Blog Assignment 4: What is the relation between economy and globalization? - ZHONG XIN

 Summary

The authors present the history and global distribution of transnational corporations. The early emergence of trading firms in Europe played a key role in the evolution of the international economy. However, manufacturing firms did not begin to produce abroad until the second half of the 19th century. The number of global TNCs has grown dramatically over the last 50 years, and despite stringent ownership standards, some 61,000 TNCs now produce internationally in over 900,000 foreign subsidiaries. The largest 100 TNCs account for less than 0.2% of the total number of global TNCs, but contribute 14% of global foreign subsidiary sales. These are referred to as global companies, which are not geographically "global" but have a significant presence in the global economy. The authors also mention that global TNC activity is often measured using foreign direct investment (FDI). Over the past two decades, FDI has grown at a rapid rate, outpacing the growth of world trade, highlighting the role of TNCs as a major force in the integration of the global economy.

The authors also explain why firms expand their operations abroad and how they achieve transnationalization. Motivations are mainly categorized as market-oriented and asset-oriented. Market-oriented investments stem from the fact that firms are saturated in their domestic markets and need to expand to increase profitability. Asset-oriented investments, on the other hand, arise because markets and productive resources are not evenly distributed geographically, and the availability of highly qualified human capital in particular has a significant impact on firms. Thus, firms internationalize by entering new markets directly or by taking advantage of geographically unevenly distributed resources.

The authors illustrate two main ways in which firms can develop transnational operations: through "greenfield" investments, and through partnerships with other firms, including mergers and acquisitions or some kind of strategic cooperation. Greenfield investments are investments in brand new facilities, usually new offices, factories, R&D facilities, sales and distribution centers, etc. Another common form of expansion is mergers, acquisitions or strategic partnerships with existing companies, especially since most global FDI growth in recent years has been driven by mergers and acquisitions. Strategic partnerships are another common way in which TNCs expand and are usually formalized agreements established to address specific business issues. These partnerships are often formed in the context of intense competition, adding a new component of "collective competition" to the economic landscape. The article also refers to a possible sequence of TNC development, starting with building strength in national markets and gradually expanding to international markets. However, a new generation of TNCs, especially in knowledge-intensive industries, may break with the traditional development sequence and become "global from birth".

The article also refers to the fundamental role of geographic location in the way firms emerge and behave. Although TNCs play an important role in the globalized economy, they are still influenced by the cognitive, cultural, social and political economy characteristics of their home countries. Empirical research shows that the local origins of TNCs have a lasting impact on their strategic behavior. Despite geographical shifts in the world economy, forms of business organization have not converged, as societies have retained distinctive ways of organizing their economies within a capitalist framework. And the inherent differences between different social production systems mean that TNCs from different countries will continue to be diverse.

The final section writes about TNCs and their role in the global economy.TNCs are seen as the core of complex and dynamic production, distribution and consumption networks, whose organization and geographical configuration are influenced by a variety of factors.The wide distribution of TNCs across the globe increases the complexity of their coordination and control, and hence the need for more complex organizational structures. Different functions exhibit distinct spatial patterns within and outside TNCs. TNCs are frequently reorganized and rationalized, and their networks are in constant flux.TNCs create tensions for other stakeholders (governments, labor, etc.), and their power lies in exploiting geographic differences and national policies, but is influenced by a multilevel regulatory system, including international organizations and national governments. The authors emphasize that the power of TNCs is not absolute and that states and other institutions still play an important role in complex negotiations and games.

Interesting point

I think the author's analogy is interesting. The author emphasizes the influence of geography on TNCs by citing the Russian painter Marc Chagall, who argued that every painter is born somewhere and that his or her work will retain a certain essence of home, even if he or she later works in other environments. This analogy is used to describe TNCs' relationship to place, emphasizing their embeddedness within and beyond the state and community.

Discussion

In an era of globalization, how do TNCs balance the tension between local response and global integration between the national and global levels?