Analyzing The Relationship Between Nation States And Transnational Companies

TNC's and Nation States

Transnational companies are such commercial enterprises which carry on business in different nations, operate major facilities and any specific nation, is not deemed as its national home. Such transnational companies have the major advantage of the ability of maintaining a high degree of responsiveness, to such local markets in which their facilities are maintained (Hönke, 2013). In the following parts, a discussion has been carried on to analyze the changing relationship between the nation states and the transnational companies. Followed by this, the internal analysis of Tesco has been conducted, so as to finally draw up a TWOS matrix and present the strategies which are recommended to Tesco, due to the combination of factors discussed here.

Nation state can be defined as such a state, in which the territory of a single nation is located. The nation is the ethnic or the cultural entity and the state is the political entity. Hence, a nation state is one where the political entity is joined with the cultural entity of a nation (Harvey, 2013). Nation state depicts an autonomous state and the people who share common language, history, and culture inhabit it. Hence, the people of same type are present in such state, and are orchestrated/ organized through the same cultural or race background. In general, the majority have the same cultural values and language. In case there are different ethnicities, or different religions are practiced, and the number of people following different values or norms is different, it would not be deemed as nation state (Heywood, 2015).

The majority of nations are not covered in the definition of nation state, as they have certain number of immigrants; however, if this number is low, the nation can still qualify as a nation state, provided the number of cultural differences remains negligible. Such states are focused on the maximization of the GDP, i.e., the Gross Domestic Product of the nation; and for this, the maximization of the quantity and the quality for organization is concentrated upon, along with the employment related opportunities (Jonge and Tomasic, 2017). The emphasis is on the nation made technology instead of being reliant on the other nation’s technology. The power to advance the fair return over the TNC’s local operations is held by the nation states through the mode of taxation policies. An attempt is made to help and extend the local supplier links by the nation states.  A flexible, high earning and high skill labor force is attempted to be developed and the attempts to close the TNC operations are tried to be averted (Gopinathan, 2013).

Nature and Purpose of Nation State

An example of a successful nation state can be seen in Singapore which is the greatest success story of Asia and has transformed itself from being a developing nation, to being a modern industrial economy in a single generation. The education system of the nation is considered amongst the top in the world. This has been central to the growth of the nation and of its economy as well. The objective of this nation state was to be the engine which can serve the human capital, so as to drive the economic growth. The belief and clear vision of the nation eventually led to the nation’s success story (Gopinathan, 2013). 

Somalia, on the other hand, is the key example of the failed nation state (Beare, 2012). Even though the population of the nation is ethnic Somalis, and they have loyalty to Islam and also share a common language, the people are divided into clans like Darod and Hawiye. Further, there is a division between clans as sub-clans and in each sub-clan, there are numerous sub-sub-clans. Poor government, low GDP and low literacy rate led to the failure of this nation state (Costantinos, 2014).

Transnational companies or TNCs are complex form of organizations (Jakobeit, 2011). Through such companies, an investment is made in the foreign operations, and such companies have a central corporate facility, in which, marketing, and the research and development powers lie with each of the individual foreign market. These companies have a great degree of interaction and own scope, with regards to the operations which are conducted out of their home nation and this is defined through different terms (Lundan, 2014). International companies are such entities which consist of exporters and importer and they do not invest out of their home nation. Multinational companies invest in the other nations; however, they do not have any coordinated product offering in every nation. And these entities are focused upon the adaptation of their products and services for every individual local market (Mattes, 2010). Global companies are such, which not only invest in different nations, but also have their presence in such different nations. The products of such companies are marketed by using the same and coordinated brand image in all of the markets. For such companies, in general, the global strategies are prepared by a single corporate office. And these are emphasized upon efficiency, volume and cost management (Harrison, 2013).

Nature and Purpose of TNC

TNCs, as earlier stated, are complex entities and it combines the different examples of the international, multinational, and global companies. The foreign operations are invested in by these companies, like the multinational companies, and also have a central corporate facility, like the global companies, though the decision-making, marketing and R&D related powers are individually held by each of the foreign markets and this is based upon the international trade in different economies across the globe (Cullen and Parboteeah, 2013).

A perfect example of the TNC can be seen in McDonald’s, which is an American based fast food chain and as on the fiscal year ending 2016, the company served in 120 different nations, to 68 million customers on daily basis, through its 36,900 outlets, approximately (Securities and Exchange Commission, 2016). It operates as a corporation or through affiliations and franchises in different parts of the world. The revenue of McD comes from the fee paid by the franchises, rent, royalties and the sales of the company. The revenues of the company continue to grow steadily, which is due to its global presence (Kell, 2017).

