Lesson 5

and
3. identify the attributes of global corporations.

Definition of Terms

Unit Il STRUCTURES OF GLOBALIZATION

 Market integration is a process by which economies are becoming

more interdependent and interconnected in terms of commodity

flows including externalities and spillover of impacts (Genschel
and Jacktenfuchs, 2017).
International Financial Institutions or IFIs are institutions that
provide support through loans or grants and technical advices to
promote a country's economic and social development (Bhargava,
2006:393).
Corporations are private institutions that produce or manufacture
goods, products, and services for a more expanded market usually
at the reach of regions or the world. Transnational corporations
(TNCs) have a more complex setting where each foreign subsidiary
is given some freedom to develop its own product lines and
marketing compared to multinational corporations (MNCs), which
have more of a home or country base taking care of the R&D and
marketing, and focus more on exporting their products and
services (Iwan, 2007).

INTRODUCTION
Look at the common products sold in your local grocery stores. Where are
they manufactured or made? Who marketed or distributed the product?
do
Where the COmpanies source their raw materials? Most of the products sold
in the market are either sourced from one country, or imported and
manufactured in another, and distributed worldwide.

41
Check out the proliferation of call centers and business processing
outsourcing (BPO) companies in the Philippines. Most of these companies
cater to international consumers based in US, Australia, New Zéaland, and
Europe. According to Philippine Statistics Authority (2018), the Philippines
has 851 BPO companies, more than half of which are call centers (429).
The Philippines is the call center capital of the world, accounting to 18
percent of the global market share, US$24.4 B and 7.5 percent revenue
increase the first quarter of 2018 (Sea Limited, n.d.).
These developments are due to intreasing market integration, which has
two kinds—horizontal and vertical integration (Grossman & Hart, 1986).
Horizontal integration happens when a firm gains control of other firms
performing similar marketing functions at the same level in the marketing
sequence. For instance, Disney bought Pixar, which is also in the
entertainment media, for $7.4 billion (La Monica, 2006). In the Philippines, an
example of a local market integration is when Landbank of the Philippines
acquired the Philippine Postal Savings Bank, for the latter to focus on overseas
Filipino worker clients (ABS-CBN News, 2017). Vertical integration happens
when one company owns the operations and products from one stage to the
other along the supply chain. For example, an iron mining company operates
the steel manufacturing firm. Another instance is when McDonald's owns the
land where its supplies are located to avoid cost of lease. In this chapter, we
will discuss the role of different institutions like international financial
institutions and global corporations in market integration.

