TNC's Flashcards
Transnational corporation (TNCs)
Companies that operations in two countries.
TNCs play an important role in the global economy. In 2013 what percentage of global trade was linked to TNCs?
80% of global trade was linked to TNCs.
Why TNCs do choose to operate in more than one country?
1) To escape trade tariffs.
2) Cheap Labour
3) Flexible workforce
4) Availability of finance to fund expansion
5) Fewer environmental restrictions
6) Globalised Transport Network (Containerisation)
7) Technological developments
8) Government encouragement
9) Cheap land
[Why TNCs choose to operate in more than one country]
To escape trade tariffs
Lowers cost of production
Access to new markets
Exploitation of resources
E.g. Nissan’s production in Sunderland was to gain free access to the EU. They were very vocal in the Brexit debate
[Why TNCs choose to operate in more than one country]
Cheap labour
Lower wages in LICs and unemployment in HICs.
E.g. The Chinese have been accused of exploiting cheap African labour in pursuit of cheap raw materials.
[Why TNCs choose to operate in more than one country]
Flexible workforce
Willingness to travel to jobs oversees or to be retrained in situ.
E.g. Training call centre employees for UK based companies.
[Why TNCs choose to operate in more than one country]
Availability of finance to fund expansion
TNCs from emerging economies have heavily invested overseas to increase their portfolios.
E.g. The Indian TNC Tata Steel bought Corus Steel in 2006 and Tata Motors bought Jaguar Land Rover from Ford in 2008.
[Why TNCs choose to operate in more than one country]
Fewer environmental restrictions
Environmental controls may be less or weakly enforced.
E.g. oil exploitation on the Niger delta.
[Why TNCs choose to operate in more than one country]
Globalised Transport Network (Containerisation)
Containerisation has revolutionised the movement of goods by creating a standard transport product that can be handled anywhere in the world. All containers are the same shape and same size.
[Why TNCs choose to operate in more than one country]
Technological developments
Refrigeration or freeze drying allows perishable fruit and vegetables from LICs to be transported to HICs.
[Why TNCs choose to operate in more than one country]
Government encouragement
E.g. Financial incentives such as tax breaks.
[Why TNCs choose to operate in more than one country]
Cheap land
E.g. Areas suffering from de-industrialisation or changes in land use.
Example: Nissan in Sunderland built car factories on sites of former airfields.
What encourages corporations to Ireland?
Low corporation tax rate
Access to UK and EU markets.
Corporation tax rate in Ireland
Ireland has a very low corporation tax rate of 12.50%.
When Biden became President in 2021, he set a minimum level of corporation tax for OECD countries at 15%.
Benefits of TNCs for the host country
Increased employment which therefore raises living standards.
Wider share ownership – individuals and companies more willing to become involved in foreign investment.
Improves the worker’s levels of skills and new experiences.
Increased purchasing power which leads to demand for consumer goods and further economic growth.
Overseas investment adds to income for the whole nation (via tax).
Encourages a transfer of new technology into the country, for example the growth of telecommunications.
Socio-economic multiplier effects.
Problems of TNCs for the host country
Poor working conditions.
Fewer controls such as environmental legislation.
Exploitation of resources.
As a result of loopholes not all corporation tax is paid fully by the TNCs.
Managerial positions tend to be brought in rather than developed locally.
Investment may only be short term and TNCs could pull out at any minute.
Many jobs are of low skill in LICs.
Negative impacts of environment and local culture.
Majority of profits tend to be sent back home.
Benefits for TNCs
Lower cost because of cheaper land and lower wages (and fewer trade unions).
Fewer controls such as environmental legislation.
Exploitation of resources.
As a result of loopholes not all corporation tax is paid fully by the TNCs.
Cheaper goods.
