The Experience of transnational corporations’ development in the conditions of world financial crisis
Introduction
The actuality of the topic. Fifty-one of the largest
one-hundred economies in the world are corporations.Transnational corporations
hold ninety percent of all technology and product patents worldwide, and are
involved in 70 percent of world trade. They employ in their foreign affiliates
about 80 million people. The United Nations has justly described these
corporations as “the productive core of the globalizing world economy.” .A.
Karimov, the President of the Republic of Uzbekistan, had already marked that
“The XXI st century, obviously, will be the century of globalization in the
international relations. In these conditions, the process of integration, the
expansion of participation of sovereign states at the international institutes
and the organizations are to be considered not only as historical
inevitability, but also as a powerful factor of stability”. No wonder, in any
sphere it is impossible not to come across to the influence of globalization.is
known that, currently, the world states, almost all of them, can’t ensure
anymore a stable development and growth based only their own forces. World
governments perceive that the deepening of relations between countries, and
also the more active and effective involving and integrating in the global
economic cycle is the key factor of economic prosperity. Unfortunately, not all
states can act alone on the world arena, especially the small ones. Some
countries need support from other states, more experienced, stronger and with
greater financial strength.impact of globalization can be seen in any country’s
national economy. It is tough to describe national economies, world economy
without globalization. The volume of world economy grows steadily. According to
World Trade Organization data, the volume of world trade has been growing much
faster since 1950 than ever. During 1950-2000, world trade has grown 20 times
and manufacture 6 times.the process of economic globalization, on the arena of
international economic relations appear new actors. One of them is
transnational corporations that move their capital from several countries of
the world under the influence of different factors and create an economic chain
through which are moving enormous innovations and financial flows.of
production, its expansion outside their home state, has a significant impact on
national economies, establishing their place in the world work division.,
parallel with the development of external economic relations, is changing the
state's role and its functions. The state start to gain new functions,
functions appearing as result of the states competition in the process of
attracting foreign capital flows in the national economy.transnational
corporations in the national economy is today the main objective of the
competition process between states. World states, especially smaller ones, in
development or in transition, being enticed by the financial sources of TNCs,
are involved in an increasingly fierce battle to attract the necessary capital
in the country. Paradoxically, but eventually also TNCs are those which take advantage
of it the most., addressing the impact of this process needs to be done
multilaterally, to find the optimum solution of how to attract foreign capital
flows in the national economy at the present stage, focusing on their
efficiency and quality. last decades a lot of attention is given to
transnational corporations. Today there is nearly no considerable process in
world economy which would occur without the participation of transnational
corporations. The transnational corporations have turned to the ubiquitous
force forming modern and future shape of the world. They accept direct and
indirect participation in world political and economical process.carry out
their activity in world economy system, but their influence extends on world
politics that allows to recognize TNCs along with the national states, the
international organizations. TNCs are not absolutely new phenomenon, and
represent the special form of display of general law of development of
capitalism, aspiration of the capital to the external economic expansion in the
form of direct foreign investments. The manufacture which is carried out
abroad, has a number of advantages which follow from distinctions of political
and economic conditions between the country - basing of the TNC and a host country
where branches of TNCs settle down in this plan: degree of security and cost of
extraction and processing of natural resources; rates of wages of work; the
labor legislation; the taxation; exchange rate; ecological standards; a
political mode; the political culture, etc. These distinctions increase
maneuverability of the multinational corporation on a world scene.basic line of
TNCs - global operations. Huge thing for TNCs is the world market. Therefore
the expansion of TNC is carried out internationally.the very beginning of TNCs'
existence became object of rough economic discussions. One their activity was
estimated as destructive, the emphasize became on negative consequences of
industrialization. Others attributed a role of the main tool of world progress.
th years have passed under the sign of negative estimations
for TNCs as a factor of an aggravation of economic, political and social
contradictions.80th years, appreciable role of the TNCs was observed in
economic development and in the permission of political and social problems.
Previously, it came with the recognition of their enormous potential, a huge
role in development of scientific and technical progress., economic growth of
TNCs on the political and social value is ambiguous. From the economic point of
view it conducts to the growth of productivity and labor force, escalating of
capacities of the goods and services, manufacture and national income. On the
other hand, typical line of "transnational economy" is strong
contrast between large TNC and the country as a whole with serious
difficulties: unstable development of manufacture, inflation, unemployment,
etc. From the social point of view, economic growth of the transnational
corporation increases vacancy for the unemployment and capital opposition. They
arrange tough policy concerning employment. During economic crises TNCs even
are inclined to the big reduction of the personnel that conducts to a condition
of sharp confrontation with trade unions. In other cases - the transnational
corporations, on the contrary, guide social intensity in a society.
The object of my work is the activity of
transnational corporations in the world economy.
The subject - the tendency of TNCs’ development
during the world financial crisis.
The purpose of the given work - to consider the
tendencies of TNCs’ development in the conditions of world financial crisis in
modern international economic relations. this purpose it is necessary to
allocate following the main tasks:
. To open the concept and essence of the transnational
corporation;
. To define the role of transnational corporations in
globalization;
. The impact of world financial crisis to the activity
of the activities of transnational corporations;
. The reaction of TNCs to crisis.
transnational corporation agriculture investment
1. THEORETICAL BASIS OF TRANSNATIONAL CORPORATIONS
.1 The concept of transnational corporation, history
of their development
exact standard definition of the transnational corporation
does not exist till now. Terminological diversity of the concept both in
English-speaking (or Uzbek), and in the foreign literature remains. It can be
seen in various variants of word combinations - a corporation, a company, an
enterprise, a firm in a combination with adjectives - transnational, multinational,
international, global etc. This terminological diversity of natural, because it
reflects the attempt to find an adequate reflection of the new features that
are in the field of international economic relations have gained this monopoly.
Transnational corporations are basically “national” on the capital and
“international” on the field of activity. The part "trans" emphasizes
this quality - the border crossing of goods and capital flows. I will give
several definitions for TNC:
Transnational corporations (TNCs) are incorporated or
unincorporated enterprises comprising parent enterprises and their foreign
affiliates. A parent enterprise is defined as an enterprise that controls
assets of other entities in countries other than its home country, usually by
owning a certain equity capital stake. An equity capital stake of 10% or more
of the ordinary shares or voting power for an incorporated enterprise, or its
equivalent for an unincorporated enterprise, is normally considered as the
threshold for the control of assets. (In some countries, an equity stake of
other than 10% is still used.corporation (TNC) - a monopoly union
(concerns or multinational corporations), in which many companies are combined
with one or more branches of the world economy, which are engaged in
manufacturing and trading activities that transcend national countries.- a
company (financial-industrial groups), which owned or controlled by complexes
of production or service outside of the country in which these corporations are
based, have an extensive network of branches and subsidiaries in different
countries and occupy a leading position in production and sales of a product.
Transnational corporation - the kind of form of the
international association of capitals when the parent company has affiliates in
many countries, carrying out coordination and integration of their
activity.legal regime of TNCs suggests business activity in different countries
through the formation of branches and subsidiaries. These companies have a
relatively independent service production and marketing of finished products,
research and development, services to consumers, etc. In general, they comprise
a large single production complex ownership over the equity only
representatives of the country's founding. At the same time, branches and
subsidiaries can be mixed enterprises with the participation of mainly national
home country.lines of the transnational corporation are:
) annual turnover is usually higher than $ 100
million;
) have branches in more than 6 countries;
) on the international status of the firm shows an
indicator such as size percent of its sales, its products sold outside the
country of origin of the company;
) structure of its assets, in some foreign researches
to the international corporations carry the companies having 25 % of actives
abroaddevelopment of transnational corporations has passed historically a
number of stages. In the first period of the origin of TNCs (the end of XIX
century.), they have undergone very significant transformation. TNCs’ first
generation has been largely associated with the development of raw materials of
former colonies, which gives the basis to define them as «the national-raw
transnational corporations». to its organizational and economic forms and
mechanisms of functioning, there were cartels, syndicates and the first trusts.
