Transnational Media
Corporations &Globalisation
LEARNING UNIT 3: Session 9-13
Module outcome covered
• MO2
• Evaluate the role and impact of media and new communication
technology in a globalised world.
• MO4
• Differentiate between media communication practices in South
Africa and abroad.
• MO5
• Analyse the impact of global communication on various socioeconomic and technological environments
Learning Content:
• Transnational corporations and transnational media corporations.
• Globalisation with respect to free trade and foreign direct
investment.
• Transnational media ownership.
• Broadband communication.
Learning Objectives:
• Define “transnational media corporation”.
• Explain the concept “free market capitalism” with reference to a
South African situation.
• Discuss the reasons why companies engage in foreign direct
investment.
• Explain the risks involved with foreign direct investment.
• Differentiate between mergers, acquisitions and strategic
alliances using South African examples to further your
understanding.
• Explain the reasons why mergers and acquisitions can sometimes
fail.
• Discuss what is meant by “broadband communication” with
specific reference to the latest developments in South Africa.
Material to be used :
• Prescribed text pp.55-75.
• Additional notes are given in the Introduction to this Learning
Unit to supplement the prescribed textbook, specifically
information with regards to broadband communication in
South Africa.
• Pages to focus on: pp.55-56, 58-64, 70.
How to prepare for this Learning Unit:
• Before the first class, be sure that you read Sections 1-4 of this
Learning Unit, and pp.55-75 in the textbook.
• As you read these sections, see if you can find the answers to the
following questions:
1. What is a transnational corporation?
2. Why does a company engage in foreign direct investment and
what are some of the risks involved?
3. Explain the difference between mergers, acquisitions and
strategic alliances using South African examples.
Recommended Additional Reading
• Fourie, P.J. 2007. Media Studies: Media history, media and society.
2nd edition. Cape Town: Juta.
• Lesame, Z., Mbatha, B., Sindane, S. 2012. New media in the
information society. Pretoria: Van Schaik.
Recommended Digital Engagement and Activities
• http://www.bdlive.co.za/business/2012/12/04/half-of-africastop-10-merger-and-acquisition-deals-this-year-target-sa
• http://www.polity.org.za/article/walmart-massmartcommercialises-the-local-supply-chain-a-step-in-the-rightdirection-2013-03-07
INTRODUCTION
• A system of organisation represents a natural evolution beyond the
multinational cooperation of the 1960s and 1970s.
• Strategic decision making and the allocation of resources are
predicated upon economic goals and efficiencies with little regard
to national boundaries.
• Difference between media cooperation (TNMC) from TNCs is that
the principal commodity being sold is information and
entertainment.
INTRODUCTION
• TNMC is the most powerful economic force for global media activity in
the world today.
• Transnational media are a necessary component of global capitalism.
• They provide the informational and ideological environment that enables
international free market trade to occur.
• Foreign direct investment –the TNMC actively promotes the use of
advanced media and information technology on a world wide basis.
• Economic principles that help to explain the causes and consequences of
transnational media ownership.
Transnational media corporation
• Define “transnational media corporation”.
• MNC-Global organisation within a country or abroad.
• TNMCs is a company that exports information and entertainment
across national borders for international audiences to consume
(Kamalipour, 2007, p. 56).
• The principal commodity sold by TNMCs, which can be seen as the
“most powerful economic force for global media today”, are
information and entertainment.
Transnational media corporation
• their impact on the global economy, in relation to
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free market capitalism;
foreign direct investment;
mergers;
acquisitions;
strategic alliances; and
broadband communication.
Transnational media corporation
• Past two decades suspicious has grown of the better known , high
profile media mergers .
• It has given way to a number of myths concerning the intentions of
TNMCs and people who run them.
• First myth is that such companies operate in most or all markets
of the world.
• Although TNMCs are highly global In their approach to business ,
few companies operate in all markets of the world.
• They tend to operate in preferred markets with an obvious
preference and familiarity towards its home market.
