The Experience of transnational corporations’ development in the conditions of world financial crisis

Introduction
 
Theactuality of the topic. Fifty-oneof the largest one-hundred economies in the world are corporations. Transnationalcorporations hold ninety percent of all technology and product patentsworldwide, and are involved in 70 percent of world trade. They employ in theirforeign affiliates about 80 million people. The United Nations has justlydescribed these corporations as “the productive core of the globalizing worldeconomy.”
I.A.Karimov, the President of the Republic ofUzbekistan, had already marked that “The XXIst century, obviously, will be the century ofglobalization in the international relations. In these conditions, the processof integration, the expansion of participation of sovereign states at theinternational institutes and the organizations are to be considered not only ashistorical inevitability, but also as a powerful factor of stability”. Nowonder, in any sphere it is impossible not to come across to the influence ofglobalization.
Itis known that, currently, the world states, almost all of them, can’t ensureanymore a stable development and growth based only their own forces. Worldgovernments perceive that the deepening of relations between countries, andalso the more active and effective involving and integrating in the globaleconomic cycle is the key factor of economic prosperity. Unfortunately, not allstates can act alone on the world arena, especially the small ones. Somecountries need support from other states, more experienced, stronger and withgreater financial strength.
Theimpact of globalization can be seen in any country’s national economy. It istough to describe national economies, world economy without globalization. Thevolume of world economy grows steadily. According to World Trade Organizationdata, the volume of world trade has been growing much faster since 1950 thanever. During 1950-2000, world trade has grown 20 times and manufacture 6 times.
Inthe process of economic globalization, on the arena of international economicrelations appear new actors. One of them is transnational corporations thatmove their capital from several countries of the world under the influence ofdifferent factors and create an economic chain through which are movingenormous innovations and financial flows.
Transnationalizationof production, its expansion outside their home state, has a significant impacton national economies, establishing their place in the world work division.
However,parallel with the development of external economic relations, is changing thestate's role and its functions. The state start to gain new functions,functions appearing as result of the states competition in the process ofattracting foreign capital flows in the national economy.
Attractingtransnational corporations in the national economy is today the main objectiveof the competition process between states. World states, especially smallerones, in development or in transition, being enticed by the financial sourcesof TNCs, are involved in an increasingly fierce battle to attract the necessarycapital in the country. Paradoxically, but eventually also TNCs are those whichtake advantage of it the most.
Thus,addressing the impact of this process needs to be done multilaterally, to findthe optimum solution of how to attract foreign capital flows in the nationaleconomy at the present stage, focusing on their efficiency and quality.
Inlast decades a lot of attention is given to transnational corporations. Todaythere is nearly no considerable process in world economy which would occurwithout the participation of transnational corporations. The transnationalcorporations have turned to the ubiquitous force forming modern and futureshape of the world. They accept direct and indirect participation in worldpolitical and economical process.
TNCscarry out their activity in world economy system, but their influence extendson world politics that allows to recognize TNCs along with the national states,the international organizations. TNCs are not absolutely new phenomenon, andrepresent the special form of display of general law of development ofcapitalism, aspiration of the capital to the external economic expansion in theform of direct foreign investments. The manufacture which is carried outabroad, has a number of advantages which follow from distinctions of politicaland economic conditions between the country — basing of the TNC and a hostcountry where branches of TNCs settle down in this plan: degree of security andcost of extraction and processing of natural resources; rates of wages of work;the labor legislation; the taxation; exchange rate; ecological standards; apolitical mode; the political culture, etc. These distinctions increasemaneuverability of the multinational corporation on a world scene.
Thebasic line of TNCs — global operations. Huge thing for TNCs is the worldmarket. Therefore the expansion of TNC is carried out internationally.
Fromthe very beginning of TNCs' existence became object of rough economicdiscussions. One their activity was estimated as destructive, the emphasizebecame on negative consequences of industrialization. Others attributed a roleof the main tool of world progress.
70thyears have passed under the sign of negative estimations for TNCs as a factorof an aggravation of economic, political and social contradictions.
In80th years, appreciable role of the TNCs was observed in economic developmentand in the permission of political and social problems. Previously, it camewith the recognition of their enormous potential, a huge role in development ofscientific and technical progress.
However,economic growth of TNCs on the political and social value is ambiguous. Fromthe economic point of view it conducts to the growth of productivity and laborforce, escalating of capacities of the goods and services, manufacture andnational income. On the other hand, typical line of «transnationaleconomy» is strong contrast between large TNC and the country as a wholewith serious difficulties: unstable development of manufacture, inflation,unemployment, etc. From the social point of view, economic growth of thetransnational corporation increases vacancy for the unemployment and capitalopposition. They arrange tough policy concerning employment. During economiccrises TNCs even are inclined to the big reduction of the personnel thatconducts to a condition of sharp confrontation with trade unions. In othercases — the transnational corporations, on the contrary, guide social intensityin a society.
Theobject of my work is the activity oftransnational corporations in the world economy.
Thesubject – the tendency of TNCs’ developmentduring the world financial crisis.
Thepurpose of the given work — to consider thetendencies of TNCs’ development in the conditions of world financial crisis inmodern international economic relations.
Forthis purpose it is necessary to allocate following the main tasks:
1. To open the concept and essence of thetransnational corporation;
2. To define the role of transnational corporationsin globalization;
3. The impact of world financial crisis tothe activity of the activities of transnational corporations;
4. The reaction of TNCs to crisis.
1.THEORETICAL BASIS OF TRANSNATIONAL CORPORATIONS 1.1 The concept of transnational corporation, history oftheir development
Theexact standard definition of the transnational corporation does not exist tillnow. Terminological diversity of the concept both in English-speaking (orUzbek), and in the foreign literature remains. It can be seen in variousvariants of word combinations — a corporation, a company, an enterprise, a firmin a combination with adjectives — transnational, multinational, international,global etc. This terminological diversity of natural, because it reflects theattempt to find an adequate reflection of the new features that are in thefield 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» emphasizesthis quality — the border crossing of goods and capital flows. I will giveseveral definitions for TNC:
Transnationalcorporations (TNCs) are incorporated orunincorporated enterprises comprising parent enterprises and their foreignaffiliates. A parent enterprise is defined as an enterprise that controlsassets of other entities in countries other than its home country, usually byowning a certain equity capital stake. An equity capital stake of 10% or moreof the ordinary shares or voting power for an incorporated enterprise, or itsequivalent for an unincorporated enterprise, is normally considered as thethreshold for the control of assets. (In some countries, an equity stake ofother than 10% is still used.
Transnationalcorporation (TNC) — a monopoly union(concerns or multinational corporations), in which many companies are combinedwith one or more branches of the world economy, which are engaged inmanufacturing and trading activities that transcend national countries.
TNC — a company (financial-industrialgroups), which owned or controlled by complexes of production or serviceoutside of the country in which these corporations are based, have an extensivenetwork of branches and subsidiaries in different countries and occupy aleading position in production and sales of a product.
Transnationalcorporation — the kind of form of theinternational association of capitals when the parent company has affiliates inmany countries, carrying out coordination and integration of their activity.
Thelegal regime of TNCs suggests business activity in different countries throughthe formation of branches and subsidiaries. These companies have a relativelyindependent service production and marketing of finished products, research anddevelopment, services to consumers, etc. In general, they comprise a largesingle production complex ownership over the equity only representatives of thecountry's founding. At the same time, branches and subsidiaries can be mixedenterprises with the participation of mainly national home country.
Distinctivelines of the transnational corporation are:
1) annual turnover is usually higher than $100 million;
2) have branches in more than 6 countries;
3) on the international status of the firmshows an indicator such as size percent of its sales, its products sold outsidethe country of origin of the company;
4) structure of its assets, in some foreignresearches to the international corporations carry the companies having 25 % ofactives abroad
Thedevelopment of transnational corporations has passed historically a number ofstages. In the first period of the origin of TNCs (the end of XIX century.),they have undergone very significant transformation. TNCs’ first generation hasbeen largely associated with the development of raw materials of former colonies,which gives the basis to define them as «the national-raw transnationalcorporations».
