Transnational Corporations (AQA A Level Geography)

Role & Nature of TNCs

• Transnational Corporations (TNCs) are companies that operate in multiple countries, locating their headquarters, production and sales in different countries

• They are important agents of globalisation creating longer and more frequent connections between countries

• 80% of global trade is linked to TNCs which can operate in primary, secondary, or tertiary industry

• TNCs lead to increased flows of FDI this help to spread cultures and ideas globally

  • The dominance of western owned TNCs has led to Westernisation

• The ownership of TNCs is dominated by superpowers and emerging superpowers 

Top Ten TNCs by Revenue 2022

Power of TNCs

• The nature of TNCs means that they:

  • Have power over choosing their location this influences

    • Trade patterns 

    • Global patterns of economic growth and decline

  • Are able to spread risk by having factories and offices in many locations

    • This reduces the impact on the TNC of any natural hazard, national economic issues or political events 

  • Can afford to invest in technology and machines reducing labour costs

  • Are able to subcontract manufacture which reduces labour costs because they are not employing people directly so avoid on costs such as sick/holiday pay, pensions

    • Apple subcontracts manufacture to companies like Foxconn

  • Can invest in research and development which increases profits on new products but they also patent the products meaning they earn royalties
    

    • Kraft foods have almost 10,000 patents, and Pfizer have been granted almost 50,000 patents

Organisation and Production of TNCs

• TNCs connect countries through their spatial organisation and global supply chains

• Their Headquarters (HQ) and Research and Design (R&D) functions are often in HDE countries where there are large supplies of highly educated and skilled workers

• Sourcing of materials happens all over the world and depends on the natural availability of raw materials

• Manufacturing often takes place in EME or LDE countries where labour costs are lower and environmental regulations are laxer

• Sometimes manufacturing takes place in the country where the product will be sold to reduce transport costs 

• This can also enable TNCs to access the market within a trade bloc without having to pay tariffs e.g. Toyota invested in factories in the UK to access the EU market

• TNCs have the power to control operations in a variety of countries making the most effective use of skills, environment, markets and costs

  • This gives them a competitive advantage over other companies

Growth of TNCs

• TNCs grow by expanding their operations globally – this increases the number of linkages between different countries

• This can be achieved in several different ways:

  • Economies of scale – the cost advantages that a company gains when it increases the size and scale of its operations e.g. Walmart is able to negotiate lower prices of goods from producers because it is buying in bulk

  • Mergers – when one company merges with another e.g. Exxon merged with Mobil to form Exxon Mobil

  • Acquisitions – when one company buys out another e.g. Kraft bought Cadbury

  • Outsourcing or offshoring to maximise profits

  • Vertical integration – when a company owns different parts of the supply chain e.g. Starbucks is involved in every stage of its supply chain from growing and processing the coffee beans to making and selling the cups of coffee

  • Horizontal integration – when a company buys out rival companies at the same stage of production e.g. Kraft’s acquisition of Cadbury and later merger with Heinz

  • Global marketing – this boosts sales by creating a globally recognised brand such as Coca Cola which sells soft drinks in over 200 countries

Impacts of TNCs

Positive and Negative Impacts of TNCs