Economic reality worldwide is marked by the evolution of globalization. This process entails effects that are perceived differently at national economy levels, function of their degree of development. We will proceed by attempting a survey of aspects pertaining to the relationship between globalization and developing economies, stressing on internationalizing Transnational Corporations and its effects.developing markets, globalization, transnational corporations, sustainable development

Alexandru Ionescu

English

Research Papers in Economics

Romanian Economic and Business Review – Vol. 1, No. 3 
 
  83 
THE IMPACT OF STN ON DEVELOPING MARKETS 
IN RELATION WITH GLOBALIZATION 
 
Alexandru Ionescu
* * * * 
 
Abstract 
 
Economic reality worldwide is marked by the evolution of globalization. This process 
entails effects that are perceived differently at national economy levels, function of their 
degree of development. We will proceed by attempting a survey of aspects pertaining to 
the  relationship  between  globalization  and  developing  economies,  stressing  on 
internationalizing Transnational Corporations and its effects. 
 
1. Globalization – approaches and concepts 
   
Internationalization, globalization, and regionalization - these are all concepts that 
make up contemporary reality. According to specialists, the above-mentioned concepts 
have  seen  various approaches.  If  globalization and internationalization  are  sometimes 
deemed synonymous, on other occasions analysts see globalization as a mere stage in 
reaching internationalization.  
Subject to long scrutiny, globalization has turned into an objective, unprecedented 
phenomenon in history, through its scope and evolution. At the same time criticized and 
praised,  it  nonetheless  follows  through  with  its  evolution.  Albeit  evincing  negative 
aspects, it also comprises important ones providing balance and welfare. Globalization 
has emerged and developed following an unprecedented tightening of competition at all 
levels: economic actors, states, regions. 
Market  liberalization  in  developing  countries,  even  if  it  has  affected  domestic 
economic activity, has brought about benefits for poor consumers, by increasing their 
access to cheaper goods and in larger quantities. Proponents of globalization view this 
reality as a progress. Yet to skeptics, the deepening chasm between the rich and the poor 
is “an attack to democracy and welfare”. Critics accuse developed countries of hypocrisy 
since they have forced poor states to adopt an open market policy, by doing away with 
trade barriers, yet without reciprocating. 
Some analysts feel that when setting up globalization priorities, poor countries are 
always the ones standing to lose or to gain a low benefit in terms of economic growth. 
The effects of globalization differ in terms of size and focus, their approach always brings 
about  different  and  even  conflicting  stances.  Worldwide  anti-globalization  and  anti-
regionalization  movements  are  well-known,  amassing  impressive  ranks  of  supporters. 
Former  UN  Secretary  General,  Butros  Butros-Ghali,  would  remind  us  that  “we  live 
amidst a world-scale revolution… Our planet is under the pressure of two giant, opposing 
forces:  globalization  and  dissolution.”  On  major  source  of  worries  stems  from  the 
increasing world population, while resources, most of which limited and irretrievable are 
                                                            
*  Alexandru  Ionescu  is  Associate  Professor  of  International  Economics  at  the  Romanian 
American University in Bucharest.  
  84 
approaching a critical point. In this context, the only solution to problems is globalization. 
The whole universe is caught into the thralls of a revolution, a transformation of present 
reality that spares no one. To most nations, globalization is a forcefully imposed process 
they cannot elude. 
The principles underlying this process are set up by the great economic powers. To 
the US, globalization is an ongoing process supported by the political and economic elite. 
Through its economic power, the US has turned into a keeper of order in the chaos of 
global interdependence. Against the background of globalization, the US rules the roost 
on the financial market and in international trade, having all means through which to 
exercise its world super-power attributes. 
In  contemporary  economists’  opinion,  the  world  should  be  an  organized  system, 
governed at global level, where competition among the main power poles – the US, EU 
and Japan – should be stimulated. Super powers have an important say in setting up the 
world’s development strategies, with the poor showing their discontent more and more 
vocally, so that marginalizing them could spark conflicts. 
Anti-globalization  movements  are  the  response  to  the  position  of  international 
organizations that are unfavorable to developing countries’ economies and tip the scales 
in favor of super powers. 
The growing terrorist threat during the past few years has drawn attention on the 
existing cracks when drawing up these policies entailing severe losses. A solution to 
global problems can only be reached through joint, balanced actions. 
Globalization is therefore a highly controversial system. The world economy has 
seen unprecedented evolutions during the past years. Even economic process cycles have 
changed, so that coming out of crises no longer spans long periods of time, yet economic 
efforts and attempts to find solutions are tremendous. Experts claim that any economic 
growth should not spin out of control since it may entail a huge consumption of natural, 
human,  financial  and  information  resources,  part  of  which  are  exhaustible  and 
irretrievable, which could lead to natural disasters. Ideally, economic development should 
be underlain by scientific research focused on the effective use of resources. Research 
entails  high  costs  that  are  inaccessible  to  developing  countries.  Consequently,  while 
certain states evince an obvious economic growth, others trail at subsistence level. 
Optimists claim that, through its very nature, globalization will improve the social 
and economic situation of every state, even if differently, while pessimists feel that the 
gap between the rich and the poor will grow ever wider, with no chances of improvement. 
The  overall  process  should  be  carefully  developed  in  order  to  mitigate  its  negative 
impact. 
 
