Assess the extent to which Trans National Corporations (TNCs) have a positive impact on both developed and developing countries. (15 marks)
Assess the extent to which TNC’s have a positive impact on both developed and developing countries.
As we know the movement of globalization is very important in today’s way of life. It affects many different aspects, including culture, economy, and environment also some demographic, political and technological issues. It helps to promote connection, remove barriers and most of all encourage global movement. Globalization creates a greater exchange of ideas, resulting in more knowledge gained about other cultures, also new trade opportunities, of products which were not available in the past. Trans National Corporations (TNC’s) are companies which operate in more than one country. The largest firms have branch plants in many different countries. An example of a TNC is McDonalds; it has nearly 30,000 restaurants in 119 countries. Trans National Corporations grow and develop by buying foreign firms, expansion (popularity) and by broadening their product range. As TNC’s operate worldwide they affect many different people in every stage of their function.
The social side of the effects creates by the function of TNC’s is great, as the companies are making money, there are many other factors which are also affected. One of the main impacts TNC’s have on both developed (MEDC) and developing (LEDC) countries, is the exchange of ideas and knowledge from different countries. TNC’s have their headquarters of research and development in their country of origin, and many manufacture their products in developing countries (LEDC’s). This has created new possibilities to people in LEDC’s. Foreign Direct Investment (FDI) is basically defined as a company from one country making a physical investment into building a factory in another country. Foreign businesses in LEDC’s provide new jobs and skills for local people. E.g. UK 2007, FDI generated more than 700 projects, which created over 50,000 jobs, this has a significant effect on local communities. Jobs are created in the production of products for foreign businesses, especially with assembly industries (electrical goods & electronics) also clothing, sports goods and toys. TNC’s help with the transfer of technology, resulting in benefits in both the developed and developing country in the process, additionally, and barriers are broken between countries as trade is introduced, this helps with the flow of income and outcome of the separate countries as they each sell on the products which they specialize in. As a result of TNC’s requiring workers in developing countries, the multiplier affect is introduced, this is when an industry locates in an LEDC, which then provides jobs for the workers, resulting in the local people having more money to spend, this then develops more and more local shops and businesses to be set up, which means overall, services improve. Money created by this can be used on education, health and infrastructure on the developing country. The money can also be put toward improving the infrastructure of the town or country as a whole, roads, railways, and airport can be developed or introduced, which all result in easier, safer access to the country which will introduce more business and create more jobs. The cycle goes on, as the advancement of these, also require workers, this bestows new jobs for many unqualified workers, who have had poor education. The need of jobs also creates more opportunities for female employment in low skilled manufacturing jobs, additionally the reduction in racism and nationalism in people of different nations, as jobs draw people to move to different locations, people mix and become more aware and tolerant of each other’s lifestyles and customs. All of which provide an outcome of overall higher standard of living, due to the introduction of new local businesses, and use of improved infrastructure.
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In developed countries the social side is also affected. Employment is also created as more businesses are introduced more and more workers are needed to make sure the TNC is successful. Additionally as developing countries require the work and production to take place in developing countries where cheap labour is abundant, companies money is saved, as not huge amounts is being spent on wages for workers abroad. As already mentioned TNC’s are seen as the architects of globalization, helping to build bridges, this means that TNC’s are able, with the use of developing country work forces, to produce products that couldn’t be made in the past. This can improve standard of living and quality of life of the people living in developing countries. Another factor affecting the social side of TNC’s in developed countries is that Transnational Corporations have altered their working patterns towards more shift workers, and more short contracts, as a result of this employees no longer form long-term relationships with one another, or with their company. Overall this tends to mean that employees have jobs not careers, this basically means that they are not working with familiar faces as most people who have ‘careers’ do, they earn money by doing something they enjoy. Therefore the workers in the developing countries are focussed on work, and are just there for the money, this benefits the TNC’s as they can be reassured that their workers are working hard. This then passes along to the people in MEDC’s, as the companies are doing well.
