net-works,
global media and communications, and the rise of global brands as indicative of the globalization of markets. You (the student) may wish to discuss here the extent to which Levitt’s views are relevant today. Consumer markets have diverged, whereas he was confident that they would converge with the American model. However, in standard products which are more like commodities, as well as in industrial products, it makes sense to speak of global markets.

Globalization of production should be defined. Advances in transport, communications and technology have facilitated company strategists, who wish to source and manufacture products in the most advantageous locations. These locations might be low in cost, close to raw materials, close to transport links or close to markets. This process has taken place rapidly, whereas the continuing fragmentation of consumer markets has made globalization of markets more problematic. The scope for sourcing a complex product like a car in different locations is pointed to as indicative of globalization of production. The effect has been to reduce costs of goods for consumers, to improve efficiency in production and to increase consumer choice.
 

An advantage of FDI over outsourcing is control over the operation, including management, quality, distribution and marketing. Under outsourcing arrangements, the brand owner will have an agreement with the manufacturer covering all these areas, but will lack hands-on control. Outsourcing has the advantage that the brand owner does not have to make a large capital investment, and there is flexibility to shift production to another manufacturer or another country.

It will be as good idea to start by summarizing the main points of each theory before citing the examples. You can then draw on either companies you know or ones featured so far in the book. Examples could be found which demonstrate each of the theories.

Product life cycle theory is still relevant for companies manufacturing consumer products – Nokia is an example. Nokia is also an example of incremental internationalization, as it expanded first in markets similar to its home market of Finland, and moved into India and China later. Covering three distinct types of advantages, Dunning’s eclectic paradigm (or the OLI theory) can be illustrated by a number of examples. VW is an example of internalization advantages, as the company has traditionally manufactured its own components. Ownership advantages feature strongly in the example of McDonald’s, helping to explain its internationalization strategy. Ownership advantages are also important for Dyson. Location advantages feature in the cases of Nokia, Dyson, Ericsson and Puma – all of which now manufacture in low-cost locations. Note that Dunning envisaged a OLI configuration for every firm in terms of FDI.

FDI can be an opportunity or threat from the perspective of the host country. FDI represents opportunities in terms of employment in the host country, possible technology transfer, spillover effects for local firms, and the raising of skill levels for local workers (the growth of car manufacturing in China is an example of all of these).

The capital investment can yield economic benefits, such as tax revenues, for the local economy. The possible threats: Foreign companies may offer only low-skilled work, retaining managerial and highly skilled work for the parent company or parent company nationals (expatriates). Foreign companies may constitute such strong competition that domestic firms are jeopardized or even put out of business (the expansion of global retailers is an example). Foreign investors, in some cases, pay little heed to environmental implications, and the result can be environmental degradation (oil companies have had a poor record in some locations; Coca-Cola has also been criticized for its poor management of water resources in developing countries). Much depends on whether the host government and communities reach agreement with investors to safeguard the environment, and are able to enforce such agreements.

• Global companies which have become more efficient and reduced costs of production have gained. These companies are able to sell their products in numerous markets, linked in a global strategy.

• Also benefiting from globalization are workers in favored FDI locations, where new manufacturing jobs are created, allowing workers to enjoy increases in earnings and improvements in living standards.

• Affluent consumers in all countries have benefited, due to the increased availability of imported goods and greater choice or products.

• Skilled workers in technology have benefited from globalization in all locations.

• low-skilled industrial workers in high-cost countries.

• Companies which have nurtured traditional skills, as in textiles and other craft-based industries, have been losers except in certain specialized markets (often luxury goods), as their products cannot compete on price with mass-produced goods, which are now widely available in all markets.

• Local and national businesses, often SMEs, which are unable to compete against multinationals.

Where the losers are low-skilled workers, education and training can help to re-skill them for jobs in the sectors which remain buoyant, even in high-cost countries. For local and national businesses which risk being swept away by global companies, government policies can play a role. Some governments do not allow global retailers to move to an area if there is a risk that it will destroy numerous small shops. Local businesses, with their knowledge of local consumers, often represent formidable competition for multinational entrants new to markets. The fact that the market features both the established local company and the foreign entrant with its global brands is a feature of globalization which consumers welcome.

Some people argue that MNEs need not be concerned at all about social impacts(!) but most would probably acknowledge that they should to some extent. The reasons draw on CSR (Corporate Social Responsibility) and stakeholder arguments:

• Companies now appreciate that their operations impact on communities in which they are located, and that they therefore interact with those communities. Where relations are positive, all participants tend to benefit. The company will attract new recruits who identify with its goals, and communities will be more inclined to look favorably on expansion plans. Good relations with the government may also lead to more favorable policies which benefit foreign investors.
   

• Another source of pressure on multinationals to take greater interest in social impacts has come from consumers in western markets. MNEs have attracted considerable adverse publicity over FDI and outsourced production in locations where working conditions are poor and human rights abuses occur. NGOs have brought much of this information to international attention. Companies now risk reputational damage if they ignore these considerations. Most are now paying closer attention to foreign operations, stressing that they now apply the same policies everywhere.