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Transnational corporations

12 important questions on Transnational corporations

How large are TNC's

There are TNC's that are VERY large , but the there are only 200 gigantic TNCs. They make huge investments and compete in global markets for goods and services such as electronics, oil/gas and telecommunications. Most of the TNCs are medium or even small

How to measure the relative size of TNCs?

UNCTAD lists TNCs according to the value of their foreign assets, a good approach because it stresses the effects of FDI. The size does not really matter because it is about the ability to provide FDI

There are three forces that drives the transnational market growth

-policy liberalization (Washington consensus, which facilitate open trade and free capital mobility, countries that have a mercantilists strategy are a bit disadvantaged)
-technological change (has accelerated FDI by reducing transportation and communication costs)
-increasing competition(because of policy liberalization and technological change the Transnational market has expanded relative to markets that are mainly domestic, firms are facing greater competition)

The patterns of TNC operations

First the pattern was rather North-North rather than North-South, this however, changed rapidly.(Brazil and India very popular now) However, the continent Africa is ignored (exception for the resources extraction). These countries do not have large markets and significant skilled labor or because political and social instability makes them an undesirable investment target.

What determines where TNC invest?

There are several theories that attempt to account for different aspects of TNC behavior

-Product cycle theory
-Appropriability theory

TNC and the underdevelopment, explain the hymer's theory

Hymer argued that the desire to retain monopoly power, exploit foreign markets and earn excess profits caused TNCs to engage in patterns of FDI that do not foster economic development. What you get is the Branch-factory syndrome, whereby critical technology and the most productive assets remain securely at headquarters while the inferior and less productive assets are transferred abroad to the branch factory. It prevents periphery countries from catching up

Trade barriers and politics

TNCs depends on international open trade and trade barriers make their internal operations less efficient and disadvantage them compared with protected domestic firms. However, it can also trade barriers can also encourage certain types of TNC behavior. A foreign form can get around a barrier by establishing a factory in that country (JAPAN-USA Honda)

TNC and the currency instability

TNCs are especially susceptible to the effects of unstable foreign exchange rates because they often have costs that are denominated in one group of currencies and earn revenues in other currencies.
How to reduce the exchange risk --> to establish production facilities in each major market so that costs and revenues largely accrue in the same currency. Or produce the goods in the countries where they are sold.Or when a currency is overvalued imported goods are less expensive then domestic goods. This can be a strong incentive for firms to invest in foreign production facilities.

How powerful are TNCs

Some TNCs appear to be very powerful, just as much as states. However, their powers differ and so their relationship is complex and evolving. The GDP of a country is not equivalent to the total revenues of a corporation. Also many TNC ignore important nonmonetary factors. States have legitimacy, citizens, armies. TNC has none of these.

Changing reactions to TNCs

Most authors interpret the expansion of TNCs as a decisive shift in the balance of power in the global economy. Who will benefit and how. There are three different viewpoints

-TNCs as a form of capitalist imperialism
-TNCs as a tool of US hegemony
-TNCs as state-level actors in IPE

TNCs and capitalist imperialism, explain

lenin argues that colonial imperialism was replaced by economic imperialism
Hymer's theory argues that TNC will have an exploitative behavior since they want to have a profit-maximizing strategy. TNCs will engage in a pattern of behavior that is imperialism in everything but name.

TNCs as a tool to U.S. hegemony

First US TNCs were especially active and focused on foreign expansion in the immediate post WW2 years, US foreign policy seemed to be directed in part to creating opportunities for US firms to expand abroad. Once the FDI had taken place US investments abroad created economic interests favorable to the US policies. To the US promoted through the US TNCs their policies
Gilpin--> to maintain America's share of world markets, securing a strong position in foreign economies

The question on the page originate from the summary of the following study material:

Introduction to international political economy

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Transnational corporations

12 important questions on Transnational corporations

How large are TNC's

How to measure the relative size of TNCs?

There are three forces that drives the transnational market growth

The patterns of TNC operations

What determines where TNC invest?

TNC and the underdevelopment, explain the hymer's theory

Trade barriers and politics

TNC and the currency instability

How powerful are TNCs

Changing reactions to TNCs

TNCs and capitalist imperialism, explain

TNCs as a tool to U.S. hegemony

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