Why is the operation of many TNCs in less economically developed countries so controversial?

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WHY IS THE OPERATION OF MANY TNCs IN LESS ECONOMICALLY DEVELOPED COUNTRIES SO CONTROVERSIAL?

Transnational Companies/Corporations (TNCs) are companies that operate globally. They usually are based in MEDCs but have branch companies all over the world. TNCs dominate the economy of both their home countries and most of the economy in less economically developed countries (LEDCs), where they choose to invest. Due to this their economic and political power is immense. They are the most advanced system, which creates economic growth, wealth and poverty. The majority of TNCs are based in the United States, Japan, the United Kingdom, France and Germany. These are all more economically developed countries (MEDCs).

Transnational companies tend to locate their factories in LEDCs because give them many advantages. They include very favourable tax conditions, very cheap labour and minimal supervision in respect of human rights. Big industries ‘use local sub-contractors from Asia or Northern Africa; they no longer need to resort to foreign direct investments to benefit from the advantages of relocation.’

TNCs have many negative points in the way that they run their companies in LEDCs:

  • Due to the fact that Transactional companies are owned by a parent company the profit made in other countries is never used towards that country.
  • Training is never provided for the workers.
  • They don’t do any research or development experiments in the host countries and therefore they country is never able to expand its knowledge or business skills.
  • They do not contribute to host countries' exports.
  • They worsen the income distribution of host countries,
  • They do not take into consideration the host countries’ ideas for further national development.
  • They dominate major industrial sectors.
  • They interfere with political conditions of developing host societies. 
  • They underestimate that impact of their actions on issues such as safety and environmental conditions, as well as social and cultural issues.
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                Nike is a key example of a TNC that operates in LEDCs and while it may have an excellent image in the United States, it is a very different company in Vietnam and in other Asian countries. There have been a vast number of reports claiming that physical abuse, sexual abuse and salary payment below minimum wage are all practised in these companies. Furthermore, they have even been confirmed by major newspapers including the New York Times. Relocating a company to attempt to gain the best conditions is very common. For example Nike had a factory in operation in Asia, ...

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