DHL Global Connectedness Index 2018 11
Documento 4a
The trajectory of globalization, since we released the
last edition of this report in 2016, has been shaped by a
tug of war between generally favorable macroeconomic
conditions and policy threats. In 2017, sustained growth
across much of the world proved the more powerful
force, propelling the DHL Global Connectedness In-
dex to a record level. Positive policy developments for
globalization, while less dramatic than the threats, also
helped to support international flows.
In 2018, however, major policy threats turned from
rhetoric to reality. Disputes between the United States
and its largest trade partners prompted sharp tariff in-
creases and raised doubts about the future of the global
trading system. Foreign acquisitions were subjected to
heightened scrutiny, countries advanced data localiza-
tion policies, and restrictions on immigration were
tightened. All four “pillars” of the DHL Global Connect-
edness Index—trade, capital, information, and people—
were touched by a wave of economic nationalism.1
Supporters of open markets, nonetheless, also tallied
major victories in 2018. In March, 11 countries signed
the Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP) and 44 signed the Afri-
can Continental Free Trade Agreement (AfCFTA). In July,
the European Union and Japan finalized an Economic
Partnership Agreement. In October, the United States,
Canada, and Mexico agreed on a new trilateral trade
deal. Meanwhile, China continued to advance its Belt
and Road Initiative aimed at strengthening linkages
between Asia, Europe and Africa.
The path forward for globalization remains uncertain
and highly dependent on the choices of leaders around
the world. In this context, sound international business
and public policy decisions require timely and accurate
measures of the state and trajectory of globalization,
which are what this report aims to provide. This chapter
examines globalization at the global level and high-
lights differences between advanced and emerging
economies. It sets the stage for Chapter 2, in which we
cover the global connectedness of individual countries
and regions.
We begin this chapter with an overview of current lev-
els of globalization—contrasted with perceived levels,
followed by a summary of global trends since 2001.
Then, we dig deeper into trends on each of the four pil-
lars of the index. Finally, we conclude with a discussion
of implications of this research for companies as well as
countries.
The State of Global Connectedness
An intense debate is underway in many countries about
how deeply and broadly to connect to economies and soci-
eties beyond their own borders, prompting multinational
corporations to reexamine foundational assumptions of
their international strategies. While some leaders, such as
L’Oréal Chairman and CEO Jean-Paul Agon and World
Economic Forum President Børge Brende still expect glo-
balization to continue, 2 many now view the international
order that supports global flows as highly vulnerable. The
week after US President Donald Trump’s inauguration,
The Economist ran a cover story titled “The Retreat of the
Global Company.”3 Some even argue that globalization
peaked with the 2008 global financial crisis and is already
receding.4
Surprisingly, one commonality between globalization’s sup-
porters and its critics is that both tend to believe the world
is already far more globalized than it really is. Because it
is only meaningful to think about a phenomenon increas-
ing or decreasing relative to an accurate sense of its current
level, we focus this section on measuring the present state
of global connectedness. We return to analysis of how
global connectedness is trending in the next section.
12 1. How Globalized Is the World?
FIGURE 1.1 //
GLOBAL DEPTH MEASURES VERSUS MANAGERS’ PERCEPTIONS
Trade Exports of Goods & Svcs. (% of GDP)
Foreign Direct Investment Flows (% of GFCF)
Capital
Portfolio Equity Stock (% of Mkt. Cap.)
Information Telephone Calls (% Int'l, incl. VoIP)
Migrants (% of Pop’n)
People University Students (% Int’l)
Tourists (% Int’l)
0%
Actual Metric Average Survey Response
International trade, capital, information, and people flows are much smaller than most managers presume them to be. Most types of flows that
could take place either domestically or internationally are still domestic.
Global Connectedness is measured in this report based
on the depth and breadth of countries’ integration with
the rest of the world as manifested by their participation
in international flows of products and services (trade),
capital, information, and people.5 In this section, given the
challenges imposed by the present environment on multi-
national firms, we complement macro-level globalization
metrics drawn from the DHL Global Connectedness Index
itself with additional measures focused on the activities of
multinational corporations.
Consider, first, the depth of globalization. Depth measures
how much of a given type of activity that could take place
either within or across national borders is international
rather than domestic. Figure 1.1 reports global depth met-
rics drawn from across the four pillars of the DHL Global
Connectedness Index.
On all of the metrics reported in Figure 1.1, international
activity is smaller than domestic activity. For example,
gross exports of goods and services added up to 29% of
GDP in 2017, flows of foreign direct investment equaled
7% of gross fixed capital formation, about 7% of telephone
calls (including calls over the internet) were international,
and just 3% of people lived outside the countries where
they were born. We will elaborate upon these depth metrics
10% 20% 30% 40% 50%
Depth Ratio
GDP=Gross Domestic Product GFCF=Gross Fixed Capital Formation VoIP=Voice over Internet Protocol
and others and discuss how they are trending later in this
chapter, but for now, the key point is that most trade, capi-
tal, information, and people flows are domestic rather than
international.
Figure 1.1 also highlights how managers tend to greatly
overestimate measures of the depth of globalization. The
actual levels are juxtaposed on the graph against per-
ceived levels from a survey of 6,035 managers across three
advanced economies (Germany, the UK, and the US) and
three emerging economies (Brazil, China, and India) that
we conducted in 2017.6 On average, the managers guessed
that the world was five times more deeply globalized than
it really is! In fact, their perceptions were no more accurate
than those of students surveyed across 138 countries7 or
members of the general public in the United States.8 And
CEOs and other senior executives had even more exagger-
ated perceptions than did junior and middle managers—
perhaps because their own lives tend to be far more global
than those of their employees and customers.
The managers we surveyed also had exaggerated percep-
tions of multinational business. The combined output of
all multinational firms outside of their home countries
added up to only 9% of global economic output in 2017, and
just 2% of all employees around the world worked in the

FIGURE 1.2 //
PROPORTION OF INTERNATIONAL FLOWS WITH COUNTRIES' TOP PARTNER COUNTRIES
Trade Merchandise Exports
Foreign Direct Investment Inflows
Capital
Portfolio Equity Outward Stocks
Information Telephone Calls
Emigrants
People Inbound University Students
Tourist Arrivals
0%
Top Partner Country 2nd 3rd 4th − 5th 6th − 10th
Most countries maintain strong connections to only a small number of partner countries. Flows between countries and their single largest
partners make up nearly one-quarter of all merchandise trade and more than one-quarter of all of the other flows analyzed.
international operations of multinational firms.9 In part,
those statistics reflect the fact that most companies are still
domestic. Less than 0.1% of all firms have foreign opera-
tions and about 1% export.10 Small firms are, on average,
much less international than large ones, and most compa-
nies are small. But even among the Fortune Global 500, the
world’s largest firms by revenue, domestic sales still exceed
international sales.11
Turning to the breadth dimension of global connectedness,
it is convenient at the global level to analyze breadth using
simple metrics such as the concentration of international
flows across partner countries and the geographic distance
they traverse. In the trend analysis that follows in the next
section and in the country-level content in Chapter 2, we
turn to a more sophisticated type of breadth measure: We
compare the geographic distribution of a country’s inter-
national flows with the global distribution of those flows
in the opposite direction.12 Measured thusly, the breadth
dimension of the DHL Global Connectedness Index
accounts for how potential flows vary across components of
the index.13
Most countries’ international flows are so highly concen-
trated with key partner countries (usually neighbors) that it
hardly makes sense to think of them as global at all. In fact,
DHL Global Connectedness Index 2018 13
25% 50% 75% 100%
Percent of total global flows
flows between countries and their single largest partners
(e.g. export destinations for trade) make up nearly one-
quarter of all merchandise exports and more than one-
quarter of all of the other flows on the breadth dimension
of the DHL Global Connectedness Index (see Figure 1.2).
Migration is the most concentrated on this basis, with 42%
of all migrants having moved to where their birth country
has its largest diaspora population.14
Expanding the same analysis beyond only countries and
their single largest partners, more than half of all flows
except merchandise exports and inbound students take
place between countries and their top three partners,
and 75% or more are between countries and their top 10
partners. Even in the case of merchandise trade, more than
half takes place between countries and their top five export
destinations. Most countries simply do not maintain strong
connections to a large number of other countries.
Geographic distance, along with cultural, administrative/
political, and economic differences go a long way toward
explaining the distributions of countries’ flows across loca-
tions. For example, if one pair of countries is half as distant
as another otherwise similar pair of countries, greater
physical proximity alone would be expected to increase the
merchandise trade between the closer pair by more than
14 1. How Globalized Is the World?

