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Globalisation Flashcards

1
Q

what is Globalisation

A

the process of which the world is becoming increasingly interconnected as a result of massively increasing trade and cultural exchange

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2
Q

main reason for globalisation

A
  • removal of global trade barriers - tariffs and quotas
  • advances in technology
  • growth in global trade/travel - reduction in costs
  • emerging markets
  • transport development
  • growth in the global media, increasing demand
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3
Q

Benefits of globalisation

A
  • exploitation of local resources
  • transfer pricing benefits
  • increased demand for western products in newly industrialised countries
  • greater control of production from start to finish
  • avoids monopoly legislation
  • low cost transportation: products can be shipped world wide
  • large organisations may be able to influence government policy
  • can serve a gap in the market/larger markets
  • new management techniques
  • access to cheaper raw materials
  • closer to source or raw materials
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4
Q

costs of globalisation

A
  • larger organisations may find it difficult to adapt to changing local markets
  • current trend for locally produced goods
  • cultural differences
  • negative impacts on smaller, local businesses
  • risk for employees working in politically unstable countries
  • increased travel for senior management
  • increased consumer awareness of tax avoidance tactics
  • standardised products may not sell
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5
Q

positive globalisation impacts on MNC’s

A
  • larger market to sell
  • access to cheaper raw materials, can be closer to raw materials reducing transportation costs
  • access to cheaper labour
  • transfer pricing reduces tax
  • new management techniques can be discovered and filtered down
  • can learn new production techniques
  • can serve a gap in the market e.g starbucks targeting britain
  • can help aid expansion where monopoly legislation in home country prevents it. Large organisation may be able to influence government policy
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6
Q

negative globalisation impacts on MNC’s

A
  • cultural differences
  • centralised organisations may find it hard to react to changes in local markets
  • standardised products may not be feasible
  • increased travel for senior managers: time away from organisation
  • increased competition from new MNC’s entering the market
  • employees may be working in a politically unstable country
  • consumers are becoming aware of tax avoidance tactics e.g starbucks
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7
Q

what is Transfer Pricing

A

refers to the price charger before one international subsidiary of an MNC and another for the goods supplied between them. This is an internal transfer of goods or services and therefore the price charged between them is set by the company and is not influenced by market forces

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8
Q

transfer pricing

A
  • as MNC’s operate in many different countries the goods and services produced by them are regularly transferred between the parent company and its foreign operations. Once transferred, these goods may undergo further processes before they can be sold to the consumer as a final good or service
  • additionally it is common for international subsidiaries of MNC’s to specialise in different stages of production to benefit from economies of scale. Therefore goods or partly finished goods from a branch in one country are transferred to a branch in another country for assembly
  • transfer pricing is used to achieve company goals whilst minimising their tax liability. Most of the company’s tax will be declared in the country with low tax, shifting profits to reduce the overall taxes paid. The MNC will set high transfer price when transferring goods to subsidiaries in high tax countries and a low transfer price when transferring goods to subsidiaries in low tax countries
  • this lowers the profit margins in the high tax country so less tax is paid in that country but increases the profit margin in the low tax country. Can cause conflict between subsidiaries due to one appearing more successful
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9
Q

basic rule of transfer pricing

A

theory:
- tax is paid on profit
- the lower the profit declared, the lower the tax liability
therefore:
- transfer in at a low price and sell at a high price in a low tax country
- transfer in at a high price and sell at a low price in a high tax country

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10
Q

what is a multinational company

A

an MNC is a company which has its head quarters in one country (home country) and branches manufacturing or assembly plants in others (host country)

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11
Q

what is a transnational company

A

a company that operates internationally but don’t have a clear home base

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12
Q

Reasons for the growth of multinationals

A
  • to dominate world markets
  • to take advantage of cheaper labour and materials in lesser developed counties
  • to avoid monopoly legislation within the home country which may prevent the company from expanding its core activities at home
  • to be in full control of operations (vertical integration) e.g shell from extraction to retail
  • to take advantage of different growth rates in different countries
  • deliberate attempt to spread risk
  • world markets are being created by global communication networks (internet)
  • easier to facilitate business through ease of travel and communication
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13
Q

what is the growth of MNC’s facilitated by

A
  • low cost transportation/low cost jet travel
  • the reduction of barriers to the free flow of goods, services and capital (GATT) (WTO)
  • low cost global communication networks
  • global media has made a worldwide culture for a variety of goods
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14
Q

