Essay: THEORETICAL AND CONCEPTUAL APPROACHES OF TRANSNATIONAL CORPORATIONS

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1.1. Historiography of transnational corporations research

At the beginning of XXI century transnational corporations are considered as one of the biggest challenges for current international economic order because their decisions affect in a large extent national economies.
Transnational companies are companies that exercise management control over the operations performed on several national markets. A transnational company can exercise effective managerial control upon the companies where it owns a small number of shares or even on foreign companies where they do not hold shares but operates on the basis of management contracts or other types of contracts. As companies with foreign trade activity TNC undertake transactions across borders of their home countries but they still hold different ownership and control of their production facilities abroad. On the other hand TNC operate with many factories and intermediates transactions between these units of which at least one is located in a foreign country. Basically TNC are defined as economic entities made up of units linked by relations of property or otherwise operating in two or more countries after a system of decision-making (in one or more centers) which develops coherent and common strategy within which one or more of these units exert an important influence on other activities, particularly on resource utilizations line, taking responsibility, the use of information.
For having a clearer picture of what are TNC it is proposed a comparison between the definitions given by authors from eastern and western world.
One of the first and widely used definitions is given by R. Vernon that says that a company engaged in producing and selling goods and services in more than one country consisting generally of a parent company located in the home and from 5,6 braches abroad (host countries) with usually a high degree of strategic interaction between its components . However, under the pressure that arose also medium-size companies with international vocation this figure was reduced to two countries and, ultimately, even to one. So far, most economies accept that a multinational corporation consists of a firm that has extended its production and marketing beyond the borders of a single country.

J. Dunning considered that TNC is a company that is engaged in foreign direct investments and which owns and controls the activities that create value in more than one country .
This definition is taken also by bodies such as OECD and UNCTAD:” Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake” .
W. Andreff defines TNC as: “any company whose capital is invested in the process of international accumulation” . This definition, rather vague, reports the notion to the structure of world capitalism which compels us to analyze in an international manner the production, distribution, supplying, financing and the know-how of transnational corporations. In other words, Andreff consider that TNCs are an important component of international capitalism.
Dictionary of Modern Economy defines TNC as a large enterprise that has its headquarter in a country and is operating mainly or partially through its subsidiaries from other countries. These companies are expanding on an international scale to harness the vertical and horizontal advantages of the global scale economy.
Transnational corporations, according to Николаевa И.П Russian, author of the book Мировая экономика (World Economy), it is a corporation which parent owns the capital of one country called home-country and subsidiaries located in other countries. They are a kind of multinational corporation while the difference lies only in the fact that the parent company owns the capital of two or more countries. Both of these forms are based on the carried out under the control of the parent company’s technological and financial link between enterprises in different countries. Their main feature is the international high-quality character of companies.
Scientists from Republic of Moldova Chistruga B., Gribincea A., Rosca P. are saying that: “TNCs are companies that implement, conduct and develops its activity in several economies and directions also coordinates and supervises the control and distributes the world operations of different countries on the basis of common strategy in order to achieve their targets.
The diversity of definitions of transnational company concept represents the consequence of the importance of different characteristics given by the authors for companies that are operating at international level. A first category of definitions are those that highlight the structural characteristics of firms: number of countries in which the company is operating, the nationality of shareholders or top management multinational composition. The second category of definitions is based on performance characteristics of a company: absolute volume or relative share of revenues, of owned assets or share of employees involved in operations on international scale of the company. The last category, is represented by those definitions that give a great importance to behavioral characteristics of the top management of the company, such as “thinking in a global way” or the application of global business strategies.
In principle all the definitions and opinions of TNC are divided but regarded to its subsidiaries the opinions are convergent. There are allowed two major types of subsidiaries :
a) First type – “relay-subsidiaries” that produce and sell on local markets goods belonging to the existing product range in the country of origin of the mother-company.
b) Second type – “workshop or manufacturing subsidiaries” that are specialized in the production of components of a final product for which the demand is low or absent.
