How have companies globalised and shifted locations

How have companies globalised and shifted locations?

•         Global companies - TNCs/MNCs.

•         Location factors for the global shift.

•         The patterns of global manufacturing shift.

•         Service sector shifts.

In 2013- TNC’s- largest global companies;

•         US 26 companies, UK 6, China 5, Switzerland 3 and Japan 1

Many TNCs originated in MEDCs. They will usually still have their Headquarters in the MEDC (the Home Country). They may then expand into other countries (Host Countries)

Several Key Processes have enabled companies to expand and become global in their operations:

1.       Outsourcing

In business, outsourcing is the contracting out of a ‘business process’ to another company. The ‘business process’ could be manufacturing of a product or component or it could be a service part of the business such as a call centre or accounting.

One key reason that companies outsource is to save money. This could be due to the contracted company being able to complete the ‘business process’ at a reduced cost, or to save money by not having to invest in new facilities in order to retain the process ‘in house’. There are other advantages as the diagram below shows. Outsourcing can take place within a company’s home country or contracted overseas.

2.       Offshoring

Offshoring is the relocation by a company of a business process  from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as a call centre or accounting. Offshoring activities are often outsourced.

Offshoring tends to be from MEDC to LEDC/RIC/NIC, although due to trade bloc influences it can be from MEDC to MEDC.

Since 1950s Offshoring has been increasingly common in manufacturing industry;

Since the 1990s the offshoring of the tertiary/service sectors of companies has dramatically grown;

Offshoring has occurred due to:

•    Cheaper labour costs

•    Cheaper land costs

•    Cheaper transportation costs

•    Lower business taxes

•    Government Incentives

•    Fewer environmental restrictions over production

3.       Acquisitions

A company acquisition is when one company purchases and takes over another company.

Companies acquire other companies for two main reasons:

•         To expand their business into another region of the world and operate under a recognised brand name;

Example:

In 1999 the world’s largest retailer Walmart acquired the British supermarket chain Asda.

•         Increase their market share through greater diversity of products:

Mini Case Study: Diageo

The theory:

By buying out your competitors brands you are likely to increase your market share. Diageo now own many leading alcoholic drinks brands, therefore when someone orders a drink in a pub/bar/restaurant it is increasingly likely that the drink they order will be owned by Diageo.

Acquisitions Case study: Diageo – A Global Top 100 Company.

Date of formation

1997

Headquarters Location:

Park Royal, London

How many countries do Diageo operate in?

180

 3 examples of drinks brands that Diageo have acquired with the date of acquisition.

1.  Guinness

2. Smirnoff

3. Baileys

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