Then on the world stage there were trust types of TNCs which were associated
with the production of military-technical products. Having started its activity
in the period between two world wars, some of those second generation TNCs
maintained their position in the global economy and after World War II. They
produced weapons and ammunition.the 60th years, an increasingly prominent role
of TNCs has begun to play the third generation, which was widely used to
achieve scientific and technological revolution. These techno-consumer
companies: corporations and conglomerates.the 60 - 80th years in the activity
of TNCs organically incorporated the elements of national and foreign
production: realizations of goods, management and organization of personnel,
research of marketing and after-sales service.third generation of transnational
corporations promoted to spread the achievements of scientific and
technological revolution in the peripheral areas of the world economy and, most
importantly, economic preconditions for the occurrence of international
production with a single market and the information space, the international
capital market and labor, scientific and technical services. Their goal was to
conquer markets, sources of raw materials and spheres of application of
capital.
In the early 60's the global transnational corporations of
the fourth generation have gradually appeared and have affirmed. Their
distinguishing features are:
· planetary vision of the markets and
implementation of competition on a global scale, section of the world markets
with a few global multinational corporations;
· coordinate the actions of their
affiliates on the basis of new information technologies;
· flexible organization of each
production site, adaptability corporate structure, uniform accounting and
auditing;
· integration of its subsidiaries,
factories and joint ventures into a single global network management, which, is
integrated with other networks of TNCs;
· implementation of economic and
political influence in the state in which they operate TNCs.
Their strategy is characterized by their innovative
aggressiveness, dynamism and a withdrawal from single industry structure,
constant improvement of internal corporate structure, aiming at the conquest of
the key global economic position in the production and marketing.for the
structure of transnational corporations, it is following:
A parent company is an incorporated or unincorporated
enterprise, or group of enterprises, which has a direct investment enterprise
operating in a country other than that of the parent enterprise. An affiliate
enterprise is an incorporated or unincorporated enterprise in which a foreign
investor has an effective voice in management. Such an enterprise may be a
subsidiary, associate or branch.
A subsidiary (an affiliate) is an incorporated
enterprise in the host country in which another entity directly owns more than
a half of the shareholder's voting power, and has the right to appoint or
remove a majority of the members of the administrative, management or
supervisory body.
An associate is an incorporated enterprise in the
host country in which an investor owns a total of at least 10%, but not more
than half, of the shareholders’ voting power.
A branch is a wholly or jointly owned
unincorporated enterprise in the host country which is one of the following: a
permanent establishment or office of the foreign investor; an unincorporated
partnership or joint venture between the foreign direct investor and one or
more third parties; land, structures (except structures owned by government
entities), and /or immovable equipment and objects directly owned by a foreign
resident; or mobile equipment (such as ships, aircraft, gas- or oil-drilling
rigs) operating within a country, other than that of the foreign investor, for
at least one year.
A joint venture involves share-holding in a business
entity having the following characteristics: the entity was established by a
contractual arrangement (usually in writing) whereby two or more parties have
contributed resources towards the business undertaking; the parties have joint
control over one or more activities carried out according to the terms of the
arrangements and none of the individual investors is in a position to control
the venture unilaterally.
.2 The evolution of a Transnational Corporation
did not actually coin the phrase “transnational corporation”
until the 1960s. Even before that time, however, studies were being conducted
into the history and evolution of transnational corporation organization. When
these studies were finally executed, it was shown that TNCs had different
internal organizational structures based on geographic location-even at their
earliest stages in development. The growing role of transnational corporations
(TNCs) in the world economy began to speak only in the second half of XX
century. The uncontrolled activities of transnational corporations are main key
reasons for the imbalances in the global economy. In general, there are five
stages in the evolution of the transnational corporation. These stages describe
significant differences in the strategy, worldview, orientation, and practice
of companies operating in more than one country. One of the key differences in
companies at these different stages is in orientation.
Stage One-Domestic
The stage-one company is domestic in its focus, vision, and
operations. Its orientation is ethnocentric. This company focuses upon domestic
markets, domestic suppliers, and domestic competitors. The environmental
scanning of the stage-one company is limited to the domestic, familiar,
home-country environment. The unconscious motto of a stage-one company is: “If
it’s not happening in the home country, it’s not happening.” The world’s
graveyard of defunct companies is littered with stage-one companies that were
sunk by the Titanic syndrome: the belief, often unconscious but frequently a
conscious conviction, that they were unsinkable and invincible on their own
home turf.pure stage-one company is not conscious of its domestic orientation.
The company operates domestically because it never considers the alternative of
going international. The growing stage-one company will, when it reaches growth
limits in its primary market, diversify into new markets, products, and
technologies instead of focusing on penetrating international markets.
Stage Two-International
The stage-two company extends marketing, manufacturing, and
other activity outside the home country. When a company decides to pursue
opportunities outside the home country, it has evolved into the stage-two
category. In spite of its pursuit of foreign business opportunities, the
stage-two company remains ethnocentric, or home country oriented, in its basic
orientation. The hallmark of the stage-two company is the belief that the
home-country ways of doing business, people, practices, values, and products
are superior to those found elsewhere in the world. The focus of the stage-two
company is on the home-country market.there are few, if any, people in the
stage-two company with international experience, it typically relies on an
international division structure where people with international interest and
experience can be grouped to focus on international opportunities. The
marketing strategy of the stage-two company is extension; that is, products,
advertising, promotion, pricing, and business practices developed for the
home-country market are “extended” into markets around the world.every company
begins its global development as a stage-two international company. Stage two
is a natural progression. Given limited resources and experience, companies
must focus on what they do best. When a company decides to go international, it
makes sense at the beginning to extend as much of the business and marketing
mix (product, price, promotion, and place or channels of distribution) as
possible so that learning can focus on how to do business in foreign
countries.fundamental strategic maxim is that it is a mistake to attempt to
simultaneously diversify into new customer and new-product/technology
markets.international strategist observes this maxim by holding the marketing
mix constant while adding new geographic or country markets. The focus of the
international company is on extending the home-country marketing mix and
business model.
Stage Three-Multinational
In time, the stage-two company discovers that differences in
markets around the world demand an adaptation of its marketing mix in order to
succeed. Toyota, for example, discovered the former when it entered the U.S.
market in 1957 with its Toyopet. The Toyopet was not a big hit: Critics said
they were “overpriced, underpowered, and built like tanks.” The car was so
unsuited for the U.S. market that unsold models were shipped back to Japan. The
market rejection of the Toyopet was chalked up by Toyota as a learning
experience and a source of invaluable intelligence about market preferences.
Note that Toyota did not define the experience as a failure. There is, for the
emerging global company, no such thing as failure: only learning experiences
and successes in the constantly evolving strategy and experience of the
company.a company decides to respond to market differences, it evolves into a stage-three
multinational that pursues a multi-domestic strategy. The focus of the
stage-three company is multinational or in strategic terms, multi- domestic.
(That is, this company formulates a unique strategy for each country in which
it conducts business.) The orientation of this company shifts from ethnocentric
to polycentric.polycentric orientation is the assumption that markets and ways
of doing business around the world are so unique that the only way to succeed
internationally is to adapt to the different aspects of each national market.
Like the stage-two international, the stage-three multinational, polycentric
company is also predictable. In stage-three companies, each foreign subsidiary
is managed as if it were an independent city-state. The subsidiaries are part
of an area structure in which each country is part of a regional organization
that reports to world headquarters. The stage-three marketing strategy is an
adaptation of the domestic marketing mix to meet foreign preferences and
practices.and its Japanese competition was dramatic. Matsushita, for example,
adopted a global strategy that focused its resources on serving a world market
for home entertainment products.
Stage Four-Global
The stage-four company makes a major strategic departure from
the stage-three multinational. The global company will have either a global
marketing strategy or a global sourcing strategy, but not both. It will either
focus on global markets and source from the home or a single country to supply
these markets, or it will focus on the domestic market and source from the
world to supply its domestic channels. Examples of the stage-four global
company are Harley Davidson and the Gap. Harley is an example of a global
marketing company. Harley designs and manufactures super heavyweight
motorcycles in the United States and targets world markets. The key engineering
and manufacturing assets are all located in the home country (the United
States). The only Harley investment outside the home country is in marketing.
The Gap is an example of a global sourcing company. The Gap sources worldwide
for product to supply its U.S. retail organization. Each of these companies is
operating globally, but neither of them is seeking to globalize all of the key
organization functions.stage-four global company strategy is a winning strategy
if a company can create competitive advantage by limiting its globalization of
the value chain. Harley Davidson gains competitive advantage because it is
American designed and made, just as BMW and Mercedes have traded on their
German design and manufacture. The Gap understands the U.S. consumer and is
creating competitive advantage by focusing on market expansion in the United
States while at the same time taking advantage of its ability to source globally
for product suppliers.
