GLOBALIZATION

GLOBALIZATION

Definition:
The tendency of investment funds and businesses to move beyond domestic and national markets to other markets around the globe, thereby increasing the interconnectedness of different markets.

Read more: http://www.investopedia.com/terms/g/globalization.asp#ixzz2HrtrwXJZ

• it eliminates barriers to trade exchange
• it expands a certain business to other countries
• franchises
• lower cost in terms of employment
• profit higher
• more sales

The Benefits:

• various kinds of choices provided for the consumers

• competition is present
• might be considered as a threat
• specializing in a certain product that they are very good in producing
• such as Malaysia producing traditional kuih

• political links are improved and same goes to the social links

The Drawbacks:

• Unemployment towards the people in the home country
• specializing in a certain field might not have enough experienced workers
• goods that are sold below the cost price may affect the country that provides it
• causing it them to not gain profits

For your information, this would be my last post for this blog. I hope all of you guys enjoyed reading my blog. Thank you. Farhana. :)

MNC (Multi National Companies)

Multinational Companies

Definition:
A corporation that has its facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they co-ordinate global management. Very large multinationals have budgets that exceed those of many small countries. 
Read more: http://www.investopedia.com/terms/m/multinationalcorporation.asp#ixzz2HrlExkqc

In a simpler version, that it has a lot of small companies in other countries other that its own country. 

Examples of great Multinational companies in the world are:

• Microsoft

• Google

• McDonald's

These companies are one of the famous companies in the world. They are very well known.

Reasons affecting the growth of multinational companies are:

• Improvements in technologies
• technologies such as transports and communications
• able to reach consumers all around the world
• example: Online shopping

• Governments
• Governments encourages relationships between countries for international trading

• Limited resources
• such as coals and petroleum
• causes companies to set up factories near locations that provides these raw materials.

• Living standards
• people now days are willing to buy anything they want instead what they actually need.

3 impacts that are caused by multinational companies!

• impacts on host country

• advantages
• increase in the number of employments
• inward flow of capital investments
• technology skills are brought to the country
• disadvantages
• affect local businesses from host country
• outflows of money

• impacts on home country
• advantages
• inflow of foreign funds
• increase in foreign employments, cheap salaries
• new production and management skills provided by the foreign countries
• disadvantages
• decrease in employments for the people living in the home country
• outflow of capital investments
• produce cheap products in host country
• impacts on the society
• advantages
• labor markets brings competition towards the markets
• child labor increases family incomes
• able to obtain new resources
• spreads culture/ traditions to consumers from all over the world
• disadvantages

• pollution and environmental effects
• Cutting down trees in order to create buildings
• increase in competition may lead to being it as a threat

TRADE Barriers & PEST Analysis

Trade Barriers

International Trade

International trade happens when we stumble upon products that are produced outside from our country. For an example is for us Malaysians, we can see various kinds of products that are imported from different parts of the world. Examples are such as lingerie from Victoria's Secrets (USA) , BMW (Germany) and Gucci (Italy). How does it work? It is a process of exchanging goods with other countries. An easy example is when I will provide you pencils for the exams, in an exchange you will provide me the answers for the exam. (Just an example :P) So, anyways, back to the topic. We also have national trade. It is basically the same thing except that the goods are exchanged in its own country. For example is Malaysia. The process of exchanging goods between Kuala Lumpur and Penang. That is considered as a national trade.

In order to analyse it, the PEST analysis is created. It assesses markets, including competitors, from the point of a certain business.


Political

• It is viewed on terms such as:
• processes
• policies set by the government
• Such as pork are not allowed to be sold in muslim countries since it had been set by the governement.
• trading policies

• Such as things from outside are not allowed to be imported into North Korea and vice versa.
• wars and conflicts
• The wars and conflicts would affect the business in terms of economically.

