GEOLOGY 002 Lecture Notes - Lecture 27: World Trade Organization, Franchising, Deterritorialization
Tourism, Globalisation and TNCs/MNEs
Tourism TNCs → “Foreign enterprises providing services for movement of persons with direct
involvement or other forms of contractual arrangements in one or more receiving countries” (WTO)
TNCs and Less Economically Developed Countries
o Why are TNCs interested?
− Lower labour costs
− Lower ‘other’ costs e.g. environmental scrutiny
− Exploiting ‘national diamonds’
− Marketing advantages –off setting costs of internationally known brands
− Scale economies, integration and competition
− Diversification of presence in different markets (tourism is fickle)
− Incentives in host economies
− Securing international vertical linkages (between different sectors)
− Responding to internationalisation of demand
→ Forms of activity
1. Franchising e.g. Mc Donald's
2. Partial Production – owning hotels but not other tourist services
3. Ownership of production – Club Mediterranee/Sandals
4. Market-based - horizontal expansion
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CASE STUDY – TUI
− 220 brands in 180 countries and more than 30 million customers
− Employ approximately 55,000 people and operating in 31 key source markets
worldwide.
− 145 aircraft and 1800 retail shops
− (All different adverts in travel agencies but they all are owned by TUI
− They do not want to work with hotels because they can go bankrupt
o Why LEDCs encourage TNCs?
− Economic Reasons
→ Brings inflow of capital
→ Stimulates local business
→ Provides jobs
− Loan Requirements: In order to receive loans from IFIs (e.g. IMF) countries are forced to
reform their economy , which frequently means they must attract foreign investors
(see e.g. Structural Adjustment Policies (SAP’s))
− Tourism development comes as part of aid packages
− TNCs and Hotel operations in LEDCs
− 4 ways of TNC’s operating in hotels
1) Vertical ownership
2) Joint venture
3) Management agreement
4) Franchising
− Last two types account for 81% of TNC’s investment in developing countries
as this reduces risk and maximises profit
- 13 TNCs dominate the international tourism industry – airlines, operators and hotels
→ A typical Pacific Island and TNC hotel will source its goods from Sweden (furniture), USA (Office
Machinery), Holland (Lighting), Germany (Vans), and France (Curtains)
o TNCs and LEAKGES
− 40-80% of tourism income leaks out of developing countries.
− Leakages result from:
a) Foreign ownership of travel agent, tour operator, flight.
b) Imported food
c) Imported luxury goods
d) Foreign workers (especially management).
→ Leakages are especially severe in the case of all-inclusives.
o Benefits of TNCs
− Bring inflow of capital
− Have favourable access to capital
− Stimulate local businesses
− Come as a package with management expertise and world wide marketing
− Provide jobs
− In-house training = education
− Supplier support
− scrutinized by international media so usually follow laws and regulations
− Have a sustainability strategy/ CSR ( Corporate strategy responsibility)
→ DO THEY REACH THE POOR?
− Between 5 and 27 % of income flows to the poor people in a destination.
− This depends upon:
a) linkages :crafts, excursions, food supply,
b) Out of pocket spending
c) non management staff wages
d) enabling environment
− E.g. a mountain trek is more likely to increase the flow to the poor, compared to the
safari holiday
