CHAP 26 GLOBAL BUSINESS 1 What are TNCs

CHAP 26: GLOBAL BUSINESS 1. What are TNC’s? TNC’S are firms that produce and market goods in more than one country. Examples: Shell, Mc. Donalds, Mitsubishi Business decisions are made on a country by country basis. They have a global perspective which means they see the world as one giant marketplace. They do not have a particular allegiance to any one country.

2. How do TNC’S & global companies operate? 1. OPERATIONS They have factories in different countries in order to maximise profits and minimise costs. This means locating in a country where wages and taxes are lowest. They often use “PRODUCTION SHARING”. This means that part of a product is made in one country, shipped to another for further assembly and then finished in another country.

2. Marketing Usually the production and advertising of goods are standardised and homogenous. It can be adapted to meet the needs of specific markets and countries. 3. Financing Finance is raised by obtaining long term loans. They can also engage in transfer pricing, this the buying and selling of goods between their own subsidiaries. This can help Global Companies to manipulate the tax system by having businesses in different locations and paying tax levies in the country with the keenest rates.

4. Human Resource Management Employees especially management are often moved around between different subsidiaries in different countries. TQM techniques are used to match the desired quality standards.

STEPS TO BECOME A GLOBAL BUSINESS 1. National Business: • Home is the only market 2. International Business: • Home country is the main market but some goods exported 3. TNC’s: • produce & sell in numerous countries, decisions made on a country by country basis 4. Global Firms: • the world is the market, decisions on finance, marketing, HRM are made on a global basis.

3. Why have TNC’s/Global firms developed? 1. Improvements in transport & IT communications, Internet/e-commerce 2. Domestic market saturated 3. Opening up of global markets 4. Emergence of trading blocks 5. The deregulation of trade restrictions 6. The benefits of economies of scale 7. Bankers/investors are more willing to invest on the global stage (prior to economic downturn 2008/ 2009)

4. What is Global Marketing means marketing a product globally with broadly the same marketing mix, as though they were a single marketplace. EG – COCA COLA A standardised global marketing mix means using the same mix in different countries. An adapted global marketing mix means adjusting the mix to take account of cultural, geographic, economic differences EG In France the Mc. Donalds sells wine and in India the Mc. Donalds sells fish, and chicken burgers instead of hamburgers.

5. What are the elements of the global marketing mix? Global Product: It should have a distinct advantage/USP over existing competitors. The product must comply with national regulations, meet with local cultures and lifestyles, easy to transport, functional in all climates. Global Price: the price set on particular globalised products should • Cover the costs of manufacture, labour etc. • Aim to make a profit • Take environmental costs into account • Take different taxes/tariffs into account • Take marketing objectives into account

Global Promotion As well as using advertising, sales promotion etc the selling of goods on a global scale can include the use of • trade fairs, • trade missions and • the internet – websites, advertisements on the web etc • Foreign licensing agreements

Global Place/Distribution A firm wishing to distribute its product on a global scale can chose from the following channels of distribution. • Direct selling to customers • Use of agents to sell your product in a target market • Set up a foreign subsidiary • The setting up of joint ventures or strategic alliance

6. 1. 2. 3. 4. 5. Why do TNC’s locate in Ireland? Access to EU markets Avail of low tax incentives Highly skilled workforce Generous government grant aid available English language appeals to attract foreign companies especially American firms 6. The link with universities and the ability to recruit high tech sector graduates 7. Our green image

Positive/Negative effects of TNC’s & Globalisation for Ireland 7. Positives • Smaller to medium sized businesses can help to supply larger TNC’s located here. • The government can raise tax revenue through the new business start ups that are brought about • Increases in employment levels • They create competition amongst existing Irish Businesses.

Negatives • They become powerful and can dictate to national governments • They become “footloose” as they become powerful and they give very little consideration for the effects of a factory closure EG – DELL Limerick in 2009 moving to Lodz – Poland • They create competition amongst existing Irish Businesses.

8. Should the activities of TNC’s be controlled? There is an argument for tighter control on their activities. This type regulation is seen as difficult to implement and has arguments for and against. For regulation Against regulation

KEY TERMS

EXAM QUESTIONS 2008 Q 2 (A) 20 marks (i) Explain the term “Transnational Company” (ii) Discuss the reasons for the development of TNC’s in Ireland?

Exam questions 2007 Q 3 (B) 25 marks Explain the term “global marketing” and its role in international business. 2005 Q 3 (C) 15 marks Discuss the concept of Global Marketing for Irish Business

Exam questions 2004 Q 3 (A) Define global marketing? 20 marks Discuss the role of global marketing in international business? 2000 Q 3 20 marks (a) Explain, using examples, the importance of global marketing for a global business?

Exam questions 1998 Q 3 30 marks Discuss the positive and negative effects of TNC’s and Global firms for Ireland?