Chapter 3 Globalization and role of MNCs

On the World Economic Forum’s second Annual

Meeting of the Global Future Councils (Nov 2018),
Børge Brende, President of the World Economic
Forum, told participants: “Globalization cannot be
stopped, but it can be improved. It should be more
inclusive, sustainable and job creating. We need to
stop seeing trade as a weapon but instead see it as a
strong, positive force for inclusive, poverty-
eradicating growth.”

“Globalization’s future is no longer about physical

trade. It is about knowledge, information and
technology. Digital trade already accounts for 12%
of international trade, and data flows are predicted
to increase another fivefold by 2022. The result
will inevitably be not less globalization but more,
different, globalization,”.

Video: President Xi calls for inclusive

globalization at World Economic Forum
2017 (2:13 mins)
https://www.youtube.com/watch?v=kbEBPfMryfg

3.1 Dimensions of globalization

https://sol.du.ac.in/mod/book/view.php?id=1245&chapterid=91
0
current KOF Index of Gl obaliz ation r efl ects the ex tent of ec onomic , s ocial and politic al globaliz ati on in 2014.

1
Globalization is the process through which an
increasingly free flow of ideas, people, goods,
services, and capital leads to the integration of
economies and societies.

This concept is being imposed upon the world by

some countries and institutions such as the IMF
and the World Bank.

In 2000, the International Monetary Fund (IMF)

identified four basic aspects of globalization: (1)
trade and transactions, (2) capital and investment
movements, (3) migration and movement of
people, and (4) the dissemination of knowledge.

The IMF believes that globalization has great

potential to contribute to the growth that is
essential to achieve a sustained reduction of global
poverty.

World Bank states that no country in today’s world

can isolate from foreign goods, services, capital,
ideas, or people.

Leaders should foster more commerce to include

more people. They can do so by adopting
international rules to manage openness and
interdependency; establishing stronger social safety
nets; investing in innovation, education and skills-
training, and infrastructure; and creating a more
2
conducive regulatory environment for businesses
and entrepreneurs to foster stronger and more
inclusive growth.

No country can deliver long-term prosperity to its

people on its own. Closer international cooperation
and economic integration is the only way forward.

Isolationism and protectionism, if taken too far,

would break the trade-based economic engine that
has delivered peace and prosperity to the world for
decades.

In the developing world, trade has delivered high

growth and technological progress. According to
the World Bank, since 1990 trade has helped
numerous people living out of extreme poverty. But
these gains, while impressive, are not necessarily
permanent.

If high-income countries close themselves – and

their consumers – off from global markets, the
world’s poorest people will suffer the most.

Manfred Steger, professor of Global Studies at the

University of Hawaii at Manoa argues that
globalization has four main dimensions: economic,
political, cultural and ecological.

3
Since 2002, KOF Globalization Index is used to
measure the economic, social and political
dimensions of globalization.

In 2017, the Netherlands are still the most

globalized country in the world, followed by
Ireland (2nd), Belgium (3rd), Austria (4th),
Switzerland (5th), Denmark (6th), Sweden (7th),
United Kingdom (8th), France (9th) and Hungary
(10th).

The world’s major economies are more inward-

looking and tend to occupy lower ranks on the
Index of Globalization.

4
The USA ranks 27 (-1 rank), China 71 (+2 ranks),
Japan 39 (no change), Germany 16 (+3 ranks) and
India (107).

The western logic underlying globalization over the

past century is in essence the law of the jungle
multiplied with the winner-takes-all principle,
which has made the West benefit most during the
process.

By comparison, China has advocated a form of

globalization that embraces more the spirit of
inclusiveness and mutual benefit, and less the
imbalance of global development.

For example, the Belt and Road Initiative is the

strategy driven by China towards this end.

https://www.mapsofworld.com/answers/economics/globalized-
countries-around-world/
adv anc ed two ranks and is now in sev enth plac e. T he U K desc ended tw o places to 8th positi on. T he 9th and 10th places ar e occ upi ed by Franc e and

In 2018, Belgium is the most globalized country in

the world, followed by the Netherlands (2nd),
Switzerland (3rd), Sweden (4th), Austria (5th),
Denmark (6th), France (7th), United Kingdom (8th),
Germany (9th) and Finland (10th), the USA (24),
China (87), Japan (35), Hong Kong (59).

5
The USA ranks 24 (+3 ranks), China 87 (-16
ranks), Japan 35 (+4 ranks), Germany 16 (+7
ranks) and India 101 (+6 ranks).

Emerging countries like China and India occupy

places at the bottom of ranking based on this index.
The reasons for this include economic restrictions
such as capital controls and trade barriers.

3.1.1 Economic globalization

Globalization is sometimes used to refer specifically

to economic globalization: the integration of
national economies into the international economy
through trade, foreign direct investment, capital
flows, migration, and the spread of technology.

Economic globalization is the intensification and

stretching of economic interrelations around the
globe.

It includes such things as the emergence of a new

global economic order, the internationalization of
trade and finance, the changing power of
transnational corporations, and the enhanced role of
international economic institutions (WTO, IMF and
UNCTAD).

3.1.2 Political globalization

6
It is the intensification and expansion of political
interrelations around the globe.

Political globalization is evident in the growing

importance of international organizations. These
organizations are transnational and enable states to
take concerted action without sacrificing national
sovereignty.

The creation and existence of the United Nations

has been called one of the classic examples of
political globalization.

3.1.3 Military globalization

Military globalization, as subdomain of political

globalization, is defined as the intensification and
stretching of military power across the globe
through various means of military power (nuclear
military weapons, radiation weapons simply
weapons of mass destruction).

Beyond states, global organizations such as the

United Nations also extend military means globally
through support given by both Global North and
South countries.

3.1.4 Cultural globalization

7
It is the intensification and expansion of cultural
flows across the globe.

It is the process whereby information, commodities

and images produced in one part of the world enter
into a global flow that ‘flattens out’ cultural
differences.

