W14. Economic globalization, ByoungHyun Chun(천병헌)

Economic globalization

Information sociology

2015048986 천병헌

  1. Summary

1) The scale and geographical distribution of transnational corporations

  The development of companies with interests and activities located outside their home country was part and parcel of the early development of an international economy. Of course, in Europe since the 15th century, a recognized trading firm has played a very important role in the evolution of the increasingly interconnected political economy. They created a huge business empire on the global scale. However, the first firms to engage in manufacturing production outside their country didn`t emerge until the second half of the nineteenth century. Nevertheless, by the eve of World War I, considerable numbers of US, UK and some continental European companies were becoming increasingly transnationalized. Since then, and especially during the past 50 years, the number of TNCs in the world economy has grown significantly.

  UNCTAD estimates that around 61000 TNCs currently carry out international production in over 900,000 foreign affiliates. These operations represent roughly one-tenth of total world gross domestic product and generate one-third of total world exports. However, most of that activity is generated by a much smaller number of very large TNCs. Large companies are often more powerful than many countries when comparing the relative size of TNCs. Overall, the TNC activity is generally measured using statistics on foreign direct investment (FDI). FDI growth clearly shows that the importance of multinational corporations is growing. Many of the world's multinational corporations start out in advanced countries. In fact, most of the FDI is made up of cross-investments among developed countries. Despite the increasing importance of FDI created in developing countries, there is still a limit.

 

2) Why (and how) firms ‘transnationalize’?

Motivations

  The reasons why business firms extend their operations outside their home countries, and how they do that, are complex and highly contingent on particular circumstances.

Market-Oriented Investment

  The company may have reached saturation state in the domestic market. So, to increase profitability, the market must be able to expand beyond its territory. The company may have identified a new market that requires direct location to provide efficient service. Access to markets may be restricted by political regulatory structures. Both the size and the characteristics of the market continue to affect the regional decisions of multinational corporations.

Asset-Oriented Investment

  The geographic disparity of markets is one of the main reasons companies engage in transnational investments. Traditionally, the geographical location of the natural resources has led to the development of the TNCs’early development. Companies in the natural resources industry need to look for sources as needed. However, the follow-up processing of resources often occurs in places close to the marketplace. However, thanks to advances in technologies such as transportation, communication, and fairness, companies have increased their ability to access a wide range of dispersed assets.

This is the most outstanding situation for human resources or assets. Some types of transnational investment are highly sensitive to geographical variations in labor costs.Multinational enterprises are likely to switch at least some of their businesses, depending on the changing costs of labor. But labor power is a major motive force. It is increasingly the availability of well-educated, highly skilled and strongly motivated workers located in ‘quality’ communities that are exerting a very strong influence on TNCs. These attributes are combined with relatively low costs then the attraction is much reinforced.

Modes

  One is known as Green Field Investment. Green Field Investment is simply building a whole new facility. By definition, it adds to the productive stock of both the firm itself and the country/community in which it occurs. It is generally the type of investment most favoured by host countries.

  The other is through engagement with other firms, through either merger and acquisition or some form of strategic collaboration.(Gray Field Investment) This has become the core of many companies ' transnational strategies. Most strategic alliances are among the fiercest competitors. This reflects the new competitive relation between collaboration and competition. Many companies form affiliate network with multinational relationships, not just a single alliance. Thus, The company has less risk since it can acquire the assets they want from the beginning. Companies can also increase efficiency by moving existing technology and capital.

 

3) Geography matters: The embeddedness of transnational Corporations

  Place and geography still matter fundamentally in the ways in which firms are produced and in how they behave. All business firms are‘produced' through an intricate process of embedding. Therefore, TNCs have these characteristics, which then interact with the place-specific characteristics of the countries and communities in which they operate to produce a set of distinctive outcomes.

  There is a unique corporate culture that occurs in a unique corporate history in any national setting. It tends to behave strategically in a particular way. This does not mean that the national embedded business organization is changing. Conversely, the correlation of the modern world economy means that the impact is passed across borders quickly. This inevitably affects how the business organization operates.

 

4.‘Webs of enterprise’: Transnational Production Networks

  All business enterprises consist of complex, dynamic production, distribution, and consumption networks. These networks are largely controlled by multinational corporations. Thus, TNCs can best be considered as 'a dense network at the centre of a web of relationships'. It is varied whether the internal network of the TNCs is configured and connected.

  The corporate headquarters of TNCs invariably remain in the firm’s home country. A number of geographical configurations of TNC production activities are apparent. One option is to concentrate production at a single location. A second option is to produce specifically for a local/national market. A third option is to create a structure of specialized production for a regional market. A fourth possibility is to segment the production process and to locate each part in different locations.

  Multinational corporation exist in various forms and sizes. There is considerable difference between multinational corporations in different countries. This type of enterprise network is geographically different. Some TNCs are globally or at least geographically diverse. Some are geographically limited. However, the place itself is increasingly connected to a multinational network.

2. What is interesting?

  I know the transnational corporations abstractly. I thought only big companies like Google and Coca-Cola. However, multinational corporations are based on huge amounts of assets, labor, and investment equity. Multinational enterprises employ highly skilled and motivated workers. These properties increase attractiveness when combined with low labor costs. Also, there are various types of investment. In addition, There is a type of investment that creates new businesses, taking into account the social, cultural, and economic sectors of each country. There are also investments in mergers and acquisitions, or through strategic forms. So, I can understand the current multi-national corporations in our country or in other countries. For example, there is a North Face brand. Its headquarters are home to the country. Factories are installed in Bangladesh, Philippines and Vietnam to exploit cheap labor and many natural resources. Through many natural resources, cheap labor, a lot of investment holdings and assets, the North Face brand has grown into a multinational corporation. Even now, it shows the value of a huge brand. Thus, economic globalization has allowed us to transcend geographical and regional levels. Today, a multinational corporation is entering various countries. But caution is the abuse of economic power for multinational corporations. A multinational corporation in the developing world can ignore the laws of the country and exploit the laws of its own to exploit economic power. Preventing abuses of these economic powers is a challenge for multinational corporations today.

3. Discussion point

  The first firms to engage in manufacturing production outside their country didn`t emerge until the second half of the nineteenth century. However, in the last 50 years, the number of multinational firms has increased significantly in the global economy. These multinational corporations are growing based on assets, labor, and investment. And the biggest object they deal with is money. In the trend of economic globalization, the value of currency is believed to be the most important. Today, Online digital currency such as Bit Coin is rapidly emerging. Because of the trend of this change of currency, I want to discuss with classmates how the world economy will change in the next 50 years. 
※ Bit Coin related link : https://www.youtube.com/watch?v=iobn9EBmYjk