POSITIVE AND NEGATIVE EFFECTS OF
GLOBALIZATION
BRIEF RECAP
o Globalization is simply the process through
which there is integration and interaction of
countries, companies, and people across the
globe. The process is as a result of the
investment, outsourced manufacturing and
international trade.
o All these are supported by information
technology, with an aim of bringing economies
of various countries together.
o Technology, goods, investments, information,
and services along with the labor market are the
most popular components of such activity.
o Nations have established worldwide integration
over many centuries by enabling economic,
political, and social partnerships.
ADVANTAGES OF GLOBALIZATION
o Global Market
o It means encouraging nations to specialize and
produce plenty of goods available in their local
market. Different countries produce different
products and what is most surprising there is no
country which is self-sufficient.  and public communication. Lots of inventors
o Some countries with developed economies don’t
have enough raw materials for their factories,
while the rest accumulate costs more than it
should. Worldwide integration has led the way to
cheap raw materials. 
o Developed countries advertise for the low-
income community to buy their products with
compatible prices.
o They have also expanded by acquiring
companies in developing countries, partnering
and merging with others to reach out to a big
market and produce cheaper goods due to the
availability of materials and labor.
o Availability of cross-border market encourages
companies from developed countries to create
various goods because they have consumers
worldwide.
o Cross-Cultural Management
o Each country has its own culture. Incorporating
all cultures to form a global one is not easy.
o For instance, gender equality is not recognized in
some legal systems, and they do not allow
women to lead or engage in business.  economy of the other country.
o  Before globalization, many countries would not
allow females to acquire education, and even if
they did, they were supposed to do jobs such as
teaching or nursing.
o Competition
o Competition is a healthy way of doing business.
o Without it, companies would not pioneer some
innovations in cross-border trade. It is the main
reason why the quality of goods and services
improve as well as why the prices drop.  a worker visa having a hidden goal to perform a
o Job Opportunity
o About 90 percent of the first-world population
earns for living through employment. Initially,
job opportunities were quite scarce, and
everyone who graduated from college applied in
a certain government sector, but most of them
ended up working as a casual laborer in
industries with a low income.
o Many students come out as entrepreneurs ready
to grow their own business and create job
opportunities for others.  cut production costs and sell their goods at a low
o Globalization has brought diversification when
students interact with foreigners. They exchange
ideas on available job opportunities in different
countries.
o As a result, the major standards of living have
improved due to an extended labor market.
o Reducing the Gap between the Poor
o For many centuries there has been a wide gap
between these groups, a gap that seemed to
widen every year. Globalization enabled poor
people to have access to job opportunities. 
o The number of low-income people working as
casual laborers has continued to decrease as most
young people acquire education. These young,
educated people perform multitasking jobs to get
enough money to enable themselves and their
family to live a decent life. 
o Investments
o The population of developed countries prefers to
invest money in profitable businesses rather than
deposit it in banks.
o The reason is, they strive to earn for a living
remotely because investments assure, they will
gain good profits without any efforts.
o Advanced Technology
o Advanced technologies are a result of
globalization. A constant need for innovations
appeared due to the lack of quick data transfer
have tried to serve the needs of modern society
by improving technology.
o Legal Effects
o Through globalization, people get to know
what’s happening in other countries. Media
services cover events which occur in other
countries.
o Human rights have been improved as a result of
globalization since media coverage on violations
of the rights receives attention from all over the
world.
o As a result, various turmoil could be solved by
international mediators. Those who perform acts
against human rights are arrested and sentenced
by intergovernmental courts.
o Stable Security
o Although the effect cannot be seen directly,
globalization has contributed greatly in
enhancing the world security.
o For example, it is extremely difficult to see two
countries attacking each other if the economy of
one of the countries depends largely on the
NEGATIVE EFFECTS OF
GLOBALIZATION
o Terrorism
o It is a significant problem in most developed
countries. Due to worldwide integration, people
travel a lot. 
o Lots of terrorists came to a foreign country with
terrorist attack.
