Changing Economies » Case Study - Globalisation and TNC Example

What you'll learn this session

Study time: 30 minutes

Definition and characteristics of globalisation
The role of transnational corporations (TNCs) in the global economy
Detailed case study of a major TNC (Nike)
Positive and negative impacts of TNCs on host countries
How globalisation affects different stakeholders
Examples of global supply chains

Introduction to Globalisation and TNCs

Globalisation is one of the most significant economic changes of the past 50 years. It has transformed how countries trade, how businesses operate and even how we live our daily lives. In this session, we'll explore globalisation through the lens of Transnational Corporations (TNCs) - the giant companies that operate across multiple countries.

Key Definitions:

Globalisation: The process by which the world is becoming increasingly interconnected through trade, culture, investment and technology.
Transnational Corporation (TNC): A company that operates in multiple countries, with headquarters typically in one country (usually an MEDC) and production facilities in others.
Global supply chain: The worldwide network of suppliers, factories, warehouses, distribution centres and retailers involved in producing and delivering products.
Foreign Direct Investment (FDI): When a company from one country builds or buys business operations in another country.

🌎 Characteristics of Globalisation

Globalisation has several key features:

Increased international trade
Growth of transnational corporations
Development of global brands
Greater movement of people
Spread of technology and ideas
Financial integration between countries

🏢 Features of TNCs

Transnational corporations typically:

Have headquarters in MEDCs (often USA, Europe, Japan)
Operate in multiple countries
Have massive annual revenues (often larger than some countries' GDP)
Control global supply chains
Seek to maximise profits by finding the most cost-effective locations
Have recognisable global brands

The Rise of TNCs in the Global Economy

TNCs have become incredibly powerful economic forces. Of the world's 100 largest economies, more than 50 are corporations rather than countries! They drive globalisation through their business decisions about where to locate different parts of their operations.

Why TNCs Go Global

TNCs expand internationally for several key reasons:

💰 Cost Reduction

Lower labour costs in LEDCs, cheaper raw materials, reduced transport costs by being near markets and tax advantages in certain countries.

📈 Market Expansion

Access to new customers, bypassing trade barriers by producing within foreign markets and extending product lifecycles by entering developing markets.

🛡 Resource Security

Securing access to raw materials, utilising specialist skills in different regions and diversifying risk across multiple countries.

Case Study: Nike as a Global TNC

Nike is one of the world's most recognisable brands and a perfect example of a modern TNC operating in the globalised economy.

Nike: A Global Footprint

Headquarters: Beaverton, Oregon, USA

Founded: 1964

Annual Revenue: Over $44 billion (2021)

Employees: Approximately 73,000 directly employed, but hundreds of thousands more work in supplier factories

Global Reach: Products sold in over 170 countries, with manufacturing in more than 40 countries

Key Fact: Nike owns very few factories itself - instead, it contracts with supplier factories around the world

Nike's Global Supply Chain

Nike's business model demonstrates how TNCs organise their operations globally:

Research & Design: Primarily in the USA, where designers and engineers develop new products
Raw Materials: Sourced globally (e.g., cotton, rubber, synthetic materials)
Manufacturing: Contracted factories mainly in Asia (Vietnam, China, Indonesia, Thailand)
Distribution: Regional distribution centres in strategic locations worldwide
Marketing: Global campaigns but adapted for local markets
Retail: Nike stores, online sales and third-party retailers worldwide

👍 Benefits of Nike's Presence

For host countries like Vietnam:

Job creation (Vietnam has over 100,000 workers making Nike products)
Foreign investment and technology transfer
Export earnings and economic growth
Skills development for workers
Infrastructure improvements

👎 Criticisms of Nike's Practices

Concerns have included:

Low wages in manufacturing countries
Poor working conditions in some supplier factories
Environmental impacts of production
Tax avoidance strategies
Pressure on local businesses that cannot compete

Nike's Response to Criticism

Following intense criticism in the 1990s about working conditions in its supplier factories, Nike has made significant changes:

Publishing a complete list of supplier factories
Regular factory audits and inspections
Sustainability initiatives to reduce environmental impact
Worker welfare programmes in supplier countries
Setting minimum standards for suppliers

Impacts of TNCs on Different Stakeholders

The effects of TNCs like Nike vary significantly depending on who you are and where you live:

🏡 Host Countries (e.g., Vietnam)

Positive: Job creation, technology transfer, tax revenue, infrastructure development, export earnings

Negative: Environmental damage, exploitation of workers, pressure on local businesses, profit repatriation to home country

🏢 Home Countries (e.g., USA)

Positive: Company profits, high-skilled jobs (R&D, marketing), global influence

Negative: Loss of manufacturing jobs, trade deficits, reduced tax revenue if company uses tax havens

👨‍💼 Workers & Consumers

Positive: Employment opportunities, cheaper products, greater product choice

Negative: Job insecurity, wage pressure, potential exploitation in LEDCs

The Future of Globalisation and TNCs

The relationship between globalisation and TNCs continues to evolve:

Digital Globalisation: Companies like Amazon, Google and Facebook represent a new kind of TNC that operates in digital space
Changing Public Attitudes: Growing consumer awareness about ethical production and sustainability is forcing TNCs to adapt
Reshoring: Some manufacturing is returning to MEDCs due to automation, quality concerns and rising wages in LEDCs
COVID-19 Impact: The pandemic exposed vulnerabilities in global supply chains, leading some TNCs to reconsider their global footprint

Examining Other Major TNCs

While we've focused on Nike, many other TNCs demonstrate similar patterns of global operation:

Apple: Designs in California, manufactures primarily in China through contractors like Foxconn
McDonald's: Operates in over 100 countries with a mix of company-owned and franchised restaurants
Unilever: Sells products in 190 countries with 400+ brands and production facilities worldwide
Toyota: Manufactures vehicles in 28 countries and regions, selling in over 170 markets globally

Each of these companies makes location decisions based on factors like labour costs, market access and resource availability.

Evaluating Globalisation and TNCs

When studying globalisation and TNCs for your iGCSE, remember to:

Consider multiple perspectives (economic, social, environmental, political)
Recognise both positive and negative impacts
Use specific examples and case studies to support your points
Understand that impacts vary between different places and stakeholders
Consider how the role of TNCs has changed over time

In your exam, you may be asked to evaluate whether TNCs are a force for good in the world. The strongest answers will acknowledge the complexity of this question, using specific examples like Nike to illustrate both benefits and drawbacks.

🧠 Test Your Knowledge!