Transnational Corporations

Transnational corporations (TNCs) are among the most powerful actors in the global economy. They drive economic globalisation through investment, trade, and the organisation of global production networks. Understanding their operations and impacts is essential for AQA A-Level Geography.

Key Definition: A transnational corporation (TNC) is a company that operates in at least two countries, with its headquarters typically in a developed country and production, service, or sales operations in multiple other countries.

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Characteristics of TNCs

TNCs share several defining features that distinguish them from purely domestic firms:

• Scale — the largest TNCs have revenues exceeding the GDP of many countries. Walmart's annual revenue (~$611 billion in 2023) exceeds the GDP of Sweden
• Global operations — TNCs operate across multiple countries, with complex networks of subsidiaries, joint ventures, and subcontractors
• Headquarters location — most TNC headquarters are in developed countries (USA, UK, Japan, Germany), though Chinese TNCs are rapidly growing in importance
• Market power — TNCs often dominate their sectors, with significant bargaining power relative to national governments
• Brand recognition — global brands like Apple, Nike, Coca-Cola, and Samsung are recognised worldwide

Scale of TNC Power

TNC	Revenue (2023)	Countries of Operation	Employees
Walmart	$611 billion	24	2.1 million
Apple	$383 billion	175+ (sales)	164,000
Samsung	$244 billion	74	270,000
Unilever	$60 billion	190+	127,000

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Spatial Division of Labour

TNCs organise their operations to take advantage of the different characteristics of places around the world. This creates a spatial division of labour — different stages of production are located in different places based on the resources, skills, and costs available.

Typical Spatial Organisation

Function	Location	Reason
Headquarters / R&D	Developed countries (USA, UK, Japan)	Access to skilled workers, universities, financial services, legal frameworks
Manufacturing	Developing/emerging countries (China, Vietnam, Bangladesh)	Lower labour costs, fewer regulations, government incentives
Call centres / IT services	India, Philippines	English-speaking workforce, lower wages, time zone advantages
Resource extraction	Resource-rich countries (DRC, Nigeria, Chile)	Location of raw materials
Sales and marketing	Global	Access to consumer markets

The New International Division of Labour (NIDL)

The concept of the NIDL, developed by Frobel, Heinrichs, and Kreye (1980), describes how production has shifted from developed to developing countries:

• Labour-intensive manufacturing moved to countries with lower wages and fewer regulations
• Developed countries retained high-value activities (design, R&D, management, finance)
• This created global inequalities, with developing countries often locked into low-value production

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Global Production Networks

TNCs organise production through complex global production networks (GPNs) that link firms, workers, and places across the world.

Apple's Global Production Network

Apple provides one of the most studied examples of a GPN:

• Design and R&D — Cupertino, California (headquarters with ~25,000 engineers)
• Component manufacturing — semiconductors from TSMC (Taiwan), screens from Samsung (South Korea), rare earth minerals from the DRC and China
• Assembly — primarily Foxconn factories in China (Shenzhen, Zhengzhou) and increasingly in India and Vietnam
• Distribution — global network of retail stores, online sales, and third-party retailers
• After-sales service — Apple Stores and authorised service providers worldwide

The iPhone illustrates the complexity of GPNs: a device sold for approximately £1,099 may cost around $490 to manufacture, with Apple retaining roughly 58% of the sale price as profit, whilst assembly workers receive a tiny fraction.

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Foreign Direct Investment (FDI)

FDI is the primary mechanism through which TNCs establish operations in other countries.

Types of FDI

• Greenfield investment — building new facilities from scratch (e.g., Nissan's car plant in Sunderland, UK)
• Mergers and acquisitions — purchasing existing companies (e.g., Tata Group's acquisition of Jaguar Land Rover)
• Joint ventures — partnering with local firms (common in China, where foreign companies were historically required to partner with Chinese firms)

Global FDI Patterns

• Historically, FDI flowed primarily between developed countries (North-North flows)
• Since the 2000s, FDI to developing and emerging economies has grown significantly (North-South flows)
• South-South flows are increasing, with Chinese and Indian TNCs investing heavily in Africa and Southeast Asia
• FDI is highly concentrated — the top 10 recipient countries receive over 60% of global inflows

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Transfer Pricing

Transfer pricing is the practice of setting prices for transactions between different subsidiaries of the same TNC. It is legal but frequently used to minimise tax liabilities.

How It Works

1. A TNC's subsidiary in a high-tax country sells goods to a subsidiary in a low-tax country (a tax haven) at an artificially low price
2. The subsidiary in the tax haven then sells the goods at a higher price, booking the profit in the low-tax jurisdiction
3. The TNC pays less tax overall, but the high-tax country loses revenue

Scale of the Problem