Topics include the development of a global culture,

or the role of the media in shaping our identities
and desires, and the globalization of languages.

The process of globalization has helped the

tremendous development of new information and
communication technology.

Technology has created the possibility and even the

likelihood of a global culture. The internet, fax
machines, satellites, and cable television are
sweeping away cultural boundaries.

Global entertainment companies (such as Walt

Disney) shape the perceptions and dreams of
ordinary citizens, wherever they live.

This progress facilitated in bringing the various parts

of the world closer and disseminates knowledge
particularly through the internet which created a new
and open world with unified feelings and with
increasingly closer cultures and interacting
8
civilizations.

3.1.5 Ecological globalization

https://prezi.com/kneyo9mjeby6/ecological-globalization/

It refers to global environmental issues including

population growth, access to food, worldwide
reduction in biodiversity, the gap between rich and
poor as well as between the global North and
global South, human-induced climate change, and
global environmental degradation.

Population growth

A huge increase in population growth such as India,

China, Nigeria and Ethiopia.

Food access

For the world, there exists enough food to feed

everyone. But the main problem is that many
people in the world still do not have sufficient
income to purchase (or land to grow) enough food.

Reduction in biodiversity

This put our health and livelihoods at risk. Millions

of people will have food that is vulnerable to pest
and disease and there will be a short supply of fresh
water.
9
Gap between rich and poor

More than 80% of the world’s population lives in

countries where income differentials are widening,
particularly in nations formed close to the
Equator/in tropical regions.

Human-induced climate change

Global warming, greenhouse gases and land-use

change have all contributed to human-induced
climate change.

Environmental degradation

Examples are pollution (air, water, soil),

deforestation and the wasting of resources.

This may result in the destruction of ecosystems

and the extinction of species.

3.1.6 Criticism for economic globalization

Role of economic globalization

Economic globalization affected all aspects of

humankind’s living, from production to
consumption, going by distribution and exchange.

10
Economic globalization is not a new process, for in
the past five centuries firms in the economically
advanced countries have increasingly extended their
outreach through trade and production activities to
territories all over the world.

Economic globalization appeared as an extension of

the world capitalist liberalization which seeks to
enable strong capital to achieve highest benefits
through liberalizing trade and establishing free
competition in trade exchanges. This is the system
of free economy and the market economy.

In the past two to three decades, economic

globalization has accelerated as a result of various
factors, such as technological developments but
especially the policies of liberalization that have
swept across the world.

Income inequality

“According to [World Inequality Report 2018], the

bottom 50 percent only take in 13 percent of the
income pie, while the top 1 percent grab over 20
percent of the country’s income.”— Christopher
Ingraham, The Chicago Tribune

“The 2018 World Inequality Report shows that the

gap between rich and poor has increased in nearly
every region in the world over the past few
11
decades.”—Eshe Nelson, Quartz

“The 2018 World Inequality Report shows the share

of wealth held by the top 1% of earners in the U.S.
doubled from 10% to 20% between 1980 and 2016,
while the bottom 50% fell from 20% to 13% in the
same period.”—Kofi Annan, Quartz

The most important aspects of economic

globalization are: (1) the breaking down of national
economic barriers; (2) the international spread of
trade, (3) financial and production activities and (4)
the growing power of transnational corporations and
international financial institutions in these processes.

While the opportunities and benefits of economic

globalization have been stressed by its proponents
and supporters, recently there has been increasing
disappointment among many policy makers,
analysts and academics.

Problems aroused from market economy

The perception that environmental, social and

cultural problems have been made worse by the
workings of the global free market economy.

Most victims are developing countries

12
The lack of benefits to most developing countries
from opening their economies, despite the well-
publicized claims of export and income gains.

The economic losses and social dislocation that are

being caused to many developing countries by rapid
financial and trade liberalization. The growing
inequalities of wealth and opportunities arising from
globalization.

While economic globalization is a very uneven

process, with increased trade and investment being
focused in a few countries, almost all countries are
greatly affected by this process.

Globalization encourages free trade among

countries, there are also negative consequences
because some (developed) countries try to protect
their national markets.

For example, a low-income country may account for

only a tiny part of world trade, but changes in
demand or prices of its export commodities or a
policy of rapidly reducing its import duties can have
a major economic and social effect on that country.

That country may have a marginal role in world

trade, but world trade has a major effect on it.

13
The main export of poorer countries is usually
agricultural goods. Larger countries often subsidize
their farmers like the EU Common Agricultural
Policy, which lowers the market price for the poor
farmer's crops compared to what it would be under
free trade.

Rising power of multinational corporations

A major feature of globalization is the growing

concentration and monopolization of economic
resources and power by transnational corporations
and by global financial firms and funds.

Fewer and fewer transnational corporations are

gaining a large and rapidly increasing proportion of
world economic resources, production, and market
shares.

Through mergers and acquisitions, fewer and fewer

of these transnational corporations now control a
larger and larger share of the global market, whether
in commodities, manufactures or services.

The deterioration of protections for weaker nations

by stronger industrialized powers has resulted in the
exploitation of the people in those nations to become
cheap labor.

14
Due to the lack of protections, companies from
powerful industrialized nations are able to offer
workers enough salary to attract them to endure
extremely long hours and unsafe working conditions.

Workers are free to leave their jobs, but in many

poorer countries, this would mean starvation for the
worker, and possible even his/her family if their
previous jobs were unavailable.

Unemployment in developed countries

The low cost of offshore workers has induced

corporations to buy goods and services from foreign
countries.

The laid off manufacturing sector workers are forced

into the service sector where wages and benefits are
low.

This has contributed to the deterioration of the

middle class which is a major factor in the increasing
economic inequality.

Families that were once part of the middle class are

forced into lower positions by massive layoffs and
outsourcing to another country.

This also means that people in the lower class have

a much harder time climbing out of poverty because
15
of the absence of the middle class as a stepping stone.

