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).