Dynamics and positioning strategies of multinational corporations in modern international production

Karelina Ekaterina Aleksandrovna PhD in Economics Associate Professor, Department of World Economy and International Economic Relations, STANKIN Moscow State Technical University 127055, Russia, g. Moscow, per. Vadovskii, 3a, of. 101 katerinkarelina@yandex.ru

Introduction

To assess the scale of positioning of transnational corporations (TNCs) in modern international production, the assessment of the nationality of structures associated with TNCs, which is blurred, becomes essential. Thus, according to the estimates of the UN Conference on Trade and Development (UNCTAD), over 40% of foreign units of TNCs have several "passports", entering into complex ownership chains with multiple cross-border connections, which, on average, cover three jurisdictions worldwide. The multiple nationality of foreign divisions of TNCs (English – multiple passport affiliates) is a consequence of transit investments through third countries, indirect foreign ownership, as well as so–called "round-tripping" schemes, when funds are withdrawn abroad and then returned to the country under the guise of foreign investment. About 30% of foreign divisions of TNCs are foreign-owned by a local legal entity, over 10% - through an intermediary company in a third country, 60% - have many cross-border ownership relationships with the parent company. As TNCs become larger, their internal structure becomes more complicated: each of the 100 largest TNCs on average has over 500 divisions in more than 50 countries, and there are 7 hierarchical levels in the ownership structure of TNCs (ownership ties can potentially cross 6 state borders), 20 holding companies, 70 companies in offshore jurisdictions ^{[24, c. XII-XIII]}.

With the intensification of economic globalization, the international production networks of TNCs are also becoming more complicated (moreover, R.V. Kashbraziev points out that global production chains are gradually transforming into global production networks ^{[3, p. 21]}). Traditionally, TNCs use economies of scale and competitive advantages over small competing companies to quickly enter and expand into new markets. The fragmentation of international production in global value chains (GCSS), managed by TNCs, leads to the division of international business into small components (so that each part of the business is located in the most advantageous place), getting rid of non-core parts of the business. In turn, modern methods of organizing production assume the flexibility of individual parts of international production, so TNCs enter into non-operational relationships with third parties (joint ventures or other forms of partnership). TNCs also often participate in cross-border mergers and acquisitions, which is a form of reassessment of the profile of activity.

As a result of these shifts, the corporate structures of TNCs are becoming deeper, and the foreign divisions of TNCs in the ownership chains are moving further away from the home country. There is a high degree of dispersion of shareholdings, including through indirect, cross-ownership and equity ownership. Therefore, the complexity of corporate structures should not be regarded as a sign of abuse by the owners of the corporation – it is rather the result of fragmentation, growth, mergers and acquisitions, as well as partnerships. At the same time, in their strategies, TNCs seek to influence all changes in the ownership structure from the point of view of profitability, i.e. in the context of risk management and fiscal policy.

The purpose of our article is to analyze the dynamics and strategies of positioning TNCs in the system of modern international production.

Materials and methods of research

Foreign direct investment (FDI) has been one of the most popular strategies for TNCs to enter the foreign market for many decades, and such investments can be both inorganic (acquisition of business in a foreign country) and organic (expansion of existing business in the target market). In the 1990s, the implementation of FDI is increasingly associated with the work of TNCs within the framework of the GCC. For the country receiving FDI, the obvious advantages of attracting them were certain positive effects associated with an increase in income in the recipient country of FDI, a decrease in unemployment, and an increase in budget revenues. At the same time, FDI is displacing national companies from the domestic market. Modern researchers (S.A. Lukyanov, I.M. Drapkin, O.S. Mariev) point out that the positive effects of FDI are formed mainly on the basis of interaction between foreign and national companies within the framework of the GCC ^{[4, p. 78]}. An urgent task for modern TNCs in terms of implementing strategies for their entry into foreign markets is moving away from traditional, resource-intensive FDI to knowledge-intensive investments, and the main driver of global FDI is access to intangible assets, not the cost of factors of production.

