Multinationals from former transition
economies in the international economy:
a neglected research area
Magdolna Sass
Institute of Economics CERS of the Hungarian Academy
of Sciences
The Impact of Emerging Multinationals on Global Development
Milan, 30-31 May, 2013
Outline
Work-in-progress
•Introduction/Background
•Research question
•Theoretical background/review of the literature
on the topic
•Method
• Preliminary findings
•Conclusion/future research
Emerging multinationals from former
transition economies
• Country group: Visegrad +Slovenia
• Quick growth since around 1997-2000 (depending on the
country)
• High concentration in terms of the number of investors
(though SMEs as well, even born globals)
• Large ones comparable in size to BRICs EMNEs
• For example, the largest non-financial foreign investor
company in Hungary, MOL (petrol and gas) would be the
third largest locally controlled investor company on the
basis of the size of foreign assets in Brazil, China, Mexico
or Russia (Source: Emerging Market Global Players
project coordinated by the Vale Columbia Center at
Columbia University)
Financials services: the Hungarian OTP Group is the only
local/regional player in CEE region, with 100% of group assets
in the region
DATA AS OF
2008
UniCredit
53%
Raiffeisen
2051%
Erste
157%
KBC
112%
SocGen
(5)
41%
Total Assets(1)
EUR bn
Net Profit(2)
EUR mn
121.6
2,577
85.4
79.3
(4)
1,078
Number of Branches
Countries of
presence(3)
4,005
19
3,231
1,569
2,099
71.6
309
1,940
65.9
1,201
5%
42.5
186
1,781
OTP
n.s.
35.2
958
1,573
12
16
54
7
39
12
2,609
IntesaSP
CEE, % share in Group
Assets
20
16
11
9
6
7
100
..% Contribution of CEE in Group Net Profit (After tax, after minority interests)
Notes: (1) 100% of total assets, and profit after tax (before minority interests) for controlled companies (stake > 50%) and pro rata for non- controlled companies (stake < 50%).
(2) After tax, before minority interest. (3) Including direct and indirect presence in the 25 CEE countries, excluding representative offices. (4) KBC Group recorded a loss in 2008.
(5) SocGen including ProFin Bank in Ukraine.
Source: UniCredit Group CEE Strategic Analysis
4
Research question
• Are EMNEs from former transition economies
(V4+Slovenia) different from developed
country MNEs and other emerging MNEs in
terms of the characteristics of their foreign
expansion and their host/home impact?
• What are the consequences for the macro
level (and for economic policy)?
• Descriptive
Theoretical background/a short review
of the literature on the topic
• Dunning: OLI
• Johansson and Vahlne: stages internationalisation – the
importance of psychic distance
• (empirical) literature on emerging multinationals (e.g.
Aykut and Goldsten, 2006; Sauvant, 2009; Andreff, Balcet,
2011; Sosa Andrés et al., 2012), difference between
developed country / „traditional” multinationals and
EMNEs
• Empirical literature on post-transition/CEE multinationals
(scarce, more rcently Svetlicic (2004), Svetlicic and Jaklic
(2006), Rugraff (2010), Radlo-Sass (2012), otherwise
because of large country differences, concentrating on one
country)
Method
• Detailed company case studies of the largest locally
controlled investor firms in Hungary (later other countries)
• semi-structured, questionnaire-based interviews with the
leading managers, other sources of info: balance sheets,
journal and newspaper articles +
• Info gathered in the framework of the EMGP project (since
2009 three questionnaire surveys)
• MOL (petrol and gas), OTP (financial services), Richter
(pharmaceuticals), Videoton (electronics) and TriGránit (real
estate development)
• These five companies are estimated to account for at least
half of the total stock of Hungarian OFDI
• All locally controlled (indigenous)
• Selected company characteristics analysed
• (Macrodata - BOP: unreliable even what is available
(geographical composition, sector) – V4: Radlo, Sass (2012),
problems with company level data as well)
Preliminary findings 1: why the relaive
negligence? These EMNEs have regional (CEE->
Europe) than global significance (2011, only
affiliates)
Company
No. Of
foreign
affiliates
Geogr.
Comp.
