Advertising and Public Relations, Kang Ha Eun
WHAT IS ECONOMIC GLOBALIZATION?
Many agree on the idea that the transnational corporation formed the global economy. And there is the widely held view that global corporations are emasculating the autonomy of nation-states which is actually not true.
In the early days of the international economic development, there were not many corporations which produce profit outside the home country. However, with their development, companies such as the East India Company created business empires which played an important role in the evolution of an interconnected political economy. They mostly did trading and exchanging, similar to that of today's global trading and service companies. Then, by the second half of the nineteenth century, companies manufacturing products outside their home country appeared. They soon became transnationalized and the number of transnational corporations has increased exponentially. Modern transnational corporations have the power to coordinate and control operations in more than one country, even if it does not own them. If applied ownership criteria in this definition, 61,000 transnational corporations carry out international production in more than 900,000 foreign affiliates. Moreover, only 0.2% of the transnational corporations account for 14% of the sales of foreign affiliates worldwide.
TNC activity is measured using foreign direct investment(FDI) which is an investment in a firm in another country to gain control. This is different from portfolio investment, which is a purely financial investment. FDI is growing rapidly and this means that TNC is the integrating force in the global economy. 96 of the top 100 non-financial TNCs originate from the developed economies. Although FDI from developing countries has increased, it is less than one-third of the world FDI total.
Two reasons for TNC activity are a market-oriented investment and asset-oriented investment. First is the market-oriented investment. After reaching saturation point in the domestic market, the firm tries to find the new market and expand its territory. However, the transportation may be uneconomic or the market is restricted by the political and cultural regulations. So, it is desirable to appear to be embedded in a local market, and it becomes sensitive to the size and characteristics of markets.
There is a geographical imparity of markets and assets. Accordingly, early leading TNCs were mostly about natural resources and it was reasonable for them to locate at the source of supply. Development in transportation and communications technologies enabled firms to access other assets. Human labors are also unevenly distributed so industries such as textiles, garments, footwear, and consumer electronics moved in search of cheaper human resources. However, it is not the only driving force. Highly skilled and well-educated human capital has become more significant.
Firms develop transnational activities in two major ways. First is greenfield investment, which is the building of totally new facilities. It is favored by host countries, but it is risky for firms. Firms rather prefer the second way, merger and acquisition, and it has driven most of the growth in world FDI. Another widely used way is the strategic collaboration with the competitors. This is different from M&A because identities of each firm don't disappear and the firms collaborate to solve the problem, such as sharing the risks of market entry. They are competitors but they can make synergy together.
Geographic characteristics or firm's home country influence its behavior. Firms from countries with similar characteristics behave differently. However, the interconnectedness of the global economy transmits influences rapidly across boundaries. Involvement of other society brings modification of some of the practices. Thus, diversity continues to be the norm.
In the early days of the international economic development, there were not many corporations which produce profit outside the home country. However, with their development, companies such as the East India Company created business empires which played an important role in the evolution of an interconnected political economy. They mostly did trading and exchanging, similar to that of today's global trading and service companies. Then, by the second half of the nineteenth century, companies manufacturing products outside their home country appeared. They soon became transnationalized and the number of transnational corporations has increased exponentially. Modern transnational corporations have the power to coordinate and control operations in more than one country, even if it does not own them. If applied ownership criteria in this definition, 61,000 transnational corporations carry out international production in more than 900,000 foreign affiliates. Moreover, only 0.2% of the transnational corporations account for 14% of the sales of foreign affiliates worldwide.
TNC activity is measured using foreign direct investment(FDI) which is an investment in a firm in another country to gain control. This is different from portfolio investment, which is a purely financial investment. FDI is growing rapidly and this means that TNC is the integrating force in the global economy. 96 of the top 100 non-financial TNCs originate from the developed economies. Although FDI from developing countries has increased, it is less than one-third of the world FDI total.
Two reasons for TNC activity are a market-oriented investment and asset-oriented investment. First is the market-oriented investment. After reaching saturation point in the domestic market, the firm tries to find the new market and expand its territory. However, the transportation may be uneconomic or the market is restricted by the political and cultural regulations. So, it is desirable to appear to be embedded in a local market, and it becomes sensitive to the size and characteristics of markets.
There is a geographical imparity of markets and assets. Accordingly, early leading TNCs were mostly about natural resources and it was reasonable for them to locate at the source of supply. Development in transportation and communications technologies enabled firms to access other assets. Human labors are also unevenly distributed so industries such as textiles, garments, footwear, and consumer electronics moved in search of cheaper human resources. However, it is not the only driving force. Highly skilled and well-educated human capital has become more significant.
Firms develop transnational activities in two major ways. First is greenfield investment, which is the building of totally new facilities. It is favored by host countries, but it is risky for firms. Firms rather prefer the second way, merger and acquisition, and it has driven most of the growth in world FDI. Another widely used way is the strategic collaboration with the competitors. This is different from M&A because identities of each firm don't disappear and the firms collaborate to solve the problem, such as sharing the risks of market entry. They are competitors but they can make synergy together.
Geographic characteristics or firm's home country influence its behavior. Firms from countries with similar characteristics behave differently. However, the interconnectedness of the global economy transmits influences rapidly across boundaries. Involvement of other society brings modification of some of the practices. Thus, diversity continues to be the norm.
The corporations do not stand alone as independent entities, they are rather embedded within complex and dynamic networks. The connection to the transnational networks inevitably creates tensions between TNCs and other organizations such as states, local communities, labor, consumers.
INTERESTING FACTS ABOUT ECONOMIC GLOBALIZATION
What interested me the most was how the imparity of resources played a role in economic globalization. I learn in Korean Geography that industries dealing with natural resources tend to locate near the resources because of high transportation cost. But I thought about that only in the national scale. Unevenly distributed resources made firms to move across the borders to seek their profit. Global firms are now in search of well-educated, highly skilled and strongly motivated workers, not just cheap labor costs. If I understand dynamics of economic globalization with political and cultural globalization as well, I could be the valuable human resource they are looking for.
THINGS TO THINK ABOUT ECONOMIC GLOBALIZATION
TNCs' transnational production networks are influenced by international regulatory systems. There are international institutions establishing technical standards, and sometimes they enable transnational networks to be feasible.
The author claims that they create problems of conformity to an international standard in specific places. What could be the possible problems and in what situation will it happen?
The author claims that they create problems of conformity to an international standard in specific places. What could be the possible problems and in what situation will it happen?
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