UNCTAD's World Investment Report 2002: Transnational Corporations and Export Competitiveness, United Nations, Geneva and New York 2002

This is the 12th of UNCTAD's World Investment Reports (WIR), which have now become an essential part of the FDI literature. It follows the overall structure set up by its predecessors, whereby the first part describes overall trends in international production over the last year and the second part addresses a specific topic related to FDI. This year's WIR examines the issue of TNCs and export competitiveness. The first part--overall trends--highlights some noticeable changes in the previous year's FDI patterns. Without doubt, the most noticeable of these is the sharp decline in FDI flows in 2001, reflecting the overall economic slowdown, albeit with major regional differences (with the most noticeable decline in the developed regions). At the same times, however, the Report shows that the role of TNCs in the world economy, as measured by employment, export and controlled assets, have increased considerably over the last decade or so. For a number of years the WIRs have presented benchmarking of FDI performance and potential--a most worthwhile attempt to provide a quantifiable benchmark for the FDI performance and potential of individual countries. These are compiled as indices based on a number of economic indicators. Based on the ranking of countries on the performance and potential indices, the Report distinguishes between 4 groups: front-runners (countries that combine high FDI performance and strong potential); below potential (countries with high potential but low performance); above potential (countries with low potential that nonetheless perform well) and under performers (those with low potential and low performance). This is an excellent policy tool, as obviously, different policy responses are needed for each of these groups. The lists of the world's largest TNCs (the Top 100, the Top 50 developing country TNCs, and the Top 25 TNCs from Central and Eastern Europe), which have become an integral part of this publication, are also provided. A most noticeable feature is that for the first time since UNCTAD started compiling these lists of the largest TNCs, a record five TNCs headquartered in developing countries made it to the Top 100 in 2000. Notwithstanding the obvious value and interest of this list, the use of foreign assets as the basis for the compilation of these lists underestimates the magnitude of foreign activities of TNCs whose activities are based on intangibles (i.e., TNCs in knowledge intensive industries, service TNCs). It might be worthwhile to consider adding an additional basis for this compilation (for example, number of employees) to take a more balanced account of the foreign activities of such TNCs. Another possible direction for further elaboration of this part might be an examination of the performance implications of multinationality. Although this topic has been analyzed intensively in the literature, studies have yielded conflicting results as to the nature of the link and its behaviour over time and in different circumstances, suggesting there is much room for further analysis here. The topic of this year's WIR is TNCs and export competitiveness, that is, examining the role of TNCs in making the export of developing and transition economies more competitive. The argument here is that TNCs can help raise the export competitiveness of developing countries and economies in transition, but tapping their potential is not easy. Attracting export-oriented investment is an intensely competitive business. In particular, the Report emphasizes the need to examine this issue in light of two distinctive strategies which have become increasingly common among TNCs in recent years. One is the growth of efficiency seeking FDI, whereby TNCs spread their value added activities worldwide, in line with the comparative advantages of individual countries. The second is the growing tendency for TNCs to specialize in core activities and outsource other functions. …