Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 8 : Globalization and Business Lecturer: Zhu Wenzhong

Copyright © 2002 by Harcourt, Inc. All rights reserved. Key learning goals: This topic will discuss the influence of globalization over business today and the definition of multi-national corporations. 1. State the definition of globalization 2. State the three important aspects of globalization 3. Explain the main factors which have contributed to the growth of globalization 4. Explain how globalization might affect the location of a business 5. State the influences of multinational companies in the host country LEARNING GOALS

Copyright © 2002 by Harcourt, Inc. All rights reserved.  Definition: Globalization is the growing integration of the world’s economy. It is suggested that economic decision taken in one part of the world will affect other parts of the worlds so businesses need to base their business decision-making on what is happening in the world market rather than the national market. There are three important features or aspects of globalization, which can be seen as follows: 1. The increasing importance o f international trade 2. More and more multinational companies 3. More and more businesses thinking globally about their strategy. Globalization and Business -What Is Globalization?

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - Globalization and Business -Factors affecting globalization  There are many factors which have contributed to the growth of globalization, such as: technological change, the reduction of transportation costs, the deregulation of business, the consumer taste changes, and the growth of new market and competition…  Detailed explanation is seen in the following table:

Copyright © 2002 by Harcourt, Inc. All rights reserved. Table 8-1 Factors which have contributed to globalization Factors contributing to globalization Explain how Technological change More powerful computers and internet have allowed the easy transfer of data, which plays an important role in speeding up the globalization. The reduction of transportation costs Air transportation and telephone costs have improved the developing environment for globalization. Consumer taste change More and more consumers today are willing to buy foreign or new products for fashion or new styles. The growth of new markets New markets have been opened up in countries like former Eastern European countries and China. The growth of new markets has increased the trend of globalization. Competition More and more fierce competition has forced businesses to seek opportunities in the world markets. To compete successfully, businesses today must develop a global strategy. Globalization and Business - Globalization and Business -Factors affecting globalization

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - The effects of globalization on businesses Globalization may have a great deal of influence on many businesses throughout the world. The impact may be stronger on some businesses, especially large businesses, but weaker on others. There are a number of effects of globalization on businesses. Some provide opportunities while others may provide threats to businesses. Some major effects of globalization on businesses are seen in the following table:

Copyright © 2002 by Harcourt, Inc. All rights reserved. Table 8-2 Effects of globalization on businesses Effects of globalization on businessesPlease try to explain how Increasing competition More and more foreign businesses have entered local markets so the competition has been intensified. Meeting consumer needs in more effective ways Consumers have choices for products and services. They can buy the best products for the best prices. Being able to enjoy economies of scale Businesses can enjoy as large scale of production in the whole world. Their production costs can thus be reduced. Affecting the choice of location Businesses can choose the most favorable place for production or business operation. The production of Motorola company in China can reduce the production costs of labor and eliminate the tariff restrictions of exports. Increasing mergers or joint- development opportunities in the world market Businesses have more partners worldwide. They can join together to produce goods and services or to penetrate foreign markets. Globalization and Business -The effects of globalization on businesses

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - Multinational companies and their influences  What is a multinational company? A multinational company is an organization which owns or controls production or services facilities outside the country in which it is based. This means that they do not just export their products abroad, but actually produce their products in other countries. It is commonly understood that a company is called a multinational company provided it operates in more than four countries. Examples of multinational companies are many such as: HSBC, Toyota, Honda and so on. China’s HEIR is becoming a multinational one.

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - Multinational companies and their influences  Some reasons why a company may become a multinational firm: 1. To avoid protectionist policies on trade, producing in another country can prevent the tariff or quota restrictions on foreign trade. 2. To realize globalization of the market and enjoy large scale economy. 3. To realize the diversification of markets and spread risks of operation 4. To take advantages of information technology and high speed travel …

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - Multinational companies and their influences Influences of multinational companies on a host country: There are some benefits and at the same time some problems for multinational businesses operating a particular country. Please see the following table:

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - Influences of multinational companies on a host country: Benefits for a local country: Creating new jobs opportunities Improving living standards for people Creating competition for domestic businesses and causing them to improve efficiency Bringing new technology Bringing new management ideas and styles Improving the balance of international payments if exporting. Problems for a local country: Resulting in some local firms to close plants or cut down employees Affecting the balance of payments if the multinational company imports huge amount of components from other countries Causing difficulties in government control because of the strong power of the business Causing environmental problems to the local country

Copyright © 2002 by Harcourt, Inc. All rights reserved. Globalization and Business - Multinational companies and their influences Question for debate: You are given 10 minutes to prepare a debate: Divide the class into two opponent parties and make a short debate on whether and why you agree or disagree on globalization.