Facebook’s Global Expansion

Social media has quickly become a major part in millions, if not billions, of people’s lives. Ask your grandma, your mom, your little sister, and they all probably have an account on Facebook. What was once just a student directory for Harvard University has quickly turned into the biggest social media service in the world. Taking a quick look at the map (figure 1.1), we can see how Facebook has not just spread across the United States, but internationally as well, primary in South America and India.

Wikipedia describes Facebook as “an online social media and social networking service company”. Without offering a physical product, Facebook relies on selling advertising space as their main source of revenue. Throughout this paper, we will explore when, how, and why Facebook has decided to globalize.

Facebook’s Path to Globalization

Looking on the Facebook website makes it immediately clear that this is a company that is attempting to expand globally. Their mission statement says “Our mission is to give people the power to build community and bring the world closer together.” In 2005, Facebook took its first step in entering the international markets, opening the website to international schools, and a year later, allowed anyone to register. In 2008, Facebook was released in Spanish as well. Facebook grew exponentially, getting a billion users by 2012 (Facebook.com). They have worked hard to try and connect people, all while attempting to build a relationship with their consumers that tries to emphasize trust and the safety of their data, which was one of their most preached ideals. Unfortunately for Facebook, this has come under a lot of heat recently, with the Cambridge Analytica fiasco. They claim to protect our data, however, the New York Times notes that Facebook accidentally leaked the privacy of some 50 million Facebook users (Granville, 2018). It will be interesting to see how Facebook and the rest of the internet deals with this sensitive issue.

As the world changes to be more focused on technology and the internet, Facebook has been one of the focal points. Facebook makes the majority of its revenue through advertisements, and in that way, is different than a lot of other TNC’s. Facebook does not sell us a product; instead, we are the product. Globalization is almost implied with Facebook’s mission. On their website, they say that “Facebook’s mission is to give people the power to build community and bring the world closer together. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them” (Facebook 2017). With a goal to connect people around the world, it is no wonder globalizing is a top priority for Facebook.

The story of Facebook began in 2003, when CEO and founder of Facebook, Mark Zuckerburg, was a sophomore at Harvard College (Wikipedia). Zuckerburg realized that Harvard didn’t have an online Facebook for their students, and saw an opportunity. The original intent of Zuckerburg’s “thefacebook.com” was simply intended to be a student directory, and it’s hard to imagine that this sophomore in college had any idea it would develop to be what it has become. From the beginning, controversy has surrounded Facebook, when three Harvard classmates of Zuckerburg accused him of leading them on by saying he would help them build a social network, but instead, stole their ideas. The case was settled in 2008, giving the three students $20 million in cash and some Facebook stock (Arthur, 2011).

In March 2004, the company began to expand its horizons. It began opening its doors to other universities besides Harvard (Wikipedia). Not long after, the company moved headquarters to Palo Alto, California, marking the end of Zuckerburg’s studies allowing him to focus on the company. By 2006, Facebook dropped its semi-exclusive nature, allowing anyone over the age of 13 with a valid email address to register (Wikipedia), and by the end of the year there were over 12 million active users (Facebook). Once anyone with an email address to register, the global trend really began to take off. In February of 2008, Facebook launched in Spanish (Facebook), and in the same year, Facebook announced that it would have its international headquarters in Dublin, Ireland (Wikipedia).

The reason for Facebook’s desire to globalize is pretty clear, in that it desires to have more users. The company’s revenue comes nearly entire from advertisements. According to Facebook’s SEC 10-K form, the “majority of our marketers use our self-service ad platform to launch and manage their advertising campaigns.” This means that as far as selling a product, Facebook simply offers a platform that marketers can use to advertise their own products. Quick math will show you that more Facebook users means more ad clicks, and more ad clicks means higher profit for Facebook. Like their mission statement said, they want to build community and bring the world closer together, which is not-so-secret-code for they want as many users as possible.

Facebook has always been fairly aggressive in attempting to expand its market share. According to statista.com, Facebook already has over 2.2 billion monthly users, just on their website alone (Statista, 2018). In an attempt to increase the number of people using their products, Facebook has acquired several domestic companies, most notable being Instagram. Techcrunch.com says that Facebook bought Instagram for over $1 billion, Facebook has not limited themselves to just social media services, also buying the VR company Oculus (Wikipedia). This expansion into technology is probably the new direction Facebook will be turning to, and it will be interesting to see how it changes its reason from globalizing from market access to sourcing efficiency.

