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.

There were about 7000 TNCs operating in 1970, but the charity Christian Aid estimates that this figure has now increased to about 63, 000 with about 690, 000 subsidiaries which operate in almost every sector of the economy and almost every country in the world today.

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.

TNCs are economically very wealthy and thus potentially more powerful than many of the world’s nation states.

According to Forbes magazine, in 2013, 37 of the 100 largest economies in the world were run by TNCs rather than countries. 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.

Sources

Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins.

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