Labor unions lose their effectiveness when their

membership begins to decline. As a result, unions
hold less power over corporations that are able to
easily replace workers, often for lower wages.

Problem of child labor

Increase exploitation of child labor is also often

observed to grow with globalization.

Child labor may perform several dangerous jobs

such as quarrying, salvage, cash cropping.
Sometimes, the situation includes the trafficking of
children, children in bondage or forced labor.

Dominance from developed countries

The main criticism regarding globalization is in the

dominance of developed countries in framing the
world economic policies.

Is it justifiable to leave its handling to large capital

and international financial organizations, created to
serve capitalism and provide conditions for its
limitless movement around the world ignoring the
voice of developing countries and other third world
countries?

16
Political influence through globalization

Traditionally national governments have been

responsible for maintaining the security and
economic welfare of their citizens, as well as the
protection of human rights and the environment
within their borders.

Under globalization, politics can take place above

the state through political integration schemes such
as the European Union and through
intergovernmental organizations such as the
International Monetary Fund, the World Bank and
the World Trade Organization.

Political activity can also surpass national borders

through global movements and NGOs.

Civil society organizations act globally by forming

alliances with organizations in other countries, using
global communications systems, and lobbying
international organizations and other actors directly,
instead of working through their national
governments.

International organizations took care of globalizing

international law, international legitimacy and
human rights, their charters globalized the rules of
war and peace and the patterns of international
cooperation.
17
Therefore, politics was globalized including the
systems of government and the conditions of
international cooperation and of international
relations.

The international community started to command up

globalization until the United Nations
Organization and its agencies and bodies, especially
the Security Council.

The most important and unique feature of the current

globalization process is the globalization of national
policies and policy-making mechanism.

National policies including in economic, social,

cultural and technological areas that until recently
were under the control of States and people within a
country have increasingly come under the influence
of international agencies and processes or by big
private corporations and economic and financial
players.

This has led to the erosion of national sovereignty

and narrowed the ability of governments and people
to make choices from options in economic, social
and cultural policies.

Most developing countries have seen their

independent policy-making capacity eroded, and
have to adopt policies made by other entities, which
18
may on balance be detrimental to the countries
concerned.

The developed countries also control the processes

and policies of international economic agencies, are
better able to maintain control over their own
national policies as well as determine the policies
and practices of international institutions and the
global system.

Indeed, the large corporations have taken over a

large part of decision-making even in the
developed countries, at the expense of the power of
the State or political and social leaders.

Part of the erosion of national policy-making

capacity is due to the liberalization of markets and
developments in technology.

For example, the free flow of capital, the large

sums involved, and the unchecked power of big
players and speculators, have made it difficult for
countries to control the level of their currency and
the flows of money in and out of the country.

Transnational companies and financial institutions

control such huge resources, more than what many
governments are able to collect, and thus are able
to have great policy influence in many developing
countries.
19
Nowadays, global institutions have become major
makers of wide range of policies that are
traditionally under the control of national
governments.

Governments now have to implement policies that

are in line with decisions and rules of these
international institutions.

The key institutions concerned are the World Bank,

the IMF and the WTO. These institutions exercise
tremendous authority in a majority of developing
countries that depend on their loans.

In particular, countries requiring debt rescheduling

have to adopt structural adjustment policies
(SAPS) that are mainly drawn up in the
Washington institutions.

SAPS cover macroeconomic policies and recently

they also cover social policies and structural issues
such as privatization, financial policy, corporate
laws and governance.

Loan conditionalities have thus been the major

mechanism for the global dissemination of the
macroeconomic policy packages that are favored
by developed nations.

20
According to experts, the WTO Agreements and
system including the decision-making system are
weighted against the interests of the developing
nations.

Many domestic economic policies of developing

countries are thus being made in the WTO
negotiations, rather than in Parliament, bureaucracy
or Cabinet at the national level.

There are now attempts by developed nations to

expand the control of the WTO to yet more areas,
including rights to be granted to foreign investors,
competition policy, government practices, labor
standards and environmental standards.

There are also other influential international

organizations, in particular the United Nations, its
agencies, treaties and conventions and world
conferences.

Globalization, polarization, wealth concentration

and marginalization are therefore linked.

Investment resources, growth and modern

technology are focused on a few countries (mainly
in North America, Europe and Japan).

21
Most developing countries are excluded, or
are participating in marginal ways that are often
detrimental to their interests.

For example, import liberalization may harm their

domestic producers and financial liberalization may
cause instability.

The uneven and unequal nature of the present

globalization is manifested in the fast-growing gap
between the world’s rich and poor people and
between developed and developing countries; and
by the large differences among nations in the
distribution of gains and losses.

https://www.thebalance.com/globalization-and-its-impact-on-
economic-growth-1978843

3.1.7 Globalization and its impact on economic

growth (2017)

Globalization benefits world economies

Most economists agree that globalization provides

a net benefit to individual economies around the
world, by making markets more efficient,
increasing competition, limiting military conflicts,
and spreading wealth more equally around the
world.

22
However, the general public tends to assume that
the costs associated with globalization outweigh
the benefits, especially in the short-term.

Some of the benefits of globalization include:

a. Foreign Direct Investment

Foreign direct investment (FDI) tends to increase at

a much greater rate that the growth in world trade,
helping boost technology transfer, industrial
restructuring, and the growth of global companies.

b. Technological Innovation

Increased competition from globalization helps

stimulate new technology development,
particularly with the growth in FDI, which helps
improve economic output by making processes
more efficient.

c. Economies of Scale

Globalization enables large companies to realize

economies of scale that reduce costs and prices,
which in turn supports further economic growth,
although this can hurt many small businesses
attempting to compete domestically.

Some of the risks of globalization include:

23
a. Interdependence

Globalization leads to interdependence between

nations, which could cause regional or global
instabilities, if local economic fluctuations end up
impacting a large number of countries relying on
them.

b. National Sovereignty

Some see the rise of nation states, multinational or

global firms and other international organizations
as a threat to sovereignty.

c. Equity Distribution

The benefits of globalization can be unfairly

skewed towards rich nations or individuals,
creating greater inequalities and leading to
potential conflicts both nationally and
internationally as a result.

