1.0 Introduction
The business field has experienced various changes in modern society. Globalisation is one of the aspects that has brought these changes by enhancing business activities across different countries (Dicken, 2015). For the global market to operate effectively, various forces are behind its success. Transnational corporations and states are some of the notable details enhancing the global market and economy (Dicken, 2015).
This critique paper aims to dig deep into these crucial entities by acknowledging their positive and negative impacts on the world economy.
Divided into four parts, part one of the essay focuses on defining key terms used in the context of the global economy. Part two discusses how TNCs are linked to the world economy by exploring how they influence the economy, culture and the environment. Part three talks about how the government plays a role in creating and influencing economic rules and strategies, with the final part discussing the connection between TNCs and world governments. By examining in detail each aspect of the mentioned parts, this essay focuses on showing how TNCs and the state impact the globaleconomy.
2.0 Part 1: Key Terms
2.1 Transnational Corporations (TNCs)
In the context of global marketing, TNCs are large companies that operate businesses in various countries (Dicken, 2015). These companies are essential elements of the world economy as they represent the investments, trading activities and the structural organisation of products in the countries they operate. Dicken (2015) highlights how TNCs control approximately two-thirds of the services and goods exported worldwide. Apple Inc., a multinational technology company, is a notable example of a TNC since its supply chain and operations have spread worldwide, making it a noteworthy brand (Dicken, 2015).
2.2 The State
For TNCs to work, they require a specific institution to establish their operations, referred to as a state, a stable and organised government with the power to make and enforce rules within its territory (Dicken, 2015). States play a crucial role in defining the required business conditions within their borders to benefit the country. Alford and Phillips (2018) illustrate the importance of the state using the example of the South African government, which creates rules that control how fruits are produced and traded. By doing this, they impact how the market works and help the country’s economy grow.
2.3 Global Production Network (GPN) and Globalisation
A global production network (GPN) is a system where economic activities involved in making products or providing services are spread across different countries and regions (Dichen, 2015). It shows how modern economic activities are often complex and interconnected globally, characterised by activities like manufacturing or assembling. Globalisation, on the other hand, is a term used to describe how different countries and societies worldwide are connected and depend on each other in various ways (Dicken, 2015). It involves the sharing and exchange of goods, cultures, and ideas on a global scale.
2.4 Foreign Direct Investments (FDI)
Foreign Direct Investment (FDI) is when a business or individual from one country invests money directly into a company or project in another country (Dicken, 2015). This kind of investment is essential because it helps the receiving country’s economy grow, brings in new technologies, creates job opportunities, and connects different parts of the world economically. As noted by Dicken (2015), FDI involves putting money from one country into businesses or projects in another country, and it significantly impacts how both countries develop economically.
3.0 Part 2: TNCs and the Global Economy
3.1 Economic Impact
3.1.1 Positive Aspects
TNCs play a crucial role in helping less developed countries grow their industries and come up with new ideas. When these big companies invest in these regions, they do not just bring money – they also bring advanced technologies, intelligent management skills, and the best ways of doing things. This boosts the local industries (Boghean and State, 2015). Take IBM, for example. It has significantly impacted India by helping the local workforce improve at using the latest technologies, like data science (Sharma, 2015). This kind of training has positively moved India forward in technology, encouraging new ideas and ensuring people have the right skills.
Likewise, TNCs play an influential role in making the world more connected. They help countries trade more with each other and become good at specific things. According to Dicken (2015), these companies are like glue in the process of globalisation, bringing together different needs from all over the world. For example, the establishment of offshore centres by technology companies in nations with skilled labour but cheap to afford displays how TNCs take advantage of the world’s opportunities to boost their operations and attract health competition efficiently (Cattaneo et al., 2010).
Big global companies also significantly influence how the world economy works. One positive thing they do is boost economic growth FDI (Dicken, 2015). These companies invest a lot of money in other countries, which can bring plenty of benefits. According to Dicken (2015), when these big businesses put money into a country, it is a significant cash injection, and they also share their knowledge and expertise. This combination of cash and know-how makes the host country more productive and competitive, creating a suitable environment for steady economic growth.
3.1.2 Negative Aspects
Despite the positive impact TNCs have on the global economy, they have also faced criticism. Even if these strategies are profitable to these large corporations, on the negative side, they can result in economic decline in areas where companies are relocated or shut down. Take, for instance, Uber, which operates on digital platforms to offer transport services. Even if they enhance the mobility of individuals in the countries they operate, they cause the loss of traditional jobs by interfering with the local transport industries (Grabher and Van Tuijl, 2020). This disrupts both individuals’ livelihoods and economic organisation in such communities.