2. Developing countries and transnational corporations 
   
Globalization is strongly supported by transnational corporations that make up the 
bulk of economic internationalization. Economically speaking, corporations make up one 
of the most important factors of progress.  
Transnational corporations are deemed the main manifestation of an authentic global 
economy.  With  reference  to  transnational  companies,  K.Ohmae  stated  that  these 
unaffiliated corporations have become the main “driving engines” of an interconnected 
economy, concentrated in North America, Europe and Japan.  
  85 
At global level, the scope of businesses has become an essential parameter, expressed 
by opening up out plants in various areas of the world. Corporate development beyond 
the borders of the mother company brings about a synergistic approach to operations and 
finances,  aimed  at  decreasing  their  vulnerability  and  increasing  their  resistance  to 
economic  shock.  Transnational  corporations  represent  the  main  actor  in  international 
trade, with sales registered by subsidiaries currently making up more than double the 
amount of world exports.  
Corporations  have  come  to  change  the  structure  of  production  factors  in  many 
countries as an aftermath of human capital shift, as well as the movement of technology 
from one part of the world to another, making up a new basis for fixed tangible assets. 
An increasingly dynamic development is underlain by a well thought out strategy 
regarding  the  use  of  opportunities  provided  by  the  global  economic  environment. 
Corporations have always focused their investments in high potential areas.  
Developing countries are a good example in this respect, by providing an economic, 
social  and  political  environment  that  is  auspicious  to  development.  Theoretically 
speaking,  these  countries  have  a  series  of  advantages  stemming  from  corporate 
investment,  embodied  in  high  economic  growth  levels,  increased  occupancy,  higher 
living standards and, not in the least, effects visible at the level of balance of payments 
and trade output.  
The issue of foreign trade in developing countries is delicate, since the majority of 
transition economies are confronted with high trade deficits and problems brought about 
by economic deregulation.  
Economic deregulation entails the liberalization of economic policies, opening up 
national markets and allowing all types of direct foreign investment. In fact, investments 
are the main financing source for developing economies worldwide. During the past few 
years, direct foreign investment has proved to be the steadiest source of financing, as 
opposed to portfolio investments or bank loans, since they have been less affected by 
financial crises.  
By acknowledging the importance of direct foreign investment, governments open up 
their economies in order to facilitate the exchange of goods, the access to information, as 
well as human resource turnover and capital flows. 
Corporations’  investment  behavior is  strongly  influenced  by  short  and  long  term 
changes occurring in the business environment. Recession and economic boom periods 
affect the evolution of all parties involved. Any change in the world political or business 
environment will equally reflect on economic performance and, implicitly, on directing 
capital flows. 
Statistics  show  that  in  2001  alone,  208  changes  have  occurred  in  legislation 
pertaining to direct foreign investment in 71 countries. Over 90% of the changes were 
directed  at  setting  up  a  more  welcoming  investment  background.  Moreover,  a  large 
number of states have been involved in signing bilateral investment agreements – approx. 
2,100 in 2001 alone. The issues of investments make up an important topic for discussion 
within the WTO, as well. 
Given the situation that is a common occurrence in developing countries, Romanian 
included, where the State take on a foreign-oriented approach, according to classical and 
neo-classical concepts, theoretically speaking, the respective country should be recording 
an economic growth due to effective resource assignment. However, reality proves that,  
  86 
without significant direct investments, generally performed by transnational corporations, 
exports continue to cling to modest levels because of low product competitiveness on the 
world  market.  Competitiveness  is  closely  related  to  the  degree  of  technological 
endowment  evinced  by  a  country.  Sadly,  international  technology  transfers  are  also 
performed  and  controlled  by  large  corporations,  which  are  the  only  actors  with  the 
necessary  capital  worldwide.  Even  when  developing  economies  settle  their  capital 
problems,  domestic  activities  still  evince  a  competitive  advantage  of  transnational 
corporations, as opposed to national companies.  
