Tata Motors losses

Tata Motors losses Can Tata Motors capture and increase its market share in India through the launch of Jaguar and Land Rover? Introduction: My commentary examines the recent acquisition of Tata Motors of two iconic brands- Jaguar and Land Rover from Ford Motors at a staggering amount of $2.3 billion. Despite being well known brands, they are suffering losses. After Tata Motors take over, they were strategizing to launch these products in the Indian market which has huge growth prospects. The real challenge was in these brands attracting customers away from rivals in the Indian market. Simultaneously Tata Motors has launched Tata Nano to capture the Indian market for small cars. This will be reinforced by launching light- weighted aluminium and hybrid cars from Land Rover. With help of SWOT, Ansoff Matrix and Asset led Marketing my commentary will examine how successful will be the launch of Jaguar and Land Rover cars in India. SWOT Analysis: SWOT analysis is a useful decision-making tool that is used to assess the current and future situation of a product, brand, company, proposal or decision. It considers both internal and external factors that are relevant to the issue under investigation.[1] Strengths: The acquisition of the two global brands- Jaguar and Land Rover acts in a crucial way to increase and develop the brand reputation and the quality of products for Tata Motors. It provides plenty of opportunity to the Indian consumer and the developing Indian automobile market can also help the launch of brands in the long-term. It can reap economies of scale through component sourcing and low cost engineering. Weakness: With different product portfolios for both brands it will be a challenging task ahead to market the same in the price sensitive Indian market. But this could be overcome through proper market research. Another concern is the diminishing image due to the continued losses and a de motivated work force due to the change in management. With right training and incentives and proper marketing strategies the company can convert these negatives to strengths. Opportunities: This launch is a great opportunity for the Indian customer and target the growing Indian market. Automobile market is developing in India and placed with launch of Nano, Tata Motors will be in a good position capture a larger share of the market. Threats: Increasing fuel prices combined with global meltdown will be a challenge for the company to stay afloat and over come the losses. In addition the strong competition can threaten the expected sales of the company. However the inherent financial and managerial strength of the conglomerate should be able to let the company withstand the challenges and move ahead. A danger that remains is that with the new ownership international brand loyalties may change and customers may move towards other models in the market. Ansoff Matrix: The Ansoff Matrix is an analytical tool that helps managers to devise their product and market growth strategies. It consists of four growth strategies namely- Market penetration, Market Development under new and existing and markets AND Product development, Diversification under new and existing products.[2] Diversification It refers to the high risk growth strategy that involves a business marketing new products in new markets. Parent companies can benefit from having a presence in a range of products and markets in different regions of the world.[6] Market Penetration- Tata could continue with the same strategy that it had adopted for the UK for the rest of world. The estate, coupe and open saloon models of Jaguar and the Freelander and Range Rover sport of Land Rover selling in the existing markets UK can help them to gain profits and increase in sales in other markets due to the reputation of the brands. For the new models that are planned to launch, promoting and advertising can be a good choice for the firms to maintain their position in the market and to attract more consumers and build customer loyalty. Tata Indica and other commercial vehicles like Tata Ace are examples of Tatas market penetration strategy that exist in the existing markets and are still earning them great profits. Product Development- Tata Motors are launching the smallest car the famed Tata Nano in the Indian markets which is a new product by the firm and launched in existing markets of India and other countries where Tata Motors operate. This car can be useful for the firm as they can easily generate profits through this product as well as their brand name. Also, the firm can compete with other businesses in the same market with the help of these products. Tata Starbus and Tata Xover are other new products that have been launched by Tata Motors in India and other existing markets of Tata Motors. Diversification- The new products planned by Tata Motors through the Jaguar and Land Rover brands can be categorized in diversification. The company plans of manufacturing hybrid, electric and bio-fuels based and environmental friendly cars with the help of latest technology through both of these brands which can be useful in boosting the brand image of the firm. Also, there may be an increase in the profits of the firm as the hybrid cars are said to be the future of automobiles in order to save the earth from pollution. These new products launched in the new markets of India and others can be termed as diversified strategy of the firm. Tata Nano can also be included in this strategy as it is also a new product and is planned to be launched into new markets of African and Asian countries. Asset led marketing: Asset led marketing is a strategy that is adopted by the business for the sales of their products or services. Here, the firm uses its intangible assets for introducing a new product in the market. Tata Motors is a well-established and well-known firm and a part of the parent company Tata and Sons. Thus, in order to launch its products or services in the market