Economic Globalization / Blog Assignment IV / Cindy Paskalina Kweesar

Summary:

Economic globalization means that the economy internationally opposes political boundaries which are called the nation-state. We can say that, the beginning of this trend originated from Europe in the 15th century. Today, one important part of the development of economic globalization is the transnational corporation (TNC). To explain it easily, TNC is a corporation that operates not only in its own country but in other countries. Examples of corporations included in TNC are Unilever, General motors, Toyota and many more. Because of their great power there are some people who compare their influence with the nation-state. Based on data from UNCTAD, there are 61,000 TNCs that have relationships with more than 900,000 foreign affiliates. This figure looks big but it should be noted that most of their production activities come from top 100 NTCs in the world.

Based on foreign direct investment statistics that measure direct investment from abroad or make branches in other countries, the international economy is increasingly becoming popular very quickly. Direct Investment's growth exceeded the speed of world trade growth in the 1986-2000 period. Most TNCs come from developing countries and most FDI is also directed to developing countries as well.

Then what motivates the development of TNC today? If the investment is market-oriented, it is likely that the corporation is at the point of saturation in its domestic sales, therefore, they are looking for new markets abroad to increase their profitability. But another thing that motivates TNCs is assets that are not evenly distributed. This is called Asset-oriented. This can be seen from how many TNCs exploit other countries' natural resources. But in addition to natural resources, the source of human resources is also one of the influencing assets. Some countries, especially countries that have low levels of education, have a very large number of workers. They tend to be hard-working and want to do physical work, which most developed countries don't want to do. Thus the salary paid is very low and very profitable for the corporation.

TNC can choose to make Greenfield investment or acquisition, merger and strategic collaboration. Greenfield investment is done by creating new facilities in other people's countries. This method is favored by the country that will be visited because it can raise the country's own productive stock. But many people consider this method to be very dangerous, therefore TNC often conducts acquisition, merger and strategic collaboration. They will work with established firms to expand their influence in other countries. Special Strategic Collaboration is increasingly popular method in TNC. This method only make some and specific part of the 2 firms work together to get their goals. They can compete and collaborate at the same time.

A corporation must have an organizational culture that is strongly influenced by culture originating from its country. Likewise with TNC, observations made by painter Mare Chagall about the style of painting in the world could be applied to TNC as well. When they are outside their home country, someone’s painting style may be affected by the surrounding environment, but certain aroma from their home countries is definitely influence the big part of their painting. This has also been proven scientifically by comparing countries that have very opposite traditions such as Japan and the United States. However, over time, relations that are difficult to separate between countries, sometimes force certain TNC traditions to change according to the country they are coming into. For example, Japanese company in United States. Because of the crisis experienced by Japan in the late 1980s, America forced Japanese companies to become more westernized by being more open to the outsiders. Now, this often happened, even though the full tradition change will be a difficult things to do.

What was interesting / what did I learn:

On the other hand, I was interested and very much agreed with the view that seeing tradition change following TNC's local status could benefit their own corporations. This change is intended so that production can take place more smoothly. For example, divisions related to human resources will work better they try to understand and work according to the culture of local people there too. By using this concept, every division that handles human resources issues must change according to the culture of the country that exists. Besides human resource problems. The products produced and the ways of marketing can also change and adapt according to their local culture. Although TNC opens new opportunities for the corporation, TNC is very complex and difficult to operate when compared to corporations that only operate in its country. They definitely need a lot of time to find the most appropriate strategy to use.

Discussion point:

In my country Indonesia, there is one big TRC that operates in mining.  Mst of Indonesia people see this TRC as an evil company that exploits our country's natural resources. Seeing the disadvantages including the environmental pollution experienced, the state is still unable to stop the contract with this company. One reason is that this TRC provides many job opportunities for Indonesian people. What do you think the state can do if when the state's decision has begun to be influenced by TRCs from other countries?