Transnational Corporations - Current Issue

This paper aims to advance research on transnational corporations (TNCs) and international business policy by identifying the role and influence of foreign-owned TNCs in global value chains (GVCs) compared with those of domestically owned firms. We do this by dividing the topology of trade in value added (TiVA) into three networks composed, respectively, of traditional trade, simple GVC trade and complex GVC trade, based on the OECD intercountry input-output data for 2005–2016. Our empirical results show that China’s domestically owned firms have not only been supply centres of manufacturing value added, but have also risen as new regional centres of both supply and demand for services through simple GVC networks. Domestically owned firms of the United States dominate GVCs in services as a global center for both demand and supply, especially in complex GVC networks. TNCs located in Germany and the United Kingdom have a dominant presence in providing value added in manufacturing and services, respectively, through complex GVC networks. By making GVCs visible through TiVA-based network analyses, this paper significantly extends the understanding of who dominates what types of GVC. This will help policymakers better monitor and enhance their GVC governance and competitiveness strategies in more flexible and diversified ways.

A number of regional trade agreements (RTAs) include investment protection provisions that may limit a country’s ability to change tax measures. This limitation could raise concerns for States as regards the recently agreed global minimum tax under the Global Anti-Base Erosion (GloBE) Rules, as its implementation could amount to a breach of investment obligations. Therefore, this paper analyses how the GloBE Rules and their impact on investment incentives interact with investment provisions in RTAs, also considering the impact of the minimum tax on regional integration efforts and the potential for a regional approach to its implementation.

Online platforms that allow non-residents to register firms have emerged to boost economic development goals in jurisdictions ranging from Wyoming (United States) to Estonia. They create novel governance challenges that fall between governance frameworks. The global tax governance agenda needs to address the role of such platforms, which often involve conflicts between economic policy aspirations and other goals. Our Estonian case study demonstrates the inability of authorities to perform background checks of numerous non-resident entrepreneurs, as national administrative capacities get strained. Building on the nascent tax spillover approach, we analyse administrative spillover effects caused by online incorporation platforms in international taxation. Mapping de facto administrative capacities requires analysing conflicts between governmental priorities and the obstacles of sharing information between administrative and criminal procedures. When the non-resident community grows compared with the size of the domestic economy, supervisory systems tailored for domestic entrepreneurs become strained. We show that resolving this policy conflict assumes targeted investments into administrative capabilities from skilled personnel to data exchange and interorganizational coordination.

Globalization has led to the decentralization of research and development (R&D) activities by multinational enterprises (MNEs). Investment in these activities is affected by both the host-country environment and the investment strategies of the entrant MNEs. Using data on greenfield R&D investment projects for a sample of digital MNEs in the communications, software and IT service industries during the period 2003–2019, we investigate the importance of host-country characteristics on MNEs’ R&D investment and examine the moderating role of the host country’s innovation capabilities as well as two strategies – exploitation versus exploration – on the part of MNEs. We find that the size of investment projects is larger in developing countries than in developed ones, especially when host countries have stronger innovation capabilities and when MNEs pursue strategies of exploitation rather than exploration. Our findings contribute to the extant research in this area and furnish related policy implications for developing countries.

Why do small and medium-sized enterprises (SMEs) from lower-income countries internationalize using high-commitment modes? In this exploratory, qualitative study of 22 SMEs from South Africa (a middle-income country) and Malawi, Zambia and Zimbabwe (low-income countries), we document that the SMEs typically have both a greater tolerance for risk, likely due to the region from which they originate, and an appetite for opportunities smaller than what would be acceptable to multinational enterprises (MNEs) from advanced economies. This provides a very different opportunity space for the two types of enterprises. The size of the home country seems to matter: SMEs from middle-income countries often work on their own and target other emerging markets, but in poorer countries, SMEs often work synergistically with MNEs from more advanced economies, acting as their “delivery arm” into the small markets in their immediate region. This opens up a new way of understanding MNE-led development. Facilitating the development of partnerships between local SMEs and advanced MNEs is a potentially fruitful avenue that policymakers from poor countries can pursue to help their countries open to the benefits of internationalization.

This research note investigates the relative innovation performance and international presence of small and medium-sized enterprises (SMEs) in Türkiye. Using administrative data for the period 2006–2020, the empirical analysis shows that government support for research and development (R&D) correlates positively with firms’ innovation activities and R&D expenditure. The results also suggest that innovation activities increase the probability of outward foreign direct investment. The results have important policy implications for Türkiye and developing countries in general. The findings highlight the key role of public incentives in targeting innovative activities towards internationalization of SMEs.