FEATURES OF TNCs

The main features of TNCs are as follows: 

i) TNCs are normally very large in size as measured by the value of their total sale. The average TNC has billions of US dollars as its total sales value which is often equivalent to more than the national incomes of one, two or three large developing countries. In the eighties, and nineties, however there has been a growth of smaller TNCs from Canada, Japan and the UK. Even the USA has now some small TNCs. 

ii) Many TNCs depend to a large extent on their foreign sales. There has been a steady growth of the share of foreign sales in total sales. Sales of TNCs exceed the value of world trade in goods and services. TNCs are multi product enterprises something that gives them tremendous market power. 

iv) The main strength of TNCs is their command of technology and innovation. They spend sizable amount on research and development (R & D). Most TNCs spend 5-6 percent of their soles value on R & D which amounts to billions of dollars. This is the reason for their tremendous market power. 

v) The affiliates of the TNCs arc responsive to a number of important environmental. Forces, including competitors, customer, suppliers, financial institutions and government. 

vi) It draws on a common pool of resources including assets, patents trademarks, information and human resources.

vii) The affiliates of the TNCs are linked by a common strategic vision. Each TNC formulates its strategic plan so as to bring the affiliates together in a harmonious way. 

Market Power of TNCs 

TNCs, apart from the features described above, have also distinct instruments which differentiate them fundamentally from other enterprises and give them market power. These are related to each other: Intra-fin trade and Transfer pricing. , 

lntra Firm Trade: Intra-firm trade is defined as trade between two related parties very often situated in different countries and aims at maximizing joint profit rather than individual profit as would be in the case of trade between two unrelated parties Intra-firm We with the affiliate’s accounts for 1/3rd of world trade, 1/2 with non-affiliates. 

Transfer Pricing: Transfer Pricing is defined as pricing that is different from arms length price which is market price used by the TNCs to achieve certain corporate goals. Transfer Pricing is used by the TNCs to tackle certain problems that arise': 

a) High direct and indirect taxation not only in host countries but also in investing countries. Through appropriate transfer pricing concern, TNCs would like to reduce tax incidence; 

b) TNCs also use Transfer Pricing as a marketing tool: either to support a market position of a product or enhance its market share

c) Sometimes transfer pricing is used by a TNC to reduce the profit sharing by the collaborator with it. 

d) Transfer pricing is also used to insulate the adverse impact of volatile exchange rate.

Every TNC has a well established department to determine appropriate Transfer Pricing. The limits to Transfer pricing, it is considered come from the problem of getting the required information. But with the revolution in information ~technology this problem is receding. Yet another limit to excessive Transfer Pricing is the impact of reduced profitability of a subsidiary which can dampen the enthusiasm and morale of people working in the subsidiary. Here, of course, a TNC is expected to take care of it. 

Transnational Corporations from Developing Countries 

The growth of TNCs from developing countries is a relatively new phenomenon. These firms with home basis in developing countries have grown substantially. The majority of them are from South Asia, South East Asia and Latin America. 

There are a large number of factors which are expect to differentiate them from the TNCs of developed countries. 

The TNCs from developing countries are more interested in developing countries al- though developing countries occasionally establish subsidiaries and joint ventures in developed countries. Most of them, however, are established in export supporting activities. 

In some cases they have management approaches and technologies better suited to the developing countries context because of their own basic background and orientation to developing countries. 

It is also believed that sometimes the TNCs of developing countries provide competition to TNCs of developed countries.

The TNCs of developing countries are less able to inernalize their parent/subsidiary transactions.