and start off with immediate sales and profits, Tatas can use this which may even be applicable for launching the two automobile brands. Tata Motors have been in the news for past several months due to the launch of the worlds cheapest car in India- Tata Nano manufactured by their own company. Simultaneously launching two brands can help Tatas in gaining a lot of customer attention and thus a larger customer base. The well established and elegant brands with the giant prestige of Tata Motors can help the firms in garnering huge amounts of profits and gaining control over their competitors. Evaluation : The biggest advantage of this acquisition is that the firm might see an increase in sales of the cars due to both firms worldwide luxury brand reputation and also due to the services and quality provided by the cars. But at the same time, the number of competitors in the booming automobile market of India has increased and finding their way out to satisfy the customers with different marketing strategies can be very costly for the firm. Tata Motors can implement various strategies such as advertising and also, various schemes can be used which guarantee consumer satisfaction and can also prove to be a part of customer attraction. These strategies can prove to be useful in boosting the brand image and the sales of the company as well. Short- term problems faced by the firm may be the recovering of the costs that has been put into the acquisition and the launch of Jaguar and Land Rover cars. The high manufacturing costs of Tata Motors, Jaguar and Land Rover might prove to be another reason for the losses in the accounts of the Tata Motors. The long-term problems can be an increase in competition as the Indian automobile market is developing at a rapid rate. If the company suffers losses, then there might be the need for job redundancies, thus leading to worker de-motivation. Conclusion: To conclude, the acquisition of Jaguar and Land Rover brands may be risky due to the global slowdown but Tata Motors with its brand name and established presence in India can succeed in the long run. Tata Group, a huge multinational giant worldwide can capitalize through cross-subsidization. I think that by promoting the products and launching it along with Tata Nano will be useful as each can be a backup for the other in the future. The workforce can be motivated through good learning experience as they may have access to the technology used in manufacturing these premium cars but at the same time, if the products fail to create a mark on customers, the workers may feel insecure as job redundancies may be adopted by Tata Motors to struggle with their own financial portfolio. Bibliography- 1. http://uk.reuters.com/article/idUKTRE55R0LK20090628?pageNumber=2virtualBrandChannel=0 2. http://www.autoblogs.in/2009/06/tata-jaguar-land-rover-launch-india.html 3. http://free-sms-mms.blogspot.com/2009/06/tata-jaguar-land-rover-launched-in.html 4. http://www.zeenews.com/news542730.html 5. http://sify.com/finance/fullstory.php?id=14790692 6. http://www.businessworld.in/index.php/In-The-News/Rough-Roads-Ahead.html 7. http://business.outlookindia.com/inner.aspx?articleid=1225subcatgid=611editionid=36catgid=44 8. http://www.tata.in/media/reports/inside.aspx?artid=r8CuZiHSZ2o= 9. http://money.rediff.com/companies/tata-motors-ltd/10510008/profit-and-loss 10. http://www.moneycontrol.com/financials/tatamotors/profit-loss/TM03 11. http://www.moneycontrol.com/financials/tatamotors/balance-sheet/TM03 12. http://www.moneycontrol.com/financials/tatamotors/ratios/TM03 13. http://en.wikipedia.org/wiki/Tata_Motors Appendix- SWOT: Strengths-  · Jaguar and Land Rover have a respected brand image in the global markets for their luxurious cars.  · A good move for Tata Motors to enter the luxury market.  · A global visibility for the owner of the company as a sprawling conglomerate.  · Benefits from component sourcing, design services and low cost engineering.  · A good learning experience for the workers. Weaknesses-  · Both brands have a vast and a different product portfolio.  · Unavailability of premium auto parts at the Indian auto parts suppliers and thus, the need to import.  · Diminished corporate image of the brands due to massive losses in the past few years.  · De-motivation of workers due to redundancies and job cuts Opportunities-  · Opportunity for the Indian customers to have near access for driving premium cars.  · India is a developing automobile market and thus, a useful step for the long term.  · Simultaneous launch of the Tata Nano and other models can generate higher profits and develop their control on both the upper and the lower and middle class market.  · Range of products with different prices helps them to diversify.  · Reinforcement of globalization. Threats-  · Negative impact on the car sales of the brands due to economic meltdown and global recession.  · Lead to value-destruction due to lack of synergies and high-cost operations.  · Prohibition of establishing a stronger market base and increasing sales due to the number of rivals such as Audi, Mercedes, Porsche, BMW, Lamborghini.  · Increase in fuel prices.  · Shifting brand loyalty due to change in ownership Ansoff Matrix- Existing product New product Existing market Market penetration This strategy mainly applies for those businesses that focus on selling existing products in the existing markets. It is a low- risk strategy and helps to increase the market share of its current products.[7] Product development This strategy involves businesses aiming to sell new products in existing markets. This strategy is also a reason for acquiring another company as the costs of starting another company can be saved and different types of customers can be catered. This strategy is also useful for businesses using brand expansion strategies.[8] New market Market Development This method serves for those businesses that apply the strategy of selling existing products into newer markets.