The Rise of Transnational Corporations

Part II: The Production Mode

Transnational Corporation

• TNCs often have 3 organizational levels

headquarters: control & policy making

R&D: design new products

branch plants: routine production

Headquarters and R&D

The headquarters and R&D are usually

• in the home country i.e. in the industrial core / global core (MEDCs)

• NICs of SE Asia.

Headquarters

• Headquarters are usually located in large cities in MEDCs

-- for reasons of prestige & status

-- to facilitate person to person contact in the exchange of information.

-- agglomeration economies achieved through proximity to business services such as banks, advertising agencies

R&D

• R&D tend to be located in less central locations or smaller urban centres (environmentally attractive areas) to

-- attract specialist labour, scientists (in university)

-- avoid high taxes

Branch plants

• They are found overseas (host countries)

-- in the industrial periphery regions (LEDCs)

-- in the MEDCs e.g. Britain.

Branch plants• They are more footloose. Its location is linked to -- availability of cheap labour, in developing countries-- exploiting new resource locations-- tap market potentials in other parts of the world-- avoid trade barriers between countries. By locating product

ion overseas, they can get round trade barriers (quotas, tariffs) designed to protect home market.

-- low taxes

-- avoid strict domestic environmental regulations

-- exchange rate advantages

Generalised model of a TNC

Philips International• Royal Philips Electronics of the Netherlands is one of the world's

biggest electronics companies, as well as the largest in Europe, with 159,000 employees in over 60 countries and sales in 2005 of Eur 30.395 billion. R&D is mainly done in Europe and USA and branch plants are found in South America and Asia.

GlaxoSmithKline

• Headquartered in the UK and with operations based in the US, GlaxoSmithKline are one of the industry leaders, with an estimated seven per cent of the world's pharmaceutical market.

• R&D is done in the UK, USA, Spain, Italy and Japan.

• Branch plants are found in Kenya, Australia, Indonesia and Malaysia.

Conclusion

• However some of the largest and most successful TNCs have divided their industrial empires into world regions, each with R&D facilities and a high level of decision making

• By 1997, there were 150 Japanese R&D centres in Britain