Global Business and the Multinational Firm - Term Paper Example

Global Business and the Multinational Firm Discuss the main reason that simply multiplying the countrys expected per capita consumption by its population doesnt necessarily lead to a good estimate for potential demand, and why this is an important consideration in the global business environment.  You are expected to use some comparisons across different countries to help to illustrate your arguments. Introduction The pattern of higher consumption rate was observed from the year starting from 1990s. The high growth rate experienced by the U.S. market along with the opening of the economies of most of the developing countries have resulted in increasing the consumption all over the world. As world have transformed drastically under the business process resulting in the mergence of different countries across the world that are capable of propelling the consumptive styles. From a U.S centric global business consumptive initiatives, the slow down experienced from the recession have indirectly effected this consumptive rates. Different scenarios have emerged in this situation, possibility of creating new centres of influences is being forecasted by global business agencies. Asian region to spear ahead the global consumption rate is being anticipated by the business community. The presence of large population with higher disposable income is expected to further boost the growth in the consumption of materials and commodities. Thus with China soon set to become the worldss third largest consumer economy and India fifth position behind Japan, three of the five largest economies would be in Asia. Another expected consumption pattern is though China and India would continue to grow, the common behavior of " higher saving with low spending" in these regions would still retain United States, European Union and Japan as the major consumer economies but with reduced rate of growth. But as a short measure it is proposed for the business houses to a) Tailor short-term growth plans in the consumption rates: This involves newer market categories rather than old and established sectors of their dominance. b) Shifting the focus to older consumers: As the large population of the consumers in U.S. and Europe turns older soon, the resulting change in their consumption behavior would have to be incorporated in their growth strategies. c) Exploring ways for budget offer of luxuries: The higher aspirations of the people could be considered while formulating business strategies for the slow growing economies. Figure 1 : The growth in consumption rates (Beinhocker, E. and Stephenson, E. , 2009). The Global consumptive indicators The global consumption rates have undergone a tremendous growth in the recent times often at the expense of obscure impacts to the far away places and people. Some of the major changes that have taken place in the consumption pattern are illustrated below McDonald’s, one of the worlds largest restaurants chains, have about 30,000 outlets spread across in 119 countries and having an estimated daily turnover of 46 million customers. The total revenue reported in 2002 was $15.4 billion. The impact the McDonald have across the world is obvious from the experience it had when the first outlet was opened in Kuwait city. The queue to this drive through was nearly 10 m long. German electronic giant and manufacturer of mobile phones, medical equipments, illumination and transportation systems is presently represented in 190 countries. It has a reported manpower strength of 4,26,000 employees. From the figures available for the year 2002, it is understood that, out of the total sales turnover of $ 96.4 billion, nearly 76 percent were from international pool. Levi Strauss, the leading clothing international brand, sells its products in atleast 100 countries besides registering its trademark in nearly 160 countries. The total employment generated by t he company across the world is reported as 12,400. Based on the business analysis reports available it is observed that the total sales generated by the company in the year 2002 was $ 4.1 billion and the income generated during the previous year was $ 151 million. Major softdrink major, Coco-Cola , having about 300 brands of drinks sells in over 200 countries. It is interesting to observe that nearly more than 70 percent of its income is originated outside United States and the reported net revenues in the year 2002 was $ 19.6 billion. On the manpower strength of the company, Coco-Cola employees nearly 60000 people in the African subcontinent alone. The current approach of the global economic operations is to shield the consumers from different adverse impacts from the various purchases made by them by increasing the gap between the different product life cycle phases like extraction of raw materials, processing, marketing, consumption and finally its disposal. In meantime, the economic expansion programmes under the umbrella of globalization are evolving into newer forms of political alignments across the world. These efforts reflect a necessity of collective interventions towards more sustainable and environmentally friendly production and consumption styles. This is with the realization that the over exploitation of the natural wealth owned by the planet for mere business goals would doom the future of entire humanity and finally the potential business too. The globalization of the economy and the higher rate of consumer oriented business process is closely