o Job Insecurity
o Before globalization, skilled people got
employment in government sectors and
companies where they received high salaries. Job
opportunities were waiting for those who
completed colleges and earned a degree. 
o Price Instability
o Some people establish industries overseas where
they get cheap raw materials and labor. They can
price.
o Relating to competition, some high-quality
products differ in prices.
o Price fluctuations
o To withstand competition, Western countries are
forced to reduce their product prices because
countries such as China offer the same products
at lower prices.
o The impact is adverse, as the ability to sustain
social welfare in the US gets reduced.
o Environmental damage
o Increased production means increased utilization
of natural resources.
o Besides, increased trade results to increased
transport, which uses fossil fuels. As a result,
pollution has increased, leading to climate
change.
THE GLOBAL ECONOMY
The Globalization of World Economics
o The International Monetary Fund (IMF) regards
“economic globalization” as a historical process
representing the result of human innovation and
technological progress. It is characterized by the
increasing integration of economies around the
world through the movement of goods, services,
and capital across borders.
o Economic globalization is distinct from
internalization since the latter is about the
extension of economic activities of nation states
across borders, and the former is functional
integration between internationally dispersed
activities.
o Economic globalization is a qualitative
transformation than just a quantitative change.
o These changes are the products of people,
organizations, institutions and technologies.
o While it is difficult to arrive at a precise
definition of globalization, it is universally
agreed that a drastic economic change is
occurring throughout the world.
o according to the IMF, the value of trade as a
percentage of world GDP increased from 42.1%
in 1980 to 62.1% in 2007.
o Increased trade also means that investments are
moving all over the world at faster speeds.
o According to the United Nations Conference on
Trade and Development (UNCTAD), the amount
of foreign direct investments flowing across the
world has US$57 Billion in 1982 and by 2015
that number increased to $1.76 Trillion.
o Apart from the sheer magnitude of commerce,
we should also note the increased speed and
frequency of trading.
o These days, supercomputers can execute millions
of stock purchases and sales between different
cities in a matter of seconds through a process
called high-frequency trading.
GLOBAL ECONOMY
o The development strategies of countries today
are affected to an unprecedented degree by how
industries are organized.
o Developing nations and other stakeholders must
have a thorough understanding of how the
cotemporary global economy works if they hope
to improve their position on it, or forestall an
impending decline (Gereffiti, 2005).
o The origins of a global economy can be traced
back to the expansion of long-distance trade
during the period of 1450-1640, which
Wallerstein has labeled the “long sixteenth
century.”
o From the 15th century onward, a number of
trading companies in Europe, such as the east
India company and the Hudson’s Bay company,
which created vast international trading empires.
INTERNATIONAL TRADING SYSTEMS
o International trading systems are not new and the
oldest example was the international trade route,
the silk road.
o The silk road was an ancient network of trade
routes, formally established during the Han
Dynasty of China, which linked the regions of
the ancient world in commerce between 130
BCE-1453 CE.
o While the silk road was international, it wasn’t
truly global because it had no ocean routes that
could reach the Americas.
SO, WHEN DID FULL ECONOMIC
GLOBALIZATION BEGIN?
o Historians, Dennis O. Flynn and Arturo
Giraldez, agreed that it began when all important
and populated continents began to exchange
products continuously – with each other directly
and indirectly via other continents – and in
values sufficient to generate crucial impacts on
all trading partners.
o This was traced back to 1571 with the
establishment of the galleon trade that connected
Manila, Philippines, to Acapulco, Mexico.
MERCANTILISM
o The galleon trade was part of the age of
mercantilism. From the 16th century to the 18th
century, European countries competed with one
another to sell more goods as a means to boost
their country’s income (Monetary Reserves).
o As a countermeasure for competitors who sold
their goods cheaply, they imposed high tariffs,
forbade colonies to trade with other nations,
restricted trade routes and subsidized its exports.
GLOBAL STRATIFICATION
o Measures of well-being, life expectancy, infant
mortality, and access to health services are just
few of the inequalities in life chances which
differentiate nations as to rich or poor.
