of ten developing countries including Nigeria.   Methodology For the methodology, the use of case study approach will be realize presenting in literature studies about exchange rates and trade as noted by various proponents comprising of such reviewed articles and journals. Nigeria, to investigate link between exchange rate volatility and trading exports. Although empirical literature of research is extensive, clear consensus about study nature and importance will have to be seen. Focusing on role of trade and trade policy in achieving tourism growth in the region. Nigeria in high levels of trade restrictions have been an important obstacle to exports in the past and their reduction can be expected to result in significantly improved trade performance in the region. The removal of export restrictions, dismantling of marketing boards, relaxation of quantitative restrictions on imports and lowering of import tariffs will sharply increase exports. The role of trade policy in economic growth is of enabling nature: extremes of export taxation and import restrictions can surely suffocate nascent economic activity, an open trade regime will not on its own set an economy on sustained growth path.   Credit:ivythesis.typepad.com

The Nigeria Exchange Rate And The Terms of Trade

Nigeria Exchange Rate and Terms of Trade Overview and Objectives Research towards exchange rate and trading terms, the Nigerian perspect...

Trading up in wine consumption

Trading up in wine consumption   I.             Introduction The Asian market has been slowly but surely embracing what was initially noted as highly western products. From fast food chains to carbonated beverages, the Asian consumer has become aware and made the consumption of such products an everyday affair. Articles have also noted that the consumers in the Asian region are gradually taking on wine consumption. (2007) However, the demand for the product is still within the level that could barely make the wine selling industry a viable business area. In the article of  (2007) indicated that European countries still dominate the top exporting countries for wine in 2005. These include Italy, France and Spain as among the top three exporters. His article also maintained that the Europeans (Luxemburg, France and Italy) still are on the top of the wine consuming charts in the world with the United States at a very close second place. A far third is the Asian market with over six percent taking on the global wine market. In the website of  (2006) it claimed that Asian countries like China and Japan are among the most mature markets for wine. Other Asian countries like Korea, Taiwan, India, and some Southeast Asian states are also seen as a viable market as they are described “fast growing” in terms of wine consumption. As seen in this discussion, Asia is slowly, but surely, acquiring the taste of wine. However, there is still an existing preconception that drinking wine is still elitist and even snobby by some, particularly based on the price of the merchandise. (2007) This limits the possible expansion of the market and increase in the consumers of wine in Asia. Wine sellers in this are thus tends to adjust its price points. The following discussions will be looking into the possibility of encouraging consumers to trade up into wine consumption. II.           Factors Determining Low Prices The existing conditions regarding the wine industry in Asia indicate a low turnout in the demand for the related products in the market. There are certain factors that have been seen to trigger these relative low prices among wine products. For instance, wine drinking practices in Asia tend to differ from every region. For instance, it has been said that demand for wine products in China has been high making it among the more mature markets for the global wine market. (2007) This is because studies have revealed that there is an existing culture in the region regarding the drinking of alcohol. (1998) This claim is further seen in the study of  (2001, 261) as they have established the existence of a culture of leisure drinking and possibly heavy drinking in the country. Thus, the infusion of alcoholism and wine consumption in the region tends to highlight the potential for international wine distributors on China. This is the same with Japan as wine consumption has been considered as one of the more ceremonies parts of their culture. (1998) The same study also pointed out that the drinking culture in the said country starts from adolescence to the old age. This means basically that wine consumption could be found within the lifetime of an average Japanese person. Seeing the trend in the Asian market particularly with the context of the wine market, it appears that the pricing strategy of the distributors tend to be significantly affected. According to the study of  (2005) there are several pricing strategies that companies could employ to suit their particular environment. These includes cost-based pricing, competition-based pricing, and demand-based pricing. Cost-based pricing tends to be a result of an analysis of the overhead and direct costs of the operations. Competition-based pricing is a result of changes made in the price of competitor products while demand-based pricing tends to be based on the perception of the consumers on the value of the product. In the case of the Asian market, the pricing seen in the wine market tends to be based on the demand-based pricing. This means that the demand for the product is relatively low, apparent with the low price of the products, because of the perception of the consumers regarding the drinking of wine. It appears that the low price of the merchandise is among the initiatives of wine distributors to encourage the market to trade up with wine products, particularly imported wine. The current price points of the wine products in the market are a result of an endless series of price skimming. Not only do these companies tend to face the difficulty of a limited range in the market, it also has to contend with the existing brands that are locally made. Even wine and alcoholic products tend to be subjected to price discrimination among the consumers. This makes the distributors constantly engage in yield management which essentially triggers more price skimming. At some point, one must recognise that distribution of products doesn’t solely rely on the demand of the market. For some industries, in order to survive, they themselves make the demand for their product. For the wine industry, they could take on initiatives to encourage the market to trade up.   III.         