GLOBAL BUSINESS
Chapter 25
Introduction to globalisation
http://www.youtube.com/watch?v=wGULEb3rYeg
What is a Transnational Company
This is a company with a head office in one country
and branches or factories in others.
An example would include Dell or ALDI
Reasons for the Development of
Transnational Companies
Spread their risk - As they deal in different markets
they spread their risk. Dell expanded into Europe which
means that if there is a downturn in America, the
European sales may still keep them in profit.
2. Increase their sales - They can sell their products to
more people and therefore make more money.
3. Advancements in communications technology Things such as video-conferencing have made it easier
to run overseas branches.
4. Overcome trade barriers - Nissan set up a plan in
England to get around EU quotas on car imports from
Japan.
1.
Advantages of Transnational
Companies
1.
2.
3.
4.
5.
Jobs - They create thousands of jobs which leads to lower
unemployment in Ireland. Dell and Intel employ almost
10,000.
New Technology - Bring new technologies, products and
skills with them. Dell brings latest computer technology.
Competition - Leads to lower prices for Irish consumers.
ALDI increased competition in grocery market.
Taxes - They pay a lot of Corporation Tax to the government
which can be used to improve Ireland’s infrastructure
Buy Irish - Buy raw materials from Irish businesses. Tesco
buys a lot of Irish-produced food.
Disadvantages of Transnational
Companies
They leave - This is to move to low wages countries.
Fruit of the Loom left Donegal to set up in Morocco.
2. Too much power - Can put pressure on the
government to give into them in relation to laws etc.
3. Repatriate profits - Send back most of their products
home which means they don’t necessarily benefit the
economy in Ireland
4. Decisions taken abroad - May not take Irish interests
into account.
1.
What is a Global Company
These are businesses that operate all over the world
and treat it as if it were a single country. They make
their products in cheap labour countries, borrow from
the cheapest banks etc.
Examples include Coca-Cola or Toyota
Reasons for the Development of
Global Companies
• Increase sales - They can sell to more people which
increases their sales and leads to economies of scale.
• Possible to mass produce - due to technological
advances such as Computer Aided Manufacture (CAM).
• Communication advances - such as video conferencing.
• Deregulation-by the World Trade Organisation allows
global businesses to enter into new markets. Up until
recently China did not trade with the rest of the world.
Recap on what is globalisation
http://www.youtube.com/watch?v=3oTLyPPrZE4
Steps to Become a Global Business
1. National Business:
• Home is the only market
2. International
• Home country is the main
Business:
3. TNC’s:
market but some goods
exported
• Produce & sell in numerous
countries, decisions made on
a country by country basis
4. Global Firms:
• The world is the market,
decisions on finance,
marketing, HRM are made on
a global basis.
Global Marketing e.g. McDonalds
http://www.youtube.com/watch?v=v6coDUDCJ10
Global Marketing Mix (4 P’s)
• When a global businesses uses the same marketing
mix for each country it is called a “standardised
marketing mix”. Coca-Cola
• When it uses a different marketing mix it is called an
“adapted marketing mix” Right-hand cars being
produced for Ireland.
Global Product
• This is one product sold throughout the world and is most
likely element of marketing mix to stay the same e.g.
Coca-Cola.
• Businesses will use the same brand name to help
recognition by customers.
• However they must take local needs and cultures into
account e.g. McDonald’s does not sell beef in India as the
cow is scared there.
Global Price
The price may vary around the world due to the following
factors:
• Standard of living - prices will be higher in wealthier
countries.
• Transport costs - the further to transport the product, the
higher the price.
• Taxes and tariffs - depending on the taxes the country
adds.
• Local rival firms - the level of competition determines the
maximum price.
Global Promotion
• If they use the same promotion it will save money.
• Global companies love global events such as the Olympic
Games.
• Promotion may change to take account of differences in
language, culture etc. so as not to offend the locals.
• Proctor and Gamble aired an ad showing a husband
placing his hand on his wife’s shoulder in the bath. It was
received very badly in Japan.
Global Place
• Many global businesses rely on local agents and
distributors to deliver their product.
• Coca-Cola enters into agreements with local businesses
to allow them to bottle and distribute Coke. In Nigeria the
company’s main bottling partner is the Nigerian Bottling
Company.
Benefits of Operating Globally
1.
2.
3.
4.
Economies of Scale - As the business is selling the same
product with lower costs.
Huge quantities - The businesses becomes an expert in
making the product and becomes better than everyone else.
They can also afford to do more Research and
Development. Sony is one of the best electrical goods
manufactures in the word.
Standardised marketing mix - This might not always be
possible or appropriate and may lead to loss of sales.
Nobody bought Barbie in Japan because the girls couldn’t
relate to her.
Cultural differences-must be aware of offending people in
other or the backlash of globalisation and therefore must
change their promotion methods e.g. backlash against the
McDonald’s fast food American culture.
Drawbacks of Operating Globally
1. Cost – large cost associated with becoming a Global
Business as money must be spent on plant, machinery
and marketing
2. Risk of failure – the loss can be disastrous if the
products fails to deliver globally
3. Customers’ needs – each country has different tastes,
expectations and in an effort to meet all of these with a
standardised product you may lose existing customers
4. Management - Need for manager with wide range of
skills to be able to deal with different markets
Ireland in Global Business
Benefits
• Creates employment
Drawbacks
• World recession due to a
• Boost to local economy due
•
•
•
•
to wages
Tax revenue for the
government
Exports increase the
balance of payments
Indigenous suppliers get a
boost
Improved skills and
expertise
•
•
•
•
fall in world trade
Lack of loyalty e.g. Dell
left in 2009
Repatriation of profits to
home country
Competition to existing
Irish businesses
Power and influence is
used over the governement