3.1 Modern tendency of TNCs' development during the crisis

Today there are about 82,000 TNCs worldwide, with 810,000 foreign affiliates in the world. These companies play a major and growing role in the world economy. For instance, exports by foreign affiliates of TNCs are estimated to account for about one third of total world exports of goods and services. And the number of people employed by them worldwide, which has increased about fourfold since 1982, amounted to about 77 million in 2009 - more than double the total labor force of a country like Germany.

The largest TNCs contribute to a significant proportion of total international production by all TNCs, both in developed and developing economies. Over the three-year period 2007-2009, on average, the 100 largest non-financial TNCs accounted for 9%, 16% and 11%, respectively, of the estimated foreign assets, sales and employment of all TNCs in the world. They also accounted for about 4% of world GDP, a share which has remained relatively stable since 2000. This section analyses the major trends and recent developments with respect to the largest TNCs, and examines the impacts of the ongoing financial and economic crisis on these firms and their international activities.

Over the past 15 years, the largest TNCs have undergone a steady process of internationalization. Also there has been a progressive increase in the proportion of companies operating in the services sector, and of firms based in developing countries. These largest TNCs are presently being strongly affected by the ongoing economic and financial crisis, both at company and industry levels, as evidenced by declining profits, divestments and layoffs, restructurings and some bankruptcies. According to preliminary estimates, the increase in their overall degree of internationalization seems to have slowed down markedly in 2008. However, an UNCTAD survey shows that, despite a temporary setback in their investment plans in the short term, large TNCs expect to continue to internationalize and increase their FDI expenditures in the medium term, with a growing focus on emerging markets.

3.1-picture can show how the change is being expected corporations' investment plans for 2009-2011 because of crisis. It can be seen that investment plans are altering.

Picture 3.1 - Impact of various aspects of the crisis on corporations' investment plans for 2009-2011

The ongoing economic and financial crisis, which erupted in the latter half of 2007, has resulted in a period of major turbulence for the world's top 100 TNCs. While their activities continued to grow during the first half of 2008, albeit moderately, they experienced setbacks towards the end of that year. Particularly affected were industries that are sensitive to the business cycle, such as automotive and transport equipment, electronic equipment, intermediate goods and mining. The downturn became worse during the first months of 2009. By then, other industries, such as food and beverages, utilities and telecommunication services, also began to the adverse effects of crisis, though to a lesser extent. Confronted by declining profits and growing overcapacities, many TNCs announced major cost-cutting programmes, including layoffs, divestments, and a reduction of investment expenditures. In some of the most affected industries, such as automotives, the crisis also triggered a wave of major restructurings.

Activity indicators for the top 100 TNCs show that the impact of the crisis was only marginal in 2009 as a whole. Their total sales increased from their 2007 sales figures by 12% in current dollar terms, representing additional revenue of about $901 billion, and their total employment also rose by 4%. A handful of TNCs in the automotive industry (especially General Motors, Chrysler, Toyota, Nissan and Honda), which had already faced a depressed market even before the crisis began, recorded declining sales in 2009.

There are three major reasons for these apparently paradoxical results. First, the financial crisis, which deepened in September 2009, started affecting the activities of the largest TNCs only from the last quarter of 2009, thus limiting the apparent impact on activity indicators for the year as a whole (picture3.1.2.). For instance, despite a sharp fall in demand for commodities (and subsequently in prices) at the end of 2009, many oil and even some mining companies, such as Total, ExxonMobil and BHP Billiton, outperformed the previous year's results in terms of sales and profits for the whole year because of favorable market conditions in the first three quarters of 2009.

Picture 3.2 - Quarterly evolution of sales, total assets, and net income for selected TNCs among the 100 largest, 2006-2009

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 TNCs continued to acquire other companies, with direct consequences for the apparent growth in volume of their activity. In 2008, they undertook 21 major cross-border M&A purchases valued at more than $3 billion.

