Transcript File - IB Business Management

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.
 To
put this in perspective,
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.
MCDONALDS

In 2000, McDonalds (the world’s largest fast food chain) reported global
sales in excess of $20 billion for the first time in history. Revenue was
boosted by strong sales in the U.S., Japan, Russia and Europe. Another
contributing factor was McDonald’s revamp of its global business by adding
salads and other healthy options to its traditional menu of burgers and
French fries. The company communicated this change by publicizing
nutritional facts of its products.

Critics have argued that McDonald’s food and drinks remain unhealthy and
high in calories. Their marketing strategies aimed at children, such as their
trade mark Happy Meals, have been attacked due to soaring obesity levels
among children.

Outline one possible problem created by the critics of McDonalds for the
business. Discuss McDonalds reaction to these problems.

Discuss the extent to which the fast food industry is a global industry.
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
CARLSBERG

In 2006, Carlsberg reported an 8% increase in its annual profits, driven by
strong growth in sales in Russia and other Eastern European countries. The
Danish beer firm acknowledged that it needs to rely on new markets, such
as Eastern Europe and Asia, for sales and profits growth. Carlsberg’s longestablished market presence in Western Europe gives it a competitive
advantage, but in a stagnant market.

Identify the evidence that suggests Carlsberg is a multi-national business.

Explain two reasons for Carlsberg choosing to expand in overseas markets.

Examine the possible threats to Carlsberg in operating in overseas markets.
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
MOTOROLA

Motorola invested $60 million in Singapore between 2006 and 2008,
and hired 200 local workers. Motorola already has four factories in
Asia (Singapore, Malaysia, and two in China). The American
company employs more than 20,000 people in Asia. Both Motorola
and its larger rival Nokia are expanding in the region since
restrictions on telecommunications have been relaxed. The huge
rise in average incomes has also stimulated demand for mobile
phones.

Explain how globalization might affect the location of businesses
such as Motorola.

Examine the benefits to Motorola in having production facilities
overseas.
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 – Business in Asia