[9] Such techniques are used by businesses that plan to expand their business and attain higher customer base. Diversification It refers to the high risk growth strategy that involves a business marketing new products in new markets. Parent companies can benefit from having a presence in a range of products and markets in different regions of the world.[10] MUMBAI (Reuters) Tata Motors (TAMO.BO), Indias largest vehicles maker, on Sunday announced the launch in India of Jaguar and Land Rover vehicles, the marquee brands it bought from Ford Motors (F.N) last year. Saying it was a momentous occasion for the company, chairman Ratan Tata said, This is in keeping with our desire to extend the penetration of the brands in India. The automobile firm, which controls about 60 percent of the worlds fifth-biggest truck and bus market, will soon also be rolling out the Nano, billed as the worlds cheapest car. Jaguar is launching the XF amd XK range of luxury coupes and convertibles in India starting at a price tag of 6.3 million rupees (79,000 pounds) and going up to 9 million rupees. Land Rover will initially be launching three vehicles including the Range Rover Sport and Land Rover Discovery 3, with prices also starting at 6.3 million rupees but going beyond 9 million. The luxury car market in India is very small, but there is a huge opportunity there. It is growing fast and we expect it to grow fast over the next 5 to 10 years, said David Smith, chief executive of Jaguar Land Rover. India is an important part of our plans for the future, said Mike Driscoll, managing director of Jaguar. The luxury car segment in India is less than 1 percent of the total car market there.Continued On Friday Tata Motors posted its first loss in eight years at $520 million (315 million pounds) for the year to March 2009, with its Jaguar Land Rover unit reporting a loss of 306 million pounds in the 10 months of the fiscal year to March 2009, as a brutal global recession crippled car sales. On the issue of loan guarantees for JLR, Tata said, we are in discussions with the U.K. government on the loan guarantees and hopefully we will find a solution for it and our funding plan for JLR will progress. The company is seeking guarantees for the 340 million pounds loan sanctioned by the European Investment Bank and other loans from U.K.-based commercial banks. It is seeking these funds to develop new and more fuel efficient cars for improving its competitive position. Sustaining the downturn is important for us and finding a solution (for the loan guarantees) is extremely important to us, Tata said. He also said that if there was a large financial package from the U.K. government for Jaguar and Land Rover then, there should be commensurate level of representation from them, which had to be negotiated and worked out. An ill-fated, two decade-old strategy is about to end. When Ford hands over the keys to Jaguar and Land Rover (J-LR), it will end its troubled journey with the high-performance premium car brands, which have failed to pull in expected profits despite large investments. Tata Motors is expected to finalise a deal for the two companies for just over $2 billion. However, recent reports indicate that the price might be higher than previously thought. Tata Motors is said to be looking for financing worth $3 billion to fund the deal. The Financial Times reports that Tata Motorss advisors on the J-LR deal, JP Morgan and Citigroup, have received instructions to arrange for funding from banks. What worries investors is that Tata Motors may be stretching itself. This is a critical year for the company. In January, Tata Motors introduced its ultra-cheap car — Nano — to heavy national and global interest. It simultaneously launched a new platform for the Indica, its best selling passenger car. Later this year, it will also launch the World Truck, a project that has been under development with South Korean subsidiary, Tata Daewoo. â€Å"Investors have not taken this deal positively as it will put a lot of pressure on Tata Motors highly leveraged balance sheet,† says Aniket Mhatre, an analyst with financial services firm, Prabhudas Lilladher. â€Å"Also, the Nano wont be profitable for at least the first two-three years. The combined effect is expected to put pressure on Tata Motors margins and profitability.† In January, shortly after Tata Motors was made the preferred bidder for J-LR, credit rating firm Crisil downgraded the companys long-term debt ratings to a ‘negative watch. It said that the deal would be challenging for Tata Motors as a significant portion of combined revenues would come from two newly acquired companies where Tata Motors had â€Å"yet to build and demonstrate capabilities†. The companys stock has dropped 7.9 per cent to Rs 702.65 per share on the year to date. Future Strategy What happens next depends on how well Tata Motors can handle the acquisition and service the considerable debt it will assume. The group is known to retain the services of the current management team after taking over companies. This is exactly what happened when Tata acquired Spanish bus makers Hispano Carrocera and South Korean truck makers Daewoo Commercial Vehicles. Tata executives have likely already approached Jaguars top management team to secure their services beyond the acquisition. The Tata Groups reasoning is that it avoids the hassle of new managers having to learn the ropes. Employee morale also stays high as workers stick with bosses they trust. Still, some Tata Motors executives will definitely be sent to the UK to integrate the finance and business operations of the two companies. Tata has also promised it will not tamper with Jaguar and Land Rovers business plans, made by Ford up to 2011-12. This means that no employee will be fired and no plant shut down, even if these are a financial burden. Scheduled roll-outs for Jaguar and Land Rover are also likely to carry on. â€Å"Ford has plans of launching a number of new models for the J-LR combine,† says Mhatre. â€Å"[These] are expected to do very well in their respective markets. It could provide the much needed boost to Jaguars profitability in particular.