BIN3022-N Global Economics and Business Operations

ECO2017-N
International Business and Management
Seminar 2
1. Which do you consider to be the most important drivers of globalization: political,
economic, or technological drivers?
2. Do you agree that the demand for low-skilled labour is likely to fall in developed
countries? If so, what are the implications for workers in these countries?
3. To what extent does globalization increase the inequality of income both within and
between countries? Why do you think this happens?
4. Is globalization leading to cultural homogeneity or cultural diversity?
5. In 2002, Dyson reluctantly moved its main vacuum cleaner production plant from
Malmesbury in the UK to Malaysia. The company already had a plant in Malaysia serving
the East Asian and Australian market, but the new plant was to become the main
international production operation. The company's washing machine production was also
transferred to Malaysia in 2003. Understandably, the plant closures in the UK were
controversial because of the loss of jobs and what many people perceived as a loss of the
UK's manufacturing capability. However, the move enabled Dyson to cut its production
costs and remain competitive as a relatively small player in a challenging international
market. Many of its suppliers were already located in East Asia, so this created further
cost savings. The company retained and increased its design and research and
development teams in the UK and competitive repositioning allowed the company to
expand into the North American market. This story is not untypical of the way in which
companies have improved their performance or ensured their survival by responding to
the cost, market and competitive drivers of globalization. To what extent do you think
Dyson's decision to offshore its production was inevitable?
6. Short case study – Globalisation of Car Industry
International car manufacturing industry provides a useful illustration of the way an
industry is responding to globalisation. Looking back to the 1950s and 1960s, we see that
most of the larger developed economies had one or more major national car
manufacturers; among them were General Motors and Ford in the United States,
Volkswagen and Daimler Benz in Germany, Renault in France, and the former British
Leyland in the UK. Many of these companies had grown by acquiring smaller independent
businesses either at home or abroad. Car manufacturing was also developing in countries
Like Japan and South Korea, though these firms were not yet major multinational
companies.
By the late 19605 Japanese manufacturers were engaged in a coordinated export drive,
an example of the Japanese ‘convoy system’ where companies in a particular industry
ventured abroad together with the backing of the Japanese government. Companies like
Toyota, Honda, and Nissan (formerly Datsun) soon became household names in North
America and Western Europe. At first, Japanese cars were lacking in style but were well
engineered and included many ‘extras’ as standard features. By the 1970s Japanese
competition was regarded as a major threat to the established western car producers
and by the early 1980s a raft of trade restrictions were being introduced to Limit imports
of Japanese cars. In fact, the voluntary export restraints ‘agreed’ between European
countries and Japan were not finally lifted until 1999. During the 1970s and 19805 many
of Europe’s larger car manufacturers were lagging behind their Japanese counterparts in
their production methods and reliability. Restrictions on Japanese imports seemed to be
the only solution.
European and US import restrictions did not of course hold back the flow of Japanese
cars for very long. The Japanese simply built their car plants in Europe and America
instead.
Although the Japanese presence was viewed by western manufacturers as a threat to
their
survival, in many ways it forced them to revitalize themselves. Inevitably, some firms
found
this more difficult than others. British Leyland was taken into state ownership during the
1970s and, after a long struggle to revive itself, the privatization and break-up of the
business into separate companies in the 1980s, and six years under BMW ownership
(1994—2000), the residual MG Rover company finally succumbed to insolvency in 2005
and was sold to Nanjing Automobile Group of China. France’s state-owned Renault
company revived its fortunes after major restructuring in the 1980s and 1990s and
privatization in 1996. Other companies like Volkswagen, Daimler, and BMW were
stronger challengers and became market leaders in their sectors of the car market.
Japanese production methods, such as just-in-time production and kaizen (continuous
improvement), were also adopted by US and European companies, helping to improve
their efficiency and the quality of their products.
