Globalisation and Multinational Business

Globalisation and Multi National Business
Globalisation Process
1. Domestic company exports to foreign countries through the dealers and distributors. (Indirect exporting)
2. Domestic company directly exports
3. Domestic company becomes a multi national company by establishing production and marketing.
4. Being full-fledged company like R& D, HR etc.
5. Becomes the true foreign company by satisfying the needs.

Ways of Globalisation
Globalisation may take place in four ways. They are
1. Globalisation of Markets
Globalisation of markets refers to the process of integrating and merging of the distinct world markets into one single market.
Features of Globalisation of Markets
8. The Size of the company needs not to be large to create a global market.
9. The distinctions of national markets are still prevailing even after the globalisation
10. Most of the foreign markets are for non – consumer products.
11. The global business firms compete with each other frequently in different national markets including home market. E.g. Pepsi and Coke

Reasons for Globalisation of markets
1. Large-scale industrialisation enabled mass production. The companies found domestic market is very small. Thus opted for global markets.
2. To diversify risk
3. To increase profits
4. Adverse business environment in the home country
5. The failure of domestic companies
2. Globalisation of Production
The facilities for production may be cheap in the host country than home country. (E.g. China is the international workshop due to cheap labour)

Reasons for Globalisation of Production
1. Import restrictions
2. Availability of quality raw material
3. Cheap labour
4. Liberal labour laws
5. Facility of transportation and cost
6. Facility of exporting the neighbouring countries
3. Globalisation of Investments
Globalisation of investments refers to investment of capital in any part of the world. It also known as ‘Foreign Direct Investment (FDI)’. FDI occurs when a firm directly in new facilities to produce or market in a foreign country.
34 countries have 85 changes in 1991 regarding investment. Government of India is allowing 51% of FDI in India.

Reasons for Globalisation of Investment
1. Rapid increase in volume of trade
2. Many countries provided more congenial environment for investment
3. Significant amount of FDI is directed to the developing countries in Asia and Easter Europe
4. Small and medium size companies have started investing in various countries
5. Limitations of exporting and licensing for the domestic companies to invest in foreign countries
6. In order to have control over MNC in marketing and manufacturing they invest
7. In order to avoid restrictions on exports

Modes of Globalisation of Investment
1. Acquisition
2. Joint venture
3. Long term loans
4. Issuing equity shares and debentures
5. GDRs
4. Globalisation of Technology
Companies with the latest technology produce goods with high quality at low cost.

Globalisation of technology can be done in the following ways:
1. Technological collaboration
2. Licensing and royalty
3. Joint ventures and mergers

Stages of Internationalisation
1. Domestic company : The company whose market and manufacturing activities are limited to the national boundary
2. International company : The company will open a branch in foreign country. It will follow the strategies of domestic company.
3. Multinational company : Multi domestic companies responding to the specific needs of different countries
4. Global company: These companies will do production in home country and marketing in more countries or production in several countries and marketing in one country.
5. Transnational company : These companies will do production in several countries and marketing in more countries. What is driving globalisation? : Market drivers; Cost drivers, Government drivers, Competitive drivers and other drivers

Market drivers
Per capita income converging among industrialised nations
Convergence of lifestyles and tastes
Organisations beginning to behave as global customers
Increasing travel creating global consumers
Growth of global and regional channels
Establishment of world brands
Push to develop global advertising

Cost drivers
Continuing push for economies of scale
Accelerating technological innovation
Advances in transportation
Emergence of newly industrialised countries with productive capability and low labour costs.
Increasing cost of product development relative to market life

Government drivers
Reduction of tariff barriers
Reduction of non-tariff barriers
Creation of blocs
Decline in role of governments as producers and customers
Privatisation in previously state-dominated economies
Shift to open market economies from closed communist systems in eastern Europe
Increasing participation of China and India in the global economy

Competitive drivers
Continuing increases in the level of world trade
Increased ownership of corporations by foreign acquirors
Rise of new competitors intent upon becoming global competitors
Growth of global networks making countries interdependent in particular industries
More companies becoming globally centred rather than nationally centred
Increased formation of global strategic alliances

Other drivers
Revolution in information and communication Globalisation of financial markets
Improvements in business travel