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UNCTAD/WIR/2002

& Corrigendum

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

World Investment Report 2002
Transnational Corporations
and
Export Competitiveness

UNITED NATIONS
New York and Geneva, 2002

CORRIGENDUM
Ref.: Sales N° E.02.II.D.4
UNCTAD/WIR/2002

12 June 2003
Geneva

United Nations Conference on Trade and Development

WORLD INVESTMENT REPORT 2002
TRANSNATIONAL CORPORATIONS
AND EXPORT COMPETITIVENESS

Page 86: Table IV.1. The world's top 100 non-financial TNCs, ranked by foreign assets, 2000
Total assets of Repsol- YPF (ranked 20th) should read $48,776, not $487,763.

Page 127: Table V.3. Intel's manufacturing sites, January 2002 should read as follows:
Table V.3. Intel’s manufacturing sites, January 2002

Country Facility Function Year built Current process technology Employees
1978, 1992, 1996,
a
United States Facility 1 Wafer fabrication 1999, 2003 0.13-, 0.25-, 0.35-micron 16 000
a
Facility 2 Wafer fabrication 1980, 1993, 2002 0.13-, 0.18-, 0.25-, 0.35-micron 5 500

Facility 3 Wafer fabrication 1988 0.13-, 0.18-micron 8 500

Facility 4 Wafer fabrication 1994 0.28-, 0.35-, 0.50-micron 2 700
Wafer fabrication,
Facility 5 assembly and testing 1996, 1999, 2001 0.13-, 0.18- micron 10 000

Facility 6 Systems Manufacturing 1996 .. 1 400

Facility 7 Wafer fabrication 2001 0.18-micron 1 845
a
Ireland Facility Wafer fabrication 1993, 1998, 2004 0.18-, 0.25-micron 3 400

Israel Facility 1 Wafer fabrication 1985 0.35-, 0.50-, 0.75-, 1.0-micron 800
Facility 2 Wafer fabrication 1999 0.18-micron 1 500

Board manufacturing,
Malaysia Facility 1 assembly and testing 1996, 1997 .. 7 790
Facility 2 Assembly and testing 1988, 1994, 1997 ..

Philippines Facility 1 Assembly and testing 1997, 1998 .. 5 984
Facility 2 Assembly and testing 1979, 1995 ..

China Facility Assembly and test 1997, 2001 .. 1 227

Costa Rica Facility Assembly and test 1997, 1999 .. 1 845

Source : www.intel.com, January 2002.
a
Estimated construction completion.

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Printed in Switzerland UNCTAD/WIR/2002/Corr.1
GE.02-51422-August 2002 – 14,200 English Only

Page 299: first paragraph, line 3, …"except for New Zealand"…
Should read …"except for Australia and New Zealand"....

Page 315: the column of 1980 under North America
For Canada, should read 23,783
For the United States, should read 215, 375.

Page 315: Annex table B.4, the column of 1980 United States
"United States 0", should read "United States –".

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Printed in Switzerland UNCTAD/WIR/2002/Corr.1
GE.02-51422-August 2002 – 14,200 English Only

NOTE

UNCTAD serves as the focal point within the United Nations Secretariat for all matters related to foreign
direct investment and transnational corporations. In the past, the Programme on Transnational Corporations was
carried out by the United Nations Centre on Transnational Corporations (1975-1992) and the Transnational
Corporations and Management Division of the United Nations Department of Economic and Social Development
(1992-1993). In 1993, the Programme was transferred to the United Nations Conference on Trade and Development.
UNCTAD seeks to further the understanding of the nature of transnational corporations and their contribution to
development and to create an enabling environment for international investment and enterprise development.
UNCTAD’s work is carried out through intergovernmental deliberations, technical assistance activities, seminars,
workshops and conferences.

The term “country” as used in this study also refers, as appropriate, to territories or areas; the designations
employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part
of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its
authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country
groups are intended solely for statistical or analytical convenience and do not necessarily express a judgement
about the stage of development reached by a particular country or area in the development process. The reference
to a company and its activities should not be construed as an endorsement by UNCTAD of the company or its
activities.

The boundaries and names shown and designations used on the maps presented in this publication do not
imply official endorsement or acceptance by the United Nations.

The following symbols have been used in the tables:

Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have been
omitted in those cases where no data are available for any of the elements in the row;

A dash (-) indicates that the item is equal to zero or its value is negligible;

A blank in a table indicates that the item is not applicable, unless otherwise indicated;

A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year;

Use of a hyphen (-) between dates representing years, e.g., 1994-1995, signifies the full period involved,
including the beginning and end years;

Reference to “dollars” ($) means United States dollars, unless otherwise indicated;

Annual rates of growth or change, unless otherwise stated, refer to annual compound rates;

Details and percentages in tables do not necessarily add to totals because of rounding.

The material contained in this study may be freely quoted with appropriate acknowledgement.

UNITED NATIONS PUBLICATION

Sales No. E.02.II.D.4

ISBN 92-1-112551-0

Copyright © United Nations, 2002
All rights reserved
Manufactured in Switzerland

ii

PREFACE

In today's globalizing world economy, no country can sustain growth or achieve development without
active participation in world trade. All countries need exports to help them raise standards of living and
escape poverty. For developing countries in particular, the challenge is not only to expand and diversify
their exports, but also to make them more competitive.

Transnational corporations (TNCs) are increasingly involved in this process, providing additional
resources and technology and facilitating access to new markets. But in order to take full advantage of their
partnerships with TNCs, governments must do their utmost to mobilize their own countries' resources and
capabilities. Investments in education and health pay enormous dividends in building productive labour
forces. Investments in science and technology — and in particular information and communications
technologies — are essential if countries are to keep pace with an increasingly knowledge-based economy.
These are areas where far-sighted government policies can make the difference between integration and
marginalization.

This year's World Investment Report examines the role of TNCs in making the exports of
developing and transition countries more competitive. It highlights the strategies used by TNCs in their
international production networks. And it aims to help countries — especially the least developed countries
— adopt sound policies, attract foreign investment and make their exports, as they surely should be, a key
part of their strategy to achieve Millennium Development Goals. I hope this report reaches a wide readership
and strengthens global partnerships for development.

Kofi A. Annan
New York, July 2002 Secretary-General of the United Nations

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ACKNOWLEDGEMENTS

The World Investment Report 2002 (WIR02) was prepared - under the overall direction of
Karl P. Sauvant - by a team led by Anh-Nga Tran-Nguyen and comprising Victoria Aranda, Americo
Beviglia Zampetti, Kumi Endo, Torbjörn Fredriksson, Masataka Fujita, Kálmán Kalotay, Gabriele
Köhler, Padma Mallampally, Michael Mortimore, Abraham Negash, Ludger Odenthal, Miguel Pérez
Ludeña, Katja Weigl and James Xiaoning Zhan. Specific inputs were prepared by Sung Soo Eun, Peter
Froehler, Jörg Weber and Zbigniew Zimny.

Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourt,
John Bolmer, Lizanne Martinez and Tadelle Taye. Four interns assisted with the WIR02 at various
stages: Fatma Ben Fadhl, David Fischer, Stijn Mentrop and Pauline Rauwerda. The production of the
WIR02 was carried out by Christopher Corbet, Monica Adjivon-Conteh, Christiane Defrancisco, Lynda
Piscopo, Chantal Rakotondrainibe and Esther Valdivia-Fyfe. Graphics were done by Diego Oyarzun-
Reyes. WIR02 was desktop published by Teresita Sabico. The Report was edited by Vishwas Govitrikar
and Praveen Bhalla.

Sanjaya Lall was principal consultant and adviser.

Experts from within and outside the United Nations provided inputs for WIR02. Major
inputs were received from Greg Felker, Don Lecraw, Henry Loewendahl and Alvin G. Wint. Inputs
were also received from John O.B. Akara, Katalin Antalóczy, Octavio de Barros, Daniel Chudnovsky,
Mark Curtis, Andrea Éltetö, Carlos García Fernández, Andrea Goldstein, Masayo Ishikawa, Danuta
Jablonska, Soon-Hyung Kwon, Antônio Corrêa de Lacerda, Andrés López, Marjan Svetlicic, Friedrich
von Kirchbach, Hoyuan Xing and Yuan Ziwei.

A number of experts were consulted on various chapters. The report has also benefited
from inputs provided by participants in two regional seminars organized jointly with the Center on
Transnational Studies of Nankai University (in December 2001, Tianjin, China) and the United Nations
Economic Commission for Latin America and the Caribbean (in January 2002, Santiago de Chile).
The UNCTAD FDI Indices were discussed at an ad-hoc expert meeting in November 2001. The special
topic was discussed at a Global Seminar in Geneva in June 2002 in cooperation with the Development
Policy Forum of the German Foundation for International Development.

Comments and feedback were received during various stages of preparation from Yilmaz
Akyuz, Armenia C. Ballesteros, Nazha Benabbes Taarji, Douglas van der Berghe, Karl Brenke, Rudolf
Buitelaar, Graciana del Castillo, Marquise David, José Durán, Persephone Economou, Enrique Egloff,
Magnus Ericsson, David Frans, Klaus Friedrich, Anabel González, Charles Gore, Khalil Hamdani, Susan
Hayter, Yao-Su Hu, Grazia Ietto-Gillies, Yuthasak Kanasawat, Guy Karsenty, Faizullah Khilji, Kee Beom
Kim, Jesse Kreier, Nagesh Kumar, Sam Laird, Robert Lipsey, Raymond J. Mataloni, Andrew Mc Dowell,
Mina Mashayekhi, John A. Mathews, Joseph Mathews, Joerg Mayer, Helge Müller, Rajah Rasiah, Christoph
von Rohr, Frieder Roessler, René Samek, Valdas Samonis, Magdolna Sass, Leo Sleuwaegen, Christiane
Stepanek-Allen, Shigeki Tejima, Taffere Tesfachew, Rob van Tulder and Janina Witkowska.

Numerous officials of central banks, statistical offices, investment promotion agencies and other
government offices, and officials of international organizations and non-governmental organizations, as well
as executives of a number of companies, also contributed to WIR02, especially through the provision of data
and other information. Most particularly, the Malaysian Industrial Development Authority, the Ministry of
Foreign Trade and Economic Cooperation of China, the Philippines Economic Zone Authority and the Board
of Investment of Thailand provided information on policies.

The Report benefited from overall advice from John H. Dunning, Senior Economic Advisor.

The financial support of the Governments of Germany, Norway and Sweden is gratefully
acknowledged.

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........................................................................................................... Other developed countries .................................................................. 34 CHAPTER III............................................ 62 C........................................................... 69 D..................................................................................................................... 99 1...................................................... Table of contents Page PREFACE ..... Developing countries ............................................................. 23 B............................................................................................................................................ Africa ................................. 37 A................................. The significance of foreign affiliates in their host economies ........... Developed countries ............ Trends in FDI flows ....... GLOBAL TRENDS .................................................................. 99 2................. 20 CHAPTER II........................... iii ABBREVIATIONS ......................... 3 A................................................................. 24 C.. Japan ........................................................................ 95 3............. 40 b......................................................................... 3 Introduction .................................................. The least developed countries .......................................................................................... THE LARGEST TRANSNATIONAL CORPORATIONS ................................................... Developments in 2001 ................................................................................ Asia and the Pacific ..... The Transnationality Index of host countries ............. The 25 largest TNCs from Central and Eastern Europe ..................................................................................................................................................... Central and Eastern Europe ....................................... Developments in international production ........ 37 1................................................................................................................................................................................................................................................................................................. The UNCTAD Inward FDI Potential Index ................... Other Western Europe .................................................................................................................................................................................................... 109 C..................................... 43 4............................................................................................ 47 B.......................... The 100 largest TNCs worldwide ......... xv PART ONE TRENDS IN INTERNATIONAL PRODUCTION CHAPTER I........................................................ REGIONAL TRENDS ................................................................................................. Introduction and methodology .............................. 87 A.............................................................................................................. The Network Spread Index ................... 14 1.............................................................................................................. The 50 largest TNCs from developing countries ................ United States ......................................................................... 23 A.............................. 49 2............... Highlights .................................. Western Europe ...................... Comparing rankings on the two Indices ................................................... The UNCTAD Inward FDI Performance Index ................... Methodology and data used for calculating UNCTAD’s Inward FDI Performance Index and Inward FDI Potential Index ................................................... Highlights .............. 3 B................................................................... European Union ...................................................................................................................................... 87 2.............................................................................................................................................................................................................................................. Transnationality ............................................................................. BENCHMARKING FDI PERFORMANCE AND POTENTIAL ........................ 55 3...................................... 99 B.............................................. 40 a............................................................................. 29 Annex to Chapter II..................................................................................................................................................................................................................................... 37 2............. 29 D.......................................................................... 43 3................................................................ 87 1.......................................................................................................................... 14 2.......................................................... xiii OVERVIEW ................. Latin America and the Caribbean ................................................................................ 111 ............... 49 1..... 73 CHAPTER IV................

....................................................................................................................................................................................................................................................................... China ..................................... Ireland ... Outsourcing becomes more generalized: the rise of contract manufacturers ....... Export performance requirements ...................... Control through equity relations in a technology-driven international production system: Intel .... 204 2................................................ 172 5................................................................................................................................................................. INTERNATIONAL PRODUCTION SYSTEMS ................................................................ Trade facilitation .......................................................................................................... 143 B.... 161 1..... 214 vi ............ Mexico ...................... Costa Rica ........................ 151 2............................. Republic of Korea ..................................... 143 A......................................................... Doha results ........... Conclusions .................. Control through non-equity relations in a marketing-driven international production system: Limited Brands ............................................ 1985-2000 ............................................................................................................................................................................................................................................................................................. WTO rules on export subsidies .................................................................... World Investment Report 2002: Transnational Corporations and Export Competitiveness Page PART TWO TNCs AND EXPORT COMPETITIVENESS INTRODUCTION ................................................................................................................................................................................................ Services ....... 167 3............................................ Global competitiveness patterns ..................... Control through equity and non-equity relations in a production-driven international production system: Toyota ............................................................. 117 CHAPTER V.................................................................... Improving access to imported inputs ........................................................ 173 6............................... 121 A........................................................................................................................................................................................................................................................................................................ TNCs and exports ............................ 211 c........................... 204 1.................................. 134 5....... 211 F........................................................................................... 157 4................................................................................... 176 Annex to chapter VI................................................................. Control in transition in a technology-driven international production system: Ericsson .......................................... Hungary .... 132 3........................................................................................................... Incentives ......... 134 4............................................................................................... Policy related to market access ............................................................................ 126 2....... 208 a................................. POLICY MEASURES ....................................... 182 CONCLUSIONS: Benefiting from export competitiveness ......................................... 211 3.............................................................. Winners in world trade........................................................................................................................... 193 CHAPTER VII.......... 160 C................................... 151 1.............................................................................................................................................................................................................................. The evolution of incentives ...................................................................................... Export processing zones ... 126 1..................................................................................................................................................... Prohibited and actionable subsidies .................................................................................................... PATTERNS OF EXPORT COMPETITIVENESS ................................................................................................................................................ Case studies ................................................................................................................................................... Primary products ......................................................................................................................................................................................... 139 CHAPTER VI..... Drivers and features ..................................................... 197 B...................................... 161 2............... 203 E............................................ 139 C.......................................... 201 D.................. 169 4...................... The overall picture ............................................. 154 3. 121 B... Manufacturing .............................................. Implications for the future use of incentives .......................................... 200 C... Some winner countries .................................... Special and differential treatment .................. 197 A................................................................. 185 PART THREE PROMOTING EXPORT-ORIENTED FDI INTRODUCTION .......................... 208 b...........

...........................10............................................ 67 III.............5........................................... Are some TNCs bigger than countries? ........4.............................................. The United Republic of Tanzania: harnessing FDI for development . Identifying comparative advantages ......................8............................ 243 REFERENCES ... 221 1............................................ 221 A.............15....................................................................... 235 B....................... 11 I............... Changes in FDI regimes in 2001 . 222 a........................................... 223 b........................... 69 III............................................................. The wave of outward FDI from Slovenia ...............................................................................................................................................................13............................................... 90 IV.............. Investment facilitation ............ Impact of the September 11 events on FDI flows ..3............ 221 2......... 54 III........................ Segmenting the market for export-oriented FDI ............. Ford’s strategy in Mexico ...... 238 CONCLUDING OBSERVATIONS: Benefiting more from export expansion ................................................................................................................................................... 237 C.. 69 III................................................... TARGETED PROMOTION ................ 265 ANNEX B........................................ 230 4.................................. 156 VI...................................................2. New trade and investment initiatives in sub-Saharan Africa in response to AGOA ......................................................... 136 V...................4....................12............. Kenya’s dynamic horticultural export industry ................................9....4............11... 15 III........................................................... 42 III......... Aftercare services ................................................................................................................................ 291 SELECTED UNCTAD PUBLICATIONS ON TRANSNATIONAL CORPORATIONS AND FOREIGN DIRECT INVESTMENT ................ Mexico: FDI in financial services .................................................................................................... 81 III... 63 III................ Financing international production locally .............................. 44 III..........................................3..................................... 347 QUESTIONNAIRE ........................................... Opportunities and conditions in LDCs: the UNCTAD ........................................ The food value chain . 351 Boxes I.......................................................2.................. FDI and the economic crisis in Argentina .............................................................................................ICC Investment Guides ................7.................................... 73 III.......... 155 VI..... ADDITIONAL TEXT TABLES AND FIGURES .....................7............................ 157 vii ......... 10 I........... 135 V............................2....................... 226 3......................................................... 249 ANNEX A.......................... 7 I............................................................................................1................................. 9 I.................. 82 III............ 147 VI.................................................. 131 V........................................... 82 IV................. 59 III.................................................2. 58 III......................................................... Botswana: the role of FDI in economic restructuring ........................................................................................................................ BIT negotiations with a focus on LDCs ............................... UNCTAD’s Investment Policy Reviews .................5....1..... 107 V...... Volkswagen’s strategy in Mexico ..................................................................... Toyota/PSA’s investment in the Czech Republic .................................................................................................................................................................................................................................................................................................................................................. A global player in brewing: South African Breweries ...... 53 III.........................6............................. Is China more attractive to Japanese investors than ASEAN? ............. FDI potential in West Asia ....6................... The Doha WTO ministerial Conference on investment .................................................. Li & Fung: a full-package provider .................................... Targeting export-oriented FDI .................3............................................................................. Flextronics: specializing in the manufacture of others’ products ......................... 140 VI................................................................................................ Going east: FDI in Germany’s new Länder .......................................................... UNCTAD’s post-Doha technical assistance work programme in the area of investment ............................................................................................. Table of Contents Page CHAPTER VIII..............................................4.......................................... FDI in the salmon industry in Chile ........................................... Why target? ........................................................................................ BITs and DTTs in 2001 ................... Issues discussed in the WTO Working Group on the Relationship between Trade and Investment . What to target? ...............14.......................................................1..................................................... 5 I................................................................ 8 I................................... The accession to the WTO of Taiwan Province of China: implications for FDI .....................1...................................................... 75 III..................................................................................................................... 1985-2000 ...................... What are the pitfalls and risks? ...................................................................2..... STATISTICAL ANNEX . How to target? ............. Dynamic products in world trade..................3.................................................................................................... The new system of incentives for investors in Poland ..................................1....................................

.... 159 VI..........3.. Ireland: the growth of services exports ........................................... The phasing out of the Multi-Fibre Arrangement ..............................................................................6...............7..................4............. 238 VIII......................5.............................................. Indian computer software and services exports .............................8....................................1............. The ratio of FDI inflows to bilateral ODA flows to developing countries..... 222 VIII..................................................................1..7............ The treatment of subsidies in the GATS ...................................... FDI inflows and real growth rates of GDP in developed countries.............. 1990-2001 .......... 1999 ... 199 VII................ by major sector and industry...8...................8......3............................................................. Training courses in investor targeting .. 236 VIII................................2.............. 246 VIII............ 6 I..........9......... 214 VII........................................................................................ 1998-2000 ...............3......12................... UNCTAD’s ASYCUDA Programme .... 206 VII...9................4.......................... FDI inflows and real growth rates of GDP in Central and Eastern European countries............ 19 I...................... 1990-2001 ............9..................................... 2000 and 2001 .............................. Transnationality index of host economies............................. top 10 countries..... 240 VIII......................................... Assessing the potential for export-oriented FDI: the case of Albania ....... Training diplomats in FDI promotion . Flextronic’s Industrial Parks in Hungary ...........................10.................. 30 III.............. FDI inflows and real growth rates of GDP in developing countries.. Helping an affiliate to expand exports: the case of Black & Decker in the United Kingdom ...7............................. Targeting investors in a specific niche: sun-dried tomatoes in Kyrgyzstan ..............................................................4................................ 188 VII.......... 1990-2001 .................... 24 II.....12.... 10 and 30 recipients in total FDI inflows to developing countries........ 1980-2001 .................... Profitability of foreign affiliates operating in Japan and the United States........................1.......... 170 VI............................... Good governance in investment promotion ..................13........ 1989-1999 ...........................................................................2......................................................................... by host economy: the top 20 and the bottom 20................................................................... The Advance Cargo Information System ...........1..5......... FDI inflows and real growth rates of GDP in the world ...................................3......... 248 Figures I.....................................................................6................6........... 38 III............................................ 39 III.................................................................................................................................................. top 10 countries....................... 6 I........14.........................................................................................................................................8.............. 233 VIII.................3.... 216 VII................................ Republic of Korea ........... FDI in some developing country EPZs ............................. 28 II...................... 21 II.. Value of cross-border M&As and their ratio to world GDP........................................... 39 III.................11...................................... by host economy: the top 20 and the bottom 20.......................... 202 VII.................................................................... 224 VIII......... 1987-2001 ................ 1995-2001 ........................................ The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for the United States and selected Western European countries........ 12 I.... Developed countries: FDI flows.. 1990-2001 .......................... 197 VII..2....................................... 218 VIII....................................... 223 VIII......... 6 I................. 12 I. 210 VII.................................................................................... 204 VII.................................................. 6 I.................................................. The targeted approach of Thailand ... 239 VIII.................................................... Costa Rica’ s CINDE: the “other” story of promotional effectiveness ....................... by type of flow............................................... Singapore: an early mover in targeting export-oriented FDI .. 1980-2000 ............... 1980-2001 ......... Promoting supplier transnationalization .................................................... The UNCTAD Inward FDI Potential Index................................... 18 I................. 234 VIII.... 229 VIII...... 158 VI... FDI and the trade balance: the case of China ........... Trade facilitation: what are the concerns? ................. EPZs in Hungary ................... 233 VIII...................................... 202 VII............. Comparison of reinvested earnings of FDI inflows and profits of foreign affiliates in the United States............................................................. 1983-1999 .....................5.....7.... Upgrading and embedding export-oriented operations in a host economy: the case of Motorola in China ................................. 201 VII..........11................................................. 11 I.................. The use of investment incentives in FDI targeting: the Malaysian experience .........5..... EPZs and the “race to the bottom“ .......... 41 III.................................5.................... Trade analysis tools for investment targeting .................. Total resource flows to developing countries...................... The evolving use of incentives in Ireland ............. Office of the Investment Ombudsman............................10.............. 1990-2001 .....................................................................13.................................................................................................. Moving from a non-focused to a targeted approach: the case of a southern European IPA ...... 1998-2000 ....................... Host country determinants of FDI ........................................ 215 VII...........................................10.........11.............. United States FDI inflows and outflows.... The share of the largest 5.9... 213 VII................................................... by major partner.................6.............................................. World Investment Report 2002: Transnational Corporations and Export Competitiveness Page VI.................... United States FDI inflows and outflows..................... The UNCTAD Inward FDI Performance Index....1..... 38 III.......... Building an FDI-based cluster: the case of Socware in Sweden ..... 1980-2001 ................................... 227 VIII......................................................... 1998-2000 ....................................... 43 viii ........... 232 VIII.. 186 VI............. The role of EPZs in exports: evidence from selected countries ........2.....................................................................................................2............................15.................................................. Developed countries: FDI flows as a percentage of gross fixed capital formation............ Cluster development: the case of Singapore . 1988-1990 and 1998-2000 ...............4.................... Potential obstacles to market access ....... Planned FDI by Japanese manufacturing TNCs over the next three years............. Estonia: attracting export-oriented FDI by providing an enabling environment ...... 13 I.....6....

.......... top 10 countries.........3..................................6....... 62 III....... 48 III.. 123 VI.................... Developing Asia and the Pacific: FDI inflows.. 55 III................................ Spanish FDI in Brazil...... by home economy.... 2000 and 2001 ..... LDC rankings based on the UNCTAD Inward FDI Performance and Potential Indices.......... 146 VI............ 1990-2001 .........................13... top 10 economies....................................... top 10 economies................... 47 III.......................23.......... Africa: FDI outflows.............11........ 1986-2001 .........1........................................................ Average annual growth rates of world exports......................................... 1988-1990 and 1998-2000 .......... 1988-1990 and 1998-2000 ...........18........7............................ Japan’s imports from Japanese foreign affiliates......................... 1994-2001 ... 56 III.................. Latin America and the Caribbean: FDI outflows..... 60 III........... 49 III..15...........6...... 60 III...... 1985-2001 ........................ 1985-2000 ........................ top 10 countries................ FDI inflows and their share in gross fixed capital formation in Africa....... Foreign assets of the largest TNCs from developing countries... 51 III....................................... 163 ix ........... 49 III.........33....... 145 VI.................... 76 III............................................................................ 1996-2001 . 2000 .......... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Asia.......................................... 2000 and 2001 .......7................................. by technology intensity........................ 69 III.... Central and Eastern Europe: FDI flows as a percentage of gross fixed capital formation........................ 74 III.................16......................38........................................ 2000 and 2001 .. 2000 and 2001 .......... top 10 economies... 98 IV............................. 71 III...... 1990-2001 ... 1988-1990 and 1998-2000 ...5...36.......... 77 III.................................... 61 III.........20.... 1999 and 2000 ......................... Africa: FDI flows as a percentage of gross fixed capital formation.........................37............. 1988-1990 and 1998-2000 ..................... 56 III................................................................ 1988-1990 and 1998-2000 ................................... 106 IV......30......... 76 III.....34.......... 1987-1999 .........................9..14......................... 96 IV................... 105 IV............................. 66 III......... 1987-2001 ..17............................. 70 III... The top 25 TNCs of CEE: comparison of Russian and other firms....19......................27..................... 149 VI... 108 IV.........21..............9............ China: share of foreign affiliates in total exports 1986-2001 ........ LDCs: FDI inflows as a percentage of gross fixed capital formation.....29..... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected LDCs..... top 10 economies......... Shares of industry groups among the top 50..................... 1998-2000 .....7....... LDCs: FDI inflows... 1990-2001 ..............35............... 144 VI. 1996-2000 .................. 109 IV...........4........... 67 III.............................................. top 10 economies................... 57 III............. 66 III...........22...................... The top 50 industry groups and their average transnationality index.... FDI in privatization in Brazil............... 1998-2000 ...... 79 IV........... Africa: FDI inflows.................... top 10 countries................................................. 1998-2000 ..... 2000 ..... Number of developing and CEE countries with exports of $500 million or more .... World export market shares............................................................................................. 110 IV.............. 1999-2000 .............3....................................... 62 III.............. 73 III.......... top 10 economies. 1976-2000 .................................... 1990-2000 ....... FDI inflows and ODA flows to LDCs......................... China: exports of high-technology products and share of foreign affiliates and State-owned firms.......................... Shares of the top 10 exporters of manufactured exports in developing countries .......................... Latin America and the Caribbean: FDI flows as a percentage of gross fixed capital formation......8......... The 10 biggest decreases in transnationality among the world’s top 100 TNCs.........25.......... Developing Asia and the Pacific: FDI outflows................................ 1996-2001 .......... Comparison of the Network Spread Index by industry................ FDI inflows and their share in gross fixed capital formation in developing Asia and the Pacific...................... Argentina. 1998-2000 .............32.......................... 1998-2000 ....... 1999-2000 ......... 2000-2001 ............ Latin America and the Caribbean: FDI inflows................................... Central and Eastern Europe: FDI inflows............ 1976-2000 . BITs and DTTs concluded by LDCs...........10........ 103 IV....................................... Average Network Spread Index of the top 50.....1....... 68 III........................ top 10 countries...................8............10........... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Central and Eastern Europe........ 111 V..................... Table of Contents Page III........................................... The transnationalization of the world’s top 100 TNCs..... between the top 100 and the top 50 TNCs .......... and changes.... Central and Eastern Europe: FDI outflows.....1............... 1993-1999 ......... 1993-2000 . Developing Asia and the Pacific: FDI flows as a percentage of gross fixed capital formation. top 10 countries.. 2000..............................5............ LDCs: FDI inflows and their share in the world inflows and developing-county inflows.......12......... 1999-2000 ......... 2000 and 2001 ............. The transnationalization of the top 50 TNCs from developing economies........2 Shares of resource-based and non-resource based products in world trade.... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Latin America...... cross-border M&A sales and privatizations in LDCs... Developing Asia and the Pacific: FDI outflows and their share in the world....4.......................................24.. 46 III.....................................28....... FDI inflows in the manufacturing sector in Brazil.. 78 III................................................................................ top 10 countries....................... 1992-1994 and 1998-2000 ...... 72 III........ 1990-2001 ............. FDI inflows............. 1985-2000 ....... 79 III............... Shares of manufactured products in world exports by technology groupings.... FDI inflows and their share in gross fixed capital formation in Latin America and the Caribbean.............26........ top 10 countries........... 67 III....... 1998-2000 ........................39.................8.............. 2000 and 2001 . 98 IV..31. 2000 and 2001 ... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Africa... top 10 economies.... 2000 and 2001 ........... The global value chain of product components .... 144 VI. Chile and Mexico...........2 The 10 biggest increases in transnationality among the world’s top 100 TNCs.... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for "other" developed countries.... 1990-2001 ........................ 163 VI... 149 VI.............. 67 III.............

