Transnational Media Corporations &Globalisation

1. Transnational Media Corporations &Globalisation LEARNING UNIT 3: Session 9-13

2. Module outcome covered • MO2 • Evaluate the role and impact of media and new communication technology in a globalised world. • MO4 • Differentiate between media communication practices in South Africa and abroad. • MO5 • Analyse the impact of global communication on various socio-economic and technological environments

3. Learning Content: • Transnational corporations and transnational media corporations. • Globalisationwith respect to free trade and foreign direct investment. • Transnational media ownership. • Broadband communication.

4. Learning Objectives: • Define “transnational media corporation”. • Explain the concept “free market capitalism” with reference to a South African situation. • Discuss the reasons why companies engage in foreign direct investment. • Explain the risks involved with foreign direct investment.

5. Differentiate between mergers, acquisitions and strategic alliances using South African examples to further your understanding. • Explain the reasons why mergers and acquisitions can sometimes fail. • Discuss what is meant by “broadband communication” with specific reference to the latest developments in South Africa.

6. Material to be used : • Prescribed text pp.55-75. • Additional notes are given in the Introduction to this Learning Unit to supplement the prescribed textbook, specifically information with regards to broadband communication in South Africa. •  Pages to focus on: pp.55-56, 58-64, 70.

7. How to prepare for this Learning Unit: • Before the first class, be sure that you read Sections 1-4 of this Learning Unit, and pp.55-75 in the textbook. • As you read these sections, see if you can find the answers to the following questions:

8. What is a transnational corporation? • Why does a company engage in foreign direct investment and what are some of the risks involved? • Explain the difference between mergers, acquisitions and strategic alliances using South African examples.

9. Recommended Additional Reading • Fourie, P.J. 2007. Media Studies: Media history, media and society. 2nd edition. Cape Town: Juta. • Lesame, Z., Mbatha, B., Sindane, S. 2012. New media in the information society. Pretoria: Van Schaik.

10. Recommended Digital Engagement and Activities • http://www.bdlive.co.za/business/2012/12/04/half-of-africas-top-10-merger-and-acquisition-deals-this-year-target-sa • http://www.polity.org.za/article/walmart-massmart-commercialises-the-local-supply-chain-a-step-in-the-right-direction-2013-03-07

11. INTRODUCTION • A system of organisation represents a natural evolution beyond the multinational cooperation of the 1960s and 1970s. • Strategic decision making and the allocation of resources are predicated upon economic goals and efficiencies with little regard to national boundaries. • Difference between media cooperation (TNMC) from TNCs is that the principal commodity being sold is information and entertainment.

12. INTRODUCTION • TNMC is the most powerful economic force for global media activity in the world today. • Transnational media are a necessary component of global capitalism. • They provide the informational and ideological environment that enables international free market trade to occur. • Foreign direct investment –the TNMC actively promotes the use of advanced media and information technology on a world wide basis. • Economic principles that help to explain the causes and consequences of transnational media ownership.

13. Transnational media corporation • Define “transnational media corporation”. • MNC-Global organisation within a country or abroad. • TNMCs is a company that exports information and entertainment across national borders for international audiences to consume (Kamalipour, 2007, p. 56). • The principal commodity sold by TNMCs, which can be seen as the “most powerful economic force for global media today”, are information and entertainment.

14. Transnational media corporation • their impact on the global economy, in relation to • free market capitalism; • foreign direct investment; • mergers; • acquisitions; • strategic alliances; and • broadband communication.

15. Transnational media corporation • Past two decades suspicious has grown of the better known , high profile media mergers . • It has given way to a number of myths concerning the intentions of TNMCs and people who run them. • First myth is that such companies operate in most or all markets of the world. • Although TNMCs are highly global In their approach to business , few companies operate in all markets of the world. • They tend to operate in preferred markets with an obvious preference and familiarity towards its home market.

16. Transnational media corporation • Many years ago , Bertelsmann set a strategic goal the establishment of an even balance among its businesses in Germany, other European countries and the United States . • “We have succeeded in this area as well each of these regions accounts for just under a third of overall revenues. A smaller portion of our businesses is being generated in Asia .That’s why we truly consider ourselves a European American media company with German roots”

17. Transnational media corporation • Second myth –TNMC companies are monolithic in their approach to business. In fact , the opposite is true. • The business strategies and corporate culture of a company are often a direct reflection of the person or people who were responsible for developing the organisation and its business mission.