Globalization has impacted nearly every aspect of

modern life and continues to be a growing force in
the global economy.

According to a 2010 Federal Reserve Bank of San

Francisco report, approximately 35.6% of all
clothing and shoes sold in the United States were
actually manufactured in China, compared to just
24
3.4% made domestically.

While there are a few drawbacks to globalization,

most economists agree that it is a force that's both
unstoppable and net beneficial to the world
economy.

Globalization continues to be the most widely

accepted solution to ensuring consistent economic
growth around the world.

Industrialized countries are the winners of

globalization

https://www.bertelsmann-stiftung.de/en/topics/latest-
news/2018/juni/industrialized-countries-are-the-winners-of-
globalization/

Globalization Report 2018 shows that the winners

of globalization are in the industrialized countries.

According to the index, Ireland and the

Netherlands are the most globalized countries,
whereas India and China occupy places at the
bottom of the ranking.

The reasons for this include the fact that their

opening up to the world economy started later
compared to many industrialized countries. In
addition, there are still many market entry and trade
25
barriers and the respective internal market plays an
important role.

Switzerland profits most from globalization, India

comes in last

During the period under study, real GDP per capita

grew by an average of around one trillion euros per
year as a result of increasing globalization over all
42 countries surveyed.

In all countries surveyed, real GDP per capita

growth is positive. However, the amount differs
significantly from country to country.

The Swiss benefit the most: in Switzerland, the

GDP per capita resulting from increasing
globalization grew on average by 1,910 euros per
year between 1990 and 2016.

In India, the last ranked with respect to

globalization-related welfare gains, this figure rose
by an average of only 20 euros per year. China (80
euros per year) also recorded below-average gains.

The main reason for these low growth rates in the

emerging countries is the low starting level of GDP
per capita at the starting point of the measurement.

26
Emerging countries such as China and India only
were at the very beginning of a dramatic growth
curve in 1990 and thus performed worse overall in
terms of absolute gains than industrialized
countries.

3.2 The role of multinationals in globalization

3.2.1 Multinational Corporations

Video: Top 10 Most Valuable Companies In The
World (1997-2019) (4:29 mins)
https://www.youtube.com/watch?v=8WVoJ6JNLO8

Video: Top 10 Most Valuable Companies in the

World 2020 (15:57 mins)
https://www.youtube.com/watch?v=qPsrG4wL2j0

Video: Top 10 Companies In The World 2021

https://www.youtube.com/watch?v=DHmnlGzOem8

A multinational corporation (MNC) or

multinational enterprise (MNE) is a corporate
enterprise that manages production or delivers
services in more than one country.

A MNC differs slightly from a transnational

corporation (TNC), because while MNC's are
traditionally national companies with foreign
subsidiaries, a TNC does not identify itself with
one national home.
27
However, these terms are often used
interchangeably.

Multinational corporations can have a powerful

influence in local economies, and even the world
economy.

Some of the top TNC’s and MNC’s are General

Electric, Toyota Motor, Total, Royal Dutch Shell,
Exxon Mobil and Vodafone Group.

Well-known MNC’s are mostly consumer goods

manufacturers and quick-service restaurants like
Unilever, Proctor & Gamble, Mc Donald’s, and
Seven-Eleven.

http://www.thedailyrecords.com/2018-2019-2020-2021/world-
famous-top-10-list/highest-selling-brands-products-companies-
reviews/best-mnc-multinational-companies-world-india/12845/

28
 Top 10 MNCs in the world 2019
1. Apple Inc. 6. Walmart
2. Volkswagen 7. State Grid
3. Microsoft 8. Sinopec Group
4. FedEx 9. China National
Petroleum
5. Kimberly Clark 10. Toyota
https://fortune.com/global500/search/

The report (2019), titled “Multinationals In China:

40 Years of Investment,” was released by the
Chinese Academy of International Trade and
Economic Cooperation and the China Ministry of
Commerce.

The report said that multinationals have played

positive roles in China's 40 years of reform and
opening up.

For 27 years in a row, China has attracted more

foreign investment than any other developing
countries.

Although accounting for less than 3 percent of total

companies in China, the foreign-invested
enterprises have become an important player in the
Chinese economy, contributing nearly half of the
country's foreign trade, a quarter of the output

29
value and profits of industrial enterprises and a
fifth of tax revenue, according to the report.

Fortune 500 (2019) Fortune 500 (2020)

1. Walmart 1. Walmart
2. Sinopec Group 2. Sinopec Group
3. Royal Dutch Shell 3. State Grid
4. China National 4. China National
Petroleum Petroleum
5. State Grid 5. Royal Dutch Shell
6. Saudi Aramco 6. Saudi Aramco
7. BP 7. Volkswagen
9. Volkswagen 8. BP
10. Toyota Motor 9. Amazon.com
13. Amazon.com 10. Toyota Motor
21. China State 18. China State
Construction Construction
Engineering Engineering
29. Ping An Insurance 21. Ping An Insurance
30. Industrial & 24. Industrial &
Commercial Bank Commercial Bank
of China of China
31. China Construction 30. China Construction
Bank Bank
36. Agricultural Bank of 35. Agricultural Bank of
China China
44. China Life 43. China Life
Insurance Insurance
61. Huawei Investment 49.Huawei Investment
& Holding & Holding
30
Chinese companies high on Fortune 500 list
Chinese companies showed strengthened
competitiveness in 2020 with the Fortune Global
500 list.

A total of 133 Chinese companies, including those

based on the Chinese mainland, Hong Kong and
Taiwan, were ranked as the Fortune Global 500
enterprises
.
In comparison, on the list were 121 companies
from the United States, 53 from Japan, 31 from
France, 27 from Germany and 22 from the United
Kingdom.

