Global business



Global business

A global business is one that sells a standardised product worldwide. The business views the whole world as one market and it sells the same product in the same way everywhere. Coca Cola and Intel are two examples.

In each case their products are identical throughout the world aside from minor variations.

Global Business and Transnational Company

A global business sells all the same products worldwide whereas a transnational corporation have different products for different markets. They produce and market goods in more than one country.

Toyota sells the same car with the same model names everywhere in the world whereas US Motor Group General Motors uses different models and brand names eg.Opel, Vauxhall, for their different national markets

Growth of Globalisation

The last 50 years has seen a huge increase in global business for the following reasons

• A worldwide reduction in trade barriers - The opening up of global markets by international agreements and organisations designed to promote free trade eg) WTO.

• Own market saturation – firms are forced to expand internationally when their home market become saturated and are unable to provide any further increase in sales or profits. Selling globally reduces the risks associated with being too dependent on any one country.

• Economies of scale - firms know that if they can grow to a global size, a range of additional economies if scale can be used to reduce their costs and increase their profitability. EOS occurs when the cost of producing an item falls by manufacturing it in large quantities. These lower costs mean more competitive prices and larger profits.

• Global marketing – the development of global communications networks, in particular television, allows large companies to promote a global consumer culture, launching their products as global brands.

• Mergers: As competition has increased the amalgamation of smaller companies has created large-scale global businesses. Because of their sheer size these companies need to operate on a global scale to sell all of their output

• Improvements in transport networks – faster and cheaper sea and air travel allow global companies to move huge quantities of products from and between their production facilities in different parts of the world.

• The technological revolution – information, communications, industrial technologies have made rapid progress in the last few decades, facilitating the growth of global businesses.

• CAD –speeds up the product design process and CAM – allows a firm to locate anywhere in the world and produce standardised products to the highest quality standards, irrespective of local industrial skills.

• Developments in ICT - has helped businesses to build up an infrastructure which allows management to plan, organise, and control the activities of a multitude of subsidiaries around the globe. Vital management information can be communicated instantly to the companies head office from anywhere in the world, allowing top management to make decisions based on up to the last minute information.

Stages in becoming a Global Company

Domestic producer

Export business

International business

Transnational company

Global company

Features of a Global Company

• One global market – G/C treat the world as one market and develop global brands to meet the needs of global consumer

• Standardised products – they produce an identical product in all of their plants and apply TQM to ensure that consumers in the world can enjoy the same quality of product

• Production – G/C usually practice production sharing between different countries. This means that part of the product is manufactured in one country, and then shipped to another for further assembly, with the finished product being sold in yet another country. They sometimes subcontract production to other firms or licence other firms to produce these products for them in some market. Coca Cola buys sugar cane instead of owning its own plantation. This passes the risks and responsibilities and price setting to suppliers.

• Transfer Pricing: Global companies sometimes engage in transfer pricing which enables them to minimise the amount of tax they pay. It involves selling goods or services at a low price to businesses which are part of the same organisation.

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• New technology – G/C employ the most up to date communication and production technologies. ICT is heavily used to communicate worldwide with staff, suppliers, and customers.

• Management systems - are adopted by G/C to meet the demands of a global round the clock operations. In particular top management changes between different sectors of the world market are common to ensure that a global management approach is maintained.

• Finance – finance is typically raised by selling shares on the stock exchange of the home market. If needed further finance can be raised by taking out debenture loans in more than one country.

• Marketing – a global marketing approach is adopted to promote a global brand to the world market and adapting the marketing mix only where necessary to respond to the needs or differences in specific markets.

The Global Marketing Mix

Global marketing means marketing a product globally with broadly the same marketing mix, as though the world were a single market.

When marketing a product to the world market, the global company will develop a standardised marketing mix, which it will use throughout the world. Used by Coca Cola.

However there are differences encountered in various markets which require changes to the marketing mix. As result a G/B may produce an Adapted Marketing Mix. This is more expensive to operate but may be necessary for the success of that market.

Advantages

Cost savings – advertising and product design can be used globally with only minor adjustments for different countries.

Recognition – global marketing builds global brand names. This level of recognition builds strong customer loyalty to a brand.

PRODUCT

The product in global m/m is standardised for the world market. This allows economies of scale in production and marketing. The product is designed to have global appeal and a Unique Selling Point that can be marketed in all markets. G/C tries to adapt the product as little as they can.

Brand name and logo are developed with the world market in mind

Packaging design is also aimed at a uniform international market

However it is important to recognise some markets may require some changes to packaging, ingredients, or even brand name. Sometimes a standard design, packaging and brand name may not be suitable due to difference in language, laws, culture or lifestyle.

