Driving Force of Globalization

A newly industrialized country (NIC) is a socioeconomic classification applied to several countries including Thailand, China, India, Malaysia, Philippines, South Africa and Mexico. NICs have not yet reached a developed status but have, in an economic sense, overtaken their developing counterparts. Another characterization of NICs is that of nations undergoing rapid economic growth (usually export-oriented). Globalisation is a set of processes leading to the integration of economic, cultural, political and social systems across geographical boundaries. It refers to increasing economic integration of countries, especially in terms of trade and movement of capital. But the question is, what was the main motivating factor behind this massive increase in economic, cultural, political and social systems across geographical boundaries? Was it as some have argued the rapid growth of NICs such as China, India and South Africa? Or were other factors such as Transnational Corporations (TNCs) more influential?

The classification of countries as NICs has only happened in the last 30 years. In 1970 when the Four Asian Tigers; Hong Kong, Singapore, South Korea, and Taiwan all became classed as NICs in the 1970s and 1980s, with exceptionally fast industrial growth since the 1960s; all four economies have since graduated into advanced economies and high-income economies. There is a clear distinction between these countries and the nations now considered to be NICs. In particular, the combination of an open political process, high GNI per capita, and a thriving, export-oriented economic policy has shown that these countries have now not only reached but exceeded the ranks of many developed countries. NICs such as China, India, Mexico, Philippines, South Africa and Thailand are all part of a trade bloc classified as G20. Trading blocs are groups of nations who form an economic union or customs union. Trade bloc’s speeds up the process of globalization. G20 has expanded to 20 countries and accounts for 60% of the world’s population, 70% of its farmers and 26% of world’s agricultural exports .As well as increased integration amongst members of a trading bloc, it is argued trading blocs help globalisation through making global negotiations easier.

There are several factors that make NICs a contributor to globalisation. Firstly, most NICs such as Thailand have shifted from agriculture to industrial economies. Thailand, traditionally an agricultural country and a major food exporter, is undergoing rapid rates of structural change and industrial growth. Industrial output has been growing at double-digit rates in recent years and is expected to continue to do so well into the twenty-first century. Already, industry’s share of the Gross Domestic Product (GDP) is more than twice that of agriculture’s. By shifting from an agricultural based economy to an industrial one, this has increased trade. This is because in a rural agricultural economy the goods were subsistence based and therefore did not attract much trade.

By industrializing, Thailand has been able to produce manufactured goods and therefore trade, thus contributing to the global economy. Industrialization has also allowed workers to develop skills and this encouraged emigration from Thailand to ……for example. Industrialization has also encouraged immigration from China for example. The complexity of manufactured goods requires specialised resources which are used to make individual components. These therefore need to be sourced from different countries to construct the final product which is often then exported to other countries; this is a classic example of globalisation.

Many NICs have a large population that provides a big internal market and is a resource that attracts investment. India has a population which has exceeded 1.21 billion and has population has grown by 181 million people over the past decade. This large population with a growing middle class (more than 350 million people with increasing purchasing power) has attracted multinational corporations. For instance many luxury brands are focusing on the Asian market; this market has the spending power to support these high priced labels such as Chanel. Many multinational corporations have based their factories in NIC’s such as India and South Africa due to the large pool of cheap labour available. There are over 1,200 technology companies located in Bangalore due to the highly developed technical, financial and legal infrastructure. There are also 2.5 million technical professionals currently living in Bangalore making it ideal to locate call centres here. The cheap labour has attracted many multinational companies and the average Indian worker would earn only a third of what someone would earn in the UK. Mexico is rich in oil reserves and this has drawn in investment, provided jobs and income thus increasing spending power. As Mexico lies next to the US, it has many trading advantages and so this oil can be shipped. Many US TNCs are keen to locate in Mexico to take advantage of the cheap labour supply. TNCs focusing their factories in NICs due to the large populations and cheap labour are another example of globalisation.

NICs also have a strong education system that can produce many educated people. This allows people to enter the work force with valuable skills both sociable and practical. As many NICs industrialise, it is important that they are able to speak English which is the fundamental language if a country is looking to trade. Bangalore University is ranked in the top 120 in the world and this produces many trained graduates which are ideal for a company looking to locate here. In India, English is the core professional language as they focus on attracting the western companies. The increase in education in many NICs has also encouraged migration because many people can work elsewhere with the skills they have gained. Due to a highly educated population/workforce and a large proportion of people speaking English, this has attracted multination companies to these areas and this is another example of globalisation.

