Transnational Corporation(TNC): A firm that has the power to co-ordinate and control operations in more than country even

if it does not own them is called transnational corporation. The significance of TNC lies in 3 basic characteristics:

Its ability to co-ordinate and control various processes and transaction within transnational production network both within and between different countries. Its potential ability to take advantage of geographical difference in distribution of factors of production(for ex natural resources, capital , labor) and in state policies(for ex. taxes, trade barriers, subsidies etc.) Its potential geographical flexibility on ability to switch and to re-switch its resources and operations between locations at an international or even a global scale.

Production chain or production circuit: It has become common to conceive of the production of any good or service as a production chain, that is , as a transactionally linked sequence of functions in which each stage adds value to the process of production of goods or services. In global context, the idea of global commodity chain(GCC) or, more recently the global value chain(GVC), has been extensively developed by Gary Gereffi and his colleagues. AQs its name suggests, a production chain is essentially linear. It represents the sequence of operations required to produce and distribute a good or service(services, like any other item of consumption , have to be produced). But, as we have seen, economic processes are circuitous, rather than linear. There is a circularity involved in connecting the major stages of production process, such circularity consisting of feedback loops connecting consumption-a fundamental, tough often neglected, component of production process-with the processes of production and distribution. a)
Inputs of materials and nonmaterials Transformati on of inputs into semifinished or finished goods or services Distribut ion of goods or services Consumpt ion of goods or services

Technological inputs: research, design, quality control, product and process Logistics Services Consumpt Transformati Inputs technologies. ion on

Service inputs: procurement, accountancy, insurance, legal, human resource, (movement of materials, products, people and information) advertising, marketing, sales, maintenance.

b)

Distribut ion

c)

FINANCIAL SYSTEM ( investment capital, credit, banking)

Technological inputs: research, design, quality control, product and process Logistics Services Consumptio Transformation Inputs Distributi technologies. non Service inputs: procurement, accountancy, insurance, legal, human resource, (movement of materials, products, people and information) advertising, marketing, sales, maintenance.

REGULATION, COORDINATION, CONTROL

Fig, (a) shows a stripped-down version of a hypothetical production circuit. At the core is a set of four basic operations, connected by a series of transactions between one element and the next. Inputs are transformed into products which are distributed and consumed. But note that the processes are two way:

Flow of materials, semi-finished goods and final products in one direction. Flows of information(the demand of customers-taste, preferences etc.) and money (payment for goods and services) in the other direction.

But there is much more to it than this, Fig (b) and (c) show. Each individual element in the production circuit depends upon: Technological inputs Service inputs Logistical(movement) system Financial systems Coordination and control systems.

Hence, each of the individual elements in the production circuit depends upon many other kinds of inputs, both those directly related to production and also those related to circulation. The four types of geographical orientation towards which a TNC might adopt for its production units are: a) Globally concentrated Production

All production occurs at a single location (or atleast within single country).Products are exported to world markets through TNCs marketing and sales network. Most TNC start with with this strategy in their early years when they are likely to locate all production in their home countries and export to the rest of the world. b) Host market Production

In this strategy, production is located in , and oriented directly towards , a specific host market. Where that market is similar to the firms home market, the product is likely to be virtually identical to that produced at home. The specific locational criteria for the setting up of host market plans are: Size and sophistication of the market as reflected in income levels. Structure of demand and consumer tastes Cost-related advantages of locating directly in the market Government-imposed barriers to market entry. In effect, this kind of production is import substituting. the need to establish a production unit in a specific geographical market has become less necessary in purely cost terms. However, there are two reasons for the continued development of host market production:

The need to be sensitive to variations in customer demands, tastes and preferences, or to be able to provide a rapid after-sales service. The existence of tariff and, particularly , non- tariff barriers to trade.

a) Product specialization for globe or regional market

During the past four decades or so a radically different form of production organization has become increasingly prominent. Above Fig. shows a production being organized geographically as a part of a rationalized product or process strategy to serve a global, or a large regional, market( such as European Union, North america or East asia). The existence of a huge regional markets, together with differences in locationally specific characteristics between countries within a region, facilitates the establishment of very large, specialized units of TNCs to serve the entire regional market rather than single national markets. b) Transnational vertical integration

Each production unit performs a separate part of production sequence. Units are linked across national boundaries in a chain-like sequence-the output of one plant is the input of the next plant.

Each production unit performs a separate operation in a production process and ships its output to a final assembly plant in another country. Ways of coordinating transnational production network:
1. Hierarchy production network: Vertical integration within a firm with governance of

subsidiaries and affiliates based on head quarters managerial control.

2. Captive production network: Small suppliers transactionally dependent on large

buyers. Suppliers face switching costs. 3. Relational production network: Complex interactions between buyers and sellers often creating mutual dependence and high levels asset specificity. 4. Modular production network: Production to customers specification. 5. Market production network: Involve repeat transactions but switching costs low for both parties.