Accordingto its organizational and economic forms and mechanisms of functioning, therewere cartels, syndicates and the first trusts. Then on the world stage there weretrust types of TNCs which were associated with the production ofmilitary-technical products. Having started its activity in the period betweentwo world wars, some of those second generation TNCs maintained their positionin the global economy and after World War II. They produced weapons andammunition.
Inthe 60th years, an increasingly prominent role of TNCs has begun to play thethird generation, which was widely used to achieve scientific and technologicalrevolution. These techno-consumer companies: corporations and conglomerates.
Inthe 60 – 80th years in the activity of TNCs organically incorporated theelements of national and foreign production: realizations of goods, managementand organization of personnel, research of marketing and after-sales service.
Thethird generation of transnational corporations promoted to spread theachievements of scientific and technological revolution in the peripheral areasof the world economy and, most importantly, economic preconditions for theoccurrence of international production with a single market and the informationspace, the international capital market and labor, scientific and technicalservices. Their goal was to conquer markets, sources of raw materials andspheres of application of capital.
Inthe early 60's the global transnational corporations of the fourth generationhave gradually appeared and have affirmed. Their distinguishing features are:
· planetary vision of the markets andimplementation of competition on a global scale, section of the world marketswith a few global multinational corporations;
· coordinate the actions of theiraffiliates on the basis of new information technologies;
· flexible organization of each productionsite, adaptability corporate structure, uniform accounting and auditing;
· integration of its subsidiaries,factories and joint ventures into a single global network management, which, isintegrated with other networks of TNCs;
· implementation of economic and politicalinfluence in the state in which they operate TNCs.
Theirstrategy is characterized by their innovative aggressiveness, dynamism and awithdrawal from single industry structure, constant improvement of internalcorporate structure, aiming at the conquest of the key global economic positionin the production and marketing.
Asfor the structure of transnational corporations, it is following:
Aparent company is an incorporated orunincorporated enterprise, or group of enterprises, which has a directinvestment enterprise operating in a country other than that of the parententerprise. An affiliate enterprise is an incorporated or unincorporatedenterprise in which a foreign investor has an effective voice in management.Such an enterprise may be a subsidiary, associate or branch.
Asubsidiary (an affiliate) is an incorporatedenterprise in the host country in which another entity directly owns more thana half of the shareholder's voting power, and has the right to appoint orremove a majority of the members of the administrative, management orsupervisory body.
Anassociate is an incorporated enterprise inthe host country in which an investor owns a total of at least 10%, but notmore than half, of the shareholders’ voting power.
Abranch is a wholly or jointly ownedunincorporated enterprise in the host country which is one of the following: apermanent establishment or office of the foreign investor; an unincorporatedpartnership or joint venture between the foreign direct investor and one ormore third parties; land, structures (except structures owned by governmententities), and /or immovable equipment and objects directly owned by a foreignresident; or mobile equipment (such as ships, aircraft, gas- or oil-drillingrigs) operating within a country, other than that of the foreign investor, forat least one year.
Ajoint venture involves share-holdingin a business entity having the following characteristics: the entity wasestablished by a contractual arrangement (usually in writing) whereby two ormore parties have contributed resources towards the business undertaking; theparties have joint control over one or more activities carried out according tothe terms of the arrangements and none of the individual investors is in aposition to control the venture unilaterally. 1.2 Theevolution of a Transnational Corporation
Economistsdid not actually coin the phrase “transnational corporation” until the 1960s. Evenbefore that time, however, studies were being conducted into the history andevolution of transnational corporation organization. When these studies werefinally executed, it was shown that TNCs had different internal organizationalstructures based on geographic location—even at their earliest stages indevelopment. Thegrowing role of transnational corporations (TNCs) in the world economy began tospeak only in the second half of XX century. The uncontrolled activitiesof transnational corporations are main key reasons for the imbalances in theglobal economy. In general, there are five stages in theevolution of the transnational corporation. These stages describe significantdifferences in the strategy, worldview, orientation, and practice of companiesoperating in more than one country. One of the key differences in companies atthese different stages is in orientation.
StageOne—Domestic
Thestage-one company is domestic in its focus, vision, and operations. Itsorientation is ethnocentric. This company focuses upon domestic markets,domestic suppliers, and domestic competitors. The environmental scanning of thestage-one company is limited to the domestic, familiar, home-countryenvironment. The unconscious motto of a stage-one company is: “If it’s nothappening in the home country, it’s not happening.” The world’s graveyard ofdefunct companies is littered with stage-one companies that were sunk by theTitanic syndrome: the belief, often unconscious but frequently a consciousconviction, that they were unsinkable and invincible on their own home turf.
Thepure stage-one company is not conscious of its domestic orientation. Thecompany operates domestically because it never considers the alternative ofgoing international. The growing stage-one company will, when it reaches growthlimits in its primary market, diversify into new markets, products, andtechnologies instead of focusing on penetrating international markets.
StageTwo—International
Thestage-two company extends marketing, manufacturing, and other activity outsidethe home country. When a company decides to pursue opportunities outside thehome country, it has evolved into the stage-two category. In spite of itspursuit of foreign business opportunities, the stage-two company remainsethnocentric, or home country oriented, in its basic orientation. The hallmarkof the stage-two company is the belief that the home-country ways of doingbusiness, people, practices, values, and products are superior to those foundelsewhere in the world. The focus of the stage-two company is on thehome-country market.
Becausethere are few, if any, people in the stage-two company with internationalexperience, it typically relies on an international division structure wherepeople with international interest and experience can be grouped to focus oninternational opportunities. The marketing strategy of the stage-two company isextension; that is, products, advertising, promotion, pricing, and businesspractices developed for the home-country market are “extended” into marketsaround the world.
Almostevery company begins its global development as a stage-two internationalcompany. Stage two is a natural progression. Given limited resources andexperience, companies must focus on what they do best. When a company decidesto go international, it makes sense at the beginning to extend as much of thebusiness and marketing mix (product, price, promotion, and place or channels ofdistribution) as possible so that learning can focus on how to do business inforeign countries.
Afundamental strategic maxim is that it is a mistake to attempt tosimultaneously diversify into new customer and new-product/technology markets.
Theinternational strategist observes this maxim by holding the marketing mixconstant while adding new geographic or country markets. The focus of theinternational company is on extending the home-country marketing mix andbusiness model.
StageThree—Multinational
Intime, the stage-two company discovers that differences in markets around theworld 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 withits 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 ofthe Toyopet was chalked up by Toyota as a learning experience and a source ofinvaluable intelligence about market preferences. Note that Toyota did notdefine the experience as a failure. There is, for the emerging global company,no such thing as failure: only learning experiences and successes in theconstantly evolving strategy and experience of the company.
Whena company decides to respond to market differences, it evolves into astage-three multinational that pursues a multi-domestic strategy. The focus ofthe stage-three company is multinational or in strategic terms, multi-domestic. (That is, this company formulates a unique strategy for each countryin which it conducts business.) The orientation of this company shifts fromethnocentric to polycentric.
Apolycentric orientation is the assumption that markets and ways of doingbusiness around the world are so unique that the only way to succeedinternationally is to adapt to the different aspects of each national market.Like the stage-two international, the stage-three multinational, polycentriccompany is also predictable. In stage-three companies, each foreign subsidiaryis managed as if it were an independent city-state. The subsidiaries are partof an area structure in which each country is part of a regional organizationthat reports to world headquarters. The stage-three marketing strategy is anadaptation of the domestic marketing mix to meet foreign preferences andpractices.
Philipsand its Japanese competition was dramatic. Matsushita, for example, adopted aglobal strategy that focused its resources on serving a world market for homeentertainment products.
StageFour—Global
Thestage-four company makes a major strategic departure from the stage-threemultinational. The global company will have either a global marketing strategyor a global sourcing strategy, but not both. It will either focus on globalmarkets 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 itsdomestic channels. Examples of the stage-four global company are HarleyDavidson and the Gap. Harley is an example of a global marketing company.Harley designs and manufactures super heavyweight motorcycles in the UnitedStates and targets world markets. The key engineering and manufacturing assetsare all located in the home country (the United States). The only Harleyinvestment outside the home country is in marketing. The Gap is an example of aglobal sourcing company. The Gap sources worldwide for product to supply itsU.S. retail organization. Each of these companies is operating globally, butneither of them is seeking to globalize all of the key organization functions.
