Chapter 31 Global Business TRANSNATIONAL COMPANIES A business

Chapter 31: Global Business

TRANSNATIONAL COMPANIES • A business with headquarters in one country and branches of the firm in other countries, e. g. Glanbia, Circle K and Smurfit Kappa Group. TNCs are also referred to as multinational companies (MNCs).

Reasons for Development of Transnational Companies Improvements in transport Free trade Developments in ICT Economies of scale Larger markets

Reasons why TNCs Locate in Ireland

Reasons why TNCs Locate in Ireland Corporation tax Ireland’s Reputation Skilled labour • Ireland’s low corporation tax rate of 12. 5% means that businesses get to keep more of their profits. • Ireland has a reputation that is a good place to do business. • Ireland has a highly skilled and well educated workforce.

Reasons why TNCs Locate in Ireland IDA Ireland • This state agency is responsible for attracting foreign direct investment (FDI) to Ireland. Single Market • The ESM allows free movement of goods, services, labour and capital between member states. English language • Since Ireland is an English speaking country it helps attract TNCs.

IMPACT OF TRANSNATIONAL COMPANIES ON THE IRISH ECONOMY Opportunities 1 Direct Employment TNCs provide jobs for thousands of workers in Ireland. 2 Spin-off Businesses TNCs buy goods and services from other businesses in Ireland, thus increasing employment in these firms. 3 Reputation When TNCs choose Ireland as a location for their business, it gives the country a positive international reputation and may attract other TNCs to locate here.

IMPACT OF TRANSNATIONAL COMPANIES ON THE IRISH ECONOMY Opportunities 4 Knowledge TNCs bring modern business knowledge and expertise to Ireland. Irish managers gain experience and learn from these foreign business managers. 5 Balance of Payments Many of the TNCs export their products, which can help Ireland achieve a surplus on its balance of payments.

IMPACT OF TRANSNATIONAL COMPANIES ON THE IRISH ECONOMY Challenges 1 Footloose Some TNCs are not loyal to Ireland leave the country to move to lowcost economies. 2 Repatriation of Profits While the government earns corporation tax on the profits earned by TNCs in Ireland, most of the money earned returns to the country where the firm’s headquarters are located. 3 Tax Avoidance Some TNCs use loopholes in the tax system to pay less tax to the Irish government. Therefore, the actual tax revenue earned by the government is less than expected.

IMPACT OF TRANSNATIONAL COMPANIES ON THE IRISH ECONOMY Challenges 4 Over-reliance on TNCs The Irish economy is over-reliant on TNCs to provide employment. People need to be encouraged to develop more indigenous businesses. 5 Irish Firms Small Irish firms may be unable to compete with larger TNCs, as they may not benefit from economies of scale. This can lead to the closure of Irish firms.

GLOBAL BUSINESS • A global business sells its goods and services all over the world. It views the world as one large market.

Reasons for the Development of Global Businesses To spread risk Economies of scale Deregulation Communication E-commerce

BEING A GLOBAL BUSINESS Benefits 1 Increased Sales Global firms have access to larger markets all over the world. This gives them the opportunity to increase their sales and profit. 2 Economies of Scale As many global businesses buy raw materials in larger quantities, they benefit from economies of scale.

BEING A GLOBAL BUSINESS Benefits 3 Marketing A standardised global marketing campaign can increase brand awareness among consumers in global markets. 4 Spreading Risk By operating in several global markets, the firm spreads its risk of failure. Sales in one market can compensate for falling sales in another market.

BEING A GLOBAL BUSINESS Risks 1 Local Customers Consumers might not purchase a standardised product, so the business must adapt the product to suit local tastes. This customisation increases business costs. 2 Local Customs The global business must be aware of local customs to ensure that its product range or marketing mix does not offend local customs or cultures.

BEING A GLOBAL BUSINESS Risks 3 Laws New laws can make it difficult to trade globally. Some governments may introduce restrictions or bans on the products sold by the global firm. 4 Complex structure Global firms can have a complex organisation structure. Communication and decision-making can slow down and the firm may not be able to react quickly to changes in the market.

Irish Global Business Examples of global Irish businesses include: • CRH (Cement Roadstone Holdings) • Kerry Group • Smurfit Kappa

IMPACT OF TECHNOLOGY ON THE GROWTH OF GLOBALISATION Impact Design Production Decision-making Reason → Computer-aided design (CAD) has made the design process faster and easier. → Global firms use computer-aided manufacturing (CAM) to control equipment and machinery using computers. → Global businesses use the Internet to research information about competitors, markets and consumers.

IMPACT OF TECHNOLOGY ON THE GROWTH OF GLOBALISATION Impact Reason → Electronic data interchange (EDI) can be used by Stock Management global firms to manage stock levels around the world. → Businesses can use social media platforms to Marketing advertise their products and increase consumer awareness of their brand. → Container transport as well as computer software programs have helped business to distribute and Distribution transport their products at a lower cost to markets all over the world.

EFFECTS OF GLOBALISATION ON THE IRISH ECONOMY Positive effects Economic growth Negative effects Competitiveness Labour force Power Employment Profit repatriation Consumer choice Taxes

GLOBAL MARKETING • Global businesses use a global marketing strategy. This involves marketing the firm’s products worldwide using a standardised or adapted marketing mix, i. e. product, price, promotion and place.

The Global Marketing Mix

1 Global Product 1 • Global businesses aim to sell an undifferentiated product in all markets. 2 • The product is designed in a way that appeals to as many consumers as possible 3 • However, in some cases the product, including the brand name and packaging, may need to be adjusted for language, culture and taste. 4 • In some cases a business may need to adapt the brand name of the product when selling on the global market.

2 Global Price • The global business aims to charge the same price to consumers around the world, e. g. the Apple Watch.

2 Global Price Factor Explanation Cost of Living and Disposable Income → The price must reflect the cost of living and income levels in different countries. Taxes → Different levels of taxation affect the final price charged to consumers. Local Price Levels → A global business will have to charge a price that is in line with local competitors in the market. Exchange Rates → Exchange rates fluctuate and may increase the cost of manufacturing the product for the business. The firm then passes on these cost to the consumer. Marketing → Production, distribution, transport and marketing costs may be different in countries around the globe, thus impacting on the price charged to consumers.

3 Global Place • Global channels of distribution tend to be long, due to the distance between where the goods are produced and where the consumers are located.

3 Global Place Direct export Agent Manufacturing abroad Licensing Joint venture • The business can set up its own website and sell direct to customers. • This is an independent person or business who sells the product in the local market in return for a commission payment. • The business establishes a manufacturing plant in another country to produce the goods. • The firm gives a local business permission to produce or distribute the product in a particular market, in return for a fee. • The firm sets up a joint venture with a local firm to produce for a local market.

4 Global Promotion Channel Explanation Advertising → Global businesses may use the same advertisements worldwide but will have to consider differences in language, culture and advertising laws around the globe. Public Relations → Global businesses sponsor global events to increase consumer awareness and exposure of the brand its products. Sales Promotion → Global firms run worldwide competitions and provide free samples to increase sales of their products. Personal Selling → Global businesses train salespeople to share their knowledge and expertise with consumers. This can help to increase brand loyalty.

Importance of Global Marketing Increased sales Lower costs Improved quality Adapted marketing mix

Key Terms • • transnational company (TNC) foreign direct investment (FDI) repatriation of profits globalisation global business Enterprise Ireland global marketing • • standardised marketing mix adapted marketing mix global product global price global place agent global promotion

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