1.1. Historiography of transnational corporations research
At the beginning of XXI century transnational corporations are considered as one of the biggest challenges for current international economic order because their decisions affect in a large extent national economies.
Transnational companies are companies that exercise management control over the operations performed on several national markets. A transnational company can exercise effective managerial control upon the companies where it owns a small number of shares or even on foreign companies where they do not hold shares but operates on the basis of management contracts or other types of contracts. As companies with foreign trade activity TNC undertake transactions across borders of their home countries but they still hold different ownership and control of their production facilities abroad. On the other hand TNC operate with many factories and intermediates transactions between these units of which at least one is located in a foreign country. Basically TNC are defined as economic entities made up of units linked by relations of property or otherwise operating in two or more countries after a system of decision-making (in one or more centers) which develops coherent and common strategy within which one or more of these units exert an important influence on other activities, particularly on resource utilizations line, taking responsibility, the use of information.
For having a clearer picture of what are TNC it is proposed a comparison between the definitions given by authors from eastern and western world.
One of the first and widely used definitions is given by R. Vernon that says that a company engaged in producing and selling goods and services in more than one country consisting generally of a parent company located in the home and from 5,6 braches abroad (host countries) with usually a high degree of strategic interaction between its components . However, under the pressure that arose also medium-size companies with international vocation this figure was reduced to two countries and, ultimately, even to one. So far, most economies accept that a multinational corporation consists of a firm that has extended its production and marketing beyond the borders of a single country.
J. Dunning considered that TNC is a company that is engaged in foreign direct investments and which owns and controls the activities that create value in more than one country .
This definition is taken also by bodies such as OECD and UNCTAD:” Transnational corporations (TNCs) are incorporated or unincorporated enterprises comprising parent enterprises and their foreign affiliates. A parent enterprise is defined as an enterprise that controls assets of other entities in countries other than its home country, usually by owning a certain equity capital stake” .
W. Andreff defines TNC as: “any company whose capital is invested in the process of international accumulation” . This definition, rather vague, reports the notion to the structure of world capitalism which compels us to analyze in an international manner the production, distribution, supplying, financing and the know-how of transnational corporations. In other words, Andreff consider that TNCs are an important component of international capitalism.
Dictionary of Modern Economy defines TNC as a large enterprise that has its headquarter in a country and is operating mainly or partially through its subsidiaries from other countries. These companies are expanding on an international scale to harness the vertical and horizontal advantages of the global scale economy.
Transnational corporations, according to Николаевa И.П Russian, author of the book Мировая экономика (World Economy), it is a corporation which parent owns the capital of one country called home-country and subsidiaries located in other countries. They are a kind of multinational corporation while the difference lies only in the fact that the parent company owns the capital of two or more countries. Both of these forms are based on the carried out under the control of the parent company’s technological and financial link between enterprises in different countries. Their main feature is the international high-quality character of companies.
Scientists from Republic of Moldova Chistruga B., Gribincea A., Rosca P. are saying that: “TNCs are companies that implement, conduct and develops its activity in several economies and directions also coordinates and supervises the control and distributes the world operations of different countries on the basis of common strategy in order to achieve their targets.
The diversity of definitions of transnational company concept represents the consequence of the importance of different characteristics given by the authors for companies that are operating at international level. A first category of definitions are those that highlight the structural characteristics of firms: number of countries in which the company is operating, the nationality of shareholders or top management multinational composition. The second category of definitions is based on performance characteristics of a company: absolute volume or relative share of revenues, of owned assets or share of employees involved in operations on international scale of the company. The last category, is represented by those definitions that give a great importance to behavioral characteristics of the top management of the company, such as “thinking in a global way” or the application of global business strategies.
In principle all the definitions and opinions of TNC are divided but regarded to its subsidiaries the opinions are convergent. There are allowed two major types of subsidiaries :
a) First type – “relay-subsidiaries” that produce and sell on local markets goods belonging to the existing product range in the country of origin of the mother-company.
b) Second type – “workshop or manufacturing subsidiaries” that are specialized in the production of components of a final product for which the demand is low or absent.
