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Market Integration
After the Second World War, almost all countries around the world faced the great challenge of bringing their feet back on the ground. As a substitute to the unsuccessful League of Nations, the United Nations (UN) was established on October 24, 1954. Primarily, it was tasked to promote international cooperation and to restore international order. Earlier in 1944 at the Monetary and Financial Conference in Bretton Woods, New Hamsphire (US), the first government-sponsored international financial institutions were established – the World Bank (WB) and the International Monetary Fund (IMF).
There are two types of international financial institutions: intergovernmental and private. The WB is an intergovernmental institution. Its aim is to end extreme poverty and promote shared prosperity in a sustainable way (wolrdbank.org.) There five organizations that belong to the WB Group, namely, the International Bank for Reconstruction and Development, International Development Association, International Financial Corporation, Multilateral Investment Guarantee Agency, and International Center for Settlement and Investment Disputes. These organizations facilitate the granting of loans and financial assistance t developing countries. The IMF, also an intergovernmental institution, works to foster global monetary cooperation, secure financial stability, facilitate international trade, and more 9imf.org/en/About). Like the WB, it also grants financial assistance and loans to developing countries.
In the 1960s, regional development banks were established: the Asian Development Bank (ADB) in 1960 and the African Development Bank (AfDB) in 1964. These two are intergovernmental financial institutions that were created to spur social progress and economic growth to address and reduce poverty. As financial institutions, ADB and AfDB are anchored on the global of fostering sustainable development in their respective member countries.
This module examines how the global market becomes coherent through global corporations and international financial institutions.
There are also private international financial institutions such as Citigroup and Merrill Lynch. Citigroup is an American multinational investment banking and financial corporation. It is the fourth largest bank in the US (citigroup.com). On the other hand, Merrill Lynch is the wealth management division of the Bank of the America. Both institutions provide investments around the world. Investments can be in the form of foreign direct investments, stocks, or financial loans.
Both intergovernmental and private financial institutions help facilitate the functionality of a global economy by lending money to their members states and global corporations. For example, the World Banks helps in project lending, establishes structural reforms, provide support and technical assistance, and helps design modern and durable social safety nets for the benefit of both developed and developing nations (Stiglitz,1998).
It also provides international capital like foreign direct investments, short-term capital, and long-term investments. The International Monetary Fund, on the other hand, helps establish institutional bodies to address and reduce poverty like the African Regional Technical Centers (AFRITACs) in 2001, and assists in creating the conditions for mobilization of private domestic and foreign capital and job generation growth (Kohler, 2002). Moreover, the Asian Development Bank lends money for the building of infrastructures that leads growth in business 9Oxfam.org.au,2013). Clearly, these global institutions are active agents in fostering social and economic development by providing various forms of help to improve the national and the global economics.
Global market integration did not happen overnight. It was the result of the establishment of a global economy that involved the homogenization of trade and commerce. Prior to the trends in globalization of the 20th century, international trade and exchange of goods and services were already practiced. Harvey (1990) sees that city and countries were able to extend their reach beyond borders and patterns of trade and technology because of developments in shipping and navigation. This was observable in the development of maritime transport throughout history. Colonialism and imperialism rose as the new ways of putting order to the economic interrelationships among countries. Equity, corporate ownership, management subsidiaries, and central headquarters which supply and distribute goods and services were established through colonialism. The Spanish government in the 1960s, for instance made use of its colonies like the Philippines and Mexico as suppliers of it resources for trade.
The integration of the global market started when big American corporations began to emerge after the Second World War with the rise of new conglomerates. International Telephone and Telegraph bought Avis Rent-a-Car, Continental Banking, Sheraton Hotels, and Hartford Fire Insurance (American History, 2018). Later, Japan and Europe followed suit. Japanese global automobile corporations like Toyota, Nissan, and Isuzu took off after the giant American companies flourished. These companies prospered as the primary and global makers of trucks for Japanese military (Dower, 1992). Renault automobiles, a French multinational automobile manufacturer, was also used to help in the military post-war operations. The rise of American, Japanese, and European global corporations paved the way for the further development of international trade. Iwan (2012) identifies the differences among international, multinational, transnational, and global companies.
