Transnational Corporations

Also called multinational corporations, transnational corporations (TNCs) are among the most powerful agents in the world economy today. They play a dominant role in international trade, investment, finance, development, technology transfer, and geopolitics.

The origins of TNCs may be traced back to the chartered monopolies that arose with the global expansion of capitalism during the 16th century. Many played key roles in colonial conquests and administration such as the British Hudson Bay Company in Canada, the British East India Company in India, the British West India Company, and the Dutch East Indies Company in South Africa and Indonesia. Such institutions were important in the establishment of plantations and the commodification of labor in many regions. However, the decades after World War II mark the period when TNCs reached new heights of wealth and power. Given the unsurpassed size and importance of the United States during the Pax Americana, American TNCs have been disproportionately represented among the world's largest firms. In 2001, of the world's 100 largest TNCs, 30 were American, 18 were Japanese, 11 were British, 11 were French, and 9 were German. More recently, some TNCs have emerged from newly industrializing countries. Today, some 30,000 TNCs control two thirds of world trade and employ 100 million people. Many of these are household names across the globe such as Gulf, Mitsubishi, Hyundai, Fujitsu, AT&T, Citicorp, and Hilton Hotels. Some TNCs have annual revenues larger than the gross national products (GNPs) of countries; for example, Exxon–Mobil, with sales of $235 billion annually, exceeds the GNP of each of Saudi Arabia, Chile, and Venezuela.

TNCs make a variety of investments overseas. The best known of these is foreign direct investment (FDI), which involves tangible assets either in newly constructed plants and factories or via acquisitions. In 2001, global FDI surpassed $1.4 trillion. However, other forms of foreign investment include intangibles such as purchases of foreign stocks and bonds (both public and private). Often, TNCs engage in joint ventures with other firms, including domestic ones, in the forms of strategic alliances or purchases of subsidiaries. TNCs are represented in many sectors of the economy, including the primary sector (e.g., petroleum, mining, lumber, food processing), the secondary sector (e.g., automobiles, electronics, pharmaceuticals), and the tertiary sector (e.g., banking, hotels, airlines, telecommunications).

Because they operate in more than one country, TNCs typically create an intracorporate division of labor that allows them to minimize costs and maximize efficiency. The most common form of this phenomenon is to locate their headquarters in their country of[Page 500] origin, generally in a large metropolitan area in which high-wage, white-collar administrative, managerial, and research functions have access to the agglomeration economies that such regions offer. In contrast, TNCs often relocate less-skilled, low-wage, blue-collar assembly functions in lower-income countries via networks of branch plants. However, despite the stereotype that all TNCs are global behemoths with operations in every continent, the reality is that most such institutions invest in only two or three countries. Firms such as Ford Motor Company, with plants throughout the world, are the exceptions rather than the norm. Moreover, contrary to the stereotype that TNCs always seek out low-wage pools of Third World labor, the reality is that most TNCs, which originate in capital-rich developed countries, invest in other capital-rich developed countries. For example, most U.S. TNCs invest in Canada and Europe, and British and German TNCs invest most heavily in Europe and North America. Japanese TNCs tend to invest in East Asia, indicating that national origins do matter and that something of a distance decay function away from the home country exists. Among developing countries, China is by far the largest recipient of TNCs' FDI, with $50 billion in 2003, followed by Mexico, Brazil, Singapore, Russia, Argentina, and Chile.

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