© John Tribe 15 Globalization

© John Tribe

Learning outcomes By studying this section students will be able to: – explain the meaning of globalization – explain the meaning of an MNE – understand the motives for extending operations overseas – analyse the effects of MNEs – evaluate government policy relating to MNEs

© John Tribe Globalization Robertson (1992: 8) describes globalization as: –“the compression of the world and the intensification of consciousness of the world as a whole.... concrete global interdependence and consciousness of the global whole in the twentieth century"

© John Tribe Economic Globalization Friedman (1999: 7-8) offers the following definition: "[T]he inexorable integration of markets, nation- states, and technologies to a degree never witnessed before-in a way that is enabling individuals, corporations and nation-states to reach around the world farther, faster, deeper and cheaper than ever before.... the spread of free-market capitalism to virtually every country in the world”

© John Tribe Economic Globalization Refers to the increasing integration of economies around the world. This integration is evident mainly through – trade and financial flows but it also includes – the movement of people (labour) and – knowledge (technology) across international borders

© John Tribe Multinational enterprises in leisure and tourism Airlines –AMR (American) –UAL (United) –British Airways –Delta –Lufthansa Electronics –Hitachi –Matsushita –Sony Entertainment –Walt Disney –Time Warner –News Corp. –Viacom –Seagram Consumer products –Coca-Cola –McDonald's –Nike

© John Tribe Star AllianceAir Canada, Air New Zealand, ANA, Asiana Airlines, Austrian, bmi, LOT Polish Airlines, Lufthansa, Mexicana, Scandinavian Airlines, Singapore Airlines, Spanair, Thai Airways International, United and VARIG. One WorldBritish Airways, Aer Lingus, American Airlines, Cathay Pacific, Iberia, Lan Chile, and Qantas. Sky TeamAeromexico, Air France, Alitalia, TSN, Delta and Korean Air. World Airline Alliances

© John Tribe Which is the odd one out?

© John Tribe Answer Air New Zealand is not a member of the one world alliance

© John Tribe Benefits of Globalization –improved communications –a more open world –the advent of new, better and cheaper products –the reduction in barriers to trade –its contribution to faster economic growth. Advocates of globalization see the major problem that it is not progressing evenly. –They note that some countries have been integrated into the global economy more quickly than others and that these are seeing faster growth and reduced poverty. –For example free trade policies have brought dynamism and greater prosperity to much of East Asia, transforming it from one of the poorest areas of the world 40 years ago.

© John Tribe Problems of Globalization To some globalization is a pejorative term sometimes used as shorthand for the ills of capitalism. Here concerns are expressed about –the deterioration in the well-being of particular groups (these range from whole countries, to workers in developed countries who have seen their jobs exported, to workers in developing countries who work under conditions of exploitation), –the sovereignty and identity of countries, –lack of sensitivity to host culture –the disparities of wealth and opportunities among countries and people –the health of the environment –the greater exposure it brings countries to sudden and profound economic shocks.

© John Tribe Global significance of tourism

© John Tribe Meaning and extent of multinational enterprise An MNE is one which has production or service capacity located in more than one country. The MNE has a headquarters in a parent country and extends its operations into one or more host countries. The main ways in which multinational operations are extended are by –investment in new or ‘greenfield’ capacity –by taking an equity stake in a foreign company (i.e. buying up shares) –or by operating a franchise or alliance with a foreign company.

© John Tribe Coca-Cola 2003 Worldwide Net Operating Revenues

© John Tribe Motives for going multinational lower labour costs lower other costs exploiting ‘national diamonds’ marketing advantages scale economies, integration and competition extension of product life cycles tariff avoidance incentives in host economies

© John Tribe Benefits of multinationals on host economies These include –extra investment and related effects Growth Exports Employment Tax revenue – technology and skills transfer

© John Tribe Coca Cola in Thailand What benefits does Coca Cola bring to the economy of Thailand? –Employment: The company employs 9,000 people. –Investment: It operates seven bottling facilities including a state-of-the-art plant that opened in 1997 in Korat. –Knowledge and skills transfer: It has two licensed bottling partners in Thailand

© John Tribe Question Which of the following is a possible advantage to the host economy of MNEs? – a leakages from the economy –b threat to local competition –c improved know how – d enclaves and dual development Answer: – c

© John Tribe Drawbacks of multinationals on host economies These include: – leakages from the economy – prices and bargaining power – exporting of externalities – threat to local competition – power to pull out – enclaves and dual development – resource grabbing – labour exploitation

© John Tribe Government resistance to multinationals Competitive threat Power and accountability Transfer pricing and tax losses

© John Tribe McDonald’s in Thailand What are the possible drawbacks of McDonald’s for its host country? –Competitive threat to local firms –leakages from the economy –lack of sensitivity to host culture

© John Tribe Review of key terms Globalization = ? –organization of a firm’s production and sales on a worldwide basis. Multinational enterprise (MNE) = ? –one which has production or service capacity located in more than one country. Parent country = ? –base country of MNE. Host country = ? –country in which MNE is operating. Greenfield development = ? –new investment on a new site. National diamond = ? –product or service for which a country has built a world reputation.

© John Tribe Review of key terms Tariff barriers = ? –taxes on goods imported into a geographic area (e.g. the EU). Code sharing = ? –packaging of interconnecting flights of linked airlines into one flight code. Demonstration effect = ? –method by which skills and technology are transferred to a host economy by participation of local labour. Enclave = ? –local MNE development isolated from the main host economy. Resource grabbing = ? –MNE utilizing of host country’s resources which prevents later domestic utilization. Transfer pricing = ? –adjusting the prices of goods traded internally within MNEs to minimize tax.

© John Tribe 15 Globalization The End