Thestage-four global company strategy is a winning strategy if a company cancreate competitive advantage by limiting its globalization of the value chain.Harley Davidson gains competitive advantage because it is American designed andmade, just as BMW and Mercedes have traded on their German design andmanufacture. The Gap understands the U.S. consumer and is creating competitiveadvantage by focusing on market expansion in the United States while at thesame time taking advantage of its ability to source globally for productsuppliers.
StageFive—Transnational
Thestage-five company is geocentric in its orientation: It recognizes similaritiesand differences and adopts a worldview. This is the company that thinksglobally and acts locally. It adopts a global strategy allowing it to minimizeadaptation in countries to that which will actually add value to the countrycustomer. This company does not adapt for the sake of adaptation. It onlyadapts to add value to its offer. Itshould be noted strengthening the transnational natureof the consolidation, accompanied by the growth ofglobal multinationals.
Thekey assets of the transnational are dispersed, interdependent, and specialized.Take R&D, for example. R&D in the transnational is dispersed to morethan one country. The R&D activities in each country are specialized andintegrated in a global R&D plan. The same is true of manufacturing. Keyassets are dispersed, interdependent, and specialized. Caterpillar is a goodexample. Cat manufactures in many countries and assembles in many countries.Components from specialized production facilities in different countries areshipped to assembly locations for assembly and then shipped to customers inworld markets.
Shortly,the concept of TNC has gradually moved from international mentality to amultinational, then to the global and finally transnational mentality. 1.3 Classification of TNCs
A variety of TNCs which operate in the world can beclassified into a number of signs. Thecores from them:the country of origin, industry focus, size, the level of transnationalization.
The practicalsignificance of the classification of TNCs is that it allows for moreobjectively estimating the advantages and disadvantages of placing specificcorporations in a host country.
Country of Origin Country of originis determined by the nationality of TNCs in the capital of its controllingstake assets. Usually,it coincides with the nationality of the country-based head company of thecorporation. In the developed countries TNCs are considered as a privatecapital. However in the developing countries,the capital structure of some (sometimes large) part of TNCs may belong to thestate. This is due to thefact that they were created on the basis of the nationalized foreign-owned orstate-owned enterprises. Theirgoal was not into the economies of other countries, but their main purpose wasto lift national economy.
Commodity Focus Theglobal product is one approach to TNC organization. This is assigned worldwideresponsibility for specific products or product groups in order to separateoperating divisions within a firm. It means, what to produce for transnationalcorporations is really crucial. Commodity FocusTNC is defined by the basic sphere of its activity. On this basis, it isdistinguished with TNCs which are adapted for raw materials, the corporationswhich are engaged in basic and secondary manufacturing industries andindustrial conglomerates. Currently, multinational corporations maintaintheir position in the basic branches of mining and manufacturing industries. These arethe areas of activity that require substantial investment. In the last years, more than 250 from the list of 500largest transnational corporations in the world are operating in such areas aselectronics, computers, communications equipment, food, beverages and tobacco,pharmaceutical and cosmetic products, as well as in the service of commercialservices, including onthe Internet.
Transnational corporations carryout various kinds of overseas research and development work: adaptive, rangingfrom basic support processes and ending with the modification and improvementof imported technologies, innovation associated with the development of newproducts or processes for local, regional and global markets and others.
The choice of the type of R & D(Research and Development) and industry specialization depend on what region,on what level of development there is ahost country. For example, in SoutheastAsia is dominated with innovative R & D associated with computers andelectronics, in India — with the sector of services (especially software), inBrazil and Mexico — with the production of chemicals and transport equipment.
For transnationalcorporations, conglomeratic type witha view of definition of their specialization is called branch A, which the UN describes as havinga considerable amount of foreign assets, the greatest quantity of foreign sales and thelargest number of workers abroad. Thelargest part of corporation’s investment goes to this branch, andproportionally, it gives the greatest profit for corporation.

Thesize of transnational corporations 
Symptom classification, which isusually determined by the method of UNCTAD, is defined by the size of theirforeign assets. This parameter is especially usedfor the diversification of the largest TNCs, large, medium and small. In orderto get the name large one, assets of transnational corporation should exceed 10billion dollars.
The vast majority of the total number of TNCs (90%) belongsto medium and small corporations. According to the UN classificationthese include companies with fewer than 500 employees in the country ofresidence. Inpractice there are multinational corporations with total of employees less than50 persons. Theadvantage of small TNCs is their ability which adapts more quickly to changingmarket conditions.
2. THEROLE OF TRANSNATIONAL CORPORATIONS IN MODERN ECONOMIC RELATIONS 2.1 TNC participation in international production
Theeconomic and financial crisis has significantly affected TNCs’ operationsabroad. Foreign affiliate’ sales and value-added declined by 4-6 percent in2008 and 2009. Since this contraction was slower than the decline of worldeconomic activity, however, the share of foreign affiliates’ value-added (grossproduct) reached a new historic high of 11 percent of world domestic product(GDP). Besides Greenfield investments, any expansion of the foreign operationsof TNCs in 2009 can largely be attributed to the organic growth of existingforeign affiliates.
Theworld market is becoming more and more integrated. Within last ten years worldtrade developed much faster than world production grew. Foreign employmentremained practically unchanged in 2009 (+1.1 percent). This relative resiliencemight be explained by the fact that foreign sales started to pick up again inthe latter half of 2009. In addition, many TNCs are thought to have slowedtheir downsizing programmes as economic activity rebounded – especially indeveloping Asia. In spite of the setback in 2008 and 2009, an estimated 80million workers were employed in TNCs’ foreign affiliates in 2009, accountingfor about 4 percent of the global workforce.
Dynamicsvary across countries and sectors, but employment in foreign affiliates hasbeen shifting from developed to developing countries over the past few years;the majority of foreign affiliates’ employment is now located in developingeconomies. 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’stotal employees in foreign affiliates). Employment in foreign affiliates in theUnited States, on the other hand, shrank by half a million between 2001 and2008.
Inaddition, the share of foreign affiliates’ employment in manufacturing hasdeclined in favor of services. In developed countries, employment in foreignaffiliates in the manufacturing sector dropped sharply between 1999 and 2007,while in services it gained importance as a result of structural changes in theeconomies.
Foreignaffiliates’ assets grew at a rate of 7,5 percent in 2009. The increase islargely attributable to the 15 percent rise in inward FDI stock due to asignificant rebound on the global stock markets.
Theregional shift in international production is also reflected in the TNClandscape. Although the composition of the world’s top 100 TNCs confirms thatshare has been slowly decreasing over the years. Developing andtransition-economy TNCs now occupy seven positions among the top 100. And whilemore than 90 percent of all TNCs were headquartered in developed countries inthe early 1990s, parent TNCs from developing transition economies accounted formore 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 andtransition economies now account for nearly one tenth of the foreign sales andforeign assets of the top 5,000 TNCs in the world, compared to only 1-2 percentin 1995(2.1-picture).
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Picture2.1-Number of TNCs from developed countries and from developingand transition economies, 1992, 2000 and 2008
Othersources point to an even larger presence of firms from developing andtransition economies among the top global TNCs. The Financial Times, forinstance, includes 124 companies from developing and transition economies inthe top 500 largest firms in the world, and 18 in the top 100. Fortune ranks85 companies from developing and transi­tion economies in the top 500 largestglobal corporations, and 15 in the top 100.
 
Table2.1 — Foreign activities of the top 5,000 TNCs, by home region/country, 1995and 2008
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Overthe past 20 years, TNCs from both developed and developing countries haveexpanded their activities abroad at a faster than at home. This has been sus­tainedby new countries and industries opening up to FDI, greater economiccooperation, privatizations, improve­ments in transport and telecommunica­tionsinfrastructure, and the growing availability of financial resources for FDI,especially for cross-border M&As.
