TNCs Flashcards
what makes a company a TNC?
a TNC is a company that operates in 2 or more countries
hiw is sony an example of a TNC?
Sony manufacture in china and india but sell across Europe
how ar TNCs linked to trade?
very important to global economics
in 2013 80% of trade was linked to TNCs
do TNCs operate within one industry?
no
what are the three industries that TNCs can operate in?
primary
secondary
tertiary
what is the primary industry and an example?
the extraction of natural resources
shell
what is the secondary industry and an example?
the manufacturing of goods
sony
what is the tertiary industry and an example?
providing services such as insurance
aviva
why do TNCs operate in 2 or more countries?
to avoid trade tariffs (import and export tax)
to reach foreign markets
exploit resources (labour etc)
lowest production costs
who does spatial organisation connect countries?
creates a global supply chain as parts of the business are in different areas of the world
where are the headquarters of a tnc normally located? why
in big cities due their development and how connected they are in terms of transport and communication
skilled workers
where is research and development located and why?
usually in the same area as the headquarters or in areas with highly educated people such as scientists or to take advantage of univeristy research
where are factored located and why?
normally in LICs where production costs are cheaper
can also be where their product is made in order to avoid tax
where does Nissan have a factory and why is it here>
Nissan has a factory in the UK because they see products here so they the avoid import and export tax
why is it inportant to have good spatial organisation/
can take advantage of the global supply chain
labour
raw materials
tax
what does building supply chain do to the TNC?
makes it an economies of scale
how do TNCs expand?
through linkages and intergration
why would TNCs want to expand?
in order to take control of the industry and become globally recognise
what are the two types of integration?
vertical and horizontal
what is vertical intergration?
example
this is where a company entirely owns its whole supply chain which can be done through acquisition, merging and FDI
they have sole control over stocks, production and trade
shell now own every part from refining the oil, to transporting and then its petrol stations
what is horizontal integration?
example
when a company takes over and acquires another company at the same stage of production (e.g. two retail stores join)
giving the company a broader capability
disney and pixar in 2006
kraft foods and cadburys in 2010 giving them a more diverse base in the market
when did kraft acquire cadbury?
in 2010
when did disney merge with pixar?
2006
what the types of linkages?
mergers
acquisitions
using subcontractors
FDI
what are mergers?
exmaple
when two companies agree to become one
usually of similar size to increases their impact in the market
dinsey and pixar
what are acquisitions?
when one company decides to buy another usually of smaller size
1999 ford bought the swedish brand volvo
what is using subcontractors?
companies use foreign countries in order to manufacture products without actually owning the business
nike does not always make products in their own stores
who is FDI a linkage?
if HSBC acquire a bank in india they are then investing money there and linking the two places
what is the multiplier effect?
TNCs can create this when they first are created more jobs more money local businesses benefit government raise tax
who to TNCs make it easier for local businesses?
they can use them for trading purposes e.g. providing products or buying raw materials
what is intrafirm trading
consists of trade between parent companies when they are in different countries
what fraction of trade does intrafirm trade link to?
one third
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