Stage Five-Transnational
The stage-five company is geocentric in its orientation: It
recognizes similarities and differences and adopts a worldview. This is the
company that thinks globally and acts locally. It adopts a global strategy
allowing it to minimize adaptation in countries to that which will actually add
value to the country customer. This company does not adapt for the sake of
adaptation. It only adapts to add value to its offer. It should be noted
strengthening the transnational nature of the consolidation, accompanied by the
growth of global multinationals.key assets of the transnational are dispersed,
interdependent, and specialized. Take R&D, for example. R&D in the
transnational is dispersed to more than one country. The R&D activities in
each country are specialized and integrated in a global R&D plan. The same
is true of manufacturing. Key assets are dispersed, interdependent, and
specialized. Caterpillar is a good example. Cat manufactures in many countries
and assembles in many countries. Components from specialized production
facilities in different countries are shipped to assembly locations for
assembly and then shipped to customers in world markets., the concept of TNC
has gradually moved from international mentality to a multinational, then to
the global and finally transnational mentality.
.3 Classification of TNCs
variety of TNCs which operate in the world can be classified
into a number of signs. The cores from them: the country of origin, industry
focus, size, the level of transnationalization.practical significance of the
classification of TNCs is that it allows for more objectively estimating the
advantages and disadvantages of placing specific corporations in a host
country.
Country of Origin Country of origin is determined by
the nationality of TNCs in the capital of its controlling stake assets.
Usually, it coincides with the nationality of the country-based head company of
the corporation. In the developed countries TNCs are considered as a private
capital. However in the developing countries, the capital structure of some
(sometimes large) part of TNCs may belong to the state. This is due to the fact
that they were created on the basis of the nationalized foreign-owned or
state-owned enterprises. Their goal was not into the economies of other
countries, but their main purpose was to lift national economy.
Commodity Focus The global product is one approach
to TNC organization. This is assigned worldwide responsibility for specific
products or product groups in order to separate operating divisions within a
firm. It means, what to produce for transnational corporations is really
crucial. Commodity Focus TNC is defined by the basic sphere of its activity. On
this basis, it is distinguished with TNCs which are adapted for raw materials,
the corporations which are engaged in basic and secondary manufacturing industries
and industrial conglomerates. Currently, multinational corporations maintain
their position in the basic branches of mining and manufacturing industries.
These are the areas of activity that require substantial investment. In the
last years, more than 250 from the list of 500 largest transnational
corporations in the world are operating in such areas as electronics,
computers, communications equipment, food, beverages and tobacco,
pharmaceutical and cosmetic products, as well as in the service of commercial
services, including on the Internet. corporations carry out various kinds of
overseas research and development work: adaptive, ranging from basic support
processes and ending with the modification and improvement of imported
technologies, innovation associated with the development of new products or
processes for local, regional and global markets and others. choice of the type
of R & D (Research and Development) and industry specialization depend on
what region, on what level of development there is a host country. For example,
in Southeast Asia is dominated with innovative R & D associated with
computers and electronics, in India - with the sector of services (especially
software), in Brazil and Mexico - with the production of chemicals and transport
equipment. transnational corporations, conglomeratic type with a view of
definition of their specialization is called branch A, which the UN describes
as having a considerable amount of foreign assets, the greatest quantity of
foreign sales and the largest number of workers abroad. The largest part of
corporation’s investment goes to this branch, and proportionally, it gives the
greatest profit for corporation.
The size of transnational corporations
Symptom classification, which is usually determined by the
method of UNCTAD, is defined by the size of their foreign assets. This
parameter is especially used for the diversification of the largest TNCs,
large, medium and small. In order to get the name large one, assets of
transnational corporation should exceed 10 billion dollars.vast majority of the
total number of TNCs (90%) belongs to medium and small corporations. According
to the UN classification these include companies with fewer than 500 employees
in the country of residence. In practice there are multinational corporations
with total of employees less than 50 persons. The advantage of small TNCs is
their ability which adapts more quickly to changing market conditions.
2. THE ROLE OF TRANSNATIONAL CORPORATIONS IN MODERN
ECONOMIC RELATIONS
.1 TNC participation in international production
economic and financial crisis has significantly affected
TNCs’ operations abroad. Foreign affiliate’ sales and value-added declined by
4-6 percent in 2008 and 2009. Since this contraction was slower than the decline
of world economic activity, however, the share of foreign affiliates’
value-added (gross product) reached a new historic high of 11 percent of world
domestic product (GDP). Besides Greenfield investments, any expansion of the
foreign operations of TNCs in 2009 can largely be attributed to the organic
growth of existing foreign affiliates.
The world market is becoming more and more integrated. Within
last ten years world trade developed much faster than world production grew.
Foreign employment remained practically unchanged in 2009 (+1.1 percent). This
relative resilience might be explained by the fact that foreign sales started
to pick up again in the latter half of 2009. In addition, many TNCs are thought
to have slowed their downsizing programmes as economic activity rebounded -
especially in developing Asia. In spite of the setback in 2008 and 2009, an
estimated 80 million workers were employed in TNCs’ foreign affiliates in 2009,
accounting for about 4 percent of the global workforce.
Dynamics vary across countries and sectors, but employment in
foreign affiliates has been shifting from developed to developing countries
over the past few years; the majority of foreign affiliates’ employment is now
located in developing economies. The largest number of foreign-affiliate
employees is now in China (with 16 million workers in 2008, accounting for some
20 percent of the world’s total employees in foreign affiliates). Employment in
foreign affiliates in the United States, on the other hand, shrank by half a million
between 2001 and 2008.addition, the share of foreign affiliates’ employment in
manufacturing has declined in favor of services. In developed countries,
employment in foreign affiliates in the manufacturing sector dropped sharply
between 1999 and 2007, while in services it gained importance as a result of
structural changes in the economies.affiliates’ assets grew at a rate of 7,5
percent in 2009. The increase is largely attributable to the 15 percent rise in
inward FDI stock due to a significant rebound on the global stock
markets.regional shift in international production is also reflected in the TNC
landscape. Although the composition of the world’s top 100 TNCs confirms that
share has been slowly decreasing over the years. Developing and transition-economy
TNCs now occupy seven positions among the top 100. And while more than 90
percent of all TNCs were headquartered in developed countries in the early
1990s, parent TNCs from developing transition economies accounted for more than
a quarter of the 82,000 TNCs (28 percent) worldwide in 2008(2.1- table), a
share that was still two percentage points higher than that in 2006, the year
before the crisis. As a result, TNCs headquartered in developing and transition
economies now account for nearly one tenth of the foreign sales and foreign
assets of the top 5,000 TNCs in the world, compared to only 1-2 percent in
1995(2.1-picture).
2.1 - Number of TNCs from developed
countries and from developing and transition economies, 1992, 2000 and 2008
sources point to an even larger presence of firms from
developing and transition economies among the top global TNCs. The Financial
Times, for instance, includes 124 companies from developing and transition
economies in the top 500 largest firms in the world, and 18 in the top 100. Fortune
ranks 85 companies from developing and transition economies in the top 500
largest global corporations, and 15 in the top 100.
Table 2.1 - Foreign activities of the top 5,000 TNCs, by home
region/country, 1995 and 2008
the past 20 years, TNCs from both developed and developing
countries have expanded their activities abroad at a faster than at home. This
has been sustained by new countries and industries opening up to FDI, greater
economic cooperation, privatizations, improvements in transport and
telecommunications infrastructure, and the growing availability of financial
resources for FDI, especially for cross-border M&As.internationalization of
the largest TNCs worldwide, as measured by the transnationality index, actually
grew during the crisis, rising by 1.0 percentage points to 63, as compared to
2007. The transnationality index of the top 100 non-financial TNCs from
developing and transition economies, however, dropped in 2008. This is due to
the fact that in spite of the rapid growth of their foreign activities, they
experienced even faster growth in their home countries. Among both groups, this
index varies by region: TNCs based in the EU, Africa, and South Asia are among
the most transnationalized.
