World Investment Report 2009: Transnational Corporations - Unctad

CHAPTER I 21
services, also began to feel the adverse effects of
the 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 (as
mentioned in section A above).
Activity indicators for the top 100 TNCs
show that the impact of the crisis was only marginal
in 2008 as a whole (annex tables A.I.9-A.I.10).
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%. 27 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 2008.
There are three major reasons for these
apparently paradoxical results. First, the financial
crisis, which deepened in September 2008, started
affecting the activities of the largest TNCs only from
the last quarter of 2008, thus limiting the apparent
impact on activity indicators for the year as a whole
(figure I.15). For instance, despite a sharp fall in
demand for commodities (and subsequently in prices)
at the end of 2008, 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 favourable market conditions in the first three
quarters of 2008.
Second, in many industries such as utilities,
food and beverages and business services, the market
remained relatively stable until the end of the year.
For instance, sales for the fourth quarter of 2008 by
Figure I.15. Quarterly evolution of sales, total assets, and net
income for selected TNCs among the 100 largest, 2006–2009
(Index: 100 = 2006 1st quarter)
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Source: UNCTAD, based on Bloomberg.
Note: Based on data for 62 of the top 100 TNCs that reported quarterly data for the entire
period.
E.ON, InBev and Vivendi Universal were higher than
those observed for the same period in 2007.
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 (annex table A.I.3).
However, what did turn negative was their
net income, which declined by 27% overall. 28 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. 29
Second, companies’ results reflected heavy
losses in the value of their assets and real estate
property as a result of falling stock markets and real
estate markets. 30 At the end of 2008, the value of the
total assets of the largest TNCs was 0.9% lower than
the previous year. 31 Provisions were also made to
cover the costs of cost-cutting plans, especially with
respect to layoffs (see below). Thus, some companies,
such as Cemex, Dow Chemical, Rio Tinto, Alcoa
and Xtrata, which in the past had implemented very
ambitious development plans – especially through
M&As – were suddenly confronted with high levels
and costs of debt, lower asset values and a slowdown
in their markets and revenues.
Third, for some of the largest TNCs, which had
already experienced a slowdown of activity before the
crisis erupted, yearly profits declined significantly in
2008, turning into heavy losses for a number of them.
Those particularly hard hit were many automobile
companies such as Ford, General Motors, Nissan and
Toyota.
Fourth, some companies – especially those
directly involved in processing commodities into
manufactured goods – were faced with higher prices
of inputs, which they were unable to
pass on in their selling prices due to
tightening market conditions. This
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therefore on profits.
Negative consequences of the
economic and financial crisis on the
largest TNCs’ activities and their
financial results have continued to
unfold and deepen, particularly from
the beginning of 2009. This is especially
true for TNCs engaged in commodities,
intermediate goods and automotives. For
instance, sales in the first quarter of 2009,
as compared to the same period last year,
were down by 49.3% for ArcelorMittal,
49% for Royal Dutch/Shell, 47% for
General Motors, 47% for Chevron, and
46% for ExxonMobil. 32