Transnational media corporation
• Many years ago , Bertelsmann set a strategic goal the
establishment of an even balance among its businesses in
Germany, other European countries and the United States .
• “We have succeeded in this area as well each of these regions
accounts for just under a third of overall revenues. A smaller
portion of our businesses is being generated in Asia .That’s why we
truly consider ourselves a European American media company
with German roots”
Transnational media corporation
• Second myth –TNMC companies are monolithic in their approach
to business. In fact , the opposite is true.
• The business strategies and corporate culture of a company are
often a direct reflection of the person or people who were
responsible for developing the organisation and its business
mission.
Transnational media corporation
• Sony corporation largely shaped and developed by its founders ,
Masaru Ibuka and Akio Morita .
• For many years all of Sony’s top officials were Japanese and
strategic decision making occurred at the company’s Tokyo
headquarters.
• There was a sense of family and missionary zeal that was uniquely
Japanese in approach.
•
Transnational media corporation
• Akio Morita once wrote: “the most important mission for a
Japanese manager is to develop a healthy relationship with his
employees to create a family like feeling with the corporation, a
feeling that employees and managers share the same fate” .
• In 2005, Sony announced for the first time the promotion of Welsh
born Howard Stringer – President of Sony Corporation of America
to the position of Chairman and CEO
Global Media Strategy
• As a company’s exports steadily increase it establishes a foreign
office to handle the sales and services of its products.
• Initially, the foreign office tends to be flexible and highly
independent.
• As experience is gained it may get involved in other facets of
international business such as licensing and manufacturing abroad.
• As pressure arises from various international operations the
company recognises the need for comprehensive international
strategy.
Global Media Strategy
• Historically TNMC begins as a company that is especially strong in
one or two areas.
• Walt Disney Company – children’s animated films and theme parks.
• News Corporation Limited (parent company to Fox Broadcasting) –
newspaper publisher.
• Today both companies are transnational in scope with a highly
diverse set of products and services.
• Most corporations become foreign direct investors through a
process of gradual evolution rather than by deliberate choice.
Globalisation of Markets
• It’s the full integration of transnational business, nation states
and technologies operating at high speed .
• Globalisation is being driven by a broad and powerful set of forces
including world wide deregulation and privatisation trends ,
advancements in new technology, market integration.
• Requirements for all players are free trade and a willingness to
compete internationally .
• Friedman(1999) “Globalisation has its own set of economics rules
– rules that resolve around opening , deregulating and privatising
your company”.
Free market capitalism
• Explain the concept “free market capitalism” with reference to a
South African situation.
• Free market capitalism is the only economic system operating in
the world today.
• Communism provided a safety net for inefficient business
practices, free market capitalism rewards only those who create
new and innovative products and services.
Free market capitalism
• “the Cold War was a world of friends and enemies .The
globalisation world , by contrast tends to turn all friends and
enemies into competitors” (Friedman,1999)
• Private sector is the primary engine of growth.
• A nation state can maintain a low rate of inflation and keep prices
stable.
• It keeps the size of the government small and to achieve a
balanced budget , if not a surplus.
Free market capitalism
• Free market adheres to the principles of deregulation and
privatisation of business.
• At the domestic level, it promotes as much domestic competition
as possible.
• It opens up banking and telecommunication systems to private
ownership and competition , and provides a nation and its
citizens with access to a wide variety of choices.
Rules of free trade
• extend internationally as well.
• Willingness to open up one’s domestic market to foreign direct
investment.
• It attempts to eliminate or reduce tariffs and quotas on imported
goods.
• Not all countries trade the same way.
• Some tailor the rules to protect certain industries or certai facets
of domestic culture.
• Japan is highly protective of its banking industry.
• France is highly protective of its culture.
Foreign Direct Investment
• Discuss the reasons why companies engage in foreign direct
investment.
• It refers to the ownership of a company in a foreign country.
• Includes the control of assets.
• Investing company will transfer some of its managerial , financial,
and technical expertise to the foreign company.
• Media decision making and FDI are largely based on economic
efficiencies, with little regard for national boundaries.
