Increasing Role of MNCs

MNCs (Multinationals) have traditionally been the vehicle for the transfer of private foreign investment for particularly direct investments. But after the Second World War, their investments and production activities have increased rapidly due to (1) liberalization of controls over international direct investments by most of the industrialized countries and (2) concrete steps taken by most developing countries to invite private foreign capital for stimulating the industrial development process. MNCs with global sales exceeding $ 4.8 trillion, contribute to the growing internationalization of the production of goods and services. In recent years, foreign investment by the MNCs has also played a major role in the export-led growth of countries like Brazil, South Korea, Taiwan etc.

According to 2002 World Investment Report (WIR) on TNCs Trans-national corporations) , the number of TNCs was about 65,000 with about 8,50,000 foreign affiliates across the globe The 100 largest TNCs provided employment to 14.3 million persons at home and abroad.

Though this represents only around 3 per cent of the world’s labor force, employment in TNCs accounts for nearly 10 per cent of the world’s labor force, employment in non-agricultural activities worldwide and close to 20 percent in developed countries alone.

TNCs also contribute indirectly to employment generation in developing countries through backward linkages such as the purchasing of raw materials, parts and components from sub-contractors and external suppliers.

The importance of these effects has grown in recent years as firms have focused on smaller but higher value segments of the production process relying increasingly on national and global outsourcing for technological, cost or flexibility reasons.

Illustrating this, the UNCTAD said the US footwear company Mike has core staff of 9,000 persons but through subcontracting, employs an additional 75,000.

The world’s largest 100 TNCs ranked by foreign assets, held $6.3 trillion in global assets in 2000, of which about 41 per cent were assets located outside their home countries. The top 100 TNCs control about one-third of the world foreign direct investment (FDI) stock.

Total FDI inflows in 2001 were $735 billion showing a drop from that recorded in 2000($1.3 trillion).

Among developed countries, the USA attracted $281 billion FDI followed by Germany which attracted $176 billion. The UK, Belgium and Luxembourg, Canada, Netherlands and France were the other 5 developed countries which attracted FDI in that order. Among the developing countries, Hong Kong (China) attracted $64 billion may be because the investors parked their funds here with a view to invest later in China. China itself attracted FDI worth $41 billion. The other important developing countries attracting FDI were Korea, Singapore, Malaysia, Taiwan and Thailand in that order. India ranked next receiving $2 billion.

FDI reached many more countries in a substantial manner in 2000 than in the past. More than 50 countries (24 of which are developing countries) have an inward stock of more than $10 billion compared with only 17 countries (including 7 developing countries) in 1985.

However, FDI is unevenly distributed. The world’s top 30 host countries account for 95 per cent of total world FDI inflows and 90 per cent of stocks. The top 30 home countries (mainly industrialized) account for around 99 per cent of outward FDI stock and flow.

The most important source of FDI inflows in 2000 is from the United Kingdom contributing $250 billion. The other major sources were France, the USA, Belgium and Luxembourg, Netherlands and Spain in that order. Germany was the fifth major source in 1999 but was pushed or the sixth place in 2000. The other important sources of FDI in 2000 were Canada, Switzerland, Sweden, Japan and Finland.