FIGURE 1.3 //
GLOBAL AVERAGE DISTANCE VERSUS BENCHMARKS WITHOUT DISTANCE EFFECTS

Trade Merchandise Exports

Foreign Direct Investment Flows

Capital
Portfolio Equity Stocks

Information Telephone Calls

Migrants

People University Students

Tourists

0 2,000 4,000 6,000 8,000 10,000

Kilometers
Actual Distance Frictionless Benchmark Average distance between any two countries

International flows – even “weightless” flows such as portfolio equity investment and phone calls – diminish with geographic distance as well
as other cross-country differences. On average, the flows covered on the breadth dimension of the DHL Global Connectedness Index traverse
5,005 km, about 60 percent as far as would be expected in a world where borders and distance had ceased to matter.

three times and to more than double the stock of foreign
direct investment (FDI) between them. And to highlight a
cultural commonality, sharing a common official language
roughly doubles both trade and foreign direct investment.15
Thus, despite the widespread perception that advances in
transportation and telecommunications technologies are
rendering distance irrelevant, international activity con-
tinues to be more intense among proximate countries. The
average distance between two countries around the globe
is roughly 8,500 km, but the flows covered on the breadth
dimension of the DHL Global Connectedness Index
averaged a distance of only 5,005 km in 2017.16 Figure 1.3
compares the distance traversed by specific types of flows to
how far those flows would be expected to travel if distance
and cross-country differences had ceased to matter.17 On
average, this sample of flows went only about 60% as far as
they would in a “flat” world.
The same pattern of limited breadth prevails at the firm
level as well. Among the world’s 100 largest corporations
ranked by foreign assets, the average firm earns roughly
60% of its revenue in just four countries (home plus three
international markets).18 And considering the Fortune
Global 500, just about 10% of this sample of corporate
giants earn at least 20% of their revenues in each of the
three “broad triad” regions of Europe, North America, and
Asia-Pacific.19 The managers who answered our six-country
survey estimated that 44% of the Fortune Global 500 have
such broad revenue distributions.
To summarize, the depth and breadth of trade, capital,
information, and people flows—as well as the international
business activity of multinational firms—fall far short of
levels that are commonly presumed. National borders and
the distances and differences between countries still have
large dampening effects on international activity. We return
to implications of these findings for business and public
policy in the conclusion of this chapter. Next, we turn to
how levels of global connectedness have been trending.
Global Connectedness Trends: 2001 – 2017
The world’s overall level of global connectedness—taking
into account the depth and breadth of trade, capital,
information, and people flows—reached a new record
high in 2017. Figure 1.4 tracks the evolution of the overall
DHL Global Connectedness Index as well as its depth
and breadth dimensions from 2001 through 2017. (For
 Documento 4b
1. HOW GLOBALIZED IS THE WORLD? – CONCLUSION
TWO LAWS GOVERNING
GLOBALIZATION
The majority of this chapter focused on tracking recent
changes in levels of globalization. However, it is also
useful to step back from these trends to consider what
remains unchanged. In an environment of varying and
often contradictory perceptions and predictions about
globalization, a stable frame of reference is essential.
As Amazon.com Chairman and CEO Jeff Bezos put it, “It
helps to base your strategy on things that won’t change.
When I’m talking with people outside the company,
there’s a question that comes up very commonly:
‘What’s going to change in the next five to ten years?’
But I very rarely get asked ‘What’s not going to change
in the next five to ten years?’ At Amazon we’re always
trying to figure that out, because you can really spin up
flywheels around those things.”52
In this spirit, Pankaj Ghemawat has recently proposed
two laws of globalization that summarize a broad array
of observed regularities:53
The law of semiglobalization: International
interactions, while non-negligible, are significantly
less intense than domestic interactions.
The law of distance: International interactions are
dampened by distance along cultural, administrative,
and geographic dimensions and are often affected
by economic distance as well.
The law of semiglobalization pertains to the depth of
globalization and the law of distance to its breadth.
These laws are intended to have the status of scientific
laws in the sense of describing important regularities (as
distinct from scientific theories that posit a mechanism
or explanation of observed phenomena). 54
The UK’s vote to exit the EU provides a timely illustration
of the power of these laws and their persistence over
time.55 Starting with the law of semiglobalization,
flows across the UK’s borders (especially people flows
but also trade and capital flows) were large enough to
provoke a backlash, yet they still fall far short of what
one would expect if borders (in this case, even just
intra-EU borders) had ceased to matter. Thus, the UK’s
(gross) exports account for less than one-third of its GDP,
about the same as the world as a whole and far below
a zero-border effect benchmark of 96% (100% minus
the UK’s share of world GDP). Even under the worst-
case scenarios of how Brexit will play out, it is extremely
unlikely that the UK’s international flows would shrink
so much as to become irrelevant to it.
Turning to the law of distance, the UK’s international
ties are disproportionately centered on Europe. In
2015, 45% of the UK’s exports went to the EU and it
drew slightly over one-half its imports from there.
Adding in Switzerland brings the Continental share of
the UK’s merchandise exports to over one-half as well,
versus 15% for the US and 6% for China. Given physical
proximity, the EU is likely to continue to be the UK’s
largest export-import partner by far, unless the terms
of separation are very acrimonious (like India-Pakistan,
to invoke a rather different example of Brexit). And it
is not that the UK is particularly narrow in terms of its
international engagement: rather, the reverse. On the
2016 DHL Global Connectedness Index, the UK ranks
first out of 140 countries in terms of the breadth of
its international interactions. Furthermore, the UK’s
ties to countries beyond the EU—the US is its largest
destination country for exports—illustrate the non-
geographic dimensions of the law of distance.
Where did the laws of globalization come from? They
were informed by the same hard data as the DHL Global
Connectedness Index, and they also have roots in well-
established research on geography. They represent
generalizations—within the international domain56 —of
 DHL Global Connectedness Index 2016 25

the two laws of geography proposed decades ago by
Waldo Tobler:
The phenomenon external to [a geographic] area of
interest affects what goes on in the inside. 57
Everything is related to everything else, but near
58
things are more related than distant things.
Looking forward, levels of global connectedness may
increase, stagnate or even suffer a sharp reversal, but
given the parameters of the current situation, it is
unlikely that increases will any time soon yield a state in
which the differences or barriers between countries can
be ignored. Nor is it probable that decreases could lead
to a state in which the similarities or bridges that unite
countries could be disregarded.

The law of semiglobalization adds an upper bound to

Tobler’s lower bound on outside influences. In addition
to positing that international influences are non-
negligible, it makes the point that national borders still
matter a great deal. And the law of distance generalizes
Tobler’s focus on geographic distance to also encompass
measures of cultural, administrative/political, and (with
some qualifications) economic distance.

The laws of globalization provide a stable frame of

reference in an ambiguous environment. They are
grounded in the view that we are very far away from
either complete globalization or localization, and hence
very unlikely to reach either endpoint in the foreseeable
future.
26 1. How Globalized is the World?

