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New (TNC) Kids on the Block

ECONOMIC AND POLITICAL WEEKLY New (TNC) Kids on the Block While the top 100 non-financial transnational corporations (TNCs) in the global economy are predictably enough almost entirely from the Triad (the US, the European Union and Japan), in 2004 five TNCs from the developing economies

October 21, 2006 ECONOMIC AND POLITICAL WEEKLY
New (TNC) Kids on the BlockWhile the top 100 non-financial transnational corporations (TNCs) in the global economy are predictably enough almost entirely from the Triad (the US, the European Union and Japan), in 2004 five TNCs from the developing economies – Hutchison Whampoa (Hong Kong, China), Petronas (Malaysia), Singtel (Singapore), Samsung Electronics (South Korea) and the CITIC group (China) – joined the pack. And, even in the arena of global cross-border mergers and acquisitions (M&As) where much of contemporary FDI action is packed, between 1987 and 2005 the share of TNCs from the developing and transition economies in M&As rose from 4 per cent to 13 per cent in value terms, and from 5 per cent to 17 per cent in terms of the number of deals that were concluded. It is thus quite in keeping with the times that the World Investment Report 2006 (WIR 2006) of the United Nations Conference on Trade and Development (UNCTAD) focuses on the phenomenon of FDI from developing and transition economies, and its implications for development. Much of the stock of FDI from the developing and transition economies is from a small group – Hong Kong (China), the Russian Federation, the British Virgin Islands, Singapore, Taiwan, South Africa, Brazil, South Korea, Mexico, Cayman Islands, China, Malaysia, Argentina, Chile and Indonesia. Of course, the transshipment of FDI via offshore financial centres, for example, the British Virgin Islands, makes it difficult to determine the size of outward FDI from specific economies. All the same, the WIR 2006 goes on to suggest that Brazil, China, India and Mexico have “considerable potential for future expansion of FDI”. This is already happening: witness the frenzy with which some Indian companies this year have been acquiring firms many times their size, and mainly in the advanced economies. WIR 2006 stresses South-South FDI flows, much of which is intra-regional, where for instance, South African outward FDI is prominent in the rest of the African continent, Argentinean, Brazilian and Mexican outward FDI is largely in the rest of Latin America, and FDI from the Russian Federation is concentrated in the CIS. It is interesting that major developing and transition economy TNCs have emerged in such areas as petroleum and natural gas, mining, non-ferrous metals and steel, some of them even taking on their developed country counterparts. Examples are Gazprom and Lukoil (Russian Federation), Petroles de Venezuela, CVRD (Brazil), Baosteel, CNPC and CNOOC (China), and Posco (South Korea). Of course, one should not forget the manufacturing TNCs that are headquartered in the developing world, as well as those in IT services – Acer (Taiwan), Huawei (China) and Samsung Electronics (South Korea) in electronics, Hyundai Motor and Kia Motor (South Korea) in automobiles, and Infosys and Wipro Technologies (India) in IT services. Like their developed country counterparts, these firms’ outward expansion, according to WIR 2006, is variously driven by market-seeking, efficiency-seeking, resource-seeking or asset-augmenting strategies. In the arena of South-South flows, to make a case for development of the host economies (the developing and least developed countries) via the activities of such TNCs, as the report tries to do, is, however, doubtful. In the present neoliberal world order, competition for FDI, whether from the developed economy TNCs or their developing and transition economy counterparts, is fierce. Practically all countries have been changing their investment regimes in the direction of more “friendly”, liberalised and deregulated business environments, which the developed countries and their TNCs have strenuously promoted. The TNCs have segmented and geographically divided their operations in order to cheapen the costs of production, locating and relocating the labour-intensive segments in lower-wage countries in such industries as clothing and apparel, consumer electronics, and so on. Most of these operations are vertically structured international production networks, either large TNC buyer- or producer-driven.

Associating TNC location of the production of manufactured exports in developing and LDC economies with the latter’s “development”, presumably enhancing national standards of living, local economic stability and growth, and so on, is quite far-fetched. This misinterprets the dynamics of the process of transnational capital accumulation. Instead, the following questions need to be asked: What has happened/will happen to the domestic import competing industries in the FDI host economies? What has been or will be the order of domestic industrial linkages in the host country? How highly import dependent are/will be the exports produced? What we are witnessing is a series of rapid shifts in the economic fortunes of nations as a result of capitalist dynamics on a world scale. The few “winners” of today may well end up among the many “losers” of tomorrow. Clearly, the economic transformation of China’s east coast (the presently celebrated “winner”) has come at the cost of the Chinese working class and other regions within China and elsewhere in east Asia, and even at the cost of the hollowing out of industrial belts in the US. While the WIR 2006 helps throw light on the process of transnational accumulation of capital and highlights the activities of a new set of (TNC) kids on the block, the claims made for “development” as a concomitant of that process are far-fetched. EPW

Economic and Political Weekly October 21, 2006

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