Transnational Corporations

Grazia Ietto-Gillies

• Editorial: Routledge
• Año: 2002
• ISBN:
  9781134753307
• Edición: 1
• Categoría: Commerce
• Categoría: Commerce Général

Recent years have seen a dramatic increase in international production worldwide, accompanied by considerable changes in its geographical structure. This volume examines the role of transnational corporations (TNCs) in the geography of international production, covering both theoretical and empirical aspects, and drawing conclusions for future policy-making.
This work will be essential to scholars, policy-makers and professionals in the areas of international business strategy, international economics and political science.

Part I
Globalisation, integration and the TNCs

…the parts of the world are all so related and linked together…

Pascal (1623-62), Pensées (XV: 199), translated by
A.J. Krailsheimer (1966), Penguin (p. 93)

1 Globalisation, new technologies and transnationals

1.1 Introduction

The last two decades of the second millennium have seen very considerable developments worldwide in many aspects of economic and social life. Most changes have their roots in two main basic structural elements: (a) a very high degree of interconnectedness of world economies usually referred to as globalisation and (b) the adoption and diffusion of new technologies particularly those related to communication and information. These two elements are interlinked and affect each other.

Globalisation has now become an everyday household term, used to characterise, explain, and justify many current economic and social developments. The term and its common usage convey the impression that it is potentially and actually possible for ordinary people and economic actors to get in touch, interact and do business with other people and communities worldwide. The expression has also increasingly come to be associated with the feeling that economic activity, events and processes have a pattern and life of their own and that we cannot—and should not—do much to alter them.

The public at large usually interprets a high degree of globalisation and international integration to mean and imply that: we travel more; we communicate with the rest of the world more quickly; we receive images and sounds of news in real time; we are able to buy the same type of car or jeans or hamburger in Dallas, Rome, Beijing, Moscow or Mexico City; we can do business all over the world. In other words, our consumption, production, exchange, leisure and culture activities are more integrated with the rest of the world.

The ease and speed of communication increases the perception of integration by making people aware of problems and opportunities in remote parts of the world. It also heightens the awareness of the global nature of some problems which, at first sight, might appear to be local, such as environmental problems, human rights issues, local wars. Far from being local, these problems and issues have become global and are now generally perceived as such (Held et al., 1999).

Globalisation and international integration are usually considered to be part of the same process and this is how they will be seen in the rest of this book: the globalisation process leads to a high degree of interconnectedness of economies and societies. Integration has both de facto and de jure connotations. The former captures the integration brought about by the intensification of international transactions in all their various forms. The latter refers to the integration process brought about by changes in the legal, institutional, policy frameworks linked to regionalisation (Pelkmans, 1984; United Nations Conference on Trade and Development, Programme on Transnational Corporations (UNCTC), 1990; Hine, 1994; Oman, 1994, 1996; Krugman and Venables, 1996). The two connotations tend to strengthen the integration process.

No analysis of globalisation can be complete without an understanding of the role played in it by the transnational companies (TNCs). They are the key to understanding global changes in the economy and society: they are therefore key players in the integration process. It is in particular with reference to the latter statement that this chapter considers the main characteristics of the globalisation process. The topic will be taken up again in chapter nine when it will be argued that the TNCs and their activities are one of the two dominant causes of the contemporary globalisation process. The other dominant cause will be identified as the information and communication technologies (ICTs).

Alongside their integrative role, the TNCs follow fragmentation strategies and these will be the subject of Part III. Part II analyses business networks and therefore looks at TNCs in both their integrative and fragmenting roles. The implications of the TNCs’ twin role - integration and fragmentation - will be analysed in the last chapter.

The present chapter develops along the following lines. The next section considers the main characteristic of globalisation and is followed by an analysis of the role of technology in globalisation and by a brief discussion of the role of TNCs in it. This is an issue which will be taken up at greater length in the next chapter where I shall consider the activities of TNCs and their role in the cross-country transaction flows.

1.2 The specific character of globalisation

Throughout history there have been various periods of fairly extensive spatial ‘outreach’ in which individuals, communities, social groups, businesses and governments established links which led to flows of people, resources and products across different countries.

