Transnational Corporations - Volume 27, Issue 1, 2020

The shuttering of commercial activity in the face of the Corona (Covid-19) pandemic will have a dramatic effect on the global economy. UNCTAD’s Division on Investment and Enterprise has been monitoring the impact on investment, as well as its implications for development.1 In the face of the unprecedented circumstances, this issue of the Transnational Corporations furnishes a brief overview of this work, notably from the perspective of foreign direct investment (FDI) and investment policy. UNCTAD’s World Investment Report (forthcoming, June 2020) will provide an expanded and in-depth analysis of FDI trends and investment policy developments that also accounts for the impact of the pandemic.

This article shows evidence that FDI policies during the catch-up process may leave a trace in the openness of innovation activities in latecomer economies, based on a comparative analysis between the Republic of Korea and China. The past industrial policies of the Republic of Korea favoured creating local technological competence based on the transfer of foreign knowledge in codified form, leading to a low level of global connection in local knowledge creation. By contrast, Chinese policies encouraged the entrance of foreign firms in the Chinese market, leading to a higher level of global interaction in innovation activities. Based on the findings, the article presents policy recommendations and suggests avenues for future research.

The study examines the relationship between performance and patterns of autonomy and the network relationships used by the foreign subsidiaries of transnational corporations (TNCs) in world cities compared to those subsidiaries outside these locations. This is done by exploring if these patterns differ in foreign subsidiaries in Greater Copenhagen compared to elsewhere in Demark. The findings reveal that there are important differences in the relationships between performance and the autonomy and network structures in foreign subsidiaries. These findings are discussed and policy implications distilled. The study finds that the scope of inward foreign direct investment (FDI) policy could be usefully extended to encompass urban development thereby helping cities develop assets, institutional support and infrastructure that can enhance agglomeration benefits and global connectivity. The findings indicate policies, aimed at helping subsidiaries embed in host location networks and incorporate these networks into other parts of the parent company, could be beneficial. The paper also discusses economic and social inequality that can stem from network patterns and the inclination of subsidiaries to operate autonomously in world cities. It proposes policy options that can lead subsidiaries to undertake high-value activities and innovation in world cities.

Owing to rising unemployment among Saudi nationals, the Kingdom of Saudi Arabia (KSA) has instituted Saudization, a localization policy that strives to induce the employment of more Saudi nationals in the private sector. A major gap in the literature is the lack of empirical investigation regarding the relationships between indigenization and the underlying principles of its process. This study seeks to fill this gap. The study assesses the success or otherwise of the Saudization initiative empirically and uncovers several features. It finds that TNCs that experience the external pressures to “localize” their workforce, and those that wish to enhance their social legitimacy, are more likely to comply with Saudization. Furthermore, TNCs do not believe that the process of localization provides them with economic gains. Legal coercion to adhere to the Saudization initiative turns out to be a highly significant instrument in making TNCs adhere to the localization process. The study also finds that neither age nor the size of the firm have an impact on the Saudization programme. Implications for theory and practice are drawn out.

This study applies both the internationalization and regulatory focus theories to understand what motivates SMEs to implement springboard strategies – i.e. to invest in a country to re-export to third countries. While some academics emphasize the importance of free trade agreements and cost differentials, others highlight the role played by the individual and network dimensions. We conducted 66 in-depth interviews and five days of non-participant observations with five French manufacturing SMEs and ten investment promotion agencies. Our analysis revealed the existence of firm, network and country-related motivations – springboard strategies being mainly firm-driven – as well as common, partially-shared and specific motivations. Public policy to promote and/or attract springboard-oriented foreign direct investment (FDI) should look at developing dedicated support and educational programmes for SMEs, offering better access to promising markets by removing barriers and enforcing transparency and trade agreements.

Recent years have seen a significant increase in the complexity of multinational enterprise (MNE) ownership structures. Complex corporate structures raise concerns about the effectiveness of national and international investment policies, based on the notion of investors’ nationality. This motivates this research effort, aimed at analysing the ownership structures of some 700 000 foreign affiliates (FAs). A new methodology, the bottom-up approach, is introduced. The main objective is to empirically map the “shareholder space” of FAs, along the vertical dimension, from the direct shareholders to the ultimate owners. We find that FAs are often part of transnational investment chains; more than 40 per cent of foreign affiliates have direct and ultimate shareholders in different jurisdictions (“double or multiple passports”). Based on shareholders’ nationality, we then propose and empirically analyse the salient features of four main archetypes of FAs ownership structure: plain foreign, conduit structures, round-tripping and domestic hubs. Each poses specific challenges to policymakers.

China’s international investment law and policy have been the subject of detailed study since the liberation endeavour of the late 1970s, which was a landmark change in the country’s development path and integration into the global economy. The country’s active participation in the global economy is mirrored by its evolving profile of cross border capital flows, with China both a prominent source of, and destination for, foreign investment. Indeed, China’s rise as a global investor has made its approach to international investment an important issue on which a considerable amount of literature has already been published. The recent past has, nevertheless, seen several important events within China, as well as bilateral, regional and global events influencing China’s approach towards international investment and adding new perspectives thereto.