3.2 Cultural Impact
Large global industries have enhanced the easy connection of people both locally and on a global scale, facilitating the easy sharing of ideas. Think about influential technology companies like Apple – they do not just bring the latest gadgets; they create a shared global experience with technology (Dicken, 2015). These companies bring people from diverse backgrounds together in a shared journey with cutting-edge tech. When individuals use their products and services, like smartphones and online platforms, they absorb and mix in new cultural flavours (Dicken, 2015).
These corporations also set the pace for what is good and trendy worldwide. Look at the fashion world, where companies like Nike are like trendsetters (Dicken, 2015). The famous Nike symbol and their sporty clothes are not just popular in one country but loved everywhere. Nike sells clothes and determines what people worldwide think is stylish. Their excellent designs and clever ads have made a mark that goes way beyond borders.
TNCs usually tailor their products to fit the market demand of the host country. For example, Dicken (2015) notes that Japanese foreign manufacturing plants adopt a ‘hybrid’ organisational structure, which differs from the pure organisational frameworks in Japan. However, technology companies like Apple make global good products like iPhones that almost everyone uses worldwide (Dicken, 2015). However, when most people use these gadgets, it might unintentionally make them depend more on Western ways of doing things with technology where these gadgets originated. As a result, people might forget about or use less of the excellent local tech innovations.
3.3 Environmental Sustainability and Corporate Social Responsibility
TNCs have been at the forefront of promoting sustainable practices by including positive initiatives in their operations. One notable aspect is adopting sustainable business practices, where TNCs actively seek ways to minimise their ecological footprint (Dicken, 2015). According to Dicken (2015), TNCs invest in clean energy sources like solar and wind power to promote environmental sustainability. By embracing sustainable practices, TNCs contribute to environmental conservation and often realise long-term cost savings through reduced resource consumption and improved operational efficiency.
TNCs sometimes face criticism over environmental degradation due to practices like exploitation of natural resources and deforestation. Dicken (2015) notes that TNCs have contributed to the massive destruction of ecosystems to create more room for developing industries. For example, the operations of BP company that resulted in a massive oil spill in the Mexican Gulf is a perfect demonstration of how TNCs’ operations damage the environment and ecology.
4.0 Part 3: The Role of the State
The ability of domestic enterprises to attract foreign investment is closely tied to state policies. The work of Boghean and State (2015) emphasises the positive correlation between FDI and labour productivity. States that implement policies that foster a conducive business environment protect property rights, and ensure political stability are more likely to attract foreign investors (Dicken, 2015). This is further exemplified by China’s regional models of capitalism, as highlighted by Zhang and Peck (2014), where targeted state interventions have contributed to the nation’s economic success.
Promoting physical infrastructure is another crucial role the state plays in enhancing the operations of TNCs. As highlighted by Dicken (2015), businesses find it easier to carry out their operations when the government invests in roads and communication networks. Dicken (2015) notes that TNCs are likely to set up businesses in countries with good roads and fast internet as it helps them move things around quickly and access a skilled workforce, making it easier and more cost-effective for them to operate and grow their businesses. However, a problem arises when resources are not used correctly, and projects need to be done better; it can lead to inefficiencies, interfering with the intended benefits for TNCs and the economy.
The government also plays a vital role in shaping economic policies, especially promoting inclusive growth. The state is crucial in creating and implementing policies that foster strong economic growth and ensure that the benefits are shared fairly among different groups in society (Dicken, 2015). Aguiar de Medeiros and Trebat (2017) suggest that inequality can happen within global value chains. As a result, the government’s position in such instances includes promoting inclusive growth, establishing rules that guarantee fair pay, protecting workers’ rights, and providing social safety nets (Aguiar de Medeiros and Trebat, 2017). A good example is Asia’s business systems, as Witt and Redding (2013) explain. The government creates industrial policies in these systems that drive fast economic growth and benefit its citizens.
Yet, regulatory capture is a downside to the government’s role in promoting fair economic growth. This happens when agencies responsible for regulations, originally meant to benefit the public, are controlled by the industries they’re supposed to oversee. According to Bartley (2018), influential global companies can exert significant influence over regulatory systems, potentially hindering efforts to achieve inclusive growth. Dealing with economic challenges, like the case of Uber, illustrates how the government’s rules need help keeping up with quickly changing digital platforms within their borders (Grabher and Van Tuijl (2020).
