1. Transnational companies and the financial crisis
Grazia Ietto-Gillies

2. Plan of presentation Transnational companies
The contexts of the crisis and TNCs’ developments
Key developments in the economic environment
Transnational companies and finance
Analysis of the crisis
Where are we heading?

3. The transnational company TNC
Terminology
Activities
Specific characteristics
TNCs and control
Growth
Theories

4. Terminology Noun Companies, corporations; enterprises, firms
Adjectives:
Multinational (MNCs)
International
Transnational

5. Specifics elements of TNCs
Ownership of assets abroad via FDI; in at least one foreign country
Direct business activities abroad
Ability to control those operations

6. Control Control as ownership: equity stake
Strategic and managerial control

7. Activities Trade: both imports and exports Franchising Licensing
Sub contracting
Joint ventures (JVs)
Foreign direct investment: greenfield or M&As

8. Growth and changes
In the total number of TNCs by the largest 14 investor countries estimated at 7276
In 2009 UNCTAD estimated it at 82, 000
Sectoral and geographical changes
Smaller TNCs
Growth in all modalities of operations

9. Theories of the TNC Pioneer work by Stephen Hymer 1960, published 1976
Many, many theories since. Possible to see two approaches in them:
Efficiency approach: transnationality driven by costs considerations
Strategy approach: transnationality driven by strategy towards rivals, labour or governments

10. The contexts Technological context
Technology and cost of transportation
Technology and cost of personal communications
Organizational context: linked to ICTs.
It is affected by the ICTs and has lead to more investment in ICTs

11. Organizational context
Three major strands of organizational innovation:
Organization of production across countries
Division of production process in segments to be sited in different countries and/or produced by different firms
Involvement of satellite firms in production process organized and controlled by large firms as main centres

12. The political context
1960s and 1970s: confrontations between governments and TNCs. Nationalizations of foreign TNCs assets
From 1980s to early 1990s: co-operation. Privatization with acquisitions by foreign TNCs
1990s and later: confrontation between various groups (NGOs etc) and TNCs

13. Key developments in economic, social and political environment (1)
Deepening of cross-border activities via TNCs
Growth in cross border FDI and portfolio Investment.
Large privatization programmes
Incorporation of Soviet Union and CEE countries into market sphere
Rise of China, India, Brazil to world stage

14. Key developments in economic, social and political environment (2)
Slow growth since 1980 compared to post WWII
Increasing financialization of economic systems: Stock of financial assets as % of world output from 1.2 in 1980 to 4.4 in 2007
Increase in inequality
Increase in debts of private, corporate and state sectors

15. Some facts in macroeconomies
Between 1979 and 2006 the top 1% of US earners share of GDP grew from 10% to 22.9%. For top 0.1%: from 3.5% to 11.6%.
World economy grew in per capita at over 3% in 1960s and 70s but only at 1.4% since 1980.
In US private investment as % of GDP declined from 18.5% in 1979 to 15.5% in 2007

16. TNCs and finance
Many TNCs operate in the financial sector. In 2009 the world share of outward stock FDI of finance sector was 22%: underestimate
Manufacturing companies diversify into services
All large companies including TNCs involved in portfolio investment
Most FDI via M&As

17. Analysis of the crisis (1)
Crises as manifestations of mismatch between production, demand and distribution sides of the economy
Technol. and organizat. developments led to increase in forces of production and therefore in potential capacity and potential output.
Absorption problem: high demand needed to absorb potential capacity

18. Analysis of the crisis (2)
Aggregate demand:
Consumption: constrained by the changes in income distribution. Few eproducts
Exports: world net export are zero
Private investment: constrained by low demand and profitability issues
Government investment in large projects (environment etc) constrained by politics

19. Where are we heading? (1)
Protectionist policies? Protectionism and FDI
More FDI as M&As to cut capacity
Changes in geographical structure of FDI
More FDI from developing countries and from state companies
Restructuring by TNCs may leave smaller companies vulnerable

20. Where are we heading? (2) Impact of internet on cultural industries
Internet and possible strategies by other agents: labour

21. Conclusions TNCs are part and parcel of the crisis
Crisis signals disequilibrium between production, demand and distribution
They have to be brought into line to overcome present crisis and to avoid future ones.
Regulation of the financial sector is necessary in order to channel more funds into real sector

22. References Most material from: Ietto-Gillies, G.
2005, Transnational Corporations and International Production. Concepts, Theories and Effects, E. Elgar, chs 1,2.
2010, ‘The economic crisis of 2008 and international business. Can we say anything meaningful about future scenarios?’, Futures, 42, 9: , November.
2011, ‘The Transnational company and finance’ in Michell, J. and Toporowski, J. (eds), Handbook of critical issues in finance, Cheltenham: Edward Elgar.