Globalisation theories

Globalisation theories

1. STRONG GLOBALISTS- Giddens, Castells, Ritzer

   • 1. MNC's global companies, Global strategies
   • 2. Outsourcing of production & FDI continue to grow
   • 3. US not as dominant, pressure from east-asia
   • 4. Radical changes (Electricity, phone = ability to tap into global markets

2. SCEPTICS - Hirst & Thompson, Ruigrok & van Talder

   • MnC's not really global companies... 'national companies with units abroad' - Boards dominated by home nationals
   • National regulatory frameworks of countries differ. Differences in labour markets - e.g. strong legal protection of employees in France & Germany, Virtually none in US.
   • 'Varieties of capitalism' (Whitley, Dore, Lane). Different economies operate according to different logics. No real signs of 'convergence' driven by globalisation
   • Levels of international trade exxagerated
     • Conclusions: General jist of globalisation is true e.g world is smaller. Important to be sceptical though as vast swathes of the world cut off from globalisation e.g Africa. Rise of anti-globalisation feelings and views, E.g, Trump , Brexit.
   • US companies dominate the world economy
   • Hirst and Thompson assert that "we do not have a fully globalised economy, we do have an international economy

3. INTERMEDIATE POSITION - Held, McGrew, Goldblatt

   • Strong globalist/ sceptics dichotomy is too simplistic. No single cause nor outcome, is a patch word.
   • Certain paradoxes
     • Nation states reconstituting themselves in light of globalisation but are not in demise - BREXIT
     • International relations are changing but this is not a case of old power balances disappearing (hyperglobalists) or intensifying (sceptics)
     • Tendencies for and against globalization can coexist in paradoxical embrace - Brexit shows people want cheap imports and travel but no immigration

4. Why do firms Globalize?

   • Neo-Classical economic theory - (efficient allocation of scarce resources)
     • Markets are competitive
     • Firms respond rationally to market forces
     • FDI occurs where sources of labour are cheapest
     • Critique:
       • Why does forgein rather than domestic investment take advantage of cheap labour? - Especially because domestic firms have advantages (local knowledge, Legislation)
       • From empirical standpoint, doesn't explain why pattern of FDI in last 50 years is from developed to developed countries.
   • Market Power theory (Hymer 1960) - (all things being equal, local firms will have advantages, such as: Better understanding of local environment, competitors, legislation etc.
     • However foreign TNS/MNCS have advantages: 1. Value in brand 2. access to capital 3. Economies of scale 4. Intellectual property rights e,e patents.
       • Markets are imperfect not competitive
       • These allow for easy expansion overseas
       • Critique:
         • Better at explaining FDI from develpooed to developing countries
         • Does not explain why certain locations are preferred over others (market access)
         • Does not explore links between FDI and the nature of the product (e.g. complexities and uncertainties)
   • Product life cycle theory - (Vernon 1966) -- Location of production evolves over life-cycle of the product
     • New products are introduced in more developed economies, then exported mostly to other developed economies
     • Production gets relocated to overseas markets via FDI, as local competition in the developed export markets increases or because of other location factors e.g import tariffs
     • As product reaches maturity, gets produced with standardized technology & low skilled labour. Thus, developing countries experience competitive advantage in low labour costs
     • Critique:
       • FDI is uneven, doesn't evolve in such evolutionary sequence
       • Reciprocal investment between countries sometimes in same product lines e.g. GM factories in Germany, BMW factories in USA
     • PERHAPS: good at explaining one particular aspect of globalisation, technological products, but even then sceptical of its natural evolution.
   • Eclectic paradigm (broadest definition) - John Danning - TNCS develop in response to three sets of factors
     • 1. Ownership assests - e.g. production techniques, management techniques, brands ---> competitive advantage in overseas countries
     • 2. Internalisation benefits - Costs of FDI (overseas subsidiary) are less than the costs of maintaining a relationship with another firm licensed to produce the product in the overseas market (transaction cost economics) ---> there are risks associated with the local firm that is licensed. Reputation risk, opportunism risks (cutting corners, copying products)
     • 3. Location - access to markets or resources, reduced production costs, political conditions (product lifecycle theory). Access to deep pockets of resources, location advantages ---> Nissan sunderland. For Nissan being in Britain gave access to European market without import tariffs --> market access advantage
     • Critique: We view the decision to globalise as primarily based on economic efficiency considerations. Tends to underplay issues of power e.g. relations between capital and labour or between business and governments