Powerpoint 4 - Transnational Corporations

Transnational Corporations
The architects of globalisation!
But why?
• A company that has operations in
more than one country to produce or
sell products and services
• Help to build bridges between nations
• They bolt together different economies
and societies through their supply
chains and marketing strategies
• TNCs have their roots in the colonial
businesses of the 18th and 19th century
eg East India Company
• TNCs build their businesses by buying
foreign firms in mergers or acquisitions
• Much of the manufacturing is subcontracted
to third parties. This can make it difficult to
enforce good factory working conditions
• Most TNCs are assembly industries –
manufacturing operations that take the
products of many different industries and fit
them together to make finished goods. They
rely on a chain of suppliers. Some many be
made by independent subcontractors and
others are owned by the parent company
The car industry is a perfect example of how a production
line relies on thousands of different parts that are then
assembled in one location. The car industry was also the first
real TNC when Henry Ford started mass producing cars on
an assembly line over a 100 years ago – called FORDISM
• Eg the Mini factory in Oxford is owned by
BMW and 2500 suppliers provide parts to
assemble the mini. Some are from inside
the EU to avoid tariffs and others like the
engine are brought all the way from the
factory in Brazil that is part owned by BMW.
• Some of the parts may be sourced locally
and then assembled close to the market.
This is called glocalisation.
Name some TNCS!!
Can we map TNCs?
• It is incredibly difficult to map the geography of a TNC
• This is because the largest TNCs often have offices,
factories (called branch plants)or shops in every country
of the world
• Because of these complex networks, it is important to
remember that TNCs still have to belong to somewhere
i.e. The parent company is registered to a particular
• Often this is the place where the bulk of their assets are,
the nationality of the board of directors, the country they
would turn to for diplomatic support and hwere they pay
• Although TNCs may operate all over the world, most
TNCs promote common patterns of consumption i.e.
they sell the same, or similar product everywhere.
Though they may tweek the products slightly, another
part of glocalisation! Eg Cadbury make their chocolate
sweeter in China
French Canada
The HQ of TNCS
• See p 104 Philip Allan
How do TNC’s grow?
Motive – Profit. They control costs of raw materials and production costs, and do
this by merges and take over's in 3 ways. 1) Horizontal integration – Buying up
competition. 2) Vertical integration – controlling and owning every stage of
production. 3) Economies of sale – expand production to increase efficiency and
reduce unit production costs.
Means – The banks. Companies invest overseas too, to boost their market or
take advantage of labour or environmental laws. Flows of money around the world
connect businesses and countries.
Mobility – Transport and communications. Accelerated and cheaper transport
(containerisation and cheap flights) and communication systems (fibre optics) along
with production systems such as ‘just in time’ (companies demand goods on short
time scale rather than holding stock) which provides cheap fast turn around,
enabling companies to be faster than their competitors.
How do TNCs affect global wealth?
TNCs bring Foreign Direct Investment to nations – even if wages are low workers
will still spend money after they have been paid = stimulates growth of other local
When TNCs locate in a trade bloc they bring wealth to poorer regions as they
often source parts locally
One of the most effective mechanisms for wealth redistribution
The wealth of TNCs compared
to the wealth of countries
• See pg 107 Philip Allan
Are TNCs a problem or a
• Read the Geofile sheet
• Raising living standards – TNCs invest in the economies of the developing nations
• Transfer of technology – south Korean firms e.g. Samsung have learned to design
products for foreign markets
• Political stability – investment by TNCs has contributed to economic growth and
political stability e.g. China
• Raising environmental awareness – due to large corporate image TNCs do respond
to criticism e.g. Co-op has ‘green credentials’
• Tax avoidance – many avoid paying full taxed in countries they operate in through
• Limited linkages – FDI does not always help developing nations economies
• Sweatshops – workers are employed for long hours, low pay in poor conditions
• Growing global wealth divide – selective investment in certain global areas is creating
a widening divide e.g. Southeast Asia vs. sub-Saharan Africa
• Environmental degradation – example of Bhopal, India disaster in 1984
So lets look at an example of a
TNC p 105-106 Philip Allan
• Tesco is not just
located in the UK
(as I’m guessing
many of you had
• It is now a global
empire worth
around £67 billion
a year
Tesco Troubles
• This is Tesco’s latest venture
– a health food chain in the
• So far invested $700 million
• Initial sales were down by a
reported 70%
• It is also believed that due
to this investment Tesco is
now struggling to compete
with the growth Asda has
seen in the UK
Research Nike
• Produce a detailed fact file about Nike:
Google and China
• Read the article about Google and China
How do you interprete this
Pearson p 87
• Exam practice questions 1 and 2
• Philip Allan p 108
• Skills focus Qs