This chapter reviews the opportunities and issues a company will face when conducting business in the global marketplace. With the ever-increasing dynamics of international trade, you should read this chapter carefully. It is an excellent starting point to consider the skills required to expand your business internationally.
Global corporations operate in two or more countries and face many challenges in their quest to capture value in the global market.
Identify the most meaningful challenges encountered by multinational corporations (MNCs) when pursuing global markets and efficiencies
Lowering average cost for a firm in producing two or more products through the common and recurrent use of proprietary know-how or an indivisible physical asset.
The characteristics of a production process in which an increase in the scale of the firm causes a decrease in the long run average cost of each unit.
The series of operations necessary for a business to operate.
A global company is generally referred to as a multinational corporation (MNC). An MNC is a company that operates in two or more countries, leveraging the global environment to approach varying markets in attaining revenue generation. These international operations are pursued as a result of the strategic potential provided by technological developments, making new markets a more convenient and profitable pursuit both in sourcing production and pursuing growth.
International operations are therefore a direct result of either achieving higher levels of revenue or a lower cost structure within the operations or value-chain. MNC operations often attain economies of scale, through mass producing in external markets at substantially cheaper costs, or economies of scope, through horizontal expansion into new geographic markets. If successful, these both result in positive effects on the income statement (either larger revenues or stronger margins), but contain the innate risk in developing these new opportunities.
As gross domestic product (GDP) growth migrates from mature economies, such as the US and EU member states, to developing economies, such as China and India, it becomes highly relevant to capture growth in higher growth markets. is a particularly strong visual representation of the advantages a global corporation stands to capture, where the darker green areas represent where the highest GDP growth potential resides. High growth in the external environment is a strong opportunity for most incumbents in the market.
GDP Growth Rate by Country
This map highlights where the strongest growth opportunities currently are, as of 2010. In that year China and India had the highest GDP growth rates.
However, despite the general opportunities a global market provides, there are significant challenges MNCs face in penetrating these markets. These challenges can loosely be defined through four factors:
Combining these four challenges for global corporations with the inherent opportunities presented by a global economy, companies are encouraged to chase the opportunities while carefully controlling the risks to capture the optimal amount of value. Through effectively maintaining ethics and a strong public image, companies should create strategic business units with strong international leadership in order to capture value in a constantly expanding global market.
Source: Boundless.
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 License.