Globalisation 111

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    Globalisation andMultinational Business

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    Globalisation: Setting the Scene

    Current issues in the global economy Defining globalisation

    global economic interdependence

    implications for business

    What is driving globalisation?

    market drivers

    cost drivers government drivers

    competitive drivers

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    The drivers of globalisationMarket drivers

    Per capita income converging among industrialisednations

    Convergence of lifestyles and tastesOrganisations beginning to behave as global customers

    Increasing travel creating global consumers

    Growth of global and regional channels

    Establishment of world brands

    Push to develop global advertising

    Cost drivers

    Continuing push for economies of scale

    Accelerating technological innovation

    Advances in transportation

    Emergence of newly industrialised countries withproductive capability and low labour costs.

    Increasing cost of product development relative tomarket life

    Government drivers

    Reduction of tariff barriers

    Reduction of non-tariff barriers

    Creation of blocs

    Decline in role of governments as producers andcustomers

    Privatisation in previously state-dominated economies

    Shift to open market economies from closed communistsystems in eastern Europe

    Increasing participation of China and India in the globaleconomy

    Competitive drivers

    Continuing increases in the level of world trade

    Increased ownership of corporations by foreignacquirors

    Rise of new competitors intent upon becoming globalcompetitors

    Growth of global networks making countriesinterdependent in particular industries

    More companies becoming globally centred rather thannationally centred

    Increased formation of global strategic alliances

    Other drivers

    Revolution in information and communication

    Globalisation of financial markets

    Improvements in business travel

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    Market drivers

    Per capita income converging among industrialisednations

    Convergence of lifestyles and tastesOrganisations beginning to behave as global customers

    Increasing travel creating global consumers

    Growth of global and regional channels

    Establishment of world brands

    Push to develop global advertising

    Cost drivers

    Continuing push for economies of scale

    Accelerating technological innovation

    Advances in transportation

    Emergence of newly industrialised countries withproductive capability and low labour costs.

    Increasing cost of product development relative tomarket life

    Government drivers

    Reduction of tariff barriers

    Reduction of non-tariff barriers

    Creation of blocs

    Decline in role of governments as producers andcustomers

    Privatisation in previously state-dominated economies

    Shift to open market economies from closed communistsystems in eastern Europe

    Increasing participation of China and India in the globaleconomy

    Competitive drivers

    Continuing increases in the level of world trade

    Increased ownership of corporations by foreignacquirors

    Rise of new competitors intent upon becoming globalcompetitors

    Growth of global networks making countriesinterdependent in particular industries

    More companies becoming globally centred rather thannationally centred

    Increased formation of global strategic alliances

    Other drivers

    Revolution in information and communication

    Globalisation of financial markets

    Improvements in business travel

    The drivers of globalisation

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    Market drivers

    Per capita income converging among industrialisednations

    Convergence of lifestyles and tastesOrganisations beginning to behave as global customers

    Increasing travel creating global consumers

    Growth of global and regional channels

    Establishment of world brands

    Push to develop global advertising

    Cost drivers

    Continuing push for economies of scale

    Accelerating technological innovation

    Advances in transportation

    Emergence of newly industrialised countries withproductive capability and low labour costs.

    Increasing cost of product development relative tomarket life

    Government drivers

    Reduction of tariff barriers

    Reduction of non-tariff barriers

    Creation of blocs

    Decline in role of governments as producers andcustomers

    Privatisation in previously state-dominated economies

    Shift to open market economies from closed communistsystems in eastern Europe

    Increasing participation of China and India in the globaleconomy

    Competitive drivers

    Continuing increases in the level of world trade

    Increased ownership of corporations by foreignacquirors

    Rise of new competitors intent upon becoming globalcompetitors

    Growth of global networks making countriesinterdependent in particular industries

    More companies becoming globally centred rather thannationally centred

    Increased formation of global strategic alliances

    Other drivers

    Revolution in information and communication

    Globalisation of financial markets

    Improvements in business travel

    The drivers of globalisation

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    Market drivers

    Per capita income converging among industrialisednations

    Convergence of lifestyles and tastesOrganisations beginning to behave as global customers

    Increasing travel creating global consumers

    Growth of global and regional channels

    Establishment of world brands

    Push to develop global advertising

    Cost drivers

    Continuing push for economies of scale

    Accelerating technological innovation

    Advances in transportation

    Emergence of newly industrialised countries withproductive capability and low labour costs.

