Must Multinational Companies Go Global to Survive?

UGB 114 – Understanding the Global Environment

Individual Essay
Must Multinational Companies go Global to survive?

Mark Winter/Chris Bushell

Sophie Hawksby – 099008202

Hand in date – 14/01/10
Word count - 2298 Must Multinational Companies go Global to survive? For the purpose of this essay I will use the following definition of Globalisation, according to The International Business Environment – ‘Globalisation is the creation of linkages or interconnections between nations. It is usually understood as a process in which barriers (physical, political, economic, cultural) separating different regions of the world are reduced or removed, thereby stimulating exchanges in goods, services, money, and people. Within the content of this essay, I aim to discuss the advantages and disadvantages of globalisation. I will also examine two case studies, MacDonald’s and Microsoft, and use examples from them to understand company strategies for globalisation. I also aim to discuss the similarities and differences between the two case studies. I intend to use S.W.O.T. (strengths, weaknesses, opportunities, threats) analysis to pull together the main issues with Globalisation. Finally I hope to come to a conclusion in response to the question Must Multinational Companies go Global to survive? If one is using the definition stated above, a truly ‘Global’ company is hard to come by. One example however is MacDonald’s. It has restaurants in over 130 countries worldwide and operates on a global basis. Their supply chains span many countries and they employ over 1.5 million people across the globe. Using MacDonald’s as a working example one can discuss the many benefits of being a Global company. Globalisation allows for a company to move into new markets which would previously have been closed to them, this allows for higher revenues and a more substantial growth. For example, in some cultures, the typical fast food burger would be against their beliefs. Globalisation has meant that MacDonald’s can afford to accommodate this in their menu and appeal to a larger audience. Without the benefits of Globalisation this avenue may never have been possible for MacDonald’s to pursue. Another major benefit of Globalisation is the opportunity for a greater choice of goods and services. This means that a company such as MacDonald’s could benefit from the economies of scale. Such a wide choice can also benefit the company in terms of cost. The cost of the product can be lowered significantly and furthermore the cost of labour. For example, in India the cost for a graduate employee is around 14% less than the equivalent in the UK or USA. Costs can be lowered further when ‘going Global’ as property for premises can be found cheaper elsewhere.

However as with any argument, there are also disadvantages of Globalisation. The nature of Globalisation is such that each company relies on others to the point of dependence. If and when something goes wrong with the supply chain, all companies involved feel the knock on effects. A prime example of this would be the recent Banking crisis. Foreign investment and money lending affected the British economy to the point where Britain was hit by a recession. Such dependence removes protection against foreign economies’ and markets’ weaknesses and downfalls. It could be argued that this single point could be a reason why most multinational companies stay multinational and do not attempt to venture into other economies, to eventually become Global. The removal of control proves too big of an issue for some companies to take the risk. It is difficult however to decipher whether such dependence is solely a bad thing, as when an issue that has not affected other economies arises, a Global company can depend on its suppliers and ‘friends’. Another disadvantage of Globalisation is the ‘removal of protection from domestic producers by opening up their markets to foreign investors’. This point may seem harsh on smaller companies, but there are more advantages for this than disadvantages. For example, a small domestic producer may rely more on other small domestic producers, and the demand and pressure that a Global company would bring to that manufacturer, could prove to be too much.
It could be useful to draw some comparisons between two truly Global companies, MacDonald’s and Microsoft. The similarities between them both are quite varied. Both have to permanently adapt their product to keep up with their particular market. For example MacDonald’s has had to be very aware of the ever health conscious consumer. They have done this by adapting their menus and making healthier options more readily available and cheaper. Similarly Microsoft has had to be aware of the growing competition in Apple. Apple and Microsoft started initially targeting very different markets, but as time progressed the demand for both has levelled out. Although Microsoft is still the market leader, they have spent millions on recent ad campaigns to compete. By reinventing themselves, both MacDonald’s and Microsoft have maintained their brand name and their Global status.
Another comparison to note is their timing of initiating strategy. MacDonald’s first went international in 1967, and although Microsoft first went international eight years later, they both followed the same timeframe for diversification and expansion, culminating with both companies reaching Global status at the same point in their lives. With this particular point it is possible to assume that any company could become Global if they follow a certain strategy and have a product or brand that consumers want to buy into.