Taking into account the above, our research is based on analytical reports and studies of leading multinational companies, as well as materials from such reputable international economic organizations as the International Monetary Fund, the Organization for Economic Cooperation and Development, the UN Conference on Trade and Development. Comparative, analytical, system methods, classification, generalization, and comparison methods are presented as research methods in our work.

Results and their discussion

Despite the motives of complicating the corporate structures of TNCs, an increasing number of companies in an increasing number of countries are involved in the ownership and control of foreign units of TNCs. According to estimates ^{[24, p. 125]}, about 41% of TNK's foreign divisions in the world are owned by the parent company through a cross-border chain of ownership, including at least one intermediate branch other than the TNK's home country. It should also be noted that the dilution of the citizenship of a foreign investor plays an important role for the development of investment policy. Traditionally, the investment policy of countries is aimed at attracting and retaining FDI through a policy of facilitating and encouraging, increasing openness to FDI.

The control of TNCs over their foreign units is not always associated with ownership. Ownership is expressed in blocks of shares that grant not only the right to dividends, but also the right to vote. Control is the ability to use the right to vote on strategic decisions in the company. The degree of control by a company that is at a higher level of the ownership hierarchy may be greater or less than the shares it owns. However, there may be cases where complex cross-ownership of shares may lead to the transfer of control, even when nominal shares of shares are limited. In addition to cross–ownership of shares, there may be a deviation from the principle of "one share - one vote", however, studies show ^[12] that TNCs in most countries still adhere to this principle.

In general, from the point of view of ownership, many TNCs are significantly heterogeneous, since only a small group of TNCs has a significant share of foreign units (less than 1% of TNCs have over 100 foreign units each, but they account for 60% of the global value added of TNCs). At the same time, the point of view that TNCs have complex and intricate ownership schemes is erroneous – most of them are simple, have direct links and full control between the parent company and affiliated structures abroad. An empirical analysis conducted by UNCTAD showed that about 70% of TNCs have only one subsidiary, while 90% of TNCs have fewer than five foreign divisions ^{[24, p. 134]}.

As the number of divisions grows, the complexity of TNC ownership structures also increases, and this complexity for the largest TNCs is mainly associated with "vertical depth" - several steps, often across the borders of several states, from the parent company to the foreign division, which, however, are characterized by relatively simple connections at each of the steps.

The development of many TNCs occurs haphazardly and in the early stages their foreign units are created mainly in the home country and neighboring countries, therefore, there may be a proliferation of TNCs at the regional level before a broader international expansion. However, researchers note that the growth of TNCs slows down as they move to each step of their hierarchical ladder ^[16]. This is partly due to the fact that new levels of hierarchy are not artificially created, and the constant rationalization and restructuring of the ownership structure of TNCs can be costly. That is, these processes involve actual transactions for the purchase and sale of shares, which leads to an increase in transaction costs and capital gains taxes. In other words, restructuring is possible if significant benefits are obtained, so TNCs often do not go to simplify the existing complex ownership structures.

At the same time, in recent years, foreign divisions interacting with each other may grow as a result of fragmentation of international production processes, when, for example, one division is a supplier of intermediate products and a TNC prefers to own this supplier and does not want to outsource supplies. Therefore, a vertical chain of ownership is being formed within the global value chains (GCSS). At the same time, ownership of all divisions can be concentrated at the parent company, or transferred to any financial company and holding company, which will not affect the supply relationship. However, UNCTAD experts argue that supply chains are reflected in vertical ownership chains - divisions that are located closer to the parent company in the vertical ownership structure carry out their activities close to the parent company in supply chains ^{[24, p. 139]}.

When TNCs create holding and financial companies in their property chains, they place them in tax–friendly jurisdictions, while fiscal advantages are the main factor in complicating the ownership structure. TNCs with divisions in offshore financial centers pay corporate taxes at low rates compared to other TNCs. Some well–known schemes, for example, the "double Irish with a Dutch sandwich", operate through ownership structures formed around offshore jurisdictions that act as large investment centers - intermediate investment channels. A significant transfer of profits of TNCs occurs due to direct investment ties, in particular, participation in capital.

