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Transnational Corporation: Definition & Examples

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  • 0:01 What Is a…
  • 0:58 Characteristics
  • 2:25 Examples
  • 3:47 Lesson Summary
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Lesson Transcript
Instructor: Brianna Whiting
In this lesson, we will learn about transnational corporations. We will define the term and discuss the controversial characteristics. The lesson will conclude with some examples and a quiz.

What is a Transnational Corporation?

Bill has been looking for a job for two months. After endless applications, he finally got a job with Wolcott flooring. Bill's first few weeks consisted of training and learning more about the operations of the company. It wasn't until Bill finished his training that he learned that Wolcott flooring may be based in his home state of Washington, but that it also had facilities in many other countries around the world. Bill soon learned that he worked for a transnational corporation.

So, you may be asking yourself right now, what does it mean to be a transnational corporation. A transnational corporation, also known as a multinational corporation, is a corporation that has a home base, but is registered, operates and has assets or other facilities in at least one other country at one time. These corporations have a headquarters in one country, such as the company that Bill worked for in our example, but have offices or factories in various other countries.

Characteristics

When a corporation plateaus in growth, especially where demand is concerned, they often seek to expand in other countries for that additional growth. While this is what often makes a corporation a transnational corporation, it isn't without controversies. The following characteristics are often associated with a transnational corporation:

1. Transnational corporations may not be loyal to all of the countries they operate in, and look to maintain their own interests. In other words, they're mainly concerned about what's best for them even if it's at the expense of the other country's values or standards.

2. Transnational corporations avoid high tariffs involved in importing when they set up in foreign countries. This allows a corporation to cut costs, but it's not always in the most honest way.

3. They reduce costs by using foreign labor at a cheaper price than they would in their home country.

4. They block competition by acquiring businesses. If they purchase foreign companies, they will not have as much competition.

5. They may have political influence over some governments. This means that they may use their power to convince some governments to support their practices.

6. They can create a loss of jobs in their home country.

7. They can minimize taxes. The IRS has to study transnational companies very thoroughly to make sure they are paying taxes correctly.

Examples

Using what we have learned about a transnational corporation, let's generate a mock example to better explain the concept. Take for example, Kyle. Kyle owns a toy company that has maximized the demand for their toys. While many corporations would be happy with this kind of success in their home country, Kyle wants more. He decides to open up a facility in China and Brazil. Because he can cut labor costs, he decides to manufacture the majority of his toys in China so he can utilize cheaper labor than he could back home.

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