Nevertheless, for these 2 types of subsidiaries can be added the trade subsidiaries that do nothing else than distributing products manufactured in other places.___________
Corporate charter appearance in the XVI century marks the beginning of corporate history. Corporate charter represented a privilege given by the state to a group of investors to serve a public purpose. Thus in each charter were specified the rights and obligations of corporations including the profit that should be returned to the Crown in exchange for special privileges which consisted in limiting the legal liability of an investor to the amount of its investment. These corporations, of which the most common were the East Indian
Company and the Hudson Bay Company, were used by England to maintain control over the colonial economy.
In the Middle Ages the state was involved directly or indirectly in most economic activities that took place outside the national territory and the most important form under which these businesses were presented were investments.
The first major corporation with international activity was “Commenda” which was formed following an agreement reached between several participants through which the most important investor or a group of investors entrusted their capital to one or more agents that conducted business on sea or/and on land. The biggest part of this trade involved the transfer of resources outside national borders. “Commenda” partnership types were established on short periods of time and at the end the profits were divided according to the agreement and the partnership were dissolved. However, from this type of trade it has been noticed exceptions: “Hanseatic League” – that was an international company owned and headed by a group of Hanseatic traders which had its headquarter in Lubeck (Germany) and respectively, “Company of Merchant Adventurers” – a strong British consortium whose work was conducted in wool industry and clothing articles.
The specific characteristics of these corporations were the ability to coordinate and distribute the use of capital in entrepreneurial experience and coordinate the marketing of goods.
During the XVI and XVII centuries, with the development and improvement of external communications system, international trading activity has entered a new stage, relations between partners relying on a greater extent on rules and regulations. The main objectives sought through foreign direct investments consists in supporting commercial activities held by the state on foreign territories, namely, promotion and economic development of the colonized territories.
The industrial revolution of the XIX century led to the development of the activity of international trade highlighting new motivations for firms to invest abroad: obtaining new resources of raw materials and protecting or extending positions held on foreign markets.
The development of industrial capitalism marked the importance of technology in activity of a corporation, money-capital and human skills. These evolutions highlight the transition from mercantilist capitalism to the industrial capitalism.
In the first half of the XIX century it was stated three categories of operators with international activity carried out through direct investments: individual entrepreneurs, individuals who simply provide the money-capital without getting involved in leading and large corporations during their embryonic phase. The territorial expansion of international companies in their embryonic form manifested itself on two fronts: investment in natural resources and -investment aimed at conquering new markets.
Thus, this period represents “completion of the first stage in the process of their international expansion announcing the appearance of the first companies with international status as a precursor to today’s big corporations” .
In the second half of XIX century organizational issues and technological developments in the enterprises led to higher production for export as a first step towards the emergence of multinational producers.
Development of the economic environment has created premise of appearance of joint stock companies as major economic agents instead of individual or family firms.
Technological progress in the transport or communication sector or another sector combined with the emergence and formation of specialized personnel in management and administration required the appearance of multi-regional companies that conducted a wide range of activities.
During this period the possession and management of the production and marketing activities specific for intermediate products which were used as inputs for other activities controlled by the investing company also as the control of market of goods and services represented the decisive reasons which led to the development of corporations.
Thereby in the year 1914 almost 54,6% of foreign direct investment made by North American corporations were registered in the sectors of oil exploitation and mining, and agriculture sector .
From a number of 3373 of businesses in the Great Britain that operated fully or mostly abroad and which were listed on the London Stock Exchange 1802 or 53.4% were working in the primary sector. In a study of firms with FDI of Continental Europe were identified 167 branches established by 85 large companies investing abroad. In Japan companies with direct investments conducted abroad were seeking in their expansion for promotion of Japanese industrial products and also to get the most advantageous suppliers of raw materials. Approximately 77.5% of Japanese investments were recorded in China .
At the end of XIX century important changes were made in the nature and organization of world trade both in terms of content of processed goods, product quality as well as increasing market size and trend toward standardization of markets.