When transacting cross-border mergers, decisions on the ownership structure of a newly created company also depend on tax aspects, as some researchers rightly claim ^[14]. Moreover, taxes can be an important factor in cross-border mergers and acquisitions. This is confirmed by the practice of so-called "inversion transactions", where US TNCs are reorganized through a transaction with a foreign company, and the latter becomes a new parent company. Such transactions facilitate access to countries with low (compared to the United States) corporate taxes.

An important role in the ownership relations of the parent company of TNCs and its foreign divisions is played by well-known Double Taxation Avoidance Agreements (SIDN), since investments in high-tax countries are often structured through intermediaries in jurisdictions that have SIDN with the intended host country. Similarly, a country's national policy to attract FDI can also affect ownership relationships (joint venture requirements, ownership restrictions), which may necessitate joint ownership of foreign units with local companies. In turn, the management of ownership structures may be influenced by investment agreements. TNCs to a greater extent cover the ownership of large investment centers (China, Hong Kong, Singapore, Luxembourg, the Netherlands) with an extensive network of investment agreements with foreign countries.

In general, the long-term trend of concentration of international production in large TNCs will further complicate the ownership of TNCs, and the digital economy will only accelerate this process. The fragmentation of production over the years preceding the pandemic forced TNCs to constantly change the configuration of their GCSS and the ways of their growth through cross-border mergers and acquisitions, partnerships and joint ventures. Historically, this has led to an increase in the size and degree of internationalization of the largest TNCs in the last two decades (at least in 1995-2015). Table 1 shows that the assets of the largest TNCs grew faster than the growth of the world economy and international production during the period under review, and the share of foreign assets, sales and employment abroad increased from about 40-50 % up to 60-65%.

Table 1. Dynamics of internationalization indicators of the 100 largest TNCs (1995 = 100)

Source: compiled by: ^{[24, p. 142]}.

It can be argued that the internationalization of TNCs has not reached its saturation point, however, the development of e-commerce based on new digital technologies may in the future lead to a faster growth of the international scale of TNCs, as new opportunities open up for separating consumption from production, breaking the GCC, accelerating the creation and modernization of enterprises.

Historically, the processes of business transnationalization have developed as a result of the expansion of capital and production beyond national markets, which was initiated by TNCs ^[6]. The processes of transnationalization themselves underlie economic globalization, which has developed mainly on the basis of deepening the division of labor within the framework of international trade. Economic globalization gradually led to geographical diversification of TNC divisions, which was due to the imperatives of scaling their activities and retaining competitive advantages. As a result, TNCs have become key subjects of world trade and global investment. Various sources estimate the share of TNCs in world exports in the range of 50-60%, while 20% of world exports are formed by domestic TNCs (parent companies), while from 30 to 40% are accounted for by their foreign divisions.

According to estimates ^[9], at the present stage, only one third of world exports are accounted for by independent companies that are not involved in international production, while two thirds are accounted for by TNCs and their network of foreign divisions. The latter account for 30% of world exports, while foreign units play a special role in international trade in services that require proximity to consumers and suppliers. In some emerging markets (especially for countries with economies in transition), an FDI strategy is not always appropriate, and here the leading TNCs focused on joint entrepreneurship, i.e. they transferred production to the country on the basis of a special agreement with a local company (in the form of, for example, licensing, maintenance agreement, franchising, management contract, a contractual joint venture or an international contract).

It should be noted that FDI usually covers two types of flows: investments in production, resources and services within the framework of the GCC, as well as investments in infrastructure (social institutions, utilities, transport systems, industrial zoning). The difference between these two types of investments is that the former are carried out by individual TNCs, while for the latter many creditors and investors are attracted. Investment policy analysis has traditionally focused on investments in production due to their decisive role in the processes of export promotion, industrialization and structural changes in the economy. In recent years, more and more attention has been paid to infrastructure investments due to their importance for the implementation of the UN Sustainable Development Goals, and this attention will increase after the pandemic.