.......... by region................................... 97 IV.... Regional headquarters established by foreign firms in Hong Kong.... 93 IV................. 102 IV...5.................. 27 II............................................... 2000 ...................................3............ 1985-1999 ....... by region......................... 1988-1990 and 1998-2000 . 92 IV. 1981-2000 ... 128 V..... Exports.......................... Average transnationality index of the top 5 TNCs in each industry..... 47 III....................................................................................... 96 IV.......... 4 I.......9............... by transnationality index and foreign assets............. 1998 1999 and 2000 ..................................... 2000 ............... 130 V... Snapshot of the world’s 100 top TNCs.... 1995 and 2000 . 1988-1990 and 1998-2000 ....... ranked by foreign assets........ Departures from the top 50 TNCs from developing economies...................................................... Significance of sales of foreign affiliates in manufacturing in selected host economies................... 1987-2001 .........................................................10. 2000 ...... 2000 . 35 III........ 1985.... The world’s top 10 TNCs in terms of transnationality...... 51 III.... 2000 ..11.. The top telecom equipment manufacturers......... Winners and losers in West European garment imports.......... 86 IV............9............................. as a percentage of total responses by TNCs .... 108 IV......................9................ 19 II........................... 1987-2001 ......... Winners in the high-technology manufactures trade... sales and employment of the top 100.......................................................6.....................................................1...............6..... Industry composition of the top 50 TNCs from developing economies... January 2002 ................... 81 IV. 184 Tables I...... Winners in the low-technology manufactures trade.......4.......... 2000 ...................... 2000 ......................... 2000 ............. LDC signatories to main international investment-related instruments.. 7 I. and their shares in the assets...................... Distribution of world FDI inflows..............................10.................................. Significance of R&D expenditures of foreign affiliates in selected host economies...... 100 IV........... 1985. 2000 ..................................... The world’s non-financial 100 TNCs...2...................... 61 III...... 2000 ........................ 1985..3...8........5.... 2000 .......... 98 IV.................. 127 V.......................8..................................... 17 I........ 133 V............ 103 IV..................1985-2000 ................... 129 V.....1. Africa: accumulated FDI outflows from major developed countries...... Winners and losers in Japanese garment imports............................................................ Country classification by FDI performance and potential................. 134 V............. Correlation between the UNCTAD Inward FDI Performance Index and factors determining FDI...............13...1....... Significance of profits of foreign affiliates in manufacturing in selected host economies.............. 104 IV... 112 IV....... The top 5 TNCs from developing economies in terms of transnationality......... 91 IV...................... Values of and country rankings by the UNCTAD inward FDI Performance Index and Inward FDI Potential Index... Significance of employment in foreign affiliates in the manufacturing sector in selected host economies................ 103 IV.1.......... 1986-2001 ..............10..... The top 25 non-financial TNCs based in Central and Eastern Europe........................12....................... The top 20 TNCs ranked by value of cross-border M&A activity.......................2...........1.........................3......... 126 V.... Newcomers to the world’s top 100 TNCs........................... Most favoured host economies as a priority location in 2002-2005....16..... 1996 and 2001 .................................................... Departures from the world's top 100 TNCs......................... 17 I.............. Newcomers to the top 50 TNCs from developing economies...... Significance of value added of foreign affiliates in selected host economies........................ 2001 ..... Home countries of the top 50 TNCs from developing economies............................... 1998-2000 . by sector............8........................ ranked by vehicle production....4... Winners and losers in the automobile industry exports to the North American market... 1990.............. 1985-1999 ........... Cross-border M&As worth over over $1 billion. Snapshot of top 50 TNCs from developing economies................................... 77 III...............18...... 1982-2001 ....................................5........15................................... 1999 and 2000 ...4....4...... 1985-2000 ...........9.. as of June 2002 ............................... Winners in the medium-technology manufactures trade..7......................................... Annual average FDI growth rates in LDCs. Inward FDI Performance Index.........6....................... 1990-2000 ...................2. 1985-2000 ... 89 IV............ 2000 .................. Top 10 winners and losers in FDI flows in 2001 .........3.......... 18 I........... 2000 ........ 1985...... 1986-1999 ........................... 2000 ................7...........10...... The top 10 automobile manufacturers.17...................................................2.......... 31 II............ Winners and losers in North American garment imports......... 1986-2001 ........ World Investment Report 2002: Transnational Corporations and Export Competitiveness Page VI.............. 1995 and 2000 ......... 104 IV...................... 80 III.......................... ranked by foreign assets............................... 1985-1999 ........................... 52 III........... Examples of different International Production Systems .... 1996-2001 ............. 1998.. Selected indicators of FDI and international production.......... FDI and international production of 30 largest Japanese firms.........................2....................................... 2000 ....... 13 I.... 12 I.................... 25 II.... 130 V........................... 183 VI......... ranked by foreign assets................ China................................................... Industry composition of the top 100 TNCs........................ FDI outflows from major investors to Africa.....................3 Intel’s manufacturing sites........................................ Growth trends in FDI and bilateral ODA flows............................... 2001 .........14....... 136 x .....7......... The Network Spread Index of the top 50 Russian exporters................................................................................................ 89 IV................. Winners and losers in semiconductor exports.................. The world’s leading semiconductor manufacturers. Home economies of the world’s top 100 TNCs by transnationality index and foreign assets....................... 2001 . as of June 2002 .... 1995 and 2000 ........9... 2000 .............. The top 50 non-financial TNCs from developing economies................................... 16 I................5...... ranked by foreign assets.............11.......... 1990.................................................. 113 V............ 2000 .......................................... 1988-1990 and 1998-2000 ...................... 183 VI............. 2000 ........8......7........................ by industry.... 74 III.6... 124 V.......... The 12 largest TNCs from China... 1985-2000 ....4...... 1985-2000 ............... Existence of investment promotion agencies in LDCs.......................... 57 III.......... 14 I...... 1990.....................

....8........................1............................................... 8 I.............................................. 63 VI............ China: exports by the leading foreign affiliates........................................3..... 1988-1990 and 1998-2000 ... 186 VI.... National regulatory changes.......8.............11......................1......... by region and economy....................................... by technology category....3.................12.................. Distribution of inward FDI stock in Germany’ new Länder.......2. 225 Box tables I...................... Mexico’s competitiveness in the North American market... Estimated incentives for selected FDI projects..... 2000 .......... BITs concluded in 2001....... 1985 and 2000 ........................................ 146 VI............................. Republic of Korea: exports by the leading 50 companies.............................. Effects of the September 11 events on FDI plans of Japanese TNCs . 166 VI......... Additional text tables and figures Tables A.........................11........ 1990-2001 . Comparison between FDI inward stock and assets of foreign affiliates in selected host economies..............................2........... Cross-border M&A deals with values of over $1 billion completed in 2001 .. Investment climate of ASEAN-4 compared with China .......15..............................10................2. 1985-2000 ...... 8 III......................... by region.........2.......... Mexico: exports by the 35 leading foreign affiliates............ 1992 and 1997 .............................. 45 III. 45 III....................... 1995-2001 surveys ...... 1991-2001 .................................................................... 172 VI........ The trade balance of foreign affiliates in China..... 2000 ... The 10 most promising destinations for manufacturing FDI by Japanese TNCs over the next three years.................................. 42 III.............. selected years ......................... 1996 and 2000 ................... 174 VI........................................... 154 VI.. 50 IV..1........................................................2...........12...........................................4............. 2002 ... 1991-1999 ...................2..................... 178 VII... 2000 ............................. 147 VIII.1.... Financial flows to Argentina 1994-2001 ................................. 44 III........3.............1.......................................... by sector...................... Number of parent corporations and foreign affiliates.... 1985-2000 ....................................... Costa Rica: exports by the 20 leading foreign affiliates...................... 1990-2001 ............. The degree of transnationality of United States firms......... The concentration ratio of the largest 100 TNCs in world GDP........... 176 VI........... 1995 and 2002 ...............I.............................. 138 V.............. 1985-2000 ................... latest available year .................... 205 Box figures I..9.... Dynamic products in world exports..............4.................................13....... 1985.........1..........1.....................1................................ 1990 and 2000 ... China: shares of domestic companies and foreign affiliates in the export of selected goods............ 148 VI...............1. 1998 ..... 5 I.........17........................3........................1 Flextronics’ selected global facilities...................2............. latest available year .... The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in West Asia........................ 270 A................................... 158 VI.............. Costa Rica’s competitiveness in the North American market................................. 167 VI.................... Exports profile of Mozambique .... 59 III................. 8 I..............................5............1............... Japanese FDI outflows to ASEAN-4 and China............... 1985-2000 .....................................I................ by country group ............ Types of changes in FDI laws and regulations....................... 266 A.......................................... 1985-2000 .................. 2000 .1.............. 168 VI...........6..................................16................................. 1985-2000 ........1....................................... 175 VI..6. The share of imports of capital goods in total imports by foreign affiliates in China...................... 186 VIII..................................... The five largest contract electronics manufacturers................. 164 VI........1............................................... by region.. Table of Contents Page V.7.........I.............1...3......1............................ 2001 ....1........ 169 VI........... Albania’s export products...................... vis-à-vis economies in 2000? ............ China’s competitiveness in world trade.............. 1995-1999 .......3.......... all industries and manufacturing................. 7 III...4............................ DTTs concluded in 2001.2....1.........1... Winners and losers in telecommunications equipment exports. 98 IV........................................... How large are the top TNCs.........................4.......... 274 xi ...............2..... The structure of world trade in major product categories........................ 1990-2001 . FDI flows per $1..... by country group ....... 162 VI.......... Distribution of world FDI flows by absolute amounts............ 2000 .........................2.....2........ Planned relocation of production sites of Japanese TNCs to China as a result of China’s accession to the WTO .................... 1995-2001 .........................................................1.1...........................7.................8.....14........................ The top 20 export winners.................. Hungary’s competitiveness in the Western European market............................ Hungary: exports by the 50 leading foreign affiliates.................. 1985-2000 .....000 GDP and FDI flows per capita................................. Shares of foreign affiliates in the exports of selected host economies... 2000 ...... 265 A.I...... 227 Annex A.... 139 VI............................ by region.......................2............................................... 150 VI............ 1995-2000 ........................................................ Ireland’s competitiveness in the Western European market........................ 1985-2000 ..............................1................ 177 VI............................... 99 V. The Republic of Korea‘s competitiveness in the world market..... 171 VI...................... ranked by change in market share................... Ireland: exports by the 55 leading foreign affiliates....1...........

.................................. 341 B....................... by region/economy of purchaser......................................... 296 2....................... by home region and economy............................................B.................................................................................... 319 B............... 1985.................... 1995............................. 1989-2001 .....6............... 1998-2000 ............................ 1990.................................... 1987-2001 ....................... 288 A........................... by host region and economy.... by region/economy of seller..... Definitions and sources of the data on cross-border M&As in annex tables B................ by home region and economy........................................... 280 A.................. General definitions .2......................................................4 FDI outward stock......................... Foreign direct investment ...............................................1..................................... 2001 .V......... 289 Annex B: Statistical annex Definitions and sources ....VI........................................VI............. by host region and economy.......................................................... Raw data and scores for the variables included in the UNCTAD Inward FDI Potential index............ 287 A...................2 FDI outflows.......................................................... FDI stocks ......2................. 299 C.................................................................. 292 (b) FDI outlows .................... FDI flows ............. 291 1............................................... Toyota’s international production system..........................................10 ................................ 1980........... 1995-2000 .......................................................... 310 B.............. World Investment Report 2002: Transnational Corporations and Export Competitiveness Page A...... by sector and industry of purchaser..... 291 B............. 1993 and 1998 ....... World motor-vehicle production by the top 10 TNCs...................II....................... 1990........... 2001 .......2......................5-B........................................ 1999 and 2001 ...............V.................... Availability....................... by category.......................................... 284 A.......... 301 Annex tables B................................................................ 344 B.................................... Definitions and sources of the data in annex tables B.....................................................................................VI.........III................................... Raw data and scores for the variables included in the UNCTAD Inward FDI Potential index.. 1985..7 ........1........... 275 A. by host region and economy................................ 1995 and 1999 ........ 1987-2001 .............10 Cross-border M&A................................5 FDI flows as a percentage of gross fixed capital formation..............................9 Cross-border M&A.................................................................................................. 1988-1990 ........... 307 B................. latest available year .......................................... 1987-2001 ............................... 1999 ........................................ 303 B.........................................................................................II............................................................................................................ Data revisions and updates .............I.......................................1 FDI inflows.................................. 291 A...........2.................. 285 A............................................................................. 1990............................................... 292 (a) FDI inflows .. 1985....8 Cross-border M&A sales................. Data verification .... Distribution of total exports and intra-firm exports of foreign affiliates of United States TNCs in the manufacturing sector........................................................... 1989-1999 ............... 291 3...........III.............................................10 ................................................. 1989-2001 ..................... 291 2............... 1999 and 2001 ............... Labour productivity of foreign affiliates and domestic firms in manufacturing in selected host economies.................... 337 B.................... 286 A... 276 A..................................................... 1987-2001 .................................................................................. 300 F..................3 FDI inward stock................................ Data for the transnationality index of host economies.....3........... 1980..VI............... 300 E.....5. 289 A................................... The top ten Hungarian export products....4................. Non-equity forms of investment .............. 288 A.... Transnational corporations ...............................................7 Cross-border M&A sales............. November 2001 ........................ The largest contract electronics manufacturers in Central and Eastern Europe..................1 The largest 30 cross-border M&A sales in LDCs.............. 328 B............. 292 1............ The trade performance of foreign affiliates and EPZs in Hungary........................................................1..........I........ 1987-2001 ....................................6 FDI stock as a percentage of gross domestic product.... 315 B...... by host region and economy.............................................................................. 2000 ........................ 1995......... 345 xii ....... The largest 30 foreign affiliates in LDCs............. 1999 .. 274 A.......... 300 D........ 1980.. limitations and estimates of FDI data provided in the World Investment Report .............. by sector and industry of seller....................

PART ONE TRENDS IN INTERNATIONAL PRODUCTION .

.

of the 1990s. sales. particularly the World FDI inflows and outflows in cross-border mergers and acquisitions (M&As) 2001 amounted to $735 billion and $621 that have driven recent FDI. It also benchmarks the and inflows 5 may decline further in 2002. a slowdown in the world economy. For some employment. set to raise its share of global economic activity. they suggest that both outflows 4 development (R&D). value added. while is driven by economic and technological those to Argentina.6 – production under the common governance trillion. France. Part Two analyses the Global foreign direct investment (FDI) role of TNCs in the export competitiveness flows declined sharply in 2001. from $1 trillion in 2000 immune to this general downturn (a 2 per to $503 billion in 2001. outflows or inflows may decline. The economies 1992. 1 countries decreased by much less – 14 per cent – from $238 billion to $205 billion. outward investment from developed countries over the longer term.4 trillion in 2000 to $0. Part Three then by 51 per cent and outflows by 55 per cent. economies in terms of such aspects as FDI Japan and the United States do not provide stock and flows. A. Inflows to developing cent increase). as competition for investment intensifies. It is also driven by the ongoing are likely to remain well below the peak liberalization of FDI and trade policies. The The decline in FDI in 2001 reflects competition is particularly marked for export. The fall in FDI in 2001 is likely to Trends in FDI outflows were very similar: continue for most countries in 2002. 2 This was the first drop in h a v e a l s o s u ff e r e d ( a l t h o u g h o n l y b y a inflows since 1991 and in outflows since relatively small 14 per cent). 3 FDI inflows to developed countries (CEE) are the only ones to have remained fell by about half. Brazil and Indonesia forces. Developed billion. looks at policies that can be pursued to attract This reversal – after steady growth since export-oriented FDI and increase benefits 1991 and very large rises in 1999 and 2000 from it. any clear indication for the future.2). FDI flows The growth of international production to China will probably rise in 2002. as countries try to boost than a dozen countries – including the world’s three largest economies – fell into recession . and the largest over three decades in transition of Central and Eastern Europe in both. However. Part One of WIR02 deals with trends Preliminary data for such major in FDI flows and the role of TNCs in host developed countries as Germany. FDI performance and potential of host countries while for others the data suggest that either and looks at the largest TNCs. CHAPTER I GLOBAL TRENDS Introduction export competitiveness in a setting of accelerating technological change and freer. closer-knit markets. a drop of countries have borne the brunt of declining 51 per cent in the former and 55 per cent FDI (59 per cent) but developing countries in the latter. Trends in FDI flows These combined to slow down new international investment. Inflows fell of developing countries. while that from developing countries of transnational corporations (TNCs) – seems also declined but by much less (annex table B. National policy regimes are converging towards a more welcoming stance on FDI. respectively (table I. More oriented investment. – reflects two factors: the slowing of economic activity in major industrial economies and a sharp decrease in their stock market activity. and research and countries. The picture is similar for developing countries. profits.1). international production declined from $1.

on the other hand.5 Sales of foreign affiliates 2 541 5 479 18 517c 16. stock market to the further decline in FDI.3 37. this is the third downward cycle in Economic and Social Affairs and UNCTAD.3f Employment of foreign affiliates (thousands) 17 987 23 858 53 581g 6.2g 7. after which dramatic increases in cross-border M&As There is. a Data are only available from 1987 onwards.0 21.5 1.0 22.5 14.8 13..9e Exports of foreign affiliates 670 1 169 2 600f 14. 4 .3d Total assets of foreign affiliates 1 959 5 759 24 952e 19.4 11.9 11. Japan and the United States (for sales and employment) and those from Japan and the United States (for exports). and in 1982-1983.3 4.1 11. those from the United States (for gross product).1 49. World Investment Report 2002: Transnational Corporations and Export Competitiveness in 2001 (United Nations Department of Thus.5 .4 25.1 17. and positive relationship between global FDI flows and the level and growth of world The decline in FDI flows in 2001 G D P.9 15. FDI.5 2. of TNCs was modest according to various sometimes offsetting and at other times surveys (box I.8 10. These swings the events of 11 September 2001 exacerbated reflect changes in several factors. Selected indicators of FDI and international production.4 24.7 12. b 1987-1990 only.4 9. 1980s and early 1990s.2 32. FDI in 2001 was higher reinforcing them.5 34. each punctuating a long upward trend 2002.6 20. the impact sentiment and M&As. countered by cyclical Table I.7 4. 6 Te c h n o l o g i c a l c h a n g e .1 7.3 -47. h Data are for 2000. Note: Not included in this table are the value of worldwide sales by foreign affiliates associated with their parent firms through non-equity relationships and the sales of the parent firms themselves.0 Gross fixed capital formation 2 285 4 841 6 680h 13. they may also have contributed ones are business cycles.2 9. Germany.4 Source: UNCTAD.7 20. Their impact is.8 5.2 3.5 6. economic distance and new management There was a similar pattern during the late methods favour international production.1 14. 2002a).0 1.8134*FDI inward stock.8 44. UNCTAD.5 2.7e 9.4573*FDI inward stock.7 -5.8 17. Worldwide sales.9d 8.6 Cross border M&As a .4 17. 151 601 26.6577*FDI inward stock. Exports of goods and non-factor services 2 081 4 375 7 430i 15.0 40. a stable led to record flows in 1999 and 2000.1). For 1999-2001.9 5.3 49.1g Memorandum GDP (in current prices) 10 805 21 672 31 900 11.1.3 5.0 FDI inward stock 734 1 874 6 846 15.3 15. d Based on the following regression result of gross product against FDI inward stock (in millions dollars) for the period 1982-1999: gross product=364+0.0539*FDI inward stock. and those from Germany and the United States (for assets) on the basis of the shares of those countries in the worldwide outward FDI stock. Still.8 8. total assets.4 -55.. c Based on the following regression result of sales against FDI inward stock (in millions dollars) for the period 1982- 1999: sales=323+2.4 5.6 9. the share of exports of foreign affiliates in world export in 1998 (34 per cent) was applied to obtain the values.2c Gross product of foreign affiliates 594 1 423 3 495d 18. e Based on the following regression result of assets against FDI inward stock (in millions dollars) for the period 1982- 1999: Assets= -1 153+3. g Based on the following regression result of employment (in thousands) against FDI inward stock (in millions dollars) for the period 1982-1999: employment=12 138+6. than that in 1998 ($696 billion). s h r i n k i n g followed rapid increases during the late 1990s.9 7. The main this slowdown. 1982-2001 (Billions of dollars and percentage) Value at current prices Annual growth rate Item (Billions of dollars) (Per cent) 1982 1990 2001 1986-1990 1991-1995 1996-2000 1999 2000 2001 FDI inflows 59 203 735 23.0 3. based on its FDI/TNC database and UNCTAD estimates.4b 23.9 20. gross product.7 52.3 .6 10. To the extent that in FDI every ten years or so. exports and employment of foreign affiliates are estimated by extrapolating the worldwide data of foreign affiliates of TNCs from France.1c 9.1 56.8 36.3 32.1 15.8 6.1 -50. based on the regression result of exports of foreign affiliates against FDI inward stock (in millions dollars) for the period 1982-1994: Export=254+0.9 10.2 3. i WTO estimates. f For 1995-1998. Royalties and licence fee receipts 9 27 73h 22.4 19.4 FDI outward stock 552 1 721 6 582 19.3 5. however. These short-term factors of these events on overseas investment plans work in tandem with longer-term factors.7 1..7f 0.7 FDI outflows 28 233 621 24. Italy.474*FDI inward stock.

On the supply side. 16 per cent said that their FDI in 2001 would increase.2) but not in developing economic conditions (WIR93. while depressed markets began in the early 1990s. b A survey of 643 firms by the Multilateral Investment Guarantee Agency (MIGA) in October 2001 found that there was no effect on the expansion plans of 64 per cent of respondents (MIGA. and this region inhibit them. Company surveys suggest that they were on hold until they had a clearer picture of limited.1. d the attacks. the relationship between term cycles do not affect their attractiveness.T. developed countries than others. Similarly. according Consulting revisited a number of the firms they to which more than half the respondents were had surveyed before 11 September (UNCTAD. This Investissements Internationaux and Andersen was reflected in the JETRO survey.T. including higher perceived political risk (associated with war and terrorism). 94). They go together in or loans. Impact of the September 11 events on FDI flows The effects of the terrorist attacks of 11 companies to adopt a “wait-and-see” attitude. and the more current decline (figure I. On countries (figure I. The results were made available to UNCTAD by the JETRO International Economic Research Division. based on the data provided by the JETRO International Research Division. Kearney Press release. a survey by the Japan External Trade Organization (JETRO) found in Box figure I. However.1.CHAPTER I GLOBAL TRENDS fluctuations in income and growth. The more interdependent host has not seen an FDI downturn during the and home economies become. a survey economic developments and the longer-term by UNCTAD.4). c Based on some 130 respondents. September 2001 on FDI flows are difficult to Firms may have placed planned investments gauge. 92).1). Kearney in September/October 2001: two-thirds of corporate executives of the world’s 1. a The survey was conducted by JETRO in October 2001. d Business Latin America (EIU). which is in turn affected by domestic developed (figure I. In CEE. Some companies 2001a). 24 September 2001. FDI is affected by the availability GDP growth and FDI is not uniform across of investible funds from corporate profits groups of economies. Virtually none of the respondents intended to cancel their FDI projects.000 largest firms said that they intended to invest abroad at more or less the levels already planned. and 20 per cent that it would decline.3). 2002). b A. the for the different patterns of FDI flows is greater are the corresponding movements that business cycles spread much faster across in global FDI (WIR93. a These findings are (Percentage) consistent with a survey by A. Effects of the September 11 October 2001 that nearly half the Japanese firms events on FDI plans of Japanese TNCs surveyed did not expect to change their FDI plans (box figure I. The finding was that few expected to are reported to have cancelled planned investments change their investment plans in the light of after the September 11 events. p. 8 October 2001. In October/November 2001. FDI inflows the demand side. the Agence Française pour les impact of the events on the United States.1.1. unable to make an assessment. the higher level of uncertainty created by the September 11 events. growing overseas markets have continued to grow since liberalization lead TNCs to invest. The results are based on responses by 659 respondents out of 720 Japanese TNCs (both manufacturing and services). One explanation widely a recession or upswing spreads. and a trough accompanies low growth have a lot of “catching up” to do – short- (figure I. p. may have induced some Source: UNCTAD. A supplementary explanation may be that some Data for 1980-2001 show that a bulge countries (as in CEE) had been cut off from in global FDI accompanies high economic substantial FDI flows for so long that they growth.1). c On the other hand. S o u rc e : U N C TA D . Box I. 5 .

data from UNCTAD secretariat and UNDESA. 1980-2001 (Billions of dollars and percentage) (Billions of dollars and percentage) Source: UNCTAD. Figure I. Source: UNCTAD.3. FDI inflows and real growth rates of GDP in Central developing countries. FDI/TNC database. 1990-2001 (Billions of dollars and percentage) (Billions of dollars and percentage) World Investment Report 2002: Transnational Corporations and Export Competitiveness Source: UNCTAD.6 Figure I. 1980-2001 developed countries. . 1980-2001 and Eastern European countries. data from UNCTAD secretariat and UNDESA. Source: UNCTAD.2. data from UNCTAD secretariat and UNDESA.1. FDI inflows and real growth rates of GDP in world. FDI/TNC database. FDI/TNC database. FDI inflows and real growth rates of GDP in the Figure I. FDI inflows and real growth rates of GDP in Figure I.4. FDI/TNC database. data from UNCTAD secretariat and UNDESA.

2 43.7 12.2 35. as well as increased incentives.9 Japan 0. Box I.6 12.0 68. The Asian of annual changes to its highest level since the and Pacific region introduced the largest number WIR began reporting on them (box table I.6 0.1) in an effort to attract more FDI. 194 (93 per cent) created Box table I. forcing companies countries.2 3. b a s e d o n n a t i o n a l s o u r c e s .6 17.0 11. Note: The shaded years are FDI trough periods. Of the changes in 2001.3 7.9 Developing countries 17.3 17. or expansion compared to an average of 18 per cent and in.7 European Union 36.2.7 21.CHAPTER I GLOBAL TRENDS The economic slowdown has intensified has recently been higher than in developed competitive pressures.7 51.4 Western Europe 38.3 32. Changes in FDI regimes in 2001 In 2001. 7 The rise in developing countries’ shares markets have been growing slower than foreign may also reflect the further liberalization markets.2 13.6 16.1 0. Outflows may also 2 per cent in the preceding two years (table have risen from countries in which domestic I. raising the total number I.5 61.2) and was reinforced by the Japanese FDI to China (chapter III..2 0.2 9.1.5 2. a Including liberalizing changes or changes aimed at strengthening market functioning. This may and CEE in global FDI inflows reached 28 have resulted in increased FDI in activities per cent and 4 per cent respectively in 2001. 1 2 6 16 16 9 9 3 14 S o u rc e : U N C TA D .8 0. low-wage economies.2).5 Source: UNCTAD.0 3.2 1. /.2.A. More generally.9 Central and Eastern Europe 0.9 27.3 0.2.9 45.8 2.1 50.4 21.3).1 2.8 United States 34. developing countries and CEE..2 1.9 11.3 Latin America and the Caribbean 5.9 Africa 1. a Years characterized by exceptionally high cross-border M&A activity. Distribution of world FDI inflows.8 2.0 33.4 66.7 Memorandum Least developed countries 0.2. where growth Table I.6 Asia and the Pacific 10. The shares of developing countries to search for cheaper locations.4 46.1).2 45.2 80. of such changes (43 per cent).8 0. 1991-2001 Item 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Number of countries that introduced changes in their investment regimes 35 43 57 49 64 65 76 60 63 69 71 Number of regulatory changes 82 79 102 110 112 114 151 145 140 150 208 of which: -more favourable to FDI a 80 79 101 108 106 98 135 136 131 147 194 -less favourable to FDI b 2 . that benefit from relocation to. FDI/TNC database.5 31.3) and growth in the number of bilateral investment the growth of flows to CEE. while non-shaded years are FDI growth periods. treaties (BITs) and double taxation treaties there has been a redistribution of FDI towards (DTTs) (box I. b Including changes aimed at increasing control as well as reducing incentives. There are signs that both factors of their FDI regimes 8 – a trend that continued have contributed to the recent increase of in 2001 (box I.2.4 0.7 22.4 1. 1986-2001 (Percentage) Region 1986-1990 1991-1992 1993-1998 1999-2000 a 2001 Developed countries 82. National regulatory changes. 7 . 208 changes in FDI laws were a more favourable investment climate (box figure made by 71 countries.

