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Clara Soo Wen Lin (8) 4E

Geography Essay TNC Impacts

Question: TNCs bring more benefits than harm to host countries. Do you agree with this

statement?

A transnational company (TNC) has the ability to coordinate and control various

processes and transactions within production networks, both within and between different

countries. More than two hundred giant corporations, larger in revenue than the GDP of

national economies, now control well over a quarter of the worlds economic activity. These

TNCs also have a potential geographical flexibility an ability to switch and re-switch its

resources and operations between locations on a global scale. With such economic clout, it

is undeniable that TNCs have great economic, environmental and social impact on the host

country, weaving webs of production, consumption and finance which affect and influenceat least a third of the worlds population. This seeks to argue that TNCs bring more

economic and social benefits to host countries such as Newly Industrialising Countries (NIEs).

These advanced developing countries are more adept in the negotiation process with TNCs

to bring out maximum benefits. However, TNCs bring more environmental and economic

harm than benefits to Less Developed Countries (LDCs) where there is a lack of legislative

powers to protect their workers and environment from exploitation.

TNCs provide economic stimulus and employment to host countries through the

multiplier effect and the development of firms which form the backward or forward linkages

in the oil industry. Oil alone contributes to 95% of Nigerias export earnings. Establishment

of new TNC activity within an economy will have multiplier effects in the region in which it is

located. Workers employed and paid by the TNC will in turn spend their income partly on

locally produced goods and services, thereby giving a boost to the economy. Some

companies, such as Shell, have the policy of using Nigerian contractors and hiring workers

from the local communities wherever possible. For instance, Shell in Nigeria, employs 5,000

people, 95% of whom are Nigerian and 66% from the local Niger delta area. Another 20,000

people are directly employed by the companies providing services and supplies. Through

indirect employment, Shell projects in Nigeria help to create thousands more jobs insupporting industries such as the chemicals industry which form the forward linkages of the

oil industry. As such, it is evident that TNCs such as Shell bring much economic benefits to

host economies, though it may be concentrated in particular locations at meso scale rather

than at the national scale.

TNCs are often a major cause of environmental degradation, particularly the

manufacturing ones. For many years, Nigeria suffered from political instability with many

changes of governments, corruption, dictatorships and military rule. Being an oil-based

economy, Nigeria provided TNCs like Shell with considerable power and influence since the

country continually experiences political instability. Due to less restrictive environment laws,

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oil production in Nigeria took place at considerable expense of the local environment in the

oil areas. Examples of negative environmental effects include oil spills which contaminate

food supplies and destroy natural habitats, gas flaring which results in air pollution as well

as deforestation which greatly reduced the local forests originally used to supply foodstuffs

and fuels. These activities not only create negative impacts on the environment, but alsogreatly affect the health of locals due to pollution. Host countries like Nigeria would then

require a considerably long period of time to fully recover from the environmental and

social effects of the TNCs production. Therefore, it is evident that there are significant

drawbacks of TNCs in the host countries, contributing greatly to environmental degradation

since the political instability in the country and lack of legislative power have provided an

opportunity for TNCs to exploit the local environment.

Besides bringing environmental harm to the host country, TNCs may also create

negative social impacts on the host country by exploiting its labour force with long workinghours and low incomes. TNCs such as Apple have outsources manufacturing to third-party

suppliers like Foxconn from Taiwan which have factories in the Pearl River Delta of China.

Foxconn, being one of Apples biggest supplies, employs over 4.5 million in China itself and

owns ten techparks in China, with numerous factories scattered around the country. Even

though this has lead to the creation of over millions of jobs, such jobs are often low-paid

where workers only earn about $150 per month. Since Apple constantly demands lower

production costs, Foxconn has no choice but to cut down on operating costs by slashing

wages and increasing working hours to ensure productivity and profit. Exploitation of these

Chinese workers have led to 18 suicide attempts in 2010, ultimately resulting in 14 deaths. Asimilar case arose in January 2012 where approximately 300 Foxconn employees threatened

mass suicide. Thus, the benefits brought about by creations of jobs becomes highly

questionable, when unfavourable working conditions of the employees and taken into

account, lowering social standards for the locals in host countries.

Being the world largest corporations, TNCs wield great power and influence. From

the discussion above, I conclude that while some TNCs, especially the service TNCs, do bring

certain economic benefits to host countries like the NIEs, some like the manufacturing TNCs

do more harm than good in the social and environmental aspects in LDCs where the

government does not have much say in their operations and provides the TNCs with

opportunities to exploit the lax pollution standards. The main reason behind the negative

effects of TNCs in host countries is because the TNCs are largely profit-seeking corporations

whose main aim is make money out of their business. Thus, I disagree with the statement

because even though it is acknowledged that economic advantages are brought to the host

economies, the problems caused by TNCs outweighed the benefits, particularly for TNCs

operating in LDCs.