Topic 2 – The Global Economy

GS 1 – Introduction to Global StudiesProfessor: Dr. Jean-Paul Rodrigue

Hofstra University, Department of Global Studies & Geography

Topic 2 – The Global Economy

A – Genesis of the Global EconomyB – Multinational CorporationsC – International Trade and Transportation

© Dr. Jean-Paul Rodrigue© Dr. Jean-Paul Rodrigue© Dr. Jean-Paul Rodrigue

B – MULTINATIONAL CORPORATIONS

Corporations in the Global EconomyThe Structure of MultinationalsImpacts of MultinationalsLarge Multinational Corporations


Corporations in the Global Economy

■ Context• The global economy is organized by trade and infrastructures

supporting these exchanges.• Corporations:

• Separate legal entity, usually used to conduct business.• Main agents generating trade and using the international transport system.• Some are generators of movements (producers).• Some are attractors of movements (retailers).• Some are involved in transportation and distribution.• Some provide services (law, accounting).• The great majority combine elements of the above.

• The territory over which a corporation exercises its influence took a new dimension facing globalization.


The Corporation as a Decision, Management and Planning Unit

Management Unit Decision Unit Planning Unit

Nature Maintain operational conditions.

Decisions about the allocation of resources.

Anticipate market changes and opportunities. Allocate its factors of production.

Scope Production, sales, marketing, payroll, distribution.

Financial, labor, raw materials, etc.

Economic, technological, social and political change.

Time frame

Short term (production cycles).

Short to long term (product cycles).

Medium to long term (business cycles).

Read this content

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/table_corporationplanningunit.html


Conflicting Elements of a Corporation: Reconciling the Needs of Shareholders, Employees, the Society and Customers

• Lowest price.

• Highest quality.

• Tax collection.

• Regulations (wages, benefits, environment, etc.)

• Highest compensation.

• Various benefits.

• Highest dividend possible.

• Share value growth.

Shareholders

Employees

Customers

Society (State)

Explain the conflicting elements a corporation is trying to reconcile.


The Structure of Multinationals

■ Multinational corporation (MNC)• Provides goods and/or services.• A corporation that takes a global approach for:

• Its inputs (raw materials, parts).• Its outputs (customers).

• Different parts of the industrial system are located in places where they are the most productive.

MNCInputs Outputs


What Multinational Corporations Do?

Foreign production• Through affiliates located in several countries• Exploitation of comparative advantages

Direct control• Policies and activities of affiliate• Different forms of ownership (often stocks)

Business strategies• Production, marketing, finance and labor


Types of Multinational Corporations by Strategy

Raw Materials Seekers• Lower input costs• Resource acquisition• First MNCs to emerge

Market Seekers• Achieve economies of scale• Expand market• Large investors in retail and marketing

Minimal Cost Seekers• Look for comparative advantages• Lower production and distribution costs• Remain competitive


Globally Integrated and Multidomestic Corporation

Globally Integrated Corporation

Production system located in several

countries.Complex products or

resources.Interdependency in

productivity.Importance of logistics.

Multidomestic Corporation

Independent operations.Simple products.Production can be

integrated globally, while the marketing is

multidomestic.Better answer the needs

of every market.Independency in

productivity.


How Multinational Corporations are Competing?

Lower production costs• One of the main goals of a corporation. Exploitation of

comparative advantages.

Stability of prices and deliveries• The rationale of low costs must also take account of price

changes of raw materials and parts. Risky to relocate (long-term investment) to take advantage of conditions that can change on the short term.

Product quality• Performance, service and maintenance. A quantitatively

competitive product has limited advantages if not qualitatively competitive.

Production and distribution flexibility• Facing changes in the demand confers a notable

advantage.


The Growth of Large Multinationals: Three Main Options

New

mark

et

op

port

un

ity• Resource,

technology, product

• Technology and Innovation

Bett

er

manag

em

ent • Less

innovative sectors

• Mostly financial (holdings)

• Outsourcing S

tate

su

pp

ort • Regulatory

support or coercion

• Large government contracts (e.g. defense corporations)

• Corporate socialism


The World’s 20 Largest Corporations by Market Value, 2013 ($US millions)

AppleExxon Mobil

Berkshire HathawayPetroChina

Wal-MartGeneral Electric

MicrosoftIBM

NestleChevron

Industrial & Commerical Bank of ChinaJohnson & Johnson

SamsungChina Mobile

GoogleProcter & GambleRoyal Dutch Shell

PfizerChina Construction Bank

Roche

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

Read this content

How can the size of a corporation be measured?

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/mnc.html


Short Assignment: The Impacts of Multinationals

Positive

Favor economic growth (employment)

Provision of investment capitalProvision of goods and servicesTransfer of technology and skills

Increase export opportunities

Negative

Balance of payments (repatriation of profits)

High influence over governmentsCompete with local businesses

Oligopoly / monopoly on local marketLeverage (can relocate / threaten to)

"(A corporation has) neither body to jail nor soul to damn." - Lord Edward Thurlow (1731-1806)


C – INTERNATIONAL TRADE AND TRANSPORTATION

Trade and the Global EconomyGlobal Trade PatternsInternational Transportation


International Trade: A Definition

Exchange across national jurisdictions• Goods or services.• Trade between US states is not international trade.

