Transnational companies and globalisation

Question 1

What is a Transnational corporation (TNC)?

Answer 1

A TNC is a company with its headquarters in one country but with branches and factories in other countries.

Question 2

Why do TNCs have different branches and factories around the world?

Answer 2

1. Local branches are close to the local market. They understand what the local market wants and thus can design products to fulfill their needs.
2. Factories are located in countries where costs are lower.

Question 3

Why are production costs cheaper in some countries?

Answer 3

1. Cost of labour cheaper.
2. Land and building costs are lower.
3. Low business rates and taxes.

Question 4

Why are jobs different for TNC workers in different countries?

Answer 4

In MEDCs, people are highly qualified due to education and are employed into high paying jobs such as R & D or management.
In LEDCs, people are not highly trained since few go to school and thus end up in factories where the labour in intensive and the pay is low.

Question 5

What are the advantages of TNCs?

Answer 5

TNC investment in an area can lead to the multiplier effect:

1. Branch/ factory opens in an area.
2. Jobs are created (direct benefits).
3. People have more money and therefore spend more money.
4. Shops and services make lots of money and expand, hiring more workers; creating even more jobs.
5. More taxes are paid to the government due to more income and profits.
6. More money is invested in improving the local environment which in turn attracts more businesses and the process continues.

Question 6

What are the disadvantages of TNCs?

Answer 6

Many TNC branches/ factories are footloose, which means that they do not have to stay in one place. If cheaper labour is found elsewhere, factories may close, leading to the negative multiplier effect;

1. Branch/ factory closes in an area.
2. People are made redundant.
3. People have less money and thus spend less money.
4. Shops and services don’t make money and thus shrink, laying off workers; creating even more unemployment.
5. Less taxes are paid to the government due to less income and profits.
6. Less money is invested in improving the local environment which in turn causes more businesses to close and move away. The process continues.

Question 7

What are some other disadvantages of TNCs?

Answer 7

1. Large companies influence politics and elections.
2. They do not listen to public opinion, only shareholders.
3. They encourage low- pay labour and poor working conditions.
4. Their factories damage the environment.