Transcript Unit 1.18 - Globalization

BUSINESS AND
MANAGEMENT
MODULE 1
BUSINESS
ORGANIZATIONS &
ENVIRONMENT
Globalization
 The
integration of the world
economies, sociology and politics
– The world economy is experiencing
increased integration
– The development of global trade now
offers many interesting challenges to
Canadian businesses
– Why then is globalization increasing?
Indicators of Globalization
 More
countries are trading with each
other
 Multinational business is becoming
more influential and they are
promoting their brands worldwide
 Greater cultural awareness
 Large scale enterprise is working to
gain competitive advantage over its
rivals and develop market presence
in as many lucrative markets as
possible
Indicators of Globalization
(continued)
• Technology and its uses make
trading over large distances and in
more obscure locations easier
• Transportation costs have fallen e.g.
bulk ore and oil carriers
• Business de-regulation that allows
foreign enterprises to tender for
contracts
• More standardized consumer tastes
• The growth of emerging markets
The Impact of Globalization
on Business
 Increased
competition
 Greater awareness and reactions to
customer needs
 Economies of scale
 Location flexibility
 Increased mergers and joint ventures
Multinational Corporations
The growth of multinationals has been
rapid in recent years.
 The importance of multinationals should
not be underestimated.
 The total value of MNC investment
worldwide is over $1 trillion of which
around two thirds is in the developed
world.
 It is even now true that of the top 100
largest organizations in the world 51
are now MNCs and 49 are countries.
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To put this in perspective,
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General Motors is now bigger than Denmark;
DaimlerChrysler is bigger than Poland;
Royal Dutch/Shell is bigger than Venezuela;
IBM is bigger than Singapore; and
Sony is bigger than Pakistan.
The 1999 sales of each of the top five
corporations (General Motors, Wal-Mart, Exxon
 Mobil, Ford Motor, and DaimlerChrysler) are
bigger than the GDP’s of 182 countries.
 The Top 200 corporations’ combined sales are
bigger than the combined economies of all
countries minus the biggest 10.

International Competitiveness
 To
trade in international markets
companies need to develop a
competitive cost base and other
characteristics that will allow them
to be attractive to consumers in
other markets.
– Case Study - McDonalds
Effects of Globalization
 The
increase in the number of
trading blocs
 Costs of production
 Corporate policies
 Liberalization of trade
 Management structure
– Chains of command will lengthen.
– Reporting and decision-making will slow.
– Trust will have to be earned and given.
Why Become a Multinational?
Avoidance of taxation, or at least rates on
tax in the country of production
 Lower costs and less regulation
 Government aid
 Lower distribution costs
 Local knowledge
 Opportunities for mergers
 Widening the customer base – create a
“first mover” advantage
 Mitigation of risk

Problems of Marketing
Overseas
Lack of local knowledge
 Storage and transportation costs will
increase
 External factors (outside the control of the
business)
 Political and economic climate
 Infrastructure

– Case Study - Carlsberg
Effect of a MNC on the Host
Country
Job creation
 Boost the GDP
 Introduce new skills and technology
 Create more competition

Lack of social responsibility
 Can cause unemployment

– Exercise - Motorola
Regional Trading Blocs
– RTB’s eliminate the barriers on the
movement of goods and services
– Members enjoy mutual benefits from
being involved in this freer trade
– Examples of trading blocs include
CEPA – closer economic partnership
agreements
FTA – free trade areas (NAFTA)
Common Market (EU)
EU
 The
best known regional trading bloc
in the world, its collective GDP is the
largest in the world (over $14 trillion)
 27 countries; over 500 million people
 Common currency in most countries
(Euro)
NAFTA
 Canada,
USA and Mexico
 A free market of over 430 million
people
 More MNC’s than any other region in
the world
 Goal is to eliminate tariffs over a 10
year period
Winners and Losers

Trade creation takes place when a country
(in a trading bloc) switched from buying
commodities from a high cost country to a
low cost country
– Canada buying TV’s from Mexico instead of
Japan

Trade diversion takes place when a
country (in a trading bloc) switches from
buying commodities from a low-cost
country to a high cost country
– UK buying wool from France instead of New
Zealand
– Case – Asian Growth