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GLOBALISATION
OVERVIEW
1. GLOBAL INDUSTRIES
a. Global strategy versus global localisation
b. The impact of takeovers and mergers on a company
i. Ability to balance resource investments in countries
c. Sourcing
2. GLOBAL MARKETING
a. Ethnocentric Model – The domestic approach
b. Polycentric Model – The international approach
c. Geocentric Model – The mixed approach
d. Sales Incentives
3. GLOBAL MARKET NICHES
Globalisation is the process through which an increasingly free flow of ideas, people, goods,
services and capital leads to the integration of economies and societies
INTERNATIONAL MONETARY FUND
GLOBAL STRATEGY VS GLOBAL LOCALISATION
• Global strategy is having a common strategy for all countries; for this to succeed, the countries have to have similar
expectations.
• Global localisation is adapting to the local expectations in order to succeed in doing business there.
THE IMPACT OF TAKEOVERS AND MERGERS ON A COMPANY
Takeovers and mergers are both examples of inorganic growth. Inorganic growth happens when a business expands by
combining with or taking over another business. Organic growth is when a business expands by increasing its own outlets or
increasing production; essentially increasing output.
Merger means combining with another company on a collaborative basis
INTERNATIONAL BUSINESS FOR A2
Takeover or acquisition means to essentially ‘buy’ another company. It can be a friendly takeover
where the business (the managers of the business) that is being taken over agrees to the bid and
this transition is smooth. A hostile takeover is one where the business that is being taken over does
not agree to the bid.
THE PERSON WHO WROTE THE NOTES
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ADVANTAGES OF TAKEOVERS AND MERGERS
• For the sake of growth, which means there will be greater prospects for profit.
• Often for fame, as taking over another business might mean that the business becomes
the largest for that particular type of goods. For example when Procter and Gamble
took over Gillette in 2005, it became the largest household goods maker
• Access to brand portfolio that the business has; buying a brand means that you are
gaining customers that are loyal to it.
• Taking over a business means that you are gaining access to market segments that you
did not have before. Gaining more market segments mean that you essentially have
access to a larger part of the market, making the business more influential.
• Access to greater markets as well as access to the research and technology the business
has; the business can now hope to make better products with the information that it
has now.
• Cost savings can be very high, as when two businesses combine they can reduce
administration costs significantly; they do not need two head-quarters, and the entire
re-structuring process can increase efficiency as well as save costs
• Greater efficiency is reached as one business can adopt the good policies of another and
combine to become a greater and stronger force because it has now combined its talent
pool as well as its structure. Combining gives businesses a big performance boost.
• Access to new markets is also important as a foot-hold in emerging markets can be a
good investment for the business in the future. Growing markets will mean that the
business can exploit growing demand and make greater profits due to increasing sales.
• Often when market saturation is reached in a particular industry, the only way to
expand is to take over a competing business or merge. T-Mobile and orange merged to
form a bigger company as well as to grow – the UK phone market has reached maturity.
• Businesses can chose to take over businesses in the same market or different markets;
taking over businesses in different markets makes it a conglomerate, meaning that it Figure 1 - Unlike businesses, humans
has increased stability if one industry falls, it can rely on the other to full a fall in sales or cannot grow inorganically.
a fall in demand for services. Taking over businesses internationally can also mean that
if one country faces a recession, it can rely on the other to buffer the losses. In simple terms, the business becomes
more stable.
• To gain access to new technology, that might be a potentially allow the business to offer more innovative products.
• Especially with mergers, businesses often combine simply to stay in the game. When British Airways combined with
Iberia of Spain, it was simply to compete effectively with Air France KLM and Lufthansa.
DISADVANTAGES OF TAKEOVERS AND MERGERS
• Statistics tell a different story, less than 50% of the companies get what
they expect from the merger or takeover.
• The two businesses might not be able to function properly due to a clash of
corporate culture and management styles.
• Businesses that become conglomerate through expansions tend to move
away from their core business and become weaker there.
Figure 2 - BA and Iberia are merging to stay competitive in
SOURCING business.
• Takeovers and mergers facilitate sourcing in the sense that it means that the business can gain access to more countries
and thus can exploit the economic efficiencies of that region.
• Outsourcing and the pouring in of FDI into developing nations such as China and India has improved the standard of
living in these countries significantly.
