IB BUSINESS AND MANAGEMENT, SEPTEMBER 14 2009

GLOBALISATION AND GROWTH

Globalisation is a term used to describe the growing integration of the world economy.
As globalisation takes place, national economies are becoming increasingly integrated
into a single ‘global’ economy.

Factors promoting globalisation

1. Technological change, especially advances in computer and information

technology, has enabled easier transfer of information between nations.

2. Falling transportation and communication costs have made it easier to move

products and raw materials around the world.

3. Business deregulation has been a policy of governments worldwide over the past
20 years. One regulation that has been lifted is restrictions on foreign businesses
operating in many Asian and Eastern European nations.

4. Protection of local industries by their governments has been reduced in many

nations over the past 20 years. Often, this has been accompanied by free trade
agreements.

5. Many less developed nations in Asia and Eastern Europe have experienced very
high levels of growth over recent years.

Questions

a. Explain four reasons why it would be easier for a British firm to develop markets
in 2005, compared to 1975

b. “We have a choice: expand globally or risk bankruptcy” Explain this company
manager’s statement.
 GROWTH AND MULTI-NATIONAL CORPORATIONS

A multi-national corporation (MNC) is a business that operates in more than one

country. The typical MNC has its headquarters (parent company) in one country and a
number of business offices or operations (subsidiaries) in a variety of other nations.

Questions: Reasons for growing your firm as an MNC

1. Most MNCs are structured with a parent company in one nation and subsidiaries
in other nations around the world. Explain how this structure reduces the risk of
diseconomies of scale.

2. Identify and explain two reasons why a company may establish subsidiaries in
less developed nations in Africa, Eastern Europe and Asia

3. Minimising tax. Read the following scenario.

The parent company is based in Country A. In this country, the company tax rate is 33%,
meaning that every dollar of profit is taxed at 33%. The government and tax department
in Country A are well resourced, vigilant and can not be bribed.

The company has subsidiaries in Country’s B, C and D. The company tax rates there
range from 10-15%. The role of these subsidiaries is to extract raw materials and
manufacture them into component parts. The subsidiaries ‘sell’ these parts to the parent
company. These parts are then assembled in Country A for sale.

a. You operate this company. How could you minimise your tax? Your major
market is Country A and you HAVE To assemble the parts there. Your goal is to
pay as little tax as possible?

b. Imagine the tax rates in Country A is less than that in Country B,C and D. How
would you minimise your tax (given you need the cheap materials and labour that
exist in Countries B-D)
 GOING GLOBAL: An MNC Case Study

Bi-weaver is a global conglomerate that is based in the USA. The holding company
oversees a range of companies that produce branded food, confectionary, drinks,
detergents, and toiletries.

The firm is in the process of moving into anew markets in South East Asia and Eastern
Europe. Its motivation is (1) to minimise production costs and (2) to sell their products in
these increasingly wealthy markets. Bi-weaver’s goal is to achieve this aim without
harming its reputation as a good corporate citizen in its established markets.

You are highly paid consultants. The CEO has asked for a brief summary of KEY
STRATEGIES the company could adopt to successfully expand as an MNC in these
emerging markets.

To do this,

(i) Outline the potential problems that could emerge

(ii) Develop a plan to combat each problem

Incorporate (i) and (ii) into a short list of important things the business should do that
prevent the problems from occurring and ensure that the move into these markets is a
success.