Transnational Corporations
Thomas J. Donaldson
A single company operating in two or more nations, with one part exerting at least partial control over the others. Yet while the trans national is trans national by virtue of operating in many countries, and while in theory a trans national need not have a ‘‘home country’’ base (in contrast to a multinational corporation), it sometimes retains significant uninationality. Its upper management is usually dominated by nationals of a single country, its stock is usually owned largely by residents of a single country, and its charter emanates from a single country (see multinational corporations).
The meteoric rise of the transnational, which has occurred almost entirely since World War II, owes itself to a small set of key economic factors. These include a shortage of cheap labor in developed countries, increasing relevance of economies of scale, improved transportation, better communication, and increased worldwide consumer demand. These factors have proved especially potent set against a backdrop of the production life cycle. A new piece of technology, such as the portable compact disk player, is usually the product of research and development in a highly industrialized economy. Later, domestic rivals enter the market, competing with the original group of companies. At the same time, an export market develops in which competing producers are forced to seek other geo graphic areas in which profit margins are higher. Still later, as profit margins shrink, costs are reduced by tapping cheaper labor markets.
Three strategic and structural stances characterize transnationals (Doz, 1980). The first is a multi domestic stance that utilizes domestic plants servicing their respective home markets. Taking such a stance, the home country head quarters often serves as little more than a convenient umbrella under which largely autonomous domestic operations operate. Host country management typically retains considerable managerial prerogatives, and products are tailored neatly to host country tastes.
The second generic stance is that of the global transnational. In contrast to the multi domestic stance, the global stance unifies key elements of its global business, including manufacturing activities, managerial decision making, and market strategy. Such a stance frequently employs standardization, economies of scale, and volume in order to enhance global competitiveness. Often, subsidiaries in host countries will specialize in efficiently manufacturing a single com ponent, with the result that a circle of subsidiaries cooperate to create the final product. Each subsidiary obtains from the others what it needs but does not produce. Corporate headquarters devotes considerable attention to arranging a minimizing of total expenses and a maximizing of revenues. In this way, centralized control is assumed.
The third and final stance allows a mixture of the first two. Called the administratively con trolled stance, it operates without a formal integrative strategy, and permits economic variables to shape individual business decisions. While each major decision is either made by, or at least approved by, home country corporate headquarters, individual decision contexts are evaluated on their own merits, without reference to a broader, integrative scheme.
All three types of stance operate against the backdrop of a global profit maximizing imperative. That is to say, the transnational operates in a transnational context for the purpose of earning more money than it would if remaining a domes tic activity, with the consequence that factor prices can be minimized in sophisticated ways. If labor costs or taxes are too high in country X, the transnational can either move entirely to country Y or shift key components of its pro duction process to country Y. Whereas domestic firms must pay for capital at the going rate, transnationals are free to choose among competing rates. And, if government officials fail to cooperate in country X, the transnational – far more so than its domestic counterpart – can force concessions by threatening to move or restructure.
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