The role and impact of transnational corporations (TNCs) (Cambridge (CIE) IGCSE Geography): Revision Note

The global organisation of transnational corporations (TNCs)

• Transnational Corporations (TNCs) are large companies that manufacture and trade goods around the world

• Unlike multinational corporations (MNCs), they operate in foreign countries without a centralised management system

  • TNCs can manufacture and deliver goods quickly and cheaply, providing customers with a selection of competitive products

• A TNC does not consider any particular country as its corporate home

  • For example, the Vodafone Group, which is a US based company, also operates around the world. However, in India this company operates separately as Vodafone India and makes corporate decisions independently

• A TNC will have its R&D in HICs where they have access to highly skilled labour and funding

• Their factories, call centres or service hubs are usually found in LICs where labour is cheap and there are usually reduced legal restrictions

The role of transnational corporations (TNCs)

• TNCs operate more closely with local markets and their specific needs

  • TNCs adapt quickly to local markets by changing their products, services, and organisational structures to fit particular areas

  • For example, McDonald's adapts its menu for each country

    • McDonald's France offers macarons and bleu cheese burgers

    • McDonald's South Africa offers boerie, hash brown stacks, and chicken foldovers

    • McDonald's India has the McSpicy Prosperity Feast and the Maharaja Mac

• TNCs and countries drive the global economy

  • Governments and global institutions establish the rules for the global economy, while TNCs are the main investors

    • One way they do this is through their control over supply chains

    • TNCs often source raw materials from one country, manufacture in another, and sell their products in multiple other countries

• TNCs operate in every economic sector, with the largest TNCs making up the biggest portion of total global production

  • TNCs range from manufacturing and technology to finance and services

• TNCs invest directly in one country and then expand to other areas, often developing countries, to benefit from lower labour costs and incentives

  • They might not be loyal to the values of the operating country and will focus solely on expanding their business, as they lack a personal connection to the country they work in

• Moving manufacturing around the globe has led to the development of middle-income countries (MICs) like China, India, and Brazil

Impacts of transnational corporations (TNCs)

• Globalisation has generated benefits and costs for many people but at different levels

• Some have benefitted more than others, with the poorest people and countries tending to be the losers

• However, it can be argued that without globalisation, the poorest would be worse off than they are now, as they would lose job opportunities and income from inward investment from TNCs

• Countries such as China, Brazil and India have transformed themselves from low-income countries (LICs) to middle-income countries (MICs), which has directly benefitted their population

• The gender gap within individual countries is generally lower in more globalised countries

• Skilled workers are in demand and benefit from globalisation more than unskilled workers

• Therefore, TNCs impact the economy, society, and environment of the countries where they operate, which can be positive or negative in nature

Social impacts

• TNCs bring skills, opportunities, money and technology to low- and medium-income countries

• TNCs create jobs, allowing people to buy more and pay more tax

• Social mobility is greater – access to higher education and senior leadership roles

• TNC offer apprenticeships and incentives for progression

• TNC jobs are often boring and repetitive and don't develop skills – effectively trapping their workers in the company

• TNCs pay low wages and expect long hours and are generally exploitive, particularly of female workers

• Some TNCs make decisions elsewhere and do not consider local or national identities

• Other TNCs can have Corporate Social Responsibility (CSR) to help improve society and lead to increased brand reputation, employee engagement, customer loyalty, and improved long-term sustainability

  • Examples include

    • Donating to charities such as Procter & Gamble providing clean water, sanitation, and hygiene products to World Vision to help communities in need

    • Reducing carbon footprints by using recycled and eco-friendly materials

    • Providing fair wages and benefits through sourcing fair-trade materials and ingredients

    • Supporting local communities, such as BMW's Youth Employment Service (YES) Programme in South Africa,

    • It offers valuable work experience, develops skills, and empowers young people economically

    • This contributes to community development by reducing unemployment and building a skilled workforce

Economic impacts

• Inward investment in host countries increases the level of development

• The host country's infrastructure is improved by or for the TNC such as access, communications, energy supplies, etc.

• Small local businesses cannot compete with global companies

• Labour drain – skilled workers migrate elsewhere, leaving unskilled or no workers behind

• There is a dependence on a single TNC employment

• Foreign currency is earned through exports

• Profits 'leak' out of the host country either to open up new business elsewhere or are paid in bonuses and dividends to share holders

• TNCs are powerful and are not loyal to a host country's government – investment can disappear as quickly as it came

• TNCs have a multiplier effect by encouraging other industries to grow around them

• TNCs can leave a country if global or local economies change or somewhere else becomes more profitable

Environmental impacts

• TNCs often ignore the environmental and social costs of their investment

  • Lax environmental laws in developing countries can lead to severe air, water, and soil pollution

• Movement of people, transport ownership and loss of biodiversity increases globally

• The impact is greater on developing countries, particularly in remote rural areas, increasing the development gap

• Some TNCs are leaders in green tech and can spread environmentally-friendly innovations

• When pressured by consumers or home-country regulations, TNCs can promote higher environmental standards abroad

• Many TNCs are involved in extractive industries that deplete natural resources (forests, minerals, fossil fuels)

• The global operations and supply chains of TNCs contribute heavily to greenhouse gas emissions

• Large-scale monocultures, mining, and infrastructure projects can devastate ecosystems

• Some TNCs have adopted strategies to boost resource efficiency, cut waste, and lessen environmental impact in their supply chains

  • Many high street retailers such as H&M, Primark and M&S offer clothing donation banks in-store, sometimes called 'bring back schemes'

    • In 2019, H&M launched a rental service in Stockholm for selected outfits, allowing people 'own the look without owning the garment'