Economic Globalization – Eric de Jong

Summary:

The writer of ‘Economic Globalization: Corporations, Peter Dicken, starts the article of by saying this article is written to provide a more balanced view and explanation of the significance of transnational corporations in economic globalization and provides and explanation of the complex phenomenon of economic globalization. Dicken focuses on five issues to elaborate:

THE SCALE AND GEOGRAPHICAL DISTRIBUTION OF TRANSNATIONAL CORPORATIONS

Economic globalization started as early as the 15^th century with for example the Hudson’s Bay Company. These companies played a huge role in the development of interconnected economies and can be viewed as the ancestors of global trading and service companies.

However not until the early 20^th century companies were not manufacturing production outside their country. Since then the number of transnationalized TNC’s has grown exponentially.  A TNC is a company which has the power and resources to carry out and control operations in more than one country, even if it’s not their property.

Some TNC’s, like GM and Royal Dutch Shell, have grown more powerful than nation-states. Dicken counters this though by saying that it is based on misleading statistical arguments. A common denominator of TNC’s is that they operate in different political, social and cultural environments. The activity of a TNC can be measures using statistics on foreign direct investment (FDI), these investments have the intent to take over another firm’s operations. FDI has consistently been growing since the ‘80s, this is a good indicator for the significance of TNC’s on the global economy. The origination of TNC’s becomes increasingly diverse in the global economy.

WHY (AND HOW) FIRMS ‘TRANSNATIONALIZE’

The reasons behind the transnationalization of firms can be seen in market-oriented investments and asset-oriented investments.

Much of the TNC investments are market-oriented because their own domestic market may have been oversaturated, it has identified new markets or access to their market has been restricted due to new regulations. It could be for political and/or cultural reasons that a TNC decides to position itself strong in a certain market.

Investments of TNC’s could also be explained by asset-orientation. The assets that the TNC needs to produce and sell their products might ,geographically, be very unwell distributed therefore they may need to situate themselves more local. This for example, was what drove the development of many startup TNC’s in the early days involved in the production and processing of natural resources, such as energy and agricultural products.

GEOGRAPHY MATTERS: THE EMBEDDEDNESS OF TRANSNATIONAL CORPORATIONS

The place and geography very much matter in how firms are produced and behave. Even the most geographically extensive TNC’s carry much of their characteristics, such as cognitive, cultural, social, political and economic, based on their home stations location. The author argues that also the place where the TNC’s operate influences the way they operate and produce different forms of business organization. Economic coordination and governance are embedded in their social systems. Dicken argues though that the interconnectedness of our global economy makes for influences across boundaries that could affect the configuration and behavior of businesses.

‘WEBS OF ENTERPRISE’: TRANSNATIONAL PRODUCTION NETWORKS

TNC’s control a large portion of the networks that are embedded within business firms, the network of connections of production, distribution and consumption. How they control these networks is based on their history, their heritage and the nature and complexity of the industries environment in which it operates.

Because of these geographically widespread characteristics across cultural, political and social environments a TNC is difficult to control and therefore requires an intricate organizational architecture. The configuration of TNC’s activities is based on different functional and locational requirements and make for a distinctive spatial pattern for each function. Things like the headquarters of the TNC and R&D facilities mostly remain the firms home country, although some kind of R&D facilities are widely spread. Sales and marketing tend to be in the locations of the targeted key markets. The production part is sensitive to the different, technical, needs of the sector they’re working in.

What was interesting/what did you learn:

I thought it was very interesting to read that no matter how geographically extensive a firm is, they will always retain characteristics based on their home location. You can see this in all kinds of ways, in the way they sell products or themselves or in the way they govern themselves. It is so interesting to see that behavior is so connected to the original space and place.

Discussion Point:

As you have probably read, TNC’s have a big portion of power in the world, probably even more than we can see. Do you think that TNC’s have a bigger control in our world governance than we know?