1. Art and Diseño

The Global Economy
Globalisation
Concepts
• A single interdependent global economy has
emerged with different areas having different
roles.
• The global scale of the activities of
multinational corporations (MNC’s)
What is Globalisation?
• Globalisation can be seen as the increased economic interdependence
between countries.
• Globalisation is defined by the U.N. as
‘The growing interdependence of the world’s people through shrinking space,
shrinking time and shrinking borders’.
• Globalisation refers to the economy of today’s world. It has economic,
political, cultural and technological aspects that are closely interlinked.
 flow of information, communication, trade, borrowing/loans, aid,
migration, investment and travel.
• Interdependence is the way on which each region of the world depends on
another for something. The South provides unprocessed minerals and
agricultural materials. The North provides finished products that are then
sold around the world.
Top 20 most globalised countries (2006)
Top 15 globalised economies (2010
finfacts.ie Ernst & Youngs Index)
Increase in
international
trade is faster
than the growth
in the world
economy
Increased role of
international
organisations e.g.
WTO, IMF that
deal with
international
transactions
Creation of
international
agreements
leading to
organisations
such as the
WTO and OPEC
Economic
Characteristics
of
Globalisation
Reduction/
removal of tariffs;
establishment of
free trade areas
Increase in
international
flow of
capital
Development
of global
financial
systems
Increase in certain
types of economic
practice e.g.
outsourcing by
MNCs
Reduced
Transportation
costs, due to
development of
containerisation for
ocean shipping.
Greater
international
cultural exchange
Spread of
multiculturalism and
more access to different
cultures e.g. through
the export of Hollywood
and ‘Bollywood’ films
Development of a global
telecommunications
infrastructure and
greater international
information flow e.g.
via internet
Greater
international
travel and tourism
Cultural
Characteristics
of Globalisation
Spread of local foods
e.g. chinese, Italian
food to other
countries.
Worldwide fads and
pop culture e.g.
Sudoku, Big Brother,
Youtube
Increasing usage of
foreign phrases e.g.
Adios
Increased
migration
The demand by many
for an international
criminal court and
international justice
organisations
Causes of Globalisation
• Globalisation has occurred because of a number
of developments around the world.
1. Advances in modern communications
2. Growth of multinational companies
3. Development of globally linked financial
systems
4. Improved transport
5. Free Trade agreements
1. Advances in modern communications
• Internet, e-mail, mobile telephones, satellite
television etc. has made business and social
communications between people easier
regardless of distance.
• Without rapid communications, MNCs could not
operate efficiently in different countries.
2. Growth of MNCs
• Globalisation has enabled the growth of corporations
into very large international corporations e.g.
Microsoft, Johnsons & Johnson
• They invest large amounts of money (foreign direct
investment FDI) to set up mining operations,
factories and offices in different countries.
• They purchase inputs, produce goods and services
and sell them at global (world) levels.
• Example: Design of a product may take place in the US, manufacture in
the SE Asia, and transported to be sold in Europe
3. Development of globally linked
financial systems
• Money is the major product on the global market.
• Technology enables the movement of approximately $1.3
trillion dollars every day around the world.
• Stock exchanges control this movement of money around the
world.
▫ Allows companies to operate in many different countries.
▫ Four major stock exchanges - NASDAQ (New York), NYSE (New
York), TSE (Tokyo), London (LSE)
• Global system is based on banking, borrowing and debt.
▫ Unfair advantage to MNCs over small- and medium-sized
enterprises (SMEs).
4. Improved Transport
• Bulk shipping, containerisation, air travel have
all reduced the costs and time involved in
moving large amounts of raw materials, goods
and people over longer distances.
5. Free Trade Agreements
• The removal or trade barriers and tariffs has
enabled the growth of the multinationals.
• Trade organisations such as the EU, NAFTA,
Mercosur encourage free trade.
• The World Trade Organisation (WTO) is the
international body which deals with the rules of
trade between countries. It promotes free trade
and encourages the removal of trade barriers.
Corporate Strategy in the Global
Economy
• Three factors influence the decisions of MNCs to
move in or out of a particular location.
▫ Wage Costs
▫ Product life cycle
▫ Changes in the global economy
Wage Costs
• Significant expense to the company.
• International division of labour has emerged in the
global economy.
▫ Labour intensive companies e.g. sports shoe producers
located in regions with low wage costs e.g. Taiwan,
Vietnam.
