Transnational Corporations and Development

By Magdolna Sass

In the session organised by the Working Group on Transnational Corporations and Development, four papers were presented, which all underlined the multifaceted nature of the role transnational corporations may play from a development point of view and the need for further research going down to the level of individual country and/or company cases.

The presentation by Edo Han Siu Andriesse analysed the rubber value chain in Central Laos, on the basis of a field research. Besides describing the emergence and increasing insertion into global value chains of rubber smallholdings in Ban Somsanouk, a village in Central Laos and the associated economic and social changes, this work in progress also showed their growing connection to China. Moreover, while overall the attitude of local smallholders was positive towards the shifting cultivation, the fieldwork revealed several risks in terms of longer-term sustainability. First, the nexus between smallholders and the lead firm may turn detrimental towards the former and second, lack of intercropping increases vulnerability in terms of socioeconomic security and environmental sustainability. As a third and fourth factors, lack of capital and access to finance for smallholders as well as lack of cooperation among them were mentioned. In the ensuing discussion, comments were mainly aimed at using more fully the GVC approach in order to explain the developments in Laos’ rubber sector and to take into account the specificities of the product (e.g. price volatility). Furthermore, the policy dimension was emphasized on one hand through formulating more concrete policy recommendations for avoiding destroying the biodiversity as well as the role of government policy in channelling activity towards cashcrops instead of foodcrops.

Multinational corporations are usually perceived as coming from developed countries, or more recently from the BRICS. The second presentation by Magdolna Sass (co-authors: Katalin Antalóczy and Andrea Éltető) analysed the characteristics and specifically ownership advantages of “post-transition” multinational companies on the basis of detailed case studies of Hungarian multinational companies. The presentation showed the specific ownership advantages of formerly state-owned and then privatised companies, with links to their heritage from the pre-transition and transition period. They are able to restructure privatised companies and enable them to operate successfully in an evolving market environment, present in post-transition economies. These specific ownership advantages dynamically evolve over time becoming more and more similar to those of “traditional” MNCs from developed economies. On the other hand, the ownership advantages of those MNCs, which were established after 1990, are more similar to that of “traditional multinationals”. Another important finding was the link between “virtual indirect” investors and their specific privatisation-management-related ownership advantages, showing how the strong position and specific knowledge of the management are interrelated in developing and changing the ownership advantages.

Relocations are one of the reactions of multinational companies in the crisis environment. The presentation on the basis of the paper written by Eric Rugraff and Magdolna Sass showed why the multinationals in the automotive supplier industries did not relocate their activity from Hungary to lower-wage countries as a response to the current economic crisis. They grouped factors affecting the inclination of firms to relocation in three categories: internal (to the firm), location and external factors. They showed that “push factors” (relatively low sunk costs and low dependence on the local environment) were counterbalanced and overwhelmed by “keep factors”, mainly in the group of location and external to the firm factors: namely additional investments of the automobile manufacturers – the main buyers of automotive suppliers during the crisis, unchanged favourable labour market regulation, changes in government policy and the existence of few alternative sites of relocation. The following discussion inquired about further details of government policy and about the evolution of local value added, connected to the low level of local embeddedness.

Iliana Olivié and Aitor Pérez elaborated a framework for the analysis of the development impact of FDI. Their presentation was entitled “Just Put It on the Agenda! The Determinants of Development Friendly Foreign Direct Investments” and is part of a longer research aimed at identifying the factors conditioning the impact of FDI on development and using the factor framework for preparing company and country case studies. On the basis of the case studies, public policies and development strategies of host country governments are of key importance in determining the (positive) local impact of FDI. At the end of the presentation they proposed a new research framework for the analysis of the new generation of investment policies. The following discussion concentrated on the details of the proposed research suggesting among others going down to a more disaggregated level of analysis and taking into account GVCs, end-market dynamism and the differences between MNCs. There was agreement amongst the participants that the macroeconometric literature has no conclusive evidence on the impact of FDI, and case studies are important in analysing the nexus from many, not necessarily quantitative angels.

Magdolna Sass is a senior research fellow at the Institute for Economics of the Hungarian Academy of Sciences