CLASSIFYING GLOBAL
STRATIFICATION
o The best way to understand global stratification
is to think of the world composed of three
categories of nations, based on their degree of
wealth or poverty, their level of industrialization
and economic development, and related factors.
FIRST TYPOLOGY
o First World – the western, capitalist
democracies of North America and Europe, and
certain other nations (Australia, New Zealand,
and Japan)
o Second World – nations belonging to the Soviet
Union.
o Third World – all the remaining nations, almost
all of them from central and south America,
Africa, and Asia.
REPLACEMENT TYPOLOGY
o Developed
o Developing
o Undeveloped or least developed
POPULAR TYPOLOGY
o Wealthy (high-income)
o The wealthy nations are the most industrialized
nations, and they consist primarily of the nations
of north America and western Europe; Australia,
Japan, and New Zealand; and certain other
nations in the middle east and Asia.
o Middle Income
o They consist primarily of nations in Central and
South America, Eastern Europe, and parts of
Africa and Asia and constitute about one-third of
the world’s population.
o Poor or Low-income
o Poor nations are certainly the least industrialized
and most agricultural of all the world’s countries.
o This category consists primarily of nations in
Africa and parts of Asia and constitutes roughly
half of the world’s population.
THEORIES OF GLOBAL
STRATIFICATION
o As societies become ever more interconnected,
cultural diffusion between them creates common
ground, while cultural differences may become
more important as the relationships among
nations become more intimate.
o Cultural factors like values affect how the people
strive to make their lives better.
o The structure of the nation is also important in
understanding the development of nations.
MODERNIZATION THEORY
o Rich countries become wealthy because early on
they were able to develop the correct beliefs,
values, and practices – in short, the correct
culture – for trade, industrialization, and rapid
economic growth to occur.
o These cultural traits include a willingness to
work hard, to abandon tradition, and to adopt a
future orientation rather than one aimed toward
the present.
o Western European nations began to emerge
several centuries ago as economic powers
because their populations adopted the kind of
values and practices just listed.
o Max Weber, founder of sociology, said western
Europe was able to do this because the protestant
reformation diminished the traditional distrust of
the catholic church for material success and
social economic change.
o The new protestant ethic that western Europeans
adopted stressed the importance of hard work
and material success in one’s lifetime, rather
than in traditional emphasis on rewards in an
afterlife.
o Modernization theory has much in common with
the culture of poverty theory, it attributes the
poverty of poor nations to their failure to develop
the proper beliefs, values, and practices
necessary for economic success both at the
beginning of industrialization during the 19 th
century and in the two centuries that followed.
o Modernization theory has direct implications for
strategies to reduce global poverty. The theory
implies that people in poor nations must learn the
proper beliefs, values, and practices to succeed
economically.
DEPENDENCY THEORY
o This theory blames global stratification on the
exploitation of these nations by the rich ones.
o The poor nations never got the chance to pursue
economic growth because early on they were
conquered and colonized by European ones.
o The European nations stole the poor nation’s
resources and either enslaved their populations
or used them as cheap labor.
o In today’s world, huge multinational
corporations continue to exploit the labor and
resources of the poorest nations.
o These corporations run sweatshops in many
nations, in which workers toil in inhuman
conditions at extremely low wages (Sluiter,
2009).
o Dependency theory also has direct implications
for strategies to reduce global poverty
o This theory calls for wealthy nations to stop their
exploitation of the resources of the poor nations
o Until that happens, poor nations will be unable to
develop their natural resources to enter industrial
age.
FORMS OF DEPENDECE
o Dominant countries or Metropol – can expand
itself and can be self-sustaining. These countries
are usually considered as the rich ones and have
great influence in the global scene.
o Dependent Satellites – can expand and self-
sustain as a result of the expansion of dominant
countries. These countries are usually the ones
being exploited in terms of labor and natural
resources.
WORLD SYSTEM THEORY
o The proponent of this theory is
American sociologist Immanuel
Wallerstein.
o This theory states that some
nations become modernized by
exploiting other nations.
o Their continuing exploitation
prevents less developed nations
from becoming fully
modernized (Ferrer, et al.,
2017).
