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Transnational Corporations (TNCs)

By Ayesh Perera, published April 20, 2022 | Fact Checked by Saul Mcleod, PhD

Key Points

  • Transnational Corporations, also known as Multinational Corporations, are large business enterprises involved in foreign investments, the production of goods or services, or asset and income management in a number of different countries.
  • These corporations often spread out their various divisions, such as Research & Development, Assembly, Production, Sales, and Administration over different parts of the globe.
  • Examples of TNCs include McDonalds, Facebook, Apple, SKY News, Unilever, Kentucky Fried Chicken, and Apple.
  • Due to the consolidation of management, decreases in costs stemming from high output levels, and increases in market share, TNCs can easily gain horizontal and vertical economies of scale. Despite potential cultural barriers, many TNCs have managed to successfully transfer business strategies, experienced personnel and technical expertise across countries.
  • It bears noting that not all TNCs necessarily engage in manufacturing. For instance, copper, goldmining, gas and oil companies tend to focus on resource extraction while financial institutions may primarily engage in banking and the sale of insurance.

Top-10 consumer companies. Big corporations of food and drink products. Coca-Cola, Pepsi, Nestle, Unilever, Danone, Mondelez, Mars, Kellogg's, General Mills, British Foods.

Transnational corporation is a term used to describe capitalist firms which 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 exemplify 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 final products’ main markets.

Reasons for growth of TNCs

Risk dispersal

The distribution of plants across a range of countries generally helps TNCs weather government instability, financial uncertainty, labor union disputes in any one location because operations can be readily switched from one place to another.

Diversification

Profits procured from the sale of one type of product could be utilized to cover costs or even losses related to other types of products at least for a brief period.

Integration

TNCs are able, due to their greater financial capacity, to more readily acquire firms they do business with (via the sale and purchase of components), and firms whose products are construed as complementary goods.

Take-overs

TNCs can acquire their competitors, and thereby remove impediments to their attempts to increase the market share.

Profit maximization

TNCs, by registering in low-tax regions, and establishing their production plants in low-wage countries, are able to easily increase their profits.

Critical Evaluation

The role of TNCs can be beneficial, because they provide third world economies with capital and entrepreneurship, so that 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, the third world countries are helped to industrialize, and the TNZ can use cheap labour to increase profit.

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

However, George has suggestion that the transnational companies use the third world as a dumping ground for possibly unsafe products, which 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 which laborers in Third World countries are paid by TNCs.

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).

About the Author

Ayesh Perera recently graduated from Harvard University, where he studied politics, ethics and religion. He is presently conducting research in neuroscience and peak performance as an intern for the Cambridge Center for Behavioral Studies, while also working on a book of his own on constitutional law and legal interpretation.

Fact Checking

Content is rigorously reviewed by a team of qualified and experienced fact checkers. Fact checkers review articles for factual accuracy, relevance, and timeliness. We rely on the most current and reputable sources, which are cited in the text and listed at the bottom of each article. Content is fact checked after it has been edited and before publication.

This article has been fact checked by Saul Mcleod, a qualified psychology teacher with over 17 years' experience of working in further and higher education. He has been published in psychology journals including Clinical Psychology, Social and Personal Relationships, and Social Psychology.

Cite this Article (APA Style)

Perera, A. (2022, April 20). Transnational Corporations (TNCs). Simply Sociology. https://simplysociology.com/transnational-corporations-tncs.html

APA Style References

Crotty, J., Epstein, G., & Kelly, P. (1998). Multinational corporations in the neo-liberal regime. In D. Baker, G. Epstein, & R. Pollin (Eds.), Globalization and Progressive Economic Policy (pp. 117-143). Cambridge: Cambridge University Press.

Doob, Christopher M. (2014). Social Inequality and Social Stratification in US Society. Pearson Education Inc.

Eun, Cheol S.; Resnick, Bruce G. (2014). International Financial Management, 6th Edition. Beijing Chengxin Weiye Printing Inc.

George, S. (1999, March). A short history of neoliberalism. In conference on Economic Sovereignty in a Globalising World (Vol. 24, p. 26).

Sowell, Thomas (2015). “Basic Economics: A Common Sense Guide to the Economy,” Chapter 11: Minimum Wage Laws. Basic Books.