Page 22 - DMGT548_GLOBAL_HRM

Unit 1: Introduction to Global HRM

This means that it (in other words, the analysts, the shareholders, the media etc.) has to be Notes
convinced of the benefits of the global expansion strategy concerned, and that it regards the
associated risks as less than the associated benefits which should flow from the investment. If
however at some point in time the risks involved in international expansion, perhaps as a result
of political strife or war, grow significantly, then it can be this same Wall Street which slams the
door on the further globalisation of companies quoted on the stock market. The continuous
increase of “shareholder value” (that means the increase of the share price plus paid out dividends)
together with limited risks therefore form for such companies an essential “conditio sine qua
non”.
Another way of generating the means required to provide or to limit the resources needed for
world-wide expansion is the use of franchise- and licence models, as is done for instance by
McDonald’s or COCA-COLA: In such cases, the necessary “hardware”, i.e. the physical investments
(sales outlets, central warehouses, plants etc.) are usually financed by the franchisee or licensee,
while the provider of the brand or the concept only supplies the “software”, i.e. the formulas,
the advertising concepts, the production know-how etc. where the capital requirements are
usually modest.
The usage of international media: A further motive for international companies to build
distribution as quickly and widely as they can across the whole globe is the possibility only
open to such companies of advertising in the relatively inexpensive (in terms of persons contacted)
international media (such as CNN or MTV) or to make use of those international sports events
such as world championships, which are transmitted globally on TV. When at the final of the
Football World Cup in Seoul in 2002, over a thousand million people were sitting in front of
their TV screens, these current or potential customers could easily and cheaply be introduced to
or at least reminded of international brand names through perimeter boards. And in fact, the list
of manufacturers of branded products which used this opportunity read like a “Who’s Who” of
global companies. This type of advertising is denied to brands which are only available in
single countries or continents because of the associated high proportion of wasted contacts.
All the above factors drive the wave of globalisation among the corporates to have an integrated
economy.



Caselet Explaining How a Domestic Company Enters
into Global Market

ernon’s (1966) product life-cycle provides some insight as to how a domestic firm
is usually drawn into a global market. Consider how a small food company in
VMalaysia went through the cycle:
Stage 1: ARK Food Services, Ltd. was founded in 1984. Its business was to provide frozen
vegetables, such as potatoes, peas, cabbage, carrots, etc., in plastic bags which could be
cooked within minutes after taking them out of the refrigerator. The owner’s thinking
was that, since a large number of housewives would be entering the job market, they
would prefer this type of product to save time. This local focus worked for a while, and
then.

Stage 2: The Company began expanding into other regions of the country. As the volumes
grew, it became apparent that the company had to set up facilities in at least two other
regions. The firm started thinking about further expansion.

Contd...

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