Theinternationalization of the largest TNCs worldwide, as measured by thetransnationality index, actually grew during the crisis, rising by 1.0percentage points to 63, as compared to 2007. The transnationality index of thetop 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 oftheir foreign ac­tivities, they experienced even faster growth in their homecountries. Among both groups, this index varies by region: TNCs based in theEU, Africa, and South Asia are among the most transnationalized.
2.2 TNCs’ rolein mobilizing financial resources and the impact on investment
Globalizingis shrinking deeply day by day because of some reasons. As an example we canrefer to foreign direct investment. Foreign direct investment inflows globally continuedto rise by 30% in 2007: at $1,833 billion, they reached a new record level. Itmust be mentioned, that previous all-time high set was reached in 2000. It isalso said, that the financial and credit crisis, which began to affect severaleconomies in late 2007, did not have a significant impact on the volume of FDIinflows that year, but it has added new uncertainties and risks to the worldeconomy. Therefore, this might have a dampening effect on global FDI in2008-2009. Following table shows the tendency of foreign direct investment.Undoubtedly, the impact of transnational corporations increases in the worldeconomy respectively with foreign direct investment.
Directinvestments’ volume is becoming higher year by year.(2.2-table) As we knowtransnational corporations are main source of direct investment. That’s why, weare able to say that the role and impact of TNCs in the world economy tend togrow in future.
 
Table2.2 — Possible growth direct investments’ volumeLevel 1990-year 2000-year 2005-year 2010-year 2015-year 2020-year Minimum - - - 1070 1540 2055 Average 258,0 1200,8 778,7 1125 1626 2350 Maximum - - - 1180 1715 2420
Expandingand upgrading infrastructure in keeping with developing countries’ growingrequirements calls for substantial investment in infrastructure industries,which are typically capital-intensive due to the physical facilities andnetworks that they involve. Many projects are very large and are characterizedby economies of scale. They require huge capital outlays, while the stream ofreturns on capital is spread over many years. Thus the risks to investors aretypically high. Mobilizing the necessary financial resources from domestic orinternational capital markets is difficult for public or private enterprises inmany developing countries. This has led a number of countries to open up to FDIand/or encourage other modes of TNC involvement, such as build-own-operate(BOO), build-own-transfer (BOT) or rehabilitate-own-transfer (ROT) concessionarrangements. Indeed, TNCs may have a number of competitive advantages thatenable them to contribute to the mobilization of financial resources forboosting investment in infrastructure industries, while also being directlyinvolved in undertaking the investments and production activities for theprovision of infrastructure services.
Financialstrength and large cash flows are competitive advantages that foster rapidexpansion of many TNCs operating in infrastructure. In addition, large andwell-established firms are able to raise funds from home-country andinternational markets as well as from host developing-country markets, wherethe latter exist. This ability to mobilize and harness external financialresources for investment is particularly evident in concessions such as BOTs,in which a high proportion of the costs are covered by debt. However, theextent to which TNCs can contribute to financial resources for investment ininfrastructure also depends on host-country conditions and objectives, thespecific infrastructure needs of a country and the gaps in domestic (State andprivate) resources and capabilities.
Inthe early 1990s, as more and more developing countries began to open up theirinfrastructure industries to private national and foreign companies, it wasbelieved that TNCs could play a key role in securing financial resources toreduce the persistent gap between infrastructure needs and investments by theState, which was the main provider of the services. At the time, many of thecountries concerned, especially in Latin America and Africa, were heavilyindebted and turned to the private sector, including TNCs. Since then, thefinancial situation has improved for some economies, but the investment gap ininfrastructure still remains very large in the developing world as a whole.Thus the ability of TNCs to mobilize financial resources for investment remainsan important consideration for many countries. Indeed, TNC participation ininfrastructure in developing countries has resulted in the inflow ofsubstantial financial resources. One indicator, allowing for data limitations,is the stock of infrastructure FDI in developing countries, which surged29-fold between 1990 and 2006: from $6.8 billion to $199.4 billion. Anothermeasure, the foreign investment commitments in private participation ininfrastructure (PPI) projects (which include FDI, but also other investmentsthat are an element of concessions), also indicates that TNCs have mobilizedsignificant resources for investment in developing countries. During the period1996–2006 such commitments amounted to about $246 billion. The impact oninfrastructure investment in developing countries arising from thismobilization of financial resources by TNCs is discussed below, includingvariations by region, industry and country.
Overallimpact of TNC involvement on infrastructure investment in developing countries.Not all financial resources mobilized byTNCs constitute investment or an addition to productive assets for a hostindustry or country. One reason is that a proportion of FDI by TNCs is used topurchase privatized enterprises, which represents a transfer of ownership, butnot new capital stock. But at the same time other forms of TNC participationalso include investment. This is especially true of concessions, which involvelarge amounts of investment to build new or improve existing infrastructure.During the period 1996–2006, according to data on the breakdown of foreigninvestment commitments (referred to in the discussion below as TNCcommitments), 52% of TNC participation, by value, in the infrastructureindustries         of developing countries was in the form of FDI, while theremaining 48% was in the form of concessions.     This nearly equal ratio ofconcessions to FDI implies a possibly greater overall impact on investment ininfrastructure industries than that suggested by data on the stock of FDI.Because some relevant data are not available, it is not possible to give aprecise figure for the impact of TNCs, but it is certainly appreciable andlikely to be higher than that suggested by FDI data alone.
Inaddition to their direct impact on investment, the entry and operations of TNCscan indirectly influence investment levels in host country infrastructureindustries through their effects on investments of domestic firms – whetherstate-owned enterprises or private enterprises. These effects can vary: TNCinvolvement may “crowd in” other investors; or an increase in the competitiveadvantages of domestic enterprises through diffusion of technology and otherknow how from TNC operations may enable them to invest in new areas; or, taxespaid by TNCs could potentially be used for further infrastructure investmentsby the State. On the other hand, a fall in investment levels might occur fromthe “crowding-out” of investors, for example because of competition, whendomestic enterprises are still at an early stage of development or due toanti-competitive behavior by TNCs.
Aconsequence of investment in infrastructure by foreign companies in the 1990swas a decline in public investment in the sector across much of Latin Americaand parts of Africa. In expectation of a large-scale increase in private sectorinvestment, many governments in Latin America – faced with persistent budgetarygaps – cut back drastically on public expenditure in infrastructure in theearly 1990s. Between 1980–1985 and 1996–2001, total expenditure oninfrastructure investment in seven major Latin American economies takentogether declined from a weighted average of 3.7% of GDP to 2.2%, even thoughprivate investment (primarily by TNCs) in the industries actually rose from0.6% to 1.4% of GDP, albeit with considerable differences between countries. Animportant lesson from the Latin American experience is that TNC participationshould not be considered sufficient to meet a country’s investment needs ininfrastructure; rather, it should be viewed as an important supplement andcomplement to domestic investment. Developing countries should thereforestrengthen and improve the capabilities of their State-owned enterprises (wherethese continue to play a role), while at the same time encouraging theirdomestic private sector to develop the necessary expertise and financialcapabilities to participate effectively in infrastructure industries.
Variationsin the impact of TNC involvement on investment, by industry, region andcountry. As mentioned earlier, investments byTNCs in infrastructure projects in developing countries amounted to $246billion during the period 1996– 2006, or an average of 28.5% of totalinvestment commitments. This share indicates an appreciable contribution byTNCs to infrastructure investment in developing countries, as a whole.Differences exist in the degree of TNCs’ impact on the level of investments byindustry, region and country, judging from the variations in the shares of TNCsin total private sector infrastructure investment commitments.
Byinfrastructure industry, TNCs’ shares in PPI(private participation ininfrastructure) investment commitments during the period 1996– 2006, werehighest in telecommunications (35.2%) and electricity (30.0%) and lowest inwater (25.2%) and transport (19.3%). Apart from this, according to the WorldBank’s PPI database, other notable variations included: a significant drop inthe share of TNCs in energy investments in South Asia between 1996–2000 and2001–2006, primarily reflecting difficulties faced by India in realizing itsstrategy towards attracting infrastructure TNCs; a decline in TNC participationin the telecommunications industry in East Asia and South-East Asia and LatinAmerica and the Caribbean during the period 2001– 2006, reflecting the growingstrength of domestic companies in these regions very large swings in TNCinvestment commitments in transport in nearly all regions between 1996–2000 and2001–2006, possibly reflecting developments in a number of the sub-industriesinvolved; and increases in TNCs’ share in overall private investmentcommitments in water in some regions and sub regions between 1996–2000 and2001–2006, reflecting the efforts of countries to improve access to safe, cleanwater for their populations.
