BUSINESS ENVIRONMENTS

GLOBALIZATION OF PRODUCTION

Many production activities are also becoming

global. Globalization of production refers to the
dispersal of production activities to locations that help
a accompany achieve its cost-minimization or quality-
maximization objectives for a good or service.
GLOBALIZATION OF INVESTMENT

Investment globalization is defined, in principle, as

the proportion of all invested capital in the world that
is owned by non-nationals.
ADVANTAGES OF GLOBALIZATION
• Itleads to increased free trade between nations and
hence goods and services produced in one part of the
world are increasingly available in all parts of the
world.
• Companies have greater flexibility to operate across
borders and hence they can make profits through
domestic as well as international operations and also
they can have access to cheaper capital from other
countries if rate of interest is low and also cheaper
Labor and hence it ultimately increases the margin for
the company.
• It also leads to greater employment opportunities for
the people and also consumers get quality goods at
competitive rates.
DISADVANTAGES OF GLOBALIZATION
• It can lead to increased likelihood of economic
disruptions of one nation affecting all nations and
hence unsettling the whole world leading to chaos
across the world.
• Smaller domestic firms may lack the resource to
compete with big international companies and
therefore may be forced out of business.
• Since globalization involves traveling of people as
well as goods from one country to another it can lead
spread of some of the deadliest infectious diseases
known to humans.
GLOBALIZATION-BALANCING ACT
Globalization is an extremely controversial issue
for the modern world. Globalization is defined as the
development of an increasingly integrated global
economy marked especially by free trade, free flow of
capital, and the tapping of cheaper foreign labor
markets.
 More and more corporations are taking the world
by storm in an attempt to insert themselves into our
everyday lives. Their reason for doing this is to not only
make their nation feel dependent on their product,
but to make the rest of the world dependent as well.
 WHY COMPANIES ENGAGE IN INTERNATIONAL
BUSINESS
People are not easily satisfied. After earning
success in a local business, it’s typical for the owner to
want more.
Things to do for Starting an International Business
Companies engage in international for a variety
of reasons, but the goal is typically company growth or
expansion.
 Whether a company hires international employees
or searches for new markets abroad, an international
strategy can help diversify and expand a business.
• Many companies look to international markets for
growth. Introducing new products internationally can
expand a company’s customer base, sales and
revenue. For example, after Coca-cola dominated the
U.S. market, it expanded their business globally
starting in 1926 to increase sales and profits.
• Companies go international to find alternative
sources of labor. Some companies look to
international countries for lower-cost manufacturing,
technology assistance and other services in order to
maintain a competitive advantage.
• Somecompanies go international to locate resources
that are difficult to obtain in their home markets, or
that can be obtained at a better price
internationally.
• Companies go international to broaden their work
force and obtain new ideas. A work force comprised
of different backgrounds and cultural differences can
bring fresh ideas and concepts to help a company
grow. For example, IBM.
• Actively
recruits individuals from diverse backgrounds
because it believes it’s a competitive advantage that
drives innovation and benefits customers.
•Some companies go international to diversify. Selling
products and services in multiple countries reduces
the company’s exposure to possible economic and
political instability in single country.
Reactive reasons for going international include
• Market: Company is responding to demand it
discovers in another location. It could make this
discovery by accident, or by having an affiliated
company gives them a tip.
• Competitive Environment: It sees competitors going to a
particular place. For example when Honda set up shop in
Ohio, some other Japanese auto parts companies also
moved to Ohio to continue supplying Honda.
• Political
Environment Changes: Trade Barriers, Tariff or
non-tariff barriers: If an exporting company finds that the
government in the recipient country starts build tariff or
non-tariff barriers to block the export, then it might be a
reason for the exporter to set up a manufacturing
operations overseas in order to avoid the tariffs.
• Buy-local Policies: exporting companies may find that
buy-local policies may restrict their exports which may
cause the exporter to set up a local alliance or
relationship.
• Political Environment Changes-Regulations:
environmental regulations or changes in work/safety
regulations may cause the company to go overseas to a
less restrictive location.
• Economic Environment Changes – Cost production at
home increase, forcing the company to find a cheaper
place to produce.
• Chance Occurrence: Sometimes a company goes
international for the simplest reason, the CEO went
some place on vacation and thought it would be a
good place to do business, or a friend made a
suggestion to a senior executive about an
opportunity, so the company seizes on it to do
something.
 REASONS FOR PHENOMENON INTERNATIONAL
GROWTH IN RECENT YEARS
Proactive reasons for going international include
• Expanding sales by strategically seeking out advantage
