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Linkage between TNCs Foreign Affiliates and Domestic Firms

Foreign Direct Investments (FDI) are of an extreme importance in the economical life and they contribute to the economical growth of the country they are coming to. But, many countries, the hosts of FDI, want not only to increase the volume but also to increase their qualitative influence on the rest of the economy. The huge volume of intracompany trade made by the Transnational companies (TNSc) with their affiliates and the large market they are appearing in is of great interest to many firms. Thus, these firms want to be a part of this intracompany trade.One of the ways to boost the quantitative influence of FDI on domestic economy is the linkage between Transnational Companies (TNCs) and domestic firms. Linkage between TNCs foreign affiliates and domestic firm can take three forms: backward, forward and horizontal form. The linkage with TNCs affiliates means the opening of a new market, easier acquisition of modern technology and organizational knowledge.The linkage between TNC’s and domestic firms is often of mutual interest in the developing and transitional countries like Croatia is. Local source supplies, providing that the quality and price of the products are acceptable makes the business easier for the TNC. Local manufacturers get a secure market. The paper includes the forms of mutual linkage and the advantages arising from this co-operation for both foreign and domestic partners.