<6.1 INTERNATIONAL SPECIALISATION>

"Why do you think Hong Kong doesn't make its own wine?"

"Why do you think Jamaica doesn't supply skiing holidays?"

"Read the following text and identify the 'why it might' reasons why national specialisation benefits the firm"

"As a tech startup in Silicon Valley, this area's focus on innovation helps us by giving us access to brilliant engineers, investors who "get" tech, and a buzzing network of other startups. But national specialization helps us in another huge way: other countries specializing in their things makes our business better, too. For example, a country that specializes in making computer chips can produce them on a massive scale, which gives them "economies of scale"—a fancy term for lowering costs by making a lot of something. This means we can buy higher-quality chips for a cheaper price, which is like getting our most important raw materials at a discount. Furthermore, when we trade with these different countries, we don't just exchange products; we also exchange new ideas and technology. Our team learns better management practices from a company in Sweden or discovers a new software tool from a developer in Estonia, helping us innovate faster.

"Write the question and you answer in your text book!"

"However, relying on the whole world as a team also has risks—it's like having all your best players spread across different fields. If a country we depend on has a problem—like a natural disaster, a political issue, or even a pandemic—our entire supply chain can get stuck. This makes us vulnerable to shortages and delays we can't control. Also, if another country becomes too good at something (like making microchips), they gain a lot of power and can raise prices. So while global specialization lets us build amazing things, it also means our success depends on a lot of pieces working perfectly in other parts of the world. 

"Here in Mexico we are the undisputed champions of avocado production. Due to our nation's suitable factor endowments we have decided to specialise, and expand our output so much that we can lower our average cost significantly, allowing us to be very competitive whilst also being very profitable. We make so much that we export the surplus, and due to our productivity, we are very, very competitive, boosting our GDP. Our GDP per head is rising, and we are able to enjoy a better standard of living. Our taxes pay for more merit goods, and life is much better. Though I do worry that the 'taste' for avocados by foreigners might only be temporary and that relying on others for our essential agrochemicals could prove a supply-chain disaster, and with half the population only knowing one skill, it could be shortsighted in times of bad weather. Also, this rush to grow avocados has seen us take shortcuts, and it seems the environment and safety are not always considered."