Growth follows rate of globalisation. Why many NIC emerged recently. TNCs grow as a result of many factors these include the search for cheaper labour such as Slazenger moving its manufacturing base from Yorkshire to the Philippines and Mattel form Japan in 1959 to Taiwan and then to China in 1969 (NICs).
Locate within groupings
Search for new markets
Search for resources
Search for new labour and shift Quaternary sector development
Develop economies of scale
Growth of TNC's is a result of:
Emergence of cheaper labour markets - emerging Asia and NICs keep competition high and therefore product must be produced at teh lowest price possible.
Technology - The internet has revolutionised trade as it can now be done in seconds (French quote) it has also created a new market for high tech and mini-transnational Amazon (doesn’t require vast amount of staff as it is based online)
Market gaps - such as McDonalds, which is also in competition with more health conscious brands emerging,
Trade blocs - GATT to WTO created new market for trade of designs and intellectual property as well as it can be seen to liberalise trade.
Acquisition - one of India’s largest TNCs is Tata based on a series of acquisitions it has over 180 companies across 6 continents. It is teh UK’s biggest industrial employer at 45000 in the Tata steel and Jaguar land rover plant. It is a giant family owned business – like 4% of Indian economic development. It takes advantage of producing low cost goods for low income consumers – frugal innovation. Conglomerate – take over another business, it has $64 billion revenues in 2010. It aims to meet the needs of India’s lowest income earning groups and is one o the most globally minded companies in the world.
As well as competition, search for skilled, cheap labour.
Stages of transnational growth
To be updated...
Why do they exist?
Economies of scale - any industries can only be tapped into by the largest firms e.g. the motor car industry and oil.
Knowledge and innovation - TNCs have year of accumulated knowledge needed to run certain industries which a small company would not possess.
Branding and marketing - many TNCs such as Coca Cola rely heavily on branding which causes a company to become global overnight.
Market and ppolitical power - some TNCs exploit markets in individual nations to gain political and market power.
Spatial organisation
Most operate in MEDC's here shareholders and headquarters are, their organisation is hierarchical in this way. However many TNCs are choosing to locate in countries where for example the quaternary sector is rowing such as India, or where there is a growing market potential such as China, India and Brazil (which 150 million population half ear 160000+) although the majority still locate in MEDCs where risks are lower.
Most operate in MEDC's here shareholders and headquarters are, their organisation is hierarchical in this way. However many TNCs are choosing to locate in countries where for example the quaternary sector is rowing such as India, or where there is a growing market potential such as China, India and Brazil (which 150 million population half ear 160000+) although the majority still locate in MEDCs where risks are lower.
Some TNCs have two headquaters such as Cadbury which go taken over by teh American food giant Kraft in 2011. Corporation tax is pain to both the UK and US government (via a Swiss subsidiary company) however, most profit goes back to the US to Mondelez international a subsidiary company of KRAFT.
Risk - TNCs also choose to locate where risk is low such as after the Japanese earthquake in 2011 many US companies said they would be moving manufacturing industry back to the us (Chrysler ran out of black and red pigment, Hp lost $700 million)
Risk - TNCs also choose to locate where risk is low such as after the Japanese earthquake in 2011 many US companies said they would be moving manufacturing industry back to the us (Chrysler ran out of black and red pigment, Hp lost $700 million)
Other reasons include corporate identity brand authentication, protection and support (Canadian mining venture in Argentina 60% of company hand over), human resources (BBC senior staff) and reputational risk.
Impacts
Examples: Wall Mart and Mattel
Wall Mart is an American TNC with its headquarters in the USA, it is a chain of discount department stores (including ASDA in the UK. It is one of the largest TNCs (which is saying something as many of the top TNCs are oil companies) and the largest retail TNC.
Wall-Mart began in 1962 in Arkansas in the USA more stores gradually opened in Arkansas and then around the USA and then around the globe by the acquisition of other retail companies – including Seiyu in Japan, ASDA in the UK and Bompreco in Brazil. Some continued trading under the name of their previous names e.g. ASDA but some changed to Wall-Mart. The headquarters of Wall-Mart are still in Arkansas but it dives its labour force across different countries, however most manufacturing is carried out where costs are lower for example the electronics goods are made in China and clothing in India.
The Wall-Mart brand is starting to emerge in NIC markets such as India as they have large new markets indicated by the increase in spending power and purchase of consumer goods in recent years. Wall-Mart have and an Indian company are together opening a company called Bharti Enterprises and opening retail outlets in the style of Wall-Mart.
Wall-Mart helps to accelerate globalisation by linking countries together through flow of money, people, trade and information. In the USA wall mart provides almost ever type of goods a customer needs under one roof at a low price. However this isn’t successful in all countries as people in India like to shop in traditional markets so alternative approach is needed.
Wall-mart is a global brand but it varies locally as stores take over local stores, some things remain the same such as George, the clothing suppliers that supply both ASDA and Wall-Mart stores. By selling the same products globally it helps to create common patterns of consumption.
