Modern types and forms of TNCs

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Modern types and forms of TNCs

Annotation

Keywords: TNCs; metallurgy; transnational corporations; forms and types; world economy.

СОВРЕМЕННЫЕ ВИДЫ И ФОРМЫ ТНК

В статье рассматриваются современная видовая специфика и основные формы транснациональных корпораций (ТНК), выдвинутые российскими и зарубежными исследователями. Статья предлагает обобщенные определения и сущность ТНК. Авторы статьи описывают и проводят анализ особенностей выбора формы ТНК в металлургическом секторе мировой экономики.

Ключевые слова: ТНК; металлургия; транснациональные корпорации; формы и виды; мировая экономика.

Introduction

Socio-economic development as well as the evolution of the market relations have always led to the emergence of new economic structures. Under the modern conditions transnational corporations (TNCs) can be attributed to these new economic processes. The activity of TNCs is the main driving force of economic growth in the conditions of worldwide internationalization and globalization.

It is important to note that transnational corporations are the core elements of the economies of many countries since they greatly contribute to the efficiency improvement and development of businesses. Global trends of foreign trade have put TNCs to the forefront of global economic development.

Regarding the problem of research, it is connected with the identification of the contemporary forms and types of TNCs and their transformation under the modern realities. Moreover, it examines the essence of transnational corporations, describes the trends of TNCs in the iron industry.

The aim of this research is to obtain an objective assessment of the role of transnational companies in the development of the world economy and to characterize the main current trends in their business.

The concept and main characteristics of transnational corporations

A transnational corporation (TNC) is a huge corporation that is registered in one country and operates in different countries, specifically it produces and sells goods and services at the international market. Transnational corporations can be characterized by the following features:

• Many TNCs are monopolists of different degrees in many economic dimensions and industries due to the fact that these businesses have enormous technical capacity and production advantages

• Apart from that, transnational corporations are usually managed from their headquarters despite the fact that they have a high degree of presence at the local markets in different countries. Moreover, TNCs usually invest in the business of the countries they are interested in or buy the assets of local companies as well as create subsidiaries

• Transnational corporations are more competitive in the world due to their strong technical strength, rapid information transfer and means of cross-border logistics

• As a rule, TNCs have a complete decision-making system and a higher decisionmaking center, each subsidiary has its own decision-making body but its decision should be subordinated to the headquarter.

According to the classification of United Nations, the corporation can be considered as being a transnational one only if its production units are located in at least two countries, these units are managed from a single center and their actions are coordinated, and these production units actively interact with each other, exchanging resources and sharing responsibility.

Concerning the principal functional processes of TNCs, they include the following aspects: investments in a foreigh country, both import and export of goods and services, participation in contract manufacturing, purchase and sale of licenses on the foreign market.

Other characteristics of transnational corporations include targeting the mass consumer, usage of advanced technology within a closed corporate structure, and high intensity of intra-corporate trade between divisions located in different countries. Moreover, TNCs are usually linked with the penetration into high-tech industry that requires highly qualified personnel and huge FDI inflows.

Main forms and types of modern TNCs

First of all, it is necessary to pay attention to the forms of the transnational corporations. In accordance with the degree of dependence of TNC's units on its organizational center, hard and soft organizational forms of integration of companies can be distinguished. The soft forms include a consortium, a cartel, a syndicate, and strategic alliances. The hard ones are linked with a holding company, a trust, a conglomerate and a concern. Soft organizational forms of company integration are more popular among international associations since they allow the corporations to conduct joint activities while maintaining legal and economic independence by the founders. Let us consider the soft forms of TNCs in detail.

Concerning the consortium, it is a temporary association of economically independent firms for the purpose of carrying out various types of business activities that are aimed in most cases at joint receipt and execution of orders.

As for the cartel, it is another association of firms but these companies belong to the same industry and enter into an agreement linked with the regulation of the sale of products and such commercial activities as agreements on prices, sales volumes and markets. However, the emergence of a cartel is not always formalized by a written contract, and businesses entering into a cartel retain their legal, financial, industrial and commercial independence.

A syndicate is also the soft form of TNCs. It is most common in industries with mass homogeneous products like mining, metallurgical, chemical industries. It is presupposed that a syndicate is a type of cartels that creates a single sales organization for its members in the form of a joint-stock company or a limited liability company.

The last soft form of transnational companies is a so-called strategic alliance. Under this term the researchers understand various kinds of inter-firm alliances, which are still rivals but focused on the joint solution of competitive tasks of the global market.

Examining the hard forms of transnational corporations, the most important of them is a concern. It is considered to be a rather rigid form of business integration. The firms that are incorporated into this form of TNCs nominally remain to be independent legal entities while being subordinated to a single economic management.

Another hard form of TNCs is a conglomerate - an association of businesses under unified financial control which operates in different industries. A conglomerate in comparison with a concern almost does not have strategic correspondences.

Viewing trusts, it is significant to highlight that these associations are the consequence of the merge of various enterprises into a single production complex. Unlike the two previous forms, a trust does not have a legal and economic independence. Furthermore, trusts usually are marked with the industrial uniformity

of activity, which manifests itself in specialization in one or more similar types of goods.