Box figure I. BITs concluded in 2001. Of these.. /.D).3. DTTs concluded in 2001. bringing the total from 1. The least developed countries (LDCs) have shown a keen interest in entering into BITs (see chapter II.3. and among themselves. by country group Source: UNCTAD.2). BITs and DTTs in 2001 In 2001 alone. A total of 63 countries were involved (19 from the developed world. Changes in FDI regimes in 2001 (concluded) (concluded) themselves).3.3. 2001 ones and 10 among themselves. BITs and DTTs databases.118 at the end of 2000 to 2. Such events have considerably reduced the cost and time involved in negotiating and finalizing BITs among the countries involved. 13 were signed among the LDCs themselves. BITs and DTTs in 2001 Box I. but has not participated in the negotiations themselves. Developing countries have intensified the practice of concluding BITs among themselves: 66 in 2001 (compared with 36 in 2000) (box figure I.2. 12 with the developed and regulations.1. UNCTAD has organized several BIT and DTT negotiation facilitation events since 1998 that resulted in the conclusion of a number of these treaties. BITs and DTTs databases.3.3. As part of its work programme on international investment agreements. followed by African countries with 58 BITs (29 among themselves).941 at the end of 2000 to 2.2. 8 . 12 with developed countries and two with economies in transition. Source: UNCTAD.. and they have been highly successful. and Latin American countries 21 (5 among Box figure I.2. CEE countries signed 18 BITs with Box figure I. including the services of a resource person. The total number of DTTs grew from 2.1). 30 from developing countries and 14 from CEE) in 67 DTTs (15 among countries of the developing world. Source: UNCTAD. Types of changes in FDI laws developing countries. Asian countries concluded 70 BITs (19 among themselves). World Investment Report 2002: Transnational Corporations and Export Competitiveness Box I. These events have provided a platform for developing countries to negotiate BITs with other interested countries. based on national sources.1.185 by the end of 2001. S o u rc e : U N C TA D . 24 with the rest of the developing world. six between countries of CEE) (box figure I. a total of 97 countries (the largest number ever) were involved in the conclusion of 158 BITs. Box I. For that purpose.099 by the end of 2001. A total of 23 LDCs were involved in the conclusion of 51 BITs in 2001. by country group S o u rc e : U N C TA D . UNCTAD has provided the facilities and technical support.

including payments. countries of the World Trade Organization including UNCTAD. Since then. And the Agreement on Subsidies and Stocktaking and analysis of existing Countervailing Measures bears on certain aspects international instruments and activities regarding of incentives. 1998. developing analysis of the relationships between countries still attract less than a third of international trade and investment and their world FDI flows. policy” (WTO. including from a development perspective. including: economic parameters relating to macroeconomic stability. competitiveness. Part of this cent of total FDI flows to developing countries work involves a substantial technical assistance and 0.5 per cent of world FDI (table I. the relationship between existing trade and investment flows. income and wealth distribution. are called upon to provide (WTO) have addressed investment issues such assistance (box I. A different picture emerges once Box I. Issues discussed in the WTO Working Group on the Relationship between Trade and Investment The agenda of the Working Group has been bilateral. the Agreement effect of the growing number of bilateral and on Trade-related Investment Measures (TRIMs) regional arrangements. in particular. overlaps and possible conflicts.5). 1 9 9 8 . they received only 2 per to the WTO’s work (box I. Qatar. effort aimed at helping developing countries to evaluate the implications of closer However. from 9 to of concentration of FDI in developing countries 14 November 2001. practices and future international cooperation on competition decision-making on trade and investment. In 2001. especially as regards export-oriented trade and investment: existing WTO provisions. member process. investment. Relevant international organizations. including the of foreign investment. country prohibiting certain performance requirements. as well as possible employment.4.CHAPTER I GLOBAL TRENDS At the multilateral level. since the Organization’s first Ministerial Conference in Singapore in 1996. The level which was held in Doha. In spite of the substantial liberalizing WTO members have been engaged in an measures of the past decade. the five largest development (box I. transfer of technology and advantages and disadvantages of entering into managerial skills. the determinants and possible future international cooperation of the relationship between trade and investment. regional. industrialization. the impact of trade policies and The WTO already addresses certain aspects measures on investment flows. privatization. between the mobility of capital and the mobility of labour. growth. and these flows remain implications for economic growth and highly concentrated. (GATS) contains rules relating to the establishment the relationship between foreign investment by a service supplier of a “commercial presence” and competition policy. It was debated until has in fact risen in recent years (figure I. the impact of investment elaborates on existing GATT provisions by policies and measures on trade. fiscal position and the balance of of common features and differences. annex 1: checklist of issues including through case studies. The General Agreement on Trade in Services including investment incentives and disincentives. implications for “Implications of the relationship between trade trade and investment flows of existing and investment for development and economic international instruments. in 2001.2).5). 9 . S o u rc e : U N C TA D . the relationship suggested for study).4). remain in an agreement that gave further direction marginal. regional and multilateral rules on competition and market structures. In particular. experiences regarding national investment policies. the rights and obligations of home The economic relationship between trade and host countries and of investors and host and investment: the degree of correlation between countries. The issue of investment host countries in the developing world received figured prominently in the preparatory phase 62 per cent of total inflows and the 10 largest for the Fourth WTO Ministerial Conference. FDI. domestic conditions of bilateral. b a s e d o n W TO . received three-quarters (figure I. gaps in existing international instruments. on investment policy and existing and possible the impact of business strategies. absolute values tell only half multilateral cooperation for their development the story. the final hours of the conference and resulted Flows to the 49 LDCs. such as domestic On the basis of the work above: identification savings.5). plurilateral and multilateral as follows: agreements and initiatives. abroad.6).

a http://www. including my understanding is that. Any framework should reflect in a balanced manner 20. view. of existing bilateral and regional 21. intergovernmental organisations. by explicit individual needs and circumstances. this would also give each member the further work in the Working Group on the right to take a position on modalities that Relationship Between Trade and Investment would prevent negotiations from proceeding will focus on the clarification of: scope and after the Fifth Session of the Ministerial definition. relative to developed countries (annex table receive less than developed countries.wto. transparency in government procurement. at that session. Fourth Session. and trade facilitation could proceed. based on “Ministerial declaration”. and through appropriate regional decision would indeed need to be taken by and bilateral channels. the chair stated that. The share of non-EU countries in subregions such as Central Asia. Doha.” a Source: UNCTAD. reflecting A. WTO Ministerial Conference agreed on the development provisions.1 4 N o v e m b e r. W T / M I N ( 0 1 ) / D E C / W / 1 ( 1 4 N o v e m b e r 2 0 0 1 ) . A. South. particularly foreign direct as their right to regulate in the public interest. the Doha based on a GATS-type. in particular. to provide strengthened explicit consensus. and the need for enhanced technical needs of developing and least-developed assistance and capacity-building in this area countries should be taken into account as as referred to in paragraph 21. trade and financial of trade. stable and take due account of the development policies predictable conditions for long-term cross. and the performance of developing countries improves South. 26 and 27 of the Declaration were cooperation for their development policies concerned: “with respect to the reference to and objectives. Conference until that member is prepared modalities for pre-establishment commitments to join in an explicit consensus.I. including policy analysis Doha Ministerial Conference. and objectives of host governments as well border investment. Box I.org/english/thewto_e/minist_e/min01_e/min01_chair_speaking_e. 20-22): settlement of disputes between Members. positive list approach. Ministerial Conference.htm. as far as paragraphs evaluate the implications of closer multilateral 20. as appropriate. which should negotiations will take place after the Fifth enable Members to undertake obligations and Session of the Ministerial Conference on the commitments commensurate with their basis of a decision to be taken. if FDI is assessed by economic size or in absolute values. investment. 9 . and framework to secure transparent. 23. and human and institutional an ‘explicit consensus’ being needed. The Doha WTO Ministerial Conference on investment After difficult negotiations. provisions. To this end. for a decision to be taken at the in cooperation with other relevant Fifth Session of the Ministerial Conference. The position of CEE also improves the others in the 1990s. Due regard consensus. In relation to the size of their markets. “Recognizing the case for a multilateral the interests of home and host countries. in these development. policy. World Investment Report 2002: Transnational Corporations and Export Competitiveness FDI inflows are adjusted for the size of the In terms of FDI per capita (annex table economy.1). Account should be taken. we agree that an integral part of any framework.I. we shall work paragraphs. non-discrimination.1). at that Session on modalities of should be paid to other relevant WTO negotiations. a UNCTAD. In my 22. East Western Europe in FDI inflows and outflows and South-East Asia and Latin America and improves once flows are normalized by GDP the Caribbean performed better than most of or population. In the period until the Fifth Session. Latin America and subregions and countries that receive small the Caribbean receives more FDI per capita amounts of FDI.” and least-developed countries for enhanced support for technical assistance and capacity In the closing plenary session of the building in this area. before negotiations on and adequately resourced assistance to respond trade and investment and trade and competition to these needs. developing countries in general. We recognize the needs of developing arrangements on investment. regions and than Asia. exceptions and balance- following text with respect to investment of-payments safeguards. transparency.5. on 14 November and development so that they may better 2001. consultation and the (paras. 10 . This is true overall and for many their larger populations. East and South-East Asia in particular. that will contribute to the expansion The special development.

This resilience 11 . the total value of cross-border M&As completed in 2001 ($594 billion – see annex tables B. domestic and foreign (around principal vehicle since the mid-1990s for $1. the fall in share earlier sharp increases in FDI in 1999 and prices has played an important role because 2000 – by some 56 per cent and 37 per cent. of these activities are undertaken jointly with and after consultations with a wide range of the WTO. the value and the September 11 events. attributable to slower economic growth and prospects The number of cross-border M&As of reduced profit. FDI in 2001 in fact proved fairly to $19 trillion at the trough in resilient despite the global economic downturn September 2001). In 2000. and two national development. 15 The fall in M&As.10 reflecting. reflected the decline The decline in FDI flows in 2001 largely in mega mergers.6 trillion). A number held.800 in 2000 markets. again with knock-on effects on FDI. S o u rc e : U N C TA D .6. the share of cross-border M&As almost halved to less than 2 per cent. 16 in cross-border M&As is. 17 exchange of shares is an important means of financing M&As. 10 and of cross-border M&As concluded 30 recipients in total FDI inflows to through the exchange of shares developing countries. The number of cross- in the consolidation process of certain border deals worth over $1 billion fell from industries acquired through M&As. for instance. two intensive training elements identified in paragraph 21 of the Doha workshops (in Pretoria and Alexandria). The share of the largest 5. In the six major stock exchanges fell by one. UNCTAD’s post-Doha technical assistance work programme in the area of investment In response to the WTO Doha Ministerial. Finally. 9 The decline in 2000. 13 As a result.3). Lower share prices also made it difficult for companies to raise funds by issuing new stock. It may also be the result of a lull to some 6. It could be argued that 2001 saw a shares were used to finance some 44 per return of FDI to “normal” levels after the cent of all cross-border M&A deals. FDI/TNC database. particularly in developed also declined. Moreover. 14 In relation to GDP also. companies’ need to digest the $866 billion to $378 billion (table I.8) was only half of what it had been in 2000. 12 As a result. 11 In hectic M&A activity (primarily in developed 2001.000 in 2001. particularly.6). it has meant a reduction in the value of (assets respectively – were driven mainly by these acquired through) M&As. the mega M&As. one Ministerial Declaration: policy analysis and regional seminar (in Singapore). from more than 7. was also half the value reported FDI in developed countries.7 and B. human resources capacity-building seminars (in China and Indonesia) had been and institutional capacity-building. UNCTAD developed a technical assistance programme that focuses on the three As of June 2002. in turn. a level comparable to that of 1998 Source: UNCTAD. Figure I. delegations. (figure I.CHAPTER I GLOBAL TRENDS Box I. 175 to 113. their total value falling from for example. 1990-2001 fell to 24 per cent of the total (Percentage) in 2001. the market value of stocks listed in countries) of the previous two years. The value of all worldwide reflects a fall in cross-border M&As – the M&As in 2001.5. developing countries and economies in third (from $29 trillion at the peak in 2000 transition. The acquisitions made.

reaching almost one. It needs Year of deals of total (billion dollars) of total to be stressed. 1987–2001 contrasts with the latter half of the 1980s.6 522. a Net liability transactions.7 50.6 42. in 2001 in the former. 18 FDI in developing countries has been larger than official inflows for every year since 1993 (figure Source: UNCTAD. Total resource flows a to developing countries. Kuwait.1 2000.0 40.6 30. cross-border M&A database.7).5 23. FDI flows were the only positive component of private capital flows to developing countries and economies in transition during 2000-2001.7 62.4 1991 7 0.2 20. 2002. the ratio of FDI to bilateral 1989 26 1. compared to 6 per cent in 1980 and 1996 43 0.4 ODA rose until 1999.9 for these countries. 1990 33 1.7 fell.3 129. 29). from 5.3 60. China. Singapore. 12 . It was 10 times larger than b i l a t e r a l o ff i c i a l d e v e l o p m e n t Table I.5 42. United Arab Emirates).7 per cent Figure I. Qatar.0 41.2 59.3 resource flows to developing countries in 1994 24 0.3.7.8). that. On a net basis (inflows less outflows). Values of cross-border M&As and their ratio was more pronounced in to world GDP. The total of net private capital flows was projected to be a low of $31 billion in 2001 (IMF.7).4 43. c Preliminary. 1997 64 1.0 68.2 but it declined in 2000 (figure I.4 21.9 378.1 63.4 1998 86 1. ODA remains of paramount importance. of original maturity of longer than one year.7 both developed and developing countries 2001 113 1. b The World Bank classifies Central and Eastern European countries as developing countries and excludes some economies considered developing by UNCTAD (Hong Kong.9 94.1 per cent Source: UNCTAD. 2002a.1 per cent in 2000 to 2. But even 1987 14 1. Taiwan Province of China.6. Cross-border M&As worth assistance (ODA) in 2000 (figure I.8 80. p.4 one quarter in 1990. however.5 49. this over $1 billion.4 25. 1990-2001 (Billions of dollars) Source: UNCTAD.9 40.9 40. Inflows 1992 10 0. Cyprus.1 1995 36 0.2 866. I.2 42. 1987-2001 comparison to inflows of portfolio investment and bank lending (figure I.5 28. Number Percentage Value Percentage when the two were about equal.0 1999 114 1.8 of FDI accounted for 60 per cent of total 1993 14 0. based on World Bank. b by type of flow.3 1988 22 1. FDI/TNC and cross-border M&A databases. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure I.2 75. for LDCs.8).3 26. and from 3.1 The ratio of FDI inflows to GDP in 2000 175 2.5 329.

7 United States -176.4 6 Morocco 2.1 France -92.9 Spain -15.1 Panama 1.3 Australia 6. Most of the steepest declines in survey suggests that the preferred destinations FDI inflows and FDI outflows in 2001 occurred will be the United States among developed in developed countries (table I. 2 0 0 1 a ) . Brazil in Latin America.9 per cent in 1990 to be cross-border M&As in developed for the world. (table I. the medium-term (three. FDI/TNC database.0 5 Singapore 3.6 Finland -16. 13 . to 3.6 Kuwait 0. the United Kingdom and France in Europe.8.5 Belgium and Luxembourg -174. August 2001 yielded similar results.2 United States -51. More specifically. this ratio had risen from 0. Germany.2 United Kingdom -214. countries as a whole. T h i s w i l l f o c u s o n said that they would strengthen and expand Table I. and from 0.5).3 China 0. FDI/TNC database and OECD International Development Statistics online database.7 Cayman Islands 1. Major International Cooperation (IBIC) in July/ TNCs.0 Spain -26. China -39. Poland in dampening impact of weak demand in the Eastern Europe.5 The preferred mode of expansion will continue per cent in 1980 and 0.0 Belgium and Luxembourg -194. the countries.7 3 China 6.2 Mexico 2.CHAPTER I GLOBAL TRENDS Figure I.4). The ratio of FDI inflows to bilateral ODA to developing countries. Note: The ratio of one (1) indicates FDI=ODA.3 Ireland 1.8 Singapore 5.4.7 4 South Africa 5.8 Sweden -33.1 Germany -163.8 Source: UNCTAD.8 Ireland -14.0 per cent in the latter.5 Sweden -10.8 United Kingdom -62. survey. 19 Over the production as well as distribution functions.5 Hong Kong. A survey by the Japan Bank for year) prospects for FDI are promising.9 Switzerland -26. China in What of the prospects? Despite the Asia. Top 10 winners and losers in FDI flows in 2001 FDI inflows FDI outflows (Billions of dollars) (Billions of dollars) Winner Loser Winner Loser Increases Decreases Increases Decreases in absolute in absolute in absolute in absolute Economy value Economy value Economy value Economy value 1 Mexico 10.6 Italy 9. As many plan to continue their international expansion as 72 per cent of the Japanese TNCs surveyed ( U N C TA D . and South Africa in Africa largest economies.3 Denmark -25.3 10 Italy 1. according to the UNCTAD et al.3 per cent in 1980 countries and greenfield investment in and 1 per cent in 1990 for developing developing countries. longer term.4 Netherlands -27.4 7 Turkey 2.7 Hong Kong.9 9 Chile 1. 1980-2000 Source: UNCTAD.5 2 France 9. China -50.2 Canada -39.3 8 Saudi Arabia 1.5 Japan 6.

3). with about 850. 20 A MIGA 2001 international production survey shows similar trends: nearly 80 per cent of the respondents plan to expand FDI There are now some 65. 2002). employment. 14 . For TNCs in tradable goods and 1. Germany and the conditions and policies investors need for United States show that the value of FDI efficient operation are in place. 2001a.5.000 TNCs in both developed and developing countries (firms that control assets abroad) engaged in the next three years (MIGA. sales. They also raised for FDI is limited only (or largely) by the funds through bonds and stocks and via loans potential for investment in general. the section looks at various measures of TNC potential for reinvesting earnings rises. the potential of Japanese FDI outflows. For example. 2002. as a percentage of total responses by TNCs (Percentage) Central and Developed countries Developing Asia Latin America Eastern Europe Africa and West Asia United States 27 China 27 Brazil 31 Poland 33 South Africa 17 Germany 16 Indonesia 10 Mexico 20 Hungary 20 Egypt 12 United Kingdom 12 Thailand 10 Argentina 15 Czech Republic 18 Turkey 8 France 10 Malaysia 9 Chile 10 Russia 11 Morocco 8 Italy 6 India 9 Colombia 5 Romania 4 Nigeria 6 Japan 5 Korea. 2001a. Many have just in 2001. The The potential for FDI remains large global FDI stock reached nearly $7 trillion in many developing countries. As the stock of FDI grows.000 affiliates abroad (annex table A. equivalent to 13 per cent Thus. Foreign affiliates accounted for have already attracted such FDI may get an estimated 11 per cent of world GDP in sequential investments after the initial 2001 compared to 7 per cent in 1990. The significance of foreign services in particular. especially activity: investment. Value added by TNCs is estimated started to allow FDI in utilities and other at $3. see also section on Japan). Republic of 7 Peru 4 Bulgaria 4 Saudi Arabia 6 Spain 5 Taiwan Province of China 7 Bolivia 3 Ukraine 2 United Arab Emirates 5 Sweden 3 Viet Nam 5 Venezuela 3 Other 7 Israel 2 Canada 3 Hong Kong. and make of Japanese TNCs raised $3 billion from their location decisions mainly on economic local banks alone in 1998 (Japan.) considerable drawing power on their own. Such firms increasingly regard international markets. METI. Data for several large up to the demand side to ensure that the countries such as Japan.5 trillion. Others that (table I. however. from the supply side. the “F” in difficult to assess that role correctly from FDI is fading. p. China 4 Other 8 Angola 2 Ireland 2 Philippines 4 Other 4 Other 13 Singapore 4 Other 4 Source: UNCTAD. and strategic grounds rather than nationality. This is particularly so for FDI flows alone: FDI figures may not show companies that have accumulated the the true value of investments by TNCs. their foreign operations. Though developing added. they retain in Part Two. It is from local partners. value where profits are healthy. (The countries cannot de-link themselves entirely role of TNCs in exports is examined separately from global economic fluctuations. service industries.1). and should see fresh inflows compared to world exports at $7. This privatization. in international production. profits and innovative activities.I. the issue is less whether affiliates in their host economies to produce at home or abroad and more where to locate their production facilities (and other The value of FDI flows is an obvious functions) for maximum efficiency. by region. increasingly globalized world. In an measure of the role of TNCs. where experience and capabilities needed to operate a ff i l i a t e s r a i s e f u n d s i n d o m e s t i c o r internationally. a jump of 55 per cent B. Most favoured host economies as a priority location in 2002-2005. It is. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table I. affiliates the globe as a borderless whole. 160).5 trillion and total sales at $18.4 trillion where conditions are conducive. Developments in compared to the previous year (JBIC.

There are. a leading contributed reinvested earnings in equal international diamond group. and the Government. suggesting that affiliates affiliates worldwide is estimated at 54 million rely more on parent firms.btimes. This apparent paradox arises from without an infusion of fresh capital from abroad. through a loan raised by the De no shortage of local savings.I. 8 July 1999. and this has grown exceptions. FDI may exceed accounting for more than half of total the value of assets in host countries when employment in manufacturing. and has been recorded as increased FDI place. world assets are significant in countries that have attracted of foreign affiliates are estimated to be three sustained FDI (for Asia. f o r t h c o m i n g a . Financing international production locally In the second half of the 1990s. see WIR94. http://www. only 40 per cent of the total value The project involved a total investment of some of the project was financed through FDI. Yet. of funds.7. Daily Mail and Guardian. On the other hand. “Botswana lends De Beers R455m”.1). It involved a doubling of the production inflows into Botswana. 160-161.4). regardless of the sources by local shareholders. 15 . Nearly one-fifth of the project limitations come particularly into play in was financed by a cash injection by the foreign developing countries like Botswana that have shareholder. a 50-50 per cent as FDI. is not recorded Debswana Diamond Company. b For more on this. see table I. “the biggest investment – that of De Beers – qualifies as capital project ever seen in Botswana” a took FDI. proportions. held by foreign affiliates are a reasonable indicator of production capacity. The ratio of FDI inward stock to assets of foreign affiliates is only one quarter to one And what of employment? While assets fifth in these economies (annex table A.htm. These by non-FDI means. they may In many host developing countries. In the aggregate. a “Debswana gearing up and up” Sunday Times. Botswana. see WIR99.CHAPTER I GLOBAL TRENDS inward stock 21 is considerably lower than debt by foreign affiliates. the capacity of the largest diamond mine at Orapa. They do not include financing This points to limitations of FDI inflows through loans by affiliates from local or as a measure of the growth of international international capital markets and co-financing production because. The number of employees in foreign differences are smaller.6). On the other hand. In $320 million.) While the number of assets to FDI resembling that of developed m a y n o t b e l a rg e i n r e l a t i o n t o t o t a l host countries (UNCTAD. Botswana’s total FDI inflows addition. Foreign to four times higher than world FDI stock affiliates are major employers in Singapore. in financial assets.za/97/0824/world/ world2. not be a good measure of their employment t h e t w o m a g n i t u d e s a l s o d i ff e r b u t t h e capacity. Assuming that both shareholders joint venture between De Beers. http://www. in 2001 (table I.co. 22 Hong Kong it is used for operating costs or to repay (China). forthcoming (a) employment in the developing world. (table I. the Government. that segment of Botswana’s economy that is part of international production has grown The Orapa expansion was financed largely more than is indicated by FDI figures. For example. b by parent companies in the form of loans or equity capital.1). The balance was account and high creditworthiness – and that provided by using reinvested profits. given that this 40 per cent represented (involving FDI by all foreign affiliates) during profits earned in Botswana and reinvested there its realization were only $290 million during by the foreign partner.7). with dramatically in developing countries. the methodology used to report FDI inflows. in joint ventures.za/ mg/ za/archive/99jul/08julpm-business. because the FDI inflows are a balance-of-payments assumption is that the foreign parent firm could measure. however. (For a high domestic savings rate. Malaysia and Sri Lanka have seen i n c r e a s i n g s h a r e s o f a ff i l i a t e s i n t o t a l Box I. but instead decided affiliates and the financing of these affiliates to reinvest them. Only the foreign shareholder ’s part in this re- S o u rc e : U N C TA D . shareholder. pp.html. Business Times.mg. Reinvested earnings are recorded in the balance of payments as FDI inflows. the project was undertaken 1997-2000. they and box I. Business. or when it is invested that of the total assets of foreign affiliates. a liberalized capital Beers Group from local banks. comprising reinvested earnings of foreign have repatriated the profits. which would also have large foreign affiliates participating otherwise have been distributed to the owners. has a ratio earlier figures. financing of the part of the project by the local owned and operated by a foreign affiliate.co.

2 11.... .2 25.9 43. . Significance of employment a in foreign affiliates in the manufacturing sector in selected host economies. .7 43. . .0 ...2 30.. ... .6 1.2 45.0 12. . . . . . ... .. United States 8. .6 45. 1985-1999 (Percentage) Economy 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Developed countries: Austria 32.....4 52. 22...2 14. . .. . based on UNCTAD FDI/TNC database (employment of foreign affiliates) and UNIDO Industrial Statistics Database (employment of all firms). . . ..1 15.8 .... . Data for foreign affiliates for Sri Lanka are approval data..3 7. o r n e t i n c o m e o f f o r e i g n foreign affiliates in value added.9 29. .3 ... 8. Italy .9 8. ... .. . .. .. 14. . . . 24.2 .. Hong Kong.4 39.9 35.2 . As far as affiliates...9 10. .. . . .. ... the share of employment in The ratio is two or higher in Ireland and foreign affiliates declined in Brazil and Mexico the Netherlands among developed economies.. on these show similar trends (tables I. 11. ..3 36. .. . ..0 ..5 ... . ..7 38....8 31. .. . .... .. . These countries also have high shares of P ro f i t s ...9 48. ..0 24.8.. .. Sweden . .5 59..9 7. .. . . . . . ...5)....4 58.8 53.3 22. a Defined as the number of employees of foreign affiliates divided by the number of employees of all firms in the manufacturing sector.... .. . .. Slovenia . .I.. Japan Norway and Sweden) to $270.5 15... Madagascar . 18... .5 34. . . . . Latin Foreign affiliates tend to have higher America is different. . . .2 19..8 28... .3 49.. ... .. ...7 13... . . .9 Solomon Islands . 6. . .. .5 11. .. . Taiwan Province of China 10.$70.9 34.6 . Finland.. . . . . .. .. ..7 12. . . Mexico 42... . In France the developing countries with the highest and Sweden. (Ireland) in developed countries.3 .. . 34... ....7 .. . Malaysia 29.3 14.... .. Ireland ..9 15.1 9. . Singapore and Taiwan Province not clear whether this trend has continued of China among developing ones (annex table as no data are available for the subsequent A. Sweden and the United Kingdom refer to majority-owned foreign affiliates only. .000 Other popular measures of foreign (Singapore) in developing countries.5 35. .8 11.8 32. ... .. . . . .. .. .. . ... .. ..7 36. .. Nepal . . .7 12.. 14...8 10.. . . . ..... According to data on manufacturing sales. . .8 .8 12.. ...7 24.7 1. .. .4 1.6 36.... Notes: Data for the Netherlands.0 39. 7..6 16.7 34... 88..5 18..3 26. .4 . ....8 9. . Sources: UNCTAD.4 13..7 13... France .. . 16 . .3 34.6)... net income are not necessarily the same as Table I. ..3 22.. . United Kingdom ..1 55.1 14.1 37. . .. .0 56. ...7 10. Turkey .8 14.5 13... . ... ... .7 36. . .1 41. .6 11..7 58...8 55. ..9 27. and activity are sales and value added.0 13. ...6. . .2 16.. .. . though it is and in China.1 .. Sri Lanka 19.. .5 . 13.3 . China 10.. ... . .6 41.. .9 19.. 1.5 34. .9 13. 13. . Countries Ireland..... .2 1...3 16. .1 56..9 26.9 28. .6 . World Investment Report 2002: Transnational Corporations and Export Competitiveness employment over the past decade..... 23 Data from $60.. . ... .9 27.. Reflecting relatively labour productivity (as measured by value low FDI inflows during the 1980s and the added per employee) than domestic firms. .0 .2 15.. . .3 .0 33.. ....6 13. ... 15.. .9 ... .. .3 1... . .8 9.. .9 .. .1 54.. Developing economies and countries in Central and Eastern Europe: Brazil . The growth of sales by foreign than in local firms. . .... 3..3 1..2 19.. 22.. ....7 .. . .3 10.....8 .0 13.. . . . . .000 (France.. . 3.5 . . .. .. In the late 1990s.000 . 24.7 14..6 1. .. . .9 13. .. employees of foreign period. Germany .. 5.0 11... . 17.. Norway . . . is another useful measure of the affiliates in developed countries are concerned.2 43.. . 4. Singapore 55. . . .. .3 35.7). affiliates in China is impressive (table I. ..7 39...4 . .8 30.000 I..6 28. . .8 59.5 33. .3 20....000 (China) to $120. . .....6 1.. . . Portugal .. 24 early 1990s.9 37.5 . . the Netherlands and Sweden score with a higher share of foreign profits or high.. .. 13.. ....6 23.. ...7 24... . . Finland .8 35.9 9.1 . role of TNCs in host economies.3 1. Netherlands . 1.. Viet Nam ..8 .5 .. .... affiliates in manufacturing generated value added ranging from $7. . .. Japan . Indonesia .7.1 13.. during this period (table I.. .4 .7 .7 26.2 9. .8 . 25.. . ...... .6 36.6 ..5 18.. ... .. . . .4 1.0 59.. . labour productivity in shares of foreign affiliates are Singapore manufacturing was lower in foreign affiliates and Malaysia.

..7 6.4 26.3 23.. .. .. .7 .. . .0 22.3 20.6 44..6 75.3 15..5 3.. 6.. . .. . a Defined as sales of foreign affiliates divided by sales of all firms in the manufacturing sector. . Netherlands.. .5 44.2 2.. foreign affiliates play an insignificant role in Japanese affiliates in the United States do not earn production. .8 .5 10.. . ... Japan .. .. Table I.9 55. .. .1 56.....1 24.. Developing economies: China ... .4 6.8 25. 28..4 74.3 1... . . 3.8 .8 35.3 .. Finland ..6 17. ...8 21. .0 . .....6 0. .. Ireland 50...3 3.7 .1 19.. .3 7.7 13. . .7 .4 1. . ... .. United Kingdom . .. .7 4. a Defined as value added of foreign affiliates divided by GDP. ..0 40. .5 . 16... .5 18..3 11. .5 17..5 58. ......0 17.9 ... . Ireland. ..6 65.1 24... ..0 55. 7....0 3. Slovenia .. Developing countries and countries in Central and Eastern Europe: China ... based on UNCTAD FDI/TNC database (employment of foreign affiliates) and UNIDO Industrial Statistics Database (employment of all firms).9 6. 4.6 26.3 4.5 23... . ... ..0 5. .3 Hong Kong....8 76... ....... those with a higher share of foreign value in Japanese profits.. . .3 ....1 26.8 40. . .3 5.... . ....9 ...5 . .. . Taiwan Province of China 12. . .. .3 14. ..0 27.. .. . 25. 11.. . .1 76. ... Portugal . Norway and the United Kingdom represent data for majority-owned foreign affiliates.....1 20. .1 3. .4 6. .. ... .9 1. . ... based on FDI/TNC database (value added for foreign affiliates) and UNCTAD secretatiat (GDP).0 15. 26.. .2 66..5 75..4 73.1 . ... 9..6 23.. .2 22. . .6 6. .. .5 .. .5 . they play a more significant one as much as domestic firms and account for 17 .6 4. . ..1 17.6 13.8 35.1 . .5 5..6 0. ...8 75. .4 5.4 4... ..4 4. . . 20. .3 11. . .9)... 1.. .8 ..2 74. . . .2 ... . Malaysia 15.0 9.. .0 . .9 11. . .. .6 29....8 38.1 .....9 .. an interesting divided by sales) of foreign affiliates in contrast between Japan and the United States Japan is twice that of domestic firms (Japan. . . ... . . . . .1 . .. in this respect (figure I..4 25... .1 9.. . There is. ..2 25.7 21.1 .8 19.4 .. 1985-2000 (Percentage) Economy 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Developed countries: Austria ..6 0.. Netherlands 38. 24. .. . .. ..5 6...3 .1 . Significance of value added a of foreign affiliates in selected host economies. .. . . .... .6 50. . . .8 3. .6 20.1 5.5 15. .4 15. .3 61. . .. .5 .3 16. for example..3 19.. . 2.. 4. .2 76.. . Norway . United States .. . ... . . Sources: UNCTAD. . United States 10. .1 8.7 4. .8 30. . 3..4 1. .. .1 .. .. .5 1. .3 25..7 76....1 16.8.1 6.....4 1. Sources: UNCTAD..5 17. Ireland 19. ..2 30. . .0 . .3 26. .. ..8 .1 35.. .4 Viet Nam .9 ... .1 2.. .2 50..4 47.6 .1 18. France .3 2.8 4.1 9..2 .. .4 5. .. Japan .. 7. . .3 74. .0 16.2 13.. Turkey . .. .... .2 .3 1. .6 12.6 48..2 20. Portugal ...8 . ... 1985-1999 (Percentage) Economy 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Developed countries: Finland . .. .. .. 6.1 0. .0 52. ..0 34. . .. ... Notes: Data on value added for France. .8 5. .... .2 4.... .3 5. ...8 25........0 16. .5 . 1. .9 3... . .. . 46.5 15... . 25. .... . . 3.1 3. ... . Czech Republic .. 9.. 8.3 . .0 81... United Kingdom . Significance of sales a of foreign affiliates in manufacturing in selected host economies....0 17. ...3 27.. ... . . . ..... .. . Netherlands . . .... .2 India 1. . Hungary . 26. .. 21. .9 75..9 18.... Although foreign METI.. . .. .0 30. .7 12.1 37.4 4.4 16. 24... the profitability (profits added... . .0 53. .. . . .. .8 . Sweden .7 16. . .. ... . 28.. . .8 39.7 13. . 2.1 18..1 45. ... India . China 20..4 4. .... 25... ... . . . . Germany .... ..0 3..2 54. Sweden .. .0 6.4 69.5 . .0 12. . .. ..1 11. Malaysia 34.0 4.9 75. 0... Singapore 72.. .. 4.0 16.CHAPTER I GLOBAL TRENDS Table I.6 20...2 4..5 .4 18. . .... .6 24..3 5.... ....3 22.7 31.8 44..9 .2 . 1.. . . 6. ..8 15. . . ..4 . . On the other hand.2 4. 5. ..9 3. ..1 23. .. .0 24. 10. .4 11...7..7 Estonia . . .0 1. ... . . .6 52.5 26.. . ... 2001b). .. Italy 17. .7 74.0 36. ..5 12.2 26.6 31.7 43..

