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Chapter 2: Globalization of Markets and the Internalization of the Firm -…
Chapter 2: Globalization of Markets and the Internalization of the Firm
Technological Advances and Globalization(5);
1. Information Technology;
IT is the process of creating and using info resources,
IT creates a competitive advantage;
Subsidiaries of multinational firms can be interconnected by intranets(which allows sharing of data, info and updates on operations)
Smaller firms can design and produce customized products for cross national niches.
Online search engines provide easy access to unlimited data for researching markets, competitors and other key info
Supports decision making by allowing firms to access key info and intel quickly.
allows firms to interact with foreign partners and value-chain members in a more timely and cost-effective way
2. Digitalization,
Enabling or transforming business functions, ops and activities by leveraging digital tech and data.
Digital networks provide a global platform where people and orgs interact, collab, gather info and develop strats
E-commerce, includes a vast range of platform and apps that allow for international buying and selling of goods and services online.
e.g. Uber and Airbnb, use tailored software to allow for creation of value and services between user assets and owners, globally.
It transforms interactions amongst customers, employees, biz partners and investors by connecting location, services and data.
Data analysis helps find break throughs of biz insights and develop products, services and experiences tailored to specific customer needs.
e.g. automakers gathering data to improve quality and driving experience.
Using VR and AI it helps create innovating products and services for allowing for a competitive advantage.
Consequences;
Marginal cost of info worldwide is now close to zero
reduces the importance's of global boundaries and cost of international interaction and transactions
Competition is more sophisticated and global
i.e. Alibaba and Amazon are connecting to global suppliers forcing competitive pressures on traditional retailers
3. Communications
address the internet and systems dependant on it for example, intranets, extranets, social media and email.
Marketers use the internet to promote the widest range of products and services to customers worldwide
Internet opens the global marketplace to SMEs and other firms that would normally lack the resources.
Services are easier to export than car parts and fridges
reliable telephone systems support economic development, using the most transformative tool cellphones.
Internet of things, machine to machine connectivity online.
Social media has created millions of jobs whilst increasing the flow of info and depth of impact of globalization. many orgs communicate to everyone to direct sales, ads and public relations.
4. Manufacturing;
The Computer-Aided Design, of products and robots and production line have transformed manufacturing, by reducing production cost.
Revolutionary developments, allow for low-scale and low cost manufacturing, making products cost-effective even in short product runs,
Online platforms, increase the productivity of business and the industrial industry,
allows for faster adaption to foreign markets, and a reasonable target market, to compete more effectively with foreign competitors.
5. Transportation;
Firms look at Cost of transporting raw materials and finished products, when deciding to export of manufacture abroad. If transport cost are high in important markets, then they will manufacture in that market.
International shipping has grown drastically over the years
Transportation poses a threat to natural environments, in terms of the usage of energy and resources
Firm-level consequences of Market Globalization
The most direct consequence of Market globalization is on the firm's Value Chain(VC)
In typical vc's, the firm conducts and R&D , purchases product input, and assembles or manufactures a product or services.
VC concept is useful in international business because it clarifies WHAT activities are performed WHERE.
Exporting firms do upstream vc (R&D) activities in home country, and downstream abroad/
Each VC activity in the firms VC is subject to internationalization, which can be performed abroad.
Reasons for locating VCs in certain countries:
Reduce the costs of R&D and production or gain closer access to customers.
through offshoring the firm relocates a major VC activity to establishing a factory or other subsidiary abroad.
global outsourcing, the firm delegates performance of value-adding activity to external suppliers or contractors abroad
R&D
i.e. Pfizer does R&D in Japan, to recruit latest talent and/or collab with local partners
Procurement(Sourcing);
Steelcase(office manufacturer), sources low cost parts from China and Mexico
Manufacturing;
Renault produces cars via low-cost factories in easter Europe
Marketing,
BMW and Honda locate marketing subsidiaries in the US to effectively target their vehicles to huge U.S market
Distribution;
Wolverine World Wide marketer of Hush Puppies, contracts with indie retailers stores abroad to reach its customers
Sales & Services,
directs sales companies such as Avon employ their own indie sales forcing China and else where, in order to reach end-users.
The driving forces, dimensions and consequences of Market globalization;
Driving forces of market globalization,
worldwide reduction of barriers to trade and investment.
national governments opt to reduce trade and investment barriers has accelerated the global economic integration.
falling trade barriers is facilitated by WTO
reduction of trade barriers, is less especially for industrial, medical and countless products.
Market liberalization and adoption of free trade;
Europe have become some of the most cost effective locations for producing goods and services worldwide
Privatization of previously state-owned industries in these countries has encouraged economic efficiency and attracted massive foreign capital to their nation
Industrialization, economic development and modernization,
emerging countries in Asia, Latin America, eastern Europe, have moved from being low value adding commodities producers to sophisticated, competitive producers and exports of premium goods think computers
These areas are also characterized by lower level globalization. A critical driver of rising income levels is the nation's volume of international trade
Integration of world financial markets;
Financial market integration makes it possible for internationally active firms to raise capital, borrow funds, and engage in foreign currency transactions.
Financial firm services follow their customer to foreign markets
Cross-boarder transactions are made easier because of the ease with which can be transferred between buyers and sellers.
Advances in tech
a remarkable faciliator of cross-boarder trade and investment. a megatrend that requires greater elaboration.
Dimensions;
Integration and interdependence of national economies
Rise of regional economic integration blocs
Growth of global investment and financial flows
Convergence of consumer lifestyles and preferences
Globalization of production
Globalization of services
1. Integration and interdependence of national economies;
internationally active firms develop multi-country operations through trade, investment and integration and coordination of VC activities.
the collective activities of such firms give rise to economic integration, that is, increased trade and other commercial activities among the nations of the world.
Rise of regional economic integration blocs