The triad economies, United States, Japan and the countries in Western Europe were the economies that all other economies strived to be like. In the present day, economies such as China, India and Brazil have to come to match then in terms of GDP. China is the biggest exporter of manufactured goods. However if this due to the lower trade barriers, the elimination of quotas and lowering barriers to entry and making production as well as manufacturing knowledge perfectly accessible to all.
Therefore helping these emerging economies to have better living standards, lowering mortality rates and increasing literacy rate, or has globalisation led to big Multinational Enterprises to grow so freely in the name of equality, they are now bigger than most countries and in actual fact are actually exploiting these countries. The major factors of globalisation are trade and foreign direct investment. Global trade meant that economies started trading more with other countries and there for expanding their market. Multinational Enterprises where the main instigators of Foreign Direct Investment.
By trading with other countries they saw they had a demand for their goods and services and rather than operate from their current positions often in the triad countries to open up offices in the emerging markets, where they were overseen by their head offices. The triad economies have a total contribution of 84% of the world in FDI (UNCTAD 1991). With, World Bank releasing figures. United States having a GDP of $5,930,700,000,000 in the same year (World Bank). United States is undoubtedly the biggest economy and still is the biggest economy.
The triad economies had already strong foundations. After the Second World War, they were able to have great advantages due to technological advances during the industrial revolution. Able to be market leaders in particular sectors such as IT, Finance and Manufacturing. One of the first historic uses of triad power came during the 1970’s with the invention of the Airbus. (A. Rugman 2003) The main objective was to build commercial aircrafts using the strengths of each of the countries that were involved in the project. This included France, German, Britain and Spain.
As the project was government funded it was ensured never to fail and with each country involved in a certain part, it was guaranteed work for each of the countries and made them a key player in the aviation industry. The market leader in the aviation industry also included American Firms McDonnell and Boeing. They soon reacted to the American government responding to the growing competition they were receiving from the European counterparts. This led to the American-Europe agreement putting a limit on how much governments could fund their projects.
This meant the companies had to find alternatives into how they could get the edge and become market leaders. The Boeing Company decided to outsource to the Japanese firm Mitsubishi. By outsourcing to the Japanese firm there were able to get cheaper labour and gain a better relationship with the Japanese manufacturer. This would then mean their product is automatically exposed to the Japanese market a part of the growing triad economy that had more and more demand for transatlantic transportation.
Aviation was now more good and service that wasn’t just open to the high class and as a result by the two main market leaders being owned by the triad economy country showed how getting an early superiority into emerging markets would make over throwing them in the latter stage an impossible and difficult task for other economies. The Heckscher-Ohlin model is a model that works of the model of comparative advantage thought up by David Ricardo. The model essentially says that countries will often import factors that are scarce to them and export factors that they have an abundance off.
There are three main factors of production land, labour and capital. As land is not a factor that is mobile labour and capital were more freely available to move. The western European countries prospered when the EU act came into force. The European Union was a bloc of countries that had free movement of labour and essentially one country with control over their original borders. This meant they could trade as a bloc and where able to enjoy more benefits. Their greatest asset came when the mobility of labour was free to move without having to apply for a separate visa to work.
As they were, part of the EU citizens of member states could live and work as they pleased. This meant skills of citizens that where no in demand in their own country could travel to other countries where their skills where in demand. This opening up of labour has allowed the world to become more inclusive in terms of the movement of labour. The best example of this is the amount of free labour available in China. China has the largest population in the world. Therefore also has the largest labour force at 768,085,879 people.
Basic economics tells us that when the supply is greater than demand its price is very low. Many developed economies have seen this and as a way to increase, their revenues and profits are cutting down labour in their own countries which often have a minimum wage over to countries such as China and India. Clothing group Burberry closed down its factory in Rotherham in 2009 to send the production of their clothing to China (Independent 2009) many other Multinational Enterprises followed suit, this proves the HO model right that China has an amount of labour then is needed to it is able to give it out cheaper.
In return, it is able to gain more income into the country and this has led to much more business as companies start to realize the potential markets these emerging economies have. To try to gain entrance into these emerging economies it would be a mistake to try to go over to foreign land and start up from scratch. Keeping this in mind majority of MNE often engage in joint ventures and FDI. Through these methods, they are able to get a minority stake in companies and although it is a minority stake, it is a stake that is big enough so they are able to have influential control over the local companies operating strategies.
This however can lead to big problems. The MNE are too focused on getting a market share that they often forget the basic rules of business. There have been many foreign takeovers where the MNE has tried to get its foot into an emerging companies and personalities of companies and the way they trade and operate often clash. This problem only occurs when triad companies try to take over the emerging companies. When VisionChina and Digital Media Group had plans to merge, the merger was unable to happen due to the differences they had on the valuations of each other companies.
However, there might be a change due to globalisation that has meant that Chinese and Indian companies are able to even carry out takeovers off British and triad economy based firms. When Indian firm TATA took, over Range Rover, it was able to do so in an orderly manner and the outcome has made TATA a luxury car manufacturer of both Jaguar and Range Rover. Furthermore, TATA Steel a subsidiary of the company took over Corus in 2006 making TATA Steel a big producer of steel on the world stage.
This can be the positives of globalisation and examples of how some inclusivity exists in the world. On the other hand, many takeovers are not always welcomed with open arms as they can lead to job losses as seen in the Burberry case. In addition, although the losses of jobs were on a small scale for Britain in relation to Burberry. Majority of Chinese firms are government owned and with China being a communist country many of the deals and takeover are often funded by the government.
In 2005, China National Offshore Oil Corporation made cash bid to take over American oil firm Unocal. The Chinese firm enlisted the help of Goldman Sachs a Western company to help with the transaction. CNOOC later withdrew its bid releasing to the press it was due to politic tension that grew with in the United States due to the takeover being financed by the government and due to it being over oil, which could work as a disadvantage in terms of national security (The Economist 2010).
This questions whether the US politicians opposed the deal due to nations security or due to the fact that it was a Chinese firm which represented Chinas growing power to purchase within western countries which in turn works against the US and triad economies and is the reason why the US still remains a major Economy but is slowly losing its importance and influence it once had on the world. A further more reason to show that even though China and India are amongst the biggest producers of world output they remain the poorest.