What is economic globalization?
There is the widely held view that global corporations are emasculating the autonomy of nation-states which is not true. Further on many people agree on the idea that the transnational corporation formed the global economy.
In the first years of international economic development, there were only a few companies that made profits beyond their own borders. Nevertheless, companies such as the East India Company, which have created a business empire with their own corporate development, have played a very important role in the development of a networked political economy. Their trade-related behavior was mostly like today's global commerce and services companies. With the beginning of the second half of the 19th century, the first companies were founded that produced and offered products and services outside their home country. After a short time, these companies were transnationalized. In addition, the number of transnational companies grew very rapidly in a very short time; to be more precise, it increased exponentially. Modern transnational corporations have the power to coordinate and control operations in more than one country across the globe, even if they are not really part of their national economy. When property criteria are applied in this definition, 61,000 transnational companies produce international production in more than 900,000 companies, which are produced in various countries around the world. In addition, it is astonishing that only 0.2% of transnational companies account for 14% of sales of foreign subsidiaries worldwide.
International direct investment (FDI) is part of the portfolio investment used to measure TNC activity. If the international direct investment is growing very fast, it means that TNC activities are the integrating force in the global economy. It should be noted that developing countries invest the same amount of direct investment as industrialized countries, making their investments less than one-third of total direct investment. Thus, 96 of the top 100 non-financial TNCs come from the industrialized countries.
The main tasks of the TNC include the following two tasks: the market-oriented investments and the asset-oriented investments. As for the first activity of the market-oriented investment, it should be mentioned that after the saturation point has been reached in the domestic market, the company is trying to find a new consumer market or to expand the sales market. However, the resulting transport costs could be uneconomical, as well as the international market could be limited by political and cultural regulations. Thus, it is of great advantage to be embedded in a local market in the form of a local kidney, in order to better respond to the size and characteristics of the markets.
As there is a very large geographical inequality of markets and assets, the first leading TNCs are primarily concerned with natural resources. These were located directly at the sources of supply, which turned out to be very reasonable. Furthermore, the new development of transport and communication technologies give companies new access to other assets. In addition, highly qualified and well-educated human capital has become increasingly important. However, people's work is also unevenly distributed, with industries like textiles, clothing, footwear, and consumer electronics looking for cheaper human resources. This resource is mostly found in developing countries.
Companies can develop transnational activities in two ways. The greenfield investment is the construction of completely new facilities, which is especially preferred by the host countries. However, this is very risky for companies. Companies prefer the second way, which seems easier for them. This is either through acquisitions or mergers with other companies, which have already driven most of the growth in global FDI. It is a common way of strategic cooperation with competitors. This is different from M & A as the identities of individual companies do not disappear, and companies work together to solve the problem, for example by sharing market entry risks. Nevertheless, they are competitors, but they can create synergies together.
Furthermore, geographical characteristics or the home country of the company strongly influence the behavior of the company. Nevertheless, companies from countries with similar characteristics behave differently. However, the networking of the global economy quickly transfers influences across borders. The involvement of another company brings with it some modifications. Diversity continues to be the norm.
The corporations do not stand alone as independent entities, they are rather embedded within complex and dynamic networks. The connection to the transnational networks inevitably creates tensions between TNCs and other organizations such as states, local communities, labor, consumers.
Interesting facts about economic globalization:
The most interesting topic for me was the great role played by the uneven distribution of resources on economic globalization. In our geography of the country, there are normal white industries dealing with natural resources because of the high transport costs, in their immediate vicinity. But I only thought about that at the national level. Unevenly distributed resources cause companies to move to other countries to seek profit.
Things to think about economic globalization:
The transnational production networks of the TNC are influenced by international regulatory systems or by international institutions that set technical standards.
The author claims that at certain points they create problems of conformity with an international standard. What could be the potential problems and in which situation will it happen?
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