Discuss the roles and impacts of Trans National Companies (TNCs) on the Global

Economy
(40 marks)
A TNC is a company which operates over national boundaries, creating global
products. They have both positive and negative impacts on the economy for
people all over the world.
They are beneficial to the economy as they pay out large amounts in salaries,
with Coca Cola paying around $3.5 billion every year. TNCS directly employ
around 45 million people and control about 80% of world trade, showing how
powerful these companies are. The salaries TNCs pay will increase the income of
many people and increase the standard of living for those employed. It will also
mean that people have more disposable income to spend in the economy,
boosting the economy in turn. Nigeria, for example, is Africas leading oil
producer, and within the country oil accounts for 20% of its GDP and 95% of its
export earnings. Shell has been one of the most important oil companies to
locate in Nigeria, operating in the Niger delta area for over 60 years producing
nearly half of the countrys oil output. There are 5,000 direct employees working
for Shell, with another 20,000 being indirectly employed.
The multiplier effect will be seen on local industries and services as those
employed by a TNC will have money which they did not previously have access
to. However, despite seeing the positive multiplier effect due to TNCS it is less
visible in the local areas which act as hosts for TNCs. This is because many TNCs
repatriate the profits back to the origin country, and therefore the multiplier
effect would be much greater if it was an indigenous company which was setting
up in the area.
TNCS also pay huge amounts of money in taxes, with Coca Cola paying out the
sum of $1.7 billion in just one year. This money can be used by governments of
host countries to provide better services to the people, which may lead to the
workforce becoming more productive. Once again however, there is a negative
side to this and that is that the fact that many large TNCs are guilty of tax
avoidance. This means that governments are missing out on money they should
be entitled to and are therefore finding it harder to raise revenues to provide
services and respond to local demands. There has recently been many major
examples of this such as Starbucks which in 14 years have only paid 8.6 million
in UK tax and have paid managed to pay no corporation tax in the last 5 years by
reporting losses.
As well as providing a huge inflow of capital TNCs act as catalysts for further
development as when one TNC locates in a previously unindustrialised area more
are likely to join due to the fact that the transport and communications will have
already been made more accessible. This in turn will boost the economy even
more.
The investment of TNCs however can also lead to governments and communities
being hugely economically dependent on these TNCs. This is not a good situation
to be in as the purchasing power of TNCs means that they will go where the
wages are lower, and also where the market may be larger. This was seen in the
UK in 2015 when SSI, a Thai owned steel company, shut down the plant in
Redcar in the North East of England. This closure lead to the loss of 1700 jobs,
meaning that 1700 people are no longer contributing to the economy, and they

will also be more dependent on the welfare system of the UK, meaning that the
government is spending more of its budget on benefits instead of investing
elsewhere. Following this TATA steel, an Indian company, is expected to cut 1,200
jobs in Scunthorpe. Both of these huge job cuts will cause devastating effects on
the economy, as along with the jobs lost from the plants themselves, other local
businesses are likely to close as these will have no longer have the steel workers
spending their money, nor the two TNCs spending money on investing in
businesses such as transport and construction. This has previously been seen in
the UK when Dyson cut 800 jobs and moved production to Malaysia.
Another positive impact of TNCS is that they help diversify the economy of LEDCs
from being dependent on one or a few primary products to gaining more skills,
which will help the country climb the economic ladder. However, some TNCs are
driving out local businesses by helping the economy diversify. Coca Cola is
blamed for the decline of traditional Indian fruit juice vendors, and this is often
the case with TNCS which can cause smaller business to close down. It is the
immense purchasing power of TNCs which allows this to happen as they have the
ability to take over local markets and get rid of local firms.
Transnationals can provide major opportunities for a country, with some nations
insisting on a certain percentage of home produced components to be used by
foreign TNCS which choose to locate in their country, by doing this the country is
safeguarding jobs and helping to boost the economy even more. They also set up
and help charitable organisations such as the Primark Better Lives Foundation,
which provides money to organisations dedicated to improving the lives of
children and other locals. Nestl as a company has made 38 commitments in 5
areas, which all lead to creating shared value. These include working against
corruption and bribery so that countries economies arent treated unfairly. In the
UK and Ireland Nestl have responded to high youth unemployment and the gap
between education and employment, which are both draining on the economy of
the UK, by taking the lead in showcasing opportunities for younger workers.
TNCS and the Foreign Direct Investment they can provide have a huge
transformable potential and this is shown in the emerging economies of the
Asian Tiger Economies. These are clear examples of the benefits of TNCs on the
global economy as they have helped with the creating of four strong economies
which have become third generation NICS and are developing their own TNCs
further benefitting the economy. However there is an increasing global divide# in
wealth due to TNCs only investing in certain economies, such as South East Asia
where the Tiger economies are found and bypassing other areas completely such
as Sub Saharan Africa. This therefore means that TNCs are active agents in
creating geographical haves and have nots in terms of location and economic
development. Not only this but TNCs lead to an unequal distribution of wealth in
the fact that many of their profits go back to the countries of origin, which will
hugely benefit, but this is at the expense of the host countries who are seeing
very few benefits from the investment in their countries.
Another positive of TNCs is that they have the ability to provide loans to the
poorest economies and invest in them which is vital for the economy. These
foreign investments raise wages in the host country and bring about higher
productivity and higher profits. This once again leads to the availability of
disposable income, which allows people to spend more on goods and services

which will cause the economy to be boosted. However, in LEDCs, where many
TNCs choose to locate, it is the cheap labour which attracts them to setting up
there. An example of this is Primark which outsources much of their production
work to India, paying workers as little as 19p per day. This level of pay may
benefit the global economy as it is boosting the profit of the company, therefore
meaning they will have to pay more in tax to governments, increasing the
amount of tax money they have to spend. However in terms of the people 19p is
such a small amount of money which wont allow them to become that
economically independent and become free of the cycle of poverty.
The hunt for lower wages by TNCS can also cause the Race to the Bottom to
occur in many MEDCs as these countries lower the acceptable levels of pay to
encourage TNCs to set up factories and other operations in their country. This
has an individual effect on the workers as they are getting paid less but it also
means that they have much lower levels of disposable income to invest into the
local economy.
Whilst there are negatives of TNCs, they have had an overall positive impact on
the global economy and play a huge role in the global economy. This is because
without the investment of TNCs it would mean that major aspects of globalisation
would not have been able to happen, and certain important economies in the
world today would most likely not exist as it is the investment of TNCs which has
caused the economy to develop so greatly.