Must Multinational Companies Go Global to Survive?

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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...
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