During the 1990s-2000s, international production tended to consistently expand, and we, in particular, established a leading trend in the growth of income from attracted global FDI (the average annual value for the period 1990-2019 was 78.7%) compared with the growth of the attracted FDI flows themselves (22.5%) (Table 2). In addition In addition, there was an increase in sales and added value created by foreign divisions of TNCs. At the same time, the value added indicator grew faster than sales, which indicates additional benefits received by foreign divisions from their activities. At the same time, the average annual growth in employment in foreign units was more moderate (6.5%) compared with the growth in value added (17.2%) and especially with the growth in the value of assets (58.9%), which, firstly, indicates a shift in the distribution of value added between factors of production towards capital rather than labor. Secondly, these indicators reflect the trend of a gradual shift in global production towards intangible and digital activities.

One of the highest inflows of global FDI in recent years was observed in 2015 (38% compared to the previous year), and the reason for this growth was increased cross-border mergers and acquisitions, partly due to corporate reconfiguration. In other words, we are talking about changes in the ownership structures or legal structures of TNCs, in particular, tax inversions (in this case, there is a transfer of the head office of TNCs to a country with a low tax rate).

Table 2. Some indicators of global FDI and international production in 1990-2019, billion dollars, in current prices

Note: * pre-crisis average annual value; * average annual dynamics, %.

Source: compiled and calculated by the author according to: ^{[25, p. 18]}; ^{[26, p. 22]}.

Historically, developing countries as a whole have benefited from attracting FDI in the form of "greenfield" projects, as well as from reinvesting in existing FDI. At the same time, TNCs are resorting less and less to the strategy of FDI, which at one time personified the processes of economic globalization, and this trend is only intensifying during the pandemic. Even after the crisis of 2008-2009, i.e. before the pandemic, global FDI and income from them tended to decline. At the same time With . Evenett and J. Frits indicate that the average profit from FDI in developing countries fell faster than in developed countries ^[11]. During the pandemic, FDI in new projects experienced a particular decline. The return on FDI has sharply decreased and the payback period in the education and health sectors has increased. In general, there is currently a decline in FDI inflows to the level of 1995. Even before the pandemic, there was a significant decrease in FDI inflows and outflows. In developed countries, the largest decrease in FDI inflows and outflows was observed in 2015-2020 (Table 3).

Table 3. Dynamics of FDI inflows and outflows in the global economy, 2015-2020, USD billion

Note: * Average annual change

Source: compiled and calculated by the author according to: ^{[28, pp. 248-251]}.

At the same time, our calculations show that if in 2000-2010 the average annual growth rate of global FDI was 16.9%, then in 2010-2020. it has already amounted to 10.8% (in terms of outflow, this increase was 17.6% and 9.2%, respectively). At the same time, the decline in FDI growth has become even more dynamic in developed countries. A particular decrease in the growth rate of FDI was characteristic of their inflow to developing countries and countries with economies in transition. It is noteworthy that in 1990-2000, the growth of FDI in developed countries was the highest and higher than in developing countries (Table 4).

Table 4. Dynamics of accumulated FDI volumes in 1990-2020 in the world

Note: * Average annual change

Source: compiled and calculated by the author according to: ^{[22, p. 191],[28, p. 252-255]}.

During the crisis, the decline in FDI in the form of cross-border mergers and acquisitions was insignificant. The largest decrease was typical for FDI in the form of new "greenfield" projects (in 2019-2020 it amounted to 16% in developed and 44% in developing countries), as well as in the form of international project financing transactions (28% in developed and 53% in developing countries) ^{[28, p. 3]}. There was a decrease in all components of FDI, and the total profit of TNCs decreased by 36% ^{[28, c. X]} and, among other things, there was a decrease in an important part of FDI – reinvested income of foreign units of TNCs.

