Transnational Corporations

(Explanation)
Why are transnational corporations important to study? Why should you bother
understanding what role they play in global development? What even are
transnational corporations? 

Well, take a quick look at the brands of your clothes, the phone you use, the
game console you play on, the make of the TV you watch, the manufacturer
behind most of the foods you eat, the most common petrol stations on the road,
and you'll soon find that transnational corporations are embedded into nearly all
aspects of your life. And don't worry, it's not just you. It's the whole world over! 

If you're intrigued, below we will look at:

 The definition of transnational corporations

 Examples of transnational corporations 
 The difference between multinational corporations and transnational corporations
 The relationship between transnational corporations and globalisation. i.e., what
makes TNCs so attractive?
 Lastly, the disadvantages of transnational corporations

Transnational corporations: definition

Transnational corporations (TNCs) are businesses that have a global reach.

They are companies that operate in more than one country. Below you'll find
some interesting facts about TNCs!

1. They operate (produce and sell) in more than one country.

2. They aim to maximise profits and lower costs.
3. They are responsible for 80 percent of global trade. 1
4. 69 of the richest 100 entities in the world are TNCs, rather than countries! 2

Apple has a valuation of 2.1 trillion dollars as of 2021. This is larger than 96 per
cent of economies (measured by GDP) in the world. Only seven countries have a
larger economy than Apple! 3
Transnational corporations: examples

A good way to think about whether a company is a transnational corporation is to

think whether you've seen it when you're on holiday, i.e. like a McDonald's! It's
also a safe bet that any famous and big brand these days will be a TNC. Just
take a look at some of the examples below...

Examples of TNCs include: 

 Apple
 Microsoft
 Nestlé
 Shell
 Nike
 Amazon
 Walmart
 Sony

Fig. 1 - Nike is a known and loved company worldwide. 

What's the difference between

multinational corporations and
transnational corporations?

That's a good question! And in truth, you've caught me out...in this explanation,
the term transnational corporation incorporates multinational corporations
(MNCs) as well. 

At A-level sociology, the difference for us is a small one. It has more implications
from a business studies point of view then understanding their influence
within global development. 
However, below I will briefly outline the difference between the two!

 TNCs = corporations that operate in many companies and who do

not have a centralized management system. In other words, they don't
have a central headquarters in one country which makes all the decisions
globally. 

 MNCs = corporations that operate in many companies and who do

have a centralized management system.

Many companies involved in the exporting and importing of goods and services,
like Shell, are more frequently MNCs than they are TNCs. But again, as
sociologists looking at the impacts of these global companies on developing
countries, the difference here is minute!

The question we should ask ourselves is: what makes TNCs so attractive for
developing countries to attract in the first place? 

...Keep on reading! 

Transnational corporations and

globalization: what makes TNCs so
attractive?

The large size of TNCs makes them extremely powerful in negotiations with
nation-states. Their ability to hire many people and invest more widely in the
country as a whole makes many governments regard the presence of TNCs in
their country as instrumental. 

As a result, developing countries attract TNCs through Export Processing Zones

(EPZs) and Free Trade Zones (FTZs) that offer a range of incentives for TNCs to
invest in. 
As each country is competing against the other for the TNCs to set shop in their
borders, there is increasingly a 'race to the bottom'. Incentives include tax
breaks, low wages and the removal of workplace protections.
If you're wondering what a 'race to the bottom' looks like, then just search the
words 'sweatshop and brands'. 

What you'll find is countries allowing poor working conditions that lead to death,
child labor and daily wages that place them in the realm of modern slavery. 

And this isn't just something that's happening in developing countries. In 2020,
clothing brand Boohoo was found to be running a sweatshop in Leicester in the
UK, paying workers 50 per cent less than the minimum wage. 4 

Depending on which theoretical approach of development we take, the role and

perception of TNCs for local and global strategies for development changes. 

Modernization theory and neoliberalism favor TNCs, while dependency theory

is critical of TNCs. Let's go through both approaches in turn.

Modernization theory and neoliberal

view of TNCs

Modernization theorists and neoliberals believe that TNCs provide

several benefits to the developing world. Neoliberals believe that TNCs should be
actively encouraged by creating economic policies that create favorable
conditions for TNCs to enter into. In many ways, TNCs are seen to play a central
role in global development.  

Remember: 

 Modernization theory is the belief that countries become developed

through industrialisation.   

