Question

 

Blackgold Coal: Then and Now

In the early 1990s, Blackgold Coal, the largest Australian producer of premium-quality coal, mainly exported to China. Despite being the largest producer of coal, Blackgold still struggled to fulfil Chinese coal demand. However, in the late 1990s, the demand for coal in China dramatically dropped due to China’s rapid industrialisation that instead began relying on alternative power sources. This reduced demand from China caused Blackgold to make losses from its main market base. To add to this, all coal miners in Australia have been facing bans on mining expansion at home due to its environmental impacts. Hence, Blackgold explored the alternative markets and began to export to Asia, Africa, the Middle East and Latin America, which were still using coal as a prime power source for their industrialisation.

Blackgold’s strategy to diversify their coal markets paid off. By the late 1990s its revenue increased by 200% because of demand for its high-quality coal. Multinational operations, however, meant that Blackgold has faced increasingly fierce competition from other coal-rich countries since the mid-2000s. In response, Blackgold acquired the largest coal producers in Asia and Africa, entered into long-term trade deals with its major Asian and the Middle Eastern buyers by cutting prices, and entered into joint venture and strategic alliances in Latin America. Price cuts were possible because of cheap labour in Asia and Africa and the coal mines that were newly discovered by Blackgold in Africa and Latin America. Blackgold benefitted from its overseas production base as well as increased demand for premium-quality coal. By 2010, Blackgold became the number one coal producer around the world and was undefeated by its competitors, but succumbed to the protests from environmentalists around the world. In response, today Blackgold has to spend on the garden restoration, reforestation and afforestation, skill development, employee well-being and local community development.

After reading this case, you are required to answer the following questions:

i) What were Blackgold’s reasons for going global and what key factors have contributed to globalisation?

ii) Has Blackgold received any benefit from its global operations, if so, what are those?

ii) Has Blackgold faced any threat from its global operations, if so, what are those?

 

Answer 1

1) in the late 1990s, the demand for coal in China dramatically dropped due to China’s rapid industrialisation that instead began relying on alternative power sources. This reduced demand from China caused Blackgold to make losses from its main market base. To add to this, all coal miners in Australia have been facing bans on mining expansion at home due to its environmental impacts. Hence, Blackgold explored the alternative markets and began to export to Asia, Africa, the Middle East and Latin America, which were still using coal as a prime power source for their industrialisation.
Reasons for spread of globalisation:

Benefits to the developed economies because they got accessibility to cheaper raw material, cheaper labour force and large market.

Benefits to the developing economies due to large investment to meet their saving investment gap, accessibility to new technology, more accessibility to markets of developed economies and large absorption trained workforce.

Cost of doing business decreased to a large extent due to innovations in communication and transportation technology, it also resulted in faster movement of trends and therefore created preferences at a global scale.

The costs of ocean shipping have come down, due to containerisation, bulk shipping, and other efficiencies. The lower unit cost of shipping products around the global economy helps to bring prices in the country of manufacture closer to those in export markets, and it makes markets more contestable globally

Technological change

Rapid and sustained technological change has reduced the cost of transmitting and communicating information – sometimes known as “the death of distance” – a key factor behind trade in knowledge products using web technology

Economies of scale

Many economists believe that there has been an increase in the minimum efficient scale (MES) associated with some industries. If the MES is rising, a domestic market may be regarded as too small to satisfy the selling needs of these industries. Many emerging countries have their own transnational corporations

Differences in tax systems

The desire of businesses to benefit from lower unit labour costs and other favourable production factors abroad has encouraged countries to adjust their tax systems to attract foreign direct investment (FDI). Many countries have become engaged in tax competition between each other in a bid to win lucrative foreign investment projects.

Less protectionism

Old forms of non-tariff protection such as import licensing and foreign exchange controls have gradually been dismantled. Borders have opened and average import tariff levels have fallen.

That said, it is worth knowing that, in the last few years, there has been a rise in non-tariff barriers such as import quotas as countries have struggled to achieve real economic growth and as a response to persistent trade and current account deficits.

Growth Strategies of Transnational and Multinational Companies

In their pursuit of revenue and profit growth, increasingly global businesses and brands have invested significantly in expanding internationally. This is particularly the case for businesses owning brands that have proved they have the potential to be successfully globally, particularly in faster-growing economies fuelled by growing numbers of middle class consumers.

2)Blackgold explored the alternative markets and began to export to Asia, Africa, the Middle East and Latin America, which were still using coal as a prime power source for their industrialisation.

Blackgold’s strategy to diversify their coal markets paid off. By the late 1990s its revenue increased by 200% because of demand for its high-quality coal. Multinational operations, however, meant that Blackgold has faced increasingly fierce competition from other coal-rich countries since the mid-2000s. In response, Blackgold acquired the largest coal producers in Asia and Africa, entered into long-term trade deals with its major Asian and the Middle Eastern buyers by cutting prices, and entered into joint venture and strategic alliances in Latin America. Price cuts were possible because of cheap labour in Asia and Africa and the coal mines that were newly discovered by Blackgold in Africa and Latin America. Blackgold benefitted from its overseas production base as well as increased demand for premium-quality coal. By 2010, Blackgold became the number one coal producer around the world and was undefeated by its competitors, but succumbed to the protests from environmentalists around the world.
3) In response, today Blackgold has to spend on the garden restoration, reforestation and afforestation, skill development, employee well-being and local community development