Start Geo Dictionary | Overview | Topics | Groups | Categories | Bookmark this page.
geology dictionary - geography encyclopedia  
Full text search :        
   A   B   C   D   E   F   G   H   I   J   K   L   M   N   O   P   Q   R   S   T   U   V   W   X   Y   Z   #   



transnational corporation (TNC)

  \'A firm which has the power to coordinate and control operations in more than one country, even if it does not own them\' (Dicken, 1998, pp. 8, 177). This definition implies that, although TNCs generally do own the assets that they use, \'they are also typically involved in a spider\'s web of collaborative relationships with other legally independent firms across the globe\' (Dicken, 1998, p. 8) and in the ways in which they coordinate and control transactions throughout the production chain. TNCs cannot, therefore, be reduced merely to foreign direct investment. The more restrictive term multinational corporation (MNC) implies operations in more than two countries.

No longer integrated (see integration) merely by flows of merchant capital and trade or by finance capital and indirect (portfolio) investment, or even by the internationalization of industrial capital (see economic geography) and the global evaluation of bond markets, the world economic geography is increasingly tied together by the corporate organization of large enterprises which operate at a worldwide scale and account for the transfer of a high proportion of knowledge and (often specialized) labour in global circulation (see globalization). According to Peter Dicken (1998, p. 177):

[M]ore than any other single institution it is the Trans national Corporation which has come to be regarded as the primary shaper of the global economy.The growth of TNCs/MNCs has now gone beyond their mere spatial expansion (including their origins and the ever-increasing diversity of the geography of their investments); instead it is characterized by the intensification of corporate control over the global operating environment. Between one-fifth and one-quarter of total world production in market economies is undertaken by TNCs/MNCs. Electronic communications and management systems allow the centralization of information and decision-making and the decentralization of operations, while the freeing of national controls over the international movement of finance capital and the establishment of international capital markets and financial systems combine to increase the international mobility of capital.

This combination of centralization, decentralization and global structure facilitates locational flexibility and the reduction of risk, as corporate strategy is able to respond quickly with the use of what are, in corporate terms, ephemeral branch plants and national subsidiaries, to changes in the world economy, without destabilizing the organization as a whole. However ephemeral such investments may be for the corporation, for the host nation they often represent a significant part of the national economy over which local interests may have little or no control.

TNCs/MNCs are now multinational in their origin as well as their destination: many American corporations are now outstripped in size by Japanese and even by Western European TNCs/MNCs and, although generally small in size, TNCs/MNCs are now emerging from the leading newly industrializing countries. There is, as a result, an increase in the interpenetration of capital around the world which serves to break down the possibilities for integrated and locally controlled indigenous development in particular economies. However, over 89 per cent of the world\'s largest TNCs/ MNCs are based in the USA (32 per cent), the EU (31 per cent) and Japan (25 per cent).

There is \'little evidence of TNCs having the share of their activities outside their home country which might be expected if they are global firms\' (Dicken, 1998, p. 196) although the largest TNCs/MNCs are enormous: each of the top 50 TNCs has an annual turnover greater than the GNP of many of the world\'s smaller LDCs, whilst the largest (such as Mitsubishi, Mitsui, Itochu, General Motors, Sumitomo, Ford and Exxon) rival countries like South Africa, Norway, Portugal and Greece (Knox and Agnew, 1998). And, through their profit-making interest in national currency differentials articulated through the multinational network of banking corporations, they are capable of both the stimulation and destabilization of national economic geographies. Furthermore, TNCs/ MNCs dominate world trade with over 50 per cent of the total trade of Japan and the USA accounted for by intra-firm trade. They are also able to indulge in the largely invisible practice of transfer pricing. This is an accounting practice which enables the allocation of costs and the pricing of goods moving within the corporation to be made in the most profitable fashion in response to local conditions of regulation, regardless of the accuracy of the costs, the prices or their allocation.

The increasingly multinational origin of TNCs has been accompanied by a diversification of forms of organization with significant cultural and economic consequences. The chaebol in South Korea, modelled on the Japanese zaibatsu (the giant family-owned firms which dominated the pre-Second World War development of the Japanese economic geography) were at the heart of the crisis of the Korean economy during the late 1990s because of their close, state-articulated links with the financial sector and their significance for the economy as a whole. One response to the crisis was a fundamental restructuring of the chaebol to make their financial relations far more transparent. But such a transformation not only reduces diversity in the population of TNCs but exposes the Korean economy to the vicissitudes of financial capital controlled primarily in Western Europe, the USA and Japan.

Networks of relationships also characterize the Japanese keiretsu which, Dicken (1998) remarks, are characterized by transactions conducted through highly symbolic alliances of affiliated companies based around long-term relationships within \'families\' of related firms and founded on highly complex links — financial, personal and commercial. Keiretsu may be horizontal — organized around a core bank and a general trading company (sogo shosha) which carries out a variety of commercial functions for the keiretsu (examples include Mitsubishi, Mitsui and Sumitomo), or vertical — organized around a large parent company in a particular industry such as Toshiba, Toyota and Sony. But a highly complex network of links also exists between horizontal and vertical keiretsu which serve further to bypass purely market-based relationships within \'industries\' but also to make a flexible response to change rather difficult.

The counterfactual problem of assessing the balance sheet of advantages and disadvantages of TNCs/MNCs is difficult (TNCs/MNCs have social, cultural and political effects as well as environmental and economic consequences). The bottom line is far from clear for the circuit of capital as a whole (its overall efficiency and responsiveness to change and the potential for change), for the various forms of capital around the circuit, or for the places caught up in the influence of TNCs/MNCs. Judged from the perspective of development, their influence is malign insofar as at the same time that they connect economies into the global circuit of capital and so increase supply lines and markets and introduce new technology (which has both positive and negative developmental effects), they displace control over the making of history and geography from people struggling to make their living and define their identity in such economic geographies by imposing a particular understanding and measure of value and progress. (RL)

References Dicken, P. 1998: Global shift: the internationalization of productive activity, 3rd edn. London: Paul Chapman Publishing. Knox, P. and Agnew, J. 1998: The geography of the world economy. London and New York: Arnold.

Suggested Reading Dicken (1998).



Bookmark this page:



<< former term
next term >>


Other Terms : replacement rates | core-periphery model | mode of production
Home |  Add new article  |  Your List |  Tools |  Become an Editor |  Tell a Friend |  Links |  Awards |  Testimonials |  Press |  News |  About
Copyright ©2009 GeoDZ. All rights reserved.  Terms of Use  |  Privacy Policy  |  Contact Us