Topic 2 – Global Markets, Global Products, Global Firms

GS 120 – iGlobalizationProfessor: Dr. Jean-Paul Rodrigue

Hofstra University, Department of Global Studies & Geography

Topic 2 – Global Markets, Global Products, Global Firms

A – Mass Consumption in a Globalized WorldB – The Multinational EnterpriseC – Global Manufacturing

A – Mass Consumption in a Globalized World

What consumerism implies in a global economy?

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The Three Pillars of Consumerism

Needs and wants• Always existed (mostly essential needs).• Part of social ideals; persona’s definition.• From the essential (food) to the frivolous (luxury goods).

Marketing• Mass consumption requires mass production.• Shopping mall (facility designed to incite consumption).• Advertising (create wants and needs).• Fashion (planned obsolescence).

Buying power• Relative price reduction of consumption goods; “mass luxury”.• Higher wages.• Access to credit (buy now, pay later).

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Consumerism

■ Global Consumer Culture• The setting of global common preferences:

• Food.• Fashion.• Media (movies, music).• Electronics.• Automotive.

• Many global goods originated from the western world:• Many key technologies (e.g. the automobile, the personal computer).• The United States has been a powerful influence on various other

cultures.• Multinational corporations have become key agents.

Global Gross Domestic Product and Human Development Index, 2010

What is the HDI and how it reflects market potential?

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Share of Consumption by Sector and Income, Developing Countries, 2010

Higher Middle Low Lowest0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

OthersFinancial ServicesICTPersonal CareHealthEducationUtilitiesTransportEnergyHousingClothing and FootwearFood and Beverages

Advertising and Psychology

Which basic human emotions these ads relate to?

Global Consumption: Product versus Brand

Product

• A good or service that has tangible attributes.

• Global products:• Uniform features in all

countries.• 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.

Brand

• A specific product built on a relationship with the consumer.

• Added value that accrues to a product.

• 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, 2014 (in millions)

AppleGoogle

Coca ColaIBM

MicrosoftGE

SamsungToyota

McDonnald'sMercedes-Benz

BMWintel

DisneyCisco

AmazonOracle

HPGillette

Louis VuitonHonda

$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000

Products and Brands: Main Elements of Corporate Portfolios

Using a portfolio as an example, explain the difference between products and brands.

Global Product Strategies

DiffusionOffering product almost unchanged in markets outside home country. Often found in the food and luxury industries.

AdaptationChanging elements of design, function, and packaging according to needs of different countries. Regulatory and cultural differences.

CreationDeveloping new products for the world market. Often found in the tech industry.

National Food Preferences Adaptation: The Case of Campbell

Region Dominant Campbell SoupUnited States Chicken Noodle & Cream of Mushroom

South America Cream of Asparagus

UK Tomato

Japan Corn

Australia Cream of Pumpkin

Adaptation: Number of McDonald’s per Country, 2013

35,000 McDonalds restaurants worldwide (2013), employing 1.5 million people.

14,267 3,164

1,427

The Illusion of Diversity, Ownership of the Soft Drink Industry, United States

Coca ColaHonest Tea

DesaniPowerade

NesteaGlaceau

FuzeFanta

Minute MaidSpriteFresca

Mr. Pibb

PepsiAquafina

Mountain DewSierra MistGatorade

LiptonOceansprayTropicana

DoleSobe

Life Water

SnappleA&W

Big RedNantucket Nectars

Seven UpCrush

Dr PepperAccelerade

Hawaiian PunchWelch’s

Canada DrySunkist

SchweppesOrangina

42.8% 31.1% 15%

Consumption of Coca-Cola Beverages per Capita (Liters)

IndiaIndonesia

NigeriaChina

RussiaThailand

WorldPolandFrance

PhilippinesItaly

JapanGermany

CanadaSouth Africa

SpainArgentinaAustralia

United StatesChile

Mexico

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

2008 1998 1988

Short Assignment: Global Product Strategies

Find examples of global products that have emerged through diffusion, adaptation and creation.

B - The Multinational Enterprise

What are multinationals? What is their role and importance?

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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, sales, 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).

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Conflicting Elements of a Corporation: Reconciling the Needs of Shareholders, Employees, the Society and Customers

• Lowest price.• Highest quality.

