W14 Economic Globalization (early submission) / 2012046537 Hyunwoo Shin

Economic Globalization: Corporation

by Peter Dicken

 

Summary

 

As the writer describes the aspects of economic globalization, he clearly points out that the Transnational corporations (TNCs) are, among various entities and elements of globalization, the key concept to look at. According to the author, people’s tendencies to view TNCs as a gigantic organisms that try to overpower governments and exert influences over the boundaries of nation-states are partially wrong. In fact, consequences around TNCs are much more complex that people should understand everything before they judge TNCs as “unstoppable juggernaut” of the ‘global corporation.’ Hence, the writer suggests to better understand what are TNCs in this reading.

To understand TNCs better, we have to see the current state of their scale in the global scene. Basically, to trace back to the origin of the TNC historically, the East India Company and the Hudson’s Bay Company are the very first firms that influenced more than one country in it’s own set of business actions. According to the author, we can define TNCs as ‘a firm which has the power to coordinate and control operations in more than one country, even if it does not own them.’ Expression ‘even if it does not own them’ refer to different forms of investment that TNCs implement abroad, such as foreign direct investment, and portfolio investment. However, it is not perfect assumption, since a few transnational companies operate in such various regions. According to the reading, vast majority of the world’s leading 100 TNCs still retain more than half of their activities in their home country.

We have to understand “why” such business organizations grow up to influence multiple nations and there could be two main reasons why, They are, market oriented investment, and asset oriented investment. People say that as a company expand it’s size, it faces domestic market situation of saturated state. When this happens, companies expand beyond the national boundary for more profit. Also, companies try to give solution for geographical unevenness of natural resources by exporting, and for human resources by utilizing labour forces in other nations.

How TNCs process the internationalization of its influence is also important. TNCs mainly practice foreign direct investment to expand to multinational level and there are two main ways that they do so. The first is by greenfield investment. A growing TNC can build its production plants in the overseas nation for local market distribution of it’s goods. Nissan, Toyota, and Honda plants in America is a good example of the greenfield investment. Second is merging and acquisition(M&A). By M&A a big company can own a local company in similar market. This can let the TNC to easily expand into overseas market, since it can efficiently act out by the norms of local market. However, recent trend among TNCs to exercise the expansion over the national boundary is strategic collaboration with other TNCs. By doing so, TNCs can share strategies and information for their business process in certain local market without spending money and effort to merge small companies.

Although TNC sounds like a big giant multinational corporation, that can’t be defined by certain national characteristic, it fundamentally sits on the basic characteristics of the country it originated from. Multinational corporation like Samsung for example, bears it’s Korean characteristics of Confucianism culture such as Chaebol system, which only appear in Korean firms. Therefore, it could be a good indicator for understanding how a certain TNC is going to influence globally. Hence, although most of TNCs has been grown in democratic capitalist base, each have its own characteristics.

Although many companies are classified as a TNCs, looking at the web of their geographic locations of departments can cause a doubt in peoples’ minds about their global influence. Many TNC companies’ do their business and make profits abroad, but such dispersed geographical spread across different political, cultural and social environments is far more difficult to coordinate and control. However, developments in transportation and communications technologies, as well as in production process technologies make the practices possible for TNCs. Nowadays, there are many newly TNCs that emerge in different domestic location, which does not have physical bodies abroad.

Finally, the author stresses the relationship between TNCs and other significant actors in global economy. TNCs are always in a pressure of other global entities coming in their ways. NGOs such as WTO can regulate certain business actions that are conducted across nations for the global order. Also, governments in each nation can also exercise their power as TNCs tend to play over the national boundaries of laws and orders.

In conclusion, thanks to the development in transportation and communications technologies, as well as in production process technologies, the environment for TNCs to grow is better than ever for new TNCs, since the emergence of the very first TNCs, like the East India Company and the Hudson’s Bay Company. However, the influence of TNCs should not be overestimated, and evaluated just by observing them at a glance, since there are many regulatory players that also exist in international scene.

 

 

Interesting points or unusual point I learned

 

As I’m currently interested in the development of technology, especially media technology. It was quite interesting that there are TNCs that are newly born without having some kind of headquarters geographically located abroad. These days, there are many communication companies that offers web platforms, and I guess that they don't need international office to exercise their power. Thanks to the technology that is often referred to 4th industrial revolution, TNCs that offer informational services to customers don’t have to spend such expenses for localizing as in the past. Now that much informations are accumulated in the web that it is a new phase for all the businesses internationally, since there are broader possibilities of business exercises opened to them.

(such TNCs could be Kakao, Line, Facebook, Airbnb, etc.)

 

Discussion point

 

I think that now the technologies are so developed, newly rising TNCs are going to outnumber the quantity of pre-existing global companies, and maybe overpower them. TNCs in the future are going to grow in such short period of time to exercise its power internationally, that I think we have to discuss the international regulations or rules for them. In other words, there should be a moral guideline for international marketing practices.