Foreign Direct Investment
• Decision to engage in FDI is based on the profitability of the
market and future growth potential.
• Five reasons
1. Proprietary and physical assets –
2. Foreign market penetration
Foreign Direct Investment
3. Production and distribution efficiencies –
4. Overcoming regulatory barriers to entry –
5. Empire building -
Foreign Direct Investment
• Proprietary and physical assets:
• Some TNCs invest abroad for the purpose of obtaining specific
proprietary assets and natural resources.
• The ownership of talent or specialised expertise can be
considered a type of proprietary asset.
Foreign Direct Investment
Foreign market penetration:
• Some TNCs invest abroad for the purpose of entering a foreign
market and serving it from that location.
• The market may exist or may have to be developed.
• The ability to buy an existing media property is the easiest and
most direct method for market entry.
Foreign Direct Investment
Production and distribution efficiencies:
• The costs of production and labour are important factors in the
selection of foreign locations.
• Some countries offer significant advantages such as lower labour
costs, tax relief, and technology infrastructure to investors.
• Depending upon the country and/or technical facility, products
and services can be produced for less cost with greater efficiency.
• This is one reason for shooting on location where production costs
are less expensive when compared to Hollywood or New York.
Foreign Direct Investment
Overcoming regulatory barriers to entry:
• Some TNCs invest abroad for the purpose of entering into a
market that is heavily tariffed.
• It is not uncommon for nations to engage in various protectionist
policies designed to protect local industry.
• Such protectionist policies usually take the form of tariffs or
import quotas.
Foreign Direct Investment
Empire building:
• Bennis (1986) contend that the CEO is the person most
responsible for shaping the beliefs, motivations, and expectations
for the organisation as a whole.
• The importance of the CEO is particularly evident when it comes
to the formation of a business strategy.
• Today’s generation of transnational media owners and CEOs are
risk takers at the highest level, willing and able to spend billions
of dollars in order to advance the cause of a new project venture.
• For CEOs like Rupert Murdoch (News Corp.), Sumner Redstone
(Viacom), and John Malone (Liberty Media), there is a certain
amount of personal competitiveness and business gamesmanship
[sic] that goes along with managing a major company. Success is
measured in ways that go beyond straight profitability. A high
premium is placed on successful deal making and new project
ventures.
Risks involved with foreign direct investment
• Explain the risks involved with foreign direct investment.
• The TNC is subject to laws and regulations of the host country.
• It is also vulnerable to the host country’s politics and business
policies.
• There are problems associated with political instability, including
wars , revolutions , and coups.
• Changes stemming from the election of socialist or nationalist
governments that may prov hostile to private business and
particularly to foreign owned business.
• Changes in labour conditions and wage requirements are also
relevant factors in terms of a company’s ability to do business
abroad.
• Foreign governments may impose laws concerning taxes , currency
convertibility and or technology transfer.
• FDI can only occur when the host country is perceived to be
politically stable , provides sufficient economic investment
opportunities and has business regulations that are considered
reasonable.
• TNC will carefully consider the potential risks by doing what is
called a country risk assessment before committing capital and
resources.
• Differentiate between mergers, acquisitions and strategic
alliances using South African examples to further your
understanding.
•
TNM Ownership
• The 1990s and early 21st century witnessed an unprecedented
number of international mergers and acquisitions that have
brought about a major realignment of business players.
• Such changes are inevitable in a global economy.
• The result has been a consolidation of players in all aspects of
business including banking , pharmaceuticals, aviation , media and
telecommunications.
Mergers, acquisitions, and strategic alliances
• represent different ways that companies can join (or partner
together) to achieve increased market share, to diversify product
lines, and/or to create greater efficiency of operation.