1. HOW GLOBALIZED IS THE WORLD?

NOTES
1 Within a span of just three weeks in 2015, the Washington Post treated its contrast, if all of Macau’s tourists came from just one country that sends
readers to the full spectrum of possibilities with headlines ranging from tourists nowhere else, it would receive the lowest possible score.
“Globalization at Warp Speed” to “The End of Globalization?” 16 Thomas L Friedman, The World Is Flat: A Brief History of the Twenty- First
Century, Farrar Straus and Giroux, 2005.
2 Jim Tankersley, “Britain’s Brexit just killed globalization as we know it,”
The Sydney Morning Herald, June 26, 2016.
17 Under frictionless benchmark assumptions, each country consumes
imports from every other country in proportion to every other country’s
3 Samuel J. Palmisano, “The Globally Integrated Enterprise,” Foreign
share of world output. While this type of benchmark was developed
Affairs, May/June, 2006. In 2016, Palmisano reflected on develop-
originally for trade analysis, we construct analogous benchmarks here for
ments since the publication of his original article and argued that “The
other flows based on the denominators of the their depth ratios: gross
future global enterprise will be found at the intersection of this tension
fixed capital formation for FDI flows, market capitalization for portfo-
between local vs. global, which in today’s reality is increasingly revealed
lio equity, population for telephone calls, migration, and tourism, and
by the constraints of the physical world as companies pursue digitaliza-
tertiary education enrollment for students. For additional background,
tion’s technological benefits.” (Quoted from Samuel J. Palmisano, “The
refer to Keith Head and Thierry Mayer, “What Separates Us? Sources of
Global Enterprise: Where to Now?” Foreign Affairs, October 14, 2016.)
Resistance to Globalization,” Canadian Journal of Economics/Revue cana-
dienne d’économique 46(4), November 2013.
4 Jeffrey R. Immelt, “The World I See,” MBA Commencement Address at
NYU Stern School of Business, May 20, 2016. http://www.gereports.com/
18 Based on data reported by Bloomberg. Actually, the losses immediately
the-world-i-see-immelts-advice-to-win-in-the-time-of-globalization/
inferred from Brexit are even larger than $3.6 trillion if one recognizes
5 The G20 Leaders’ Hangzhou Summit Communique is available at http:// that even before the vote, the probability of a vote in favor of Brexit was
www.g20.org/English/Dynamic/201609/t20160906_3396.html (significantly) greater than zero. Formally, the inferred losses are equal to
$3.6 trillion divided by 1 minus the assessed probability, prior to the vote,
6 Christine Lagarde, Jim Yong Kim, and Roberto Azevêdo “How to Make of the UK voting to leave the EU.
Trade Work for Everyone,” The Wall Street Journal, October 4, 2016.
19 Percent changes versus 2005 are first computed at the component level
and then higher levels of aggregation (overall index, depth and breadth
7 Anita Balakrishnan, “America needs to be a ‘beacon of progress’ for glo-
dimensions, and pillars) are calculated as weighted averages of the
balization: Microsoft CEO,” CNBC, July 11, 2016.
component-level percent changes (using the weights reported in Chapter
4). In prior editions of this report, the analogous trend charts reported
8 For a more detailed analysis, refer to Pankaj Ghemawat, “Beyond Brexit:
percent changes in normalized scores.
An Initial Analysis and Questions for the AIB Community,” AIB Insights
16(3), 2016. Available at http://documents.aib.msu.edu/publications/ 20 Additionally, for the trend analysis presented here, we do not employ the
insights/v16n3/v16n3_Article1.pdf. 5-year limit on data repetition used in calculating the country scores and
9 The term “globaloney” was coined by the late American politician Clare ranks. This is done so as to ensure that trend analysis is not affected by
Boothe Luce. See Albin Krebs, “Clare Boothe Luce Dies at 84: Playwright, changing data availability across years.
Politician, Envoy,” The New York Times, October 10, 1987. 21 Tables 4.4 and 4.5 list variables for which no 2015 data were yet avail-
able at the time we conducted this analysis. The methods employed for
10 For a detailed explanation of how the DHL Global Connectedness Index
handling these and other data gaps are explained in detail in Chapter 4.
measures globalization, refer to Chapter 4. The data sources employed
Additionally, recent data are also more often subject to large revisions by
are listed in Appendix B. We relate the definition of globalization
the data sources than older data.
employed here to definitions in the literature in Pankaj Ghemawat and
Steven A. Altman, “Defining and Measuring Globalization,” Chapter 1 in
22 Refer to Chapter 4 of the 2011 edition of this report for analysis relating
Pankaj Ghemawat, The Laws of Globalization and Business Applications,
the depth dimension of global connectedness to country-level economic
Cambridge University Press, 2017.
growth.
11 Survey conducted for Pankaj Ghemawat via the SurveyMonkey platform.
23 The drivers of the drop-off in breadth relative to its baseline level were
12 Pre-course survey of students enrolled in Pankaj Ghemawat’s MOOC analyzed in Chapter 4 of the 2014 edition of this report. In brief, the
(massive open online course) “Globalization of Business Enterprise” on primary driver of the decline was the rising share of international flows
the Coursera platform. involving emerging economies, especially during the 2008 – 09 crisis
centered in advanced economies. Advanced economies stretched their
13 Separately from the survey cited, other research suggests that interna-
international flows out over greater distances, but their flow patterns did
tional activity—consistent with the general pattern of limited depth—
not change fast enough to keep up with the underlying shift in economic
contributes far less to such problems than domestic activity (and policy).
activity (towards emerging economies).
For additional discussion of alleged harms associated with globalization,
refer to chapters 5-11 of Pankaj Ghemawat, World 3.0: Global Prosperity
24 WTO Press Release, “Trade growth to remain subdued in 2016 as uncertain-
and How to Achieve It,” Harvard Business Review Press, 2011.
ties weigh on global demand,” April 7, 2016; WTO Press Release, “Trade in
14 See the 2014 edition of the German Marshall Fund of the United States 2016 to grow at slowest pace since the financial crisis,” September 27, 2016.
“Transatlantic Trends” survey.
25 WTO Press Release, “Trade in 2016 to grow at slowest pace since the
financial crisis,” September 27, 2016.
15 To illustrate this measure—as well as the importance of measuring
breadth, which is a unique feature of the DHL Global Connectedness
26 Cristina Constantinescu, Aaditya Mattoo, and Michele Ruta, “Slow
Index—consider tourism in Macau. While Macau ranks first in terms of
Trade,” Finance and Development Vol. 51, No. 4, International Monetary
the number of inbound tourists per capita (a depth metric), more than
Fund, December 2014.
80% of those tourists come from Mainland China and Hong Kong. Thus,
while the depth of inbound tourism in Macau is very high, its breadth 27 See, for example, Madhur Jha, Samantha Amerasinghe, and John Calverley,
is limited, especially when one notes that less than 10% of outbound “Global supply chains: New directions,” Standard Chartered, May 27, 2015.
international tourists worldwide come from Mainland China and Hong
Kong. From the standpoint of scoring breadth, if Macau attracted tourists 28 Based on data from World Bank World Development Indicators database.
from all around the world in proportion to where the world’s outbound
tourists come from, it would have the highest possible breadth score. In

