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Global Corporation 7

Psychology (De La Salle-College of Saint Benilde)

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17
The Rise of the Global
Corporation
All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses permitted under U.S. or applicable copyright law.

Deane Neubauer

THE HISTORIC RISE OF THE GLOBAL dominant technologies, especially in shipping

CORPORATION – THREE PERIODS and navigation (Harvey, 1990). As Moore and
Lewis contend, the entities operating within
As indicated throughout this text, global cor- this environment were functionally and organ-
porations are inseparable from the more izationally not so very different from contem-
general phenomenon of globalization itself. porary organizations, being possessed of
It follows that how one identifies globaliza- ‘head offices, foreign branch plants, corporate
tion serves to ‘locate’ global corporations, hierarchies, extraterritorial business law, and
both in the complex interactive pattern even a bit of foreign direct investment and
defined by globalization and within given value-added activity’ (Moore and Lewis,
historical periods. This chapter situates the 2000: 31–2).
global corporation in three broad historical The vast heterogeneity of this long period,
periods, of which the last two have become however, leads a majority of scholars to situ-
the most relevant. ate the direct antecedents of the contempo-
The approach to the study of globalization rary global corporation within the dynamics
sometimes termed ‘historical globalization’ of a two centuries-plus long duration span-
locates the phenomenon itself in early patterns ning the period prior to the end of World
of trade and exchange (Bentley, 2003; Gills War II in which the modern nation-state
and Thompson, 2006; Moore and Lewis, system emerged in ways that allowed inven-
Copyright 2014. SAGE Publications Ltd.

2000). In early historical periods as both cities tion and social organization to combine that
and countries extended their reach beyond vastly increased world capital and the wealth
their own borders, this view holds, a form of of nation states. Coupled with an extraordi-
globalization was initiated which then fol- nary rise in global population that attended
lowed complex patterns of interactive engage- the industrial revolution, the societies that
ments organized through trade and directly arose would invent new ways to organize
influenced by the emergent and subsequently the world itself through colonialism and
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THE RISE OF THE GLOBAL CORPORATION 267

imperialism that vastly attenuated their • International companies are importers and
interactions between peoples, states and exporters, typically without investment outside
regions such that a clearly differentiated era of their home country.
of global interaction can be said to exist • Multinational companies have investment in
(Harvey, 1990). Many of the characteristics other countries, but do not have coordinated
product offerings in each country. They are more
of the global corporation that we examine
focused on adapting their products and services
directly in this chapter date from this period to each individual local market.
(for example, patterns of equity ownership, • Global companies have invested in and are pre-
corporate ownership and management of sent in many countries. They typically market
subsidiaries, the relationship of ‘central’ their products and services to each individual
organizational functions’ to supply and dis- local market.
tribution chains, etc.) as attributes of corpo- • Transnational companies are more complex
rate structures in the most prosperous and organizations which have invested in foreign
globally-engaged nations (largely through operations, have a central corporate facility but
colonial and imperialist relationships). give decision making, research and development
As the world emerged from the vast (R&D) and marketing powers to each individual
foreign market.
destructions of World War II, economic
recovery and expansion were led over- More formally the TNC has been defined by
whelmingly by American corporations which the United Nations Centre on Transnational
for a period from the end of the war until Corporations (UNCTC) as an ‘enterprise
the reentry of Japanese and European cor- that engages in activities which add value
porations onto the global scene essentially (manufacturing, extraction, services, mar-
stood for what by then had come to be keting, etc.) in more than one country
viewed as multinational corporations (MNCs) (UNCTC, 1991). This chapter will employ
(Barnet and Mueller, 1974). This period from the term ‘global corporation’ to refer to all of
the end of World War II to the present can be these types, seeking within specific contexts
viewed, therefore, as a third and distinct to be clear about which usage most applies.
period in the transformation of the global As many of the citations employed below
corporation. As the next parts of this chapter indicate, however, these distinctions are
detail, the transformations of the global cor- often not employed within the literature.
poration occurring within this third period An understanding of how global corpora-
have been far-reaching and distinctive, tions operate within contemporary globaliza-
reflecting changes taking place within the tion requires a brief recounting of some of
broader structural dimensions of globaliza- the major changes that have taken place over
tion itself and at the same time significantly the almost 70 years since the end of World
contributing to those continuing changes. War II. As indicated above, US corporations
operating internationally had enormous
advantages in the immediate post-war period
HOW DO GLOBAL CORPORATIONS as they – virtually alone in the world –
FUNCTION? WHAT CONSTITUTES A emerged from the war with their productive,
GLOBAL CORPORATION? organization and distributional capacities
intact. What would take shape as the begin-
The contemporary global corporation is ning of contemporary globalization, however,
simultaneously and commonly referred to dates from the economic recovery of capital
either as a MNC, a transnational corporation structures in Japan and Europe and the reen-
(TNC), an international company or a global try into global markets of their national cor-
company. While much of the remainder of porations. By 1974, Barnet and Mueller in a
this chapter will serve to clarify some of path-breaking volume could both define the
these distinctions, those offered by Iwan MNC as a major economic global actor and
(2012) are practically useful. begin an effective description of how this

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268 THE SAGE HANDBOOK OF GLOBALIZATION

Producer-driven Commodity Chains

Retailers
Manufacturers Distributors and
Dealers

Domestic and Foreign

Subsidiaries and Subcontractors

Buyer-driven Commodity Chains

OVERSEAS U.S. MARKET

Branded
Marketers

Traders

Factories Retailers

Overseas
Buyers

Branded
Manufacturers

Figure 17.1 The organization of producer-driven and consumer-driven commodity chains

Source: Gereffi (2001: 1619).

particular corporate form was coming to and the increasing role performed through
dominate various aspects of global produc- the global system by financial elements and
tion and exchange (Barnet and Mueller, the emergence of the global financial firm.
1974). A considerable amount of other The post-war period can be delineated in a
scholarly work documents various ‘waves’ number of ways. Geriffi, for example, empha-
of global corporate development through sizes three structural periods: investment-
the subsequent six decades to the present. based globalization (1950–70); trade-based
The overall structure of this system globalization (1970–95); digital globaliza-
would stay in place and continue to develop tion (1995 onwards). Within this analysis
throughout the 1970s and 1980s – a period the nature of the global corporation
that stands chronologically just prior to changes accordingly, being driven in each
three fundamental innovations that have case by its evolving purposes and by its
substantially changed the character of the extended reach and abilities (Geriffi, 2001:
global corporation: the advent and impact 1616–18). Another method of projecting
of digitalization and instantaneous global this growth is to examine the sources and
communications; the structural transforma- levels of Foreign Direct Investment (FDI)
tion of global commerce from producer- most of which was of corporate origin. As
driven commodity chains to buyer-driven; Hedley indicates, in 1900 only European

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THE RISE OF THE GLOBAL CORPORATION 269

corporations were major investors, to be were formed just in the period 1996–8
joined by some American firms in the (Gilpin, 2000: 170).
1930s. Citing UN data he dates 1960 as The investment-based period was domi-
the principal turning point for FDI as the nated by producer-driven commodity or value
major driver of extended global corporate chains, which in turn tended to be dominated
development. In each subsequent decade by firms characterized by large amounts of
until the turn of the century, FDI would concentrated capital focused on large-scale or
triple (Hedley, 1999). capital-intensive manufacturing or extractive
Throughout these periods economists, industries. The organization of the dominant
other scholars and government actors at both global firms during this period was power-
the national and transnational level tended to fully influenced by the transformation within
‘frame’ the progressive growth of the global national economies of the older manufactur-
corporate structure (again, referred to almost ing companies wrought by what was viewed
indiscriminately as either MNCs or TNCs) as the progressive ‘de-industrialization’ of
through efforts to define, measure and assess these economies through wide-scale off-
the extent and consequences of FDI, defined shoring of labour applications and its related
initially and primarily as the entry of private costs. (See, for example, Bluestone and
capital from a source external to a country Harrison, 1984.) This progressive shift in the
into a receiving country. Usually referred to siting of manufacture transformed the domi-
in terms of ‘out-ward’ and ‘in-ward’ flows, nant manufacturing firms of these older
supplies of FDI were viewed as the major developed companies into more fully
elements of global economic development, extended and integrated organizational forms
and during various policy periods as ‘essen- that moved many such firms from a self-
tial’ for the development of what was then conscious understanding of themselves as
viewed as the ‘third’ world, even if in reality ‘national firms operating internationally’ into
the vast majority of FDI in the 1990s was more authentically global firms that required
between countries of the ‘developed’ world – extensive corporate integration of their activi-
primarily North America, Europe and Japan. ties throughout the world.
Since 1964 the United Nations Conference Many corporate structures, especially
on Trade and Development (UNCTAD) has those in the United States, operating within
focused on the various roles that FDI plays in the frame of the producer-driven commodity
the development process and has maintained chain had been organized by what came to be
an extensive policy library of global FDI recognized as ‘fordist’ management princi-
statistics as well as the dense structure of ples. US firms in particular had sought to
regulation that frames global etc. corporate transport these models abroad to their inter-
cross-border engagements (Fredriksson, national manufacturing holdings. The
2003). Periods of intense FDI changed the emergence of Japan as a major producer
global corporate landscape. During the nation, especially of automobiles and con-
period 1985–90 FDI grew at an average rate sumer electronics from the 1970s on,
of 30 per cent a year. One result, unsurpris- brought onto the scene new models of effec-
ingly, was the changing landscape of corpo- tive production focused especially on qual-
rate units and their relationship to each other. ity and regimes of flexible production – a
DeAnne Julius indicates that the expansion move that was echoed within European
of FDI, intercorporate alliances, and intra- firms rejoining the global commodity
firm trade during this period reached a level chains. These activities were experienced
at which ‘a qualitatively different set of by US firms as unwelcome challenges to
linkages’ was created among advanced their previously virtually unchallenged
economies (Julius, 1990). It was estimated positions on product design, production
that some 20,000 new corporate alliances efficiency, and quality – and ultimately on

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270 THE SAGE HANDBOOK OF GLOBALIZATION

the ability of these corporate structures to by time and space, current digital technology
maintain their accustomed returns on has worked to ‘dis-place’ into a digital global
investment. The result was a progressive world that makes possible the maximization of
‘reinventing’ of the American business various corporate goals, such as 24/7 activity
model, especially the industrial model – a on common tasks through linked global sites,
challenge that would dominate the curricula the targeting of optimal cost labour markets,
of US business schools for over two decades etc. (Gautam and Batra, 2011).
(Risi, 2005) and which is also continuously The status of symbolic capital within the
associated with the global value shift from global marketplace is evident in the increasing
manufacturing capital to finance and human value and importance being placed on the
capital in progressively networking societies branding created and owned by global corpo-
(Castells, 2009). rations. In a world of continuous and instanta-
Gereffi has argued persuasively that ‘how neous communications, corporate brands
global corporations’ work is largely determined come to symbolize the entire range of corpo-
by whether they are situated in producer-driven rate activity to the extent that individuals who
or buyer-driven commodity chains. Figure 17.1 know virtually nothing else about a corpora-
drawn from his work on US firms suggests tion but its brand come to interpret its status in
indirectly that the more buyer-driven they are, the world and the value of its products and
the more nodes exist within their networks and services through the brand. Known as ‘Brand
the greater either their interdependence on Finance’, a new discipline now ranks corpora-
other actors or their imperative to establish tions in global league tables on the value of
extensions (by whatever ownership or contract their brand, in a manner parallel to their rank-
means) of supply, finance, etc. ing by various entities in terms of their aggre-
The degree to which these generalizations gate revenue, earnings, etc. (Brand-Finance,
were apt has intensified with each extension 2012). In this regard, for instance, technology
of digital reach throughout the world. Com- brands had become the most valuable global
modity chains now need to be conceptualized corporate brands in 2012 with Apple lauded
as existing within extraordinarily complex for having ‘leapfrogged’ Google for the hon-
information structures in which commu- our of placement at Number 1 with a brand
nications are virtually instantaneous and finance valuation of US$70.6 billion, whereas
appear to grow exponentially. Global corpo- another success story, Amazon, saw its brand
rate structures and operations can be viewed finance value rise by 61 per cent over the
within the ever-changing digital environment previous year.
as framed by the constant need to develop and Digitalization has affected the entire
adapt. Equally, one can envision corporate structure of how global corporations oper-
activity as being propelled into extensive ate. Producer driven streams have progres-
communication environments in which the sively integrated their corporate structures
dynamics of competition frame much of their to reduce the effects of time and distance,
behaviour and make activities such as the abil- especially for services performed within
ity to establish, maintain and extend corporate corporate structures such as design, finance
brands an intrinsic element of global capital and accounting, advertising and brand
– literally the point at which material capital development, legal services, inventory con-
(that required to produce, deliver and make a trol etc. These extensive capabilities of
product or service known) becomes insepara- control and management at a distance blend
ble from symbolic capital (Reich, 1991, 2010). many of the differentiated aspects of prod-
For a wide variety of so-called service activi- uct and service based firms. Digitalization
ties that had previously been deemed ‘in- is transforming the classic value chain of
place’, for example many aspects of medical manufacturing focused on innovation in
care, software design, etc. and thereby bound which:

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THE RISE OF THE GLOBAL CORPORATION 271

• Product design and innovation are replaced with this regard, for example, Kentor examined the
driving innovation through digital product design critical period from 1968 to 1998 in which
• Labour intensive manufacturing is replaced by global corporations were developing much of
digitizing the factory shop floor the structure replicated in current operations.
• Supply chain management is replaced by His goal was to empirically examine the ‘eco-
globalizing through digital supply chain
nomic and spatial expansion of transnational
management
• Marketing sales and service is replaced by digital
corporate networks overtime, in terms of both
customization. (Capgemini, 2012) individual countries and the global network as
a whole’ by charting the shifting linkages of
the globe’s 100 largest transnational manufac-
Buyer-driven value streams have increasingly
turing corporations (Kentor, 2005). In terms of
become digital with companies’ specialization
both growth and concentration the results were
in Internet retailing of goods and services con-
startling. Whereby these largest industrial cor-
tinuing to gain market share over fixed in-
porations owned 1,288 subsidiaries in 1962, by
place marketing and selling. The past three
1998 the top 100 industrial corporations owned
decades have borne witness to a fundamental
nearly 10,000 subsidiaries (Kentor, 2005: 266).
transformation of the apparel industry in which
Varieties of subsequent research replicate the
not only has apparel manufacture moved out of
essential findings using other methodologies
the older industrial economies (which are still
and indicators. The Global 100 firms, a listing
its biggest markets), but have also become that includes all sectors of the global economy,
fundamentally driven by digital operations grew from a 0.09 share of global GDP in 1983
from design, to ordering, to factory processing, to 0.13 in 1998. Expanding the sample some-
to inventory control, delivery and perhaps what, the revenues of the Global 500 grew
most importantly branding, marketing and from 0.15 to 0.28 of GDP between 1983 and
advertising. Commonly known as the Quick 1998 (Kentor, 2005).
Response (QR) management system the domi- Another indicator of concentration esti-
nant system operates within and between mates that in 2009 of the world’s largest eco-
global corporate structures consisting of three nomic entities 44 are corporations; if one
steps wherein retailers adopt integrated elec- examines the top 150 units the percentage that
tronic point of sale technologies, which allow are corporations rises to 59 per cent. The 44
for instantaneous communications between corporations in the top 100 in 2009 generated
sales, reordering and production units, and revenues of US$6.4 trillion, equivalent to 11
delivery control. In a second process firms per cent of GDP (Global Trends, 2013).
have redesigned internal management prac- Such questions about the relative size of
tices that allow for faster turnaround of global corporations and their impacts on the
merchandise and allow for more effective world economy figure strongly in making an
inventory control. In the third stage, retailers assessment about their relative ‘net value’ or
and manufacturers establish an integrated ‘worth’ to the world. It is useful to note that
supply chain ‘with joint product development like so many issues having to deal with the
planning and inventory control’ (Cammett, vast complexities of global corporate struc-
2006: 32). ture, how one chooses to look at the data
Another, somewhat different approach to does much to determine what one actually
the question of what global corporations do sees. The data cited above, for example,
and how they function is to view them as a which compares corporate sales with GDP
complex collective activity, constituting either has become one of the most common ways of
a ‘global system’ of corporations or a network seeking to assay the relative size of global
of global corporations that as a structure inter- corporations, and from that to infer their rela-
acts in complex ways, doing much to consti- tive influence. Perhaps the most common
tute the global economic system as a result. In citation is to the work of Anderson and

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272 THE SAGE HANDBOOK OF GLOBALIZATION

Cavanagh who in 2000 determined that of highly concentrated structure of ownership and
the world’s largest 100 economic units 51 interlocks and a network structure dominated
were corporations (Anderson and Cavanagh, by a very dense core in which three-quarters of
2000). De Grauwe and Camerman (2003), the ownership of firms in the core remained
however, argue that corporate sales and in the hands of firms within the core itself. As
GDPs are not in fact directly or usefully they conclude: ‘This is a tightly-knit group of
comparable. GDP is calculated as the sum of corporations that cumulatively hold the
all values added by each producer, not the majority shares of each other.’ Framed another
sum total of all the sales of all producers. way, approximately 40 per cent of the control
Calculating in this manner, they contend, over the economic value of TNCs in the
results in significant amounts of double world is ‘held via ownership relations by a
counting and would create much higher GDP group of 147 TNCs in the core which
figures. While agreeing that global corpora- has almost full control over itself’ (Vitali,
tions are vast in size, no reason exists to Glattfelder and Battiston, 2011: 4).
conclude that they are ‘bigger than nations’, When one attempts to assess the overall
or that their size relative to nations has role of global corporations, it is clear that
increased. A related issue that often figures they constitute such an essential part of the
within policy debates carries the presump- economy that their various and multiple
tion that the arena of all global corporations activities in fundamental ways determine
is effectively represented by their best- what that economy is going to be. This was
known, larger exemplars, no matter how size amply demonstrated in the financial crisis of
is measured relative to nation states. To 2006–7 that was triggered by events that
clarify the extent of global corporation activ- would merely two decades earlier have been
ities Stopford points out that by 1998 cross- regarded largely as phenomena internal to
border economic activity had become so the US economy and from which the ‘rest’ of
commonplace that fully 45,000 firms could the world might arguably have distanced
be categorized as such, most of which oper- itself. That, however, is all too obviously not
ated with fewer than 250 employees, and what happened – in large part because global
with many service companies operating in as financial firms, among them leading US
many as 15 countries with 100 or fewer firms, had created a variety of financial
employees (Stopford, 1998: 2). instruments organized around US real-estate
Another approach to estimating the concen- values to be traded within a global market as
tration of global corporations has been to hedgeable securities. As the International
examine the interlocks that exist between their Monetary Fund (IMF) has concluded in a
boards of directors, often referred to as ‘the recent report on the financial crisis of 2007
network of corporate control’. Utilizing a vast and beyond, the prosperity of the preceding
data set and complex network models and two decades owed much within the US
analyses, Vitali, Glattfelder and Battison economy to total credit market borrowing
(2011) sought to move beyond well-known that grew from approximately 160 per cent of
correlates of the concentrations of existing GDP in 1980 to 350 per cent in 2008. This
wealth and income, and explore the actual increasing debt structure focused on the one
degree to which interlocking membership hand at the household level where borrowing
results in control of global corporations. roughly doubled from 45 per cent of GDP in
Employing a very large data set of 43,060 1984 to 97 per cent in 2008 and on the other
TNCs their analysis indicated a network of all on financial sector debt which grew from 19
ownership ‘originating from and pointing to per cent of GDP in 1964 to approximately
TNCs’ with the resulting network pointing to 115 per cent in 2008 (IMF, 2012).
600,508 nodes and 1,006,987 ownership ties However, numerous commentators agree
(2011: 2). Their findings revealed a very that had this debt not been securitized through

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THE RISE OF THE GLOBAL CORPORATION 273

novel and widely traded instruments in the These companies have also become active
period prior to 2008, the extent of the global in the broad pattern of global mergers and
crisis may have been substantially mitigated acquisitions (M&A), a primary vehicle by
(Harvey, 2011; Stiglitz, 2010). However one which corporate concentration takes place.
interprets the actual playing out of the finan- To cite Ahern:
cial crisis and estimates of its potential sever-
ity, it is clear that global financial firms and In 2010 these companies accounted for 2,447
the 24/7 trading markets they have created acquisitions, or 22% of global M&A transactions,
which is up from 661 acquisitions, or 9% of total
constitute a new form of global corporation M&A acquisitions, in 2001. Of the 11,113 M&A
whose activities are capable of impacting the deals announced in 2010, 5,623 (50%) involved
global economy in powerful and novel ways. emerging market companies, either as buyers or
as take-over targets of MNCs in advanced coun-
tries. (Ahern, 2011: 23)
WHAT IS DIFFERENT ABOUT THIS
PHASE OF GLOBAL CORPORATE The fact that the global economic slowdown
DEVELOPMENT? resulting from the financial crisis of 2007 has
had a lesser impact on many developing
The so-called ‘developing economies’, and economies, especially the BRICS, indicates
especially those of Brazil, India and China – the extent to which they have become a new
the so-called BRICS economies – have and important source of capital within the
become the most dynamic sector of global global system.
corporate growth, represented in part by their Capital flows in general over the past
significant FDI over three decades. While the decade-and-a-half have begun to change
total of FDI flows is still less than that which from the dominant north–north/north–south
passes between fully developed countries, dynamic to one in which south–south and
Table 17.1 demonstrates the rapidity of capi- south–south capital flows are significant
tal flows to developing countires. (Rajan, 2010) with most of the south–north
The relative size, growth and range of capital flows coming from China and India.
activity of global corporations from the Examples include China’s Lenovo corpora-
emerging economies suggest that they are tion’s purchase of IBM’s PC business and
on a trajectory that will soon situate them India’s investment in various historically
firmly within those of the historically more British firms including Jaguar Land Rover
developed economies. The number of (Economist, 2011). Increased north–south
global corporations from the emerging mar- investments during this period allowed
ket economies listed in the Fortune Global global north corporations to rebound quickly
500, which ranks corporations by revenue, from their profit losses and restore income
rose from 47 firms in 2005 to 95 in 2010. growth. The relative robust nature of the

Table 17.1 Capital flows to developing countries, 2005–10 ($bn)

Type of flows 2005 2006 2007 2008 2009 2010

Total 579 930 1650 447 656 1095
FDI 332 435 571 652 507 561
Portfolio investment 154 268 394 -244 93 186
Other investment* 94 228 686 39 56 348

* Other investments include loans from commercial banks, official loans and trade credits.
Source: UNCTAD (2011).

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274 THE SAGE HANDBOOK OF GLOBALIZATION

emerging economies has continued to world such as Malaysia, Mexico, Russia,

attract FDI and to create conditions leading Turkey and Vietnam. The following list sug-
to the rapid expansion of their nationally gests some exemplary cases employing 2009
based global corporations (UNCTAD-WIR, data.
2011: 26). China is the largest developing
country outward investor with estimated Emerging Market Global
holdings in 2009 of approximately US$1 Corporations:
trillion (OECD, 2010). The differential
impact of such emergent global dynamics • Basic Element (Russia) is a world leader in
has moved some observers to suggest that alumina production
our previous distinctions between global • Bharat Forge (India) is one of the world’s largest
north and south are no longer adequate to forging companies
• BYD Company (China) is the world’s largest man-
suggest the overall dynamics of growth and
ufacturer of nickel-cadmium batteries
inactions within the global system. Wolfsen- • CEMEX (Mexico) has developed into one of the
sohn, for example, has suggested a charac- world’s largest cement producers
terization that he terms ‘a four-speed world’ • China International Marine Containers Group
that differentiates countries as Affluent, Con- (China) is the world’s largest manufacturer of
verging, Struggling and Poor, with the BRICS shipping containers
dominating the growth of the convergent group • Cosco Group (China) is one of the largest ship-
(Wolfsensohn, 2007). ping companies in the world
The importance of global corporations in • Embraer (Brazil) has surpassed Canada’s
Brazil, India and China to the current and Bombardier as the market leader in regional jets
projected global economy is singular. With • Galanz Group (China) has a 45 per cent share of
the European and a 25 per cent share of the US
40 per cent of the world’s population the
microwave market
BRICS represent a primary force in both • Hisense (China) is the number one supplier of
global production and consumption. flat-panel TVs to France
Hawksworth and Cookson predict that • Johnson Electric (China) is the world’s leading
‘middle class’ consumers in China and India manufacturer of small electric motors
will grow from some 1.8 billion in 2010 to • Nemak (Mexico) is one of the world’s leading
3.2 billion in 2020 and 4.9 billion by 2030 suppliers of cylinder head and block casings for
(Hawksworth and Cookson, 2008). The rel- the automotive industry
ative import of their global corporate cul- • Sistema (Russia) is a conglomerate with a focus
tures can be gauged in part by the fact that on telecommunications
in 2012 global corporations in China made • Tata Chemicals (India) is an inorganic-chemicals
producer with a significant global market share
up 73 of the largest in the Fortune 500 list
of soda ash
(CNN Money, 2012), and whereas Brazil • Techtronic Industries Company is the number one
and India with eight apiece currently supplier of power tools to Home Depot
account for a small share of such corpora- • Wipro (India) is the world’s largest third-party
tions, emergent market countries are pro- engineering services company. (The Boston
jected to account for a near doubling of their Consulting Group 2009)
share of world trade over the next 40 years,
reaching nearly 70 per cent by 2050 (Ahern, While BRICS are host countries to the lar-
2011). In 1998 only one of the top 100 gest number of global corporations among
global corporations was located outside the developing countries, these corporations are
United States, Europe or Japan (Oatley, also distributed across other market areas with
2008). Mexico, Russia, the United Arab Emirates,
Rising global corporations in the BRICS Turkey and Thailand next in order of
are joined by emergent large companies in frequency (Ahern, 2011). In 2009 China
other developing economies throughout the became the leading trade partner of Brazil,

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THE RISE OF THE GLOBAL CORPORATION 275

India and South Africa, and Tata of India The entry of such corporations into the
became the most active investor in sub- global corporate world has created a variety
Saharan Africa. OECD data indicate that of concerns, many of them focused on China.
over 40 per cent of researchers are now in Concerns take different forms. Some view
Asia. The OECD has examined the growth of such firms as unwelcome market competitors
developing economies in terms of their share willing to employ their potential and actual
of the global economy in purchasing power enormous capital resources to create domi-
party terms. Based on this analysis in 2000 nant stakes in various national industries,
the non-OECD member countries’ share of especially those involving the extraction and
Global GDP was 40 per cent; in 2010 it was organization of natural resources. In such
51 per cent; and in 2030 it will be 57 per cent cases the ‘full weight’ of state ownership is
(OECD, 2010). However, even with the rela- seen to give such corporations unfair com-
tively enormous growth of the emerging petitive advantages. Another characterization
economies, the massive population size of of China’s state-owned global corporations
their largest countries dilutes the per capita views them as legacy institutions (‘relics’) of
effect of growth. Dadush and Shaw project China’s state socialist system that perpetuates
that in 2050 China will have the largest in its revised neo-capitalist form institutions
economy overall, but its per capita income that lack the essential features of economic
will be only 37 per cent that of the United efficiency and competitive discipline that the
States; India as the third largest economy global corporate structure promotes – they
with have per capita income of just 11 per are in effect subsidized by the whole of the
cent (Dadush and Shaw, 2011: 30). Chinese state in all their inefficiencies, and
State-owned corporations, which may be this property gives them unwarranted market
defined as ‘enterprises comprising parent advantage within global competition, being
enterprises and their foreign affiliates in ‘shielded’ as it were from true market
which the government has a controlling discipline (Woetzel, 2008: Greenacre, 2012).
interest (full, majority, or significant minor- Another view characterizes these firms as
ity), whether or not listed on a stock a ‘new face’ of global corporate reality as
exchange’ are playing a significant role in their strong domestic markets and abilities to
these emergent economies (UNCTAD-WIR, gain capital from within their host countries
2011: 28). ‘State-owned’ may include both contribute to an overall expansion of global
national and sub-national governments such corporate reach, especially when viewed in
as regions, provinces and cities. UNCTAD the context of their likelihood to invest in
in 2010 identified at least 650 state-owned south–south ventures and their propensity to
global corporations with more than 8,500 invest in so-called Greenfield ventures (that
affiliates operating around the world of form of FDI in which the parent firm starts a
which 345 (52.8 per cent) are in developing new venture in a foreign country by creating
countries and 235 (36 per cent) in Asia. new operational facilities from the ground
State-owned corporations differ remarkably up). Yet other concerns focus on national
in structure and function by country. Over- security issues (the ability of such corpora-
all China has the largest number of such tions to privilege their host country for
corporations that are completely sole- national security reasons) and issues of trans-
funded – some 154,000 in 2008. Of these parency and corruption (UNCTAD-WIR,
only a small percentage attains the status of 2011: xiii). In a recent effort to develop
global corporations (UNCTAD-WIR, 2011: guidelines for governance within state owned
30–1). In many other countries it is more enterprises OECD has framed the issue as
common to have a majority of state funded ‘finding a balance between the state’s respon-
global corporations having less than sole sibility actually for actively exercising its
state ownership. ownership functions such as nomination and

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276 THE SAGE HANDBOOK OF GLOBALIZATION

election of the board, while at the same time of relinquishing elements of control and at
refraining from imposing undue political reduced profit levels. NEMS constitute a
interference in the management of the com- significant portion of global corporate activ-
pany’. This report also emphasizes ity within emerging economies. Total sales
the need to ensure a level playing field on through such arrangements in 2010 is esti-
which private companies can compete suc- mated to have reached US$2 trillion; contract
cessfully with state-owned enterprises while manufacturing and services outsourcing
not distorting competition by the use of approximated US$1.1–1.3 trillion, franchis-
state regulatory or supervisory powers ing US$330–350 billion, licensing US$340–
(OECD, 2005). 360 billion, with management and contracts
Non-equity modes of production (NEMS) around US$100 billion. Collectively NEMS
have become an increasingly important form employ between 14–16 million workers. In
of global corporations within the emerging some countries they account for up to 15 per
economies. The traditional mode of organi- cent of GDP and in some industries,
zation for global firms in these economies was they account for 70–80 per cent of exports
through FDI, which manifested itself through (UNCTAD-WIR, 2011: 123).
equity holdings and created structures by The relative importance of NEMS to
which parent firms owned and directly man- both the global economy and the structure
aged their subsidiaries – an organization form and governance of global corporations in
known as internalization because control and the future is suggested by how NEMS
risk reside with the parent, as do the vast growth has outpaced that of base industry
majority of revenues and profits. However, growth in electronics, pharmaceuticals,
throughout the latter twentieth century period footwear, retail, toys and garments: in elec-
of vertical integration of global value chains tronics the ratio is 6:1 and that of garments
by advanced economy global corporations, 1:1. Referencing contract manufacturing as
the ‘seeds’ of non-equity relations had been an estimated share of the cost of goods
well established: sold, toys and sporting goods led at 90 per
cent followed by consumer electronics 80
… how and whether firms can capture value per cent, automotive 60–70 per cent,
depends in part on the generation and retention generic pharmaceuticals 40 per cent and
of competencies (that is, resources) that are diffi- branded pharmaceuticals 20 per cent.
cult for competitors to replicate. In practice, even (UNCTAD-WIR, 2011: 134). In short, such
the most vertically integrated firms rarely internal-
arrangements are growing at rates substan-
ize all the technological and management capa-
bilities that are required to bring a product to tially in excess of the industries within
market … If an input, even an important one, is which they exist. Overall this implies that
required frequently, then it will likely be acquired in emerging economies many firms special-
externally’. (Gereffi, Humphrey and Sturgeon, izing in these relationships will themselves
2005)
become very large firms employing many
thousands of workers with hundreds of bil-
NEMS represent an increasingly vast net- lions of dollars of annual revenue (such as
work of relationships in which global pro- Foxconn/Hon Hai (China) with US$59.3
duction chains are assembled through con- billion in sales and 611,000 employees;
tract manufacturing, services outsourcing, Flexronics (Singapore: US$30.9 billion,
contract farming, franchising, licensing and 160,000 employees; LG Chem (Republic of
management contracts. NEMS are viewed as Korea: US$13.1 billion and 8,000 employ-
externalization for the corporation, which ees), or Hyundai Mobis (Republic of Korea:
gains access to benefits within global value US$11.2 billion, 6,000 employees) – 2009
chains without the direct investment of com- data (UNCTAD-WIR, 2011). Many others,
parable amounts of capital, albeit at the cost especially those within less intensive value

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THE RISE OF THE GLOBAL CORPORATION 277

chains, will remain relatively small even as quickly and with acknowledged high qual-
their industry sectors grow. These data sug- ity elevated Apple into the world’s highest
gest that global corporations are choosing valued firm in 2012. (Albeit with consider-
to do substantial amounts of their business able costs, as the repeated criticisms of
through non-equity relationships, trading Foxconn’s labour practices have become an
off elements of risk, control, profit and in issue of global import for both companies.)
some cases innovation in exchange for
engagement in inter-corporate arrange-
ments that preserve their own capital and THE RELEVANCE OF THE CHANGING
equity positions. REGULATORY ENVIRONMENT TO THE
In summary, global corporations within STRUCTURE AND OPERATION OF
the emerging economies appear to be of GLOBAL CORPORATIONS
three general types: those that have arisen as
a result of growing national power of the What a global corporation ‘does’ – how it
host country, responding (as in China and operates within its host environment and
India) to the need to aggregate and deploy throughout the multitude of regions and
national capital to provide the bases for countries in which it has operations – is to a
economic development. Whether initially significant degree a result of the various
capitalized with FDI or state funds, such regulatory environments that frame its opera-
firms, such as many Chinese energy and tions and impinge on it. Because so much of
industrial material firms, have increasingly this activity is ultimately defined and enu-
turned to supplying their own rapidly grow- merated as ‘trade’, a significant amount of
ing internal markets while investing heavily this regulation emerges from the global
in off-shore material resources (often in structures that have arisen to regulate global
Australia and Africa). A second type of trade at all levels. Within the past decade
global firm has focused on replicating major regulation has either followed the path cre-
consumer pathways in both developed and ated by macro trade structures such as the
developing markets. The Korean automo- General Agreement on Trade in Services
tive firm, Hyundai is a case in point. In 2011 (GATS), in which the major change to the
it achieved a Fortune Global 500 rank of 55, previously prevailing General Agreement on
up from 78 in the previous year. With Tariffs and Trade (GATT), was to include ser-
80,000 core employees, it produces to a vices (including financial services) as a trade
global market with significant market pen- category. Or, alternatively, during the same
etration on all continents. NEMS represent period, portions of the world – most specifi-
a third type in which working through con- cally Asia – have experienced a significant
tract and other relationships with developed growth in bilateral trade agreements as the
market firms has been the basis for their rise of China as a major producer of both
rapid increase in size and influence, which finished products and pre-finished compo-
in turn has empowered the firms to establish nents has brought nations together to negoti-
other complex linkages beyond core con- ate their relative place within emergent value
tract markets to build competitive advan- chains (Naya and Plummer, 2005).
tage in both global and domestic markets, Viewed across the past four decades, the
usually by gaining access to and exploita- ‘regulatory dynamic’, as it affects global
tion of superior innovative technology. The corporations, has manifested itself into two
relationship between China’s Foxconn and conflicting thrusts. One has been the pro-
Apple is a well-known case in point as the gressive and steady regulatory movement at
combination of Apple’s own innovative both international and national levels of lib-
technological capacities and Foxconn’s abil- eralization, resulting in part in the transfor-
ities to adapt production changes relatively mation of investment codes, trade rules and

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278 THE SAGE HANDBOOK OF GLOBALIZATION

operating rules to reduce barriers to global highlighted in mass media and as thus pose
investment and trade (Steger and Roy, 2010). threats to end products or corporate brands
Embodied within neo-liberal beliefs and (Kolk and van Tulder, 2005). Such studies
policies, this thrust toward liberalization has also indicate some positive support for
accounted for regulatory environments dis- the claim that CSR results in outcomes
tinctly favourable to global corporate invest- that benefit corporate stakeholders, albeit
ment and value chain developments across primarily shareholders. Even while some
the spectrum of goods and services. A second proponents of CSR argue that the adoption
thrust has resulted from national regulatory by and adherence to the kinds of codes
changes targeted usually at specific indus- proposed by CSR create a climate of win-
tries or investment patterns. In 2010, UNC- win for both the corporations and their
TAD-WIR (2011) catalogued such regula- critics (and therefore should rationally
tions for both developed and developing impel them toward the embrace of such
countries with respect to their effect on FDI, codes), this view is often contested by
finding that 74 favourable changes facilitat- those on the corporate side more sensitive
ing entry and establishment, and the opera- perhaps to their political character. Utting
tion of capital (49 of which were in develop- (2002) cites a telling case of a former
ing countries) and 49 less favourable to FDI executive of a large oil company remark-
(with 34 of these from developing coun- ing at a UN sponsored CSR workshop ‘that
tries). If one looks at national regulatory if the win-win argument were so compel-
changes by industry with respect to their ling “then we wouldn’t be sitting around
relative liberalization or restrictive nature, this table”’. The executive went on to
with the exceptions of Agribusiness and remind those present that it had been
Extractive Industries the significant majority ‘NGO and consumer’ pressures that were
of changes has been in the direction of less- changing corporate behaviour (Utting,
ened regulation (UNCTAD-WIR, 2011: 5). 2002: 62, cited in Levy and Kaplan, 2007).
A third source of regulatory effort has In recent work, Lemon et al. have pro-
been the significant rise over the past dec- posed a set of stakeholder metrics that will
ade-and-a-half of corporate social respon- permit measurement of CSR over time and
sibility (CSR) as a self-regulatory pattern its utility for multiple stakeholders, including
that has been brought to global corpora- but not limited to shareholders (Lemon et al.,
tions in an effort to render them more 2011). Whatever its current value across the
accountable across the range of their many whole range of global corporate decision
and varied stakeholders. Resulting in large making behaviour, it is clear that as a move-
part from the cumulative effect of more ment CSR has sufficient support both to
than three decades of intense critique of bring corporate decision makers ‘to the table’
global corporate behaviour and its varied to discuss important aspects of corporate
negative consequences, CSR represents a behaviour and in specific instances to create
wide ranging set of proposed governance a relevant regulatory framework.
structures, including rules, norms, codes of In the aftermath of the fiscal crisis of 2007
conduct and standards developed largely the need for greater regulation of global
by the global NGO community (Levy and financial markets has become the clarion call
Kaplan, 2007). Various empirical studies of many. The American economist Joseph
over this period have sought to evaluate Stiglitz has been persistent in his arguments
efforts taken by global corporations to that without some form of global financial
develop greater degrees of responsibility regulation with sufficient reach and enforce-
over global supply chains, particularly ment to deal with the kinds of global trading
where deficiencies, often with respect to risks present in that crisis, that the global
occupational health and safety, have been economy stands without the necessary

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THE RISE OF THE GLOBAL CORPORATION 279

regulatory tools to deal with the intense which global corporations have been the
aggregation and profit seeking within global primary driving agents has a powerful long-
financial capital that continue to characterize term negative trending effect. Overall,
the system (Stiglitz, 2010). the data on global inequality measured
by income suggests (as it has for the better
part of two decades) that from top to bottom
THE NORMATIVE CASE RE: GLOBAL such inequality continues to be widely dis-
CORPORATIONS tributed both between and within countries:
as the richer countries grow farther apart
At least since the early 1970s the normative from the poorer, so within nations, among all
case for global corporations has been insepa- three developmental categories – older devel-
rable from the broader discourses and struc- oped countries, developing countries –
tures surrounding globalization itself. In the including the BRICS – and more newly
two decades following World War II and in developing countries is continued economic
the context of global rebuilding of manufac- growth accompanied by growing inequality.
turing and trade capabilities, they were Ortiz and Cummins (2010, 2011) make the
viewed primarily as agents of desired eco- case clearly and powerfully. Although using
nomic development, and FDI was eagerly two different methodologies to examine
sought after throughout the world. However, income distribution, each offers strikingly
toward the end of the 1960s global cor- similar results. Overall, measured in market
porations were viewed as gaining their eco- exchange rates, the top quintile (20 per cent)
nomic prominence through a variety of controls more than 80 per cent of global
socially destructive means. Much of the post- income contrasted by one percentage point for
colonial critique that came to be framed in the those in the bottom quintile. While this dispar-
discourse of north–south globalization, anti- ity improves when measured in PPP exchange
globalization movements and dependencia, rates (67 per cent for the top quintile to 2.6 per
focused on the role of multinational cor- cent for the bottom), both models reveal a
porations as agents of a system that on balance world that is deeply characterized by income
was resulting in greater global wealth inequal- disparities. Both of their results also suggest
ity, income inequality, lack of effective worker that some progress is taking place for the very
protection, environmental degradation, pro- poorest; however, the sluggish pace of change
ducing national cultures of corruption through is clearly unacceptable:
corporate collusion, and in some instances
threatened national sovereignty. Beyond Using the rate of change under the global
these, within the context of the post-2007 accounting model with market exchange rates, it
financial crisis is the threat that such corpo- took 17 years for the bottom billion to improve
their share of world income by 0.18 percentage
rate structures, operating in important ways points, from 0.77 per cent in 1990 to 0.95 per
outside the reach of effective governmental cent in 2007 … At this speed, it would take more
control – national, regional or global – than eight centuries (855 years to be exact) for the
constitute an economic concentration of bottom billion to have ten per cent of global
wealth and power sufficient to generate a income. (2011: 19)
global crisis of proportions that exceed the
capacity of existing mechanisms of govern- Whatever other ‘global entities’ are involved
ance to remedy (Stiglitz, 2010). in this pattern of wealth creation and distri-
From many points of view the extent to bution, global corporations stand in the
which wealth and income inequality appear centre of the structure that establishes and
to be increasing throughout the world sug- distributes global wealth. The role of the
gests that in some macro-equation the nor- state over the past four or five decades as a
mative balance of development within vehicle for redistribution has been increasingly

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280 THE SAGE HANDBOOK OF GLOBALIZATION

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