Economic Globalization---Ma Shang

1.Summary

As the main participant of global economy, TNC has a great influence in the process of economic globalization. So in this article, the author makes a more detailed description and explanation of the nature and importance of transnational corporations in the process of economic globalization through five parts.

THE SCALE AND GEOGRAPHICAL DISTRIBUTION OF TRANSNATIONAL CORPORATIONS :

In this part, the author explains the definition of transnational corporation, which is "a company that has the right to coordinate and control its business in more than one country, even if it does not own such business".TNC operate globally but are not loyal to any particular country or community. At the same time, the author explains the current situation of transnational corporations. In the past 50 years, the number of transnational corporations in the world economy has grown exponentially. And，FDI growth has consistently outpaced growth of world trade，a clear indicator of the increasing significance of TNCs as the leading integrating force in the global economy. Less than one-third of the world FDI total is in developing countries. Indeed, the vast majority of FDI consists of cross investment between developed countries.However, there is no doubt that the number of TNCs from major developing countries is increasing. The diversity of transnational corporations in the global economy is increasing.

WHY (AND HOW) FIRMS ‘TRANSNATIONALIZE’ :

The author believes that there are two motives and reasons for commercial companies to expand their business abroad, one is market-oriented investment, the other is asset-oriented investment. First of all, most of the investment of multinational companies is still market-oriented. When a company has reached the saturation point in the domestic market, the improvement of its profitability is likely to depend on whether it can expand its market beyond its home country. Secondly, the assets required for the products and services produced and sold by the company are also very unevenly distributed geographically, so local exploitation of resources (especially energy and industrial companies) may be required.

There are two major ways in which firms develop transnational activities: one is through what is known as ‘greenfield’ investment; the other is through engagement with other firms, through either merger and acquisition or some form of strategic collaboration. 

GEOGRAPHY MATTERS: THE EMBEDDEDNESS OF TRANSNATIONAL CORPORATIONS :

According to the author，place and geography still matter fundamentally in the ways in which firms are produced and in how they behave.TNCs interact with the local characteristics of their countries and communities and produce a series of unique results. And the domestic structures within which a firm initially develops leave a permanent imprint on its strategic behavior.

‘WEBS OF ENTERPRISE’: TRANSNATIONAL PRODUCTION NETWORKS :

The author points out that the difficulty of coordination and control of transnational corporations is far greater than that of corporations whose activities are limited to a single national space because of their scattered geographical distribution in different political, cultural and social environments. Multinational companies need more complex organizational structure. The geographical structure of production activities of MNCs can be divided into four types: One option is to concentrate production at a single location. Such globally concentrated production generates economies of scale in production but increases transportation costs and lessens the firm’s knowledge of distant markets. A second option is to produce specifically for a local/national market. Here economies of scale are limited by the size of the market. A third option is to create a structure of specialized production for a regional market (such as the European Union). A fourth possibility is to segment the production process and to locate each part in different locations: a form of transnational vertical integration of production. 

The power relationships between TNCs and other actors in the global economy：

The author believes that TNCs do not always have the power to act in their own way, and that countries still have a great deal of power over TNCs, such as controlling access to their territories and establishing business rules. Therefore, it is wrong to say that the state is generally powerless in the face of so-called "global companies". All the elements in the transnational production network are regulated in a certain political structure with the country as the basic unit, and the organization and geographical situation of the transnational production network are extremely complex. This inevitably creates tensions between TNCs and other important actors in the global economy: States, local communities, labour, consumers, civil society organizations. Therefore, the freedom of movement of transnational corporations may be greatly restricted.

2.What was interesting/what did you learn:

I think many of the author's views are very special and interesting, breaking my previous views and understanding of TNCs. For a long time, people have ignored the real relationship between TNCs and their countries. TNCs have undoubted power and influence in the global economy, but perhaps we need to avoid the simple view that TNCs always prevail.