The relationship in between the nation state and the TNC is quite ambiguous, complex and contradictory in comparison to what the popular view leads the people in believing. Both of them are supportive and conflicting, and competing and cooperating. Even though they operate in a totally dialectical relationship where they are unified, they do assume contradictory positions and roles and such a situation is present where neither of them or their partners is able to dominate in a clear or complete manner (Sugden, 2013). The best the essence of the delicate relationship which is present between the nation state and the TNCs can be best captured through the statement that both of these contain some or other element of collusion and rivalry. Also, it cannot be ignored that he elementary objectives of both of these are differentiated in significant manner. In an ideal environment, the fundamental objective of the TNCs is profit maximization, as well as, the maximization of the shareholder value. On the other hand, the fundamental objective of the nation state is the maximization of the social welfare (Clark, 2012).

The conflictive objectives of the two do not end here. Performance wise, the focus of the TNCs is upon the shareholder value and profit, and that of nation state is upon the growth in the GDP of the nation. Further, the emphasis of the nation state is upon the maximization of both quantity and quality of the employment opportunities. Technology wise, an attempt is made by the TNCs to gain the access of the required technology which is crucial for its operations and for its work. Conversely, for the nation states, the emphasis is on the home rooted or the home based technology (Sagafi-nejad and Dunning, 2008). In order to control and function, the headquarters of the TNCs are located strategically and the other functions which are of high order are located elsewhere to fit the best possible patter of the overall operations of the TNCs. Conversely, for the nation state, the indigenous headquarter is maintained and an attempt is made to both attract, as well as, retain the major operations of the TNCs. The TNCs also retain their flexibility so as to move the profits in the best possible manner within its structure. An attempt is made for maintaining the flexibility so that the geographical structure of the production network of the company can be adapted, in order to meet the fluctuating conditions. The flexibility of the labor in the manner required is also maintained by the TNCs. In comparison to this, the nation states make an attempt to maintain their power in order to attain a fair return for the local operations of the TNCs in the manner of taxation policies. Focus is also laid on the maximization of the benefits and extent of the linkage of local supplier and to prevent scaling down of the operations of TNCs. The attempt is upon the development of high earning, skillful and flexible workforce (Jovanovi?, 2011).

Relationship between TNC and Nation State

Even though this conflicting relationship is present between the TNCs and the nation state, they need each other. The state needs the TNCS for generating wealth and providing jobs to its citizens. Even though a preference is given to the allegiances of domestic firms, the same is not possible for capitalist market economy. Hence, TNCs can be viewed as an extension of the foreign state policy. The TNCs need the state for providing the infrastructure, which is crucial for their continued existence. This includes physical infrastructure, and social infrastructure, and these include the lawful safeguards, the institutional mechanisms, environment, etc. In hostile foreign environment, the TNCs look to the nation state for diplomatic protection (Lundan, 2014).

Through the use of value chain analysis of the Tesco, its strengths and weaknesses can be highlighted. These have been highlighted through S and W. 

(Source: Dudovskiy, 2017)

The elements of inbound logistics are deemed as upstream activities as they have the earliest opportunity of creating the value. This includes the handling and transportation of goods, receipt of goods from the suppliers, storing goods and even the placement of goods on shelf. Tesco makes an attempt to maintain its consumer choice in their stores and also makes attempts to improve upon the distribution system efficiency (S). In the applicability of the quality control procedure, with regards to the damages products, Tesco presents a great opportunity for the reduction of costs which are incurred by the company in an unfair manner, and due to these reasons, it is able to prevent the passing on of such costs to the consumers (S).

The production elements of the activities of Tesco are service based. Operations enable products to be provided and are the second upstream which help in daily activities. Tesco has considered upon expansion with regards to the operating hours, in places where it is not present by opening express or metro stores, so as to attain competitive advantage (S). Though, due to the restrictions of legislations and that of planning council, this strength can become the weakness of the company (W).

This stage relates to the delivery of products. For Tesco, the value is added as a result of its home delivery services (S). The customer value is added as they are able to same time and increase their turnaround even in the stores of the company, as there has been an improvement in the trolley collectors, staff and system, and parking facilities (S).

This is the downstream element of value chain. For Tesco, the discounts are given to the loyal customers through the Clubcard (S). The company attracts customers through advertising by different mediums and offers discounts, which attracts customers (S). The company has constraint with regards to the selling of environmental friendly products, as a result of the raised awareness of the consumers (W).

The control and planning functions provide the focus upon cash control and costs of operations of the company (S). Along with this, the departments are required to protect the profits and to reduce the shrinks. Tesco has increased the staff involved in anti-fraud software and installed new security system so as to reduce the internal theft, which is such an expense that the customers would not have to bear in the purchase price (S).

This is both an upstream and downstream activity and covers each step from the recruitment process to the management development. The training schemes of the company are constantly increased and the recruitment program is developed so that the customer gets the benefit of properly trained and recruited staff, instead of added costs (S). The company continues to make investments in customer services (S).

This downstream activity has the ability of providing innovative product solutions and ranges based on the needs of the customer. This is a major competitive advantage for the company as the brand name of Tesco gives the product vigor (S). Though, the responsibility of floor personnel and service provisions is ambiguous, and there is a need for complete commitment of the staff and is a long term process with regards to the capital investments and the installation (W).

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