TNCs of developed countries reduced their FDI by 56% to $347 billion, and the share of this group of countries in global FDI outflows fell to 47%. In particular, the export of FDI by European TNCs decreased by 80% to $74 billion, and this was the lowest level since 1987. A particularly sharp reduction in FDI outflows was from the UK, Germany, Ireland and the Netherlands. In particular, in the Netherlands, the outflow was due to the liquidation of holdings and corporate reconfiguration, in the UK – the sale of part of foreign assets. Foreign investment activity of TNCs from developing countries also declined, but FDI outflows from China remained the highest in the world ($133 billion in 2020). In global FDI, China has almost doubled its participation in cross–border mergers and acquisitions, and in addition, the growth of FDI outflows from China, even in the face of a pandemic, was due to the continued expansion of the "One Belt, One Road" project. In addition, China remains the largest recipient of FDI in the region, and foreign TNCs continue to invest in this country due to the favorable investment climate, developed infrastructure and steadily growing purchasing power. Moreover, D.B. Kalashnikov points out in his research that Chinese TNCs are already competing with TNCs of developed countries on the world market, and an increasing role in the sale of products manufactured in China belongs to foreign divisions of its TNCs ^{[2, p. 15]}.

Traditionally, high income from FDI is concentrated in offshore jurisdictions, i.e. there is a significant gap between the income of TNCs and their investments in production, causing significant financial losses due to the tax practices of modern TNCs. Most of TNCs' income from FDI is registered in low-tax and offshore jurisdictions. Indicators of the share of income from investments of foreign units of TNCs in the GDP of offshore jurisdictions go beyond common sense. Thus, according to UNCTAD, TNCs of 25 leading developed countries in 2014 received more profits in Bermuda ($44 billion or 779% of the country's GDP) than in China ($36 billion) ^{[24, p. 21]}. The high share of income from FDI in GDP indicates the development of holding companies - the key aggregators of foreign profits of TNCs. Thus, the profits of US TNCs are generated in Bermuda, and the holding companies of this country are a tool for reinvesting profits from Bermuda to third countries. The location of holding companies in countries with preferential taxation shows that the main motive for TNCs is tax evasion.

For developing countries, where TNCs of developed countries have traditionally hosted FDI, the taxes of these corporations have been (among other benefits of FDI) an important source of economic development. However, the vulnerability of developing countries in terms of countering tax evasion from TNCs is important for this group of countries from the point of view of the existing deficit in financing economic development. The econometric analysis conducted by UNCTAD shows that, on average, in a group of developing countries, an additional 10% of investments from offshore jurisdictions are associated with a decrease in the rate of return of 1-1.5%.

After establishing a significant relationship between exposure to offshore jurisdictions and the rate of profit from FDI, it is possible to calculate the loss of tax revenues. Modeling conducted by UNCTAD shows that the amount of TNC profits transferred from developing countries is about $450 billion, which, with a weighted average tax rate of 20%, will amount to $90 billion in annual tax revenue losses ^{[23, pp. 200-201]}. The negative relationship established in the figure also persists for developed countries, but the loss of tax revenues will be much less for them.

More and more efforts are being made at the international and national level to prevent offshore financial flows. So, at the national level, the US Law on Taxation of Foreign Accounts (FATCA) should be noted, and at the international level – the Plan to counteract the erosion of the tax base and the withdrawal of Profits from taxation (BEPS), put forward by the Organization for Economic Cooperation and Development (OECD) and the G20 back in 2013. This plan received an additional impetus in 2020, when the OECD launched the so-called "Inclusive Framework of the BEPS Plan" ^{[17, p. 4]}, designed to solve tax problems in the context of digitalization. One of the last steps was the adoption in July by 132 jurisdictions of the so-called "two-component" solution to tax problems regarding the loss of state revenues due to the movement of profits and regarding the tax rights of jurisdictions ^{[17, p. 10]}. Later, in October 2021, the G20 countries reached an agreement on the introduction of a global tax for TNCs in the amount of 15% from 2023 (adopted by 139 countries) ^[13].

