Transnational corporations

Globalisation impacts on trade, with many companies operating across borders.

Transnational corporations (TNCs) or multinational corporations (MNCs) are companies that operate in more than one country. Unilever, McDonalds and Apple are all examples of TNCs.

TNCs tend to have offices and headquarters located in the developed world. They often have factories in countries that are not as economically developed to take advantage of cheaper labour.

When a TNC locates within a country, there are advantages and disadvantages.

Advantages of TNCs locating in a country include:

  • creation of jobs
  • stable income and more reliable than farming
  • improved education and skills
  • investment in infrastructure, eg new roads – helps locals as well as the TNC
  • help to exploit natural resources
  • a better developed economic base for the country

Disadvantages of TNCs locating in a country include:

  • fewer workers employed, considering the scale of investment
  • poorer working conditions in some cases
  • damage to the environment by ignoring local laws
  • profits going to companies overseas rather than locals
  • little reinvestment in the local area
  • factories are often footloose and jobs insecure. If labour costs increase, the company may move elsewhere
  • natural resources being over-exploited

Impact and influence of TNCs

Transnational corporations are among the world's biggest economic institutions. Some experts suggest that the 300 largest TNCs own or control at least one-quarter of the entire world's productive assets. This is worth about US $5 trillion.

This demonstrates the sheer scale and influence of TNCs in world trade.

Some TNCs are able to exert influence over developing countries directly:

  • employing government officials involved in economic policy making
  • making financial contributions to political parties
  • bribery

Some TNCs enlist the help of developed governments to further or protect their interests in developing countries. Sometimes this has involved military force.

In 1954, the USA launched an invasion of Guatemala to prevent the Guatemalan government from taking unused land from the United Fruit Company for redistribution to peasants.

TNCs are collectively the world's most powerful economic force, but no intergovernmental organisation is charged with regulating their behaviour. This naturally favours the developed world and inhibits developing countries' development.

International trade could be a powerful tool to end poverty. However, in reality, inequalities still exist in the international trading system.

Move on to Test