† Ford has also secured components from suppliers over the medium term. Tata Motors will enjoy this benefit as it will buy it time to integrate J-LR operations into its own extensive community of lower-cost suppliers, which include around 20 auto design studios, steel units and various component makers. Chairman Ratan Tata also assures that Jaguar and Land Rover will not be re-badged as Tata vehicles. Jaguar dealers were disappointed when they realised that the once-legendary British brands would now be owned out of India. â€Å"For the European market, Tata Motors has a ‘truck-manufacturer image,† says Mhatre. â€Å"Consumers may consider shifting their brand loyalty to competitors in such a scenario.† That is why Tatas decision to not tamper with Jaguar and Land Rovers â€Å"character† will be important. It is also consistent with moves from past acquisitions. Trucks sold in Daewoos native South Korea do not bear the Tata badge. That emblem only appears on vehicles where the Tata brand is more well-known than Daewoo, such as markets like South Asia or Africa. BRAND POWER: Jaguar and Land Rover will not be re-badged as Tata vehicles What Tata Gains The most obvious benefit for Tata Motors is the technology it will now have access to. Both Jaguar and Land Rover use advanced technology and design and production techniques to churn out their vehicles. These include the use of lighter materials such as aluminium as well as considerably more advanced engine and transmission technologies. â€Å"Land Rovers SUV technology [in particular] could be useful for the Tatas current products in the segment,† says Yezdi Nagporewalla, National Industry Director (industrial markets) at KPMG. Then theres green tech. At the ongoing Geneva Motor Show, Tata Group Chairman Ratan Tata said that he was interested in producing green cars. â€Å"We are very keen and†¦ are looking at working on vehicles that run on biofuels, electric vehicles and hybrid fuels,† he told journalists. Land Rover already has one hybrid concept — the LRX — and says it would invest  £700 million in the development of sustainable technology over the next five years. Finally, and perhaps most importantly, the two brands will give Tata Motors a foothold in the luxury space. This means that the company will have a readymade offering in every car segment from ultra-cheap (the Nano) to utilitarian (the Indica) to commercial vehicles (Ace, World Truck) to SUVs (Sumo, Safari and Land Rovers) and, finally, to premium, high-performance cars (Jaguar). The fact that it can literally buy premium brands off the shelf means that it wont have to invest its own time and money to catch up with high-end technology. This is exactly what has put car makers such as Honda or Toyota at a disadvantage in the premium segment in markets such as the US. For the moment, it is unclear whether Tatas gamble will work. $2 billion is a lot of money and, if the analysts are right, Tata Motors may not be in the best position to pay it all back. Still, the Tata group is arguably one of the most professionally managed corporate houses in the country, if anyone can pull it off, they can. Bibliography- http://www.businessworld.in/index.php/In-The-News/Rough-Roads-Ahead.html 3. Tatas to launch Jaguar, Land Rover on June 28 Last updated on: June 18, 200910:23 IST Indias [ Images ] tryst with luxury brands takes a new turn on June 28,when Tata Motors [ Get Quote ] unfurls its marquee brands, the Jaguar and Land Rover [ Images ], in its home market. The cars will be launched just weeks before Indias first global brand, the ultra-cheap Nano [ Images ], hits the road in July. Tata Motors acquired the luxury vehicles from Ford [ Images ] Motor Co for $2.3 billion in March last year. This is the first time globally that Jaguar and Land Rover will debut together. After Mumbai [ Images ], the imported cars will drive to Ludhiana and Bengaluru [ Images ]. The Jaguar will roll out five models including the XJ, XX, and XF. Two models of the Land Rover will available. Tata Motors declined to reveal the first year sales targets for its new offerings. But a senior Tata manager said they will be number a few hundreds. In the United Kingdom, the Jaguar largely sells four models: Estate, saloon, open-top and coupe. The hot selling Land Rover brands overseas are the Range Rover [ Images ], Defender, Discovery and Freelander. JLR will be the first luxury cars from the $83 billion Tata conglomerate although they had a joint venture with Mercedes [ Images ] nearly a decade ago. While the Jaguar gives Tata Motors a toehold in Indias premium car segment, the Land Rover completes its SUV range which includes the Sumo. The JLR launch comes at a time when Indias luxury car market has belied the downturn. Global brands like the Rolls Royce, BMW [ Images ], Audi, Porsche, Lamborghini, Maybach and the Bentley have made India their coveted destination in the last couple of years. Last year, Mercedes announced that it will invest Rs 250 crore (Rs 2.5 billion) to set up its first fully-owned production facility in India. Its first plant in Pune was leased from Tata Motors. Even as compact cars clog Indian roads and drive over two-thirds of the 1.5 million auto market, the high margin luxury cars are a status symbol amongst Indias rich. Ludhiana, for instance, is the Mecca of luxury cars, auto makers say. India now has its very own luxury brands. Tatas Takeover of Jaguar and Land Rover: Bumpy Road or Smooth Ride? Published: April 03, 2008 in India [emailprotected] Will the acquisition of Land Rover and Jaguar be a smooth ride for Tata Motors? That is the question that many observers have been asking since the Tata Group and Ford announced their $2.3 billion deal at the end of March. The takeover has been greeted with jubilation, especially in India, because of the prestige of these