GEOGRAPHICAL DIVISION OF LABOR
ACCORING TO WALLERSTEIN
o Core nations are the most modernized nations,
having diversifies economies and stable internal
politics that dominate the world system.
o Peripheral Nations are those that are forced to
specialize in the export of unprocessed raw
materials and food to the core nations and that
must import manufactured goods.
o Semi-Peripheral Nations are those nations that
fall in between the core and the peripheral
 nations, being more industrialized than the
peripheral but less industrialized than the core.
THE MODERN WORLD SYSTEM
o According to the Wallerstein (2006), it started in
the 16th century primarily in Europe and
Americas which has always been a capitalist
modern world.
o He defined world economy as a large geographic
zone with which there is a division of labor and
significant internal exchange of basic essential
goods as well as flows of capital and labor.
SIX INSTITUTIONS IN THE MODERN
WORLD SYSTEM
1. Market
o Literally, it is a place in which individuals can
sell products and buy goods.
o It may be virtual markets outside of a specific
place wherein buying and selling of products and
services also happen.
2. Firms
o There are the ones who produce the goods and
provide the services in the markets.
o These are said to be the lead actors in the
markets where they compete with each other,
especially in the virtual market scene.
THE RISE OF FIRMS IN THE MARKETS
PAVED THE WAY FOR PRODUCTION
PROCESSES:
o Core-like process tend to group themselves in a
few states and constitute the bulk of the
production activity in this state.
o Peripheral process tends to be scattered in a
large number of states and constitute the bulk of
the production activity in these states.
o Semi-periphery is a mix of core-like and
peripheral products.
3. States
o They are related to the geographical division of
labor.
4. Household
o it consists of 3-10 persons who, over a long
period of time, pool multiple sources of income
in order to survive collectively.
o They have an obligation to provide income for
the group and to share in the consumption
resulting from this income.
FIVE KINDS OF INCOME IN THE
HOUSEHOLD
o Wage income
- Payment in the form of money by persons
outside the household for work of a member of
the household that is performed outside of the
household in some production process.
- Wage income may be occasional or regular.
- It can be payment by time employed or by work
accomplished.
o Subsistence activity
- It is not limited to the work of rural persons who
grow food and produce necessities for their own
consumption without passing through a market.
- Other forms include cooking meals, washing
dishes at home, or assembling a furniture bought
from a store.
- Subsistence production is a large part of
household income today in the mist
economically wealthy zone of the capitalist
world economy.
o Petty commodity production
- A product produced within the confines of the
household but sold for cash on a wider market.
- It involves not only marketing of produced
goods but also petty marketing.
- Online selling and retail selling are just two
examples of this type of income.
o Rent
- It can be drawn from some major capital
investment or from capital ownership.
- Apartments, dormitories, private lots,
commercial space, dividends and interest on
savings account are good sources of rent.
o Transfer payment
- It is income that comes to an individual by virtue
of a defined obligation of someone else to
provide this income.
- It may come from persons close to the
household, as when gifts or loans are given from
generation to another at birth, death, or marriage.
- Inheritance, dowry, pension, and maturity of
insurance policy are some examples.
5. Classes
- It has something to do with the placement of the
household or individual in the capitalist
economic system.
- They can be located in the upper-, middle-, or
lower-class stratum.
6. Identities
- All of us have identities, inherent from birth,
whether we like it or not.
- We are member of a nation, an ethic group, a
race, and religious group.
- Gender and sexual preferences are also part of
one’s identity.
UNIVERSALISM VS ANTI-
UNIVERSALISM
o The complex relationships of the world
economy, the firms, the states, and the household
institutions that link members of classes and
status groups are beset by two opposite but
symbiotic ideological themes.
UNIVERSALISM
o It is a them prominently associated with the
modern world system
o It means the priority to general rules applying
equally to all persons, and the rejection of
particularistic preferences in most spheres.
o In the level of a firm or a school, it means
assigning of persons to positions on the basis of
their training and capacities, also known as
meritocracy.
o In the level of the state, it means universal
suffrage and equality before the law.
o Universalism is believed to ensure relatively
competent performance and thus make for a
more efficient world-economy, which in turn
improves the ability to accumulate capital.
o Normally, those who control production
processes push for universalistic criteria.
