Rise of transnational corporations Part III: Reasons for global expansion

Reasons for globalization trend Consider the following four aspects: –Cost –Market –Technology –Government Are they important to explain the globalization trend in manufacturing industries?

Cost Difficulties in developed countries: rising production costs due to –Higher labour cost –Higher land price Result: look for low-cost site (least cost locations)

Higher labour cost Higher education level Labour tend to be highly-skilled and professional Lack of labour for low skill jobs Labour shortage due to lower birth rate

Higher land price Keen competition of land in urban areas With other land uses like commercial and residential areas Shortage of industrial land for further expansion

Market Market expansion is necessary when the home market is saturated The need of market diversification to lower risks Some industries require close contact with customers in different countries Setting up regional offices/headquarters help TNCs learn more about customers needs Can respond to local market conditions quickly, e.g. adjustments made to the products to suit the needs of local markets Bringing more business opportunities

Technology Advancement in technology can facilitate the growth of TNCs In terms of –Transport technology –Computer technology

Transport technology More secure and rapid transshipments of goods More speedy and frequent in freight and passenger transport, e.g. rail, road, sea and air Rapid growth of transport and logistics All reduce the problems of movement of personnel / enhance labour mobility

Computer technology Enhances easy handling and interpretation of data to global manufacturing operations Texts or documents available in different languages Setting up of corporation websites can help expanding global markets by providing sufficient information about the company Development of e-commerce enhances online transaction Advanced telecommunication networks facilitate easy management over regional offices Can share ideas more efficiently in a global scale Can obtain spontaneous information about local markets

Government Supported by national government Incentives to TNCs to attract FDI Offer preferential treatment like low taxes Cut costs by direct sales abroad; lower tax is paid Strict pollution laws increase production cost in developed countries