It has been registered an intense international activity in the banking sector dominated by Great Britain. British banks have certain advantages compared with bank in other countries consisting mainly in the possibility to act on the largest capital market in the world- that of London.
Also, Japanese companies controlled a major part of shipping activity developed in the Pacific Ocean. In the 1881 year 14 Japanese companies had formed branches in New York in the scope of promoting Japanese exports but also for purchasing modern equipment and machines needed in the conduct of national production.
Until the First World War it is estimated that at least 14.5 billion USD were invested in companies or subsidiaries established abroad that represents about 35% of long term external debt at the global level.
Historical-economic analysis shows that 3/5 of the foreign stock capital registered worldwide in 1914 were invested in contemporary developing countries. Simultaneously, approximately 55% of the FDI stock performed abroad in 1914 was in the primary sector, 15% in secondary sector, 20% in construction of access roads and 10% in banking sector, insurance, public utilities and distribution. Often such kind of investments has taken the form of subsidiaries of investing overseas companies.
In the interwar period, although the number of branches of international corporations continued to increase, the volume of invested foreign capital reached values of prewar period only in the late 30s. European investments were directed to countries from Europe and to the United States (US) while American investors preferred Latin America, Canada and the largest European countries. Customs duties were increased also they introduced new methods of control and restriction of imports and exports.
Despite the fact that economic and political environment was less hospitable the international activity of international corporations continued to grow in the interwar period, especially in the 20s.
It is the period in which occurs “a genuine process of maturation of international corporations characterized by the following defining characteristics: growing up of FDI and the appearance of integrated international corporations, the emergence of foreign investors in exploiting new sources of raw materials, creation of international cartels in some sectors very attractive for FDI, the growing role of Japanese companies in the American-Japanese trade and the development of Japan .
The postwar period as a whole is characterized by continuous development of all types of trade and investment activities distinguishing three stages:
a) First- until 1960 was characterized by increased foreign capital involved in direct investment and by increasing the number of branches of the most important multinationals. This stage is characterized by slow growth in FDI due to the significant technological advances made during this period
b) The second stage – between the end of seventh decade and mid- 80s noticed themselves as major international investors a number of European countries, Japan and several developing countries. Thus, in the year 1974 in the ranking of the 50 most important TNCs were 20 European companies. Also among the top 50 TNCs in the world are present as well several Japanese companies (Hitachi, Toyota, Mitsubishi Heavy Industry).
c) The third stage begins in the mid-80s and is still underway differing significantly from previous periods. Thus, new territories were opened to foreign productive enterprises, international markets were liberalized, there have been registered important improvements in the process of regional economic integration and especially appeared globalizing transnational corporations. The third stage of postwar development of transnational corporations (1985-present) is characterized by the emergence of truly global companies and the increase of complexity of forms of cooperation and relations between corporations. The main objective of the international production is not first of all to obtain additional profits as a result of competitive market advantages, but rather exploiting the advantages alleged to result from participation in this type of production. In such way it reached on a rational reorganization of economic activity between different subsidiaries or between subsidiaries and parent companies. To this end the activities of various branches have been reorganized so as to meet the needs of national import substitution.
In conclusion it can be said that there are some factors that influenced the appearance and evolution of TNCs. One factor is liberalization of economic policies, the opening of national borders, liberalization of FDI and portfolio investments flows or other cooperation and investment agreements. The development of technological progress is another factor that we can notice and which leads to increased costs and risks to which companies are exposed, requiring approaches for different world markets through international relocation of production to diversify these risks. On the other hand the transportation and communication cost reductions have facilitated a better integration of operations at global level as well as the transportation of components or finished products for economic efficiency seeking and comparative advantages. Increased competition, which is actually a result of the two factors mentioned above, requires exploration of new markets by the companies both to reduce costs of production and also for more efficient capitalization of final result but it also requires a new approach of new forms of international production, international property and contractual agreements which may intensify their strength on the market, for example, mergers and acquisitions, minority and majority participation, public offer of exchange and others.