Benefits of Trading Up Based on the discussions on the reasons for having a considerably low price points in the wine market, it appears that distributors have to make the demand for their product by encouraging the consumers. One way of doing this is by showing the benefits of trading up to their product from their usual locally made beverages and spirits. In the context of function, the wine distributors could claim that their product will be serves as another alternative in the consumers’ huge line of alternatives in terms of alcohol and spirits. This could be applicable for countries with a developed culture for wine drinking like Japan and China. Moreover, companies could also claim the health benefits of wine consumption as intimated in early studies like heart disease prevention in countries where drinking is still regarded less. In any case, companies could introduce these products in any market as an opportunity to experience a new way of enjoying beverages in comparison to the local brands available in the market. Other means of encouraging the consumers to trade-up is by presenting exclusivity and chic nature of the product, people are able to satisfy their innate sense of status seeking personalities. Appealing to the vanities of the target market is always a great tool in establishing a greater demand for the product.     IV.        Initiatives to Encouraging Trading Up In order to induce the demand for wine products and encourage trading up on the part of the wine-drinking public, the distributors should consider different methods ranging from the cultural factors to the marketing factors relevant in the environment. For instance, countries like China and Japan has already been established as countries with alcohol-consuming cultures. Wine distributors could address this fact and use it to their advantage. Companies could similarly use the model made by  (1980,  2002) regarding the classification and cultural dimensions of particular markets. In using this type of tool, then the companies could determine the course of action on which the marketing technique could be based on. This brings on the first initiative on which the trading up is encouraged to the consumers. Proper marketing should be one of the top priorities of the wine distributors. This means that they should reach out to their target market and make the public know that their product exists. A great way of doing just that is by using mass media. It is basically a very powerful tool as it provides information to people. As indicated in the study of  (2004) properly using mass media could sway the public belief. This denotes somehow that the cues that companies could provide the public through television, radio, and print could mould what the public thinks of their product and as a result, possibly create the much needed surge of demand from the market.        Again, anything as powerful as mass media could still be regarded as a double-edged sword. Since wine is still considered as a “sin product” they have to be willing to bequeath a considerable amount of money to advertise the product. Though it has yet to get the notoriety of another sin product, tobacco, it does share relatively the same set of criticisms. Nevertheless, studies have pointed out that even with great disrepute and unsavoury reputation in society, these types of products have been documented to amass some level of keenness on the market. (2000) Factors like the affect, accessibility, price, and quality tend to encourage the consumers to trade up. For instance, the factor influencing the affect of the consumers tends to highlight the emotional and psychological elements of the consumers. As seen in the model of Maslow (1986, 2004), consumers tend to react positively in luxury items, as wine, when these items engage to them emotionally. This is particularly true when their intent in buying items is covered by status-seeking objectives. (1990) Basically, these objectives are discussed by  (2004) as those that allow the consumers to satisfy their sense of vanity, display their social status, and extent of luxury. Another element that the company could employ is the availability of the product. Basically, this means that the company have to imply that the product, despite being accessible in the market, provide as sense of exclusivity for those who purchase it. They companies distributing the product could create an image of slight selectiveness to establish what has been noted as the “cool factor” in marketing. This has been seen in the marketing of luxury vehicles like Ducati and Benz. (2005; 2002) In these companies, purchasers of the product were given privileges to join a club exclusively for those who have also purchased a motor bike or a luxury sedan. Coming back to the principle of demand-based pricing, companies could not deny that the price of the product tends to be shrouded by the perception of the public regarding wines as elitist or snobbish. Numerous studies indicate that the regard of the customers relating to the correlation of price and quality tends to vary from culture to culture. (1998) This indicates that the consumer normally have different views on whether a products is actually worth its price. Nonetheless, with intensive research, companies could use this type of knowledge as a means of determining the price point at which they could introduce in the public. V.          Conclusion and Personal Commentary The discussions above have provided a clear image of the wine industry and consumption in the Asian market. It has been established that the wine market in the global scale is indeed a viable business since there is already an inherent demand from western countries. However, expanding to the East would be very difficult and laborious. Nevertheless, that feat is far from being impossible. Given the proper system and appropriate courses of action, the wine industry in the said region will be able to penetrate its local markets. Increasing the demand for wine consumption requires the close monitoring and observation on the part of the businesspeople handling the industry. With the proper marketing and regard with the environment, companies will be able to control their losses and even foresee the changes on demand through the behaviour of the consumers. In this regard, the business people that operate in this section would not be limited to changing the price points of their products. The possibility of encouraging the consumers to trade up and maximising the factors that could be addressed bestows the wine industry the necessary tools to keep the companies from leaving the market. Essentially, such endeavours will be able to take on adjustments on the level of demand in the market. This means that there is a considerable advantage seen in the changes in the demand of consumers than changing the price points of products. The experience of the wine industry manifests that even if the product is set in a range within the means of the public, the level of demand will not change unless companies take on initiatives to improve their situation of a particular market.        Credit:ivythesis.typepad.com

Trading up in wine consumption

Trading up in wine consumption I. Introduction The Asian market has been slowly but surely embracing what wa...