Differences however go further than just different sectors of the market. Microsoft was the first of their kind and very much fitted a niche. This allowed them to become much more established and have a greater grasp of the market share than their competitors did. MacDonald’s however struggled to set themselves apart from other fast food companies in the beginning. This meant that they had to work harder to gain the brand recognition and % of market share.
As with any Business strategy, Globalisation can be analysed using S.W.O.T. (strengths, weaknesses, opportunities, threats).
The strengths of Globalisation are as follows. More outlets for the company mean higher revenues, and with benefitting from the economies of scale it is possible to reduce costs. Therefore, meaning the company can turn a higher profit and carry on with Global expansion. Another strength of globalisation is the possibility of developing a brand name. With a global market, the ‘brand’ of a company becomes ever important. With MacDonald’s, their ‘brand’ - ‘the Golden arches’, is one of the most recognised brands in the World. This is because the strategies that they have pursued have been standardised across the Globe. This avoidance of adaptation has meant that they could keep costs down with a diluted product range and keep the brand recognisable no matter where in the world the consumer buys, a Big Mac in China is the same as a Big Mac in England. A further strength of Globalisation is the spreading of risk. Within global companies the risk is spread across the globe and so with economic crisis or financial issues, not every country that the company is in will feel the pinch as it were. This is a survival strategy. A final strength of Globalisation is the high % of market share that the company gains. This eliminates most competition and can elevate the company further and further with the power of their brand and product. This high % means that when a consumer wants a product from that particular sector of the market, they would think of the highest market leader first. This again is a clever survival strategy.
The weaknesses of Globalisation are as follows. Firstly, despite the economies of scale, costs are going to escalate when talking about taking on a Global market. Singular costs may seen cheaper as you go up the scale but when multiplied by the hundreds of outlets worldwide, with other costs then added to it, it starts to become an issue. This is one of the main reasons that Global companies take several years to fully expand and diversify. Secondly, when operating in a Global market, a company comes up against more competition. If the Global company is taking on a country for the first time, they may struggle. This is because although many of their competitors would not be Global, they could perhaps be the market leaders in their particular country. Meaning that, consumers could be put off by this new company and refuse to use it. This could stop a company from

diversifying further. A third weakness of Globalisation is the effects of exchange rates. Even on a small scale this can be crippling. For example, individuals that bought houses in Europe when the Euro was comparatively weak against the pound, over recent months have seen their asset rise in sterling, but their costs increase because of the weaker exchange rate with the pound. If you then take this into a Global market you can see where the costs would start to add up and the effect of the exchange rates could cause major damage to the company. A final weakness of Globalisation is the adaptation needed to survive in different cultures. This can be costly and more importantly if it is not handled correctly, can damage the image of the brand.
The opportunities that Globalisation can present are as follows. Firstly, cheaper labour. As I stated earlier labour costs in India for graduate employees are 14% less than in the UK or USA. With such a huge %, it is understandable why companies would go to India, or indeed abroad, to manufacture and produce a product. A further opportunity that is open to Global companies is a wider product range. A vaster array of products and suppliers is available, the bigger the company is. Cost becomes less of an issue and suppliers are more readily available. The opportunity to use celebrity endorsement within their advertising campaigns is something that Global companies can benefit from. For example, Kleenex has just brought out an advertisement using well recognised celebrities. This gives the brand more appeal and this marketing strategy can be adapted depending on celebrities in each country or within each target market. This opportunity also opens up another. The larger the company, the larger the ability for a higher profile.
The threats facing a Global company are as follows. Other Global companies can prove a major threat, as indicated above with Apple and Microsoft. With companies of this magnitude competing against each other, it is an ongoing struggle to maintain the larger % of the market share. Microsoft has managed to do that so far, but with the ever evolving i-pod phenomenon, Apple is threatening to take over. A second huge threat is the internet. Although it has revolutionised the business industry and changed the way consumers think, it has also meant that it could be argued that any company is Global now, no matter how large or small. Any household with internet access has hundreds more products, services and information at their finger tips than ever before. Meaning that, a company operating out of a garden shed somewhere in England, could be doing business all over the world. This challenges the very theory of Globalisation and makes the world seem a smaller place. Although technology has aided businesses immeasurably, it is now proving to be one of the biggest threats facing non-technological companies.
To conclude, Multinational companies do not need to go Global to survive. As argued above there are multiple reasons Global companies do so well. However if you hold up an Multinational company next to a Global company, one would note

that there are few benefits available to one that are not available to another. The strengths, weakness, opportunities and threats are the same and as is the recognition of the Brand name. With the internet being one of the most influential factors in the business world today, it is possible for a small company to be Global.
References
Hamilton, L. & Webster, P., 2009. The International Business Environment. United States: Oxford University Press. Page 390
Hamilton, L. & Webster, P., 2009. The International Business Environment. United States: Oxford University Press. Page 30 www.about.mcdonalds.com last visited November 2009 www.microsoft.com last visited November 2009

References: Hamilton, L. & Webster, P., 2009. The International Business Environment. United States: Oxford University Press. Page 390 Hamilton, L. & Webster, P., 2009. The International Business Environment. United States: Oxford University Press. Page 30 www.about.mcdonalds.com last visited November 2009 www.microsoft.com last visited November 2009