It was the second year for Chinese companies to

exhibit top-ranking strength after 129 Chinese
companies were listed in 2019, compared with 121
US companies.

“When the Global 500 list first came out in 1990,

there were no Chinese companies on the list. In the
intervening three decades, the Chinese economy
has skyrocketed, powered by a global trade boom
that expanded from 39 percent of global GDP to 59
percent,” said Cliff Lead, Fortune’s editor-in-chief.

https://www.coursehero.com/file/28883649/A-multinational-
corporation-MNCs-Globalizationdocx/

31
Influence on local and national economies

National and local governments often compete with

one another to attract MNC facilities, with the
expectation of increased tax revenue, employment,
and economic activity.

To compete, political entities may offer MNCs

incentives such as tax breaks, pledges of
governmental assistance or subsidized
infrastructure, or reduce environmental or labor
regulations.

Besides holding the promise of economic growth

for local and national governments, multinational
corporations also exert power over political
entities, through their control over technical and
intellectual property.

For example, Adidas holds patents on shoe designs,

Siemens A.G. holds many patents on equipment
and infrastructure and Microsoft benefits from
software patents.

These patents often allow multinational

corporations to exercise a monopoly in the local
economy, preventing local enterprises from
developing. This also functions to keep labor costs
low, sometimes exploitatively so.

32
Because of their size, multinational corporations
can also have a significant impact on government
policy through the threat of market withdrawal.

Influence on the world economy

Multinational corporations play an important role

in the world economy through the process of
economic globalization.

The increasing economic interdependence of

national economies across the world through a
rapid increase in cross-border movement of goods,
services, technology, and capital.

Using capital from developed countries, MNCs

establish factories and plants in developing
countries, where they can access raw materials and
labor more cheaply.

The finished products are then shipped back to

wealthy countries where there is a consumer
market.

Positive view of economic globalization

The evidence of per capita GDP growth decrease in
poverty, a narrowing gap between rich and poor
nations, and improve overall living standards
globally.
33
For example, there has been a 5.4 percent annual
growth in income for the poorest fifth of the
population of Malaysia.

In China, where inequality continues to be a

problem, the poorest fifth of the population saw a
3.8 percent annual growth in income in 2001.

Negative view of economic globalization

Multinational corporations exert powerful

influence over local and national governments,
often prompting them to enact policies that benefit
business, rather than protecting the rights of local
people.
Economic globalization in the form of MNCs can
lead to exploitation of the local labor force,
diverting of important resources away from the
country itself into foreign exports, and overall
dependency of developing countries upon wealthy
countries.
For example, some of the land in Cape Verde could
be planted and harvested to feed people but is
planted instead with cash crops for foreign
exchange.
Fresh produce is regularly sold or changed to a
nonperishable type, such as canned tuna for export,
rather than consumed by the population.
34
Widespread malnutrition is one of the effects of
this foreign dependency.

Finally, economic globalization may result in

unequal economic relations of dependency between
developing and developed countries.

Governments of developing countries may act

more in the interests of MNCs and of other nations
on whom they rely on for aid. They may feel that
without these forms of economic connection, their
country cannot survive.

3.2.2 The effects of globalization on MNCs (2017)

http://www.ehow.com/info_8229550_effects-globalization-
multinational-corporations.html

Positive impacts

1. Access remote markets

Because of the Internet, customers from anywhere

in the world can order products from companies
anywhere else in the world.

This is naturally a tremendous advantage to

businesses, who stand to increase their potential
customer base by millions by reaching out to
foreign buyers.
35
2. Access cheap labors

Outsourcing and offshoring allow businesses to

hire employees in foreign countries, where labor
and real estate costs may be lower than in the
business' home country.

While these practices can have negative effects on

workers looking for full-time jobs, there is no
doubt that they decrease costs (and therefore
increase profits) for businesses.

3. Form partnership with around companies

Many American, European, and Asian companies

have corporate partnerships that stretch across
continents.

For example, Sony-Ericsson MP3 players are the

result of a partnership between the Japanese Sony
company and the European Ericsson company.

These kinds of partnerships minimize costs and

maximize quality by playing to the strengths of
teams all around the world.
4. Obtain favorable tax policies
Globalization gives multinational corporations the
ability to seek out foreign countries for their
36
investments when their current country adopts a tax
policy they find to be unfavorable.

Countries with low corporate tax rates are

sometimes called "tax havens," as they allow
corporations and individuals to lower their tax rates
by moving assets offshore.

These counties include Bermuda, Belize, and

Switzerland. The international financial structure,
comprised of encrypted information systems and
private documents, makes all this possible.

Negative impacts

1. Coordination challenges

Multinational corporations may have a difficult

time coordinating activities in a globalized
economy.

A company that operates in America, Japan and

Europe will need to hire employees who speak
many different languages, and it may be difficult
for that company to make sure all employees are on
the same page when only a few of them speak the
same language.

37
Translators may be called upon to assist in
information coordination where language barriers
exist.
Other coordination problems may come from
differences in cultural norms (e.g., marketing in the
Muslim world) and business norms (e.g., logistics
management in countries with low-quality
infrastructure).
http://www.ehow.com/info_8110394_negative-impacts-
multinational-corporations.html

2. Outsourcing
The presence of multinational corporations in other
countries often does not benefit the economies of
these countries as poverty continues to rise in spite
of the additional jobs that do not pay that well.
Multinational companies are not subject to the
same environmental and labor laws as they are at
home.
3. Development gap
The development gap between the extremely
wealthy and the extremely poor continues to widen
in foreign countries where multinationals conduct
business.

38
Much of this is because capitalism, through foreign
trade, tends to be exploitative of less developed
countries.

Multinationals often reap all the global benefits

with their presence provides, but the fact remains
that the gap between rich and poor has not closed.

4. Environmental impact

Multinational corporations have a reputation for

leaving a large carbon footprint when they enter
other countries with looser environmental
regulations.

This disregard for the environment, whether

through greenhouse gas emissions or polluting
native habitats, poses a significant negative impact
from the cost of doing business.

