The Nature And Operations Of Transnational Corporations Economics Essay

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The transformation of communications has facilitated transnational economic organisation through transnational corporations (Fulcher and Scott 2007). Although transnational corporations are defined in different ways by different writers, Haralambos and Holborn (2000) define them simply as "... business organisations which operate in more than one country. According to Fulcher and Scott (2007)the emergence of transnational companies dates back to the nineteenth century but became a dominant force with the collapse of the empire and increasing international competition in the 1960's and 1970's. This increasing international competition coupled with declining profits resulted in companies setting up operations in countries where labour costs were lower or as common in the vehicle industry, buy up or merge with competing companies in other countries. Transnational corporations were also set up to produce goods and services in other countries as a way of avoiding tariff barriers erected to protect domestic producers. This is the major reason why Japanese companies like Toyota, Nissan and Honda built factories in Europe (Fulcher and Scott).

Domination of transnational corporations has huge economic consequences for countries in which they are established. Jenkins (1987, cited in Haralambos) and Holborn (2000) argues that the power of nation states was being eclipsed by that of transnational corporations and concepts of sovereignity and national economic strength suddenly lose meaning as transnational corporations become the dominant force. Sklair (1995, cited in Haralambos) and Holborn (2000) views transnational corporations as the vehicle of globalisation due to their vast wealth and important role they play in national economies. Through their capitalist class of executives they attempt to make decisions which further their own interests within the system such as opposing protectionism. They also pose a threat to the authority of the national state to control the economy. While moving investment from one country to another, transnational corporations can also move capital and employment and if they do not like a government, they can move their operations elsewhere or threaten to do so as way of putting pressure on states to act in the way they want. (Fulcher and Scott 2007) argue that we now live in a world where governments have to dance to the tune of transnational corporations and therefore power has shifted from the nation state to transnational corporations. Governments compete to attract investments by luring transnational corporations with special grants and subsidies and by adopting policies which were favourable for these companies. This therefore means that even though transnational corporations had headquarters in one country, the fact that they had organisations in more than one country gives them some autonomy and advantage on national governments.

Another major effect of transnational corporations is what is called the international division of labour where the old industrial societies specialised in exporting capital and expertise while poor countries in Africa, Asia and Latin America provide cheap labour. To attract capital, governments create Export Processing Zones taxes are cut and production is unregulated (Fulcher and Scott 2007). This exploitation of cheap labour in poor countries has resulted in increasing employment of women and children who TNCs prefer because they can be paid less and are easy to control compared to male workers. Therefore, TNCS moved their manufacturing facilities from their home country to cheap and low wages countries. This resulted in loose of jobs and social unrest. For example the riots which happened recently in France and the United Kingdom and the rust belt in US which has gone offshore left most workers without income and they became dependants of welfare state Jenkins (1987). He also claimed that was a good balance of shift of corporations and it way an aspect to shift away power from the government which result in global economy stability. He also mentioned that the shift also affected some individual countries negatively. Jenkins (1987) argues that shift of TNCs lead low skilled and unskilled workers in loosing their jobs and worsened some social problems which manufacturing faced.

However, there is a major example of TNC like Nike which is a sportwear fashion company which subcontract smaller companies in countries like Pakistan, Turkey, South East Asia where they use child labour and pay low wages in producing their products. Dicken (2001) claims that TNCs mafacturing process are carried outside by independent subcontracting companies whilst their financial decisions and research development are based in their home countries. For example subcontracting companies are in South East Asia but the products are sold to USA, Africa and Europe. The production workers in South East Asia are just for cheap labour, no job security whilst those in America who works for the same company have some employment benefits such as sick leave,holiday pay and etc.. Therefore, in this cirmustance, Nike is seen as a typical example of TNC which have same implications on division of labour in the global world (Cohen and Kennedy,2000). Hertz (2002) also argues that TNCs are the major cause of children explotation in third world countries because they likely want to take advantages of their poor countries and overpowering the governments. This led the government of developing countries to have economic implications and social problems as they see TNCs as alleviating poverty among the poor in order to earn a living.For example children in countries like China and India work in firms making soccer balls and leather shoes only earning two dollars to support their families and the products are sent to Austria, Britain which they will be sold on high prices.

Dicken (2007) claims that much of TNCs production companies are situated in third world countries where they get cheap labour and pay low wages. has been seen as being corrupt A Transnational Corporation (TNC) is a company that operates in more than one country. The headquarters usually tend to be located in a 'first world' nation (though recently there has been an increase in headquarter locations in Newly Industrialising Countries such as Singapore). Much of the production for the company is often done in 'third 'world' countries, which welcome the TNCs, although much poorer wages tend to be paid to workers in these locations. Thus TNCs are rightly characterised as large, highly sophisticated organisations, richer than most countries and at times more powerful than many governments.

In 1999, according to the Institute for Policy Studies, 51 of the world's 100 largest economies were corporations. To put this in perspective, General Motors is now bigger than Denmark and three-and-a-half times the size of New Zealand; the top 200 corporations' combined sales are bigger than the combined economies of all countries minus the biggest 10

It can be argued that last twenty years, Transnational have acquired unprecedented economic, financial and political power. Markets and capital globalisation, which has been mostly profitable to these companies, has allowed for further concentration of their capital and production means, creating political situations. Their activities cover all sectors. They can choose where and how to produce and to stock up, and where and how to sell their products. This has often led to what many critics see as a having the power but without the responsibility. According to Cohen & Kennedy (2000):

Increases job opportunities for the masses - lack of unskilled labour is a problem in many developing countries, as there are simply far too many to get jobs for, and very few people are skilled. TNCs and their factories give the masses sustainable jobs and opportunities to obtain new skills.

Hertz (2002) describes some of the advantages which TNCS have, such as its technical ability in exploitation of natural resources. For an example oil company which can be based in undeveloped country, TNCS can have some resources and ability to develop the economy of the host country in a way the host country can not manage. Therefore, this created exploitation of environment standard which is believed the governments of underdeveloped countries ignored and put their special attention to the superior economic benefits which are brought by TNCS.



Sklair (1995) describes TNCs as being highly capitalist enterprises because they behave according to basic rules of capitalism. He sees this fundamental as a drive of profit which the TNCs called a "key barometer to business heath". Therefore, TNCs has major influence to intensely competitive economy which leads to an environment of hyper-competition where its rapid advantages created and eroded at the same time. However, due to all these circumstances, TNCs were simply reflects a normal tendency which differs in capital (Dicken, 2001).

In conclusion the onset of a TNC into a country brings a mixed response, as it is welcomed by the government, keen on seeing a boost in economic activity, as well as hoping to see a reduction in unemployment rates, but is disapproved of by environmental campaigners and those who object to any change. The examples of South Korea illustrate the benefits of TNCs. However 'economic power of this magnitude will have fundamental effects on the global economy, polity and society.' [1] [14] It can be argued both countries and TNCs have interests in each other; the key solution is to find the agreement so that all the interests are satisfied. To make this possible it would be necessary a regulation from the international institutions, and that the action of local governments was efficient and democratic, through legislation, execution of laws.