W14. Economic Globalization/ Dong-Joon, Yoo

W14. Economic Globalization/ Dong-Joon, Yoo

information sociology

2012047886 Dong-Joon, Yoo

1. Summarize

Everyone acknowledges that TNC (transnational corporation) is the main axis of the global economy. However, it is wrong for these giant global companies to undermine the autonomy of other nations. Therefore, this chapter aims to explore various analyses, including the role and influence of TNC. The author wants to analyze TNC from five perspectives;

(1) the scale and geographical distribution of TNCs in the global economy

(2) why and how corporations engage in transnational activities

(3) the geographical embeddedness of transnational corporations

(4) the ‘webs of enterprise’ manifested intransnational production networks

(5) the power relationships between TNCs and other actors in the global economy.

1) THE SCALE AND GEOGRAPHICAL DISTRIBUTION OF TRANSNATIONAL CORPORATIONS

After the World War I, in 1914, considerable numbers of manufacturing companies were becoming increasingly trans-nationalized. Since then, the number of TNCs in the global economy has increased exponentially. The clear definition of a modern TNC is ‘a firm which has the power to coordinate and control operations in more than one country, even if it does not own them’.However, it is difficult to quantify due to complicated relationships. In common, TNCs operate in political, social and cultural environments. TNC activity is measured by foreign direct investment (FDI). FDI is the clearest indicator of the increasing importance of TNCs with strong powers to unify the global economy. FDI rose at a tremendous pace during the Great Depression in 2001 and has been growing continuously. It means that the diversity of TNCs in the global economy is increasing.

2) WHY (AND HOW) FIRMS ‘TRANSNATIONALIZE’

Motivations

The main reason why business firms extend their operations outside their home countries, and how they do, is due to market-oriented investment and asset-oriented investment.

MARKET-ORIENTED INVESTMENT

Companies consider overseas expansion to further maximize profits when productivity reaches saturation in the local country. Special strategies are needed to enter the overseas market. Also, political regulations such as customs duty should be considered. TNC needs to cater political and cultural conditions to advance into the overseas markets. In other words, many characteristics of markets continue to influence the global strategies of TNCs.

ASSET-ORIENTED INVESTMENT

The second reason comes from the fact that the assets that firms need to produce and sell their products and services are also unevenly distributed. Labor costs are a major concern for TNCs. Therefore, the changes in labor costs are most sensitive to the TNCs' investment. TNCs havethe potential to change their management in response to changes in labor costs. There is another major motivation besides labor costs. For developed countries, TNCs are interested in high quality of human resources.

Modes

There are two ways in which firms develop transnational activities: greenfield investment, engagement with other firms. Greenfield investment is simply the building of totally new facilities. However, firms are reluctant this way because they are highly likely to be dangerous. It is better to merger and acquisition or perform some form of strategic collaboration. In fact, in recent years, most of the growth in world FDI has been driven by merger and acquisition, rather than by greenfield investment. Unlike mergers and acquisitions, in which their identities are entirely subsumed, strategic alliances are usually focused on a specific business goals.

3) GEOGRAPHY MATTERS: THE EMBEDDEDNESS OFTRANSNATIONAL CORPORATIONS

Even though TNCs go abroad, it is difficult tomaintain its own unique characteristics. Since the whole world is different from culture, economics, and politics, TNCs should consider each country to make profits. Forms of economic coordination and governance cannot easily betransferred from one society to another, for all other social systems of production are distinctive to their particular society. For example, in Korea, the chaebol is being drastically restructured. Therefore, diversity related the place-specific contexts in which firms rise, continues to be the norm.

4) ‘WEBS OF ENTERPRISE’: TRANSNATIONAL PRODUCTION NETWORKS

All business firms have highly complex networks of production, distribution and consumption. Since they are globally dispersed, TNCs are far more difficult to coordinate and control than firms in a single national space. Therefore, they require more sophisticated organizational architecture. For that reason, TNCs are constantly engaged in the process of restructuring, reorganization and rationalization. TNC networks are always in a continuous state of flux. Transnational networks are evident in most parts ofthe world, but most especially in the three ‘triad regions’ of Europe, North America and East Asia. There is NAFTA in North America, the EU system in Europe, but East Asia does not have the same kind of regional political framework. However, within East Asia, a clear intra-regional division of labor has developed consisting of four tiers of countries.

2. New, interesting or unusual items I learned

It was once again recognized that globalization was complex in terms of the fact that it should be taken into consideration not only in the economies of the country but also in the culture and political aspects of the nation. Now, the whole world has been tightly bound by one network, so we cannot see that only one part of society should be taken into account. Also, for example when comparing Wal-Mart, which failed to access to the Korean market, with Costco, there was a subtle difference in the strategy of each company. 

3. Discuss point

There are many positive aspects that TNC helps the developing world to develop technological and economic assistance. In contrary, there are some negative aspects. Coca-Cola is an example. According to ‘The Guardian', Coca-Cola received criticism for supporting the dictatorship because of its production plant in Swaziland. However, Coca-Cola is evading responsibility. Through the agreement such as NAFTA, we need to resolve these irregularities.
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