Transnationals, Domestic Enterprises and Industrial Structure in Host LDCs: A Survey

This paper reviews the literature on the relationships between transnational corporations (TNCs) in the manufacturing sector and domestic enterprises as well as industrial structures in host LDCs. There are two broad sets of relationships involved, both of which are of significance for understanding the effects of TNCs on host economies and to the formulation of policy. The ‘direct’ relationships that TNCs strike up with local suppliers or purchasers (backward and forward ‘linkages’ in the Hirschman sense) can constitute powerful mechanisms for stimulating (or retarding) economic, and particularly industrial, growth in LDCs. The ‘indirect’ effects that the entry and operations of TNCs may have on local industrial structure, conduct, and performance may be equally important: TNCs may change the nature and evolution of concentration; they may affect the profitability and growth of indigenous firms; they may alter financing, marketing, technological, or managerial practices of the sectors that they enter; they may, by predatory conduct, drive domestic firms out of business; and so on.