What Is the Relation Between Economics and Globalization? - Yun Shinji

1) Summary
The author explains that although transnational corporations (TNCs) are widely recognized as central actors in economic globalization, the common image of them as “placeless giants” freely operating across borders differs significantly from reality. In practice, a TNC is defined as a firm capable of coordinating and controlling operations in more than one country, and currently about 61,000 TNCs operate international production through over 900,000 foreign affiliates. Their activities account for roughly one-tenth of global GDP and one-third of world exports, with a significant share concentrated among the top 100 corporations.
Foreign direct investment (FDI) is the primary indicator of TNC activity, and between 1986 and 2000, FDI grew at a pace two to ten times faster than world trade. This demonstrates the expanding influence of TNCs as key drivers of global economic integration. Most FDI continues to occur between developed economies, while less than one-third flows into developing countries. Although TNCs are powerful actors in the global economy, most still retain more than half of their operations in their home countries, and only a small number can be considered truly global in geographical scope.
The motivations behind overseas investment can be divided into market-oriented and asset-oriented strategies. Market-oriented investment occurs when firms seek to overcome domestic market saturation, transportation costs, or trade barriers such as tariffs. Asset-oriented investment focuses on accessing resources—such as natural resources, skilled labor, and technological capabilities—that are unevenly distributed across regions. While early TNC expansion centered on natural resources, more recent trends highlight the importance of knowledge-based and human-capital-driven assets.
TNCs expand abroad through greenfield investment, mergers and acquisitions (M&A), and strategic alliances. In recent decades, M&A has played a dominant role in global FDI growth, and strategic collaborations—often formed even between competitors—have created increasingly complex and multilayered corporate networks.
Importantly, all TNCs remain deeply embedded in the cognitive, cultural, institutional, and political structures of their home countries. Home-country norms, organizational practices, and ideological traditions leave a lasting imprint on corporate decision-making even after international expansion. For this reason, TNCs cannot be understood as standardized or uniform global enterprises; rather, they reflect diverse national origins and operate within a variety of institutional contexts.
TNCs also do not function as isolated entities but are positioned at the center of transnational production networks that connect production, distribution, and consumption across multiple regions. These networks are increasingly organized on a regional—rather than global—scale, especially in Europe, East Asia, and North America.
Although TNCs possess the ability to take advantage of regulatory and cost differentials across countries, they do not hold absolute power. Their decisions are embedded within regulatory structures shaped by states, international organizations, labor, consumers, and civil society. States continue to control territorial access and regulatory conditions, making the relationship between TNCs and governments one of ongoing negotiation rather than unilateral dominance. Ultimately, the text argues that while TNCs are central to global economic processes, they must be understood within the broader institutional and political contexts that shape and constrain their behavior.

2) Something New and Interesting

Before reading the text, I tended to imagine transnational corporations as fully global organizations that freely transcend national borders and operate uniformly across the world. What was particularly striking, however, was the fact that most TNCs still maintain more than half of their activities in their home countries and that only a small fraction truly operate on a comprehensive global scale. The stereotypical image of a “nationless corporation” or a firm “belonging everywhere and nowhere” turned out to be far removed from reality; instead, most TNCs remain deeply anchored in the political, cultural, and institutional context of their home states.

Another aspect I found intriguing was that even in an era of accelerating globalization, the significance of the nation-state has not diminished. Rather, the relationship between TNCs and states remains highly interactive and characterized by continuous negotiation. States still shape corporations through regulations, market access, taxation, and policy frameworks, while corporations strategically exploit differences in national regulatory environments and resource conditions. TNCs may be central actors in the global economy, but they do not enjoy unlimited freedom or absolute dominance.

This realization challenged the simplified assumption that TNCs have surpassed states in power. In practice, the global economy is structured through a dynamic interplay in which states and corporations influence each other, sometimes even constraining or reshaping one another’s strategies. The example of China—where the state exercises strong influence over corporate activity—demonstrates that national power remains highly significant even under globalization.

Through this reading, my understanding of TNCs shifted from viewing them as “borderless global giants” to recognizing them as organizations deeply rooted in their domestic contexts while simultaneously navigating complex negotiations and adjustments across multiple countries. It also highlighted the nuanced and multilayered relationship between globalization and state power.

3) Questions and Discussions

One of the most compelling concepts in the reading was the idea of “embeddedness.” Despite their extensive geographical reach, TNCs remain fundamentally shaped by the cognitive, cultural, social, and political characteristics of their home countries. The fact that a corporation’s strategic choices continue to reflect the institutional logic and ideological traditions of where it originated. This perspective helped me understand why global economic integration does not lead to a single, uniform form of capitalism but instead maintains diverse varieties shaped by distinctive national contexts.

Building on this, I would like to explore why asset-oriented investment has shifted so dramatically over the past fifty years—from focusing primarily on the geographical concentration of natural resources to prioritizing human capital. Technological innovation, the rise of knowledge-based industries, and the growing importance of research-intensive production have fundamentally transformed what firms look for when expanding abroad. In an era when natural resources are no longer the central determinant of competitiveness, access to skilled labor, innovative ecosystems, and technological capabilities has become critical for corporate success.

The reading also raises further questions worth exploring. For instance, if TNCs are deeply embedded in their home institutional structures, how should they balance their domestic organizational habits with the need to adapt to the cultural and regulatory environments of foreign markets? This tension between global integration and local responsiveness remains one of the central challenges of multinational management.

Additionally, given that TNCs operate at the center of vast production networks, I am curious about the implications of the growing regionalization of these networks. If globalization emphasizes worldwide interconnectedness, why are corporations increasingly reorganizing around regional hubs? And what might this trend mean for the future structure of the world economy?

Lastly, the relationship between states and TNCs invites ongoing discussion. While TNCs possess mobility and the ability to navigate regulatory differences, states still retain the authority to define rules and grant market access. This raises the broader question of how power dynamics between states and corporations will evolve: Will one side ultimately gain more influence, or will globalization further reinforce their mutual dependence?

Overall, the reading encouraged me to move beyond the simplistic view of TNCs as border-transcending organizations and instead consider the complex interplay among firms, states, regions, and institutional environments. It also motivated me to pose additional questions and engage more deeply with how globalization continues to reshape economic and political relationships.

• AI was used to assist with producing natural and fluent English sentences.