Topic 2 – Global Markets, Global Products, Global Firms
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Transcript of Topic 2 – Global Markets, Global Products, Global Firms
GS 120 – iGlobalizationProfessor: Dr. Jean-Paul Rodrigue
Hofstra University, Department of Global Studies & Geography
Topic 2 – Global Markets, Global Products, Global Firms
A – Mass Consumption in a Globalized WorldB – The Multinational EnterpriseC – Global Manufacturing
A – Mass Consumption in a Globalized World
What consumerism implies in a global economy?
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The Three Pillars of Consumerism
Needs and wants• Always existed (mostly essential needs).• Part of social ideals; persona’s definition.• From the essential (food) to the frivolous (luxury goods).
Marketing• Mass consumption requires mass production.• Shopping mall (facility designed to incite consumption).• Advertising (create wants and needs).• Fashion (planned obsolescence).
Buying power• Relative price reduction of consumption goods; “mass luxury”.• Higher wages.• Access to credit (buy now, pay later).
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Consumerism
■ Global Consumer Culture• The setting of global common preferences:
• Food.• Fashion.• Media (movies, music).• Electronics.• Automotive.
• Many global goods originated from the western world:• Many key technologies (e.g. the automobile, the personal computer).• The United States has been a powerful influence on various other
cultures.• Multinational corporations have become key agents.
Global Gross Domestic Product and Human Development Index, 2010
What is the HDI and how it reflects market potential?
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Share of Consumption by Sector and Income, Developing Countries, 2010
Higher Middle Low Lowest0%
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20%
30%
40%
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OthersFinancial ServicesICTPersonal CareHealthEducationUtilitiesTransportEnergyHousingClothing and FootwearFood and Beverages
Advertising and Psychology
Which basic human emotions these ads relate to?
Global Consumption: Product versus Brand
Product
• A good or service that has tangible attributes.
• Global products:• Uniform features in all
countries.• 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.
Brand
• A specific product built on a relationship with the consumer.
• Added value that accrues to a product.
• 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.
The World’s Most Valuable Brands, 2014 (in millions)
AppleGoogle
Coca ColaIBM
MicrosoftGE
SamsungToyota
McDonnald'sMercedes-Benz
BMWintel
DisneyCisco
AmazonOracle
HPGillette
Louis VuitonHonda
$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000
Products and Brands: Main Elements of Corporate Portfolios
Using a portfolio as an example, explain the difference between products and brands.
Global Product Strategies
DiffusionOffering product almost unchanged in markets outside home country. Often found in the food and luxury industries.
AdaptationChanging elements of design, function, and packaging according to needs of different countries. Regulatory and cultural differences.
CreationDeveloping new products for the world market. Often found in the tech industry.
National Food Preferences Adaptation: The Case of Campbell
Region Dominant Campbell SoupUnited States Chicken Noodle & Cream of Mushroom
South America Cream of Asparagus
UK Tomato
Japan Corn
Australia Cream of Pumpkin
Adaptation: Number of McDonald’s per Country, 2013
35,000 McDonalds restaurants worldwide (2013), employing 1.5 million people.
14,267 3,164
1,427
The Illusion of Diversity, Ownership of the Soft Drink Industry, United States
Coca ColaHonest Tea
DesaniPowerade
NesteaGlaceau
FuzeFanta
Minute MaidSpriteFresca
Mr. Pibb
PepsiAquafina
Mountain DewSierra MistGatorade
LiptonOceansprayTropicana
DoleSobe
Life Water
SnappleA&W
Big RedNantucket Nectars
Seven UpCrush
Dr PepperAccelerade
Hawaiian PunchWelch’s
Canada DrySunkist
SchweppesOrangina
42.8% 31.1% 15%
Consumption of Coca-Cola Beverages per Capita (Liters)
IndiaIndonesia
NigeriaChina
RussiaThailand
WorldPolandFrance
PhilippinesItaly
JapanGermany
CanadaSouth Africa
SpainArgentinaAustralia
United StatesChile
Mexico
0 20 40 60 80 100 120 140 160
1.663.08
6.396.62
16.3219.1620.11
25.5530.7630.76
33.3641.6442.35
56.0759.62
71.6973.82
76.6597.47
101.02150.23
2008 1998 1988
Short Assignment: Global Product Strategies
Find examples of global products that have emerged through diffusion, adaptation and creation.
B - The Multinational Enterprise
What are multinationals? What is their role and importance?
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The Corporation as a Decision, Management and Planning Unit
Management Unit Decision Unit Planning Unit
Nature Maintain operational conditions.
Decisions about the allocation of resources.
Anticipate market changes and opportunities. Allocate its factors of production.
Scope Production, sales, marketing, payroll, distribution.
Financial, labor, raw materials, etc.