. by foreign affiliates. 2. 12... . .. . Finland ...4 .6 36. ..g. 18 .. .. 14. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure I.. . ... ... seem to be the case (WIR94). ..3 37. 1983-1999 (Percentage) Economy 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Developed countries: Canada . R&D can contribute to other measure of the significance of foreign capacity-building in host countries and provide affiliates in the United States.. .... .9.. ..2 14.9..0 9.. .2 0.. ..3 32. . 34... 29.. . As the Table I. . in the United States).. . ..2 6. .8 .. This does.. .. . . . .9 .. .6 41.... . 13. . Sources: UNCTAD... However..5 0. . ..6 1.. based on UNCTAD's FDI/TNC database (profits of foreign affiliates) and UNIDO Industrial Statistics Database (profits of all firms).6 6. .2 . . 7.... ..2 . especially in very competitive markets with low country- risk (e.6 1. their share in production.....6 37. there are wide variations: foreign affiliates accounted In general... .2 ... . 11..4 7. . 1989-1999 that employees of foreign affiliates are better (Percentage) paid than those of domestic firms..0 10.8 . ..4 ... ... In developing spillover benefits to local researchers.4 0.. . . .... also possible that.. Transfer pricing may also play a role..7 ..4 13. . . .9 2. ... . indeed... . .. .... .. ... . .6 0. United Kingdom 13. . France . . . 8.. . According to the scattered data available.. . however.2 . . .7 ... FDI/TNC database.... ... .. Japan ... ..8 . Developing economies and countries in Central and Eastern Europe: India .4 37. .1 . Profitability a of foreign difference between value added and profits affiliates operating in Japan and the is mainly wages and salaries.4 1. . . TNCs are willing to settle for lower profit margins. ...9). . The affiliates are engaging in complex and high- profit share is considerably lower than any value functions. 1.6 8.6 13.. ...7 40.1 11.. . a Defined as profits of foreign affiliates divided by profits of all firms in the manufacturing sector.7 Taiwan Province of China 3.. . ... It is.7 0. United States ..7 33..... . this suggests United States. ... However...7 0.. Singapore 22.7 1. . ... . .2 38... . . . . Reinvested earnings and profits of foreign affiliates vary from year to year.3 ..8 0. .. The presence of research and development (R&D) can signify that less than 1 per cent of total profits. . ..7 . ..2 2.5 5.. .. Mexico 12.. 0. . . .... .. ...5 3. .9 12. .. .3 5.5 0.. as part of them is often used for reinvestment.. . . the share of foreign affiliates for 2 per cent of R&D in Japan and 66 per in host economies is lower in terms of profits cent in Ireland in the late 1990s (table I.. . . . .9 1. countries such as Mexico and Singapore..9 0. ... ..7 40.6 39.7 12.5 42.1 39. ... .. Netherlands . Significance of profits a of foreign affiliates in manufacturing in selected host economies.7 4.0 5... . .5 56.. . High or low profits of foreign affiliates affect the volume of FDI flows.. ... . .1 12. ..0 14. ..7 . . .4 1. Slovenia .4 7. a international production is innovative activity Defined as profits before taxes divided by sales.. ...5 . ..4 . . .10). . . ... ..7 19. . .. there seems to be no strong relationship between reinvested earnings and the level of net income of foreign affiliates (figure I.5 7. .7 2.10).. . . . 0. 14. . . Malaysia 9. 41.. foreign affiliates account for a fairly large the share of foreign affiliates’ R&D in the share – more than one-third – of total profits total R&D of host countries is lower than in manufacturing (table I..... Sweden 4.4 0. Another important aspect of Source: UNCTAD.7 0.. .7 42. . Norway . than in terms of other variables. .5 .3 30.

..6 ...10. 65. .. .. .2 26..4 32. .3 78. . .1 29. Ireland ..2 17..... 0. affiliates in Hungary and Taiwan quarter of total sales generated by the foreign Province of China also accounted for a high affiliates of United States and Japanese TNCs. 32. Developing economies and countries in Central and Eastern Europe: Czech Republic .7 15.. . UNCTAD's FDI/TNC database and World Bank. 16.6 . .3 0. .. .. 2001b. ... 20. share of R&D – over 50 per cent... . .. . domestic patenting was over half in the early 2001).. 1998).7 6.. . . . .. . Department of Commerce...0 Spain .... 1.. 3..7 .4 0. .. . .. ...7 34.. ..4 18. . . Japan .7 10. . A successful in attracting R&D by TNCs broader coverage of data is available from (WIR01).1 16... .... .. based on OECD 2001a. .8 . . 13... . .. 6.6 10.... .6 34.7 31. MITI...10..7 . .. .4 12. The share of R&D conducted abroad which reflects better their pattern of R&D by parent firms varies widely by home country. ...7 . Belgium. Turkey .0 26. . .. .... 28. 26... ...2 30..0 .. Finland . .0 13. .1 . 71. Significance of R&D expenditures of foreign affiliates in selected host economies.2 14. 18.. . ..6 21..5 0. ..4 0. Table I..... Greece ...9 17. . with other developed countries ranging in in 1995 (Japan.8 .. patents taken out internationally (in the United States) by parent companies and affiliates.. . .5 30.. these trends are not representative most other developing countries were not of other developed countries (WIR99).. .. 1986-1999 (Percentage) Economy 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Developed countries: Canada . 25 The patent data show that. In developing and transition can be compared with the one-third and one- economies. . These shares between. . 0... . Comparison of reinvested earnings of FDI inflows and profits of foreign affiliates in the United States.1 24...3 1.. Taiwan Province of China 28..0 29. ..8 3.7 18. .. . . .8 44.. ...6 .. .. .. 16..9 52. . ..9 . India .. .. .. . .. Portugal .....1 13.5 65. . 1983-1999 (Billions of dollars) Source: UNCTAD.8 21. 35. 22.. spending. in In the United States. .9 1. . . 31. .1 23. .9 France . .9 33.0 1.5 .. .. . . . . Sources: UNCTAD.. . . 14. ..3 13. ..2 United States .3 29. .4 ..4 18. the ratio of overseas to 1998 (United States. . . .1 32.. . .CHAPTER I GLOBAL TRENDS Figure I...5 1. . ...8 Sweden . 2. . 14. However....3 .. . in Japan. . . . 87 per cent of the smaller countries (e. ..9 1.4 65..5 . . ...3 12. United Kingdom .6 .. table 59.8 29.. 64..2 14.4 Hungary . . .g. . ..... the Netherlands R&D by TNCs was conducted at home in and Switzerland). . .... . ..7 29. ......4 0.4 . . . .. ..6 21. Netherlands .4 3.. 12. .... .... . ..1 31.. Notes: Data refer to R&D expenditures of foreign affiliates as a percentage of R&D expenditures of all enterprises. the figure was 97 per cent 19 . FDI/TNC database.. . .2 ... . .3 2... However.5 .. . .. ..

4 billion during the first quarter only) and $21. see percentage of total employment. The ranking of some economies based on the Transnationality Index is significantly 2. It attempts 42nd). 1982 (by $10 billion or 15 capital base – corresponding to larger FDI per cent). apart from (11. Even the United Kingdom. Honduras (ranking 13th and in which TNCs operate (WIR99).6 billion).6). The Transnationality Index of different from their ranking based on the FDI variables alone.8 billion for Mexico Tobago and Nigeria. This suggests into consideration both the production potential that foreign affiliates in these countries use created through inward FDI and the results more resources than those provided by parent of this investment. had is higher for developing (19.3 billion for the United States The world’s most transnational host ($22.I. In general. $15.4 billion). CEE now includes all countries of former Yugoslavia. 1985 (by $2 billion or 4 per cent) and 1991 The last two shares capture the significance (by $43 billion or 21 per cent). operations in a host country: • FDI inflows as a percentage of gross Notes fixed capital formation.1 billion for 9. Kingdom (27.7 billion for Japan Transantionality Index of these 74 countries ($14. $14. are made to the country composition in each • value added by foreign affiliates as a group of economies.I.0) and for CEE and Sweden 42 per cent. Greece (ranking 35th and 59th.0 billion) and $24. 1982 (by $25 billion or 47 per cent) in a country. Denmark (ranking 18th host countries among 74 countries by the Transnationality Index as opposed to 38th by the FDI shares This index was developed by UNCTAD only). $6. The transnationality index firms and/or generate more employment and for a country is based on two FDI variables value added per unit of resources than do and two variables related to foreign firms’ foreign affiliates in other host countries. a larger the average index. $24. The low index number for CEE reflects Japan and the United States.0 billion). 2 All FDI figures in WIR02 and previous WIRs The simple average of these four shares are in current prices. taking 69th) are typical examples. 1 • FDI inward stock as a percentage of Starting with this year’s Report. and Malta is grouped • employment by foreign affiliates as a with developed countries.6 billion for the United are in Latin America (figure I. $14.3 billion it is calculated was 24. by group of economies.7 billion for the United Kingdom countries with a high Transnationality Index ($24. 4 FDI outflows in the first four months of 2002 two variables of the 74 countries for which were: $0. $20 billion for the United was 16. – indicates the potential to produce more.11). followed $6. world inflows and outflows would be two shares indicate the importance of inward $872 billion and $736 billion.7 billion for Brazil ($6. 1983 (by $8 billion or 13 per cent).7 billion than the average of the last two which was for France ($24. Thus.6 billion for China 20 . Trinidad and same period of 2001). and is now included in Africa. 3 FDI inflows declined in 1976 (by $6 billion FDI flows and stocks in an economy.2 billion). to compare the transnationality of countries respectively).0 in 1999. The first year).8 billion during the by Belgium and Luxembourg. it continues to be undertaken in other industrial countries. World Investment Report 2002: Transnational Corporations and Export Competitiveness 1990s. In constant prices (using results in the Transnationality Index of a the world import prices of 1995 as the base host country (annex table A. although most of to foreign investors only in the 1990s.2).9 billion during the first quarter only). 1980 (by $9 billion or 15 per reflected in more activities by foreign affiliates cent). A larger or 24 per cent).5 in 1999) than a ratio of 56 per cent.9. $2. respectively. some changes GDP.8 billion for Germany ($9. TNC R&D is the fact that this region opened its markets quite internationalized.4 billion). 5 FDI inflows in the first quarter of 2002 were economy is Hong Kong (China).8 (annex table A. The average Italy ($5. Similarly. For details.6). States ($42. The average value of the first and 1991 (by $35 billion or 15 per cent). Spain (ranking 33rd and 48th) and to measure the transnationalization of economic Taiwan Province of China (ranking 60th and activity of host countries in real terms. The two sets of variables outflows declined in 1974 (by $2 billion or are correlated: high FDI shares are normally 6 per cent). Germany 21 per cent for developed countries (18. South Africa percentage of GDP. the definitions and sources in Annex B. Regionally most host ($3. but highly internationalized economy. higher during the same period of 2001). of foreign affiliates.

Sweden and United Kingdom refer to majority-owned foreign affiliates only. Norway. Japan (1998). Swedish. For other countries. Netherlands (1996). Sweden. Croatia. Malaysia (1995). Indonesia (1996) and Singapore. and employment of foreign affiliates as a percentage of total employment in 1999. see annex table A. France (1998). Japan (1998). Portugal.5. b 1999 (Percentage) Source : UNCTAD estimates. value added of foreign affiliates as a percentage of GDP in 1999. Finland. Ireland. Italy (1997). United States. data were estimated by applying the ratio of value added of United States affiliates to United States outward FDI stock to total inward FDI stock of the country. United Kingdom (1997). Netherlands (1996). Poland. Swiss and United States affiliates to Finnish. Singapore and Taiwan Province of China (1994) . German. Italy (1997). 21 . India (1995). United Kingdom (1997). German. Hungary and Slovenia. Belarus. Netherlands. Transnationality index a of host economies. Norway (1996).11. Portugal (1996). For Albania. France (1998). Sweden. Lithuania. Swedish. Data for France.I.CHAPTER I GLOBAL TRENDS Figure I. Estonia. b Only the economies for which data for all of these four shares are available were selected. data were estimated by applying the ratio of employment of Finnish. United States. Ireland. the Republic of Moldova. Hong Kong (China) (1997). Germany. Data on employment are available only for Austria. Data on value added are available only for Finland. 1997-1999. the value added of foreign-owned firms was estimated on the basis of the per capita inward FDI stocks. Japanese. China (1997). Japanese.I. Swiss and United States outward FDI stock to total inward FDI stock of the economy. see annex table A.3. a Average of the four shares : FDI inflows as a percentage of gross fixed capital formation for the past three years. Norway. Denmark (1996). the employment impact of foreign-owned affiliates was estimated on the basis of their per capita inward FDI stocks. With the exception of the Czech Republic. For other economies. For the benchmark data. Ukraine and Yugoslavia. Bosnia and Herzegovina. FDI inward stocks as a percentage of GDP in 1999. For the benchmark data.

75 . 24 Labour productivity can reflect many differences Financial Times. respectively in 2001.9 + 0. respectively R 2 = 0. is based on data on FDI covering all of Africa. compared with GDP. UNCTAD’s estimate for developing countries 9 For a detailed account on trends in cross.g . border M&As and their impact on economic Asia (except Japan and Israel).5 billion for the first four months). The other components 2000. in interpretation of the concept (unlike sales. in 2001. 4. while that for CEE is based communications industries. adjusted R 2 = 0.2).0251(GDP). 30 January 2002). storage and and New Zealand). 10 December 2001.3 billion for the first comparison. 2001a.7 billion during the first six months). 13 For example. see “Definitions and 11 Data from the UNCTAD cross-border M&A Sources” in annex B. the Tokyo affiliates’ employment are overestimated as Stock Exchange and the stock exchanges of they are figures for cumulative (potential) Frankfurt. it can be 1998. For details on the nature of the data. pp.2 billion for France ($12. Communications (United States) and Vodafone 22 . when the growth rates are strongly affected by the geographical coverage of the world economy were low.3 during 1971. affiliates. appropriate sales data affiliates in the United States and Europe with do not exist to measure the size of foreign funds raised through stocks and bonds in 1998 affiliates’ activity in the services sector (e.8 billion 1980 to 39 per cent during 1981-1982. see WIR00. By billion for Germany (-$0. was worth “only ” $29 billion (annex table 6 The correlation between the FDI growth rate A. 2 October 2001.I.55. a simple regression of FDI – net portfolio investment flows and other inflows against GDP during the same period net private capital flows such as bank lending is as follows: – were projected to be negative in 2001.0. 2000 and (or net addition to production). the Institute of International Finance from an average of 22 per cent during 1976. Nihon Keizai employment in approved FDI projects. (Japan. 166-172). the largest cross-border four months). scale economies. Similarly. border M&As declined from almost $366 billion 20 The survey covered 501 respondent in 2000 to just over $121 billion in 2001. capacity utilization. and in 2001 and $117. (For details. On 14 The data cover completed cross-border M&A the other hand. $148. For of developing countries in world flows rose: example. Latin America development.9). affiliates in total employment is higher in Sri 12 The six major stock exchanges are the New Lanka than in Singapore. the share of estimates made by different sources. $15. manufacturing firms. which can be operating revenues. 1998. in the transport.6 deal (the acquisition of VoiceStream (United billion for the first four months) and $6. the ratio of FDI to GDP or net sales).4 billion States) by Deutsche Telekom AG (Germany)) for Japan ($11. (see WIR98). the NASDAQ. World Investment Report 2002: Transnational Corporations and Export Competitiveness ($20. 18 Flows are netted out. 2002).1 billion in 2002 in direct from 18 per cent during 1986-1990 to 31 equity investments for 29 emerging countries. and the Caribbean.3 per cent. $9. intensity.8 per cent and outputs minus the inputs that firms purchase 2. 16 “M&A volume down almost a half in 2001”.5 billion in 2000. This figure represents deals concluded 22 Although the share of employment of foreign through the exchange of shares. billion acquisition of Mannesmann (Germany) extent of vertical integration and so on. in 2000 to about $5. As value added is the value of worldwide was 2. London and Paris.) database. from about $25 billion in foreign affiliates held by parent companies. Japanese TNCs financed some 23 While sales data are more widely available 30 per cent of capital expenditures in their than value-added data. per cent during 1991-1992. value-added data do not suffer deals involving more than 10 per cent equity from measurement problems. some Shimbun. which include seven countries in CEE (see 8 This is what a number of Asian countries did IIF.4 per cent. t-value of GDP coefficients = 6. $30 billion and -$114 billion. by VodafoneAirTouch (United Kingdom) in 2000 25 The data for 1991-1995 are taken from Cantwell and the $60-billion deal of AirTouch and Janne. on all economies of that region. estimates $132. and Oceania (except Australia 10 For example. or from differences only.7 billion in 2001 (annex plus loans by their parent companies to the table B. (IMF. - FDI inflows = -190. other than efficiency between firms: capital 17 Some prominent examples were the $200. 19 Figures for FDI flows to developing countries 7 In earlier years as well. see “Definitions and Sources” in annex B. of which have not been realized. and in the motor vehicle and other transport 21 Defined as the total value of equity and reserves equipment industries. wholesale trade. financial institutions). “Capital flows to emerging market in partial response to the Asian financial crisis economies”. METI. the value of cross. total revenues 15 In comparison. In comparison.3 Group (United Kingdom) in 1999. Sri Lanka’s data on York Stock Exchange. and the GDP growth rate was 0.

Since havens. Comparisons with similar economies financial support or well-developed supplier are a good indication of how well countries clusters. Some take into account the size of the host economy. with the regulatory regimes. mega M&As involving foreign FDI it will get. to attract FDI: the UNCTAD Inward FDI They may have exceptionally welcoming Potential Index. However. and human resources. of inward FDI performance. massive inflows in relation to their size.1). Or they may have privileged access are doing against the competition. receive FDI exactly in line with their relative economic size. 1 ends up with a sample of 140 countries) and This chapter simplifies and revises that index. Countries with an index value of one 1998-2000. countries may have “lumpy” inflows for short It is a reasonable assumption that the larger periods. CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL A. n a t u r a l r e s o u r c e s . say because of newly discovered the economy (as measured by GDP) the more resources. To offset these problems. industrial competitiveness. this does not overcome Performance Index. There investment. capabilities. countries attracting FDI is now an important policy with index values below one may suffer from concern for countries at all levels of instability. One simple way to benchmark FDI The Inward FDI Performance Index performance is to compare the absolute values should be treated with care as an indicator of inflows or the shares of FDI in national of countries’ inward FDI positions. while or a favourable location for exporting to large comparisons with better performing economies markets. ample and economical skilled Benchmarking national economies is l a b o u r. It is more interesting to assess investors or large privatizations. and so on. natural GDP changes. 2 Tax havens will tend to show annex B). The Inward FDI all the difficulties. the FDI policy may change ranks if their share in global regime. advanced infrastructure. uses data for three-year periods rather than r e n a m i n g i t t h e U N C TA D I n w a rd F D I a single year. or have efficient that can affect FDI (figure II. political . as noted in the discussion Performance Index is the ratio of a country’s below. Economies how successful an economy is in attracting that have been relatively isolated from FDI after taking size into account. On the other hand. it is useful to develop benchmarks or competitive weaknesses in their economies. This can international capital flows and have recently implicitly capture the effect of other factors opened up may also get a substantial wave to which foreign investors are sensitive: political of FDI. the coverage WIR01 introduced an Inward FDI Index of the Index excludes most tax havens (it to benchmark success in attracting FDI. poor policy design and implementation development. Introduction and methodology and low-cost business environments. be very well managed available data. Social. to capture the host of factors in macroeconomic terms. Countries with an index value WIR02 also constructs an index to greater than one attract more FDI than may rank countries according to their potential be expected on the basis of relative GDP. They may offer other competitive attractions: good growth prospects. The World Investment Report are problems in compiling and comparing FDI has long provided such data (see tables in inflow data. g o o d R & D now an important tool for policy-making (Lall. and the like. These comparisons do not. It is not possible. The Index is calculated for two periods share in global FDI flows to its share in global spanning the past decade: 1988-1990 and GDP. however. efficient 2001b). Even countries with steady FDI inflows and macroeconomic stability. or serve as entrepôt bases or tax can show where to head in the future.

decisions depend also on the perception of individual TNCs. World Investment Report 2002: Transnational Corporations and Export Competitiveness and institutional factors are difficult to quantify use per capita. 3 The variables are the their size (taking a broader median FDI rate of growth of GDP.000 inhabitants. telephone lines 43 countries that get more FDI than expected per 1. Figure II. used to benchmark the skill base. Host country determinants of FDI Source: UNCTAD. a brief description to foreign investors – are also difficult to and sources of information for these variables. p.1. commercial energy given their size. It is particularly difficult in gross national income. 24 . The exercise is more or the efficacy of support institutions are modest: to provide useful data to policy-makers even more difficult to measure. it is still useful to benchmark the key measurable factors (apart from the The Inward FDI Performance Index size of an economy) that are expected to values for countries vary widely (table II. There are 31 countries index is then an unweighted average of their for which FDI is more or less in line with normalized values. per capita GDP. cannot capture the availability or quality of specific skills. benchmark. construction of the FDI Index values of one (whose inward FDI Potential Index settled on eight. 1988-1990 and 1998- on enrolments in formal education. The UNCTAD Inward FDI with data based on past performance. affect inward FDI.2 to 0. 91. Performance Index ranging from 1. Finally. WIR98.8). After examining a large There are nine countries with FDI Performance number of variables. share of R&D expenditures at the national level. Note that these two indices are not There are similar problems in comparing intended to provide a full-blown model of technological capabilities or infrastructure. and country implemented. Many economic and risk. for instance. share of exports in GDP.1). The annex to this chapter gives the competitiveness factors – of the type relevant rationale for their inclusion. generally 2000. Take. and this may be at variance B. Performance Index This said. the skills The FDI Potential Index is also calculated available for manufacturing or services. the final matches their size). share of tertiary to compare how efficiently policies are students in the population. and 66 that get less. Data for the two periods. FDI and analysts on relative performance. FDI location or to measure the impact of Such factors as the strength of local suppliers FDI on host economies.

3 106 43 0.5 11 2 15 0.289 26 65 Lebanon 0.3 11 3 107 0.7 107 79 0.1 71 4 0.5 -0.2 72 19 0.1 0.4 0.223 0.8 62 12 0.8 13 1 0.2 1.524 17 23 Azerbaijan 9.7 1.266 103 76 Botswana 2.5 1.179 11 0 11 7 Greece 1.0 1.0 14 55 0.462 28 28 Bahrain 1.377 0.2 79 11 5 0.251 59 84 Colombia 0.191 0.224 0.5 21 91 0.186 0.391 47 37 Ethiopia 0.553 13 19 Gabon 1.520 0. Republic of 0.1 0.1 129 3 0.218 85 95 Lithuania 1.6 7 32 0.9 13.265 83 79 Japan 0.5 30 94 0.412 0.2 61 47 0.414 40 35 Guatemala 2.162 130 128 Belarus 0.1 0.188 0.170 71 123 Australia 2.629 2 5 Chile 3.3 0.085 131 138 Congo 0.3 1.CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL Table II.510 0.315 0.7 2.312 0.185 11 2 11 3 Cameroon -0.9 4 2 0.9 34 62 0.2 1.8 0.0 17 21 0.0 0.6 0.517 0.198 0.615 10 8 Dominican Republic 1.165 0.097 0.441 0.278 102 69 Ireland 0.137 0.253 81 83 Gambia 1.9 1.1 82 48 0.357 48 42 Iceland 0.8 60 69 0.4 104 98 0.2 2.5 44 96 0.195 107 108 Croatia 0. 1988-1990 and 1998-2000 a FDI Performance Index FDI Potential Index Value Rank Score 0-1 Rank Economy 1988-1990 1998-2000 1988-1990 1998-2000 1988-1990 1998-2000 1988-1990 1998-2000 Albania 3.0 0.0 1.098 0. Values of and country rankings by the UNCTAD Inward FDI Performance Index and Inward FDI Potential Index.0 49 53 0.0 0.154 0.129 0.0 3.305 36 58 Belgium and Luxembourg 3.260 49 82 Kenya 0.5 20 13 0.5 1.558 19 18 Kuwait 0.301 0.332 0.547 9 20 Ghana 0.166 105 126 Argentina 1.358 0.171 0.151 0.150 0.464 23 27 Jamaica 1.168 120 124 Korea.9 81 22 0.388 0.8 2.604 12 9 India 0.9 1.181 99 11 5 Canada 1.269 0.140 58 134 Germany 0. Islamic Rep.424 35 33 Bulgaria 0.7 5.8 1.516 0.0 0.4 1.5 1.4 0.204 96 104 Indonesia 0.458 0.207 91 101 Costa Rica 2.6 63 138 0.2 134 11 8 0.141 0. 25 .297 109 62 Libyan Arab Jamahiriya 0.242 69 88 Congo.2 0.304 29 59 Madagascar 0.1 45 125 0.4 2.172 0.342 56 47 China 0.1 0.0 0.0 124 132 0. of the -0.316 65 56 Côte d’Ivoire 0.174 64 121 Bahamas 0.6 46 30 0.216 76 96 Angola -0.213 0.301 87 60 Kazakhstan 3.7 98 75 0.3 74 106 0.189 73 11 0 Iran.133 139 136 Honduras 1. Rep.475 0..4 0.3 0.325 0.086 0.3 31 40 0.9 0.207 97 100 Algeria 0.4 0.1 111 50 0.3 2 16 0.449 0.2 11 6 11 6 0.0 0.121 0.7 96 77 0.2 41 45 0.5 56 33 0.3 0.3 0.0 5.414 30 34 Czech Republic 2.4 35 102 0.7 33 26 0.287 90 66 El Salvador 0.5 11 8 97 0.4 89 99 0.4 0.9 1.203 11 8 106 Guyana 0.1 102 124 0.8 -0.282 0.324 0.3 15 17 0.4 48 37 0.155 0.186 0.179 0.380 31 39 Denmark 0.165 0.297 0. China 5.9 101 64 0.9 1.199 0.139 82 135 Latvia 4.274 0.346 41 45 Brazil 0.3 29 109 0.9 1.6 0.2 3.234 125 91 Guinea 0.4 0.2 0.9 0.586 7 14 Jordan 0.342 0.328 80 52 Ecuador 1.2 121 11 9 0.0 135 135 0.234 0.1 1.6 22 88 0.9 0.250 75 85 Georgia 0.203 0.110 0.4 5.6 1.618 0.6 97 86 0.8 0.203 106 105 /.1 0.317 72 55 Armenia 0.1 6 49 0.164 0. Dem.235 0.7 65 27 0.3 2.599 25 11 Israel 0.557 0.209 0.0 51 61 0.3 126 111 0.5 122 90 0.0 54 10 0.5 1.331 0.301 0.8 2.425 61 32 Kyrgyzstan 3.351 127 43 Haiti 0.154 0.1 0.8 1.8 23 71 0.4 88 36 0.430 33 30 Bangladesh 0.171 135 122 Finland 0.239 0.140 0.2 1.4 0.160 134 130 Bolivia 1.5 0.182 0.559 0.1 11 7 126 0.184 121 11 4 Malawi 1.204 0.1 128 131 0.516 0.321 39 53 Burkina Faso 0.150 0.604 11 10 Benin 2.5 0.127 0.1 86 136 0.6 32 31 0..531 24 21 Italy 0.241 70 89 Brunei Darussalam 0.3 3 8 0.2 90 11 7 0.110 0.3 95 42 0.065 0.1.3 1.199 92 107 Egypt 2.589 21 13 Hungary 5.127 0.085 0.8 100 70 0.343 68 46 Cyprus 1.8 67 24 0.218 0.1 127 122 0. of -0.6 0.5 0.6 93 87 0.1 125 128 0.1 137 120 0.9 0.204 0.0 24 56 0.232 101 93 Hong Kong.1 0.626 6 6 France 0.6 12 81 0.229 0.7 2.569 15 16 Austria 0.332 11 9 49 Estonia 9.171 0.