The progress achieved is revolutionary and considers TNCs as unitary enterprises, excluding the operation of the ineffective principle of the "arm's length principle". In accordance with this rule, tax liabilities are calculated from the market prices of transactions between interdependent taxpayers. In essence, this principle is a protective tax tool for the state, since interdependent companies evade taxation by withdrawing their profits to low-tax or offshore jurisdictions. In addition, the minimum tax rate will be applied to all TNCs with consolidated revenues in excess of 750 million euros, and not only to digital TNCs. It is likely that the agreements reached will reduce trade tensions between the countries, since earlier the United States assumed the use of its own strategy regarding the taxation of TNK – tech giants ^{[27, p. 67]}. In addition, A. Cobham ^[1] indicates that the additional increase in tax revenues as a result of the decisions taken will amount to $275 billion annually. Earlier estimates showed ^{[21, p. 7]} that tax evasion annually allows TNCs not to pay from 500 to 600 billion dollars in tax payments. At the same time, the proposed tax reforms of TNCs have not yet affected the dynamics of their shares and there is every reason to assume that there will be no serious change in the tax regime. From a global perspective, reform has at least three risks:

- it is still possible to bypass the system, because as the complexity of the system increases, the likelihood of using various loopholes increases. Among other things, some experts point out that the reform will affect only 78 of the 500 largest TNCs, since the first component in the "two-component system" refers only to companies whose revenue exceeds $ 20 billion and a profit margin of more than 10%. Reduction of threshold revenue from 20 billion. up to 750 million euros (the threshold of the second component) will lead to an increase in the number of companies that will be affected by this factor by 13 times ^{[10, p. 7]};

- the benefits of the reform in developing countries are doubtful due to various factors, for example, the lack of qualified experts in the field of taxation; exceptions in the "first component" for extractive industries and the financial services sector; it is possible to shift the start date of the reform to a period later than 2023. It should also be pointed out that the distribution of tax rights between the home countries of TNCs and the host countries is based on the sales of TNCs in each of the countries and, since the home country will receive the first right to tax revenues, the "Big Seven" countries, according to estimates ^[1], will account for 60% of additional income;

- there are unresolved problems in the US taxation system, which is based on the principle of "Capital Export Neutrality" (English – Capital Export Neutrality, CEN), which assumes the neutrality of the taxation system in relation to the choice of a resident between foreign and domestic investments. Therefore, US TNCs can use tax deductions to deduct losses incurred abroad from their domestic taxation. Some TNCs have thus significantly minimized their taxes, while others (for example, Amazon ^[18]), using all the advantages of such a system, pay almost no taxes worldwide.

In order to neutralize these risks, experts ^{[19, p. 2]} suggest using alternative approaches to the introduction of a global tax, for example, based on the application of the minimum effective tax rate (METR). This rate can be introduced by a coalition of countries, both home countries and host countries.

It should be noted that in modern conditions, the organization of foreign economic activity of TNCs is undergoing serious changes due to the sale of assets by many TNCs and the change of their geographical markets. In particular, the Chinese market has long been regarded by companies in developed countries as the most profitable and priority, and this country has long been considered a "world factory". However, the intensification of the trade conflict between China and the United States since 2018 ^[5], as well as the rise in the cost of factors of production in China, contributed to the departure of many companies to the markets of Asian countries with lower costs. The global crisis caused by the coronavirus pandemic has only intensified the trends of niashoring (the transfer of production to neighboring countries) and reshoring. In general, in modern conditions, countries are increasingly thinking about the repatriation of GCC, especially when it comes to the production of critically important, strategically important goods.

In general, in recent years, negative trends in global FDI are largely due to government policies that create barriers to FDI: the popularity of government programming to attract FDI in many countries has decreased, as well as policies to encourage FDI (this is typical for both developed and developing countries); localization requirements for foreign direct investors are growing; States are more oriented towards policies to encourage FDI in services than in the material production sector. At the same time, both the state and business are interested in reviving commercial interest in FDI.