marquee brands. On the other hand, skeptics have also been wondering how this acquisition fits in with the Tata Groups overall strategy. What can the Tatas do differently than Ford to ensure that the acquisition pays off? What major challenges will Tata Motors face in integration and marketing? To help make sense of these issues, India [emailprotected] spoke withJohn Paul MacDuffie, Wharton management professor and co-director of theInternational Motor Vehicle Program, andHarbir Singh, Wharton management professor and co-director of theMack Center for Technology Innovation. An edited transcript of the discussion follows: [emailprotected]:Lets start with the question that is on everyones mind. Does this deal make economic sense? MacDuffie: Its a very fascinating deal. Its clearly not a deal that is trying to build economies of scale in just one business and just reach into new markets. Its quite a differently motivated deal. For Tata its not the first time that theyve reached for a brand with some prestige value as part of expanding their global visibility. So I think viewed as an acquisition that they intend to learn a great deal from, it could very well make sense. The exposure that the Tatas will have to the high end of the auto business, which they know very well at the domestic end, and to the managing of this very prestigious brand I think could offer a lot of learning opportunities. [emailprotected]:Harbir, just to follow up on the same issue, the Tatas have the Indica, and they also recently launched the Tata Nano, the famous one lakh rupee car, or the $2,500 car. Do brands like the Jaguar and Land Rover really fit in with that overall portfolio? Whats your sense of the fit? Singh: My sense is that the Tatas are trying to expand their portfolio in general and they are trying to offer [various brands]. I dont think its a question of the customer viewing Nano, and Jaguar and Land Rover as all offerings of the same company. Its much more a question of like Louis Moet Hennessy having a set of brands and really doing the best you can for Land Rover and the best you can for Jaguar. In terms of the economic sense of the transaction, I think another way of looking at it is: Whats the replacement value of those brands, right? And clearly whatever price they pay is much lower than the replacement value. So the real challenge here for them is to make sure that they can enhance Jaguar in its own terms and enhance Land Rover in its own terms. [emailprotected]:John Paul, do you agree? MacDuffie: Yes. Ford of course sold the companies because the company is in deep financial distress and really needed cash now. There can be a dispute, I guess, about whether the price is too high or too low, but the Tatas certainly paid substantially less than Ford did for those brands. And by all counts Land Rover is profitable and Jaguar has made a strong comeback based on building capabilities, improving quality, they have some interesting new products in the pipelines, so I do agree. [emailprotected]:Did the Tatas did get a bargain, or did they overpay because this was a higher price than the market expected? MacDuffie: Its always very tough to know exactly and theres always this kind of speculation at the time. I think that Ford was certainly counting on increasing the volumes of these brands probably particularly Jaguar to a much higher level. And so at a certain point their efforts to greatly expand the volume, I think, probably hurt them somewhat. They were introducing lower priced Jaguars that a lot of people didnt feel represent that brand very well. They were trying to leverage their own Ford design parts from other models. I actually think managing it as a prestige brand from the base that Ford established should work well for the Tatas. That appears to be their pattern with their acquisitions that they by and large allow the management to keep doing what it is doing and, as I said, look for opportunities to learn from these foreign acquisitions. [emailprotected]:Some critics have been saying that for the Tatas this was a deal motivated more by the desire to acquire marquee or iconic brands, almost like former colonials acquiring the trappings of the former empire. Does that criticism make sense? MacDuffie: Who knows about that motivation? Theres certainly a kind of interest, I think, in the whole deal that comes partly from such associations. One of the other Tata deals thats gotten some attention is the acquisition of Tetley Tea, another British brand, and also of British Steel, the remains of British Steel. And so clearly investing in Britain has worked well for Indian companies. There were competing buyers, mostly private equity sometimes in partnership with other auto companies. And both the unions and the suppliers of Jaguar and Land Rover very much prefer Tata. I suspect not because theyre an Indian company but because of their track record in the way theyve managed acquisitions. They by and large have not done wide-scale layoffs, they have not done lots of consolidation; theyve focused on leveraging the strengths and the capabilities they have acquired. Singh: I agree with everything John Paul is saying. My comment is that its important for the Tatas not to get distracted by the nationalism and those kinds of things, which are all inevitable and natural. And I think its good, the pride is well-placed. You know the pride in Tatas by Indian investors and others is well placed. But fundamentally, this transaction has to perform because its a large transaction. I think there is a very good chance of performing. But I think it important for them to not get wrapped in the overlay of national pride and British colonialism and all those things. [emailprotected]:Ford really had a tough time during the many years that it owned these brands. What could the Tatas do differently to make sure that the acquisitions pay off? Singh: Its correct that Ford struggled quite a bit with these transactions. One of the issues that John Paul mentioned earlier was that Ford is in financial trouble. So if you were to think about Tatas approach to all of this, they could get a good price because its a distress sale. I mentioned market replacement value and there is a good chance that the $2.3 billion is well below replacement value because Ford bought Jaguar for a similar reason. They wanted that luxury nameplate. And Land Rover also is a high-end nameplate. But we can also ask that based on these multiple bidders present, that what we will get is kind of almost an auction-like value, right? Except that it will, given that the bidders are all well-informed and they have had access to the books this is a private transaction, its not a pub