2.2 TNCs’ role in mobilizing financial resources and
the impact on investment
is shrinking deeply day by day because of some reasons. As an
example we can refer to foreign direct investment. Foreign direct investment
inflows globally continued to rise by 30% in 2007: at $1,833 billion, they
reached a new record level. It must be mentioned, that previous all-time high
set was reached in 2000. It is also said, that the financial and credit crisis,
which began to affect several economies in late 2007, did not have a
significant impact on the volume of FDI inflows that year, but it has added new
uncertainties and risks to the world economy. Therefore, this might have a
dampening effect on global FDI in 2008-2009. Following table shows the tendency
of foreign direct investment. Undoubtedly, the impact of transnational
corporations increases in the world economy respectively with foreign direct
investment.investments’ volume is becoming higher year by year.(2.2-table) As
we know transnational corporations are main source of direct investment. That’s
why, we are able to say that the role and impact of TNCs in the world economy
tend to grow in future.
Table 2.2 - Possible growth direct investments’ volume
Level
|
1990-year
|
2000-year
|
2005-year
|
2010-year
|
2015-year
|
2020-year
|
Minimum
|
-
|
-
|
-
|
1070
|
1540
|
2055
|
Average
|
1200,8
|
778,7
|
1125
|
1626
|
2350
|
Maximum
|
-
|
-
|
-
|
1180
|
1715
|
2420
|
and upgrading infrastructure in keeping with developing
countries’ growing requirements calls for substantial investment in
infrastructure industries, which are typically capital-intensive due to the
physical facilities and networks that they involve. Many projects are very
large and are characterized by economies of scale. They require huge capital
outlays, while the stream of returns on capital is spread over many years. Thus
the risks to investors are typically high. Mobilizing the necessary financial
resources from domestic or international capital markets is difficult for
public or private enterprises in many developing countries. This has led a
number of countries to open up to FDI and/or encourage other modes of TNC
involvement, such as build-own-operate (BOO), build-own-transfer (BOT) or
rehabilitate-own-transfer (ROT) concession arrangements. Indeed, TNCs may have
a number of competitive advantages that enable them to contribute to the
mobilization of financial resources for boosting investment in infrastructure
industries, while also being directly involved in undertaking the investments
and production activities for the provision of infrastructure services.strength
and large cash flows are competitive advantages that foster rapid expansion of
many TNCs operating in infrastructure. In addition, large and well-established
firms are able to raise funds from home-country and international markets as
well as from host developing-country markets, where the latter exist. This
ability to mobilize and harness external financial resources for investment is
particularly evident in concessions such as BOTs, in which a high proportion of
the costs are covered by debt. However, the extent to which TNCs can contribute
to financial resources for investment in infrastructure also depends on
host-country conditions and objectives, the specific infrastructure needs of a
country and the gaps in domestic (State and private) resources and
capabilities.the early 1990s, as more and more developing countries began to
open up their infrastructure industries to private national and foreign companies,
it was believed that TNCs could play a key role in securing financial resources
to reduce the persistent gap between infrastructure needs and investments by
the State, which was the main provider of the services. At the time, many of
the countries concerned, especially in Latin America and Africa, were heavily
indebted and turned to the private sector, including TNCs. Since then, the
financial situation has improved for some economies, but the investment gap in
infrastructure still remains very large in the developing world as a whole.
Thus the ability of TNCs to mobilize financial resources for investment remains
an important consideration for many countries. Indeed, TNC participation in
infrastructure in developing countries has resulted in the inflow of
substantial financial resources. One indicator, allowing for data limitations,
is the stock of infrastructure FDI in developing countries, which surged
29-fold between 1990 and 2006: from $6.8 billion to $199.4 billion. Another
measure, the foreign investment commitments in private participation in
infrastructure (PPI) projects (which include FDI, but also other investments
that are an element of concessions), also indicates that TNCs have mobilized
significant resources for investment in developing countries. During the period
1996-2006 such commitments amounted to about $246 billion. The impact on
infrastructure investment in developing countries arising from this
mobilization of financial resources by TNCs is discussed below, including
variations by region, industry and country.
Overall impact of TNC involvement on infrastructure
investment in developing countries. Not all financial resources mobilized
by TNCs constitute investment or an addition to productive assets for a host
industry or country. One reason is that a proportion of FDI by TNCs is used to
purchase privatized enterprises, which represents a transfer of ownership, but
not new capital stock. But at the same time other forms of TNC participation
also include investment. This is especially true of concessions, which involve
large amounts of investment to build new or improve existing infrastructure.
During the period 1996-2006, according to data on the breakdown of foreign
investment commitments (referred to in the discussion below as TNC
commitments), 52% of TNC participation, by value, in the infrastructure
industries of developing countries was in the form of FDI, while the
remaining 48% was in the form of concessions. This nearly equal ratio of
concessions to FDI implies a possibly greater overall impact on investment in
infrastructure industries than that suggested by data on the stock of FDI.
Because some relevant data are not available, it is not possible to give a
precise figure for the impact of TNCs, but it is certainly appreciable and
likely to be higher than that suggested by FDI data alone. addition to their
direct impact on investment, the entry and operations of TNCs can indirectly
influence investment levels in host country infrastructure industries through
their effects on investments of domestic firms - whether state-owned
enterprises or private enterprises. These effects can vary: TNC involvement may
“crowd in” other investors; or an increase in the competitive advantages of
domestic enterprises through diffusion of technology and other know how from
TNC operations may enable them to invest in new areas; or, taxes paid by TNCs
could potentially be used for further infrastructure investments by the State.
On the other hand, a fall in investment levels might occur from the
“crowding-out” of investors, for example because of competition, when domestic
enterprises are still at an early stage of development or due to
anti-competitive behavior by TNCs. consequence of investment in infrastructure
by foreign companies in the 1990s was a decline in public investment in the
sector across much of Latin America and parts of Africa. In expectation of a large-scale
increase in private sector investment, many governments in Latin America -
faced with persistent budgetary gaps - cut back drastically on public
expenditure in infrastructure in the early 1990s. Between 1980-1985 and
1996-2001, total expenditure on infrastructure investment in seven major Latin
American economies taken together declined from a weighted average of 3.7% of
GDP to 2.2%, even though private investment (primarily by TNCs) in the
industries actually rose from 0.6% to 1.4% of GDP, albeit with considerable
differences between countries. An important lesson from the Latin American
experience is that TNC participation should not be considered sufficient to
meet a country’s investment needs in infrastructure; rather, it should be
viewed as an important supplement and complement to domestic investment.
Developing countries should therefore strengthen and improve the capabilities
of their State-owned enterprises (where these continue to play a role), while
at the same time encouraging their domestic private sector to develop the
necessary expertise and financial capabilities to participate effectively in
infrastructure industries.
Variations in the impact of TNC involvement on
investment, by industry, region and country. As mentioned earlier, investments by
TNCs in infrastructure projects in developing countries amounted to $246
billion during the period 1996- 2006, or an average of 28.5% of total
investment commitments. This share indicates an appreciable contribution by
TNCs to infrastructure investment in developing countries, as a whole.
Differences exist in the degree of TNCs’ impact on the level of investments by
industry, region and country, judging from the variations in the shares of TNCs
in total private sector infrastructure investment commitments.infrastructure
industry, TNCs’ shares in PPI(private participation in infrastructure)
investment commitments during the period 1996- 2006, were highest in
telecommunications (35.2%) and electricity (30.0%) and lowest in water (25.2%)
and transport (19.3%). Apart from this, according to the World Bank’s PPI
database, other notable variations included: a significant drop in the share of
TNCs in energy investments in South Asia between 1996-2000 and 2001-2006,
primarily reflecting difficulties faced by India in realizing its strategy
towards attracting infrastructure TNCs; a decline in TNC participation in the
telecommunications industry in East Asia and South-East Asia and Latin America
and the Caribbean during the period 2001- 2006, reflecting the growing strength
of domestic companies in these regions very large swings in TNC investment
commitments in transport in nearly all regions between 1996-2000 and 2001-2006,
possibly reflecting developments in a number of the sub-industries involved;
and increases in TNCs’ share in overall private investment commitments in water
in some regions and sub regions between 1996-2000 and 2001-2006, reflecting the
efforts of countries to improve access to safe, clean water for their
populations., the share of TNCs in total PPI commitments ranged from 19.8% in
Asia in 1996- 2006 (with the lowest share in South Asia and highest in West
Asia) to 35.5% in Africa and 33.3% in Latin America and the Caribbean. The
variation in the share of TNCs in PPI investment commitments during the period
1996-2006 was even greater by country, with 75% of economies (out of 105 for
which data are available) indicating a share above the overall average of
28.5%. The overall average share is low because a number of countries with
large total investment commitments have below-average figures for the share of
TNCs in these commitments, including Brazil, China, India, Malaysia, Mexico
andAfrica.a large number of countries the share of TNCs in total PPI investment
commitments is significant: between 28% and 50%; and in a number of them the
share is even higher, in the 50%-75% range. Furthermore, for nearly one fifth
of countries (20) TNCs’ share in total private sector investment commitments is
75% or more. This group includes 13 least developed countries, among them
Burundi, Chad, Guinea-Bissau, Haiti, Maldives, Samoa and Sudan. Their
high share of TNC participation implies that for many least developed countries
TNCs are more or less the private infrastructure sector.
