Corporate Influence in Linking Places and Markets
- Imagine holding a smartphone designed in California, assembled in China, with components from Democratic Republic of Congo, Germany, South Korea and Japan.
- This device embodies the global interconnectedness driven by Transnational Corporations (TNCs).
Transnational Corporations (TNCs): Key Globalization Stakeholders
Definition
Transnational corporation (TNC)
Transnational corporation (TNC) or multinational enterprise (MNE) is a business organization with operations in a number of countries.
- TNCs are key actors in economic globalization alongside national governments and multi-governmental organizations (MGOs) like G7, G20 or OPEC.
What Is the Pattern and Scale of TNCs’ Operations?
- TNCs own assets in various countries.
- Most of TNCs’ headquarters, research & development (R&D) and design & marketing centers are located in HICs (e.g. Apple in California), while assembly and production are based mostly in MICs (e.g. Apple in China and India) and occasionally in LICs.
- In recent years there is a growing role of TNCs from MICs like China (Huawei, Xiaomi, BYD) or India (Tata).
- Approximately ⅓ of world trade is from internal transfers by TNCs
- Nearly 100 million people are directly employed by TNCs.
- TNCs control the marketing and production of goods, thus can exert power over places (countries or cities) by choosing where to locate in a global marketplace.
- Most FDIs are delivered by TNCs.
Foreign Direct Investment (FDI): The Backbone of Global Production
Definition
Foreign Direct Investments (FDI)
Foreign Direct Investments (FDI) refers to investments made by a company or individual in one country into business interests located in another country.
How FDI Works
- TNCs invest in factories, offices, infrastructure, or agriculture in foreign countries.
- This investment:
- Creates jobs.
- Transfers technology.
- Boosts local economies.
- Allows TNCs for market expansion.
Why TNCs Invest Abroad
- Access to Markets: Companies like Toyota build factories in the US to sell directly to American consumers.
- Cost Efficiency: Lower production costs in countries like Vietnam or Mexico with special emphasis on the cost of labor.
- Resource Availability: Oil companies invest in the Middle East for its vast reserves.
- Relaxed Planning and Environmental Regulations: Polluting industries move their operations to countries with less strict laws or inefficient law enforcement, e.g. garment industry in Bangladesh or oil palm plantations in Indonesia.
- Apple Invests in manufacturing plants in China, leveraging the country's skilled labor force and efficient supply chains.
- This allows Apple to produce high-quality products at competitive prices.
Why Some LICs Can Miss Out on FDI
- Unstable or corrupt government
