IMPACT OF

GLOBALISATION ON
BUSINESS
The Caribbean Business Environment and Globalisation
 IMPACT OF GLOBALISATION ON
BUSINESS

• Over the past 50 years the rate of growth of

exports and imports has been faster than the
rate of growth of output around the world,
with Jamaica becoming ever more integrated
with the world economy.
 IMPACT OF GLOBALISATION ON
BUSINESS
• Definition: the process of interaction and integration
between people, companies, and governments worldwide.
• Globalisation is the growth of economic activity across
national and regional political boundaries. There is increased
movement of tangible and intangible goods and services,
including ownership rights, via trade and investment, and
often of people, via migration. (Oman, 1996).
 IMPACT OF GLOBALISATION ON
BUSINESS
• Economies of scale – domestic firms can also expand into the
global market. As they do so, large-scale production brings
about economies of scale. Their fixed costs can be spread
over a larger amount of output which leads to a reduction in
unit cost and a lower price. These firms may also benefit
from purchasing economies as they conduct bulk buying
 IMPACT OF GLOBALISATION ON
BUSINESS
• Choice of location – globalisation opens a number of markets that
were previously inaccessible and as a result firms can now choose to
locate in different countries. Doing so may provide businesses with
other opportunities such as labour cost saving and increased sales
• The internet is a main driver of globalisation and this provides
businesses with numerous opportunities. With the internet through e-
commerce, the business can advertise, sell or purchase online
CARIBBEAN BUSINESS CULTURE

• Factors affecting Business Culture:

1. Leaders
2. Employees
3. Daily procedures
4. Communication Networks
5. Environment
 CARIBBEAN BUSINESS CULTURE

• Leadership style
The style of leadership and the personalities of the leaders themselves may influence the
organisation’s culture. A leader who encourages participation among employees and
management will have a warm and hospitable culture compared with one who does the
opposite. The leader’s personality may help to motivate the workers and influence their
norms, attitudes and beliefs.
• Employees’ attitudes
Employees’ norms, beliefs and attitudes will transcend into the culture of the organisation
itself. Most of the time, the employees are the ones who are in direct contact with the
customers and, if disillusioned, may send the wrong signal. The culture of management
may be infused into the employees and the way they behave in the organisation.
MNC’S

• MNC’s respond to a number of important environmental

forces including competition, customers, suppliers, financial
institutions and government.
• They draw on a common pool of resources such as assets,
patents, trademarks, information technology and human
resources.
• They are linked by a common vision.
GROWTH OF MNC’S

• Multinationals in the Caribbean have increased steadily

over the years and, in some cases, have captured a
significant portion of the total market share. But what are
the causes of this increase?
1. To be close to their markets. Multinationals can cut cost
and gather more accurate data if they are operating near to
their markets. Such a company would be able to understand
the culture of the market and its consumers’ buying behaviour.
 GROWTH OF MNC’S 2

2. Lower production cost in those countries. Locating in the Caribbean may

present multinationals with lower production costs. Some territories offer
cheap labour since the supply of labour is greater compared with its
demand. In other words, the number of people seeking jobs is greater than
the number of vacancies available.
Multinationals may also come to the Caribbean to make use of the natural
resources found there. If they can manage to get raw materials at source, it
is likely that they will be cheaper – for example, bauxite companies trading
in Jamaica and oil companies in Trinidad and Tobago
GROWTH OF MNC’S 3

3. To be shielded by tariff-protected markets. Since the

inception of CARICOM, the Caribbean region has benefited
from a common external tariff (CET). This means that
countries within the free trade area trade without tariffs but all
products coming into the region are subjected to a common
tariff. Multinationals can take advantage of this by setting up
operations in any of the member countries of CARICOM and
enjoy free trade within the region while being protected from
competition outside the region
 GROWTH OF MNC’S 4

4. Government policy. In order to foster economic growth and

investments, governments may pursue fiscal and monetary policies that
encourage the growth of multinationals. This move may also help to
increase industrialisation, as some technology will spill over into
existing local firms.