4.1 Effectiveness of International Agreements and Organizations
International agreements and organisations also serve as mechanisms through which states collaborate to regulate TNCs. For instance, the World Trade Organization (WTO) establishes rules and agreements that facilitate global trade, impacting TNCs’ strategies and state policies (Dicken, 2015). Additionally, institutions like the IMF influence states’ economic policies through conditionalities attached to financial assistance (Aguiar de Medeiros & Trebat, 2017; Boghean & State, 2015). This has a significant impact on income distribution and labour productivity.
Although these institutions are committed to checking the operations of TNCs and the state, the effectiveness of their regulation is subject to scrutiny. These organisations need help effectively regulating TNCs’ functions across borders, as the GPNs need standard rules and regulations (Dicken, 2015). This aligns with Aguiar de Medeiros and Trebat’s (2017) arguments, which highlight how global value chains contribute to income inequality, indicating potential drawbacks in the regulatory framework.
5.0 Part 4: Interconnection of TNCs and the State and Power Dynamics
Global companies and governments are closely connected, so they can efficiently work together. One clear example is when countries negotiate important economic deals with big companies (Bartley, 2018). A good case is the agreement between China and the United States called the “Bilateral Investment Treaty”, as highlighted by Sauvant and Chen (2013). In this agreement, the government is central in talking with these big companies. The results of these talks benefit everyone involved and help companies invest more efficiently, access new markets, and follow rules that both the company and the country can agree on.
6.0: Conclusion
The state’s dedication to ensuring TNCs operate in a way that fits the country’s goals and priorities sometimes becomes challenging. This results in conflicts between these two bodies. Conflicts in economic interests are a good example. TNCs like the idea of open markets, where they can sell their products and services worldwide without too many restrictions (Dicken, 2015). This allows them to reach more customers and make more money.
7.0 References
Aguiar de Medeiros, C., & Trebat, N. (2017). Inequality and Income Distribution in Global Value Chains. Journal of Economic Issues, 51(2), 401-408. https://doi.org/10.1080/00213624.2017.1320916
Alford, M. and Phillips, N., 2018. The Political Economy of State Governance in Global Production Networks: Change, Crisis and Contestation in the South African Fruit Sector. Review of International Political Economy, 25(1), pp.98-121. https://doi.org/10.1080/09692290.2017.1423367
Aybaly, R., Guerquin-Kern, L., Manière, I. C., Madacova, D., & Holt, J. V. (2017). Sustainability Practices in the Luxury Industry: How Can One Be Sustainable in an Over-Consumptive Environment? Procedia Computer Science, 122, 541-547. https://doi.org/10.1016/j.procs.2017.11.404
Bartley, T. (2018). Transnational Corporations and Global Governance. Annual Reviews. https://www.annualreviews.org/doi/10.1146/annurev-soc-060116-053540#abstractSection
Boghean, C., & State, M. (2015). The Relation Between Foreign Direct Investments (FDI) and Labour Productivity in the European Union Countries. Procedia Economics and Finance, 32, 278-285. https://doi.org/10.1016/s2212-5671(15)01392-1
Cattaneo, O., Gereffi, G., & Staritz, C. (2010). Global Value Chains in a Postcrisis World: A Development Perspective. World Bank Publications.
Dicken, P. (2015). Global Shift: Mapping the Changing Contours of the World Economy (7th ed.). Guilford Publications.
Grabher, G., & Van Tuijl, E. (2020). Uber-Production: From Global Networks to Digital Platforms. Environment and Planning A: Economy and Space, 52(5), 1005-1016. https://doi.org/10.1177/0308518×20916507
Sauvant, K. P., & Chen, H. (2013). A China-US Bilateral Investment Treaty: A Template for a Multilateral Framework for Investment? Transnational Corporations Review, 5(1), 1-3. https://doi.org/10.1080/19186444.2013.11658353
Sharma, D.C., 2015. The outsourcer: The story of India’s IT revolution. MIT Press.
United Nations Conference on Trade and Development. (2011). World Investment Report: Non-Equity Modes of International Production and Development. https://unctad.org/system/files/official-document/wir2011_en.pdf
Witt, M. A., & Redding, G. (2013). Asian Business Systems: Institutional Comparison, Custers and Implications for Varieties of Capitalism and Business Systems Theory. Socio-Economic Review, 11(2), 265-300. https://doi.org/10.1093/ser/mwt002
Zhang, J., & Peck, J. (2014). Variegated Capitalism, Chinese Style: Regional Models, Multi-Scalar Constructions. Regional Studies, 50(1), 52-78. https://doi.org/10.1080/00343404.2013.856514
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