Blog 4 / Economic Globalization / Angela Wibowo

Economic Globalization / Blog 4 / Angela Wibowo

Summary :

Now we will talk about globalization in economic perspective. This chapter we will talk about the scale and geographical distribution of transnational corporations, Why and how firms transnationalize, geographical embeddedness of transnational corporations, the webs of enterprose manifested in transnational production networks, and the power relationships between TNCs and other actors in global economy.

The scale and geographical distribution of transnational corporation. Its starts from world war 1 in 1914, the companies from US , UK and europian manufacturing companies that become transnationalized. Since then, the number of TNC’s in the world economy has grown exponentially. According to the article, modern TNC definition in comprehensive way is ‘a firm which has the power to coordinate and control operations in more than one country, even if it does not own them’, but this definition is impossible to quantify in aggregate term because it involves a number of qualitative attributes that concerned with the complex relationships between firms operating across national boundaries, that no comprehensive data are available.

TNC activity is measured using statistics on foreign direct investment (FDI). FDI is investment that occurs accross national boundaries. For example is a firm from one country that buy a controlling investment from another country, or a firm that sets up a branch or subsidiary operation in another country. Nowadays FDI has been grown consistently in world trade.

Why and how firms transnationalize. First, firms transnationalized by motivations. According to the article, business firm extend their operations outside their home countries and how they do it is complex. We can divide it by 2 categories, there are market-oriented investment and asset-oriented investment. The first one is market-oriented investment, in TNC activities, much of the investment continues in market-oriented, because when a firm have reach saturation point in its domestic market, the increased of profitablitity will depend on their ability to expend its market beyond the territory. Political or cultural reasons may be desirable for TNC to appear and to be strongly embedded in local market. Both characteristics of market can influence the locational decisions of TNC. The second one is asset-oriented investment. The geographical imbalance of markets is the main reasons why firms engage with transnational investment. The second reason is from the fact that assets the firms need to produce and sell their products and services are also geographical unevenly distributed and may need to be exploited in it. Many of early leading TNCs were in natural resources sectors, such as agricultural products. In this firm, they have to locate the firm at the source supply. But for now, because of the development of transportation and communications technologies, it can help much more to keep the product fresh especially for the agricultural products and nature resource.

The second main reason after motivation are modes. According to the article there are 2 way the firms develop transnational activities, first is ‘greenfield investment’, second is through engagement with other firms. ‘Greenfield’ investment is the building of totally new facilities like administration office, factiry, Research and development,etc. It adds the productive stock of both the firm itself and the country that occurs. According to the article, Greenfield investment is far from being the most common mode of overseas expansion. A firm may be prefer to establish a presence in an overseas location through an involvement with an existing firm. Second, merge and acquisition (M&A). Many firms such as in US or UKor other preferred to merge with another firm to expand their presence in the overseas location. In 1990s the number of firms which did M&A increased in a massive number, include UK telecommunications company Vodafone’s acquisition of the US Company AirTouch for $60,3 billion, etc. But FDI growth reducted with a massive reduction in M&A activity.

            The Geography Matters The embeddedness of TNC. All business firms, include TNCs are built through process of embedding which is the cognitive, cultural, social, political, and economic characteristics of the national home base play a dominant part. Accordign to the article, March Chagall found about the relationship between TNCs and place that many globalizers’ visions of the ‘placeless’ corporation. We can get the complexity of the embeddedness process in which both place of origin, and the other places in which TNCs operate and influence the way that the firm behave and how they turn the impact upon such places. From this we can conclude that TNC’s place of origin appears to remain the dominant influence.

Webs of enterprise transnational production networks. All business firms has complex and dynamic networks of production, distribution, and consumption. The networks have become increasingly extensive geographically and controlled, and coordinated by transnational corporation. TNCs internal networks organizationally and geographically connected into the external networks of suppliers and costumers varies considerably. TNC’s organizational architecture is related with issue of the geographical configuration of its activities. The development of technologies, such as communication technologies, transportation, and production process technologies facilitated the transformation of geographical extent over which a TNC can separate out its different functions as well as their precise geographical configuration. At last, TNC may be powerful but they do not possess absolute power in the society.

What was interesting / what I learn :

It is interesting to learn economic aspects in Globalization. I just got so many knowledges about TNC, and how they works, the history of them, and they can give the influences for firms in the world, and the networks in the firm, how they locate their firm and others, because I’ve never know about TNC before, so I think this will be a good knowledge for me.

Discussion :

I want to know about TNC in the future, is it will be develop and increase more and more ? Or not?