Transnational Corporations and Economic Dependency

1. Transnational Corporations and Economic Dependency

2. Learning outcomes • What is a TNC? • What are the advantages and disadvantages of TNCs? • What is over- dependency?

3. 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

4. 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.

5. 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

6. 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

7. 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

8. 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/

9. 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

10. 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

11. 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

12. 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