The most important component characterizing the scale of the positioning of TNCs in the modern world economy is the assessment of the degree of their focus on innovative processes. Some researchers point to the growing internationalization of research and development as a strategic vector for the development of some TNCs, in particular, in the automotive industry ^{[1, p. 10]}. In recent years, the 100 largest TNCs account for more than 1/3 of the research and development of international business, while, in an industry context, technology giants, automotive and pharmaceutical TNCs are leading here. It should be noted that global FDI in new ("greenfield") projects in the field of research and development (R&D) continues its upward trend ^{[25, p. XI]}. Taking into account the difference in the size of TNCs, absolute expenditures on R&D are not a reliable indicator of innovation intensity for the competitiveness of TNCs. Thus, Sinopec, an oil-producing Chinese company, invested $1.2 billion in IR in 2018, but this amount is only 0.3% of the company's revenues ^{[25, p. 22]}. Therefore, in order to rank TNCs, it is necessary to consider the indicator of the share of expenditures on R&D in the total income of the company ("R&D intensity"). Thus, only a few TNCs in developing countries have this indicator exceeding 5%, because large mining or industrial conglomerates predominate among them.

In recent decades, there has been an increase in FDI by the largest TNCs in the IR, which they carry out abroad to integrate into clusters or gain access to first-class resources. Over the past five years alone, over 5,000 greenfield projects have been announced in the field of R&D (6% of the total number of new FDI projects, and, for example, in the pharmaceutical industry - 17% of new projects). The leading positions in investments in IR are occupied by international companies – technology giants.

Table 5. Leading companies-investors in research and development in 2020

Source: compiled by: ^[15].

In the context of the pandemic, major players have activated AI to maintain their dominant position. Leadership in spending on R&D (in particular, carried out through FDI) allowed Amazon to maintain its leading positions in the field of cloud computing, e-commerce and logistics. Facebook increased its spending on AI in 2019-2020 by 35.6%. Outside the United States, Huawei, as well as Samsung and Volkswagen became the leader. Thus, Huawei became the world's largest cross-border investor in AI in 2015-2020, announcing 76 new FDI projects in AI (Fig. 1).

Fig. 1. The world's leading companies by the number of cross-border investment projects in the field of IR, 2015-2020.

Source: compiled by: ^[15].

It is generally believed that TNCs, by attracting their FDI into the economies of developing countries, contribute to economic growth, employment, and the introduction of technology, which allows these countries to integrate into the GCC. At the same time, in parallel with the arrival of TNCs on the foreign market, it is possible to transfer both benefits from trade ^[20] and economic shocks ^[8]. One group of researchers based on empirical data found that TNCs and their foreign units provide about one-third of world production and about two-thirds of international trade ^[9]. At the same time, foreign divisions turn out to be more capital-intensive, innovation-intensive, large than local companies, and, finally, they are more focused on foreign markets as exporters of finished products, importers of intermediate products (consequently, they are characterized by a relatively lower ratio of value added to total output).

Conclusion

In general, we note that foreign units of TNCs are establishing strong relationships with local companies, including SMEs, since they receive more than two thirds of intermediate products from the host country. Among other things, foreign units are active suppliers of intermediate and finished products in the host countries (about two thirds of their products are used for domestic CSPs). The fact that TNCs account for about two-thirds of world exports indicates their significant role in the GCC. Foreign divisions of TNCs can participate in horizontal strategies for the production of finished products for export or for the domestic market, as well as intermediate products, which are further used by local companies. The vertical strategies of TNCs are expressed in the export of resources by their foreign units. Foreign divisions in the electronics industry are more involved in vertical strategies, and to a lesser extent in the food industry. It should be noted that trade and investment are becoming increasingly interconnected in the GCC, but investment and trade policies are still viewed by Governments in isolation, so international investment and trade regimes still remain fragmented.

The development of GCC has led to a significant fragmentation of international production, which has become a key strategic direction for the development of TNCs in recent years. At the same time, it is customary to distinguish between vertical and horizontal TNCs in the placement of international production. Vertical TNCs are characterized by the placement of production links in the least expensive countries, and such TNCs have become particularly important within the framework of the GCC system, which provides for a reduction in transaction costs of international production and coordination costs.  Horizontal TNCs emerged earlier and preceded the formation of vertical TNCs, focusing on the market, bringing production closer to the consumer and, thus, reducing trade costs. It should be noted that vertical TNCs have increasingly resorted to concluding contracts with independent partners abroad on the basis of licensing, franchising and contract production strategies. The final, most preferred variant of TNCs, which developed in the 1990s, became TNCs in the form of international production networks operating within the framework of the GCC.