Regionally,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% inAfrica and 33.3% in Latin America and the Caribbean. The variation in the shareof TNCs in PPI investment commitments during the period 1996–2006 was evengreater by country, with 75% of economies (out of 105 for which data areavailable) indicating a share above the overall average of 28.5%. The overallaverage share is low because a number of countries with large total investmentcommitments have below-average figures for the share of TNCs in thesecommitments, including Brazil, China, India, Malaysia, Mexico and
SouthAfrica.
Ina large number of countries the share of TNCs in total PPI investmentcommitments is significant: between 28% and 50%; and in a number of them theshare is even higher, in the 50%–75% range. Furthermore, for nearly one fifthof countries (20) TNCs’ share in total private sector investment commitments is75% or more. This group includes 13 least developed countries, among themBurundi, Chad, Guinea-Bissau, Haiti, Maldives, Samoa and Sudan.Theirhigh share of TNC participation implies that for many least developed countriesTNCs are more or less the private infrastructure sector. 2.3 The influence of transnational corporations on laborforce migration
Inthe debates on the influence of transnationalization, savants and expertsconcluded long ago that this phenomenon is not purely economic, which islimited only to the reorganization of production activities and movement ofcapital flows. Globalization is a process of large-scale that produces effectsin several areas such as politics, finances, trade, defense system, demography,ecology. Academics consider that the world has now become «a globalcity.»
Transnationalization,in compared aspect, still can be viewed as migration process. Putting capitalin 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 areaswith labor force surplus.
Usually,foreign direct investment is placed in the long term and requires interactionwith various groups of econo0mic agents, starting with suppliers and endingwith officials. Investors need to know the consumer, labor force and rawmaterials markets, regulations and laws governing their activities.Informational and contractual problems can often be very hard, so legal rulesremain to be the most important determinant of FDI flows in one state.
Thehistory of labor migration knows more than 100 years. Since the mid-nineteenthcentury were observed in many migration flows from European countries to theU.S., especially during economic conjuncture overseas. The second wave ofmigration into the U.S. from different countries was in the years '20-50, XXcentury, and then followed the migration from Mexico, the Caribbean etc.
Expertsconsider that the first attractive center for foreign labor force has beenSouth Africa, which since the '50s drew cheap labor force from neighboringcountries. In the period 1950-1970 takes place the accelerated development ofperipheral global regions industrialization, which later achieved positiveresults in industrial development, becoming leaders in chapter — exports. Theyrelate to Latin America, South African, Middle East and Southeast Asia.Obtaining independence of many African countries boost this process. Activepenetration of international corporations in South Africa from Europe and theU.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 laborforce from another continent, in South America, in the composition of some ofthe more developed countries like Argentina, Brazil, Mexico and Venezuela.Simultaneously, in these countries annually comes a large workforce from someof the least developed countries and from African and Asian countries. Theinterest of the Middle East for the labor force is related to the developmentof the oil industry from the '70s. In the late '70s, Saudi Arabia, Oman,Kuwait, UAE, worked over 3 million foreign workers and specialists fromneighboring Arab countries, India, Pakistan and South Korea.
Inthe last decade has been formed a new regional center of attraction of laborforce — South-East Asia. Starting with the '70, here takes place a process ofaccelerating the country's industrial development and internationalization ofeconomic life in this giant region, influenced by massive foreign investment.An important role in these processes went to different transnationalcorporations from different national origin: American, Japanese, Australian,South Korean, etc.
Themain feedback of the process of migration is the migrant’s remittances. Theyrepresent their financial sources, delivered in the origin countries. In 2002,migrant remittances constituted about 79 billion dollars. This amount is morethan the sum of all development aid provided by the states of the world andabout 40% of total FDI in developing countries.
Theuse of foreign labor force, in present, becomes an important part of normal andefficient operation of the world economy mechanism. Transnational corporations(TNCs), being the main driver of globalization, acts in a global economy thatrelates to global production, global capital, global market.
TNCsare the best bet people can work and earn money. Leaders are cooperating in aneffort to bring about real reform in a way that was unthinkable a few yearsago. They deserve the world’s energetic support. Therefore, lots of hostcountries as can as possible try to attract in order to allocate affiliates oflarge transnational corporations in their countries, because of huge vacancyfor the unemployment by TNCs.
Themain reason leading companies to internationalize their assets are: achievinghigher profits with low costs and of enhanced profitability. This can beachieved by exploiting opportunities offered by other countries with cheaperraw materials and human resources, by the penetration of more advantageousmarkets for export. Not at least, among the positive effects of capital andtechnology exports are repatriating their earnings as profit in the origincountries of TNCs.
However,many scientists try to show the dependence between migration and trade. Theysay that determining the volume of trade without taking into account migration,it is not objective. Testing in some small economies shows that there isdependency between export and migration.
Thepractice of international labor migration has emerged as a spontaneousphenomenon but, with the development and intensification of the process, beganto be regulated by the state. However, currently are not liquidated allfeatures of this process.
Thelast decade of the XX century is characterized by the fact that importingcountries and exporting countries of labor force introduce radical correctionin their migration policy. As world practice shows, workers migration providesindisputable advantages to the countries: for those providing employment as forthose who receive it.
Forthe control of migration processes, states have begun to introduce so-calledmigration rates. Labor force — importing states, taking into account the realneeds and labor market situation, determine the number of labor resources to beimported.
Thegoal of migration policy of the exporting countries is that labor forcemigration should increase the reduction of unemployment, receipt of foreignfunds from immigrant workers, i.e. remittances, which is used for balancing imports- export operations. But sometimes, there may appear acute economic and socialproblems. Positive consequences of labor force migration:
- settling the problem of unemployment;
- the emergence of additional sources ofincome from migrants for exporting countries;
- obtaining the knowledge and experienceby the immigrants;
- investment income of immigrants in smallbusiness, favoring the opening of new jobs.
Negativeconsequences of immigration workers:
- the trend of increase in consumption fundsobtained abroad.
- the tendency to hide income;
- «brainwashing».
- decrease the qualification of unemployedimmigrants.
- However, both for countries of origin asfor TNCs host countries, in addition to the earnings of the process ofglobalization, there are also losses. The transfer to other countries of a partof the assets of TNCs contributes to job losses and rising unemployment incountries of origin. Moreover, labor productivity growth through technologytransfer, information, innovation in firms purchased by foreign investors,brings with it an increase in unemployment in the host countries, in particularfor unskilled or low skilled labor force. Host countries are frustrated thatresearch and development operations are in countries of origin of TNCs, andtechnological innovations aren’t implemented simultaneously in the hostcountries.
- Workforce in developing countries means,for industrial countries, providing some branches and infrastructure withneeded workers, without which it is impossible a normal industrial process, andsometimes normal everyday life. For example, in France, migrants make up 1/2 oftotal employment in construction, 1/3 — in the car industry, in Belgium — halfof the miners, in Switzerland — 2/5 of the construction workers.
- As mentioned above, one of the keyfeatures of the process of globalization is the movement or free flow ofcapital. In addition, current global trade regime under WTO auspices providesunique possibilities for movement and reallocation off funds.Transnationalization of the world takes place differently in each country. Somecountries have more foreign capital, others less. The trend that it is observedtoday is that where foreign capital is moving there will focus large flows ofpeople.
- Even if corporations come inunderdeveloped countries, they don’t offer great benefits to employees; on thecontrary, they came just as attracted by low wages and slave pyramid style oflocal systems. Citizens of third world are seeking to reach the West, believingthat they perform the same work more and will gain more money. Their surpriseoccurs when, once arrived in Europe, all companies have their production movedto countries where they originally came, now they must re-orientate or acceptjobs below their qualifications.