• The goal, simply put, is to possess the size and resources
necessary in order to compete on a global playing field
(Kamalipour, 2007, p. 61).
merger
• In a merger transaction, two
companies are combined into one
company. The newly formed
company assumes the assets and
liabilities of both companies. An
example you may be familiar with
was the joining of Time Inc. and
Warner Communications in 1989
to form Time Warner Inc.
acquisition
• an acquisition involves the
purchase of one company by
another company for the purpose
of adding (or enhancing) the
acquiring firm’s productive
capacity. During an acquisition,
one company acquires the
operating assets of another
company in exchange for cash,
securities, or a combination of
both.
strategic alliance
• A strategic alliance is a business relationship in which two or more
companies work to achieve a collective advantage. The strategic
alliance can vary in its approach and design, ranging from a simple
licensing agreement to the actual combining of physical resources.
• In summary, mergers, acquisitions and strategic alliances are the
most direct ways for a company to expand and diversify into new
product lines without having to undergo the problems associated
with a new start-up.
• Refer to page 62&63
mergers and acquisitions fail.
• Explain the reasons why mergers and acquisitions can sometimes
fail.
• Combining of two major firms creates problems that no one could
for see.
• Failed merger/ acquisition can be disruptive to both organisations
in terms of lost revenue, capital debt, and a decrease in job
performance.
• The result is the elimination of staff and operations as well as the
potential for bankruptcy.
• In addition effects on the host communities can be disruptive.
• 4 Reasons for failure include lack of compelling strategic
rationale, failure to perform due diligence , post merger planning
and integration failures, and financing and the problems of
excessive debt.
The lack of a compelling strategic rationale
• Merger decision not supported by a compelling strategic rationale.
• Unrealistic expectations of complementary strengths and
presumed synergies
• The very problems that prompted a merger consideration in the
first place become further exacerbated once the deal is complete.
Failure to perform due diligence
• Failure to perform due diligence prior to the merger agreement.
• The acquiring company later discovers that the intended
acquisition may not accomplish the desired objectives.
• Paying too much for the acquisition.
Media & Global Financing
• Read about capital market loans and Debt financing
• Page 65-6
Post-merger planning and integration failures
• Bad post-merger planning and integration .
• if proposed merger does not include an effective plan for
combining divisions with similar products , the duplication can be
a source of friction rather than synergy.
• If there are significant differences in corporate culture.
•.
Financing and the problem of excessive debt
• To finance the merger or acquisition some companies will assume
major amounts of debt through short term loans.
• When performance does not meet expectations such companies
may be unable to meet their loan obligations
• They maybe forced to sell off entire divisions in order to raise
capital or default on their payment altogether.
• Excessive debt can be highly destabilizing
Broadband communication
• Discuss what is meant by “broadband communication” with
specific reference to the latest developments in South Africa.
• The clear lines and historic bounderies that once separated media
and telecommunications are becoming less distinct.
• The result is a convergence of modes whereby technologies are
becoming more fully integrated.
• The driving force being the digitalization of media and information
technology.
• It increases the potential for the manipulation and transformation
data.
• The term broadband communication is used to describe the ability
to distribute multichannel information and entertainment services
to the home.
• Broadband also connotates high speed internet access.
• Strategy for the future is the ability to own both software content
and means of distribution to the home.
• The goal for cable operators and local exchange carriers is to
offer consumers a whole host of software products via an
electronic supermarket to the home.
• Cable and telephone industries are capable of delivering
broadband services albeit in different ways.
• Cable industry understands the business of delivering video
communication and high speed internet access using coaxial cable
and a cable modem.
• The telephone industry understands the business of switching and
routing voice traffic and high speed internet using a blend of fiber
optic delivery traditional telephone lines and DSL.
• Major telephone companies , most notably Verizon and SBC have
committed themselves to rolling out fiber optic cable that would
greatly increase speed and throughput to home.
• Voice over Internet Protocol(VOIP) or internet telephony as the
basis for the switching and routing of voice and video.
• The future of tomorrow’s so called “smart homes” will allow for
the full integration of voice , data, and video service and give new
meaning to the term programming.
CLASS DISCUSSIONS
• After reading the article, within your group discuss the article
with reference to the theory you have learnt within this learning
unit. Then open the discussion to the entire class by initially
explaining your group’s article and views thereof, and then having
a class discussion on both articles.