1.2. The theoretical aspects of the world economy transnationalization
Multinational, international, transnational, global – there is a tendency to think that these notions are referring to all companies that is doing business in a foreign country. International companies are those companies that import and export but do not invest in foreign countries while multinational companies have investment in foreign countries and their products and services are adapted to each individual local market. The companies that are global have investment and their products are known under a brand in the whole world, have headquarters that respond for the global expanding highlighted on volume, cost management and efficiency. TNC are much more complex organizations. They have advantages as investors in foreign activities but give power to decide, marketing power, and opportunity to develop to individual foreign market.
“International” and “multinational” phases can be considered as primary phases of the phenomenon of globalization, while TNC is an expression of globalization, a product of the objective of this process, but also an essential economic factor of accelerating economic globalization. It is the basic element in spreading the process of globalization which tend to expand their capital abroad, to develop market share, enter domestic markets at the global level and realize the internationalization of production.
Globalization is the modern term used to describe changes in society and in the world economy resulting from increased international trade and cultural exchanges. It describes the growth of trade and investments because of reduction of barriers and interdependence between states. In the economic context it is common referred to the effects of trade and, in particular, trade liberalization or free trade.
A definition given by the sociologists Martin Albrow and Elizabeth King explain that globalization is “all those processes by which the people of the world are incorporated into a single society.”
Approached from the point of view of economy and finance globalization can be defined as strengthening and widening links between national economies in the global market of goods, services and especially capital.
Globalization became an objective, implacable process which often takes place with a dizzying speed including the quasi-totality of world states. In a narrow term of economy, of allocation efficiency and resource utilization economic globalization appears as a rational phenomenon capable of providing a larger volume of goods and services with fewer resources.
Therefore, globalization supposes the globalization of process of creating gross domestic production of world states.
Globalization is considered as a factor that determines the decrease of the role of national government following the extension of international investment capital action and transnational corporations.
“Transnationalisation” can be considered as the third phase of the process of globalization. The phenomenon of transnationalisation of economic life is closely related to two other issues: a) the existence and activities of transnational corporations and b) direct investment flow.
At the first stage of transnationalization of the activity of large industrial firms, they invested, first of all, in the raw material industries of foreign countries, and also created their own distribution and sales divisions in them.
At second stage in the evolution of the TNC strategy is associated with the strengthening of the role of foreign production units of transnational corporations and the integration of foreign production and sales operations. At the same time, the production foreign branches were specialized mainly in the production of products, which at the previous stages of the production cycle were produced by parent companies. The largest investing country in the postwar years was the United States, and investments were directed mainly to developing countries.
At the present stage the strategy of TNC is characterized by the desire to form networks of intra-regional relations of regional and often global scale, in which scientific research and development, material support, production, distribution and marketing are integrated. In particular, there is a tendency to spread the innovative activity of TNCs to host countries which was previously based on parent companies.
The reasons for the appearance of TNC are very diverse, but all of them are to a greater or lesser extent related to market imperfection, the existence of restrictions on the development of world trade, strong monopoly power of producers, currency control, transport costs, differences in tax legislation.
TNCs arise under the influence of such factors like: the internationalization of production and capital on the basis of productive forces; fierce competition leading to the concentration of production and capital on an international scale; reducing the importance of geo-economic boundaries; the desire to obtain super profits; the expansion of capital abroad, the creation of their own branches.
The expansion of capital abroad can be done through FDI that has been one of the main engines of world economy globalization in recent decades and had as achievements: an essential contribution to the economic development of states, positive effects on the balance of payments, creation of new jobs, increase revenue to the state budget, access to modern technology.
The development of TNC represents a new form of outward expansion of monopolies by nature of their organization, through direct investments or portfolio investments, through free trade zones. TNC operates in large areas intensifying the internationalization of capital and increasing their degree of concentration and centralization.