29 WTO Director-General Roberto Azevêdo keynote address to the World
Trade Symposium in London on June 7, 2016, published online at https://
www.wto.org/english/news_e/spra_e/spra126_e.htm.
30 Simon J. Evenett and Johannes Fritz, “Global Trade Plateaus,” Global
Trade Alert Report #19, 2016.
31 World Trade Organization, “Report on G20 Trade Measures,” June 21,
2016.
32 Keith Head and Thierry Mayer, “What separates us? Sources of resistance
to globalization,” Canadian Journal of Economics/Revue canadienne
d’économique 46(4), November 2013.
33 UNCTAD, “World Investment Report 2013: Global Value Chains: Invest-
ment and Trade for Development,” United Nations. http://unctad.org/en/
PublicationsLibrary/wir2013_en.pdf
34 Calculation based on comparison of trade in value added from the 2013
UNCTAD World Investment Report (p. 137) with sectoral composition of
GDP data from World Bank World Development Indicators database.
35 Gross fixed capital formation is not a perfect comparison for FDI flows. It
includes, for example, investment in housing. However, we are not aware
of any better indicator available to replace it.
36 UNCTAD World Investment Report 2016.
37 This estimate is based on applying the 15% growth rate excluding corpo-
rate reconfigurations reported by UNCTAD to total FDI inflows in 2014.
Note that global gross fixed capital formation (the denominator in this
depth ratio) fell 6% in US dollar terms in 2015. Thus even if FDI inflows
had failed to expand at all, the depth ratio would have risen to 7.2%.
38 Based on UNCTAD World Investment Report 2016 and the July 13, 2016
U.S. Bureau of Economic Analysis news release entitled, “New Foreign
Direct Investment in the United States, 2014 and 2015.”
39 In this paragraph, for consistency with the preceding discussion of FDI
inflows, we have used depth ratios reported by the countries on the
receiving end of the capital flows (portfolio equity inflows and inward
stocks of both FDI and portfolio equity). The only one of these metrics on
which the direction used made a material difference in 2015 was portfo-
lio equity stocks, which closed 2015 at 33% of stock market capitalization
based on outward data.
40 Other sources that do not perform such normalization seem to us to
overhype the growth of informational connectedness. McKinsey Global
Institute’s March 2016 report, “Digital Globalization: The New Era of
Global Flows,” for example, mentions at least six times that international
internet bandwidth has grown 45 times over the past decade.
41 Rough estimate based on data from Cisco Visual Networking Index and
Telegeography. The values reported in the text include all IP traffic (fixed
internet, managed IP, and mobile data) in the denominator of the depth
ratio. If the denominator is restricted to fixed internet traffic only the
international share rises to 18% in 2005 and 33% in 2015.
42 Accenture, “Cross-border Ecommerce,” 2016.
43 Maurice H. Yearwood, Amy Cuddy, Nishtha Lamba, Wu Youyou, Ilmo van
der Lowe, Paul K. Piff, Charles Gronin, Pete Fleming, Emiliana Simon-
Thomas, Dacher Keltner, and Aleksandr Spectre, “On wealth and the
diversity of friendships: High social class people around the world have
fewer international friends.” Personality and Individual Differences 87,
December 2015.
44 Johan Ugander, Brian Karrer, Lars Backstrom, and Cameron Marlow, “The
Anatomy of the Facebook Social Graph,” arXiv:1111.4503 [cs.SI], Novem-
ber 2011.
45 Yuri Takhteyev, Anatoliy Gruzd, and Barry Wellman. “Geography of Twit-
ter Networks.” Social Networks 34(1), January 2012.
DHL Global Connectedness Index 2016 27
46 Based on data reported by Telegeography.
47 Annual data for domestic telephone calls are available from the ITU,
though with significant coverage gaps for most countries. There are bet-
ter data available on total number of mobile and fixed line subscriptions,
however, from the World Bank’s World Development Indicators. These
data are available on an annual basis and without significant gaps for
most countries. These variables were used to develop fixed effects models
of the per capita levels of fixed-to-fixed, fixed-to-mobile and mobile-
to-mobile minutes. The fixed effects employed were countries (if there
was sufficient data to ascertain a trend) and regions. Each of these fixed
effects was interacted with the subscription data so that individual coun-
tries’ and regions’ trends were preserved when they were known. The
model was checked in detail for goodness-of-fit at the country level; the
final models had an average adjusted R-squared of 0.89. These models
were used to predict the calling minutes of each country in the model,
as well as the remaining countries in each region, and these were aggre-
gated to estimate a world total.
48 More precisely, trade in all commodities classified under the HS Code 49:
printed books, newspapers, pictures and other products of the printing
industry, manuscripts, typescripts, and plans.
49 According to the 2009 UNDP Human Development Report, “A report by
the ILO counted 33 million foreign nationals in 1910, equivalent to 2.5%
of the population covered by the study (which was 76% of the world
population at the time); the share of migrants in the world population
(excluding the former Soviet Union and Czechoslovakia for comparability
because their breakups caused people to become reclassified as migrants
without actual movement) grew from 2.7% to 2.8% between 1960 and
2010 (p. 30)”; The International Organization for Migration (IOM) reports
that migrants formed 2.5% of the world population in 1960 and 3.1% in
2010 (International Organization for Migration (IOM), “World Migration
Report 2005: Costs and Benefits of International Migration,” IOM World
Migration Report Series 3, 2005. https://publications.iom.int/system/files/
pdf/wmr_2005_3.pdf).
50 2015 data not yet released on this metric.
51 UN World Tourism Organization (UNWTO), “World Tourism Highlights,”
2016.
52 Julia Kirby and Thomas A. Stewart, “The Institutional Yes,” Harvard Busi-
ness Review, October 2007.
53 For a book-length treatment of this material, refer to Pankaj Ghemawat,
The Laws of Globalization and Business Applications, Cambridge Univer-
sity Press, 2017.
54 William F. McComas, “A Textbook Case of the Nature of Science: Laws and
Theories in the Science of Biology,” International Journal of Science and
Mathematics Education 1(2), June 2003.
55 Pankaj Ghemawat, “Beyond Brexit: An Initial Analysis and Questions
for the AIB Community,” AIB Insights 16(3), 2016. Available at http://
documents.aib.msu.edu/publications/insights/v16n3/v16n3_Article1.pdf.
56 Some of the same insights, however, do also apply within countries, at
the regional and even local levels. See, for instance, Pankaj Ghemawat,
“From International Business to Intranational Business,” in Emerging
Economies and Multinational Enterprises, edited by Laszlo Tihanyi, Elitsa
R. Banalieva, Timothy M. Devinney, and Torben Pedersen, Emerald Group
Publishing, 2015.
57 Waldo Tobler, “Linear Pycnophylactic Reallocation—Comment on a Paper
by D. Martin,” International Journal of Geographical Information Science
13(1), January 1999.
58 Waldo Tobler, “A Computer Movie Simulating Urban Growth in the
Detroit Region,” Economic Geography 46 (Supplement: Proceedings,
International Geographical Union), Commission on Quantitative Meth-
ods,” June 1970.
Documento 5. Fuente, Dicken 2015. El comercio crece más que la producción
 'AH' 01 THE CHANGING CONTOURS OF THE GLOBAL ECONOMY THE CENTRE Of GRAVITY SHIFTS 19
18

crade has grown fasrer th an ou tp u t; • Asia is th e seco nd m ost significan t trade regi ón (29 per ce nt of't he world to tal):
• for eign direc r invesr rnenr has g roWIl faster rhan rrad e: 57 per cen r of its n-ade is conductcd intcm ally w hilc 12 per cent ofi ts uude
• ser ious sttuc rural imbalance s in che world economy llave eme rged . goes to E urop e nnd 9 per cent to No rt h Ame rica.
• North Am érica (16 per cen e of the wo rld to tal) con ducts around 38 per ce nt
of its trade inrern ally Asia and E uro pe each accou nt for 3 1 per cenr of N or th
Trade has grawn faster than autput
in vir tu al America's rrade and Euro pe for 16 pcr ccnt.
Figure 2.3 shows that exp orts have grow ll much fasrer than output in vir tua lly
d m ercha every year since 1960. In the seco nd half of the twentieth centur y, wo rld merchan-
dise rrade increased almos r 20 -fold wh ile world me rchan disc prod uc rion increased
nal bou n j ust over ó- fold . M ore and more prod uct íon is 110 W tradcd across nacional bou nda-
na de flo r ies; counrr ies are becoming more tightly inrercorm ected through na de flows. Total merchan dlse
grea rer tr eee ts billionsJ
This is reflected in the ratio of rrade to C DP : rhe higher th e figure, the grearer che
rn es H1 sr dependen ce 0 11 externa! trade. T here is hug e varian on betw een count ries in such
.. znoc
'e unport: rrade integration . For cxa mple, int ernacional trade is bou nd to be mo re importaut
simp le si for geographically small countries than for large ones , the result o f a simp le size
a11 cases effect (contrasr, say, the US A with Singapore). However, in virtua lly a11 cases rhe .........2.,500
1,000
le 2.1 sho im portance of tradc to nacional GDP has increased signific;mt1y, asTable 2.1 ShOW5. .
' 00

mportsas rabfe 2.1 The increasing importance of nade for national eccnomies(exllorts + ímportsas a
percentage o, GDP)
lUU 1960 1970 1985 1995 2UUU 2011
< } lnternal trade

By income group
2.0 27.1 37 .3 39 .8 52.0 60 .0 Tradeflows
Higb inccme 23.7 ($ bilHon s)
3.0 55 .9 55 .0 6 4 .0
M iddle income
5.0
30
5.0
Upper-middle Income
Lower·mi ddl e income
Low tncome
3 4 .3 36 .4

34 .6
4 1.8

4 1.8
51. 4
58. 7
60 .5
55 .0
53.0
4 5.0
64 .0
63.0
6 7.0
""
---- '00
- ' ''0
By regíon -- .• <20

