Reasons for the Growth of Tnc's

Outline the reasons for growth of tnc’s:

Tnc’s have a large advantage over a single nationality corporation, as they can exploit many factors for increased profit and opportunity.

The first, and most important advantage to a trans-national corporation, is the ability to lower costs by siting production in other, less developed countries, where labour costs are lower, and regulations are more lax. For example, in the Uk, the minimum wage is £7.20 per hour, whereas in india it is £1.43. This reduces the running costs of a business by a huge margin, allowing the corporation to sell its product for much less than a uk manufactured product. The more lax regulations of less economically developed countries extend to three areas, health and safety, environmental legislature, and tax practices. In an medc, a factory location would have to obey stringent health and safety standards, whereas in an ledc, the standards are often far lower, as the legislators of the nation in question is aware of this pull factor for foreign business, which is often a huge part of their economy, and know these companies are less likely to continue to invest in their country if they increase health and safety legislature. The same can be said for environmental and tax legislature, as environmentally friendly practices are far more expensive, and higher tax rates will increase the cost to the corporation.

Trans-national corporations also have the advantage of exploiting economies of scale.

This allows the corporation to be more efficient, by planning for buying supplies and inventory. An efficient producer can often purchase supplies in bulk, which leads to lower costs of goods sold and lower supply expenses.

Having economies of scale creates a virtual snowball effect, as companies that operate efficiently have a better ability to invest in advanced technology