.3 The influence of transnational corporations on
labor force migration
the debates on the influence of transnationalization, savants
and experts concluded long ago that this phenomenon is not purely economic,
which is limited only to the reorganization of production activities and
movement of capital flows. Globalization is a process of large-scale that
produces effects in several areas such as politics, finances, trade, defense
system, demography, ecology. Academics consider that the world has now become "a
global city.", in compared aspect, still can be viewed as migration
process. Putting capital in other regions of the world, necessarily involves
staff migration. Transnational corporations favors the meeting of the labor
force with capital, making the movement of labor towards capital or
transferring capital to areas with labor force surplus., foreign direct
investment is placed in the long term and requires interaction with various
groups of econo0mic agents, starting with suppliers and ending with officials.
Investors need to know the consumer, labor force and raw materials markets,
regulations and laws governing their activities. Informational and contractual
problems can often be very hard, so legal rules remain to be the most important
determinant of FDI flows in one state.history of labor migration knows more
than 100 years. Since the mid-nineteenth century were observed in many
migration flows from European countries to the U.S., especially during economic
conjuncture overseas. The second wave of migration into the U.S. from different
countries was in the years '20-50, XX century, and then followed the migration
from Mexico, the Caribbean etc.consider that the first attractive center for
foreign labor force has been South Africa, which since the '50s drew cheap
labor force from neighboring countries. In the period 1950-1970 takes place the
accelerated development of peripheral global regions industrialization, which
later achieved positive results in industrial development, becoming leaders in
chapter - exports. They relate to Latin America, South African, Middle East and
Southeast Asia. Obtaining independence of many African countries boost this
process. Active penetration of international corporations in South Africa from
Europe and the U.S. in the '70s, led to increased migration of labor force in
this area. During this time it began to form the international center of
attracting labor force from another continent, in South America, in the
composition of some of the more developed countries like Argentina, Brazil,
Mexico and Venezuela. Simultaneously, in these countries annually comes a large
workforce from some of the least developed countries and from African and Asian
countries. The interest of the Middle East for the labor force is related to the
development of the oil industry from the '70s. In the late '70s, Saudi Arabia,
Oman, Kuwait, UAE, worked over 3 million foreign workers and specialists from
neighboring Arab countries, India, Pakistan and South Korea.the last decade has
been formed a new regional center of attraction of labor force - South-East
Asia. Starting with the '70, here takes place a process of accelerating the
country's industrial development and internationalization of economic life in
this giant region, influenced by massive foreign investment. An important role
in these processes went to different transnational corporations from different
national origin: American, Japanese, Australian, South Korean, etc.main
feedback of the process of migration is the migrant’s remittances. They
represent their financial sources, delivered in the origin countries. In 2002,
migrant remittances constituted about 79 billion dollars. This amount is more
than the sum of all development aid provided by the states of the world and
about 40% of total FDI in developing countries.use of foreign labor force, in
present, becomes an important part of normal and efficient operation of the
world economy mechanism. Transnational corporations (TNCs), being the main
driver of globalization, acts in a global economy that relates to global
production, global capital, global market.are the best bet people can work and
earn money. Leaders are cooperating in an effort to bring about real reform in
a way that was unthinkable a few years ago. They deserve the world’s energetic
support. Therefore, lots of host countries as can as possible try to attract in
order to allocate affiliates of large transnational corporations in their
countries, because of huge vacancy for the unemployment by TNCs. main reason
leading companies to internationalize their assets are: achieving higher
profits with low costs and of enhanced profitability. This can be achieved by
exploiting opportunities offered by other countries with cheaper raw materials
and human resources, by the penetration of more advantageous markets for
export. Not at least, among the positive effects of capital and technology
exports are repatriating their earnings as profit in the origin countries of
TNCs., many scientists try to show the dependence between migration and trade.
They say that determining the volume of trade without taking into account
migration, it is not objective. Testing in some small economies shows that
there is dependency between export and migration.practice of international
labor migration has emerged as a spontaneous phenomenon but, with the
development and intensification of the process, began to be regulated by the
state. However, currently are not liquidated all features of this process.last
decade of the XX century is characterized by the fact that importing countries
and exporting countries of labor force introduce radical correction in their
migration policy. As world practice shows, workers migration provides
indisputable advantages to the countries: for those providing employment as for
those who receive it.the control of migration processes, states have begun to
introduce so-called migration rates. Labor force - importing states, taking
into account the real needs and labor market situation, determine the number of
labor resources to be imported.goal of migration policy of the exporting
countries is that labor force migration should increase the reduction of
unemployment, receipt of foreign funds from immigrant workers, i.e.
remittances, which is used for balancing imports - export operations. But sometimes,
there may appear acute economic and social problems. Positive consequences
of labor force migration:
·
settling
the problem of unemployment;
·
the
emergence of additional sources of income from migrants for exporting
countries;
·
obtaining
the knowledge and experience by the immigrants;
·
investment
income of immigrants in small business, favoring the opening of new jobs.
Negative consequences of immigration workers:
·
the
trend of increase in consumption funds obtained abroad.
·
the
tendency to hide income;
·
"brainwashing".
·
decrease
the qualification of unemployed immigrants.
·
However,
both for countries of origin as for TNCs host countries, in addition to the
earnings of the process of globalization, there are also losses. The transfer
to other countries of a part of the assets of TNCs contributes to job losses
and rising unemployment in countries of origin. Moreover, labor productivity
growth through technology transfer, information, innovation in firms purchased
by foreign investors, brings with it an increase in unemployment in the host
countries, in particular for unskilled or low skilled labor force. Host
countries are frustrated that research and development operations are in
countries of origin of TNCs, and technological innovations aren’t implemented
simultaneously in the host countries.
·
Workforce
in developing countries means, for industrial countries, providing some
branches and infrastructure with needed workers, without which it is impossible
a normal industrial process, and sometimes normal everyday life. For example,
in France, migrants make up 1/2 of total employment in construction, 1/3 - in
the car industry, in Belgium - half of the miners, in Switzerland - 2/5 of the
construction workers.
·
As
mentioned above, one of the key features of the process of globalization is the
movement or free flow of capital. In addition, current global trade regime
under WTO auspices provides unique possibilities for movement and reallocation
off funds. Transnationalization of the world takes place differently in each
country. Some countries have more foreign capital, others less. The trend that
it is observed today is that where foreign capital is moving there will focus
large flows of people.
·
Even
if corporations come in underdeveloped countries, they don’t offer great
benefits to employees; on the contrary, they came just as attracted by low
wages and slave pyramid style of local systems. Citizens of third world are
seeking to reach the West, believing that they perform the same work more and
will gain more money. Their surprise occurs when, once arrived in Europe, all
companies have their production moved to countries where they originally came,
now they must re-orientate or accept jobs below their qualifications.
Although the products are cheaper because they are performed
in countries where production costs are minimal, this migration of labor force
generates unemployment in developed countries and, therefore, the remaining
unemployed have no money to buy products even so not cheap. Forbes magazine has
published a study showing that Detroit will disappear in the next 20 years,
this outsourcing and refurbishment made that unemployment in this city to be
enormous, and now crime is at unimaginable odds. From a towering American city
- king of the automobile production, with millions of habitants - now have left
only 900 thousand people.