However, what did turn negative was their net income, which declined by 27% overall. There were a number of causes of this downturn. First, as a direct consequence of the financial crisis, the cost of borrowing increased in the last months of 2008. The spread on corporate bonds, for instance, reached a historic high at the end of 2008.

In order to improve their balance sheets and arrest their deteriorating profits, TNCs have been extensively curtailing expenditures and taking steps to reduce their debt.

This is being done through three major channels:

Large cuts in operating expenditures, especially through layoffs. Plans for large job cuts have been announced by many of the top 100 TNCs since September 2008.

Scaling down investment programmes. Many planned acquisitions or greenfield projects of the top TNCs have been cancelled, reduced or postponed due to the combined impact of a setback in market expectations and reduced internal and external financial resources.

Divestments of some corporate units and assets. These operations are meant not only to curtail operating costs, but also to generate cash in order to reduce debt ratios, and/or simply beef up available cash that had diminished due to faltering sales. This has led, in particular, to a rising number of sales of non-strategic affiliates.

Another consequence of the crisis is an acceleration of industry restructurings due to two main factors. First, some companies suffering from an already fragile financial situation before the crisis might be affected by the current turmoil to the point that they go bankrupt or have no other choice than to be acquired to survive. Others might become vulnerable to such hostile bids due to the presently low market value of their stocks. Such companies as Chrysler or Endesa have already changed owners (following table). Others (e.g. Volvo among others) might also go through major changes in ownership in the coming months. (3.3-picture)

Picture 3.3 - Examples of recent restructurings by some of the 100 largest non-financial TNCs

Second, and conversely, companies less affected than others by the crisis, and having substantial cash reserves, could seize takeover opportunities triggered by the crisis to increase their market share or critical mass. Some large TNCs have undertaken major acquisitions.

Consequently, the crisis might accelerate underlying trends towards restructuring and concentration in many industries. This is likely to have major consequences for the size and ranking of the top 100 TNCs. Regarding their internationalization level, these opposing factors seem to have balanced each other, as the average TNI of the top TNCs remained practically unchanged between 2007 and 2008.

However, it should be emphasized that the impact of the crisis on the largest TNCs has differed widely by industry and country, and even by individual firm. On the one hand, firms in many business-cycle-sensitive industries such as automotive and other transport materials, construction, electrical and electronic equipment, and intermediate goods, as well as those in the financial sector, have been among the worst hit by the crisis. On the other hand, those in some less cyclical industries, with more stable demand patterns, have been less affected. For example, among the 100 largest TNCs, many in oil and gas (ExxonMobil, Chevron, British Petroleum, Royal Dutch Shell, GDF Suez, Total), in food, beverages and tobacco (Nestle, SAB-Miller, Coca-Cola, Kraft Foods, British American Tobacco), in telecommunication services (Deutsche Telekom, TeliaSonera), in utilities (Endesa, RWE, EDF) and in pharmaceuticals (Roche, AstraZeneca, Johnson & Johnson), as well as in consumer goods (Unilever, LVMH) and retailing (Wal-Mart) continued to register large profits, and some even growing profits, in 2008.

Faced with the worst global recession in decades, the world's largest TNCs are struggling in 2009. The sharp fall in profits registered by many of them in 2008 was only a harbinger of the many difficulties they are now facing. As global demand continues to weaken, and threatens to remain depressed throughout 2009, many of the largest TNCs will find their revenues falling beyond what they had anticipated a year ago. This will have a strong impact on their propensities and capabilities to invest abroad. And, given the global dimensions of the current economic situation, this applies to all TNCs in nearly every region of the world and in nearly every industry.

However, the current economic crisis should not be seen only as a negative force for the largest TNCs, both financial and non-financial. It also creates an opportunity for them to expand into additional markets at a relatively low cost. Many of the largest TNCs could promote their internationalization strategies with the aim of maximizing efficiencies across markets and geographies. Moreover, in the current situation, TNCs from developing economies could gain strength if they manage to successfully nurture domestic and foreign demand for their products. Their strong growth so far, as a result of the internal dynamics of their home-country markets, could gather momentum if demand for their products in the wider global market picks up when conditions improve.