20.1 18 .6 35 .7 58 .3 62.0 70 .0 <20 billion not shown

East Asia and Pacif ic
9 .3 5.2 24.0 40 .4 44.0 58. 0
China Figure 2,4 The network of world trade by region
12.5 8 .2 15.0 2 7 .7 27 .0 54. 0
India
30 .8 3 5,6 44. 0 49 .0 Source: calculated from WTO, 20 12 : Table A2
Latín America and Caribbean 25 .8 23 .4
Sub-Saharan Alrica 4 7 .4 44. 3 5 1.0 56 .} 66 .0 71.0
24 .5 27 .1 37.1 4 2 .5 52.0 6 1.0
World FOI has grown faster than trade
: Ta ble L World Bank, 2013 A sccon d indicator of growing int erconn ectedn ess is that the growt h of foreign
direct invcstm enr (FDI ) has outpaced the growth of rrade. 'Direct' investm cnt is
Figure 2.4 maps tbc nerwork of world m erchandise trad e. It sh ows rhe strong an investment by one firm in anorher, wirh th c int ention of gaining a degrce of
tendt:ney for counr r ies te trade stro ngly w ith th eir neighbour s: co ntrol over thar fir m's o peracions. ' Foreig n' direcr investm en t, therefor e, is direct
tnveStlll enr across national bou ndari es to buy a co ntrolling lIlvestmellt in J dOl11es-
• Europ e is th e wor ld's trading region (39 per ccm of (he wo rld to tal). tic firm or to set up an affiliate. Ir differs from ' portfolio' investm cnt , th rou gh
Alm ost 70 per cent of tbat trad c is intra-re gio nal, that is between Europe;¡n whic h firms pur chasc stoc b/sha res in ot her comp;lIlies purcly for finan ci;¡¡reasons.
count r ies th emselves. Around 13 per cem of Europe's expor ts go to Asi<l and Althoug h FD I grew very rapidly during che fim half of the twentieth century, such
7 per CCll l to N or th Amer ica. growth \VaS nothing compared with its speetacular acceleratiOll and spread afte.. the
 PART ONE THECHANGING CONTOURS Of THEGLOBAL ECONOMY THE CENTRE Of GRAVITY SHIFTS 21
20

400 Unlike the kind o f trad e assnme d in interuational trade theory - th ac rrade takes
place 0 11 an 'arm's - leng th' basis - intra-fi rm trad e is no r sllbjc ct to exte rn al m arket
p n ces bur ro the IIlternal d eclSlo ns 01 1NCs. Such tra cte has becom e even more
"
" im po rranr as th e p rodu ction nerw orks otrNCs have be come more com plex and ,
200
¡ in part icular, as prod uction circu its have becomc mo re fragme nte d and global .
Such ' disintegtation of prod u crion irselfl eads ro more trade, as in rennediate inputs
] 100
cross borders seve ra] tim es d ur ing rhe rnan ufactu ring pro cess'. 11T hese are p ro-
cesses \Ve w ill exa min e in dcrail in subsequ euc chap ters.
1975
A fu rthe r m easure of glob al in tegration , therefore , is th e relative im p ortance of
in ward and ourwa rd FD J tú a coun trys eco n omy, me asured by its GD P.T h c rela-
u ve importance of FD I te national economies has in creased virt ually across th e
bo ard , a cle ar in d ication of in cre ased in terconnectedness w ithin che g lo b al econ-
om y. In 2011 , glo bal FO I sro cks were 30 per cenr o fwo rld G OP (compared wi th
-5 o nly 10 per ce n e in th e carlv 19905) .12 But, as in th e case of trade, the rel ativc
1h
1! im po rtan ce o f FD I ro na tio nal economies is h igh ly variable . 'Iab le 2.2 shows chis
for a sam ple of count ries. In virtually all cases, in ward FDI h as increased greatly
1l
-a in relativ e im po rrancc.

Stru ctural imbalances in the world economy

T be flexí ng and flux íng globa l economic map is t he out come o f th e mejor glob al
2011 201
1996- 2001 2001 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 shifis rhat have o cc u rred over the past few deca de s. Ir is made up o f complex
"'00

Figure 2.5 Growth of tcreign direct investment comparad with exports

Table2.2 Inward FDI as a share of GOP (% )
celc ula t ed fr om UNCTAD World Investment Repon . vartous issues
1990 2012 1990 2012
and into end of the Secon d World War.8 Figure 2.5 shows th at durin g the 1970s :md into the Australia 24.8 39.0 Poland 0.2 4 7.3
o re or le firsr half of the 1980s the trend lines of both FD I and exports ran m or e or less in Canad á 19.4 35.9 Argent ina 6.4 23 .2
1rapidly parallel.T hen, from 1985 th e rones ofgrowth ofFD I:md exports diverged rapidIy.With Denmark 6.8 4 7.3 Braz¡l 10.1 31. 2
sorne excep tion s, FDI grew raster than trade, th ough with very wi de flucruations since France 7.9 39. 5 Chile 46 .7 77.7
me e nser of t he global financial crisis in 2008. Divergence in growth tren ds bctween Germany 6 .5 2 1. 1 China 5.1 10.3
FD I and trade is cxtremely significanr: il suggests th at the prim ary m echanism of lreiand 78 .8 113 .9 Hong Kong, China 262.3 552. 8
interconn ectedn ess withi n che global economy has shified fiom trade to FO l. ttary 53 17 .7 India 0.5 12 .2
H owever, these rrends in the growth of FD I and rrade are no c inde pendent of one Jaoan 0.3 3.5 Indonesia 6.9 2 3 .4
anorher ,The common element is the T N C. T h e numb er of TNCs has grown expo- Net herlands 23 .3 74 .2 Korea 1.9 12.7
nentially over th e past three decades. In 2009, there werc around 82 ,000 parent CO l11- Spain 12 .7 47 .0 Malaysia 2 1.7 4 3. 6
pany T N C s controlling around 810,(X)()foreign affi.liates.'.J TNCs acco unt for at least Sweden 5.2 71.7 Philippines 6.7 12 .4
rwo-t hirds of world expo rts of goods and services, of whi ch a significant share is intra- Switzerla nd 14.0 100 .7 Singapore 78 .5 252 .3
firm trade. In othe r words , it is trade within lh e bo un dari cs of th e 6rm - althou gh UK 201 54.4 Taiwan 5.9 12.5
across nacional boun daries - as transactio ns between different parrs o f rhe saIne fin n . USA 9.4 26.2 Thailand 9.3 40.7
T he 'ball park' estimate is that approxim ately one -third of total wo rld trade is intra- Czeeh Republic 2.5 69.6 Vietnam 3.8 51.5
firm, alth o ugh that is probably an llnderestima te. One calculatio n is that 90 per ce m Hungary 1.6 81.7
of U S exports :md im po rts flow through a U S [TlNC, with TOughIy 50 per cent of
IO
U S trade flows occ ur ring between affiliates of rhe same [T INC Source: based on data in UNCTAD, 2013a : Web Jable 7
 TRANSNATIONALCORPORATIONS 117
116 'u , rVlO PROCESSES Of GLOBAL SHIFT

ching he 100
are superficial and misleading, although th ey certainly rnake eye- catching head- 1993 201
:Iy, and t
d st atc s.
tilles. In Cace, che statistics do nat m easure che same thin g qu antit<1tively,and chey 90 : 90
eerta inly do nct capture ch e qualitativc differences betvveen TNCs and statcs.
nal firms
rds a un i
O ne of che central clairns of che hyper- globalists is char rransnation al firms are
abando ning rheir ties ro th eir coun rry of origin and converging rowards a un iver- ••
so
!
so
¡

j .' .
70 70
llenes 1Il sal globtl! organizatio nal form . Technological and regulatory developmc nts in che
1a do mi wo rld economy, j t is argued . have created a 'global surface' on whi ch a do minant 60
n petitors organiz:l.tional for m is developi ng and wiping out less efficient competito rs no 50 _ ....__ !..._ .1.___ _ J ---=2 !.:-6_ _
i
it is asse
su ch a
longer prot eeted by nauoual or local barr iers. Such an organization , it is assertcd ,
1S 'placeless' and 'bo undary-less'.T hroug hont this book we challenge such a view.
. .. ; 50

