Most of the problems connected with transnational enterprises stem from their distinctive transnational features in a world that is divided into separate sovereign states. Transnational corporations have developed important capacities which can be put to the service of world development, yet these same capacities can also be used in ways which may conflict with the interests of individual states. While governments may pursue a variety of economic and non-economic objectives to advance the welfare of their citizens, the chief goals of transnational corporations, like those of all business enterprises, are profit and growth. The differing objectives of nation-states and transnational corporations suggest that their respective decisions will not always be in harmony with each other.
The exercise of direct control over the allocation of one country's resources by residents of another makes the task of harmonizing varying interests and the promotion of the public good by governments especially complex. Advances in communications technology allow many transnational corporations to pursue global strategies which, rather than maximizing the profits or growth of individual affiliates, seek to advance the interest of the enterprise as a whole. Lack of harmonization of policies among countries, in monetary or tax fields for example, allows transnational corporations, on occasion, to utilize their transnational mobility to circumvent national policies or render them ineffective. It is in this context that countries may find their national sovereignty infringed upon and their policy instruments blunted by the operations of transnational corporations.
Since the objectives of nation-states and transnational corporations are frequently different, their respective power to attain them assumes particular importance. Under any form of social organization, the power exerted by individuals, corporations, pressure groups or nation-states is basically determined by the extent to which their opinions or decisions affect others. Because of their size and the transnational nature of their activities, transnational corporations, particularly the very large ones, possess considerable power and influence. In the process of conducting their normal business activities, transnational corporations make decisions which may have far-reaching consequences for the societies in which they operate. They affect patterns of consumption and the direction of innovation; they orient technological change and investment; and they own or produce most of the basic commodities used in industry and commerce. Intentionally or unintentionally, they can affect political processes of both home and host countries.
Decisions on the allocation of resources, with respect to what, how, and for whom to produce, are usually made by corporate planning mechanisms situated in a few industrial countries. The size and scope of the larger transnational corporations make it possible for a few large firms to control substantial shares of local and sometimes world markets. Because of this, and their transnational flexibility, they can engage in export market allocation, price discrimination, and transfer pricing; place stringent conditions on the transfer of technology and patents; and enter into cartel agreements that reduce competition.
Some of the problems posed by the activities of transnational corporations are similar to those which may arise in a modern or emerging industrial society from the activities of large and dominant corporations that are wholly national. In view of their transnational character, however, a policy framework which may be adequate for dealing with national corporations needs to be modified when dealing with transnational ones. In developing countries particularly, where transnational corporations may often be the only large enterprises, legislation and other institutional checks and balances such as public control and trade unionism, may not have developed sufficiently to cope with the power of those corporations.
However sacred and inviolable national sovereignty may be from the political point of view, few national boundaries correspond to economic demarcation lines and few states are self-contained economic entities.