 Wages are as little as 10% of those in more developed
countries.
 Few labour laws to protect workers.
 ‘sweatshop’ production
▫ Pharmaceutical MNCs need educated workers etc. so
they choose to locate in regions where they employ
fewer but highly paid workers.
Product life cycle
• Produce Life Cycle Model – shows the relationship
between production, consumption and trade over the
‘life’ of a product.
• It shows how the location of production factories is
moved from developed countries (core regions) to less
developed countries (peripheral regions) as the product
becomes better known and more people buy it.
• The cycle can be as short as a few months or many
decades.
Product life cycle
Product life cycle
• Phase 1 - Introduction –
▫ The product is researched and developed.
▫ Access to scientists, technology and investment money is
important.
▫ Production costs and sales price are high.
▫ Location is restricted to core urban areas.
• Phase 2 – Growth –
▫ The product increases in sales.
▫ Increased demand leads to product improvements and the
need to open more production plants.
▫ Skilled workers, good regional markets and infrastructure
results in the new production plants being located away
from the original manufacturers country to take advantage
of transport costs and government incentives
Product life cycle
• Phase 3 - Maturity –
▫
▫
▫
▫
Competitors enter the market.
Price, and therefore the profits, decline.
The market is saturated with the product (or cheaper copies).
Less-skilled and lower-cost labour, cheaper land and good
transport systems to access world markets forces the MNCs to
relocate to peripheral regions within developed countries or to
the Newly Industrialised Countries (NICs).
• Phase 4 – Decline –
▫ The product has either gone out of fashion or been replaced by
newer more innovative technology.
▫ Sales drop.
▫ The product may become obsolete and production may stop
completely.
▫ If the product is stagnant, low labour costs, flexible workers,
cheap land, government grants and access to world markets may
encourage the MNC to locate in less developed countries.
Changes in global economy
• International events can influence a company to
leave a region.
▫ Currency devaluations
▫ Terrorist attacks
▫ Political unrest
▫ Any change in the economic performance of
Japan, the EU and America will affect MNC
operations around the world.
Impact of Globalisation
Food – we now have access to a greater variety of foods from
across the world. Choice has been improved and our diet has
become more varied. We can buy food from anywhere in the
world during any season.
Irish supermarkets sell apples from New Zealand, often
cheaper than those grown locally. This is not a free market at
work, but the result of huge subsidies aimed at promoting
global trade.
MNC’s now have almost complete control of agricultural
production and distribution – bananas, coffee etc. Small and
medium sized farms close down even though they provide
more jobs and take better care of the land.
Impact of Globalisation
• The South – One of the most common
arguments for increased trade is that it will bring
investment and wealth to the South.
• However, this has not been the case.
▫ Every year, millions of people are attracted off the
land by the promise of a job in the modern sector,
only to find themselves in vast urban slums or a
shanty towns, unable to meet even their most
basic needs.
▫ They lose their sense of culture, identity and selfworth.
Impact of Globalisation
• Jobs – In the global economy jobs are becoming
more temporary and insecure.
• Wages are falling and working hours are
increasing.
• Workers in the South are becoming increasing
dependent upon large foreign corporations for
employment, eventually losing all choice as the
local and national economies collapse.
▫ They can then be forced to accept lower wages and
poorer working conditions.
Impact of Globalisation
• The environment – globalisation damages the
environment.
• More trade means more transport which
produces more pollution.
• Global warming as a result of climate change is
being impacted by the increased demand for
fossil fuels as economies expand.
Impact of Globalisation
• Democracy – All of the global economic
institutions have increasing political power.
• Power rests with international organisations
such as the WTP, OECD, IMP, EU etc.
▫ All of these have multinational corporations
lobbying for favourable decisions.
▫ ‘Free Trade’ can often be put forward as an
argument against banning substances that are bad
for health.
Impact of Globalisation
• Community – rural areas are being ignored and
diverse cultures are being lost.
• MNC’s can create a global consumer
monoculture – ‘Coke’.
• On the positive side, the expansion of the
Internet and satellite television means greater
and more timely access to world events and
understanding of life in different areas /
cultures.
Impact of Globalisation
• Anti-globalisation protests – the growing
awareness of the negative impact of globalisation
has resulted in protest meetings – especially
whenever the major economic leaders are
meeting.