2 0.111 0.6 0.269 54 73 Viet Nam 1.5 133 92 0.250 78 86 Thailand 2.177 95 11 9 Trinidad and Tobago 2.254 0.078 129 140 Singapore 13.228 123 94 Ukraine 0.279 98 68 Nepal 0.320 93 54 Taiwan Province of China 0.1 57 6 0.201 0.3 92 105 0.8 68 67 0.1 73 129 0.559 14 17 United Republic of Tanzania 0 .478 0.649 0.6 -1.608 0.444 0.225 0.163 126 127 Netherlands 3.275 79 72 Uganda -0.0 132 58 0.530 18 22 Romania 0. Republic of 1.278 77 70 Moldova.7 0.8 136 73 0.411 43 36 Qatar -0.277 11 5 71 Ye m e n -0.251 0.192 0.291 0.178 137 11 8 Myanmar 1. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table II.315 94 57 Sweden 0.592 8 12 New Zealand 4.560 0.285 0.072 0.2 0.4 85 103 0.110 0.361 44 41 Slovenia 0.090 0.139 0. Lithuania.650 3 2 Switzerland 1.5 0. 1990-1992 for Slovenia.3 19 7 0.216 132 98 Zambia 4.134 0.1 0.268 86 74 Turkey 0.306 0.7 -2.8 27 11 0.237 88 90 Mozambique 0.4 1.265 111 78 Poland 1. 1991-1993 for Mongolia.6 1.1 1.6 78 83 0.3 108 104 0. Notes: The Inward FDI Performance Index for 1988-1990 for some countries refer to periods different from 1988- 1990 as follows: 1989-1991 for Myanmar.5 40 35 0.196 0.235 0.0 130 59 0.4 43 39 0.329 50 51 Portugal 3.1 69 121 0.0 64 57 0.451 0.220 0.094 136 137 Saudi Arabia 0.0 0.4 4.6 39 89 0. Values of and country rankings by the UNCTAD Inward FDI Performance Index and Inward FDI Potential Index.0 1.3 87 108 0.0 3. 1993-1995 for Croatia and Kyrgyzstan.233 0.641 16 3 Slovakia 1.263 100 80 Paraguay 0.348 60 44 Uzbekistan 0.1 47 130 0.492 22 25 Nicaragua 0.187 11 3 111 Sudan -0.171 0.0 120 133 0.298 57 61 To g o 1.1 0.194 0.216 11 7 97 Malta 2. Estonia.368 52 40 Mali 0.227 0. Bulgaria.II. Belarus.1 103 127 0.240 0.8 109 23 0.287 0.0 0.2 52 46 0.147 104 133 Source: UNCTAD.4 11 0 100 0.0 10 54 0.134 0.3 80 11 0 0.335 38 48 Pakistan 0.7 9 28 0.3 58 11 2 0.246 0.8 50 74 0. Ukraine and Uzbekistan.1 1.7 38 29 0.8 2.2 8 44 0. Slovakia.068 0.164 0.194 46 109 Mongolia 0.594 0.5 0. a Covering 140 countries.8 2.8 11 72 0.1 26 52 0.252 0.135 0.9 4.282 89 67 Philippines 1.429 0.324 0.3 1.6 0.1 1.5 139 14 0.266 51 75 Morocco 0.0 1. please see annex table A.120 0.5 0.9 91 66 0.3 1.179 0.047 0. TFYR 0.159 108 132 Panama -2.178 0.5 0. Romania. Tajikistan and the former Yugoslav Republic of Macedonia.222 0.488 32 26 United Kingdom 3. 1988-1990 and 1998-2000 a (concluded) FDI Performance Index FDI Potential Index Value Rank Score 0-1 Rank Economy 1988-1990 1998-2000 1988-1990 1998-2000 1988-1990 1998-2000 1988-1990 1998-2000 Malaysia 4.429 42 31 South Africa -0.9 18 65 0.3 0.2 77 11 4 0.6 36 82 0.115 0.5 5 34 0.9 0.2 0.6 11 9 84 0.7 42 78 0.4 2.617 4 7 Syrian Arab Republic 0.288 0.256 0.9 1.310 0.102 0.3 0.4 37 38 0.6 75 85 0.7 105 76 0. Armenia.5 1.2 1.087 0.2 1 18 0. and 1994-1996 for Azerbaijan.634 5 4 Oman 1. 1992-1994 for Albania.520 0.174 0.5 0. 26 .161 122 129 United States 1.141 0.291 37 64 Rwanda 0.3 0. For other notes.9 0.160 124 131 Zimbabwe -0.0 138 139 0.6 0.0 53 20 0.1 11 5 137 0.7 0.160 0. Russian Federation.152 0.1 0.213 84 99 Peru 0.266 67 77 Spain 2.7 0.133 0.570 20 15 Tajikistan 0.3 0. 1 0.1 -0.6 28 5 0.1 83 123 0.5 0.1 3.166 0.5 66 93 0.8 16 25 0.4 1.332 66 50 Senegal 0.182 0. Czech Republic.384 63 38 Papua New Guinea 5.8 0.9 94 63 0.324 0.5 1.233 53 92 Venezuela 0.295 62 63 Tunisia 0.4 0. Latvia.7 1.8 11 4 68 0.500 34 24 Mexico 1.4 76 101 0.6 0.0 140 140 0.6 70 80 0.067 0.2 131 11 3 0.470 0.666 1 1 Uruguay 0.8 1.204 11 4 103 Norway 0.353 0.1 84 51 0.206 133 102 Niger 0. Hungary.0 0.7 0.5 0.185 128 11 2 Nigeria 4.176 55 120 Macedonia.2.287 0.0 2.3 25 41 0.0 55 134 0. Kazakhstan.5 99 95 0.0 59 60 0.9 1.166 140 125 Suriname -12.261 45 81 United Arab Emirates 0.455 27 29 Sri Lanka 0.101 0.132 0.1 123 9 0.180 11 6 116 Sierra Leone 1. Georgia. Republic of Moldova.6 0.248 74 87 Russian Federation 0.2 0.1. Poland.6 0.083 138 139 Namibia 0.5 1.166 0.

8 to 0. South Asia improves The Pacific 4. scores high towards the both cases. as a group. a 1992-1994. for instance. including countries. but its FDI it leverages the large inflows to grow rapidly.11 West Asia has a very low score in both periods Central Asia .28 1.29 0. In Angola. Region 1988-1990 1998-2000 even given its low share of global GDP.26 0.98 end of the decade its score was the second Source: UNCTAD. however. and many of the place from 129th position in 1988-1990.CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL How do regions fare according to the The country rankings for FDI Index? The developed world is more or less performance yield interesting findings.99 0. 27 . the period for the Index is adjusted.2).07 0. developed countries” 4 the lowest (the latter reflecting the low score for Japan).74 This reflects the strong performance of Other Western Europe 1. the surge took it to second systems of foreign firms. Inward FDI Performance In particular. by the Central and Eastern Europe 0. top 20 countries include five small developed à-vis its economic size – with index-values countries.84 0. from CEE (figure II. One longer-term consequences are similar.60 Latin America and the Caribbean 0.33 1.2). with both subgroups losing ground. The balanced in terms of the FDI it receives vis. similar (relative) additions end of the period because it received a surge are being made to host country production of FDI in petroleum in response to more stable that is part of the international production political conditions.72 European Union 1.2. by region.28 1. by contrast. Hong Kong (China) for them of a given position on the Index and Angola. In There is marked heterogeneity among considering performance on the basis of the countries with similar FDI performance.00 East and South-East Asia 1.. as a rich may be different.72 1.57 Asia 1. but they also include Japan the European Union scores highest and “other and Greece. a sudden inflow may not. but from a very low base. Among developing regions.99 significant fall in ranking. The bottom 20 countries However. This reflects South America 0.52 North Africa 0.01 1. the implications are Belgium/Luxembourg. primarily reflects greenfield investments. while a poor country that receives less the FDI that their GDP would warrant. 1988-1990 and 1998-2000 Africa) goes from a score of 0.22 countries in South America.12 0. West Asia 0. There is. Thus. largely Index.89a 0.00 show a marked improvement in their scores.37 of above one to below one. Latin America and the Caribbean Developed countries 1. Belgium/Luxembourg. a the Caribbean 1.12 0. By World 1. show a Other developed countries 0. from those economy located in the heart of Europe. part of FDI in developed countries takes place In 1998-2000. Africa shows a large fall in its score.80 0. East and South-East Asia 1.58 its score. at almost the same level Index may expect to sustain good performance throughout the decade.31 1. once investments The developing world as a whole has also have “adjusted” to its new situation unless maintained its score over time.40 0. to some extent. inflows reflect its relative size. is for countries for which the same position expected to have (and retain) a high rank.91 1. however.6. Table II.00 contrast. there are interesting differences: several LDCs. South.77 0. Africa 0. the global leaders in the form of M&As.73 1.42 Asia as a whole moves from a score Other Africa 0.12 Developing countries 0. lowest of those for all developing regions. it is important to recall that the greater reflecting the effect of short-term factors.00 1.20 while East and South-East Asia retain a value South Asia 0.85 marked difference between the two subregions. 1.16 of well above one in both. “other Africa” (sub-Saharan Index.28 weakened performance in West Asia and East Other Latin America and and South-East Asia. within the group of developed are mainly developing countries. Western Europe 1. and receive more or over time. including Mexico. other countries North America 1. As most of the countries in this region did not exist in their present form before 1992.58 (the lowest of all regions in the second).82 in the region. suggesting a loss in its relative attractiveness. 12 developing economies and three at or close to one in both periods (table II. 5 implication of this difference in the underlying factors between the two is that a rich and The transition economies of CEE have well-located country that does well on the ranked.33 1.

28 .2. 1998-2000 Source: UNCTAD. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure II. The UNCTAD Inward FDI Performance Index. by host economy: the top 20 and the bottom 20.

as well as mature industrial contain surprises. at least The FDI Potential Index does not. like Sweden. ranking by the potential of all countries): though the latter moves up in the ranks because the “front-runners”. it is useful located). moved down the list. transition from command are performing adequately given their (restricted to market-oriented economies. and the largest declines by Georgia. thus. privatization programmes.3).g. are strategically placed as service centres for large dynamic hinterlands D. a drop in rank might well indicate.g. 29 . In contrast to the The biggest “winners”.e. However. for partly. As a result. Countries with Performance countries (figure II. in 1998-2000 include all four high-income developing economies (Hong Kong. this index is based largely on structural Greece. economies that attract large amounts of FDI. Many of the rankings in the latest period Republic of Korea.g. Singapore. inflows. also vary greatly. as follows: receive less FDI than warranted by their size. El Salvador and Lebanon. yields interesting results. but they also Province of China). Indonesia). of recent liberalization). China.g. Some have attracted significant FDI in the past. has one of the largest jumps in ranking). the high index improvements in the FDI Potential Index ranks value reflects large M&A activity (Sweden are by Guyana. while some developing Kingdom) or a location within large regional countries and economies in transition make markets such as the EU (e. Note again slowly over time. Performance Index rankings change dramatically over the two periods. The UNCTAD Inward FDI short-term factors. above the mid-point of the to FDI (e. “explain” flows of FDI crisis on the regional market in which it is in a statistical sense. above the mid-point of the ranking by albeit low in relation to GDP (United States). The ranking of countries according to the Performance and Potential Indices Countries with low index values that yields a fourfold matrix. improved prosperity with relatively based on the Inward FDI Potential Index higher GDP and stable FDI. Comparing rankings on or as export bases (but Singapore loses rank because FDI growth has not kept pace with the two Indices income growth. Oman. performance of all countries) and high Others traditionally have been relatively closed potential (i. the United similar ranks over time.CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL Largely because of the influence of C.e. The largest some countries. the index values that the shifts in ranks reflect not only relative for countries are fairly stable over time. the scores reflect the end of political indices as a rough guide to whether countries or economic crises. Tajikistan Some economies such as Hong Kong (China) and Moldova. Many are simply performance of all countries) and low poor or have not improved their investment potential (i. the “ above-potential economies”. or massive set of) structural assets. advanced industrial economies whose FDI performance reflects high incomes and Most developed countries tend to sustain technological strengths (e. and Singapore. and Taiwan are in line with expectations. Botswana and Sierra Leone. economic development. Ireland). Japan and the Republic of Korea. In many other countries with high to compare the rankings based on the two scores. for instance. below the mid-point of the climate sufficiently to compete effectively ranking by the potential of all countries): for FDI. The top 20 economies. on the economic factors that tend to change fairly other hand. Some are very large • countries with high FDI performance (i. Nicaragua and Armenia. Performance Index that is based on FDI are Panama.e. 7 changes in FDI inflows but also in relative and correspond by and large to levels of GDP.e. In large upward or downward leaps. probably reflecting. period are suffering from economic or political above the mid-point of the ranking by shocks (e. The bottom 20 ranks Index values of more than one include several are all held by developing countries. 6 Potential Index There are thus 37 countries that improved their rank by 20 or more places over the The Inward FDI Potential Index also period and 43 that lost 20 or more places. the adverse impact of the Asian financial reasons given above. but in the recent • countries with high FDI performance (i. apart from Angola.

30 . 1998-2000 Source: UNCTAD. a Based on eight economic and policy variables. The UNCTAD Inward FDI Potential Index.3. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure II. a by host economy: the top 20 and the bottom 20.

Qatar. Estonia. below the mid-point of the ranking by countries that combine strong potential and performance of all countries) and high performance (table II. Viet Nam and Zambia. Argentina. Libyan Arab Jamahiriya. Belarus. Colombia. Asian “tigers” – including newer ones – such as Hong Kong (China). Senegal. India. High FDI potential Denmark. Malta. This group includes potential (i. Denmark. the “under-performers”. Azerbaijan. Croatia. Kuwait. States and Uruguay. Poland. Brazil. Paraguay. Israel. In 1998-2000. Indonesia. Myanmar. Jamaica. Pakistan. Darussalam. Bangladesh. Guinea. Switzerland. Guinea. Gambia. Egypt. Republic of Moldova.3). Republic. Portugal. Gambia. Costa Rica. Iceland. Bahrain. Togo. Philippines. Tajikistan. Uganda. Haiti. Ghana. Georgia. Province of China. Morocco. and Kingdom. Indonesia. Cameroon. Rwanda. Hong Kong Kuwait. Suriname. Greece. Rwanda. Russian Federation. Poland. Austria. United Panama. Nigeria. Portugal.e. Ukraine. Czech Republic. Ukraine. Mexico. Czech Republic. New Africa. Niger. Chile. Yemen and Zimbabwe. Bulgaria. Norway. Guyana. Brunei Luxembourg. Gabon. Algeria. of Guatemala. Finland. Slovenia.e. Haiti. Mali. Russian Federation. Spain. Hungary. Greece. Côte d’Ivoire. Bolivia. Mali. Trinidad and Tobago. Republic of Congo. Faso. Republic of Korea. Jordan. South Malaysia. Bolivia. 31 . United Republic of Tanzania. Estonia. Dem. Georgia. Bahrain. Israel. El Salvador. China.3. Darussalam. France. Thailand. Switzerland and the United the “ below-potential economies”. Above-potential Under-performers Albania. Hungary. Sudan. above the mid-point of the leading industrial countries like France. Chile. Madagascar. Sri Lanka. below the mid-point of the entrants to the FDI scene such as Costa ranking by the potential of all countries): Rica. Lebanon. Philippines. Dem. Burkina Republic. Mongolia.e. Switzerland. Kyrgyzstan. Ethiopia. Hong Kong (China). Libyan Arab Jamahiriya. Romania. Guinea. Slovakia. Japan. South Africa. Dominican Islamic Republic of Iran. Tunisia. Iceland. Azerbaijan. Ecuador. Benin. Cameroon. Gabon. Finland. Country classification by FDI performance and potential. Table II. Tunisia. Sierra Leone. Lithuania. Dominican Algeria. Syrian Arab Republic. Albania. Ireland. Guatemala. Republic of Moldova. Germany. Bahamas. Canada.e. Panama. Namibia. Saudi Arabia. Suriname. Benin. Honduras. Mongolia.CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL • countries with low FDI performance (i. Niger. Côte d'Ivoire. there are 42 front-runners. Nicaragua. Rep. Slovenia. Bahamas. Viet Nam and Zambia. Oman. TFYR Macedonia. Turkey. Taiwan Province of China.8 Sweden. Nigeria. Venezuela. Thailand. Uzbekistan. Turkey. Cyprus. Congo. Italy. Republic Germany. It also includes strong potential (i. Malawi. Bulgaria. Lithuania. • countries with low FDI performance (i. United Arab Emirates. Sri Lanka. Lebanon. Peru. Paraguay. and well-performing below the mid-point of the ranking by (at the time) Latin American economies such performance of all countries) and low as Argentina and Chile. Nicaragua. China. United Republic of Tanzania. (China). Mozambique. Pakistan. Low FDI potential Sierra Leone. Malta. Brunei Luxembourg. Yemen and Zimbabwe. Guyana. Kenya. ranking by the potential of all countries): Germany. Sweden. Saudi Arabia. Malaysia. Rep. Burkina Faso. Romania. Brazil. Belgium and Australia. Malaysia. Ecuador. Source: UNCTAD. France. Kazakhstan. Armenia. Jordan. Low FDI potential Honduras. Uruguay. Norway. United Arab Emirates. Spain. 1988-1990 Front-runners Below-potential Australia. Angola. Above potential Under-performers Angola. Sudan. Ireland. Uzbekistan and Venezuela. Colombia. Myanmar. Qatar. Nepal. Tajikistan. Taiwan Namibia. Canada. Uganda. Togo. Singapore and Thailand. Islamic Republic of Iran. Senegal. Malawi. Syrian Arab Republic. Nepal. Sweden. Ghana. Kenya. Latvia. Jamaica. TFYR Macedonia. Latvia. Bangladesh. Slovakia. Congo. of Korea. 1988-1990 and 1998-2000 High FDI performance Low FDI performance 1998-2000 High FDI potential Front-runners Below-potential Argentina. Mozambique. Armenia. Netherlands. Hungary. Peru. Belarus. Costa Rica. Italy. Mexico. Croatia. Morocco. Belgium/ Austria. Kazakhstan. Oman. Japan. Ethiopia. Cyprus. Singapore. New Zealand. Ireland and Poland. El Salvador. Netherlands. Zealand. Papua New Guinea. Madagascar. United Kingdom and United States. Botswana. of Congo. Egypt. Papua New India. Botswana. Singapore. Trinidad and Tobago and United Kingdom. Kyrgyzstan.

and lack a strong industrial base. Indonesia. country with the highest score on the Potential broaden and deepen them. political and social factors competitive potential quickly to retain their or weak competitiveness (not captured by edge in attracting investors. Countries that move from under- on FDI (e. economy. Some countries in the group II. the under-performers the Index rose between these two periods have to improve both. in particular the Index. it should be recalled. there are implications for countries that retain high potential but slide in terms of FDI attracted The group of below-potential economies (Australia is a good example): if they wish include many rich and relatively industrialized to attract more FDI. relatively low given the relative size of the the indices are still at a formative stage. The weaker performance 32 .g. do not attract their expected share of other Latin American host countries (table of global FDI.g. be relieved over time. Taiwan Province performers to above-potential economies (e. of China and the Republic of Korea.g. and there may not reflect the extent of TNC participation be more appropriate variables that could replace adequately because of a reliance on local some of those now used. although a decade ago (1988-1990) it was Other changes in country positioning listed in the group of front-runners. Note that Brazil appears in this category because. Italy. and so on. while The under-performers are generally its potential remained relatively stable over poor countries that. Most are relatively poor relative to the world average. especially Armenia) need to strive to build their in the earlier period). (table II. on eight variables) in the same category over time: the front- slipped below the mid-point of the ranking runners need to retain their competitive edge of all countries. they may need to address economies that have a weak FDI performance specific problems related to poor investor because of policy and a tradition of low reliance perceptions. to have a relatively data for a large number of countries. This is are also interesting. FDI performance. even though it is the largest host There is much that can be done to improve.1). faster growth in GDP in attracting FDI. hoped that this constraint will. Mexico appears. by the end of the decade it was building of above-potential economies moved into this upon its capabilities to attract FDI in line group after a significant decline in FDI inflows with its size. the variables used here). The United States also falls within this category in the latest This analysis can offer many interesting period. The group also includes developing Inward FDI Potential Index. especially through privatization caused by a major financial crisis over the (in 1988-1990 it showed strong potential but past decade (e. more importantly. It is weak FDI performance with lower potential. to obtain satisfactory quantitative the basis of the latest data. or where FDI flows may international investment flows. at least in at the start of the decade it had a strong part. as FDI inflows to this country are insights for FDI analysis and policy. the problem is.g. It does not include countries that are relatively capital-abundant a number of factors that are known to affect (e.1). of financing (Botswana). There are policy because its ranking on the FDI Potential Index implications for the countries that remain (based. on course. structural capabilities that have done well and. Saudi Arabia). for economic or other the 1990s at a level comparable to those reasons. However. even though its score for and ability to attract FDI. World Investment Report 2002: Transnational Corporations and Export Competitiveness The group of above-potential economies in the later period reflects slow growth in comprise mainly countries without strong FDI inflows relative to the world average. Japan. the Philippines). Similarly. China is also in this group. low performance).

uses data from cross-border M&As and greenfield FDI. an annual survey of senior executives of 6 The correlation between the ranks in the the world’s 1. Israel. firm. The Transnationality Index. This is here is a simplified version in which the done by taking the value of a variable for employment and export variables have been a country. to measure and rank countries’ relative 4 These include Australia. Another Index (0. is another measure (see chapter because it is factored into the Inward FDI I).T. much higher than for the Performance to three years (Kearney. 2001). Performance Index. supplemented by be in the group of below-potential the inclusion of qualitative factors at the economies. and the latter because between the highest and lowest values of of the ambiguous nature of its relationship that variable among the countries (see annex to FDI. The its share in global GDP. index is the FDI Sustainability Index. to inward FDI. medium. regional. developed 8 Were it not for the acquisition of Mannesmann by The Economist Advisory Group to score by VodafoneAirTouch in 2000. The FDI Confidence Index. 5 See WIR00 for a comparative discussion of constructed by A. A. developed as the overall economic strength of an by UNCTAD to measure the overall economy and is undoubtedly an important significance of international production in determinant of FDI inflows. which indicates market size as well levels. 2 Some problems in the use of flow data for deriving the Index are noted in the annex 33 . one and zero. Germany would subsidiary sustainability. and in global FDI flows divided by three things: a score of zero to the lowest value. Other indices have been developed to this chapter). Kearney.000 largest corporations. low and no-interest 7 The rank correlation coefficient of the Inward responses to a question about the likelihood FDI Potential Index over the two periods of investment in a country in the next one is 0. industry. with GDP as a measure of market size and and dividing the result by the difference economic strength.48. 3 Each variable is normalized to make it comparable to the others: a score of one 1 The WIR01 Inward FDI index was the is assigned to the highest value the variable unweighted average of a country ’s share takes for the economies in the sample. subtracting from it the lowest dropped – the former because of its overlap value for that variable among the countries.CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL Notes to this chapter. national and global 9 GDP. has been omitted an economy. Japan and performance and/or attractiveness with respect New Zealand. its share in global other countries are assigned scores between employment and its share in global exports.T. taking into account their distance The Inward FDI Performance Index introduced from the highest and the lowest. That Inward FDI Performance Index in the two index is a weighted average of the number periods is 0.84. of high.48).

however. and subtracted from The UNCTAD Inward FDI it is the lowest value for that variable among Performance Index the countries. The Inward FDI Potential Index uses The use of FDI flow data has certain problems. than flow The eight variables comprising the data. comparable data are available. w Vmax= the highest value of the variable among As in the case of the Inward FDI Index the countries. good living conditions and the like. On balance.) 34 . but may also The choice of variables is based on findings distort the relationship between FDI inflows of studies on FDI determinants (WIR98.V min FDI i = FDI inflows in the ith country where. as reported in balance-of-payments (or Dunning. 1993). It captures the size and FDI Performance Index and rankings by the sophistication of the demand for goods index for 1988-1990 and 1998-2000 for all and services. in annex B). that are not simply aggregations in annex table II. low wages per is derived as follows: the value of a variable se are not a major factor inducing FDI. of WIR01. including the variables selected data on FDI inflows are the best practical for the construction of the FDI Potential Index. means for building the Index: reliable FDI and the FDI Performance Index is shown stock data (i. M&As not only exacerbate (see figure II. of course. indicators for key FDI determinants on which In addition to imperfect reporting and non.1 for a comprehensive list). (On the other hand. important. higher per capita GDP Potential Index often connotes higher labour productivity and stronger innovative capabilities.1.1 gives the UNCTAD Inward country. 1 This variable shows the level of economic development of a host Table II. especially developing countries. The correlation between each financial) terms and the real resource flows of a number of variables considered to be expected to accompany them. Performance Index is formulated as follows: The country with the lowest value is given a score of zero and the country with the FDI i / FDI w highest value. • GDP per capita. Nevertheless. The score for each variable FDI. a score of one. three-year averages of FDI inflows and GDP are used for calculating this Index. the lumpiness of FDI inflows. World Investment Report 2002: Transnational Corporations and Export Competitiveness Annex on methodology and data used for calculating UNCTAD’s Inward FDI Performance Index and Inward FDI Potential Index for a country is taken. cover all the some countries (see definitions and sources important factors affecting FDI. Moreover. of flow data) are available for fewer countries. which might the average of the scores on eight variables adversely affect low-cost labour-seeking for each country. of developed institutions.V min INDi = The Inward FDI Performance Index Score = of the i th country V max . all conducive to FDI. all of which attract The UNCTAD Inward FDI FDI. FDIw = World FDI inflows Vi = the value of a variable for the county i GDP = GDP in the ith country V min = the lowest value of the variable among i the countries GDP = World GDP. which may be misleading if inflows took place some years earlier. This set of inclusion of certain items in FDI data by variables does not. V i . The Inward FDI Potential Index is it also denotes higher wages. they do not show the current Inward FDI Potential Index are: value of stocks. In addition.e. Mathematically. However. INDi = it is expressed as GDPi / GDP w Where. problems arise on account of the excluded variables are difficult to the growing importance of M&As as a mode benchmark across large numbers of countries of FDI entry. the result is then divided by the difference between the highest and lowest The U N C TA D Inward FDI values of that variable among the countries. It also shows the availability countries for which data are available.

order to establish a clear causal relationship • Exports as a percentage of GDP.141 Railways. goods transported (ton-km. This shows between the two.018 * GDP per capitaa 0. Higher growth affect the export-GDP ratio positively. 35 .193 Science and engineering students as a % of total populationj 0. k Based on 154 countries. j Based on 140 countries.106 * Share of R&D expenditures in GDPi 0.098 Number of double taxation treatiesr -0.000 inhabitantsc 0. one of the or complement trade. in turn.107 Tertiary gross enrolment ratio as a % of relevant age groupk 0. l Based on 167 countries.094 * Students enrolled in tertiary institutions as a % of total populationl 0. (as well as outward) FDI and the international This variable is a predictor of the future production that serves to substitute for size of a host-country market. b Based on 177 countries. p Based on 136 countries. Correlation between the UNCTAD Inward FDI Performance Index and factors determining FDI. g Based on 130 countries. 1998-2000 Independent variable FDI inflows share/GDP share Economic determinants GDPa -0.310 Exports c 0. r Based on 189 countries.071 Labour cost per worker (in manufacturing)n 0. This can also mean rising productivity that could would have to be taken into account in induce other kinds of FDI. n Based on 78 countries. per $ million of GDP)f -0.000 inhabitantse 0.234 Consumer price indexo 0.226 Number of bilateral investment treatiesr -0. Correlation based on raw data for a cross-section of countries. Note: * denotes the variables selected for constructing the Inward FDI Potential Index. c Based on 181 countries.042 Number of export processing zonesr -0.062 Number of investment promotion agenciesr -0. a Based on 192 countries. e Based on 188 countries. h Based on 185 countries.376 Share of trade in GDPd 0. f Based on 90 countries. q Based on 138 countries.549 * Telephone lines per 1. m Based on 149 countries.006 * Commercial energy use per capitag 0.044 Source: UNCTAD. In the present analysis.4.286 FDI regulationk -0. International business through indicator of the openness of an economy Table II. can main determinants of FDI. o Based on 161 countries.283 Property rightsk -0. i Based on 81 countries. d Based on 178 countries.024 * GDP growth ratesb 0.CHAPTER II BENCHMARKING FDI PERFORMANCE AND POTENTIAL trade generally lays the ground for inward • Real GDP growth (for the past 10 years).060 * Share of exports in GDPc 0. (FDI.327 Road nertworks per 1.027 Policy and business facilitation determinants * Country riskq 0. the degree of international exposure of the export ratio is included as an approximate a country.197 Trade policyk -0.262 Corruptionf 0.150 Number of employeesm -0.125 Internet users as a % of total populationh 0.182 External debt as a % of GDPp 0.

socio-economic conditions. annual inflation rate. 4 The correlation between the country risk variable meet financial commitments.II. foreign inducement for FDI in industries facing debt service as a percentage of exports. net liquidity as months of import cover. and that with Coface’s The higher the risk assessment for a country. Telecommunications (as well company based in the United States. the political risk rating to factors such as currency shortages (which contributes 50 per cent of the composite rating. World Investment Report 2002: Transnational Corporations and Export Competitiveness and the attendant competitive advantages of 0-100. current global and regional competition. In fulfil its commitments and commercial risk calculating the risk rating. Their availability (and cost) is particularly an export credit insurance company in important for FDI. and economic risk comprising 5 and commercial risks related to investing components (GDP per head of population. • Students in tertiary education as a percentage investment profile.ICRGOnline.169.com). Country risk is an indicator of the degree of political. country rankings from infrastructure needed to conduct business. and current account balance as a percentage of GDP). Country ratings (on a scale on its website for a longer time series. by PRS and the Inward FDI Performance Index is 0.) the risk) prepared by the PRS (Political Risk Services) Group/International Country • Number of telephone lines per 1. of energy. country risk is 0. religious tensions.II. This is a measure conflict. Country better for the country risk variable of PRS than risk assessments are provided by a number that of Coface. and the former variable was available of institutions. as R&D activities in these areas also to minimize the number of variables. military in politics. 3 In choosing in the analysis) are part of the basic physical this variable. 4 coordinate production activity across countries. overall economic strength of an economy and • R&D expenditures as a percentage of gross is undoubtedly an important determinant of FDI national income. which indicates market size as well as the particularly of an efficiency-seeking type. has been omitted because it is factored technological capabilities of a host economy. 36 . an important aspect influencing investors.2. 1 GDP. and exchange rate • Country risk. financial risk comprising 5 components An educated and skilled workforce is an (foreign debt as a percentage of GDP. were also examined. not included used to measure country risk. a country risk assessment inhabitants. 2 The raw data and scores for each • Commercial energy use per capita. the quest for such assets is a driving force for international components grouped into three major categories production. real in a country. Euromoney and country risks from Coface. of risk: political risk comprising 12 components (government stability. and bureaucratic skills that a country’s workforce embodies. corruption. ethnic tensions. Political risk is related to annual GDP growth. the higher the number. quality). of the extent of higher education and related democratic accountability. while the correlation with Euromoney’s economic and social stability of a country. into the Inward FDI Performance Index. law and order. external of total population. see International the ability of investors to plan for and Country Risk Guide (www. 2 Road and railway networks that determine the including innovative capacity – an important costs of transporting goods and people are also factor attracting created-asset-seeking FDI. account as a percentage of exports. The correlation result is the less attractive it is for investors. as TNCs seek to France. They In products and processes that are have not been included in the index because knowledge-based. affect the ability to remit profits) and sudden while the other two risk categories each contribute devaluations or financial crises that affect 25 per cent. This of the variables listed above are given in is a proxy for the availability and cost annex tables A.262. This includes the political stability). are as road and railway networks. internal conflict. 3 The country rating is based on a set of 22 are costly and risky.000 Risk Guide. This indicates the inflows. the lower that serve to attract FDI. competition tends to be of a lack of data for a number of countries and severe and. which is an important input for many production activities and can Notes be expected to be a factor influencing FDI.238. budget factors such as a government’s ability to balance as percentage of GDP. country risk is 0.1 and A. For further details.

to $735 billion (annex tables the latter presumably weakened by the B . The share of look at trends in FDI by region. led by finance major industrialized economies and the and insurance. Compared to the beginning of the decade. Flows to Africa from Germany taking the lead. pushing the United remained steady. Outflows declined by 55 on balance (partly due to intercompany debt per cent in 2001.t h r e e o u t o f 2 6 recession in their home economy and also. as against more than 10 transactions as TNCs responded to the economic recession. to $621 billion. This chapter takes a closer Kingdom to the fifth place. in particular. because they redirected their in FDI inflows. Japan After reaching a peak in 2000. Tw e n t y . investments to Asia. with FDI flows to and from developed countries fell flows by Japanese firms turning negative sharply in 2001. CHAPTER III REGIONAL TRENDS Nearly all regions of the world shared M&A transactions by foreign firms in the in the global decline in FDI in 2001. border M&As significantly against the background of the economic slowdown in The services sector. the events of September 11. This fall in inflows reflected fewer and smaller asymmetry may be explained by the . 2 ) . developed countries experienced a decline to some extent. well. as TNCs curtailed their cross. more than halved. EU countries in FDI inflows to the United States declined from 74 per cent in 2000 A. although both inward and outward the United States leads in investment potential flows in 2001 fell below the 1998 levels. 2002). By United States. The weakened over the past decade. 1. investor. above that level in 2000 (Bach. FDI and developing Asia decreased.1). Indeed to $114 billion (figure III. with TNCs there was more varied. flows to the least developed countries (LDCs) behind Switzerland. but ranks much lower in its FDI relative Outward FDI declined by 30 per cent.3). accounted for one-third of consolidation of industries that had taken United States inward FDI in 2001 (figure place during the 1990s.2). partly in response to the far the largest fall in flows took place in economic slowdown in major home countries. Inward FDI flows to Few transactions exceeded a value of $4 a number of developed countries plunged billion. Flows of FDI to the United States from Latin America and the Caribbean. and to the economies in transition of Central Germany became the second largest home and Eastern Europe (CEE) increased. Developed countries to 48 per cent in 2001 (figure III. West Asia. United States financial services) has outperformed investment in the traditional manufacturing industries Despite the economic slowdown and in recent years.4 and table II. the developed world. and are expected to remain low the only activities that attracted increased in 2002. down to GDP (figure III.1). such activity continued to be countries declined much less. Outward dollar may also have played a role in reducing FDI from developed countries plunged as cross-border M&As in the United States. FDI flows to and from developing Nevertheless. to reach $124 billion. while country for investment in the United States. while inflows t h e c o u n t r y ’s p e r f o r m a n c e p o s i t i o n h a s more than halved. 1 a n d B . while inflows outflows and negative reinvested earnings). FDI in services (and. inflows. 1 In fact. The and as cross-border M&As decreased relative weakness of the euro against the substantially in number and value. and the picture the primary mode of FDI entry. FDI outflows also III. Retail trade and real estate were declined. the United States retained its position as the largest FDI recipient According to the UNCTAD indices and regained that of the world’s largest of Inward FDI Performance and Potential.