Traditionally, business links tended to be confined to countries in a position of geographical proximity and/or ease of access and to countries linked by political/colonial ties.¹ Historical examples of the first group are countries of the Mediterranean basin in Roman times or Venice and the Adriatic/near East countries in later centuries. The Roman Empire or, later, the British or French ones are examples of the second group.

This ‘outreach’ process acquired the character of internationalisation since the birth of the nation-state. This is true both in terms of appropriateness of the term internationalisation and in terms of the role played by the nation- states and its governments in the ‘outreach’ process. The term is used to describe business and wider linkages between agents of two or more nation- states, be they private citizens or companies or governments and public institutions.

Business links across different nation-states have always been quite strong and they have indeed grown. It is, however, possible to distinguish various phases. Prior to the First World War (WWI) the main mechanisms of internationalisation and integration across nation-states were trade, migrations and capital movements (Hirst and Thompson, 1996; Obstfeld, 1998). After WWI both movements of labour and capital slowed down and trade relations suffered under protectionist measures.

In the post-Second World War era up to the late 1960s the major form of transaction became trade. Direct foreign investment and production gradually picked up as a major mechanism of internationalisation and the relevance of direct investment increased considerably from the 1970s onwards.² The 1980s and 1990s have seen increases in many components of international transactions and particularly great leaps in all aspects of international financial flows (Akyuz, 1995; Chesnais, 1997; Held et al., 1999: ch. 4) and in cross-border business partnerships (Organisation for Economic Cooperation and Development (OECD), 1992; Hagedoorn, 1996).

Held et al. (1999) apply the term ‘globalisation’ to all processes of spatial reach throughout history. I will consider their analysis at greater length in chapter nine. Here I shall say that I disagree with their attempt to use the term in such a historically comprehensive way. I feel that the concept of globalisation is more appropriately applied to the developments in the economy and society in the last twenty-five years. These developments show specific characteristics and have put in motion a largely irreversible—though not uncontrollable—process. It is the conjunction of all these characteristics together that give rise to a specific, new phase of capitalist development (as it will be further argued in chapter nine).

Globalisation can be characterised in terms of a variety of quantitative and qualitative elements.³ The quantity and quality aspects are not always distinguishable. They are so closely interconnected that they blend into each other. Among those that are more quantitative in nature are the following. Empirical evidence on them will be presented in chapters two, four and five.

1. The number of mechanisms of interconnectedness and the related crossborder transactions are increasing: from traditional trade flows to foreign direct investment (FDI), to portfolio investment and other financial flows to related profits and dividends from such investments, to business partnerships to the international movement of people.
2. Growth in the extensity, that is in the geographic/spatial reach of inter- connectedness. The majority of flows tend to be confined within specific regions such as the EU. However, the definition of regions is gradually becoming more inclusive as for example in the case of the EU. Moreover, there is also a considerable increase in inter-regional flows as the costs of transportation and communication decline.
3. Growth in the intensity or depth of cross-border activities and transactions. The weight of such activities in relation to the size of national and world economies has increased by almost any of the measures usually considered.

Among the qualitative changes can be listed the following:

