A transnational corporation owns facilities or assets in a minimum of one additional country other than its home nation. These assets may be anything from a factory or manufacturing center to a location hosting administrative offices.
The assets are then managed by the transnational corporation from each location, which is different than a multinational corporation, which is centralized.
You will find most transnational corporations with their home headquarters in Western Europe, Japan, or the United States. From these locations, most will operate in several nations simultaneously. Some of the largest in the world, such as the Coca-Cola Company, operate in almost every country in the world. In fact, the only two places in the world where you won’t find Coca-Cola products is North Korea and Cuba.
Because a transnational corporation may generate more revenues that some small nations, there are important advantages and disadvantages to consider when looking at this type of business structure.
List of the Advantages of Transnational Corporations
1. These companies are significant job creators.
In the Netherlands, foreign-owned transnational companies created over 700,000 full-time equivalent employment positions in 2014. These organizations also contributed another 650,000 FTEs indirectly at other companies within the nation, with most of them involved in either trade or manufacturing. 20% of all full-time jobs in the Netherlands are created because of the presence of these organizations – and that’s in just one country. Multiply that figure by 200+ countries and that could be called an unstoppable force.
2. It is a way to create a consistent, yet customized customer experience.
When you work with a transnational corporation, then you have a reasonable expectation of what your transaction will look like. Even though these companies offer regional variations of their products or services, sometimes even under different brand names, there is still confidence in the quality of what you receive. Because these organizations are able to leverage their size to reduce costs, you know that as a consumer what the value proposition will be.
3. Transnational corporations inspire innovation.
About 6% of the average budget for a transnational corporation is dedicated to research and development. Some companies contribute a little more, while others designate a little less. That creates billions of dollars (or local currency) for innovative studies that would not have been made available otherwise. When you look at the history of patents and innovative product or service development since the 1950s, a majority of global standards were created because of the investments made by organizations like these.
4. This structure is a way to guarantee quality.
Transnational corporations create opportunities to improve the quality of products or services offered at the local level. Suppliers, distributors, and other vendors seek out relationships with these companies because it gives them a way to expand into new markets. As this network of products, services, and relationships grows, the quality standards will rise too. That gives the average customer access to what they need without being charged an unfair price.
5. These corporations develop ethnic and cultural awareness.
A transnational corporation defines success by its ability to be successful in multiple markets simultaneously. Instead of focusing on a centralized process, they let the local markets dictate how interactions occur with customers. They do not have a centralized management system. That allows them to gain more interest in a local market because they’re able to maintain their own systems.
6. Corporations benefit from different regulatory regimes.
As noted by the San Francisco Chronicle, a transnational corporation is able to benefit from different regulations. If an organization manufactures products that would be impractical to produce in the United States, then they can do so in other locations where compliance costs are lower. The company would then be able to export the completed product back to the United States. This benefit applies to products not approved for sale by regulators in one country, but it could be approved in others – like certain GMO foods.
7. Transnational corporations can benefit from favorable taxation policies.
Before the tax cuts passed by the Republican Party in the first 2 years of the Trump Administration, the corporate income tax rate in the U.S. was 35%. Under the structure of a transnational company, the profits could be earned through a foreign subsidiary which have a lower tax rate. The company could then shift their expenses back to the United States. Even though this process is one that sparks controversy, it is also legal when setup properly. That was one of the reasons why the corporate tax rate was reduced in that legislation.
List of the Disadvantages of Transnational Corporations
1. They can be a jobs killer.
Just as transnational corporations may add employment opportunities to some markets, they can reduce them in others. It is often the foreign countries, not the home country, which receives the most benefits for open positions. That is because for most corporations of this structure, the standard cost of living requirements are much lower elsewhere. When you can pay someone $3 per hour to complete a job that offers a good quality of life instead of paying them $23 per hour, there is a strong chance that outsourcing will happen.
2. It creates an opportunity to build monopolies.
Transnational corporations are unique because they eliminate the centralized structure that other multinational companies use. That means each market is treated as an independent entity. For the overall corporation, this structure creates more opportunities to monopolize markets in numerous countries. Whether the business operates under the same name or through different brands, it can drive the competition away. That limits customer choice, which then creates opportunities for the corporation to drive their profit numbers upward.
3. Some companies may not pay enough for a good standard of living.
The garment industries of Bangladesh are a prime example of how transnational companies are able to exploit the costs of labor on a global scale. The minimum wage for workers in the industry is one of the lowest in the world. In July 2018, the current minimum was 5,300 taka per month, which is the equivalent of $63. Workers went on strike because they wanted to set a new minimum of 16,000 taka, or $191 per month, which would still be one of the lowest wages in the world.
4. Transnational corporations act like local businesses, which can bankrupt local businesses.
Transnational corporations do create plenty of jobs, especially in foreign markets. There is no denying the positive financial impact that these companies provide for a country like the Netherlands. At the same time, however, these organizations change the structure of business ownership at the local level. Because they operate without a centralized location, many transnational corporations operate like a local business. Since they can keep prices lower because of their size, they can outprice the true local businesses in the market. It is not unusual for these corporations to force local businesses into bankruptcy because they can compete on a different level.
5. It is a structure which may limit consumer choices.
When there is the possibility of a monopoly, then there is a chance that consumer options will be limited. With less competition, a transnational company no longer has the requirement to stay focused on the quality of product or service they offer. Their customers are forced to work with them, which means they can do whatever they want. Some customers may not even realize that a monopoly is in place. Using the Coca-Cola Company as an example, there are more than 500 brands that are fully or partially-owned operating in 200+ countries. Did you know Bacardi, Dasani, Enviga, Fresca, and Gold Peak Tea are all under the Coca-Cola umbrella?
6. Transnational corporations offer hidden costs.
A company like Walmart might cost communities billions in supplemental assistance costs because of the low wages they provide, but that is nothing compared to the taxpayer cost of corporate welfare for the world’s largest companies – even in the United States. In 2006, traditional social welfare programs cost the U.S. government $59 billion. The amount that the government spend on corporate subsidies was $92 billion.
These transnational corporation advantages and disadvantages show us that the pricing structures we enjoy when shopping are often due to this structure. That helps out our budget, but it comes at the expense of what workers earn. To keep prices down, the size of these companies can be used to place pressure on worker wages. For some customers, that is why they shop at local stores which are not internationally owned to support the economy of their community.