Nevertheless, for these 2 types of subsidiaries can be added the trade subsidiaries that do nothing else than distributing products manufactured in other places.___________
Corporate charter appearance in the XVI century marks the beginning of corporate history. Corporate charter represented a privilege given by the state to a group of investors to serve a public purpose. Thus in each charter were specified the rights and obligations of corporations including the profit that should be returned to the Crown in exchange for special privileges which consisted in limiting the legal liability of an investor to the amount of its investment. These corporations, of which the most common were the East Indian
Company and the Hudson Bay Company, were used by England to maintain control over the colonial economy.
In the Middle Ages the state was involved directly or indirectly in most economic activities that took place outside the national territory and the most important form under which these businesses were presented were investments.
The first major corporation with international activity was “Commenda” which was formed following an agreement reached between several participants through which the most important investor or a group of investors entrusted their capital to one or more agents that conducted business on sea or/and on land. The biggest part of this trade involved the transfer of resources outside national borders. “Commenda” partnership types were established on short periods of time and at the end the profits were divided according to the agreement and the partnership were dissolved. However, from this type of trade it has been noticed exceptions: “Hanseatic League” – that was an international company owned and headed by a group of Hanseatic traders which had its headquarter in Lubeck (Germany) and respectively, “Company of Merchant Adventurers” – a strong British consortium whose work was conducted in wool industry and clothing articles.
The specific characteristics of these corporations were the ability to coordinate and distribute the use of capital in entrepreneurial experience and coordinate the marketing of goods.
During the XVI and XVII centuries, with the development and improvement of external communications system, international trading activity has entered a new stage, relations between partners relying on a greater extent on rules and regulations. The main objectives sought through foreign direct investments consists in supporting commercial activities held by the state on foreign territories, namely, promotion and economic development of the colonized territories.
The industrial revolution of the XIX century led to the development of the activity of international trade highlighting new motivations for firms to invest abroad: obtaining new resources of raw materials and protecting or extending positions held on foreign markets.
The development of industrial capitalism marked the importance of technology in activity of a corporation, money-capital and human skills. These evolutions highlight the transition from mercantilist capitalism to the industrial capitalism.
In the first half of the XIX century it was stated three categories of operators with international activity carried out through direct investments: individual entrepreneurs, individuals who simply provide the money-capital without getting involved in leading and large corporations during their embryonic phase. The territorial expansion of international companies in their embryonic form manifested itself on two fronts: investment in natural resources and -investment aimed at conquering new markets.
Thus, this period represents “completion of the first stage in the process of their international expansion announcing the appearance of the first companies with international status as a precursor to today’s big corporations” .
In the second half of XIX century organizational issues and technological developments in the enterprises led to higher production for export as a first step towards the emergence of multinational producers.
Development of the economic environment has created premise of appearance of joint stock companies as major economic agents instead of individual or family firms.
Technological progress in the transport or communication sector or another sector combined with the emergence and formation of specialized personnel in management and administration required the appearance of multi-regional companies that conducted a wide range of activities.
During this period the possession and management of the production and marketing activities specific for intermediate products which were used as inputs for other activities controlled by the investing company also as the control of market of goods and services represented the decisive reasons which led to the development of corporations.
Thereby in the year 1914 almost 54,6% of foreign direct investment made by North American corporations were registered in the sectors of oil exploitation and mining, and agriculture sector .
From a number of 3373 of businesses in the Great Britain that operated fully or mostly abroad and which were listed on the London Stock Exchange 1802 or 53.4% were working in the primary sector. In a study of firms with FDI of Continental Europe were identified 167 branches established by 85 large companies investing abroad. In Japan companies with direct investments conducted abroad were seeking in their expansion for promotion of Japanese industrial products and also to get the most advantageous suppliers of raw materials. Approximately 77.5% of Japanese investments were recorded in China .
At the end of XIX century important changes were made in the nature and organization of world trade both in terms of content of processed goods, product quality as well as increasing market size and trend toward standardization of markets.