associated with the sudden growth the global economy experienced in the large scale movement of money, goods and services across the countries during the early period of 1990. Towards the end of that decade , the value of the world trade is reported to have grown by atleast 50 percent. It was observed that the rapid growth occurred in the service sectors related to tourism, banking and consulting besides sudden surge in the foreign direct investments in most of the developing countries. Dichotomy in demand estimation The demand estimation is a very common process in the forecasting the market requirement in any multinational company. The approach each company adopt in the international marketing research varies according to nature of operation undertaken by them and the product category being addressed. Some of the companies uses specific indicators to evaluate the demand while some of them undertake detailed opportunity analysis before arriving at the final results (Cavusgil, 1987). By evaluating the consumer-spending pattern it is possible to obtain a better estimate of the market demand while detailed introspection into the business revenues or retail sales gives a clear picture of the market supply. . As the demand estimation is undertaken based on the consumer spending behavior it would be more appropriate to collect the data from the publically available documents like Annual Consumer Expenditure Surveys, usually prepared by the Labour statistics division in respective countries (Huffman, 2004). Different techniques are currently being used for the estimation of the market demand. These include the method of analogy, proxy indicators, chain ration method, time series analysis and multiple regression modelling. These techniques are widely used in the demand forecasting of variety of goods and durables and applied to the any type of country market (Waheeduzzman, 2008). It is expected that in any empirical demand analysis that most of the parameters are constant over time or carries clear specification oh how they change with time. On the other hand, the per capita consumption is more influenced by the closely associated individual rather than by the people who have distant associateship. The per capita demand functions differ only in one major parameter, if the number of individuals is very large and the average income level is well distributed, the difference between average per capita consumption of a group of people and remaining in the group would be very close. The demand forecasts are based on the proper estimation of the population growth, sudden change in the population in an area, estimation in the future variation in per capita demand. The total demand of any material is undertaken to assess the achievement in economy corresponding to the rate of investment. The total demand is often influenced by factors like per capita demand, total population served, other parameters like industrial or agricultural growth potential. It is estimated by the regression of past data using variety of linea and non-linear techniques. In case sudden change in the pattern of demographic distribution in a region occurs the above said principles would turn redundant. In such situations, it is always better to extrapolate a future per capita demand which when combined with the future population gives the expected demand (Pollak and Wales, 1992), . The true measure of the demand is validated with the further information like leakage / surplus factor. This factor accounts for the difference that exist between volume of goods supplied by the industry and the demand produced by the households in the same industrial segment. Thus this would give an idea on the deficit experienced in the market corresponding to demand estimated for a product by providing an accurate information on the retailer who are positioned outside the market segment and satisfying the demand generated from the market. (Huffman,2004). In these type of situation, the demand estimated from the per captia basis would not stand as a good estimate of market demand. Thus total demand need to be incorporate large number of variables often not reflected in the per capita calculations. Need for sustainable consumption One of the most important observations that is made in this context is the rapid growth experienced in the various commodities that are environmentally sensitive. These are minerals, forest products, fish and agriculture produces. It is well understood that in the countries like United States, Japan and Netherlands where their demand have far exceeded the availability in these places, the deficit is matched by importing the goods from the countries where the good are in surplus. Thus in this manner the ecological constrains to the global consumption patter is easily removed. Often, the global business objective has been to bring a high escalation in the consumption of goods and commodities and considerable success have been achieved in the consumption rate of materials ranging from "automobiles to digital gadgets or from paper to fast food items". Such a pattern of consumption irrespective of the nature of the country be it a developing or a developed /industrially advanced nation, the present approaches in the consumptive style of goods is resulting in the severe stress on the Earths health. Thus to bring in a sustainable consumption pattern across the countries is not an easy task. It involves considerable amount of cooperative efforts by governments, international agencies, private sector