Principal types of TNCs in scientific literature

Many scientists give different classifications of transnational companies' types. We will consider the most prominent of them in this research paper. The first categorization of TNC's types is the Kotler's classification. Philip Kotler proposed that all the transnational corporations could be divided into four groups according to their organizational principles: TNCs themselves, multinational corporations (MNCs), international corporations and global corporations (GC). Let us view all these types in detail.

Transnational corporations are an international complex of industrial, commercial, or financial enterprises with a single management decision-making center in the home country and branches in other countries. Only representatives of the founding country have ownership of the share capital. Branches and subsidiaries can coexist, with a focus on national participation. TNCs are distinguished by a combination of centralized management and a degree of independence of its member enterprises and structural divisions located in various countries.

Multinational corporations are transnational corporations that bring together national companies from at least two countries to collaborate on production, science, and technology.

This type of transnational corporations possess the following characteristics:

• Annual sales of at least $1 billion;

• Foreign activities account for 13-15% of overall revenue;

• Foreign assets account for at least 25% of total assets;

• There are branches in at least 6 countries.

International firms are foreign-owned national monopolies. Their manufacturing and distribution activities extend beyond the limits of a single country.

Global Corporations are businesses that combine large-scale economic activity from various countries. A multinational corporation can split its operations among businesses all around the world. Large companies, which operate in such industries as chemical, electronic, petroleum, metallurgical and financial, gravitate toward global forms of activity to the maximum extent possible.

Another classification of TNCs suggests the division of the businesses according to the structure of their production. The three main groups can be identified: horizontally and vertically integrated corporations, and the diversified multinational corporations. The first type of transnational companies combines businesses in different countries to produce the same products or provide the same type of services. The widely reputed example of horizontally integrated corporations is McDonald's. The second type of TNCs - vertically integrated corporations - implies the concentration of production in different countries under the condition that the products are used in the further production process at other enterprises that are part of the same international corporation. The most prominent instance of such type is Adidas. The last type of TNC according to this classification is diversified multinational corporations, which means that there are national enterprises with vertical and horizontal integration, which are located in different countries. A typical example of a corporation of this type is Nestle and Microsoft.

Another categorization of the modern types of transnational corporations was proposed by the Russian professor K. Liukhto, who offered to consider two main criterias: the level of state control and the degree of openness of companies. K. Liukhto divided the Russian TNCs into the four key types:

• Non-transparent patriots;

• Transparent patriots;

• Non-transparent private companies (or non-transparent independents);

• Private transparent companies (or transparent independents).

The first type concerns the closed state-owned businesses of raw materials, for example Rosneftcompany. These TNCs usually occupy the strategic industrial sectors of the Russian economy. The second type is linked with the open companies where the state is presented and takes a significant part in the business processes of the firm. These TNCs are actively engaged in foreign trade of goods and services and are considered to be the leading powers of the industry. As for the examples, transparent patriots include GazProm and United Heavy Machinery or Uralmash- Izhora Group. The next type of TNCs - non-transparent independents - stand out sharply against the others by actively making transactions abroad. It is greatly exemplified by Severstal and Evraz Group. The last group of transnational corporations includes private companies that acquire assets abroad in their own interests and try to maintain relative independence from the government, for instance, Lukoil and Norilsk Nickel.

TNCs in the global metallurgical complex

It should be noted that the economy is not fully represented much without the metallurgy complex. Metallurgy has always been the basis of the economy since the work of such industries as energy, engineering, agriculture, construction, transport seems to be impossible without the goods provided by the metallurgical sector. The metallurgical complex includes ferrous and non-ferrous metallurgy, hence, it is presented as a set of related dimensions of the production processes from the extraction of raw materials to the production of finished goods. Furthermore, this sector of the economy contributes a lot to the development of the global market due to the fact that it serves as a source of foreign exchange earnings to the country. For this reason, it is important to pay attention to this economic sector in the field of the largest corporations - TNCs. In this dimension the mining complex and metal smelting companies tend to occupy the key positions. Below there is a table with the biggest TNCs in the metallurgical complex 2020 according to the Worldsteel association. This list is updated in early June every year.

Table 1.TOP-10 TNCs in metallurgical complex according to Worldsteel association, 2020

Summing up the above, we can note the following. Multinational corporations play a very important role in the global economy. In the context of worldwide internationalization and globalization, AND activity is the primary driver of economic expansion.

Transnational corporations have a number of inherent characteristics. Because of their high technical strength, quick information transfer, and cross-border logistical capabilities, multinational firms are more competitive throughout the world.

There are many different types of TNC classifications. Each researcher offers a different classification according to certain characteristics, and these classifications vary.

In this article, various types and types of TNCs were considered in accordance with the classification according to the dependence on organizational centers. A consortium, a cartel, a syndicate, and strategic partnerships are examples of soft forms. A holding corporation, a trust, a conglomerate, and a concern are all associated with the difficult ones.

In addition, some researchers distinguish TNCs themselves, multinational corporations (MNCs), international corporations and global corporations (GC). Transparent and opaque TNCs are also distinguished.

And in conclusion, we reviewed the top largest multinational corporations in the field of steel and analyzed the data obtained, from which it was found that China is the leader in this field due to state support and active investments.

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