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 (TNCs)
- 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!
They operate (produce and sell) in more than one country.
They aim to maximise profits and lower costs.
They are responsible for 80 percent of global trade. 1
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
Let's now look at some TNC examples below.
Transnational corporations (TNCs): examples
You may be wondering, what is an example of a TNC? It's a safe bet that any famous and big brand these days will be a TNC. Examples of transnational corporations (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 centralised 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 centralised 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 globalisation: 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 labour 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.
Modernisation theory and neoliberalism favour TNCs, while dependency theory is critical of TNCs. Let's go through both approaches in turn.
Modernisation theory and neoliberal view of TNCs
Modernisation 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 favourable conditions for TNCs to enter into. In many ways, TNCs are seen to play a central role in global development.
Remember:
- Modernisation 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
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 dehumanises 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
The exploitation of workers - their conditions are often poor, unsafe, and they work for long hours with little pay.
Ecological damage - the wilful destruction of the environment
Removal of indigenous people - Shell in Nigeria, OceanaGold in the Philippines.
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
Little loyalty to countries - the 'race to the bottom' means TNCs will move when labour costs are cheaper elsewhere.
Misleading consumers - Think 'greenwashing'.
OceanaGold in the Philippines 7
As with many TNCs, OceanaGold 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 modernisation theory, neoliberalism, and dependency theory.
- Modernisation 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
- UNCTAD. (2013). 80% of trade takes place in ‘value chains’ linked to transnational corporations, UNCTAD report says. https://unctad.org/
- Global Justice Now. (2018). 69 of the richest 100 entities on the planet are corporations, not governments, figures show. https://www.globaljustice.org.uk
- 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/
- 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/
- Bakan, J. (2005). The Corporation. Free Press.
- Amnesty International. (2016). TRAFIGURA: A TOXIC JOURNEY. https://www.amnesty.org/en/latest/news/2016/04/trafigura-a-toxic-journey/
- 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
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