Globalisation will make our societies more creative and

prosperous, but also more vulnerable.

Lord Robertson

Thought for the day:

Globalisation

Unit 1.9

Get an A

Knowledge

Application & Analysis

Evaluation

A

Grade

Understand

Define, Identify, Complete, Outline, describe, Classify

Compare, Contrast, distinguish, prepare, construct, calculate, explain, comment

Apply, Examine, Analyse, Interpret, Formulate.

To what extent, Evaluate, discuss, justify, advise, recommend.Level 4

Level 3

Level 2

Level 1

Target Learning Objective Who? Keywords

Discuss reasons for the growth of multinationals

ALL

Level 1Free Trade- When two countries trade freely without imposing tariff or taxes on each other.

Globalization- When a business mostly corporations, expands to a multinational corporation. and integrates into world economy.

Multinational Corporations- Business that operates outside of their home country.

Regional Trading Bloc- a group of countries that agrees on free trade among them, by removing trade barriers like tariff.

Protectionist Measures- one of the government's power to control and help domestic business from foreign competition.

Explain the impact on business of a country that is a member of a regional economic group/bloc.

MOST

Level 2

Analyse the role played by multinationals in the global business environment. Evaluate their impact in the host countries

SOME

Level 3 & 4

1.5 Pre-read Chapter

Key Topic

Globalization: the causes and impacts

Reasons for the growth of multinational companies

The role and impact of multinationals in the global business environment

Regional Trading Blocs

Read Page 89 of your text book:‘Coca-cola’s globalisation marketing – India

doesn’t buy it’

Questions:

What advantages might coca-cola have from producing and selling products in many countries?

Assess the potantial benefits and drawbacks to India of Coc-cola expanding its operations in that country.

Examine how coca-cola might achieve more sales success in India than at present.

Globalisation –describes the process by which regional economies, societies, and cultures have become integrated through a global network of communication, transportation, and trade.

Growing and interdependence of the world’s economies.

Only after World War II, the globalization for multinational corporation started. Business simply sell their product over seas, because of larger customer base.

http://clipbank/espresso/clipbank/servlet/link?macro=setresource&template=vid&resourceID=2467

Globalisation…. Comes about:

Liberalization of international trade

The removal of global trade barriers

eg. The European Union introducing a single currency.

less tariff, means tax are reduced.

countries becomes more opened

Technological progress

Reduced cost of information interchange (internet)

Global Media like CNN which uses satellites to communicate and deliver news.

Deregulation

Cost of transportation and distribution has fallen.

Shipping has been cheaper

Cultural awareness and recognition

Consumers around the world have increasingly similar tastes.

Like China removing trade restrictions placed on foreign businesses.

Culture Awareness & recognition Customers around the globe is influence by global movies and media to share a

common taste or interest. Language

English is the official business language in many part of the world Common languages promote communication between business and consumers.

Effects of globalization on business activity.

Increase competition.Meeting customer expectation and needsEconomies of scaleGreater choice of location (reduce cost of

production)Merges, acquisition and joint venturesIncrease customer base

International Trade

International trade is the exchange of goods and services between countries.

An import is the countries purchase of a good or service made overseas.

An export is the sale of a the countries-made good or service overseas.

Reasons for International Trade

Domestic Non-availabilityA nation trades because it lacks the raw

materials, climate, specialist labour, capital or technology needed to manufacture a particular good. Trade allows a greater variety of goods and services.

Specialization – countries should focus on what they are best at producing.

Countries will benefit by concentrating on the production of those goods which they produce best.

For instance, France has the climate and the expertise to produce better wine than Brazil. Brazil is better able to produce coffee than France. Each country benefits by specializing in the good it is most suited to making.

Specialization may lead to economies of scale as countries increase output and gains lower unit costs.

France then creates a surplus of wine which it can trade for surplus Brazilian coffee.

Reasons for International Trade

Other gains from international tradeEfficiency – the competition which arises from trade acts as an incentive to domestic firms to increase their competitiveness.Political, social and cultural - gains from bringing countries closer together.

Reasons for International Trade

WHY DO COUNTRIES TRADE WITH EACH OTHER?To obtain goods that they cannot produce

themselvesTo increase choice for their consumersTo obtains goods at a cheaper price than what

they can produce themselvesTo make more revenues and profits. It is an extra

place in which to sell their goodsCountries specialise in the production of goods

and services at which they are better.To exploit a comparative or absolute advantage.