ANTI-UNIVERSALISM
o It is linked with racism and sexism which are
active institutional discrimination against all the
persons in a given status-group or identity.
o Racism and sexism are norms, but negative
norms, where more people deny their belief in
them.
o These anti-universalistic norms perform
important tasks in allocating work, power, and
privilege within the modern-world system.
o They imply exclusions from the social arena.
However, in reality they are mode of inclusion,
albeit at inferior ranks.
o These negative norms explain the polarization of
the world system.
o With the polarization ever increasing, anti-
universalism has become ever more “important”,
even though the political struggle against such
forms has also become more central to the
functioning of the world system.
o The modern world-system has made a central,
basic feature of its structure the simultaneous
existence, propagation, and practice of both
universalism and anti-universalism.
o This duo is a fundamental to the system as is the
core-peripheral division of labor (Wallerstein,
2006).
MARKET INTIGRATION AND THE ROLE
OF INTERNATIONAL FINANCIAL
INSTITUTIONS IN THE CREATION OF A
GLOBAL ECONOMY
Market Integration
o Integration, as defined by Koester (2000), is a
state of affairs or a process involving attempts to
combine separate national economies into larger
economic regions.
o It is a means of stimulating trade and improving
the division of labor between participating
countries.
Article 1 of the GATT states:
o “All contracting parties must accord any
advantage, favor, privilege, or immunity granted
to any product from any other country
immediately and unconditionally to all other
members.”
Two types of Market Integration
o Negative Integration reduces non-tariff and
tariff barriers to trade as a main tool for
integrating markets. Governments play a minor
role in the regulation of the movement of goods
and factors of production on national borders.
o Positive Integration adjusts domestic policies
and institutions through the creation of
supranational arrangements. It is more effective
in the agricultural sector because a nation can
protect its products whether by exporting or
importing them from other countries.
Five Forms of Integration (Koester, 2000)
o Preferential agreement involves trade barriers
between those countries which signed the
agreement. It can be in the form of tariff
reductions for unlimited volumes or imports
from specific countries or for specified import
quantities.
o Free Trade Area (FTA) reduces trade barriers
among member countries to zero, but each
country still has autonomy in deciding the
external rate of tariff for trading with non-
member countries.
- European Free Trade Area (EFTA) and Central
European Free Trade Area (CEFTA) are
prominent examples.
o The Customs Union represent a higher stage of
economic integration where countries agree to
abolish tariff and non-tariff barriers to trade in
goods flowing between them.
- They also agree to a common external tariff.
- This was the first phase of the European
Community on the way to the common market.
o The Common market allows for free movement
of labor and capital within the member-countries.
- Its intention is to integrate both product and
factor markets of member-countries.
- The single market of the EU, which came into
force on January 1, 1993, constitutes a common
market.
o The Economic Union is the highest form of
economic integration agreeing to a common
market, monetary fiscal and other policies among
member-countries.
Overview of International Financial
Institutions (IFIs)
o In many parts of the world, IFIs play a major
role in the social and economic development
programs of nations with developing or
transitional economies. This role includes
advising on development projects, funding them
and assisting in their implementation.
o Characterized by AAA-credit ratings and a broad
membership of borrowing and donor countries,
each of these institutions operates independently.
Shared Goals and Objectives:
o To reduce global poverty and improve people’s
living condition and standards;
o To support sustainable economic, social, and
institutional development; and
o To promote regional cooperation and integration.
o IFIs achieve these objectives through loans,
credits, and grants to national governments. Such
funding is usually tied to specific projects that
focus on economic and socially sustainable
development.
o IFIs also provide technical and advisory
assistance to their borrowers and conduct
extensive research on development issues.
o In addition to these public procurement
opportunities, in which multilateral financing is
delivered to a national government for the
implementation of a project or program, the IFIs
are increasingly lending directly to non-
sovereign guaranteed (NSG) actors including
sub-national government entities as well as the
private sectors.