Economic Interdependence Essay

Between 1939 and 1945, World War II took the lives of over 60 million people worldwide, making it the deadliest military conflict in the history of mankind. These statistics are so staggering that if famine were hypothetically eradicated from the earth, war would stand as the largest executioner of mankind. With that in mind, it would be safe to assume that today’s global leaders are in no way in favor of engaging in an armed conflict with another nation. Sadly, this is not necessarily the case we see in reality; wars are still being fought to attain fundamental components such as territory or political freedom. There are, however, theoretical aspects in today’s globalized society that allows political leaders to prevent military disputes from occurring in the first place. The question then becomes: is it possible to prevent or diminish war onset between dyads and if so, how? It is important to ask this question mainly because war is still very much a relevant aspect in our current international system. From the Gulf War to the War on Terror in the Middle East, military conflict seems to be the go-to option for a country seeking to achieve their goal when no other choice seems viable. In essence, war still occurs even in the relatively evolved society we currently inhabit because it has historically proved that brute force is at times the only practical option. The American Revolutionary War, for example, demonstrated that the colonies did not have the luxury of simply claiming their independence from Britain. The colonists had no choice but to fight for their freedom in order to become independent. Such historical instances demonstrate what war can accomplish, thus justifying why countries save war as a last resort. The majority of the time, however, military disputes are not the best course of action to undergo so finding a way to prevent war is a nation’s best alternative. By no means does this question have a definitive answer since war is a highly perplex, multi-faceted phenomenon but I will attempt to propose the best strategy leaders can take to reduce the possibility of war. In this paper I will call attention to several theoretical answers to the research question above, each with their own advantages and faults. The possible solutions to decrease military conflicts between dyads are based upon the governmental aspects of each country – such as regime type or levels of trade – and their influence on the relationship with another nation. The most recognized theories that could reduce the likelihood of war are the Democratic peace theory, balance of power theory and the commercial peace theory. The validity of each of these theories will be outlined to highlight their potential to help dyads avoid armed conflict. However, the latter theory will be the focus of this paper as my hypothesis stems from the belief that an increase in economic interdependence within a dyad leads to an overall decrease in militarized interstate disputes (MIDs) between that dyad. In order to validate my argument, I will first make an argument for each theory and then continue by creating a case that trade truly diminishes war. First, the Democratic peace theory is defined as a theory in political science and philosophy which holds that democracies—specifically, liberal democracies—almost never go to war with one another (Gartzke 2000). The idea behind ‘democracies do not fight one another’ is sustained by the fact that when two democracies confront one another in conflicts of interest, they are able to effectively employ democratic bargaining in their interaction, which then prevents most disagreements from escalating to a military conflict. In a struggle between democracies, by the time the two states are militarily ready for war, diplomats have had the opportunity to find a nonviolent solution to the dispute (Gartzke 2000). The concept behind democratic peace bears a close resemblance to a ‘them vs. us’ mentality. Countries take more into account what other likeminded states think of them over the ones with a completely different structure and ideals; it is easier to rally with people of the same beliefs. Nations that share democratic principles will be more concerned with pushing that same mindset and threatened by opposing regimes extending their reach, thus leading democracies to rely on each other. It is more beneficial being on the same side, than it is against one another. Unfortunately, the Democratic peace theory begins to start falling apart at the seams once you take into consideration the foundation that defines democratic peace. The first problems stems from the inaccurate definition of democracy, which calls into question the alleged evidence in support of the theory. Methodology used in collecting data to test whether or not a country is democratic is unscientific and democracies have been involved in conflict with each other at a much higher rate than what the proponents have determined. Even if the definition of democracies were accurately outlined, the current data would still be insufficient to establish a causal link between the democratic political institutions of a state and the frequency with which that state will engage in conflicts with other democracies (Layne 