Examining why Facebook has globalized is the first step in seeing how they have globalized. The internet has changed the world as we know it in the last half-century, and it doesn’t seem like there’s anything that could stop it’s widespread use. According to Globalization and Localization of Contents: Evolution of Major Internet Sites Across Sectors of Industry, 52% of European internet users believe that the internet is a necessity to their life (Tixier, 2004). This widespread use has made it easy to appeal to their customers. As mentioned above, Facebook has its international headquarters in Dublin. This allows Facebook to work through their Irish “subsidiary”, Facebook Ireland Limited. This subsidiary has a contract with international users, which allows Facebook to avoid heavy US taxes for their international users (Wikipedia). This reduction of cost has enabled Facebook globalize at a quick pace, without having to worry about cost.

The vast majority of Facebook’s acquisitions have been domestic companies such as Instagram, WhatsApp, and Oculus, but that by no means does that take away from acquisitions’ part of their globalization. Statista.com quotes the number of Instagram users at around 800 million, meaning at minimum, two-thirds of all users are international. By absorbing some of these already companies that are already transnational, Facebook only increases its power.

In a 2013 study by Choi, Jung, and Lee, they document the different factors that influence globalization, specifically in South Korea. One of the main ideas they explored was “cultural discount”, which is the idea that “a particular program rooted in one culture, and thus attractive in that environment, will have a diminished appeal elsewhere as viewers find it difficult to identify with the style, values, beliefs, institutions, and behavioral patterns of the material in question” (Choi, Jung, Lee 2013). Facebook is an American company, originally created for American people, meaning a lot of the culture found on the website is American. For an international user, this may not be appealing. Facebook has done a good job in translating to a multitude of different languages, and that has allowed them to grow dramatically. Another potential barrier towards the expansion of Facebook is cultural values and even legislation. Privacy is taken much more seriously in some cultures, and from a foreigner’s perspective, their data is more vulnerable, with little legal protection.

Some countries have taken it to further extremes, with an around the clock ban on the website. While it is not a big deal that North Korea and Iran disallow the use considering there are very few internet users there, the fact that China has completely banned the use really hurts the company (Wikipedia). Taking away the country with the largest population in the world takes away a huge market, and we’ll see if the country’s policy to Facebook changes.

As of December of 2017, Facebook employed about 25 thousand individuals, with the vast majority located at Facebook HQ, in Menlo Park, California. In addition to that, Facebook has several offices across the United States, among them Seattle, and a couple international offices including Dublin, Berlin, and Sao Paulo.

Facebook and the Government

Facebook tends to be affected differently from trade deals for two primary reasons. The first, is that the internet is such a relatively new thing, legislation and trade deals are trying to catch up with how fast it is growing. Secondly, Facebook doesn’t actually offer a real product, it is more of an online internet service. When NAFTA was first agreed on in 1994, the internet was still in its infancy stage, so the rules that were set forth are hardly applicable to what we have today (Meltzer 2013). The biggest roadblock that Facebook has been seeing internationally comes due to privacy concerns. The amount of privacy people desire is a cultural value, and varies from country to country. As we all know, Facebook collects a very large amount of personal data, so making sure it falls in accordance with different laws is important (Meltzer 2013). A trade deal that would have affected Facebook is the Trans-Pacific Partnership, which then failed under the Trump administration. The TPP would have allowed companies such as Facebook to store data across borders and offer stricter copyright protections (Glaser 2016). Right now, much of this is regulated nation by nation, but this would have put a standard across borders. Governments can block whatever content they want, as seen all across North Korea and countries such as China which have banned Facebook. Another idea that Facebook has tried to work around is “forced localization”, which states that user data must be stored within the border of the user’s country (Glaser 2016). In summary, steps are being taken to create trade deals that would benefit companies such as Facebook, but to this point, not much has gone through.

As stated above, not much international trade law has been implemented that directly affects Facebook (Meltzer 2013). That being said, there has been some international push back, which has blocked Facebook from succeeding in certain countries. Facebook has found great success in the US because of US laws and regulations, and they would greatly benefit if harmonization took place, allowing similar rules across borders. Trade agreements such as the (now failed) TPP would create international standards that would greatly benefit Facebook (Gleeson 2018). America tends to be more lax with privacy, and allow more free speech than other countries, but it will be interesting to see if the rest of the world is willing to conform to this cultural standard. This standard may see some change, especially after recent issues that Facebook has violated user privacy, coming under fire from Congress.