Three Major IFIs
World Trade Organization (WTO)
o Immediately after WWII, the USA invited its
trading partners to negotiate less stringent
restrictions which resulted in the General
Agreement on Tariffs and Trade (GATT), an
international treaty adopted in 1947 by 23
countries.
GATT members agreed to:
o Treat all member nations equally with respect to
trade;
o Reduce tariff rates through multinational
negotiations; and
o Reduce import quotas
o The WTO is the only global international
organization dealing with the rules of trade
between nations. Its goal is to ensure that trade
flows smoothly, predictably, and freely as
possible.
o It is an organization for trade opening, forum for
governments to negotiate trade agreements, place
to settle trade disputes.
o Essentially, the WTO is a place where member-
governments try to sort out trade problems with
one another.
o The agreements are complex and lengthy since
they are legal texts covering different activities.
o Commonly, all throughout the document there
runs fundamental principles which are the
foundation of the multilateral trading system.
International Monetary Fund (IMF)
o It aims to prevent another breakdown of the
international monetary order similar to what
happened after WWI, when countries resorted to
widespread protectionism, competitive exchange
devaluation, and hyperinflation in an effort to
fight off the rising unemployment rate
accompanied with recession.
o A system where countries are prevented from
reducing exchange rates for competitive
advantage was needed and IMF provided such a
system.
o IMF exerted control on international exchange
rates as well as act as a reserve base for bailing
out BOP deficit countries.
o The reserve pool comes from the contribution of
the member-countries with each country’s
contribution fixed in terms of quotas according
to the relative share of its national income and
international trade.
o The contributed quota will also determine a
country’s borrowing rights and voting strength.
o It is an autonomous organization affiliated to the
UN. It started with 31 members and now
commands a 189-strong membership as of April
12, 2016.
o Its functions include being a short-term credit
institution, providing the orderly adjustment of
exchange rates, acting as a reserve base for
member-countries to borrow from, providing
foreign exchange loans against current
transactions, and providing international
financial consultancy services.
World Bank
o Formerly known as the International Bank for
Reconstruction and Development, and an
outcome of the Bretton Woods system, it was
created to offer economic assistance to war-
ravaged economies of Europe and Asia, and later
on the poor countries of the world.
o It is an international and intergovernmental
institution for providing long-term loans on easy
terms for specific developmental projects.
o It has been issuing loans for structural
adjustment purposes to heavily indebted
countries.
o Its capital stock is entirely owned by the 181-
strong member governments.
o The World Bank Group, separate from the World
Bank itself, is composed of four functional
bodies: the International Development
Association (IDA, the International Finance
Corporation (IFC), the Multi-lateral Investment
Guarantee Agency (MIGA), and the
International Center for Settlement of Investment
Disputes (ICSID).
Five Major Functions of the World Bank
Provides loan services to member-
governments
o By its statute, the World Bank can lend only to,
or with the guarantee of governments of member
countries.
o The standard rate of interest charged is ½%
above its own borrowing cost. The effective rate
is revised every six months.
o It lends in a basket of currencies representing its
own borrowings on the international capital
markets.
Provides development loans on soft terms to
poor member nations
o A function assigned to the International
Development Association (IDA), which charges
zero interest and only a small handling fee.
o Re-payment extends up to 10, 30, or 40 years.
o The IDA funds are based on donations by rich
member nations and are allocated on the basis of
per capita income and population of the
borrowing country.
Provides support to private joint sector
projects
o A function performed by the International
Finance Corporation (IFC), which disburses its
fund both by way of equity and by loans
Provides insurance guarantees to foreign
investors
o A function performed by the Multi-lateral
Investment Guarantee Agency (MIGA) in cases
of cross border investments.
Setting investment-related disputes among
member nations through conciliation or
arbitration
o A function performed by the International Center
for Settlement of Investment Disputes (ICSID).
o It provides technical and advisory assistance to
member countries in their development
programs.
o It also provides knowledge up –gradation
courses to senior officers involved in economic
development programs in less developed
countries.
