Growth and the Impact

of Globalization
 Growth and Evolution
Economies and diseconomies of scale

As business grows so do their benefits. Some benefits can be

Spread of costs such as rent over wider range of units causing costs to fall
If they order a lot from suppliers they can get bulk discounts
Suppliers transport costs may also decrease
As business grows managers can become more specialized in certain roles
becoming more efficient
Banks may give large business lower interest rates on loans

This is known as gaining benefits from economies of scale

On the other hand as business grow in size there is a point
where average costs begin to rise and inefficiency begins to

appear. This is known as diseconomies of scale. Some

examples are:
o Communication breakdowns can arise
o Decision making slows down as more people become
involved , causing inefficiency and lost market opportunities
o Motivation of workers falls and productivity drops causing
costs to rise
So the question many business owners ask
themsevels is..
Should I expand my business or stay small scale?
Some arguments for staying small are:
Some business prefer more friendly work environments
where everyone knows the boss and respects each other
More manageable levels of debt if the business if kept small
Lack of skills to manage larger organizations such as good
communication to talk to investors or in public
On the contrary, some arguments for expanding are:
The business become less dependant on one
product or one market. (Export)
Career opportunities for the workforce grow and
new managers appear who can help
If business conditions become tougher, there is less
worry in large businesses about firing people
Owners can increase their wealth in the future
If it doesnt expand it may be squeezed out of the
market completely.
 t h )
g r o w
a n i c t h
( o rg ro w
r n a l a l g
Inte t e r n
d ex
an
Internal growth strategies may include:
Increasing sales by recruiting more agents,
advertising more, cutting prices.
Developing better production techniques
so that the business can produce at lower
costs, cut down prices (not profits) and
win more market share

However.
There is a limit to how much a company can
internally grow without considering external
solutions such as
Joint ventures
Strategic alliences
Mergers and acquisitions
 Growth through external solutions

Joint ventures:
- New firm formed to achieve specific objactives of apartnership
loke temporary arrengement between two or more firms.
A business can work with a partner to pool resources and develop
opportunities.One business may be good at producing one product
and the other in producing a complementary one, if the sell both
they will win most of the market from competitors who cant offer
both. Some example of joint ventures are:
Microsoft and GE Joint Venture, Caradigm

I n December, 2011, Microsoft Corporation and General

Electric formed a joint venture which is a health
IT company of its own kind. Their common objective was to
improve patient experience and the economics
of health and wellness through providing the health systems
with required systemwide data and intelligence.
The joint venture, known as Caradigm, aims at combining
technology and clinical applications to transform it
into intelligence which is usable by care providers.
The name Caradigm evolved from care and paradigm,
because Microsoft and GE
intended a paradigm shift in the care delivery system.
10.Chery Jaguar Land Rover Automotive Company
The British luxury car manufacturers entered into a
joint venture with the Chinese company Chery
Automobiles. The joint venture company is known
as Chery Jaguar Land Rover Automotive Company.
The investment will include a new plant in
Changshu near Shanghai. It will start operating in
2014. Cars shall be modeled while keeping in view
the needs of Chinese consumers. In a joint
statement, the chiefs of JRL and Chery proclaimed,
We will now begin working in close collaboration
on our partnership plans to harness the capabilities
of our respective companies to produce relevant,
advanced models for Chinese consumers.
Strategic alliance: Agreement for cooperation among
two or more independant firms to work together
toward common objectives. Unlike joint ventures, firms
in a strategic alliance do not form a new entity to
further their aims but collaborate while remaining
apart and distinct.
Oneword is an alliance between American Airlines,
British Airways, Tathay Pacific and several others. The
purpose is for the airlines to share ticketing and make
transfers at each others main airports speedier. This
reduces costs and is more effcient for customers.
Mergers and acquisitions
Buying a competitor, supplier, or customer can help increase the
pace of growth. If a business buys a costumer or supplier this is
call vertical integration whereas if a business buys a competitor
we call this horizontal integration
If two companies of equal size join forces it is called a merger, if
two that are different in terms of size and profit we would
generally sat that this was an acquisition by one business to
another
Disney & Pixar
Mickey and Nemo. Pinocchio and Buzz Lightyear. Cinderella
and Lightning McQueen. The merger of the legendary Walt
Disney and everything-we-create-kids-adore Pixar was a
match made in cartoon heaven. Disney had released all of
Pixars movies before, but with their contract about to run out
after the release of Cars, the merger made perfect sense.
With the merger in 2006, the two companies could
collaborate freely and easily.
Did the merger work? Well, take a look at the successful
movies that Disney-Pixar has given birth to since: WALL-E, Up,
Brave and Inside Out. The merger didnt just enable the two to
collaborate, but also helped to breath new air into Disneys
other divisions. First Tangled and more recently Frozen have
garnered huge attention at the box office and beyond, with
Frozen becoming the fifth-highest grossing movie ever!
An acquisition is a corporate action in which a company
buys most, if not all, of another firm's ownership stakes to
assume control of it. An acquisition occurs when a buying
company obtains more than 50% ownership in a target
company. As part of the exchange, the acquiring company
often purchases the target company's stock and other
assets, which allows the acquiring company to make
decisions regarding the newly acquired assets without the
approval of the target companys shareholders.
Acquisitions can be paid for in cash, in the acquiring
company's stock or a combination of both.
Franchises: Sometimes a business can expand more quickly by
offering franchises to others. A franchise is a legal right for a
second business to manufacture, sell, and/or market products
from a company in a certain place or through a certain
medium. The entrepreneur that buys the franchise is called a
franchisee, while the business selling is the franchisor.

