TNCs operate in more than one country and manage production in the foreign nations, or host countries, whereas their management headquarters are situated in one country, referred to as the home country. A TNC, however, fails to identify with one home through employing senior executives from varying nations and decides its undertakings from a global perspective by implementing global governance. Global governance is shared by a state and TNCs to draft rules and policies (Scherer, Palazzo, & Baumann, 2006).
TNCs’ economic basis is powerful, and the examples of successful TNCs include the Ford and General Motors, the global powerful automobile corporations (Jones & Haigh, 2007). They add up to ninety percent of products and technological patents globally and engage in over seventy percent of the global trade which is mostly carried out amid the corporations units.
The number of TNCs has rapidly increased in the recent past, especially in the industrialized nations which house over ninety percent of all TNCs, including Europe and the USA. They are termed as being a productive aspect that a globalizing economy quests for. This paper aims to provide a detailed discussion on the impact of TNCs and the creation of Transnational Corporate Class (TCC) citizens, especially in the developing nations where citizen rights are interfered with.
Domination in the Developing Nations
The greatest external funders in the developing world are involved in foreign direct investment (FDI), which is a provider of financial and technological resources as well as employment opportunities (Jenkins, 1988). It emanates from both the private sector and huge corporations that quest to make investments all over the globe. TNCs are also involved in the process, which has positively led to enhancing development but, on the other hand, they have caused emergence of a new class called the ‘transnational corporate class citizens’. TNCs have been used synonymously with multinational companies, and their main role is controlling assets in other nations and, eventually, commanding huge financial and technology resources to spread its tentacles in all parts of the globe. FDI is directed especially at the developing world, as a source of foreign aid (Beder, 2010).
TNCs have their headquarters based in the nation of their origin and spread their operations to the subsidiary companies in other nations reporting to the main office. Their enormous growth has raised concerns because of their political power as well as mobile and complex nature. TNCs have been criticized because of the lack of loyalty to the nations they are based in and the fact that their endeavors are geared only towards achieving their interests at all costs (Grazia, 2005). TNCs might have different motives for location in the nations other than their home country that include pursuing growth in case they have satisfied the highest ambitions within their country and, therefore, anticipated a foreign market entry. On the other hand, they might have a need to flee from protectionist policies in a certain country and directly invest in foreign countries to bypass increased tariffs hindering a competitive pricing of their products in this way. For instance, the European Common Market imposed tariffs on foreign made items, and in response to this, the US corporations established European subsidiaries (Beder, 2010). A TNC might also be set up because of a need to reduce the competition from foreign companies by means of mergers and acquisitions. TNCs also might be established to create subsidiaries so as to have a reduction in costs by utilization of a cheap foreign source of labor from the developing nations after they relocate the production facilities abroad. TNCs, especially the ones based in the USA, have dominated the network of global control, particularly in developing nations which are dependent on exports (Sklair, 2002).
Strategies and Political Affiliation of TNCs
A TNC could interfere with the traditional economies or become a monopoly guided by a political or economic motive of a particular nation. Most importantly, TNCs are associated with the use of foreign subsidiaries to decrease the tax liability. Hence, it is necessary for International Revenue Service to evaluate the flow of products amid the TNCs in local and international operations to determine transfer pricing for every transaction. TNCs have fought their way out to set transfer prices in order to reduce expenses and overall tax burden. In this way, the tax incentives motivate TNCs to base their operations overseas (Sklair, 2002).
TNCs set political as well as social agenda by establishing public relations, lobbying funds, etc. They are not satisfied with individual power and pursue collective power to favor their business interests by formation of coalitions to overtake crucial policies and have minimal government interference in order to attain optimal market expansion (Scherer et al., 2006). It might take the form of privatization of public services as well as business and labor force because of lack of regulation, which corresponds to neoliberalism concepts (Jones & Haigh, 2007). To have maximum corporate profits during economic recessions, CEOs may influence governments to offer bailouts, in order to boost them economically. Market expansion is pursued by all means through coercing governments to ensure that TNCs have a smooth way to expand globally (Sklair, 2001).
TNCs base their operations particularly in the developing countries and offer technological, financial, and marketing aid in order to have maximum profits, thus averting the foreign governments. Difficult economic situations trigger the fervent feelings towards TNCs since they have impacted the third world in an enormous way. On the one hand, TNCs are considered to be a path to progress which is supposed to remove inequality in economies and revolutionize productive forces in these regions, but, on the other hand, they still act as a hindrance to development. The expansion of TNCs has caused underdevelopment by triggering an extensive “drain of surplus to the advanced capitalist countries” (Jenkins, 1988 p.1).
TNCs and the political systems that house them have restructured the world economic design and caused a political power imbalance. It has occurred because of trade accords and frequent intergovernmental investments which lead to the subsequent evolution of globalization. Accordingly, the international trade thrives in the entire world with organizations such as the European Union and the North American Free Trade Agreement among others to serve as catalysts. The international trade agreements enable these organizations to avoid the control of the national political systems as well as the local societies, which has led to violation of employees’ rights, environmental regulations, and the ultimate democracy within a nation (Dunning, 1993).
