Economic Globalization: Corporations

World War I (1914)

 considerable numbers of US, UK and some continental
- (TNC) – is the central actor: the primary shaper of the
European manufacturing companies were becoming
global economy
increasingly transnationalized
FOCUSES ON FIVE RELATED ISSUES:
During the past 50 years 
1) the scale and geographical distribution of TNCs in the
 number of TNCs in the world economy has grown
global economy;
exponentially
2) why and how corporations engage in transnational
activities;
Most comprehensive definition of a modern
3) the geographical embeddedness of transnational
TNC 
corporations;
-is ‘a firm which has the power to coordinate and control
4) the ‘webs of enterprise’ manifested in transnational
operations in more than one country, even if it does not own
production networks;
them’
5) the power relation- ships between TNCs and other
(means that it is impossible to quantify in aggregate terms
actors in the global economy
because it involves a number of qualitative attributes
concerned with the complex relation- ships between, and
THE SCALE AND GEOGRAPHICAL DISTRIBUTION OF
within, firms operating across national boundaries, for which
TRANSNATIONAL CORPORATIONS
no comprehensive data are available)
the chartered trading companies, which emerged in Europe
UNCTAD
from the fifteenth century onwards
-estimates that around 61,000 TNCs currently carry out
international production in over 900,000 foreign affiliates
 East India Company and the Hudson’s Bay Company
(represent roughly one-tenth of total world gross domestic
– played extremely important roles in the evolution of
product and generate one-third of total world exports)
an increasingly interconnected political economy.
-they created vast business empires at a world scale
Global corporations
 Raison d’être
 allegedly ‘placeless’ giants whose operations span the
-was trade and exchange and, in that sense, they are
globe and which owe no allegiance to any particular
clearly the ancestors of today’s global trading and
country or community
service companies
  nation-states is a highly misleading comparison, not
least because it is based upon a fallacious statistical
argument
 TNCs come in all shapes and sizes, from the so-called
global corporations operating in scores of countries to
TNCs operating in only one or two countries outside
their home base
In aggregate terms   the number of TNCs originating from the leading
 TNC activity is conventionally measured using statistics
on foreign direct investment (FDI)
 ‘Direct’ investment is an investment by one firm in
another with the intention of gaining control over that
firm’s operations
 ‘Foreign’ direct investment is simply direct investment
that occurs across national boundaries
 ‘portfolio’ investment, which refers to the situation in
which firms purchase equity in other companies purely
for financial reasons and not to gain control
During the past two decades
 FDI has grown at an accelerating pace (at least until the
global economic slowdown of 2001)
Majority of the world’s TNCs originate from the
developed economies: 
1. 96 of the top 100 non-financial TNCs in the world in
2002
2. bulk of the world’s FDI is directed towards developed
economies
 vast majority of FDI consists of cross investment
between developed countries
 there is significant – and growing – FDI in developing
countries. But this is far less than popular opinion
suggests and is, in any case, highly concentrated in a
very small number of countries, primarily in East Asia
and to a lesser extent in parts of Latin America
developing countries is undoubtedly growing
 There is an increasing diversity of TNCs in the global
economy
WHY (AND HOW) FIRMS ‘TRANSNATIONALIZE’ MOTIVATION
Two Broad Categories
1. Market-oriented investment 
Reasons as to why much of their investment continues to be
market-oriented
1. firm may have reached saturation point in its
domestic market
2. Increasing profitability may well depend, there-
fore, on being able to expand its market
beyond its home territory
It may have identified new markets that require a direct
presence in order to serve them efficiently:
-transportation costs may be excessive to make
exports uneconomic
-Access to the market may be restricted because of
political regulatory structures
 c. idiosyncratic nature of a particular market may
necessitate a direct presence in order to
understand, and to cater to, such specific
circumstances
d. Both for political, as well as cultural reasons, it
may be desirable for a TNC to appear to be
strongly embedded in a local market
2. Asset-oriented investment  development facility, a sales and distribution
 geographical unevenness of markets is one major set
of reasons why firms engage in transnational
investment
 derives from the fact that the assets that firms
need to produce and sell their products and
services are also geographically very unevenly
distributed
 Traditionally, of course, it was the geographical
localization of many natural resources that
drove much of the early development of TNCs
 early leading TNCs were in the natural resource
sectors, including energy and industrial
resources as well as in agricultural products  A sequence of TNC development
 Firms in the natural resource industries MUST,
of necessity, locate at the source of supply,
although it is often the case that subsequent
processing of the resource takes place
elsewhere, generally close to the market
Natural resource-oriented investment
 Developments in transportation and communications
technologies
 Skills and knowledge embodied in people in specific
local settings.
