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OECD Development Centre 1
DEVELOPING COUNTRY MULTINATIONALS: A NEW GEOGRAPHY OF WORLD BUSINESS?
Andrea GoldsteinOECD Development Centre
Japan–UK Forum, London, 2 March 2007
OECD Development Centre2
11 Multinationals from emerging marketsMultinationals from emerging markets
The case of ChinaThe case of China22
The case of IndiaThe case of India33
Conclusions: Issues & ChallengesConclusions: Issues & Challenges
OutlineOutline
OECD Development Centre3
What is new?• Globalization and trade liberalization,
including regionalism• Capital account liberalization in many
developing countries• Privatization and regulatory reform• New technologies, shorter lead time, launching
a new product has become much more expensive
• Growing competition in sales and in access to resource and strategic assets
• The age of alliance capitalism• A global creative class?
OECD Development Centre4
What does it mean?• “Before the West knows it, Chinese and Indian companies that are
now making goods or doing service work for Western brands will become global players. The moment we feel them, it will be too late”(Time, 17 May 2004)
• “Les capitalistes de l’hémisphère Sud à l’assaut du Nord” (Les Echos, 6 December 2004)
• “Rescuing Rover – A joint venture with Shanghai Auto could be a clever move” (Financial Times, 29 November 2004)
• “China’s Big Deals – Should We Worry?” (Business Week, 20 December 2004)
• “Paranoia is one way to describe their behavior. I would call it an acute awareness of their vulnerability. The new kids on the block who lack faith in the rule of law because they don’t have it themselves, they don’t see the international system as being in their favor, and engage in a constant quest for vertical integration in their business dealings, wanting to control every aspect of whatever it is they need. The basic reality, though, is that they don’t have the ability to compete internationally yet.” (New York Times, 12 December 2004)
OECD Development Centre5
Nationality: definitions and principles
• Existing criteria to define nationality:– The principle of control – The principle of incorporation
(UK, US) – The principle of the company
HQ (FR, DE)
OECD Development Centre6
Nationality: reality
1. companies controlled by non-resident entrepreneurs? Lakshmi Mittal and Simon Patiño
2. companies that move their primary listing to an advanced country’s financial market and yet maintain a strong association with their countries of origin?
3. companies incorporated in developing countries that are in turn subsidiaries of OECD MNCs?
4. companies from developing countries that are owned by financial investors based in OECD countries?
5. companies established in offshore financial centres?
OECD Development Centre7
OFDI data• General problem with the quality of FDI data. • even more serious with OFDI from emerging
economies.1. definition issues 2. deficient data collection
• Flows vs. stock approach• The round-tripping issue
– Hong Kong ( 40 % of the total OFDI stock of developing countries)
– Russia • data need to be interpreted carefully
OECD Development Centre8
Additional problems
• differences in the way data are collected, defined and reported help to explain some of the oddities in global data compilations
• while inward and outward FDI should in principle balance, they rarely do. In 2004, global FDI outflows stood at $730 billion, whereas the inflows were $648 billion
• Bilateral comparisons outflows reported by the investing economies seldom resemble the data provided by the recipient country
OECD Development Centre9
Nevertheless …
• clear upward trend – OFDI stock from emerging economies multiplied by 11 since
1985– year-on-year variance– South-South FDI flows rose from an estimated $14 billion in
1995 to $47 billion in 2003 and have to an important extent compensated developing countries for the decline in FDI flows from high-income countries from $130 billion in 1999 to $82 billion in 2003 (GDF 2006)
• still a minor share of global FDI stock – 11% in 2004– 7% in 1990
OECD Development Centre11
Where do EMNCs invest?
TUR
17.5615.171.786.7458.75THA
0.9111.325.6475.117.02SAF
SIN
15.1223.11..24.7437.02RUS
MEX
MAL
5.0032.001.9020.7040.30KOR
17.1823.261.4132.7225.43IND
HUN
50.5320.788.00..20.69CHI
74.874.490.1310.0910.42BRA
Rest of the World
Canada & USA
Japan & Oceania
EU 15 & EFTA
Same region
OECD Development Centre12
EMNCs are homogeneous• Many are SOEs or government-linked companies
(Temasek in Singapore, Khazanah in Malaysia)• Many are family-owned/controlled, affiliated to diversified
conglomerates (Tata, Santo Domingo, Koç, CP Group, Anglo-American)
• Some are “pure players” (Arcor, Sabó)• Some are “born-global” (Acer)• Few are SMEs
– www.lolita.com.uy– India: 26% of the projects in manufacturing, 41 % in software – Poland and Estonia (70%), Czech Republic and Hungary (30%)
OECD Development Centre13
The internationalization of the largest TNCs from developing countries is catching up
010
20
3040
50
6070
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
Top 100 Top 50
Source: UNCTAD/Erasmus University database.* TNI : transnationality index
Average TNI of the 100 largest TNCs in the world and the 50 largest TNCs from developing countries, 1993-2003.
