What is the relation between economy and globalization? - Kim Gaeun
1. Summary of Materials Read
This chapter by Peter Dicken aims to correct common misconceptions about the Transnational Corporation TNC the central driving force of economic globalization. It analyzes the reality and role of TNCs from the perspective of empirical evidence and geographical differentiation.
First Dicken addresses the scale and history of TNCs. TNC activity traces its roots back to 15th-century trading companies with cross-border production in the manufacturing sector accelerating in the late 19th century. Currently approximately 61000 TNCs operate over 900000 foreign affiliates accounting for one-tenth of global GDP and one-third of exports. However this activity is heavily concentrated in a small number of colossal firms the top 100 TNCs. Dicken challenges the widely held view that these are "placeless" global corporations noting that most TNCs still retain over half of their operations in their home country. The key indicator of TNC activity Foreign Direct Investment FDI has consistently outpaced global trade growth over the past two decades confirming the TNC's rising importance. Nevertheless FDI mainly originates from and flows between developed countries cross-investment. While FDI to developing countries is increasing its proportion remains small and is concentrated in a few specific East Asian nations.
Corporations become transnational for two main reasons. First Market-Oriented Investment is chosen to overcome saturation in the domestic market reduce transportation costs or circumvent political cultural barriers like import tariffs and local market specificities. Second Asset-Oriented Investment aims to secure geographically unevenly distributed assets such as natural resources or human resources. Beyond the historical draw of cheap labor the availability of high-quality communities with skilled and motivated workers now significantly impacts investment decisions. TNCs expand overseas through Greenfield investment new facility construction Mergers and Acquisitions M&A of existing firms and strategic collaboration among competitors. Recent FDI growth has been driven primarily by M&A and strategic alliances formed to diversify risk and access technology are creating a new business model termed "collective competition." Furthermore the emergence of knowledge-intensive "born global" start-ups sometimes short-circuits the traditional sequential TNC development path.
Finally the author asserts that geography still matters and TNCs are deeply embedded in the cultural and institutional characteristics of their home country. This embeddedness explains why distinct business organizational forms such as Japan's keiretsu or Korea's chaebol persist despite external pressures. TNCs are not isolated entities but exist within complex transnational production networks consisting of suppliers and customers. The geographical structure of these networks varies by function while headquarters remain concentrated in the home country production is dispersed based on asset or market proximity. Recently these networks have shown a growing tendency to organize on a regional scale e.g. EU NAFTA East Asia. Although TNC power derives from their ability to exploit geographical differences and switch operations this power is not absolute. TNCs operate within a multi-scalar regulatory system States WTO and the National State remains a crucial actor that controls territory and operating rules engaging in complex negotiations and bargaining with TNCs.
This chapter by Peter Dicken aims to correct common misconceptions about the Transnational Corporation TNC the central driving force of economic globalization. It analyzes the reality and role of TNCs from the perspective of empirical evidence and geographical differentiation.
First Dicken addresses the scale and history of TNCs. TNC activity traces its roots back to 15th-century trading companies with cross-border production in the manufacturing sector accelerating in the late 19th century. Currently approximately 61000 TNCs operate over 900000 foreign affiliates accounting for one-tenth of global GDP and one-third of exports. However this activity is heavily concentrated in a small number of colossal firms the top 100 TNCs. Dicken challenges the widely held view that these are "placeless" global corporations noting that most TNCs still retain over half of their operations in their home country. The key indicator of TNC activity Foreign Direct Investment FDI has consistently outpaced global trade growth over the past two decades confirming the TNC's rising importance. Nevertheless FDI mainly originates from and flows between developed countries cross-investment. While FDI to developing countries is increasing its proportion remains small and is concentrated in a few specific East Asian nations.