18. Transnational media corporation • Sony corporation largely shaped and developed by its founders , Masaru Ibuka and Akio Morita . • For many years all of Sony’s top officials were Japanese and strategic decision making occurred at the company’s Tokyo headquarters. • There was a sense of family and missionary zeal that was uniquely Japanese in approach.

19. Transnational media corporation • Akio Morita once wrote: “the most important mission for a Japanese manager is to develop a healthy relationship with his employees to create a family like feeling with the corporation, a feeling that employees and managers share the same fate” . • In 2005, Sony announced for the first time the promotion of Welsh born Howard Stringer – President of Sony Corporation of America to the position of Chairman and CEO

20. Global Media Strategy • As a company’s exports steadily increase it establishes a foreign office to handle the sales and services of its products. • Initially, the foreign office tends to be flexible and highly independent. • As experience is gained it may get involved in other facets of international business such as licensing and manufacturing abroad. • As pressure arises from various international operations the company recognises the need for comprehensive international strategy.

21. Global Media Strategy • Historically TNMC begins as a company that is especially strong in one or two areas. • Walt Disney Company – children’s animated films and theme parks. • News Corporation Limited (parent company to Fox Broadcasting) – newspaper publisher. • Today both companies are transnational in scope with a highly diverse set of products and services. • Most corporations become foreign direct investors through a process of gradual evolution rather than by deliberate choice.

22. Globalisation of Markets • It’s the full integration of transnational business, nation states and technologies operating at high speed . • Globalisation is being driven by a broad and powerful set of forces including world wide deregulation and privatisation trends , advancements in new technology, market integration. • Requirements for all players are free trade and a willingness to compete internationally . • Friedman(1999) “Globalisation has its own set of economics rules – rules that resolve around opening , deregulating and privatising your company”.

23. Free market capitalism • Explain the concept “free market capitalism” with reference to a South African situation. • Free market capitalism is the only economic system operating in the world today. • Communism provided a safety net for inefficient business practices, free market capitalism rewards only those who create new and innovative products and services.

24. Free market capitalism • “the Cold War was a world of friends and enemies .The globalisation world , by contrast tends to turn all friends and enemies into competitors” (Friedman,1999) • Private sector is the primary engine of growth. • A nation state can maintain a low rate of inflation and keep prices stable. • It keeps the size of the government small and to achieve a balanced budget , if not a surplus.

25. Free market capitalism • Free market adheres to the principles of deregulation and privatisation of business. • At the domestic level, it promotes as much domestic competition as possible. • It opens up banking and telecommunication systems to private ownership and competition , and provides a nation and its citizens with access to a wide variety of choices.

26. Rules of free trade • extend internationally as well. • Willingness to open up one’s domestic market to foreign direct investment. • It attempts to eliminate or reduce tariffs and quotas on imported goods.

27. Not all countries trade the same way. • Some tailor the rules to protect certain industries or certai facets of domestic culture. • Japan is highly protective of its banking industry. • France is highly protective of its culture.

28. Foreign Direct Investment • Discuss the reasons why companies engage in foreign direct investment. • It refers to the ownership of a company in a foreign country. • Includes the control of assets. • Investing company will transfer some of its managerial , financial, and technical expertise to the foreign company. • Media decision making and FDI are largely based on economic efficiencies, with little regard for national boundaries.

29. Foreign Direct Investment • Decision to engage in FDI is based on the profitability of the market and future growth potential. • Five reasons • Proprietary and physical assets – • Foreign market penetration

30. Foreign Direct Investment • Production and distribution efficiencies – • Overcoming regulatory barriers to entry – • Empire building -

31. Foreign Direct Investment • Proprietary and physical assets: • Some TNCs invest abroad for the purpose of obtaining specific proprietary assets and natural resources. • The ownership of talent or specialised expertise can be considered a type of proprietary asset.

32. Foreign Direct Investment Foreign market penetration: • Some TNCs invest abroad for the purpose of entering a foreign market and serving it from that location. • The market may exist or may have to be developed. • The ability to buy an existing media property is the easiest and most direct method for market entry.

33. Foreign Direct Investment Production and distribution efficiencies: • The costs of production and labour are important factors in the selection of foreign locations. • Some countries offer significant advantages such as lower labour costs, tax relief, and technology infrastructure to investors. • Depending upon the country and/or technical facility, products and services can be produced for less cost with greater efficiency. • This is one reason for shooting on location where production costs are less expensive when compared to Hollywood or New York.