OECD Development Centre14
Industry composition
• Investment by developing country firms span all sectors• Availability and quality of data constrain industry analysis. • Services dominate• OFDI stock of developing countries
– within manufacturing a number of industries are of relatively equalimportance – Electrical and electronic equipment is No 1 in the manufactruing sector
• UNCTAD list of the 50 largest (non-financial) TNCs fromdeveloping countries
– 8 are in electrical and electronic equipement– 5 in petroleum exploration, refining and distribution– 4 in food– 3 each in telecommunications, transport and computer and relatedactivities
OECD Development Centre15
1990 % 2003 %
Sector/industryDeveloping economies
Developing economies
Primary 867 4. 7 3 178 . 5
Mining, quarrying and petroleum 582 3. 2 2 481
Manufacturing 6 109 33. 3 103 414 15. 5Food, beverages and tobacco 420 2. 3 2 060 . 3Textiles, clothing and leather 187 1. 2 712 . 4Chemicals and chemical products 762 4. 2 4 351 . 7Metal and metal products 85 . 5 2 618 . 4Electrical and electronic equipment 1 018 5. 6 15 854 2. 4Motor vehicles and other transport equipment 10 . 1 1 512 . 2Unspecified secondary 3 231 17. 6 69 742 10. 4
Services 11 350 61. 9 562 409 84. 1Trade 1 836 10. 65 342 9. 8Transport, storage and communications 501 2. 7 41 093 6. 1Finance 7 027 38. 3 153 304 22. 9Business activities 1 283 7. 271 469 40. 6Other services 526 2. 9 13 258 2. Unspecified tertiary - ? 2 421 . 4
Unspecified 240 1. 3 51 870 7. 8TOTAL 18 326 100. 669 001 100.
Source: UNCTAD.
Developing economies - Estimated world outward FDI stock, 1990 & 2003(Millions of dollars and percentage)
OECD Development Centre16
Extractive sector• High-growth economies with limited resource supply, such as China and
India, have been notably successful in acquiring oil & gas assets or licenses
• Even countries that are large oil & gas producers such as Saudi Arabia and Venezuela invest in other developing countries as they integrate their downstream operations such as refining, distribution and retailing.
• Developing country companies are also investing in several exploration projects. – Petrobras (Brazil) in deep-water exploration projects
• South-South FDI in non-oil mining sector is also increasing.– South Africa in Africa – China in Africa and Latin America.
• Increased cooperation among developing countries
OECD Development Centre17
11 Multinationals from emerging marketsMultinationals from emerging markets
The case of ChinaThe case of China22
The case of IndiaThe case of India33
Conclusions: Issues & ChallengesConclusions: Issues & Challenges
OutlineOutline
OECD Development Centre18
Policy environment• State Council in 1979 Fifteen Measures of Economic Reform permitting outward
FDI • until 1985 reserved only to trading companies and selected provincial and municipal
economic and technological institutions • pressure of domestic overproduction & rising international reserves on the fixed
currency regime “Go Out” policy of encouraging overseas investment• April 2003: State Asset Supervision and Administration Commission (SASAC) set up to
turn top SOEs into 50 global multinational corporations. • Although every company that wants to invest overseas must get regulatory approval, in
2003 the Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE) introduced a program that allowed OFDI of less than US$3 million to be approved at the local government level
• October 2004: government will no longer judge the feasibility of overseas investments, leaving such judgments to the companies involved.
– submissions on fewer topics – accepted via the internet– number of investment destinations requiring approval by the ministry cut from 30 to 7 – investments in other destinations can be approved by local authorities.