• They include labour unions, environmentalists,
and some religious leaders who challenge
globalisation.
Impacts of Globalisation
MNCs and the Global Economy
• Multinational Companies (MNC’s) – are corporations that
have production factories and service centres located in more
than one country.
• Foreign Direct Investment (FDI) – is the money invested by
the MNC’s in foreign countries. With improved
transportation and communication systems, they can
coordinate their production and sales as part of a single global
system.
• MNC’s control increasing amounts of global trade, production
and employment. They have a major influence on the
economic development of countries.
• 82,053 MNC’s globally with 807,803 subsidiary companies
and account for 1/3 of the value of global exports.
Foreign direct investment
Location of MNCs
• Access to raw materials
• Access to cheap labour
• Access to new and expanding markets
• Flexibility of location
MNC’s in Ireland
• Ireland offers MNCs a politically stable, profitable,
english-speaking base from which to trade with the
world market.
• About 1000 overseas compnaies have located in
Ireland.
• FDI is an important source of employment in
Ireland.
• 13 of the top 15 Pharmaceutical companies in the
world have operations in Ireland.
Why Ireland?
• Competiveness is based on its educated, flexible
labour force and quality communications
infrastructures.
• Ireland is seen as a good place to live.
• Before the recession, the economy experienced
huge growth.
• Ireland continues to attract investment in areas
such as communications e.g. Facebook, Sky,
Google and financial and international services.
World Competitiveness Report 2010
World Competitiveness Report 2010
World Competitiveness Report 2010
The Benefits for industry of locating in
Ireland
1. Workforce
▫
Young workforce, with 40% under the age of 25
years. Migration from eastern Europe has added
young skilled workers.
2. Research and development facilities
▫
The government has provided grants and
encouraged the development and expansion of
R&D facilities. The government is also
encouraging an increase in the number of postgraduate and PhD graduates.
The Benefits for industry of locating in
Ireland
3. Tax Incentives
▫
▫
▫
The corporate tax rate in only 12.5%, which is extremely
low by EU standards (Britain is 28%).
Tax credits for expenditure on R&D are also available,
which encourages the expansion of R&D facilities.
The government has double taxation agreements with 65
countries, which allow MNC’s to pay tax in either the
branch plant country or their home country – but not
both.
4. Educated/ skilled workforce
▫
▫
The education system in Ireland is one of the best in the
world, according to the 2007 World Competitiveness
Report.
It produces 35,000 graduates every year. Since 1992,
there has been a 35% increase in the number of students
studying engineering and technology courses.
World Competitiveness Report 2010
Technology: 34 of 139
•1 of 139 in terms of extent that FDI brings
technology to a country.
The Benefits for industry of locating in
Ireland
5. Supply Chain Management
▫ This is the control of materials, information and
finances as they move from the supplier to the
manufacturer to the wholesaler to the retailer to
the consumer.
▫ It involves coordinating and integrating these
flows both within and among companies.
▫ It helps reduce costs involved in storage and
delivery of goods.
▫ Ireland is developing expertise in SCM.
Supply Chain Management
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•
•
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Sales forecasting
Inbound & outbound
transportation facilities
Production planning
Inventory management
Warehousing facilities
Customer service
Sales order processing
• Companies with successful
SCM operations in Ireland
include Apple.
A Multinational Company based in Ireland
It uses the global economy in the design, manufacture and
marketing of its porducts.
Company Profile
• American MNC
• Produces chemicals for medicines such as painkillers and
cough mixtures as well as skin creams, baby products, contact
lenses, medical devices etc.
• Operates in more than 57 countries and is made up of over
250 companies worldwide.
• In 2010 it sold more than over $61 billion worth of goods.
• It employs over 114,000 people.
• It is the 7th largest pharmaceutical companyin the world.
Products
Johnson &Johnson business segments
Locations
MNC’s locate in
many different
countries in order to
lower their
production costs and
maximise their
profits.
Johnson & Johnson in Ireland
• Employs over 2,000 people
• Seven plants in Cork, Limerick, Dublin and Cashel.
Plant:
Manufactures:
Vistakon Ireland, Limerick
Contact lenses
Janssen Pharmaceutical, Cork
Pharmaceuticals
DePuy Ireland, Cork
Orthopaedics (treatment of skeletal disorders)
Centocur Ireland, Cork
Biopharma products (medical drugs produced
using biotechnology)
Cordis Corporation, Cashel
Products linked with heart disease
Alza Ireland, Cashel
Transdermal medication
J&J Medical, Dublin
Medical equipment sales (joint replacements)
J&J Consumers, Dublin
Consumer product sales (baby care/ skin care)
Johnson & Johnson, Ireland
Why has Johnson&Johnson located in
Ireland?