Normally the economic view of developing countries is that it is low, and that the country is struggling. This may be the case; however with the help of TNC’s, LEDC’s are managing to cope better with the strains. This is because TNC’s bring wealth and foreign currency to local economies when they buy resources, products and services. Linked with this is that TNC’s help to develop mineral wealth in countries that might not otherwise be able to capitalise on local resources, this could be diamonds in Africa, more money will be made by selling the product abroad, as it is not something commonly sold. For the large amount of workers in LEDC’s working for TNC’s, wages are not as high as they would be in the country of TNC origin, however they are much higher than any local rates. This is a large benefit to the economy as people will have more money, can pay more money for taxes; this also links with the multiplier affect. More local businesses being set up this also results in more money being fed into the economy. Due to the increase in jobs in developing countries, workers are taught new skills which mean more jobs can be fulfilled. This brings capital, modern technology and skills which the country does not have. New local businesses can be set up, providing the economy with more money; also these new skills can be used to improve the standard of living of many people. A major advantage TNC’s provide developing countries with, is that due to the newly created jobs, exports are created, if the products are manufactures goods (which is a high chance, due to the cheap labour rates), the dependence on low-value primary products is reduced. An example of this could be a country which used to sell mainly bananas to foreign countries, but then TNC’s were set up in their country, and the new product which that country sold, was what the new TNC required workers to make. The Gross National Product (GNP) of the host country will improve, resulting in an improvement to many things in the country. TNC’s use of work forces in developing countries also help the economy by leading to an increasing demand for goods, this means that there will b a growth in industries and more and more factories and businesses will be set up to provide for the growing needs of the consumers.
The main economic benefit of TNC’s on developed countries is based on the Foreign Direct Investment (FDI) which is when a company from one country makes a physical investment into a building or factory in another country. This is the basic remedy for the success of the way TNC’s work. Additionally an absence of strictly enforced international laws means that TNC’s may operate in LEDC’s in a way that would not be allowed in an MEDC. They may pollute the environment, run risks with safety or impose poor working conditions and low wages on the local workers. Although these things are not beneficial overall to everyone and everything, they do benefit the TNC’s based on their money. They have less to worry about as all the developing countries are bothered about is getting money and boosting their economy. The governments in the host countries also offer financial incentives to attract the TNC’s to their country; these include low rates and taxes etc. In addition to the work force, because the government offer cheap labour rates, this benefits the TNC and MEDC home country greatly, as it is not end up spending great deals of money on wages, moreover employment levels will be desperately low in the developing countries, due to poor economy and lack of businesses, this is an advantage for the developed countries as it means there will be a good labour supply, as many people will require jobs which were not available beforehand. There are no guarantees that the wealth from inward investment will benefit the local community. Often, products are sent back to the MEDC where the TNC is based. Transnational companies with their massive economies of scale may drive local companies out of business. If it becomes cheaper to operate in another country, the TNC might close down and make local people redundant. This is of great benefit to the MEDC’s as they are in control of the country which provides for them. Furthermore, if the TNC in the developing country is outrunning the local businesses then more money is drawn towards itself, as more and more local people will rely on it.
TNC’s are becoming increasingly environmentally aware as they have a global corporate image to uphold therefore they are trying hard to improve, and lessen their bad effects on the environment which in the past were seen as okay. This is of a benefit to both the developed and developing countries. As the TNC improves, the company and also the MEDC which is its origin will be seen as doing a ‘good job’ at following environmental regulations. In addition, to this the developing country, in which the TNC’s production side is located, will benefit, because the effects on the local environment won’t be bad. Issues linked with factories causing environmental problems, could be pollution, when the waste from the factory is not disposed of as it should be, this could result in it getting into rivers and seas. This could be seen as more of an issue in a developing country, as people depend of the natural water supple for many things, including washing and drinking. Benefits for MEDC’s are largely based on the rules and regulations of the TNC’s manufacturing country, the LEDC. These can include LEDC’s often having fewer environmental restrictions; this will reduce the cost the TNC has to pay. Another important point benefiting the economy of the MEDC, is that in the developing country there is often cheap land as the area is declining in local businesses, so governments want to persuade TNC’s to invest in the country, to boost their own economy.
To conclude, it is clear that TNC’s have very strong positive effects on both developing (LEDC) and developed countries (MEDC). The benefits of the MEDC’s are largely based on the investment they place in the LEDC, and how little is required to run a business in a developing country, due to cheap labour and the governments offering low taxes etc, simply to get the business to use their country. The benefits of the developed countries I would say would be seen as ‘sly’, they benefit largely when others benefit a little in comparison. The positive effects on the developing countries, is that overall they receive a much needed economy boost, a cycle is created where people receive more money, then more businesses can be set up. Benefits created by TNC are different on both LEDC and MEDC countries, developed countries positive effects are largely focussed on income, money and success rate. However that of the developing countries is in a basic way of description, based on improving the standard of living and quality of life of its people.