TNCs and Globalization
One of the most important factors of TNCs expansion is globalization of production, which has resulted in mobility and migration, and, as a consequence, in transnationalism. Because of cultural diversity, new cultural processes have emerged worldwide (Welz, 2004). TNCs have also impacted steering the global economy, foreign direct investment, finance, technology as well as trade to boost their own economic development. They have, therefore, caused a considerable effect on socio-economic welfare in different countries, that is why they are regarded as a way to internalize markets for services beyond boundaries (Dunning, 1993). TNCs enhance globalization because they significantly contribute to the provision of industrial potential, technology, global financial deals and, eventually, power. TNCs engage in mining, refining, and distributing the global energy resources, such as gasoline, jet fuels, diesel, coal, nuclear energy, and hydroelectricity. They engage in extracting fine minerals, manufacture the world’s best communication means as well as biotechnological products. In other words, they have control over almost every aspect of economics, technological advancements as well as political developments on a global scale (Scherer et al., 2006). The engagements of TNCs, therefore, influence governments’ interests in the industrialized nations both locally and internationally. Besides, the international boarder agencies are thus incorporated in the New World Order where they hold no accountability to any country (Beder, 2010).
The transnational policy makers have designed global governance concepts in pursuit of business coalitions, policy planning, and the interaction of the elites for the sake of profit making. The General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) are essential tools in evaluating the corporate agencies’ business outcomes. WTO is supposed to prevent the interferences with trade rules while those nations that fail to comply are punished (Sklair, 2001). It is, however, less concerned by the public interests and continues to act as a global government having the exclusive mandate to facilitate its own interests. WTO has pursued its expansion implementing regulations which tend to exploit the challenges and difficulties of various nations. It also has ability to inflict economic sanctions for countries that are rendered guilty. Such disciplinary ruling imposed on the countries interfering with WTO trade interests is not legitimate, on the whole (Jones & Haigh, 2007). Like most international agreements, it favors globalization and free trade rather than environment or public needs. Any barrier to trade is ruled out whereas different nations have been forced to modify their legislation in line with that of WTO as their environmental and social policies have to fully comply with WTO directives (Sklair, 2001).
TNCs engage in a number of influential business coalitions so as to advance their interests at the expense of the welfare of the local citizens, degrading the democracy level, and determining the policies of a political system. They call for ‘business managed democracies’ where countries’ cultural and political aspects are streamlined with corporations’ interests. CEOs of TNCs are even proposed to logically replace governments so as the local political systems remain submissive to the economic interests of the TNCs located therein. Such determination has, therefore, enhanced their decision making with regard to employment opportunities as well as production. Since corporations are enormous and influential, such steps have a considerable political influence on financial gains as they threaten to withdraw from a nation (Sklair, 2001).
Transnational Corporate Class (TCC)
Political mobilization for the sake of TNCs paved the way for them to become a class, which ideologies are similar and do not compete with each other, united with similar business interests. As a result, a new class of CEOs has been created, which has been enhanced by inter-corporate networks linking executives of TNCs. A new born class of elites has gained a political influence for the sake of business through provision of leadership for the frequent coalitions of huge TNCs. The coalitions have turned global; this fact shows a transnational aspect of today’s corporations and, therefore, turns corporate class into ‘transnational capitalist class’ (Beder, 2010). Political forums include such corporations, which act complementally, through having common leaders as well as memberships, according to the tabled agenda. Unity is one of the reasons for their success since they aim at the coordination of public relations and, at the same time, apply collective pressure to policy makers. Free market ideologies have been extensively propagated. Such a situation has resulted in the privatization of social service providers, hence corporate colonization.
Globalization has been steered by TNCs to build up wealth and control through degrading the democracy level. The transnational elite comprises capitalists whose effect on employees, the public as well as consumers is immense but who remain unaccountable since they evade democratic control. The public will have to protect itself from wealthy powerful world rulers integral to these networks which are gaining more power to constitute class cohesion, especially for the European Nations and the USA. Transnational corporate power has emerged because of decline in democracy where corporate elites in the European Nations advance their interests at the expense of workers. Globalization is a gateway to the transactional capitalist class comprising TNC executives who dominate the political sphere within a nation. TCC formation is triggered by an increase in direct investment abroad, mergers and acquisitions, and a more globalized financial system.
TNCs have almost evolved into sovereign nations as wealthy individuals pursue to become the global elites since there is no corporate accountability. Various factors have been suggested to counter this issue, including the probability of deglobalization where one would have to acquire the power of independent thought, questioning the leading systems, and retaining a localized economy. All the same, TNCs all over the world continue to control the political systems, particularly in the industrialized world where corporate politics has become manifest, and where such corporations have gone to the extent of enjoying the provisions of the Bill of Rights (Sklair, 2002). However, the main issue does not lie entirely in the elite class of these TNCs but in their supporters who include the bribed political systems and consumers of their products. The governmental interventions impede the solution process, but every person has a role to play since he/she has a choice whether to consume the products of these corporations, hence encouraging them to thrive, or not. It has been noted that certain forces, other than governments, control the world, which has led to the negative effects for mankind and made one question their intentions (Sklair, 2002).
TNCs strategy incorporates combined efforts; even though they are seen as competitors, they cooperate for the sake of business interests to drift from democratic interference. They appreciate the fact that for foreign investment to go through, they have to interact with similar organizations so as to have control over rules, regulations, and policies, which could decline competitiveness. They shape international regulations and have a diversified market for their products to lower the expenses of foreign trade as well as reach the maximum profits. A coordinated network ensures strong coalitions which would not have been otherwise attained. Individual corporations have the same business interests and, therefore, their coalitions need to have tight networks and relations so as to pursue power as well as influence in a nation. The individuals staying in line with this motive gain a higher rank in such corporations. The manifestations of strategic alliances as well as worldwide networks can be regarded as capitalistic as TNCs pursue common economic interests and remain loyal to foreign TNCs bodies rather than the nations in which they are located. National governments facilitate their operations to make sure they do not interfere. Besides, the free trade has become an issue of concern for a world order where governments no longer serve the interests of their citizens in regards to the effects of the free trade, but instead safeguard the business interests of huge corporations from the democratic regulations.
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