W14 Economic Globalization/ Minseong Kim

Economic Globalization: Corporations

Peter Dicken

 As the title of article is ‘Economic Globalization: Corporations’, the writer, Peter Dicken, points out importance of corporations in globalization, especially transnational corporation (TNC). According to the writer, there are too many aspects and not enough well described explanation to understand TNCs. So, the article focuses on introducing and explaining TNC from origin to power relationships to let people understand TNC better in right way.

 First of all, the origin of TNC is described in this article. The author suggests that the East India Company and the Hudson’s Bay Company are the ancestors of today’s TNC because they had very important influence on internationally interconnected economy. Like the firms in fifteenth century, the author defines the power to influence on more than one country as the most important characteristic of the modern TNC. About the scale of TNC, there are dominant 100 TNCs which account for one-seventh of the scale of the whole world. The term to measure the scale of TNC is foreign direct investment(FDI) which means investment on other countries to another firm.

 Then, why corporations become transnational corporations(TNCs)? The author suggests two broad reasons: market-oriented investment and asset-oriented investment. If a firm expand its market internationally because of saturation of domestic market, the reason of the firm is market-oriented investment. The second reason, asset-oriented investment, is literally based on assets such as price of labor and the human capital like well-educated and highly skilled and strongly motivated workers.

 We also need to know the ways of transnationalization of TNCs. There are two major ways which firms develop transnational activities: ‘greenfield investment’ and through engagement with other firms. Difference between the two ways is using their own facilities or not. The ‘greenfield investment’ which builds totally new facility in an overseas location is so risky that TNCs prefer to expand their business through an involvement with local existing firms. Most well-known example of the involvement with local firm is Merger and acquisition (M&A). In recent year, TNCs are forming not just single alliances like M&A but networks of alliances in horizontal relationship.

 As mentioned above, it has been conventional that firms expand their business transnationally only after achieving an outstanding position in domestic market. But, this is not the only sequence. Especially in the knowledge-intensive industries, firms don’t have to be large or dominant in domestic market before being transnationalized. These firms are called as ‘born globals’, which originally aim for an overseas market.

 Then, don’t place and geography matter on economy globalization? The author denies this question, quoting Chagall’s observation. Despite globalization, the author claims, the TNC’s place of origin have a dominant influence. Wherever TNCs expand their territory, they operate based on the norms of their home territory, which means not uniformity but diversity. To operate as mentioned, TNCs make their own sophisticated organizational architecture, which is not identical but related. In this respect, Badaracco described TNCs as ‘a dense network at the center of a web of relationship’.

 The networks organized on contiguous markets rather than truly globally. EU of Europe and NAFTA of North America can be the examples of networks organized at the regional scale. In these networks, the nation-states remain important to make regulation and more.

So, we need to avoid the simplistic view that TNCs always have more power than nation-state in the stream of globalization. The author also mentions that ‘TNCs may be powerful – but they do not possess absolute power’.

Interesting points or unusual point I learned

After had read the article, I found two interested point. Badaracco’s view about TNC, ‘a dense network at the center of a web of relationship’, is the first interested point what I found in the article. I have thought corporations’ globalization is either exportation or overseas expansion that huge firms want to expand their business beyond domestic market. But as described by Badaracco, a strategic alliance among firms can be seen as economic globalization without regard to their scale. In this alliance, corporations don’t have to be dominant in domestic market, especially knowledge-intensive industry as mentioned in the article.

The second point is that the nation-state still has important roles in the globalization. I have thought globalization’s ultimate goal is the placeless world in which nation-states don’t have any meaning. After reading the article and reminding what I have learned in the lecture, each member of leading organizations in global society is a nation-state. If nation-states don’t have any meaning in the global society, neither the organizations don’t.

Discussion point

 As written in the article, there are very dominant TNCs that account for large portion in the global economy. And the common and easy strategy to expand their portion is M&A that press potential firms by the money. I think nation-state which the two firms belong to need to deal with the two very carefully. Because nation-state need to set a regulation to prevent TNCs merging the firms indiscriminately. As TNCs’ tax take most shares in budget of the nation-state, however, the nation-state cannot help sticking the cautious stance.

 In these positions, what is the right position of nation-state? Only ethical position is right?