Althoughthe products are cheaper because they are performed in countries whereproduction costs are minimal, this migration of labor force generatesunemployment in developed countries and, therefore, the remaining unemployedhave no money to buy products even so not cheap. Forbes magazine has publisheda study showing that Detroit will disappear in the next 20 years, this outsourcingand refurbishment made that unemployment in this city to be enormous, and nowcrime is at unimaginable odds. From a towering American city — king of theautomobile production, with millions of habitants — now have left only 900 thousandpeople.
3.THE TENDENCIES OF TRANSNATIONAL CORPORATIONS’ DEVELOPMENT IN POST-CRISIS PERIOD 3.1 Modern tendency of TNCs’ development during the crisis
Todaythere are about 82,000 TNCs worldwide, with 810,000 foreign affiliates in theworld. These companies play a major and growing role in the world economy. Forinstance, exports by foreign affiliates of TNCs are estimated to account forabout one third of total world exports of goods and services. And the number ofpeople employed by them worldwide, which has increased about fourfold since1982, amounted to about 77 million in 2009 — more than double the total laborforce of a country like Germany.
Thelargest TNCs contribute to a significant proportion of total internationalproduction by all TNCs, both in developed and developing economies. Over thethree-year period 2007-2009, on average, the 100 largest non-financial TNCsaccounted 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. Thissection analyses the major trends and recent developments with respect to thelargest TNCs, and examines the impacts of the ongoing financial and economiccrisis on these firms and their international activities.
Overthe past 15 years, the largest TNCs have undergone a steady process ofinternationalization. Also there has been a progressive increase in theproportion of companies operating in the services sector, and of firms based indeveloping countries. These largest TNCs are presently being strongly affectedby the ongoing economic and financial crisis, both at company and industrylevels, as evidenced by declining profits, divestments and layoffs,restructurings and some bankruptcies. According to preliminary estimates, theincrease in their overall degree of internationalization seems to have sloweddown markedly in 2008. However, an UNCTAD survey shows that, despite atemporary setback in their investment plans in the short term, large TNCsexpect to continue to internationalize and increase their FDI expenditures inthe medium term, with a growing focus on emerging markets.
3.1-picturecan show how the change is being expected corporations’ investment plans for2009-2011 because of crisis. It can be seen that investment plans are altering.
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Picture3.1 — Impact of various aspects of the crisis on corporations’ investment plansfor 2009-2011
Theongoing economic and financial crisis, which erupted in the latter half of2007, has resulted in a period of major turbulence for the world’s top 100TNCs. 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, intermediategoods and mining. The downturn became worse during the first months of 2009. Bythen, other industries, such as food and beverages, utilities andtelecommunication services, also began to the adverse effects of crisis, thoughto 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 mostaffected industries, such as automotives, the crisis also triggered a wave ofmajor restructurings.
Activityindicators for the top 100 TNCs show that the impact of the crisis was onlymarginal in 2009 as a whole. Their total sales increased from their 2007 salesfigures by 12% in current dollar terms, representing additional revenue ofabout $901 billion, and their total employment also rose by 4%. A handful ofTNCs in the automotive industry (especially General Motors, Chrysler, Toyota,Nissan and Honda), which had already faced a depressed market even before thecrisis began, recorded declining sales in 2009.
Thereare three major reasons for these apparently paradoxical results. First, thefinancial crisis, which deepened in September 2009, started affecting theactivities of the largest TNCs only from the last quarter of 2009, thuslimiting 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 subsequentlyin prices) at the end of 2009, many oil and even some mining companies, such asTotal, ExxonMobil and BHP Billiton, outperformed the previous year’s results interms of sales and profits for the whole year because of favorable marketconditions in the first three quarters of 2009.
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Picture3.2 — Quarterly evolution of sales, total assets, and net income for selectedTNCs 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 consequencesfor the apparent growth in volume of their activity. In 2008, they undertook 21major 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 consequenceof the financial crisis, the cost of borrowing increased in the last months of2008. The spread on corporate bonds, for instance, reached a historic high atthe end of 2008.
Inorder to improve their balance sheets and arrest their deteriorating profits,TNCs have been extensively curtailing expenditures and taking steps to reducetheir debt.
Thisis being done through three major channels:
•  Largecuts in operating expenditures, especially through layoffs. Plans for large jobcuts have been announced by many of the top 100 TNCs since September 2008.
•  Scalingdown investment programmes. Many planned acquisitions or greenfield projects ofthe top TNCs have been cancelled, reduced or postponed due to the combinedimpact of a setback in market expectations and reduced internal and externalfinancial resources.
•  Divestmentsof some corporate units and assets. These operations are meant not only tocurtail operating costs, but also to generate cash in order to reduce debtratios, and/or simply beef up available cash that had diminished due tofaltering sales. This has led, in particular, to a rising number of sales ofnon-strategic affiliates.
Anotherconsequence of the crisis is an acceleration of industry restructurings due totwo main factors. First, some companies suffering from an already fragilefinancial situation before the crisis might be affected by the current turmoilto the point that they go bankrupt or have no other choice than to be acquiredto survive. Others might become vulnerable to such hostile bids due to thepresently low market value of their stocks. Such companies as Chrysler orEndesa have already changed owners (following table). Others (e.g. Volvo amongothers) might also go through major changes in ownership in the coming months. (3.3-picture)
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Picture3.3 — Examples of recent restructurings by some of the 100 largestnon-financial TNCs
Second,and conversely, companies less affected than others by the crisis, and havingsubstantial cash reserves, could seize takeover opportunities triggered by thecrisis to increase their market share or critical mass. Some large TNCs haveundertaken major acquisitions.
Consequently,the crisis might accelerate underlying trends towards restructuring andconcentration in many industries. This is likely to have major consequences forthe size and ranking of the top 100 TNCs. Regarding their internationalizationlevel, these opposing factors seem to have balanced each other, as the averageTNI of the top TNCs remained practically unchanged between 2007 and 2008.
However,it should be emphasized that the impact of the crisis on the largest TNCs hasdiffered widely by industry and country, and even by individual firm. On theone hand, firms in many business-cycle-sensitive industries such as automotiveand other transport materials, construction, electrical and electronicequipment, 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 someless cyclical industries, with more stable demand patterns, have been lessaffected. 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 someeven growing profits, in 2008.
Facedwith the worst global recession in decades, the world’s largest TNCs arestruggling in 2009. The sharp fall in profits registered by many of them in2008 was only a harbinger of the many difficulties they are now facing. Asglobal demand continues to weaken, and threatens to remain depressed throughout2009, many of the largest TNCs will find their revenues falling beyond whatthey had anticipated a year ago. This will have a strong impact on theirpropensities and capabilities to invest abroad. And, given the globaldimensions of the current economic situation, this applies to all TNCs innearly every region of the world and in nearly every industry.
However,the current economic crisis should not be seen only as a negative force for thelargest TNCs, both financial and non-financial. It also creates an opportunity forthem to expand into additional markets at a relatively low cost. Many of thelargest TNCs could promote their internationalization strategies with the aimof maximizing efficiencies across markets and geographies. Moreover, in thecurrent situation, TNCs from developing economies could gain strength if theymanage to successfully nurture domestic and foreign demand for their products.Their strong growth so far, as a result of the internal dynamics of theirhome-country markets, could gather momentum if demand for their products in thewider global market picks up when conditions improve.
Shortly,the global crisis has not halted the growing internationalization ofproduction. Foreign affiliates’ share in global gross domestic product reachedan historic high of 11 percent. TNC’s foreign employment increased slightly in2009, 80 million workers.  3.2 Transnational corporations and agriculture
Agricultureis 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 amajor contributor to national economic growth and a considerable foreignexchange earner for many developing countries. Given the fundamental importanceof agriculture to most developing economies, its chronic neglect by many ofthem has been of utmost concern for some time. However, several factors, whichare not mutually exclusive, have resulted in a recent upswing in domesticprivate and foreign participation in agricultural industries in a significantnumber of developing countries. Most of these factors are of a structuralnature, and are expected to drive agricultural investment in the foreseeablefuture. 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.
