Case study – Coca Cola a transnational corporation Transnational corporations (TNC’S) are large companies that operate in more than one country. The head quarters are usually in an MEDC. They have a large number of factories operating around the world. TNC’s use cheap labour especially in LEDC’s such as Asia as an alternative to paying the expensive costs of labour in their own country. Coca Cola Coca Cola is the number one manufacturer of soft drinks in the world. Their headquarters is situated in Atlanta Georgia, USA. It is probably the best known brand symbol in the world.
They sell nearly 400 different products in more than 200 different countries. 70% of its sales are generated outside of North America. Production is based on the franchise system Advantages of being a TNC . Have a strong bargaining position and can negotiate favorable conditions for entry into countries. . Governments offer incentives to encourage TNC’s to locate there. . Labour costs are lower in LEDC’s. . Often the raw material is sourced in the LEDC’s BUT this does not apply to Coca Cola. . Coca Cola don’t always own their factories, they subcontract out to pre-existing bottling companies to save more money. TNC’s want to have access to high earning large populations such as India, by manufacturing their goods close to their intended market they can save on transportation costs. Positive effects that TNC’s have on the host country . Creates jobs both directly and indirectly in the host country. . Many of the bottling firms are local companies so all the profit stays in the host country. . TNC’s offer training and education. . Many TNC’s to improve their image get involved with schemes to help the poor. Coca Cola runs some community schemes in Africa and South East Asia. One of Coke’s microfinance startup schemes provide 4000 Vietnamese women with the merchandise, training and basic equipment to begin selling Coca Cola. . TNC’s attract other TNC’s to the host country. . Coca Cola has invested $1. 5 billion in the Russian Economy, this includes training, the construction of manufacturing plants and improvements to infrastructure. Negative effects that TNC’s have on the host country . Low paid, semi skilled or unskilled production takes place in LEDC’s. Management, design and marketing take place in MEDC’s. . If the TNC experiences problems, the newest oversea branch plants are the first to be closed. Some people think that companies like Coca Cola are adding to the water stress of the area because the water should be used for agriculture. . TNC’s are very powerful; if they are not happy with the economic conditions within the host country they will pull out leaving people unemployed. . Environmental regulations are often less strict in LEDC’s: some TNC’s take advantage of this. . Profits are returned to the shareholders, very little of the money remains in the host countries. . Working conditions in some factories are harsh: long hours for very little pay.
Employees get very few benefits and there are unlikely to be any unions. Coca Cola hierarchy Coca Cola manufactures their drink concentrate in America. The marketing of its products is also completed in America. Bottlers buy the concentrate from the Coca Cola Company. They then mix it with water and sweeteners then they bottle the finished product. Each bottling company has exclusive rights to a region of the world. Coca Cola owns shares in some of the companies but not all of them, some are independent. Bottlers are in charge of distributing the products to the retailers. Retailers sell the bottled products to the public to buy.