Last Updated on September 16, 2021 by Karl Thompson
We’ve probably all heard of companies such as Walmart, Amazon, Apple, and Shell, and these are all examples of Transnational Corporations – in fact these four all feature in the top 10 global companies by revenue in 2020. Some of the others you may never have heard of because they don’t have such a public face.
But what are Transnational Corporations?
Introduction – Definition and Scale of TNCs
Transnational Corporations are businesses that operate across international borders, though most of them have their headquarters in the USA, Europe and Japan.
According to the United Nations Conference on Trade and Development there were an estimated 77 000 Transnational Corporations in the world in 2007, that’s the most recent data I could find! That had almost doubled since the late 1990s when there were 37 000.
The key characteristics of TNCs are:
- They seek competitive advantaged and maximization of profits by constantly searching for the cheapest and most efficient production locations across the world
- They have geographical flexibility – they can shift resources and operations to any location in the world
- A substantial part of their workforce is located in the developing world, but often employed indirectly through subsidiaries.
- TNC assets are distributed worldwide rather than focused in one or two countries – for example, 17 of the top 100 TNCs have 90% of their assets in a different country from their head office.
The Huge Economic Power of TNCs
TNCs are economically very wealthy and thus potentially more powerful than many of the world’s nation states.
According to Oxfam, of the top 100 ‘revenue collectors’ in the world, 70 are corporations and only 30 are countries, or nation states. For example, BP is bigger than Finland, while Chevron is bigger than Ireland, and the combined annual revenue of the 200 largest TNCs exceeded those of the GDP of the 182 nation states containing 80% of the world’s population.
Critics remind us that GDP and annual revenue measure different things, so these figures may not show actual differences in economic power, but this aside, the relative economic power of TNCs has grown in relation to nation states over the last few decades, and today TNCs wield much more economic power than they did in the past.
Fobel et al (1980) note that from the 1970s TNCs set about investing significantly in the developing world because of high labour costs and high levels of industrial conflict in the West, which reduced profits. The investment was greatly helped by developing countries, which actively sought TNC investment by setting up special areas called Export Processing Zones, or Free-Trade Zones, in which TNCs were encouraged to build factories for export to the West.
Free Trade Zones offered incentives such as infrastructure provided by the government (transport links), few planning controls on building, and low taxation. There are now over 5000 free or export processing zones in the world today which employ over 43 million workers, the majority of which are based in China’s territories.
Transnational Corporations are one of the global organisations students study if they choose the most excellent globalisastion and global development option in their second year of A-level sociology.
Immediately after reading this introductory post, you should read the following two posts which explore the impacts of TNCs in developing countries….
- Arguments and evidence that transnational corporations promote development
- Arguments and evidence that transnational corporations harm developing countries
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Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.