What Are The Good Things About TNCs?

Question

What are all the good points of a TNC?

Thanks,

Phil

Answer 1

The advantages that accrue exclusively or mainly to transnational corporations (TNCs) and their primary stakeholders vs. other forms of economic organisation (SMEs, even large exporters) are well known and can be grouped in the following categories: financial, organisational, locational, and distributional.

Financial advantages include the ability to raise capital across multiple markets, which should consequently translate into a lower overall cost of capital as well as lesser exposure to risks from foreign exchange rate fluctuations; and the potential to utilise the mechanism of transfer pricing to minimise a firm’s overall tax burden.

Organisational advantages include the potential to make the most of learning opportunities from internationalised operations through an effective knowledge management system; and the ability to practice SHRM on a global basis by hiring the ‘best and brightest’ worldwide and fostering a genuinely cosmopolitan or ‘geocentric’ (Perlmutter, 1969) culture.

Locational advantages include the ability to maximise the degree of ‘fit’ between a firm’s particular activity, process, or function with the factor conditions prevalent in a given national business system environment. For example, locating research-intensive activities in the area of telecommunications applications development in Scandinavia, or siting low-skill, labour-intensive assembly activities in Mexico or Indonesia. This ability to maximise locational advantage is probably the single greatest advantage the TNC as an organisational form possesses, as it allows it to pursue absolute advantage vs. other forms of economic organisation.

Finally, distributional advantage refers to the TNC’s ability to maximise its bargaining power vs. other stakeholder groups – primarily states and workers – which make claims on the firm’s income stream. Internationalisation of its value-chain allows a TNC to place multiple groups of states, labour forces, etc. in competition for its FDI. As a group, TNCs have quite effectively fostered a highly competitive market for their investment, particularly among nations which do not constitute attractive markets but simply potential export platforms. Most often, the simple threat of relocating production (or other) activities, if credible, will be sufficient to discipline recalcitrant parties. This ability to shift the location of various activities also provides an explanation for why many firms maintain a substantial degree of ‘slack’ (or excess capacity) in various national operations.