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Globalisation

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Globalisation

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Globalisation

  1. 1. Globalisation and Multinational Business
  2. 2. Globalisation: Setting the Scene <ul><li>Current issues in the global economy </li></ul><ul><li>Defining globalisation </li></ul><ul><ul><li>global economic interdependence </li></ul></ul><ul><ul><li>implications for business </li></ul></ul><ul><li>What is driving globalisation? </li></ul><ul><ul><li>market drivers </li></ul></ul><ul><ul><li>cost drivers </li></ul></ul><ul><ul><li>government drivers </li></ul></ul><ul><ul><li>competitive drivers </li></ul></ul>
  3. 3. The drivers of globalisation
  4. 4. The drivers of globalisation
  5. 5. The drivers of globalisation
  6. 6. The drivers of globalisation
  7. 7. The drivers of globalisation
  8. 8. The drivers of globalisation
  9. 9. Globalisation: Setting the Scene <ul><li>Current issues in the global economy </li></ul><ul><li>Defining globalisation </li></ul><ul><ul><li>global economic interdependence </li></ul></ul><ul><ul><li>implications for business </li></ul></ul><ul><li>What is driving globalisation? </li></ul><ul><ul><li>market drivers </li></ul></ul><ul><ul><li>cost drivers </li></ul></ul><ul><ul><li>government drivers </li></ul></ul><ul><ul><li>competitive drivers </li></ul></ul><ul><li>Globalisation: the good and the bad </li></ul>
  10. 10. Multinational Corporations <ul><li>Statistics on growth and size of MNCs </li></ul><ul><ul><li>the comparative size of MNCs and countries' GDP </li></ul></ul>
  11. 11. Comparison of the 10 largest multinational corporations (by gross revenue) and selected countries (by GDP): 2002
  12. 12. Multinational Corporations <ul><li>Statistics on growth and size of MNCs </li></ul><ul><ul><li>the comparative size of MNCs and countries' GDP </li></ul></ul><ul><ul><li>foreign direct investment (FDI) inflows </li></ul></ul>
  13. 13. FDI inflows ($ millions)
  14. 14. FDI inflows ($ millions)
  15. 15. FDI inflows ($ millions)
  16. 16. FDI inflows ($ millions)
  17. 17. FDI inflows FDI as % of gross fixed capital formation
  18. 18. FDI as % of gross fixed capital formation FDI inflows
  19. 19. FDI as % of gross fixed capital formation FDI inflows
  20. 20. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul><ul><ul><li>ownership patterns </li></ul></ul><ul><ul><li>organisational structure </li></ul></ul>
  21. 21. Why do Businesses go Multinational? <ul><li>Categories of multinational organisation </li></ul><ul><ul><li>horizontally integrated </li></ul></ul><ul><ul><li>vertically integrated </li></ul></ul><ul><ul><li>conglomerate </li></ul></ul><ul><li>Advantages to firms </li></ul><ul><ul><li>r eductions in costs </li></ul></ul><ul><ul><ul><li>international differences in factor prices </li></ul></ul></ul><ul><ul><ul><li>international differences in factor productivity </li></ul></ul></ul><ul><ul><ul><li>low-cost access to local markets </li></ul></ul></ul><ul><ul><ul><li>spreading overheads </li></ul></ul></ul>
  22. 22. Why do Businesses go Multinational? <ul><li>Advantages to firms (cont.) </li></ul><ul><ul><li>government support in host countries </li></ul></ul><ul><ul><ul><li>lower taxes </li></ul></ul></ul><ul><ul><ul><li>subsidies </li></ul></ul></ul><ul><ul><ul><li>provision of infrastructure </li></ul></ul></ul><ul><ul><li>increased demand </li></ul></ul><ul><ul><li>spreading risks </li></ul></ul><ul><ul><li>can exploit advantages over local firms </li></ul></ul><ul><ul><ul><li>ownership of superior technology </li></ul></ul></ul><ul><ul><ul><li>entrepreneurial and managerial skills </li></ul></ul></ul><ul><ul><ul><li>R&D capacity </li></ul></ul></ul><ul><ul><li>access to local technology </li></ul></ul>
  23. 23. Why do Businesses go Multinational? <ul><li>The product life cycle and the MNC </li></ul><ul><ul><li>the launch phase </li></ul></ul><ul><ul><li>the growth phase </li></ul></ul><ul><ul><li>maturity </li></ul></ul><ul><ul><li>late maturity and decline </li></ul></ul><ul><li>Problems facing multinationals </li></ul><ul><ul><li>language barriers </li></ul></ul><ul><ul><li>selling and marketing </li></ul></ul><ul><ul><li>relations with host governments </li></ul></ul><ul><ul><li>relationships between subsidiaries </li></ul></ul>
