5.2.7 Transnational Corporations

Why has globalization increased so rapidly?


One of the most powerful economic forces in the world today is the
multinational
a corporation with headquarters in one country and trade operations in many other countries

Typically, multinational corporations have branch plants (production facilities) in several countries. They do this to take advantage of reduced productions costs such as lower workers' salaries, lower taxes, and less restrictive labour laws and/or pollution controls.
transnational or multinational corporation. A transnational corporation has operations in more than one country-across borders. Usually the corporation has headquarters in a developed country and manufacturing or resource extraction operations in other countries as well as distribution of products in numerous countries.

Examples of transnational corporations are common. In fact, they sell and produce most of the things we buy, and they control many of the services we receive. They include Wal-Mart, Microsoft, McDonald's, Ikea, Esso, Sony, Safeway, Burger King, the Gap, Levis, Nike, Delmonte, Apple, Adidas, Toshiba, Honda, Ford, Disney, Pizza Hut, and many more! From this list, you probably realize that the clothes you wear, the car you or your parents drive, the foods you eat, the materials in your home, and the beverages you drink are all produced, serviced, or sold by transnational corporations.

Transnational corporations are very powerful. Of the 100 largest economies in the world, 53 are corporations.

  • Several corporations are more powerful than 120 countries are.
  • ExxonMobil, known as Esso in Canada, is ranked #21 of all economies in the world-just behind Sweden.
  • The top 1000 transnationals in the world account for 80% of the world's industrial output.
  • Fourteen of the world's top 20 corporations are based in the United States.

Transnationals operate best in a transnational environment. They want to gain access to markets in as many countries as they can. For example, some Canada Dry ginger ale was made in Honduras, Central America, for sale in that country. Canada Dry, although it was created and produced by Canadians for decades, has not been a Canadian company since 1986 when it was purchased by the British firm Cadbury Schweppes.

McDonald's in Japan

McDonald's in Japan
Source: Wikimedia Commons

Imagine the profits a corporation can earn if it expands its operations to other nations. Imagine how much more it can earn if it can pay workers in those countries less or if the company has to meet less restrictive environmental laws. The executives and owners of McDonald's were thrilled when they opened their first restaurant in Russia in 1990. It sold 30 000 hamburgers on the first day! Then, imagine how they felt about opening their first restaurant in China! They sold 40 000 hamburgers on the first day!

Transnationals and tariffs:

  • Transnational corporations want to do business all over the world.
  • They want to
    specialization
    the assumption by workers or involved individuals of various tasks and roles to increase efficiency and output as well as to reduce costs
    specialize in production. 
  • They want to be able to produce their goods in one country and sell them throughout the world.
  • They want to trade between countries without having to pay
    tariff
    a tax on goods that are produced outside the country imposed by the government of the country to which they are exported

    Many countries have reduced tariffs as world trade becomes more free.
    tariffs or import duties. 

Opportunities: The growth of transnational corporations has contributed to the expansion of globalization because countries become much more interconnected when corporations produce, buy, and sell goods in their backyard. A transnational setting up operations in one of these countries can lead to

  • greater employment
  • higher paying jobs
  • improved tax revenue
  • increased economic activity

Challenges: Because benefits occur for countries that have transnational operations, often countries compete by offering incentives. These incentives are good for the transnationals but not always so good for workers or other citizens. Examples include

  • tax breaks
  • government assistance
  • improved infrastructure
  • reduced environmental standards
  • poor labour laws, including reduced wages

Sometimes this is called the race to the bottom because countries compete with each other to make their own nation seem the most attractive to the transnational by making things worse for the people within the country.