Reading Assignment 4: Economic Globalization

Summary

I believe that the main body of international economic relations is the transnational corporation, and with the development of transnational corporations taking on new dynamics, transnational investments by transnational corporations and the global production networks associated with them are being established, developed and perfected, a phenomenon that refers to the globalisation of production. Transnational corporations have advanced the process of world economic integration in terms of international economic relations. The internationalisation of production is accelerated. Facilitates and controls the development of international trade. Promotes the development of international capital flows. Promotes the increasing internationalisation of the development and use of science and technology.

At present, there is no precise and unified definition of multinational corporations, and there are different views and criteria for classification. Multinational corporations generally refer to large enterprises or groups, relying on its strong capital and advanced science and technology, through foreign direct investment and other ways, in foreign countries to set up branches or control the host country local enterprises to become its subsidiaries, and engaged in international production, sales and other business activities, in order to obtain high profits for the purpose of international enterprises. 

The characteristics of multinational companies: transnational production and operation activities: large scale, strong implementation of globalisation strategy: in the global scope of commodity trade, direct investment and technology transfer of the three combined, the optimal allocation of resources, in order to achieve the maximum long-term overall benefits. Internal company integration: through equity control, non-equity arrangements, international subcontracting and other means, so that procurement, production, sales, research and development, finance, accounting, human resources and other links are distributed to countries or regions around the world.

Reasons for the development of multinational companies: new competitors, establishment of global standards, WTO, free trade zones, government withdrawal from operations, Internet and information technology, growth of trade and investment, global products and customers, globalisation of the economy and production.

New trends in the development of multinational corporations: 

1. International direct investment and global cross-border mergers and acquisitions, cross-border mergers and acquisitions become an important form of FDI.

2. The service industry has become the main industry of multinational corporations' investment, the economy of developed countries has developed into a service-oriented industry, and gradually formed an industrial structure dominated by the service industry, which has also made the service industry the leading industry for international investment by multinational corporations from western developed countries, and the mutual investment in service industry between multinational corporations from developed countries has also been increasing.

3. Multinational corporations tend to internationalize R&D, before multinational corporations' R&D institutions are mainly located in the home country, with the strengthening of international competition, the rise of the knowledge economy, many resources related to the knowledge economy is cross-border existence, multinational corporations to obtain the relevant knowledge resources, it must be close to the location of knowledge resources to set up R&D institutions, thus prompting multinational corporations to internationalize R&D.

4. developed countries are the main location for multinational companies to invest in, since the 1990s, most developing countries have taken foreign investment to develop their economies as their development strategy, and attracting international direct investment has increasingly become the main way for many developing countries to obtain international capital. 1998 after the Asian financial crisis, the position of developing countries in attracting transnational investment has declined in the international direct investment in the rapid growth of international direct investment. growth, the absorption of international direct investment by developing countries has grown slowly, with developed countries becoming the main source of outward The developed countries have become the main source of outward investment and have also absorbed the vast majority of new international direct investment.

5. the business strategy of TNCs has shifted to localisation. before the 1970s, TNCs practised predatory operations on host countries, especially developing countries, leading to host countries restricting the scope and mode of activities of foreign capital, or even adopting nationalisation. since the 1990s, TNCs have started to adopt localised business strategies.

6. Transnational alliances have become a new trend in the development of TNCs, in order to improve their competitiveness on a global scale, or to unite related TNCs in order to cooperate for development.

7. TNCs have increased their investment in developing countries, mergers and acquisitions have become an important way, and competition among developing countries to absorb FDI has become increasingly fierce. However, the global expansion of TNCs has formed monopolies in some industries and commodity markets in some developing countries, inhibiting the development of local enterprises.

The impact of transnational corporations on international economic relations: advanced the process of world economic integration. Accelerated the internationalisation of production. Promotes and controls the development of international trade. Promotes the development of international capital flows. Promotes the increasing internationalisation of the development and use of science and technology.

1. The impact on the transfer of factors of production. TNCs outward investment is actually a variety of factors of production in the international reallocation. It can fill the gap between the desired investment and domestic savings of the host country; promote the technological progress of the host country through the technology transfer activities of subsidiaries; bring advanced management skills to the host country and train a group of management personnel.

2. Impact on trade and balance of payments, with capital and trade affecting a country's balance of payments

3. Impact on competition and monopoly. In most cases, giant multinationals operate in an oligopolistic market structure, with foreign subsidiaries having greater economic power than local competitors. The competitive and monopolistic effects also depend on whether the subsidiary enters a developed or a developing country, and whether it enters by merging with an existing firm or by creating a new one.

4. The effect on employment depends on: the activities of the TNCs themselves (mode of entry, motivation, mode, factor intensity); the inward investment activities caused by the TNCs (induced effect, crowding out effect); the economic growth activities caused by the TNCs (FDI promotes economic growth through the effects of capital accumulation, technology diffusion, institutional change, etc.).

5. Impact on sovereignty and self-reliance: foreign enterprises promote the development of the local economy and can also cause some loss of economic sovereignty in the host country. This is because the relevant investment decisions and policies on production, marketing, employment and trade are made by the parent company, which constrains the behaviour of the subsidiary and causes a loss of sovereignty to the host country.

Interesting point

One of the most interesting points for me is the way multinational companies are developing and the new trends in development

C. Question to discuss

Will TNCs continue to invest more in developing countries? Will developing countries become a major source of outward investment?