• Local regulations may prohibit certain ingredients/packaging.eg some countries read from right to left

• Local culture and lifestyle. Brand names may have to be adopted to avoid confusion. Example Kellogg’s “bran buds” meant “burnt farmer” in Swedish and “Esso” meant “breakdown” in Japanese. The use of products may also vary, example powered milk was uses by some people in dry regions of South America as an inexpensive whitewash for their homes.

PRICE

Even though the product is the same the price will vary, due to

• Different sales tax/VAT

• Different import duties

• Different profit margins allowed to local distributors and cost of extra adjustments

• Different transport costs

• Product positioning and pricing strategies

• The standard of living in different markets

PLACE/GLOBAL DISTRIBUTION

The chain of distribution will be longer for a global product as they are distributed across continents and into many different markets that may require different distribution methods.

The channels may include

• Exporting directly to the consumer – directly form factory to consumer, no middleman

• Agent – an agent will sell the product in that market on behalf of the maker for a commission. Many garages act as agents for cars manufacturers.

• Subsidiary – the G/C may set up a subsidiary in a country, either to sell or make and sell the product in that country, which is a great help when marketing the product in that country.

• Trading houses – the G/C may sell the product to an export trading house which is a company that buys gods in one country and then like an international merchant resells the goods at a profit in another country. Alternatively the product may be sold to an importing trading house in a particular country that will market the product in that country. Kerry Group Plc trade ingredients and cereals from one country to another.

• Joint venture – G/C may set up a joint venture or an alliance with a local company to produce for the local market. Resources and capita are invested by both companies and profits are shared. It is not a common option as it involves sharing control. But it may be necessary to gain access of local market. Glanbia established a joint venture with a Hungarian partner to set up a cheese making factory in Hungary.

• Subcontracting – G/C may design and market the product, but subcontracts the manufacturing operations to producers in the world who can guarantee quality and a good price.

• Foreign Licensing Agreement – this agreement in made with local firms to manufacture the product form which the global firm can earn royalties, not profits. This option is less attractive as it involves loss of control over the product. Eg INTEL, Nike

PROMOTION

There are huge economies of scale to be enjoyed by global firms in promoting their products worldwide. Big budget advertising can be made for TV and shown in many countries. Local sensitivities need to be considered in relation to names and slogans. Eg, ‘Come alive with Pepsi’ when translated into German means returning from the grave…. While ‘Green Giant’ translated into Arabic means ‘Green Ogre’.

• Global public relations are important particularly in minimising the damaging effects of any bad publicity on the firm’s global image. Standardised approaches are applied globally to advertising and promotional activities with adaptations where needed for particular markets. Poorer countries may not have televisions and adverts may be placed on radio or print media instead.

• Sponsorship on a global scale can be very effective e.g. the Olympics or soccer World Cups ….Coca-Cola, Visa, Hyundai Motors

• Trade missions-groups of manufactures and political representatives from one country visit another to establish business contacts and to develop future export sales opportunities.

• International trade fairs-the main manufactures/suppliers in a particular industry ie)meat/food, exhibit their products and services, which many buyers go to and as a result the G/C can develop new sales contacts and opportunities

• Internet websites – written in several languages can be used to inform consumers to advertise, to conduct market research and to sell their products. On-line catalogues can feature text, graphics, sound and video. Customers can email orders to the exporters computer from anywhere around the world.

What are the Benefits of operating globally?

Global companies generate huge economies of scale by producing on a global scale for a global market. These savings arise from

• Locating factories in a low cast country or by subcontracting to firms in those countries. This helps keep production costs as low as possible.

• Purchasing raw materials in massive quantities can generate very large quantities from suppliers

• Production sharing enables a company to design a product n one country, make the parts in another, transports them to another location for assembly before finally distributing them through its global channels. Each part of the process is located in the most cost effective location.

• Spreading R&D costs over larger volumes thereby reducing the unit cost.

• Using automated machinery and robotics to produce massive quantities of standardised goods.

Risks of operating globally

• Huge costs involved in running the production, human resources, ICT and marketing operations needed for a global company.

• Not satisfying customer needs. Standardised products and marketing mixes may not properly meet the needs of customers in individual countries. Some customers may prefer a more customised and suitable product. Changes to the marketing mix means higher costs

• Management difficulties dealing with co-ordinating various production facilities over different continents

• Intellectual property issues: despite international agreements and WTO rulings patent protection is very difficult. Products are always likely to be counterfeited and face competition from generic brands in places like China and India

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