Aprecisely quantified evaluation of the impact of TNC involvement in agricultureon important development aspects, such as contribution to capital formation,technology transfer and foreign market access, is impeded by the limitedavailability of relevant hard data collected by national authorities oravailable from international sources. The actual impacts and implications varyenormously across countries and by types of agricultural produce. In addition,they are influenced by a range of factors, including the type of TNCinvolvement, the institutional environment and the level of development of thehost country. A number of salient observations of TNCs’ involvement inagriculture for developing countries nevertheless emerge.
Overall,TNC involvement in developing countries has promoted the commercialization andmodernization of agriculture. TNCs are by no means the only – and seldom themain – agent driving this process, but they have played an important role in asignificant number of countries. They have done so not only by investingdirectly in agricultural production, but also through non-equity forms ofinvolvement in agriculture, mostly contract farming. Indeed, non-equity formsof participation have been on the rise in recent years. In many cases, theyhave led to significant transfers of skills, know-how and methods ofproduction, facilitated access to credit and various inputs, and given accessto markets to a very large number of small farmers previously involved mostlyin subsistence farming.
AlthoughTNC involvement in agriculture has contributed to enhanced productivity andincreased output in a number of developing countries, there is lack of evidenceon the extent to which their involvement has allowed the developing world toincrease its production of staple foods and improve food security. Availableevidence points to TNCs being mostly involved in cash crops (except for therecent rise of South-South FDI in this area). Such a finding reveals thedevelopment challenges for developing countries in promoting TNC participationin their agricultural industry to improve food security. However, food securityis 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 impactson these aspects of food security are likely to prove more important for hosteconomies.
Positiveimpacts of TNC involvement in agriculture are not gained automatically bydeveloping countries. While TNCs have at times generated employment andimproved earnings in rural communities, no clear trend is discernible. To theextent that TNCs promote modernization of agriculture and a shift fromsubsistence to commercial farming, their long-term impact is likely acceleratethe long-term reduction in farm employment while raising earnings. Only alimited number of developing countries have also been able to benefit fromtransfers of technologies.
Recentexperiences also underscore that developing-country governments need to beaware of the environmental and social consequences of TNCs involvement inagriculture, even though there is no clear and definite pattern of impact. Casestudies show that TNCs have the potential to bring environmentally soundproduction technologies, but their implication in extensive farming has alsoraised concerns, together with their impact on biodiversity and water usage.Similarly, TNCs’ involvement raises significant social and political issueswhenever they own or control large tracts of agricultural land.
Agricultureis of fundamental importance to all countries in the world, both for meetingtheir growing requirements for food and for providing a basis for industrialdevelopment, diversification and growth. In some countries, increasedinvestment and technological advances have transformed agriculture, raisingproductivity and output to meet food requirements as well as laying thefoundations for rapid economic growth. In other countries, however, especiallyin Africa and parts of Asia, agricultural potential is not being fullyexploited, with resultant shortfalls in food supply and constraints on economicdevelopment. Greater investment in agriculture is thus a priority fordevelopment, and one that has received growing attention during the recent foodcrisis.
Insufficientinvestment and declining official development assistance (ODA) in agriculturehas prompted governments to look increasingly to the private sector – domesticand foreign – for significant new investment. This is reflected in theliberalization of policies related to agriculture and land ownership by hostand home countries. In fact, in the past foreign direct investment (FDI) hasplayed an important role in agriculture, with TNC activity in agriculturalproduction particularly strong in some export-oriented commodities. However,after the Second World War, there was a long-running decline in FDI flows toagriculture in developing host countries. This trend has been reversed inrecent years for a variety of reasons, but some forms of foreign participation– not least the so-called “land grabs” by investors – are causing concern bysome quarters in the development community.
Inthe recent past, allowing for data limitations, the direct involvement of TNCsin agriculture has been limited. World inward FDI stock in agriculturecomprised only $32 billion — only 0.2% of total inward FDI stock in 2008 — despite significant growth in FDI since 2000, particularly in developingcountries. Between 1989 and 1991, world FDI flows in agriculture remained below$ 1 billion per annum, as compared to more than $7 billion in food andbeverages. By 2006-2008, world FDI inflows in agriculture exceeded $3 billionper annum. This still constituted less than 1% of total world FDI inflows. Thelow levels of FDI in agriculture may be partly explained by the regulatednature of the industry, restrictions on ownership of agricultural land byforeigners, and corporate strategies which favor control over the supply chainthrough upstream and downstream activities. FDI outflows in agriculture in2006–2008 were even smaller than inflows: they remained on average around $1billion per year. This difference between inflows and outflows suggests that animportant part of agricultural FDI is undertaken by TNCs coming from relatedindustries (and therefore the capital outflows are registered under thoseindustries in the outward data). 3.3 The role and activity of transnational corporations inUzbekistan
Transnationalcorporations act as an instrument of foreign policy of industrially powerfulstates. The contemporary world is dominated by the strategic alliances of thelarge transnational corporations. Because of the transnational corporation’sexpansion of its sphere of activity and the movement of capital there is agradual disappearance of the economic borders between different states. Thistendency signifies a certain danger to developing countries, aspiring tostrengthen their national independence and sovereignty. But at the same time,market economy and an economic openness are necessary preconditions of theviability of the economy of any country and the global economy as a whole.
Thetransnational corporations act as leading forces of the international economicsystem. The study of the genesis of transnational corporations, the forms andscales of their activity, the participation of transnational corporations ininternational migratory processes, the analysis of an origin and forms oftransnationalization in Uzbekistan, the consideration of expected perspectivesfor the national economic system because of the presence of transnationalcorporations in the national market, the definition of that segment of economywhere the transnational corporations’ activity is the most essential, is theactual approach in strengthening the national economy in worldindustrial-economic mechanisms. The research, revealing of positive andnegative aspects of the political and economic interaction of transnationalcorporations and the states in a framework of intra- and inter-regionalcommunications is important for Uzbek political science.
Proceedingfrom the analysis of the positive and negative results of the transnationalcorporations’ activity, it is important to develop mechanisms of the legalregulation, and the control of cooperation of the state and the transnationalcorporations, their joint activity in the regulation of the migrationprocesses, combining equality between the priority national interests and thetransnational corporation interests, and finally to create resident effectiveand competitive transnational corporations of their own, and by providingsecurity and stability in political, military, economic, humanitarian and legalways.
Theinfluence of TNCs on the world economic development is described in differentsources, first of all, through Foreign Direct Investments (FDI) flows. Sincethe main feature of FDI is taken to be the lasting interest of a directinvestor in an enterprise, only capital that is provided by the direct investoreither directly or through other enterprises related to the investor should beclassified as FDI. The forms of investment by the direct investor which areclassified as FDI are equity capital, the reinvestment of earnings and theprovision of long-term and short-term intra-company loans (between parent andaffiliate enterprises). In the other words, transnational corporations are oneof the key factors of investment in any countries’ national economy. That is tosay, if a country attracts more investment, the impact of TNC on the aspect offoreign direct investment becomes much higher.
Investorshave 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 itcan be considered as 4 percent increase in January-March, 2011. In this case,we should emphasize the huge role of TNCs. Ourpresident I.A. Karimov had already stated that themost important factor in our move towards an open economy is the strengtheningof cooperative ties and strengthen cooperation, and to entry them appropriatelyin the transnational corporations.
 
Table3.1 — Macroeconomic indicators for January-March, 2011Sector 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 3275,9 104 Retail goods turnover 5242,6 113,1 Services 1990 113,8 Export 3471 128,5
 
Attractingforeign direct investment flow and allocating affiliates transnationalcorporations 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 beenachieving the increase of agricultural sector. Because, this corporation isnowadays arranging the manufacture of food and beverage products. In order toproduce these type of products, they need some raw materials which are croppedin our country’s area. It is really beneficial and profitable to our nationaleconomy. As for General Motors, the founders of this corporation have alreadymanaged to launch some firms and companies which produce necessary details forproducing cars. They employ the unemployment and also exporting cars possessreally huge share in our export system. It is to be emphasized as an advantagefor our national economy.
Asfor “LUKOIL”, as a matter of fact, this corporation is one of the largestvertically integrated oil companies. Company's main activitiesare exploration and production of oil and gas, petroleum products andpetrochemicals, and marketing of these products.