MODES
There are two major ways in which firms develop
transnational activities: 
 through what is known as ‘greenfield’ investment;
o Greenfield Investment
-administrative office, a factory, a research and
center
-adds to the productive stock of both the firm
itself and the country
-type of investment that is most favored by
host countries (North America & Europe)
-the most common mode of overseas
expansion
 Firm may well prefer to establish a presence in an
overseas location through an existing firm
 through engagement with other firms, through either
merger and acquisition or some form of strategic
collaboration.
 It has been conventional in the international business
literature to argue that TNCs develop in a sequential
manner, starting with achieving a position of strength
in their domestic market and only after that has been
achieved do they venture abroad. 
The sequence usually identified is as follows: 
1. First, overseas markets are served by direct
exports, normally utilizing local independent
sales agents. 
2. Second, as local demand grows, it may become tendencies. In the latter case, actual
desirable for the TNC to exert closer control manufacturing operations came rather
over its foreign markets by setting up overseas late, following a long period of
sales outlets of its own.  development of Japanese service
3. This may be achieved either by setting up an investments by the general trading
entirely new facility or by acquiring a local firm companies, banks and other financial
4. Acquisition offers the attraction of an already institutions, and by the sales and
functioning business compared with the more distribution functions of the
difficult, and possibly more risky, method of manufacturing firms themselves.
starting from scratch in an unfamiliar  However, there is nothing inevitable about such a
environment.  sequence. The process may be interrupted or ‘short-
5. There is substantial anecdotal evidence of such circuited’ for a variety of reasons. 
a developmental sequence,  More significantly, the emergence of a new generation
1. US consumer products firms, such as the of TNCs, particularly in the knowledge-intensive
major food manufacturers Heinz and industries, has produced a developmental sequence in
Kellogg, and personal products which firms are not necessarily large and/or with a
manufacturers, such as Procter and dominant domestic market position before embarking
Gamble, moved cautiously and on the establishment of overseas operations. 
incrementally in their overseas  In other words, there are firms often referred to as
expansion, initially targeting ‘born globals’, entrepreneurial ventures which operate
neighbouring Canada and serving other beyond their home territory from the outset.
markets (including Europe) through  In other words, the nature of TNC networks in general
exports and then local distributors, is a critical influence on the potential for development
before establishing their own of firms seeking to operate beyond their home
manufacturing facilities.  territories.
2. Japanese firms investing in North
America and Europe from the 1970s – GEOGRAPHY MATTERS: THE EMBEDDEDNESS OF
including the automobile companies TRANSNATIONAL CORPORATIONS
Honda, Nissan and Toyota, and the
electronics companies Sony and  Contrary to much of the received wisdom on the global
Matsushita – showed similar economy, place and geography still matter
 fundamentally in the ways in which firms are produced
and in how they behave.  characteristics.
 All business firms, including the most geographically
extensive TNCs, are ‘produced’ through an intricate
process of embedding in which the cognitive, cultural,
social, political and economic characteristics of the
national home base play a dominant part.   Even countries with rather similar characteristics, such
 TNCs, therefore, are ‘bearers’ of such characteristics,
which then interact with the place-specific
characteristics of the countries and communities in
which they operate to produce a set of distinctive
outcomes.
