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Global Financial Crisis

Global Financial Crisis

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Published by: jagsdawun on Apr 01, 2009
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09/08/2010

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Global Financial Crisis.
The subprime crisis of the big power has led to the global financial crisis. It seemsthat such an expression overstates the strength of the big power. But we cannotignore the economic globalization which makes economic communities connect withand affect each other positively or negatively.In the financial tsunami hitting every corner of the world, what are the status quo andfuture trend of international trade? First of all, it is necessary for us to look at thetrade chain: raw materials - finished product processing firms (manufacturers) -(suppliers - trade companies) - logistics companies - importers - wholesalers -retailers- end consumers, financial service providers such as banks, and Internetplatforms for international trade led by Alibaba. On the chain, all the elements areinteractional and can transmit to each other. Price transmission is a key element.Rate of exchange influences trading price. We can begin with importer, one of initiators of trade. With the global financial tsunami seeming to gradually calm down,a procurement manager working with a large company that was founded one hundredyears ago talked about their current situation: we are now facing extremely highpressure in retail and need to reduce retail prices of our products in market. Themanager urges suppliers to cut down price with three simple reasons: 1. Against thebackground of current financial crisis, prices of raw materials have decreased; 2.Significant reduction in prices of energy products such as petroleum means lowerfreight and storage cost; and 3.With the decreasing and stable amplitude of thefinancial crisis wave, rate of exchange will tend to level off and rise. Then why dosuppliers need to reduce their prices? Because the consumption end of commodities isfacing much lower purchasing power of the country due to the financial crisis. The
 
information from the consumption end is that the consumer confidence index goesdown and end consumer groups (including corporate and individual procurement)reduce their costs, expenses and consumption. With such a weak market, merchantscan only use price reduction as their sharp tool to stimulate consumption. Merchantspromote psychologically by enabling consumers to buy the same goods as before withless money. Wholesalers and retailers in the middle of the chain deliver goods on thechain from one level to another. During this course, they gain profits and ensurenormal circulation of goods. Their sensitivity to price and inventory leads toimporter's action mentioned above. As for wholesalers facing high retail pressure,lower purchasing power and weak sales, price is the only and effective solution toimprove sales.As for consumables, those who are able to provide the market with inexpensivecommodity with proper quality will have a large market share, no matter they arewholesalers or importers. This is low-price transmission resulting in larger tradevolume. With increasingly stable financial community, trade will tend to be active andlarge in size when consumers have suitable savings and their purchasing power andconsumption confidence index rise. Maybe experts and scholars then will concludethat the crisis has ended and economy begins a recovery journey. When it comes tothe bulk commodity market, economists say that its bull market has ended sincecrude oil price peaked. Those people trading at the peak of the bull market havemade a great loss due to substantially lower price. The time for them to recover fromsuch a loss may be longer than that for the crisis to come to end. Therefore, goods atlow price will be favorites of people in a certain period of time.
 
Next, we will discuss the price transmission from the perspective of suppliers. Withthe global financial tsunami directly leading to significantly shrunken trade volume, itis truly a thorny problem to retain customers while continuing to make profit andreducing risks and losses in such an environment. To maintain its normal operation,supplier may adjust prices of its products or accept orders and deposit foreignexchange if rates of exchange fluctuate narrowly, waiting for further stabilization andrebounding of exchange rate. They look like those who are bundled to stockspurchased at high prices and wait for being unbundled and reducing loss. Prices of products from suppliers will be influenced by that of raw materials. It can not beignored that the crisis directly makes many small-and-middle-sized enterprises (SMEs)go bankrupt, or stand on the verge of bankruptcy, or reduce their employees. As anInternet trade platform, Alibaba, which has a close relationship with those SMEs, saidthat the next few years will be a winter in its operation. A lot of SMEs get orders,generally small ones, through Alibaba. Due to the crisis, there are no longer any smallorders from Alibaba for those SMEs. With the economic depression caused by the crisisensuing the global inflation and big ups and downs of price, the lack of orders hasdirectly led to huge loss of SMEs, especially for those who focus on export trade. As aresult, there is a bankruptcy upsurge of SMEs that operate on a high-cost-and-low-price basis. The bankruptcy and shrinkage of SMEs have directly affected the proceedsof Alibaba that mainly provides services for SMEs. Considering this point, the financialcrisis also leads to early coming of the winter of Internet Business-to-Business E-commerce. Internet E-commerce seeks for breakthroughs in a new operational modewhile waiting for its spring.

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