Conducting operations on a global scale uses up

resources, such as energy and fossil fuels.
5. Small business
Small businesses often struggle in the shadows of
multinational corporations.
If small business cannot survive from the
competition, they run the risk of eventually going
out of business.
39
Very often, multinationals are able to offer high
volume deals and discounts that small businesses
cannot match.
3.2.3 New era of globalization signals changes
for multinationals (2018)
https://www.bakermckenzie.com/en/newsroom/2018/01/new-
era-of-globalization-signals-change

Internal change

Multinationals are facing a new era of

globalization, characterized by the forces of
cooperation and competition.

Baker McKenzie's recent Global Transactions

Forecast with Oxford Economics predicts an uplift
in M&A (Mergers and acquisitions) and IPO
(Initial Public Offerings) activity in 2018 as
dealmakers and investors gain greater confidence
in the positive fundamentals of the global
economy.

External change with protectionism or not

Two alternative scenarios also modelled, however,

demonstrate the potential impact of changes to
trade and investment policies.

40
Without US protectionism, there will be sustained
growth in the Chinese economy and stronger near-
term growth.

Global trade and a higher volume of transaction in

key trading sectors, such as manufactured goods
and internationally traded service sectors will be
accelerated. This would turn a good 2018 into a
great one for transaction with 9% growth.

With US protectionism, the US imposes tariffs of

45% and 35% on Chinese and Mexican
merchandise goods, respectively, and also raises
tariffs on imports from South Korea and Taiwan,
prompting these countries to retaliate with similar
tariffs on US exports.

Immigration policy

In addition, deportation of illegal immigrants and

limits on legal immigrants result in a decline in the
size of the US labor force at a time when the
economy is close to capacity.

Under these conditions, M&A activity could fall by

up to $1 trillion in 2018 and around $500 billion in
2019.

Trade and investment policy

41
The trade and investment policy landscape are
becoming more complex as nations respond to the
effects of globalization, cybersecurity threats, state
development strategies and geopolitical risks.
The status of many trade agreements is shifting
rapidly, and governments are using non-tariff
measures like technology transfer obligations,
standards requirements, and foreign investment
review rules to try to benefit their own industries
and workers.
Tax
New business models, the rise of the digital
economy, BEPS (Base erosion and profit shifting)
implementation, and national tax reform are just a
few of the forces dramatically reshaping the global
tax system.

Data privacy & security

Nearly every company in the world is struggling to

manage the broad range of legal and operational
risks associated with data.

Heightened regulatory scrutiny and more

protectionist measures are making this even more
challenging.

Labor & human rights

42
Due to the rapid development of business and
human rights standards, companies must support
the UN Guiding Principles, which shows no signs
of slowing.

3.2.4 What difference can a multinational make?

(2019)

https://www.undp.org/content/undp/en/home/blog/2019/what-
difference-can-a-multinational-make--.html

Multinational companies have massive power to

tackle global challenges such as poverty, climate
change and gender inequality.

Inclusive business, which is designed to benefit

low-income countries is one such model.

According to the McKinsey Global Institute, by

2025 half of the world’s largest companies will be
based in developing countries.

Innovative corporations from the global south will

be the ones leading social change, creating jobs and
servicing the underdeveloped markets.

Although inclusive business is not yet happening

widely in multinational corporations, now many of
them have started with pilot programs in new and
often undeveloped markets.
43
Successful example for inclusive business

Japanese retailer MUJI began sourcing wool felt

products from small suppliers in Kyrgyzstan 吉爾
吉斯 and Kenya 肯亞 on a small scale.

With a commitment to develop the capacity of

local artisans and producers, the company has now
expanded its market worldwide including China,
Taiwan, Hong Kong, Singapore, the United States,
Germany, and the UK.

They have also worked to expand and build local

capacity in other areas, including Cambodia, where
they plan to employ and train more than 300 local
workers by 2015.

From the Business Call to Action (BCtA) report

2019 shown, there exists a strong correlation
between specific inclusive business management
practices and their continuity and growth.

Successful inclusive businesses apply principles

that are quite different from business-as-usual,
including in-depth stakeholder engagement, talent
management that builds skilled loyal staff, with a
focus on their wellbeing, coherent performance
incentives for management tied to inclusive
business success, target setting consistent with
44
long-term value, and a deep understanding of
environmental, social and governance risks and
opportunities.

Management practices tailored to the bottom of the

wealth pyramid market can constitute valuable
competitive advantage, ensure better understanding
of, and responsiveness to, key stakeholders,
increase social and environmental impact, balance
short-term stability with long-term viability, and
help achieve the Sustainable Development Goals
(SDGs).

3.2.5 Globalization survey 2019

https://www.usnews.com/news/best-countries/articles/2019-06-
27/global-survey-shows-most-people-believe-in-globalization

More than 70% of people surveyed said they

agreed to some extent that globalization is
important and a positive goal to strive toward,
according to the 2019 Best Countries survey.

Overall, 20.6% of people said they agreed strongly

with the statement, 24.5% said they agreed
moderately and 32.5% said they agreed slightly
with the statement.

45
The Best Countries report is based on a survey of
more than 20,000 people in 36 countries. Among
other findings in the study about globalization:

1. Women around the world are more likely to

agree with the importance of globalization than
men. More than 79% of women said that
globalization is important and a positive goal to
strive toward. About 76% of male respondents
agreed with the statement.

2. The younger generation is also the most likely to

support globalization. More than 80% of those
age 18-24 and 25-35 surveyed in the study said
they agreed with the statement to various
extents; more that 77% of those 36-45 agreed
with the same statement, while the lowest values
were reported for people older than 55.

3. Kenya is the country that showed the strongest

support for globalization, with more than 60% of
those surveyed in Kenya saying they strongly
agreed with the statement on the concept. More
than 21% agreed moderately, while 10.8 agreed
slightly.

