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Describe the motivations for TNCs operations in less developed countries (LDCs).

Describe the motivations for TNCs operations in less developed countries (LDCs).

Course: M.Com

1 Answer

Transnational Corporation (TNCs) operate in the Less development countries (LDCs) for one or more of the following reasons:

To feed the Less development countries (LDCs) Local Markets:

The TNCs seek worldwide markets including those in the LDCs. These markets are served through exports in the first instance. Market defensive local production is undertaken, if the host country policies restrict imports. Examples of this type of operations are virtually all large MNE affiliates in India from Hindustan Lever and Philips to the drug TNCs such as, Glaxo, Sandoz, Bayer or Pfizer, or engineering giants as Siemens, ASEA Brown Boweri, and so on. Developing countries with large and expanding markets, like India, Brazil and China, are generally attractive for TNCs to setup manufacturing facilities to tap the local market.

To obtain access to Natural Resources and Raw Materials:

Quite a large proportion of TNC investments in the LDCs are in the extractive and primary commodity producing sectors. These operations are designed to secure an access to the natural resources for their worldwide operations. Examples of this type of investments are the British tea plantations in India and Sri Lanka. IIT’s copper mines in Chili, Sesa Goa’s (an affiliate of IRI, Italy) iron-ore mining activities in India, Unilever’s palm oil plantations in Malaysia, and Firestone’s rubber plantations in Liberia. Such investments are concentrated in natural resource rich countries.

To exploit Cheap Labor:

Advances in product design, transport and communication facilities enable the TNCs to rationalize production across countries to minimize costs. The labor intensive portion of manufacturing processes are relocated into cheap labor developing countries, while capital intensive portions are retained at the home country bases. This phenomenon is called International Division of Labor. In this case an TNC affiliate in an LDC is integrated with its parent and associate companies, vertically. Since the early 1970s, there has been a growing evidence of this pattern of TNC operations in the LDCs. Examples include numerous garment and leather goods factories in Thailand, India, Bangladesh and Sri Lanka that produce for the western MNEs like Motorola’s semiconductor chip-making facilities in Southeast Asia, and so on.

January 20, 2019