Economic, technological, social and political change.
Time frame
Short term (production cycles).
Short to long term (product cycles).
Medium to long term (business cycles).
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Conflicting Elements of a Corporation: Reconciling the Needs of Shareholders, Employees, the Society and Customers
• Lowest price.• Highest quality.
• Tax collection.• Regulations (wages,
benefits, environment, etc.)
• Highest compensation.
• Various benefits.
• Highest dividend possible.
• Share value growth.
Shareholders Employees
CustomersSociety (State)
What are the main conflicting elements a corporation is reconciling?
Cost and Production of Ford Vehicles, 1908-1924
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Cost Production
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Treasury Department Gross Tax Collection, 1960-2015
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Business income taxes Individual income tax Employment Taxes
Fordist and Post-Fordist Corporate Structure
Characteristics Fordism Post-FordismProduction Mode Mass Production Mass CustomizationOrganization Structured (Pyramidal) Networked (Flexible)Focus Supply DemandMarket Reach Regional / National GlobalExpansion Vertical or horizontal
integrationOutsourcing and offshoring
Core Resources Physical Assets Innovation/ KnowledgeValue Chains Discontinuous Integrated (continuous)Inventories Months HoursProduction Cycle Time Weeks / Months DaysProduct Life Cycle Years Months
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Corporations in the Global Economy
■ Multinational corporation (MNC)• Provides goods and/or services.• 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.
Inputs OutputsMNC
What Multinational Corporations are Trying to Achieve to Compete?
Lower production costs• One of the main goals of a corporation. Exploitation of comparative
advantages.
Stability of prices and deliveries• The rationale of low costs must also take account of price changes of raw
materials and parts. Risky 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.
Production and distribution flexibility• Facing changes in the demand confers a notable advantage.
Types of Multinational Corporations by Strategy
Raw Materials Seekers• Lower input costs• Resource acquisition• First MNCs to emerge
Market Seekers• Achieve economies of scale• Expand market• Large investors
Minimal Cost Seekers• Look for comparative advantages• Lower production and distribution costs• Remain competitive
Globally Integrated and Multidomestic Corporation
Globally Integrated Corporation
Production system located in several
countries.Complex products or
resources.Interdependency in
productivity.Importance of logistics.
Multidomestic CorporationIndependent operations.
Simple products.Production can be
integrated globally, while the marketing is
multidomestic.Better answer the
needs of every market.Independency in
productivity.
What is the difference between a globally integrated and multidomestic corporation?
Inte
rnat
iona
l Tr
ade
Foreign Direct Investment
LOW
LOW
HIGH
HIGH
Types of Internationalization
Trading Industries
AerospaceMilitary hardwareDiamond miningAgriculture
Global Industries
AutomotivePetroleumSemiconductorsConsumer electronics
Domestic Industries Multidomestic Industries
RailwaysHospitalsPersonal care
Retail bankingHotelsConsulting
The Impacts of Multinationals
PositiveFavor economic growth
(employment)Provision of investment capital
Provision of goods and servicesTransfer of technology and skills
Increase export opportunities
NegativeBalance of payments (repatriation of
profits)High influence over governments
Bankrupt local businessesOligopoly / monopoly on local
marketLeverage (can relocate / threaten to)
"(A corporation has) neither body to jail nor soul to damn." - Lord Edward Thurlow (1731-1806)
The Growth of Large Multinationals: Three Main Options
New
mar
ket o
ppor
tunit
y • Resource, technology, product
• Technology and InnovationBe
tter m
anag
emen
t • Less innovative sectors
• Mostly financial (holdings)
• Outsourcing
Stat
e su
ppor
t • Regulatory support or coercion
• Large government contracts (e.g. defense corporations)
• Corporate socialism
The World’s 20 Largest Corporations by Revenue, 2017 ($US millions)
Walmart
State Grid
Sinopec Group
China National Petroleum
Toyota Motor
Volkswagen
Royal Dutch Shell
Berkshire Hathaway
Apple
Exxon Mobil
McKesson
BP
UnitedHealth Group
CVS Health
Samsung Electronics
Glencore
Daimler
General Motors
AT&T
EXOR Group
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000
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How can the size of a corporation be measured?
C – Global Manufacturing
What is the difference between outsourcing and offshoring? Why and how it is used?
The Four Industrial RevolutionsRead this content
1.0
2.0
3.0
4.0
Mechanization
Mass Production
Automation
Robotization
Industrial cities
Industrial regions
Global production networks
Global value chains
Late 19th - mid 20th Century
Late 18th – early 19th Century
Second half of 20th Century
Early 21st Century
Substitution
Economies of scale
Input costs
Added value
Production Structure Driver
Steam engine and mechanical production
Electricity and division of labor
Electronics and information technologies
Cyber-physical systems
GDP Share of Manufacturing, Selected Countries, 1970-2012
1970
1972
1974
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0%
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10%
15%
20%
25%
30%
35%
40%
45%
50%
Brazil China India JapanGermany United States World
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Typical Cost Structure of a Shirt
The Corporation and its Expansion
Vertical Integration Horizontal Integration Outsourcing
Nature Expand backward (suppliers) or forward (customers) along the supply chain.
