Transnational Corporations (TNCs)

Transnational corporation is a term used to describe capitalist firms that conduct their business on a global scale. This concept replaced multi-national companies because it was viewed as a more accurate description of these companies.

Transnational corporations operate in a global marketplace, aided by the information technology revolution, and are able to switch resources and personnel to those areas of the world where the greatest profit exists.

The dispersion of a TNC’s divisions may be designed to capitalize upon distinct and favorable characteristics of different regions. The following exemplifies how this might occur:

• The head office is likely to be in a country with low taxation on businesses, or the country of origin.
• Developed nations brimming with skilled engineers and scientists, and top universities would likely be chosen for a TNC’s research and development operations.
• Manufacturing plants may often be located in regions with cheap labor as well as predictable legal systems conducive to long-term stability.
• Assembly and sales would transpire close to the main markets for the final products.

Reasons for growth of TNCs

Critical Evaluation

The role of TNCs can be beneficial because they provide third-world economies with capital and entrepreneurship, so they actively contribute to the development of third-world countries.

The Tiger economies of the Pacific Rim are considered to have benefited from the reciprocal relationship with TNCs. For example, third-world countries are helped to industrialize, and the TNZ can use cheap labor to increase profit.

Despite their prominence, TNCs have elicited much criticism from different quarters. TNCs often lack a specific national ethos and can play countries off against each other as they demand wage, regulation, or tax concessions (Crotty, Epstein & Kelly, 1998).

However, George has suggested that transnational companies use the third world as a dumping ground for possibly unsafe products that do not have permission to be used in the first world.

Meanwhile, their entrance into countries whose governments have questionable human rights records (e.g., China), and their use of aggressive tactics to avoid taxation engender concerns as well.

Finally, some critics have also accused TNCs of exercising economic domination over workers who are vulnerable to exploitation in developing countries. It is not uncommon to see student activists on American college campuses protesting against the low wages that TNCs pay laborers in Third World countries.

However, the purportedly low wages such activists condemn are actually “high wages relative to Third World workers’ productivity and high relative to their alternative earning opportunities, such as in agriculture, domestic service, or self-employment as street vendors and the like—that is, in sectors of the economy not subject to external pressures to maintain an artificially inflated wage rate” (Sowell, 2015).