• Tax collection.• Regulations (wages,

benefits, environment, etc.)

• Highest compensation.

• Various benefits.

• Highest dividend possible.

• Share value growth.

Shareholders Employees

CustomersSociety (State)

What are the main conflicting elements a corporation is reconciling?

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

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Treasury Department Gross Tax Collection, 1960-2015

1960

1968

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

0

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

3,000,000,000

3,500,000,000

Business income taxes Individual income tax Employment Taxes

Fordist and Post-Fordist Corporate Structure

Characteristics Fordism Post-FordismProduction Mode Mass Production Mass CustomizationOrganization Structured (Pyramidal) Networked (Flexible)Focus Supply DemandMarket Reach Regional / National GlobalExpansion Vertical or horizontal

integrationOutsourcing and offshoring

Core Resources Physical Assets Innovation/ KnowledgeValue Chains Discontinuous Integrated (continuous)Inventories Months HoursProduction Cycle Time Weeks / Months DaysProduct Life Cycle Years Months

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Corporations in the Global Economy

■ Multinational corporation (MNC)• Provides goods and/or services.• 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

What Multinational Corporations are Trying to Achieve to Compete?

Lower production costs• One of the main goals of a corporation. Exploitation of comparative

advantages.

Stability of prices and deliveries• The rationale of low costs must also take account of price changes of raw

materials and parts. Risky 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.

Production and distribution flexibility• Facing changes in the demand confers a notable advantage.

Types of Multinational Corporations by Strategy

Raw Materials Seekers• Lower input costs• Resource acquisition• First MNCs to emerge

Market Seekers• Achieve economies of scale• Expand market• Large investors

Minimal Cost Seekers• Look for comparative advantages• Lower production and distribution costs• Remain competitive

Globally Integrated and Multidomestic Corporation

Globally Integrated Corporation

Production system located in several

countries.Complex products or

resources.Interdependency in

productivity.Importance of logistics.

Multidomestic CorporationIndependent operations.

Simple products.Production can be

integrated globally, while the marketing is

multidomestic.Better answer the

needs of every market.Independency in

productivity.

What is the difference between a globally integrated and multidomestic corporation?

Inte

rnat

iona

l Tr

ade

Foreign Direct Investment

LOW

LOW

HIGH

HIGH

Types of Internationalization

Trading Industries

AerospaceMilitary hardwareDiamond miningAgriculture

Global Industries

AutomotivePetroleumSemiconductorsConsumer electronics

Domestic Industries Multidomestic Industries

RailwaysHospitalsPersonal care

Retail bankingHotelsConsulting

The Impacts of Multinationals

PositiveFavor economic growth

(employment)Provision of investment capital

Provision of goods and servicesTransfer of technology and skills

Increase export opportunities

NegativeBalance of payments (repatriation of

profits)High influence over governments

Bankrupt local businessesOligopoly / monopoly on local

marketLeverage (can relocate / threaten to)

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

The Growth of Large Multinationals: Three Main Options

New

mar

ket o

ppor

tunit

y • Resource, technology, product

• Technology and InnovationBe

tter m

anag

emen

t • Less innovative sectors

• Mostly financial (holdings)

• Outsourcing

Stat

e su

ppor

t • Regulatory support or coercion

• Large government contracts (e.g. defense corporations)

• Corporate socialism

The World’s 20 Largest Corporations by Revenue, 2017 ($US millions)

Walmart

State Grid

Sinopec Group

China National Petroleum

Toyota Motor

Volkswagen

Royal Dutch Shell

Berkshire Hathaway

Apple

Exxon Mobil

McKesson

BP

UnitedHealth Group

CVS Health

Samsung Electronics

Glencore

Daimler

General Motors

AT&T

EXOR Group

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

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How can the size of a corporation be measured?

C – Global Manufacturing

What is the difference between outsourcing and offshoring? Why and how it is used?

