Global Production Networks, Relocation, and TNCs

A transnational corporation (TNC) is a company that operates in several countries, and global production networks are the chains of design, component supply, assembly and distribution spread across many countries; relocation is the moving of production, often to places with lower costs. In brief: a smartphone may be designed in the United States, use chips from Taiwan, screens from South Korea and Japan and be assembled in China before it is sold worldwide. TNCs move production through offshoring (to another country), outsourcing (to another firm) and sometimes reshoring (back home). This brings jobs and investment to host countries, but also raises concerns about wages, working conditions and loss of jobs elsewhere.

TNCs account for a large share of world trade and investment, and their decisions shape economies and communities. This guide explains how global production networks work, why firms relocate, the benefits and problems for home and host countries, compares them in a table, works through a cost example, outlines the history and corrects common mistakes.

What is a transnational corporation?

A TNC (also called a multinational corporation) has its headquarters in one country and operates factories, offices or shops in others. Examples include Apple, Toyota, Nestlé, Shell, Samsung and Walmart. The largest TNCs have yearly revenues larger than the GDP of many countries, and they control a significant share of world trade, with much of it taking place between different branches of the same firm. TNCs invest abroad through foreign direct investment (FDI), which means building or buying a lasting stake in a business in another country.

How do global production networks work?

Modern production is divided into stages, and each stage is placed where it can be done best or most cheaply. Research and design, which add much value, are often kept in the home country, while labor-intensive assembly goes to low-wage countries. Components come from specialist suppliers in several places, and logistics, finance and marketing are handled in others. The system is called a global value chain or global production network, and it relies on cheap container shipping, air freight, the internet and trade agreements that lower tariffs. Firms may use special economic zones or export processing zones, which offer tax breaks and simple regulation to exporters, such as Shenzhen in China.

The new international division of labor describes how manufacturing moved from older industrial countries to newly industrializing countries, while richer countries specialized in services, design and finance.

Why do firms relocate production?

• Lower costs: cheaper labor, land and energy, and sometimes fewer regulations.
• Access to markets: producing inside a large market avoids tariffs and shortens delivery, as with Japanese car plants in the United States and Europe.
• Incentives: tax holidays, grants and infrastructure from governments that want investment.
• Skills and resources: access to technology, skilled workers or raw materials.
• Economies of scale and specialization: concentrating production of a part in one location.

Some firms have also moved production closer to home (reshoring or nearshoring), after problems of supply disruptions during the Covid-19 pandemic, rising wages abroad, automation that reduces the labor cost advantage and political risk.

What are the impacts?

For host countries

Benefits: jobs, higher incomes, skills and technology transfer, new infrastructure, exports and tax revenue, and a possible start of industrial development. Costs: low wages and poor working conditions in some factories, as the collapse of the Rana Plaza garment building in Bangladesh in 2013 showed, when more than a thousand workers died; environmental damage; profits sent abroad (repatriated); dependence on foreign firms that can leave quickly; and weak links to the local economy if parts are imported.

For home countries

Benefits: lower prices for consumers, higher profits and strong headquarters jobs in management and design. Costs: job losses in manufacturing and the decline of industrial towns, though some of the effect comes from automation.

Impacts compared

Worked example: costs and value added

The figures are hypothetical and show how value is spread along a chain.

1. Garment cost: a T-shirt is sold in a shop for 20. The price is split as follows: retailer 8, brand owner (design, marketing, profit) 6, shipping and tariffs 2, fabric and materials 2.5, factory (wages, overheads, profit) 1.5. The total is 8 + 6 + 2 + 2.5 + 1.5 = 20.
2. Share of the factory: the factory receives 1.5 ÷ 20 = 7.5% of the retail price, and the brand owner 6 ÷ 20 = 30%.
3. Labor share: if wages are 0.4 of the 1.5 received by the factory, the wage per shirt is 0.4 ÷ 20 = 2% of the price. If a worker makes 25 shirts a day, the daily wage bill is 25 × 0.4 = 10.
4. Relocation saving: producing 1 million shirts at home costs 6 each in labor, a total of 6,000,000. Abroad it costs 0.4 each, or 400,000. The labor saving is 6,000,000 − 400,000 = 5,600,000, which is 93%, though transport and risk costs rise.
5. Jobs created: a plant making 25 shirts per worker per day and 250 working days makes 6,250 shirts per worker per year. To produce 1,000,000 shirts, the plant needs 1,000,000 ÷ 6,250 = 160 workers.
6. Multiplier: if each factory job supports 1.2 additional jobs in the region (food, transport, services), 160 jobs support 192 more, a total of 352.

How did global production develop?

Large trading companies, such as the East India Company, existed from the 17th century, and modern TNCs grew from the late 19th century, when firms such as Singer and Ford built plants abroad. After 1945, American firms expanded in Europe, and from the 1960s, labor-intensive production began moving to East Asia. Since the 1980s, trade liberalization, China’s opening and falling transport and communication costs allowed global value chains to expand, so that by the 2000s a large part of world trade consisted of parts and components. Since 2008, and especially after the pandemic and trade disputes, some firms have reorganized their chains toward resilience, with diversification, nearshoring and reshoring.

Which mistakes are common?

Mistake 1: Thinking that TNCs only exploit host countries

They can bring jobs, technology and exports, and many wages are higher than local alternatives. The benefits depend on regulation, bargaining power and how well local firms are linked.

Mistake 2: Blaming relocation for all job losses at home

Automation and changing demand also reduce jobs. Trade is only one of the factors.

Mistake 3: Confusing offshoring and outsourcing

Offshoring is moving activities to another country. Outsourcing is contracting to another firm, which can be at home or abroad.

Mistake 4: Assuming that the product comes from one country

Many goods are made of parts from many countries, so the label “Made in” shows only where the last major step took place.