1. 38 .doc.bea. www. FDI/TNC database. Bureau of Economic Analysis. FDI/TNC database. by major partner.2. a Ranked on the basis of the magnitude of 2001 FDI flows. top 10 countries. Figure III.gov. United States FDI inflows and outflows. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure III. based on the United States Department of Commerce. Developed countries: FDI flows. data retrieved in June 2002. 2000 and 2001 a (Billions of dollars) Source: UNCTAD. 1990-2001 (Billions of dollars) Source: UNCTAD.

bea.gov. FDI/TNC database.doc.1. 1988-1990 and 1998-2000 Source: UNCTAD. Figure III. based on table II. www. 1990-2001 (Billions of dollars) Source: UNCTAD. United States FDI inflows and outflows.4. data retrieved in June 2002.1 and annex table B.3. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for the United States and selected Western European countries. Bureau of Economic Analysis. 39 . by major sector and industry.CHAPTER III REGIONAL TRENDS Figure III. based on the United States Department of Commerce.

Services continued to account for more Some EU countries experienced a than half of outward FDI. FDI having plunged in the third quarter of 2001 inflows remained steady or increased in only (accounting for only 10 per cent of total three countries – France. the in 2001 was again the EU. such a. concentrated increasingly on services Still. compared to which 2001 outflows fell During the first quarter of 2002.7 and of major investors. and most Luxembourg. which received region as a whole continues to outperform more than 40 per cent of these outflows the United States. increased or steady outflows were also observed in some countries. as it has done since 1998. Cross-border major transactions undertaken by United M&As involving EU firms declined in number States firms include acquisitions in Germany and value in 2001 (annex tables B. both inflows considerably.2). was a surge in such deals. FDI inflows and outflows to and from Countries of the EU rank high. Western Europe the same time.3). Denmark and Finland and the impact of September 11 (EIU. annex table A. Finland and Sweden. Similarly. as both investor and (figure III. none was comparable to the mega deals pharmaceuticals). As in previous years. These countries include France and outflows continued to grow. At 2.8). Examples (figure III. with financial significant decline in FDI inflows in 2001 services responsible for the largest share compared to the previous year. Denmark. the United States remains an attractive (particularly utilities. 2002c). B. since most flows into and from the year. respectively). Italy and Portugal. well the EU (including intra-EU FDI) declined ahead of the United States. 11 events. resulting in high FDI outflows. Despite – Canada and Mexico – together accounted the recession in 2001 and the September for more than a quarter of total outflows. Investment in machinery and include Germany (where inflows were equipment increased while that in transport unusually high in 2000 due to a single cross- services and electronics plunged. rates that encouraged consumer spending. the United Kingdom and. European Union as Ireland. partly reflecting the economic slowdown on a smaller scale. when there (publishing) (Bach.I. On the other hand. on a smaller scale. and computer-related services). The country’s NAFTA partners recipient. inflows in 2000). 3 Other countries) occur through M&As. and leading TNCs continue Cross-border M&As involving EU firms fell to regard it favourably. and the United Kingdom and. when FDI inflows by about 60 per cent in 2001 (to $323 billion are considered in relation to domestic and $365 billion. 2 B. but these were strongly affected by EU (like those into and from other developed a single large acquisition in Mexico. a positive growth exceptionally large cross-border M&A deals of GDP of 1. media and finance). strengthen the consolidation of the North American market. FDI flows thus continue to EU (MIGA. fourth quarter partly in response to a revival several EU countries had undertaken in consumer confidence. FDI into and out half and where M&As had also boosted of the United States picked up as well: inflows. the United States remains the a major recipient being financial services most attractive location for FDI from the in Mexico. the main Although the largest share of the EU’s destination for United States outward FDI FDI flows goes to other EU members.2). Asia (electronics. 2002). according to surveys in number and value (annex tables B. with Mexico emerging The overall trends as well as inter- a s a n i n c r e a s i n g l y i m p o r t a n t p a r t n e r. up from the previous M&As. with Belgium and remained within the EU.3 per cent. increased in the – in 2001. 2002. there were fewer large deals. Canada (natural gas. (where FDI inflows decreased by more than As the economy revived. Sweden. and Ireland leading 40 . at least border acquisition). Most flows investment (figure III. and low interest in 2000. and the United Kingdom undertaken during 1999 and 2000. on the outward side.8).7 and (pharmaceuticals). World Investment Report 2002: Transnational Corporations and Export Competitiveness competitive strengths of United States firms.5). 4 site for investment. Greece and Italy inflows during that year). country differences in FDI flows in the EU Developing countries accounted for more reflect trends and differences in cross-border than a third of outflows.

FDI flows to and from Belgium and including Austria and Italy. according to the affiliates in the country (which represent survey on corporate investment strategies a large share of FDI into Ireland). cited earlier (UNCTAD. FDI/TNC database. FDI into France rose by top 10 countries.I. the period covered by the indices. 5 In Greece. like Iceland. Nevertheless. revised 2000 figures. most significant decline in inflows (over The asymmetry in these cases might be partly 80 per cent) occurred in Germany. Inflows into Ireland declined by 60 per cent. to $1.1). II. the United Kingdom and France. dropped sharply as cross- I. inward flows increased by 11 per cent.2).16) as well as on the UNCTAD indices border M&As by foreign firms fell. countries. their investment i t s p o s i t i o n a s t h e r e g i o n ’s l a rg e s t F D I performance broadly matching their potential. and privileged location at the centre of the EU. Germany. 6 In Italy.CHAPTER III REGIONAL TRENDS Figure III. reflecting the economic downturn that are the most favoured investment locations particularly affected United States electronics for the next three years. and Ireland. FDI inflows increased by about 50 per cent. France. 8 Despite of Inward FDI Performance and Potential these developments. 10 where due to policy or investment-facilitation-related an increasing share of recent FDI has gone factors or short-term factors specific to to the eastern part of Germany (box III. it continues to attract a percentage of gross fixed capital formation. recipient. partly due to the acquisition of Elettrogen by a Spanish investor group for $3. 1998-2000 a 23 per cent. but its outflows fell by over of the EU (including intra-EU FDI) were half compared to 2000.1). the country regained (figures II. good infrastructure. They also generally rank high on foreign TNCs. favourable investment environment. in that order. The Netherlands was the third largest.4). UNCTAD’s Transnationality Index (figure on the other hand.2. Luxembourg in 2001 with those in 2000 the United States and Japan.3 and III. The largest EU outward investor in The five largest home and host 2001 was France (the second largest investor economies for FDI to and from the countries worldwide). mainly due to market- oriented FDI made through acquisitions by European and United States companies. combine a illustrates the difficulty of assigning values relatively low ranking in FDI performance to FDI taking place through M&As. given its openness.5.6 billion. an important FDI recipient in a Ranked on the basis of the magnitude of 1998-2000 FDI inflows as the region. which. Developed countries: FDI flows as a percentage of gross fixed capital formation. the Netherlands largest outward investor from the region and the United Kingdom – although the order due to large cross-border M&As in insurance changed (figure III. Different factors and communications industries (annex table contributed to the performance of individual A. comparing data on there are a few “below-potential” economies. in the light of and Luxembourg.2 billion. has become Source: UNCTAD. 11 Belgium and the same in 2001 as in 2000 – Belgium and Luxembourg retained its position as the second Luxembourg. Germany. European headquarters and European distribution centres of the list. This country. 9 The with a relatively high ranking in FDI potential.7 billion – (Percentage) the largest increase in flows to a developed country in 2001. 2001a). 7 United Kingdom inflows. with outflows falling by more than a third 41 . Flows into the Netherlands remained steady. or $9. Flows to Belgium and Luxembourg with above average performances by Belgium also declined substantially.

Contrary to this trend. despite its major destination was the United States.000 by region. mainly in natural- resource-based manufacturing activities. The majority of privatization-related a role. were also considered important (IIC. Data on East Berlin are included in the figures for the western part of Germany. Incentives related to transfer payments for acquisitions were undertaken by investors from the post-reunification structural adjustment of the the western part of Germany. 1991-1999 foreign companies from over 50 countries. in both absolute outflows from Italy increased by 75 per and relative terms. especially for the automobile industry around Leipzig. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box III. Outflows from Spain almost halved.1. In some cases. the share acquired by foreign companies.a A recent survey by the American Chamber of Commerce underlined the attractiveness of the region.1. certain incentives for enterprises the involvement of foreign investors might have operating in the region have to be phased out by increased slightly. and their share of grants in total investment was about 30 per cent.iic. t h e N e w G e r m a n Länder Industrial Investment Council (www. and the United States replacing the EU as EU countries in outward FDI (figure III. they are important employers. While proximity to CEE markets was cited as part of the attractiveness of the new Länder. Dickman and Ritter. The factors driving these developments include unpublished data. compared with other parts of Germany. 13 The crisis led by the acquisition of VoiceStream Wireless in Argentina resulted in heavy losses for by Deutsche Telekom. the main destination. at 10 per cent. partly as United Kingdom. in outflows from the EU. c Source: U N C TA D . become important. In (Billions of dollars and percentage) comparison with domestic firms. as well as market access (not only to the regional market. accounted for about 4 per cent of the total FDI stock in Germany in 1999 (box figure III. more flexible labour markets and regulatory systems as well as advantageous wage levels. Government assistance also plays 2000). cost labour-market negotiations (as compared to western advantages and investment opportunities arising Germany) and emerging industrial clusters have from privatization (Belitz. 2000. a decision by EU competition authorities. 80 per cent considered the new Länder a feasible investment location. as its outflows remained almost steady. 2001b). and over 33 per cent thought that this region had special advantages for foreign investors. labour force in certain regions. They are also more likely to establish linkages with suppliers in the local economy and bring in significant technological know-how. a Data on FDI in the new Länder have been compiled by the Deutsche Bundesbank since July 1991. FDI in the region. During 1991-1999. as they acquired projects that 2004 (and by 2003 for in the case of investments had failed under investors from the western part in certain industries.1. and chemicals and machinery. Only about 6 per cent eastern part of Germany are available to both domestic of privatized companies during 1991-1994 were and foreign investors.1.200 United States companies that responded to a survey (including the 50 largest United States investors in Germany). Again. factors such as more flexibility in to the western part of Germany and CEE). semiconductor manufacturing in Dresden and the chemical industry in the “Chemical Triangle” of Saxony-Anhalt (Belitz. based on Deutsche Bundesbank. “EU Gelder für Ostdeutschland werden erst 2004 reduziert”.de) and the five regional economic promotion agencies. Box figure III. b Source: UNCTAD. in total investment and employment was estimated for both domestic and foreign investments (IIC. Brenke and Fleischer. large acquisitions by Telefónica. following of Germany. Distribution of inward FDI the new Länder region in the eastern part of stock in Germany’ new Länder. such as automobiles). Germany came fourth. b Of the 1. 12 February 2002. a long industrial tradition and availability of a skilled a Not including East Berlin. In the second half of the 1990s. Brenke and Fleischer. investors cut back in Latin America. IIC 2001b. 12 which ranked fifth among the country had participated only modestly in cross-border M&As during the 1990s. Going east: FDI in Germany’s new Länder In the more than 10 years since reunification. 14 42 . but also Recently.1). a Germany has succeeded in attracting about 2. 2001a). However. c Neue Züricher Zeitung. was recorded by the cent from a relatively low level. 2002). b a s e d o n d a t a a n d i n f o r m a t i o n f r o m t h e D e u t s c h e B u n d e s b a n k . foreign affiliates in the region typically are more export oriented.1). The largest decline some Spanish firms.

43 . 445 for the 1997 survey. for $4. Examples include manufacturing TNCs by the Japan Bank for the acquisition of Ralston Purina (United International Cooperation in 2001 (JBIC. Norway continued their declining trend. Other Western Europe accounting for about half the outflows during 1996-2000.7 billion. Figure III. by half in 2001.6). Increased inflows from the United States. Japan EU countries. 432 for the 1996 survey. perhaps. compared to 21 per have also become strong investors abroad. the country is Group by Alcan Aluminium of Canada. according to the UNCTAD share of inflows. 16 but its investment abroad grew by outflows from Switzerland declined even 21 per cent (to $38 billion) and is expected more: by 60 per cent. 472 for the 1999 survey. mainly in finance and insurance. and became negative (annex table B. Planned FDI by Japanese manufacturing TNCs over the next three years. although at modest NTL.1).CHAPTER III REGIONAL TRENDS b. Note: Based on 422 respondent firms for the 1995 survey. FDI 2001. levels compared to other developed countries.2). border M&As (WIR01). after the surge in as a stepping stone into the European 2000 led by two acquisitions (Alusuisse Lonza market. respectively). 1995-2001 surveys a (Percentage) Source: Japan Bank for International Cooperation (JBIC). falling rank higher than EU countries in FDI potential. Pharmaceutical to increase their outward investment over TNCs and finance and insurance companies the next three years. Japan’s domestic investment fell in 2000.6. together accounted for more than two-thirds of the inflows during 1996. 2000 and 2002. taken together. 455 for the 1998 survey. Iceland has recently attracted North American FDI flows into Switzerland declined TNCs. Latin America and the United States The rest of Western Europe followed – a shift away from the EU destinations similar patterns. the largest investor in Switzerland since 1986. and stable FDI from 3. Outflows also declined. cent in 1999 and 55 per cent in 2000 (figure III. consider the country by almost 40 per cent. indices (table II. which.8 billion and $3. a Fiscal year. FDI inflows into Countries under this grouping. 469 for the 2000 survey and 501 for the 2001 survey. and increasingly investing abroad through cross- Cablecom Holding by the United States firm. 15 Furthermore. FDI in natural-resource- although this is not matched by their FDI related activities accounted for the largest performance. Most outward FDI to keep growing. States) by Nestlé and Lincoln Re (United 2002). Most of the expansion has been in CEE. half of total outward FDI. 72 per cent of respondents planned States) by Swiss Reinsurance. FDI inflows ($13 billion) that traditionally accounted for more than and outflows ($15 billion) fell in 2001. According to a survey of took the form of M&As.

2.a A survey by JETRO in October 2001 suggested that one-fifth of Japanese TNCs planned to relocate production sites from Japan and other countries to China because of its accession to the WTO (box figure III. 22 per cent in Malaysia Box figure III. particularly in electrical and recipient. except for the Philippines.1. Other Asian countries. with $13 billion. 2000 and 2002. These ASEAN-4 and China. Some 57 per cent of Japanese manufacturing TNCs find China more attractive than the ASEAN-4. the largest as production.9 billion in 2001. At the same time. mean that their production most attractive location for Japanese TNCs. The rising share FDI outflows doubled in the former and of East and South-East Asia (one fifth of halved in the latter. 2002). would not relocate to China (JETRO. ($2. 44 . manufacturing to remain marginal in Africa and West Asia. remained Philippines and Thailand) has narrowed since 1999 among the top 10 destinations (box table III. Surveys reinforce these concerns. In a in China will not expand faster than in ASEAN. These two countries alone accounted for 52 per cent of the total total Japanese FDI in 2001) reflected the FDI outflows in 2001.1. of 9 Malaysia 8 10 United Kingdom 7 Taiwan Province 8 United Kingdom 10 Brazil 8 Philippines 8 Singapore 6 and Taiwan of China Province of China Source: JBIC. For the first time. China had become the does not. respectively) (box figure III. 99 per cent of Japanese TNCs with investments in the ASEAN countries said they S o u rc e: U N C TA D . which took nearly Japanese investment in the United Kingdom 30 per cent of Japanese investment in the in 2001 was in financial and insurance services.7 billion and $2. the though all. World Investment Report 2002: Transnational Corporations and Export Competitiveness Outflows were fairly diversified by Investment in developing Asia remained steady. FDI in Latin America also declined.2). Note: ASEAN-4 and China are highlighted. a The share of firms that consider the country as promising in total respondent firms (multiple responses). China emerged as the leading destination by far. More than half of growing role of China. Malaysia. causing one-third of the total.2.2. region. was the United electronics industries. particularly Service investments dominated Japanese FDI members of the Association of South-East in both countries. and the ASEAN-4 (Indonesia. Even before Japan accounted for 28 per cent of the FDI stock in Thailand (1999). accounting for more than Asian Nations (ASEAN). followed by the United States. Is China more attractive to Japanese investors than ASEAN? The Japanese investment gap between China ASEAN-4 ranked at some distance below China. 2002).2. of 8 9 Singapore 10 Brazil 8 Brazil 11 United Kingdom 9 Korea. survey of planned FDI in the next three years by Japanese manufacturing TNCs (JBIC. Japanese FDI outflows to (1997) and 20 per cent in Indonesia (1997). 17 response to cost pressures. a 1995-2001 surveys b (Per cent) Rank 1996 survey Ratio 1997 survey Ratio 1998 survey Ratio 1999 survey Ratio 2000 survey Ratio 2001 survey Ratio 1 China 68 Chinana 64 China 55 China 55 China 65 China 82 2 Thailand 36 United States 36 United States 41 United States 39 United States 41 United States 32 3 Indonesia 34 Indonesia 28 Thailand 23 Thailand 27 Thailand 24 Thailand 25 4 United States 32 Thailand 25 Indonesia 16 India 15 Indonesia 15 Indonesia 14 5 Viet Nam 27 India 23 India 15 Indonesia 15 Malaysia 12 India 13 6 Malaysia 20 Viet Nam 19 Philippines 14 Viet Nam 11 Taiwan Province 11 Viet Nam 12 of China Taiwan Province 11 7 India 18 Philippines 14 Malaysia 14 Malaysia 9 India 10 of China 8 Philippines 13 Malaysia 13 Viet Nam 14 Philippines 9 Viet Nam 9 Korea. F D I / T N C d a t a b a s e . destination. 18 concern in ASEAN (box III.. 1995-2001 countries are therefore eyeing the increasing flows (Billions of dollars) to China with some apprehension.2. however.2.1). The Box table III. b Fiscal year. Box III.. This its accession to the WTO.1). The 10 most promising destinations for manufacturing FDI by Japanese TNCs over the next three years.2). of course. received less. was relocated in Kingdom. while it continued In other regions. Rep. continued to dominate Japanese FDI. however. /. Rep.

Japanese TNCs are concerned about costs and labour supply (box figure III. on the basis of data and figure provided by JETRO. and the tax attractions stronger in China as those who consider system. According the investment climate in China (box figure III. and -2 for much worse. International Economic Research Division.3.2.2.CHAPTER III REGIONAL TRENDS Box III. production Box figure III. Investment climate of ASEAN-4 compared with China a Sourc e: UNCTAD. 0 for the same. S o u rc e : U N C TA D .2.3). they lag behind China in market growth. International Economic Research Division. b Based on 136 out of the 645 responses (21. 45 . 317 for the Philippines and 386 for Thailand surveyed by JETRO in October 2001. 2000.2. Planned relocation of production sites of Japanese TNCs to China as a result of China’s accession to the WTO a (Percentage of TNCs responding) Source: JETRO. 1 for better. While Malaysia and Thailand are better them stronger in ASEAN. Multiple replies apply. to the JBIC survey.3). 2002.1 per cent) from TNCs planning to relocate their production to China. On the basis of 469 respondent Japanese manufacturing TNCs.2. a Based on 645 responses among the 720 Japanese TNCs surveyed by JETRO in October 2001. positioned in most aspects of the investment climate. a Japanese TNCs were asked to assess the investment climate of ASEAN (4) compared with that of China in each of the 14 areas according to the following scaling: 2 for much better. nearly twice as many Japanese particularly about rules relating to establishment. 335 for Malaysia. Note: Based on 340 responses for Indonesia.2. Is China more attractive to Japanese investors than ASEAN? (concluded) Box figure III. However. a JBIC. manufacturing TNCs consider these economic the transparency of investment rules. -1 for worse.

According in exports between 1996 and 2001 (table to both the UNCTAD/AFII/Andersen survey III. In the light of Japan’s position as the composition of Japanese imports is a country with sustained surpluses in its changing rapidly. the activities of Japanese host and home countries. now account for 31 per cent to the relationship between the country’s – 14 percentage points higher than a decade trade and international production. (UNCTAD. 1988-1990 and 1998-2000 Source: UNCTAD. e l e c t r i c a l a n d e l e c t r o n i c s since the mid-1980s has drawn attention machinery. Figure III. prospects for FDI inflows The negative trade balance effects to Japan are better than those for other of outward FDI are apparently attributable developed countries such as Sweden and to imports. increased FDI from Japan i n p a r t i c u l a r. the net effects of outward FDI on of labour is taking place within TNCs in Japan’s trade balance in the manufacturing this industry. 20 Five four (NEC.1).8). case of outward FDI changing the structure Institute for International Trade and Investment. 2002). Simultaneously.1. This implies that a horizontal division 1993. of trade – both exports and imports – of 2000). 2002). Isuzu Motors global electronics contract manufacturers 21 and Nippon Steel) experienced a decline also acquired plants (JETRO. In fact.7). However.1 and annex table B. of total imports in 1998. Mazda Motors. Japan provides an interesting sector are estimated to be negative (Japan. Japan’s imports from its affiliates Ireland. 1999. based on table II. 19 While cross-border M&As fell. Machinery and equipment. there of the top 30 exporters that accounted for were some large acquisitions in half of Japanese total exports in 2001.7. 2001). inflows negative effects on Japan’s manufactured ($6 billion) were half the peak reached in exports (Lipsey and Ramstetter. By 2001. only telecommunications and insurance. In comparison. 46 .1). Japan has of “reverse imports” in Japanese imports also improved its own FDI performance over rose from 4 per cent a decade ago to 15 the past decade. the share Performance Index (table II. than its capacity to attract FDI as measured United States imports from overseas affiliates by the UNCTAD Inward FDI Potential Index of its TNCs accounted for about one-fifth (figure III. balance of trade. Indeed. World Investment Report 2002: Transnational Corporations and Export Competitiveness Inward FDI in Japan declined for manufacturing affiliates abroad rarely have the second year in a row. a share that has remained the same since 1990. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for "other" developed countries. 2001a) and the MIGA survey (MIGA. but this remains much lower per cent in 1999 (figure III. Since ago. both of which have shown dramatic abroad are increasing faster than exports improvements in the UNCTAD Inward FDI by Japanese parent firms.

. Nikon Corporation 333 132 17 121 484 270 . NEC Corporation 4 397 690 .... 322 98 11 . b Consolidated. 60. 5 951 1 264 246 1 726 Mitsubishi Motors Corporation 3 537 989 ... Japan IBM c 1 497 289 . . Ltd.. . Victor Co. Matsushita Electric Industrial Co. 1 585 312 . . ... 3 277 1 133 .. 934 351 . ... 6 464 1 773 . c 6 039 1 310 570 2 355 6 090 1 522 905 2 704 Canon Inc.... Fuji Heavy Industries Ltd. Toyo Keizai. 1 077 165 86 346 1 312 395 . 3 017 739 . 951 7 682 1 529 .. Ltd. 2 243 Nissan Motor Co. . 1 113 169 . 1987-1999 (Billions of yen and percentage) Source: Japan. Mitsubishi Heavy Industries. 5 410 699 489 .. 1996 and 2001 (for FDI and international production)... FDI and international production of 30 largest Japanese firms..... Fuji Photo Film Co.. 1 687 103 167 472 2 241 432 . 511 350 . . 10 719 2 829 331 2 037 13 424 4 136 718 7 652 Sony Corp.CHAPTER III REGIONAL TRENDS Table III. c 1 843 709 125 602 2 016 683 155 1 125 Mitsubishi Electric Corp. 1 060 365 . 1996 and 2001 (Billions of yen) 1996 2001 Exports from International Exports from International TNCs a Sales b parent firms FDI production Salesb parent firms FDI production Toyota Motor Corp.. Ltd... . 2 558 971 140 691 2 908 1 367 .. c Foreign affiliate. . Mazda Motor Corp. c 1 381 483 79 186 1 600 629 117 . 872 Toshiba Corp. Sharp Corporation 1 651 584 .... .. Isuzu Motors Ltd.. Nippon Steel Corp. . .. 2 015 318 . 8 124 983 115 1 995 8 417 1 047 174 .. 1 341 610 .. 584 266 14 99 Source: UNCTAD. 47 . Seiko Epson Corp... 2 955 485 54 .. 5 120 1 147 . 3 045 1 050 48 241 Hitachi... 1 423 229 . 27 December 2001 (for exports). c 1 682 602 44 84 1 569 488 82 88 Yamaha Motor Co. . 6 795 1 445 ... .. 1 463 Honda Motor Co. Fujitsu Ltd. 1 086 293 . Exports. Ltd.. 2001a. Ltd. . . .8. 3 511 636 87 421 4 129 674 129 702 Suzuki Motor Corp. . Japan’s imports from Japanese foreign affiliates. Ltd.. . based on World Scope CD-ROM (for sales). 4 593 1 251 1 209 919 7 315 1 961 . .. Ltd. 807 281 . a Ranked according to export size.. Figure III. 1 085 238 91 . Murata Manufacturing Co. Ltd.... 733 292 74 . Ltd. Trade and Industry (METI).. 223 1 538 300 ... and Nikkei Sangyo Shimbun. .. 785 Denso Corp.. 4 252 1 275 225 . p.. 2 750 423 69 .... 613 Sanyo Electric Co.... Ltd. Ministry of Economy. 3 762 351 536 752 5 484 614 . Kawasaki Heavy Industries Ltd......1. Ricoh Co... 1 440 336 . of Japan.. 2 013 596 . 884 448 . . Ltd.

