TNCs & Globalisation
Geography: Edexcel A Level, topic 4.1.7
TNCs - Global Production Networks
TNCs help globalisation to spread through their global production networks or global supply chains. TNCs do different parts of their operations in different countries to benefit from things like cheaper labour or more relaxed environmental rules.
Offshoring
- Offshoring is where a TNC moves parts of its production process to other countries. This is often developing countries where production costs (e.g. labour or land) are lower.
Outsourcing
- Outsourcing is where a TNC gives a contract to another company to complete part of their work. For example, they might outsource their call-centres to parts of the world where labour costs are lower.
- Many global TNCs do not make all of their products themselves and outsource the production. They simply attach their branding and logo to the good.
Risks of outsourcing
- Outsourcing and having a global production network does also bring risks with it. The TNC loses some of its direct control over the production of its goods.
- An example was the horse-meat scandal in the UK in 2013 where UK supermarkets were unaware of horse-meat being used in some dishes.
Examples of offshoring/outsourcing
- Apple iPhones are assembled by Foxconn in China, but iPhones are 'Designed in California'.
- BT outsources some of its call centre work to India to benefit from lower labour costs there. The large English-speaking population of India means that it is possible to have the call-centres of a British TNC in another country.
TNCs and Globalisation
Aside from global production networks, TNCs help globalisation to spread and also take advantage of the economic liberalisation that has come with globalisation.
Glocalisation
- TNCs use glocalisation to help spread globalisation. This means that they adapt their products to the needs of local consumers.
- For example, lots of global food TNCs offer a different menu in India where beef is not eaten.
- Since 2012, McDonald’s has served the McVeggie and McSpicy Paneer in India.
Glocalisation reflecting laws
- Sometimes, glocalisation reflects the different laws in different countries.
- For example, BMW makes right-hand drive cars for the UK because we drive on the left whereas, in Germany, cars are left-hand drive.
Development of new markets
- TNCs use the development of new markets to benefit from glocalisation.
- As countries develop and their populations have higher disposable incomes to spend on ‘luxury’ items, TNCs are able to access new markets and sell their products in these countries.
Economic liberalisation
- TNCs take advantage of economic liberalisation. They take advantage of the removal of barriers to trade to earn more profit and increase their market share.
- TNCs use outsourcing and offshoring to make sure that they are able to maximise their profits by minimising the costs of producing their goods.
Test yourself on TNCs & Globalisation
TNCs use glocalisation to help spread globalisation. What does glocalisation mean?
What is an example of a TNC adapting their goods to local consumers?