1. Breadth of change. The range and number of ‘domains’⁴ affected by the globalisation process is large and increasing: from population movements to culture, to the environment, to economic and social relations, to politics and the military machinery (Held et al., 1999). Moreover, the process is cumulative in a variety of ways. Because the mechanisms and transactions across countries are not exclusive but they cumulate; because the effects spread from one domain to the other. Because once the globalisation process has started it tends to snowball and grow for most or all the mechanisms and domains considered.
2. Technological basis of globalisation and in particular the information and communication technology (ICT) revolution. The new technologies affect the intensity, extensity and breadth of globalisation, as well as the velocity of movement of products, people and resources. They also allow the development of new ways of transacting within and across frontiers.
3. Social and organisational changes. The new technologies and the globalisation processes affect (and are affected by) the way companies organise production. They also affect the organisation of macro governance within and across nation-states, as well as the linkages between groups and peoples. Some authors talk of the ‘network’ economy as something that affects production, consumption and society in general (Castells, 1996, 1997).
4. Political basis. Starting with the Thatcher and Reagan administrations many governments worldwide have been actively supporting the globalisation process towards specific directions. The support has come through de-regulation policies, through privatisation programmes,⁵ through facilitation of mergers and acquisitions, through the gradual dismemberment of welfare provisions, through giving monetary stability and policies the main or only role in the steering of the economy. Thus, globalisation has gradually come to be seen as part and parcel of market- led policies. Moreover, there seems to be a widespread belief that the globalisation process cannot and should not be tampered with by governments. Thus globalisation has so far gone hand-in-hand with a strong ideology of liberalisation.
5. Financial domination of the economy. The current globalisation phase of capitalist development has a strong financial basis (Akyüz, 1995; Chesnais, 1997). The dominance of finance capital is not new in capitalism in its national or international phase.⁶ However, the 1980s and 1990s have seen the dominance of finance capital to an unprecedented degree and affecting a larger number of countries. The new technologies have greatly helped the spread and volume of financial transaction within and across borders. Compared with previous phases of finance domination of economies, the present one is characterised and specifically enhanced by the following elements: (i) the new technologies; (ii) the deliberate policies of deregulation and privatisation of many governments in both developed and developing countries; (iii) the dominance of market-led ideologies; (iv) the general move towards a service economy.

All these quantitative and qualitative characteristics have two elements in common. (1) They are all greatly influenced by (or indeed fully dependent on) the technologies of communication and information; and (2) their biggest common contributors are the transnational companies. The TNCs are involved in all the quantitative aspects of the above characteristics and—directly or indirectly—in all or most of the qualitative elements.

The next section will consider the technological environment of globalisation. This is a very wide topic in itself and indeed one to which many authors have contributed (Perez, 1983; Freeman, 1992; Castells, 1996, 1997; Dalum et al. 1999). There are many economic and social issues as well as theoretical and empirical ones emerging from it. Here the topic will be just touched on as it is outside the scope of this book. The next chapter will consider at greater length the role of TNCs in the various mechanisms of international integration and globalisation.

1.3 The technological environment of globalisation and its impact

The last few decades have seen technological changes in a variety of fields and particularly in the life-sciences and biotechnology and in the information and communication technologies. The latter follow improvements in the technology of transportation and communication—the space-shrinking technologies (Dicken, 1998: 151)—stretching back over a century.

In the course of the twentieth century, improvements in the technology of transportation—the system for moving people and goods across space—have been made in sea, road and rail transport and, of course, significantly in air transport. This has led to a gradual decrease in the relative costs of transportation. Milberg (1998: 79) reports that: ‘Maritime costs are currently one-third of their 1920 level, while air transport costs have fallen by more than 50 per cent since 1950’.

The communication system relates to the transmission of information across distances. For most of human history, the speeds of transportation and communication were the same (John et al., 1997: ch. 3; Dicken, 1998): messages could travel only at the speed of transportation. For centuries people attempted to develop systems that would enable them to convey messages at a higher speed than that allowed by the transportation system. Examples of this are the attempts to convey messages by carrier pigeons, through smoke or flag signals. The breakthrough came with electricity and the developments of radio, telegraph and telephone. These allowed messages to travel much faster than the speed at which transportation took place, while, of course, transport itself was positively affected by the applications of electricity.

The developments of the last two decades in information and communication technology are, however, of a different order of magnitude and qualitative relevance. The speed, quality and quantity of information and communications services have all been changed to unprecedented levels. Experts estimate that we are still at the beginning of a massive transformation in terms of overall spread and impact on the economy. The technological changes are so profound and wide-ranging both qualitatively and quantitatively as to amount to a shift in techno-economic paradigm (Perez, 1983; Freeman, 1992, particularly ch. 6).

There have, of course, been previous technological revolutions affecting many industries. However, the current one is having an impact not only on many industries, their products and production processes but also on the consumers and their interact...