🏭 Global supply chains
Parts are made in one country, put together in a second and sold in dozens more. The TNC controls or coordinates every link, even though it may not own every factory.
Globalisation and TNCs » Transnational Corporations
What you'll learn this session
Study time: 30 minutes
Cambridge spec: 9.2.4
- What a transnational corporation (TNC) is
- How a TNC spreads its work around the world
- Why TNCs locate in different countries
- How big the largest TNCs are, with examples from several sectors
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Unlock This CourseWhat is a TNC?
A phone, a pair of trainers or a chocolate bar often has a company behind it that works in dozens of countries at once. These companies are the main players in globalisation. Geographers call them transnational corporations.
Key terms:
- Transnational corporation (TNC): a large company that has its headquarters in one country and operates (makes things, sells things or both) in many countries.
- Headquarters: the main office where the company's top decisions are made.
- Research and development (R&D): the work of inventing and designing new products and improving old ones.
- Outsourcing: paying another company, often in another country, to do a job or make a part, instead of doing it yourself.
- Trade barrier: a rule, such as a tax on imports, that makes it harder or more expensive to sell goods into a country.
How a TNC is organised around the world
A TNC does not do everything in one place. Each job goes where it suits the company best. Remember, globalisation links countries through supply chains, and TNCs are the companies that build those chains.
| Part of the TNC | Where it is usually found | Why |
|---|---|---|
| Headquarters | Usually a HIC, in the company's home country | Banks, skilled managers and lawyers are close by |
| Research and development | Usually HICs | Universities and highly skilled scientists and designers |
| Manufacturing | Usually LICs and MICs | Lower wages and lower costs |
| Regional offices and sales | Worldwide | Close to customers in each region |
This is a general pattern, not a rule. Some TNCs have their headquarters in a MIC, and many TNCs do R&D in several countries.
🤝 Outsourcing
A TNC may pay another company to make its products or parts. This lets the TNC focus on design and brand while others do the making.
Why do TNCs locate in different countries?
TNCs choose each country for a reason. Remember the location factors for industries from an earlier lesson: TNCs use them on a world scale.
- Cheap labour: wages are lower in many LICs and MICs, so making products there costs less.
- Markets: a TNC puts factories or shops close to large numbers of customers, so it can sell more and deliver faster.
- Raw materials: a TNC may set up where the materials it needs are found, such as farms, mines or forests.
- Tax incentives: some governments offer lower taxes to attract a TNC and the jobs it brings.
- Avoiding trade barriers: if a country taxes imports, a TNC can build a factory inside that country and sell from there instead.
Examples from several sectors and countries
🚗 Toyota (cars, Japan)
Headquarters in Japan. It builds cars in many countries, including Thailand, the USA and the UK. Making cars inside the markets it sells to helps it avoid trade barriers and lowers shipping costs.
🧼 Unilever (household goods, UK)
Headquarters in London. Its brands, such as Dove, are made and sold in a very large number of countries, so it has factories and offices on several continents.
🍫 Nestlé (food and drink, Switzerland)
Headquarters in Switzerland. It buys raw materials, such as cocoa grown in West Africa, and sells chocolate and coffee worldwide.
📱 Apple (technology, USA)
Headquarters and design work in California. Its products are mostly assembled by other companies in Asia, including China and India. This is outsourcing in a global supply chain.
Tata (India) shows that not every TNC starts in a HIC. Tata is a TNC with its headquarters in India, a MIC, and it works in sectors from steel to cars. It owns Jaguar Land Rover in the UK, so a company from a MIC now runs factories in a HIC.
How big are the largest TNCs?
The largest TNCs are enormous. Some of them earn more money (revenue) in a year than the total value of everything produced (GDP) by many whole countries. For example, the biggest retailer in the world, Walmart, has had yearly revenue of over US$600 billion in recent years, which is more than the GDP of many countries in Africa and Asia.
Take care with wording. Revenue and GDP are not measured in exactly the same way, so say "earns more than the GDP of many countries", not "is bigger than a country". This size gives a TNC great power: it can bring jobs and money, and it may be able to influence governments.
Common mistakes
Writing that a TNC is "any company that exports". A TNC must operate in several countries, not only sell abroad. Another mistake is saying all manufacturing is in HICs. The usual pattern is HQ and R&D in HICs and manufacturing in LICs and MICs. Finally, remember that outsourcing means using another company, not opening your own factory.
Exam-style question
Table 1 shows the made-up organisation of a TNC called Company Z, which makes sports equipment.
| Part of Company Z | Location |
|---|---|
| Headquarters | Country A (HIC) |
| Research and development | Country A (HIC) |
| Factories | Country B (LIC) and Country C (MIC) |
| Sales offices | Countries A, B, C and 12 others |
(a) Define the term TNC. [2 marks]
(b) Identify one part of Company Z located in a HIC. [1 mark]
(c) Suggest two reasons why Company Z has put its factories in Countries B and C. [4 marks]
(d) Explain why a TNC might build a factory inside a country instead of selling goods into it from abroad. [3 marks]
(e) Discuss why TNCs are described as powerful. [6 marks]
Model answer
(a) A large company (1) that has its headquarters in one country and operates in several countries (1).
(b) Headquarters, or research and development (1).
(c) Any two, each developed: wages are lower in Countries B and C (1), so production costs are lower and profits higher (1); a large market of customers close to the factory (1), so goods can be sold and delivered more cheaply (1).
(d) The country may tax imports (1), so building a factory inside avoids the trade barrier (1) and the goods can be sold at a lower price (1).
(e) Level 3 (5-6 marks): a developed answer with both sides. For example: the biggest TNCs earn more in a year than the GDP of many countries, so they have a lot of money to spend. They employ thousands of people, so governments want them to stay and may offer tax incentives. They can choose to move production to another country, which gives them bargaining power. However, they still depend on governments for rules and on customers for sales. TNCs are therefore powerful, especially in LICs, but not all-powerful. (Credit is given for each developed point and for a final judgement.)
Exam tip
For a "Suggest two reasons" question, give a reason and then add a short "so" link. "Wages are lower, so costs fall" earns the second mark that "wages are lower" alone does not.