Topic 8 :

Globalization and Business

Lecturer:RPS

Copyright 2002 by Harcourt, Inc. All rights reserved.

LEARNING GOALS

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Key learning goals:

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

Globalization and Business

-What Is Globalization?

Definition:

Globalization is the growing integration of the worlds

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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:
The increasing importance o f international trade
More and more multinational companies
More and more businesses thinking globally about their
strategy.
Copyright 2002 by Harcourt, Inc. All rights reserved.

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.

Globalization and Business

-Factors affecting globalization
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.
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.

Globalization and Business

-The effects of globalization on businesses
Table 8-2 Effects of globalization on businesses
Effects of globalization on businesses

Please 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 jointdevelopment opportunities in the

world market

Businesses have more partners worldwide. They

can join together to produce goods and services or
to penetrate foreign markets.

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. Chinas HEIR is
becoming a multinational one.
Copyright 2002 by Harcourt, Inc. All rights reserved.

Globalization and Business

-Multinational companies and their influences

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Some reasons why a company may become a

multinational firm:
To avoid protectionist policies on trade, producing in
another country can prevent the tariff or quota
restrictions on foreign trade.
To realize globalization of the market and enjoy large
scale economy.
To realize the diversification of markets and spread
risks of operation
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.

Copyright 2002 by Harcourt, Inc. All rights reserved.