  24. 24. MNC Investment and the Host State <ul><li>Advantages of MNC investment </li></ul><ul><ul><li>employment </li></ul></ul><ul><ul><li>balance of payments </li></ul></ul><ul><ul><li>technology transfer </li></ul></ul><ul><ul><li>tax revenues </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>uncertainty </li></ul></ul><ul><ul><li>power and control by the MNC over the host </li></ul></ul><ul><ul><li>transfer pricing </li></ul></ul><ul><ul><li>the environment </li></ul></ul>
  25. 25. MNCs and Developing Countries <ul><li>The scale of MNC investment in developing countries </li></ul><ul><li>Advantages to host country </li></ul><ul><ul><li>the saving gap </li></ul></ul><ul><ul><ul><li>the importance of development finance </li></ul></ul></ul><ul><ul><ul><li>the contribution of saving to growth </li></ul></ul></ul><ul><ul><li>the foreign exchange gap </li></ul></ul><ul><ul><li>public finance gap </li></ul></ul><ul><ul><li>skills and technology gaps </li></ul></ul>
  26. 26. MNCs and Developing Countries <ul><li>Disadvantages to host country </li></ul><ul><ul><li>MNCs may drive local firms out of business </li></ul></ul><ul><ul><li>limited demand for local components </li></ul></ul><ul><ul><li>repatriation of profits </li></ul></ul><ul><ul><li>transfer pricing and effects on tax revenues </li></ul></ul><ul><ul><ul><li>competition between developing countries to attract MNCs </li></ul></ul></ul><ul><ul><li>distorting the whole pattern of development </li></ul></ul><ul><ul><ul><li>increasing gap between rich and poor </li></ul></ul></ul><ul><ul><ul><li>introducing consumerist values </li></ul></ul></ul><ul><li>What can developing countries do? </li></ul>
  27. 27. Globalisation and Multinational Corporations
  28. 28. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><ul><li>the comparative size of MNCs and countries' GDP </li></ul></ul></ul>
  29. 29. Comparison of the 10 largest multinational corporations (by gross revenue) and selected countries (by GDP): 2002
  30. 30. Comparison of the 10 largest multinational corporations (by gross revenue) and selected countries (by GDP): 2002
  31. 31. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul>
  32. 32. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul>
  33. 33. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul>
  34. 34. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul><ul><ul><li>ownership patterns </li></ul></ul>
  35. 35. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul><ul><ul><li>ownership patterns </li></ul></ul><ul><ul><li>organisational structure </li></ul></ul>
  36. 36. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul><ul><ul><li>ownership patterns </li></ul></ul><ul><ul><li>organisational structure </li></ul></ul><ul><li>Trends in multinational investment </li></ul>
  37. 37. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul><ul><ul><li>ownership patterns </li></ul></ul><ul><ul><li>organisational structure </li></ul></ul><ul><li>Trends in multinational investment </li></ul><ul><ul><li>the growth and geography of FDI </li></ul></ul>
  38. 38. FDI inflows (% of gross fixed capital formation) FDI as % of gross fixed capital formation
  39. 39. FDI inflows (% of gross fixed capital formation) FDI as % of gross fixed capital formation Advanced countries
  40. 40. FDI inflows (% of gross fixed capital formation) FDI as % of gross fixed capital formation Advanced countries Developing countries
  41. 41. Multinational Corporations <ul><li>Diversity among MNCs </li></ul><ul><ul><li>size </li></ul></ul><ul><ul><li>the nature of the business </li></ul></ul><ul><ul><li>overseas business relative to total business </li></ul></ul><ul><ul><li>production locations </li></ul></ul><ul><ul><li>ownership patterns </li></ul></ul><ul><ul><li>organisational structure </li></ul></ul><ul><li>Trends in multinational investment </li></ul><ul><ul><li>the growth and geography of FDI </li></ul></ul><ul><ul><li>FDI and the UK </li></ul></ul>
