2. Globalisation: Setting the Scene
• Current issues in the global economy
• Defining globalisation
– global economic interdependence
– implications for business
• What is driving globalisation?
– market drivers
– cost drivers
– government drivers
– competitive drivers
9. Globalisation: Setting the Scene
• Current issues in the global economy
• Defining globalisation
– global economic interdependence
– implications for business
• What is driving globalisation?
– market drivers
– cost drivers
– government drivers
– competitive drivers
• Globalisation: the good and the bad
11. Comparison of the 10 largest multinational corporations
(by gross revenue) and selected countries (by GDP): 2002
12. Multinational Corporations
• Statistics on growth and size of
MNCs
– the comparative size of MNCs and
countries' GDP
– foreign direct investment (FDI) inflows
20. Multinational Corporations
• Diversity among MNCs
– size
– the nature of the business
– overseas business relative to total
business
– production locations
– ownership patterns
– organisational structure
21. Why do Businesses go Multinational?
• Categories of multinational organisation
– horizontally integrated
– vertically integrated
– conglomerate
• Advantages to firms
– reductions in costs
• international differences in factor prices
• international differences in factor
productivity
• low-cost access to local markets
• spreading overheads
22. Why do Businesses go Multinational?
• Advantages to firms (cont.)
– government support in host countries
• lower taxes
• subsidies
• provision of infrastructure
– increased demand
– spreading risks
– can exploit advantages over local firms
• ownership of superior technology
• entrepreneurial and managerial skills
• R&D capacity
– access to local technology
23. Why do Businesses go Multinational?
• The product life cycle and the MNC
– the launch phase
– the growth phase
– maturity
– late maturity and decline
• Problems facing multinationals
– language barriers
– selling and marketing
– relations with host governments
– relationships between subsidiaries
24. MNC Investment and the Host State
• Advantages of MNC investment
– employment
– balance of payments
– technology transfer
– tax revenues
• Disadvantages
– uncertainty
– power and control by the MNC over the
host
– transfer pricing
– the environment
25. MNCs and Developing Countries
• The scale of MNC investment in
developing countries
• Advantages to host country
– the saving gap
• the importance of development finance
• the contribution of saving to growth
– the foreign exchange gap
– public finance gap
– skills and technology gaps
26. MNCs and Developing Countries
• Disadvantages to host country
– MNCs may drive local firms out of business
– limited demand for local components
– repatriation of profits
– transfer pricing and effects on tax revenues
• competition between developing countries to
attract MNCs
– distorting the whole pattern of development
• increasing gap between rich and poor
• introducing consumerist values
• What can developing countries do?
35. Multinational Corporations
Diversity among MNCs
size
the nature of the business
overseas business relative to total business
production locations
ownership patterns
organisational structure
36. Multinational Corporations
Diversity among MNCs
size
the nature of the business
overseas business relative to total business
production locations
ownership patterns
organisational structure
Trends in multinational investment
37. Multinational Corporations
Diversity among MNCs
size
the nature of the business
overseas business relative to total business
production locations
ownership patterns
organisational structure
Trends in multinational investment
the growth and geography of FDI
39. 0
5
10
15
20
25
1985 1990 1995 2000
FDI inflows (% of gross fixed capital formation)FDIas%ofgrossfixedcapitalformation
Advanced countries
40. 0
5
10
15
20
25
1985 1990 1995 2000
FDI inflows (% of gross fixed capital formation)FDIas%ofgrossfixedcapitalformation
Advanced countries
Developing countries
41. Multinational Corporations
Diversity among MNCs
size
the nature of the business
overseas business relative to total business
production locations
ownership patterns
organisational structure
Trends in multinational investment
the growth and geography of FDI
FDI and the UK
44. 0
50
100
150
200
250
1986 1988 1990 1992 1994 1996 1998 2000 2002
$billion
Outward
investment
Inward
investment
Direct investment into and out of the UK
45. Types of multinational expansion
horizontally integrated multinational
vertically integrated multinational
conglomerate
Going global to reduce costs
international differences in input prices
international differences in productivity
labour skills
entrepreneurial and managerial skills
learning by doing
low-cost access to local markets
economies of scale
taking advantage of government policies
Business Strategy in a Global Economy
46. Going global to access new markets
increased demand
spreading risks
can exploit advantages over local firms
ownership of superior technology
entrepreneurial and managerial skills
R&D capacity
access to local technology
learning from experience in diverse markets
Business Strategy in a Global Economy
47. The product life cycle and the MNC
the launch phase
multinational spread likely to be limited
the growth phase
MNC likely to shift production abroad in order
to retain cost competitiveness
maturity
MNC increasingly seeks markets abroad as
growth in home market slows
late maturity and decline
MNC increasingly seeks both markets and ever
lower cost production abroad
Business Strategy in a Global Economy
48. Problems facing multinationals
language barriers
selling and marketing
cultural issues
relations with host governments
relationships between subsidiaries
possible diseconomies of scale
easier if subsidiaries are run independently
The global strategy trade-off
economies of scale of standardisation or
higher costs of customisation?
determinants of trade-off
Problems Facing Multinationals
49. MNC Investment and the Host State
Advantages of MNC investment
employment
balance of payments
technology transfer
tax revenues
Disadvantages
uncertainty
power and control by the MNC over the host
transfer pricing
the environment
50. Is Globalisation a 'Good Thing'?
The benefits of globalisation
benefits of trade
benefits of increased FDI
competition reduces costs and encourages
innovation
faster spread of technology
political and social ties
The costs
can exacerbate inequality
erodes national cultures
environmental costs
domination by MNCs