Developing countries based manufacturing. 2 ) .9). However. ahead of the United Kingdom. The services sector is its economy is more closely linked to Asia gaining in importance over resource-based and the Pacific than to North America. drove inward FDI. cross-border M&As in Canada continued to play an important role as a mode of entry for TNCs. the slowdown there affected Canadian FDI in 2001. reflecting the integrating and other events in the United States. to recover. to and from the developed countries will Manufacturing accounted for two-thirds of remain low (see chapter I). Cross-border outward FDI.7 billion.9 billion to $0. which was characterized by unprecedented FDI related to relatively large M&As (figure III. B. 2001a. a n d r e f l e c t i n g t h e acquisition by BHP of Billiton (United Kingdom) Data for early 2002 suggest that FDI f o r $ 11 .1). Australia was the main share in gross fixed capital formation destination for outflows from New Zealand. the United Figure III. while services FDI flows to Africa (including South continued to rise. Although diminished in number and in volume. Inflows fell by 60 per cent 23 and outflows by 25 per cent compared to the previous year. FDI activities in Canadian outflows. FDI inflows and their Kingdom and Japan. The increase FDI flows declined for New Zealand: by $8 billion is largely due to a few large inflows almost halved. and outflows decreased by 70 Morocco (figure III.3 billion. Mining continued to decline in importance for inward FDI. New Zealand. FDI/TNC database. mainly by United States (in utilities) and Source: UNCTAD.9. down to $4 billion. Other developed countries United Kingdom firms. for most African significant but falling share. the United States and Japan. it masks the fact that. The main investors in Africa) rose from $9 billion in 2000 to more Australia were European firms. from $0. FDI flows into Australia showed a large fall. 1990-2001 traditionally accounting for about half of (Billions of dollars and percentage) t h e l a t t e r ’s o u t w a r d F D I a n d r e c e n t l y increasing this share to almost three-quarters. Large M&As. MIGA 2002) – an important investor in the Asia-Pacific are expected to remain low. are reflected in FDI statistics. South. in Africa. flows are likely East Asia and the Pacific Island economies. I . Among other developed countries. as region. * * * r e a c h i n g $ 11 b i l l i o n . but investments in Mexico also rose rapidly Australia was less affected by the recession (from low levels). share during the period 1997-1999. economic growth picks up. 48 . compared to a record high of $12 billion 1. from $3. as effects of NAFTA. compared to about 50 per M&As – the preferred mode of entry for cent a decade earlier. Investors While this increase looks impressive at first from the Pacific region contributed a sight. Africa the previous year. 5 b i l l i o n 2 2 ( a n n e x t a b l e A . predominantly in resource. Australia has been TNCs (UNCTAD. The largest Australian affiliates are located in that region. outflows from Australia doubled in 2001. countries.10) – and the way they per cent.2 billion to FDI projects – notably in South Africa and $1. following relatively United States had accounted for an equal low levels in previous years (figure III. Since Canada’s main economic partner is the United States. followed by the United States. Around 80 Inflows were mainly in resource-based per cent of the growth is explained by a industries. World Investment Report 2002: Transnational Corporations and Export Competitiveness 4. Most outward FDI went to the United States. with Australia the main investor. though the than $17 billion in 2001. mainly in Japan. FDI flows remained at more or less the same level as in 2000.

to France’s Vivendi Universal however. there is little difference between as part of that latter company’s M&A- Africa and other developing regions as regards based global expansion strategy over the inward FDI. As a result of these exceptional from $200 million in 2000 to almost $2. FDI flows receive more FDI relative to GDP than the to Algeria and Sudan also increased. of FDI inflows to gross fixed capital formation the result of an unbundling of cross-share in 1998-2000 was higher than for developing holdings involving London-listed Anglo American countries as a whole (figure III. top percentage of gross fixed capital 10 countries. 49 . Inflows stagnated for developments in Africa in general. top 10 countries. Maroc-Telecom.11 and annex and De Beers of South Africa. If economic size is taken into account.11.7 transactions. In fact. Africa: FDI flows as a Figure III. Lesotho and Togo. before the policy individual North African countries. some African countries past few years (chapter IV).5). but it remains cent stake in the local telecom operator. 2000 and 2001 a formation. it is recorded table B. such American purchased De Beers shares by as Cape Verde. FDI inflows as a percentage of gross fixed capital formation. paying the mainly South African-based owners in Anglo American shares. the ratio Figure III.3 billion – an unprecedented figure for should not be mistaken for a fundamental this subregion. Source: UNCTAD.7 billion in 2001. though at levels higher increase masks diverging trends among than during the early 1990s. on average developing country. small. as with the change in the trend. The environment for FDI began to improve. boosting inflows • The year 2001 saw a number of remarkable developments regarding FDI flows to North into Morocco to almost $2. As already mentioned. FDI/TNC database. a Ranked on the basis of the magnitude of 1998-2000 a Ranked on the basis of the magnitude of 2001 FDI inflows. the share of Africa in global billion in 2001. Moreover.CHAPTER III REGIONAL TRENDS large increase in FDI flows into South Africa. Most of these 22 countries are as an increase in FDI inflows because Anglo LDCs with relatively small economies. Africa: they increased by 83 per cent to Thus the higher FDI inflow figures for 2001 $5. However.10. for account of FDI in the gas and petroleum 22 of the 53 African countries. 24 The other main There were some interesting trends project responsible for the increase was in FDI inflows within the continent: the sale of a 35-per-cent stake of Maroc- Telecom to a foreign investor. this FDI inflows increased from 1 per cent in increase was due to the sale of a 35 per 2000 to 2 per cent in 2001. Djibouti. 1998-2000 a (Billions of dollars) (Percentage) Source: UNCTAD. Africa: FDI inflows. lion’s share of the increase was accounted for by the jump in FDI flows to Morocco. the large many other countries. FDI/TNC database.

an increase in FDI inflows (19) that year On the other hand. For Africa as a whole. saw a parallel increase in their potential: Ethiopia. largely due to the large increase in absolute flows to North above-mentioned developments in South Africa. two oil-producing are occupied by African countries – Libyan countries – Angola and Nigeria – ranked Arab Jamahiriya. almost identical to the increase in FDI Angola’s ranking is largely due to its rich flows to the subregion as a whole. These countries are from all of the – also includes three LDCs: Mozambique. World Investment Report 2002: Transnational Corporations and Export Competitiveness industries. Among these.2 billion in 2001. or 69 per cent. All of them have had increased by some $600 million (or 16 relatively high GDP growth rates for the per cent). the growth economic performance attracted more FDI. of total Index. Mali. that only four of the bottom 20 rankings Behind South Africa. in FDI inflows does not mean that all Also. This suggests that improved in 2001. Others. Overall. the minimum being 3. have improved because of renewed possibilities 50 . the mark of $10 in attracting FDI. As on UNCTAD’s Inward FDI Performance mentioned earlier. Without for which that Index could be calculated that transaction. countries of the subregion. Sudan.8 billion in 2001. sub-Saharan Africa as rank low on it for the period 1998-2000. Only African countries with improved FDI half of the 34 LDCs registered an increase Performance Index values is remarkable: in 2001. The performance of African countries for the first time ever. • Flows to sub-Saharan Africa surpassed. Leone. they account for 11 of the 20 countries. might recipient among African LDCs. of non-LDC African countries. with Mozambique and Congo and Uganda (figure III. Angola. There endowment of offshore petroleum which were slightly fewer countries that experienced spurred massive FDI from 1996 onwards. the share of LDCs in the group of countries experienced an increase. (in petroleum-related FDI) registered by such as Mali. Rwanda and Sierra second and third in terms of absolute inflows. to almost $4.1 billion. increase in FDI flows to South Africa is that made it to the top 20 in that period. grosso larger increase in FDI flows to sub-Saharan modo. including more advanced Tanzania. This suggests that. more than $1. as the There is only one African country. period 1990-2000. and remained.12). The group of Moreover. three (Angola. continent’s subregions and at various levels Uganda and the United Republic of of development. More Turning to UNCTAD’s FDI Potential than two-thirds. Overall. in relative terms the countries perform of more than $1 billion) and the other better than the absolute figures would suggest. with Republic of Tanzania and Uganda. Cameroon or Congo.8 but only 19 of them registered an increase per cent. with $240 million towards greater political and economic stability. although absolute A considerable gap exists between these flows to many African countries remain three countries (all of which received flows minimal. the United Republic of Tanzania benefiting from their proximity to South Africa. Mozambique and Sudan) together accounted Among them are a number of countries that for the lion’s share of the total increase are well-known for their sustained efforts for African LDCs. the largest FDI such as Angola. Mozambique. as the cent to just a quarter. FDI to LDCs was similar to that Africa. These three countries have countries such as South Africa and LDCs experienced steadily increasing inflows over such as the Democratic Republic of the the past few years. Most of the 36 countries of the Anglo American-De Beers deal. Africa was more than offset by an even excluding that particular transaction. half of the African countries the next largest FDI recipients – all of included in the rankings improved their position which received more than $200 million. this was largely the result Index. is mixed. it is also remarkable than those that incurred a decline (21). to reach $11. Angola. • FDI inflows to the 34 African LDCs Tunisia and Uganda. the share of North Africa the share of African LDCs in total FDI flows in total FDI flows to Africa declined slightly. the United far the largest jump. only 7 of the 20 countries with an FDI flows to Africa in 2001 were accounted improved FDI Performance Index ranking for by sub-Saharan Africa. on the list between 1988-1990 and 1998- led by Côte d’Ivoire with $257 million 2000. Niger. Mozambique. as measured by their rankings billion. to the continent fell from more than 40 per from 33 per cent to 31 per cent. Namibia. a whole would show little change.

France and the United Kingdom. however. 1999a) came to a Ranking by the Inward FDI Potential halt during the period 1996-2000. insufficient infrastructure and a low level of education: all factors Country 1981-1985 1986-1990 1991-1995 1996-2000 critical for obtaining high values on that Australia -13 -149 -33 -99 Index.1. Africa: accumulated FDI flows This is not surprising.2). . Overall. It should Index does not feature any African country be noted. while 11 of the bottom 20 are from the continent. unpublished data. African countries seem Austria 72 33 7 221 to perform better on the Performance Belgium 99 40 -47 242 Index than on the Potential Index. 37 per cent of total flows from developed a The countries listed in the table are the members of the OECD’s countries. half of the African countries on the list Japan has been a relatively small investor improved their position on the FDI (Fujita. . 51 . so Canada 27 37 146 626 Denmark 19 24 1 340 that a fairly large number of them (9) Finland . . based on table II. led by the United Switzerland -6 73 452 69 United Kingdom 882 2 193 2 376 3 269 States. . given that most from major developed countries. - Norway 99 12 145 -148 Portugal . Table III.CHAPTER III REGIONAL TRENDS Figure III. for exploiting their natural resource the United Kingdom for 13 per cent.3).1 and annex table B. 2001a). 38 3 8 fall into the group of above-potential France 1 239 1 001 2 066 4 362 economies and only one (Egypt) into that Germany 504 332 402 2 475 Italy 455 217 213 678 of below-potential economies. that for all but four of among the top 20 countries. 1988-1990 and 1998-2000 Source: UNCTAD.12. since the beginning of the 1990s. New Zealand . based on OECD. France for 18 per cent and Development Assistance (DAC) Committee. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Africa. although Japan 350 1 143 201 340 the majority (22) rank low on both indices Netherlands 94 153 297 816 (table II. In general. Performance Index squares well with the fact that. United States 1 866 404 278 9 249 During the period 1996-2000. 96 1 560 Most of the FDI flows to Africa Spain . the United States alone accounted for more than Source: UNCTAD. Germany endowments. the trend towards a more FDI flows into Africa have been increasing even distribution of the origins of FDI flows gradually after a long period of stagnation. a 1981-2000 African countries have mediocre economic (Millions of dollars) growth rates. 50 476 come from only a small number of home Sweden 177 48 4 197 countries (table III. Moreover. to Africa that seemed to emerge during the mid-1990s (UNCTAD. the fact that a good and Portugal followed at some distance.2.

a France. Significant investments from the United Kingdom in Egypt. the United Kingdom and the United States only. the Netherlands. major investors in southern Africa – accounted For example. Services industries have exceptional year (2000) when its outflows gained in importance in recent years. and petroleum are largely responsible for H o w e v e r. recorded net divestment over the five-year when flows were even negative at times.6 billion between only $106 million in 1991-1996) to almost the two periods. including in the retail The bouncing back of the United sector. Spain ranks FDI flows to Africa were higher in the second just after the United Kingdom. FDI from the United States such as Germany and the Netherlands – also went to other sub-Saharan countries.8 billion in 1996. often buying with the EU on the creation of a free trade back the affiliates they had sold when pulling area. Switzerland. This trend may have been $5 billion in accumulated flows during 1996. Africa and sub-Saharan Africa is that countries At the same time. while France. although amounted to more than $1 billion. Spain.6 Secondary sector 1 085 1 114 1 233 1 812 1 297 6 541 20. traditionally sector has remained the most important over the most important source of FDI for that the past decade. perhaps. Only flows increased significantly in 1996-2000 two home countries. especially on account Spain to North Africa grew more slowly of banking and finance. from which half of the 1990s than in the first half. influenced by the fact that. Japan. based on data obtained from various central banks and ministries. Sweden and the United Africa recovered from two periods of Kingdom – to sub-Saharan Africa increased substantial divestments (-$581 million in the from $1 billion per annum in 1991-1995. from the same countries to North Africa 2000. into services were higher or as high as those Saharan Africa. 52 . despite cent in the accumulated FDI to Africa for an increase in flows to $605 million compared the period 1996-2000 (table III. 25 TNCs from the United States were North African countries concluded agreements very active in South Africa. flows to sub-Saharan Africa recovered showed a similar picture.0 Source: UNCTAD. during the 1990s. However. P o r t u g a l ’s r i s e i s d u e t o o n e this performance. Of the developed countries. 26 Oil to $492 million in the period 1991-1995. transportation and Table III. to both North and sub-Saharan Africa was somewhat similar during 1996-2000. FDI outflows from major investors a to Africa. for FDI in Africa is. Flows 1996) to more than $3. the fourth largest investor in North Africa. however. fell back to third place. with a share of 55 per subregion. sub-Saharan Africa. 1996-2000. Germany. Geographic their share (25 per cent) in total FDI flows proximity might play a role in Spain being is much lower than that of the primary sector. While flows to North Portugal. Portugal became the second largest investor in North Data for FDI flows to Africa from Africa after the United States during the major home countries suggest that the primary period 1996-2000. the most remarkable development during 1996-2000. Australia and Norway.6 Tertiary sector 624 2 155 52 3 108 1 931 7 871 24.8 Total 4 842 7 639 6 341 7 647 5 257 31 726 100. In the past two years. Overall.3). 2000. the Netherlands. and natural gas reserves in Angola and along the home-country distribution of FDI flows the western coastline of the continent. to $2 billion per annum in 1996-2000. World Investment Report 2002: Transnational Corporations and Export Competitiveness 19 major developed countries. FDI flows from into the primary sector.3. and -$454 million in 1991. FDI flows while it ranks only tenth for flows to sub. period. accumulated than they did to southern Africa. period 1986-1990. A striking difference between North out of the country during the apartheid era. 1996-2000 (Millions of dollars and per cent) Total Distribution Sector 1996 1997 1998 1999 2000 1996-2000 share Primary sector 3 133 4 369 5 056 2 726 2 029 17 314 54. by sector. Germany. United States TNCs were at for relatively small amounts of FDI in North the forefront of exploring newly-found oil Africa during 1996-2000. were among the main drivers behind States to the top position among sources this development. however. FDI flows from almost all EU countries Its FDI flows increased in both North and – including France. ($506 million). The combined from a longer period of relatively low levels flows from the EU countries to North Africa ($986 million for the period 1986-1990 and rose from $814 million to $2. compared to previous periods.

and $70 million (in 1986-1990 and 1996-2000). sector has always been rather weak. a further improvement of Botswana’s It has also contributed to the second phase of creditworthiness. one of the reasons being with peaks determined by investments in three a dearth of local businesses. Between 1975 and 2000. Food development of local industries.3). a By contrast. more than two-thirds quite stable. to which it belongs. the link between large FDI diversification. It should be in connection with flag-of-convenience shipping. of a total of 331 annual inflow of $127 million was registered in enterprises licensed and operating between March 1979. Foreign firms are prominent Botswana’s early opening to FDI was in road transport. In partnership with the Government. always been the domain of local. liberalization of the capital account and economy. from purely agriculture to include mining. More FDI has provided the resources critical for the recently. or than the LDCs as a group (to which it belonged at independence). noted that even if the amounts of FDI inflows which. mainly State- Very large negative flows – of $287 million – owned firms. economy appear weak. commercial banks have always macroeconomic environment conducive to a sound been foreign-controlled. role in attracting FDI in other developing Transportation FDI includes flows into Liberia regions – were insignificant. has not yet implemented. More importantly. As for were often limited. This poses one of the most disproportionately larger amount of FDI than the formidable challenges to Botswana’s development. as in the products as well as steel and metal products case. half of them being joint ventures hovering between $50 million (during 1981-1985) with local partners. The first two industries benefited. becoming a middle. the local private changes in the ownership of a copper-nickel mine. they nonetheless played manufacturing. among government revenues which were invested wisely others. with five-year annual averages were foreign. for example. especially Until the 1990s. of Botswana (box III. 53 . Its progress A major $400 million expansion of the Orapa was spearheaded by the discovery of rich deposits diamond mine during 1998-2000 did not prevent of diamonds in 1967. as remains an unfinished business and a continuing challenge to the Government. is counted as FDI but. Such firms are also visible in financial occurred in 1993 because of losses and subsequent services. it gained independence in 1966. f o r t h c o m i n g a . Somewhat unusually for a developing country. they economic pressures of transformation. In tourism. early inflows the 1990s Botswana lost its position vis-à-vis of FDI strongly boosted export receipts and these countries as they opened up to FDI. except beef-processing and infrastructure services have for the 1991-1995 period when they were negative. through privatization. flows remained 1997 and February 2001. accounted for the largest share of FDI flows Box III.3. agriculture. and the in many industries early in Botswana’s development Government’s handling of the fiscal. FDI inflows were lumpy. other 13 members of the Southern African which has so far been driven mainly by large State- Development Community (SADC) regional grouping owned and foreign firms. Botswana received a in manufacturing.CHAPTER III REGIONAL TRENDS trading. statistically. Unlike other developing a fall in FDI inflows from $96 million in 1998 to countries. however. It decided to exploit diamonds in a joint venture with foreign investors Foreign firms came to play a significant role and avoided nationalizations. FDI has had little direct impact on employment. A record construction. “beyond diamonds”. Botswana has been open to FDI since $30 million in 2000. from privatization processes and electronic equipment. S o u rc e : U N C TA D . a Information from the Department of Tourism of Botswana. FDI flows into electrical at least partially. Botswana: the role of FDI in economic restructuring Botswana stands out as the sole graduate investors have a choice of financing options from the category of LDCs. FDI also contributed factors in Botswana’s economic success. textiles or motor as well as from a few cross-border M&As vehicles – all industries that play a prominent in a small number of African countries. has little do with it. to the development of the manufacturing sector. wholesale trading and rewarded with large inflows in the 1970s. diamond mines and copper and nickel mines. income country within one generation. but this projects and FDI inflows has become weaker. FDI. On the other hand. Concentrated in mining. with no shortage of local first phase of the diversification of Botswana’s savings. typically unavailable in many developing countries. into this sector. with a strong foreign presence include insurance and business services. Other service industries investment climate. it was the least important an important role in some countries in the sector for FDI over the past decade. were key developed the mining sector. although this is small (4-5 per cent of GDP). During In terms of qualitative impact. into manufacturing and service industries de facto. Linkages with the local On an annual basis. In it has managed to create a long-term the services sector. social and effort. which Botswana and created the foundation for long-term growth.

2001a) and MIGA (MIGA. the Kingdom to Africa are due to that country’s Transvaal Clothing Corporation (TRALCO) strong financial industry. 20. hosts a large number of oil firms are buying more South African textiles. by the United States. composition of FDI flows into Africa is largely explained by the different industrial structures AGOA has also had an impact on intra- of the home countries. For example. African FDI and trade. there are Implementation of AGOA (USTR. 27 has announced plans to construct a plant in Swaziland (box III. AGOA has led to FDI in two garment • In the United Republic of Tanzania. Surveys by UNCTAD/AFII/ countries. 54 . Mauritian garment for example. these have included the following (although it • In Senegal. South African companies • In Ghana. Andersen (UNCTAD. Japanese access to developed-country markets may FDI went mainly into transportation. leading to 8.000 new jobs over the next to $13 million and providing over 20. In addition. In the case of the by Egypt. the establishment of a new acquired by a United States company. Japan and the 20 per cent of the respondents saw greenfield United Kingdom. while most FDI from other home exporting rather than investing. The African of which had to do with flag-of-convenience Growth and Opportunity Act (AGOA) initiative shipping.000 jobs over the next 10 jobs. of United States clothing companies and retailers.000. prospects of Asian and European companies the adoption of this Act in May 2000 has started building cotton-yarn spinning mills. years.000 workers has been announced by a announced by Portuguese companies. In the case of the United States. most FDI went into the primary that TNCs prefer to tap African markets by sector. New trade and investment initiatives in sub-Saharan Africa in response to AGOA According to the 2001 and 2002 Reports • In Mauritius. • In Malawi. 29 Box III.000 jobs. The United States. for a total of 1. Reportedly. Only about countries such as Germany. 2001b.350 jobs. went into services. Source: USTR.4. 2001b. Total employment could increase eventually by 10. major United States retailers. and two $100 million clothing facility expected to employ new investments in the garment industry were 13.4). World Investment Report 2002: Transnational Corporations and Export Competitiveness Obviously. the industrial pattern of Future FDI is also likely to focus on FDI flows differs among individual home a few countries. a new investment is planned in new investments.000 new five years and 18.000 jobs. Malaysian company. the Government has so far announced • In Namibia. followed quite far behind to Africa since 1996. most strengthen manufacturing FDI. while the large and South African firms are investing in banking-related outflows from the United neighbouring countries. 30-31. • In Kenya. and petroleum companies. and only 12 per cent from the United Kingdom were particularly considered acquiring an African firm. a leading Senegalese apparel and is difficult to ascertain whether they would have textile company plans to enter into partnership taken place in any event): with a United States textile manufacturer and a Malaysian firm to export to the United States. for example. pp. to generate new trade and investment responses there are reports of substantial new orders from in a number of beneficiary countries. • In Cape Verde. a fish-processing company was • In South Africa. pp. amounting million. a United States company is investing are also receiving new orders from a variety in a tuna-processing plant. in apparel production. and the European Union’s “Everything-but-Arms” programme are expected The difference in the industrial to help in this respect (see Part Three). 2002).000 workers. 2002. Both modes of FDI accounted for considerably higher active in banking and finance as well as shares in other developing regions. Recent in trading. and German firms concentrated initiatives to grant African manufactures better on construction and real estate. 28 The former survey also revealed Netherlands. TNCs FDI as an option. reports factories (by a European company and a indicate the expansion of a textile mill in Taiwanese company) and the creation of at partnership with a United States firm involving least 4. with the potential creation of 1. In the near future. FDI worth $78 million has already of the President of the United States on the taken place. oil and petroleum have accounted 2002) suggest that South Africa will remain for more than 60 per cent of all FDI outflows the main destination. 114-115 and USTR. and expansions of existing the apparel and textile sector of more than $250 investments.

13. China regained its position – lost to top 10 countries.g. inflows in 2001 were at the peak reached in the previous decade. Asia and the Pacific to African countries to exploit their temporary privileges. For all other African countries. If (for details. China in 2000 – as the (Millions of dollars) largest recipient in both the region and the developing world. while FDI potential improved (figure III. not surpassing of such access may be temporary and confined the $100 million mark even for such a large to activities like apparel. That decline in turn was largely due Malaysia and Singapore (figure III. reinvested 55 . linkages and infrastructure in Africa which had recorded a massive inflow and make the facilities fully competitive ($62 billion) in 2000 (WIR01. The effects FDI flows were insignificant. FDI inflows to China – the largest recipient among developing countries for most of the past decade – regained their momentum after three years of stagnation.15 and to a reduction in FDI outflows from Liberia table II.4 and South-East Asia. they increased billion in 2000. Singapore and Turkey were leading recipients in their respective subregions (figure III. when inflows increased by 19 per cent over the same period of 2001. FDI outflows from Africa would have been Republic of Korea and Taiwan Province reduced only by some $650-$800 million in of China) FDI performance declined in 2001. Africans sold more of their foreign economies of the Asia-Pacific region in global affiliates and repatriated the capital. Hong Kong (China). a note of caution is in order. As almost all FDI into Liberia is related to the registering Within these overall trends. on a net (figure III. According outflows are – as the inflow figures – distorted to the UNCTAD Inward FDI indices. FDI/TNC database. economies performed unevenly in 2001. Kazakhstan. This means that. It is thus vital to use the of the decline was due to an over 60 per duration of the privileges to build up local cent drop in flows to Hong Kong.2). 2000 and 2001 a Hong Kong. However. Africa: FDI outflows. The upward trend in FDI is likely to be sustained in the coming years. China. this is discounted. skills. box III. For the first time ever in significantly in South and Central Asia (by the past 30 years. Total outflows from the region stood While they remained stagnant in North-East at -$2. to reach $47 billion in 2001.1).16). and withdraw FDI flows to the developing economies once the privileges end (or when the ending of Asia and the Pacific declined from $134 of the Multi-Fibre Arrangement makes them billion in 2000 to $102 billion in 2001.CHAPTER III REGIONAL TRENDS While these schemes to provide of ships under flag-of-convenience. (more than $500 million in 2001). Aside from investment by new entrants. during by the Anglo American-De Beers transaction the past decade. Figure III. India. (see WIR00.13). of the country’s accession to the WTO a Ranked on the basis of the magnitude of 2001 FDI outflows.5 billion in 2001. FDI. the FDI to nearly 14 per cent in 2001. in which there country as Nigeria. FDI may flow 2. 30 Excluding that transaction. are significant constraints on exports by other developing countries. 25). particularly in the light Source: UNCTAD. p. compared with $1. it has privileged access to United States and EU little significance for the overall FDI trends markets for African exports may stimulate in Africa.14). in many economies (e. Much less important). despite high costs. FDI flows from Africa 32 per cent and 88 per cent. respectively) were negative. than inflows increased from 9 per cent in 2000 they invested abroad. see Part Three). The share of developing basis. The momentum continued in the first half of 2002.

China. Myanmar. Thailand. based on table II. valued at $24 billion (WIR01. an 8 per cent increase over the previous year Source: UNCTAD. FDI continues to play a prominent investment. (table III. FDI inflows and their share in gross The FDI boom in fixed capital formation in developing Asia and the North-East Asia subsided. economy as a business hub for the region continued to be strengthened. p. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure III. Bhutan. Republic of Korea fell by two- and Taiwan Province of China. Mongolia. Korea. By 2001. Philippines. Inflows to Taiwan Province of China in 2001 amounted earnings of foreign affiliates in China have to $4 billion. Bangladesh. South Asia includes: Afghanistan.5). South East Asia includes: Brunei Darussalam. FDI/TNC database. mostly on account of a single large acquisition in telecommunications. and Viet Nam. Figure III. 3. FDI in the Note: North East Asia includes: Hong Kong (China). Macau (China). Republic. 32 (China. Pakistan. The growth of FDI to this subregion in 2000 was largely due to a doubling of inflows to Hong Kong. with Pacific.4). Lao People's Democratic Republic. Nevertheless. MOFTEC. the role of the Hong Kong.1 and annex table B. The new regulations governing affiliates now account for 23 per cent of the M&As passed in January 2002 are another total industrial value added.1. Korea. Its accession to the WTO has for about one-third of the total inflows during increased its attractiveness for international 2000-2001. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Asia. Cambodia. Nepal. thirds in 2001.15. particularly in the services sector role in China’s economy. to $3 billion.14. For example. 2001a). and Sri Lanka. Democratic People's Republic of. 1990-2001 inflows falling from $76 billion (Billions of dollars and percentage) in 2000 to $30 billion in 2001. accounting high levels. India.237 TNCs had established regional offices there (including 944 regional headquarters). 31 Maldives. 1988-1990 and 1998-2000 Source: UNCTAD. crisis M&As tailed off. 56 . China. foreign (box III. Indonesia. thus remaining at historically become an important source of FDI.25). Malaysia. as the wave of post-financial- Singapore. 18 per cent of factor that will encourage TNC participation tax revenues and 48 per cent of total exports in the restructuring of the economy.