40 .! 40

30 t: : 30

How 'global' are t he world 's largest TNCs? 20 20

lf tue 'global cor pora tion' hypothesis were valid chen we would expect that at least
10 10
thc majo ri ty ofthe world 's largest TNCs wo uld have 1110St of rheir ope rations dis- 10
do.".,
.... G'f'"0 '%."-1f' G'f'"0o;l
persed widely outsid e rheir home country. One eru de rneasure of such geogra phi- 0'Jf. O'" ('(Jo"''?J. O'-t. ""1.> Os f'..{¡
'?J.,Cft , "'')0'
c;¡\ spread is rhe Trall slUl tiol1(1liry ln úex (TN I) of each of the largest 100 TN Cs.z '¡o'fJ' "O·0 'S'.'0 "'O''d'v
a peree .'l 'd'..f<tJ
Th e TNI is a weighted average of three índicarors: foreign sales as a percentage l!-'l
1 emp lov 'O) .. ;
of total sales; Ioreign asscts as a percentagp nf total assets; an d fo reign emp loyme nt
iter the e as a percentage of total em ploymen t-T he higher th e value, the greater th e extent Figure 5.1 Transnationality índices by country of origin
s dom esr of a firm's rransnationality; th e lower the valu é, the more a firm is domesrically Source: calcul ated from UNCTAD, World Investme nt Report , vartous issues

ovcr a 20 oriente d.
Pigu re 5.1 compa res T NI s for firms from individual eoun[r ies ovcr a 20- year
on ality ar
periodo As nu ght be expected, ir shows that the degrce of rransnation:llity amo ng
le averag migbr be located in just one for eign co untry. An example would be che large
the 100 largest T N Cs h as indeed in creased progressively. In 1993 the average T N I
lverage a num ber of U S firms thar operare only in Canada. Ne ither does it he1p 1I5 to estab-
was 5 1.6; in 2012 it \Vas 67.8. Ne verth eJess, this still m eans rhJt on average around
Df e O U TS' lish whe ther OT nar T N Cs of differem national or igins are becoming similar in
one-[hird of their activities are based in the ir hom e coun tr ies. Of course, [he
p their modes of opemtion . l cis ar leasr possible thal T NCs may ret ain more of rhel r
composition of th e tal' 100 did nor remain con stant over th e 20- year per iodo
ltially be assets alld employment in their home co unt ry bllt still be converging organiza-
However, th e deg ree of transnationality continues to vary substanti ally between
y count tionally and behaviouraliy towards a universal, global form oOn th e basis of chese
firms of ditrerent geograpllical origins. Part of this is explaine d by country size:
lpanies t, data, the j ury is scill out
the smaller rhe cou ntry, in general, th e more transnatio nal ies cornpan ies tend to
ed sllbsta be. Bu t rhat is nar tht: en tire story.Although tb e US average increased Sllbstantially
gest US from 36 .7 ro 58.3, the overaU ext ent of transnation ality of rhe largest US T N Cs
:pt ] ap:lll. rcm aillSsignificantly lowcr than that of oth er m ajor coulltries, exce pt ] ap:lll. Many A differen t perspectiv e: t he highl y diverse population
the US leadi ngUS TNCs sriUluv e a large proportion of rheir activities in the USA itself. of TNCs
T N Cs - T hus , despite m any dec ades of international op crations, the largest T N Cs - at lease
Clearly, [he very largesl T NCs are imm ensely impo rtant in the globaJ eeonomy.
in au ant itative ter ros - remain strongly eonnec[ed wi th their home base.
The 100 IargesrT N Cs, for example, em ployed aIOund 15 million wor kers direetly
But the TNI goes only a vcry srn:fIJ,; in 2011, of whi ch 9 million were lo cated Olltside th e firm's home coun try:' T his
global tbe wo rld's brgest T N Cs are. Ir telis us very httle about th e relative geo-
represellt cd aroun d 13 per eent of the foreigll emp loyme nt in che total nu mber of
graplriw/ cxteltt of T N C activities outside the horne count ry, only disting llishing
TN Cs idem ified by UN CTAD. However, [he overalJ population of T N Cs is far
betw een hom e and foreign . A firm might have a TNI of, say, 80 (meanin g th at SO
more diverse th an the stereotype suggests: in tenll S of size, geog raph ical or igins,
per cent of its aetivities were olltside its ho l11.e cOllntry) bllt all of tho se activities
 TRANSNATIONAl CORPORATION S 119
PART TWO PROCESSES OFGLOBAL SHIFT
118

evidenc
org:miz ario na1 struccure and ways ofbeeoming transm tion al. In facr, tlie evidence
Market seeking
fthe IC
suggests tbat T NC diversity is increasing, especially in the conte>. "t of tb e ICT M ost FO I, whether engaged in produc ing good s ar service s or in marketin g and
he picrun
explosio n and as mor e f inus from fo rrnerly peri pheral countr ies en ter che picrure : sales, is design ed ro serve a specific geog raphic al market by lo caring inside that
market . T he goo d or service prod uce d ab road may be virtnall y iden tical to that
uew
Indeed at the beg inni ng of ch e 2 1st cen rury there are so rn any uew bcing produced in the firm 's home counrrv, although th ere muy well be modi-
tone
kinds ofinternarion aUy active fir uis - so man v new 'species ' - th at on e fic:ltiens to suit thc specific local tastes or requirem ents. In effect, sueh specifi-
ioual
mig hr legirimate1y talk of the new 'z oologv' of rhe intern ational cally market- ocien ted invesrmen t is a form of horizontal expa nsión across nacional
large
economy .. . lt is inhabited by a few giants, true, but mostly by a large bou ndaries.T hree attnbu tes of markets are especially importan t:
[1 are
number of SMEs [Small and Med ium-si ze Ente rprises] which are
ason s
int ernatioually active.Their rnodes of internatio nalizing , th eir reason s Sire: che mosr obvious attraction measure d, for example, in rerms of per capira
,
cs.
fcr doing so, rheir organ izatio nal and sua tegi c innavations - 4are income . Figure 5.2 shows the eno r1110 US global variation in per capit a income
scarcely captured by existing rheories and conceptual frameworks. levels. T he largest geograp hical markets in terms of incom es, although nar in
terms of pop ulation , are obvio usly the USA and Western Europe. Suc h varia -
rhich glo
T hu s,T N C d iversiry,n ot unifo l"lnity,is che norm in roday's world in w hich glob al rions in per cepita income provide a erude indi cation of how the /el!e/ of
:s,whate
production n etwork s are the predominant form of orga nization. TNCs, whatever dem and will vary from place ro place across th e wo rld.
ther as 1
th.eir size and shape, are deeply em bed ded in such n ctw orks, whether as lead • S truaute : co un tr ies wirh different inco me levels tend to have a. different struc -
s ca neen
firms or as sllppliers, collab orato rs or custorn ers.This chapter, theu , is co neerned tu re of dem:m d , thus as incom es rise, so does the aggreg are dema nd for goods
y config
wir h explai ning why and how sueh T N Cs devclop, and how rhey configure and services. But this does not affect a11 produ cts eq ually. Papu larions in COUll -
tionally
"u d reconfigure the ir intern al an d externa l nctwor ks, bot h organization ally and r.,-ies with low incom e leve1s rend to spe nd a brger propa rrion af their income
0 11 b:lsic neeessities while, conversely, peap le in co untr ies with high income
geograpbically.
levels spend a higher proportion of th eir income on ' higher-order' manu fac-

I
tt1red goods and serv ices. Crowt{¡ in incom e, and notjllst its level, th erefor e, is

