The term
MNC covers a wide range of organizational forms that
multinational business can take. Dicken's definition, above, is very broad and goes beyond the conventional definition, which is largely based on the level of ownership of internationally-based assets. A narrower definition refers to the
MNC as "an enterprise that controls and manages subsidiaries in a number of countries outside its own base country. The classic
MNC therefore has separate operations in each country that are for the most part discrete from each other. This applied to the first true
MNCs which emerged in the first decade of the twentieth century and originated mostly from the U.S. In the contemporary world, however,
MNCs are increasingly entwined in complex global production networks and the distinction between them and the more recent
TNCs is often poorly defined."
(Jones, A.,
Dictionary of Globalization, Cambridge: Polity, 2006, pp. 172-173)
"
MNEs are now estimated to account for two-thirds of world trade while intra-firm trade between
MNEs and affiliates accounts for about one-third of world exports."
(World Commission on the Social Dimension of Globalization.,
A Fair Globalization: Creating Opportunities for All, ILO, 2004, p. 32)
Foreign Direct Investment
According to the International Confederation of Free Trade Unions, foreign direct investment (FDI) is one of the main forces behind the growing power of
MNEs. "FDI involves more than
multinationals establishing a facility in a country. It includes a wide and complex variety of investments, joint-ventures and co-operation schemes. FDI may be the purchase of controlling interests in established enterprises, including privatised state operations, joint ventures with national firms or other
MNEs, consortiums involving several companies or other forms of co-operation, including licensing and operating agreements."
(ICFTU,
A Trade Union Guide to Globalisation, 2001, p. 45)
Labour Standards
"The conduct of
MNEs is not necessarily better or worse than that found in purely national or local companies. They are, at times, better placed to carry out improvements in working conditions and development. However, they can also help drive a race to the bottom."
(ICFTU,
A Trade Union Guide to Globalisation, 2001, p. 45)
Multi- or Transnational?
The term
transnational company or
corporation (
TNC) came to the fore during the 1990s as arguably a successor term to
multinational enterprise. The concept of the
TNC remains ill defined and is often used interchangeably with
MNC or
MNE and
global corporation. However, theoretically one should be able to distinguish the
transnational from the
multinational firm based on the ‘degree of globalness' that the firm as an organization exhibits.
The argument is that, "during the 1990s, the largest firms in the global economy had extended their productive and business operations across so many national borders that they in effect straddled many national economies. The ‘trans-' prefix thus denotes the cross-border nature of the operations and organization of these firms. Whilst various researchers have shown that the home or original economy of a firm continues to exert a strong influence on all aspects of the firm's production, management and culture, the
transnational corporation is thus distinguished from the
multinational by the fact that its organizational form has taken on supranational characteristics. In particular, this is manifest in the development of globalized production and the global operation of high-order corporate functions. For example, automotive
TNCs no longer manufacture all the components for an automobile in one national economy but rather components are made in a range of production locations across the global economy. Furthermore, many of the world's largest firms no longer duplicate many corporate functions in each country of operation – for example, management, research and development, marketing, advertising – but have organized these activities at the global scale. In that sense, these companies are not exclusively based in any one national economic space."
(Jones, A.,
Dictionary of Globalization, Cambridge: Polity, 2006, p. 218)
Many organizations have noted the difficulties involved in attempting to distinguish
transnational corporations from
multinational enterprises.
- The ILO, the OECD and the WTO have chosen to use the neutral term multinational enterprises.
- The United Nations have been using the term transnational corporation since the 1970s, when it set up a Commission on TNCs to write the "Code of conduct on transnational corporations" (incorporating business, NGOs and unions). This code was never adopted.
- The UNCTAD has defined what it calls the degree of transnationality of a company, with transnationality being used to denote that a company is listed among the world's largest companies.
- The International Confederation of Free Trade Unions (ICFTU) uses both terms, but in its Trade Union Guide to Globalization, only the term multinational enterprise is used.
In light of this variation in usage, many authors believe that it is best to adopt a broad definition, by which
multinational or
transnational enterprises refer to enterprises that control production in at least one foreign country.
