Topic 2 – Global Markets, Global Products, Global Firms

1. Topic 2 – Global Markets, Global Products, Global Firms A – Production and Consumption in a Globalized WorldB – The Multinational Enterprise C – Outsourcing and Offshoring

2. Post-Industrial Revolution

3. Production and Consumption in a Globalized World

4. Global Consumption • Consumerism • Consumption: • Always existed (mostly essential needs). • Part of social ideals; persona’s definition. • Marketing: • Department store (facility designed to incite consumption). • Advertising (create wants and needs). • Fashion (planned obsolescence). • Buying power: • Mass consumption requires mass production. • Relative price reduction of consumption goods; “mass luxury”. • Higher wages. • Access to credit.

5. World's Urban Population and Human Development Index, 2010

6. Advertising and Psychology

7. Global Consumption • Products • A good or service. • Tangible (characteristics) and intangible (brand association) attributes. • Global products: • Uniform features in all countries. • Cost reduction (economies of scale). • Improved quality control • Global customers and market. • Most globalized products: drinks, fashion and electronics. • Regional products: • Unique or adapted to a particular area (customization). • Specific preferences.

8. Global Consumption • Brand • A specific product: • Tablet computer (a product). • iPad (a brand). • Added value that accrues to a product: • Created by the relationship between the brand and customer over time. • Investments in the marketing of the brand. • A recognized quality standard. • Brand image: • Images and experiences in the customer’s mind. • Differentiation between competing products.

9. The World’s Most Valuable Brands, 2011 (in millions)

10. Global Product Strategies

11. National Food Preferences Adaptation: The Case of Campbell

12. Convergence in Alcohol Consumption Preferences

13. Personal Consumption Expenditures, United States 2010

14. Annual Resource Consumption per Person, 2001-2002

15. Number of McDonald’s per Country, 2004 1,154 12,804 3,598 31,000 McDonalds restaurants worldwide (2009), employing 1.5 million people.

16. Main Elements of Kraft’s Portfolio

17. The Illusion of Diversity, Ownership of the Soft Drink Industry, United States

18. Consumption of Coca-Cola Beverages per Capita (Liters)

19. The Multinational Enterprise

20. The Corporation as a Decision, Management and Planning Unit

21. Conflicting Elements of a Corporation

22. Dow Jones Industrial Index, 1950-2012

23. Cost and Production of Ford Vehicles, 1908-1924

24. Treasury Department Gross Tax Collection, 1987-2010

25. Fordist and Post-Fordist Corporate Structure

26. Corporations in the Global Economy • Multinational corporation • A corporation that takes a global approach for: • Its inputs (raw materials, parts). • Its outputs (customers). • Different parts of the industrial system are located in places where they are the most productive. MNC Inputs Outputs

27. Types of Multinational Corporations

28. Corporations in the Global Economy Globally Integrated Corporation Multidomestic Corporation System of production located in several countries. Complex products. Interdependency in productivity. Importance of logistics. Independent operations. Simple products. Production can be integrated globally, while the marketing is multidomestic. Better answer the needs of every market. Independency in productivity.

29. The Structure of Multinationals • Industrial strategy • Decrease of production costs: • One of the main goals of a corporation. • Exploitation of comparative advantages. • Stability of prices and deliveries: • The rationality of low costs must also take account of price changes of raw materials and parts. • Risked to relocate (long-term investment) to take advantage of conditions that can change on the short term. • Product quality: • Performance, service and maintenance. • A quantitatively competitive product has limited advantages if not qualitatively competitive. • Flexibility of production and distribution: • Facing changes in the demand confers a notable advantage.

30. The Impacts of Multinationals "(A corporation has) neither body to jail nor soul to damn." - Lord Edward Thurlow (1731-1806)

31. The Impact of Multinationals on International Trade Between Corporations (66%) Nation State Nation State Within Corporations (33%)

32. Large Multinational Corporations • Context • Size can be assessed through: • Stock market capitalization (value of tradable shares). • Number of employees. • Sale volumes. • Some have sale volumes larger than the GDP of a country. • Most large corporations had modest beginnings. • Formation of the Anglo-Persian Oil Company (1909). • Became British Petroleum (BP). • 37th largest corporation in the world (2011). • 138 $B sales. • Oil, chemicals, agriculture, mines and information technologies. • Greece had a GDP of 305 $B in 2010.

33. The Growth of Large Multinationals

34. The World’s 20 Largest Corporations by Market Value, 2011 ($US millions)

35. World's 250 Largest Corporations by Head Office City

36. Outsourcing and Offshoring

37. The Corporation and its Expansion Activity Coal Extraction Iron Ore Corporation C Corporation B Corporation A Corporation Steel Making Metallic Products Mechanical Products

38. Outsourcing • Definition • Moving some of a firm’s internal activities to outside providers: • Administrative, engineering, research, development, or technical support processes. • Substitution; the replacement of internal capacity and production by the supplier. • Binding agreement (supplier/client) defining the transferred services and terms. • Supplier acquires the means of production: • Transfer of people, assets and other resources from the client. • Client procures the services from the supplier for the term of the contract.

39. Outsourcing • Reasons to outsource • “Labor arbitrage”. • Reduce or control costs. • Free up internal resources. • Gain access to world-class capabilities. • Increase revenue potential. • Increase process efficiencies. • Focus on core activities. • Compensate for a lack of specific capabilities or skills.

40. Outsourcing • Main outsourcing sectors • Fabrication (parts). • IT and telecommunications. • Logistics and supply chain management. • Business processing (data entry). • Finance and accounting. • Facilities management. • Call centers. • HR (including payroll and benefits administration, recruitment and training).

41. Differences Between Outsourcing and Subcontracting

42. Offshoring • Definition • Transfer of an organizational function to another country: • Whether the work is outsourced or stays within the same corporation. • Distinction between outsourcing and offshoring often blurred. • Outsourcing can involve some level of off-shoring. • Nearshoring: • Moving activities in a neighboring country. • Usually higher level of cultural affinity / similar time zones. • E.g. US activities into Mexico. • Farshoring: • Moving activities to countries in another continent. • Different time zones.

43. Disconnection of Global Production and Distribution Core Base R&D Distribution Marketing/Retail Manufacturing Base

44. Value Creation and Capture, iPhone 4 (in USD) Korea Inputs ($80.05) Germany Distribution ($90.00) Inputs ($16.08) Inputs ($24.63) Retail ($600) France USA China ($329.95) Inputs ($3.25) Misc. ($45.95) Japan Factory Gate Price ($194.04) Inputs ($0.70) VA ($6.54) Other Inputs ($62.79) Apple ($269.05) International trade figures are therefore skewed…

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