The Four Industrial RevolutionsRead this content

1.0

2.0

3.0

4.0

Mechanization

Mass Production

Automation

Robotization

Industrial cities

Industrial regions

Global production networks

Global value chains

Late 19th - mid 20th Century

Late 18th – early 19th Century

Second half of 20th Century

Early 21st Century

Substitution

Economies of scale

Input costs

Added value

Production Structure Driver

Steam engine and mechanical production

Electricity and division of labor

Electronics and information technologies

Cyber-physical systems

GDP Share of Manufacturing, Selected Countries, 1970-2012

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Brazil China India JapanGermany United States World

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Typical Cost Structure of a Shirt

The Corporation and its Expansion

Vertical Integration Horizontal Integration Outsourcing

Nature Expand backward (suppliers) or forward (customers) along the supply chain.

Acquiring or merging with competitors.

Some activities performed by another corporation.

Goal Lower costs. Enhance and protect product quality. Improve supply chain efficiency.

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

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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”; find lower cost labor.• 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).

Offshoring, Nearshoring and Farshoring

Offshoring

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.

Explain the differences between outsourcing and offshoring and the different types of offshoring

Disconnection of Global Production and Distribution

R&D Distribution

Marketing/Retail

Core Base

Manufacturing BaseRead this content

Global Sourcing: European Assembly of a Ford Escort

Global Sourcing: The Boeing 787 Dreamliner

Source: www.newairplane.com

Escape slides: Air Cruisers (USA)

Horizontal Stabiliser:Alenia Aeronautica (Italy)

Centre fuselage: Alenia Aeronautica (Italy)

Final assembly: BoeingCommercial Airplanes (USA)

Vertical Stabiliser: BoeingCommercial Airplanes (USA)

Landing gear: Messier-Dowti (France)Electric brakes: Messier-Bugatti (France)Tires: Bridgestone Tires (Japan)

Doors & windows:Zodiac Aerospace (USA)PPG Aerospace (USA)

Tools/Software: Dassault Systemes (France)Navigation: Honeywell (USA)Pilot control system: Rockwell Colins (USA)Wiring: Safran (France)

Centre wing box:Fuji Heavy Industries (Japan)

Engines: GE Engines (USA),Rolls Royce (UK)

Wing box: Mitsubishi Heavy Industries (Japan)Wing ice protection: GKN Aerospace (UK)

Engine nacelles: Goodrich (USA)Aux. power unit: HamiltonSundstrand (USA)

Flight deck seats:Ipeco (UK)

Lavatories:Jamco (Japan)

Cargo doors: Saab (Sweden)

Forward fuselage:Kawasaki Heavy Industries (Japan)Spirit Aerosystems (USA)

Raked wing tips: Korean AirlinesAerospace division (Korea)

Flight deck controls:Esterline (USA),Moog (USA)

Passenger doors:Latécoère Aéroservices (France)

Prepreg composites:Toray (Japan)

Rear fuselage:Boeing South Carolina (USA)

Value Creation and Capture, iPhone 4 (in USD)

Retail

($600)

Korea

Germany

France

Japan

Other

USA China

Factory Gate Price($194.04)

Inputs ($24.63)Distribution($90.00)

Inputs ($80.05)

Inputs ($16.08)

Inputs ($3.25)

Inputs ($0.70)

Inputs ($62.79)

VA ($6.54)Misc.

($45.95)

Apple($269.05)

($329.95)

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Main Reasons Provided by Manufacturers for Reshoring

Delivery Time Improvement

Total Cost of Ownership

Quality Improvement

Freight Cost Improvement

Wage Cost Improvement

Customer Responsiveness Improvement

Image / brand

Higher Productivity

Innovation Improvement

Inventory Improvement

0 5 10 15 20 25 30 35 40

Cost to Manufacture a Cotton Vest, Asia and United States, 2013

Asia

United States

0 5 10 15 20 25 30 35 40

18.4

17.4

2.3

3.2

5.5

17

3.5 1.7

0.5

Fabric Trim and Hardware LaborDuties Shipping

Short Assignment: Outsourcing and Offshoring in the Toy Industry

Voice Recognition Requirements:(San Francisco)Voice Recognition Programming:(Taiwan)

Plastic Eyes:(Shenzhen, China)

Plastic Body: (Malaysia)

Motors for legs:(Shaoguan, China)

Microfiber for Coat: (Korea)

Plastic legs: (Taiwan)

Speaker for voice:(Dongguan, China)

Transistors:(Shenzhen, China)

IC chips: (Taiwan)

Wiring: (Dongguan, China)

Packaging: (Hong Kong)Topper the Trick Terrier