💼 Jobs and wages
A factory or call centre gives work to thousands of people. TNC wages are often higher than local farm or small business wages, so families can afford better food, housing and schooling.
Globalisation and TNCs » Evaluating the Impacts of TNCs
What you'll learn this session
Study time: 30 minutes
Cambridge spec: 9.2.5
- The advantages TNCs bring to the countries they operate in
- The disadvantages TNCs can cause
- How the impacts differ in LICs, MICs and HICs
- How governments try to get the benefits, and how to reach a balanced judgement
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Many governments compete to attract TNCs. Yet some people protest when a TNC arrives. Both reactions make sense, because a TNC can help a country and harm it at the same time. This lesson is about weighing the two sides. Remember, a TNC has its headquarters in one country and operates in many others.
Key terms:
- Host country: a country where a TNC operates but does not have its headquarters.
- Multiplier effect: when money spent by a TNC and its workers creates extra jobs and extra spending in the local area, which then creates still more.
- Regulation: laws and rules made by a government to control what companies can do.
- Corporate social responsibility (CSR): when a company chooses to act fairly towards its workers, the environment and local communities, beyond what the law demands.
The advantages of TNCs
Most of the benefits come from the TNC bringing money, jobs and knowledge into the host country.
🎓 Skills and training
Workers learn how to run machinery, use new technology and follow safety rules. These skills can later be used in local companies or to start a new business.
💰 Investment and tax revenue
Building a factory means a large investment of money in the country. The company and its workers also pay taxes. This tax revenue can pay for schools, hospitals and roads.
🏗️ Infrastructure
A TNC may need better roads, ports, power and internet. Building these helps the TNC, but local people and firms can use them too.
📦 Exports
Goods made by a TNC are often sold abroad. This brings in foreign money and helps the country earn from trade.
🔄 Multiplier effect
A factory worker spends wages on food, rent and transport. Shops, landlords and drivers earn more, hire more people and spend more too. One factory job can support other jobs.
The disadvantages of TNCs
The same company can also cause serious problems.
📉 Low wages and poor conditions
Some TNCs, or the firms that supply them, pay very low wages, demand long hours and ignore safety. Workers may be hurt in unsafe buildings or machinery.
💸 Profits leaving the country
The owners and shareholders of a TNC are usually in the home country, so much of the profit is sent out of the host country. It is not spent locally.
🏭 Pollution
Factories can pollute air and rivers, especially where rules are weak or not enforced. Local people may suffer ill health and lose fishing or farming.
🚪 Competition with local firms
A TNC can make goods cheaply and advertise widely. Small local companies may not be able to compete and may close.
✈️ They may leave
Remember that many industries are footloose. If wages rise or another country offers a cheaper deal, a TNC can close its factory and move. Workers lose their jobs quickly.
👑 Political influence
A very large TNC can pressure a government for lower taxes or weaker rules, by threatening to take its jobs and investment elsewhere.
Impacts on HICs as well as LICs and MICs
TNCs affect HICs too. A HIC can be a host country as well as a home country. For example, a Japanese car TNC runs a large car factory in Sunderland in the UK. It gives local jobs, brings investment and boosts exports.
HICs also feel the disadvantages. When a TNC moves its factories to a MIC with lower wages, workers in the HIC lose their jobs and the factory town can decline. Local firms in HICs can also lose customers to large TNCs. On the other hand, the HIC where the headquarters stands often keeps the best-paid jobs, such as management and research, and the tax from the profits.
The size of the impact depends on the country. In an LIC, a TNC may be the biggest employer around, so both the gains and the harm are large. In a HIC with a big, varied economy, one TNC is a smaller part of the picture.
How governments try to get the benefits
Governments cannot simply ban TNCs without losing the gains, so they try to keep the benefits and reduce the harm.
- Regulation: a minimum wage, safety laws, limits on pollution and fines for breaking the rules.
- Tax and training rules: making sure TNCs pay their taxes and expecting them to train local workers.
- Encouraging CSR: pressing companies to act fairly. Many TNCs now publish promises about paying fair wages, cutting pollution and supporting local schools.
The limit is that a poorer country needs the jobs and may be afraid to push too hard in case the TNC moves elsewhere. Weak governments may also lack the money to inspect factories.
Making a balanced judgement
Geographers do not just list impacts. They weigh them. Use these questions:
- Who gains and who loses? Workers, owners, local firms, the government or the environment?
- Are the impacts short term or long term? A job is useful now, but it may disappear if the TNC leaves.
- How strong are the rules? The same TNC may do more harm where regulation is weak.
A good conclusion might say that TNCs bring real benefits, such as jobs and skills, especially to LICs and MICs. However, the benefits are greatest when the government has strong regulation and the company practises CSR, and the harm is greatest where wages are low, profits leave and the company can move away.
Common mistakes
Do not write only about LICs. Questions can ask about HICs too. Do not just say "jobs": explain whether the pay and conditions are good or bad. Do not forget the final judgement. A list of advantages and disadvantages without a conclusion will not reach the top level.
Exam-style question
Table 1 shows the made-up effects of a TNC called Company Q, which has opened a clothing factory in Country P (an LIC).
| Effect in Country P | Detail |
|---|---|
| Jobs created | 4,000 factory jobs |
| Wage compared with local farm work | Higher |
| Share of profit kept in Country P | Small |
| Waste from the factory | Released into a nearby river |
(a) Identify one advantage of Company Q for Country P shown in Table 1. [1 mark]
(b) Define the term multiplier effect. [2 marks]
(c) Explain why a TNC may move its factory from one country to another. [3 marks]
(d) Describe two ways a government could reduce the harm caused by Company Q. [4 marks]
(e) To what extent do the impacts of TNCs benefit the countries where they are located? [6 marks]
Model answer
(a) Any one: 4,000 jobs are created, or wages are higher than local farm work (1).
(b) Money spent by the TNC and its workers creates extra jobs and spending in the area (1), which then creates still more jobs and spending (1).
(c) Wages may be lower in another country (1), so production costs fall and profits rise (1). The TNC is free to move because it can set up a factory anywhere, whereas local people are tied to one place (1).
(d) Any two, each described: pass laws that limit what waste can be put into rivers (1) and fine the company if it breaks them (1); set a minimum wage (1) so that workers are paid fairly (1); encourage the company to follow CSR and clean up its waste (1).
(e) Level 3 (5-6 marks): a developed answer with both sides and a judgement. For example: Company Q brings 4,000 jobs at wages above farm work, so families have more income, and the multiplier effect helps shops and landlords nearby. Workers also gain skills and the government may earn tax. However, only a small share of the profit stays in Country P, so most of the money leaves, and the waste harms the river, which may damage fishing and health. The company could also move if wages rise. Overall the benefits are real but limited. They would be greater if the government set strong rules and Company Q made fair use of its profits locally. (Credit is given for each developed point and for a supported judgement.)
Exam tip
For a "To what extent" question, finish with a sentence that starts "Overall" and says how far you agree and why. That conclusion is what moves an answer into the top level.