GS 120 – iGlobalization Professor: Dr. Jean-Paul Rodrigue a University, Department of Global Studies & Geography Topic 2 – Global Markets, Global Products, Global Firms A – Production and Consumption in a Globalized World B – The Multinational Enterprise C – Outsourcing and Offshoring
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GS 120 – iGlobalization Professor: Dr. Jean-Paul Rodrigue Hofstra University, Department of Global Studies & Geography Topic 2 – Global Markets, Global.
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GS 120 – iGlobalization
Professor: Dr. Jean-Paul Rodrigue
Hofstra University, Department of Global Studies & Geography
Topic 2 – Global Markets, Global Products, Global Firms
A – Production and Consumption in a Globalized WorldB – The Multinational EnterpriseC – Outsourcing and Offshoring
Post-Industrial Revolution
Economic foundation Relative shift from manufacturing to services.In absolute numbers, manufacturing increases.
Capital Knowledge becomes a form of capital.
Growth High reliance on innovation.
Labor Declining importance of “blue collar” tasks. Increasing importance of technical and creative tasks.
Trade Highly diversified trade (from resources to high value goods).
Information technologies Global telecommunication networks. IT embedded in products and services.
Production and Consumption in a Globalized World
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.
World's Urban Population and Human Development Index, 2010
Advertising and Psychology
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 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.
The World’s Most Valuable Brands, 2011 (in millions)
Consumption of Coca-Cola Beverages per Capita (Liters)
IndiaIndonesia
NigeriaChinaRussia
ThailandWorld
PolandFrance
PhilippinesItaly
JapanGermany
CanadaSouth Africa
SpainArgentina
AustraliaUnited States
ChileMexico
0 20 40 60 80 100 120 140 160
1.663.08
6.396.62
16.3219.1620.11
25.5530.7630.76
33.3641.6442.35
56.0759.62
71.6973.82
76.6597.47
101.02150.23
200819981988
The Multinational Enterprise
The Corporation as a Decision, Management and Planning Unit
Management Unit Decision Unit Planning Unit
Nature Maintain operational conditions.
Decisions about the allocation of resources.
Anticipate market changes and opportunities. Allocate its factors of production.
Scope Production (generator), sales (attractor), marketing, payroll, distribution.
Financial, labor, raw materials, etc.
Economic, technological, social and political change.
Time frame
Short term (production cycles).
Short to long term (product cycles).
Medium to long term (business cycles).
Conflicting Elements of a Corporation
• Highest dividend possible.
• Share value growth.
• Highest compensation.
• Various benefits.
• Lowest price.• Highest quality.
• Tax collection.• Regulations
(wages, benefits, environment, etc.)
Shareholders Employees
CustomersSociety (State)
Dow Jones Industrial Index, 1950-2012
Jan-5
0
Nov-51
Sep-53
Jul-5
5
May-57
Mar-59Ja
n-61
Nov-62
Sep-64
Jul-6
6
May-68
Mar-70Ja
n-72
Nov-73
Sep-75
Jul-7
7
May-79
Mar-81Ja
n-83
Nov-84
Sep-86
Jul-8
8
May-90
Mar-92Ja
n-94
Nov-95
Sep-97
Jul-9
9
May-01
Mar-03Ja
n-05
Nov-06
Sep-08
Jul-1
0
May-12
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Cost and Production of Ford Vehicles, 1908-1924
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
0.00
250,000.00
500,000.00
750,000.00
1,000,000.00
1,250,000.00
1,500,000.00
1,750,000.00
2,000,000.00
2,250,000.00
Cost
Production
Treasury Department Gross Tax Collection, 1987-2010
1987 1990 1995 2000 2005 20100%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Employment Taxes
Corporation Income Taxes
Individual Income Taxes
Fordist and Post-Fordist Corporate Structure
Characteristics Fordism Post-FordismOrganization Pyramidal NetworkedFocus Supply DemandStyle Structured FlexibleReach Regional / National GlobalResources Physical Assets Information / KnowledgeProduction Mode Mass Production Mass Customization
Production Structure Self-Sufficiency AlliancesInventories Months HoursProduction Cycle Time Weeks / Months DaysInformation Weekly Real-TimeProduct Life Cycle Years MonthsQuality Affordable Best Zero-Defect
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.
Inputs OutputsMNC
Types of Multinational Corporations
Raw Materials Seekers
Market Seekers Minimal Cost Seekers
Lower input costs Economies of scale Comparative advantages
Resource acquisition Expand market Lower production and distribution costs
First MNCs to emerge Large investors Remain competitive
"(A corporation has) neither body to jail nor soul to damn." - Lord Edward Thurlow (1731-1806)
The Impact of Multinationals on International Trade
NationState
NationState
Within Corporations (33%)
Between Corporations (66%)
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 Growth of Large Multinationals
New
marke
t op
portunity
•Resource, technology, product•Technology and Innovation
Economies of scale. Product differentiation. Business model replication. Oligopoly.
Reduce costs. Focus on core competencies.
Issues Higher cost structure of suppliers. More difficult to adapt to changes.
Different business cultures, Anti-monopolistic responses
Dependency. Loss of competency.
Coal Extraction
Iron Ore
Steel Making
Metallic Products
Mechanical Products
Corporation A Corporation B Corporation C
Corporation
Activity
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.
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.
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).
Differences Between Outsourcing and Subcontracting
Outsourcing
Long term relationship
Profit / loss sharing
Process improvement
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