Foreign direct investment and portfolio investment (PI) is the instrument underlying the appearance of TNCs. FDI is a way through which TNC can penetrate the world markets and FDI figures are often used for measuring the size and development of TNC. FDI assumes a direct control of the investment, while the PI allows the participation in decision-making process but not allow the exercising control. PI are considered, in general, purely financial investment and the limit of demarcation between FDI and portfolio is valued in around 10% of equity, however differing from a country to another depending on the regulations in force.
The World Investment Report 2002 is using the definition for FDI given by the IMF but in a more extensive form as follows: “is an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise of foreign affiliate).”
As already noted, the international FDI flows are mainly carried out through the channels of TNCs. FDI is the main instrument of economic expansion of TNC. The opportunities to obtain higher profits abroad and expand the sales market lead to a constant increase in FDI. The main reasons for investing in the economy of other countries are maintaining technological leadership; exporting investments; TNC is seeking to retain control over key technology that gives them competitive advantages; the scale effect of production, the larger the investment, the larger the scale of production; providing access to cheap resources; reduction of transportation costs; overcoming customs barriers, when creating production abroad there is no need to pay customs duties; the possibility of monopolizing.
These reasons can be grouped into four categories:
a) Seeking for resources (natural resources, labor force);
b) Seeking for efficiency;
c) Seeking for markets;
d) Seeking for strategic assets or abilities.
Concrete ways to implant FDI are numerous, from minority participation to holding totally the capital of a subsidiary. Usually there are preferred those kind of investments that is ensuring full ownership of subsidiaries. Total control of foreign subsidiaries is a guarantee for parent company that its policy will be respected. Having total control over subsidiaries provides keeping the technological advance, preventing diffusion of know-how. The most convenient strategy for external implantation is the purchase of already operating foreign companies. This means saving time and money, better use of employees who know their work, the advantage of an administration that knows the characteristics of local market. But there are countries (in Japan) and some situations when local laws and regulations did not allow transnational corporations to buy the majority shares and in these cases appear joint ventures.
There are several types of doing these foreign direct investments depending on the contribution to the development and renewal of economic assets in the countries that receives FDI :
a) Greenfield – investments in business established and developed by or together with foreign investors in the form of Greenfield investment (from zero).
Following this strategy, the company buys or leases a piece of land, builds new production or service facilities on it, hires and/or relocates managers and worker services, and then begins operating a new facility. Fuji Film’s manufacturing plant, located in the state South Carolina , serves as an example of investment in new construction, as well as the assembly company Mercedes-Benz in Alabama and Nissan in the English city of Sunderland, Tyne and Wear .
The strategy for the construction of new enterprises has several advantages. First, the company has the opportunity to choose a site for construction, better meets the necessary requirements, and build on it a modern enterprise, equipped with the latest equipment. The opening of such kind of enterprises creates new jobs, therefore, local authorities in many cases offer for companies various economic incentives to attract construction to their territory. Such incentives allow companies to reduce the overall volume of costs.
b) Brownfield – investments in companies wholly or partly taken over by foreign investors from residents, more than 50% of tangible and intangible assets being completed after takeover.
The main reason to use this strategy is simple. When buying an operating company the investor (buyer) obtains control over enterprises, personnel, technology, trademarks and marketing networks of the purchased firm. At the same time, all units of the acquired company continue to function and generate profits while the buyer company integrates the new structure into its international strategy. Also, unlike the strategy for building new enterprises, the acquisition strategy does not require an increase in production capacity in this industry.
In some cases, international companies buy local firms only to penetrate the markets of foreign countries. For example, American Eagle Outfitters acquired Canadian retail chains for the trade of youth clothes Braemar and Thriftys. Acquisition of 150 outlets allowed the American retailer quickly to penetrate the broader segment of the Canadian market.
c) Joint-ventures – is created by two or more parties that agree to establish a company that is legally separated from the parent companies and whose task is to meet the mutual interests of the founders. Joint venture is the property of the founding companies in the ratio they agreed on with each other.
The creation of joint ventures gives the company the following advantages: the opportunity to penetrate new markets is simplified; there is a diversification of risks and risk pooling (distribution of risks between JV participants); exchange of knowledge and experience; a synergetic effect arises and competitive advantages appear.
