Question 1

(a) Transnational or Multinational firms have been described as ‘central actors’ in the
global economy. How does economic theory explain their existence?
(b) Why is the concept of ‘globalisation’ such a contested term? 
(c) In your view, what are the principle implications of globalisation for business?

The term Globalisation is frequently devoid of meaning, it is sometimes used irrationally as

a term with little thought going into what it actually means, in some cases you may refer to it
as a ‘Plastic Word’. However generally you can refer to globalisation as the integration of
markets in the global economy, leading to the increased interconnectedness of different
national economies which generally encourages trade. Transnational Corporations play a
fundamental part in the spread of globalisation across the world. They can be seen as the
‘central actors’ as they are seen to spread operations across many nations which
encourages a more global ‘borderless’ economy. A definition for a Transnational
Corporation is a company that is ‘headquartered in one country but has operation in other
countries’. This is a general definition but TNC’s co-ordinate and control production
operations across national boundaries. David Ricardo’s theory of comparative advantage
can be used to explain one of the reason why TNC’s spread globalisation. TNC’s can
harness resources, goods and services from different countries who’s opportunity costs in
producing said good or service are much lower than others. Equity transnational production
is when a firm opts to directly invest into another country. TNC’s often have the financial
power to set up their own ventures whereby they establish their own foreign operation by
themselves and use the country as part of a chain of production or they have the option to
practise a joint venture whereby a firm acquires or employs the work of local firms to benefit
from local knowledge and location-specific advantages which said firm may possess.
Hyperglobalists tend to sometime argue that TNC’s are increasingly becoming ‘Global’ firms
whereby the converge on a universal global organisational form abandoning ties with
countries of origin and are seen to have operations in different countries and tend to have
their headquarters in a place which offers the least corporation tax. At the same time
TNC’s, due to their large scale operations globally are responsible for employing thousands
of employers across the world and can therefore be seen as the most ‘central actors’ in
terms of worldwide employment and therefore the worldwide economy.

The development of the TNC is commonly traced back to the major colonising imperialist
ventures from Western Europe. The 16th century is usually where characteristics of a TNC
were being exercised, notably the British East India Company which received its charter in
1600. However the defining period for TNC’s started in the 1950’s through to the 1970’s,
this is where TNC’s saw their major period of growth. It was arguably the set of foundations
for the dominant role that TNC’s play today where majority of growth came primarily from
American firms. Hymer suggested that large European mercantilist firms were large in
nature but slower and less adaptable than modern TNC’s were. The modern TNC’s found
their strength in their power to reap benefits from co-operation and division of labour.
Through this they gained organisational structure which allowed them to become highly
adaptable to market conditions as divisions would react to changing climates in markets
where they could operate appropriately. The availability of capital around this period also
transformed economic activity and encouraged the growth of these growing firms who find
themselves with operations across borders. Capital allowed for greater amounts of raw
material to be purchased and allowed for the advancements of wages which meant that
firms could attract skilled workers and could concentrate production and benefit from
specialisation and the in turn economies of scale. This was the stark difference between the
larger firms around this period and the TNC’s who were benefiting from cross-border
operations. Once benefiting from all economic agents the TNC would realise their power
once profits were re-invested, especially in R&D, creating further division of labour possible
and would ultimately allow for greater productivity through the use of machines and
promotion of innovation. Once market coordination was achieved through hierarchically
structured markets on a micro level, we then realise that the opposite to a pre-capitalist
organisation of society is being granted through the lack of framework implemented on a
macro level to confine the power of a TNC. Thus natural resources, labour, capital and
enterprise is exhausted by the dominance of a firm.

Globalisation is a highly contested term, the concept has two clear contrasting extreme
perspectives with both oppositions representing ideas which are derived through
differing global market contexts. On one hand there are the hyperglobalists that see
globalisation as the new economic, social, cultural order in which we live, where our
lives are dominated by global forces (PE & IP, 2016). Their view stems on the idea of
a borderless world where transnational firms dominate as they benefit from
economies of scale through their access to resources worldwide and particularly
through specialisation and the ability to control chains of production. The idea of
denationalised economies is what supports the underlying theory for hyperglobalists,
one where nation-states become less authoritative and their relevance subsides as
TNC’s and MNC’s become more commanding in nature. However even among
hyperglobalist scholars, generally in agreement of the prevailing globalising state of
the worldwide economy, there are sometimes acute disagreements to whether the
essence of globalisation is positive or negative. You can often identify each side of
the hyperglobalists’ view by separating the neo-liberalists to the neo-Marxists as the
orientations often distinguish their different explanations and assessments of their
suggested outcome of globalisation. The neo-liberals believe that nearly all countries
benefit from comparative advantage within the global economy and therefore will
have partnership in trade in one way or another. On the other hand the neo-Marxists
consider that global capitalism will always have some ‘losers’ and inequality between
countries is most often established. The demise of the Nation-state is realised
through the lack of power they can maintain across borders, an example of this can
be that, TNC’s have the opportunity to manipulate where they get taxed, mostly
opting to place headquarters in tax heaven countries so that they can benefit from
less tax and therefore larger profit margins(Starbucks reference). Even among those
that agree with the concept of globalisation, accepting both causes and effects,
between themselves they fail to agree on certain principles that are fundamental
views for each of them. The sceptical perspective puts almost all faith in to the nation
state and argues that they still remain highly powerful in terms of the ‘international
 world’. They believe that the growth of TNC’s do not diminish the nation-states roles
in the flow of economic activity and in fact foreign investment flows into the control of
a few advanced economies who have the proper economic infrastructure that
encourage a prosperous business environment and attract business ventures from
interested MNC’s. The view that the division between the outdated inherent ‘Brandt
line’ still remains in some cases where the south has been increasingly economically
marginalised and has not reaped any benefit from the purposed globalisation stands
among the sceptics.

There are many different implications that globalisation have on business, due to the rise in
FDI we can see that industries and markets in new emerging economies are facing
rapid growth. This means that businesses are seeing a rise in opportunity within
industry in emerging economies, moreover their decision making in choice of
location, involving strategising, on where to establish business ventures are put to
the test. We often see information transfers occur between countries but
implemented by business who often introduce new technology to these areas.
Overall, due to globalisation creating a worldwide market and therefore a more
competitive one, businesses have to become more adaptable to current trends within
the worldwide economic climate. This also implicates businesses as they naturally
take on more risk when involving themselves in foreign industries, as the world
becomes more 'interconnected', risk is spread among the world, so much so, that in
extreme circumstances businesses can go bust through knock on effects from
deeper rooted financial crashes, exemplified in the 2008 financial crash.