Impact to home country USA
Social
Wall-mart provides a wide choice of goods.
Many Wall-Mart stores are open 24 hours enabling customers to shop when they like.
However, many jobs are poorly paid with few benefits (e.g. health care cover usually provided with jobs in the US) In California in 2004 the state paid an estimated $86 million to support Wall-Mart employees.
It has been accused of having poor working standards and conditions for its employees, in 2005 $172 million of compensation was paid because employees had been denied meal breaks.
Economic
Employment: each new store creates jobs e.g. in Vineland USA700 jobs were created by the opening of one store in 2009. - It’s very cheap and sometimes vital for those struggling financially especially in the recession.
It has however, caused a decline in manufacturing in the USA due to its manufacturing source in countries were cheaper labour exist such as China and Malaysia where electronic good are made.
It also creates problems for local businesses as they have cheaper prices and supply many products under one roof.
In turn the loss of local business causes loss of local jobs as well and more nation wide in the manufacturing industry. It is estimated that every 100 jobs created 50 local retail jobs are lost over the next 5 years.
Environmental
Wal-Mart as one of the worlds biggest retail brand has a huge number of stores many of which are ‘superstores’ as well as manufacturing plants and ventures in the UK , Brazil, Japan and India. It therefore has a large carbon foot print but has tried to lower its negative impact on the environment by opening ‘green stores’ that are run on renewable energy. - ‘Super stores’ as well as domestic stores are built often on green field sites and encourage driving to them by being out of town (to maximise space) with large parking facilities. This causes pollution.
Impact to host countries
Social
Wall-Mart offers skilled jobs in LEDCs e.g. all Wall-Mart stores in China are managed by local people not by candidates from America.
It offers a more reliable wage in poorer countries over for example subsistence farming.
However, again working conditions may be poor suppliers have long working hours as they are often unregulated without workers unions. In Beximco in Bangladesh a clothing supplier Wal-Mart has a 60 hour a week maximum although it is claimed that employees work up to 80 hours per week.
On the other hand Wall-Mart donates hundreds of millions to improving the environment and health in its host countries. In 2008 it donated £77000 to local projects in Argentina to help reduce hunger including supporting 29 soup kitchens that feed 12000 people across the country.
Economic
Creates jobs in manufacturing and construction of new stores e.g. Mexico wall mart employs over 209,000 people.
Local companies and farmers supply goods e.g. In Canada Wall Mart works with over 6000 suppliers creating about $8 billion in revenue for them.
It gives local suppliers to expand and start to sell their products to Wall-Mart stores overseas.
However it has been accused of forcing suppliers to except low prices.
Local companies suffer as they cant compete with Wall-Marts low prices or the range of products, again causing local businesses to shut down.
Most profit gained from Wall-Mart stores abroad is usually sent back to the home country the USA and doesn't contribute to the host county’s economy.
Environmental
It invests in environmentally friendly technologies that sustainable development. In Puerto Rico 34 Wall-Mart stores have solar panels fitted – ‘green stores’.
However, it still uses large areas of land for both factories and stores destroying the environment and possible local farming land. In Hawaii the largest Wal-Mart store is 29000m square.
Mattel is an American transnational that produces children’s toys. It was started in 1945 and based in Southern California the first products being picture frames. In 1960 after developing into teh toy market it became a PLC (Private Limited Company). In 1986 it joined an agreement with the Japanese toy company Bandai (Japans largest) and in 1988 with Disney. In 1989 it acquired British toy maker corgi toys and buys Fisher price in 1993 for £1.2 billion. In 1997 it continued its growth by acquisition of other well-known toy manufacturers by buying Tyco the USA’s 3rd largest toy manufacturer and in 2000 was granted the licensing for Harry Potter.
Most of its development has been through the acquisition of other toy manufacturers versus its development of original toys which was mainly as an early venture including Barbie but most recently ‘The Cabbage Patch Kid’.
Location
Mattel has many branches in the USA and sells 70% of its products to the USA in the 1950’s manufacturing took place in Japan, but after this it moved to China Indonesia, Malaysia, Mexico and Thailand. This was due to outsourcing for cheaper labour. The bulk of their products are made in China as wage costs in its home country are amongst the highest in the world. Following protests of the age of the workers in these cheap labour nations Mattel has a principle that it will not employ workers under the age of 16 and complies with any local laws that may be higher than this. It was the first company to utilise external independent monitoring to ensure the welfare of its staff, but this could simply be a response to criticism rather than a proactive approach.
Mattel describes itself as a ‘global consumer products company’ however this cannot be true when there is so obviously a stark polarity between the spread of wealth and spending power. This is clearly evident form the fact that 70% of its products are sold back to the US market.
Consumers have the power to influence TNC’s through ‘buying power’ resulting in TNC’s keeping up-to-date with the trends of latest toys, which may be why Mattel was keen to implement better welfare standards for its workers.
The control exhibited by large TNC’s mirror the control managed by organisations such as the WTO.