 The Russian painter Marc Chagall once observed that
every painter is born somewhere, and even if later he
responds to other surroundings, a certain essence, a
certain aroma of his native land will always remain in
his work. It seems to me that Chagall’s observation is a
better metaphor of the relationship between TNCs and
place than many globalizers’ visions of the ‘placeless’
corporation. It more sensitively captures the
complexity of the embeddedness process in which
both place of origin, and the other places in which
TNCs operate, influence the ways in which such firms
behave and how they, in turn, impact upon such
places. Within this essentially dialectical relationship,
however, the TNC’s place of origin appears to remain
the dominant influence.
 Empirical research in East Asia shows how Japanese
and US electronics firms have distinctively different
ways of organizing their regional production networks,
differences that clearly reflect their different home
 
 Within the Indonesian garment industry, East Asian
firms tend to establish direct manufacturing operations
whilst American and European firms tend to operate
through networks of local agents and traders. 
as South Korea and Taiwan, have produced
distinctively different forms of business organization
(Dicken 2003b).
 Hence, despite the unquestioned geographical
transformations of the world economy, driven at least
in part by the expansionary activities of transnational
corporations, we are not witnessing the convergence
of business-organizational forms towards a single
‘placeless’ type. 
 This is because, over time, and under specific
circumstances, societies have tended to develop
distinctive ways of organizing their economies, even
within the broad, apparently unitary, ideology of
capitalism. 
 NOT all capitalisms are the same; capitalism comes in
many different varieties.
[forms of economic coordination and governance cannot
easily be transferred from one society to another, for they are
embedded in social systems of production distinctive to their
particular society . . . Economic performance is shaped by the
entire social system of production in which firms are
embedded and not simply by specific principles of
management styles and work practices . . . institutions are
embedded in a culture in which their logic is symbolically
grounded, organizationally structured, technically and
materially constrained, politically defended, and historically
shaped by specific rules and norms. There are inherent
obstacles to convergence among social systems of production
of different societies, for where a system is at any one point in
time is influenced by its initial state. Systems having quite
different initial states are unlikely to converge with one
another’s institutional practices. Existing institutional
arrangements block certain institutional innovations and
facilitate others (Hollingsworth 1997: 266–8)]
 Such persistent differences help to explain why TNCs
from different home countries are likely to continue to
exist. However, this is NOT to claim that TNCs from a
particular national origin are identical. This is self-
evidently not the case. Within any national situation
there will be distinctive corporate cultures, arising
from the firm’s own specific corporate history, which
predispose it to behave strategically in particular ways.
Neither does this imply that nationally embedded
business organizations are unchanging. On the
contrary, the very interconnectedness of the
contemporary global economy means that influences
are rapidly transmitted across boundaries. This will,
inevitably, affect the way business organizations are
configured and behave. There ‘is essentially a process
of co-evolution through which economic globalization:
corporations 299 different business systems may
converge in certain dimensions and diverge in other
attributes’ (Yeung 2000: 425).
[For example, the distinctive Japanese business groups
(keiretsu) have been at the centre of Japanese economic
development during the post-World War II period. But the
financial crisis in Japan that has persisted since the bursting of
the ‘bubble economy’ at the end of the 1980s has put them
under considerable pressure to change at least some of their
practices. In particular, the recent influx of foreign capital to
acquire significant, sometimes controlling, shares in some of
these companies has had a catalytic effect. There are strong
pressures, particularly from Western (notably US) finance
capital, for the Japanese business groups to open up to
outsiders, to reduce or eliminate the intricate cross-
shareholding arrangements, and to become more like
Western (i.e. US) firms with their emphasis on ‘shareholder
value’ rather than the broader socially based ‘stakeholder’
interests intrinsic to Japanese companies. While, without
doubt, some changes are occurring it would be a mistake to
assume that Japanese firms will suddenly be transformed into
US clones. The Japanese have a very long history of adapting
to external influences by building structures and practices that
remain distinctively Japanese. Similarly, South Korean and
other East Asian firms have come under enormous pressure to
change some of their business practices in the aftermath of
the region’s financial crisis of the late 1990s]
[In Korea, the chaebol is being drastically restructured and the
