64.
MNCs
Bigger Than Their Assets
The reach and influence of multinationals, large and small, is far greater than the official statistics suggest. Policymakers can, therefore, seriously underestimate the extent to which national economies have become intertwined with others. There are at least two sources for this misconception: the way in which cross-border investments are estimated and the manner in which the "boundary" of a firm is defined.
The official figures for the flow of FDI - the historical cost-accounting basis for the asset base of multinational corporations - show an annual flow of nearly $400 billion. The United Nations, however, has recently begun to question these figures and has estimated that if one includes the capital mobilized by local borrowings and the equity shares of partners, the "real" figure is closer to $1.4 trillion per year. In other words, a corporation's "presence" in a country goes beyond the assets that it chooses to locate there.
The official figures for the flow of FDI - the historical cost-accounting basis for the asset base of multinational corporations - show an annual flow of nearly $400 billion. The United Nations, however, has recently begun to question these figures and has estimated that if one includes the capital mobilized by local borrowings and the equity shares of partners, the "real" figure is closer to $1.4 trillion per year. In other words, a corporation's "presence" in a country goes beyond the assets that it chooses to locate there.
From a mere three thousand in 1990 the number of multinationals has grown to over 63,000 today. Along with their 821,000 subsidiaries spread all over the world, these multinational corporations directly employ 90 million people (of whom some 20 million in the developing countries) and produce 25 per cent of the world's gross product. The top 1,000 of these multinationals account for 80 percent of the world's industrial output. With its $210 billion in revenues, ExxonMobil is ranked number 21 among the world's 100 largest economies, just behind Sweden and above Turkey.
The influence of a multinational can also be gauged by its effect on local suppliers as it creates new demand and sets new standards of quality. All these elements are part of a world where the local production of MNCs in overseas markets now greatly exceeds the sum of world trade. The resulting deep integration of national economies is growing so fast that any suggestion in developed economies that the domestic-policy agenda can be isolated from the global economy seems antediluvian.
Perhaps even more seriously, the explosion of strategic alliances among firms is transforming the competitive landscape. One estimate is that more than 20,000 alliances have been formed within the last two years alone. How, then, should one now think about where economic power is located? As one executive observed some years ago: "The electronics business in Europe is not the same as the European electronics business." Competition is no longer defined solely by the ownership of assets; it is also a matter of who is in league with whom.
Perhaps even more seriously, the explosion of strategic alliances among firms is transforming the competitive landscape. One estimate is that more than 20,000 alliances have been formed within the last two years alone. How, then, should one now think about where economic power is located? As one executive observed some years ago: "The electronics business in Europe is not the same as the European electronics business." Competition is no longer defined solely by the ownership of assets; it is also a matter of who is in league with whom.
The global economy is in a very precarious state, relying on volatile financial markets and driven increasingly by commercial pressures. Many economists and analysts are predicting a global economic failure sparked by a stock market or financial collapse. This possibility is strengthened by the current conflicts over resources, political instability in many parts of world and the declining strength and influence of the US dollar.