Some of these developments took place during the early stages of modern globalisation,
though the term itself did not come into use until later. However, the relative isolation of
the US and Western European car markets was becoming a thing of the past. European
consumers had bought cars from other European countries, but Asian or even US cars
(other thanthose made in Europe) were still rare until the Japanese arrived. Since that
time national car markets have been gradually opening up to international competition
and most of the major manufacturers are now multinational companies. As markets have
opened, mergers and acquisitions have become more common. Ford, for example,
bought Volvo’s car division, Jaguar, Land Rover, Mazda, and Aston Martin. General
Motors acquired control of Saab’s and Daewoo’s car divisions and significant
shareholdings in Isuzu, Suzuki, and Fiat, though most of these shareholdings have now
been sold. Other prominent mergers since the 1980s have included Daimler-Chrysler
(dissolved in 2007), Volkswagen’s acquisition of Seat, Skoda, and Bentley (together with
its earlier acquisition of Audi), and BMW’s acquisition of Rover (now only the Mini) and
the Rolls-Royce (which BMW manufacture at a new UK plant after acquiring the Rolls-
Royce trade mark).
Another significant development has been Renault’s joint venture with Nissan, in which
Renault now owns 44.4 per cent of Nissan’s shares arid Nissan owns 15 per cent of
Renault’s shares, but more importantly Renault has management control of Nissan. This
type of arrangement between a French and a Japanese company would have been
unthinkable only a few years ago. After all in the 1980s Nissan was a rising star and
Renault was trying to revive its struggling business. Japanese companies were also
fiercely protected from foreign predators. However, the 1990s brought growing success
for Renault and growing problems for Nissan. Nissan remained a highly productive car
manufacturer with strong products and state-of-the art production facilities, but the
close-knit Japanese keiretsu system had allowed Nissan to take out large loans to finance
its international expansion, leaving the company heavily indebted by the 1990s. The
Renault-Nissan alliance has helped Nissan to restructure its business and finances and
has provided a new synergy to both companies. Although one of the most successful of
the recent alliances, Renault-Nissan is by no means an isolated example. Many looser
forms of alliance exist, as for example the purchasing, technical or production alliances
General Motors has with companies such as Suzuki, Toyota, Daimler, Chrysler, BMW,
Renault, Shanghai Automotive, and Avtovaz of Russia.
These various mergers and alliances have helped to restructure the international car
manufacturing industry. A few small independent car manufacturers still survive, but the
world market is dominated by the larger mass-market and specialised multinational
companies. The ten largest car firms ranked by sales revenue in 2008 are listed in Table
at below. General Motors and Ford have dominated the rankings for many years, but
recent problems at these companies have allowed Toyota and Daimler to rival them for
the top positions. General Motors was in fact undergoing major restructuring under
‘Chapter 11’ bankruptcy proceedings during the summer of 2009. Chapter 11 of the US
Bankruptcy Code allows a company time to reorganize its activities, whilst technically
insolvent, with a view to re-emerging as a going Concern.
The car industry is also responding to a number of other international developments. The
BRIC and CEE countries have attracted significant inward investment in recent years.
Most of the major car manufacturers now have production plants in these countries.
Even small
countries like Hungary and Slovakia have become car manufacturing centres. These
investments have been driven by cost pressures and market opportunities, and car
production in the high-cost, mature markets of the United States and Western Europe
has been declining. Environmental pressures have also focused the attention of the car
manufacturers and some of the alliances discussed above have been helping them to
share their physical and intellectual resources in an effort to improve fuel efficiency or
search for alternative fuel sources. The international expansion of car production has also
outstripped demand. This has led to a problem of overcapacity and increasing
competitive pressures, a problem which was exacerbated by the 2008-9 world recession.
Inevitably, some firms are adjusting to these pressures better than others. These and
many other influences have been reshaping the international car industry in an
increasingly global economy.
a) To what extent was the international expansion of Japanese car manufacturers
beneficial to the development of the US and Western European car industries in the
1970s and 1980s?
b) Did US and European import restrictions on Japanese cars in the 1980s and 1990s
have any beneficial effects?
c) How have consumers been affected by the gradual globalization of the car industry?
d) Why have there been a large number of international mergers in the car industry? To
what extent have these mergers been beneficial for the companies concerned?
e) What benefits has the Renault-Nissan joint venture brought for each company? Why
was this alliance a significant step for a Japanese company to take?
f) Why do competing companies frequently form alliances?
g) Toyota, General Motors, Daimler, and Ford have been battling for the top sales
positions in the international car market. On what factors is their future success likely
to depend?
h) What are the implications of the gradual shift in car manufacturing from North
America and Western Europe to Asia, Latin America, and Central and Eastern Europe?

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