Trading up in wine consumption

Trading up in wine consumption   I.             Introduction The Asian market has been slowly but surely embracing what was initially noted as highly western products. From fast food chains to carbonated beverages, the Asian consumer has become aware and made the consumption of such products an everyday affair. Articles have also noted that the consumers in the Asian region are gradually taking on wine consumption. (2007) However, the demand for the product is still within the level that could barely make the wine selling industry a viable business area. In the article of  (2007) indicated that European countries still dominate the top exporting countries for wine in 2005. These include Italy, France and Spain as among the top three exporters. His article also maintained that the Europeans (Luxemburg, France and Italy) still are on the top of the wine consuming charts in the world with the United States at a very close second place. A far third is the Asian market with over six percent taking on the global wine market. In the website of  (2006) it claimed that Asian countries like China and Japan are among the most mature markets for wine. Other Asian countries like Korea, Taiwan, India, and some Southeast Asian states are also seen as a viable market as they are described “fast growing” in terms of wine consumption. As seen in this discussion, Asia is slowly, but surely, acquiring the taste of wine. However, there is still an existing preconception that drinking wine is still elitist and even snobby by some, particularly based on the price of the merchandise. (2007) This limits the possible expansion of the market and increase in the consumers of wine in Asia. Wine sellers in this are thus tends to adjust its price points. The following discussions will be looking into the possibility of encouraging consumers to trade up into wine consumption. II.           Factors Determining Low Prices The existing conditions regarding the wine industry in Asia indicate a low turnout in the demand for the related products in the market. There are certain factors that have been seen to trigger these relative low prices among wine products. For instance, wine drinking practices in Asia tend to differ from every region. For instance, it has been said that demand for wine products in China has been high making it among the more mature markets for the global wine market. (2007) This is because studies have revealed that there is an existing culture in the region regarding the drinking of alcohol. (1998) This claim is further seen in the study of  (2001, 261) as they have established the existence of a culture of leisure drinking and possibly heavy drinking in the country. Thus, the infusion of alcoholism and wine consumption in the region tends to highlight the potential for international wine distributors on China. This is the same with Japan as wine consumption has been considered as one of the more ceremonies parts of their culture. (1998) The same study also pointed out that the drinking culture in the said country starts from adolescence to the old age. This means basically that wine consumption could be found within the lifetime of an average Japanese person. Seeing the trend in the Asian market particularly with the context of the wine market, it appears that the pricing strategy of the distributors tend to be significantly affected. According to the study of  (2005) there are several pricing strategies that companies could employ to suit their particular environment. These includes cost-based pricing, competition-based pricing, and demand-based pricing. Cost-based pricing tends to be a result of an analysis of the overhead and direct costs of the operations. Competition-based pricing is a result of changes made in the price of competitor products while demand-based pricing tends to be based on the perception of the consumers on the value of the product. In the case of the Asian market, the pricing seen in the wine market tends to be based on the demand-based pricing. This means that the demand for the product is relatively low, apparent with the low price of the products, because of the perception of the consumers regarding the drinking of wine. It appears that the low price of the merchandise is among the initiatives of wine distributors to encourage the market to trade up with wine products, particularly imported wine. The current price points of the wine products in the market are a result of an endless series of price skimming. Not only do these companies tend to face the difficulty of a limited range in the market, it also has to contend with the existing brands that are locally made. Even wine and alcoholic products tend to be subjected to price discrimination among the consumers. This makes the distributors constantly engage in yield management which essentially triggers more price skimming. At some point, one must recognise that distribution of products doesn’t solely rely on the demand of the market. For some industries, in order to survive, they themselves make the demand for their product. For the wine industry, they could take on initiatives to encourage the market to trade up.   III.         Benefits of Trading Up Based on the discussions on the reasons for having a considerably low price points in the wine market, it appears that distributors have to make the demand for their product by encouraging the consumers. One way of doing this is by showing the benefits of trading up to their product from their usual locally made beverages and spirits. In the context of function, the wine distributors could claim that their product will be serves as another alternative in the consumers’ huge line of alternatives in terms of alcohol and spirits. This could be applicable for countries with a developed culture for wine drinking like Japan and China. Moreover, companies could also claim the health benefits of wine consumption as intimated in early studies like heart disease prevention in countries where drinking is still regarded less. In any case, companies could introduce these products in any market as an opportunity to experience a new way of enjoying beverages in comparison to the local brands available in the market. Other means of encouraging the consumers to trade-up is by presenting exclusivity and chic nature of the product, people are able to satisfy their innate sense of status seeking personalities. Appealing to the vanities of the target market is always a great tool in establishing a greater demand for the product.     