Multilocational Production. Transnational Production

Many multilocational firms are transnational, with production divided between two or more countries. Transnational corporations, also known as multinationals, may maintain as many as several hundred production facilities (Figure 8-12).

Figure 8-12 The Geography of a Transnational Corporation. The corporate geography of Motorola typifies the transnational production process. Headquartered in the Chicago suburb of Schaumburg, Illinois, Motorola maintains facilities throughout North America and in East Asia, Europe, Australia, and Southwest Asia

Transnational corporations, like other multilocational firms, tend to divide production processes among their facilities in different countries. Headquarters tend to be located in the developed countries, whereas low-wage, low-skill manufacturing operations are concentrated in the less developed countries. By concentrating manufacturing in less developed countries, transnationals can reduce production costs considerably because labor costs in these places are so low. This division of production between developed and less developed countries is known as the international division of labor.

Transnational production is associated with foreign direct investment. In this undertaking, a firm investscapital into manufacturing plants located in other countries. The transnational firm maintains day-to-day control over manufacturing operations in the host country.

Over the past half century, transnational production has been a steadily growing phenomenon. Several factors are responsible for this expansion. First, improved transportation has allowed for more efficient movement of raw materials, finished goods, and personnel. Transportation improvements were paralleled by improvements in communication, reducing the need for face-to-face contact between executives and plant workers. Global computer networks, facsimile machines, and other communication devices have been instrumental in the expansion of transnational production.

With the growth of transnationals, many industrial jobs have diffused from developed to less developed countries in recent years. Between 1974 and 1983, manufacturing employment in North America, Western Europe, and Japan declined by 7.8 percent. At the same time, industrial employment in Latin America and southern, southeastern, and eastern Asia increased by 6.2 percent.

These changes have resulted from the search by transnationals for cheap sources of labor. Wages in less developed countries are far lower than those in Europe and the United States. Nike shoes, which retail in the United States for $75 to $150 or more per pair, are produced in Indonesia by workers whose wages average barely 150 an hour.

Nike's production facility moved to Indonesia from South Korea, where increasing industrial prosperity had raised wage levels considerably above those in Indonesia. Although Nike and other transnational are often accused of exploiting foreign workers, income gaps between the rich and poor countries are so great that demand for jobs far exceeds supply. Dozens of Indonesians apply for each job available at the Nike plant.

Transnational corporations have considerable influence on the less developed countries in which their operations are carried out. In order to protect their investment, some transnational have been accused of attempting to influence local economic and political conditions in less developed countries. Their financial resources may be used, both legally and illegally, to influence the selection of governments favorable to their interests.

Dependence on transnational has also led some less developed countries either not to impose or to relax environmental quality standards in order to safeguard employment. Indeed, some transnational have moved production facilities to less developed countries to avoid the stringent pollution regulations in the developed countries.

This has contributed to pollution problems in a number of less developed countries. In effect, the activities of many transnationals have forced competition among the governments of less developed countries. Those that can supply cheap labor and eliminate environmental and other restrictions on production are most successful in attracting transnational employment. While this employment provides needed jobs and income for people in less developed countries, it also reinforces their dependency on the developed nations.

Despite impressive increases in industrial employment in Asia. Latin America, and Africa, most new industrial jobs in these regions continue to be in low-skill, low-wage sectors of production. Machinery needed by manufacturers in less developed countries continues to be produced in the developed countries. Three countries—the United States. Japan, and Germany—dominate the production and distribution of production machinery.

Because industrial development in the less developed countries is financed largely from external sources, many countries have gone into considerable debt in order to import the machinery needed to establish competitive industries. Also, many less developed countries must import the fuel necessary to operate the machinery and the replacement parts needed to keep machines in working order.