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Concept of globally integrated factory system:

- is the 4
th
form of transnational economic activity that began in the late 1960s and
accelerated in 1990s.
- Global factory sparked by revolutions in communications, transportation and
information-processing technologies. Which allowed capitals and factory to move.
- The motivation for investment was not the domestic market. It was the search for
cheap labor, near absence of environmental regulations, absence of labor unions and labor
regulations, and anything else that would lower production costs.

Implications:
- sales transnational dominates the market and drives down the traditional export
sales.
- low road to development because of low wage and absence of labor union.
- They bargain with developing country to maximize their gains at the expense of
workers.
- The proliferation of export processing zones where TNCs can take advantages

Data do not support conventional wisdom:
- employment: TNCs created a very small percent of employment = 80 mil jobs in
LDCs but active population in LDCs is 2.53 bil. TNCs are thus NOT significant in addressing
employment problems in LDCs. TNCs only shift employment from this place to another, do
not create new employment.
- Capital accumulation: TNCs often do not creat new plants and equipment, they
bought existing plants from domestic firms through mergers and acquisitions, reduce
ownership of domestic capitalists and cut back their market share and investment
- Productivity: FDI fail to reveal non-equity arrangements within the host nation which
can have a substantial effect on productivity and output in LDCs. Studies most find either a
negative effect on productivity or a small but insignificant positive effect. Domestic firms lose
market share even experience decline in productivity. And national firm survivors can
improve their productivity in ways that would not arise from direct or indirect impacts
stemming from TNCs
- Transfering technology: Many times TNCs operate in vertically integrated systems
that do not create forward or backward linkages with suppliers in LDCs. If spillover effects
are to occur, a host nation must have strong, deep, modern infrastructure and a base of
capable domestic suppliers. TNCs tend to keep technology in-house


Government should:
- There has to be a bargaining process where government should negotiate hard
about employment and worker skills that can be transferred after TNCs leave and maximize
the spillover effects
- Make joint venture where TNCs have to share some of the cost or building plants
and equipments
- Make TNCs agree to train the worker to increase their skills
- Require TNCs to form backward and forward linkages with domestic firms