Initially, transnationals have focused on fields where the cost margin of production 
factors was the most significant, but gradually operations have increased, comprising the 
majority  of  production  fields  and  factors,  which  they  have  drawn  into  a  global 
competition, oftentimes bearing negative effects on developing economies. 
Corporations are doubling their efforts to set up global production networks, mainly 
through mergers and acquisitions. Actually, a global market for the sale and purchase of 
companies  has  emerged,  with  whole  industries  being  strengthened  or  restructured  at 
global and regional scales. 
Alongside the advantages that developing countries have through globalization and 
actions  undertaken  by  transnationals,  there  are  also  shortcomings,  under  the  form  of 
social and environmental concerns. 
Transnational  corporations  mainly  focus  on  maximizing  profits  and  dividends, 
therefore outplants are set up only in areas evincing competitive advantages. Keeping 
these targets close in check, a corporation will operate on a certain market for as long as 
the advantages provided are at an expected level. Throughout this time, all those involved 
in the activities of he respective transnational corporation have something to gain. When 
the out-plant’s activity is starting to show signs of decline following an increased level of 
mobility,  the  respective  operation  will  be immediately  relocated  on a  more  attractive 
market.  Once  the  operation  has  been  relocated,  the  former  transnational  corporation 
market evinces a decline in its economic activity, under the former of social unrest related 
to decreased standards of living and increased unemployment in the area. Employees who 
can afford to follow the company will move away, whereas the rest will remain and cling 
to the hope that there will be employment for them as well, some time in the future. As 
far as shareholders are concerned, they are not bound by places, the distance between 
themselves and the companies whose shares they own bears little importance, the only 
significant point being the dividends they cash in. 
Labour  globalization  allows  large  corporations  to  employ  intellectual  elite 
worldwide, with no significant material and financial efforts.  
On  the  other  hand,  social  effects  of  globalization  are  also  brought  about  by  the 
increasing complexity of technology and economic activities’ nature, which force people 
to take on a new type of professional training, lifelong learning that entails constantm 
ongoing intellectual and financial efforts that many people cannot afford. At the same 
time, advanced technology has cancelled the space and time barriers that people were 
supposed to overcome when moving from one place to another in order to perform their 
activities within companies.  
Another major issue that heavily features in developing countries is environment 
pollution. Pursuing profit regardless of consequences, transnationals have got as far as 
exporting polluting technology to areas where legislation allows it, global reality thus  
  87 
proving that we live within an accelerated social and environmental dissolution. 
As  world  economy  is  developing,  limiting  economic  growth  in  order  to  keep  a 
balance between the former and nature ever more necessary. Production needs to be kept 
within sustainable limits.  
Ideally, sustainable economic development, with a heavy stress on environmental 
protection should be globally promoted. These principles need to be adopted not only 
within develop countries, members of OCDE, but also within developing countries, by 
supporting  them  in  order to  set  up  the  necessary  legal  framework  that  would  ensure 
sustainable economic progress, based on non-polluting techniques and technologies. 
The targets detailed in the present paper are difficult to reach, due to a decreased 
state power when confronted with corporation pressures. 
 
References 
 
Bauman, Z. “Globalizarea  i efectele ei sociale” Editura Antet, Filipe tii de Târg, 
Prahova. 
Dinu,  M.  “Economie  contemporană;  ce  este  globalizarea?”,  Editura  Economică, 
Bucure ti, 2001. 
Hirst, P. “Globalizarea sub semnul întrebării” Editura Trei, 2003. 
Martin H-P., Schumann H. “Capcana globalizării” Editura Economică, Bucure ti, 
2000. 
Popescu, M. “Globalizarea  i dezvoltarea trivalentă” Editura Expert, Bucure ti, 1999. 
Postelnicu  G.,  Postelnicu  C.  “Globalizarea  economiei”  Editura  Economică, 
Bucure ti, 2000. 
Stiglitz,  J.E.  „Globalizarea,  speranŃe   i  deziluzii”  Editura  Economică,  Bucure ti, 
2003. 
Thomlinson, J. „Globalizare  i cultură” Editura Amarcord, Timi oara, 2001.  
“World Investment Report”, UNCTAD, 2006. 
 

The impact of STN on developing markets in relation with globalization

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