W14. Econimic Globalization / Jungho Kang

1. Summary

This article focuses on the big topic of economic globalization, especially the multinational corporations (TNCs). We think that most of us live in a global corporate world, and that these global corporations have led to a decline in the rule of the state itself. But this article says that this idea is wrong. This article can be summarized in four themes.

1-1. Geographical distribution of multinational corporations

 The beginning of a multinational corporation can be regarded as a trading company. East Indian companies that existed in Europe in the 15th century and trade companies such as Hudson Bay are today the ancestors of world trade. Over time, these trading companies have become increasingly multinational, and today, the most comprehensive definition of TNC today is 'companies that have the power to coordinate and control operations in many countries, even though they do not own it'. They are common in that they operate in different political, social and cultural environments. At present, the number of TNCs is not much, but it accounts for one tenth of the world's total production and accounts for one-third of the world's exports.

 TNC activities are generally measured using statistics on foreign direct investment (FDI). FDI is a direct investment that occurs beyond a national boundary, such as a company investing in one company in another country or operating its own subsidiary. Over the past two decades, FDI has grown at a very rapid pace. This shows that multinational corporations play a very important role in the global economy. FDI generally occurs in developed countries, and developing countries are also only one-third of developed countries, although FDI is on the rise.

1-2. Why are companies engaged in multinational activities?

 There are two main reasons why a company is expanding its business outside its own country. First, it is a market-oriented investment in which the domestic market has reached saturation and must go out of its own territory to increase profitability. Second, it is due to the imbalance of assets in the world. Most of the early multinationals are companies in the natural resources sector because of the uneven distribution of natural resources around the world. Over time, these assets vary from factory branch and labor force, and so on.

 Two ways companies develop transnational activities are Greenfield investment and strategic collaboration. Greenfield investment is a new business in foreign countries, and strategic collaboration is the acquisition or merger of existing companies in foreign countries. Most FDIs do more acquisitions and mergers than greenfield investments. This is because acquisitions or mergers can be implemented faster than greenfield investments. The host company is less risky because it can get the assets it wants from the beginning, and the home company can increase the efficiency by transferring the existing technology and capital. But there is no clear standard of what is good or bad. It just depends on the situation.

 It is known that the order of TNC development generally develops in the domestic market with the position of power and moves into the overseas market. First, the overseas market generally conducts direct exports using a local independent sales agent. Then, as local demand increases, TNC establishes its own overseas sales agent to control the overseas market. Here it is decided whether to use Greenfield or strategic collaboration. However, with the advent of new TNCs in knowledge-intensive industries as time passed, a business called 'globally' arose. These are entrepreneurial ventures that go beyond their home territory from scratch, and Facebook can be the case.

1-3. Geographically embedded multinationals

 Geography is an area that can never be ignored by the TNC. Every business enterprise is influenced by the cultural, social, political and economic characteristics of the mother country. Thus, the TNC also interacts with the specific locality characteristics of the community, along with the parent country. In the same garment industry, East Asian companies establish direct manufacturing plants, while US and European companies tend to operate through a network of local agents and traders. Therefore, even if multinational corporations act actively, the form of business organization does not converge into one 'irresponsible' type. It is like capitalism. Even within one ideology of capitalism, it is divided into various types. ‘Diversity, not uniformity, therefore, related at least in part to the place-specific contexts in which firms evolve, continues to be the norm.’

1-4. Multinational production network

 When we think of a company, we often think of an independent organization called a 'company'. However, in practice, a corporation is a non-independent organization consisting of a highly complex and dynamic production, distribution and consumption network. The TNC can likewise be regarded as a dense network at the heart of relations. TNC is much more difficult to control than a typical company because of its geographical nature, which is dispersed in different political, cultural and social environments. Therefore, they have a sophisticated organizational structure, while at the same time developing their own functions according to their own space, separating their roles according to their geographical composition. Nonetheless, in general, the majority of TNCs remain unchanged in the company's home country.

 Over time, the TNC continues to be interested in the restructuring, reorganization and rationalization processes to respond appropriately to changing circumstances. The TNC network is always fluid and ready to cope with the situation at any time. As competition intensifies and companies continue to improve profitability, the TNC relies heavily on other companies to meet their needs. Especially in the automobile industry, many multinational corporations depend on each other for lower prices. The geographical scope of these multinational production networks varies, but cannot be GLOBAL in the true sense. In recent years, these networks have been at the local level. Simple geographic proximity itself is a strong stimulus for integration. This 'regional strategy' can effectively address organizational barriers while providing many efficiency benefits of globalization. Multinational production networks organized on a regional scale, such as NAFTA, the EU and the 'Four Tigers', are effective.

1-5. conclusion

 Transnational corporations are undoubtedly the most important role in the modern world economy. The network of transnational corporations is multinational, which inevitably creates tension among various entities such as the state, the community, labor, consumers, and civil society organizations. The TNC has the potential to take advantage of the availability of resources and the geographical differences of governments' policies and to switch and re-switch regional operations. However, the power of these TNCs is not always an advantage. In addition to international regulatory bodies such as the WTO, sub regional regulations in each country still have regulatory measures on the power of the TNC, such as controlling access to territories and defining operational rules. Or nations increase their strength by working with other nations. Therefore, it is nonsense to argue that the nation is helpless while facing the enormous threat of 'global corporations'. The TNC may be powerful, but it does not possess absolute power.

2. Interesting Point

I have further explored what foreign direct investment (FDI) is talking about in this article. I was interested in achieving the world's second largest FDI for the UK, which was voted out by the Brexit in 2016 and then withdrew from the EU. It is not right in the sense of 'globalization of cooperation' as well as of the Brexit. But it is different from economical point of view. In the UK, the total amount of FDI in 2016 has increased by £ 33 billion from 2015 to £ 19 billion after voting on the Brexit. Even after the decision to UK withdraw from the EU on June 23, Japan's Softbank Group, Korea's Equinix, Nissan Motors and Google continued to invest in the UK. After examining several reasons, I have summarized these increase factors into three. The first is the depreciation of the pound. Because of the decline in the value of the pound, not only has the purchase price of the overseas company merged with the UK company lowered, but the value of the enterprise has been lowered even after the merger, resulting in a greater income. Second, because of the positive economic outlook supported. According to a survey by the UK accounting firm Deloitte, CEOs of large corporations and overseas corporations have confirmed that negative views on Brexit have diminished and positive prospects have increased. Finally, the UK government has taken an active role in attracting FDI by announcing its policy to reduce its corporate tax rate by 17% by 2020 as FDI plays an important role in job creation, growth and productivity.

source: https://news.kotra.or.kr/user/globalBbs/kotranews/6/globalBbsDataView.do?setIdx=322&dataIdx=158561

3. Conclusion

This article said, "The transnational corporation certainly has a lot of power, but it does not have the power to control the world.". However, this presupposes that the regulations of the countries where there are multinational corporations operate effectively. If the legal system of the state is insufficient, the multinational corporations have at least a great deal of power in their fields. This does not shake the country's base, but it can pose a threat to some small businesses and small traders. In making regulations, if the state is serious about corruption, it can also be difficult to create regulations. But multinational corporations still increase the overall efficiency of the global economy. In other words, for a multinational corporation to be in the interests of the state, corruption must be addressed first. What do you think?