COMPARATIVE ADVANTAGEThis is where one country can produce a

good at a relatively cheaper cost in terms of other goods than another producer.

ABSOLUTE ADVANTAGEThis is where one producer is better at

producing a product than another producer.

ACTION

Have a look at the labels on your clothes and personal goods.

How many have been imported?

Limits to the benefits from free trade

Possible Diseconomies of Scale.Transports costs – make it more

expensive to trade. Protectionism - various measures taken to

reduce imports. In other words the country's government tries to protect it’s businesses from international competition.

Advantages of Protectionism

Protectionism occurs when one country reduces the level of its imports because of:

Infant industries. If sunrise firms producing new-technology goods (eg computers) are to survive against established foreign producers then temporary tariffs or quotas may be needed.

Unfair competition. Foreign firms may receive subsidies or other government benefits. They may be dumping (selling goods abroad at below cost price to capture a market).

Balance of payments. Reducing imports improves the balance of trade.

Strategic industries. To protect the manufacture of essential goods.

Declining industries. To protect declining industries from creating further structural unemployment.

Disadvantages of Protectionism

Prevents countries enjoying the full benefits of international specialization and trade.

Invites retaliation from foreign governments. Protects inefficient home industries from

foreign competition. Consumers pay more for inferior produce.

Trade:

The process of buying and selling goods and services.The pattern of trade is always changing.Why would it shift?1. New business set up and develop their export market2. New technologies open up previous impossible

export/import markets3. Business constantly striving to improve their

competitive performance acquire advantages they didn’t have

4.Changes in exchange rates alter the prices of goods and services sold abroad.

Exchange Rates

Exchange Rates: The exchange rate is the price of one currency in relation to another.

Find outHow Much it would cost you to buy a £65 pair of

Nike Shoes inFrance -America -Australia –How much would it cost an American to Buy a

£100 suit from Selfridges?

Effect on Business exporting and importing

What is the effect on exports of a falling pound?

The effect upon imports of a falling pound?

Effect of rising pound upon exports?

The effect on imports of a high pound?

The implications for business strategies Business are under pressure to buy their inputs from the cheapest

source. Expand where possible.They may: Buy imported items Sell products abroad. Set up subsidiaries overseas. (become multinational)GLOBALISATION! Helped by cheaper transport and communication ‘think globally, act locally’ (the product must be suitable for the

needs of the market, and market strategies must be intone with the culture of that market.’

Did these companies bother:

What determines international competitiveness?How do business compete? In general, business compete in order to secure a larger market. Need to consider all aspects – production, marketing and human resources.Revolve around: How can efficiency and productivity (output per person employed) be

increased? How can the business create new areas of demand for the product? However, competitiveness may be affected by the business environment. Exchange rate changes may make them more or less competitive. Rising input prices may make them more or less competitive. A general rise in price (inflation) Will affect competitiveness too. A change in rules of the WTO may mean the important duties change. All these factors are external to the business and involve deciding the most

effective reaction.

Reacting to exchange rate changes

Business which competes with important and finds the exchange rate rising must become more efficient.

How can you do this?Labour saving machineryReduce work forceNew technologyNew organisation structuresMarketing

Exchange rate can be used to FORCE business to be more competitive.

What if you were EXPORTING and exchange rate falls?

You could drop your price? Increase salesLeave the price (enjoy the profit margin) Depends on price elasticity!

Reacting to exchange rate changes

Artificial trade barriersTariff

Taxes impose on import products.Quotas

Limites the price of foreign products which can inflate the prices and cause lots of un-intended side effects.

Unfair trade practicesNot illegal, but for some product made in US and

shipped to China, the procedure for safety handling the product will be affected.

Summary

Foreign Markets:Increases sales revenueGrowthEconomies of scaleLower risk of bankruptcy

Threats – laws, knowledge of market

Threat to domestic business– undercount

Summary

Business Trading abroad need to be internationally competitive

Ability to compete with business abroad.

Multinationals

A multinational corporation (MNC) is an organization that operates in two or more countries.

For example, The Body Shop has more than 2,400 stores and operates in over 60 countries.

As businesses grow, they might find that their domestic operations are inadequate.

Multinationals

For example, it might be cheaper and more efficient to switch production to another country.

There have been various factors that have made it easier for businesses to operate on a global scale, such as:

lower transportation costs, advances in technology such as e-commerce, more efficient communication systems, and trade libration (the removal of barriers to international

trade).

Multinational corporations

Multinational Corporations(MNC) Business organization that works in two or more country.