Agriculture is central to the provision of food and the eradication of poverty and hunger. Not only does it provide significant mass and rural employment, it is also a major contributor to national economic growth and a considerable foreign exchange earner for many developing countries. Given the fundamental importance of agriculture to most developing economies, its chronic neglect by many of them has been of utmost concern for some time. However, several factors, which are not mutually exclusive, have resulted in a recent upswing in domestic private and foreign participation in agricultural industries in a significant number of developing countries. Most of these factors are of a structural nature, and are expected to drive agricultural investment in the foreseeable future. In this context foreign participation, as well as domestic investment, can play a critical part in agricultural production in developing countries, boosting productivity and supporting economic development.

A precisely quantified evaluation of the impact of TNC involvement in agriculture on important development aspects, such as contribution to capital formation, technology transfer and foreign market access, is impeded by the limited availability of relevant hard data collected by national authorities or available from international sources. The actual impacts and implications vary enormously across countries and by types of agricultural produce. In addition, they are influenced by a range of factors, including the type of TNC involvement, the institutional environment and the level of development of the host country. A number of salient observations of TNCs' involvement in agriculture for developing countries nevertheless emerge.

Overall, TNC involvement in developing countries has promoted the commercialization and modernization of agriculture. TNCs are by no means the only - and seldom the main - agent driving this process, but they have played an important role in a significant number of countries. They have done so not only by investing directly in agricultural production, but also through non-equity forms of involvement in agriculture, mostly contract farming. Indeed, non-equity forms of participation have been on the rise in recent years. In many cases, they have led to significant transfers of skills, know-how and methods of production, facilitated access to credit and various inputs, and given access to markets to a very large number of small farmers previously involved mostly in subsistence farming.

Although TNC involvement in agriculture has contributed to enhanced productivity and increased output in a number of developing countries, there is lack of evidence on the extent to which their involvement has allowed the developing world to increase its production of staple foods and improve food security. Available evidence points to TNCs being mostly involved in cash crops (except for the recent rise of South-South FDI in this area). Such a finding reveals the development challenges for developing countries in promoting TNC participation in their agricultural industry to improve food security. However, food security is not just about food supply. TNCs can also have an impact on food access, stability of supply and food utilization and, in the longer run, their impacts on these aspects of food security are likely to prove more important for host economies.

Positive impacts of TNC involvement in agriculture are not gained automatically by developing countries. While TNCs have at times generated employment and improved earnings in rural communities, no clear trend is discernible. To the extent that TNCs promote modernization of agriculture and a shift from subsistence to commercial farming, their long-term impact is likely accelerate the long-term reduction in farm employment while raising earnings. Only a limited number of developing countries have also been able to benefit from transfers of technologies.

Recent experiences also underscore that developing-country governments need to be aware of the environmental and social consequences of TNCs involvement in agriculture, even though there is no clear and definite pattern of impact. Case studies show that TNCs have the potential to bring environmentally sound production technologies, but their implication in extensive farming has also raised concerns, together with their impact on biodiversity and water usage. Similarly, TNCs' involvement raises significant social and political issues whenever they own or control large tracts of agricultural land.

Agriculture is of fundamental importance to all countries in the world, both for meeting their growing requirements for food and for providing a basis for industrial development, diversification and growth. In some countries, increased investment and technological advances have transformed agriculture, raising productivity and output to meet food requirements as well as laying the foundations for rapid economic growth. In other countries, however, especially in Africa and parts of Asia, agricultural potential is not being fully exploited, with resultant shortfalls in food supply and constraints on economic development. Greater investment in agriculture is thus a priority for development, and one that has received growing attention during the recent food crisis.

Insufficient investment and declining official development assistance (ODA) in agriculture has prompted governments to look increasingly to the private sector - domestic and foreign - for significant new investment. This is reflected in the liberalization of policies related to agriculture and land ownership by host and home countries. In fact, in the past foreign direct investment (FDI) has played an important role in agriculture, with TNC activity in agricultural production particularly strong in some export-oriented commodities. However, after the Second World War, there was a long-running decline in FDI flows to agriculture in developing host countries. This trend has been reversed in recent years for a variety of reasons, but some forms of foreign participation - not least the so-called “land grabs” by investors - are causing concern by some quarters in the development community.