relationships with the state reduced. Among overseas Chinese
businesses, the strong basis in family ownership and control is
being challenged by both internal and external forces. Greater
involvement in the global economy is forcing these firms to
modify some of their practices (see Yeung 2000: 411–24). And
yet it would be extremely surprising if the distinctive nature of
nationally based TNCs were to be replaced by a standardized,
homogeneous form. Diversity, not uniformity, therefore,
related at least in part to the place-specific contexts in which
firms evolve, continues to be the norm]
‘WEBS OF ENTERPRISE’: TRANSNATIONAL PRODUCTION
NETWORKS
 All business firms are constituted as, and embedded
within, highly complex and dynamic networks of
production, distribution and consumption  technologies, have facilitated the transformation of the
 Such networks have become increasingly extensive
geographically and controlled – or, at least,
coordinated – primarily by transnational corporation
 TNCs, therefore, like firms in general, can be
considered as ‘a dense network at the centre of web of
relationships’ (Badaracco 1991: 314)  these requirements can be satisfied in different types
Precisely how a TNCs internal networks are configured, both
organizationally and geographically, and how they are
connected into the external networks of suppliers and
customers varies considerably. Such variety arises primarily
from such interrelated influences as:  
1. The firm’s specific history, including
characteristics derived from its country of origin;
2. Its cultural and administrative heritage in the
form of accepted practices built up over a period of
time, producing a particular ‘strategic predisposition’
3. The nature and complexity of the industry
environment (s) in which the firm operates, including
the nature of competition, technology, regulatory
structures and so on. 
 TNCs are far more difficult to coordinate and control
than firms whose activities are confined to a single
national space [require a more sophisticated
organizational architecture]
 Certain organizational forms have come to dominate at
different times
 Developments in transportation and communication
technologies, as well as in production process
geographical extent over which a TNC can separate out
its different function as well as their precise
geographical configuration. [different functions –
administration, R&D, production, marketing, sales –
have different locational requirements, and because
of location, TNCs tend to develop distinctive external
division of labour, although such patterns show
enormous variation between different types of TNC
and also between different industries] 
The corporate headquarters of TNCs invariably remain
in the firm’s home country (often as in the community
in which the firm originated)
o regional headquarters functions or possibly
specialized control functions for specific lines of
business.
 Core R&D facilities also still tend to remain in
the home country although some kinds of R&D
have become increasingly dispersed,
 particularly to tap into localized sources of
scientific and technological expertise, both
institutional (as in the case of universities or
other research institutions) and human (pools
of key scientific and technical workers), or to
adapt in local conditions.
 Conversely, sales and marketing functions tend
to be dispersed to locations in key markets, 
 Production functions are sensitive to the
technical needs of the specific sector in
question.
 Production activities have become more
dispersed geographically in the search for key
assets and/or proximity to markets.
A number of geographically
configurations of TNC production and
activities are apparent
1. To concentrate production at a single location
2. produce specifically for a local/national market
3. create a structure of specialized production for a
regional market
4. Possibility is to segment the production process and to
locate each part in different locations: a form of
transnational vertical integration of production  trend, however, is for such networks to have a strong
- Firms never work with a blank surface. They have to deal
with a complex mix of facilities that have been built up,
or acquired, over a period of time and whose structure,
at any one time, may no longer be appropriate for
changing circumstances
- TNCs are constantly engaged in process of
restructuturing, reorganization and rationalization
- TNCs networks are always in continuous state of flux
- Changes to a firm’s geographical configuration often
occur as a result of the firm’s decision on what to
produce for itself, in-house, and what to externalize to
independent suppliers.
- ‘make or buy’ decisions have become particularly critical
as competition has intensified and as firms strive to
increase their efficiency to enhance or maintain
profitability.
- TNCs are highly dependent on other firms for many of
their needs
- relationships between TNCs as customers and other firms
(including other TNCs) as suppliers – both
organizationally and geographically – are currently in a
state of flux.
- Pressures on suppliers to deliver ‘just-in-time’, pressures
on them to reduce prices, pressures on them to take on
more responsibility and risk have come to characterize a
number of global industries.
