Transnational Corporations (TNC’s)

The working of the global economy involves a number of major players, that is organisations that have great power and influence. They include the great business empire known as transnational corporations (TNCs) and global organisations such as the united Nations (UN), the World Bank, the International Monetary Fund (IMF)  and the World Trade Organisation  (WTO). Other powerful players are the USA, the European Union, Japan and OPEC.

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The table above gives the names of some of the world’s leading TNCs. It is interesting to note that over half of them are involved in the oil industry. Perhaps this reflects the fact that oil and gas are currently the leading sources of energy. They are vital to the workings of the global economy – as raw material sources, as a fuel for transport, and as generators of electricity for industry and the home.

The production chains of these and other TNCs connect across the globe, kitting together the countries of the world into a network of interdependence. The overriding motive for setting up these chains is to maximise sales and profits. Aside from agriculture, industry and domestic purposes there are also other strong motives for this:

  • To be close to major markets
  • To sell inside trade barriers
  • To take advantage of incentives offered by governments
  • To be able to operate without too many restrictions.

Case Study: Tesco – A Transnational Retailer

The supermarket chain Tesco is one of the few leading TNCs with its head offices in the UK. Currently it is ranked 50th in the global league table. the company started life as a single grocery stall in the East End of London. It did not set up its first self-service supermarket until 1956. It was during the 1970s, 1980s and 1990s that the company really took off to become the largest food retailer in the UK shown by the image below.

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The key to a company’s success has been:

  • Its strategy of diversification into new markets, such as toys, clothing, electrical goods, home products, financial services and telecommunications, in addition to its original business of food.
  • Outsourcing its supplies of foodstuffs, clothing and other goods directly from producers both in the UK and in LICs such as Kenya, Sri Lanka and Bangladesh.
  • Globalising its chain of supermarkets. This did not start until the 1990s with the opening of stores in the Eastern Europe (Hungary, Poland, the Czech Republic and Slovakia). In 1998, it made its first move outside Europe, opening stores in Taiwan and Thailand and in South Korea and following year. Tesco’s presence in Asia has subsequently spread to China, Japan and Malaysia. Today 30% of the company’s profits come from Asia.

From a single supermarket in 1956, Tesco now has over 4500 stores and employs around 750000 people. Tesco has become a major TNC.

Case Study: Rio Tinto, Namibia

Rio Tinto is a transnational Mining and resources group, founded in 1873. At first, it concentrated its efforts on the mining of copper. As the company has prospered so it has turned it attentions to other minerals. Its networks of mines is now global in extent.

Namibia is one of the world’s major producers of uranium. Rio Tinto’s Rossing mine is one of the world’s five largest primary uranium mines shown by the image below. It is situated close to the seaside town of Swakopmund.

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At present there seems to be a uranium rush. It is based on the likelihood that nuclear power will play a leading role in filling the global energy gap. Additionally new mines are due to be opened. What has Namibia gained from small number of foreign technicians. These jobs mean tax income for the Namibia government. There are also the royalties paid to the government for the extraction of the uranium. The Uranium Oxide is exported in its raw form and enriched in countries with uranium converts such as France, the USA, Canada and China. So there is little or no `secondary` employment other than in transporting the ore to the coast and shipping it overseas. Rio Tinto provides a limited range of services for its workers and their families.

There are however costs to be considered. Health is one of these. Exposure to even relatively low levels of radiations over a long period can be extremely harmful tot he health of workers and communities living around uranium mines. Workers are exposed to dust and radon gas daily, and as a result  develop diseases such as TB and lung cancer. Although mining companies usually deny any reasonability and refuse to compensate workers, there is increasing evidence of a link between uranium mining and workers’ health problems.

Other aspects of the downside include the fact that uranium uses enormous amounts of water . Namibia is a water-deficient country. Mines produce huge amounts of waste and tailings. Once mining ceases huge holes remain. There are real environmental costs. These bring mining into direct conflict with tourism ventures that rely on Namibia’s scenic beauty and wildlife as main attractions.

The Good And The Bad

The growth of globalisation has given rise to a major debate about its real benefits. Its supporters point out that it is giving the poorest countries have something to offer to the global economy. Being involved in the global economy create jobs, the opportunity for people to earn a steady wage and chance to improve their quality of life.

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The problem is that TNCs and business are out to maximise their profits – they are inherently exploitive. They often ignore the environmental and social impacts of their investments. Few TNCs answer to the governments of the countries in which they invest. They are so powerful, they can do almost what ever they like. The profits that they make in any one country are most often `exported` to open up new businesses elsewhere. Any investment can disappear as quickly as it came, if global or local economic conditions change.

The world’s poorest countries have yet to see much benefit from globalisation. If anything, it has increased the so-called development gap between the rich and poor nations of the world. International trade only really benefits those who can afford to make, export and buy expensive imported goods, so many of the poorest people are penalised or excluded.

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