Review on The Wonderful World of Adam Smith
Review on Chapter 3 The Wonderful World of Adam Smith
In the book The Worldly Philosophers Book, Chapter 3 The Wonderful World of Adam Smith discusses in great detail Smith’s various works. It particularly made mention of Adam Smith’s masterpiece “The Wealth of Nations”. In it, he delineated the four laws which govern the economy. Smith mentioned in this book four enduring laws which until now are still being considered acceptable. It is important to note that despite the fact that centuries engulfed between our time and Smith, still his claims remain true to this day.
Smith showed strong leaning towards the concept of “laissez faire” or unregulated economy as the backbone of capitalism. He got this idea from French physiocrat Francois Quesnay. From this theory, Smith came up with the four economic laws of the market.
Adam Smith’s first law of the market is self –interest or profit motive. This first law is important because from it stems all the economic activities man is willing to do in exchange of money. Pursuing self-interest may appear self-serving but “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from our regard to their self-interest."
The second law of the market according to Adam Smith is the law of competition. In an unregulated economy like capitalism, competition makes it possible for individual businessmen to operate within the boundaries of decency or what is fair to all. A certain amount of competition among businessmen help spurs the economy and protects interest of the working group.
As the demand for a product grows, self-interest sets in. Individual businessmen shift to the business with higher demand to be able to earn more. Thus, competition guarantees that there will be no exploitation of workers and the goods delivered are of the best quality.
The third law according to Adam Smith is the law of accumulation which refers to the accumulation of profits or what is aptly called retained earnings meant for business projects such as acquisition of more machinery and raw materials. This in turn is deemed to earn more profits.
Adam Smith’s fourth law is the law of population. As more machinery are purchased, the demand for workers grows. As more workers compete for jobs, wages come down because there is more supply than demand of labor which results in more profits for the capitalist.
According to Adam Smith, demand and supply plays a major role in the market especially for a self-regulated economy evident in laissez-faire. As the demand rises, supply tends to rise in proportion to the demand. This is the theory behind competition.
Competition may pose as a threat to businesses but it does serve its helpful purpose.
Smith believed that capitalism allows the worker freedom to choose his trade. Competition available in the person’s chosen trade prevents him from overpricing his commodities or services. Thus, Smith supposed that competition prevents monopoly and ruthless profiteering. With more and more business competing for a growing market of consumers, the quality of goods also gets better.
This principle of competition adhered to by Smith is applicable even to our times. We can see that the economic environment is, more than ever, alive and vibrant today. Great strides have been achieved in the capitalistic world. We see the rise of huge multinational corporations and massive labor unions which was virtually non-existent before.
Current business trends are leaning towards technology particularly computers, internet and mobile phone devices. Every business as a matter of fact cannot do without computers these days. With the advent of the internet age, competition becomes more prominent.
Competition has become stiffer through the years. Competition is more complicated than ever. Businesses are learning more and better ways to cope with the challenges competition poses. Management must come up with various strategies to keep afloat in an ever-changing business environment.
Strategic management helps make the business stay competitive. The survival of the business depends to a large extent on its ability to address specific problems to the organization effectively. This is where strategy in business management comes in.
Strategy provides the direction in which the business should take. Delineating company objectives clearly, establishing policies and plans and implementing plans by using resources are all parts of an effective strategy. Knowing the strategy that works then is essential for the growth of the company.
As Smith explains, when there is a growing public demand for shirts than bags, there will be a good business for shirts, but less demand for bags. As a result, the price of shirts will increase became the demand is more than the supply. The price of bags will go down because the supply is more than the demand.
The competition scenario during Adam Smith’s time may not be as cutthroat as it is today. In order to increase demand for their products, today’s businessmen expand their operations worldwide. Competition is no longer contained in a single community or locality but to the world. With the aid of computers and internet technology, the world is becoming smaller and smaller. Globalization becomes the new thrust for multinational companies. Along with the new technology also rise new challenges to business.
Globalization is a by-product of Adam Smith’s first law which is the profit motive or the self-interest motive. It is the reality in today’s multinational companies. With globalization come a number of opportunities to earn more profits. But it also poses a number of risks and difficulties which need to be addressed. It is easy to assume that what works in one works with another. Unfortunately, this is not the case in the international scene.
In their haste to gain more profits, a lot of companies make the same mistake of adopting the same policies at home in promoting their products in another country. They promote the same product, do the same advertising campaigns, even the brand names and packaging remain the same. In most cases this leads to failure since international companies find themselves beaten by locally-based competitors who knew the market well. This is so because assuming that one approach works everywhere fails to recognize the fact that differences do exist between countries and cultures. A number of companies who sell internationally maybe successful following a standardized marketing strategy but assuming this approach will work for your company too without prior research is a fatal error.
Take McDonalds for instance. This brand is recognizable worldwide. Their global success is attributed to the fact that they consider several factors before infiltrating a country. This is so because there are factors operating in domestic mix that differs or is not applicable in another.
To be competitive, marketing the product internationally should take into consideration several factors that could play a role in the success of the product. These factors include: country’s culture, resources found in that target country, current marketing situation, existing competition for McDonalds products, environmental forces operating in that country, cultural influences such as family, state, church, school and media. The 4P’s is essential in coming up with international marketing concepts – product, price, promotion and placement.
An example of this situation is the fact that McDonalds may sell a lot of burgers in the United States but this could not be true in China. Since Chinese prefer to eat chicken more than beef. Necessary adjustments then should be adopted before penetrating international market.
Other factors important in international marketing are: language, culture and religion.
In order to protect their profit motives, it is essential for companies to consider that language and cultural blunders inevitably lead to deals that go awry resulting in lost opportunities. The areas of cross-cultural and language training are essential to conducting international business and marketing strategies.
The development of branding is one way of remaining competitive in the global scene. This is also in keeping with Adam Smith’s law on competition since branding enables companies to create demand for their particular product. There are many examples of branding that has operated successfully with similar images that are designed to be culturally generic, such as Pepsi-Cola in United States and Japan. Market placement of goods refers to the methods which define the sectors where the goods need to get delivered to or identifying segments of potential customers. International and local trade laws obviously affect the marketing strategy of a business as these could set limits in the approach they used.
To succeed globally, Adam Smith believes that competition spurred by self-interest or the profit motive enables businesses to come up with strategies that would ensure their success such as the amalgamation of factors – effort, money and time. Adam Smith’s profit motive is particularly evident in the companies bid for globalization since the international market is four times larger than the U.S. market. Even to this day, Adam Smith’s law of self-interest and competition is still very much evident.