SAJC Cluster 1.2 Lecture 12 Notes (The Geography of the Global Economy and TNCs)

St Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_Cluster 1_Lecture 12_2025/pg 1 Lecture 12 Geography of the Global Economy and Transnational Corporations (TNCs) KEY QUESTION: How do TNCs connect the global economy and impact places? With the completion of this lecture, attached readings and tutorial, you should be able to discuss how: - the global production networks of TNCs connect places within the global economy; and - TNCs’ global production networks impact home and host economies. Lecture Outline 12.1 Introduction: The Transnational Corporation 12.2 What motivates firms to transnationalise? 12.2.1 Market-seeking 12.2.2 Asset-seeking (a) Access to knowledge (b) Access to labour 12.3 How do firms transnationalise? 12.4 What is the structure of TNCs? 12.5.1 Headquarters: Centres of strategic control and coordination 12.5.2 Research and Development Centres 12.5.3 Branch Offices: Marketing and Sales 12.5.4 Branch Plants: Manufacturing 12.5 What are some examples of GPNs? 12.6 What is the impact of TNCs’ global production networks on host countries? 12.6.1 Socio-economic Impact 12.6.1.1 Pros for Host Countries 12.6.1.2 Cons for Host Countries 12.6.2 Environmental Impact 12.7 What is the impact of TNCs’ global production networks on home countries? 12.8.1 Socio-economic Impact 12.8.2 Environmental Impact 12.8 Concluding remarks on TNC’s impacts on countries in which they operate Readings: • After Indonesia retreat, GM retrenches in Thailand too, CNA, 27 Feb 2015 • GM reopens regional HQ here, CNA, 8 Aug 2014 • Nike: A Case Study

St Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_Cluster 1_Lecture 12_2025/pg 2 Many of us are consumers of Nike products. Beyond donning Nike shoes or apparel, we can use geographical lenses to help us understand the operations of Nike. What does its produce its merchandise, how did it become as such, and should we be concerned about it? Cartoon showing the unpleasant conditions Nike has been accused of allowing workers responsible for its products to operate in. 12.1 Introduction: The Transnational Corporation A transnational corporation (TNC) are major business organisations with the power to coordinate and control operations in more than one country. • The significance of the TNC lies in three basic characteristics: i. its ability to coordinate and control various processes and transactions within production networks, both within and between different countries ii. its potential ability to take advantage of geographical differences in the distribution of factors of production (for example, natural resources, labour, capital) and in state policies (for example, taxes, trade barriers, subsidies etc.) (see Lect 12 on Role of the State) iii. its potential geographical flexibility – an ability to switch and re-switch its resources and operations between locations on an international or even a global scale (see Reading 2) • More than any other single institution, the transnational corporation has come to be seen as the primary shaper of the contemporary global economy and a major threat to the economic autonomy of the nation-state. • The vast majority of TNCs mostly execute their international business by exporting their foreign direct investments (FDIs) to different countries worldwide. Therefore, TNC activity is often measured by the FDI, which is direct investment across national boundaries, that is, when a firm from one country buys a controlling investment in a firm in another country, or where a firm sets up a branch or subsidiary in another country. Note: While FDI serves as a good proxy of TNC activities, the FDI data are based on ownership of assets, so they do not capture the increasingly intricate ways in which firms engage with transnational corporations. Also, FDI do not just come from TNCs. • Hence, much of the changing geography of the global economy is shaped by TNC s through their decisions to invest, or not to invest, in particular geographical locations. It is shaped, too, by the resulting flows – of materials, components, finished products, technological and organisational expertise, finance – between its geographically-dispersed operations. Therefore, TNCs are not only actors in the global economy, but they also control the various process and transactions that take place within Global Production Networks (GPNs) (see 12.3). IMPT !

St Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_Cluster 1_Lecture 12_2025/pg 3 • Although the relative importance of TNCs varies considerably – from sector to sector, from country to country, and between different parts of the same country – there are now very few parts of the world in which TNC influence (whether direct or indirect) is not important. In some cases, indeed, TNC influence on an area’s economic fortunes can be overwhelming. o As of 2016, the number of TNCs is estimated at about 60,000, with about 500,000 branches being spread all over the world. Many TNCs today had grown to huge proportions and their annual turnover exceeds the gross domestic product of most countries. The numb er of employees in the largest TNCs consists of several hundreds of thousands – E.g. General Motors in 2015 employed 708,000 workers. • Table 1 shows the world’s largest TNCs by revenue in 2020. TNCs take on many different forms and cover a wide range of companies involved in the following agricultural, manufacturing and service activities: o Resource extraction, particularly in the mining sector, for materials such as oil and gas o Manufacturing in three main sectors: ▪ high-tech industries such as computers, scientific instruments, microelectronics, pharmaceuticals ▪ large-volume consumer goods such as motor vehicles, tyres, televisions and other electrical goods ▪ mass-produced consumer goods such as cigarettes, drinks, breakfast cereals, cosmetics, branded goods o Services such as banking/finance, advertising, freight transport, hotels and fast -food operations Table 1. The World’s 10 Largest Corporations in 2020, by Revenue Rank Company Revenues (US$ million) Profits (US$ million) Assets (US$ million) Employees Sector HQ 1 Walmart Stores 559,151.0 13,510.0 252,496.0 2,300,000 Retail US 2 State Grid 386,617.7 5,580.4 666,088.5 896,360 Energy China 3 Amazon 386,064.0 21,331.0 321,195.0 1,298,000 Retail US 4 China Nat’l Petroleum 283,957.6 4,575.2 626,616.7 1,242,245 Energy China 5 Sinopec Group 283,727.6 6,205.2 343,289.0 553,833 Energy China 6 Apple 274,515.0 57,411.0 323,888.0 147,000 Electronics US 7 CVS Health 268,706.0 7,197.0 230,715.0 256,500 Healthcare & Insurance US 8 UnitedHealth Group 257,141.0 15,403.0 197,289.0 330,000 Healthcare & Insurance US 9 Toyota Motor 256,721.7 21,180.1 562,994.0 366,283 Automobile Japan 10 Volkswagen 253,965.0 10,103.5 608,368.1 662,575 Automobile Germany Source: Fortune, Aug/Sept 2021

St Andrew’s Junior College H2 Cluster 1: Development, Economy and Environment H2_Cluster 1_Lecture 12_2025/pg 4 12.2 What motivates firms to transnationalise? • Most TNCs are private capitalist enterprises. As such, they must behave according to the basic ‘rules’ of capitalism. The most fundamental is the drive for profit in a highly competitive environment, which is both increasingly global in its extent and also extremely volatile. The growth in value also rests on the exploitation of labour (surplus value extraction) in the production process. • Especially by investing abroad, TNCs have increased their turnover in recent decades and in this way developed into superior transnational economic players. • We can classify reasons why firms transnationalise into two broad categories – market-seeking (Section 12.2.1) and