1. Globalisation 2: Transnational corporations
3.1 development
Globalisation 2:
Transnational corporations

2. Syllabus content
Describe and explain the process of globalisation, and consider its impacts.
The role of technology and transnational corporations in globalisation along with economic factors which give rise to globalisation;
Impacts at a local, national and global scale.
Case study required:
A transnational corporation and its global links.

3. Important terms Transnational Corporation
A TNC is an enterprise that manages production or delivers services in more than one country.
Foreign Direct Investment (FDI)
an investment made by a company or individual from one country in business interests in another country, in the form of either establishing business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.
Globalisation
the increasing interconnectedness and interdependence of the world, economically, culturally and politically. TNCs are the main drivers of globalisation in the world.
Multiplier Effect
The additional economic effects experienced when money is spread through a community.

4. Important terms Brand Consumer Culture Mass Media
a distinguished name and/ or symbol intended to identify a product or producer.
Consumer Culture
the equation of personal happiness with consumption and the purchase of material possessions.
Mass Media
a section of the media specifically designed to reach a large audience. The term was coined in the 1920s with the advent of nationwide radio networks, and mass circulation newspapers and magazines.

5. What is a transnational corporation?
Transnational corporations (TNCs) are companies or firms with factories and offices in many different countries.
They are also called Multinational corporations (MNCs).
In reality they are different – a TNC is an MNC that operates worldwide without being identified with a national home base.
For IGCSE exams we are not concerned with the distinctions between the two, however, we should use the term “TNC” as stated in the syllabus.

6. Characteristics of a tnc
They are characterized as business entities that have their management headquarters in one country, known as the home country, and operate in several other countries, known as host countries.
Industries like manufacturing, oil mining, agriculture, consulting, accounting, construction, legal, advertising, entertainment, banking, telecommunications and lodging are often run through TNC’s.

7. Characteristics of a tnc
TNCs maintain various bases all over the world, many of which are owned by a mixture of domestic and foreign stock holders.
Most TNC’s are massive, with budgets that outweigh smaller nations’ GDPs.
In 2016 the 10 largest TNCs had revenues of $2.9 trillion. There are only 4 countries in the world with higher GDPs than this.
The 100 largest TNCs therefore, represent a significant proportion of total global production.
Thus, they are highly influential to globalization, economic and environmental lobbying in most countries.

8. The world’s 10 largest TNCS, 2016
Rank
Company
Revenue
($ billion)
Profit HQ
Country 1
Wal-Mart
482.1
14.78
U.S.A. 2
State Grid Corporation
329.6
10.2
China 3
China National Petroleum
299.3
7.1 4
Sinopec Group
294.4
3.6 5
Royal Dutch Shell
272.2
1.9
Netherlands 6
Exxon Mobil
246.2
16.28 7
Volkswagen
236.6
- 1.5
Germany 8
Toyota
19.3
Japan 9
Apple
233.7
53.78 10 BP
226
- 6.5
Britain

9. Importance of transnational corporations
TNCs and nation states (countries) are the two main elements of the global economy.
The governments of countries individually and collectively set the rules for the global economy, but the bulk of investment is through TNCs which are the main drivers of ‘global shift’.
Under this process manufacturing industry at first and more recently services have relocated in significant numbers from developed countries to selected developing countries as TNCs have taken advantage of lower labour costs and other ways to reduce costs.

10. Importance of transnational corporations
It is this process that has resulted in the emergence of an increasing number of newly industrialised countries (NICs) since the 1960s.
The development of successive generations of newly industrialised countries is the major success story of globalisation.

11. 4 generations of nics

12. Importance of transnational corporations
Twenty years ago the vast majority of the world’s TNCs had their headquarters in North America, Western Europe and Japan.
However, over the last two decades the emerging economies of the newly industrialised countries such as South Korea, China and India have been accounting for an increasing slice of the global economy.
Much of this economic growth has been achieved through the expansion of their own most important companies, first domestically (as national corporations) and more recently on an international basis (as TNCs).

13. Importance of transnational corporations
TNCs have a huge impact on the global economy in general and the countries in which they choose to locate in particular.
They play a major role in world trade in terms of what and where they buy and sell and a considerable proportion of world trade is intra-firm, taking place within TNCs.

14. Why do national/domestic firms become TNCs?
We have already seen that the world’s largest companies may have started as national firms but are now transnational corporations which operate in many countries.
Not only are the markets for goods and services global, but also many businesses have set up offices, shops and factories in other countries, usually LEDCs, because:
they pay lower wages in LEDCs since the standard of living is much lower;
operating costs are lower since laws protecting workers’ safety and the natural environment are less strict.
When companies based in MEDCs move factories and jobs to LEDCs, this is called outsourcing.

15. Why have TNCs become so successful?
The spread of a global consumer culture has been important to the success of many TNCs and mass media have been used very effectively to encourage consumers to ‘want’ more than they ‘need’.
The power of brands and their global marketing strategies cannot be underestimated, especially in food, beverages and fashion.

16. Why have TNCs become so successful?
Because of their influence, countries and regional political districts at times tender incentives to TNCs in form of:
tax breaks,
pledges of governmental assistance or improved infrastructure,
political favors and lenient environmental and labor standards enforcement
So as to be at an advantage from their competitors.

17. Why have TNCs become so successful?
Also, due to their size, they can have a significant impact on government policy, primarily through the threat of market withdrawal.
They are powerful enough to initiate lobbying that is directed at a variety of business concerns such as tariff structures, aiming to restrict competition of foreign industries.

18. Positive effects of tncs on economic development
Investment by TNCs in a country, such as building factories, helps create jobs for local people.
TNCs usually pay higher wages than local businesses which means that employees have a higher income and better standard of living.
Local people learn new skills and how to make use of new technologies.
TNCs bring wealth to the local economy which has a positive multiplier effect on other local businesses.
Most of the products manufactured by TNCs are exported which benefits the economy of the country.
TNCs pay tax to the government of the host country. This money can be invested in health, education and infrastructure.

19. Negative effects of tncs on economic development
TNCs have a reputation for making employees work long hours in poor working conditions.
Often profits made by the TNC are sent back to the MEDC where the company has its HQ, rather than benefitting the local economy.
TNCs can clos factories and transfer production to other low-cost locations overseas with little warning. Local people are made redundant which brings a negative multiplier effect to the local area. E.g. see Nokia opposite.
There are fewer laws about pollution in many LEDCs. This may lead to many TNCs polluting the environment without danger or prosecution.
TNCs become so important to the economy of the host country that the country becomes too dependent on the TNC. As a result, the TNC may be able to influence decisions made by the government.
Manufacturing jobs in MEDCs have reduced and many people are left unemployed as TNCs move their factories abroad. E.g. when Dyson moved its plant from Wiltshire to Malaysia in 2002, it cost 800 jobs in the UK. Similarly when Nokia shifted manufacturing to Asia in 2012, 4000 jobs were lost in Finland, Hungary and Mexico.