5. To avoid local laws. Some MNCs move some of their operations out
of their home country in order to avoid laws affecting them – for
example, countries with anti- trust laws which encourage competition
by preventing monopolies and mergers
REASONS FOR MNC’S GROWTH

• A number of factors have contributed to the phenomenal

growth of MNCs. Some of the important factors are as follows:
• 1. Expansion of market territories -Rapid economic growth in
a number of countries resulting in rising GDPs and per capita
incomes contributed to the growing standards of living. This in
turn contributed to the continuous expansion of market
territories. MNCs, both contributed to the expansion of market
territories and also grew in size and spread as a result of
expansion of market territories.
REASONS FOR MNC’S GROWTH 2

• 2. Market superiorities - In many ways, MNCs have an edge over domestic

firms, such as: –
• a)     Availability of reliable and current data,
• b)    MNCs enjoy market reputation,
• c)     MNCs encounters relatively less problems and difficulties in
marketing the products,
• d)    MNCs adopt more effective advertising and sales promotion
techniques, and
• e)     MNCs enjoy faster transportation and adequate warehousing facilities
REASONS FOR MNC’S GROWTH 3

• 3. Financial superiorities - MNCs also enjoy a number of financial

advantages over domestic firms. These are: –
• a)     Availability of huge financial resources with the MNCs helps them
to transform business environment and circumstances in their favor.
• b)    MNCs can use the funds more effectively and economically on
account of their activities in numerous countries.
• c)     MNCs have easy access to international capital markets, and
• d)    MNCs have easy assessed to international banks and financial
institutions.
REASONS FOR MNC’S GROWTH 4

• 4. Technological superiorities: - MNCs are technologically

prosperous on account of high and sustained spend on Research and
Development (R&D).
• Developing countries on account of their technological
backwardness welcome MNCs to their countries because of the
attendant benefits of technology transfer.
• 5) Although racial, cultural and other barriers to the free movement
of labour remain a fundamental transformation and basic
reconfiguration of labour markets worldwide is already underway.
ADVANTAGES OF MNC

• MNC’s provide training of local labor with more sophisticated techniques which
in the long run will bring external benefits to the host country when these
techniques can be used in all economic sector.
• MNC’s raise the growth rate of host nation by introducing new investment and
new technology.
• induce their local rivals to become more innovative and competitive.
• MNC’s promote improvement or development to various supporting industry or
complementary industries

• MNC’s contributions of taxation, plus providing the host country with foreign
exchange that can be used to purchase vital imports.
ADVANTAGES OF MNC

• Improvement in the country’s Gross Domestic Product

(GDP). GDP is the value of all final goods and services
produced within a country over a one-year period.
• Gain foreign exchange as a result of the initial investment
and exportation of products from these companies. The
Caribbean countries’ main trade currency is the US dollar.
• Consumers benefit from increased variety as they can now
choose from a wider range of products.
DISADVANTAGES OF MNC

• MNC may enjoys high competitive advantages over local firms that can destroy
local competition rather than promote it.
• They can require their subsidiaries to operate polices that may be inefficient or create
distortion in local market
• They may misuse the environment
• They may create uncertainty because foreign firms control the country within it by
controlling part of its industries.
• They may not promote any development for the nation's economic activities by
simply source their components from abroad. which means the they will drive local
producers out of business.
• Avoid tax by practicing transfer pricing.
ROLE OF GOVERNMENT IN
GLOBALISATION
How do governments facilitate globalisation?

