Question

1. Which makes a transnational (TNC) corporation? What kind of advantages have TNCs over non-transnational corporations?

Answer 1

1. What are transnational corporations?

A transnational corporation (TNC) is a huge company that does business in several countries.

Many TNCs are much richer than entire countries in the less developed world.

Such companies can provide work and enrich a country's economy - or some say they can exploit the workers with low pay and destroy the environment.

Examples of TNCs include:

Nestlé

Unilever

Cadbury-Schweppes

2. ADVANTAGES/ STRENGTHS OF TNC TOWARD HOST COUNTRIES

Based on the research found by Economist Newspaper Group, Incorporate, TNCs are big, rich and have a larger budget than nation’s GDP. Hence, it has power influence on global economy by enrich a country economy. It can be shown by the example of how the ownership of American manufacturing plants affects their chances of closing.

2.1 Economic impact

According to the research found by Andrew Bernard of Dartmouth College’s Tuck School of Business and Bradford Jensen of the Institute for International Economics, they found that between 1987 and 1997 American factories owned by multinationals not only less likely to close down but last longer than local firms. It because TNC richer, larger size and have greater production which assist them achieve greater economic of scale and much more efficient in access cheaper finance. Possess with these strengths, exporters are able to survive within global economy compare to factories which only produce for domestic market, while multinational firms are able to stand apart from their competitors from low wage countries.

2.2 Increase employment rate

The benefits of multinational provided are much more than local firms. As a multinational firm enters into a developing country or low wage country, it can provide job opportunities to local workers. For example, Nike enters into low wage countries such as Malaysia, Singapore and Indonesia in order to seek low labor cost which indirect increase the employment rate of the countries. In addition, the multinational firm’s labors are better beneficial than local firms’ labors with higher paid and compensation from losing jobs. This may create workers’ loyalty toward company and contribute more to the firm.

2.3 Technology contribution

TNC play an important role in developing countries in terms of technology contribution. For example, development of deep-water oil extraction may require mature technical skills and capabilities. For those in West Asia tend to remain State-owned oil companies in hand may require high technology and skillful technical from TNC which are not locally available like knowledge of long-distance horizontal drilling expertise used to exploit huge oil. Not only that, for certain countries which with sufficient expertise sometimes may cooperate with TNC in the development of oilfield like Kuwait. By relying on TNC’s advance technology and managerial expertise, it can assist them expand globally.

2.4 Enhancement of export

One of the advantages that TNC provided is enhancement of export. This could be seen through mineral industry that TNC helped to boost its exportation by expand it production facilities, value added to minerals and use of transfer pricing within global market. According to the world investment report, involvement of TNC in trading has led the exportation of country increase especially in the field of mineral industry and resulted mineral become main export sources in most of the developing countries such as in Chile, percentage of the exportation of copper in total exports goods rose from 38% to 61% in the period of 2003- 2006.

Another industry that has been affected by the Involvement of TNC in trading is oil and gas field. Participant of TNC helps increase production and exportation of some countries like Argentina, Indonesia, Ecuador and etc. In Ecuador, TNC help increase their exportation of crude oil by adding transport capacity for 400.000 barrels per day (ECLAC,2004).

2.5 Generation revenue to developing countries

Participant of TNC in trading not only increase the exportation of countries but also help to generate revenue. Firms from developing countries may gain a lot from TNC in terms of learn their experience in export market which skill may not found available in local and skills in add value to the raw material before export. Increasing revenue from exportation of countries may help them have the ability to import inputs they needed from foreign countries and the foreign countries may also generate revenue from it.

2.6 Generation of government revenue

A tax system has been designed by government in order to generate revenue from companies by encourage firms finance their investment through intra-company loan. Through this way, government can generate revenue from firms when firms make installment for the loan in which the repayment may reduce firms’ revenue for several years (sources from UNRISD, 2005). As mention in the case of Peru (sources: World Investment Report 2007), the net profit has rose from $4billion to $67 billion between 2002 and 2006 due to the growth of exportation. At the same time, tax income the firm paid has been increase as well from $2 billion to $27 billion and it may increase government revenue.

2.7 infrastructure development

Involvement of TNC may increase the infrastructure development in the countries due to the activities of TNC may require public utilities such as water supply, electricity supply, transportation infrastructures like road, railway, and airports for them transfer and export the goods. As an example, involvement of TNC in the development of Lake Victoria Goldfields in United Republic of Tanzania contributed to development of infrastructure like roads, hotels and airport facilities which affected to an increase in tourism in the countries. Following by this may increase income of people in local country, increase economic growth and government revenue as well.

2.8 Environmental impact

Government has been worked hard to minimize negative impact on environment which resulting by firms’ activities especially extractive activities. Types of mineral extracted, technology the firm used to extract and scale of extraction may impose an impact on environment. According to the World Investment Report 2007, it stated that domestic firms were unable to minimize the impact on environment when undertake extractive activities due to they were lack of standard environmentally management, advance technology and resources as TNC possess. With the involvement of TNC in metal mining industry may help to reduce the impact on environment with their environment-friendly production technique, advance technique extraction, and standard environmentally management ability.