15 Globalization
© John Tribe
© John Tribe
Learning outcomes
• By studying this section students will be
able to:
– explain the meaning of globalization
– explain the meaning of an MNE
– understand the motives for extending
operations overseas
– analyse the effects of MNEs
– evaluate government policy relating to MNEs
© John Tribe
Globalization
• Robertson (1992: 8) describes
globalization as:
– “the compression of the world and the
intensification of consciousness of the world
as a whole . . . . concrete global
interdependence and consciousness of the
global whole in the twentieth century"
© John Tribe
Economic Globalization
• Friedman (1999: 7-8) offers the following
definition:
• "[T]he inexorable integration of markets, nationstates, and technologies to a degree never
witnessed before-in a way that is enabling
individuals, corporations and nation-states to
reach around the world farther, faster, deeper
and cheaper than ever before . . . . the spread of
free-market capitalism to virtually every country
in the world”
© John Tribe
Economic Globalization
• Refers to the increasing integration of
economies around the world.
• This integration is evident mainly through
– trade and financial flows but it also includes
– the movement of people (labour) and
– knowledge (technology)
across international borders
© John Tribe
Multinational enterprises in leisure
and tourism
• Airlines
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AMR (American)
UAL (United)
British Airways
Delta
Lufthansa
• Electronics
– Hitachi
– Matsushita
– Sony
• Entertainment
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Walt Disney
Time Warner
News Corp.
Viacom
Seagram
• Consumer products
– Coca-Cola
– McDonald's
– Nike
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World Airline Alliances
Star Alliance
Air Canada, Air New Zealand, ANA, Asiana
Airlines, Austrian, bmi, LOT Polish Airlines,
Lufthansa, Mexicana, Scandinavian Airlines,
Singapore Airlines, Spanair, Thai Airways
International, United and VARIG.
One World
British Airways, Aer Lingus, American Airlines,
Cathay Pacific, Iberia, Lan Chile, and Qantas.
Sky Team
Aeromexico, Air France, Alitalia, TSN, Delta and
Korean Air.
© John Tribe
Which is the odd one out?
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Answer
• Air New Zealand is
not a member of the
one world alliance
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Benefits of Globalization
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improved communications
a more open world
the advent of new, better and cheaper products
the reduction in barriers to trade
its contribution to faster economic growth.
• Advocates of globalization see the major problem that it
is not progressing evenly.
– They note that some countries have been integrated into the
global economy more quickly than others and that these are
seeing faster growth and reduced poverty.
– For example free trade policies have brought dynamism and
greater prosperity to much of East Asia, transforming it from one
of the poorest areas of the world 40 years ago.
© John Tribe
Problems of Globalization
• To some globalization is a pejorative term sometimes
used as shorthand for the ills of capitalism.
• Here concerns are expressed about
– the deterioration in the well-being of particular groups
(these range from whole countries, to workers in developed
countries who have seen their jobs exported, to workers in
developing countries who work under conditions of exploitation),
– the sovereignty and identity of countries,
– lack of sensitivity to host culture
– the disparities of wealth and opportunities among countries and
people
– the health of the environment
– the greater exposure it brings countries to sudden and profound
economic shocks.
© John Tribe
Global significance of tourism
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Meaning and extent of multinational
enterprise
• An MNE is one which has production or service
capacity located in more than one country. The
MNE has a headquarters in a parent country
and extends its operations into one or more host
countries.
• The main ways in which multinational operations
are extended are by
– investment in new or ‘greenfield’ capacity
– by taking an equity stake in a foreign company (i.e.
buying up shares)
– or by operating a franchise or alliance with a foreign
company.
© John Tribe
Coca-Cola
2003
Worldwide Net Operating Revenues
© John Tribe
Motives for going multinational
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lower labour costs
lower other costs
exploiting ‘national diamonds’
marketing advantages
scale economies, integration and competition
extension of product life cycles
tariff avoidance
incentives in host economies
© John Tribe
Benefits of multinationals on host
economies
• These include
– extra investment and related effects
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Growth
Exports
Employment
Tax revenue
– technology and skills transfer
© John Tribe
Coca Cola in Thailand
• What benefits does Coca
Cola bring to the
economy of Thailand?
– Employment: The company
employs 9,000 people.
– Investment: It operates
seven bottling facilities
including a state-of-the-art
plant that opened in 1997
in Korat.
– Knowledge and skills
transfer: It has two licensed
bottling partners in
Thailand
© John Tribe
Question
• Which of the following is a possible
advantage to the host economy of MNEs?
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a leakages from the economy
b threat to local competition
c improved know how
d enclaves and dual development
• Answer:
– c
© John Tribe
Drawbacks of multinationals on
host economies
These include:
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leakages from the economy
prices and bargaining power
exporting of externalities
threat to local competition
power to pull out
enclaves and dual development
resource grabbing
labour exploitation
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Government resistance to
multinationals
• Competitive threat
• Power and accountability
• Transfer pricing and tax losses
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McDonald’s in Thailand
• What are the possible
drawbacks of
McDonald’s for its
host country?
– Competitive threat to
local firms
– leakages from the
economy
– lack of sensitivity to
host culture
© John Tribe
Review of key terms
• Globalization = ?
– organization of a firm’s production and sales on a worldwide
basis.
• Multinational enterprise (MNE) = ?
– one which has production or service capacity located in more
than one country.
• Parent country = ?
– base country of MNE.
• Host country = ?
– country in which MNE is operating.
• Greenfield development = ?
– new investment on a new site.
• National diamond = ?
– product or service for which a country has built a world
reputation.
© John Tribe
Review of key terms
• Tariff barriers = ?
– taxes on goods imported into a geographic area (e.g. the EU).
• Code sharing = ?
– packaging of interconnecting flights of linked airlines into one
flight code.
• Demonstration effect = ?
– method by which skills and technology are transferred to a host
economy by participation of local labour.
• Enclave = ?
– local MNE development isolated from the main host economy.
• Resource grabbing = ?
– MNE utilizing of host country’s resources which prevents later
domestic utilization.
• Transfer pricing = ?
– adjusting the prices of goods traded internally within MNEs to
minimize tax.
© John Tribe
15 Globalization
The End
© John Tribe