TNCs Lesson Aims: 1.To know what TNCs are and some of their key characteristics. 2.To understand some of the main positive and negative features of TNCs. Page 82

What is a TNC? A TNC or Trans National Corporation is a company that has operations in more than one country. They have grown by buying up foreign firms in mergers and acquisitions e.g. Guinness and Smirnoff are both owned by Diageo. Much of their manufacturing is subcontracted to third parties making it hard to regulate working conditions. They link together groups of countries through the production of goods (most manufacturing TNCs are ‘assembly industries’). They also forge connections between people in different countries by shaping common patterns of consumption.

Reasons for the global nature of TNCs To operate inside local trade barriers, such as tariffs and quotas. To gain grants and other rewards from national governments who are trying to attract inward investment. To spread the risk (e.g. those associated with industrial action or crop failure). To be closer to their separate markets (these may need to be served differently, depending on cultural needs – ‘glocalisation’) To operate where labour is cheaper and less regulated. Fewer environmental controls. Can you think of Examples ?

Growth of TNCs TNCs grow for three main reasons: 1.Motive – i.e. Maximising profits by controlling costs: » ‘Horizontal integration,’ » ‘Vertical Integration,’ » ‘Economies of scale.’ 2.Means – financial support from banks: » Traditionally oversees investment has come primarily come from OECDs /Core countries. » Has been a recent trend of investment from developing countries – a ‘reverse colonialism.’ 3.Mobility – improved transport and communications: » Is faster and cheaper to move goods. » Improved communications systems – fibre optic and digital technology. » ‘Just in time’ production » Reduction in transport and communications costs. Page

Who do TNCs belong to? In which nation is the TNC as a whole taxed on its worldwide earnings? To which nation would the group turn for diplomatic protection and support? What is the legal nationality of the parent company? Where are most of the assets and senior staff located? What is the nationality of the board of directors and other decision makers? Case Study: Choose one example of a TNC and find out the answers

Costs and Benefits of TNCs Read through the cards and sort into good points and bad points of TNCs, Summarise the different arguments in a table (for and against TNCs).

Costs and benefits of TNCs Profits of the worlds largest TNCs is greater than many middle – low income nations – evidence of exploitation of workers? At the same time TNCs bring Foreign Direct Investment (FDI) to these nations stimulating the growth of local services: multiplier effect Benefits can be even more widely felt when a TNC sources its parts locally within a trade bloc. Can also have social and cultural impacts on nations. Often environmental costs.

Impacts of TNC’s on host countries SocialCulturalEconomicEnvironmental