Corporations become transnational for two main reasons. First Market-Oriented Investment is chosen to overcome saturation in the domestic market reduce transportation costs or circumvent political cultural barriers like import tariffs and local market specificities. Second Asset-Oriented Investment aims to secure geographically unevenly distributed assets such as natural resources or human resources. Beyond the historical draw of cheap labor the availability of high-quality communities with skilled and motivated workers now significantly impacts investment decisions. TNCs expand overseas through Greenfield investment new facility construction Mergers and Acquisitions M&A of existing firms and strategic collaboration among competitors. Recent FDI growth has been driven primarily by M&A and strategic alliances formed to diversify risk and access technology are creating a new business model termed "collective competition." Furthermore the emergence of knowledge-intensive "born global" start-ups sometimes short-circuits the traditional sequential TNC development path.
Finally the author asserts that geography still matters and TNCs are deeply embedded in the cultural and institutional characteristics of their home country. This embeddedness explains why distinct business organizational forms such as Japan's keiretsu or Korea's chaebol persist despite external pressures. TNCs are not isolated entities but exist within complex transnational production networks consisting of suppliers and customers. The geographical structure of these networks varies by function while headquarters remain concentrated in the home country production is dispersed based on asset or market proximity. Recently these networks have shown a growing tendency to organize on a regional scale e.g. EU NAFTA East Asia. Although TNC power derives from their ability to exploit geographical differences and switch operations this power is not absolute. TNCs operate within a multi-scalar regulatory system States WTO and the National State remains a crucial actor that controls territory and operating rules engaging in complex negotiations and bargaining with TNCs.
2. New Interesting or Unusual Items Learned
What I found new and interesting in this text was the author's empirically driven argument that shatters the generalized misconception of the "global corporation."
Refutation of the 'Placeless Corporation' Myth: The most striking takeaway was the notion that TNCs are not merely entities floating freely across borders. Dicken uses the metaphor of the painter's native land to emphasize how TNCs' strategic behavior and organizational culture are permanently imprinted by the institutional and cultural characteristics Embeddedness of their home country. Coupled with the statistic that most top TNCs keep over half their operations domestic this serves as a powerful counter-argument to predictions that globalization leads to organizational convergence.
The Emergence of 'Collective Competition': It was fascinating to learn that competitors in fierce industries like automotive or semiconductors form extensive strategic alliance networks to engage in "collective competition." This signals a new interdependent relationship in the contemporary business environment where risk-sharing cost reduction and technological access often take precedence over singular rivalry.
M&A as the New FDI Driver: I learned that the primary method of overseas expansion has shifted from establishing new factories Greenfield to Mergers and Acquisitions M&A. Furthermore the ability of knowledge-intensive 'born global' firms to skip traditional expansion stages and enter international markets immediately underscores the acceleration of the modern digital economy.
What I found new and interesting in this text was the author's empirically driven argument that shatters the generalized misconception of the "global corporation."
Refutation of the 'Placeless Corporation' Myth: The most striking takeaway was the notion that TNCs are not merely entities floating freely across borders. Dicken uses the metaphor of the painter's native land to emphasize how TNCs' strategic behavior and organizational culture are permanently imprinted by the institutional and cultural characteristics Embeddedness of their home country. Coupled with the statistic that most top TNCs keep over half their operations domestic this serves as a powerful counter-argument to predictions that globalization leads to organizational convergence.
The Emergence of 'Collective Competition': It was fascinating to learn that competitors in fierce industries like automotive or semiconductors form extensive strategic alliance networks to engage in "collective competition." This signals a new interdependent relationship in the contemporary business environment where risk-sharing cost reduction and technological access often take precedence over singular rivalry.
M&A as the New FDI Driver: I learned that the primary method of overseas expansion has shifted from establishing new factories Greenfield to Mergers and Acquisitions M&A. Furthermore the ability of knowledge-intensive 'born global' firms to skip traditional expansion stages and enter international markets immediately underscores the acceleration of the modern digital economy.
3. Question Concern or Discussion Angle
Dicken argues that the TNC-State relationship is a complex bargaining outcome dismissing the claim that states are "nonsense-ly" powerless. He provides examples such as China a state with a powerful market asserting leverage over TNCs.