    Increasing cost of product development relative tomarket life

    Government drivers

    Reduction of tariff barriers

    Reduction of non-tariff barriers

    Creation of blocs

    Decline in role of governments as producers andcustomers

    Privatisation in previously state-dominated economies

    Shift to open market economies from closed communistsystems in eastern Europe

    Increasing participation of China and India in the globaleconomy

    Competitive drivers

    Continuing increases in the level of world trade

    Increased ownership of corporations by foreignacquirors

    Rise of new competitors intent upon becoming globalcompetitors

    Growth of global networks making countriesinterdependent in particular industries

    More companies becoming globally centred rather thannationally centred

    Increased formation of global strategic alliances

    Other drivers

    Revolution in information and communication

    Globalisation of financial markets

    Improvements in business travel

    The drivers of globalisation

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    Market drivers

    Per capita income converging among industrialisednations

    Convergence of lifestyles and tastes

    Organisations beginning to behave as global customers

    Increasing travel creating global consumers

    Growth of global and regional channels

    Establishment of world brands

    Push to develop global advertising

    Cost drivers

    Continuing push for economies of scale

    Accelerating technological innovation

    Advances in transportation

    Emergence of newly industrialised countries withproductive capability and low labour costs.

    Increasing cost of product development relative tomarket life

    Government drivers

    Reduction of tariff barriers

    Reduction of non-tariff barriers

    Creation of blocs

    Decline in role of governments as producers andcustomers

    Privatisation in previously state-dominated economies

    Shift to open market economies from closed communistsystems in eastern Europe

    Increasing participation of China and India in the globaleconomy

    Competitive drivers

    Continuing increases in the level of world trade

    Increased ownership of corporations by foreignacquirors

    Rise of new competitors intent upon becoming globalcompetitors

    Growth of global networks making countriesinterdependent in particular industries

    More companies becoming globally centred rather thannationally centred

    Increased formation of global strategic alliances

    Other drivers

    Revolution in information and communication

    Globalisation of financial markets

    Improvements in business travel

    The drivers of globalisation

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    Market drivers

    Per capita income converging among industrialisednations

    Convergence of lifestyles and tastes

    Organisations beginning to behave as global customers

    Increasing travel creating global consumers

    Growth of global and regional channels

    Establishment of world brands

    Push to develop global advertising

    Cost drivers

    Continuing push for economies of scale

    Accelerating technological innovation

    Advances in transportation

    Emergence of newly industrialised countries withproductive capability and low labour costs.

    Increasing cost of product development relative tomarket life

    Government drivers

    Reduction of tariff barriers

    Reduction of non-tariff barriers

    Creation of blocs

    Decline in role of governments as producers andcustomers

    Privatisation in previously state-dominated economies

    Shift to open market economies from closed communistsystems in eastern Europe

    Increasing participation of China and India in the globaleconomy

    Competitive drivers

    Continuing increases in the level of world trade

    Increased ownership of corporations by foreignacquirors

    Rise of new competitors intent upon becoming globalcompetitors

    Growth of global networks making countriesinterdependent in particular industries

    More companies becoming globally centred rather thannationally centred

    Increased formation of global strategic alliances

    Other drivers

    Revolution in information and communication

    Globalisation of financial markets

    Improvements in business travel

    The drivers of globalisation

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    Globalisation: Setting the Scene

    Current issues in the global economy Defining globalisation

    global economic interdependence

    implications for business What is driving globalisation?

    market drivers

    cost drivers government drivers

    competitive drivers

    Globalisation: the good and the bad

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    Multinational Corporations

    Statistics on growth and size ofMNCs

    the comparative size of MNCs andcountries' GDP

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    Comparison of the 10 largest multinational corporations(by gross revenue) and selected countries (by GDP): 2002

    MNCrank

    CountryorCompany

    GDP ($bn)orgross revenue

    ($bn)