WHY FIRMS TRANSNATIONAlIZE I high.ly significan r in att racting foreign investm ent. Hen ce the att raction of rhe
nr, they
Although state-owned T NCs have cer tainly becOlne mo re important , rhey rep-
::i to tal.
rese nt, :l.ccording to UNCTAD, less rhan 1 per ccnt o[ the world total. Ma st
ording t,
T N C s are privare capiralisl enter prise s. As slIch. r11 ey must behave according ro rhe
{ir in ;¡hil b asie 'r ul es' of capitalism oT he m ast fundamental is rhe drive fOl" profit in a high1y
"tc m :l.Ild com petitive envirol1ln cnt , wh ich is hor h increasingly globa l in ¡ts exte nt and also
extremely vobtile: 'Th is creates an environment of hype r_comp erition - aH envi-
rOl1m em in which advam ages :lfe rapidly cre ared and erodcd.' 5 Firm s are no lon ger
co mpeting largely with nationa l rivals bllt wirh finus from across rhe wor ld. Give n
rhese circ llm stanCes, the refore, one way of ex plain ingTNCs is simply as a reflec-
6
tion of th e'normal' expansio nary tendencies of the cirw its of capira/. ln tbese term s,
transnarion alize?' mighr almos t be bener put as 'W hy I/ot
transnationalize?'
Alrhough a firm 's 1l10rivation for engag ing in transnational op eratiollS m ay be
h
high ly individu al we can classify th em into nNO bread cate gor ies (altho llg the
boundary bcn veen rhese is less sharp rhan this dicho tomy
• market seeking;
• asset secking.
Cast- growing cm ergi ng market econa mies oCEast Asia.in particular.
• A((essibiliry: in rhe past, a maj or balTier was rhe cost of transporrarion. Today,
th is is far less significallr, althou gh llat tata lly lIlum porra nt, especially for sorne
prod ucts. H owever, poli tical co nstraincs in the form of various kinds of trade
bar rie r do rema in highly sign ificanr (see C hapter 6).
Asset seeK lng
Mast af rhe assets nceded by a firm to produce and seU its specific and
services are llnevenly disrributed geograp hica1ly. This is mo se obviously the case in
the natur al resource i.ndustries, whe re finns musr, of necessit)',locate their extractive
activities ar the sources of supply. O fien, such investments form the first elcm ent in
an organizational sequence of vertically integra ced oper:ltiollS'\vhose larer St:l.ges (pro-
cesslng) may be locared quite sepaGlrely from dl C source of supply irself, in some cases
clase ro rhe final m arket. N atural resomc e-o rienred foreign investme nts have a very
long history and rem ain highly significanr in the global eco nomy (see Chap ter 12).
Technological changes in pro du ction processcs and in tr:lI1 sportation have
cvcned out the significance of locarion for some of the tr.ldirionally impo rtant
 TRANSNATIONAl CORPORATlO NS 12 1

z- facto rs of pro duction.A t che global scale, arguab ly che two mos r import anr lo carion-
specific factors today are socially creared, rather than occurring in narure:

' " .
'e
:o

•
access to knowlctlge;
access ro íobour.
e
Th e strong tendency for kl10wledge creation , dissemi narion and rechn olog ical innov a-
w rion to app ear in geogmp/¡icaJ clustets (see C hap rer 4) creat es a m ajar locati on al ince n -
-5 tive. Parricularly in tho se activi tie s in whic h tech nolo gical change is especially rapid
ro and un predicta ble, che incent ive to locate 'w here [he knowledge and che action are'
beco mes very powe rful. Such kn owled ge m ay be based in specific kinds of institu-
e rion (such as univ ersi ties, reseatch institur es, indusrry assoc iatio ns). Pundamen ta lly
¡: howeve r, ir derives from th e skills and kn owl edge em b odied in people.
'"o Fro m a TNC's perspective, che Iocatio ual significan ce of ¡abolir as a 'production
<5
l' factor ' is reflected in a number of ways, alth ough. of co urse, wo rking peoplc are very
,)l much m ore than 'cru de absrraction s in w hic h .. . [rhey are]' .. . redu ced ro che catego-
uO ries of wages, skill Ievels, locat io n, gender, uu ion membershi p and che like, the relative

--
importance of which is weig hed by fin us in rheir location decision -ma king'," Such
el:
characteristics vary, of cours e, in rheir significance acco rding to th e specific kind of
E labour bein g sought , as th e cases in Parr Four dem onstr ate. For som e activiries, ir is
! cbeap, unskille d, non - unioniz ed labour that is sought; fo r o thers, ir is highly skilled
and ed ucaced 'kn owle dge worke rs'. In general ter ms, however, four especially im por -
J> 00
tant attri butes of labour sh ow largo gcographi cal variarions:

o • KIIOw/cl/ge mul ski1fs. Know ledge and skills depend e n suc h co ndirions as the
E
§
ro
breadth and dept h of education and on the partic ular hisrory of an area's devel-
o " opmc nt. As a result, rh ere are wid e geogra p hical vat iation s in th e availabiliry o f
2; E'
differen t rypes of labo ur. One very approximate indi cator at rhe global scale is
j
'';:¡ "O
the var iario n in ed ucation al levels (e.g. exte nr of Iiteracy, enro lment in var io us
:g K stages of edu cati o n , p ubli c exp enditure o n educ ao o n, erc.). Figu re 5.3 maps

e..
E on e suc h indic aror: rhe prop o rtio n o f th e relevant p o pula tio n in tert icrv ed u-
catio n. As mi gh r be exp ected , th ere is a very high co rrelario n b erween th ese

.¡;; 8
g measures and th e distrib ution of per capi ra in co m e sh ow n in Figure 5.2.
WagelOstS. In tern atío n a] d iffer ences ín wage levels can be staggeringly w ide, as

¡
Figure 5.4 show s,T hese figures shoul d be treated with som e caucion ; they are
E
averages across th e whole o f lllan ufac tur ing ind ustr y an d are the refo re atTected
.:
by che speci6c indllst ry lllix. Some in d ustri es have mll ch h igher wag e levels
th an oth ers. Ev en so, ch e co llt raslS are strik ing .
:1 • úlbollrprodl¡ccivily. Spatial variano ns in wage cosesare onl y a indi cation of the
> " geographical illlpor tance of bbour as a prod uction factor. What m atters from a
"'! firm's perspec rive is the sca1.e o f Oll rpllt per wor ker for a given \vage or salary.Th e
i e55
pmdu ctivity ofl aba ur V"dries enor mo llsly from place to place, a refiectioll o f a nLlIll-
\x r of in fiuences indudillg: educatlon , trallling, skill, m o tivation , as weD as th e lcind
Pasar a página 126
 TRANSNATIONAl CORPORATION S 125
PART TWO PROCESSES OFGLOBAL SHIFT
124

in rus s saw nn opporruniry ro redu ce pr oduction and disrributi on costs a r because of a

