Technological Globalisation

Technological developments have been one of the strongest movers of globalisation.

New technologies also lead to other modes of production, trade and economic relations, less based on natural resources and machines and more on knowledge, services and infrastructures for communication.

Matrix structure.

Definition: hybrid organisation in which individuals from different functional areas assigned to work on specific project or task

Advantages:

- mix of people and resources is easy to change/modify;

- emphasis on the project itself;

- ease of movement for team-members;

- constant challenge to employees;

- better management due to more roles/skills needed form managers;

Disadvantages:

- violates the principle of unity of command;

- creates conflicts within structure;

- when staff (project team-members) are still evaluated by functional managers (in original departments);

- matrix structures are costly to implement;

- difficult to implement as they are difficult to accept;

Market segmentation

Definition: identifying distinct groups of consumers whose purchasing behaviour differs from others in important ways

Segmentation can be:

Geographical;

Demographic (sex, age, income);

Socio-cultural (class, values, religion, lifestyle);

Psychological.

Firms adjust their marketing mix from segment to segment.

Marketing mix: set of choices the firm offers to its target markets.

Distribution strategy

Definition: means chosen to delivering the product to the customer [Hill, p.575]

Main issues in developing an effective strategy:

1. Retail concentration.

a. concentrated: few retailers supply most of the market;

b. fragmented: there are many retailers and no one has a major share of the market.

2. Channel length (number of intermediaries between the producer and consumer).

a. long channel: many intermediaries (EXPENSIVE!);

b. short channel: producer sells directly to consumer;

3. Channel exclusivity.

A. exclusive: difficult for outsiders to access (for example: Japan);

B. quality: expertise, competencies and skills of established retailers and their ability to sell+support the products of international business;

Barriers to international communication.

1. Cultural barriers: challenges to communicate messages across cultures.

Solution: develop cross-cultural literacy and welcome local advertising input.

2. Source and country of origin effects.

a. source effects: receiver of message evaluates it on the basis of the status or image of sender (when receivers are biased);

b. country of origin effects: place of manufacturing influences product evaluations;

3. Noise levels: amount of media “noise” from other producers competing for the consumer’s attention.

Strategies:

1. Push strategy: emphasises personal selling rather than mass-media advertising in the promotional mix.

2. Pull strategy: depends on mass media to communicate the marketing message to potential customers.

Financial structure.

Definition: mix of debt and equity used to finance business activity. (Hill, 2011, p.659)

Transfer prices.

Definition: prices at which goods are transferred between entities within the firm.

These prices can be manipulated to achieve optimal mix of costs/benefits.

Advantages:

Firm can reduce tax liabilities by shifting earnings from a high tax-rate country;

Firm can move funds out of a country (for example in case of expected exchange rate change);

Firm can move funds when transfers of dividends are restricted;

Firm can minimise import duties, especially in case of ad-valorem tariff (set as percentage of value);

Levels of culture.

- Professional;

- Organisational (f.e. corporate, family business);

- National (or regional);

- Global (is there ONE??);

Layers of culture.

- Outer layer: explicit products.

Observable reality of language, food, buildings, fashion, art, etc.

- Middle layer: norms and values.

Norms: mutual sense a group has of what is "right" or "wrong". [Formal: written laws; informal: social control].

Values: determine the definition of "good" and "bad". Are related to ideals shared by the group.

- Core: Assumptions about existence.

Fundamental ways of dealing with the (local) environment. Groups organise to assure better problem-resolution. Different geography = different problem-solving skills = different sets of logical assumptions

Vernon’s Product Life Cycle

Stage 1. New product phase.

A new product is introduced, requiring highly-skilled labour.

Consumption occurs ONLY in innovating country.

Stage 2. Product growth phase.

Production is perfected in the innovating country.

Production increases rapidly to accommodate demand at home and abroad.

Innovating country still has MONOPOLY.

Stage 3. Product maturity phase.

Product becomes standardised.

Firm might discover that licensing is profitable.

Imitating country begins its OWN production.

Stage 4. Imitation phase.

Product no longer requires skills and development.

Imitating country begins to undersell the innovating country.

Price competition overtakes brand competition.

Stage 5. Product decline phase.

Imitating country begins to undersell the innovating country on its HOME market.

Production in innovating country rapidly declines or collapses.

Bretton Woods system

In 1944, representatives of 44 countries met at Bretton Woods, New Hampshire.
Idea: devise a NEW international monetary system.

Defence against:
- Collapse of the gold standard;
- Repeat of Great Depression from 1930’s.
- Worldwide financial collapse;
- Competitive devaluations;
- Trade wars;
- High unemployment;
- Hyperinflation;
- General economic disintegration.

Plan: build an enduring economic system that would facilitate post-war economic growth.

Key issue: make or buy?

Debate about whether the company should perform certain value creation activity itself or outsource to another entity?

Advantages of “make”

1. Lowering costs.

Makes sense to produce in-house if company is more efficient than others.