3. THE TENDENCIES OF TRANSNATIONAL CORPORATIONS’
DEVELOPMENT IN POST-CRISIS PERIOD
3.1 Modern tendency of TNCs’ development during the
crisis
Today there are about 82,000 TNCs worldwide, with 810,000
foreign affiliates in the world. These companies play a major and growing role
in the world economy. For instance, exports by foreign affiliates of TNCs are
estimated to account for about one third of total world exports of goods and
services. And the number of people employed by them worldwide, which has increased
about fourfold since 1982, amounted to about 77 million in 2009 - more than
double the total labor force of a country like Germany.
The largest TNCs contribute to a significant proportion of
total international production by all TNCs, both in developed and developing
economies. Over the three-year period 2007-2009, on average, the 100 largest
non-financial TNCs accounted for 9%, 16% and 11%, respectively, of the
estimated foreign assets, sales and employment of all TNCs in the world. They
also accounted for about 4% of world GDP, a share which has remained relatively
stable since 2000. This section analyses the major trends and recent
developments with respect to the largest TNCs, and examines the impacts of the
ongoing financial and economic crisis on these firms and their international
activities.
Over the past 15 years, the largest TNCs have undergone a
steady process of internationalization. Also there has been a progressive
increase in the proportion of companies operating in the services sector, and
of firms based in developing countries. These largest TNCs are presently being
strongly affected by the ongoing economic and financial crisis, both at company
and industry levels, as evidenced by declining profits, divestments and
layoffs, restructurings and some bankruptcies. According to preliminary
estimates, the increase in their overall degree of internationalization seems
to have slowed down markedly in 2008. However, an UNCTAD survey shows that,
despite a temporary setback in their investment plans in the short term, large
TNCs expect to continue to internationalize and increase their FDI expenditures
in the medium term, with a growing focus on emerging markets.
3.1-picture can show how the change is being expected corporations’
investment plans for 2009-2011 because of crisis. It can be seen that
investment plans are altering.
Picture 3.1 - Impact of various aspects of the crisis on
corporations’ investment plans for 2009-2011
The ongoing economic and financial crisis, which erupted in
the latter half of 2007, has resulted in a period of major turbulence for the
world’s top 100 TNCs. While their activities continued to grow during the first
half of 2008, albeit moderately, they experienced setbacks towards the end of
that year. Particularly affected were industries that are sensitive to the
business cycle, such as automotive and transport equipment, electronic
equipment, intermediate goods and mining. The downturn became worse during the
first months of 2009. By then, other industries, such as food and beverages,
utilities and telecommunication services, also began to the adverse effects of
crisis, though to a lesser extent. Confronted by declining profits and growing
overcapacities, many TNCs announced major cost-cutting programmes, including
layoffs, divestments, and a reduction of investment expenditures. In some of
the most affected industries, such as automotives, the crisis also triggered a
wave of major restructurings.
Activity indicators for the top 100 TNCs show that the impact
of the crisis was only marginal in 2009 as a whole. Their total sales increased
from their 2007 sales figures by 12% in current dollar terms, representing
additional revenue of about $901 billion, and their total employment also rose
by 4%. A handful of TNCs in the automotive industry (especially General Motors,
Chrysler, Toyota, Nissan and Honda), which had already faced a depressed market
even before the crisis began, recorded declining sales in 2009.
There are three major reasons for these apparently
paradoxical results. First, the financial crisis, which deepened in September
2009, started affecting the activities of the largest TNCs only from the last
quarter of 2009, thus limiting the apparent impact on activity indicators for
the year as a whole (picture3.1.2.). For instance, despite a sharp fall in
demand for commodities (and subsequently in prices) at the end of 2009, many
oil and even some mining companies, such as Total, ExxonMobil and BHP Billiton,
outperformed the previous year’s results in terms of sales and profits for the
whole year because of favorable market conditions in the first three quarters
of 2009.
Picture 3.2 - Quarterly evolution of sales, total assets, and
net income for selected TNCs among the 100 largest, 2006-2009
Second, in many industries such as utilities, food and
beverages and business services, the market remained relatively stable until
the end of the year.
Third, the largest TNCs continued to acquire other companies,
with direct consequences for the apparent growth in volume of their activity.
In 2008, they undertook 21 major cross-border M&A purchases valued at more
than $3 billion.
However, what did turn negative was their net income, which
declined by 27% overall. There were a number of causes of this downturn. First,
as a direct consequence of the financial crisis, the cost of borrowing
increased in the last months of 2008. The spread on corporate bonds, for instance,
reached a historic high at the end of 2008.
In order to improve their balance sheets and arrest their
deteriorating profits, TNCs have been extensively curtailing expenditures and
taking steps to reduce their debt.
This is being done through three major channels:
·
Large
cuts in operating expenditures, especially through layoffs. Plans for large job
cuts have been announced by many of the top 100 TNCs since September 2008.
·
Scaling
down investment programmes. Many planned acquisitions or greenfield projects of
the top TNCs have been cancelled, reduced or postponed due to the combined
impact of a setback in market expectations and reduced internal and external
financial resources.
·
Divestments
of some corporate units and assets. These operations are meant not only to
curtail operating costs, but also to generate cash in order to reduce debt
ratios, and/or simply beef up available cash that had diminished due to
faltering sales. This has led, in particular, to a rising number of sales of
non-strategic affiliates.
Another consequence of the crisis is an acceleration of
industry restructurings due to two main factors. First, some companies
suffering from an already fragile financial situation before the crisis might
be affected by the current turmoil to the point that they go bankrupt or have
no other choice than to be acquired to survive. Others might become vulnerable
to such hostile bids due to the presently low market value of their stocks.
Such companies as Chrysler or Endesa have already changed owners (following
table). Others (e.g. Volvo among others) might also go through major changes in
ownership in the coming months. (3.3-picture)
Picture 3.3 - Examples of recent restructurings by some of
the 100 largest non-financial TNCs
, and conversely, companies less affected than others by the
crisis, and having substantial cash reserves, could seize takeover
opportunities triggered by the crisis to increase their market share or
critical mass. Some large TNCs have undertaken major acquisitions., the crisis
might accelerate underlying trends towards restructuring and concentration in
many industries. This is likely to have major consequences for the size and
ranking of the top 100 TNCs. Regarding their internationalization level, these
opposing factors seem to have balanced each other, as the average TNI of the
top TNCs remained practically unchanged between 2007 and 2008., it should be
emphasized that the impact of the crisis on the largest TNCs has differed
widely by industry and country, and even by individual firm. On the one hand,
firms in many business-cycle-sensitive industries such as automotive and other
transport materials, construction, electrical and electronic equipment, and
intermediate goods, as well as those in the financial sector, have been among
the worst hit by the crisis. On the other hand, those in some less cyclical
industries, with more stable demand patterns, have been less affected. For
example, among the 100 largest TNCs, many in oil and gas (ExxonMobil, Chevron,
British Petroleum, Royal Dutch Shell, GDF Suez, Total), in food, beverages and
tobacco (Nestle, SAB-Miller, Coca-Cola, Kraft Foods, British American Tobacco),
in telecommunication services (Deutsche Telekom, TeliaSonera), in utilities
(Endesa, RWE, EDF) and in pharmaceuticals (Roche, AstraZeneca, Johnson &
Johnson), as well as in consumer goods (Unilever, LVMH) and retailing
(Wal-Mart) continued to register large profits, and some even growing profits,
in 2008.with the worst global recession in decades, the world’s largest TNCs
are struggling in 2009. The sharp fall in profits registered by many of them in
2008 was only a harbinger of the many difficulties they are now facing. As
global demand continues to weaken, and threatens to remain depressed throughout
2009, many of the largest TNCs will find their revenues falling beyond what
they had anticipated a year ago. This will have a strong impact on their
propensities and capabilities to invest abroad. And, given the global
dimensions of the current economic situation, this applies to all TNCs in
nearly every region of the world and in nearly every industry., the current
economic crisis should not be seen only as a negative force for the largest
TNCs, both financial and non-financial. It also creates an opportunity for them
to expand into additional markets at a relatively low cost. Many of the largest
TNCs could promote their internationalization strategies with the aim of maximizing
efficiencies across markets and geographies. Moreover, in the current
situation, TNCs from developing economies could gain strength if they manage to
successfully nurture domestic and foreign demand for their products. Their
strong growth so far, as a result of the internal dynamics of their
home-country markets, could gather momentum if demand for their products in the
wider global market picks up when conditions improve., the global crisis has
not halted the growing internationalization of production. Foreign affiliates’
share in global gross domestic product reached an historic high of 11 percent.
