Reading Assignment 4: “Economic Globalization:Corporations”——JIA MENGZHUO
1)SUMMER
In discussions of economic globalisation, transnational corporations (TNCs) are considered to be the main shapers, but this view can be misleading. This chapter provides a detailed description of the nature and significance of TNCs in globalisation, highlighting five key issues: size and geographic distribution, the reasons for and modalities of transnational activities, the geographic embeddedness of TNCs, the embodiment of networks of firms in transnational networks of production, and the power relations between TNCs and other actors across the globe. The concept of global corporations is often portrayed as "place-less" giants, but in reality they operate in different political, social and cultural environments and are increasingly diverse. Foreign direct investment (FDI), an important indicator of TNC activity, has grown significantly faster than global trade, underscoring the importance of TNCs as a force for global economic integration. Finally, while the number of developing-country TNCs is growing, TNCs continue to be predominantly from developed countries, particularly 96 of the top 100 non-financial TNCs.
The motives for corporate transnationalisation are mainly divided into market-oriented and asset-oriented investments. Market-oriented investments usually result from a company's need to expand into foreign markets due to saturation in its home market or because it faces constraints such as high transport costs and political and regulatory structures. Asset-oriented investments, on the other hand, stem from the need for firms to develop production and marketing assets in geographically heterogeneous areas. Early TNCs focused mainly on natural resource-based industries, but as technology developed, the attraction shifted to highly skilled, educated and motivated workers. This trend has strengthened TNCs' demand for geographically unevenly distributed human resources and assets, fuelling the development of transnational investment in the global economy.
There are two main ways in which firms can transnationalise: through "greenfield" investments, i.e. the construction of new facilities abroad; and through mergers, acquisitions or strategic partnerships with other firms.
Greenfield investment refers to the construction of new facilities, such as factories, R&D centres, etc., and is usually favoured by host countries. However, it is risky and not the most common way of expansion. More companies tend to establish or expand their overseas presence through mergers and acquisitions. In recent years, FDI growth has been driven mainly by mergers and acquisitions (M&As), with the decline in M&A activity after 2000 leading to a slowdown in growth.
Another common modality is strategic co-operation, especially alliances across competitors. This new form of business relationship reflects the "new competition where cooperation and competition interact", resulting in complex networks of alliances, such as in the automotive and semiconductor industries. Strategic alliances focus on solving specific business problems and, unlike mergers, participants in an alliance cooperate only in specific areas, while remaining independent and competitive in others. This proliferation increases the complexity and diversity of TNC operations.
The development of TNCs is usually considered to go through a series of stages, including direct exports, the establishment of distribution networks, and possibly eventually greenfield investments or acquisitions. However, a new generation of TNCs, particularly in knowledge-intensive industries, may start operating abroad before growing in size and domestic market share, and have been described as "born-global start-ups".
This development sequence is not inevitable and can be interrupted or "short-circuited". Some firms have relied on TNC networks and the Internet rather than waiting for the domestic market to gain a strong position. The development of TNCs is also closely linked to the cognitive, cultural, social, political and economic characteristics of their places of origin, creating a complex embeddedness. Despite the globalisers' view that companies can become 'place-less', empirical research shows that state institutions and ideological traditions in the place of headquarters continue to play a dominant role in shaping and guiding corporate decision-making.
Despite the geographical transformation of the world economy, driven in part by the expansionary activities of multinational corporations, forms of business organisation have not fully merged into a single "place-less" type. This is because different national societies have developed distinctive ways of organising their economies, even within a broad capitalist ideology. There are many varieties of capitalism, and there are inherent barriers to the integration of social production systems in different societies. Forms of economic coordination and governance are rooted in distinct cultural and historical contexts in different societies, making it difficult for institutional innovations to converge.
Different national transnational corporations are likely to continue to exist because their institutional cultures are influenced by their distinctive corporate histories, allowing them to operate in a particular way in terms of strategic behaviour. Country-embedded business organisations continue to be affected despite the rapid dissemination of information facilitated by the interconnectedness of the global economy. Corporate systems around the world may converge in some respects, but may diverge in others. Thus, diversity remains the norm.
TNCs are not stand-alone entities, but consist of complex networks of production, distribution and consumption. These networks are controlled or coordinated by TNCs, making them dense networks at the centre of relational networks. The internal networks and geographical configurations of TNCs are influenced by a number of factors, including the historical, cultural and administrative heritage of the company, as well as the nature of the industry environment in which it operates. As TNCs are dispersed across different political, cultural and social environments, they require more complex organisational structures. The internal corporate division of labour is reflected externally, showing the distinctive geographical patterns of TNCs in terms of headquarters, R&D, sales and production functions. Corporate headquarters and core R&D facilities usually remain in the country of origin, while sales, marketing and production functions are decentralised in key markets and locations. The geographical configuration of TNCs is constantly evolving, undergoing restructuring, reorganization and rationalization, leading to tensions with stakeholders such as Governments and labour.
2)Intersting aspect
The interesting point for me is that TNCs are not stand-alone entities, but are embedded in complex production, distribution and consumption networks. Among other things, the configuration of TNCs' internal networks and their connectivity with external suppliers and customers varies according to the diversity of historical, cultural and administrative legacies and industry environments. It also highlights the geographic configuration strategies of TNCs, including the tendency to decentralise headquarters, the location of core R&D facilities and sales functions, and the tendency to geographically disperse production activities. This diversity and evolving state of affairs has provided the impetus for continued restructuring and rationalization of TNCs, while at the same time triggering tensions with stakeholders such as government and labour.
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