However considering that the TNC's core power lies in its ability to exploit geographical differences and 'switch' operations to other locations this analysis raises a concern that it may overlook the structural vulnerability of smaller weaker developing nations.
When TNCs attempt 'regulatory arbitrage' by exploiting differences in national regulations strong market blocs like the EU or China possess robust defensive and negotiating power. In contrast developing countries with small markets and weak domestic capital are highly likely to face threats of TNC withdrawal forcing them to concede excessive tax breaks deregulation and compromise on environmental and labor standards. The territorial asymmetry where the TNC's domain is fluid while the State's domain is fixed creates a structural disadvantage for weaker nations.
Therefore I would like to raise the following question:
In the face of the TNC's 'switching power' and territorial asymmetry what realistic policy measures can small economically vulnerable developing nations adopt to maintain sovereign regulatory capacity while still successfully attracting TNC investment? How should we interpret the reality that the TNC's power while arguably 'not absolute' for powerful states is often decisive in negotiations with weaker countries?
This question moves the TNC-State relationship discussion beyond the powerful examples like China or the EU extending it to the structural difficulties faced by the majority of the world's nations enabling a deeper discussion.
Dicken argues that the TNC-State relationship is a complex bargaining outcome dismissing the claim that states are "nonsense-ly" powerless. He provides examples such as China a state with a powerful market asserting leverage over TNCs.
However considering that the TNC's core power lies in its ability to exploit geographical differences and 'switch' operations to other locations this analysis raises a concern that it may overlook the structural vulnerability of smaller weaker developing nations.
When TNCs attempt 'regulatory arbitrage' by exploiting differences in national regulations strong market blocs like the EU or China possess robust defensive and negotiating power. In contrast developing countries with small markets and weak domestic capital are highly likely to face threats of TNC withdrawal forcing them to concede excessive tax breaks deregulation and compromise on environmental and labor standards. The territorial asymmetry where the TNC's domain is fluid while the State's domain is fixed creates a structural disadvantage for weaker nations.
Therefore I would like to raise the following question:
In the face of the TNC's 'switching power' and territorial asymmetry what realistic policy measures can small economically vulnerable developing nations adopt to maintain sovereign regulatory capacity while still successfully attracting TNC investment? How should we interpret the reality that the TNC's power while arguably 'not absolute' for powerful states is often decisive in negotiations with weaker countries?
This question moves the TNC-State relationship discussion beyond the powerful examples like China or the EU extending it to the structural difficulties faced by the majority of the world's nations enabling a deeper discussion.
Your writing clearly explains how TNCs remain deeply rooted in their home-country institutions despite their global operations, and you effectively challenge the myth of the “placeless corporation.” You also raise an important point about how weaker developing nations face much greater pressure from TNCs than strong states do. In response, smaller countries can strengthen their bargaining power through regional coalitions, strategic performance requirements, and building domestic capabilities. Overall, your question adds a valuable perspective by emphasizing that TNC power is not absolute but varies depending on the strength of the state.
ReplyDeleteI believe that the claim that the influence of multinational corporations is not absolute is persuasive in countries with strong markets such as China and the EU, but risks ignoring structural asymmetry in small developing countries. Multinational corporations have the ability to transfer investment and production, while countries are bound by fixed territories and political responsibilities, putting them at a disadvantage in negotiations. However, this does not mean that the weaker countries are completely powerless, and strategies such as regional cooperation, attracting selective investment, and strengthening the local visibility of companies can maintain some sovereign regulatory capacity. After all, I believe that the relationship between multinational corporations and the state should be understood not as the absence of power, but as a matter of unevenly distributed power.
ReplyDeleteI think you explained the TNC well. I think the question you raised is also very important. Future AI advances may more strongly infringe on the sovereignty of small developing countries than traditional globalization. I think the best way to solve this problem is 'solidarity among small developing countries'. Only cultural, economic, and political solidarity between small developing countries will increase the bargaining power with TNC.
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