High levels of approval for globalization were

registered in the United Arab Emirates 阿拉伯聯合
酋長國(more than 31% strongly agreed with the
46
statement), India (36.31% strongly agreed with the
statement), Chile (31.91% strongly agreed), South
Africa (28.48% strongly agreed), and Turkey
(31.23% strongly agreed).

The country that reported the highest levels of

strong disapproval toward globalization is France,
where more than 9% of those interviewed said they
strongly disagreed with the statement.

A separate study found similar levels of public

support in G20 countries on the value of trade.

A survey in 2018 by Pew Research Center found

83% of the public in G20 countries said trade with
other countries is good. At the same time, just 40%
of people in G20 countries said trade creates jobs,
and only 25% said trade decreases prices.

3.2.6 Globalization Survey 2020

https://ged-project.de/globalization/7-findings-from-our-new-
2020-globalization-survey/

Survey was conducted in 15 emerging markets and

developed economies from late February to mid-
March 2020.

1. The pro-globalization bias is on the decline.

47
In 12 of the 15 countries we surveyed, the
percentage of people who view globalization as a
force for good was still higher than those regarding
it as a force for bad.

But, in most countries, there is a decline in support

for globalization over the past two years.

Comparing the current results with data from 2018

shows, for instance, a more positive attitude in
Russia (force for good up 6 pp) but more negative
in Mexico (good down 8 pp), India (good down 6
pp), Canada (good down 5 pp), and particularly
France (good down 12 pp, bad up 16 pp), Japan
(good down 6 pp, bad up 13 pp) and Germany (bad
up 10 pp).

48
2. People in emerging economies are more positive
about globalization.

The difference in positive views on globalization

between emerging markets and developed
economies is 27 percent.

People in emerging economies view globalization

as an overall positive phenomenon for economic
growth, and they also consider it to be a very
important driver of innovation or peace.

3. The exchange of ideas is the most popular aspect

of globalization.

Across our sample of 15 countries, 80 percent of

people consider the cross-border movement of
ideas a good thing (for example, the transnational
diffusion of intellectual property), while less than
10 percent consider it a bad thing.

4. Attitudes to the World Trade Organization are

positive.

62 percent of respondents in our 15-country-sample

consider the WTO to be an important institution,
with only 14 percent believing it is irrelevant.

In comparison to 2018, the overall positive

perception about the WTO has increased by 6
49
percentage points – up from 56 to 62 percent within
two years.

5. The environment is an important issue in

thinking about globalization.

More than half of interviewees are willing to

accept forgoing some of the benefits of
globalization for the sake of the environment to
fight against climate change.

6. High-skilled, the rich and urban dwellers are

considered the winners in globalization.

The survey shows that the rich, young, and highly

skilled have benefitted more from globalization
than others as well as people living in cities and
developed countries.

Respondents believe that larger companies have

profited more gain from globalization.

Women and men are believed to have profited

equally from globalization.

7. Strategic industries should remain in national

hands.

Although foreign direct investment (FDI) is

perceived as relatively positive for the national
50
economy, more than 60 percent of respondents in
all countries believe that the national government
should protect strategic industries from foreign
takeovers.

3.3 Sweatshop and anti-globalization

https://www.dosomething.org/us/facts/11-facts-about-
sweatshops

3.3.1 What is sweatshop?

A "sweatshop" is defined by the US Department of
Labor as a factory that violates 2 or more labor
laws.

Sweatshop (or sweat factory) is a pejorative term

for a workplace that has poor, socially unacceptable
working conditions. The work may be difficult,
dangerous, climatically challenged or underpaid.

Workers in sweatshops may work long hours with

low pay, regardless of laws mandating overtime
pay or a minimum wage; child labor laws may also
be violated.

In developing countries, an estimated 168 million

children ages 5 to 14 are forced to work.

According to the Fair Labor Association, at least 18

countries are operating sweatshops, including
51
Bangladesh, Costa Rica, El Salvador, China, the
Dominican Republic, India, Vietnam, Honduras,
Indonesia, Armenia, Brazil, Haiti, Taiwan, the
Ivory Coast, Nicaragua, Mexico, the United States
and its territories.

America has stronger labor laws than most

undeveloped countries, but it is not free of
sweatshop conditions.

Products that commonly come from sweatshops are

garments, cotton, bricks, cocoa, and coffee.

A study showed that doubling the salary of

sweatshop workers would only increase the
consumer cost of an item by 1.8%, while
consumers would be willing to pay 15% more to
know a product did not come from a sweatshop.

Criticism over sweatshops

Sweatshops do not alleviate poverty. The people

who are forced to work must spend most of their
salary on food for their families to survive.

Child labor is especially common in agriculture (98

million, or 59% of child laborers work in
agriculture), followed by services (54 million) and
industry (12 million).
52
Most child laborers are found in Asia and the
Pacific. Sub-Saharan Africa has the highest
prevalence, with one in five children in child labor.

Because women make up 85 to 90% of sweatshop

workers, some employers force them to take birth
control and routine pregnancy tests to avoid
supporting maternity leave or providing appropriate
health benefits. A
AAA
Anti-globalization
ops anti-globalization
The anti-globalization movement has arisen in
opposition to corporate globalization, the process
by which multinational corporations move their
operations overseas to lower costs and increase
profits. The anti-sweatshop movement has much in
common with the anti-globalization movement.

Both consider sweatshops harmful, and both have

accused many companies (such as the Walt Disney
Company, The Gap, and Nike) of using
sweatshops.

The National labor committee brought sweatshops

into the mainstream media in the 1990s when it
exposed the use of sweatshop and child labor to
sew clothing for Kathie Lee Gifford's Wal-Mart
label.

53
Social critics complain that sweatshop workers
often do not earn enough money to buy the
products that they make, even though such items
are often commonplace goods such as T-shirts,
shoes, and toys.

Anti-globalization supporters state that high

savings, increased capital investment in developing
nations, diversification of their exports and their
status as trade ports as the reason for their
economic success rather than sweatshops and cite
the numerous cases in the East Asian "Tiger
Economies" where sweatshops have reduced living
standards and wages.

