two business men shaking their hands

Transnational Corporations

continued from » Global Commodity Chains

“Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake. An equity capital stake of 10 per cent or more of the ordinary shares or voting power for an incorporated enterprise, or its equivalent for an unincorporated enterprise, is normally considered as a threshold for the control of assets (in some countries, an equity stake other than that of 10 per cent is still used. In the United Kingdom, for example, a stake of 20 per cent or more was a threshold until 1997.). A foreign affiliate is an incorporated or unincorporated enterprise in which an investor, who is resident in another economy, owns a stake that permits a lasting interest in the management of that enterprise (an equity stake of 10 per cent for an incorporated enterprise or its equivalent for an unincorporated enterprise)”. (http://unctad.org)

The parent enterprise is linked with its foreign affiliates to build one economic union with one collaborative conduct and administration. (cf. Leser 2010, p.451)

What are the characteristics of measuring the transnationality of enterprises?

There are several sources with different ways to measure that, but the following refers to Dunning who put up seven aspects to point out an enterprise’s transnationality: First, the number and the size of foreign affiliates are an important aspect for the TNC. As a second point, Dunning thinks it’s important how many countries are part of a TNC’s network. As a third aspect, the amount of profit and revenues as well as the amount of employees in foreign countries matter. Fourth, the conduct from different nations meaning the amount of the management seated outside the parent enterprise. As fifth criteria, the quality of foreign affiliates is important to prove that the outsourcing isn’t just for cheap mass production. As a sixth point, the TNCs get their advantages from networking in different countries. The last criterion is the expansion of the TNC to have more locations worldwide with its own managements so that not the whole responsibility is in the hands of the parent enterprise. (cf. Dunning et al. 2008, p. 3f.)

Walmart in China

Why do TNCs produce abroad?

One reason for outsourcing is get a new orientation away from the mature domestic market. Due to advantage of globalization (‘time-space-compression’) transport costs don’t matter anymore (cost degression in sea transport); also the innovation of information systems allow an enterprise to produce globally without time delay. (cf. Steinbach 2009, p.35f.) Enterprises also need to keep attention to get innovations quickly so that they don’t be endangered referring to the dependency of the stock market as well as the dependency of the market and its price fluctuations. (cf. Steinbach 2009, p.36; cf. Dunning 2008, p.79f.)

To get a clue of such enterprises, here are two examples:

Example number one: VW (Volkswagen) group.

VW in China

The automobile industry is one of the most successful industries worldwide with four million employees and nine to ten million employees in ancillary industries. (cf. Dicken 2007, p.279)

The VW group was founded in 1937 to develop a “Volkswagen” (a car for everyone) headquartered in Wolfsburg, Germany. In 1960 the concern was transformed in a corporation. In 2010, VW held 11.6% of the world market (third biggest automobile producer in the world) and the VW is the biggest automobile producer in Europe (21% on West-European market, 13.7% in Central and East Europe). (cf. http://www.volkswagenag.com; cf. Dicken 2007, p.290) In 2011 there was a sales increase from 126.9 billion euros to 159 billion euros. (cf. http://www.volkswagenag.com) “The Group operates 99 production plants in 18 European countries and a further nine countries in the Americas, Asia and Africa. Each working day, 501,956 [December 31, 2011] employees worldwide produce some 34,500 [December 31, 2011] vehicles, are involved in vehicle-related services or work in the other fields of business. The Volkswagen Group sells its vehicles in 153 [December 31, 2011] countries”. (http://www.volkswagenag.com) VW is, according to Dicken 2007, the most transnationalized European enterprise. (cf. Dicken 2007, p. 301) Twelve brands from seven European countries are counted among the VW group: “Volkswagen, Audi, SEAT, SKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and MAN”. (http://www.volkswagenag.com)

As a second example: Nike Inc.

Nike-Logo

Nike Inc. was “founded” in 1972 to provide better shoes for athletes; it was not really a new enterprise but a further development of “Blue Ribbon Sports” which was founded in 1964 in Beaverton, Oregon (USA) by Bill Bowerman and Phil Knight. Nike’s headquarter is still in Beaverton, Oregon. 44,000 employees worldwide have been working for Nike in 2011. Nike has 350 production plants in 28 countries. In 2009 there was a sales increase from US$ 8,000 (1964) to US$ 19.2 billion (2009). (cf. www.nikebiz.com)

Nike Inc. is a TNC because production and distribution had been outsourced. Nike does marketing, designing and distribution by itself. (cf. Gereffi et al. 1994, p.251) In the late 1980s, almost no shoes had been produced in the US; in the early 1980s 70% came from South Korea, 16% from Taiwan, 7% from Thailand and 7% from the US. (cf. Scherer 2003, p. 26)

Marketing was the reason why Nike became so popular and successful: Within the 1970s, first athletes signed contracts with Nike. These athletes did very well in the Olympic Games (1980) which improved Nike’s status as well; so that other athletes (basketball, baseball) signed contracts for advertising. (cf. Gereffi et al. 1994, p.255f.) Nike made a huge profit by signing Michael Jordan (basketball legend) for creation of “Nike Air”. (cf. Gereffi et al. 1994, p. 257) In the 1990s, more athletes signed with Nike like Tiger Woods, Lance Armstrong and the Brazilian national soccer team. Nike’s success is also reflected by launching shops (Niketowns). (cf. www.nikebiz.com)

How does this production network work?

A design is created in Beaverton. This design is sent to a production plant to produce a prototype which will be proved in Beaverton, and if it is good enough, it is sent back to give it into mass production. (cf. Scherer 2003, p. 23f.)

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