CGP Transnational Corporations (TNCs)

• Transnational Corporations (TNCs)

  Companies that operate in two or more countries
• TNCs


  • Shell
  • Toyota
  • Aviva
  • McDonald's
• TNCs

  • Produce, sell or are located in two or more countries
  • 80% of global trade was linked to TNC in 2013
  • Play an important role in globalisation
• Types of industries TNCs operate in

  • Primary (extracting natural resources)
  • Secondary (manufacturing goods)
  • Tertiary (providing services)
• When a TNC invests in a new country

  It creates a multiplier effect (e.g. creating local jobs, increasing local spending)
• When a TNC locates factories in less developed countries

  It can take advantage of lower production costs (e.g. labour, materials, land)
• When a TNC locates R&D facilities

  It tends to be in cities/towns with a supply of highly skilled workers (e.g. scientists, engineers)
• When a TNC locates headquarters

  It tends to be in big, well-connected cities in more developed countries
• Vertical integration


  When a company takes over other parts of its supply chain
• Horizontal integration


  When a company merges with or takes over another company at the same stage of production
• Intra-firm trading is estimated to make up 30-50% of international trade
• Intra-firm prices are decided by company management rather than the market, giving TNCs an advantage over smaller businesses
• Foreign Direct Investment (FDI)


  Involves mergers, acquisitions and using subcontractors to link the countries of the TNC and the subcontracted company
• TNCs can take advantage of global marketing by having a lot of money to spend on advertising, gaining knowledge of local markets, and creating globally recognised brands
• Wal-Mart


  • One of the largest TNCs in the world and the largest retail TNC
  • Began in 1962 in Arkansas, USA
  • Expanded across the USA and globally via acquisitions
  • Divides labour across different countries (headquarters in USA, manufacturing in lower cost countries)
• Wal-Mart's impact on host countries

  • Creates jobs but also forces local suppliers to accept low prices
  • Smaller local shops often have to shut down due to competition
  • Most profits are sent back to the USA rather than staying in the host country
• Wal-Mart's impact on the USA

  • Creates jobs in construction, logistics and retail services
  • Some employees have to work long and irregular hours
• Wal-Mart has been criticised for its environmental impact (using large areas of land) and for not doing enough on sustainable development