The Shri Ram School, Moulsari Campus
Subject: Business Management
Topic: Section 1
Class: IB 11
Name……………………………….. Sec………….. Date……
1. China
China, with a population of some 1.3 billion people, is hungry for economic growth. Between 1979
and 2000, its GDP grew at 9.7% per year on average. Young Chinese drink coffee at Starbucks, talk
on mobile phones and use the Internet for their news and fashions. By night the neon signs illustrate
the extent of foreign investment. They display Nestlé, Samsung, Canon, Pepsi and Standard
Chartered. Shanghai, Beijing and the coastal cities are as dynamic now as Hong Kong was a few
years ago.
With world demand for ICT products and services falling, companies in expensive markets, such as
the US and Japan in particular, have turned from innovation towards cutting costs. In China more
than two million university graduates qualify each year. Wages are about 50 cents per hour.
American manufacturers pay more than $6. US companies such as Dell and Siemens as well as Acer
of Taiwan and Japan’s Sony and Hitachi have moved production to China. Foreign motor
manufacturers are now among the highest Chinese taxpayers. Boom towns such as Shenzen create
an image of China as a country full of technology fanatics. It has 40 million Internet users and 178
million mobile-phone owners which is more than in America.
However, the wealth gap between rich and poor is widening. China is bureaucratic with a centrally
planned economy. There are political risks associated with the new government, but after a year as
a member of the World Trade Organization (WTO), China can claim to have achieved about 70% of
the tariff cuts agreed to on entry. Overall tariffs have come down from 15% to 12%. However, some
agricultural tariffs have risen and new rules, such as health and safety requirements, discriminate
against foreign firms who also complain about illegally copied books, music and software.
(a) Evaluate the extent to which globalization is encouraged by the development of new ICT
(information and communication technology). [7 marks]
(b) Using a STEEPLE framework, analyse the potential advantages and disadvantages to foreign firms
of locating in China. [6 marks]
Social: The potential social advantages to foreign firms of locating in China are that they are able to
build a larger audience and expand to other markets, increasing the number of consumers they have.
A potential social disadvantage is that the audience in China may not see a need for their product and
they may not be able to expand their consumer base.
Technological: The potential technological advantages to foreign firms of locating in China are that
they get exposure to new technology and ideas and can introduce their own into the market.
However, the possible disadvantage is that China tends to illegally copy and pirate technology and sell
it at a cheaper price and their technology could be prone to the same fate.
Economic: The potential economic advantages to foreign firms of locating in China are that they can
make use of cheaper labour and this can help with their profits and the taxes that they have to pay,
and can help strengthen the Chinese economy. However, China has many tariffs which could affect
this.
Environmental: The potential environmental advantages to foreign firms locating in China are that
they can switch to more eco-friendly techniques that they may not have been implementing due to
cost. However, they could also switch to much cheaper, environmentally damaging techniques for
cost-cutting purposes and to increase profit margins.
Political: The potential political advantages to foreign firms locating in China are that they could have
close ties to the main political party, and this could help them with many things. However, a
disadvantage is if they are in the wrong books with the political party as this could have significant
disadvantages.
Legal: The potential legal advantages of foreign firms locating to China are that the laws in China
might be less stringent as compared to other places and that they could get away with a lot more,
however the law could also be a lot more strict in certain areas.
Ethical: The potential ethical advantages of foreign firms locating to China are that they could choose
to do things in a less ethical way that would benefit their profits, however they could also be called
out on their methods.
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Integrity Sensitivity Pride in One’s Heritage Pursuit of Excellence
2. “Think locally, grow globally”
To avoid negatively affecting sales, McDonald’s® senior managers in the United States (US)
headquarters realized that they should not apply identical American standards worldwide.
McDonald’s® must now think locally to grow globally.
British-born Steve Easterbrook, head of McDonald’s® in the United Kingdom (UK), understood the
need for strategic change and prepared tactics with two objectives
• to attract new and different customers
• to enhance the good value of products to appeal to customers during economic recession.
One of the first tactics in the UK was the introduction of “Little Tasters®”, which offered new
products, in small portions, at low prices. Steve understood that young mothers, when taking their
children to McDonald’s®, would not buy meals for themselves because they felt the portions were
too large. Other tactical changes, in response to customer demand, included the introduction of
more chicken-based products for health-conscious customers. Moreover, an improved breakfast
menu and better quality coffee attracted more price-conscious people on their way to work.
These adaptations to local conditions proved successful in the UK and beyond. McDonald’s® UK had
13 million more customers in 2010 compared to 2009, resulting in an increase in market share
(during the economic recession). In other host countries McDonald’s® also successfully
implemented its “think locally, grow globally” strategy. For example, it successfully launched
products made from local produce and suited to local tastes such as the “Maharaja MacTM” in
India, the “McLobster®” in Canada and the “Ebi Filet-O” (a shrimp burger) in Japan.
At the same time McDonald’s® launched a “global uniform initiative” to redecorate its restaurants
with uniform appearance. McDonald’s® still tries to maintain the global recognition and the quality
of its global brand. Local construction material and local labour are used, as well as different colours,
comfortable armchairs and free Internet access. Other multinational food and drink companies,
such as KFC® and Starbucks®, are also using a similar strategy to the “think locally, grow globally”
strategy used by McDonald’s®.
[Source: Adapted from: Ian King, ‘Who is loving it this time?’ The Times, 9 February 2010.]
(a) Describe two possible factors that have contributed to the growth of globalization. [4 marks]
Two possible factors that have contributed to the growth of globalization are multinational
corporations, which bring in new technology and ideas from different places around the world.
Another factor could be the way these companies adapt to the local culture.
(b) Draw the Ansoff matrix and use it to explain two of the growth strategies used by McDonald’s®.
[6 marks]
(c) Analyse the possible impacts of multinational companies like McDonald’s® on the host countries.
[6 marks]
There are many positive and negative possible impacts of multinational companies like McDonald’s on host
countries. Multinational companies are those that operate differently around the world according to the
local culture in the host country.
There are many advantages that multinational companies bring to host countries. Firstly, they create jobs
and industries. This helps with the country’s employment and strengthens the economy and helps increase
the standard of living as more people have a stable source of income, which leads to better housing, better
literacy rates, etc. It also helps create new markets and industries and this allows other start-ups and
businesses to create a space in the market and grow.
However, they also have many disadvantages. For example, they may dominate certain industries, not
allowing for local businesses to flourish. They may also exploit the workforce and labour of the host
country.
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Integrity Sensitivity Pride in One’s Heritage Pursuit of Excellence
