Emerging Multinationals in the Global
Economy: Trends and Issues
Andrea Goldstein (OECD-DEV) &
Anne Miroux (UNCTAD-DITE)
Emerging multinationals meeting
Paris  27 March 2006  OECD
1. Definitions matter
• Emerging MNCs are those from
emerging economies ≠ from
– Third World (passé)
– Southern (what about Russia etc.)
– Born globals, pocket MNCs
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)
Nationality: reality
1.
2.
3.
4.
5.
companies controlled by non-resident entrepreneurs?
Lakshmi Mittal and Simon Patiño
companies that move their primary listing to an
advanced country’s financial market and yet maintain a
strong association with their countries of origin?
companies incorporated in developing countries that are
in turn subsidiaries of OECD MNCs?
companies from developing countries that are owned by
financial investors based in OECD countries?
companies established in offshore financial centres?
2. 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
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
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
Direction/geography
• Developing Asia dominates the scene
• New source areas, such as Russia and Gulf
countries
• At the country level, South Africa is also
important (more than India, close to mainland
China)
• South-South investment accounts for an increasing
share of IFDI in the South
• Most developing countries are regional in their
OFDI patterns (with the exception of Africa, because of South Africa)
3. The importance of activities data
• FDI data relate to capital flows as reported in the balance
of payments.
• In order to assess the actual impact of the investments by
TNCs, it is important to look at so-called activities data.
–
–
–
–
–
production (sales, value-added)
Labour (employment, wages)
trade (exports, imports)
innovation activities (R&D) and
taxes.
• Unfortunately, even fewer countries provide this kind of
data.
Enterprise data : to complement FDI data
Parent corporations by regions/countries
Early 1990s
Total # of TNCs
Early 2000s
37530
%
Developed
9.14
Developing
Total # of TNCs
69727
%
Developed (excluding new
EU members)
70.7
7.6
Developing
25.8
Latin America
1.6
Latin America
Asia
5.8
Asia & Oceania
4.2
21.2
China
1.00
China
2.8
HK
1.33
HK
1.9
India
0.05
Korea
10.7
Korea
2.8
India
3.4
Taiwan
0.9
Transition economies
3.0
Source: WIR 1994, table I.1 (p.4)
Source: WIR 2005, table
The internationalization of the largest TNCs from
developing countries is catching
Average TNI of the 100 largest TNCs in the world and the 50
largest TNCs from developing countries, 1993-2003.
70
60
50
40
30
20
Top 100
Top 50
Source: UNCTAD/Erasmus University database.
* TNI : transnationality index
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0
1993
10
4. 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 equal
importance
– Electrical and electronic equipment is No 1 in the manufactruing sector
• UNCTAD list of the 50 largest (non-financial) TNCs from
developing 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 related
activities
Developing economies - Estimated world outward FDI stock, 1990 & 2003
(Millions of dollars and percentage)
1990
Sector/industry
Primary
Mining, quarrying and petroleum
Manufacturing
Food, beverages and tobacco
Textiles, clothing and leather
Chemicals and chemical products
Metal and metal products
Electrical and electronic equipment
Motor vehicles and other transport equipment
Unspecified secondary
Services
Trade
Transport, storage and communications
Finance
Business activities
Other services
Unspecified tertiary
Unspecified
TOTAL
Source: UNCTAD.
%
2003
Developing
economies
Developing
economies
867
4. 7
3 178
582
3. 2
2 481
6 109
420
187
762
85
1 018
10
3 231
11 350
1 836
501
7 027
1 283
526
240
18 326
%
33. 3
2. 3
1.
4. 2
. 5
5. 6
. 1
17. 6
61. 9
10.
2. 7
38. 3
7.
2. 9
?
1. 3
100.
103 414
2 060
2 712
4 351
2 618
15 854
1 512
69 742
562 409
65 342
41 093
153 304
271 469
13 258
2 421
51 870
669 001
. 5
15. 5
. 3
. 4
. 7
. 4
2. 4
. 2
10. 4
84. 1
9. 8
6. 1
22. 9
40. 6
2.
. 4
7. 8
100.
Share of Investment by Developed
Investors by Sector
100%
75%
Energy
50%
Telecom
25%
Transport
0%
1998
Water
1999
2000
2001
2002
2003
Source: Public Private Infrastructure Advisory Facility (2005), Developing Country Investors and Operators in Infrastructure.
