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Copyright © 2002 by Harcourt, Inc. All rights reserved.

Topic 8 :

Globalization and Business

Lecturer: Zhu Wenzhong

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• Key learning goals:This topic will discuss the influence of globalization over business today and the definition of multi-nationalcorporations.

1. State the definition of globalization2. State the three important aspects of globalization

3. Explain the main factors which have contributed to thegrowth of globalization

4. Explain how globalization might affect the location of a business

5. State the influences of multinational companies in the hostcountry

LEARNING GOALS

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Definition: • Globalization is the growing integration of the world’s

economy. It is suggested that economic decision takenin one part of the world will affect other parts of the

worlds so businesses need to base their businessdecision-making on what is happening in the worldmarket rather than the national market.

• There are three important features or aspects of globalization, which can be seen as follows:

1. The increasing importance o f international trade2. More and more multinational companies3. More and more businesses thinking globally about

their strategy.


-What Is Globalization?

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-Factors affecting globalizationThere are many factors which have contributed to

the growth of globalization, such as:

• technological change,• the reduction of transportation costs,

• the deregulation of business,

• the consumer taste changes,

• and the growth of new market and competition…

Detailed explanation is seen in the following table:

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Table 8-1 Factors which have contributed to globalizationFactors contributing

to globalization Explain how

Technological change

More powerful computers and internet have allowed the easy

transfer of data, which plays an important role in speeding up the

globalization.The reduction of

transportation costs

Air transportation and telephone costs have improved the

developing environment for globalization.

Consumer taste

change

More and more consumers today are willing to buy foreign or new

products for fashion or new styles.

The growth of new

markets

New markets have been opened up in countries like former EasternEuropean countries and China. The growth of new markets has

increased the trend of globalization.

Competition

More and more fierce competition has forced businesses to seek

opportunities in the world markets. To compete successfully,

businesses today must develop a global strategy.


-Factors affecting globalization

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-The effects of globalization on businesses

• Globalization may have a great deal of influenceon many businesses throughout the world. Theimpact may be stronger on some businesses,especially large businesses, but weaker on others.

• There are a number of effects of globalization on businesses. Some provide opportunities whileothers may provide threats to businesses.

• Some major effects of globalization on businessesare seen in the following table:

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Table 8-2 Effects of globalization on businesses

Effects of globalization on businesses Please try to explain how

•Increasing competition

More and more foreign businesses have entered

local markets so the competition has been

intensified.

•Meeting consumer needs in more

effective ways

Consumers have choices for products and services.

They can buy the best products for the best prices.

•Being able to enjoy economies of

scale

Businesses can enjoy as large scale of production

in the whole world. Their production costs can thus

be reduced.

•Affecting the choice of location

Businesses can choose the most favorable place for

production or business operation. The production

of Motorola company in China can reduce the

production costs of labor and eliminate the tariff

restrictions of exports.

•Increasing mergers or joint-

development opportunities in the

world market

Businesses have more partners worldwide. They

can join together to produce goods and services or

to penetrate foreign markets.


-The effects of globalization on businesses

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-Multinational companies and their influences What is a multinational company?• A multinational company is an organization which owns

or controls production or services facilities outside the

country in which it is based. This means that they do not just export their products abroad, but actually produce their products in other countries.

• It is commonly understood that a company is called amultinational company provided it operates in more than

four countries.• Examples of multinational companies are many such as:HSBC, Toyota, Honda and so on. China’s HEIR is

becoming a multinational one.

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-Multinational companies and their influences Some reasons why a company may become a

multinational firm:

1. To avoid protectionist policies on trade, producing in

another country can prevent the tariff or quotarestrictions on foreign trade.

2. To realize globalization of the market and enjoy largescale economy.

3. To realize the diversification of markets and spreadrisks of operation

4. To take advantages of information technology andhigh speed travel …

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-Multinational companies and their influences • Influences of multinational companies on a

host country:

There are some benefits and at the same timesome problems for multinational businessesoperating a particular country. Please see thefollowing table:

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-Influences of multinational companies on a host country: Benefits for a local country:• Creating new jobs

opportunities• Improving living standards

for people• Creating competition for domestic businesses andcausing them to improveefficiency

• Bringing new technology

• Bringing new managementideas and styles

• Improving the balance of international payments if exporting.

Problems for a local country:• Resulting in some local firms

to close plants or cut downemployees

• Affecting the balance of payments if the multinationalcompany imports hugeamount of components fromother countries

• Causing difficulties in

government control becauseof the strong power of the business

• Causing environmental problems to the local country

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-Multinational companies and their influences • Question for debate:

You are given 10 minutes to prepare a debate:

Divide the class into two opponent parties andmake a short debate on whether and why youagree or disagree on globalization.

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