LESSON 3

MARKET INTEGRATION

This chapter discusses the summary of the “The Rise of the Global Corporation” as presented by
Deane Neubauer (2014) which was adopted from the “SAGE Handbook of Globalization” edited by
Manfred B. Steger, Paul Battersby, and Joseph M. Siracusa (2014).

The Historic Rise of the Global Corporation

The methodology used in the study of globalization which is also known as “historical
globalization” is based on arrangements in trade and exchange (Bentley, 2003; Gills & Thompson, 2006;
Moore & Lewis, 2000). In the earlier times, globalization was stimulated by the leading technologies in
shipping and navigation (Harvey, 1990).

After the massive destructions of World War II, economic recovery and growth were spearheaded
by American corporations followed by the reentry of Japanese and European companies into the
international arena which later on were regarded as multinational corporations (MNCs) (Barnet &
Mueller, 1974).

How Do Global Corporations Function? What Constitutes a Global Corporation?

According to Iwan (2012), the current international corporation may be called as any of the
following:

International Companies. They import and export but have no investments outside of their
country.

Multinational Companies. They invest in foreign countries, but do not possess coordinated
commodity offerings in every nation.

Global Companies. They invest in and are existing in many countries. They sell their goods and
services to each local market.

Transnational Companies. They are complex corporations and have invested in foreign nations.
They also possess fundamental commercial facilities, however, give decision making, research and
development (R&D), and marketing authorities to every individual overseas market.

This section will utilize the term “global corporation” to refer to all of these classifications. A TNC
is defined by the United Nations Center on Transnational Corporations (UNCTC) as a business
organization that involves itself in activities which add value (manufacturing, extraction, services,
marketing, etc.) in more than one nation (UNCTC, 1991).

The post-war period can be delineated in three structural periods: (a) investment-based
globalization (1950-70); (b) trade-based globalization (1970-95); and (c) digital globalization (1995
onwards) (Geriffi, 2001).

Another approach of validating the growth of TNCs/MNCs is to identify the sources and levels of
Foreign Direct Investment (FDI). As Hedley shows, in 1900 only European companies were principal
investors. Later on, American firms started to follow in the 1930s. An FDI is defined as the influx of
private capital from a foreign source into a receiving nation. FDIs were regarded as the principal
components of international economic development for third world countries (TWCs). But in reality, the
bulk of FDIs in the 1990s was among nations of the industrialized world (i.e., North America, Europe and
Japan) (Geriffi, 2001).

According to Gilpin (2000), the investment-based era was led by producer-driven commodity or
value chains dominated by companies possessing massive amounts of capital using extensive and capital-
intensive manufacturing strategies. Many companies in the United States that operate via the producer-
driven commodity chain were structured based on the “fordist” management principles.

The advent of Japan as a principal producer of automobiles and consumer electronic products since
the 1970s introduced new prototypes of effective manufacturing strategies which centered on quality and
flexible production. These are seen by American companies as challenges to their dominant positions on
commodity design, manufacturing efficiency, and quality which resulted to an advanced reinvention of
the US corporate model, especially in the industrial sector (Risi, 2005).

Corporate brands signify a company’s corporate activities and evaluate a corporation’s prominence
in the international arena based on the value of its commodities and services. This is also recognized as
“Brand Finance”, a current trend which ranks global companies on the value of their brands, aggregate
revenue, earnings, etc. (Brand-Finance, 2012). In this sense, technology brands developed as the greatest
and most valuable global corporate brands in 2012 with Apple surpassing Google as Number 1 with a
brand finance worth of US$70.6 billion. Meanwhile, Amazon’s brand finance value increased by 61 per
cent over the previous year (2011).

Digitalization also influenced the entire operation of how international corporations function.
Producer-driven commodity chains now try to reduce the effects of time and distance in terms of design,
finance and accounting, advertising and brand development, legal services, inventory control etc.
Digitalization is innovating the usual value chain of manufacturing centered on improvement along the
following (Capgemini, 2012):

Product Design and Innovation are replaced with innovations via digital product design;

Labor Intensive Manufacturing is substituted by digitizing the factory shop floor making it more
capital-intensive;

Supply Chain Management is changed by digital supply chain management; and

Marketing Sales and Service is innovated by digital customization.

