A firm which owns or controls production facilities in more than one country, through direct foreign investment. Transnationals are made possible by improved international communications which provide rapid containerized trans-shipment and foreign travel; easy communication of information; and international mobility of capital. TNCs have the potential to ‘take advantage of geographical differences in the availability and cost of resources, and in state policies, and to switch and re-switch operations between locations’ (Dicken (2004) TIBG 29, 1), and when one market is saturated, the transnational can rapidly develop others, since foreign investment cuts transport costs, and makes possible a rapid response to local markets. TNCs are probably the major force affecting worldwide shifts in economic activity, since the largest have a turnover greater than the GNP of many less economically developed nations.

Theoretical approaches to TNCs include Pitelis (2001) Glob. Business & Econ. Rev. 3, 1 on the resource-based theory of the TNC, and Wrigley et al. (2005) PHG 29, 4 on the retail TNC. Hudson (in J. Peck and H. Yeung, eds 2003) argues that ‘rather than seeing a dichotomy between “global outposts” and “embedded branch plants”, we need to conceptualise these as opposite ends of a continuum’; A. Isaksen (1996) agrees: ‘TNCs may act as interfaces between global production networks and regional economies.’

Discussions of the advantages and disadvantages of TNCs abound. UNCTAD’s World Investment states that, since host developing countries tend to use more labour-intensive industries and technologies than do developed countries, the location of a TNC in the former is likely to have greater employment-generating potential than in the latter. Ivarsson (2002, J. Econ. Geog. 2, 2) finds that foreign-located affiliates of TNCs generate technological competencies, ‘both internally as well as through organized cooperation with external business partners in the host country’.

However, the ability of transnational corporations to move capital across frontiers, and to manipulate the transfer prices at which their component firms exchange goods and services, has been held against them. Transnationals have also been criticized for undermining national cultures through intensive use of advertising to substitute their synthetic and standardized goods for natural and distinctively local alternatives; the powdered milk controversy comes to mind. Smith (1998, Eur. Urb. Reg. Studs 5) in a study of east and central European economies argues that reliance upon inward investment may not be the ‘godsend’ that many suggest it will be, and Herrmann (1995, Hum. Ecol. 23, 2) examines the ‘culpability’ of TNCs for human environmental crises.

Some claim that TNCs undermine states, or, indeed, the state system, but Dicken (2004, TIBG 29, 1) argues that ‘states still have power over what they permit’.