Forum #2

PART 1

Questions 3,5,7 on page 191 

3. Unions in developed nations often oppose imports from low-wage

countries and advocate trade barriers to protect jobs from what they often
characterize as “unfair” import competition. Is such competition “unfair”?
Do you think this argument is in the best interests of (a) the unions, (b) the
people they represent, and/ or (c) the country as a whole?

I believe this is not unfair. Actually if the low-wage country can produce certain
products more efficiently and at a lower cost, and these products are scarce in
the unionized developed nation, trade is good for both countries.

I believe this argument is in the best interest of the union and the people they
represent but not necessarily the case for the countries as a whole.

5. What are the potential costs of adopting a free trade regime? Do you
think governments should do anything to reduce these costs? What?

The potential costs of adopting a free trade regime are mostly due to
unemployment it will cause in some industries. The government cant really do
much to help avoid this but training programs could be created to help people be
more competitive on the job.

7. “The world’s poorest countries are at a competitive disadvantage in

every sector of their economies. They have nothing to export. They have no
capital; their land is of poor quality; they often have too many people given
available work opportunities; and they are poorly educated. Free trade
cannot possibly be in the interests of such nations!” Evaluate this
statement.

Free trade should be in the interest of these countries too. Trade can accelerate
these countries growth with the help from more developed countries. (In terms of
training and monetary support).

PART 2

Case Indian Software page 192 - 193

1. To what extent does the theory of comparative advantage explain the
rise of the Indian software industry?
In this theory, countries specialize in producing the goods they can make more
efficiently and buying the goods that are expensive to produce in-house from
other countries. It makes sense that in the case of India, human capital and
cheap labour makes their engineers very attractive to foreign countries. Working
in the software industry I assume most of their work is done online so they can
basically work for any company in the world.

2. To what extent does the Heckscher—Ohlin theory explain the rise of

the Indian software industry?
India is a country with cheap labour, highly educated workforce, english
speaking, and a good geographical location. All these factors make India an
excellent choice when selecting oversees workers for the software industry,
especially for project-based jobs that can be done from anywhere in the world.
Cost savings are substantial when comparing the cost of an engineer from
Canada to an engineer from India.

3. Use Michael Porter’s diamond to analyze the rise of the Indian

software industry. Does this analysis help explain the rise of this
industry?
• FACTOR ENDOWMENTS: Skilled labour with low cost, world class
education.
• DEMAND CONDITIONS: All demand is from other countries, external,
exports.
• RELATED AND SUPPORTING INDUSTRIES: Con: Lack of internet
connection in some areas. Pro: Satellite communication, growing IT sector, low
rates for fixed telephone.
• FIRM STRATEGY, STRUCTURE AND RIVALRY: Local competition drives
quality standards up and cost down.

4. Which of the above theories—comparative advantage, Heckscher—

Ohlin, or Porter’s—gives the best explanation of the rise of the Indian
software industry? Why?
I believe its a combination of all 3 strategies that gives me a better picture of the
rise of the Indian software industry. I feel looking at this case from different
angels is the best way of understanding the situation.