Transnational Coorporations Flashcards
What are TNCs?
Transnational corporations are companies that produce, sell or are located in two or more countries, e.g. Sony manufactures electronic products in China and Japan, and sell many of them in Europe and the US.
They play an important role in the global economy- in 2013, 80% of global trade was linked to TNCs.
TNCs operate in all types of industry?
Primary industry- extracting natural resources
Secondary industry- making material goods
Tertiary industry- providing services
TNCS make Links Between countries and companies by expanding their operations, this, therefore, benefits them economically.
Mergers- a merger is when two companies agree to become one bigger company e.g. the two oil and gas companies BP and Amoco merged in 1998.
Acquisitions- an acquisition is when one company buys another (usually smaller) company e.g. the us car company Ford bought he Swedish company Volvo in 1998.
Using subcontractors- TNCs can use foreign companies to manufacturers products without actually owning the businesses e.g. NIKE products aren’t always made in factories that Nike own. This links the countries of the TNC and the subcontracted company together.
FDI (foreign direct investment)- this can involve mergers, acquisitions and using subcontractors.
TNCs expand their operations to gain more control over their markets.
They can achieve this is two ways:
Vertical Integration- when a company takes over other parts of its supply chain. For example, through mergers, acquisitions and FDI, Shell now owns every part of its supply chain, from extracting and refining oil through to selling it to consumers at petrol stations.
Horizontal integration- when a company merges with or takes over another company at the same stage of production e.g. a retail chain may take over another retail chain.
What is a global supply chain?
A global supply chain allows manufacturers to expand into international markets, encouraging businesses to boost sales
TNCs organise production to take advantage of a global supply chain
1) TNCs create a global supply chain. This gives them economies of scale and means they get the most value from the whole of their supply chain.
2) TNCs in a primary industry often invest in countries with natural resources that they can extract.
3) TNCs in a secondary industry often invest in countries with low labour costs and cheap land, especially where governments encourage investment with tax breaks.
4) TNCs in a tertiary industry often invest in countries with a well-educated population.
5) TNCs also often invest in countries with weak labour and environmental regulations. Weak regulations allow TNCs to cut costs e.g. by making employees work for long hours for low pay, or by disposing of water cheaply.
What is intra-firm trading?
How does it have a large impact on global trade?
1) Intra-firm trading is when one division of TNC trades with another part of the TNC.
For example:
> Technology firm ‘intel’ assembles some of its microchips in Costa Rica, but sells them in the USA.
>Insta firm trading is counted in trade figures- it is believed to make up 30-50% of international trade. However, intra-firm prices are decided by the company management rather than the market, giving TNCs an advantage over smaller businesses, and a lot of power over global trade.
2) When a TNC first invests in a new country, it creates a multiplier effect - e.g. by opening up a new factory, a corporation creates jobs for the local area, which means people have more money to spend, which helps local businesses and governments.
3) TNCs make it easier for local companies to trade as part of the global supply chain.
How can TNCs take advantage of global marketing?
1) TNCs operate in many different countries so can take advantage of global marketing. TNCs benefit from having a lot of money to spend on advertising and large marketing departments.
2) TNCs gain knowledge of national markets and adjust their marketing accordingly, even changing their products to reflect national cultures. For e.g. Mcdonald’s sells different foods in certain countries.
3) The aim of TNCs is to create a brand that is recognised globally e.g. coca cola. A recognisable brand means consumers will buy the product without continued marketing
what is global marketing?
Global marketing involves planning, producing, placing, and promoting a business’ products or services in the worldwide market.
What is global trade? (international trade)
the exchange of goods or services between countries and is made up of the total imports and exports of each participating nation