There are three types of joint venture management. First, JV can be managed by the founding companies themselves. At the same time, each company distributes its representatives to key positions in the joint venture with reports to parent companies. Secondly, one of the parent companies can take the main responsibility for the activities of the enterprise. Third, independent managers can be hired to manage the joint venture. The third approach seems most appropriate since independent managers concentrate their efforts on what is beneficial for the company rather than trying to satisfy the parent company.
However relationship between FDI and TNCs is not exclusive, meaning that not all FDI are made by TNCs insomuch as not all investment flows attached to TNCs subsidiaries are flows of foreign direct investment. Foreign subsidiaries of TNCs may be financed through funds obtained either from the domestic capital market of the host country or by direct appeal to external financing (loans and bonds) other than intra-firm financing. These funds increase the productive capacity of subsidiaries and influence local markets without being booked in the category of FDI but as capital expenditure.
The basic principles of the development of large companies in the 1980s –economy, flexibility, maneuverability and compactness- were replaced in the second half of the 1990s by an orientation toward expansion and growth. TNCs seek to find additional sources of expansion of their activities, among which one of the most popular is the merger and acquisition of companies. Merger is one of the most common methods of development to which even very successful companies are resorting at the present time. This process in the market conditions becomes a common phenomenon almost everyday.
In accordance with generally accepted overseas approaches, a merger implies any combination of economic entities as a result of which it is created a synergy, a single economic unit from two or more previously existing structures.
The acquisition of a company can be defined as buying one company by another one in order to control it and to manage it having absolute or partial rights of ownership on it. It is often done by buying up all the company’s shares on the stock exchange, which means the acquisition of the enterprise.
Mergers and acquisitions of companies throughout its history have been divided into waves. Particularly distinct waves can be observed throughout the XX century. We can distinguish five most pronounced waves in the development of these processes, each of which has its own peculiarities.
Period Name Facet
1893-1904 First Wave Horizontal mergers
1919-1929 Second Wave Vertical mergers
1955-1970 Third Wave Diversified conglomerate mergers
1974-1989 Fourth Wave Co-generic mergers; Hostile takeovers; Corporate Raiding
1993-2000 Fifth Wave Cross-border merger; mega-mergers
2003-2008 Sixth Wave Globalization, Shareholder Activism, Private Equity
If at the beginning of century one of the main incentives for mergers and acquisitions was a reduction in transportation costs, the last wave of the late 90s was primarily due to a decrease in the cost of telecommunication services, as well as progresses in informational technology. The reduction in the speed of information exchange and, as a result, the manageability of a certain size, slowed the further growth of TNCs. With the appearance of such informational technologies as electronic commerce and electronic document management the growth borders have significantly expanded. A cheap and efficient network of communication allows firms to place different components of production in different countries, while maintaining direct organizational and information contacts, direct management of commodity and financial flows.
Being considered fast and flexible ways to earn additional resources, strategic alliances are among the most popular strategies used by TNC for new product development and expansion into new markets.
A strategic alliance is an agreement between organizations to work together to gain access to new knowledge, technologies and markets and to accomplish tasks that are mutually beneficial. They can have different organizational structures, technological accents, a financing mechanism and staff composition. Strategic alliances include functional agreements, agreements on participation in assets with the creation of joint ventures, the formation of new organizations.
Strategic alliances have the main task – to effectively manage knowledge, in order to accelerate the development, transfer and commercialization of technologies and thereby accelerate their access to new markets.
Strategic alliances are useful for TNCs growth for several reasons. Competition has increased significantly in present. Because of the increased competition it is needed a greater capacity to satisfy these requirements, more resources, multinational links, access to markets and suppliers, knowledge. Another reason for what alliances are advantageous is the control and concentration of common resources, corporate activity being hampered normally by limited resources that they have.
The magnitude and speed of changes in the world is increasing, especially as customers’ tastes are changing and technologies are in a continuous progress and such alliances allow rapid response to these changes. Alliances are developing as a necessity to create and exploit new opportunities, to share risk and for better defense against competitors.