Facebook is no stranger of using some of its profits in order to lobby and try to influence the federal government (Brody 2018). Recently, the repeal of Net Neutrality took over headlines. Tech giants and small companies alike tried to block the repeal of the Obama-era rules. The idea of an open internet appeals to Facebook, because giving anyone the power to decide what can and can’t be seen gives them the opportunity to limit Facebook’s potential. In their most recent quarter, Facebook spent a record number on lobbying, especially in the wake of the Cambridge Analytica scandal (Brody 2018). Their primary targets consisted of federal privacy legislation and online advertising. One example that Facebook has been lobbying against is the Honest Ads Act, which would force Facebook to keep data on all of it’s political advertisements, as well as give disclaimers such as who pays for the ad. Facebook claims they like the idea of ad transparency, but they feel as though they shouldn’t be responsible for the upkeep a public repository of the data. Facebook had also fully supported the TPP (Glaser 2018), as it would have allowed easier expansion into foreign countries.

The US government has been relatively a non-factor in the success of Facebook domestically. Up until recently, there hasn’t seemed to be much concern on the privacy issues that consumers face. In the US, privacy laws have always seemed to be more reactive than proactive, and to this point, nothing major has been passed. This is in contrast with the EU, who has legislative regulation that protects the consumers, the US has historically proposed industry self-regulation that is partially enforceable by the FTC (Macdermott, 2012). In 2011, Facebook settled with the FTC after claims that Facebook “misled” users about how they handled user data, but not much else came from that (Macdermott, 2012). This allowance of self-regulation that the national government has provided Facebook has made it easy for Facebook to spread nationally. Other countries may value user data and privacy more, which has prevented Facebook from going global to certain parts. At the same time, proposed agreements such as the TPP would have expanded intellectual property laws that the US has to foreign countries, which would only serve to help Facebook globalize (Macdermott, 2012).

National norms and rules have tended to be either neutral or even beneficial to Facebook’s expansion. The allowance of self-regulation by the government has really let them do whatever they want. For awhile, Facebook has been criticized for avoiding higher taxes imposed by the United States, by having a subsidiary in Ireland which dealt with all international advertising sales (The Guardian, 2017). They have decided to switch to locally booking advertising in the country where the advertisement was bought . This decision, according to their CFO, is meant to provide more transparency to governments (The Guardian, 2017). This idea of transparency has been a common theme throughout Facebook’s time. After settling with the FTC, they released a more transparent privacy agreement that clearly outlined what they planned on doing with user information (Macdermott, 2012). Being more transparent will probably get them on the good side of policy makers, and allow them to self-regulate as much as possible.

Although there currently aren’t many government policies that directly affect Facebook, they still remain politically active both in the US and internationally. Over the last year, Facebook has doubled the amount of money spent on lobbying in Europe, and increased the number of staffers from 10 to 15 (Ghosh, 2018). This increase is due to the Cambridge Analytica scandal that has forced Facebook to come under international scrutiny. European Congress even called on CEO Mark Zuckerburg to come testify, but he declined. Instead, he has spent millions lobbying on policies about hate speech, fake news, and privacy regulation. Already this year, Facebook has spent $3 million on domestic lobbying (OpenSecrets, 2018). It’s hard to say how much impact this lobbying has had, since there’s been little regulation so far. It will be much more interesting to see how this changes in the future.

For a company that is focused nearly entirely on the internet, without any physical product, Facebook has still managed to have health impacts. The primary way that Facebook affects public health is by affecting individual’s mental health. On one hand, the mission of Facebook is to bring people together and connecting people. While this may be true, there are several ways Facebook negatively affects people as well. For example, Facebook just acts as another medium that people must constantly be updating in order to stay “relevant.” Responding to notifications, updating your profile and connecting with people can lead to overuse, and in some extreme cases, even cause addiction (Frost, 2017). Facebook has even acknowledged themselves that spending a lot of time reading and not interacting with people, such as scrolling through a newsfeed, makes people feel worse about themselves (Linton, 2017). Other mental health issues such as eating disorders, anxiety, depression, and more have been documented as being caused by social media such as Facebook (Frost, 2017).

Conclusion

Throughout this paper, we have explored Facebook’s path to become a titan of a corporation. For a company with no physical product, it has found great success all over the world. We are quickly moving into a technological world, and Facebook fits right in. They have found great success expanding internationally, in part because they are on the frontier of their field. This means governments haven’t had time to create legislation to put limitations. The biggest roadblock in the way of further expansion comes from the issue of privacy. Recent scandals have put the spotlight right on Facebook and other internet powerhouses, and they will need to tread carefully if they don’t want to see their expansion start to slow. In conclusion, Facebook is currently in a great spot, with an enormous global presence. Only in time will we see if they are able to achieve their mission statement.

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