TNCs

and Globalisation

- The world's economies have developed ever-closer links since 1950, in trade,
investment and production.
- Known as globalisation, this process is not new, but its pace and scope has
accelerated in recent years, to embrace more industries and more countries.
- There have been losers as well as winners from globalisation, with China the
biggest winner, and blue-collar workers the biggest losers.
- The changes have been driven by liberalisation of trade and finance, changes in
how companies work, and improvements to transport and communications.

Trade:

- Since 1955, the volume of the world trade has grown much faster than the world
economy as a whole, and for many countries it has been the engine of growth.
- The gains of trade have been unevenly distributed, as first Europe, and then Asia
joined the world trading system.
- Other poor regions, such as Africa, dependent on commodities, have been left
behind.
- Trade talks helped boost trade in manufactured goods between rich countries as
tariffs were cut.

How?

- Countries which aimed at export-led growth, such as Japan, Korea, and China,
have benefited.
- But liberalising trade in services - such as accounting - or agriculture has proved
harder.
- Now talks aimed at opening up markets in agriculture to benefit poor developing
countries have stalled.

- The way manufactured goods are produced has changed dramatically in the last
50 years as the cost of transport and communications has fallen.
- More and more goods are produced by global multinational companies with
production plants around the world.
- This set-up enables them to take advantage of cheaper labour and gives them
better access to local markets.
- More recently, "virtual companies" have outsourced their production to other
firms around the world. These use the internet to manage their global supply
chain, or their IT services like billing.

Capitals:

- As well as the free movement of goods, there has also been a dramatic increase in
the flows of money (capital) around the world.
- Banks and private investors now hold trillions of assets invested overseas since
the liberalisation of world capital markets in the l980s.
- These capital flows are highly concentrated among rich countries and a few
developing countries, and can fluctuate from year to year.
- While some big developing countries like China have benefited from capital
flows, smaller countries have been vulnerable when capital flows suddenly
reversed, as in the 1997-8 Asian crisis.

Distribution of wealth:

- The world distribution of wealth and income is highly unequal. The richest 10%
of households in the world have as much yearly income as the bottom 90%.
- Wealth - total assets rather than yearly income – is even more unequal. The rich
are concentrated in the US, Europe and Japan, with the richest 1% alone owning
40% of the world's wealth.
- Poverty, on the other hand, is widespread across the developing countries - which
have five-sixths of the world's population. But it has fallen sharply in China.

What is globalisation?

- Globalisation is the process by which the world is becoming increasingly

interconnected as a result of massively increased trade and cultural exchange. It
is the result of

- technological changes that enable people, goods, money and above all
information and ideas to travel the world much faster than ever before, and

- the liberalisation of world markets, greatly increasing levels of trade between

different parts of the world

Causes of globalisation:

Globalisation has been taking place for hundreds of years, but has speeded up
enormously over the last half-century. Factors influencing globalisation include:

- Communications: TV, telephony and the internet have created a global village. UK
businesses can have a call centre in India answering calls from UK customers.

- Transport has become cheap and quick. UK people now holiday all over the world,
and people from other countries can travel to the UK to seek better-paid jobs. Businesses
can more easily ship products and raw materials all over the world - making products and
services from all over the globe available to UK customers.

- Trade liberalisation: governments around the world have relaxed laws restricting
trade and foreign investment, with some governments offering grants and tax incentives to
persuade foreign companies to invest in their country. The idea that there should be no
restrictions on trade between countries is known as free trade.

- International Organisations: such as the WTO and IMF have helped promote
globalisation
Positive impacts of globalisation

- FDI by TNCs helps countries by providing new jobs and skills for local people.

- TNCs bring wealth / foreign currency to local economies when they buy local
resources, products and services - providing resources for education, health and
infrastructure.

- There is far more mixing of people and cultures from all over the world, enabling
more sharing of ideas, experiences, and lifestyles. People can experience foods and
other products not previously available in their countries.

- Globalisation can help make people aware of events in far-away parts of the
world. For example, people in the UK were quickly aware of the impact of the
2004 Tsunami tidal wave on countries in SE Asia, and were therefore able to send
help rapidly.

- It may help make people more aware of global issues such as deforestation and
global warming - and alert them to the need for sustainable development.

Negative impacts of globalisation

Critics include many different groups such as environmentalists, anti-poverty

campaigners and trade-unionists. Some of the negative impacts they point to are:

- Globalisation operates mostly in the interests of the richest countries which

continue to dominate world trade at the expense of developing countries - whose
role in the world market is mostly to provide the North and West with cheap labour
and raw materials.

- There are no guarantees that the wealth from inward investment will benefit the
local community. Often, profits are sent back to the MEDC where the TNC is based.
Transnational companies, with their massive economies of scale, may drive local
companies out of business. If it becomes cheaper to operate in another country the
TNC might close down the factory and make local people redundant.

- Lack of strictly enforced international laws means that TNCs may operate in a
way that would not be allowed in an MEDC - for example polluting the
environment, running risks with safety or imposing poor working conditions and low
wages on local workers.

- Globalisation is viewed by many as a threat to the world's cultural diversity -

drowning out local economies, traditions and languages and re-casting the whole
world in the mould of the capitalist North and West. An example is that a
Hollywood film is far more likely to be successful worldwide than one made in India
or China, which also have thriving film industries.

- Although globalisation is helping to create more wealth in developing countries - it is

not helping to close the gap between the world's poorest countries and the
world's richest.
 - Anti-globalisation campaigners sometimes draw people's attention to these points by
demonstrating against the World Trade Organisation, an inter-government
organisation which promotes the free-flow of trade around the world.

Multinational corporations

- Globalisation has resulted in many businesses setting up or buying operations in

other countries. When a foreign company invests in a country, perhaps by building a
factory or a shop, this is called inward investment. Companies that operate in several
countries are called transnational corporations (TNCs) or mulitnational corporations
(MNCs). Eg McDonald's, the US fast food chain is a large MNC. It has nearly 30,000
restaurants in 119 countries.
- The majority of TNCs come from more economically developed countries such as
the US and UK.
- Transnational corporations invest in other MEDCs – e.g. Japanese car company
Toyota makes large numbers of cars in the US.
- But TNCs also invest in less economically developed countries - for example the
British DIY store B&Q now has stores in China.

Factors attracting MNCs to a country may include:

- cheap raw materials

- cheap labour supply
- good transport
- access to market, where the goods are sold
- friendly government policies

BEWARE:
- Globalisation does not only mean TNCs but it also includes liberalisation of market,
ONG, better transport, communication…
- Example of TNC: Toyota captured the US market with cars  General motors in
1950 produced a lot but now they have lost market shares in the United States.
However, Toyota has grown as it went to the US for a market not cheap labour.

TNCs, Disney, cultural globalisation:

Disney owns Spanish speaking radio stations, foreign language TV channels and a
Chinese-language radio station in Hong Kong. Several Disney films target specific
markets:

- Mulan marked Disney’s entry into China

- Hunchback of Notre Dame was launched to re-brand Disneyland in Paris
- The Lion King was aimed at Africa
- Aladdin at the Middle east
- Rescuers down under and Finding Nemo at Australia

Disney aims for global markets, although its characters remain Americanised. Its
influence spreads wider-urban planners have imitated Disney’s ways of managing theme
parks and people movement.