Transnational Corporations, also known as Multinational Corporations, are large business enterprises involved in foreign investments, the production of goods or services, or asset and income management in several different countries.Key TakeawaysThese corporations often spread out their various divisions, such as Research & Development, Assembly, Production, Sales, and Administration over different parts of the globe.Examples of TNCs include Mcdonalds, Facebook, Apple, SKY News, Unilever, Kentucky Fried Chicken, and Apple.Due to the consolidation of management, decreases in costs stemming from high output levels, and increases in market share, TNCs can easily gain horizontal and vertical economies of scale. Despite potential cultural barriers, many TNCs have successfully transferred business strategies, experienced personnel and technical expertise across countries.It bears noting that not all TNCs necessarily engage in manufacturing. For instance, copper, goldmining, gas and oil companies tend to focus on resource extraction while financial institutions may primarily engage in banking and the sale of insurance.
Transnational Corporations, also known as Multinational Corporations, are large business enterprises involved in foreign investments, the production of goods or services, or asset and income management in several different countries.
Key Takeaways
Transnational corporation is a term used to describe capitalist firms that conduct their business on a global scale. This concept replaced multi-national companies because it was viewed as a more accurate description of these companies.
The dispersion of a TNC’s divisions may be designed to capitalize upon distinct and favorable characteristics of different regions. The following exemplifies how this might occur:
Reasons for growth of TNCs
Risk dispersalThe distribution of plants across a range of countries generally helps TNCs weather government instability, financial uncertainty, labor union disputes in any one location because operations can be readily switched from one place to another.
Risk dispersal
The distribution of plants across a range of countries generally helps TNCs weather government instability, financial uncertainty, labor union disputes in any one location because operations can be readily switched from one place to another.
DiversificationProfits procured from the sale of one type of product could be utilized to cover costs or even losses related to other types of products at least for a brief period.
Diversification
Profits procured from the sale of one type of product could be utilized to cover costs or even losses related to other types of products at least for a brief period.
IntegrationTNCs are able, due to their greater financial capacity, to more readily acquire firms they do business with (via the sale and purchase of components), and firms whose products are construed as complementary goods.
Integration
TNCs are able, due to their greater financial capacity, to more readily acquire firms they do business with (via the sale and purchase of components), and firms whose products are construed as complementary goods.
Take-overs
Profit maximization
Critical Evaluation
The role of TNCs can be beneficial because they provide third-world economies with capital and entrepreneurship, so they actively contribute to the development of third-world countries.
The Tiger economies of the Pacific Rim are considered to have benefited from the reciprocal relationship with TNCs. For example, third-world countries are helped to industrialize, and the TNZ can use cheap labor to increase profit.
Despite their prominence, TNCs have elicited much criticism from different quarters. TNCs often lack a specific national ethos and can play countries off against each other as they demand wage, regulation, or tax concessions (Crotty, Epstein & Kelly, 1998).
However, George has suggested that transnational companies use the third world as a dumping ground for possibly unsafe products that do not have permission to be used in the first world.
Meanwhile, their entrance into countries whose governments have questionable human rights records (e.g., China), and their use of aggressive tactics to avoid taxation engender concerns as well.
Finally, some critics have also accused TNCs of exercising economic domination over workers who are vulnerable to exploitation in developing countries. It is not uncommon to see student activists on American college campuses protesting against the low wages that TNCs pay laborers in Third World countries.
However, the purportedly low wages such activists condemn are actually “high wages relative to Third World workers’ productivity and high relative to their alternative earning opportunities, such as in agriculture, domestic service, or self-employment as street vendors and the like—that is, in sectors of the economy not subject to external pressures to maintain an artificially inflated wage rate” (Sowell, 2015).
Further Reading
References
Crotty, J., Epstein, G., & Kelly, P. (1998). Multinational corporations in the neo-liberal regime. In D. Baker, G. Epstein, & R. Pollin (Eds.),Globalization and Progressive Economic Policy(pp. 117-143). Cambridge: Cambridge University Press.
Doob, Christopher M. (2014).Social Inequality and Social Stratification in US Society. Pearson Education Inc.
Eun, Cheol S.; Resnick, Bruce G. (2014).International Financial Management, 6th Edition. Beijing Chengxin Weiye Printing Inc.
George, S. (1999, March). A short history of neoliberalism.In conference on Economic Sovereignty in a Globalising World(Vol. 24, p. 26).
Sowell, Thomas (2015). “Basic Economics: A Common Sense Guide to the Economy,” Chapter 11: Minimum Wage Laws. Basic Books.
Saul McLeod, PhD
BSc (Hons) Psychology, MRes, PhD, University of Manchester
Saul McLeod, PhD., is a qualified psychology teacher with over 18 years of experience in further and higher education. He has been published in peer-reviewed journals, including the Journal of Clinical Psychology.
Olivia Guy-Evans, MSc
BSc (Hons) Psychology, MSc Psychology of Education
Olivia Guy-Evans is a writer and associate editor for Simply Psychology. She has previously worked in healthcare and educational sectors.
Ayesh PereraResearcherB.A, MTS, Harvard UniversityAyesh Perera, a Harvard graduate, has worked as a researcher in psychology and neuroscience under Dr. Kevin Majeres at Harvard Medical School.
Ayesh PereraResearcherB.A, MTS, Harvard University
Ayesh Perera
Researcher
B.A, MTS, Harvard University
Ayesh Perera, a Harvard graduate, has worked as a researcher in psychology and neuroscience under Dr. Kevin Majeres at Harvard Medical School.