2. Facilitating specialised investments.

Specialised asset- asset whose value is pertaining to a particular relationship persisting.

3. Protecting proprietary production technology.

Firms wants to protect its technology form external competition.

4. Improving scheduling.

Makes planning, coordination and scheduling of adjacent processes easier.

Advantages of “buy”

1. Strategic flexibility.

Switching orders between suppliers, allowing for flexibility. Especially important in global production.

2. Lower costs.

Outsourcing does not need investment and suppliers may have better economies.

3. Offsets.

Глава 7

Foreign direct investment occurs when a firm invests directly in facilities to produce or market a product in a foreign country.

Объем прямых иностранных инвестиций происходит, когда фирма инвестирует непосредственно в учреждениях, производить или продавать продукт в чужой стране.

Greenfield investment, which involves establishing a new operation in a foreign country.

Инвестиции в новые проекты, которая включает в себя создание новой операции в чужой стране.

The second involves acquiring or merging with an existing firm in the foreign country.

Второй включает в себя приобретение или слияние с существующей фирмы в зарубежной стране.

• Minority stake (10-49%)

• Majority (50-99)

• Full outright stake (100%)

FDI

Flow of FDI Stock of FDI

Приток ПИИ Объем ПИИ

Приток ПИИ относится к количеству прямых иностранных инвестиций, проведенные в течение определенного периода времени (обычно год).

Объем прямых иностранных инвестиций относится к общему накопленному значению активы, принадлежащие иностранцам в данный момент времени.

• Outflows of FDI, meaning the flow of FDI out of a country. (Отток ПИИ, а это означает “приток” ПИИ из страны)

• Inflows of fdi, the flow of fdi into a country. (Приток пии, приток прямых иностранных инвестиций в страну).

Gross fixed capital formation summarizes the total amount of capital investment in factories, stores, office building and the like.

Валовое накопление основного капитала суммирует общий объем капитальных инвестиций в заводы, магазины, офисные здания и тому подобное.

Electric paradigm, attempts to combine the two other perspectives into a single holistic explanation of foreign direct investment ( this theoretical perspective is electric because it combines the best aspects of other theories into a single explanation).

Электрические парадигмы, попытки объединить два других точек зрения в единую целостную объяснения прямых иностранных инвестиций (это теоретическая перспектива электрическим, поскольку она сочетает в себе лучшие аспекты других теорий в единую объяснения).

Why foreign direct investment?

Exporting involves producing goods at home and then shipping them to the receiving country for sale.

Экспорт включает в себя производство товаров на дому и доставка их в принимающую страну для продажи.

Licensing involves granting a foreign entity (the licensee) the right to produce and sell the firm’s product in return for a royalty fee on every unit sold.

Лицензирование предполагает предоставление иностранным юридическим лицом (лицензиату) право на производство и продажу продуктов фирмы в обмен на авторский гонорар на каждую проданную единицу.

Limitations of Licensing.

A branch of economic theory know as internalization theory (also known as the market imperfections approach) seeks to explain why firms often prefer foreign direct investment over licensing as a strategy for entering foreign markets.

Отрасль экономической теории знаем как теория интернализации (также известный как подход несовершенства рынка) попытка объяснить, почему фирмы часто предпочитают прямые иностранные инвестиции за лицензированием в качестве стратегии выхода на внешние рынки.

An oligopoly is an industry composed of a limited number of a large firms (e.g., an industry in which four firms control 80 percent of a domestic market would be defined as an oligopoly).

Олигополии является индустрия, состоящая из ограниченного числа крупных фирм (например, отрасли, в которой четыре компании контролируют 80 процентов внутреннего рынка, будет определяться как олигополия).

Multipoint competition arises when two or more enterprises encounter each other in different regional markets, national markets, or industries.

Многоточечная конкуренции возникает, когда два или более предприятий сталкиваются друг с другом в различных региональных рынках, национальных рынков, или отраслей.

By location-specific advantages, Dunning means the advantages that arise from utilizing resource endowments or assets that are tied to a particular foreign location and that a firm finds valuable to combine with its own unique assets (such as the firm’s technological, marketing, or management capabilities).

Преимущество географического местоположения, Dunning означает, преимущества, которые возникают от использования природных богатств или активы, которые привязаны к конкретным иностранным расположения и того, что фирма находит ценное для объединения со своим собственным уникальным активов (таких как технологические, фирмы маркетинг или управление возможностей).

Economists refer to such knowledge “spillovers” as externalities, and a well-established theory suggests that firms can benefit from such externalities by locating close to their source.

Экономисты называют такое знание "внешних эффектов", как внешние, и устоявшихся теорий предполагает, что фирмы могут извлечь выгоду из таких внешних факторов, путем расположенные рядом с ними их источник.

MNE ( Multination enterprise) is an instrument of imperialist domination.

МНК (многонациональное предприятие) является инструментом империалистического господства.