Buyer-driven commodity chains gradually become digital with companies’ specialization in

Internet marketing of products and services to increase market share over traditional marketing and
retailing. The last thirty or more years observed the revolution of the apparel industry motivated by digital
processes from design, to ordering, factory processing, inventory control, delivery, branding, marketing
and advertising (Capgemini, 2012).

Kentor (2005) studied the economic and spatial growth of multinational corporate linkages and
found out that the top 100 largest MNCs/TNCs owned 1,288 subsidiaries in 1962, and after 36 years, the
top 100 manufacturing corporations owned about 10,000 subsidiaries. The top 44 MNCs in the top 100
global corporations in year 2009 produced revenues of US$6.4 trillion, which is tantamount to 11% of the
world’s GDP (Global Trends, 2013).

What is Different about this Phase of Global Corporate Development?

 The alleged developing economies of Brazil, India, China, and South Africa (BRICS) became the
most vibrant region of international corporate growth, as reflected by their noteworthy FDIs over the past
30 years. The number of MNCs from the BRICS (listed in the Fortune Global 500 that ranks companies
in terms of revenue) rose from 47 companies in 2005 to 95 in 2010. Capital flows now originate from
China and India. For instance, China's Lenovo company purchased IBM's PC business and India's
investment in British companies including Jaguar Land Rover (Economist, 2011). China is the leading
outward investor among developing economies with projected assets in 2009 of approximately US$1
trillion (OECD, 2010).

Wolfsensohn, suggested a “four-speed world” categorization which distinguishes economies as

Affluent, Converging, Struggling and Poor, with the BRICS dominating the growth of the convergent
group. With 40% of the globe’s inhabitants, the BRICS signifies a major power in both worldwide
production and consumption (Wolfsensohn, 2007).

According to The Boston Consulting Group (2009), the following are some “Emerging Market
Global Corporations”:

1. Basic Element (Russia) is a world leader in alumina production.

2. Bharat Forge (India) is one of the world's largest forging companies.
3. BYD Company (China) is the world's largest manufacturer of nickel-cadmium
batteries.
4. CEMEX (Mexico) has developed into one of the world's largest cement producers.
5. China International Marine Containers Group (China) is the world's largest
manufacturer of shipping containers.
6. Cosco Group (China) is one of the largest shipping companies in the world.
7. Embraer (Brazil) has surpassed Canada's Bombardier as the market leader in regional
jets.
8. Galanz Group (China) has a 45 per cent share of the European and a 25 per cent
share of the US microwave market.
9. Hisense (China) is the number one supplier of flat-panel TVs to France.
10. Johnson Electric (China) is the world's leading manufacturer of small electric motors.
11. Nemak (Mexico) is one of the world's leading suppliers of cylinder head and block
casings for the automotive industry.
12. Sistema (Russia) is a conglomerate with a focus on telecommunications.
13. Tata Chemicals (India) is an inorganic-chemicals producer with a significant global
market share of soda ash.
14. Techtronic Industries Company is the number one supplier of power tools to Home
Depot.
15. Wipro (India) is the world's largest third-party engineering services company.

In 2009 China was the primary trade partner of Brazil, India and South Africa, and Tata of India
was the most dynamic investor in sub-Saharan Africa.

Government-owned and controlled corporations (GOCCs or state-owned corporations) may be

defined as businesses composing of parent companies and their overseas partners in which the
government possesses control (full, majority, or significant minority), whether or not registered on a stock
exchange play an important part in these emerging or developing economies (UNCTAD-WIR, 2011).
State-owned corporations may comprise both national and local governments such as regions, provinces
and cities.
 Another description of China's state-owned MNCs affirms that these are legacy institutions
(relics) of China's command-socialist system that propagates in its revised neo-capitalist economy.
Companies that lack economic efficiency and competitive discipline are in effect subsidized or funded by
the Chinese state which gives them market leverage to become globally competitive (Woetzel, 2008;
Greenacre, 2012).