OECD Development Centre19
China’s OFDI - Top 10 countries 2004
OFDI flows*$ million %
Hong Kong 2,629 47,8Cayman Islands 1,286 23,4Virgin Islands 386 7,0Sudan 147 2,7Australia 125 2,3USA 120 2,2Russia 77 1,4Indonesia 62 1,1Singapore 48 0,87Nigeria 46 0,84
OFDI stock$ million
Hong Kong 30,393 85%Cayman Islands 6,660Virgin Islands 1,089USA 670Macau 625South Korea 562Australia 495Singapore 241Bermuda 185Thailand 182
Source: Department of Commerce, China
OECD Development Centre21
China’s FDI stock in Europe (US$ million), 1997
94.77
93.21
67.52
52.89
41.17
29.86
18.41
16.21
3.49
2.36
2.00
France
Germany
United Kingdom
Netherlands
Spain
Italy
Sweden
Belgium
Denmark
Finland
Luxembourg
0.00 20.00 40.00 60.00 80.00 100.00 120.00
OECD Development Centre22
China’s FDI stock in Europe (US$ million), 2004
129.21
127.67
108.46
67.00
21.68
20.84
8.97
6.44
1.86
1.64
1.66
Germany
Spain
UK
Denmark
France
Italy
Netherlands
Sweden
Switzerland
Belgium
Other Western Europe
0.00 20.00 40.00 60.00 80.00 100.00 120.00 140.00 160.00
OECD Development Centre24
China’s FDI in Western Europe
• UK (181 companies, 2005)– Foreign trade, banking and insurance (e.g. China Bank)– European HQ (China Telecom, Huawei, Founder group)– R&D centers (e.g. Midea)
• Spain– Petrochemicals (take over of 6% of CLH: €60 million)– Fishing
• Germany (500-600 companies)– Foreign trade (about 200 in Hamburg) and transportation
OECD Development Centre25
Chinese M&A in Germany
Source: Margot Schüller and Anke Turner (2005), “Global Ambitions: Chinese Companies Spread Their Wings”.
OECD Development Centre26
Chinese companies in Belgium (€ million, 2004)
BrusselsChina Coal (Branch Office)
UnknownCNOOC Belgium BVBA
n.a.0.410.020.20Sint-Niklaas2000Torin Jacks NV
n.a.0.100.02Antwerp2000Beijing Gongmei Europe
10.070.020.10Antwerp1994Shantai
20.760.06Antwerp1994Tianjin International Corp
40.830.11Mechelen2002BBCA Belgium NV
10.670.15Vilvoorde1986SINOBELTRANS NV
293.191.993.60Antwerp1999China Shipping Agency
337.482.273.47Antwerp1980Cosco Belgium NV
No. of employee
sTotal assetsNet added
valueSalesLocationYear of
establishmentName
Source: Danny van den Bulcke
OECD Development Centre27
11 Multinationals from emerging marketsMultinationals from emerging markets
The case of ChinaThe case of China22
The case of IndiaThe case of India33
Conclusions: Issues & ChallengesConclusions: Issues & Challenges
OutlineOutline
OECD Development Centre30
Tata is big in the UK …• Tata Tea acquired Tetley in February 2000
for £271m. • Tata Consultancy Services (TCS) since 1975
– TCS has over 5000 consultants engaged on UK client work
– In 2005 took over existing business processes of Pearl Group Limited
– In 2005, was awarded the Business in the Community Per Cent Standard
• Tata Steel acquired Corus in February 2007 for $12.2b.
OECD Development Centre31
… and in South Africa• Tata Africa Holdings in Johannesburg acts as the headquarters for all Tata
operations in Africa “success in SA is a benchmark for the African continent, if a product sells here, it will sell in the rest of Africa“ (Raman Dhawan, MD).
• Tata Motors' medium commercial vehicle range is #2 in SA and the Indica, introduced in December 2004, has already set a record for being the most successful car launched in SA.
• Tata Group has acquired a controlling stake in the Second National Operator (SNO), which started providing fixed-line national and international voice, data and other value added services.
• IT services and solutions, through Consilience Technologies, set up in 2000 as a joint venture between Tata Africa Holdings and J&J.
• construction of the R 670 million Ferrochrome Plant of Tata Steel KZN commenced at Richards Bay on August 21, 2006.
OECD Development Centre32
BharatBharat ForgeForge & Carl Dan & Carl Dan PeddinghausPeddinghaus
©© Prof. Dr. Guido Reger- Chair for Innovation Management and Entrepreneurship
Bharat Forge is the main group company of the Pune-based Kalyani group
Employees (Kalyani Group): 7.500 employees
Ownership: Stock market listed/ Founded and controlled by Kalyan family
Annual Sales 2004 (Bharat Forge): ca. 160 mn. €Annual Sales 2004 (Kalyani Group): ca. 980 mn. €Annual Profit 2004 (Bharat Forge): ca. 36 mn. €
Additional Business: 'Full Service Supplier' of engine & chassis components.