Global Corporations
o They are an integral part of economic growth.
They also account for a significant share of the
world’s industrial investment, production,
employment, and trade (Sinha, 2009).
The birth of global corporations
o Global corporations can be traced back in the
early historical period wherein trade and
exchange patterns were evident.
o Complex patterns of interactive engagements
through organized trade followed the influence
by the emergent and dominant technologies
particularly in shipping and navigation.
o After WWII, there emerged a period where
invention and social organizations combined
vastly increased world capital and the wealth of
nation states.
o The Industrial Revolution increased global
population, wherein societies invent new ways to
organize the world through colonialism and
imperialism.
o The interaction between people, states, and
regions is called as the era of global interaction.
o American corporations, followed by the Japanese
and Europeans, made their entry into the global
scene which gave rise to multinational
companies (MNCs).
o The contemporary global corporation is
simultaneously and commonly referred to either
as a multinational corporation (MNC), a
transnational corporation (TNC), an international
company, or a global company (Steger,
Battersby, & Siracusa, 2014).
o International companies are importers and
exporters without investment outside of their
home country.
o Multinational companies have investment in
other countries but do not have coordinated
product offerings in each country. They are more
focused on adapting their products and services
to each individual local market.
o Global companies have invested in and are
present in many countries. They typically market
their products and services to each individual
local market.
o Transnational companies are more complex
organizations, which have invested in foreign
operations, have a central corporate facility but
give decision-making, research and development
(R&D) and marketing powers to each individual
foreign market.
The Power of Global Corporations
o Economic Control – that global corporations
have on world trade, financial markets,
technology, patents, intellectual property rights,
and the media.
o Political Influence – that global corporations
have on national governments and regional
governance structures and national and
international economic and social policies.
o Social and Cultural Influence – that global
corporations have on people’s attitude, values,
and lifestyle choices through media control,
advertising, branding, and sponsorship, and the
impact they have on people’s well-being in terms
of rights, health, income, employment, and
working conditions.
o Environmental Impact – that global
corporations have on the natural environment
Multinational Corporations (MNCs)
o MNCs gained popularity about 20 years ago and
originated when globalization just began
escalating.
o While commonly known as transnational
corporations (TNCs), there is a slight difference
between them. TNCs do not have a centralized
office in a certain country while MNCs have
headquarters in a single country with the main
activity taking place in several countries or
continents.
The Role of Multinational Companies (Lapko,
2015)
o MNCS act as modernizers of the world
economy. This is reflected in the constant
promotion of new technologies and introduction
of innovations across the world even in remote
places.
o The innovations are not limited to technology but
also in the fields of medicine, education, and
social policies.
o Promote efficiency and growth of the world
economy. MNCs are likely to establish
interconnection between the domestic economies
of some isolated countries and the world’s
largest economies which may result in a change
of economic life and standing of the people in a
particular country.
o Promote regional agreements and alliances.
Regional alliances can create a single world
market bringing in innovations in technology as
well as in the organizational structures.
o Some local companies may modify their level of
management in order to comply with the national
standards set by this single world market.
o Increase of money circulation in the economy.
The activities of MNCs will likely result to profit
maximization because one company can provide
the same service and implement the same
strategies in several countries.
o This situation can bring out the competition in
companies leading to the highest possible sales
and services.
Challenges of Multinational Companies
o Despite general opportunities that a global
market provides, there are still significant
challenges MNCs face in penetrating these
markets.
o Public Relations. Public image and branding are
critical for a business. This can be an enormous
challenge, both in effectively localizing the
message and in the capital expenditures.
o Ethics. This factor greatly impacts the success or
failure of global players. Maintaining the highest
ethical standards while operating in developing
countries is an important consideration for all
MNCs as it also affects their reputation.
o Organizational Structure. New regions must be
efficiently and effectively incorporated within
the value chain and corporate structure.
International expansion requires enormous
capital investments along with the development
of a specific strategic business unit.
o Leadership. Organizations must have effective
leaders with the appropriate knowledge base to
approach a given geographic market. Managers
should have high intercultural competence to
develop an efficient global strategy.