Economical

• It is viewed on terms such as:
• international trade

• seasonality issues
• Issues such as more swimming suits are sold during summer and less are sold during the winter time.
• Demands tend to decrease during the winter time.
• product/services
• general taxation

Social

• It is viewed on terms such as:
• lifestyle trends
• consumer's attitudes and opinions
• As what they always say, "Customers are always right!" Even though they are wrong. 
• fashion trends

• Fashion trends are nearly the same as the seasonality issues.
• people changes their fashion trends everyday.

• influences

Technological

• It is viewed on terms such as:

• development
• is the development of the business well? Are the customers happy?

• communications

• Communications supplied are one of the most important term that falls under technologies.
• without communications, how can we contact the suppliers? the consumers?

• consumer buying

Production Location

Location

Location is Production activity should be located where a firm can be most productive, and yield the highest revenues per unit of investment. A highly productive plant.

Read more: http://businesscasestudies.co.uk/business-theory/operations/location-of-production.html#ixzz2HrT7EXeR 

So in order to find a suitable place for a certain firm to locate their factories, shops, buildings and equipment, they will have to go through some factors that might help them with it. It would also help them in terms of handling a successful company.

But the main points in having a great location, is that it should be near to the market, in order for the demands of the output would vary the costs making of the input. (businesscasestudies.co.uk)

The factors are:

• Cost
• The cost of the location has to be cheaper, and the owner has to be able to pay for it. 
• It would be better if they just rent it instead of buying it.
• The use of transporting the goods.

• Tradition

• The items that are being produced should be suitable for the people that lives in that certain area.
• Suitable for the culture, and especially religion.
• Example: 
• Selling pork in a Muslim country would not be appropriate.

• Customers
• We can look this in terms of the groups of ages. 
• Will there be a lot of teenagers in that area? What would they like? Perfumes? Magazines?
• The type of people living there:
• Rich People?
• Poor People?
• Average People?

• Competition
• Are there any shops that sells the same thing as what we are selling? 
• This kind of situations might create competition between the two shops.
• The disadvantage of it is that wherever we go, there will always be a competition.

• Environment
• Is it close to the supplier for our resources?
• Do we have enough land? 
• This applies to big companies around the world.

Economies OF Scale

Economies of Scale

Definition:
The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods

Read more: http://www.investopedia.com/terms/e/economiesofscale.asp#ixzz2Hr8w5t4h

Get it? No?
Well, in simpler words, economies of scale is doing things efficiently. 

Diseconomies of Scale

It basically the opposite of the economies of scale.


The graph pasted on the left is the graph that shows the economies and diseconomies of scale. 

The graph shows:

• Economies of scale: As the average cost decreases, the output also decreases.
• Diseconomies of scale: As the average increases, the output increases.

There are two types of economies scale:

• Internal Economies
• Highlights the advantages that a company obtains by using modern technologies.
• External Economies
• Are advantages that a company obtains from external factors.

Opportunity Cost

Opportunity cost is the cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.

Read more: http://www.investopedia.com/terms/o/opportunitycost.asp#ixzz2HqeVhZRz

OR the simple definition is that opportunity is basically when we are giving up to do something else.

Example:

In terms of activities:

Let's just say you get to choose either you want to watch a movie at a mall OR shopping? And you chose to go shopping, well, means that watching movie at the mall is your opportunity costs, since you chose shopping instead of watching movie. 

In terms of economics:

Let's just say that you invested in a company that produces wood furniture for about 4%. Then after a year you started investing in another company except that it actually produces metal furniture. And you invested in it for about 8%. So, when you deducted the investment that you had made for the wood company, from the investment for the metal company, you will get 4% left. (8%-4%=4%) Basically, your opportunity costs would be the 4% left.

                                                

Price Elasticity

Price elasticity basically depends on the behavior of the consumers, which are us, the customers.

There are two types of behavior:

1. Elastic
2. Inelastic

Elastic
Elastic customers:

• Customers that does not care about the price of the products.
• They buy whatever they WANT.
• This usually happens when our income increases, we tend to buy unnecessarily items. 

