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Unit 1.9 Globalization

Unit 1.9 Globalization. Unit Objectives:. Understand the meaning of globalization and the factors contributing to it Analyze the role played by multinationals in the global business environment Evaluate the impact of multinational companies on the host country

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Unit 1.9 Globalization

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  1. Unit 1.9 Globalization

  2. Unit Objectives: • Understand the meaning of globalization and the factors contributing to it • Analyze the role played by multinationals in the global business environment • Evaluate the impact of multinational companies on the host country • Explain what regional trading blocs are and their impact on a business of a country that is a member of a regional economic group/bloc

  3. Globalization • Is the integration of the world’s economies in terms of economics, sociology and politics. • For businesses, this means an attempt by firms to efficiently produce and sell the same products simultaneously in different countries. • With globalization, economic and political decisions taken in one region of the world will affect those in other parts of the world also. • The growing trend towards worldwide markets in products, capital and labor, unrestricted by barriers.

  4. Key features of globalization that have an impact on business strategy: • Increased international trade as barriers to trade are reduced • Growth of multinational businesses in all countries as there is greater freedom for capital to be invested from one country to another • Freer movement of workers between countries

  5. Opportunities and threats of globalization • Increases the level of competition • Meeting customer expectations and needs becomes increasingly more demanding • Businesses that are able to build a global presence can benefit from economies of scale • Multinationals have greater choice of location of their production facilities • Businesses have more choice in their expansion plans (mergers, acquisition and joint ventures) • Multinationals and e-commerce businesses benefit from increased customer base

  6. Globalization • http://www.youtube.com/watch?v=LtmvksvSvtc

  7. Multinational Corporations (MNCs) • Is an organization that operates in two or more countries • Examples: Coca-cola, Dell, Exxon, Microsoft, Nike, Nokia, Samsung, Toyota • Reasons why business strive to become MNCs: • Increased customer base = increase sales • Benefit from economies of scale as production levels increase • Avoid protectionist policies • Cheaper production costs • Spread risks • Can trade efficiently with improvement in technology & high speed travel

  8. Multinational Corporations (MNCs) • Problems of expansion overseas: • Lack of knowledge and experience may create problems for firms operating in new markets • Storage, transportation and distribution costs may increase • External factors (beyond control of the business) such as legal restrictions, language barriers and cultural differences • Political and economic conditions may limit MNCs • Less developed infrastructures such as communication and road network, limiting efficiency

  9. MNC’s effect on host countries • Create jobs • Increase in GDP by creating consumption expenditure • Increase in national income thereby improving its standards of living • Introduction of new skills and technology in production processes (technology transfer) creates efficiency • MNCs competition lead to greater efficiency to the benefit of domestic customers • Capable of causing unemployment as they can pose a threat to domestic businesses

  10. Regional trading blocs (RTB) • RTB refers to a group of countries that agree to freer international trade with each other, through the removal of trade barriers on the movement of goods, services, labor and capital. • Trade barriers such as: tariffs and quotas • Tariffs – tax on imports • Quotas – quantity limits on the sale of foreign imports • World Trade Organization (WTO) – deals with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

  11. Types of RTBs: • Free Trade Areas (FTA) • Customs Union • Common Markets • Economic and Monetary Unions

  12. Trade Blocs • http://www.youtube.com/watch?v=YDUq0DINhYk

  13. Additional Resources: http://www.ibbusinessandmanagement.com/19-globalisation.html

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