They believe that better-paying jobs, increased

capital investment and domestic ownership of
resources will improve the economies of sub-
Saharan Africa rather than sweatshops.

3.4 Will Covid-19 have a lasting impact on

globalization? (2020)
https://hbr.org/2020/05/will-covid-19-have-a-lasting-impact-on-
globalization

The pandemic has driven a new wave of

globalization features, leaders should plan for —
and shape — a world where both globalization and
anti-globalization pressures remain enduring
features of the business environment.
54
Current forecasts call for a 13-32% decline in
merchandise trade, a 30-40% reduction in foreign
direct investment, and a 44-80% drop in
international airline passengers in 2020.

The volume of global goods exports in 2020 could

fall to the mid-to-late 2000s, according to the latest
WTO forecast.

Five key drivers of globalization’s post-

coronavirus path

1. Start with global growth patterns, where the key

lesson is that international movements tend to
swing dramatically with macroeconomic cycles.

In good times, international movements usually

grow faster than GDP, and in bad times they shrink
faster too.

Strong growth can only be restored once the

pandemic is clearly brought under control.

Indeed, globalization can also be a powerful

contributor to growth and health.

There is some evidence that more connected

countries are less vulnerable to infectious disease
outbreaks, in part because of their stronger health
care systems.
55
This means global business leaders can go beyond
just watching disease trends and economic data —
they can help restore the balance from negative to
positive feedback by making the contribution to
health, growth, and international cooperation.

2. Supply chain policies have come back to the top

of the agenda, and shifting approaches have the
potential to reshape trade and FDI flows.

Will companies and countries seek greater safety in

international diversification, or will they try
fostering domestic self-sufficiency?

Economic logic almost always favors the former

approach, but politics will sometimes force the
latter.

3. Superpower frictions and fragility had already

destabilized the international business
environment before Covid-19, and the pandemic
adds new layers of complexity.

Many have predicted that Covid-19 will accelerate

a fracturing of the global economy along regional
lines, with competing blocs centered on China, the
United States, and perhaps Europe.

56
4. Ongoing technological shifts such as the
adoption of e-commerce, videoconferencing, and
robots have all been boosted by Covid-19.

Cross-border e-commerce expands export

opportunities, especially for smaller companies.
And even 3D-printing sometimes leads to more
trade.

5. Public opinion about globalization may take

another negative turn due to Covid-19.

More international travel accelerates the spread of

infectious diseases, and economic stress may urge
for trade protectionism.

Nationalist politicians will point to the pandemic

and failures of international coordination in the
response to strengthen opposition to globalization.

3.5 Globalization Report 2020

https://ged-project.de/globalization/globalization-report-2020-
the-most-important-facts-in-5-charts/

1. Globalization has been declining slightly since

2007.

Between 1990 and 2018, the globalization

measured in this way has increased. Since 2007,
however, there has been a slight decline.
57
2. Advanced globalization increases average real
GDP per capita (example from Germany).

In 1990, real GDP per capita in Germany was

around 21,940 euros. By 2018 it had risen to
32,160 euros.

Without the advancing globalization, real GDP per

capita would only have reached a value of around
30,760 euros in 2018.

Over the entire period, the GDP growth per

inhabitant adds up to around 31,130 euros.

58
Over the 28 years in total, this means that the
advancing globalization has increased the average
GDP per capita in Germany by 1,112 euros per
year.

3. Developed industrial nations profit most from

advancing globalization.

59
The largest average income gains per year and
capita are recorded in Japan (around EUR 1,790),
Ireland (around EUR 1,610), and Switzerland
(around EUR 1,580).

However, the least globalization gains are the large

emerging markets. For example, the average
globalization-induced GDP growth per year and
capita is only around 30 euros in Nigeria and only
24 euros in India.

Japan is in first place in this ranking, after still

ranking second in the Globalization Report 2018.
One reason for the improvement is that between
2007 and 2018, Japan achieved the strongest

60
growth of all 45 countries in the Globalization
Index.

4. Globalization comes along with social

sustainability.

The higher the index value of globalization, the

higher the corresponding sustainability.

A simple correlation shows that a higher value of

the Globalization Index is associated with a higher
value for social sustainability (see Figure 4, right).

Globalization-induced GDP increases improve

living conditions and thus increase social
sustainability in a country.
61
In contrast, there is no significant positive
correlation between the Globalization Index and
the Ecological Sustainability Index (see Figure 4,
left).

This means that the income gains induced by

globalization were not used to promote
environmental sustainability.

5. Globalization increases dependence on foreign

trade.

Globalization increases the material prosperity of

people but with a greater dependence on imported
inputs and end products.

Small economies such as Luxembourg, Ireland, and

Belgium, as well as Hungary, Slovakia, and the
Czech Republic, have the highest dependence on
foreign trade (see Figure 5).

The dependency on foreign trade is lowest in the

USA, which can be attributed primarily to the size
of the American domestic market.

62
With a high dependence on foreign trade, it is to be
expected that an economic slump abroad will have
large consequences for the affected national
economy.

A look at the economic development in the 45

countries examined after the Lehman bankruptcy in
September 2008 shows that a high value of the
dependency index in 2008 was accompanied by a
large decline in real GDP in 2009.

63
Sharing session: Discussion and Presentation

1. MNC causes globalization?

https://www.straitstimes.com/opinion/globalisations-new-
victims-foreign-mncs

2. The current wave of populism as well as the

return of protectionist policies (e.g., Trump’s
America First) fuel fears that globalization
could be reversed, leaving the world worse off
in economic as well as socio-political terms.
What is the future of globalization?

http://freedomlab.org/the-future-of-globalization/

3. Does globalization spur human development?

https://core.ac.uk/download/pdf/6989903.pdf

4. How globalization affect economic growth?

https://www.thebalance.com/globalization-and-its-impact-on-
economic-growth-1978843

END

64