4. Economic Globalization

1.Summary
INTRODUCTION
The purpose of this text is providing a more distorted depiction and explanation of the nature and significance of TNC(transnational corporation)s in the processes of economic globalization, an approach that is firmly grounded in the empirical reality of a highly differentiated geography while, at the same time, providing a theoretical basis for understanding what is, indeed, a highly complex phenomenon.


THE SCALE AND GEOGRAPHICAL DISTRIBUTION OF TRANSNATIONAL CORPORATIONS
The first firms to engage in manufacturing production outside their home country did not emerge until the second half of the nineteenth century. Nevertheless, by the eve of World War I, in 1914, considerable numbers of US, UK and some continental European manufacturing companies were
becoming increasingly transnationalized. Since then, and especially during the past 50 years, the number of TNCs in the world economy has grown exponentially. The most comprehensive definition of a modern TNC, and the one that underpins the discussion in this chapter, is ‘a firm which has the power to coordinate and control operations in more than one country, even if it does not own them’. Using a more restrictive definition, based on ownership criteria alone, UNCTAD estimates that around 61,000 TNCs currently carry out international production in over 900,000 foreign affiliates. These operations represent roughly one-tenth of total world gross domestic product and generate one-third of total world exports.


WHY (AND HOW) FIRMS ‘TRANSNATIONALIZE’
1st Motivatios: Market-oriented investment
Despite recent developments in TNC activity, much of their investment continues to be market-oriented. A firm may have reached saturation point in its domestic market. Increasing profitability may well depend, therefore, on being able to expand its market beyond its home territory. It may have identified new markets that require a direct presence in order to serve them efficiently.. Access to the market may be restricted because of political regulatory structures (such as import tariffs).


2nd Motivatios:Asset-oriented investment
The geographical unevenness of markets is one major set of reasons why firms engage in transnational investment. The second set of reasons derives from the fact that the assets that firms need to produce and sell their products and services are also geographically very unevenly distributed. Traditionally it was the geographical localization of many natural resources that drove much of the early development of TNCs. It is no coincidence that many of the early leading TNCs were in the natural resource sectors, including energy and industrial resources as well as in agricultural products. Firms in the natural resource industries must, of necessity, locate at the source of supply, although it is often the case that subsequent processing of the resource takes place elsewhere, generally close to the market.


SEQUENCE OF TNC DEVELOPMENT
First, overseas markets are served by direct exports, normally utilizing local independent sales agents. Second, as local demand grows, it may become desirable for the TNC to exert closer control over its foreign markets by setting up overseas sales outlets of its own. This may be achieved either by setting up an entirely new facility or by acquiring a local firm. Acquisition offers the attraction of an already functioning business compared with the more difficult, and possibly more risky, method of starting from scratch in an unfamiliar environment.


‘WEBS OF ENTERPRISE’: TRANSNATIONAL PRODUCTION NETWORKS
Both the organization and the geography of large TNCs, and of their transnational production networks, are immensely complex and dynamic. In a very real sense, the global economy can be pictured as intricately connected localized clusters of activity embedded in various ways into different forms of corporate network that, in turn, vary greatly in their geographical extent. Some TNCs are globally extensive, others are more restricted geographically. In all cases, however, firms in specific places – and, therefore, the places themselves – are increasingly connected into transnational networks.

2.Interesting items I learned

About MNC & TNC

Multinational corporations are very often known as transnational corporations. Many people do not see any major difference between the two terms. However, there is a slight difference between them. Contrary to MNCs, transnational corporations are known for the fact that there is no centralized office in a certain country (Cromwell n.d.). MNCs, in their turn, have headquarters in a single country; however, the main activity of these companies take place in several countries, continents (Encyclopedia Britannica 2012). Hence, both types of corporations operate beyond the national borders. Furthermore, MNCs are known to be independent from government. There are no orientations on specific countries while conducting direct business activities. Moreover, they are known to produce and deliver goods and services to numerous countries (Boundless n.d.). According to Michilie (2003), TNCs are able to plan, control and implement business activities across different nations, countries. In other words, the perfect scenario for multinational corporations is to use skilled workers from the developed economies and have plants in emerging economies. Moreover, the products that are made in the host country are supposed to be easily transported to developed countries and sold there with a certain added value.

    

Multinational companies gained popularity some twenty years ago. They have their origins back to the years of the escalation of globalization. Up till now, there has been seen a double increase in the number of such corporation comparing to the number of corporations some twenty years ago (Kotler&Amstrong 2012). There are 150 largest economies in the world, however; only 81 counties can be called largest economies (Kotler&Amstrong 2012). Therefore, there are about 69 corporations that are considered to be world economies (Kotler&Amstrong 2012).

    

The most known ones according to the Economist (2012) are the following: General Electric, Royal Dutch Shell, BP, Exxon Mobil, Toyota and many others. Many of these companies have about ninety per cent of their assets in foreign countries (The economist 2012). For instance, General Electric has about fifty two per cent of its foreign assets (The economist 2012). Nestle is the leading country when it comes to the percentage of foreign sales. It accounts for almost ninety nine per cent of assets that are foreign (The economist 2012). The sectors where most multinational corporations operate in are manufacturing and finance (UN 2009). However, financial industry has lost recently its popularity and credibility among TNCs due to many crises. Consequently, there are some opinions that nowadays corporations tend to prioritize more ‘soft industries’ and concentrate on producing/selling food and drinks, apparel and books (Bremmer 2014). Multinational companies are rarely competitive in such spheres as aircraft manufacturing (Bremmer 2014).

 

 
Krystsina Lapko. “The role of transnational corporations in the world economy.” Linked in. 20 January 2015. Web. 7 December 2015.

3. Discussion

I'm gonna give you some information about role of MNCs and we need to discuss role of MNCs in good way and bad way.

First, MNCs modernize the world economy. It is reflected as a result of constant promotion of new technologies and introducing innovations across the world. Especially they are active by introducing technologies to relatively remote places. By bringing progress to the poorest economies, MNCs employ people and educate them.

Second, such corporations promote efficiency and growth of the world economy. Multinational corporations are likely to establish interconnection between the domestic economies of some isolated countries and the world’s greatest economies. In addition to that, they promote globalization. By doing this, multinational corporations are viewed very relatively by different people.