- The geographical extent of such transnational production
networks is highly variable. In fact, few such networks
can be described as being truly ‘global’. A marked recent
regional dimension, that is, networks organized on a
multinational scale of groups of con- tiguous markets
(Rugman and Brain 2003). In some instances, such a
tendency is reinforced by regional political structures – as
 in the cases of the EU or NAFTA – although this is not
invariably the case.  boundaries and form trade networks in their
- Simple geographical proximity is, itself, a powerful
stimulus for integrating operations:
o regional strategy offers many of the efficiency
advantages of globalization while more effectively
responding to the organizational barriers it entails…
o From the perspective of a TNC, a regional strategy may
represent an ideal solution to the competing pressures
for organizational responsiveness and global
integration (Morrison and Roth 1992: 45, 46).
 Transnational production networks organized
at the regional scale are evident in most parts
of the world, but most especially in the three
‘triad regions’ of Europe, North America and
East Asia.  structure of operations to take advantage of
 In North America, the establishment of NAFTA
is leading to a re-configuration of corporate
activities (especially in Mexico) to meet the
opportunities and constraints of the new
regional system. In the garment industry, for
example, firms like DuPont, Burlington
Industries, VF Corporation have all reorganized
the regional geography of some of their
activities (Bair and Gereffi 2002).  
 In Europe, the increasing integration of the EU
has led to substantial reorganization of existing
corporate networks and the establishment of
pan-EU systems by existing and new TNCs. ‘The
EU can be seen as a gigantic international
production complex made up of the networks
of TNCs which straddle across national
own right’ (Amin 2000: 675). Ford was probably
the first major US company to recognize the
potential of regional production when it
established a pan-European structure in 1967.
 There is abundant evidence of US and Japanese
TNCs – as well as many European firms
themselves – creating regional networks within
the EU (often incorporating the transitional
economies of Eastern Europe as well, especially
those that have recently become members of
the EU). However, the process is a complicated
one. 
 supply-side forces are stimulating a pan-EU
scale efficiencies.
 demand-side forces are still articulated
primarily at the country-specific level, where
linguistic and cultural differences play a major
role in the demands for goods and services. In
effect, the strategic tensions between global
integration and local responsiveness are played
out at the EU regional level.
Although East Asia does not have the same kind
of regional political framework as the EU or
NAFTA, there is very strong evidence of the
existence of regional production networks
organized primarily by Japanese firms, although
non-Asian as well as some other Asian firms
(from Korea, Hong Kong and Taiwan, for
 example) also tend to organize their production
networks regionally.  geographical extent.
 Within East Asia, a clear intra-regional division
of labour has developed consisting of four tiers
of countries: Japan; the so-called ‘four tigers’ of
Hong Kong, Korea, Singapore and Taiwan; the
South-east Asian ‘later industrializers’ –
Malaysia, Thailand, Indonesia, the Philippines;
China, together with, at least potentially,
countries such as Vietnam.
ASYMMETRIES OF POWER  locations.
- Transnational corporations are, without doubt, one –
arguably the most important – of the primary shapers
of the contemporary global economy. There is no
doubt, either, that their significance is increasing; more
companies are becoming transnational at an earlier
stage of their development. 
- But TNCs are a far more diverse population than is
often recognized. Not all are ‘global’ corporations.
Indeed, very few are. TNCs come in a whole variety of
shapes and sizes and there remain significant
differences between TNCs from different countries of
origin. Diversity, rather than uniformity, rules.
- Both the organization and the geography of large TNCs,
and of their transnational production networks, are
immensely complex and dynamic.  tional environmental standard), likewise, play a highly
- In a very real sense, the global economy can be
pictured as intricately connected localized clusters of
activity embedded in various ways into different forms
of corporate network that, in turn, vary greatly in their
 
- Some TNCs are globally – or at least regionally –
extensive, others are more restricted geographically. In
all cases, however, firms in specific places – and,
therefore, the places themselves – are increas- ingly
connected into transnational networks.
- The basis of TNCs’ power lies in their potential ability
to take advantage of geographical differences in the
availability and cost of resources and in state policies
and to switch and re-switch operations between
 
- However, this recognition of TNC power has led to
some very shaky generalizations because it does not
necessarily mean that TNCs always have the
advantage.
