Lourdes Casanova. Diálogo (im)probable sobre Multinacionales de Economías Emergentes

Emerging Market Multinationals Report 2017Emerging Multinationals in a Changing World

Lourdes Casanova

Anne Miroux

Emerging Market Institute

2 Johnson | Cornell SC Johnson College of Business

The resilience of emerging economies in today’s challenging global environment

Their growing importance as foreign investors across all regions of the world

The role of outward FDI policies and their development phases

The trends that impact the expansion of eMNCs in the global corporate world

Specific country case studies: Brazil, Colombia…

What we cover in this report



E20

20 economies

Total GDP = $25.4 Trillion

Global GDP share (in PPP) = 46%

54% of world population


Emerging economies in a changing world….

• For a time, emerging economies have benefited from favorable external conditions: global demand, global trade, financial markets, investment flows, commodity prices…

• Today, EMs are facing a new paradigm:

– Strong protectionist tendencies

– Severe geopolitical tensions in some parts of the world

– Weak recovery in advanced economies

– Slowdown in global trade

– Lower commodity prices

– General tightening of external financial conditions


But resilient

• E20s have proved to be growth engine

• E20 account for about half of the world GDP (at PPP)

• Slowdown in 2016 for some E20: Brazil, Argentina, South Africa, Nigeria

• IMF short term projections:

– quite positive for emerging economies but risks persist

• Overall general sentiment is today more optimistic than pessimistic for emerging

economies.


E20s: Nominal GDP and GDP growth

Nominal GDP of E20s (in US$bn)

GDP Growth Rates

11,199 2,264

1,796

1,411

1,283

1,046

932

858

646

546

470

407

405

393

336

305

296

295

282

247

China

India

Brazil

Korea

Russia

Mexico

Indonesia

Turkey

Saudi…

Argentina

Poland

Thailand

Nigeria

Iran

Egypt

Philippi…

Malaysia

South…

Colombia

Chile

Source :EMR 2017


Inward FDI flows to E20 have plateaued in the past ten years while

Outward FDI flows almost doubled in last 10 years

Inward FDI Flows to E20 2000-2016 Outward FDI Flows from E20 2000-2016

Source: EMR 2017

0%

5%

10%

15%

20%

25%

30%

35%

40%

$-

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

US

$ M

illio

ns

IFDI Flows to E20 Share (%) in global FDI Flows

0%

5%

10%

15%

20%

25%

$-

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

US$

Mill

ion

s

OFDI Flows from E20 Share (%) in global FDI Flows


OFDI from emerging economies – a study of greenfield FDI & M&As• Global Financial Crisis

– Turning point for OFDI from E20, both for greenfield and M&As.

– Asia, led by China, gained prominence in OFDIs while Latin America receded.

• Mode of Entry– Greenfield preferred for eMNCs initially

– Since crisis, M&As gained importance driven primarily by Korea and China

• Shift in geographical distribution– Greenfield still largely South-South mainly but share of developed countries increasing

– 60% of M&A value by the E20s largely to developed countries

– Europe, primary target of M&As in post crisis period

• Shift in Industry Targets– Service based and consumer related industries increasingly attractive

– Traditional sectors (energy and materials) declining in importance

– Interesting case of renewables


Some E20 Countries/USA: Announced Greenfield OFDI/Outbound M&AsTotal Amount, pre-crisis and post crisis-periods (2003-2008 and 2009-2016)

InvestorGreenfield OFDI

(total amounts)

Outbound M&A(total amounts)

CHINAPre-crisis: $184.6bn

Post-crisis: $578.7bn

Growth: +181%

Pre-crisis: $166.3bn

Post-crisis: $798bn

Growth: +380%

KOREA

Pre-crisis period: $126.2bn

Post crisis: $218.2bn

Growth: +73%


Post-crisis period: $111.1bn

Growth: +322%

INDIAPre-crisis period: $90.77bn


Growth: +61%



Growth: +25%

BRAZILPre-crisis period: $29.4bn


Growth: +28%



Growth: -3%

USAPre-crisis period: $918.96bn

Post-crisis period: $1,037.9bn

Growth: +13%

Pre-crisis period: $1,518.8bn

Post-crisis period: $2,186.6bn

Growth: +44%


Greenfield OFDI from China

Greenfield OFDI by Region Greenfield OFDI by Sector

13%

24%

18%

1%

3%

4%

4%1%

5%

4%

1%

24%

21%

12%

9%

9%

8%

6%4%3%

3%

3%

3%

18%

Real EstateCoal, Oil and Natural

Gas

Metals

Business Services

Alternative/Renewable energy

Automotive OEM

Communications

Warehousing &Storage

Hotels & Tourism

Financial Services

ElectronicComponents

Other

Pre-crisis(Jan.03 --> Dec.08)

