Flashcards in TNCs Deck (19):
A transnational company (TNC) only has operations in two or more countries.
A multinational corporation (MNC) is different to TNCs as it has operations in a large number of countries.
What are TNCs major contributions to?
TNCs are major contributors to Foreign Direct Investment (FDI) - plants, equipment and property, which is owned
What type of sectors are TNC products produced in? (And examples of TNCs in each sector)
- Primary sector
E.g. Oil companies such as Shell and BP
- Secondary sector
E.g. Car companies such as Ford and Fiat
Electronics manufacturers such as LG
Food manufacturers such as Coca Cola
- Service sector
E.g. Retailers such as Tescos and McDonalds
What is meant by the spatial organisation of TNCs?
It means that TNCs are usually organised in a particular way ‘in space', in other words there is a pattern to how TNCs organise their operations
What is the pattern to how TNCs organise their operations? (the ‘spatial organisation’ of a trans-national company)
Headquarters and R&D (Research and Development) facilities are often located in the ‘country of origin’ which will usually be an MEDC.
Manufacturing plants (where the products are made) are usually located in ‘host countries’ which will often be an LEDC.
What is meant by horizontal and vertical integration (linkages) within a trans-national company?
It means that TNCs must have strong links between all parts of the organisation to be able to operate efficiently.
What are the two types of integration (linkages) within a trans-national company?
1. Horizontal integration (means that a TNC extends its operations into similar areas in the same stage of production)
2. Vertical integration (means that a TNC owns the entire supply chain from raw material to finished product)
Example of Horizontal Integration
In 2010, Kraft Foods acquired Cadburys through a takeover. Both companies operated in the grocery and confectionary market. Kraft was able to create a more diverse base. The process was repeated in 2015 through the merger of Kraft and Heinz.
Example of Vertical Integration
BP is directly involved in the exploration, extraction, transport, refining and retailing of oil. In this way BP controls all aspects of the business. However, some argue that this is an outdated concept and that TNCs now outsource to reduce costs.
What are the reasons for growth of TNCs? (Why do trans-nationals choose to locate in other countries?)
•Lower production costs, particularly in LEDCs. Transnational operation allows companies to move production around to their advantage, by closing unprofitable branch plants.
•Getting around trade barriers, and so avoiding tariffs and quotas. For example, a Japanese car manufacturer operating a plant within the EU.
•Tapping market potential in other world regions. Many LEDC countries are developing rapidly and are potentially lucrative markets (Africa)
•Avoidance of strict environmental regulations which can add to costs for TNCs.
•Tax incentives – some governments encourage TNCs by providing tax breaks
•Cheaper land – in areas which have undergone deindustrialisation (HICs) or in parts of the world where land costs are naturally lower (LICs)
What are the disadvantages that TNCs bring to the countries from which they re-locate their branches?
The negative multiplier effect which can contribute to the process of de-industrialisation which means….
•The TNC decides to re-locate and the branch is closed down with the loss of direct jobs.
•Indirect jobs in supply and maintenance fields are also lost (often twice as many).
•Tax revenues fall as more people are unemployed and consequently not paying tax.
What are the benefits and problems to the countries in which TNCs locate their branches, in terms of employment?
•New jobs are brought to an area when a factory or warehouse or call centre or restaurant or shop opens
•These are often low skilled jobs, with low wages. TNCs are aiming to make use of comparative advantage. Job security is also limited as TNCs may choose to re-locate if the situation changes. In short workers can be exploited.
What are the benefits and problems to the countries in which TNCs locate their branches, in terms of the positive multiplier effect?
• Multi-nationals will need to provide support for any new branch established. This can generate additional wealth and employment in suppliers, transport and maintenance companies. Wages earned can be spent locally generating further income and taxes for local government. This is called cumulative causation.
•If the TNC decides to re-locate the negative multiplier effect may take place
What are the benefits and problems to the countries in which TNCs locate their branches, in terms of infrastructure?
In areas which are under developed in LEDCs a multi-national sometimes builds road links to transport the products to markets or accommodation/services for the workforce
•Roads may only be a single route to the coast and accommodation may be limited to single person dormitories. Host countries may have to fund part of these improvements themselves as part of the deal to bring the TNCs in the first place.
What are the benefits and problems to the countries in which TNCs locate their branches, in terms of products?
The products or services provided by the multi-national will be sold in the country in which the new branch is built. Local people can buy these products or use these services.
•These may be beyond the budget of local people. They may even compete with locally produced products leading to the decline of local business. This is particularly the case with food and drink manufacturers. Local cultures may be threatened.
What are the benefits and problems to the countries in which TNCs locate their branches, in terms of taxes?
Multi-nationals will have to pay some taxes to the country in which they establish their branches. Also as workers are paid then they will also pay taxes. These can be used by the government to make improvements.
•Tax rates are generally low, which is likely to be one reason that the TNC chose this location in the first place. Low taxes could be part of the package of incentives used to attract the TNC. Taxes may be misspent by corrupt governments
What are the benefits and problems to the countries in which TNCs locate their branches, in terms of skills?
A multi-national company is likely to train its staff to be able to complete tasks well. This means that workers develop new skills. New ways of working are also introduced such as JIT.
•The skills used may be basic and involve working on a production line. They may not be transferable to other work if the TNC re-locates in the future. Opportunities for promotion to management positions could be limited.