TNCs – Transnational Corporations

First of all, Transnational corporation often it is shortened to TNC. A TNC is a company that operates in one or more countries, so Nike for example has factories, offices and shops in many countries. With TNCs, it is always important to remember that it is money that they are searching for. They are always asking themselves these questions: Where can we make our product the cheapest? where can we sell it for the most? How can we reduce transport costs? How can we market our products to different people?

Positive Impacts of Transnational Corporations

• Raised living standards: TNCs contribute to foreign direct investment (also known as FDI) which has increased the productivity of the labour force in developing economies. This leads to higher wages and rising living standards. It also causes a trickle-down effect that benefits a large number of people. For example, if Nike invests in a factory in Vietnam they will need to pay local builders to make it. the construction companies then spend more on materials and tools thus helping more companies. They also pay their construction workers, who in turn spend more in the local restaurants and shops. All of this combines to help the economy grow.

• Technology transfer: TNCs transfer technology from their parent companies to their branch plants. This can help accelerate economic development in emerging economies. This can then allow local people to get experience working with technology and processes that they would not have been able to before. In time they can then try to replicate their own versions.
• Political stability: In Eastern Europe and China, investment from TNCs has contributed to economic growth. In providing work for the ‘floating population’, TNCs have helped reduce conflict between rural and urban populations.
• Higher environmental standards: TNCs have international brands to maintain and can set high environmental standards as a result. They bring good practices into countries that sometimes do not have good records of environmental protection. For example, Unilever launched its ‘sustainable living’ plan in 2010. Companies that behave well do not then have to fight expensive marketing battles to stop bad press if they behave well in the first place. In the 90s and early 2000s many large companies were on the back foot fighting claims of sweatshops and deforestation. Now many companies like to be on the front foot and avoid allegations in the first place. But that is not to say it does not exist. Many still exist and work as 3rd party providers and thus do not fall directly under the TNCs.

Negative Impacts of TNCs

• Tax avoidance: TNCs pay tax in the lowest tax regimes they can. For example, in 2012 Amazon paid only £2.4 million corporation tax on £4.2 billion of sales in the UK.
• Growing global inequalities: TNCs cluster in selected economies concentrating FDI in favoured regions, such as Eastern rather than Western China. This can increase regional inequalities.
• Environmental degradation: TNCs can export the negative externalities of their activities to the less developed countries where they operate. For example, if you move your heavy-polluting factory from the EU to Asia. Now the pollution is far removed from the consumer of the product and far removed from strict and costly environmental controls.
• Waste: Cheaper products also encourage a consumer culture where we are constantly buying products and throwing them into landfills.
• Transportation: transportation of products. You only need to look at all the various locations on the labels of your clothing and electronics to see how much shipping is involved.
• Unemployment: Outsourcing and offshoring can lead to unemployment in developed economies and higher social security spending. Many people can retrain in the long run but some people may not be able to retrain and are forced into long-term unemployment.
• Crowding-out: TNCs can crowd out local producers of products, Coca-Cola is a good example of this, they are all over the world now and have bought up many local drinks brands to remove competition.