IV. Blog - Economic globalization

1. Peter Dicken gave us an impression of the impact of the globalisation towards the economy in his article ‘Economic Globalization: Corporations’. In the following I am going to summarise his perceptions. Dicken focused on so called transnational corporations – shortly TNC, firms which were able to coordinate and control operations in more than one country.

Already in the 13^th century the first companies get international. With the seafaring the possibility of trade and exchange was giving. After the first world war in 1914 the first companies start to internationalise their business with locating production in different countries than their home country. Today TNC are concentrate on developed countries, only around one third of foreign direct invest goes to undeveloped counties. So TNCs are mostly found in East Asia, Europe and North America.

To internationalise their business firms always need to invest abroad. Within the reasons for international expansion two main categories were distinguished. With an asset oriented invest firms invest to compensate / because of geographical unevenness. That is especially the case for companies, which business is related to natural resource. Furthermore they aspire for comparative advantages. In the past this was mainly related to the cost factor. Nowadays the companies focus on catching high educated people for their business. The second reason for expansion is the market oriented invest. Here companies reached the market saturation or a specific level of market volume at their home country. So the decision to invest abroad is the try to expand the territory and after establish in the market provide an efficient market delivery.

For the investment of internationalisation, the preferred method is merger & acquisition (M&A) compared to greenfield investment. At M&A the expanding company buys an existing firm to profit from their specific market knowledge and safe money and time for entering the market. The step of greenfield investment is riskier, here companies build new facilities overseas. Instead of M&A sometimes firms building alliances, which were founded to work together on a specific business problem. Besides the possibility to solve the problem, there is a risk that the competitor may gain knowledge about the key technologies. All kinds of this investments can be find in the automotive industry. 

Generally companies try to reach a specific market strength in their home country before they invest overseas. Most likely after exceeding the level, they start the expansion by exporting into the country of destination. Only when they could establish with exports they go over to invest in overseas subsidiaries or stores.

TNCs were influenced by the culture and economic situation of their home country. With internationalisation they get influences of the subsidiaries too, but normally the home country is the dominant influence. So cultural aspects, as history of the home country, getting part of the companies. Even though nowadays the firms pay more attention to the shareholder value than to the stakeholder value, to survive in international competition. 

With the development of communication systems and transport technologies TNCs build up regional spatial patterns for functions. This patterns are various as the different TNCs, but is often observed that the headquarters and the main research and development department staying within their home countries. To always have an optimal organisation pattern and to adopt to all requirements of all companies locations TNCs are always in a flowing process of restructuring, reorganisations and rationalisation.

The basis of the global power of TNCs is based on their ability to use the advantages of geographical differences. Even though their not as strong as often mentioned. Besides dependencies of suppliers their power is also limited by the necessity to confirm to international standards and the impact of civil society organisations, which restrain the possibilities of TNCs by influence stakeholder mostly via Internet. 

2.  Peter Dicken gave an interesting view about how TNCs developed through the years and what influence their development. He also mentions their power, but unfortunately he didn´t explain this point in detail. He explains that the comparison to the power of a nation-state is nonsense, but he doesn´t amplify more to the power of the TNC. I wish he had explained more from his point of view, how the companies use their power and influences towards economy and political issues. 

3. Dicken mentioned that the main investments of TNCs flow between developed countries. The investment in undeveloped countries is below one third. Do you think that an investment at this region can become an advantage from TNCs? As for example the Steinhoff International Holdings successful invested over a long period in South Africa before their crash caused by mismanagement.