The Rise of South-South and
Regional Investors in Telecoms I
• South-South FDI
– From 2001 to 2003, over 36% of total inflows and close to 20% of
the total number of telecommunications projects
– in 1990–9, 23% of total inflows and 11% of the total number of
telecommunications projects
• Players in the 2002 top-30 list of telecoms MNCs
–
–
–
–
Datatec (South Africa)
América Móvil (Mexico)
MTN Group (South Africa)
Telekom Malaysia
• OECD MNCs investing through regional affiliates
– Vodacom of South Africa
– Sonatel of Senegal
Intraregional South-South Telecommunications FDI, 1990–2003
Destination region
Region of investor
East Africa &
Pacific
Europe &
Central Asia
Latin America &
Caribbean
Middle East &
North Africa
South Asia
Sub-Saharan
Africa
North-to-South
72
93
90
52
75
51
South-to-South
28
7
10
48
25
49
100
36
5
East Africa & Pacific
Europe & Central Asia
Latin America & Caribbean
Middle East & North Africa
South Asia
Sub-Saharan Africa
100
100
100
40
45
Note: Based on the largest 75 investors, accounting for 95% of total telecom-related FDI in developing countries.
Source: Guislain, Pierre and Christine Zhen-Wei Qiang (2006), “Foreign Direct Investment in Telecommunications
in Developing Countries”, in Information and Communications for Development 2006: Global Trends and Policies,
The World Bank.
The Rise of South-South and
Regional Investors in Telecoms II
• Characteristics
– operators from large developing countries investing within their
own regions.
– from countries that reformed early: privatization and competition
forced them to become more efficient.
– their exposure to competition was limited as they were generally
protected from full market liberalization
• Movers:
– withdrawal of some developed-country investors (but also Telekom
Malaysia from SSA)
– increasing wealth and capital account liberalization in some
emerging market economies
New, smaller players
• SingTel (in Bangladesh, Indonesia, the Philippines, and
Thailand)
• Shinawatra from Thailand (in Cambodia and the Lao
People’s Democratic Republic)
• MTC/Celtel (in Burkina Faso, Chad, DRC, Congo, Gabon,
Kenya, Malawi, Niger, Sierra Leone, Sudan, Tanzania,
Uganda, and Zambia.
• Orascom (in Algeria, Bangladesh, Iraq, Pakistan, and
Tunisia)
• Isbank (Turkey) and Banco Opportunity, Banco Safra, and
Techold (all from Brazil) are financial investors.
Major energy deals since 2004
Target (location)
Buyer
Date
Price1
Oil
Spinnaker (US)
Norsk
September 2005
29.1
EnCana (US)
Statoil
April 2005
17.6
Kerr-McGee (UK)
Maersk
August 2005
15.7
Paladin (UK)
Talisman
November 2005
12.4
Al Furat (Syria)
CNPC & ONCG
December 2005
12/13
Pogo (Thailand)
PTTEP-Mitsui
June 2005
9.2
Vintage (Argentina)
Occidental
October 2005
8.4
Nelson (Kazakhstan)
Lukoil
September 2005
7.9
PetroKazakhstan
CNPC
August 2005
7.3
Unocal (global)
Chevron
August 2005
5.8
EnCana (Ecuador)
CNPC
September 2005
5.2
OML 130 (Nigeria)
CNOOC
January 2006
4.6
Gas
Caledonia (UK)
E.ON
September 2005
Teikoku
Inpex
October 2005
8.9
Columbia (US)
Chesapeake Energy
October 2005
5.1
Northwest (Australia)
CNOOC
December 2004
1.98
Tangguh (Indonesia)
CNOOC
May 2004
0.98
Source: Goldstein, Andrea (2006), Emerging Multinationals in the Global Economy.
10.6
5. Motives
• The traditional OLI framework is useful, but needs
to be amended (the role of the “asset augmenting” objective)
• Defensive OFDI
–
–
–
–
Jump over tariffs and NTBs
Prevent accusation of job destruction (Indian BPO)
Counter eroding domestic margins (China electronics)
Reduce political risk at home (Russia)
South-South
Horizontal
Vertical
South-North
Horizontal
Vertical
PDVSA –
Citgo
Resource-seeking
Hon Hai
Amica
Wronki 
Gram
Efficiency-seeking
BOE
Tata Steel
Technology
 Hynix
SingPower
Market-seeking
LAN
TVS
San Miguel AS Watson
Evalueserve
6. EMNCs are homogeneous
• Many are SOEs or government-linked companies
(Temasek in Singapore, … in Malaysia)
• Many are family-owned, 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
7. The impact of South-South FDI -- how
much it differs from North-South FDI?
•
potential benefits of greater South–South integration are
supported by anecdotes, a few empirical studies, and
deduction and inference from the history of North–South
capital flows
systematic research is difficult as data is lacking –
including about the characteristics of EMNCs
•
–
–
–
Is South-South FDI targeted towards low-income countries
particularly where North-South FDI is limited.
extent of spillovers from South–South FDI
Do MNCs adhere to international norms on the transparency of
their foreign operations, as well as the environmental and labor
standards observed in those operations
8. 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.
9. What consequences for
multilateral economic relations?
• The protectionist temptation
• 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?