Employees (2005): 790 employees, based in Ennepetal/Nürnberg
Business: Mainly producing chassis for BMW, Volkswagen, Audi, Daimler Chrysler, and Volvo.
OECD Development Centre33©© Prof. Dr. Guido Reger- Chair for Innovation Management and Entrepreneurship
BharatBharat ForgeForge & Carl Dan & Carl Dan PeddinghausPeddinghaus
ProfileManufacturing facilities spread over 8 locations and 5 countries - two in India,
three in Germany, one in Sweden, one in Scotland and one in North ….
Company manufactures a wide range of safety and critical components for passenger cars, commercial vehicles and diesel engines
The company also manufactures specialized components for the railway, construction equipment, oil & gas and other industries. It is capable of producing large volume parts in both steel and aluminum
OutlookHas built up a strong capability in design and engineering, including a full fledged
product testing and validation facility
A Full Service Supply Capability - from product conceptualization to designing to manufacturing and product testing & validation
Source: http://www.bharatforge.com/
OECD Development Centre34
Motives for acquisition
©© Prof. Dr. Guido Reger- Chair for Innovation Management and Entrepreneurship
1. Additional products to the portfolio of Bharat Forge
2. Supporting multinational growth path
OECD Development Centre35
BharatBharat ForgeForge & Carl Dan & Carl Dan PeddinghausPeddinghaus and CDP Aluminiumtechnikand CDP Aluminiumtechnik
Mr. B. Kalyani announces: “The acquisition marks the entry of the company in aluminum-forged components. The acquisition will strengthen the company's position in the global passenger car and chassis component business, and is a step towards attaining global leadership.“
Source: The Economic Times, 16 December 2004
Right after buying CDP, Bharat Forge buysaluminium auto component sector Carl Dan Peddingahus Aluminiumtechnik (CDP AT) for €6.3m.
©© Prof. Dr. Guido Reger- Chair for Innovation Management and Entrepreneurship
Baba Kalyani, Chairman and Managing Director of Kalyani Group
OECD Development Centre36
11 Multinationals from emerging marketsMultinationals from emerging markets
The case of ChinaThe case of China22
The case of IndiaThe case of India33
Conclusions: Issues & ChallengesConclusions: Issues & Challenges
OutlineOutline
OECD Development Centre37
What consequences for OECD countries?
• More competition in developing countries (e.g., resources in Africa) : Southern FDI as an alternative to MNCs from the North ?
• A subtle game: OECD MNCs maintain complex and multi-level relations (e.g. Chevron-CNOOC, competing for Unocal, cooperating elsewhere)
• FDI promotion: pro-active policies to attract FDI from emerging economies
• As in the case of developing countries, issues related to impact have to be considered.
OECD Development Centre38
What consequences for multilateral economic relations?
• The protectionist temptation– Daewoo-Thomson in November 1995 – Mahindra & Mahindra-Valtra in 2003– Bluestar-Ssangyong in 2004– CNOOC-Unocal (and Haier-Mayag) in 2005– DP World-P&O in 2006
• Engage in dialogue (e.g., OECD Guidelines and Anti-Bribery Convention; other CSR issues)
• Broader consensus to include new issues in the agenda (e.g., what is the value for a Chinese firm to buy a Western brand if counterfeiting remains rife?)
OECD Development Centre39
Conclusions – the long way ahead
• While not a completely new phenomenon, it grew in size in the 1990s and is seemingly exploding right now
• Motivations appear to be completely different– Markets have changed– Firms are more efficient– Competition is much stiffer
• Policy implications are huge– OECD governments and firms– South-South economic relations
OECD Development Centre40
�����For more information:
• Aykut, Dilek and Andrea Goldstein (2006), Developing Country Multinationals: South-South Investment Comes of Age, http://www.oecd.org/dataoecd/4/48/38031753.pdf
• Battat, Joseph and Dilek Aykut (2005), “Southern Multinationals—A Growing Phenomenon”, http://rru.worldbank.org/Documents/paperslinks/southernmncs.pdf.
• Goldstein, Andrea (2007), “Who’s Afraid of Emerging Multinationals?”, presented at Columbia University, October.
• Goldstein, Andrea (2007), Emerging Multinationals in the Global Economy: Trends, Policy Issues, and Questions, Palgrave.
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