• Many governments have allowed the unprecedented rise of

global forms of intergovernmental management. This has led to
the emergence of sites of authority and legislative power that
covers areas which before now were seen as falling within the
compass of states and, indeed, as defining their sovereign role
in the international community. (e.g. The IMF influencing
macroeconomic policies in Jamaica).
 ROLE OF GOVERNMENT IN
GLOBALISATION 2
• National Governments have lost, in varying degrees, control over their
domestic economic affairs. Some governments may find that
multinationals have grown so large that they are no longer able to control
them. These businesses may avoid taxes and contravene labour laws.
• Multinational governance produced new manifestations of
marginalisation and inequity in developing and under-developed states.
• Governments (mis)believed that globalisation would result in free flows
of trade, finance and information to produce growth and human welfare.
Hence, a belief in the WTO as being beneficial to developing countries.
ROLE OF GOVERNMENT IN
GLOBALISATION 3
• The myth that all states can benefit from the neo-liberal free
market overlooked the theory of economies of scale and the
dis-economies of scale of small economies. To this end,
governments opened up their economies through trade
liberalisation to unfair competition with its domestic sector.
Jamaica saw the importation of agricultural products such
as red-peas, Irish potato and onions that were sold for prices
far below those that the St Elizabeth farmers could match.
CONSUMER BEHAVIOUR

• Variety of Choices - Consumers are perhaps the greatest short-

medium term beneficiaries under globalisation.
• The opening up of markets has presented the consumer with a
wider array of goods and services at competitive global prices.
• The tastes and preferences of consumers in different nations
are beginning to converge on some global norm. The
Jamaican, or Trinidadian or Barbadian markets are giving way
to the global market.
CONSUMER BEHAVIOUR 2

• The international acceptance of Coca Cola, Nokia cell

phones, Sony Products, Nike sportswear, Benetton clothing
and Mc Donald hamburgers are taken as tangible evidence
that the movement towards global convergence of
consumers’ preferences is well on stream. Additionally it is
argued that the firms responsible for these products are
more than benefactors of this trend; they are also facilitators
of it. By offering a standardised product worldwide, such
firms help to create a global market (p. 43).
CONSUMER BEHAVIOUR 3

• The consumer stands to benefit from global markets since

“the global corporation operates with resolute consistence –
at low relative cost – as if the entire world were a single
entity; it sells the same thing in the same way everywhere (p.
44)”.
• In spite of the global trends… it is possible to identify very
significant differences in consumer tastes and preferences,
distribution channels, culturally embedded value systems
across different national markets.
CONSUMER BEHAVIOUR 4

• As a result of these differences, global companies have found

it necessary to customized their marketing strategies, product
features and operation practices to match local conditions, e.
g. KFC selling rice and peas with its chicken in Jamaica –
adopting its menu to satisfy local tastes.
• In T&T KFC introduced the Colonel Curry Crunch Chicken.
• Provide employment for some consumers and other firms
through Foreign Direct Investment (FDI)
CONSUMER BEHAVIOUR 5

• While these differentiated marketing augers well for the

consumer it does not bode well for the firm.
• National differences in tastes and preferences may mean
that what sells in Britain may not sell in Brazil. This
reduces the retailers ability to centralize their purchasing,
buying the same product from the same global supplier and
selling that product world wide.
CONSUMER BEHAVIOUR 6

• While consumers have wider and more cultural preferences they

are not aware of the plethora of products and services that uses their
own demographic features that are now sold to them by MNC’s.
• Consumers are also being drawn into a cycle of heavy
consumerism by the lure of advertising and the mass media.
Products are quickly replaced with great fan fare for a more modern
version which renders the current one useless. You are made to be
perceived as being traditional and ‘behind the eighth ball’ for not
buying cutting edge products and technology.
COMPETITION AND QUALITY
ASSURANCE
• Global competition can lead to better quality products and
services but, standardisation may not suit the exquisite
tastes of some consumers.
• Global competition may also result in better quality
products and services which will suit the consumers but
may also drive small and domestic firms out of the market.
These small and domestic firms cannot afford the level ISO
certification necessary to compete.
TRADE LIBERALISATION