Directional• Inbound trade: imports.• Outbound trade: exports.

Regulatory oversight• Customs and tariffs.• Nations control what crosses their borders.


Trade and the Global Economy

Economic efficiency• Sell what is produced in surplus and acquire what is lacking.• Lower productions costs (cheaper inputs).• Achieve economies of scale (larger markets).

Accessibility to capital, labor and resources• Large variety of resources being made accessible.• Raw materials, energy, goods, food and labor.• Exchanges of capital, merchandises, raw materials and services.

Interdependencies• Spatial interdependencies between elements of the world-system.• The more integrated economies are, the more they trade.• Indirectly promote harmonious relations.


Economic Rationale of Trade

Cou

ntr

y 1

Cou

ntr

y 3

Cou

ntry

2C

ou

ntry

4C

ou

ntr

y 1

Cou

ntr

y 3

Cou

ntry

2C

ou

ntry

4

Without TradeSmall national

markets.Limited economies

of scale.High prices and near monopoly.Limited product

diversity.Different

standards.

With TradeIncreased

competition.Economies of

scale.Specialization.Lower prices.

InterdependenciesRead this content

Explain the economic rationale of trade

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/withwithouttrade.html


Trends Shaping International Trade

Ongoing Growth• Value of exports: 48 times in current dollars. GDP 22 times and

population 1.8 times.

Containerization• Grows at a rate faster than trade and GDP growth.

Export-Oriented Economies• Imbalances in trade relations.

Multinational Corporations• Vectors of international trade.


Share of Product Groups in World Merchandise Trade, 1900-2012

190019251938195519631970198019902000200820120%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

57.054.243.6

31.726.1

18.113.110.7 7.8 7.9 9.2

40.040.045.0

44.752.3

61.055.0

70.474.866.564.1

5.0 5.1 4.5 3.4 4.5 3.7 3.1 3.6

OtherManufacturesFuelsMining ProductsNatural ResourcesAgricultural Products

Read this content

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/naturetrade.html


Modal Shares of World Trade by Volume and Value, 2008

89.79

0.25

9.96

Volume

SeaborneAirborneOverland

72.71

12.97

14.32

Value

SeaborneAirborneOverland

Read this content

http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/modalsplittradetons.html


World’s 20 Largest Exporters and Importers, 2013

China

United States

Germany

Japan

Netherlands

France

Korea, Republic of

United Kingdom

Hong Kong, China

Russian Federation

Italy

Belgium

Canada

Singapore

Mexico

United Arab Emirates

Saudi Arabia

Spain

India

Chinese Taipei

0 500 1000 1500 2000 2500

Im-ports

Billions of USD

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http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/leadingtraders.html


American Foreign Trade by Maritime Containers, 2010 (in TEUs)

Wal-MartTarget

Home DepotLowe's

Sears HoldingDole FoodHeineken

PhilipsChiquita

SamsungLG GroupIkea Intl.

JC PenneyCostco WholsaleAshley Furniture

JardenGeneral Electric

Red BullNike

Whirlpool

0 200,000 400,000 600,000 800,000

696,000

455,500

296,700

221,600

212,800

211,200

129,000

127,200

117,100

109,100

101,900

95,700

89,900

83,000

77,300

77,100

76,700

74,000

72,300

64,100

Importers

America Chung NamKoch IndustriesWeyerhaeuserDow Chemical

DupontNewport CH Intl

JC HorizonShintech

Allenberg CottonPotential Industries

ExxonMobilDelong

BASFMeadwestvaco

Cedarwood-YoungSDDC

Sims Metal ManagementCargill

ScoularEastman Chemical

0 200,000 400,000 600,000 800,000

300,800

122,400

113,900

109,300

93,600

93,100

82,700

79,800

78,700

78,600

75,500

75,300

70,200

63,700

60,400

60,200

52,200

51,200

50,200

48,100

Exporters

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http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/americancontainerizedimports.html


Cumulative Waves of Transport Development Read this content

Explain the main transport developments since the 17th century

Sailships Steamships Containerships

Canals Railways Highways

Maritime

Land

Air

17-18th Century 19th Century 20th Century21st Century

Airports

Empires and global trade networks

Punctual inland access

Inland and national accessibility

National mobility systems

Global distribution systems

Global mobility systems

International trade and mobility

http://people.hofstra.edu/geotrans/eng/ch2en/conc2en/transport_waves.html


Maritime Shipping Routes and Strategic Locations

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http://people.hofstra.edu/geotrans/eng/ch1en/appl1en/maritimeroutes.html


World’s Major Container Ports, 2012Read this content

http://people.hofstra.edu/geotrans/eng/ch4en/conc4en/Map_largestcontainerports.html


Passenger Traffic at the World’s Largest Airports, 2010

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http://people.hofstra.edu/geotrans/eng/ch4en/conc4en/map_worldpassairports.html


Freight Traffic at the World’s Largest Airports, 2010

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http://people.hofstra.edu/geotrans/eng/ch4en/conc4en/map_worldfrtairports.html


Global Transport

Using the maps on the previous slides, provide an overview of the global transport system such as its main hubs and flows.

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Topic 2 – The Global Economy