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Topic 2 – Global Markets, Global Products, Global Firms. A – Production and Consumption in a Globalized World B – The Multinational Enterprise C – Outsourcing and Offshoring. Post-Industrial Revolution. Production and Consumption in a Globalized World. Global Consumption. Consumerism

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topic 2 global markets global products global firms

Topic 2 – Global Markets, Global Products, Global Firms

A – Production and Consumption in a Globalized WorldB – The Multinational Enterprise

C – Outsourcing and Offshoring

global consumption
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.
global consumption1
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.
global consumption2
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.
number of mcdonald s per country 2004
Number of McDonald’s per Country, 2004

1,154

12,804

3,598

31,000 McDonalds restaurants worldwide (2009), employing 1.5 million people.

corporations in the global economy
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

corporations in the global economy1
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.

the structure of multinationals
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.
the impacts of multinationals
The Impacts of Multinationals

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

the impact of multinationals on international trade
The Impact of Multinationals on International Trade

Between Corporations (66%)

Nation

State

Nation

State

Within Corporations (33%)

large multinational corporations
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.
the corporation and its expansion
The Corporation and its Expansion

Activity

Coal Extraction

Iron Ore

Corporation C

Corporation B

Corporation A

Corporation

Steel Making

Metallic Products

Mechanical Products

outsourcing
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.
outsourcing1
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.
outsourcing2
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
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.
disconnection of global production and distribution
Disconnection of Global Production and Distribution

Core Base

R&D

Distribution

Marketing/Retail

Manufacturing Base

value creation and capture iphone 4 in usd
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…

topper the trick terrier
Topper the Trick Terrier

Voice Recognition Requirements:

(San Francisco)

Voice Recognition Programming:

(Taiwan)

Plastic Eyes:

(Shenzhen, China)

Plastic Body: (Malaysia)

Microfiber for Coat: (Korea)

Speaker for voice:

(Dongguan, China)

Transistors:

(Shenzhen, China)

Motors for legs:

(Shaoguan, China)

IC chips: (Taiwan)

Plastic legs: (Taiwan)

Wiring: (Dongguan, China)

Packaging: (Hong Kong)