Over the last twenty years, TNCs and their international operations have evolved in scale and form, resulting in changes to their strategies and structure which are today shaping existing and emerging markets and industries. Among other things, the integrated international production system of TNCs of the past has been evolving towards an integrated international network in which TNCs increasingly coordinate activities between independent or loosely dependent entities, for instance through outsourcing and the use of original equipment manufacturers. At the same time, TNCs are much more involved in non-equity forms of activity, such as build-own-operate-transfer arrangements in infrastructure projects, than in the past. In addition, along with TNCs’ exponential expansion worldwide has come the rise of new players and investors, including developing-country TNCs, state-owned TNCs, SWFs and private equity funds. This new TNC universe has profound implications for the policies of both home and host countries and at both national and international levels.

Partly for this reason, the pendulum has recently been swinging towards a more balanced approach to the rights and obligations between investors and the State, with distinctive changes in the nature of investment policymaking. Particularly in light of the current financial and economic crisis, there have been simultaneous moves to both liberalize investment regimes and promote foreign investment in response to intensified competition for FDI on the one hand, and to regulate FDI in pursuit of public policy objectives on the other. This has resulted in a dichotomy in policy directions, which contrasts with the clearer trends of the 1950s–1970s (which focused on state-led growth) and the 1980s–early 2000s (which focused on marketled growth). With thinking about the rights and obligations of the State and the investor in flux, striking the proper balance between liberalization and regulation becomes a challenging task. Ensuring coherence between international and domestic investment policies and investment and other policies (economic, social and environmental) is essential. A good example is the interaction between investment and industrial policies which require a joined-up approach to foster linkages and spillovers (including the dissemination of technology) arising from TNC operations in host countries.

The challenge for policymakers is to fully comprehend the depth and complexity of the TNC universe and its new interface with the state and other development stakeholders. Meeting this challenge requires that the tripartite investment relationship in terms of rights and obligations between home and host countries and foreign investors be reconfigured, to better harness the contribution of TNCs for development. In particular, the policy framework has to enhance critical interfaces between investment and development, such as those between foreign investment and poverty, and national development objectives. Indeed, TNCs have a role to play; and, above all, the world needs a sound international investment regime that promotes sustainable development for all.

The new TNC universe, along with the emerging investment policy setting, calls for a new investment-development paradigm.