Inelastic
Inelastic customers:

• Customers that do care about the price of the products
• They buy according to their salary, and savings.
• They buy whatever they NEED.
• There is a big difference between buying something we need and want. 
• It happens when:
• Price: UP, Demand: DOWN.
• Price: DOWN, Demand: UP.

* that is considered as the movement of the elasticity *

SHORT SUMMARY:

"When the demands (willing buyers) and the suppliers (willing sellers) are successfully transacted, it will eventually lead to the state of equilibrium, which basically determines the price."

 

What Influences the DEMAND and SUPPLY?

Factors Influencing the Demand and Supply.

Demands

• Trends

• Fashion
• Fashion changes every season. New clothes will be produced, and we, the consumers, would want to buy it. 
• So, the demand would obviously increase.
• Cars
• It goes the same for cars.

• Change In Income
• When our income increases, the demand of buying something also increases.
• When the income decreases, the demand also decreases.
• Expectations

• Expectations in terms of the future prices.
• When people expect the future prices, the demand tends to increase.

• Price Of Related goods
• Substitutes
• Things that can be substituted with another product. Such as:

• Tea can be substituted with coffee.
• The demand of customers for tea would increase, which means that the demand for coffee would also increase.

• Complements

• Things that can go with each other. Such as:
• Petrol consumption and Cars.
• When the price of petrol increases, the amount of cars that people demand will decrease.
• It is because the more cars we have, the consumption of petrol that we use is higher, the price would also increase.

Supply

• Resource prices (raw materials)

• Raw materials can be affected by the natural disasters. It can cause the amount of raw materials consumed to decrease, when it decreases, the suppliers are unable to produce products.
• Causing the supplies to decrease.

• Technology
• Produce products faster or slower

• With the uses of current technologies such as machines used in factories, causes the process of creating the products to be faster.
• The faster the products are produced, the amount of supplies would increase.
• Such as, 120 of cupcakes are produced in 1 hour. Imagine the number of cupcakes produced in 3 hours. The amount of supplies increases.

• Taxes
• When the taxes gets high, the products produced by the suppliers will increases, means the supply decreases.

Demand AND Supply

Demand and Supply.

These are the two words that are commonly used by economists.

What does it mean?

The mind map pasted on the right shows a simple definition of the term "demand".

According to the businessdictionary.com,

There are three definitions for it.

1. Desire for certain good or service supported by the capacity to purchase it.
   
2. The aggregate quantity of a product or service estimated to be bought at a particular price.
   
3. The total amount of funds which individuals or organizations want to commit for spending on goods or services over a specific period.

Read More:

http://www.businessdictionary.com/definition/supply.html#ixzz2Hpnyripc

A good example is the amount of swimming suits sold in winter VS the amount sold in summer.

Well, obviously the amount of swimming suits sold in SUMMER would be having higher demands compared to the ones sold in Winter. This also shows that the demands affects the number of swimming suits produced.

Which will lead us to the term called, "supply".

The mind map on the left will show you a simple definition of it.

According to the businessdictionary.com, supply is the total amount of profuct (goods or services) available for purchase at any specified price.

Read More: 

http://www.businessdictionary.com/definition/demand.html#ixzz2Hpn85kio

Relationship between demand and supply.

The relationship between the demand and supply can be presented in graph forms. 

But first we have to learn the relationship between the quantity demand and the prices.

The diagram below shows the inverse relationship.

When the price increases, the quantity demand decreases. It is because no one will buy once the price increases especially for items that are not meant to be expensive, such as Flour, and Rice Grains.

When the quantity demand increases, the price will eventually decrease. 

The graph pasted on the right is the graph for demand, and the following graph is for supply.

The higher the price, the lower the quantity. The line will be directing downwards.

The graph pasted below is the graph for the supplies.

The higher the quantity, the lower the price. The line will be directing upwards.

Once the two lines meet up with each other (the transaction , it will create the equilibrium graph. This is when the buyer (customers) agrees to buy the same amount that the seller wants to sell. In an easier term, it can be bought and sold.

                Surplus- Surplus is when the consumers are able to pay more, if the price increases.