Reading Assignment 4: Economic Globalization

What is the relation between economy and globalization? 

Reading Assignment 4: Economic Globalization

1. Summary

 From the perspective of economic globalization, transnational corporation (TNC) are leading the global economy. TNC refers to a company that can operate and control in more than one country. TNC is mainly measured using 'foreign direct investment' statistics. 'Foreign direct investment' is an investment that occurs when a company in one country purchases a dominant investment in another country or when a company establishes a branch or subsidiary in another country. TNC can mostly found in developed countries. These days, however, the number of TNCs is increasing even in developing countries, and the diversity of TNCs is also increasing.

 Two reasons why companies expand their business outside of their countries are ‘Market-Oriented Investment’ and ‘Asset-Oriented Investment’. Most of the TNC use ‘Market-Oriented Investment’. A company may have made sufficient profits in the domestic market. In other words, this creates an opportunity to expand their business. Or there may be exploring new markets to provide advanced services. The characteristics of a particular market require a direct presence to satisfy such a situation, which can greatly affect the size and characteristics of the market. The second reason is that companies sometimes make ‘Asset-Oriented Investment’ because the production factors necessary for producing and selling products (services) are geographically separated. However, with the development of transportation and communication technologies, it is now easier to access widely separated production elements than in the past.

 Methods for companies to develop transnational activities are 'Greenfield investment' and 'Acquisition and Merger'. The 'Greenfield investment' is to build a whole new facility. But building new facilities poses a huge risk to business. For this reason, most companies prefer 'Acquisition and Merger'. It means capital transfer between companies. It is traditional for most TNC to enter overseas after reaching some high position in the domestic market. First, overseas markets generally export directly using local independent sales agents. The second is that domestic demand increases, and TNC establishes its own stores overseas to communicate more closely with overseas markets.

 Place is still a very important part of the business. Geographically wide TNC companies are created through a dispatch process in which state-based cognitive, cultural, social, political, and economic characteristics play a major role. However, so far, we cannot see the convergence of business-organizational forms that are not affected by geographical factors. Because in the course of time and in certain circumstances, society is developing ways to organize their economies within the ideology of capitalism.

 Most of the headquarters of TNC companies remain in the company's home country. Some R&D types are dispersed, but research institutes and human knowledge in particular often remain in their home countries because many of them have originated locally. However, while sales and marketing are distributed to major market locations, production functions are sensitive to the technical needs of the field. The Government have the power to coordinate TNC, such as controlling access to their territory and setting operating rules. In other words, it can be seen that countries are not powerless in front of the TNC. As such, the TNC is right to be the center of the global economy, but it must be recognized that they always have great power.

2. Interesting Points

 It was interesting that TNC preferred 'Acquisition and Merger'. In the process of 'Acquisition and Merger's, companies that do 'Acquisition and Merger' may benefit, but I don't think it can be said to be unconditionally beneficial to companies that do the opposite. This is because each company will have the culture or characteristics they have maintained, and if a company mergers and acquisitions, there will be a problem that some of the culture of one of the companies that are mergers and acquisitions can disappear or disappear at all.

 I also agree that the TNC plays a central role in the global economy, but they do not have much power. In any case, since TNC companies belong to the state, they must be operated under country’s laws and their control. In conclusion, they cannot have more power than the state because they must run their companies within the framework set by the state.

3. What is the relation between economy and globalization?

 I think economic globalization is a means of helping communication between countries. Functions that help this communication include International 0rganizations, NGOs, and TNCs. In particular, TNC has increased labor employment around the world, increasing the number of people who can work, and giving each country or company an opportunity to share and develop their skills around the world.

4. Discussion point

 It has the advantage of being able to create jobs around the world through TNC and spread capital and technology to the world. What are the negative effects that can occur in the process of creating such a positive impact of TNC?

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