Conduct a substantial research into the corporation, Economics TNC research assignment

It’s time now to conduct substantial research into the corporation. You’re going to tackle a number of issues, so give yourself plenty of time.  You are being asked here to document a specific historical, political, cultural, and economic process through the lens of a single company: AMAZON .

I. Work out why your TNC is globalizing:

  • Is it to reach a bigger market (“market access”)?
  • Or is it to produce goods more cheaply (“sourcing efficiency”)?
  • Or is it both of these?
  • Or has the TNC always been globally organized because of its product (e.g., oil)?

A. If the TNC is globalizing to reach a bigger global market, investigate how it’s trying to expand its market share. Make two lists:

    • What investments (new retail outlets, new supply chains, etc.) is it developing?
    • What countries is it targeting as future markets for sales?

B. If your TNC is globalizing in order to produce goods more cheaply (“sourcing efficiency”), try to identify what parts of the production process it is off-shoring.

    • Where is it off-shoring to?

II. How has your TNC(Amazon) globalized?

Determine if the following four general TNC globalization methods/patterns have determined the global expansion of your TNC and write a few sentences about the details (for example, specifically what kind of facility or contract, when it was established, where, etc.).

A. FDI – foreign direct investment in everything from retailing outlets to new factories and new offices (common in producer-driven commodity chains)

B. Mergers and acquisitions of foreign companies

C. Market-mediated contractual ties with foreign vendors, franchises, and producers (common in market-driven commodity chains)

D. Sales expansion overseas finding new markets and/or adapting products for foreign markets

III. Have you missed anything? Use Dunning’s paradigm chart (1977), below, to check! 

Types of International Production

(O) Ownership advantages (the ‘why’ of MNE activity)

(L) Location advantages (the ‘where’ of production)

(I) Internalization advantages (the ‘how’ of involvement)

Strategic(s) goals of MNEs

Illustration of types of activity that favour MNEs

Natural resource seeking

Capital, technology, access to markets; complementary assets; size and negotiating strengths

Possession of natural resources and related transport and communications infrastructure; tax and other incentives

To ensure stability of supplies at right price; control markets

To gain privileged access to resources vis-à-vis competitors

(a) Oil, copper, bauxite, bananas, pineapples, cocoa, hotels

(b) Export processing, labor-intensive products or processes

Efficiency seeking (a) of product (b) of processes

As above, but also access to markets; economies of scope, geographical diversification and international sourcing of inputs

(a) Economies of product specialization and concentration

(b) Low labor costs: incentives to local production by host

(a) As for second category plus gains from economies of common governance

(b) The economies of vertical integration and horizontal diversification

As part of regional or global product rationalization and/or to gain advantages of process specialization

(a) Motor vehicles, electrical appliances, business services, some R& D

(b) Consumer electronics, textiles and clothing

Strategic asset seeking

Any of the first three that offer opportunities

Any of the first three that offer technology, markets and other assets in which firm is deficient

Economies of common governance; improved competitive or strategic advantage; to reduce or spread risks

To strengthen global innovatory or production competitiveness; to gain new product lines or markets

Industries that record a high ratio of fixed to overhead costs and which offer substantial economies of scale or synergy

Trade and distribution (import and export merchanting)

Market access; products to distribute

Source of inputs and local markets; need to be near customers; after-sales servicing, etc.

Need to protect quality of inputs; need to ensure sales outlets and to avoid underperfomance or misrepresentation by foreign agents

Either as entry to new markets or as part of regional or global marketing strategy

A variety of goods, particularly those requiring contact with subcontractors and final consumers

Support Services

Experience of clients in home countries

Availability of markets, particularly those of ‘lead’ clients

Various (see above categories)

As part of regional or global product or geographical diversification

(a) Accounting, advertising, banking, particular goods

(b) Where spatial linkages are essential (e.g. airlines and shipping)

1) First, determine what kind of production your TNC is involved in overseas.

2) Look in columns O, L, and I to answer questions about “why,” “where,” and “how” the TNC is globalizing.

3) Look in the last two columns for other useful things about your TNC’s motives, etc.

Additional Tips

1) How, why and where questions are obviously interrelated—you don’t need to worry too much about isolating each question in its own section.  What’s important is that you do address each.

2) The why question has one of three answers: market access, resource efficiency, or a mixture of both.  The focus should be on what’s most important for the company’s business model.  

Do not tell me the company globalized to increase profits. That’s like saying humans breathe to get oxygen.

Examples:

  • Apple clearly wants to sell its products all over the world, but resource efficiency is probably the more relevant aspect of its business practices in terms of globalization.  It doesn’t mean you should ignore its global marketing, but is that what’s really interesting or important about the company’s globalization?
  • McDonald’s is clearly globalizing for market access—even though its supply chain in foreign countries is localized to a large degree, it is not globalizing in order to obtain foreign agricultural products.
  • Starbucks: Starbucks is a good example of a company that is a mixture of the two.  It has almost comically expanded to every corner of the globe (see this clip (Links to an external site.)) but it also depends on foreign bean growers for its supply chain.

You have some discretion in emphasizing one aspect over the other when both are evident, follow your own instincts about what’s most important or interesting.

3) The how and where question are very closely linked.  The key here is not just to give me a list of places where the company has branches but the process through which it established itself in other countries and new markets.  Globalizing a corporation can be a very messy process, and I want you to be keeping your eyes open for examples of this.  For example, how did the company modify its products to suit foreign markets (as in how McDonald’s in India doesn’t serve hamburgers) and what sorts of setbacks might it have experienced?  What political-legal struggles were involved in establishing factories abroad (negotiations with the Chinese government, backlash among American consumers and workers)?  What trade disputes may emerge (presently of frequent relevance to US-China trade relations)?

4)  If you have chosen a giant company like Nestle or General Electric that has dozens, if not hundreds, of subsidiaries and product lines, you may choose to focus on one or two subsidiaries for this assignment. This is not required, but it is an option.  For example, it may be hard to say something meaningful in this paper about how Nestle has globalized because it probably has different marketing and supply chain strategies for different products.  It would be perfectly reasonable to focus on one product (i.e. baby formula; frozen dinners) to serve as a case-study to demonstrate how the company approaches globalization.

Write a 3-5 page report

1) Clearly explain why the corporation is globalizing: mainly for market access reasons, for sourcing efficiency reasons, or for some complex mix of the two. “To increase profits” is not a good answer to this question!

2) Demonstrate as clearly and specifically as possible where it is globalizing.

  • Give attention to the locational advantages in the places it globalizes and the conditions that create those advantages.  For example, is the local government initiating policies to reduce taxes for foreign business?  Are there institutions in place that suppress wages for workers?  Or are there environmental/ecological reasons? (i.e. climate for growing coffee beans).

3) Explain in detail how it is globalizing–(for example, through mergers and acquisitions, contracting with independent suppliers, .etc). 

  • While this will become clearer after future lessons, you should also begin thinking about what specific changes in the present era make its globalization possible (for example, changes in the international division of labor, changes in currency markets, .etc)

Be sure to include a works cited list.

 
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