Global Corporations

A global company is generally referred to as a multinational corporation (MNC). An MNC is a company that operates in two or more countries, leveraging the global environment to approach varying markets in attaining revenue generation. These international operations are pursued as a result of the strategic potential provided by technological developments, making new markets a more convenient and profitable pursuit both in sourcing production and pursuing growth.

International operations are therefore a direct result of either achieving higher levels of revenue or a lower cost structure within the operations or value-chain. MNC operations often attain economies of scale, through mass producing in external markets at substantially cheaper costs, or economies of scope, through horizontal expansion into new geographic markets. If successful, these both result in positive effects on the income statement (either larger revenues or stronger margins), but contain the innate risk in developing these new opportunities.

Opportunities

As gross domestic product (GDP) growth migrates from mature economies, such as the US and EU member states, to developing economies, such as China and India, it becomes highly relevant to capture growth in higher growth markets. is a particularly strong visual representation of the advantages a global corporation stands to capture, where the darker green areas reppresent where the highest GDP growth potential resides. High growth in the external environment is a strong opportunity for most incumbents in the market.

GDP Growth Rate by Country

GDP Growth Rate by Country

Challenges

However, despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors:

• Public Relations: Public image and branding are critical components of most businesses. Building this public relations potential in a new geographic region is an enormous challenge, both in effectively localizing the message and in the capital expenditures necessary to create momentum.
• Ethics: Arguably the most substantial of the challenges faced by MNCs, ethics have historically played a dramatic role in the success or failure of global players. For example, Nike had its brand image hugely damaged through utilizing ‘sweat shops’ and low wage workers in developing countries. Maintaining the highest ethical standards while operating in developing countries is an important consideration for all MNCs.
• Organizational Structure: Another significant hurdle is the ability to efficiently and effectively incorporate new regions within the value chain and corporate structure. International expansion requires enormous capital investments in many cases, along with the development of a specific strategic business unit (SBU) in order to manage these accounts and operations. Finding a way to capture value despite this fixed organizational investment is an important initiative for global corporations.
• Leadership: The final factor worth noting is attaining effective leaders with the appropriate knowledge base to approach a given geographic market. There are differences in strategies and approaches in every geographic location worldwide, and attracting talented managers with high intercultural competence is a critical step in developing an efficient global strategy.

Combining these four challenges for global corporations with the inherent opportunities presented by a global economy, companies are encouraged to chase the opportunities while carefully controlling the risks to capture the optimal amount of value. Through effectively maintaining ethics and a strong public image, companies should create strategic business units with strong international leadership in order to capture value in a constantly expanding global market.

Globalization

Opportunities

Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases. This means larger volumes of sales and exchange, larger growth rates in GDP, and more empowerment of individuals and political systems through acquiring additional resources and capital. These benefits of globalization are viewed as utilitarian, providing the best possible benefits for the largest number of people.

Challenges

Along with arguments supporting the benefits of a more globally-connected economy, there are criticisms that question the profits that are captured. Opponents argue that the expansion of global trade creates unfair exchanges between larger and smaller economies, arguing that developed economies capture significantly more value because of financial leverage. Other commonly raised concerns include damage to the environment, decreased food safety, unethical labor practices in sweatshops, increased consumerism, and the weakening of traditional cultural values.

McDonald’s

In 1983, Theodore Levitt, the famous Harvard marketing professor wrote an article entitled, “The Globalization of Markets”. Since then, the field of marketing has not been the same. According to Levitt, a new economic reality—the emergence of global consumer markets for single standard products–has been triggered in part by technological developments. Worldwide communications ensure the instant diffusion of new lifestyles and pave the way for a mass transfer of goods and services. Adopting this global strategy provides a competitive advantage in cost and effectiveness. In contrast to multinational companies, standardized (global) corporations view the world and its major regions as a single entity rather than a collection of national markets. These world marketers compete on a basis of appropriate value, i.e. an optimal combination of price, quality, reliability, and delivery of products that are identical in design and function. Ultimately, consumers tend to prefer a good price/quality ratio to a highly customized but less cost-effective item. Levitt distinguished between products and brands. While the global product itself is standardized or sold with only minor modifications, the branding, positioning, and promotion may have to reflect local conditions.Critics of Levitt’s perspective suggest that his argument for global standardization is inaccurate and that market strategy should be customized to each country. According to Kotler, one study found that 80 per cent of US exports require one or more adaptations. Furthermore, the average product requires at least four to five adaptations out of a set of eleven marketing elements, namely, labeling, packaging, materials, colors, name, product features, advertising themes, media, execution, price, and sales promotion. Kotler suggests that all eleven factors should be evaluated before standardization is considered.To date, no study has empirically validated either perspective. While critics of Levitt can proffer thousands of anecdotes contradicting the validity of standardization, a more careful read of Levitt’s ideas indicate that he offers standardization as a strategic option, not a fact. Although, global marketing has its pitfalls, it also has some great advantages. Standardized products can lower operating costs. More importantly, effective coordination can exploit a company’s best product and marketing ideas. Too often, executives view global marketing as an either/or proposition-either full standardization or local control. But when a global approach can fall anywhere on a spectrum – from tight worldwide coordination on programming details to loose agreements on product ideas – there is no reason for this rigid view. In applying the global marketing concept and making it work effectively, flexibility is essential. The big issue today is not whether to go global, but how to tailor the global marketing concept to meet the specific needs of each business.

International Coca Cola

Key Points

• Despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors: Public Relations, Ethics, Org. Structure, & Leadership.
• Those in favor of globalization theorize that a wider array of products, services, technologies, medicines, and knowledge will become available and that these developments will have the potential to reach significantly larger customer bases.
• Opponents argue that the expansion of global trade creates unfair exchanges between larger and smaller economies, arguing that developed economies capture significantly more value because of financial leverage.

• Firms ascribing to Global Standardization theory view the world as one entity, not a collection of national markets. These firms compete on a basis of appropriate value, i.e. an optimal combination of price, quality, reliability, and delivery of products that are identical in design and function.
• Critics of global standardization say each country should have custom marketing strategies since the average product requires about 4 – 5 adaptations of the 11 marketing elements: label, package, materials, colors, name, product features, advertising themes, media, execution, price, and promotion.
• Global marketing doesn’t have to be either full standardization or local control. Rather it can fall anywhere on a spectrum from tight worldwide coordination on programming details to loose agreements on a product ideas.

Terms

competitive advantage

The strategic advantage one business entity has over its rival entities within its competitive industry. Achieving competitive advantage strengthens and positions a business better within the business environment.

globalization

The process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture.