Discuss the roles and relative importance of NICs and TNCs in a changing global economy.
An economy is the activities related to the production of goods and services within a specified geographic region. This can exist on a national scale, the trade and services within a country, but equally, if countries trade goods and services with each other, their economies interact, it can happen on a global scale, this is known as globalisation. This interaction of economies on a worldwide scale is else known as the global economy, and NICs and TNCs play a fundamental role in changing how it operates. An ‘NIC’, else known as a ‘newly industrialising country’ is a country where industrial production has grown sufficiently for it to become a major source of their income as a nation. A ‘TNC’ is a company that operates in at least two countries. They often have management headquarters in their home country and operate in host countries alongside; examples would include GlaxoSmithKline, BP, Wal-Mart and Coca-Cola.
NICs are having a prominent impact on sculpting the global economy. They are characterised by the fact that they are gaining an increasing share of the world manufacturing output, a significant growth in their manufactured export production and a significant annual growth in their manufacturing sector. The first generation of NICs were, given their geographical location, known as the ‘Asian Tigers’ – Hong Kong, Taiwan, South Korea and Singapore.
The impact of NICs is global; the 21st century is arguably an era of global economic independence. The growth model of the Asian Tigers has been criticised. They have not followed the typical model of import substitution with an aim of becoming self-sufficient, instead they have focused on exports, arguably preying on the on the healthy economic state of developed nations. But this activity isn’t sustainable within the global economy, from the 1960s to the 1980s the Tigers pursed this method of development, but by the 1990s their economies had expanded too fast and prices of property, stocks and shares had become overvalued. This caused many stock markets to crash and sparked a worldwide financial crisis which required money from the IMF. You could therefore say that they are drastically important within the global economy, for they are truly sculpting the global economy. Furthermore they can easily lose their competitive edge and collapse this was the case with the Asian Tigers by losing their competitive edge to latter examples of NICs such as China, which was devastating to their own economy and potentially their instability could remove a large portion of their influence on the global economy.
Despite the economic growth caused by NICs, they have equally contributed to the decline in MEDCs. Some UK based industries have struggled to compete with cheaper competition from NICs, where production costs and wages were less. Britain contains many examples in history, such as the decline of Sheffield’s steel industry due to international competition in the 1970s and 1980s, along with the collapse of coal mining in the area. The effect was signified in the 1980s by the shift towards the service industry, although this is also partially thanks to further mechanisation. The economic ripples of this are cast off far in to the future; de-industrialisation itself has caused urban decay and an economic decline. But arguably this decay leaves the opportunity for redevelopment corporations and other such new economic areas. China is one of the NICs that have taken some of the industry away from MEDCs, after a period of economic reform in the 1980s (the same time as de-industrialisation took place in the UK) steel production increased, with 426 million tonnes being produced in 2006.
China is a particularly interesting example of how an NIC can influence the global economy. The 1980s in China marked a period of economic reform and by the 1990s the liberalisation of industry took place. However, in this case it is not just sapping wealth from established developed countries. China has had to sign a contract with nearby Russia to feed its energy dependant industry in a deal to supply them with oil and natural gas by 2015. Part of this energy ‘hunger’ comes from the fact that, alike comparable India, attracted TNCs, which themselves have an important impact on the world’s economy.
In cases such as China TNCs are able to contribute to the industrial development and have relative positive impacts on their economies. Their presence alone can cause economies of scale in host countries, such as the automotive industry which has occurred in Brazil, creating a spiral of economic growth from FDI. Coca-Cola has invested $1.5 billion. Positive economic development is often encouraged by TNCs in host countries. Coca-Cola has provided a micro-finance scheme to 4000 Vietnamese women with the merchandise, training and basic equipment to begin selling Coca-Cola.
There are fundamental arguments against these corporations that they are becoming superpowers within the global economy. This often correlates with aforementioned NICs, which offer the cheaper labour, or encourage them there through tax breaks. But the negative effects of this are prominent, the workers conditions are harsh, they work long hours for little pay. Employees often get very few benefits and there are unlikely to be any unions. They are also very powerful, if another country offers them a better deal, they can easily transfer their factories causing a potentially severe economic decline in that country. There is also mass controversy surrounding Coca-Cola, in countries where they have opted to create bottling factories, such as in Colombia, they have been accused of hiring paramilitaries to kill union leaders in order to keep wages low. This consortium, if true, is a demonstration of their questionable role within the global economy for their own betterment and the suppression of the host nation’s economy.
Some may also argue that TNCs are gaining a monopoly over the global economy, supermarket chains such as Wal-Mart, an American TNC of which Asda belongs to, is a very good example. They have the power to locate and drive out local businesses by making a loss on commodities such as milk to drive out local shops. This is normally only an effect on MEDCs, however on the other hand FDI created over 50,000 jobs in the UK in 2007. Although, when we further consider LEDCs, the majority of profits often go to shareholders rather than workers which contribute to the uneven distribution of wealth globally and can keep it in richer nations which therefore widens global polarisation.
TNCs also have effects on their countries of origin. An example of this is Dyson, who in 2002 moved its production from a plant in Wiltshire to Malaysia to take advantage of cheaper labour, this cost 800 UK jobs. Or Kenwood’s decision to move production to China, given the cheap labour that I identified them as having when analysing them as an NIC. Similarly, part of the service sectors are also moving abroad with TNCs. HSBC for instance now have call centres in India where wages are 20% of what they were in the UK. However, research and administration often remains in the host country, which are the higher paid jobs. Furthermore, it is hard to ignore that in 2004 the UK gained £63.8 billion from their overseas development. But it’s notable that MEDCs run the risk of losing their unskilled to foreign territories, which could possibly explain the rise in University students wanting to gain higher paid jobs in the UK.
Conclusively, I feel it important to stress the power that NICs and TNCs on the countries they are involved in when they combine forces. It seems that NICs provide the ground for TNCs to spread abroad, giving them the incentives to move abroad. Creating economic issues in their home countries whilst exploiting the countries wish to industrialise by keeping their wages low, ultimately creating a higher profit margin for the rich owners of industry. The role of TNCs within the global economy is that they are simply the vessel for trade throughout the world economy, they are vastly important but potentially devastating given the monopoly and power that they have. NICs themselves cannot be sustainable within the global economy, as proven by history with the market collapse when the Asian Tigers expanded too fast, or when another country usurps the countries market. Furthermore, their rapid industrialisation could mean that the plunder their natural resources, such as Chinas steel industry, further evidence for instability. NICs and TNCs are the reason why the global economy is changing, they are creating world trade, but have seemingly built in instability which, to me, makes it seem like further global economic change is inevitable.