Magazine article UN Chronicle

Transnationality. Cross-Border Mergers and Acquisitions. Global Outflows. Global Inflows: The Foreign Direct Investment Network

Magazine article UN Chronicle

Transnationality. Cross-Border Mergers and Acquisitions. Global Outflows. Global Inflows: The Foreign Direct Investment Network

Article excerpt

Worldwide foreign direct investment (FDI) inflows by transnational corporations (TNCs) rose for the seventh consecutive year in 1997, according to the World Investment Report 1998: Trends and Determinants (WIR98), published by the United nations conference on Tarde and Development. Accounting for 90 per cent of all global outflows, developed countries also absorbed nearly two thirds of all inflows. The United States invested $115 billion abroad during 1997 and received $91 billion in inflows, accounting for more than one fifth of global inflows. In contrast, for the second successive year, Germany registered net FDI withdrawals. Japan invested $26 billion aborad and received $3 billion in 1997, a record figure, though still low compared to other developed economies. Outflows from the European Union reached $180 billion in 1997. However, FDI in developing countries has been catching up. On 1997, FDI flows to developing countries rose to $149 billion, accounting for 37 per cent of all global FDI, as compared to 17 percent ($34 billion) in 1990.

The eight in an annual series, WIR98 surveys FDI trends around the world, compiling data from 170 countries, and analyses the factors determining these investment flows, providing a comprehensive picture of the rapidly changing landscape of global business. Worldwide cross-border mergers and acquisitions (M&As) - mostly in banking, insurance, chemicals, pharmaceuticals and telecommunications - accelerated inflows to developed countries, which rose by almost a fifth, to $233 billion. Aimed at the global strategic positioning of firms in key industries, M&As reveal the prevailing strategies of TNCs: divesting non-core activities and strengthening competitive advantages through acquisitions in core activities.

The world's 100 largest TNCs have become increasingly globalized, and show a high degree of transnationality in terms of foreign assets, sales and employment. Generally, firms at the top of the composite transnationality index are from countries with small domestic markets. The top 50 TNCs headquartered in developing countries are catching up rapidly in their efforts to transnationalize. They have built up their foreign assets almost seven times faster than the world's top 100 TNCs between 1993 and 1996.

Latin America now tops developing regions in FDI growth. The region invested a record $9 billion abroad and received $56 billion - an increase of 28 per cent over 1996. The increase in inflows accounted for two thirds of the overall increase in inflows to all developing countries. Apart from sustained economic growth and good macroeconomic performance, key factors in the region's FDI boom were trade liberalization, wide-ranging privatization and deregulation.

Attracting more than $16 billion in inflows, Brazil emerged as the region's champion in 1997, surpassing Mexico with $12 billion and Argentina with $6 billion. Despite the growing role of Asian and intra-regional FDI, the United States is still the largest investor in Latin America and the Caribbean, with its investment in the region reaching $24 billion in 1997, mostly in automobiles, electronics, apparel and other manufacturing.

The recent FDI boom in Latin America has also been accompanied by concerns over a negative balance-of-payments impact. WIR98 predicts that, in the longer ran, the strengthened export orientation of foreign affiliates will help to improve current account imbalances if complementary policies to strengthen domestic capabilities are also pursued.

After stagnating for several years, Central and Eastern European economies experienced a turn-round in 1997, receiving a record $19 billion in FDI flows, 44 per cent more than the previous year. The Russian Federation was the leading recipient, mainly in natural resources and infrastructure development, as well as the leading outward investor. In the other economies, most of the FDI growth occurred in manufacturing and services, while outflows from Central and Eastern Europe more than tripled in 1997. …

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