TNC’s foreign employment increased slightly in 2009, 80 million workers.
.2 Transnational corporations and agriculture
is central to the provision of food and the eradication of
poverty and hunger. Not only does it provide significant mass and rural
employment, it is also a major contributor to national economic growth and a
considerable foreign exchange earner for many developing countries. Given the
fundamental importance of agriculture to most developing economies, its chronic
neglect by many of them has been of utmost concern for some time. However,
several factors, which are not mutually exclusive, have resulted in a recent
upswing in domestic private and foreign participation in agricultural
industries in a significant number of developing countries. Most of these
factors are of a structural nature, and are expected to drive agricultural
investment in the foreseeable future. In this context foreign participation, as
well as domestic investment, can play a critical part in agricultural
production in developing countries, boosting productivity and supporting
economic development.precisely quantified evaluation of the impact of TNC
involvement in agriculture on important development aspects, such as
contribution to capital formation, technology transfer and foreign market
access, is impeded by the limited availability of relevant hard data collected
by national authorities or available from international sources. The actual
impacts and implications vary enormously across countries and by types of
agricultural produce. In addition, they are influenced by a range of factors,
including the type of TNC involvement, the institutional environment and the
level of development of the host country. A number of salient observations of
TNCs’ involvement in agriculture for developing countries nevertheless emerge.,
TNC involvement in developing countries has promoted the commercialization and
modernization of agriculture. TNCs are by no means the only - and seldom the
main - agent driving this process, but they have played an important role in a
significant number of countries. They have done so not only by investing
directly in agricultural production, but also through non-equity forms of
involvement in agriculture, mostly contract farming. Indeed, non-equity forms
of participation have been on the rise in recent years. In many cases, they
have led to significant transfers of skills, know-how and methods of
production, facilitated access to credit and various inputs, and given access
to markets to a very large number of small farmers previously involved mostly
in subsistence farming.TNC involvement in agriculture has contributed to
enhanced productivity and increased output in a number of developing countries,
there is lack of evidence on the extent to which their involvement has allowed
the developing world to increase its production of staple foods and improve
food security. Available evidence points to TNCs being mostly involved in cash
crops (except for the recent rise of South-South FDI in this area). Such a
finding reveals the development challenges for developing countries in
promoting TNC participation in their agricultural industry to improve food
security. However, food security is not just about food supply. TNCs can also
have an impact on food access, stability of supply and food utilization and, in
the longer run, their impacts on these aspects of food security are likely to
prove more important for host economies.impacts of TNC involvement in
agriculture are not gained automatically by developing countries. While TNCs
have at times generated employment and improved earnings in rural communities,
no clear trend is discernible. To the extent that TNCs promote modernization of
agriculture and a shift from subsistence to commercial farming, their long-term
impact is likely accelerate the long-term reduction in farm employment while
raising earnings. Only a limited number of developing countries have also been
able to benefit from transfers of technologies.experiences also underscore that
developing-country governments need to be aware of the environmental and social
consequences of TNCs involvement in agriculture, even though there is no clear
and definite pattern of impact. Case studies show that TNCs have the potential
to bring environmentally sound production technologies, but their implication
in extensive farming has also raised concerns, together with their impact on
biodiversity and water usage. Similarly, TNCs’ involvement raises significant
social and political issues whenever they own or control large tracts of
agricultural land.is of fundamental importance to all countries in the world,
both for meeting their growing requirements for food and for providing a basis
for industrial development, diversification and growth. In some countries,
increased investment and technological advances have transformed agriculture,
raising productivity and output to meet food requirements as well as laying the
foundations for rapid economic growth. In other countries, however, especially
in Africa and parts of Asia, agricultural potential is not being fully
exploited, with resultant shortfalls in food supply and constraints on economic
development. Greater investment in agriculture is thus a priority for
development, and one that has received growing attention during the recent food
crisis.investment and declining official development assistance (ODA) in
agriculture has prompted governments to look increasingly to the private sector
- domestic and foreign - for significant new investment. This is reflected in
the liberalization of policies related to agriculture and land ownership by
host and home countries. In fact, in the past foreign direct investment (FDI)
has played an important role in agriculture, with TNC activity in agricultural
production particularly strong in some export-oriented commodities. However,
after the Second World War, there was a long-running decline in FDI flows to
agriculture in developing host countries. This trend has been reversed in
recent years for a variety of reasons, but some forms of foreign participation
- not least the so-called “land grabs” by investors - are causing concern by
some quarters in the development community.the recent past, allowing for data
limitations, the direct involvement of TNCs in agriculture has been limited.
World inward FDI stock in agriculture comprised only $32 billion - only 0.2% of
total inward FDI stock in 2008 - despite significant growth in FDI since 2000,
particularly in developing countries. Between 1989 and 1991, world FDI flows in
agriculture remained below $ 1 billion per annum, as compared to more than $7
billion in food and beverages. By 2006-2008, world FDI inflows in agriculture
exceeded $3 billion per annum. This still constituted less than 1% of total
world FDI inflows. The low levels of FDI in agriculture may be partly explained
by the regulated nature of the industry, restrictions on ownership of
agricultural land by foreigners, and corporate strategies which favor control
over the supply chain through upstream and downstream activities. FDI outflows
in agriculture in 2006-2008 were even smaller than inflows: they remained on
average around $1 billion per year. This difference between inflows and
outflows suggests that an important part of agricultural FDI is undertaken by
TNCs coming from related industries (and therefore the capital outflows are
registered under those industries in the outward data).
.3 The role and activity of transnational corporations
in Uzbekistan
corporations act as an instrument of foreign policy of
industrially powerful states. The contemporary world is dominated by the
strategic alliances of the large transnational corporations. Because of the
transnational corporation’s expansion of its sphere of activity and the
movement of capital there is a gradual disappearance of the economic borders
between different states. This tendency signifies a certain danger to
developing countries, aspiring to strengthen their national independence and sovereignty.
But at the same time, market economy and an economic openness are necessary
preconditions of the viability of the economy of any country and the global
economy as a whole.transnational corporations act as leading forces of the
international economic system. The study of the genesis of transnational
corporations, the forms and scales of their activity, the participation of
transnational corporations in international migratory processes, the analysis
of an origin and forms of transnationalization in Uzbekistan, the consideration
of expected perspectives for the national economic system because of the
presence of transnational corporations in the national market, the definition
of that segment of economy where the transnational corporations’ activity is
the most essential, is the actual approach in strengthening the national
economy in world industrial-economic mechanisms. The research, revealing of
positive and negative aspects of the political and economic interaction of
transnational corporations and the states in a framework of intra- and
inter-regional communications is important for Uzbek political science. from
the analysis of the positive and negative results of the transnational
corporations’ activity, it is important to develop mechanisms of the legal
regulation, and the control of cooperation of the state and the transnational
corporations, their joint activity in the regulation of the migration
processes, combining equality between the priority national interests and the
transnational corporation interests, and finally to create resident effective
and competitive transnational corporations of their own, and by providing
security and stability in political, military, economic, humanitarian and legal
ways.influence of TNCs on the world economic development is described in
different sources, first of all, through Foreign Direct Investments (FDI)
flows. Since the main feature of FDI is taken to be the lasting interest of a
direct investor in an enterprise, only capital that is provided by the direct
investor either directly or through other enterprises related to the investor
should be classified as FDI. The forms of investment by the direct investor
which are classified as FDI are equity capital, the reinvestment of earnings
and the provision of long-term and short-term intra-company loans (between
parent and affiliate enterprises). In the other words, transnational
corporations are one of the key factors of investment in any countries’
national economy. That is to say, if a country attracts more investment, the
impact of TNC on the aspect of foreign direct investment becomes much higher.
have a very positive outlook on future growth prospects in the country,
including Uzbekistan’s role as a potential export platform. By means of 3.1-
table, it can be seen investment from foreign countries to Uzbekistan and it
can be considered as 4 percent increase in January-March, 2011. In this case,
we should emphasize the huge role of TNCs. Our president I.A. Karimov had
already stated that the most important factor in our move towards an open
economy is the strengthening of cooperative ties and strengthen cooperation,
and to entry them appropriately in the transnational corporations.