• Supply of raw materials or other resources
▫ Investments/ improvements in water supply
infrastructure in both Limerick and Cork Harbour.
▫ Water is important for pharmaceutical industries
because it is used as an ingredient and for waster
disposal in the production of liquid medicines.
Why has Johnson&Johnson located in
Ireland?
• Labour Supply - MNCs locate in different countries so
that they have access to either a low-cost or highlyskilled labour supply.
 Johnson & Johnson have a factory in Mexico to avail
of low-cost, unskilled labour supply.
 Located in Ireland because Ireland offers highlyskilled labour force for the pharmaceutical
production operations here.
 Young, educated workforce.
 40% of the Irish workforce is under 25.
 In one J&J plant in Limerick over 500 people are
employed (majority with third-level qualifications)
Why has Johnson&Johnson located in
Ireland?
• Access to a market- MNCs locate in different countries in order
to minimise transport costs involved in reaching their markets.
▫ 3 global economic zones in the world with wealthy
populations – Japan, The EU and North America
 J&J located its European pharmaceutical operations in
Ireland so that it can reach these 3 markets easily.
 E.g. Vistakon is a J&J company located in Limerick
manufacturing contact lenses. The main market is the EU
and Japan.
 Custom-free access to the EU market (product is made in the
EU)
 Daily deliveries– Truck, Ferry, Truck, Plane
▫ Limerick  Rosslare Port(Wexford)  Pembroke Port
(Wales)  Heathrow Airport (London)  Japan
Why has Johnson&Johnson located in
Ireland?
• Government and tax policies – MNCs locate in
countries with favourable tax systems
▫ Ireland has one of the lowest corporation tax rates
in the world (12.5%).
▫ This is the tax rate companies pay on their profits.
▫ J&J decision to locate in Ireland was influenced by
this tax rate.
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
Rate in Japan is 41%
Rate in UK is 26%
Rate in France 33%
Rate in US 35%
Manufacture of contact lenses at
Vistakon, Limerick.
• HQ is in Florida
• Opened in 1996 and employs over 650 in Limerick.
▫ Only Vistakon manufacturing site outside the US.
• Designs, manufactures and markets a range of soft disposable
contact lenses.
• Largest producer of disposable contact lenses in the world.
• Brand: Acuvue
▫ Leading product in the market.
• Located in the National Technological Park, beside University
of Limerick.
• Technology at this plant is most advanced in the world for
contact lense production.
Growth of the company in Limerick
• Limerick was chosen because:
▫ Ireland offered an English-speaking, highly skilled labour force.
▫ Government policy provided the technical support (site provision,
planning and construction) to enable Vistakon to begin quickly.
▫ Johnson&Johnson had already established a successful company
in Cork and were familiar with Ireland as a business location.
Vistakon
• Today the facility has 30 production lines to
manufacture daily, forthnightly, monthly and colour
lenses that are shipped worldwide.
• In 2006 the company invested €100 million in its
Limerick operations.
▫ New technology installed
▫ Ability to manufacture more complex next generation
products
▫ 2010/2011 investment plan:
 The most recent development plans for Vistakon in Limerick
include the start up of our Contact Lens Care facility. This
represents a multi million euro investment and the end product
will be an ACUVUE Contact Lens Solution to partner lens
products.
 Vistakon have an aggressive growth strategy to make the most
of the global contact lens market’s huge potential.
Raw materials and transport
• Gel-like substance used for the lense is imported
fromNorth America.
• Water and saline solution are provided locally.
• Packaging is made by Boxmore in Limerick.
• Electricity is provided by the ESB.
▫ Second largest power user in Munster.
▫ Has cmmitted to the development of sustainable
energy. Electricity is provided by wind power
suppliers.
Production
• Lenses are produced in a clean-room
environment.
• Production is fully automated.
• Hygiene checks throughout.
Waste management
• 90% of waste at the plant is recyclable material
and disposed of locally.
• 10% is hazardous and sent from Ireland to the
EU for incineration.
Market
• Sold around the world but Japan is main
market.