  42. 42. Direct investment into and out of the UK
  43. 43. Direct investment into and out of the UK Inward investment
  44. 44. Direct investment into and out of the UK Outward investment Inward investment
  45. 45. <ul><li>Types of multinational expansion </li></ul><ul><ul><li>horizontally integrated multinational </li></ul></ul><ul><ul><li>vertically integrated multinational </li></ul></ul><ul><ul><li>conglomerate </li></ul></ul><ul><li>Going global to reduce costs </li></ul><ul><ul><li>international differences in input prices </li></ul></ul><ul><ul><li>international differences in productivity </li></ul></ul><ul><ul><ul><li>labour skills </li></ul></ul></ul><ul><ul><ul><li>entrepreneurial and managerial skills </li></ul></ul></ul><ul><ul><ul><li>learning by doing </li></ul></ul></ul><ul><ul><li>low-cost access to local markets </li></ul></ul><ul><ul><li>economies of scale </li></ul></ul><ul><ul><li>taking advantage of government policies </li></ul></ul>Business Strategy in a Global Economy
  46. 46. <ul><li>Going global to access new markets </li></ul><ul><ul><li>increased demand </li></ul></ul><ul><ul><li>spreading risks </li></ul></ul><ul><ul><li>can exploit advantages over local firms </li></ul></ul><ul><ul><ul><li>ownership of superior technology </li></ul></ul></ul><ul><ul><ul><li>entrepreneurial and managerial skills </li></ul></ul></ul><ul><ul><ul><li>R&D capacity </li></ul></ul></ul><ul><ul><li>access to local technology </li></ul></ul><ul><ul><li>learning from experience in diverse markets </li></ul></ul>Business Strategy in a Global Economy
  47. 47. <ul><li>The product life cycle and the MNC </li></ul><ul><ul><li>the launch phase </li></ul></ul><ul><ul><ul><li>multinational spread likely to be limited </li></ul></ul></ul><ul><ul><li>the growth phase </li></ul></ul><ul><ul><ul><li>MNC likely to shift production abroad in order to retain cost competitiveness </li></ul></ul></ul><ul><ul><li>maturity </li></ul></ul><ul><ul><ul><li>MNC increasingly seeks markets abroad as growth in home market slows </li></ul></ul></ul><ul><ul><li>late maturity and decline </li></ul></ul><ul><ul><ul><li>MNC increasingly seeks both markets and ever lower cost production abroad </li></ul></ul></ul>Business Strategy in a Global Economy
  48. 48. <ul><li>Problems facing multinationals </li></ul><ul><ul><li>language barriers </li></ul></ul><ul><ul><li>selling and marketing </li></ul></ul><ul><ul><ul><li>cultural issues </li></ul></ul></ul><ul><ul><li>relations with host governments </li></ul></ul><ul><ul><li>relationships between subsidiaries </li></ul></ul><ul><ul><ul><li>possible diseconomies of scale </li></ul></ul></ul><ul><ul><ul><li>easier if subsidiaries are run independently </li></ul></ul></ul><ul><li>The global strategy trade-off </li></ul><ul><ul><li>economies of scale of standardisation or higher costs of customisation? </li></ul></ul><ul><ul><ul><li>determinants of trade-off </li></ul></ul></ul>Problems Facing Multinationals
  49. 49. MNC Investment and the Host State <ul><li>Advantages of MNC investment </li></ul><ul><ul><li>employment </li></ul></ul><ul><ul><li>balance of payments </li></ul></ul><ul><ul><li>technology transfer </li></ul></ul><ul><ul><li>tax revenues </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>uncertainty </li></ul></ul><ul><ul><li>power and control by the MNC over the host </li></ul></ul><ul><ul><li>transfer pricing </li></ul></ul><ul><ul><li>the environment </li></ul></ul>
  50. 50. Is Globalisation a 'Good Thing'? <ul><li>The benefits of globalisation </li></ul><ul><ul><li>benefits of trade </li></ul></ul><ul><ul><li>benefits of increased FDI </li></ul></ul><ul><ul><li>competition reduces costs and encourages innovation </li></ul></ul><ul><ul><li>faster spread of technology </li></ul></ul><ul><ul><li>political and social ties </li></ul></ul><ul><li>The costs </li></ul><ul><ul><li>can exacerbate inequality </li></ul></ul><ul><ul><li>erodes national cultures </li></ul></ul><ul><ul><li>environmental costs </li></ul></ul><ul><ul><li>domination by MNCs </li></ul></ul>

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