Table 3.1 - Macroeconomic indicators for January-March, 2011
Sector
|
billions, UZS
|
In percents comparing January-March
2010
|
Gross Domestic Product
|
13123,4
|
107,6
|
Industrial output
|
8945,9
|
106,2
|
Agricultural output
|
1407,1
|
105,8
|
Investments
|
3275,9
|
Retail goods turnover
|
5242,6
|
113,1
|
Services
|
1990
|
113,8
|
Export
|
3471
|
128,5
|
Attracting foreign direct investment flow and allocating
affiliates transnational corporations in our country denote several benefits to
our national economy. For instance, as an example we can refer to “Nestle” ,
“General Motors” and “LUKOIL”. By means of opening up the branch of Nestle in
our county, we have been achieving the increase of agricultural sector.
Because, this corporation is nowadays arranging the manufacture of food and
beverage products. In order to produce these type of products, they need some
raw materials which are cropped in our country’s area. It is really beneficial
and profitable to our national economy. As for General Motors, the founders of
this corporation have already managed to launch some firms and companies which
produce necessary details for producing cars. They employ the unemployment and
also exporting cars possess really huge share in our export system. It is to be
emphasized as an advantage for our national economy.for “LUKOIL”, as a matter
of fact, this corporation is one of the largest vertically integrated oil
companies. Company's main activities are exploration and production of oil and
gas, petroleum products and petrochemicals, and marketing of these
products.agreement envisages the development of the Khauzuk and Shady
Denghizkul field and Kandym group of fields, as well as carrying out
exploration work in Kungrod block. The area of the contract area is 431 square
kilometers in Khauzuk and Shady and 3,7 square kilometers in Kungrad
block.2006, the Khauzak conducted extensive drilling and construction of a
preliminary gas, gas collection stations, camps, roads and power
lines.beginning of commercial production of gas fields Khauzak and Shady
scheduled for 2007, Project production volume for the entire project is 10 billion
m3 per year of gas. Also planned to drill 240 wells and construction of more
than 1,5 thousand kilometres of pipelines. , this corporation launched some
agreement related to Aral:
· Signing of the agreement - 2006
· Duration of agreement - 35 years
· Other project participants:
Uzbekneftegaz (20%) Khauzak - Shady is not a secret that the share of small
business in our gross domestic product is notable huge. However, transnational
corporations are able to project the big investment plans. Therefore, it would
be better if our country attracts more foreign direct investment along with
transnational corporations. The potential of our country’s economy is enough
for this.
Conclusion
is no denying that transnational corporations have been
playing a larger role in any country’s national economy along with the reform
and opening up their affiliates in the last three decades. But every coin has
two sides. The entrance of transnational corporations also has negative impacts
due to historical reasons and shortcoming with themselves and local
enterprises, mainly through the crowding-out effect. First of all, the monopoly
of TNCs in some sectors has forced local companies to quit, and some foreign
companies have taken measures to prevent their local companies as a way to
protect. TNCs have attracted the top Research and Development and management
talents to create difficulties for host country companies in recruiting the
right people. In a one way talented and skilled people by TNCs attract a
growing group of technicians - know-how, management and research programs may
also concentrate at foreign companies. role of transnational corporations in
the national economy varies greatly in terms of industry due to different
strategies, management and home countries of the TNCs. But the paper concludes
that the absorption capacity of domestic enterprises and state policies of host
country are also two key factors deciding the role TNCs. Local enterprises in
any country generally lack core technology with weak R&D and innovation
management, which is an important fact underlying the unsatisfying spillover
effect. As for policies, the focuses are mainly investment structure and
supporting measures, and a lot of developing countries are reviewing its
“exchange market for technology” approach in a move to encourage R&D input
by TNCs and their connections with local innovation agencies. The policies
should also help to create a fair play environment for foreign and domestic
companies, but the government role in assisting infant sectors should be
reconsidered.
Offers: Improve Both the Hard and Soft Conditions of
Host Countriesforeign direct investment along with has become an essential part of
development strategies among less developed countries. Many offer special
incentives to foreign investors, such as tax holidays, tariff reductions or
exemptions, and subsidies for infrastructure. To a large extent, such policies
have indeed been instrumental in accelerating foreign direct investment flows
into least developed countries.a broader level, Policy makers in host countries
seeking to attract the flow of FDI into their cities must improve both the hard
and soft conditions of their city’s investment environment-to offer solid
economic infrastructures and favorable policy incentives are not enough. They
should also put efforts into cultivating business-oriented institutions and
cultures. At a higher level, a host country’s policy makers should be cognizant
of foreign investors’ motivations, concerns, and calculations. Our observation
that many foreign investment projects have avoided or even failed in the
political capital suggests that there is still much room for the central
government to improve and reform the country’s institutions in a systematic
manner.
Focusing Investment in Strategic Industriesusefulness of industrial
policies is hotly debated. Having already invested huge sums in developing its
manufacturing sector, the governments now want to strengthen their domestic
capability. Any transnational corporation which allocates an affiliate of
transnational corporations should meditate where to allocate investment. During
allocating transnational corporations to host country, there should be
perspective.
Learning to Compete in International Rules
Today world trade is increasingly forced to play by the rules
of the WTO and some other international countries. Stricter enforcement of
agreements on trade and intellectual property will make it more difficult to
copy designs and processes, thus limiting the scope for reverse engineering. So
learning to compete in international rules is a long-term task for
transnational corporations.
USED LITERATURE AND INTERNET LINKS
1. I.A.
Karimov, “O’zbekiston XXI asr bo’sag’asida: xavfsizlikka tahdid, barqarorlik
shartlari va taraqqiyot kafolatlari”. Uzbekistan, 1997.
. The
report of the President of our country, dedicated to the socio-economic
development in 2006.
3. A.A.
Isadjanov, “Jahon Iqtisodiyotining globallashuvi”, JIDU- Toshkent, 2008.
4. Ch.
Hill, “Global business today” - New York, 2002.
5. I.P.
Nikolaev, “The world economy” third edition - Moscow, 2006.
6. P.
Buckley, M. Casson, “The economic theory of the multinational enterprise”, -
New York, 1995.
7. Ryan
M.Marin, “Internal Organization of Transnational Corporations”, 2002
8. Г.И.
Мачавариани, “Мировая экономика, Выход из кризиса”, 2010
9. Michie,
Jonathan and Smith, John Grieve, “Managing the Global Economy” - Oxford
University Press, 1995
. Christopher
A. Bartlett, “Transnational Management”, 2003.
. A.A. Дынкин, “Мировая экономика до 2020 года” - Москва, 2008.
12. K
Meyer, Direct Investment in Economies in Transition - Cheltenham and
Northampton (1998), 1998.
13. Paul
Krugman, "Firesale FDI," Working Paper, Massachusetts Institute of
Technology. 1998.
14. R.C.
Feenstra, Facts and Fallacies about Foreign Direct Investment - 1998.
15. World
Investment Report 1995, 2003, 2008, 2009, 2010. New York and Geneva.
. World
Investment Survey 2009-2011. New York and Geneva.
17. UNCTAD,
Investment Policy Review of Uzbekistan.
18. IMF,
report 2009.
19. Экономическое
обозрение, “Монополии как главные виновники кризиса”, 2009, February.
20. J.N.
Dunning, The Electric Paradigm of International Production: A Restatement and
Possible Extension, The Journal “International Business Studies”, 2007,
Volume19, Number1.
. The
Economist, “Big actors in world economy” 2011/02.
22. Н.К.
Жуманиезов, Автореферат, Становление, специфика развития и укрупнение
социально-экономических отношений содружества независимых государств.
23. Исажанов
А. «Перспективы интеграции Центрально Азиатских стран в мировое сообщество в
условиях глобализации экономики»/ Экономический вестник Узбекистана. № 3-4,
2004 г.
24. Журналь,
“Мировая Экономика международные отношение”, 2009.
25. www.unctad.org
. www.stat.uz
. money.cnn.com/magazines/fortune/global500/2010
. en.wikipedia.org
29. www.imf.org
. www.cipe.org
<#"530709.files/image006.gif">
Appendix 3
Projects of “LUKOIL” in Uzbekistan