3.3b

Transnational Corporations (TNCs) - a firm which has operations in multiple countries (KEY DEFINITION).

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TNCs have been essential in spreading globalisation. By operating in more countries, FDI flows have increased significantly, benefiting firms through higher revenues whilst increasing connectivity between places. TNCs have created global production networks, allowing for the lowest cost of production to be accessed from a variety of places, increasing profits for firms. Much of their growth in the late 20th century was down to taking advantage of economic liberalisation in other countries, such as China, where low wages reduced costs. As TNCs continue to grow and expand their range, new markets are developed, expressed as more niche tastes or by way of accessing new populations in previously remote locations.

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Glocalisation

This is the process by which TNCs adapt brands and products to better suit the tastes or conditions of local markets. Examples include Cadbury making sweeter chocolate in China, McDonald's only having vegetarian outlets in parts of India due to Hindu and Sikh values, and MTV reducing sexual music video content in the Middle East.

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Outsourcing

When a firm contracts with another company to get access to their goods and services, sometimes for a reduced fee. This is usually done with administration and data processing firms, as the services provided can be transferred instantly (3.1c: due to rapid improvements in ICT and communications). BMW outsources component production for the Mini to 2500 different suppliers worldwide (eg: Brazil provides the engine, taking advantage of lower wages in this country). It is a flexible option, as contracts can be changed easily if a better option presents itself. However, it means that TNCs have less direct control over the production line (the 2013 Tesco horse meat scandal was down to a Romanian supplier cutting costs by using horses to make their beef burgers).

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Offshoring

When a firm moves a part of their company overseas, such as building a factory in Vietnam where wages are lower. Offshoring to Southeast Asian SEZs has become very popular with TNCs, as lower wage rates and lower taxes increase profits, whilst fewer regulations fosters growth. However, this has a number of ethical dilemmas such as worker exploitation and environmental neglect.

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Disadvantages of TNCs

• Global production networks have increased interdependence, making TNCs more vulnerable to supply side shocks. For example, the 2011 Japan Tsunami stopped production in the Sunderland Nissan factory, as trade was disrupted.

• Workers in LICs and NEEs are increasingly being exploited. Today, there are more slaves than there ever have been in history.

• Outsourcing jobs to other countries may reduced jobs and employment in the original country.

• The trendiness and attraction of TNC brands may lead to cultural erosion, as more people buy these goods and services as opposed to their more culturally traditional options.

• TNCs can reduce competition in smaller local markets, reducing the success of small businesses. For example, when Pakistan opened up their international waters after joining the WTO in 2004, large Indian fishing TNCs came in and massively reduced the fishing stock, impacting on Pakistan's local coastal fishing industry.

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