 Neoliberalism is the belief that this industrialisation is better placed in the

hands of the 'free market' - namely, through private companies rather than
state-owned industries.
If you're thinking that TNCs have been, and are, actively encouraged, then you'd be right!
Check out International development theories for more information.

  Benefits of TNCs for development                              

 More investment.
 Creation of more jobs...
o For local businesses to help parts of the TNC operations.
o Increased opportunities for women, which promotes gender
equality. 
 Encouragement of international trade - opening new markets should
increase economic growth.
 Improvement of educational outcomes as TNCs requires skilled workers.

Disadvantages of transnational
corporations: dependency theory and
TNCs

Dependency theories argue that TNCs

only exploit workers and exploit developing nations' natural resources. TNCs
(and more widely, capitalism's) pursuit of profit dehumanizes the world around
them. Joel Bakan (2005) argues: 
Transnational corporations exercise power without
responsibility."  5
Let's consider why this is the case.

Criticisms of TNCs
1. The exploitation of workers - their conditions are often poor, unsafe, and
they work for long hours with little pay.
2. Ecological damage - the willful destruction of the environment
 3. Removal of indigenous people - Shell in Nigeria, Oceana Gold in the
Philippines.
4. Human rights abuses - 100,000 people sought medical treatment after
toxic waste was left around the city of Abidjan, Côte d'Ivoire in August
2006. 6
5. Little loyalty to countries - the 'race to the bottom' means TNCs will
move when labor costs are cheaper elsewhere.
6. Misleading consumers - Think 'greenwashing'.

Oceana Gold in the Philippines 7 

 
As with many TNCs, Oceana Gold was found to have forcibly ignored the rights
of the local indigenous people and illegally removed them. The promise of
economic reward to the host country (here, the Philippines) often makes national
governments complicit in such actions. 

Typical tactics of harassment, intimidation and the unlawful demolition of their

homes to force them out of the area were deployed. Indigenous people have a
deep, cultural, and spiritual connection to their land, so such actions destroy their
way of life.    
                                       Fig. 2 - There are varying perspectives of TNCs. 

Currently, the size of TNCs makes them almost unassailable. Fines are

disproportionate to their revenue, blame is passed around, and the threat of
leaving keeps governments amenable to the wants of the TNC.

Transnational Corporations - Key takeaways

 TNCs are businesses that have a global reach: they operate around the world
and are responsible for 80 percent of global trade.
 The large size of TNCs makes them extremely powerful in negotiations with
nation-states. This often means reduced tax rates, low wages for employees,
and poor workers' rights. There is a 'race to the bottom' to attract the
investment of TNCs. 
 The role of TNCs in development depends on the development theory used to
evaluate them. These are modernization theory, neoliberalism,
and dependency theory.
 Modernization theory and neoliberalism view TNCs as a positive force and
instrumental in development strategies. Dependency theory views TNCs as
exploitative, unethical, and immoral.
 The size of TNCs makes them almost unassailable. Fines are
disproportionate to their revenue, blame is passed around, and the threat of
leaving keeps governments amenable to the wants of the TNC.

References
1. UNCTAD. (2013). 80% of trade takes place in ‘value chains’ linked to transnational
corporations, UNCTAD report says. https://unctad.org/
2. Global Justice Now. (2018). 69 of the richest 100 entities on the planet are corporations,
not governments, figures show. https://www.globaljustice.org.uk
3. Wallach, O. (2021). The World’s Tech Giants, Compared to the Size of Economies.
Visual Capitalist. https://www.visualcapitalist.com/the-tech-giants-worth-compared-
economies-countries/
4. Child, D. (2020). Boohoo supplier modern slavery reports: How UK workers are 'earning
as little as £3.50 per hour'. Evening Standard. https://www.standard.co.uk/
5. Bakan, J. (2005). The Corporation. Free Press.
6. Amnesty International. (2016). TRAFIGURA: A TOXIC
JOURNEY. https://www.amnesty.org/en/latest/news/2016/04/trafigura-a-toxic-journey/
7. Broad, R., Cavanagh, J., Coumans, C., & La Vina, R. (2018). OceanaGold in the
Philippines: Ten Violations that Should Prompt Its Removal. Institute for Policy Studies
(U.S.) and MiningWatch Canada. Retrieved from
https://miningwatch.ca/sites/default/files/oceanagold-report.pdf