Theagreement envisages the development of the Khauzuk and Shady Denghizkul fieldand Kandym group of fields, as well as carrying out exploration work in Kungrodblock. The area of the contract area is 431 square kilometers in Khauzuk andShady and 3,7 square kilometers in Kungrad block.
In 2006, the Khauzak conducted extensive drilling and construction of a preliminary gas, gas collection stations, camps, roads and power lines.
The beginning of commercial production of gas fields Khauzak and Shadyscheduled for 2007, Project production volume for the entire project is 10billion m3 per year of gas.  Also planned to drill 240 wells and construction of morethan 1,5 thousand kilometres of pipelines.
Also,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
Thisis not a secret that the share of small business in our gross domestic productis notable huge. However, transnational corporations are able to project thebig investment plans. Therefore, it would be better if our country attractsmore foreign direct investment along with transnational corporations. Thepotential of our country’s economy is enough for this.
Conclusion
Thereis no denying that transnational corporations have been playing a larger rolein any country’s national economy along with the reform and opening up theiraffiliates in the last three decades. But every coin has two sides. Theentrance of transnational corporations also has negative impacts due tohistorical reasons and shortcoming with themselves and local enterprises,mainly through the crowding-out effect. First of all, the monopoly of TNCs insome sectors has forced local companies to quit, and some foreign companieshave taken measures to prevent their local companies as a way to protect. TNCshave attracted the top Research and Development and management talents tocreate difficulties for host country companies in recruiting the right people.In a one way talented and skilled people by TNCs attract a growing group oftechnicians – know-how, management and research programs may also concentrateat foreign companies.
Therole of transnational corporations in the national economy varies greatly interms of industry due to different strategies, management and home countries ofthe TNCs. But the paper concludes that the absorption capacity of domesticenterprises and state policies of host country are also two key factorsdeciding the role TNCs. Local enterprises in any country generally lack coretechnology with weak R&D and innovation management, which is an importantfact underlying the unsatisfying spillover effect. As for policies, the focusesare mainly investment structure and supporting measures, and a lot ofdeveloping countries are reviewing its “exchange market for technology”approach in a move to encourage R&D input by TNCs and their connectionswith local innovation agencies. The policies should also help to create a fairplay environment for foreign and domestic companies, but the government role inassisting infant sectors should be reconsidered.
Offers:Improve Both the Hard and Soft Conditions of Host Countries
Attractingforeign direct investment along with has become an essential part ofdevelopment strategies among less developed countries. Many offer specialincentives to foreign investors, such as tax holidays, tariff reductions orexemptions, and subsidies for infrastructure. To a large extent, such policieshave indeed been instrumental in accelerating foreign direct investment flowsinto least developed countries.
Ata broader level, Policy makers in host countries seeking to attract the flow ofFDI into their cities must improve both the hard and soft conditions of theircity’s investment environment-to offer solid economic infrastructures andfavorable policy incentives are not enough. They should also put efforts intocultivating business-oriented institutions and cultures. At a higher level, ahost country’s policy makers should be cognizant of foreign investors’motivations, concerns, and calculations. Our observation that many foreigninvestment projects have avoided or even failed in the political capitalsuggests that there is still much room for the central government to improveand reform the country’s institutions in a systematic manner.
FocusingInvestment in Strategic Industries
Theusefulness of industrial policies is hotly debated. Having already investedhuge sums in developing its manufacturing sector, the governments now want tostrengthen their domestic capability. Any transnational corporation whichallocates an affiliate of transnational corporations should meditate where toallocate investment. During allocating transnational corporations to hostcountry, there should be perspective.
Learningto Compete in International Rules
Todayworld trade is increasingly forced to play by the rules of the WTO and someother international countries. Stricter enforcement of agreements on trade andintellectual property will make it more difficult to copy designs andprocesses, thus limiting the scope for reverse engineering. So learning tocompete in international rules is a long-term task for transnational corporations.
USEDLITERATURE AND INTERNET LINKS
1. I.A. Karimov, “O’zbekiston XXI asrbo’sag’asida: xavfsizlikka tahdid, barqarorlik shartlari va taraqqiyotkafolatlari”. Uzbekistan,1997.
2. The report of the President of our country, dedicated to thesocio-economic development in 2006.
3. A.A. Isadjanov, “Jahon Iqtisodiyotininggloballashuvi”, JIDU- Toshkent, 2008.
4. Ch. Hill, “Global business today” — NewYork, 2002.
5. I.P. Nikolaev, “The world economy” thirdedition – Moscow, 2006.
6. P. Buckley, M. Casson, “The economictheory of the multinational enterprise”, — New York, 1995.
7. Ryan M.Marin, “Internal Organization ofTransnational 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
10. Christopher A. Bartlett, “TransnationalManagement”, 2003.
11. A.A.Дынкин,“Мировая экономика до 2020 года” — Москва, 2008.
12. K Meyer, Direct Investment in Economiesin 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 aboutForeign Direct Investment – 1998.
15. World Investment Report 1995, 2003,2008, 2009, 2010. New York and Geneva.
16. World Investment Survey 2009-2011. NewYork and Geneva.
17. UNCTAD, Investment Policy Review ofUzbekistan.
18. IMF, report 2009.
19. Экономическое обозрение, “Монополии как главные виновники кризиса”, 2009, February.
20. J.N. Dunning, The Electric Paradigm ofInternational Production: A Restatement and Possible Extension, The Journal“International Business Studies”, 2007, Volume19, Number1.
21. The Economist, “Big actors in worldeconomy” 2011/02.
22. Н.К.Жуманиезов,Автореферат, Становление, специфика развития и укрупнениесоциально-экономических отношений содружества независимых государств.
23. ИсажановА. «Перспективы интеграции Центрально Азиатских стран в мировое сообщество вусловиях глобализации экономики»/ Экономический вестник Узбекистана. № 3-4,2004г.
24. Журналь,“Мировая Экономика международные отношение”, 2009.
25. www.unctad.org
26. www.stat.uz
27. money.cnn.com/magazines/fortune/global500/2010
28. en.wikipedia.org
29. www.imf.org
30. www.cipe.org
Appendix 1
 
Theworlds’ largest corporations 2010
 Rank Corporation Revenues($ millions) Profits($ millions)  1 Wal-Mart Stores 408,214 14,335 2 Royal Dutch Shell 285,129 12,518 3 Exxon Mobil 284,65 19,28 4 BP 246,138 16,578 5 Toyota Motor 204,106 2,256 6 Japan Post Holdings 202,196 4,849 7 Sinopec 187,518 5,756 8 State Grid 184,496 -343 9 AXA 175,257 5,012 10 China National Petroleum 165,496 10,272 11 Chevron 163,527 10,483 12 ING Group 163,204 -1,3 13 General Electric 156,779 11,025 14 Total 155,887 11,741 15 Bank of America Corp. 150,45 6,276 16 Volkswagen 146,205 1,334 17 ConocoPhillips 139,515 4,858 18 BNP Paribas 130,708 8,106 19 Assicurazioni Generali 126,012 1,82 20 Allianz 125,999 5,973 21 AT&T 123,018 12,535 22 Carrefour 121,452 454 23 Ford Motor 118,308 2,717 24 ENI 117,235 6,07 25 J.P. Morgan Chase & Co. 115,632 11,728 26 Hewlett-Packard 114,552 7,66 27 E.ON 113,849 11,67 28 Berkshire Hathaway 112,493 8,055 29 GDF Suez 111,069 6,223 30 Daimler 109,7 -3,67 31 Nippon Telegraph & Telephone 109,656 5,302 32 Samsung Electronics 108,927 7,562 33 Citigroup 108,785 -1,606 34 McKesson 108,702 1,263 35 Verizon Communications 107,808 3,651 36 Credit Agricole 106,538 1,564 37 Banco Santander 106,345 12,43 38 General Motors 104,589 -- 39 HSBC Holdings 103,736 5,834 40 Siemens 103,605 3,097

Appendix 2
Internationalprojects of “LUKOIL”
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Appendix 3
Projectsof “LUKOIL” in Uzbekistan
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