Globalization and the MNC

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Globalization and the MNC
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Beginning Quote

• Globalization is the inexorable integration of
  markets, transportation systems, and
  communication systems to a degree never witnessed
  before -- in a way that is enabling corporations,
  countries, and individuals to reach around the
  world farther, faster, deeper, and cheaper than
  ever before...
• Thomas Friedman, The World is Flat (2005)

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Globalizations Two Main Trends

• The contemporary globalization process can be
  divided into two main trends
• (1) The globalization of the markets for goods
  and non-financial services.
• Recent trend began after WWII with GATT rounds
  (1947) and the WTO (1995 on).
• (2) The globalization of financial markets and
  financial services.
• Recent trend began in the 1980s with developed
  countries liberalizing their capital markets
  followed by developing countries in the 1990s.

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Globalizations Potential Impacts on Business
Firms

• Expands target markets where companies sell
  products and services.
• consumer goods
• industrial goods, and
• financial services

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Selling Globaly

• McDonalds operates in 118
• Countries.
• - 66 of 2008 sales were from international
  operations.
• - 42 of 2008 sales were from Europe.
• Starbucks in 2008, had 5,115 international
• retail coffee stores (1,979 company owned and
• 3,134 licensed stores) operating in 34
  countries.
• - These represented 31 of their stores.
• - International operations accounted for about
  20 of Starbucks 2008 earnings (compared to 16
  in 2005).
• Major markets included Japan, U.K. and Canada

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Providing Financial Services Globaly

• Citigroup operates in over
• 100 countries in
• banking, insurance,
• and investment services.
• In 2005, 46 of its revenues from operations
  resulted from activities outside of the United
  States.
• Mexico is a major foreign market for Citigroup.
• Cuba expropriated Citigroup branches in Sept 1960
  (all US banks were nationalized).

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Globalizations Potential Impacts on Business
Firms

• Expands the possible countries where companies
  produce and/or source the factors of production
  for their enterprises
• capital (where firms raise money),
• technology,
• labor

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Producing Offshore

• Nike 99 of all its brand apparel is produced
  outside the United States, in 35 different
  countries. The 2008 footwear breakdown is as
  follows
• Country Percent
• China 36
• Vietnam 33
• Indonesia 21
• Thailand 9
• Note 52 of Nike 2008 revenues from outside U.S.

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Globalizations Potential Impacts on Business
Firms

• Impacts on mergers and acquisitions.
• Firms can now be the target of or acquirer of
  foreign firms (cross-border mergers).
• Expands the opportunity set for acquiring
  firms.
• Buying other firms technology, market share,
  patents, etc.
• Taiwan headquartered ACER Inc acquiring U.S. PC
  maker Gateway (which was the parent of Packard
  Bell) for 710 million in August 2007. In doing
  so, ACER, became the third-largest PC maker in
  the world, after Dell and Hewlett Packard.
• Impacts on types and degree of risk associated
  with an increasingly global enterprise.
• Associated with the unique business and financial
  risks that confront firms in a global
  environment.
• Exchange rates, global competition, cultural
  differences, foreign governments (political
  risk), variations in economic environments.

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Globalizations Potential Impacts on Investors

• Potential Positive Diversification Impacts.
• Investors can construct portfolios consisting of
  a combination of domestic and foreign securities
  and in a combination of different currencies.
• This can have an impact on a Portfolios
  Systematic Risk (market risk).
• Through international diversification, investors
  can reduce a portfolio's systematic risk and
  increase the portfolio's return. Data for 2009
• Dow Jones - 5.4
• Canada CAD12.8 (25.4 in USD)
• China CHY44.6 (44.4 in USD)
• Potential Negative Impacts.
• Increase portfolio risk associated with exchange
  rates, country risk, contagion financial market
  effects.
• Switzerland (stock market 2009) -2.1 (CHF) but
  -4.0 (USD)

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Globalizations Potential Impacts on Countries

• Globalization has resulted in countries becoming
  more open.
• Exports as a percent of GDP
• Germany 6.2 to 31.3 (1950 to 2003)
• Mexico 3.5 to 26.3 (1950 to 2003)
• United States 4.9 to 9.3 (1960 to 2007)
• Imports as a percent of GDP
• United States 4.4 to 14.4 (1960 to 2007)
• Consequences
• Countries become increasingly dependent upon
  foreign markets for their domestic growth
  (exports) and supplies (imports).
• Coupling effects
• Obvious in the current global recession.