• This is the opening up of markets (usually in developing

and under-developed countries by removing trade barriers
and other obstacles to outside trade.
• This is the removal of barriers to trade and giving free
access to the market. This access may be limited to certain
products or it may be a total lifting of the barriers.
• Most domestic producers are now forced to compete
globally although producing locally.
TRADE LIBERALISATION 2

• The emphasis on trade liberalisation started in the Caribbean with

the formation of the Caribbean Free Trade Association
(CARIFTA) in 1965. The association’s main aims were to
increase, liberalise and diversify trade among the member states.
• The emphasis on trade liberalisation started in the Caribbean with
the formation of the Caribbean Free Trade Association
(CARIFTA) in 1965. The association’s main aims were to
increase, liberalise and diversify trade among the member states.
TRADE LIBERALISATION 3

• Today, CARICOM has grown into the Caribbean Single

Market and Economy (CSME). The CSME finally came
into being in 2006, having been proposed and agreed upon
from 1989. The CSME is designed to represent a single
economic space where people, goods, services and capital
can move freely within the member states.
TRADE LIBERALISATION 4

• Trade liberalization is the key to rapid growth and

development. It is worth noting that the major success
stories in the developing world—most notably South Korea
and Taiwan, which now have income levels comparable to
the poorer industrialized countries—but also countries that
have more recently experienced accelerated growth rates,
such as China and India, have not followed a simple path of
trade liberalization.
TRADE LIBERALISATION 5

• In all of these countries the government has played an

important role in guiding the economy. This guidance has
included subsidies and protection for favored industries and
restrictions on capital flows, policies generally opposed by
the leading proponents of trade liberalization.
 TRADE LIBERALISATION 6

• Article Six of the revised Treaty of Chaguaramas which established the CSME has outlined the following
objectives:
• improved standards of living and work
• full employment of labour and other factors of production
• accelerated, coordinated and sustained economic development and convergence
• expansion of trade and economic relations with third states
• enhanced levels of international competitiveness
• Movement of labour – this will allow skilled labour to travel and work in any of the member states. It will
facilitate the armonisation of social services (education and health services) and transfer of social security
benefits (pension benefits)
• Movement of goods and services – which is achieved through the removal of all trade barriers among member
states and setting regional standards for the goods being traded.
PAGES 51 AND 52 CONTAINS THE REMAINDING OBJECTIVES.
 PROTECTIONISM
• In order to protect the interests of Caribbean businesses, some governments
have embarked on protectionism. This refers to attempts by the government
of a country to restrict the importation of goods and services. Protections
may be placed on the importation of goods and services in order to:
• Prevent the dumping of the surplus of foreign goods into the local market.
These are usually low priced and will compete against local firms.
• Protect infant industries by giving them a space to grow and settle in the
market with little or no competition
PROTECTIONISM

• Rectify balance of payment disequilibria – that is, where the

value of imports exceeds the value of exports.
Protectionism will reduce the amount of imported goods
and reduce or rectify the disequilibria.
• Since some firms would have to shut down if they cannot
compete with foreign firms, some workers would have lost
their jobs. However, with protectionism unemployment may
be reduced
PROTECTIONISM

• The following are the types of protection that are commonly

used by Caribbean governments:
1. Tariff is a tax on imported goods. The tax can be a fixed
amount per unit or can be calculated as a percentage of the
value of the imports. Since the tax will cause imported goods to
be more expensive, the amount of goods that are imported
should fall. Local firms will be able to sell more products. This
method is often used successfully in the agricultural sector in
most Caribbean countries
PROTECTIONISM

2. Quota is a restriction that is placed on the quantity of a

product that can be imported at a given time
3. Embargo is a complete ban on trade between two countries
4. Export subsidies – the government may grant subsidies
to local firms so that their products can be sold at a lower price than imports
5. Exchange controls – this is a deliberate restriction of the foreign currency
available to citizens. Since most Caribbean countries trade using the US
dollar, if it is unavailable or in short supply, people will tend to consume
fewer imported products.
THE END