Acquiring or merging with competitors.
Some activities performed by another corporation.
Goal Lower costs. Enhance and protect product quality. Improve supply chain efficiency.
Economies of scale. Product differentiation. Business model replication. Oligopoly.
Reduce costs. Focus on core competencies.
Issues Higher cost structure of suppliers. More difficult to adapt to changes.
Different business cultures, Anti-monopolistic responses
Dependency. Loss of competency.
Coal Extraction
Iron Ore
Steel Making
Metallic Products
Mechanical Products
Corporation A Corporation B Corporation C
Corporation
Activity
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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.
Outsourcing
■ Reasons to outsource• “Labor arbitrage”; find lower cost labor.• 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.
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).
Offshoring, Nearshoring and Farshoring
Offshoring
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.
Explain the differences between outsourcing and offshoring and the different types of offshoring
Disconnection of Global Production and Distribution
R&D Distribution
Marketing/Retail
Core Base
Manufacturing BaseRead this content
Global Sourcing: European Assembly of a Ford Escort
Global Sourcing: The Boeing 787 Dreamliner
Source: www.newairplane.com
Escape slides: Air Cruisers (USA)
Horizontal Stabiliser:Alenia Aeronautica (Italy)
Centre fuselage: Alenia Aeronautica (Italy)
Final assembly: BoeingCommercial Airplanes (USA)
Vertical Stabiliser: BoeingCommercial Airplanes (USA)
Landing gear: Messier-Dowti (France)Electric brakes: Messier-Bugatti (France)Tires: Bridgestone Tires (Japan)
Doors & windows:Zodiac Aerospace (USA)PPG Aerospace (USA)
Tools/Software: Dassault Systemes (France)Navigation: Honeywell (USA)Pilot control system: Rockwell Colins (USA)Wiring: Safran (France)
Centre wing box:Fuji Heavy Industries (Japan)
Engines: GE Engines (USA),Rolls Royce (UK)
Wing box: Mitsubishi Heavy Industries (Japan)Wing ice protection: GKN Aerospace (UK)
Engine nacelles: Goodrich (USA)Aux. power unit: HamiltonSundstrand (USA)
Flight deck seats:Ipeco (UK)
Lavatories:Jamco (Japan)
Cargo doors: Saab (Sweden)
Forward fuselage:Kawasaki Heavy Industries (Japan)Spirit Aerosystems (USA)
Raked wing tips: Korean AirlinesAerospace division (Korea)
Flight deck controls:Esterline (USA),Moog (USA)
Passenger doors:Latécoère Aéroservices (France)
Prepreg composites:Toray (Japan)
Rear fuselage:Boeing South Carolina (USA)
Value Creation and Capture, iPhone 4 (in USD)
Retail
($600)
Korea
Germany
France
Japan
Other
USA China
Factory Gate Price($194.04)
Inputs ($24.63)Distribution($90.00)
Inputs ($80.05)
Inputs ($16.08)
Inputs ($3.25)
Inputs ($0.70)
Inputs ($62.79)
VA ($6.54)Misc.
($45.95)
Apple($269.05)
($329.95)
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Main Reasons Provided by Manufacturers for Reshoring
Delivery Time Improvement
Total Cost of Ownership
Quality Improvement
Freight Cost Improvement
Wage Cost Improvement
Customer Responsiveness Improvement
Image / brand
Higher Productivity
Innovation Improvement
Inventory Improvement
0 5 10 15 20 25 30 35 40
Cost to Manufacture a Cotton Vest, Asia and United States, 2013
Asia
United States
0 5 10 15 20 25 30 35 40
18.4
17.4
2.3
3.2
5.5
17
3.5 1.7
0.5
Fabric Trim and Hardware LaborDuties Shipping
Short Assignment: Outsourcing and Offshoring in the Toy Industry
Voice Recognition Requirements:(San Francisco)Voice Recognition Programming:(Taiwan)
Plastic Eyes:(Shenzhen, China)
Plastic Body: (Malaysia)
Motors for legs:(Shaoguan, China)
Microfiber for Coat: (Korea)
Plastic legs: (Taiwan)
Speaker for voice:(Dongguan, China)
Transistors:(Shenzhen, China)
IC chips: (Taiwan)
Wiring: (Dongguan, China)
Packaging: (Hong Kong)Topper the Trick Terrier