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PRODUCT MARKETS
ETHNOCENTRIC MODEL – THE DOMESTIC APPROACH
• In this model, foreign markets are seen to be almost identical or similar to that
of domestic markets, and hence the marketing and promotion of the product is
done in the same way as done in domestic markets. There is no adaptation of
the product.
o However, in order for this to succeed the two markets have to have
similar
• The benefit lies in the economies of scale that it provides. No extra research of
investment has to be made when marketing the product in a new market. This
standardisation reduces average costs significantly.
Figure 3 - Companies like Sony and Nintendo have
o However, the businesses risks losing sales because the marketing mix
high development costs when making products, so
is not oriented to the individual market. they have to make a product that can roughly fit
• Often businesses have to adopt an ethnocentric model especially when they most countries that they are concerned of selling to.
are in a business with rapidly changing technology; these products entail high
development costs, so specialising these products would make it very expensive.
POLYCENTRIC MODEL – THE INTERNATIONAL APPROACH
• Essentially, firms focus on adapting to the local market, providing tailored products to the market: believing that the
market is distinct from that of domestic markets and thus requires tailored products.
o As a result, there is likely to be an increase in sales.
• However, the average costs of the product should increase as there is more
expenditure on market research and new product development.
GEOCENTRIC MODEL – THE MIXED APPROACH
• The fusion of poly and ethnocentric models, essentially managing what needs to
be managed globally in one way and managing what needs to be managed locally
in another way. In this way, the domestic approach of the business is retained to
the extent possible and sales orientation to products that are different.
o This essentially, takes advantage of all the possible economies of scale.
o At the same time, this is something that will be difficult to actually Figure 4 - Cows are sacred in India, so McDonalds
achieve and requires market research. came up with the Maharaja Mac, which has
• This is associated with the Glocalisation and “Think global, act global” – the chicken instead of beef. However, McDonalds
manages is brand name globally, taking the best
combination of the two extremes of approaches.
of both poly and ethnocentric policy.
SALES INCENTIVES
• Orientation of products is done simply for one purpose, to increase the
prospect of sales and to become more recognised in the country that the business
has newly set up in.
• Price strategies that have worked in western economies are likely to be
unsuccessful in eastern economies as the level of economic development is low.
o Often special pricing strategies and deals have to be tailored in
order to provide customers with enough incentive to buy the product.
←Figure 5 - The Nokia 1100 has a torchlight so that when there is loadshedding in places such as India, it will come in handy.
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• Adaptation to culture is also very important, as consumers in countries such as India may want a different environment
from which they buy their products to that of the west.
o Adapting to culture reduces the barrier that the person is actually buying something foreign, and allows
greater integration into the country.
• Specialising products, such as adding torchlight to a telephone (because of power-outages in certain countries) can
increase sales.
GLOBAL MARKET NICHES
Global niche markets are similar to domestic niche
markets in the sense that they target a very specific
range of people, often called subcultures.
Subcultures are groups of people that share a
common interest such as hobbies of values. Global
niche markets include things such as luxury products,
high performance vehicles, and luxury cars with
elegant design (Rolce Royce, BMW, and Mercedes
Benz) as well as environmentally friendly products
such as electric cars etc…
With the advent of technologies such as the internet
and smart-phones these subcultures are able to
communicate internationally and this increase
enthusiasm for these global market niches.
Global niches are born because these subcultures have Figure 6 - Mercedes Benz exploits a niche market of luxury cars world-wide.
special needs and have a sense of brand loyalty to the company producing the product. This adds stability to sales as brand
loyalty to these products will mean that they will be more tolerant of faults as they have few alternatives.
These businesses have to work hard in order to distinguish themselves from mainstream products and this involves:
• Clear understanding of the needs and wants of their chosen market segment
• Excellent customer service
• Expertise in their field
• Prioritising profit rather than market share, as niche markets are a small part of the entire market
• Innovation to satisfy changes in markets
• Cost efficiency that is not at the expense of quality
• Appropriate and effective use of marketing mix
International businesses may often start to target a market niche to begin with as they cannot hope to compete with the
mainstream competitors with are mainly concerned with quantity and cheap price. Often these businesses distinguish
themselves as sellers of an exotic good, which distinguishes its customers from the average person.