In the recent past, allowing for data limitations, the direct involvement of TNCs in agriculture has been limited. World inward FDI stock in agriculture comprised only $32 billion - only 0.2% of total inward FDI stock in 2008 - despite significant growth in FDI since 2000, particularly in developing countries. Between 1989 and 1991, world FDI flows in agriculture remained below $ 1 billion per annum, as compared to more than $7 billion in food and beverages. By 2006-2008, world FDI inflows in agriculture exceeded $3 billion per annum. This still constituted less than 1% of total world FDI inflows. The low levels of FDI in agriculture may be partly explained by the regulated nature of the industry, restrictions on ownership of agricultural land by foreigners, and corporate strategies which favor control over the supply chain through upstream and downstream activities. FDI outflows in agriculture in 2006-2008 were even smaller than inflows: they remained on average around $1 billion per year. This difference between inflows and outflows suggests that an important part of agricultural FDI is undertaken by TNCs coming from related industries (and therefore the capital outflows are registered under those industries in the outward data).

3.3 The role and activity of transnational corporations in Uzbekistan

Transnational corporations act as an instrument of foreign policy of industrially powerful states. The contemporary world is dominated by the strategic alliances of the large transnational corporations. Because of the transnational corporation's expansion of its sphere of activity and the movement of capital there is a gradual disappearance of the economic borders between different states. This tendency signifies a certain danger to developing countries, aspiring to strengthen their national independence and sovereignty. But at the same time, market economy and an economic openness are necessary preconditions of the viability of the economy of any country and the global economy as a whole.

The transnational corporations act as leading forces of the international economic system. The study of the genesis of transnational corporations, the forms and scales of their activity, the participation of transnational corporations in international migratory processes, the analysis of an origin and forms of transnationalization in Uzbekistan, the consideration of expected perspectives for the national economic system because of the presence of transnational corporations in the national market, the definition of that segment of economy where the transnational corporations' activity is the most essential, is the actual approach in strengthening the national economy in world industrial-economic mechanisms. The research, revealing of positive and negative aspects of the political and economic interaction of transnational corporations and the states in a framework of intra- and inter-regional communications is important for Uzbek political science.

Proceeding from the analysis of the positive and negative results of the transnational corporations' activity, it is important to develop mechanisms of the legal regulation, and the control of cooperation of the state and the transnational corporations, their joint activity in the regulation of the migration processes, combining equality between the priority national interests and the transnational corporation interests, and finally to create resident effective and competitive transnational corporations of their own, and by providing security and stability in political, military, economic, humanitarian and legal ways.

The influence of TNCs on the world economic development is described in different sources, first of all, through Foreign Direct Investments (FDI) flows. Since the main feature of FDI is taken to be the lasting interest of a direct investor in an enterprise, only capital that is provided by the direct investor either directly or through other enterprises related to the investor should be classified as FDI. The forms of investment by the direct investor which are classified as FDI are equity capital, the reinvestment of earnings and the provision of long-term and short-term intra-company loans (between parent and affiliate enterprises). In the other words, transnational corporations are one of the key factors of investment in any countries' national economy. That is to say, if a country attracts more investment, the impact of TNC on the aspect of foreign direct investment becomes much higher.

Investors have a very positive outlook on future growth prospects in the country, including Uzbekistan's role as a potential export platform. By means of 3.1- table, it can be seen investment from foreign countries to Uzbekistan and it can be considered as 4 percent increase in January-March, 2011. In this case, we should emphasize the huge role of TNCs. Our president I.A. Karimov had already stated that the most important factor in our move towards an open economy is the strengthening of cooperative ties and strengthen cooperation, and to entry them appropriately in the transnational corporations.

Table 3.1 - Macroeconomic indicators for January-March, 2011