[Reading Assignment4] What is the relation between economy and globalization?

 [Summary]

This reading4 was able to learn more about transnational companies in various ways by writing about as globalization progresses. As globalization progresses. the economic part is clearly affected by globalization. Transnational corporations occupy an important position in the global economy. The transnational corporations was originated from the 15th century in Europe which is charted trading companies with trade and exchange at world scale. and the first TNC to manufacture and produce outside their original country came into being in the late 19th century. Since then, transnational corporations have surged. In modern times, people define transnational corporations as the companies have the power to coordinate and control operations in one or more countries. These TNCs do business all over the world and are not attached to any particular country or society. Examples of TNCs include Toyota, Ford, BMW etc. This TNC operates in several countries other than its home country, and some operate in only one or two countries, but in common, it does business in different cultural, political and social environments. Mostly TNCs start in developed countries. Foreign direct investment(FDI), which can measure transnational corporate activities, is because less than a third of the world's total FDI is in developing countries. However, the number of TNCs have increased recently in developing countries, and it making the world economically diverse.

 

There are market-oriented and asset-oriented investments in TNC operation activities. Market-oriented investment is focusing on market’s location. When the market reaches the saturation point in domestic, the corporations are expanding the market globally to boost profits. Thus, the scale and characteristics of the market have an important effect on the positioning of TNC. Asset-oriented investment is a method which uses onsite when the assets necessary for an entity to produce and sell its products are geographically unequal. Although companies engaged in the natural resources industry must be located in a supply location, the disposal of resources often takes place close to the market. In addition, advances in technology have given companies access to assets in a wider geographical location.

 

For TNCs, labor and human capital are important, preferring highly educated, highly skilled workers available at lower costs. TNC activities include greenfield investment and merger and acquisition strategies. Greenfield investment is an investment that builds and produces completely new facilities and is often made in the home country. Because it costs a lot to go abroad and it is not clear whether it is suitable for that country. So the other way that came out are merger and acquisition strategies. Acquiring or merging other companies can form alliance network and cooperative relationship also can reduce the risk of re-marketing from in an unfamiliar environment. However, in this alliance, only some of the partners' business operations should be involved and most of the systems should remain separated as competitors. This is because companies may lose their core technologies by competitors.

 

There are 'born globals' companies that operate outside their home countries Among TNCs. These companies must rely on the Internet and other TNC networks. This is because it has a great impact on the development of corporations pursuing business at another country. These geographical problems have an important impact on the identity of transnational corporations, most TNCs set the production methods and activities of companies according to the cultural, social, political and economic characteristics of their countries. The national system and ideological tradition make important decisions of TNCs. Now TNC are forming  a network of regional scale within the country. Transnational production networks organized on a regional scale is especially well represented in Europe, North America and East Asia. In Europe, with the increase in EU integration, corporation activities are being reconstructed through the reorganization of existing corporate networks and the establishment of new European delivery methods. Eu can now be seen as a huge international production complex that forms its own trade network across borders. East Asia does not have an organization like EU but organizes a network of regional production networks. In addition, there used to be a tendency to set up additional companies overseas once businesses began to flourish in their home countries, but now more companies are becoming TNCs from the early stages.

 

TNCs have a wide variety of shapes and scale. The advantage of TNCs are that it can utilize geographical differences in the availability and cost of resources and state policies and also can operate differently for entities in different locations. However, this power does not always indicate that TNCs have an advantage. All TNCs are affected by the policies and regulatory systems within each country's political structure and they have to engage in production and service activities within the regulation. For example, international regulatory institution such as WTO, international agencies that decide technical standards have important implications for TNCs networks. TNCs must comply with these regulations and resolve unreasonable situations through negotiations with states. TNCs also induce mobile investment to minimize such restrictions. Because the territory of TNCs are fluid. Some people insist that the state is powerless to deal with TNCs. Each country can exert considerable pressure on TNCs by controlling access to its territory and  setting operating rules. For example, in the 1970s, Ford and U.S. and European automakers were in conflict with the countries they wanted to establish. Therefore, TNCs can’t be free from all actions. It still wields a powerful force, but it's not absolute.

[Interesting point]

It was good to be able to think about and recognize transnational corporations in various ways. At first, I thought the companies would be transnational if it made inroads into even one foreign country, but actually there are only few companies could be called global companies in terms of their geographical size. There were also many ways to invest using TNCs. The way TNCs invest depends on what value each company considers more important among two methods of market-oriented investment and asset-oriented investment to expand its business. Another strategy is Greenfield, mergers and acquisitions. I could find that TNCs had to consider various factors, such as the country's location, market, consumer demand and policy, in order to make inroads into foreign markets. Also, by using the existing companies and networks through mergers and acquisitions, the risk can be reduced rather than starting anew altogether. It was interesting to know which investment method a company chooses based on the characteristics and location of each country. I understand the concept, but I think it would be good to look for more examples and study how to use them in addition except examples in Reading 4.

 

[Discussion]

Through globalization, we can experience goods and services not only  the countries we live in also other countries’. Consumers getting have more choices and companies are creating products and services in line with more diverse consumer needs. From the consumer's point of view, we can get benefits because each corporations compete to bring out better quality goods and services. On the economic front, however, globalization and the increasing number of TNCs also lead to global market imbalances. As we can see in this text, the corporations wants cheap and high-quality(high-educated, highly-skilled) labor.) And mostly, they look for that source of work in developing countries. Of course, although the TNCs from developing countries number are increasing, but it still very few. and I think that if this situation continues, the economic imbalance will worsen. Also, most TNCs have a production process or operation based on their native culture, and if the culture is applied to other countries as it is, the culture can be uniformed or the unique culture of other countries can be violated. However, nowadays globalization is an inevitable trend and the benefits of TNCs are enormous. Therefore, I would like to talk about how we can improve by supplementing this problem. also Is there any way to support and encourage TNCs that start in developing countries?