It has been registered an intense international activity in the banking sector dominated by Great Britain. British banks have certain advantages compared with bank in other countries consisting mainly in the possibility to act on the largest capital market in the world- that of London.
Also, Japanese companies controlled a major part of shipping activity developed in the Pacific Ocean. In the 1881 year 14 Japanese companies had formed branches in New York in the scope of promoting Japanese exports but also for purchasing modern equipment and machines needed in the conduct of national production.
Until the First World War it is estimated that at least 14.5 billion USD were invested in companies or subsidiaries established abroad that represents about 35% of long term external debt at the global level.
Historical-economic analysis shows that 3/5 of the foreign stock capital registered worldwide in 1914 were invested in contemporary developing countries. Simultaneously, approximately 55% of the FDI stock performed abroad in 1914 was in the primary sector, 15% in secondary sector, 20% in construction of access roads and 10% in banking sector, insurance, public utilities and distribution. Often such kind of investments has taken the form of subsidiaries of investing overseas companies.
In the interwar period, although the number of branches of international corporations continued to increase, the volume of invested foreign capital reached values of prewar period only in the late 30s. European investments were directed to countries from Europe and to the United States (US) while American investors preferred Latin America, Canada and the largest European countries. Customs duties were increased also they introduced new methods of control and restriction of imports and exports.
Despite the fact that economic and political environment was less hospitable the international activity of international corporations continued to grow in the interwar period, especially in the 20s.
It is the period in which occurs “a genuine process of maturation of international corporations characterized by the following defining characteristics: growing up of FDI and the appearance of integrated international corporations, the emergence of foreign investors in exploiting new sources of raw materials, creation of international cartels in some sectors very attractive for FDI, the growing role of Japanese companies in the American-Japanese trade and the development of Japan .
The postwar period as a whole is characterized by continuous development of all types of trade and investment activities distinguishing three stages:
a) First- until 1960 was characterized by increased foreign capital involved in direct investment and by increasing the number of branches of the most important multinationals. This stage is characterized by slow growth in FDI due to the significant technological advances made during this period
b) The second stage – between the end of seventh decade and mid- 80s noticed themselves as major international investors a number of European countries, Japan and several developing countries. Thus, in the year 1974 in the ranking of the 50 most important TNCs were 20 European companies. Also among the top 50 TNCs in the world are present as well several Japanese companies (Hitachi, Toyota, Mitsubishi Heavy Industry).
c) The third stage begins in the mid-80s and is still underway differing significantly from previous periods. Thus, new territories were opened to foreign productive enterprises, international markets were liberalized, there have been registered important improvements in the process of regional economic integration and especially appeared globalizing transnational corporations. The third stage of postwar development of transnational corporations (1985-present) is characterized by the emergence of truly global companies and the increase of complexity of forms of cooperation and relations between corporations. The main objective of the international production is not first of all to obtain additional profits as a result of competitive market advantages, but rather exploiting the advantages alleged to result from participation in this type of production. In such way it reached on a rational reorganization of economic activity between different subsidiaries or between subsidiaries and parent companies. To this end the activities of various branches have been reorganized so as to meet the needs of national import substitution.
In conclusion it can be said that there are some factors that influenced the appearance and evolution of TNCs. One factor is liberalization of economic policies, the opening of national borders, liberalization of FDI and portfolio investments flows or other cooperation and investment agreements. The development of technological progress is another factor that we can notice and which leads to increased costs and risks to which companies are exposed, requiring approaches for different world markets through international relocation of production to diversify these risks. On the other hand the transportation and communication cost reductions have facilitated a better integration of operations at global level as well as the transportation of components or finished products for economic efficiency seeking and comparative advantages. Increased competition, which is actually a result of the two factors mentioned above, requires exploration of new markets by the companies both to reduce costs of production and also for more efficient capitalization of final result but it also requires a new approach of new forms of international production, international property and contractual agreements which may intensify their strength on the market, for example, mergers and acquisitions, minority and majority participation, public offer of exchange and others.
1.2. The theoretical aspects of the world economy transnationalization

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