• An offensive into a new market before competitor does
(e.g. Like Pepsi into Russia, before Coke)
• Power and prestige e.g. in the early 1990’s, a lot of
Canadian law firms merged to form a bigger firms, and
also boasted about having affiliated law offices in other
countries
•Incentivessometimes the host government will offer
special tax breaks to entice an investment
•Lower costs of labor, production and energy
•Less
stringent rules and regulations effecting pollution
and labor
CASE STUDY
Factors affecting globalization of Coca Cola Company
Coca-cola is multinational company based in USA.
Its headquarters is in Atlanta, Georgia. It is a global
leader in beverage industry with most famous brand
coca cola drink. It is operating since 1886 with a mission
to refresh the world. The company operates the
franchised distribution system.
 The Coca-Cola Company has crossed the borders
of more than two hundred countries with almost five
hundred brands it includes soft drinks, energy drinks,
juices, bottled water, tea and coffee.
Coca cola company has divided its world market
into 6 regions; North America, Latin America, Eurasia,
Asia pacific, Africa and Europe.
Globalization
The rising demand of business outlets in various
countries is inarguably phenomenal. The convergence
of customer needs has surfaced all sides of globes. The
fast paced developments of the world due to industrial
and information revolution along with improvements
in transportation have paved the way for
multinationals to go beyond the borders and serve
worldwide customer needs.
 Coca cola is a well known brand all over the world
which signifies the success of the company.
Study and Research
To go global is not an easy task a lot of home
work has to be done about many dimensions of the
country in which company wants to operate. In
dealing with business, one may not be able to survive
and stay longer in such industry if one is not really
equip with enough resources, material and
knowledge.
 In order to understand the rule of business,
rigorous studies and researches must be held. Coca
cola Company along with implementing global
strategy also focus on local needs and preferences
identified by research.
Key Factors
1. Economic Conditions: The economic analysis
include local, national and world economy impact.
It addresses the issues of economic growth, inflation
and recession in economy, exchange rates,
Interest rate and purchasing power of consumers. That’s
why coca cola has different prices in different countries.
2. Cultural Diversity: As coca cola operates in different
countries, it must be aware of the cultural needs of its
employees and customers coca cola has continued
changing, improving and developing new drinks that
appeal to local tastes. For example coke do not appeal
so much to Japanese consumers so coke offered 30 new
drinks for Japanese market that include Asian tea,
English tea, and coffee and fermented-milk drink.
 Coca-cola repackages itself according to the
culture of a region or of local communities. For
example, Coca cola sponsor Basant festivals in
Pakistan. In Columbia, in order to attract buyers. It
needs to promote and advertise the product into a
local dialect or in Columbia’s lengua franca. The same
strategy is applied in the Philippines. This means
marketing strategies and planning should consider this
factor as important as the other. Since this becomes a
core issues about globalization. We can speack of
global multinational companies if we cannot consider
The fact that the global is to be well aware of the
cultural issues and dilemmas.
3. Competition: Every country offers different
competitors to Coca Cola Company. But Pepsi is
the global competitor of coca cola. So in every
country, it needs to sustain its competitive
advantage.
4. Bottlers and Distributors. One of the main reasons
behind its globalization is the bottlers and
distributers of coca cola.
 Coca Cola Company sells concentrates and syrups
to them and them fabricate it into finish product. It
has franchised system with its bottlers which are
considered to be its strategic partners. The product
packaging in every country incorporates same counter
bottle design and color. However bottle can also
include the countries native language and is the same
size as other beverages and cans in the same country.
 Distribution is also different in different countries
not all countries use vending machine and not all
cultures permit beverage bars but coca cola pursues
extensive distribution network to make its product
available to everyone, everywhere.
Questions
• 1. Coca Cola is a US brand but why it is loved by Asian?
Coca cola is a US Brand but is also known and loved by
other countries specially Asian countries for the reason that
Coca Cola incorporate the cultures and/or traditions of the
country where they will market or sell their products. For
example, they sell Coca Cola products with tea so that it will be
more appealing to the consumers in Asian Countries. It is also
loved by the consumer because of its very affordable and
reasonable price.
• 2. Whether coca cola implement global competitive strategy or
it should focus on different strategy in every country?
In my opinion, Coca Cola should apply different strategies
involving different countries and/or culture because those
strategic plan may be applicable and effective in a certain country
but will not be applicable or effective to others. They should
always take into consideration that every individual is different
that’s why different approach is needed to gain customers trust
and confidence for them to becomw a loyal customers or
consumers.