The International Financial Institutions and their Role in the Global

Economy
International Financial Institutions or IFls are institutions that provide
support through loans or grants and technical advices to promote a countrys
economic and social development (Bhargava, 2006: 393). Global and regional
IFIS include International Monetary Fund (IMF) and multilateral development
banks (MDBs) like the World Bank Group, the African Development Bank
(ADB), the inter-American Development Bank, and the European Bank for
Reconstructi0n and Development (Bhargava, 2006).
IHS have a significant role in global economic development. Compared
to private financing institutions, IFls provide financial and technical services
and products not for profit but for overall economic and social development
(Buiter & Lankes, 2014).
IFls provide loans, technical assistance, and policy-based lending:
macroeconomic stability and providing the necessary infrastructure and
systems, sectoral reforms, and creation of safety nets through policy-based
42 A Course Module for The Contemporary World
Unit Il STRUCTURES OF GLOBALIZATION
 lending (Bhavarga, 2006). IFls also work with the private sector for
investment and policy reforms to promote private sector expansion
(International Finance Corporation, 2011).
IFls undeniably have been a critical actor in the contemporary world.
Their contributions to social and economic development and progress in the
modern times are recognized (International Finance Corporation, 2011).
However, there are four key issues with IFls, which include legitimacy,
effectiveness, support conditionality and financial capacity, and
sustainability (Bhargava, 2006:404).
First, Bhargava argues that some critics question IFls' legitimacy given
that majority of its shareholders and policy making powers lie with
powerful, rich nations. Leaders of these IHS, also by default, have come
from developed countries. Such heads of the IMF have always been a
European, an American for World Bank, and a European for EDRD, thus a
clamor for IFls to select leaders based on merits and not on national origin
(Bhargava, 2006: 404). Leadership roles in these powerful IFls are critical in
steering the institution's policy and programs, including its reforms.
Second, different sectors have questioned the effectiveness of the IFls'
development assistance programs and policy advices. Some of the IFls'
investments have been controversial such as support to large-scale land use
conversion (dam construction), which has displaced numerous indigenous
peoples in some areas like in the Philippines' case (Rivers Watch East and
Southeast Asia (RWESA), 2003). Thus, social safeguards to ensure human
rights, community, and environment well-being need to be instituted
(Bhargava, 2006).
There are initiatives to address these concerns. Examples of these are the
adoption of the Paris Declaration on Aid Effectiveness, which focuses on the
harmonization, alignment, and managing aid for results including monitoring
systems and indicators (OECD, 2005). In 2006, MDBs agreed on a Common
Performance Assessment System to produce a consolidated data source on
MDB's contribution to development impacts (Bhagarva, 2006: 404)
Third, the major products of IHS are loans to provide capital for
development initiatives of countries. However, it does not come for free
and comes with certain COnditions that the borrowing country has to meet.
This conditionality was set in place as a form of safeguard to ensure that loans
are spent efficiently
for its intended use. Nevertheless, some conditions on privatization, trade
liberalization, elimination of subsidy, and limits to public investments are
mostl
y contested and argued against by some sectors (Dreher, 2009). Critics
have ar
gued that these conditionalities impose Western free-market policies
on 43
developing countries which could be ill-timed, inappropriate, or undesired by
receiving countries (Bhagarva, 2006: 405).
Lastly, the financial capacity and sustainability of IFls is another concern.
The IFls' income base has reduced compared to what it was before, although
the demand from IFls are increasing particularly in contributing toward
regional and global development initiatives. Sorne middle income COUntries
also limit their loans with IFls due to a higher transactional cost as well as the
conditionality commonly attached to these financial services. In addition,
some concessional financing has been transformed into grants from loans
which may be more attractive to the recipient country but could take a toll to
the financial sustainability of IFls. In 2002, developed countries pledged to
provide further financial support to IHS during the Monterrey Conference on
Financing for Development (World Economic Forum, 2006).

COLLABORATE AND CREATE.

You could work individually or with groups to report on specific global

economic institutions. You need to present your research in class either
through report presentation or using creative means such as vlogs, short skit,
among others. This will be a 15-minute presentation.

Key topics:
1. Short history of the institution
2. Rationale for its creation or establishment
3. Their role in the global economy
4. Benefits and limitations

A Summarized History of the Global Economy

Unit Il STRUCTURES OF GLOBALIZATION

The modern capitalist world economy flourished between the 16th to 18th
centuries (Frieden, 2012). The start of the modern global trade leading to
1914 was considered the first period of globalization (Bhagarva, 2006). It is
when trade, capital, and immigration flows grew tremendously and in large
volume, but the global institutional architecture to manage these were quite
limited (ibid.). International convention and treaties also served as drivers for
these large-scale global movements such as the International Telegraph union
in 1865, Universal Postal Union in 1874, International Association of Railway
Congresses (1884), and International Sanitary Convention in 1892 (Freiden,
2012). Wailerstein
(2006:2) argues that this was driven by the paradigm of capital
accumulation
44 A Course Module for The Contemporary World
that resulted to technological advances and expansion of places, knowledge,
and discoveries.
From the Second World War to the late 1990s, the modern international
economic enabling architecture was established (Freiden, 2012). In addition,
we see the expansion of MNCs across the globe, supported by enabling
policies and improved communications and transport (Bhagarva, 2006).
Political changes like the fall of the Berlin Wall, establishment of regional
networks, and trade agreements resulted to trade liberalization and free flow
of capital in the world (Neubauer, 2014).
However, the euphoria on globalization and global free trade was put
into question with the 1994/95 Mexico crisis, when Mexico's multi-billion loan
from IMF created a negative spillover effect on US, Europe, Portugal, and
Spain (Neubauer, 2014). This was offset by the exponential rise of the Asian
economy and the advancement in digitalization and technology that ushered
in a new wave of globalization (Neubauer, 2014).
From the late 1990s until very recently, Bhavarga (2006) contends and
characterizes the third wave of market integration. We see the advent of the
modern Internet, the WTO establishment, and formal entry of China into the
trading system through its accession to international financial institutions
(Frieden, 2012). Despite the world economy boom—where the world enjoyed
increased growth—the global debt crisis, political and civil unrests even in
developed countries like the US resulted to market crash and started the war
on terror that affected global diplomacy and economy (Buiter, 2011).