    USA 10,869.11 Wal-Mart Stores 219.8

    Indonesia 212.9

    Denmark 205.1

    2 Exxon Mobil 191.6

    3 General Motors 177.3

    4 BP 174.2

    Greece 165.2

    China: Hong Kong 165.15 Ford Motor 162.4

    Finland 158.2

    Ireland 150.2

    6 Enron 138.7

    7 DaimlerChrysler 136.9

    8 Royal Dutch/Shell Group 135.2

    Thailand 132.4

    Iran 127.89 General Electric 125.9

    Argentina 121.8

    10 Toyota Motor 120.8

    Malaysia 102.7

    Chile 65.9

    Luxembourg 23.8

    Kenya 12.9

    Albania 5.3

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    Multinational Corporations

    Statistics on growth and size ofMNCs

    the comparative size of MNCs andcountries' GDP

    foreign direct investment (FDI) inflows

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    FDI inflows ($ millions)

    0

    200,000

    400,000

    600,000

    800,000

    1,000,000

    1,200,000

    1,400,000

    1,600,000

    1970 1975 1980 1985 1990 1995 2000

    FDIinflows($millions)

    .

    World

    Developed countries

    Developing countries

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    0

    200,000

    400,000

    600,000

    800,000

    1,000,000

    1,200,000

    1,400,000

    1,600,000

    1970 1975 1980 1985 1990 1995 2000

    FDIinflows($millions)

    .

    World

    Developed countries

    Developing countries

    FDI inflows ($ millions)

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    0

    200,000

    400,000

    600,000

    800,000

    1,000,000

    1,200,000

    1,400,000

    1,600,000

    1970 1975 1980 1985 1990 1995 2000

    FDIinflows($millions)

    .

    World

    Developed countries

    Developing countries

    FDI inflows ($ millions)

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    0

    200,000

    400,000

    600,000

    800,000

    1,000,000

    1,200,000

    1,400,000

    1,600,000

    1970 1975 1980 1985 1990 1995 2000

    FDIinflows($millions)

    .

    World

    Developed countries

    Developing countries

    FDI inflows ($ millions)

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    0.0

    5.0

    10.0

    15.0

    20.0

    25.0

    30.0

    1985 1990 1995 2000

    FDI inflows

    FDIas

    %o

    fgrossfixedcapitalformation

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    0.0

    5.0

    10.0

    15.0

    20.0

    25.0

    30.0

    1985 1990 1995 2000

    Developing countries

    FDIas

    %o

    fgrossfixedcapitalformation

    FDI inflows

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    0.0

    5.0

    10.0

    15.0

    20.0

    25.0

    30.0

    1985 1990 1995 2000

    Developed countries

    Developing countries

    FDIas

    %o

    fgrossfixedcapitalformation

    FDI inflows

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    Multinational Corporations

    Diversity among MNCs size

    the nature of the business

    overseas business relative to totalbusiness

    production locations

    ownership patterns

    organisational structure

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    Why do Businesses go Multinational?

    Categories of multinational organisation horizontally integrated

    vertically integrated

    conglomerate Advantages to firms

    reductions in costs

    international differences in factor prices international differences in factor

    productivity

    low-cost access to local markets

    spreading overheads

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    Why do Businesses go Multinational?

    Advantages to firms (cont.) government support in host countries

    lower taxes

    subsidies

    provision of infrastructure

    increased demand

    spreading risks

    can exploit advantages over local firms ownership of superior technology

    entrepreneurial and managerial skills

    R&D capacity

    access to local technology

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    Why do Businesses go Multinational?

    The product life cycle and the MNC the launch phase

    the growth phase

    maturity late maturity and decline

    Problems facing multinationals

    language barriers selling and marketing

    relations with host governments

    relationships between subsidiaries

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    MNC Investment and the Host State

    Advantages of MNC investment employment

    balance of payments

    technology transfer tax revenues

    Disadvantages

    uncertainty

    power and control by the MNC over thehost

    transfer pricing

    the environment

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    MNCs and Developing Countries

    The scale of MNC investment indeveloping countries

    Advantages to host country

    the saving gap

    the importance of development finance

    the contribution of saving to growth

    the foreign exchange gap

    public finance gap

    skills and technology gaps

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    MNCs and Developing Countries

    Disadvantages to host country MNCs may drive local firms out of business

    limited demand for local components

    repatriation of profits transfer pricing and effects on tax revenues

    competition between developing countries toattract MNCs

    distorting the whole pattern of development increasing gap between rich and poor

    introducing consumerist values

    What can developing countries do?