Nature and role of TNCs Flashcards
What in a TNC?
Trans-national Corporation
Why do most TNCs operate in more than one country?
- To escape trade tariffs
- To find the lowest cost location for production
- To reach foreign markets more effectively
- To exploit mineral or other resources available in foreign countries
What do TNCs provide?
- Different functions of the business anywhere
- Pursues a goal to integrate production and deliver value worldwide
What are the main characteristics of a TNC?
- Maximising global economies by organising production to reduce costs
- Sourcing raw materials or components at the lowest cost
- Controlling key supplies
- Outsourcing production
What is spatial organisation?
- Traditionally, the company HQ is based in a major city or the company’s home country
- In order to maintain their position, TNCs engage in research and development activities often based in the country of origin to take advantage of a labour market or use university research facilities
Why are manufacturing sectors of TNCs primarily in developing countries?
- Cheaper labour costs
- People willing to work for longer hours
- More people to work
- Avoid tariffs
What are the two types of integration?
Vertical and Horizontal
What is vertical integration?
- An arrangement in which the supply chain of a company is owned entirely by that company, from raw material through to the finished product
What is horizontal integration?
- Where a company diversifies its operations by expansion, giving a broader capability at the same stage of production.
What is a merger?
- Where two companies of a similar size agree to become one bigger company
- E.g. The two oil and gas companies ‘BP’ and ‘Amoco’ merged in 1998
- This helps form links between the countries the two companies operate in
What are acquisitions?
- Where one company buys another, usually smaller company
- E.g. The US car company Ford bought the Swedish company Volvo in 1999
How do TNCs use subcontractors
- TNCs can use foreign companies to manufacture products without owning the businesses
- E.g. NIKE products aren’t always made in factories that NIKE own, linking countries of the TNC and the subcontracted company together
What is FDI?
- Foreign Direct Investment
- Involves Mergers, acquisitions and using subcontractors
- E.g. If HSBC acquires a bank in Indonesia, they’re investing money there
How are TNCs organised in the primary industry?
- Invests in countries with natural resources
- E.g. In 2016 ‘Shell’ hired ‘BG group’ to extract resources from Brazil and Australia
How are TNCs organised in the secondary industry?
- Invests in countries with low labour and production costs and places where governments encourage investments with tax breaks
- E.g. Toyota invests in Indonesia where the taxes and labour costs are low. They also invest in the UK, where there’s a big market for their products