34. Foreign Direct Investment Overcoming regulatory barriers to entry: • Some TNCs invest abroad for the purpose of entering into a market that is heavily tariffed. • It is not uncommon for nations to engage in various protectionist policies designed to protect local industry. • Such protectionist policies usually take the form of tariffs or import quotas.

35. Foreign Direct Investment Empire building: • Bennis (1986) contend that the CEO is the person most responsible for shaping the beliefs, motivations, and expectations for the organisation as a whole. • The importance of the CEO is particularly evident when it comes to the formation of a business strategy. • Today’s generation of transnational media owners and CEOs are risk takers at the highest level, willing and able to spend billions of dollars in order to advance the cause of a new project venture.

36. For CEOs like Rupert Murdoch (News Corp.), Sumner Redstone (Viacom), and John Malone (Liberty Media), there is a certain amount of personal competitiveness and business gamesmanship [sic] that goes along with managing a major company. Success is measured in ways that go beyond straight profitability. A high premium is placed on successful deal making and new project ventures.

37. Risks involved with foreign direct investment • Explain the risks involved with foreign direct investment. • The TNC is subject to laws and regulations of the host country. • It is also vulnerable to the host country’s politics and business policies. • There are problems associated with political instability, including wars , revolutions , and coups.

38. Changes stemming from the election of socialist or nationalist governments that may prov hostile to private business and particularly to foreign owned business. • Changes in labour conditions and wage requirements are also relevant factors in terms of a company’s ability to do business abroad. • Foreign governments may impose laws concerning taxes , currency convertibility and or technology transfer.

39. FDI can only occur when the host country is perceived to be politically stable , provides sufficient economic investment opportunities and has business regulations that are considered reasonable. • TNC will carefully consider the potential risks by doing what is called a country risk assessment before committing capital and resources.

40. Differentiate between mergers, acquisitions and strategic alliances using South African examples to further your understanding. • 

41. TNM Ownership • The 1990s and early 21st century witnessed an unprecedented number of international mergers and acquisitions that have brought about a major realignment of business players. • Such changes are inevitable in a global economy. • The result has been a consolidation of players in all aspects of business including banking , pharmaceuticals, aviation , media and telecommunications.

42. Mergers, acquisitions, and strategic alliances • represent different ways that companies can join (or partner together) to achieve increased market share, to diversify product lines, and/or to create greater efficiency of operation. • The goal, simply put, is to possess the size and resources necessary in order to compete on a global playing field (Kamalipour, 2007, p. 61).

43. merger acquisition an acquisition involves the purchase of one company by another company for the purpose of adding (or enhancing) the acquiring firm’s productive capacity. During an acquisition, one company acquires the operating assets of another company in exchange for cash, securities, or a combination of both. • In a merger transaction, two companies are combined into one company. The newly formed company assumes the assets and liabilities of both companies. An example you may be familiar with was the joining of Time Inc. and Warner Communications in 1989 to form Time Warner Inc.

44. strategic alliance • A strategic alliance is a business relationship in which two or more companies work to achieve a collective advantage. The strategic alliance can vary in its approach and design, ranging from a simple licensing agreement to the actual combining of physical resources.

45. In summary, mergers, acquisitions and strategic alliances are the most direct ways for a company to expand and diversify into new product lines without having to undergo the problems associated with a new start-up.

46. Refer to page 62&63

47. mergers and acquisitions fail. • Explain the reasons why mergers and acquisitions can sometimes fail. • Combining of two major firms creates problems that no one could for see. • Failed merger/ acquisition can be disruptive to both organisations in terms of lost revenue, capital debt, and a decrease in job performance. • The result is the elimination of staff and operations as well as the potential for bankruptcy.

48. In addition effects on the host communities can be disruptive. • 4 Reasons for failure include lack of compelling strategic rationale, failure to perform due diligence , post merger planning and integration failures, and financing and the problems of excessive debt.

49. The lack of a compelling strategic rationale • Merger decision not supported by a compelling strategic rationale. • Unrealistic expectations of complementary strengths and presumed synergies • The very problems that prompted a merger consideration in the first place become further exacerbated once the deal is complete.

50. Failure to perform due diligence • Failure to perform due diligence prior to the merger agreement. • The acquiring company later discovers that the intended acquisition may not accomplish the desired objectives. • Paying too much for the acquisition.