What is the relation between economy and globalization? - Ju yewon

1. Summary

Globalization and the economy are closely connected, and these relationships can be clearly understood through the activities of transnational corporations. Economic globalization is not simply the result of countries opening borders or growing markets, but rather a complex and structural process led by companies that actively reshape production, investment, and decision-making across national borders. Defined as the ability to coordinate and control the operations of two or more countries, TNC play an important role in connecting national economies to one another and changing the structure of the global economy itself.

Historically, the roots of economic globalization date back to the expansion of international trade after the 15th century. Early forms of globalization were led by commercial trade-oriented companies, such as the East India Company, which connected far-flung regions through colonial trade networks. However, these early international economies were largely based on commodity exchange rather than globalized production. In the late 19th century, the nature of globalization began to change as manufacturing and production activities began to move abroad. The transition from simple trade to complex international production marked the beginning of a more profound form of economic globalization.

Over the past 50 years, TNC's growth has accelerated dramatically, marking the full-fledged beginning of economic globalization. Today, there are approximately 61,000 companies in the world and operating more than 900,000 overseas affiliates. TNC's economic influence is enormous. The organization is said to account for about one-tenth of global GDP and nearly one-third of global exports. These figures show that globalization is not an abstract process, but a process deeply rooted in corporate strategies and everyday economic activities. Through foreign direct investment, global supply chains, and international management structures, TNC is forming an active form and position in which economic value is created. In particular, these large-scale activities are highly concentrated, starting mostly in developed industrial countries and leading investments.

The motivation for TNC's overseas expansion can generally be divided into market-oriented and asset-oriented investments. Market-oriented investment aims to expand sales and profits by entering new markets, especially when the domestic market becomes saturated. By producing locally, companies can reduce transportation costs, avoid trade barriers such as tariffs, and respond more effectively to local consumer preferences. Asset-oriented investments, on the other hand, focus on accessing evenly distributed resources in space. These resources may include natural resources, low-cost labor, skilled and educated workers, advanced technologies, or favorable regulatory environments. The availability of high-skilled labor and innovation capabilities, once dominated by cheap labor, is becoming increasingly important today.

TNC is expanding internationally through various strategies such as mergers and acquisitions, greenfield investments, and strategic alliances. In recent decades, mergers and acquisitions have become a particularly important driving force for foreign direct investment, giving companies fast access to local markets, technologies, and networks. As a result, economic globalization is increasingly taking the form of an integrated global production system, as well as trade relations between independent countries' economies.

Despite being a global company, it is a common misconception that TNC are truly completely global companies. In fact, most TNC maintain a strong foundation and are deeply rooted in the institutional, cultural, and social context of their country of origin. These unique characteristics influence a company's strategy, management style, labor-management relations, and decision-making processes. This prevents corporate organizations from converging into a single universal model. Instead, national and regional differences persist, reflecting the continued importance of the home organization even in a globalized economy.

In addition, TNC operate within complex transnational networks of production, distribution, and consumption. Various corporate functions, such as R&D, manufacturing, and marketing, are geographically distributed based on specific location advantages. These global production networks are often organized at a regional level rather than a complete global, highlighting the uneven and selective nature of globalization. At the same time, TNC have a high level of spatial flexibility, allowing them to switch operations between locations based on changes in cost, regulation, or political conditions.

However, the power of the TNC is not absolute. States can exploit geographic differences to influence economic consequences, but they still play an important role. Governments have core powers, including control of access to territories, market regulation, and defining corporate operating rules. In other words, economic globalization should be understood as a dynamic interaction between corporate power and state authority, not as a process by which the state becomes completely powerless.

2. Interesting point

What I found particularly interesting is that the main driving force behind economic globalization is not states or markets alone, but transnational corporations themselves. Globalization is often described as the shrinking of distance or the expansion of global markets, but in reality, it is firms that actively construct the global economy by coordinating production, investment, and research across borders. Through foreign direct investment, TNC do not simply participate in globalization; they actively create it by reshaping national production structures and integrating them into global networks.

Another interesting point is the spatial flexibility of TNC, which allows them to take advantage of geographically uneven resources. The ability to relocate production, shift supply chains, or reorganize operations gives corporations significant power in the global economy. This flexibility explains why TNC are central actors in globalization, as they can rapidly respond to economic opportunities and constraints across different regions. At the same time, it was striking to learn that globalization does not erase national differences in corporate behavior.

3. Discussion

Should we accept globalization as a condition for economic development? Or, should we view it as a structural process that requires coordination and management by countries and international organizations?