Global firms can achieve economies of scale by coordinating activities across locations to reduce costs. They tap into locations with low-cost labor and resources for production and procurement. However, managing operations across diverse locations presents challenges around coordination and adapting to local needs. Firms like Marriott and Nestle leverage global scale to negotiate bulk purchases and share fixed R&D costs over large sales volumes. While expanding globally can lower costs, companies must balance local responsiveness to fully exploit opportunities of their global presence.

1. Global Presence
It has been argued that world's economies are increasingly integrating into one global
economy, and the competitive pressures to establish and maintain a global presence and the
opportunities that abound therein have taken on great importance. The geographic dispersion,
multiculturalism, different legal and social systems, and the cross-border movement of capital ,
goods, services and people that the international firm faces adds a need for competency and
sensitivity is not found in the domestic firm. Now the question is what local firms expect from
foreign corporations? The development of domestic industries through the potential positive
consequence of multinational corporations’ (MNCs) activities, notably via the avenues of
transfer of technological and management expertise and sustained economic growth, are
among the foremost expectations. Social and economic development depends on several
factors, such as investments from the private and public sector in education, health, safety,
infrastructure, and technological innovation, and private companies. MNCs as well as local
Small and Medium Enterprises (SMEs) have a crucial role to play in this regard. However, having
companies set up in a given area in itself is not a guarantee for fostering development.
The global scope of business activity has expanded dramatically since the 1970s. Since then not
only has the scope increased but also firms has increase their international operations in a
number of ways. The global presence of a firm looks at the whole world as one market. But as
per the experience of global MNEs, running a global company is more complicated than
managing a multinational or international firm.
How global presence of a firm can help to achieve global economies of scale and to exploit of
global scope:
In case of global presence, it’s very important for a firm to achieve economies of scale. Now the
question is how a firm can achieve global economies of scale to exploit economies of global
scope? To review and understand the ways of reaching at global scale, it is needed to align the
direction, direction of a company can only be observed by reviewing its objectives, mission and
vision statements. Firstly, companies achieve their vision and mission like they first accomplish
national economies of scale and then they expand their business in other countries and
markets by availing different expertise and knowledge of the world level technicians, scientists,
experts, managers and skilled workers. Companies do not attain global level very effortlessly;
they have to pass through different stages and challenges to come up to global levels (ref). The
global scale is only possible when they plan, target and subsequently desire to acquire top
ranking.
They can exploit the opportunity of getting global scale by getting cheap labour, technology,
low shipment cost, and other expenditures by finding low production countries of the world.
There are three things involved in the production or cost of production. For example, if you
produce electricity by purchasing material such as furnace oil in bulk, cheap labour and low
overheads so that you can reduce the average production’ cost and attain the global economies
of scope.

2. For example, Man diesel and Power management utilized both centralizes and local adaptation
approach to minimize labour cost in host countries and in Germany. They use both key experts
from head office and general managers from the host companies to run and manage operations
in all the countries of the world as per their International HR policy (ref). Local people are
working as general managers in the power stations to perform normal and basic HR functions
and keep updating to the key Personnel in the head office. If head office finds any problem in
the operations of any subsidiary then they guide from technical and management perspective
to local management of Man Power Management (ref).
When companies achieve economies of scale then they can come up strongly to market its
products all over the world. The more companies market product as per local adaptation the
more they get customers and increase sales in a great way. When the revenue achieves then
companies achieve economies of scope. After reaching at the economies of scope, there is no
going back, it means companies rarely get losses at that level. The looses of these companies
are not pure losses but they consider less profits from previous to current yeas as a loss for the
company. For example, Nestle earns a lot of profits last year suppose $10 billions but this year
they earned $5 billion, so reduction in profit is the loss of Nestle.
In short, companies reach economies of global scope by leveraging their market power and by
providing coordinated services. There are challenges that hinder global organizations greatly
which are as follows:
➢Need for central coordination
➢ Being locally responsive
http://www.jstor.org/discover/10.2307/4165734?uid=3738832&uid=2129&uid=2&uid=70&uid
=4&sid=21101186045781
EXPLOITING ECONOMIES OF GLOBAL SCALE
The basic idea of achieving economies of scale is same as when more units of a good or a
service can be produced on a larger scale, yet with (on average) less input costs, economies of
scale (ES) are said to be achieved. Alternatively, this means that as a company grows and
production units increase, a company will have a better chance to decrease its costs. According
to theory, economic growth may be achieved when economies of scale are realised (ref).
For example-When a company buys inputs in bulk - for example, potatoes used to make French
fries at a fast food chain - it can take advantage of volume discounts. (In turn, the farmer who
sold the potatoes could also be achieving ES if the farm has lowered its average input costs
through, for example, buying fertiliser in bulk at a volume discount.
Some researchers argued that global presence automatically expands and enhances operations
and assets of the company. With large sales volume, a company can achieve economies of scale
and sales can be increased by efficient marketing and production strategies as per the situation

3. and condition. These strategies are made by efficient professionals from the head quarters or
from the local associated branches and offices where the same country employees also
operate.
There are several researchers who have proved that international human resource
management is rightfully applicable and helpful to undertake potential opportunities and these
opportunities can be utilized through adopting proper approach. The balance of local
adaptation is also essential because same culture, locations, languages and people are different
in which it is important to handle the operations related to human resource management very
carefully. Local management have better idea that how to perform normal HR activities and
global policies implementation. Their roles can be ranged from General Managers to janitorial
staff.
Economies of scale is an opportunity for becoming a greater firm but it can automatically
achieved when companies decrease fixed, capital and operating cost of production as well as
pooling purchasing power by spreading fixed over larger volumes of production.
For example, research and development cost of certain pharmaceuticals companies is treated
as assets in terms of patents and formulas such as a pill or liquid medicine. In case of Merck
Pharmaceuticals, if they are benefiting from research and development through heavy volume
of sales for several years then they are reducing average per unit cost along with operating and
capital cost. So, the fixed cost related and onetime fee of scientist can be used to reduce
average per unit cost and reaching economies of scale.
There is another example is suitable to this approach like by spreading purchasing of fast
running items over few selected suppliers can also convert global presence of firm into global
competitive advantage. A case of Marriot is very important, this hotel invested in lodging
business and due to this business, its purchase related to furnishings, linens, and beverages
items were increased dramatically. The management of this hotel can do an agreement with
Pepsi for soft drinks, and other specific vendors for other fast turnover items, this approach can
also help this hotel to convert its global presence into competitive advantage. In short, we can
clearly state that creating critical mass in selecting items or fast turnover items can be helpful
for global player to avail the opportunity to build centres of excellence for the development of
specific technologies and/or products.
Tap into the best locations for activities and resources
There are many activities that a global company performs all over the world. These activities
include sales, distribution, production and procurement. There are various advantages of
tapping into different locations and resources, for example performance enhancement, cost
reduction and risk reduction.
Examples
• Efficient performance like Nokia’s cell phone product development in China.
• Cost Reduction was done in a way that TI’s Software development in India.
• Risk reduction was done like Nike’s manufacturing in China, Vietnam, & Korea.

4. There are many challenges that are faced by multinational companies during their operations
for tapping into best locations and these obstacles and challenges are:
• Low cost but low skills labour observation.
➢The Challenge in capturing the strategic benefits of optimal locations is to excel in
coordination across dispersed locations:
➢For example, HP’s ProLiant ML150 designed was developed in Singapore, it was reviewed in
Houston, and engineering design was carried out in Taiwan, manufactured in China & India.