TMJC 2025 J1H2 C1 Lecture 2 Transnational Corporations

1 H2 Geography Cluster 1: Lecture 2 TMJC 9173 Transnational Corporations 2025 (A) WHAT IS A TRANSNATIONAL CORPORATION (TNC)? A transnational corporation (TNC) is a firm that has the power to coordinate and control cross-border operations in more than one country, even if it does not own them. (B) WHAT ARE THE CHARACTERISTICS OF TNCs? Although TNCs are highly differentiated in size, geographical extent and the way it operates, there are characterised by some basic characteristics: A TNC has the ability to coordinate and control various processes and transactions within transnational production networks, both within and between different countries. A TNC has the potential ability to take advantage of geographical differences in the distribution of factors of production (for example, natural resources, capital, labour) and in state policies (for example, taxes, trade barriers, subsidies, etc.). A TNC is footloose – It has potential geographical flexibility meaning it has an ability to switch and to re-switch its resources and operations between locations at an international or even a global scale. This ability a. Depends on the nature of the TNC, and b. Changes over time. Because of these characteristics, TNCs have profound impacts on the changing geography of the global economy through its decision to invest, or not to invest, in particular geographical locations. (C) WHY DO TNCs ENGAGE IN TRANSNATIONAL OPERATIONS? Although each firm may have its own reasons for wanting to engage in transnational operations, in general we can classify them into two broad categories: market factors and asset factors. (i) Market Factors Firms invest in overseas markets (e.g. production, marketing, sales) due to several reasons such as the (i) size, (ii) demand and (iii) accessibility of the market. A market with a large size of population having a high income level would be more attractive to a firm as they have potentially more customers. In addition, firms would also invest in markets where there is a demand for its goods. Finally, firms invest in overseas markets to improve their accessibility to the market such as minimizing the cost o f transportation and overcoming trade barriers. For example, to tap on the increasing automobile market in India, Suzuki, a Japanese automobile TNC invests in India through a joint venture with Maruti Udyog, an automobile manufacturer in India, to form Maruti Suzuki. (ii) Asset Factors (Exploiting Comparative Advantage) Firms also invest in overseas markets to be located near their sources of supply. These asset factors can be: (a) Access to Natural Resources This could be seen most clearly in natural resource industries, where firms are located near the source of

2 natural/ raw resources. This often occurs in the initial elements of the organisational sequence of a TNC. Often the later stages (e.g. processing of raw material) are located near other assets (e.g knowledge or labo