Transnational Corporations and Economic Dependency

Learning outcomes

What is a TNC? What are the advantages and disadvantages

of TNCs? What is over- dependency?

TNCs

Transnational Corporations are very large firms with branches or subsidiary companies in more than one country

They are big organisations that hold immense economic power and influence

How they work

The main advantage of TNCs is the large scale of their operations which enables them to run efficiently and reduce operational costs

TNCs have the capital to establish large plants which lower unit costs and this allows them to make savings

Reduced cost from mass production leads to increased profits and so TNCs can invest heavily in research, marketing, advertising and general development.

LEDCS and TNCs

TNCs have a very powerful influence on LEDCs and their economies

In many cases the corporations control most of, if not all, activities involved with a product from producing the raw material through to processing, packaging, transport, advertising and sales

Continued

TNCs provide LEDCs with the necessary investment and the provision of skills and technology

However they may decide to switch production from one country to another

Or change the production process All these decisions are made 1000s of miles

away at the TNC HQ

Decision making

The HQ and research and development activities of TNCs are most likely to be based in MEDCS of Western Europe, USA and Japan

These major decision making regions constitute the Global core while the LEDCs are the peripheral regions

Nike

Nike operates in 80 countries The company has 3 major HQ: Hong Kong, Netherlands and

USA The work is subcontracted to the Far East where it is

manufactured Good or bad? Nike believe that the Far East subcontractors as partners who

are responsible for the quality of goods leaving the factories They also state that they involve local companies in decision

making, research and development http://www.saigon.com/~nike/

Over-dependency

There are 3 main ways in which TNCs may affect the future of developing countries:

Dependency on investment and employment provided by a TNC may result in the host country losing control of its own economy

TNC domination can discourage local investment and damage indigenous enterprise

The operation of the TNC may harm the environment See eg

Union Carbide India

USA owned Union Carbide set up in India Factory produced pesticides Located 5km from populated town Bhopal December 1984 45 tones methycyanate gas leaked

from the factory 2500 died 200,000 were injured from cyanide related poisoning Indian authorities filed for compensation but as the

company closed, they are still awaiting this

Advantages to the country of a TNC

Provides secure employment and guaranteed income

Improves levels of education and skills Brings investment into the country Increased personal income can increase

demand for consumer goods in the area Improvements in the roads and infrastructure Brings new technology to a LEDC

Disadvantages of a TNC

A lot of the industry is mechanised ,meaning low numbers are employed

Wages usually low Decisions are made outside the country Exploitation of the workforce Insufficient attention paid to health and safety

factors or the protection of the environment