Post-crisis(Jan.09 --> Dec.16)

61%

6%

6%

9%11%

2%

4%

47%

7%

7%

15%12%

9%

4%

Asia-Pacific

WesternEurope

EmergingEurope

Latin America& Caribbean

Africa

North America

Middle East

Pre-crisis(Jan.03 --> Dec.08)

Post-crisis(Jan.09 --> Dec.16)


eMNCs occupy ~33% of Global Fortune 500 list

1111111111111112222344677771010101315

242929

51108

133

Belgium

Bermuda

Denmark

Finland

Indonesia

Israel

Liechtenstein

Malaysia

Malta

Netherlands…

Norway

Saudi Arabia

Thailand

United Arab…

Venezuela

Luxembourg

Mexico

Singapore

Turkey

Sweden

Ireland

Russia

Taiwan

Australia

Brazil

India

Italy

Canada

Netherlands

Spain

Switzerland

South Korea

United…

France

Germany

Japan

China

United States

Countries Represented in the Fortune Global 500

(2017)

Growth in eMNCs representation on Fortune 500

(2005-2017)

16

China, 108

South Korea, 15

Brazil,India, 7

México, 2

175

U.S., 133


eMNCs: half of top 5 companies in 8 industry sectors (Fortune Global 500)

Source: EMR 2017

2004Rank

1 Citigroup Inc Valero Energy Corp GM Nippon Telegraph Bouygues SA BP plc Anglo American plc Arcelor

2 Credit Suisse Deutsche Bahn AG Ford Verizon Vinci SA Exxon Mobil Corp BHP Billiton Ltd. Nippon Steel

3 HSBC SNCF DaimlerChrysler Deutsche Telekom Skanska AB Royal Dutch/Shell RAG AG Norsk Hydro ASA

4 BNP Paribas East Japan Railway Toyota Vodafone Kajima Corporation Total JFE Holdings Inc

5 Fortis Lufthansa Voklswagen France Telecom Taisei Corporation Chevron Texaco Alcoa Inc

Banking Logistics Automobile Telecom Engineering &

Construction

Petroleum

Refining

Mining, Crude-

Oil Production

Metals

2015Rank

1 ICBC * Deutsche Post Volkswagen AT&T CSCEC * Sinopec * Glencore ArcelorMittal

2 CCB * MAERSK Toyota Motor Verizon CREC * Royal Dutch/Shell PEMEX * POSCO *

3 AgBank * American Airlines Daimler China Mobile * CRCC * CNPC * CNOOC * ThyssenKrupp

4 BNP Paribas Delta Airlines Exor Group Nippon Telegraph CPCG * Exxon Mobil BHP Billiton Ltd. China MinMetals *

5 Bank of China * Lufthansa GM Deutsche Telekom CCCC * BP ConocoPhillips NSSMC


Construction

Petroleum

Refining

Mining, Crude-

Oil Production

Metals

2017Rank

1 ICBC * USPS Toyota Motor AT&T CSCEC * Sinopec * Glencore China Minmetals *

2 CCB * Deutsche Post Volkswagen Verizon CREC * CNPC * CNOO * ArcelorMittal

3 AgBank * China Post Group * Daimler China Mobile * CRCC * Royal Dutch/Shell Pemex * China Baowu Steel*

4 Bank of China * UPS GM Nippon Telegraph CPCG * Exxon Mobil Shenhua Group* POSCO *

5 BNP Paribas HNA Group* Ford SoftBank Group CCCC * BP Rio Tinto Group HBIS Group *


Construction

Petroleum

Refining

Mining, Crude-

Oil Production

Metals

Legend / Color code:

UNITED STATES UNITED KINGDOM BELGIUM MEXICO

CHINA AUSTRALIA SWEDEN SOUTH KOREA

GERMANY LUXEMBOURG DENMARK

JAPAN NETHERLANDS ITALY * from E20 countries

FRANCE SWITZERLAND NORWAY


eMNCs still behind in profit margins

8.7%

59.7%

18.8%

4.0% 4.0% 4.7%7.1%

45.4%

25.5%

9.9%

5.7% 6.4%

<0% <5% <10% <15% <20% 20%+

E20 G-7

Source: EMR 2017

Profit Margin Distribution of Top 145

Companies from E20 & G7

Profit Margin

% of

companies

70% of the E20 companies have

profit margins <5% vs ~50% in G7


Profit margins U.S. companies higher than China’s

Comparison of Chinese and US Companies Gross Profit Margin Comparison

2.02%

10.72%

14.99%

7.52%

1.34%

14.20%

7.06%

5.23%

Energy (35) Financials (53) Technology(22)

All companies(500)

United States China

Source EMR 2017

Capital Structure partly explains difference in profit margins


eMNCs: Beyond cost leadership

• Traditionally eMNCs considered low-cost competitors to G-7

MNCs

• Focused on efficiency, quality, productivity across value chains

• Building brand recognition in home countries. Limited push for

branding and innovation on global scale.

– eMNCs among largest firms in world (Fortune Global 500);

much less visible among top global brands

– But increasing number of eMNCs among the top global brand


eMNCs: bridging the price gap with G7 counterparts

Laptop Prices for Top US and Chinese Brands Cellphone Prices for Top US and Chinese Brands TV Prices for Top US and Chinese Brands

Desktop Prices for Top US and Chinese Brands AC Prices for Top US and Chinese Brands

399

349

229

281 263

243

Average, 294

Frigidaire Honeywell RCA Arctic King Haier Midea

US China

1661 1573

1989

741 800 916753 673

1026

635

Average, 1,077

LG

Sam

sun

g

Son

y

Shar

p

Hit

ach

i

TCL

LeEc

o

His

en

se

Viz

io

Sce

ptr

e

Korea Japan China US

- Similar price ranges in a number of cases

- In few cases, the price of the eMNC product is higher

- The case of Huawei in cellphones

Camera Prices for Top US and Chinese Brands

$400

$170 $170

$300 $270

$497

Yi 360 VR SamsungGear 360

Yi ActionCam

4k/30fps

GoProAction

Camera

Yi ActionCam

4k/60fps

GoProAction

Camera


Still, progress in global branding is noticeable

12%19%

73%

70%

15%11%

2009 2017

E20 G7 OTHER

• The increased participation of emerging market

brands among top global brands suggests an

increased attention from eMNCs for branding

and product differentiation.

• A transition in process that may have significant

consequences for established multinationals

whose tremendous profits and market

evaluations are largely based on brand value

• An issue worth continuing exploring

Share of E20,G7 and ROW in Top 500 Brands

G7

E20

Other


Emerging Multinationals Looking Forward

• New industries and new markets:

• From South to the North

• Investments changes increasingly prioritize consumer markets

globally away from traditional sectors to service based

• Building new capabilities: from price competition to global brands

• Becoming formidable competitors, showing E20 increasing power

• Societal demands

• Sustainability

• Corporate Governance

• Code of Conduct


Challenges: IS POVERTY A BUSINESS ISSUE?

Poverty in Latin America

Lourdes Casanova

Director of the Emerging Markets Institute

[email protected]

@lourdescasanova

Anne Miroux

Former Director, Division on Technology and

Logistics, UNCTAD

Faculty Fellow, Emerging Markets Institute

[email protected]

Emerging Markets Institute

THANK YOU

http://www.johnson.cornell.edu/Emerging-Markets-Institute


EMERGING MARKET

MULTINATIONALS REPORT(EMR) 2017

EMERGING MULTINATIONALS IN A CHANGING WORLD

Emerging Markets Institute

Cornell S.C. Johnson College of Business, Cornell University

Lourdes Casanova, Senior Lecturer, Director

Anne Miroux, Visiting Fellow

Economy & Finance

Lourdes Casanova. Diálogo (im)probable sobre Multinacionales de Economías Emergentes