positive impact on home countries

A
  • increase job opportunities abroad for uk citizens
  • expertise gained by the MNC may be passed on to other uk businesses when employees switch employment, or to their suppliers and uk commercial customers
  • repatriation of profits to uk: increase tax revenue; improvements in uk balance of payments
  • increases jobs in scotland HQ if company expands: tends to be more managerial position/high income jobs; encouraging uk people to peruse education
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15
Q

negative impact on home countries

A
  • reduction in manufacturing or service jobs which may transfer to cheaper countries e.g call centre jobs
  • job losses from transfer of jobs can have many effects: lower spending power, lower sales for domestic businesses; reduction in tax revenue; increase in benefit payments
  • need for increased training/skills development to redeploy works: require government intervention e.g more college courses
  • investments being made abroad instead of UK; negative impact on balance of payments
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16
Q

positive impact on host countries

A
  • increased employment and training opportunities for local people. MNC will transfer skills and expertise which can develop local labour forces
  • higher standard of living; increased spending in local businesses
  • higher tax revenue for government
  • lower spending on benefits
  • increased in range of goods/services available to locals, expanding consumer choice
  • increase host country GDP throughout spending e.g on local supplies
17
Q

negative impact on host countries

A
  • job creating tends to be low skilled/ low paid as managerial roles tend to come from home country
  • competition can force smaller, local businesses out of business resulting in job losses etc.
  • MNC may have little loyalty to host country and may pull out once incentives end
  • increased government spending: incentive to attract foreign businesses to set up and create jobs; limits spending in other areas e.g public services
  • MNC may not act ethically in the host country
  • may reduce cultural diversity e.g diversification
  • MNC may repatriate profits back into home country
18
Q

methods of growth

A

FDI - foreign direct investment occurs when overseas companies set-up or purchase operations in another country. FDI encourages new projects, expansions of existing projects, or managers and acquisitions activity

19
Q

ways to achieve FDI

A
  1. invest directly in new production facilities abroad
  2. buy an existing enterprise abroad
20
Q

Disadvantages of FDI

A
  • buying a company can be a disadvantage if it had struggled to maintain custom and reputation, as it may take time to build confidence and is costly to rebrand and update signage and equipment
  • investing directly in a country for a new operation can be time-consuming and expensive
  • MNC’s often choose to set up in countries with less stringent safety laws, but this could lead to negative press damage
21
Q

advantages of buying an existing enterprise

A
  • can use expertise, skills contacts and knowledge of existing local staff who are already in place
  • may be able to acquire loss making business cheaply
  • may benefit from already established reputation of the acquisition
  • customer base is already established
  • can begin operations immediately
  • quick way to gain a foothold in the existing market as a basis for future expansion
  • gives a relatively quick market presence in the markets
22
Q

disadvantages of buying an existing business

A
  • it may take the multinational a longer time and cost them more than they would really like to pay in order to obtain a business that has all of the facilities they require
  • if the business being to acquired by the MNC was making a loss then it may take some time to regain this and start making a profit, time required to build consumer confidence
  • costly to rebrand and update signage and equipment, need to address marketing campaigns and suppliers to ensure these meet the needs of the company
  • conflict of existing employee culture maybe present
23
Q

advantages of building a new facility

A
  • by manufacturing it’s own equipment and building it’s own factories a business can ensure all operations work to the highest quality; the needs of the customers are met quickly as a result
  • the business can strengthen the existing corporate culture as they have employed all staff
  • the business can choose the most suitable locations for expansion e.g near market
  • ensures uniform facilities throughout
24
Q

disadvantages of building a new facility

A
  • it may take a long time to find the perfect location, during which the countries laws could change, customers perceptions may change and competitors could move into the area
  • time consuming as new staff must be recruited and trained and sites must be sourced and premises built/modified, this is expensive/time consuming
  • the MNC may have to build infrastructure for the suppliers/employees and customers to reach the business
25
Q

what is joint venture

A

two or more businesses undertake a project together

26
Q

advantages of joint venture

A
  • business can compliment their skills sets
  • learn fro each other
  • costs are shared (economies of scale)
  • more customers
  • more profits
  • geographical presence
27
Q

disadvantages of joint venture

A
  • specialist knowledge may be lost after venture
  • compromise can be difficult
  • profits are shared
28
Q

main reasons for forming a joint venture

A
  • access to new customers
  • build on company’s strengths
  • spreading costs and rules
  • creation of stronger competitive units
  • access to new technologies
  • improving access to financial resources
  • preempting competition
  • speed to market
  • improved responsiveness to consumers needs
  • defensive response to market condition
  • gain advantages of economies of scale
  • specialist knowledge shared

ah business (4 decks)

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