Role of Multinational Enterprises in the Global Economy

Exports by foreign affiliates of them are estimated to account for about one third of total world exports of goods and services. The number of people employed by them worldwide is 77 million in 2008 (a four-fold increase since 1982) – more than the total labour force of a country like Germany.

The 100 Largest Non-Financial MNEs:

Data on the World’s 100 largest MNEs show a recent slowdown in their rate of internationalisation. Data for 2008 show that the ratio of both foreign assets and sales to total assets and sales did not increase over 2007, while foreign employment increased slightly more than the total employment.

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Consequently, the overall Trans Nationality Index (TNI) remained at a standstill. The presence of companies from services sector in the list of top 100 has continued to increase: from 14 in 1991 to 24 in 1998 and finally to 26 in 200, many of them operate in telecommunications and utilities.

However, the majority of the 100 largest MNEs still belong to the manufacturing sector. No agricultural company presently features in the list, although 9 companies in the top 100 list belong to the food, beverages and tobacco industries.

The largest MNEs in the various industries show very different levels of internationalisation. The TNI for the top companies in the pharmaceuticals, telecommunications and food and beverages industries is higher than that for companies in motor vehicles, petroleum or utilities (electricity, gas, and water).

The number of firms in the top list from developing countries is growing, from none in 1993 to six in 2006 and 7 in 2007. In 2007, three of them were from the Republic of Korea, and one each from China, Hong Kong, Malaysia and Mexico.

The degree of internationalisation of companies among the top 100 varies widely by country: for instance, the value of the TNI in 2007 was above the world average for MNEs from the UK and below average for MNEs from Germany, Japan and the US.

The list of top 100 MNEs contains only public limited companies, which are listed. It does not include non-listed companies (mainly state- or family-owned, that constitute an important proportion of the corporate sector in many countries.

The 2008 economic and financial crisis, which erupted in the latter half of 2007, has resulted in a period of major turbulence for the top 100 MNEs. While their activities continued to grow during the first half of 2008, albeit moderately, they experienced setbacks towards the end of 2008.

The downturn became worse during the first months of 2009. Interestingly, their total sales increased by 12% and their total employment also rose by 4%. But their net income declined by 27% overall.

There are four major reasons for these paradoxical results. First, the financial crisis began to hit them from the last quarter of 2008, thus limiting the apparent impact for the year as a whole. For instance, despite a sharp fall in demand for commodities (and subsequently in prices), many oil companies and even some mining companies, such as Total, ExxonMobil and BHP Billiton did very well in the first three quarters of the year.

Second, in many industries such as utilities, food and beverages and business services, the market remained relatively stable until the end of the year. Third, the largest MNEs continued to acquire other companies with direct consequences for the apparent growth in volume of their activity.

The real estate prices went down and large provisions were to be made to cover cost cutting plans, especially with respect to layoffs.

For some of the largest MNEs, which had already experienced a slowdown of activity before the crisis erupted, yearly profits declined significantly in 2008. Fourth, some companies involved in processing commodities into manufactured goods were faced with higher input prices, but were unable to pass on them to consumers.

An idea of negative consequence can be made to see at sales figures of some of the largest MNEs in the first quarter of 2009 over the same period in 2008 – ArcelorMittal down by 49.3%, Royal Dutch/Shell by 49%, General Motors by 47%, Chevron by 47%, and ExxonMobil by 46%.

The impact of the crisis had differed widely by industry and country, and even by individual firm. The worst hit are from business- cycle-sensitive industries, such as automotive and other transport materials, construction, electrical and electronic equipment, and intermediate goods, as well as the financial sector. The industries with stable demand patterns have been less affected.

The Top 100 MNEs from Developing Economies:

The relative size of the top MNEs from developing countries has grown rapidly over the past 15 years. And this trend continued in 2007, when the assets of the 100 largest MNCs rose to $ 2186 billion (by 29% over 2006).

The dynamism of MNEs from developing countries is largely due to appearance of new players. Of the top 50 MNEs 1999 list, only 20 are there in 2009 list. That means 30 are new players.

The list of top 7 players in 2007 included Hutchison Whampoa (Hong Kong, China) at the top, followed by Cemex (Mexico), L G Corp (South Korea), Samsung Electronics (Korea), Petronas (Malaysia), Hyundai Motors (Korea), and OTIC (China).

In terms of the nationality of firms, Asia remains by far the major home region, even increasing its lead over time. Hong Kong and Taiwan have 11 companies each, followed by South Africa (9), Malaysia (6), South Korea and Mexico (5 each).

With regard to internationalisation of the 100 largest MNEs based in developing countries, their TNI is lower than that of the world’s 100 largest MNEs. The degree of internationalisation of the top developing-country MNEs varies widely by industry.

Of the top 100 MNEs from developing countries, 19 are from electrical/electronic and computer industries, seven each from telecom and food and beverages, and six are from transport and storages. The number of diversified MNEs here (12) is larger than the 100 top MNEs list of the world (5).