I feel that transnational cooperation’s have had a large impact on globalisation. A transnational corporation (Multinational Corporation) TNC is a corporation or enterprise that manages production establishments or delivers services in at least two countries such as Coca Cola and Nike. Very large multinationals have budgets that exceed those of many countries. Multinational corporations can have a powerful influence in international relations and local economies and play an important role in globalisation. I feel that the economy is the most significant motivating force behind globalisation, although politics, technology, education, media, and culture also play their parts. The effect on human life is certain. Global institutions like the United Nations (UN), World Bank and International Monetary Fund (IMF) and individual countries and societies derive their strength from their economic power, which enables them to make or influence decision-making on the world stage. Behind the government, wealthy individuals or groups in the developed countries exert influence on decision-making, both within their own countries and at the global level, on issues ranging from politics, conflicts and wars to development in the social sectors, such as education and health services.

Among the largest 100 economies in the world, 51 are TNCs, whereas only 49 are countries. It is also important to note that out of the 200 largest economies of the world, 144 are TNCs. The combined sales of the top 200 corporations are bigger than the combined economies of all the countries of the world, minus the largest 10. The study has found that the growth of sales of top 200 corporations is faster than overall global economic activity. Between 1983 and 1999, their profits grew by 362 percent whereas their combined sales grew from 25 percent to 27.5 percent of the world GDP. According to the UN Committee on Trade and Development (UNCTAD), TNCs account for 70 percent ($7 trillion) of the total world foreign trade. Most of these TNCs were founded in the more developed countries; therefore, it is natural that TNCs and their respective countries should safeguard their mutual economic, political, and cultural interests under the cloak of globalisation. Economies are the catalysts of the globalization process, and they are represented by MNCs and transnational corporations (TNCs), which maintain the highest stakes and stand to gain the maximum benefits.

Globalisation is expressed in transcontinental flows and networks of activity, interaction and power between countries, irrespective of geographic distance. It establishes and maintains economic, political and socio-cultural relations. This interaction helps economies through growth in international trade, investment and capital flows. Some factors that have acted as the driving force of globalisation include technological innovation as it had made transport and communication around the world easier, capitalism and trade have also played an important role in encouraging globalisation. Trade between countries in the developed world and the developing world has specifically been the biggest driving force of globalisation. With the Industrial Revolution and the introduction of fast means of communication and transportation, transnational trade has expanded at great speed. Subsequently, the TNCs have emerged. Recently the emergence of media giants with increasing power and influence over human minds, and their collaboration with other TNCs, driven by mutual interest of the two, has profoundly intensified TNCs’ influence.

The process has evolved and developed with modern ways and means that have added to its significance as well as its speed, scope and quantum. Given their huge capital resources and production capacities, TNCs are able to dictate their own terms in economic dealings. For the sale of their enormous production, TNCs require access to large markets; tariff issues, access restrictions and similar “barriers to trade” are hurdles in this access. What TNCs need is a global system for the free flow of their goods. They therefore use their economic power to influence international trade rules. Another way that TNCs have spread Globalisation is through Cheap International Marketing. TNCs often utilise the vast resources of people for cheap labour in NICs such as China and other parts of Asia and Africa. Many companies will invest offices and factories in NICs and then, by attracting plenty but cheap labour.

By investing in these countries, TNCs are able to benefit from cheap labour meaning that the costs are kept to a minimum thus creating productive efficiency. If costs are low, profit should remain high which can then be used to reinvest into product innovation and new technology. Another way that TNCs spread Globalisation is through the concept of the ‘Uninformative Product’ which is where a company will release only one product, one after the other. For example, Apple released the IPod Classic, then the IPod Nano, shuffle, IPhones, IPad etc). This means that everyone will desire the latest and the best product the company has to offer. . In addition, TNCs have help spread Globalisation through the use of Advertising. Advertising is an extremely significant and effective way to spread TNCs and thus Globalisation as it promotes ideas, concepts and stock all across the globe. Advertising comes in many forms such as television, internet, billboards, posters and magazines.

Looking at both NICs and TNCs, I believe TNCs have had a bigger impact on globalisation. I believe this because TNC’s have had a greater impact on the increase in trade and integration of people which I believe is the driving force of globalisation. Thus, I have concluded that TNC’s are the driving force of globalisation.