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Studying the role of large companies that operate in multiple countries and their impact on local economies.
Look at the label on your shirt or the brand on your phone—it likely traveled thousands of miles across multiple borders before reaching your hands. How do companies manage to build products across the entire planet simultaneously?
A Transnational Corporation (TNC) is a massive company that operates in at least two countries, though the largest span dozens. They usually maintain a Headquarters (HQ) in a 'core' developed nation where high-level research and branding occur. However, their factories and service centers are spread globally to take advantage of different markets and resources. This creates a Global Production Network, where a single product—like a smartphone—might contain components from 20 different countries, all assembled in a final location to be sold worldwide.
Quick Check
What is the primary characteristic that makes a company 'transnational'?
Answer
It must own or control operations (like factories or offices) in more than one country.
A shoe company calculates the cost to make one pair of sneakers. 1. Domestic Cost: 12.00 per pair. 3. Shipping and Tariffs: 12 + 8 = 60 - 20 = $40.00 per pair. By offshoring, the company saves 66% on production.
Quick Check
If a company hires a local firm in India to handle its customer service calls, is that outsourcing or offshoring?
Answer
It is outsourcing (hiring another company) and likely offshoring (if the HQ is in a different country).
When a TNC enters a 'host' country, it brings Foreign Direct Investment (FDI). This can trigger the Multiplier Effect: the TNC builds a factory, creating jobs; workers spend their wages at local shops; those shops then hire more staff. However, there are risks. TNCs may engage in a 'race to the bottom,' pressuring governments to keep wages low and environmental laws weak to prevent the company from moving elsewhere. This creates a power imbalance where the TNC's revenue is often larger than the host country's GDP.
$J = \$1,000,00060\%0.6$) of their income locally, the total impact is: In a Global Production Network, a TNC relies on 'Just-in-Time' delivery. If a TNC sources screens from Country A, chips from Country B, and batteries from Country C for assembly in Country D: 1. A strike in Country B stops all production. 2. The TNC loses millions per day. 3. This illustrates that while global networks are efficient, they are highly vulnerable to local political or environmental disruptions.
What is the term for a company moving its own factory from the USA to Vietnam?
If the multiplier is defined as , what happens to the total economic impact if people spend MORE of their money locally (higher )?
TNCs usually keep their high-level Research and Development (R&D) in the same low-income countries where they place their factories.
Review Tomorrow
In 24 hours, try to explain the difference between 'outsourcing' and 'offshoring' to someone else without looking at your notes.
Practice Activity
Pick three items in your house (e.g., a toaster, a laptop, a shirt). Research where the brand is headquartered and where the product was actually manufactured. Notice the distance between the two.