1994). The relative peace between democracies may just as well be the consequence of the international power structure of recent decades. If such is true, the very foundation of the democratic peace theory collapses. Next, the balance of power theory centers on the idea that when one nation or coalition increases its power or employ it more assertively, threatened states will respond by increasing their own power, usually by creating a counter-balancing alliance. Since the rise of major players in the international system, e. g. he United States, the balance of power among the most powerful states has been a delicate aspect that can potentially create complications or prevent them altogether. For example, if China were to somehow generate enough momentum and overthrow the United States in terms of global power, the US would most likely become agitated and retaliate with armed force. Alternatively, it can also act as a component for peace; a defeated nation can receive leniency from the major power and allow them to reestablish themselves prior to their conflict. The most important factor affecting the relation between the distribution of power and the likelihood of war is whether the terms of a compromise agreement that might be accepted in lieu of war affect the relative power of the antagonists and therefore the probability that the agreement will be enforced (Wagner 1994). Thus the relationship one can expect between the distribution of power and the likelihood of war depends on the specific instances that a dyad is faced with. The problem with the balance of power theory is that it is prone to security dilemmas, a concept that is generally integrated within the balance of power. With security dilemmas, none can feel at ease because both sides of a dyad want to match their power to the other, creating a never-ending quest for power. A nation’s possession of power – no matter how much the state tries to guarantee others that it is for defensive purposes only – will likely result in fear and/or suspicion from the opposing side. Thus, military disputes are expected to occur even when political â€Å"motives† for war – like territorial disputes, revenge, etc. – are absent. Nineteenth century Europe fosters many examples of how security dilemmas and balance of power created tension between states. The lack of overall authority in Europe meant that a self-help system of alliance and military force dominated the region (Wagner 1994). The justification touted by states to acquire military force was constantly outfitted as a solution of a threat to the equilibrium of the international system, which in turn validates the idea that balance of power theory acted as a cause of war in the nineteenth century. While democratic peace and balance of power theories offer intriguing premises to prevent war, they fall short in the end. Although there are several potential answers to the research question, I believe the truest method of inhibiting military disputes between two nations lies within the dyad’s economic interdependency. When it comes to the effect of economic interdependency among states, political experts are torn between two explanations. More specifically, states that are interdependent are either believed to be less likely to initiate militarized conflict – the liberal approach – or follow the realist view where bilateral trade doesn’t necessarily lead to conflict mitigation. There is compelling data on both sides of this argument but extensive research has led me to believe that the liberal perspective of trade follows this relationship more closely. The economic relationship that states share is imperative in determining whether or not they will uphold peace in order to facilitate greater benefits in the future. Economic interdependence, as explained by Gartzke, has multiple facets that embody this relationship between a dyad such as trade share, trade dependence and trade openness. Gartzke finds that these variables each have their distinct relationship with dyadic conflict, demonstrating that trade dependence and openness both decrease the probability of MID onset (2003). He notes that trade share, however, coincides with Barbieri’s findings, which indicates an increased probability for MID onset. Barbieri supports the conservative approach and states â€Å"although war sometimes leads to a temporary decline in the level of dyadic trade, in most instances war has no permanent long-term effect on trading relationships and, in fact, trade often increases in the postwar period† (Barbieri 1999). Even though Barbieri’s study makes a compelling argument, there is more evidence to support the claim that bilateral trading diminishes the chance of militarized disputes since trade mediates any tension that exists and reinforces their relationship at the international level. Nations, as rational actors in the diplomatic system, will consider trade agreements accordingly with other nations in order to gain goods and services to increase the well being of their state. This relationship between states is an important factor that will determine their rate of trade and whether or not they go to war with one another. Rational choice says that if the state is indeed rational, then their preferences are stable and transitive so they will always prefer to diminish any chance of war while at the same time benefiting from dyadic trade. Trade acts as a stabilizing force between the dyad and will prefer positive reinforcement (i. e. trade) versus negative reinforcement (i. e. war), hence transitivity. Rational choice therefore leads to the utility maximizing concept where states weigh the pros and cons of waging war on a state where mutual trade agreements take place. States will consider the most beneficial trades to maximize their gain but will also contemplate even the most miniscule trades in order to accelerate the possibility of greater trade in the future. The expectations of future trade impact the expected value of the trading