- ALL transnational production networks are influenced
by, and embedded within, multi-scalar regulatory
systems.International regulatory bodies, such as the
WTO – part of the ‘confusion’ of institutions that make
up the incoherent architecture of global governance –
are immensely significant in influencing the geography
of transnational production networks. 
- International institutions establishing technical
standards (like the ISO 9000, the international quality
management standard, or the ISO 14000 interna-
significant role.
- In some cases they make the operation of
transnational networks more feasible through their
introduction of codifiable standards. In other cases,
 they create problems of conformity to an international - There is, in other words, a territorial asymmetry
standard in specific places. between the continuous territories of states and the
- Among the multiplicity of regulatory institutions, and discontinuous territories of TNCs and this translates
allowing for the proliferation of international and sub- into complex bargaining processes in which, contrary
national bodies, the national state remains especially to much conventional wisdom, there is no
important. All the elements in transnational production unambiguous and totally predictable outcome. 
networks are regulated within some kind of political - TNCs do not always possess the power to get their own
structure whose basic unit is the national state.  way, as some writers continue to assert. 
- International institutions exist only because they are - In the complex relationships between TNCs and states
sanctioned by national states; sub-national institutions – as well as with other institutions –the outcome of a
are commonly subservient to the national level, specific bargaining process is highly contingent.
although, of course, the situation is more complex in - States still have significant power vis-à-vis TNCs, for
federal political systems. example to control access to their territories and to
- As a result, TNCs and states are continuously engaged define rules of operation.
in intricately choreographed negotiating and - In collaboration with other states, that power is
bargaining processes.  increased (the EU is an example of this). So, the claim
- On the one hand, TNCs attempt to take advantage of that states are universally powerless in the face of the
national differences in regulatory regimes supposedly unstoppable juggernaut of the ‘global cor-
- On the other hand, states strive to minimize such poration’ is nonsense; the question is an empirical one.
‘regulatory arbitrage’ and to entice mobile investment - Two examples drawn from the automobile industry
through competitive bidding against other states.  illustrate this. In the early 1970s, Ford used its
- The situation is especially complex because while bargaining strength to gain highly preferential access
states are essentially territorially fixed and clearly to the Spanish market to produce its first small car (the
bounded geographically, a TNC’s ‘territory is more fluid Fiesta). It was able to do so because the Spanish state
and flexible.  faced massive competition from other European
- Transnational production networks slice through countries for the investment (even though it emerged
national boundaries In the process parts of different later that Ford wanted to go to Spain anyway). In
national spaces become incorporated into contrast, the recent attempts by US and European auto
transnational production networks (and vice versa). firms to enter the Chinese market have been heavily
circumscribed by the overwhelming desire of the firms
to get into the rapidly growing Chinese market and the Other significant actors in the global
power of the Chinese state to control access to it. economy:
 As Stopford and Strange point out,  states,
‘governments as a group have indeed lost  local communities,
bargaining power to the [trans]nationals . . .  labour,
[but] . . . one needs to separate the power to  consumers,
influence general policy from the power to  civil society organizations.
insist on specific bargains’ (Stopford and
Strange 1991: 215–16). A similar, though rather
weaker, argument can be made in the case of
labour. Because of its strongly localized nature
(especially compared with the spatial flexibility
of TNCs), it is difficult for labour to bargain
effectively with TNCs. As Harvey (1989, cited in
Peck 2000: 141) notes, unlike other
commodities, labour power has to go home
every night’. One way in which labour (and also
consumer and other) interests may be
addressed is through inter- national civil society
organizations (CSOs), which have the potential
to overcome the geographical constraints of
localized labour and consumers, often through
the ‘virtual’ medium of the Internet. So, while
recognizing the undoubted power and
influence of TNCs in the global economy, we
need to avoid the simplistic view that TNCs
always prevail.
 TNCs may be constrained in their freedom of
action. TNCs may be powerful – but they do not
possess absolute power.