[Reading Assignment 4] What is the relation between economy and globalization?

 

Summary

In the late 19th century, companies engaged in manufacturing and production outside their home countries were born, and during World War I, companies became increasingly transnational. In particular, the number of transnational corporation (TNC) has increased exponentially over the past 50 years. These TNC activities are usually measured using statistics on foreign direct investment (FDI). However, most of the world's FDI is directed to developed countries, with less than a third of the total global FDI in developing countries. Nevertheless, the number of TNC originating from major developing countries is increasing. The diversity of TNC in the global economy is increasing.

The reasons for these enterprises' transnationalization can be classified as market-oriented investment and asset-oriented investment. The geographical imbalance of the market, the geographical imbalance of assets, has created a trend of enterprise transnationalization. There are two methods of transnational activities by companies based on this.

The first is 'Greenfield Investment'. This is the construction of a completely new facility (factory, research and development facility, etc.). The second is the formation of relationships with other companies, such as M&A. This is to work strategically with other companies to make inroads into a particular region.

Geography problems are the inherentity of transnational enterprises. No matter how borderless the times are, geographical factors are important for businesses. Places and geography are still fundamental elements in the way enterprises are produced and how they behave.

Every business enterprise consists of a very complex and dynamic production, distribution and consumption network, and such a network is being geographically increasingly extensive, controlled, or at least coordinated, primarily by transnational enterprises. Thus, TNC, like businesses in general, can be best regarded as 'a dense network at the center of the web of relationships'. The networks inside the TNC are as follows: specific history of enterprises, its cultural and administrative heritage in the form of accepted practices built up over a period of time, producing a particular ‘strategic pre-disposition’, the nature and complexity of the industry environment(s) in which the firm operates, including the nature of competition, technology, regulatory structures and so on.

Due to the geographical characteristics dispersed in different political, cultural and social environments, TNC are much more difficult to coordinate and control than companies whose activities are confined to a single national space. In other words, it requires a more sophisticated organizational structure and the corporate headquarters of the TNC remain in its home country. However, some kinds of headquarters functions can be distributed to major locations within the company's transnational network, usually in major cities. That is why TNC relies on other companies for much of them. This transnational production network gives the network a strong regional dimension, a network organized on a multinational scale of adjacent market groups. This trend may be reinforced by local political structures, for example in the case of the EU or NAFTA.

Interesting point

While most of the world's FDI is heading toward advanced countries, it was interesting to note that there is a significant growth of FDI centered on Latin American and East Asian countries. It would have been better if non-advanced countries were somehow increasing the number of TNCs and their future prospects could also be known. In addition, transnational corporations form political and economic alliances based on regions, so I wondered if there could be significant regional infrastructure relationships such as the EU and NAFTA in East Asia where I currently live.

Discussion

How are non-advanced countries increasing TNCs and growing FDI and what are their future possibilities?