Multinational can increase their sales, by expanding internationally to widen their customer base.

Producing in another country can avoid protectionist policy from the home country. Can also spread risk, multinational corporations can bring domestic recession

internationally.eg.

• Natural Disaster-(hurricane, tsunamis, earthquakes...)• Disease-(bird flu, H1N1....)• Terrorist Attacks-(9/11)

Globalization of markets helps the country increase customer base rapidly. Corporations rushes to go international before their rivals to gain customer royalty.

ex. Coca-Cola, Dell, Exxon, GM...

The advantages of being a multinational include:

MNCs operate on a very large scale so are therefore able to exploit economies of scale.

This means that the MNC can pass on cost savings to customers in the form of lower prices, thereby enhancing its international competitiveness.

Through job creation, MNCs are able to help improve the living standards in the countries that they operate. For example, Wal-Mart, the world’s largest retailer, employs over 2.1 million people worldwide

By operating in overseas markets, MNCs are able to generate more profit by selling to a larger customer base

MNCs are able to spread risks by operating in overseas markets. For example, adverse trading conditions in one part of the world can be offset by more favorable circumstances in other parts of the world.

The advantages of being a multinational include:

By producing in a foreign country, a MNC is often able to avoid any trade restrictions. For example, Japan’s Honda is able to avoid import taxes in the European Union as i has manufacturing plants in the UK, Belgium, Italy and France.

The advantages of being a multinational include:

The disadvantages of being a multinational include:

MNCs face an array issues to deal with, such as different legal systems, tax regulations and environmental guidelines.

The lack of local knowledge can also cause major problems for a MNC.

The disadvantages of being a multinational include:

The sheer size and geographic spread of a MNC makes it harder to manage the business. It becomes more difficult for managers to ensure everyone works well together.

Effective communication can also be an issue if workers are located in countries with different languages and national cultures.

Fluctuating exchange rates can make it difficult to measure and compare the value of a MNC’s sales and profits in overseas markets.

The disadvantages of being a multinational include:

Multinationals have often been criticized for cost- cutting practices, such as poor working conditions and low paid wages to workers in low- income countries.

Since many MNCs earn far more revenue than the Gross Domestic Product (GDP- the value of a country’s annual production) of the host country, they are often in a powerful position to exploit foreign governments over decisions such as the location of the business and access to finance (government subsidies, grants and loans.)

The disadvantages of being a multinational include:

Whilst jobs might be created, MNCs can force local firms that are less competitive to close down. Their huge market power and ability to exploit economies of scale mean that local firms might struggle to compete.

The over-reliance on MNCs in low- income countries means that there are major consequences should any MNC choose to relocate its operations to another country. For example, in 2010 a French supermarket chain Carrefour pulled out of Thailand, Malaysia and Singapore, creating an increase of unemployment in these three countries.

Potential problems of expansion overseas Lack of knowledge

Not enough information known, lack of advertisement in the foreign countries.

Storage, transportation and distribution cost Might increase, depends on currency and the country

External factors PESTEL have greater risk and weighting.

Political and economic conditions Different countries have their own political and economic problems.

Infrastructure The countries roads, transportation, society might not be developed enough

in this country.eg. selling Apple product in Malawi, Africa...

Multinationals and Their Effects on Host Countries Host country advantage-

creates more jobs earn investments help boost the host country's Gross Domestic Product Introducing new skills to the country Technology transfers into the country Competition in the host country

Examples Russia hosting Volkswagen, then Volkswagen opening up manufacturing plants

which opens up about 3500 jobs. Japan introducing new technology skills to other countries. McDonalds (Picture on the right)- provides more jobs in China, introduce fast food

skills, and also transfer cooking technology.

Multinationals and Their Effects on Host CountriesDisadvantages-

Social responsibilityTreatment of the poorer countries when developed business comes and raid

their natural resources. Unemployment to domestic business because international business are better paid,

mostly. Multinational business post threats on local business.

Competition, but multinational business mostly have a edge on this one. Domestic business may be forced into reducing price to be in the competition.

Lost of profitExamples

Asian, especially in China and Indian. Where multinational companies are dominating domestic company.

eg. People drink coke instead of their local products. McDonalds in China, even though helps provide many more jobs, but then people

start eating at McDonalds, instead of their local restaurants.

TOK

Indian people eating McDonald’sChinese people driving BMWsVietnamese work for NikeBritish people get customer support from IndiaMalaysia’s favourite football team is

Manchester United.

To what extent is increased globalisation a threat to national culture?