Examples of franchises are:

Mc Donalds
Fridays
Burger King
Chillis
Cinemark
Los ceviches de la Rumiahui
The Ansoff matrix
The Ansoff matrix is a marketing tool creates by Igor
Ansoff and used to help businesses explore possible
growth strategies.
Market development Diversification
Growth with existing products Growth with new products in
in new markets (new country, new markets
new region)

Market penetration Product development

Growth with existing products Growth with new products in
in existing markets. existing markets
Selling more of an existing
product.
 Globalization
A multinational has facilities and other assets in at least one country other
than its home country. Such companies have offices and/or factories in
different countries and usually have a centralized head office where they
coordinate global management
Examples are Walmart Inc. USA, Tata Group (India), Exon (USA) among
others
Multinationals develop for a variety of reasons:
Saturation of domestic markets
Wanting to move closer to their global costumers
Benefit from lower labour costs
Lower tax rates from other countries (more profit)
Incentives from governments
Opportunity to be closer to raw materiasl and energy sources
On the other hand there are also some problems that multinationals
have faced in host countries
MacDonalization is the term given to the impact of fast food
outlets in countries where obesity was previously almost unheard of.
This has an effect on health costs and also cultural values
Some people think that multinationals have no loyalty and will leave
if conditions are not appropriate
Some argue that the work they provide is low level and the wages
are low
However..
Multinationals are the key movers to foreign direct investment in
countries around the world, and an important driver for globalization.
 Regional Trading Blocks
A trading bloc is a collection of countries that agree to
certain rules regarding trade. There are various types of
trading blocs:

Free trade areas

Customs unions
Common markets
Economic and monetary unions
Free trade areas:
Member countries trade with each other without imposing
any taxes or restrictions. However each member is
independant when it comes to determining restrictions or
taxes on other countries outside the bloc.
Examples:
NAFTA (USA, Canada and Mexico)

Customs Unions:
Besides the free trade, a customs unions has a common
external barrier for imports. For example imposing quotes on
the number of units of a product allowed in.
Example:
MERCOSUR (Argentina, Brazil, Paraguay, Uruguay and
Venezuela)
Common markets:
Besides having the features of a customs union, a common
market not only allows the free movement of goods and
services but also of labour and capital between its members.
Countries may also introduce agreements on products.
Example
European Union

Economic and Monetary Unions:

In addition to the features of a common market, an economic
and monetary union requires a single currency for its members.
It will aso require a single interest rate across the zone.
Example:
Eurozone group in the EU
The impact of business joining a trading bloc will depend
on a variety of factors such as:
Type of trading bloc they belong to
Proportion of business that the organization has
outside the bloc and how it may be affected
Number of competitors in the bloc
New opportunities for free entry into other member
states markets
The likelihood of the country and bloc developing into
the next phase
Level of imported raw materials or components that
the business buys from outside the bloc and the level
and cost of any restrictions , quotas or taxes that may
now appear
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