The Development of TNCs
1) Define the terms ‘transnational company’ and ‘globalisation’
A transnational company is a company that is established and delivers services in more than country. Some are so large that they have even exceeded the budget of the country in which they operate. Globalisation is the set of processes leading to the integration of economic, cultural, political and social systems across geographical boundaries. It refers to increasing economic integration of countries, especially in terms of trade and the movement of capital.
2) Suggest three reasons why some companies when they reach a certain size, take the decision to become transnational
The motivations for companies to become transnational can be broken down in to three different reasons:
a) The search for markets. When a company becomes a certain size, its market can plateau within the country and therefore to progress needs to expand to other countries. Moreover, they may want to expand in to countries with a large number of consumers, such as China, or a large purchasing power, such as the USA in order to reap the monetary benefits available.
b) The search for resources. The lack of availability of resources or the abundance of resources abroad might attract a company to foreign territories.
c) Efficiency. In order to maximise profit, it may be better to find cheaper labour or a larger workforce. It also might be to locate themselves within trade barriers, or to decrease the shipping cost. Similarly there is often a shift of R&D to the likes of India, where there is a booking quaternary sector. Other countries may offer them tax breaks or privileges in return for their FDI.
3) Describe and explain the four stages that the development of a typical TNC follows over time
By definition, a TNC has to operate abroad. The first stage in doing this is to undergo export led development; by exporting to foreign countries they increase their potential market. The next step is the overseas location of branch plants. For instance Nissan have a plant in NE England. By having branches abroad they are fundamentally closer to their target market and have the opportunity to prey on an often potentially cheaper work force and can locate within trade barriers. The third stage is the shift of their R&D and HQs, some countries for instance have a cheaper and booming quaternary sector such as India. They are often however, located in MEDCs where the quaternary and tertiary sectors are long established. In the fourth stage of a TNCs development, they often undergo “rationalisation” in which they are producing enough products to specialise in to a specific field, or only located in a specific country. Nintendo are an example of this as they dropped playing cards from their company.
4) Why do countries want TNCs to locate within their territories?
TNCs are attractive to countries as they can bring foreign direct investment. TNCs opporating within a country contributes to their economy as they can tax their opperation and can bring stable employment to their citizens. This can contribute to reducing unemployment, increases GDP and overall prosperity. In America in the last 6 years, over 4000 new projects and 630,000 new jobs have been created by foreign companies, resulting in close to $314 billion in investment.