Blog 4: What is the Relation Between Economy and Globalization? - Dabin Kim

1. Summary of the Readings

Economic globalization refers to the growing interconnection of world economies through trade, investment, and the operations of transnational corporations (TNCs). As Peter Dicken explains, TNCs are central actors in this process, influencing global economic patterns and driving both integration and change. These corporations, such as Apple, Toyota, and Samsung, operate across multiple countries, coordinating complex networks to maximize efficiency and profit. Their activities highlight the interdependence of global markets.

A core mechanism of economic globalization is foreign direct investment (FDI), where firms establish operations or acquire assets in foreign countries. FDI allows TNCs to access new markets, reduce costs, and tap into localized resources. For example, automotive companies often establish manufacturing plants in regions with favorable labor conditions or proximity to target markets. This strategy not only benefits corporations but also impacts host economies, providing jobs and infrastructure development.

Trade and regional economic integration also play significant roles in globalization. Regional production networks, particularly in East Asia, showcase how countries specialize in different aspects of production. For instance, Japan focuses on high-tech innovation, while countries like Vietnam and Thailand handle assembly and manufacturing. This division of labor enables efficiency but also reflects the power dynamics inherent in globalization, where developed economies typically dominate higher-value activities.

Despite their global scope, TNCs are not entirely "placeless." Dicken emphasizes that these corporations remain deeply rooted in their home countries, carrying cultural, institutional, and organizational traits. For example, Japanese TNCs often emphasize long-term relationships and consensus-based decision-making, reflecting Japan's cultural norms. These traits influence how TNCs adapt to the local conditions of their host countries, creating a dynamic interplay between global and local forces.

Moreover, technological advancements have accelerated the pace of economic globalization. Digital platforms like Amazon and Alibaba enable small and medium-sized enterprises to engage in global trade, reducing barriers to entry and increasing market access. These platforms exemplify how innovation reshapes traditional economic models, making globalization more accessible to diverse participants.

However, the benefits of economic globalization are unevenly distributed. Developing countries often attract FDI for low-cost manufacturing, but the economic gains are frequently limited to specific regions or industries. For instance, garment factories in Bangladesh provide employment but offer minimal wages compared to the profits retained by TNCs in developed countries. This disparity underscores the need for more equitable global economic systems.

Another important facet is the rise of "born global" firms—companies that operate internationally from their inception. Unlike traditional corporations that expand abroad only after establishing dominance in their home markets, born global firms leverage digital connectivity to reach customers worldwide. This trend is particularly evident in technology-driven industries such as software and e-commerce, where physical infrastructure is less critical.

2. New and Interesting Insights

One of the most striking insights is the persistent influence of home-country characteristics on TNCs. Contrary to the perception of globalization as a homogenizing force, TNCs retain their unique cultural and institutional identities. This embeddedness shapes their strategic decisions and interactions with host countries. For instance, German firms often prioritize precision and engineering excellence, while American firms emphasize innovation and competitiveness.

Another intriguing point is the coexistence of globalization and regionalism. While economic globalization promotes integration, regional production networks remain vital. In East Asia, developed economies like Japan and South Korea handle high-value activities, while developing nations specialize in labor-intensive tasks. This balance highlights the nuanced nature of globalization, where efficiency and local adaptation coexist.

The role of digital technology also stands out. Platforms such as Alibaba connect producers and consumers across borders, enabling even small businesses to participate in global markets. This democratization of trade marks a significant shift in how globalization operates, expanding opportunities for underrepresented regions and industries.

3. Discussion Angle

Economic globalization presents numerous challenges that warrant further discussion. One pressing issue is the power dynamic between TNCs and nation-states. While TNCs often influence global policies, they remain subject to state regulations. For example, companies entering the Chinese market must comply with stringent government rules, demonstrating that sovereignty still plays a critical role in global economic interactions.

Another concern is the environmental and social impact of globalization. TNCs' pursuit of efficiency often leads to resource depletion and labor exploitation. Strengthening international regulations and encouraging corporate accountability could mitigate these issues, but achieving consensus among diverse stakeholders remains difficult.

Finally, the unequal distribution of globalization's benefits raises ethical questions. How can global systems ensure fair wealth distribution? Developing countries hosting low-cost manufacturing facilities often see minimal returns compared to the profits generated by TNCs. Addressing this imbalance is essential for creating a more equitable global economy.