GLOBAL BUSINESS Chapter 25

Introduction to globalisation

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 1. 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.

Advantages of Transnational Companies 1. Jobs - ­They create thousands of jobs which leads to lower unemployment in Ireland. Dell and Intel employ almost 10, New Technology - ­Bring new technologies, products and skills with them. Dell brings latest computer technology. 3. Competition - ­Leads to lower prices for Irish consumers. ALDI increased competition in grocery market. 4. Taxes - ­They pay a lot of Corporation Tax to the government which can be used to improve Ireland’s infrastructure 5. Buy Irish -­ Buy raw materials from Irish businesses. Tesco buys a lot of Irish-­produced food.

Disadvantages of Transnational Companies 1. 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.

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

Steps to Become a Global Business 1. National Business: 2. International Business: 3. TNC’s: 4. Global Firms: Home is the only market Home country is the main market but some goods exported Produce & sell in numerous countries, decisions made on a country by country basis The world is the market, decisions on finance, marketing, HRM are made on a global basis.

Global Marketing e.g. McDonalds

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. Economies of Scale -­ As the business is selling the same product with lower costs. 2. 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. 3. 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. 4. 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 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 Drawbacks World recession due to a 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