Differences in Organizational Membership
"The distinction between
MNCs and
TNCs has usually been in terms of the membership of the organizations.
MNCs were viewed as those
TNCs that had employees drawn from different countries. Moreover,
MNCs usually establish sites in most countries and operate these sites largely as autonomous units. However, recent developments among
TNCs in the areas of mergers and acquisitions have increasingly blurred the distinction between
MNCs and
TNCs. Now it is clear that in both cases, shareholdings may be geographically dispersed and that organizational membership will cut across national boundaries." In addition, the location of control in both
TNCs and
MNCs tends to be a foreign advanced capitalist country, usually the U.S. Canada, Japan or a country in Europe. These developments indicate the need to use both the terms
MNC and
TNC interchangeably: they spring from the same interests, operate on the same terms and produce the same consequences."
(Iyayi, F.,
Ecological Debt and Transnational Corporations in Africa, visited 2011-08-17)
The specificity of Transnational Companies
Transnational companies develop a transnational organization of production and distribution within and among firms instead of through markets by using global production networks. "Since international markets are not perfect, the costs of doing business for
transnational companies are significantly lower if they organize economic activity within the firm or through networks of firms."
(Jones, A.,
Dictionary of Globalization, Cambridge: Polity, 2006, p. 105)
Defining the Global Corporation
The term global corporation generally refers to the world's largest firms, operating in many nation-states and being organized on a global scale in terms of its core functions.
According to various economists, the global corporation, as opposed to the
transnational corporation, is centralized around its headquarters. It follows the parent company's strategies, where knowledge and core competences are developed and kept. The
transnational corporation, in contrast, is dispersed; it develops its knowledge and competence jointly, to be shared on a global scale. The
multinational corporation, on the other hand, develops and retains these in each unit of the company.
According to Rugman and Verbeke, "one could classify as ‘global' all
TNCs with a foreign-to-total sales ratio above, say, 50% and/or with some significant activity in each part of the Triad."
(Rugman and Verbeke, "Regional transnationals and Triad strategy",
Transnational Corporations, 13, 3, December 2004, p. 11)
These authors argue that very few
TNCs are actually global companies and that an increasing number of
TNCs operate almost entirely at the regional level. In fact, after calculating the foreign-to-total sales ratio of the top 100 most transnationalized firms as reported by the UNCTAD, the authors determined that only three
TNCs have a truly balanced distribution of sales across all three regions of the Triad: Nokia, Philips Electronics, and LVMH.
(adapted from Rugman and Verbeke, "Regional transnationals and Triad strategy",
Transnational Corporations, 13, 3, December 2004, p. 7, 14-15)
Critical View
Many authors argue that
transnational firms are the key actors in globalization. As their numbers and size increase, they dominate global markets in all sectors of goods and services and account for an increasing proportion of total global output. For this reason, they are seen as having eroded the ability of nation-states to control economic activity within national territories as investment decisions about where to site production now fall to these corporations.
TNCs' ability to open and close productive operations and to avoid regulation and taxes by shifting production to cheaper, less taxed and regulated locations, has led critics to argue that they have become too powerful in the context of contemporary globalization. In recent years, they have also become the target of campaigns, boycotts and protests by anti-globalization groups who see them as negative influences on democracy and the distribution of wealth.
(adapted from Jones, A.,
Dictionary of Globalization, Cambridge: Polity, 2006, pp. 218-219)
Many anti-globalization groups feel that the term
multinational suggests wrongly that these firms spread their activities equally among several countries and therefore prefer the term
transnational corporation:
"A
TNC will typically find countries with the cheapest labour, and the most relaxed environmental and labour laws, to keep down its costs. If a government tries to impose stricter laws, the
TNC can threaten to relocate to another country. This intimidates poorer countries into accepting lower standards, because they do not want to risk losing the jobs and investment the company brings." In some cases, corporations may even influence or dictate government policy and many poor countries have been forced to privatise their services as part of structural adjustment conditions. This means that private companies (often
TNCs) can take over water systems, railways, and telephone companies for profit and charge prices that restrict poorer people's access to these essential services."
(Global Village,
Transnational Corporations, 2006, visited 2011-08-17)