agencies, business houses, NGOs and other important participants with an objective to bring in a significant shift. The major interventions have been made since the year 1990 with the objective of creating a sustainable consumption pattern. The important initiatives that have caught the global attention are as follows: Agenda 21: is a global action plan that has originated after the Rio de Janeiro Earth Summit in the year 1992. The major outcome from this effort was to influence the global institutions to promote better efficiency in the energy and resource consumption, lowering the generation of wastes, promoting a purchasing style that cause least impact on the environment and establishing a pricing mechanism to include the obscure environmental costs. Creation of a common platform for the government and other important bodies to discuss the issues related to consumption and material production have been provided under the United nations Commission on Sustainable Development. Though the discussions held in this context have failed to initiate any concrete action, it was able to influence the revision of the existing framework of 1998 United Nations Guideline for Consumer Protection to incorporate the environmental factors. The product life cycle initiative, green procurement initiatives and working with various consumer and youth groups are the major efforts taken under sustainable consumption under United Nations Environment Programme. The government level strengthening of several international initiatives to arrest global environmental threats like - Kyoto Protocol in the year 1997, Cartagena Protocol on Biosafety and Stockholm Convention on Persistent Organic Pollutants (POPs) in the year 2000. The significant interventions have also been made by the corporate sector to give a priority on the environmental aspect in their business practices. The important ones among them are the United Nations Global Compact which forces the companies to incorporate nine core values including environmental protection into their operations and Equator principles which tries to influence the financial and banking institutions to look into the environmental and social risk component in their business operations. In the year 2002, a 10-year framework was proposed at the World Summit on Sustainable Development held at Johannesberg, South Africa to accelerate the acceptability of sustainable consumption philosophies. The activities hence planned consist of providing more information about the health and safety aspect of different products, conducting series of training programmes for capacity building and transfer of technology with the objective of sharing their advantages with he developing country. Concluding remarks Inspite of the continued efforts made across the world, the extend of shift that was achieved in shifting to more sustainable business practices was very dismal. The prime reason that is often stated in this regard is the rapid rate at which the consumer society have grown across the world. The governments across the world often try to focus on the production management initiatives than the efforts for controlling the extravagant lifestyle problems. One of the major concern that would have to be addressed in the future is the increasing disparity between the laws governing the international trade and the treaties for the environmental sustainability. A possible intervention that could be made under world Trade Organization is to create a platform where the business practices are made to operate under socially and environmentally justifiable way. The W.T.O. could influence the governments to implement measures that gives preferential treatment to environmentally benign goods like energy efficient lighting, recycled paper etc or reform the subsidies and prevailing support systems for any environmentally damaging business or commercial operations. Though all these measures are not very easy to implement, it could help the people all over the world to appreciate the unsustainable consumption patterns and hence attempt for the possible changes by themselves. References Beinhocker, E. and Stephenson, E. (2009), Trend to Watch: Shifting Consumption Patterns, Harvard Business Review, [Online] Available at [Accessed on 31 October 2009] Cavusgil, S.T. ( 1987), Qualitative Insights Into Company Experiences In International Marketing Research, Journal of Business and Industrial Marketing, 2(3) , pp 41 - 54 Centre for trade policy studies (n.d.) [Online] Available at < http://www.freetrade.org/node/682> [Accessed on 31 October 2009]. Eales, J (1996), A Symmetric Approach to Canadian Meat Demand Estimation, Journal of agriculture and Resource Economics, 21(2), pp 368 - 380. Huffman, D (2004), Supply/Demand estimation Models help to understand markets, [Online] Available from < http://www.directionsmag.com/article.php?article_id=533> [Accessed on 31 October 2009] Linking globalization, consumption and governance (2004), World Watch Institute, [Online] Available at < http://www.worldwatch.org/node/814> [Accessed on 30 October 2009] Pollak, R.A. and Wales, T.J ,(1992), Demand system specification and estimation, Oxford university press, New York. Reusswig, F, Campen, H.L. and Gerlinger, K. Changing Global Lifestyle and Consumption Patterns: The Case of Energy and Food [Online] Available at Accessed on [30 October 2009] Waheeduzzaman, A. N. M.(2008) Market Potential Estimation in International Markets: A Comparison of Methods , Journal of global marketing, 21(4), pp 307-320. Read More