The diversity of TNCs operating in the world can be classified according to a number of characteristics. The main ones are: country of origin, sectorial orientation, size, level of transnationalization.
The practical significance of the TNC classification is that it allows assessing the advantages and disadvantages of placing specific corporations in the host country.
Country of origin of TNCs is determined by the nationality of capital in its controlling shareholding assets. As a rule, it coincides with the nationality of the home country of the parent company of the corporation. TNCs of developed countries have private capital. In TNCs of developing countries a part of the capital (sometimes significant) may belong to state. This is due to the fact that initially they were created on the basis of nationalized foreign property or state enterprises. Their goal was not only to penetrate the economy of other countries but also to create the basis for the development of national industry, the rise of the country’s economy.
By size of activity TNC can be divided into the largest, large, medium and small. The conditional criterion for this division is the size of foreign assets. The overwhelming majority of the total number of TNCs (over 90%) belongs to medium and small corporations. According to UN classification, they include companies with fewer than 500 employees in the country of residence. In reality, there are TNCs with a total staff of less than 50 people. Such TNCs are distinguished by their ability to react more quickly to changings in market conditions. Some of them work independently, and others in alliance with large corporations, forming various kinds of concerns.
Sectorial orientation of TNC is determined by the main area of its activities. On this basis are distinguished commodity TNCs, corporations operating in the primary and secondary sectors, industrial conglomerates. In present TNC are positioned in the basic branches of the extractive and manufacturing industries and services. These areas of activities require significant investments.
However, not all TNCs have strictly defined specialization. TNCs of conglomerate type are forced to determine their priority industry for understanding where to send the most investments in order to get a bigger profit.
To assess the degree of involvement of a TNC in the production of goods and services abroad it is used the index of transnationality which is calculated as the average amount of three values: the share of assets abroad in the total volume of TNC assets, the share of sales abroad in the total sales of this corporation, the share of personnel abroad in the total number of personnel of this TNC .
Another classification of TNC can be made according to their strategy of expansion or integration and there are three big groups :
– Horizontally integrated TNCs – manage the divisions located in different countries producing the same or similar goods;
– Vertically integrated TNCs – manage divisions in a particular country that produce goods supplied to their units in other countries;
– Separate TNCs or Conglomerates – manage the divisions located in different countries that are not vertically or horizontally united.
The main specific features of TNCs are:
• A sufficiently large size of the firm, which makes it possible to use the entire arsenal of means of effective international activity;
• Elements of a monopoly position in the market;
• An international production structure with a developed intra-firm division of labor;
• A significant share of foreign operations in the overall activity, the transnational nature of operations;
• The supremacy of the center in making strategic decisions and monitoring all links;
• A unified global strategy.
CHAPTER II. THE ROLE OF TRANSNATIONAL CORPORATIONS IN WORLD ECONOMY
In the second half of the XX century on the world economic scene, excepting traditional national economies, dozens of economic groups and regional associations, for objective reasons, related to the highly effective and innovative development of industrial agriculture, energy, transport and communications appeared new powerful players – transnational corporations.
The dynamics of FDI clearly demonstrates the increasing role of TNCs in economic processes and the importance that is played in the national economies, both in developed states as well as in countries with emergent economies. The role was facilitated by the liberalization of FDI policies, occurring in many countries as part of the global trend to a more open policy.
In order to realize the benefits of using FDI, the state and regional economic associations reduce barriers to FDI and clearly define the optimal standards of the national investment regime. In a complex process of interaction between investors and recipients of FDI at all stages of cooperation, mutual respect and a balance of interest are needed. However, like any complex and ambiguous phenomenon, such process is still an unattainable ideal.
Today TNC are an important element in the development of the world economy and international economic relations. TNCs play a leading role in the internationalization of production, which is becoming more widespread in the process of expanding and deepening production links between enterprises of different countries. The development of a modern system of economic relations is under the influence of accelerating globalization.
TNCs have undergone a certain evolution, the result of which was their current functioning and their impact on the economic, political and social spheres of society.
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