The world’s largest digital multinational corporations (MNEs) have been growing their international sales while investing less in their physical footprint, according to Unctad’s latest Investment Trends monitor published on April 27.

“Digital MNEs can penetrate foreign markets with little or no investment in physical assets; the ratio between the share of sales generated by foreign affiliates and the corresponding share of foreign assets (the FDI lightness index) is very high compared to that of Unctad’s regular top 100 MNEs,” the report reads. 

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The foreign direct investment (FDI) lightness index for the top 100 digital MNEs rose from 1.37 to 1.45 between 2016 and 2020, which signals that their foreign sales grew faster than their physical foreign assets, Unctad analysis shows. On the other hand, the FDI lightness index of traditional (non-digital) MNEs went down from 1 to 0.99 during the same five-year period, according to the Unctad report.

On top of being asset-light, the world’s 100 biggest digital MNEs also originate from a handful of countries. According to the Unctad report, most of the largest digital MNEs are based in the developed world. As many as 59 of the top 100 digital MNEs are headquartered in the US, with a further 22 in Europe. However, only five digital companies were from developing economies such as South Africa or Mexico. The Unctad analysis found that digital MNEs from southeast Asia and Latin America are becoming more global.

The report assessed the 100 largest digital MNEs across core segments, including internet platforms, digital solutions, e-commerce and digital content. Those major digital MNE segments are more related to other forms of foreign investments rather than greenfield FDI per se. 

“Typically, digital MNEs do not engage much in greenfield investments, and most of their investment abroad is related to acquisitions of competitors or valuable startups. E-commerce companies are the exception, because they need to set up their networks of warehouses and distribution facilities,” the Unctad report states.

Unlike ordinary digital MNE business models, which are relatively easy to operate without substantial presence abroad, e-commerce MNE expansion requires the establishment of the new local infrastructure, including warehouses and distribution facilities. 

As a result, the increasing e-commerce activity due to the pandemic led to significant increase in greenfield investments by 120% in 2020 and a further 10% in 2021, from $7bn to $17bn between 2019 and 2021, with Amazon playing a key role.

On the other hand, the value of FDI in the digital solutions and digital content segments shrunk in 2020, compared to the previous year, but recovered in 2021. The volume of FDI in internet platforms has also decreased since 2019, from approximately $2.5bn to $1bn.