THE MAIN FEATURES OF THE MECHANISM OF COOPERATION OF TRANSNATIONAL CORPORATIONS WITH NATIONAL ECONOMIES

THE MAIN FEATURES OF THE MECHANISM OF COOPERATION OF TRANSNATIONAL CORPORATIONS WITH NATIONAL ECONOMIES

Ainelya Malikova

Student Korea University,

Korea, Seoul

Introduction. The deepening of international integration and internationalization of production are distinctive features of the modern international economic system. The main role in these processes is played by transnational corporations (TNCs), which have the sufficient financial and technological capacity to conduct global trade and investment activities. By opening subsidiaries in new countries, TNCs expand access to additional resources and markets, as well as transfer labor-intensive, energy-intensive, and environmentally harmful production to less developed countries. On the other hand, as a result of their activities, transnational corporations contribute to the spread of new technologies in developing countries, standardization and improvement of production quality, unification of business models and business processes, stimulate export growth, etc. Consequently, TNCs through various trade and financial instruments, mainly foreign direct investment, have a significant impact on the development of countries and territories where their production is located. It is especially important that in addition to the positive factors of TNCs entering new markets, there are also negative features, including monopolization of markets, distortion of competition within the national economy, non-compliance with environmental standards and labor laws.

Problem statement. However, the theoretical basis of the mechanism of cooperation between TNCs and national economies and the influence of host governments on the activities of TNCs require further thorough research.

The scientific thesis aims to study the theoretical and methodological aspects and to analyze the current state of the mechanism of cooperation between TNCs and national economies.

The subject of the article is the peculiarities of the mechanism of cooperation of MNCs with national economies.

Study result. Until now, the transnational corporation, or TNC is one of the main forms of international business and international economic activity. In general, a transnational corporation (TNC) can be defined as an international company containing equity capital, represented in two or more countries by its branches managed from one (several) centers. In the scientific literature, there are various terms on the designation of transnational companies, but we pay attention that representatives of the United Nations Conference on Trade and Development (UNCTAD), in the last researches use the term “multinational enterprise” for the designation of the international companies having divisions in several countries of the world [1].

Most modern multinational companies are public, their shares are openly traded on exchanges, and information about their activities and statistical indicators is publicly available. Therefore, researchers often compile rankings of the largest companies in the world, for example, the Fortune Global 500 rating, is a ranking of the top 500 corporations in the world in terms of revenues. Table. 1 shows the top 10 corporations according to this ranking.

Table 1.

Largest Multinational Corporations by Revenue, Fortune Global 500 (2020)

Source: compiled by the author based on [2]

Having analyzed the list, it is appropriate to state that the main sectors of activity of the largest multinationals are the energy sector, oil production, automotive industry, retail, and IT services.

For state economies, the activities of MNCs can have both positive and negative aspects at once. It is necessary to distinguish between developing economies and developed economies. The general trend is that transnational corporations are guided precisely by countries whose economies are classified as developed economies. Table. 2 shows the main advantages and disadvantages of multinational companies in developing economies.

Table 2.

 Advantages and disadvantages of TNC activities in developing countries

Source: compiled by the author based on [3]

The advantages and disadvantages outlined in Table 2 will vary depending on the institutional development of the countries where the MNC operates. In general, the poorer the country, the less developed its institutions. As a consequence, transnational corporations may exceed their legal authority and resort to illegal actions. For example, the management of MNCs may pay bribes so that the control authorities do not notice violations of labor or environmental laws.

Global processes, which have intensified significantly in the 21st century, have led to the fact that virtually every country in the world is integrated into the system of international economic relations. To deepen their competitive advantages, governments of national economies are deeply cooperating with representatives of transnational corporations. Developing country governments are particularly active in encouraging the activities of MNCs in their territories.

On the other hand, most developing countries manage to attract transnational corporations only with their resources: raw materials, such as oil or gas, human resources - cheap labor [4]. However, national economies become recipients of investment from large corporations. Let us consider statistics of foreign direct investment inflow in developing countries, countries with transition economies, and developed economies.

Table 3.

FDI inflows by world region

Source: compiled by the author based on [1]

It follows that the bulk of foreign direct investment is directed to the Asian region. Foreign scientists divide foreign direct investment into greenfield and brownfield. So, greenfield - projects aimed at the construction or creation from scratch of brand-new objects, and brownfield projects are based on ready-made objects [5]. In 2019, 45% of all new greenfield projects were in the manufacturing sector, 54% in the services sector (most of all in information and communication), and only 1% were in the mining and agriculture sectors [1].

One of the most common forms of cooperation between the government and MNCs is a concession. A concession or concession agreement is a form of partnership, usually between the public sector and private companies [6]. The main purpose of such a partnership is the creation of new or reconstruction of existing concession facilities, mostly immovable, owned by the state. As a result, the investor receives the right to operate this facility, and the state receives funds from lease payments or other benefits.

As an example of cooperation between a government and a multinational company, consider the activities of DB Engineering & Consulting GmbH. This corporation provides project development, consulting, supervision, and construction services for railroads in 84 countries [7]. Recent projects include the development of a plan and supervision of the construction of a railroad in Qatar, preparation, and planning for the electrification of over 450 kilometers of the railroad in Israel, modeling of a high-speed railroad in the Baltic States, etc.

In conclusion, it is fair to say that transnational corporations and national economies have a number of forms of cooperation that are actively used in the globalized modern world. For example, governments encourage TNCs to open branches and subsidiaries in their countries because of special taxation conditions, simplification of licenses, construction of necessary infrastructure, and guarantees of protection and inviolability of property rights. In turn, the activities of MNCs stimulate the acceleration of foreign direct investment, growth of exports, and GDP growth. In addition, transnational corporations, in some cases, can transfer unique technologies used in production to governments.

References:

1. World Investment Report 2020 UNCTAD. URL: https://unctad.org/system/files/official-document/wir2020_en.pdf
2. Global 500 Rate Fortune. URL: https://fortune.com/global500/2020/search/
3. Role of Multinational Corporations Govt. T.Romana College. URL: http://trcollege.edu.in/study-material/24-economics/47-role-of-multinational-corporations.html
4. Rudenko-Sudarieva L. V. Transnationalization and Competitive Development of National Economies: Theory and Practice in Developing Countries / L. V. Rudenko-Sudarieva, O. M. Mozghovyi., V. V. Tokar and others Kyiv: KNEU, 2019. 270 p.
5. Bayar, Y. Greenfield and Brownfield Investments and Economic Growth: Evidence from Central and Eastern European Union Countries. Naše Gospodarstvo/Our Economy, 2017. Vol. 63(3). P. 19-26.
6. 24.    World Investment Report 2008 UNCTAD. URL: https://unctad.org/system/files/official-document/wir2008_en.pdf
7. 25.    DB Engineering Product Portfolio. URL: https://db-engineering-consulting.com/en/productportfolio/