Middle East
and North
Africa
MOL Group
36
%
3
Gedeon
Richter
34
%
Videoton
2
OTP
TriGránit
Developed
Asia-Pacific
Eastern
Europe and
Central Asia
Other Europe
(WE+
CEE+
SEE)
3
94
13
81
%
50
50
9
%
22
78
(8)
%
3
100
North
America
3
Preliminary findings1
• The geographical outreach is much more regional
than global (MOL: global: smaller resource seeking
projects in Iran, Oman, Pakistan; limited presence in
Italy, otherwise CEE/SEE, in some countries (Croatia,
Slovakia) dominant; Richter’s expansion in Western
Europe started only in 2010: acquisition of the
German Grunenthal and Swiss PregLem)
• Others: OTP: CEE/SEE, in some cases with significant
market shares, TriGránit: similar; Videoton:
efficiency-seeking (Bulgaria and Ukraine), minor
• Overall: significant market shares only in CEE/SEE
• Financial weakness due to the global crisis (home
country) and political attention in host countries –
Preliminary findings 2
• The notion of „virtual indirect” investor companies: majority
foreign-owned but domestically controlled, common feature:
relatively large companies privatised on the stock exchange,
dispersed majority foreign ownership with no controlling owner
(enhanced by special regulations in the case of MOL)
• Tri-Gránit: another type of virtual indirect: majority owned by a
foreign company (Cyprus), which is owned by a Hungarian private
person
• To circumvent the weakness of local financing/financial institutions,
unavailability of local financing; method of privatisation, the
important role of management – more similar to direct/indigenous
• Results reinforced by the EMGP project (CEOs-board of directors,
managerial board, language etc.)
• No distinction in the literature (e.g. Altzinger et al., 2003, Rugraff,
2010)
• Paradox of expanding abroad for escaping acquisition (defensive
motive), but thus becoming an even more attractive acquisition
target – ÖMV and Surgutneftegas versus MOL („bail-out”: state)
• May be specific to Hungary/other NMS (? Poland?) and Argentina
TechInt?
Illustration: OTP ownership structure
Ownership structure as at 31 March, 2013
Owners
Domestic investors
total:
Government held owner
Employees, senior
officers
OTP Bank Nyrt.
Other domestic investors
Domestic investors total:
Foreign shareholders
Foreign shareholders
Other*
Total
* Non-identified shareholders
Share in % of total equity (ownership
share)
5.2%
1.7%
1.5%
22,1%
30.3%
66.6%
3.1%
100%
Shareholders with over/around 5% stake as at 31 March, 2012
Name
Megdet, Timur and Ruszlan
Rahimkulov
Hungarian Oil and Gas
Company (MOL)
Groupama
Lazard Group
Number of shares
Ownership
Voting rights
24,941,495
8.91%
9.04%
24,000,000
8.57%
8.70%
23,228,306
15,523,677
8.30%
5.54%
8.42%
5.63%
Preliminary findings 3
OA
•Dynamism of OA: „regional” (transition-specific, privatisation-related,
management knowledge of adapting former SOE to the market; + based on
established regional networks (SOEs)) knowledge ->entry mode M&A
•gradually developing into a regional market economy-specific knowledge
(illustration: OTP, Tri-Gránit)
• further develops into a more „universal” OA: examples: MOL (in resourceseeking activities) and Richter Gedeon (2010) – European outreach
•Exception: „almost local” player: Videoton: also specific knowledge
(developing from a Hungarian into a regional EMS)
Motivations of foreign expansion:
•Videoton: connected to specific knowledge: the only efficiency-seeking, all
others market-seeking (plus strategic asset: RG, resource: MOL)
•Dynamim: knowledge-seeking motive: is present only in the case of Richter
Gedeon in its more recent acquisitions in 2010 (especially in its Western
European expansion: acquisition of the Swiss PregLem and German
Grunenthal)
•In the case of „virtual indirect” investor companies, a strategic asset seeking
motive is also present
•Push and pull factors
Conclusion
Work-in-progress
• Different approach from the literature: detailed company case
studies (scarce data, concentrated structure)
Preliminary results:
• Still more regional (CEE/SEE) significance, substantial market
share only there <-> EMNEs
• The notion of virtual indirect introduced – foreign majority
ownership does not equal to foreign control, acts as direct;
importance of management (defensive) – system-specific;
four of the top 5 indigenous investors are virtual indirect
• Generalisation not possible but development of OA of
Hungarian MNEs points to an in-between position (from
EMNE towards DMNE)
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Multinationals from former transition economies in the international