Reading 4: Economic Globalization - Dwisafira

 A. Summary


By World War I in 1914, a large number of US, British, and some continental European manufacturing companies became increasingly transnationalized (Dunning 1993).  Since then, and especially over the last 50 years, the number of TNCs in the world economy has grown exponentially.  UNCTAD (2004: 8) estimates that approximately 61,000 TNCs currently produce internationally at more than 900,000 foreign affiliates.  From this Operation, approximately one-tenth of the world's total gross domestic product is represented and has generated one-third of the world's total exports.


Dicken stated that TNC activity is conventionally measured using foreign direct investment (FDI) statistics.  FDI grew at an accelerating pace (at least until the 2001 global economic slowdown).  FDI growth has consistently outpaced world trade growth.  Most of the world's TNCs come from developed economies: 96 of the top 100 non-financial TNCs in the world in 2002. While the share of world FDI originating in developing countries has increased, it remains small (about 10 percent of the world's total).  most of the world's FDI is directed to advanced economies.  Less than a third of the world's FDI is in developing countries.  the bulk of FDI consists of cross-investment between developed countries.  Of course, in developing countries there is a significant increase in FDI.  But this is far less than popular opinion suggests and, nevertheless, highly concentrated in a small number of countries, mainly in East Asia and to a lesser extent in parts of Latin America.  Even so, the number of TNCs originating from leading developing countries continues to grow resulting in an increasing diversity of TNCs in the global economy.


Businesses expanding their operations outside their home countries have reasons.  However, these reasons can be considered very complex and depend on the specific circumstances or situation.  The author summarizes these reasons into: market-oriented investment and asset-oriented investment.


 - Market-oriented investments: most of their investments are market-oriented.  The reason is because a company may have reached a saturation point in its domestic market.  Therefore, to increase profitability can depend on the ability to expand its market outside its home region.

 - Asset-oriented investment: one of the main reasons why companies engage in transnational investment is the geographic imbalance of the market.  Firms in the natural resource industry must be located at the source of supply, although often subsequent processing of the resource takes place elsewhere, generally close to the market.


Regarding the geographical embeddedness of transnational corporations, Dicken explained that a place or location of a firm has a big influence for the firm to control its business.


TNC has the potential ability to take advantage of geographic differences in resource availability and costs and in country policies and to shift and re-shift operations between locations.  However, this does not mean that TNC always has an advantage.  TNC also often experiences tensions with actors in the global economy.


B. Interesting point

Point that is interesting for me is the method firms uses to develop transnational activites. Which are greenfield investment and the strategic collaboration with other firms.


C. Question to discuss

From the two major ways of transnational that Dicken has stated, do you think there is other way for a firm develop transnational activities?


Dwisafira Dharanasari

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