option if a state decides to forgo war (Copeland 1996). In other words, although economic exchange may not offer immediate substantial gains, prospective trade opportunities prevent states from initiating conflict. Trade allows states to mutually benefit from one another while states that don’t trade gain nothing. Reed argues, â€Å"trading states can expect to gain less from a militarized clash than would nontrading states and, as a result, are more likely to accept a bargained outcome short of militarized conflict† (2003). If that benefit were no longer being exchanged, i. e. , trade, then the trading states would rather resolve their issue through negotiations rather than militarized conflict to continue receiving the benefit. In other words, the aforementioned relationship between trading and interstate conflict describes my causal process where an increase in bilateral trade leads to a decrease in MIDs. By choosing to exchange goods and/or services with states regardless of their contribution size, they are directly diminishing the probability of going to war with the opposing state. Alternatively, the relationship is reversed when trade is absent between a dyad since there is nothing to inhibit one another from attacking. Another benefit that comes from high levels of commercial exchange is described as the ‘information-maximizing’ theory: a belief that bilateral trade not only produces benefits from tangible goods but also intangible benefits such as increased information, which reduces the likelihood of hostility between the dyad (Reed 2003). Economic interdependence mitigates the effect of uncertainty through transparency and full disclosure agreements that lead to an enhanced probability of settlement short of militarized conflict. Interdependent states prefer the benefits gained from trade – tangible or intangible – because it allows the states to become more informed on their opponents’ costs of war than would nontrading states. Even when existing commercial exchange is low or non-existent, positive expectations for future trade will produce a positive expected value for trade, and therefore an incentive for continued peace. From 1971 to 1973 and in the late 1980s – the two main periods of cooperation between the Cold War superpowers – positive signs from U.  S. leaders led to trade being significantly increased, which coaxed the Soviets into a more cooperative relationship, reducing the probability of war (Copeland 1996). The Cold War exemplifies the idea that trade can act as a mediator, even among opposing superpowers. Trade agreements are effective means to ensure peaceful relationships among other states. Economic interdependency creates the ability to build beneficial trade arrangements, increasing state resources and improving the dyad’s collective relationship. The correlation between interdependence and MID onset is important not only for dyads that trade at higher levels but also for those with minimal trade amounts. Furthermore, the magnitude of trade does not play an influential role in determining the importance of the trade agreement since prospective gains always outweigh a militarized strike. If we ask ourselves again if it is possible to prevent or diminish war onset between dyads, it becomes clear that preventing military disputes stems from having a well established trade arrangement. It is irrelevant if the countries are both democracies or if they are similarly matched in military power – the only thing that really matters is whether a dyad exchanges goods and/or services. Consider the United States and China today; one is a democratic, military superpower while the other is a socialist state with no exceptional global power. Yet they share a relatively prosperous, mutually beneficial commercial relationship. No matter which way you view it, trade acts as the greatest approach for peace.

The Creation Of Macroeconomics Has Two Distinctive Purposes

The creation of Macroeconomics had two distinctive purposes (ACDCLeadership, 2014). These two purposes provide a measurement for the economy and act as a resolution for problematic situations (ACDCLeadership, 2014). There are three aspects which account for the measurement of the economy (ACDCLeadership, 2014). These three aspects are a recession, an inflationary gap, and full employment (ACDCLeadership, 2014). When a recession occurs there are three courses of action which can be applied to the situation (ACDCLeadership, 2014). The first course of action is no policy, which is to take no course of action and wait the period out (ACDCLeadership, 2014). When there is a period of high unemployment, no policy, causes wages and cost to go down while aggregated supply will increase stabilizing the economy back at full employment (ACDCLeadership, 2014). The second policy that could be implemented is fiscal policy which focuses on government spending and taxation (ACDCLeadership, 2014). In the occurrence of a recession, to stimulate the economy government spending is increased, while taxes are cut (ACDCLeadership, 2014). Lowering taxes increases the consumer response causing aggregated demand to increase (ACDCLeadership, 2014). The third course of action is monetary policy which is the control of money supplied to cause a shift in aggregated demand (ACDCLeadership, 2014). The money supplied is increased causing a decrease in the amount of interest rates, which will increase theShow MoreRelatedBuilding an Access Control System1410 Words   |  6 Pagesand review scientific data are agreed upon. (These procedures can enhance credibility with key parties and appropriate institutions.) Milestone in the history of the school has been reached. TERMINOLOGY -Basics of Developing Mission, Vision and Values Statements 1. Basically, the mission statement describes the overall purpose of the job. 2. 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The Seven Dimensions Of Culture - 1746 Words

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