Reading 4: What is the relationship between economy and globalization? (Hojeong Lee)

Economic Globalization: Corporations

Peter Dicken


1. Summary

  This article explains the nature and importance of transnational companies that appear in the process of economic globalization. And this process is solved according to issues such as ‘the size and geographical distribution of TNC in the global economy’, ‘reason and method of companies’ transnational activities’, ‘the geographical inherentity of transnational companies’, ‘the web of companies appearing in transnational production networks’, and ‘power relations’.

  First, multinational companies interested in globalization created trading companies based on interconnected political and economic bases, which helped them grow to become commercial countries on a global scale. Currently, the most common definition of TNC is ‘company that has the power to coordinate and control operations in more than one country, even if not owned’. They were so-called global companies and operate on a global stage, but they are known to have no obligation to be loyal to certain countries or communities. Today, TNC operates in a variety of political, social, and cultural environments, and the diversity of TNC is also increasing in the global economy.

  TNC also has the potential to make minimal changes to labor costs. In addition, labor costs and quality have a strong influence, which underpins the foundation for countries around the world to invest in transnational companies. It is noteworthy that companies developing transnational activities are pursuing ‘new competition in the way cooperation and competition interact’, and many companies are forming an alliance network with partner companies through strategic alliances. In order to achieve each other’s strategic goals, companies share the risk of entering the market, share research costs and access to technology, and strive to achieve synergistic economic cooperation.

  The TNC inevitably creates tensions between important actors in the global economy: communities, workers, consumers, and civil society organizations. All elements of the principle of transnational production are regulated within the political structure based on the state, and the continuous economic activities of major actors realize the operation of transnational networks.


2. Interesting Point

  In this article, companies explain greenfield investment as one of two ways to develop transnational activities, which means that overseas companies directly purchase land from the investment country and build new factories or workplaces.

  These greenfield investments are expensive and take a long time to produce, but they have the advantage of great job creation in countries that receive investment. For example, Hyundai Motor, Korea's leading automaker, once built an automobile factory in Alabama, the U.S., which raised questions about how much greenfield investment companies are engaged in transnational activities and actually created opportunities to realize a global leap.

  It was also interesting that many companies have various alliances through partnerships with partner companies. This was interpreted as an interpretation that it is leading win-win globalization by adding a new element of "group competition" to the economic power of companies.


3. Discussion Point

  In the text, most U.S. and U.K. companies have preferred to merge with certain overseas regions rather than greenfield investments, which have been led mainly by M&A. M&A can be a useful method that can be done at the corporate level if it takes a long time to build the necessary capabilities in the industry and it is difficult to imitate. In addition, the method of acquiring an existing company can be a fast and effective method in achieving an economy of scale required by the industry.

  If so, which of the Greenfield and M&A investments do you think is more preferred to maximize the economic job creation effect of today's companies and to actively engage in local production and marketing activities to move toward global transnational companies?

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