Corporations, Transnational

The term transnational corporation, also known as multinational corporation, refers to an enterprise composed of wholly owned or partially owned entities that operate in more than one country. A transnational corporation (TNC) originates in a particular national economy and then expands abroad over time. TNCs are central actors in the globalization of the production of goods and services. Until approximately 50 years go, TNCs tended to be involved with richer countries in producing industrial products and with less developed countries in agriculture and extractive industries. In contrast, in recent decades, TNCs have become important to the emergence of developing economies as major participants in the production of industrial goods and services for global markets.

In 2008, the world's top 100 nonfinancial TNCs, ranked by foreign assets, had 57% of their assets and 58% of their employees outside their home countries (United Nations Conference on Trade and Development [UNCTAD], 2008). These companies therefore had a strong global presence while [Page 294]maintaining significant roots in their home bases. Among these top 100 TNCs, 18 were based in the United States, 15 each in the United Kingdom and France, 13 in Germany, and 9 in Japan. The other 30 companies among the top 100 were in 18 different countries, including 5 in Switzerland, 4 in Spain, and 3 in Sweden. In terms of industrial classifications, 11 of these corporations were in automobiles, 10 each in petroleum and utilities (electricity/gas/water), 9 each in pharmaceuticals and electrical/electronic equipment, and 7 each in telecommunications and food/beverages/tobacco.

Figure 1 Foreign direct investment to developed and developing countries, 1970–2009.;

Source: UNCTAD. Foreign Direct Investment database, http://unctadstat.unctad.org (2011).

A prime measure of the role of TNCs in countries other than their own is foreign direct investment (FDI). Figure 1 shows the amounts of FDI in nominal U.S. dollars to developed and developing economies from 1970 to 2009. Although the data in the graph are not adjusted for inflation, they nevertheless show the enormous growth in FDI to both developed and developing economies that has occurred in the last two decades.

The United States is by far the world's leading country in outward FDI with 17.4% of the world total in 2007, 17.1% in 2008, and 22.5% in 2009. The United States is also the leading country for inward FDI with 12.7% of the world total in 2007, 18.3% in 2008, and 11.7% in 2009. China is the largest recipient of FDI among developing economies, and in many years second to the United States among all economies. Not including Hong Kong, China received 4.0% of world FDI in 2007, 6.1% in 2008, and 8.5% in 2009. In addition, Hong Kong's share was 2.6% in 2007, 3.4% in 2008, and 4.4% in 2009. By comparison, India's share was 1.2% in 2007, 2.3% in 2008, and 3.1% in 2009.

The data displayed in Figure 1 also show that FDI to developed countries has been extremely unstable since the late 1990s. The sharp increase in FDI to the developed economies in the late 1990s was the result of telecommunications deregulation and the Internet boom, including the rollout of global optical fiber networks. When the Internet boom turned to bust in 2001, FDI plummeted as TNCs cut capital expenditures and several major service providers went bankrupt. Then from 2003 to 2007, there was another boom in FDI to developed economies, driven by both financialization and globalization. The prime form of FDI in this boom was cross-border mergers and acquisitions (M&A), with a heavy involvement of private equity firms and hedge funds. With an increase in global financial activity related to derivative trading, there was an unprecedented amount of FDI related to financial services. Although approximately 90% of the FDI to developed countries came from other developed countries, several TNCs from developing economies invested in greenfield sites in the developed countries.

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