Reading 4: Economic Globalization - Dicken

 1) Summary

The author mainly talks about transnational corporations or TNCs as the main influencers of the global economy. He explains their influence and purpose in economic globalization and he does so by focusing on 5 issues.

The issue he starts with is the scale and geographical distribution of the transnational corporations in the worldwide economy. Dicken briefly mentions that the first companies to extend their operations to other countries did so to be able to trade and exchange goods with other countries, and by the 19th century the first companies were setting up their own operations abroad. He explains that current TNCs are companies that know how to take charge of and coordinate their worldwide operations, both the ones they own and the ones they don’t. He also explains that these TNCs bring in 1/10 of worldwide GDP and 1/3 of all exports, with the 100 biggest TNCs accounting for 14% of the sales of foreign affiliates globally. It shows how massive these businesses are and why they are not considered as being specific to one country. On the other hand, the TNCs not within the top 100 are mostly still based in their own countries. However, all of them span different political, social and cultural environments.

The second issue he discusses is why and how firms transnationalize. The main reasons he gives are market-oriented investment and asset-oriented investment. Market-oriented investment is when company is not seeing any growth anymore in their domestic market, so they decide to expand into a different market. This may require an actual presence of the company in this new market to oversee any developments, issues, and restrictions that might rise. On the other hand, asset-oriented investment happens when the resources you need to develop your products are located in specific locations, this includes locations where labor costs are lower or where highly skilled workers are available. Then you might want to place your operation sites close to try to save money and time within the production. Dicken explains they can transnationalize in two ways. Companies can either form partnerships or use ‘greenfield’ investment. A greenfield investment is when TNCs set up their own new facility abroad, while the partnerships can be mergers or acquisitions, where the company gets some assets of another company, or a strategic collaboration which focusses on a specific product, problem or market.

The next issue he discusses is the geographical embeddedness of transnational corporations. Here he discusses how the place where a firm start still has a big influence on how the firm produce and handle or set up their business. These built-in ways of doing things will remain even when a firm expands abroad, with slight adaptations to better integrate into the foreign market they move to.

The fourth issue the author mentions is that of transnational product networks. He starts of by saying it is naturally more difficult for TNCs to control and ensure full cooperation between their spread out businesses than it is for companies focused only within one specific country. Because of the many developments throughout the years it has become easier for these organizations to spread their different departments and their geographical set up.

This leads to the final issue he discusses which is the power of relationships between TNCs and other actors. Since TNCs are constantly changing, adjusting, and moving operations based on what they want or can produce themselves, and what they want to find specific suppliers for. Which they will also do this based on where certain resources are cheaper or where it might be easier to produce or acquire certain things. Dicken says this creates constant negotiations and bargains between TNCs and nation states.

2) Interesting point

I thought it was interesting that it's mostly the top 100 TNCs that are more globalized, while the rest still have smaller operations, and how much they add to the economy.

3) Discussion question

What would the impact be on globalization and the economy if these big corporations would disappear? 

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