International companies are importers and exporters with no investments outside their home countries.
Multinational companies (MNCs) have investments in other countries, but do not have coordinated product offering in each country. They are more focused on adapting their products and services to each individual local market.
Global companies have investments and are present in many countries. They typically market their products and services to each individual local market.
Transnational companies (TNCs) are more complex organizations that have investments in foreign operations, have a central corporate facility but give decision-making, research and development, and marketing powers to each individual foreign market.
American corporations operating internationally were at a great advantage after the war for they had no competition. They had the capacity to produce, organize and distribute products because America was not devastated by the war. Literatures officially traced the start of the contemporary market integration from the return of the Japanese and European corporations to the global market. It was acknowledged in 1974 that the major global economic actors were MNCs. Collectively, they were described to be a particular corporate form to dominate global production and exchange (Neubauer,2014). Caroll (2003) termed the emergence of international, multinational, global, and transnational companies in the United States (US), the European Union (EU), and Japan as the triad – the major economies of the world.
Gereffi (2001) identifies three structural periods in the existence of global corporations after the war. They are investment-based period (1950-1970), trade-based period (1970-1995), and digital globalization (1995 onwards). The development of global corporations can be examined from the sources and the levels of foreign direct investments (FDIs). The Unite Nations Conference on Trade and development (UNCTAD) defines FDIs as funding made to acquire lasting interest in enterprises operating outside the economy of the investor in which their purpose is to gain an effective voice in the management of the enterprise (UNCTAD,2011).
In 1960, UN cited FDIs as the major drivers of global corporate development and in 1990, FDIs tripled (Hedley, 1999). With this, around 20,000 new corporate alliances were formed in a span of two years
(Gilpin,2000). During the trade-based period, global corporations were controlled by producer-driven commodities.
As a result, firms were characterized by large amounts of concentrated capital focused on large-scale or capital-intensive manufacturing. More so, digital globalization affected the operation of global corporations since technology became integrated in both production and consumption. Producer-driven value streams have integrated their corporate structures to reduce the effects of time and distance in the production and consumption of goods while buyer-driven value streams have changed the behavior of corporations in retailing their goods and services via internet (Neubauer,2014). As Cammett (2006) observed, designing, ordering, factory processing, inventory, delivery, branding, and advertising are driven by digital operations since the 1990s.
The ascent of global corporations I a reflection of a globalized market integration. TNCs and MNCs are no longer limited to their home countries. They can expand their reach to other continents and countries.
These global corporations have common attributes. Neubauer (2014) identifies three of them – an agent of desired economic development, an economic prominence, and a very powerful entity that can create crisis. These corporations may hit their target of economic development by making their consumer products available in many parts of the globe.
An example is Nestle. Some TNCs and MNCs were only able to reach their global annual growth target by exploiting the environment. In the Asian Financial Crisis of 1997, global corporations brought chaos to the economy of the Asian region by controlling the foreign direct investments that resulted in the increase of real estate values, aggressive government infrastructure projects and huge corporate spending all funded by bank borrowings.
Overall, international financial institutions play an important role in the social and economic development programs of developing and transitional nations. They are instrumental in the functionality of the global economy which is reliant on global corporations.
References:
Brazalote, Tumoroh C., and Leonardo, Ryan M., 2019, The Contemporary World Outcomes Base Module, C & E Publishing, Inc.
Claudio, Lisandro E., and Abinales, Patricio N., The Contemporary World, 2018, C & E Publishing, Inc.
Manfred B. Steger 2013, Globalization A very Short Introduction, Oxford University Press, United Kingdom
George Ritzer, Globalization: The Essentials © 2011, John Wiley & Sons Ltd
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