Development » Transnational corporations - case studies

What you'll learn this session

Study time: 30 minutes

What transnational corporations (TNCs) are and why they're important
How TNCs operate in different countries
The positive and negative impacts of TNCs on host countries
Case studies of major TNCs: Nike and Coca-Cola
How to evaluate the overall impact of TNCs on development

Understanding Transnational Corporations (TNCs)

Transnational corporations (TNCs) are huge companies that operate across multiple countries. They have a massive influence on the global economy and how countries develop. Some TNCs are so powerful that they have bigger economies than entire countries!

Key Definitions:

Transnational Corporation (TNC): A company that operates in multiple countries, with headquarters usually in one country (the 'home' country) and operations in others (the 'host' countries).
Globalisation: The process by which the world is becoming increasingly interconnected through trade, communication and cultural exchange.
Foreign Direct Investment (FDI): When a company from one country invests in business operations in another country.

Did you know? 💡

If Walmart were a country, its revenue would make it the 24th largest economy in the world, bigger than countries like Norway and Finland!

How TNCs Operate Globally

TNCs spread their operations across different countries to take advantage of various benefits each location offers. This is how they typically organise themselves:

🏢 Headquarters

Usually located in high-income countries (HICs) like the USA, UK, Japan, or Germany. This is where the company is managed from, where research and development happens and where the big decisions are made.

🏭 Manufacturing

Often located in low-income countries (LICs) or newly emerging economies (NEEs) where labour costs are lower, environmental regulations might be less strict and land is cheaper.

Why TNCs Move to Other Countries

TNCs don't just randomly choose where to set up their operations. They carefully select locations based on several factors:

💰 Economic Factors

Lower labour costs
Cheaper land
Lower tax rates
Access to raw materials

📝 Political Factors

Stable governments
Less strict regulations
Government incentives
Free trade zones

🌎 Geographical Factors

Good transport links
Access to markets
Suitable climate
Language similarities

Impacts of TNCs on Host Countries

When TNCs move into a country, they bring both benefits and challenges. It's important to understand both sides:

👍 Positive Impacts

Job creation: TNCs employ local people, reducing unemployment
Economic growth: They bring investment and boost the local economy
Infrastructure development: Roads, ports and utilities may be improved
Technology transfer: New skills and technologies are introduced
Tax revenue: Governments receive taxes from TNC operations

👎 Negative Impacts

Exploitation: Workers may face poor conditions and low wages
Environmental damage: Pollution and resource depletion can occur
Profit repatriation: Money flows back to the home country
Cultural change: Local traditions may be threatened
Dependency: Host countries can become reliant on TNCs

Case Study 1: Nike

Nike: A Global Footwear and Apparel Giant

Nike is one of the world's largest sportswear manufacturers, headquartered in Oregon, USA. The company designs and markets its products but outsources most of its manufacturing to factories in countries like Vietnam, China and Indonesia.

Key Facts:

Founded in 1964 as Blue Ribbon Sports, became Nike in 1971
Employs over 75,000 people globally
Works with more than 500 factories in over 40 countries
Annual revenue exceeds $40 billion

Impacts on Host Countries:

Positive: Nike factories employ hundreds of thousands of workers, particularly in Vietnam where they are a major employer. They've improved their code of conduct, requiring better working conditions and environmental standards from their suppliers.

Negative: Nike has faced criticism for poor working conditions, low wages and the use of sweatshops. In the 1990s, reports emerged of workers in Indonesia earning just $1.25 per day while Nike shoes sold for $100+ in Western markets.

Response: Following public pressure, Nike has improved monitoring of working conditions and increased transparency in its supply chain. They now publish factory locations and audit results, though challenges remain.

Case Study 2: Coca-Cola

Coca-Cola: The World's Most Recognised Beverage Brand

Coca-Cola operates in more than 200 countries with a unique business model that combines global marketing with local production and distribution through bottling partners.

Key Facts:

Headquartered in Atlanta, USA
Products consumed at a rate of 1.9 billion servings per day globally
Employs over 700,000 people across its system worldwide
Uses a franchise model where local bottlers produce and distribute products

Impacts on Host Countries:

Positive: Coca-Cola creates jobs not just in bottling plants but throughout the supply chain including in agriculture, retail and transportation. The company invests in local infrastructure and community projects like clean water initiatives.

Negative: Coca-Cola has been criticised for depleting water resources in countries like India, where some communities have experienced water shortages near bottling plants. There are also concerns about the health impacts of sugary drinks and plastic waste from packaging.

Response: The company has pledged to replenish all the water it uses in production and has invested in water conservation projects. They've also developed more environmentally friendly packaging and diversified their product range to include healthier options.

Evaluating the Impact of TNCs

When assessing whether TNCs are good or bad for development, we need to consider multiple perspectives:

💼 Economic Perspective

TNCs bring investment and jobs but may exploit resources and workers. The economic benefits often depend on how much profit stays in the host country versus how much returns to the home country.

🌎 Environmental Perspective

Some TNCs bring cleaner technologies and higher standards, while others take advantage of weaker regulations to pollute more than they would in their home countries.

👥 Social Perspective

TNCs can improve living standards through wages and training, but may also disrupt traditional ways of life and create inequality between those who work for TNCs and those who don't.

The Changing Role of TNCs

TNCs are evolving in response to criticism and changing global attitudes:

Corporate Social Responsibility (CSR): Many TNCs now have programmes designed to give back to communities and reduce negative impacts
Ethical Consumerism: Customers in HICs increasingly demand ethically produced goods, forcing TNCs to improve practices
International Oversight: Organisations like the UN are developing guidelines for responsible business conduct
Host Country Regulations: Some developing countries are strengthening laws to ensure TNCs contribute more to local development

Exam Tip 💡

For case study questions about TNCs, remember to:

Name specific companies and where they operate
Discuss both positive and negative impacts
Include specific facts and figures where possible
Consider different perspectives (economic, social, environmental)
Reach a balanced conclusion about whether the TNC's overall impact is positive or negative

Summary

Transnational corporations are powerful global players that significantly influence development patterns around the world. While they bring investment, jobs and technology to host countries, they can also exploit workers, damage the environment and create dependency. The case studies of Nike and Coca-Cola demonstrate how TNCs can have mixed impacts and how they may change their practices in response to criticism.

The relationship between TNCs and development is complex and continues to evolve as companies face pressure to operate more responsibly and as host countries develop stronger regulations to protect their interests.