IV.        Initiatives to Encouraging Trading Up In order to induce the demand for wine products and encourage trading up on the part of the wine-drinking public, the distributors should consider different methods ranging from the cultural factors to the marketing factors relevant in the environment. For instance, countries like China and Japan has already been established as countries with alcohol-consuming cultures. Wine distributors could address this fact and use it to their advantage. Companies could similarly use the model made by  (1980,  2002) regarding the classification and cultural dimensions of particular markets. In using this type of tool, then the companies could determine the course of action on which the marketing technique could be based on. This brings on the first initiative on which the trading up is encouraged to the consumers. Proper marketing should be one of the top priorities of the wine distributors. This means that they should reach out to their target market and make the public know that their product exists. A great way of doing just that is by using mass media. It is basically a very powerful tool as it provides information to people. As indicated in the study of  (2004) properly using mass media could sway the public belief. This denotes somehow that the cues that companies could provide the public through television, radio, and print could mould what the public thinks of their product and as a result, possibly create the much needed surge of demand from the market.        Again, anything as powerful as mass media could still be regarded as a double-edged sword. Since wine is still considered as a “sin product” they have to be willing to bequeath a considerable amount of money to advertise the product. Though it has yet to get the notoriety of another sin product, tobacco, it does share relatively the same set of criticisms. Nevertheless, studies have pointed out that even with great disrepute and unsavoury reputation in society, these types of products have been documented to amass some level of keenness on the market. (2000) Factors like the affect, accessibility, price, and quality tend to encourage the consumers to trade up. For instance, the factor influencing the affect of the consumers tends to highlight the emotional and psychological elements of the consumers. As seen in the model of Maslow (1986, 2004), consumers tend to react positively in luxury items, as wine, when these items engage to them emotionally. This is particularly true when their intent in buying items is covered by status-seeking objectives. (1990) Basically, these objectives are discussed by  (2004) as those that allow the consumers to satisfy their sense of vanity, display their social status, and extent of luxury. Another element that the company could employ is the availability of the product. Basically, this means that the company have to imply that the product, despite being accessible in the market, provide as sense of exclusivity for those who purchase it. They companies distributing the product could create an image of slight selectiveness to establish what has been noted as the “cool factor” in marketing. This has been seen in the marketing of luxury vehicles like Ducati and Benz. (2005; 2002) In these companies, purchasers of the product were given privileges to join a club exclusively for those who have also purchased a motor bike or a luxury sedan. Coming back to the principle of demand-based pricing, companies could not deny that the price of the product tends to be shrouded by the perception of the public regarding wines as elitist or snobbish. Numerous studies indicate that the regard of the customers relating to the correlation of price and quality tends to vary from culture to culture. (1998) This indicates that the consumer normally have different views on whether a products is actually worth its price. Nonetheless, with intensive research, companies could use this type of knowledge as a means of determining the price point at which they could introduce in the public. V.          Conclusion and Personal Commentary The discussions above have provided a clear image of the wine industry and consumption in the Asian market. It has been established that the wine market in the global scale is indeed a viable business since there is already an inherent demand from western countries. However, expanding to the East would be very difficult and laborious. Nevertheless, that feat is far from being impossible. Given the proper system and appropriate courses of action, the wine industry in the said region will be able to penetrate its local markets. Increasing the demand for wine consumption requires the close monitoring and observation on the part of the businesspeople handling the industry. With the proper marketing and regard with the environment, companies will be able to control their losses and even foresee the changes on demand through the behaviour of the consumers. In this regard, the business people that operate in this section would not be limited to changing the price points of their products. The possibility of encouraging the consumers to trade up and maximising the factors that could be addressed bestows the wine industry the necessary tools to keep the companies from leaving the market. Essentially, such endeavours will be able to take on adjustments on the level of demand in the market. This means that there is a considerable advantage seen in the changes in the demand of consumers than changing the price points of products. The experience of the wine industry manifests that even if the product is set in a range within the means of the public, the level of demand will not change unless companies take on initiatives to improve their situation of a particular market.        Credit:ivythesis.typepad.com

Trading up in wine consumption

Trading up in wine consumption I. Introduction The Asian market has been slowly but surely embracing what was...

Top