work in (he t 9605,8 and develo ped mosr notably by j oh n D un ning in rus self-
tate beyo rh reat to th eir mar ket po siciono
sryled 'eclectic' the ory," argued that a prerequisite for a firm to operare beyond
sorn e 6.[ l t follows from the nature of the PLC mod el tha t the first overse as pro du ction
its dom estic bor ders (other (h an thro ugh trade] was (he possession of some firm -
co uld t would occur in orher high- incom e markets.The newly esrablishe d foreign plan ts
specific assets, developed to a high degree in its domestic market .These co uld then
mizat ion ccould serve rhese for m er export m arkers and thus displace U S exp ons . T hese
be rransfer red _ across bo rders geog raph ically bu t inside (he firm organizationally
lose of would be redirecred ro orhe r areas wh ere production had no t yet begun (phase 11
(i.e. intern alized) _ to for eign locations. Such assets are primarily rhose of firrn
irand na in Figure 5.5). Eventu ally, the product ion cost advan tages of rhe newe r overseas
size and economies of sca1e;market power and marketing skills (e.g. brand names,
th);or ac plants wo uld lcad che firm to expon from them te other, third-country, mark ets
advertising strength); techno logical expertisc (product, process, or both); or access
firmthat (phase I1I) and even back ro the USA irself (phase IV). Finally, as the product
te cheaper sources offinance .The uup licit assum ptio n is th at only a fir m that has
transnati hecame completely standardized, production would be shified to low- cost loca-
reached a sub srantial size w ill have rhe resou rces to b egin to ope rare transnation-
ess. tion s in less develop ed countrie s (LDCs ) (phase V). It is intriguing te no te tha t
ally.The TNC, ih erefc re, beca m e associated une ql1ivocally wit h bi gness.
m expan Ver non regarded rhis as a 'bold projeetion' .At th ar time (the rnid-1 960s) there was
T his notion of beginning wit h a strong do mesti c position and then expanding
.15), ado still little evidence of developing co untry export platfo rms in East Asia servi ng
geog raphicallv was captu red in the co ncepr of th e PLC (see Figur e 4.15), adopted
roductio Euro pean and US markets. How times hove changed !
and adapte d as an explanatio n of rhe evolutio n of inte r natio nal production by
introduc The re is no do ub t that a goo d deal of the initial overseas investment by U S firms ,
R aym ond Verno n in 1966 .10 Vem on's majar contributi on was tú in tro duce an
lO\ VS V e rl and by sorne firms from other countries, 6tted the PLC sequ ence quite well. But
explic itly /ocatiOftal diln ensio n inco the product cycle. Figur e 5.5 sho'\vsVernonls
ng che 1 ir cannot explain th e increased diversity of TNC invescmem . It is no longer realis-
P LC model, based upon th e ex perience ofUS TNCs , especially during the 1960s .
[ che pos: tic ro assume a simp le evolutiona ry sequen ce from the home cou ntry outwards.
Verno n assumed th at domestic firms are more like1y tú be aware of the possibil-
omestlc Even with in strongly ilUlOvative TNCs, the initial source of the innovation and of
ity of intr od ucing new products in th eir home marke t than non -domestic firms
ll act crl st " its pro ductio n may b e fmm any po int in the 6r m's global network. In add ition, as
T he kinds of new prod ucts introduced w ould retlect the specific chauctcristics of
d high la' \Ve S<lW in C haprer 2, much of rhe world's FDI is reciprocal or cross- investmen t
the dOlnestic marke t . In th e U S case, hi gh average- income levels and high labour
-income between coun tri es, which canllot easily be expiai.ned in produ ct cyde terms .
costs enc ouraged th e development of new products aimed at high -income con-
)cacional sume rs and which w ere also labour saving. In this first phase of the locational PLe,
md servl aH production would be Iocated in th e U SA and overseas demand served by Diverse tr aject ories: lat ecomers, newcomers and
Sfirms\' expo rts (Figur e 5.5). But th is situatio n could no t last ind efinitely. U S firm s would
r bec aus 'born globals'
event ually set up prod uctio n facilities in the overseas marke t eirh er bec ause they
Lateco mer and new com er fTNCs] do not depend for their int erna -
rional expansion on prio r possession of reso urces, as was the case for
Inosl cradicional [T NCs ] ... expa ndin g abroad in past decades. Instead,
l DCs eltpol l l DCs eltpolts rhese new firms utiliz e interna tion al expansion in order to tap into
\ Europe export s
to US AllplO duct ion I to US I to US tram ien t advanta ges; they are nar co ncern ed ro estab lish soljd inte rn a-
in US
I I tional struct llres, blit rather qllickly develop fleXlble and 'lattice- like'
US to
many 1
Moturl I Moture struct ures spann ing diverse co unt ries and markets .ll
produc; : produc!
Figure 5.6 shows sorne of this diversity. T he trad ition al developmenral segue nce
'el
exporte r
I
I
I is shown in che cent re: overseas exp ansion occu rs initially through expo r ts, using
the serv ices of independen t overseas sales agents. H owever, the po tential benefits
of exerting greater control may stim ulate the firm to establish its OWI1 overseas
"el
importer
sales oudees: for examp le, by setting up an entirely new f.1 ciliey O l" by acqui ri ng, or
mergi ng wich, a local firm (possibly the prev iou sly used sales agency itself).A ctual
Time-
Prodllctioll of good s and serv ices overseas may event llally folJow.
Figure5.5 The PlC as an evolutionarysequen ce of US TNCs' development ere tS a goo d deal oi anecdota.! mater ial to SlIppor t Sllcha sequ ence ot deveJop-
ment among firm s that acmally became T N Cs. Apart from Vernon's US evidence,
$ource: based on We\ls, 1972: Figure 15
 PART TWO PROCESSES Of GLOBAL SHIFT TRANSNATlONAl CORPORATIONS 127
125

The eonvE'ntional parh unf:1l1Úliar enviro nm ent. Ce rtai nly ir is th e way in whic h a new gen eratio» of
T NC s from develo ping co un tr ies, like China and Indi a, are bcco mi ng majar
global players. For example, the Chincse compurer firm Lenovo acqu ired IBM 's
pe business in 2004 , while rhe lud ian Tata G roup acquired the luxury car COt U -
pan)' Jagua r Lan d Rever, fro m Po rd, in
Alrho ug h rhese exam ples illustrat e increasing di versiry in TNC develo pment ,
rhey stil] im ply a mo re 01' less len gth v tem poral seq ue nce. However, che re is grow-
'ParoUet path s' ing evidence of new entrepreneunal venrures sramng o ut int eru ational ly fro m che
e.g. licenslng, franchising, vcry beg in ning: che so-c alled 'boru glob als'c't T hese are finns whi ch
'5hort collaboration in R&D,
circuits' production, marketing,
sourcing, srrategie amanees srarted and op erared from day on e in glo bal m ark ets as global players,
servicing their custo rne rs w herever they are to be found rhey are
a11 characterized by their accel erated internationalizarion and th ey
are rhereb y ch an gin g th e dy namics of int ern ation al competit ion .
entencw species oJ[TNC] llrc differe¡1t ft OIn tl"lldiliol/al rmdtil/aliol/llls ill IIUlI
fhey are created by inícrnatíonoíív experienced i//dil/id//als ami groba' iu tíieir
ourfook already frOI// inceytiav, seizí l1g ttte oppoetuntties offered by (//1 increas-
il/g/y ínle<-í!mted (1IId interconneaed global rcono¡¡¡y . . firm s ident ified as
Figure 5.6 Diverse pathways of TNC evolution
born glob als or internariona l new ventures ha ve bee n found ro target
aud 1JC:Il C l l.Il C iu tcrnauonal uunkers ÚOlll vcry early 011 , and in SO I1IC
rfactu rin japanese firm s investing in Europe showed a similar pat h. Actual manufacturing cases from rhe outs et organize op erations arou nd int ern ationall y dis-
Ej apanes operations cnme rath er late followi ng a lo ng period of development of j apanese pe rsed knowledge and reso urces.
(sogo suo service investments , rnainly in th e form o í che general trading compa nie s (sogo suo-
functio r sI/a), banks and ot her finan cial institut ion s. and che sales and disrribu tion functiou s Twa exam ples can be used ro illustra te thi s new form ofTNC . Pirsr, Proreom e
Sysrems Ltd (PSl) was establishe d by ucademics at Ma cq uan e Uni versiry 111
of thc manu factu ring firms themselve s."
o r anv o However. rhe re is nothing ine vitable abo ut a prog ression through all or anv of Aust ralia as a bio tech cOlllpany.T he fin n
nay oc cu che stages. Figure 5.6 show s thnt 'sh orr circ uits' and 'parallel path s' bo rh may oc cur.
;mg inte r Fo r ex:unp le, overse:'ls pro duc tio n facilities may be est:lblishe d wit ho ut using inte r- soug ht ro deve lop its cus rome r base inte rnatio nally [rom illcept ioll.l ts
countr ie medi:ln es. This has been especial1y co mm o n amo ng firm s from s111a11 countr ies, pat tero of marke t expansio n was rap id and oppor tunistic, and focused
0 11 gaining access to resourc es wherever they mi gh t be available. In rhe
su ch as the Netherlands, Sw irzcrla nd or Sweden . For example,
US ir expande d by acquisitio n oCth e piece s lefi:afrer a biot ech firm in
rion, Sw itz erland is a sma ll cOllotr y. Wirhin five mo nths of irs crea tion , B a sta n went Out of busine ss. In Japa n ir enre red ioto a stracegic aIl1-
Nestlé was already m anu factur ing: abroad . T hc mentaliry he re was anc e w ith an established trading IlOuse, Ito chu In Mal.aysia it
ncver to exp o rt fro m th e ha me ma rket bu t ro prod uc e loca lly.u eme red the Illarkct rhrough the sen'ices of an agenr . In other wards ,
chere was :l he terogene olls ent reprc ncu rial pro cess of ma rker entry and
e arr ange ln creasingly, firm s now engage in a bcwi lderi ng var iety of co liabo rative arran ge- reso urce as and wh en circulll srances and o pportunities
: develop menes with oth er firms and [hese provide further diverse path s ofTNC develop- presente d themselves, bu t always wit h a view ro sustaining a globa l
upp liers men t. For example, a fir11l may tap int o existing T N C networks (e.g. as su pplie rs of marke r presence fi'OIll th e ou tset. l1
on vario specific produ ct s, fill1ctio ns and services).Alte rn atively, a firm may take o n vario us
kind s of tr ansnat ion al networking roles :lnd yer remain relacivdy small . Seco nd , Mom ent a C o rp ora tion ofMo unt ain View, Colorado, was a
sition an Virtuall y a11 T N C s h:lVe grown , at leasc par tial1y, rhrough acquisition an d
merger, w hich offe rs the attrac tio n o[ an already functioning business co m pared 'starr- up ' in th e eme rgin g pen -ba sed compu tcr ma rket . Tts foun ders
wirh th e more difficu lt, and possibly risky, meth od oEscarring [ro m scratc h in ao we re fmm C ub a, lran , Tanzania, and the U So From its begi nning in