As the world enters what the World Economic Forum argues as the "Fourth
Industrial Revolution," Mueller (2010) predicted that there will be slower
economic growth, political destabilization, and diffusion of power. Some of his
recommendations to remedy these include reforms in work, economic
spending, improving solidarity, openness, and cooperation among countries.

The Global Corporations

Aside from IFls and governments, one of the major players in
globalization and the modern capitalist market is the global corporations. The
number of global corporations from emerging market economies listed in the

Fortune Global 500 rose from 47 firms in 2005 to 95 in 2010 (Neubauer,

2014).
Th
e modern global corporations are commonly referred to as multinational
COrP0rations and transnational corporations. More often, they are used intercha
ngeably. Iwan (2007) offers categorizations to distinguish an MNC from
45
a TNC. He argues that both types of corporations are importers and
exporters, and have investments in many countries. Nevertheless, he
further contends that MNCs still provide central decisions compared to
TNCs that provide individual foretgn market investment to have their own
operations and systems (Iwan, 2007).
With the growth of global corporations from emerging economies,
the capital flows have now started to change from the dominant North-
North/ North-South to South-South and South-North capital flows, most
of the SouthNorth coming from China and India (Rajan, 2010). For
instance, China's Lenovo Corporation bought IBM's PC business (NBC
News, 2005).

Unit Il STRUCTURES OF GLOBALIZATION

 These global entities, IFls and global corporations, play a significant
role in global wealth creation and distribution, including global economic
development (Neubauer, 2014). However, the significant growth of IFIs and
global corporations

is complicated by ever-dynamic context and patterns. These trends include

global inequality, systematic stability and viability of the global financial
system and climate issues, and issues on human security. Although IFls
have a stronger societal development outlook, they have a larger
responsibility to safeguard against unintended negative outcomes of some
of their investments and to balance rapid economic growth with social
well-being and ensuring environmental health. Similarly, global
corporations need to embrace that their impact to society and
environment goes beyond profit, products, and employment but more so
to social development and ensuring environmental integrity in the midst of
their operations and expansion (Neubauer, 2014).

COLLABORATE AND CREATE.

The Story of Stuff. Reflect on the impacts of corporations on your life
and that of your family and community. You could create a three-minute
vlog titled: "The Story of Stuff: Your Chosen Product or Service." You may
check https:// storyofstuff.org for reference.
For the video, you need to:
1, trace the product life cycle from production to disposal and
2, identify the positive as well as limits and issues on the impacts of the
product and the corporation which made it on the environment,
people, and economy.

SUMMARY
 In this chapter, we first defined what IFls mean. IFls are institutions
•that Provi de support through loans or grants and technical advices to
promote a countrys economic and social development (Bhargava, 2006:393).
These support services and financial instruments are critical for the global
economy, particularly in SU PPOrting capital flows and economic development.
Nevertheless, IFls are

STRUCTURES OF GLOBALIZATION
expected to do more (Buiter and Lankes, 2014).

Unit Il 47
Next, we quickly traced the history of global market integration
through globalization of capitals and trades flows from the sixteenth
century to the present. Bhavarga (2006) and Neuebauer (2014) identified
at least three general phases of globalization that promoted global market
integration. These phases were fueled by developments in transport,
communications, technology supported by enabling policy, and financial
support from IFIs and governments.
Aside from IFls, the global corporations—MNCs and TNCs are also
expanding and growing in numbers and influence. These global corporations
have contributed to both national and global economies and have significantly
affected commodity and services flows (Neubauer, 2014). However, similar to
IFls, these global corporations are also met with criticism in terms of their
corporate social and environmental responsibilities. Their growing economic
operations have resulted in displacement of some workers, pollution, and
political unrest. Thus, calls by communities and civil society groups for these
corporations to improve safeguards and corporate social responsibility have
strengthened.
We have seen reform efforts by IFIS and global corporations to improve
their operations, encouraging greater transparency and communicating their i social
and environmental impacts. These initiatives are welcomed in a world of uncertainty
and greater complexity.