Multinational corporations up against growing uncertainty in the '80s
The often maligned "multinational corporations" -- large companies with subsidiaries or divisions operating in several nations -- will be facing particularly uncertain years in the 1980s.
That is indicated in two new studies released here this week, one by the World Bank, the other by the Committee for Economic Development (CED), a prestigious group of top corporate executives and educators. The studies point both to potential dangers and to great opportunities for multinational companies during the next 10 years. Two basic trends are seen:
* The CED study notes that multinationals with divisions in developing nations are often caught up in complex local ideological battles about industrialization and development.
The World Bank study notes that developing countries are often concerned "about foreign ownership in and influence in their economies."
* The bank study finds that development capital -- provided by international companies, banks, and institutional (government) sources -- will be more scare than ever during the 1980s.
Thus, on the one hand, multinational enterprises may suddenly find themselves more wooed than ever by host governments that are eager for new industrial projects, but unable to get the necessary development capital from banking or international agencies.
On the other hand, the multinationals may be further criticized by host nations for drawing on slim local capital markets for project money.
According to the World Bank study, "The World Development Report, 1980," direct (private) investment in developing nations over the next 5 to 10 years -- barring major new agreements on the part of host governments about the role of multinational companies -- is expected to "grow at only about 3 percent a year in real terms."
Moreover, such limited direct investment in developing nations during the next decade comes against a backdrop of scarcer capital flows in general, as well as soaring debts on the part of many developing nations. According to the World Bank study, total "capital inflow" to developing natioins (including bank and government loans) will be "relatively modest in the 1980s, because of constraints on both their capacity to borrow and on the supply of funds."
It is precisely this very scarcity of capital funds that could give multinationals greater opportunity than ever for a stepped-up role in many developing nations.
Flows of private investment to developing nations in the past decade have been substantial.
Between 1972 and 1978, and Committee for Economic Development study reports, the flows of direct private investment to developing countries averaged $6.7 billion annually.
"As a proportion of the total flow of financial resources from OECD countries to the third world," the study continues, "private direct investment was 19.7 percent between 1960 and 1965 and 18.7 percent between 1972 and 1978. It has declined as a proportion of total private flows because of the recent substantial increases in the flow of portfolio investment, especially in the form of bank lending to the developing countries. At the end of 1977, just under half the stock of private foreign investment in developing countries was of US origin."
The recent yearly increases in "portfolio lending," however -- particularly bank lending -- are expected to slow considerably. According to the World Bank Report, "While developing countries will therefore face more competition for loans in the 1980s, this does not mena that net lending to them will not increase. But the pace will be slower than in the past. . . ."
Most multinational enterprises are more sensitive than ever to the political and social aspirations of developing nations, according to the CED.
Its study was based on interviews with top officials from some 90 multinatiionals. (In fact, the study notes that the companies should be called "transnational," rather than the more popularly used term " multinational," since they transcend national boundaries but are usually headquartered in one nation).
The study was written by Dr. Isaiah Frank, who is an economics professor at Johns Hopkins University and a former deputy assistant secretary of state for economic affairs. According to Dr. Frank, while there are still clear tensions between host nations and multinational companies, a consensus or understanding of sorts seems to be developing in many nations.
Developing nations, he finds, are now more sophisticated in dealing with multinationals. At the same time, he finds, they have begun to see many of the "mutual gains" (such as jobs) in having such companies in their countries.