Table III. sciences as the next pillar of its manufacturing growth. c The total is higher than the actual number (944) due to the inclusion of joint ventures undertaken by two or more foreign investors. but still below the peak of $11 billion reached in 1997. including the extension of the reinvestment allowance period from 5 to 15 years. architectural. 2000 and 2001 a reason was continued divestment ($3 (Billions of dollars) billion in 2001) in Indonesia.16.CHAPTER III REGIONAL TRENDS Flows to South-East Asia Figure III.8 billion in 2001. e The total is higher than the actual number (944) due to the fact that some parent firms are engaged in more than one line of business. and has been a Ranked on the basis of the magnitude of 2001 FDI inflows.2 billion in 2000 to $1. Inflows to the Philippines rose from $1. f The total is higher than the actual number (944) due to the fact that some regional headquarters are responsible for more than one area. the Government introduced a number of incentives. Regional headquarters established by foreign firms in Hong Kong. top 10 economies. the first time since 1998. FDI/TNC database.4. engineering and surveying 44 64 Thailand 329 Netherlands 48 Wholesale. entertainment. 57 . where divestments have exceeded inflows since late 1998. Singapore has designated biomedical Source: UNCTAD. Part of the FDI inflows. d The total is higher than the actual number (944) due to the fact that some regional headquarters are engaged in more than one line of business. retail and trade-related services 375 255 Malaysia 312 France 43 Tourism. 2002. b Ranked in descending order. and tax measures to benefit the machinery and equipment industry and manufacturing-related services. China. FDI in Singapore also increased by 59 per cent to $9 billion. Developing Asia and the Pacific: stagnated at $13 billion. a As at 1 June. Faced with the erosion of its competitiveness in electronics vis-à- vis other countries in the region. In Malaysia. 2001 a (Number) By industry By regional By parent By home economy b headquarters firms By area of responsibility b United States 221 Manufacturing: 66 133 China 782 Japan 160 Electronics 63 112 Taiwan Province of China 486 United Kingdom 90 Biotechnology 3 21 Singapore 392 China 70 Services: 750 700 Republic of Korea 356 Germany 56 Construction. restaurants and hotels 18 22 Philippines 311 Switzerland 34 Transportation and related services 61 59 Japan 298 Singapore 25 Te l e c o m m u n i c a t i o n s 21 20 Indonesia 276 Taiwan Province of China 22 Financial services 94 136 Australia 220 Others 180 Business and professional services 81 67 India 216 Information technology 40 53 Other countries/territories 135 Media and multi-media 16 24 in the region Others 285 354 To t a l above 949c 1 101d 1 187e 4 11 3 f Source: Hong Kong Census and Statistics Department. FDI remained stagnant. in response.

in response. both inflows and outflows of trade-related investment measures in industries are likely to reach new and higher levels. As the FDIregime will reduction of import restrictions and the elimination be gradually liberalized. Effective January 2001 doubled from their annual average of the 2002. most manufacturing services sector will replace manufacturing as the industries in Taiwan Province of China had been engine of growth for inward FDI. after investment into the mainland. to $3 billion in 2001. but also enable environment. 58 . by far the announced expansion or entry there. there will be a significant reduction of import tariffs. The $50 million the preliminary liberalization measures taken by ceiling on individual projects has been removed the Province in the process of accession to the and approval for investments of less than $20 WTO. $3. million has become automatic. freer access to the import Penhu. Toyota. the authorities in Taiwan Province foreign joint-venture partners to increase their of China have already lifted restrictions on direct equity shares in existing affiliates. FDI flows to the economy during 2000.8 billion. such as automobiles may reduce flows by eroding S o u rc e : U N C TA D . FDI flows on a balance- FDI in Thailand increased by $1 billion of-payments basis remained at the same to $3.3 billion). In the largely open to foreign investors and had already manufacturing sector. In sum. Taiwan Province of China has committed competitive pressures in a number of previously to liberalizing a number of industries. accession to the WTO will make the island economy more attractive to FDI. Accession prominent role in the process of restructuring to the WTO may not. over time. World Investment Report 2002: Transnational Corporations and Export Competitiveness improving infrastructure and targeting high. increased restricted. India. In services. the authorities also lifted the ban on 1990s (annex table B. up to relocate to Singapore (EIU. Kinmen and Matsu) in January 2002. mainly boosted by flows investments in notebook computers. Accession-related liberalization of trade Accession to the WTO has made the and investment will probably also accelerate economy of the Province more attractive to foreign outward investment from the economy. health and social In fact. and increase the substantial trade and investment liberalization. communications. Leading companies in biotechnology of its accession to the WTO. a phasing out of quotas. the competitive landscape. The Unlike services. Nevertheless. Indeed. of the business community. outward FDI. a 32 per cent increase over the previous manufacturers such as BMW. distribution. The accession to the WTO of Taiwan Province of China: implications for FDI Taiwan Province of China joined the WTO the incentive for “barrier-hopping” FDI. The share of the services generation mobile phones and consumer sector in total inflows increased from an average electronics products in the mainland. and partly to the The removal of foreign equity limitations will imperatives of the post-accession trading not only attract new investors.4 billion went to India Land Rover and Ishikawajima-Harima (a 47 per cent increase). third- to the services sector. As the investors. therefore. chassis and bodies. and induce more domestic firms to invest abroad.1). a (as the Separate Customs Territory of Taiwan. education. including venture with the United States and the prospects capital. Of this. TNCs continued to consolidate their regional auto-manufacturing Inflows into South Asia reached $4 bases in Thailand. 2002a). and maritime and air transport services. in which FDI was largely domestic market becomes more open. as well as the elimination of local-content requirements and tax incentives for domestically-produced automobile engines. Honda. immediately have and consolidation in response to a new and more substantial FDI-generating effects. of 37 per cent during the 1990s to 58 per cent in 2001. of inputs could help improve the cost-quality Fulfilment of its WTO obligations involves conditions of manufacturing. This may reduce the incentive for some foreign investors to invest directly in domestic subcontractors or may induce them to bring in foreign suppliers. has been Box III. partly to the long lobbying services. FDI will play a more attracted a significant amount of FDI.5. Nam is entering a new era as host to FDI. Indeed. potential companies in that industry through strengthened by its bilateral trade agreement various investment funds. year. Viet largest recipient in the region. including protected industries will necessitate restructuring business services. attractiveness of the economy as a site for which will have an impact on its inward and efficiency-oriented manufacturing FDI. Although FDI from both Europe and Japan have signed commitments in the country rose by a third. financial services. but remained lower than its level as in 2000 ($1. a In the automobile industry. peak level in 1998. Auto and auto component billion.

even in Turkey.to medium-technology goods (Sadik environment. to $3.6 billion. Resource-based activities – particularly affiliates.1 billion in FDI in 2001. 2001). helped by the establishment of FDI in Central Asia rose by 88 per the Saudi Arabian General Investment Authority cent in 2001. partly reflecting. only Jordan improved investment.6.1 and annex table B. S o u rc e : U N C TA D . Moreover. one. 1988-1990 and 1998-2000 Source: UNCTAD. FDI potential in West Asia Total FDI in West Asia accounted for less which had the largest inflows in the region than 0.1). considerably by GDP – there is much greater potential higher than in the previous year. $3 billion).1 and II. The subregion as a whole (the in copper and zinc. tenth of its share in world GDP. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in West Asia. It has largely missed out on linking with $200 million in FDI in 2001. 59 . though many of inflows (77 per cent).6). apparently can attract export-oriented operations in due to perceived instability in the investment low. regimes. 33 There are many countries further.1).6 per cent of world flows in 2001.3). decade (box figure III. Turkey.CHAPTER III REGIONAL TRENDS taking steps to liberalize its FDI regime South-East Asia.1. is an exception. considering the market size of the region – almost West Asia is estimated to have received equivalent to that of China as measured $4. judging FDI Performance Index and Inward FDI Potential from the ratios of FDI to GDP and domestic Index have been calculated. Overall.6. a strategy pursued thus 11 event.1. particularly after the September and Bolbol. (roughly $3 billion) in 2001 (annex table B. based on table II. inflows are not commensurate with the country’s potential The distribution of FDI is uneven in the (tables II. FDI into Saudi Arabia also increased. however. political instability and in this region for which the UNCTAD Inward risk (Fujita. Among the eight countries region. The Pacific region countries in the region have liberalized their remains marginal in terms of FDI inflows. However. driven by the (SAGIA) and the introduction of tax incentives doubling of inflows to Kazakhstan ($2. as well as in oil and petroleum sector apart) continues to be gas extraction – absorbed the largest share marginal as a recipient of FDI.6. 2001b). Inflows into other economies in the in the subregion with the cheap labour that subregion stagnated or declined. far only by Turkey.8 and a law allowing wholly-owned foreign billion). Turkey for market-seeking FDI than has been realized had the largest inflows in the region (roughly (box III. the role of FDI has declined in West its position based on both indices over the past Asian economies over the past 15 years. Political up to the international production systems instability and poor infrastructure compound that have driven export growth in East and the structural constraints of location and Box III. Box figure III.

after the M&A boom during the financial crisis. Greenfield investment will become. FDI/TNC database. the preferred option by far for TNC entry into the region Source: UNCTAD.I. (MIGA.17 and annex territory’s outflows in 2001 were only $9 billion. FDI/TNC database. to over $2 billion in 2001 (annex table B. World Investment Report 2002: Transnational Corporations and Export Competitiveness size in the Pacific island countries.2).8). Malaysia and Singapore as favoured destinations. China topped the list in Asia. Singapore overtook Hong Kong.5). hit its lowest for a significant share of gross fixed capital level since 1998 (figure III.17. top 10 economies.18. The value of cross-border acquisitions by Indian firms doubled. 60 . of entry over the past two years. followed by Indonesia and Thailand. formation. China. one of the distinctive features of outward FDI from developing Asia is the shift in the mode Source: UNCTAD. in both these subregions.18). particularly the asset-seeking kind. Indeed. table B. 1998-2000 a Outflows from Singapore doubled (Percentage) in 2001. of a massive fall in outflows from the largest far higher than in other developing and traditional investor. by the DBS Group of Singapore ($6 billion) (annex table A. Outward FDI from developing Asia. The developed regions (figure III. via cross-border M&As. Developing Asia and the Pacific: FDI in the Asia-Pacific region remain outflows and their share in the world. Hong Kong. However. FDI accounted at about $32 billion in 2001. Indian TNCs accelerated their outward investment. Overall. China. Surveys suggest that Asia (Billions of dollars and percentage) will continue to be an important location for the expansion of activities within TNCs’ international production s y s t e m s . compared to $59 billion in 2000. 2002). once again. 1990-2001 bright. mainly because formation (23 per cent during 1998-2000). China as Figure III. prospects for FDI Figure III. This increase was boosted by two major cross- border M&A deals: the acquisition of Cable & Wireless Optus of Australia by SingTel of Singapore ($9 billion) and the acquisition of the Dao Heng Bank Group of Hong Kong. a Ranked on the basis of the magnitude of 1998-2000 FDI inflows from greenfield investment to as a percentage of gross fixed capital formation. 2001a). Developing Asia and the Pacific: t h e r e g i o n ’s s i n g l e l a rg e s t FDI flows as a percentage of gross fixed capital outward investor (figure III. The recent MIGA survey also ranks India.19). T h e U N C TA D / A F I I / Andersen survey reported that over half the respondents saw “improved” or “significantly improved” prospects for FDI in the region in the next t h r e e t o f i v e y e a r s ( U N C TA D .

FDI/TNC database.3 11 8 Haier Group Corporation Refrigerator production 328 3 188 976 7 260 803 31 281 8. ranked by foreign assets.5 3 5 China State Construction Engineering Corporation Construction 3 739 8 099 1 818 5 790 6 833 236 464 26. mainly State-owned enterprises. Much of its of them are small and medium-sized TNCs. to about $2.CHAPTER III REGIONAL TRENDS Figure III. 2001 (Millions of dollars and number of employees) Ranking by Assets Sales Employment TNI a Foreign (Per assets TNIa Corporation Industry Foreign Total Foreign Total Foreign Total cent) 1 3 China Ocean Shipping (Group) Company Transportation 9 382 16 926 2 149 6 757 4 124 74 669 30. 2000-2001 a 1980s to capital-intensive and high-technology (Billions of dollars) (electronics and computer components) ones in the late 1990s. Non- State-owned enterprises are now following FDI from Taiwan Province of China the State-owned ones abroad.8 6 2 China National Chemicals Imp and Exp Corp. The 12 largest TNCs from China. a TNI is the abbreviation for “transnationality index”. investment went to China.5. abroad rapidly. although most fell by 18 per cent in 2001. 61 .000 foreign employees and $33 billion from the region.0 10 11 Shanghai Baosteel Group Corporation Steel and iron 383 19 389 1 211 8 643 50 113 896 5. Korean TNCs continued to sell off non-core activities abroad. Trade 729 2 797 998 4 277 570 7 145 9. Outward FDI from the Republic of Korea declined by almost 50 per cent. Trade 3 707 5 014 6 446 13 004 359 25 000 41. over time.6 5 12 China National Petroleum Corporation Petroleum 3 350 83 254 1 600 41 089 4 400 1 167 129 2. two- thirds of it is located in Asia and a quarter in North America. foreign sales to total sales and foreign employment to total employment. The trend is likely to continue.8 12 10 ZTE Corporation Telecommunication equipment 17 1 205 260 1 685 120 12 961 5. The nature in over 40 countries. The top 12 Chinese TNCs. Developing Asia and the of activities transferred to China has changed Pacific: FDI outflows.4 7 9 SHOUGANG Group Steel and iron 969 6 675 467 4 401 2 086 179 997 8. now control M&As. Trade 2 788 4 928 9 148 16 011 350 7 950 39. FDI/TNC database.19. Oils and Foodstuff Imp and Exp Corp.6 billion in 2001. Over half of Korean outward FDI stock remains in the manufacturing sector (mainly in electrical and electronics). 35 Source: UNCTAD. 34 in foreign sales in 2001 (table III. The latter reached $25 billion in over $30 billion in foreign assets with over 2001. not only in Asia but Table III.8 8 6 China National Metals and Minerals Imp and Exp Corp. leading to a reduction in their foreign assets by almost a third between the late 1990s and 2001. as its industries Non-State-owned firms now have investments have steadily relocated there.5).9 Source: UNCTAD.8 4 1 China National Cereal. The transnationality index is calculated as the average of the following three ratios: foreign assets to total assets. given the easing of restrictions on FDI from Taiwan Province of China into China and the WTO accession of both economies.9 2 4 China National Offshore Oil Corporation Petroleum 4 814 8 635 976 3 669 13 24 406 27.1 9 7 China Harbor Engineering Company (Group) Construction 520 3 271 6 579 17 826 812 70 160 18. a Firms from China have been expanding Ranked on the basis of the magnitude of 2001 FDI outflows. about 80 per cent of the outflows 20. from labour-intensive ones in the top 10 economies.

it is the smaller. 1990-2001 of the largest countries (Argentina (Billions of dollars and percentage) and Brazil). 62 . 2000 and 2001 a the economies in Latin America and (Billions of dollars and percentage) the Caribbean are attracting shares of global inflows that exceed their shares in global GDP. by 50 per cent.23). (Zhan and Ge. The region received $85 billion in considerably over the past decade (figure 2001. middle-income economies that have the greatest potential in the region.20.2). 2002). Among with great potential by TNCs interviewed the leading non-State-owned TNCs are the for a recent survey (see below). World Investment Report 2002: Transnational Corporations and Export Competitiveness also in other parts of the world. 11 per cent less than in 2000. despite being considered countries a Ranked on the basis of the magnitude of 2001 FDI inflows. top 10 economies. FDI/TNC database. According to UNCTAD’s Inward Figure III.5 billion – the second largest acquisition in the region ever and the third largest worldwide in 2001 (annex table A.I. which III. while those with the lowest GDP per capita have the least. The increase was driven by the acquisition of Banamex (Banacci) by Citigroup for $12. with Bolivia and Trinidad and Tobago heading the list (figure FDI into Latin America and the III. despite poor potential. Partly because the FDI Potential Index captures mainly structural factors other than the size of an economy.20).7 on the impact of the Argentine crisis on FDI flows. According to the UNCTAD Inward FDI Potential Index.21. FDI flows Figure III.21 and annex table B. a majority of FDI inflows. 16 had values of one or higher. large economies like Mexico and Brazil rank relatively low on the FDI Potential Source: UNCTAD. FDI inflows and their share in to the telecom industry dropped gross fixed capital formation in Latin America substantially.) However.1). Of the 24 economies in the region for which the Index has been calculated (chapter II). Latin America and the Caribbean: FDI Performance Index. Mexico doubled its inflows to $25 billion. as did flows to two and the Caribbean. As a percentage of total investment (measured by gross fixed 3. Index. the Wanxiang Group (9 foreign and some countries with important natural affiliates) and Zheng Tai Group (7 affiliates) resources rank relatively high on performance. FDI/TNC database.5 billion. to reach $5. Latin America and the capital formation). Some small Huawei Technologies Corporation (40 foreign Caribbean and Central American economies affiliates). countries with important natural resources received the largest flows Caribbean 36 of FDI during 1998-2000. in turn was 13 per cent lower than in 1999 (figure III. (See box III. overtaking Brazil to become the largest FDI recipient in the region for the first time since 1995 (figure III. It is worth noting that Bolivia’s ranking Caribbean declined for the second year in on the FDI Performance Index has improved a row.22). 37 FDI in Chile also rose Source: UNCTAD.

a Spanish meat-processing and 1992. /. As of the acquisition of the oil company YPF by yet. the period 1998-2000 was comparable to that may lead to acquisitions by foreign firms. Nevertheless. peaking in 1999.5). The of Brazil and Mexico (annex table B. among other reasons. The Convertibility Scheme was cent in 2002.. Box figure III.b The deepening crisis finally affected FDI inflows in 2001 and they fell (by Argentina’s economy has now gone 70 per cent) to the level of the early 1990s.000 significant investments in the 1990s – for largest firms in Argentina increased from 34 example. giving rise to public demonstrations the fall in foreign currency prices of domestic against the banking system and eroding the assets. based on data from Argentina. and of the currency convertibility scheme that had the United States grain trader. In fact. Bank deposits have been As with East Asia in 1997-1998 (WIR98). Total domestic GDP was more than 8 per cent below investment in foreign affiliates declined by 30 the 1998 level and a further fall of at least per cent in 2001. Flows depreciation also increases the attractiveness rose steadily.7.1).1. partly on account of the country for export-oriented FDI.CHAPTER III REGIONAL TRENDS Box III. FDI have abandoned their operations in the country.f inflows in 2000 were the second highest since Campofrio.7. there are no signs of this occurring Repsol of Spain (box figure III. In 2001. Tradigrain – been in place since 1991. Ministerio de Economia. the peso had been devalued vis- an expected fall of nearly 50 per cent in 2002. 1996. however. the country began to slide into and have even suggested that they might recession and suffer from high levels of country withdraw entirely. portfolio flows (partly linked packaging firm.1). France Télécom and HSBC – have per cent in 1990 to 68 per cent in 2000.e Some smaller firms – such risk and growing uncertainty about the future as the German autoparts maker. and its level in breakdown in the domestic financial system). frozen. a announced that they will not make more investments in Argentina in the near future. and it is expected to fall another 50 per 2002). some firms with of foreign affiliates in the sales of the 1. to the fixed capital formation rose.c That compares with a fall in total abandoned early in 2002 and. d à-vis the dollar to almost a quarter of its value six months earlier. and June 2002.. However.7. Financial flows to Argentina 1994-2001 (Billions of dollars) Source: UNCTAD. reaching its lowest level since another 15 per cent is expected in 2002 (IMF. FDI and the economic crisis in Argentina FDI played an important role in Argentina’s are heavily indebted and have limited access economy in the 1990s. are expected to fall further in 2002.7. Kautex. by the end of domestic investment of 16 per cent in 2001. they through three years of deep recession. The ratio of FDI to gross to liquidity (due. has put its Argentine affiliate to M&As) had already turned negative in 1999 on sale. 63 . In 1999. g (box figure III. and the fact that many domestic firms trust of Argentine citizens in local banks. The share on a substantial scale.

if any. Banks and other portfolio do not trust privatized firms. For instance. i Others are reconsidering the FDI. of a 36 per cent voting stake in branches afloat. Fiat Iveco was to close its truck been “sold out” to foreign investors. with the exception of the pesos. their headquarters generally have been acquisition by Ambev. The financial investors in Argentine firms – including so. a is dominated by TNCs. which If price rises continue to be modest. and to the conversion of dollar-denominated with or without foreign affiliates in the country. A significant proportion of Argentine planned closure of production lines. prices of Argentine exports. crisis that led to the freezing of bank accounts called “vulture funds” – as well as TNCs. recession has created significant idle capacity Consumer prices are estimated to have in most industries. telecom services. the production of cars. information services from Argentina. FDI and the economic crisis in Argentina (continued) It is too early to tell how these integrating the activities of the two firms in developments will affect FDI inflows and TNC order to consolidate their dominating positions operations in the country. to compete with those from India and the • Attitudes and policies with respect to inward Philippines. in utilities such as telecommunications. Chile.7. The inflationary impact on domestic prices. In fact. (Argentina’s central bank Quilmes. are committing increase exports from their Argentine affiliates. Paraguay. especially in imports more expensive (and hence creating banking. no their deposits away”. export increase in rates for services after privatization increases may take some time to occur. some Brazilian of those surveyed by the Argentine market firms interested in expanding their operations research firm Hugo Haime y Asociados) to abroad have already expressed their interest believe that foreign-owned banks had “taken in acquiring Argentine firms. A recent poll by Gallup advantage of the “bargain prices” of and two Argentine market research firms also domestic assets resulting from the crisis and showed that 55 per cent of Argentine citizens the devaluation. j However. the Brazilian brewing reluctant to provide funds to keep their local group. The impact will in Latin America’s Southern Cone. 64 . further funds to the affiliates they already For example. So far the devaluation of the peso has not had a major • The depth and duration of the recession. 2002).h For instance. Uruguay and • The effect of the devaluation on the relative Venezuela. both of depend on a number of factors: them had already invested in countries such as Bolivia. rate decline (and the consequent improvement while 60 per cent of the citizens surveyed in export competitiveness) cannot be agreed that utilities should be privatized in disregarded.. not only making major losses in recent years. k However. l Although for export-oriented FDI. and possible further increases to compensate for the fall in domestic demand. The was forced to suspend the operations of the acquisition of the cash-strapped Quilmes was Argentine affiliate of ScotiaBank for that mainly motivated by the objective of reason. nearly halved between significant devaluation of the real exchange 1998 and 2001. particularly in firms that increased by 20 per cent between January have not been able to increase their exports and April 2002. February 1992.) /. some foreign only a small number have reacted by pulling firms have already announced plans to out of the country. many TNCs are turning Argentina into an attractive location adopting a “wait and see” attitude. n Furthermore. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box III. that figure fell to 23 per cent in December 2001 (Graciela Romer & • The extent to which market-seeking FDI takes Associates.. For citizens seem to believe that the country has example. Argentina’s largest brewer. Foreign affiliates have suffered rate could be achieved.m few. Although foreign banks major acquisitions of firms in distress in did not make the decision either on the freezing manufacturing and/or services have been of the deposits or on their conversion to made so far. but is now mistrust of foreign investors is the large reconsidering this decision. of 30-40 per cent are envisaged during 2002. the possibility of a resumption According to polls by the Argentine market of high inflation reversing the real-exchange. One production facilities in Argentina and import factor explaining the present widespread those vehicles from Brazil. research firm Graciela Romer & Asociados. deposits into peso-denominated ones at a could acquire stock in indebted firms that rate significantly below the market rate of cannot meet their obligations but have a exchange led most Argentines (70 per cent promising future. Accenture plans to export have or to new projects in the country. As a result. supermarkets and new opportunities for local firms) but also oil refining.

Scotia Bank Quilmes. FDI prospects for Latin in both manufacturing and services. there is considerable uncertainty. but it is entirely possible that political events in Argentina could cause us to reassess this policy” (Financial Times. 5 March 2002). 15 March 2002. and Chile and Argentina not as much as in East Asia or Central and only for services. especially for those and an environment of institutional stability. 59). as regards restrictions on banking activities. The former has suspended the activities of its Argentine affiliate. foreign investors that may or may not be reflected Affiliates of IMPSAT have also had problems in FDI policies.24). investments during the 1990s. h Latin America Consensus Forecasts. p Clarín. p taken. such as a bankruptcy law. b A similar contrast between the behaviour of FDI and portfolio capital was observed during the Asian and Mexican crises in 1997-1998 and 1994-1995. ibid. m For example. to down in the region. pulled out of the country in 2002. a significant real peso devaluation. The data show the total amount of real investments in foreign affiliates. However. n Although there has been an improvement in the availability and quality of public services after privatization. In general. very often involving (MIGA. One quarter of the respondents – a higher share Most of the slowdown of FDI inflows of respondents than in any other developing to Latin America and the Caribbean can be region – considered M&As the most favoured attributed to a decline in Spanish FDI (figure form of expansion into the region. 17 June 2002. while America and the Caribbean over the next Mexico is considered a top destination only three years are likely to improve. TNCs in the country. respectively (see WIR98). for lack of liquidity and has put it up for sale. 12 March 2002. Eastern Europe (UNCTAD. Mexico and. o Página 12. or are being discussed (including with the industries involved). particularly in Brazil. in the near privatizations (WIR00. the MIGA where they had reached $8. at present most citizens appear to favour a re-nationalization of those services. with a resumption for Argentine firms that made significant outward of growth.7 billion in 1999 Box III. resources and human capital. FDI and the economic crisis in Argentina (concluded) Apart from the change in attitudes towards creditors will become the firm’s main stockholders. although for manufacturing. j La Nación. FDI in the region will continue to FDI inflows through privatizations have slowed be concentrated in Brazil. f La Nación. that will become an issued in the United States market) and has additional factor to induce FDI back into Argentina. The Government has taken control of the local affiliates of Credit Agricole after the parent company decided to abandon them (El Pais. 2002) concluded that. foreign investors may well be induced to invest IMPSAT. industries that have been privatized with TNC participation. 21 May 2002).CHAPTER III REGIONAL TRENDS A c c o r d i n g t o t h e U N C TA D / A F I I / survey shows that Brazil is attracting interest Andersen survey. which in 1999 and 2000 financed large and the similar one conducted by MIGA M&As in services. 7 March and 9 March 2002. a number of measures have been in meeting their debt obligations. 12 March 2002. Furthermore. the president of Volkswagen’s Brazilian operations said that while VW’s plant in Buenos Aires is viable – in March its chief financial officer had said that the firm was to close down the factory – the company will make no more investments for the time being (AFX Europe. and to inward FDI and the large public service a windfall tax on oil exports. 22 March 2002). a lesser extent. if the was not able to make a scheduled bond interest Southern Common Market (MERCOSUR) is able payment in December 2001 (the bond had been to make progress again. October 1991 and October 2001. affecting FDI in Argentina at present. that directly affect many To sum up. a firm that had expanded to many Latin again in this country that is rich in natural American countries to provide telecom services. HSBC’s chairperson said that the bank’s policy “is to invest for the long term. Chile. 38 By sector. Bank of Nova Scotia (Canada) and Credit Agricole (France). 2 May 2002). This survey III. i La Nación. and Mercado. August 1991 and July 2001. 31 March 2002. 24 March 2002. In fact. l For instance. d Latin America Concensus Forecasts. p. that have relied heavily on foreign credit. should Argentina’s The crisis may also have negative effects economic situation improve. g La Nación. 12 April 2002. recently agreed to a plan through which its Source: Chudnovsky and López. 2001a). k La Nación. two foreign banks.7. c According to data from the Centro de Estudios para la Produccion of the Secretariat of Industry. 65 . irrespective of the source of financing of those investments. a Estimates based on data from Prensa Economica. the freezing both economic factors and policy with respect and conversion to pesos of utility tariffs. e France Télécom’s Chairperson said that the company was likely to exit Telecom Argentina (Business News Americas. future.

23. Some other countries. which had attracted large M&As by foreign firms in 1999 and 2000.1.1 and annex table B. based on table II. from an average of 23 per cent in the period 1994-2000.26). which has been attracting substantially larger FDI Source: UNCTAD. In contrast. 40 mainly billion in 2001 (figure III. 66 . The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Latin America. driven by large acquisitions in banking (box III. Latin America and the Caribbean: as Argentina and Chile. The sectoral breakdown of inward FDI to the region changed in 2001 from the pattern observed in previous years.8) and telecommunications. Paraguay or Uruguay are finding it politically difficult to sell State-owned enterprises. inflows since the devaluation of its a Ranked on the basis of the magnitude of 1998-2000 FDI inflows currency in 1998 (figure III. they are unlikely because of disagreements about the regulatory to resume their high levels of the past in framework governing the industry. 1998-2000 a programmes. Brazil’s electricity industry. but were only $1 investment in power generation. while others such as (Percentage) Ecuador. have already FDI flows as a percentage of gross fixed capital completed most of their privatization formation.22. FDI into the services sector in Mexico rose to almost two-thirds of total inflows. In as a percentage of gross fixed capital formation. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure III. such Figure III. FDI/TNC database. Brazil saw a decline in FDI in services.25). 1988-1990 and 1998-2000 Source: UNCTAD. especially telecom and financial services. 39 and an increase in the manufacturing sector. FDI halved in 2001 despite the urgent need for and $7 billion in 2000. top 10 economies. 41 the near future.

5 billion. in financial services was the difficult situation faced by Mexican financial intermediaries as Figure III. 1996-2001 payments crisis in 1995. Citicorp. though the opening up of the industry to FDI started in 1994 as a result of the negotiations Figure III. Banco Santander of Spain in 1997. for nearly $12. (Billions of dollars and percentage) Facilitated by the changes in law. even de Inversiones (Chile). The Foreign Investment Law of 1993 originally limited FDI participation in holding companies for financial groups and commercial banks to 30 per cent. Bank of Montreal of Canada in 1996. 1994-2001 Box III. the participation of foreign financial institutions in such activities in Mexico is subject to the provisions of a bilateral or an international agreement regulating the establishment of affiliates in the country and conditional on obtaining the relevant authorizations. Argentina. in the previously mentioned acquisition in 2001. attractive rates and security of savings.25. the law was revised. based on data from Secretaría de The increasing interest of foreign Economía (Mexico). of (Billions of dollars) Mexico’s legal framework for regulating financial services.8. Chile and Mexico.24. However.26. of Brazil. from 32 per cent in 2000 to 58 per cent in 2001. In view of the financial and technological strengths of these institutions. the industry experienced the single largest foreign investment ever made in Mexico: the acquisition of Banamex (the most important bank in Mexico) by the United States financial group. Source: UNCTAD. their presence has the potential to translate into major improvements in Mexican financial services with the consequent benefits for users of greater availability of credit. based on data from the Central Bank Source : García. Source: UNCTAD. Mexico’s financial services industry attracted investments by a number of foreign financial groups between 1994 and 2001. allowing participation of up to 49 per cent. has been one of the important characteristics Ministerio de Economía (Argentina) and Comité of FDI in Mexico only in recent years. including Citicorp (Citibank) of the United States in 1994. Bank Bilbao-Vizcaya of Spain in 1995. In 2001. based on data from the Central Another factor behind the growth of FDI Bank of Brazil. In 1996. investors in the financial services industry Dirección General de Cuentas Internacionales. This acquisition boosted the share of financial services in Mexico’s inflows. A further revision in 1999 allowed majority foreign ownership. 67 . Spanish FDI in Brazil. FDI in privatization in on NAFTA and the subsequent liberalization Brazil. 1996-2001 and deregulation. Mexico: FDI in financial (Billions of dollars) services In recent years. This resulted in an urgent need for quick capitalization. Central Bank of Brazil. Source: UNCTAD. and Citicorp of the United States. the share of financial services in Mexico’s total inflows has grown significantly. FDI inflows in the a result of the financial and balance-of- manufacturing sector in Brazil. These shares contrast with the average share for financial services of 10 per cent during 1994-1999. between 1996 and 1999. Bank Bilbao-Vizcaya of Spain again in 2000.CHAPTER III REGIONAL TRENDS Figure III.

and Venezuela attracted $3. In 2001. the Russian Federation. its overall economic oil and gas extraction. The Government has launched a new and extended incentive scheme to attract fresh investors (box III. This important in the Andean countries. The reasons lie in the Polish economy: privatization is coming to an end and macroeconomic problems have surfaced. Inflows were led by some major greenfield C. Latin America and the to CEE since the early 1990s. the food group. declined moderately – by one per cent – in 2001.7 billion. 289). The UNCTAD/ Caribbean: FDI outflows. 2002) drew similar conclusions: Poland was the most popular location. p. Bolivia suggests that CEE is viewed as a stable and received $647 million in FDI. This is the countries remain within the region.8 billion in outflows in 2001 (figure III. slowdown in 2001 than that of any other region.9). 2001a) found that two-thirds of concerns over political and economic stability. The concentration of FDI is expected to continue in the near future. 85 per cent of which was in petroleum. top 10 AFII/Andersen survey found that Poland. the Czech the United States. suffered a decline in 2001 (figure III. amid (UNCTAD. World Investment Report 2002: Transnational Corporations and Export Competitiveness The recession in the United States In fact. 2001a). Of these. Ecuador received $1. for example. 24 per cent lower than in 2000.28). 2000 and 2001 a Hungary. Republic. FDI flows to and from Central This opens up opportunities for the Czech and Eastern Europe (CEE) remained at levels auto-supplier industry to diversify beyond comparable to those of the previous year. the region’s leading recipient since 1996. including a major venture by Europe Toyota (Japan) and PSA (France) for the manufacture of automobiles (box III. economies.27. similar in many respects to schemes already in place in Hungary and Source: UNCTAD. of the region’s inflows in 2001. They In Mexico. FDI inflows in the manufacturing rose in 14 of the region’s 19 countries. while global FDI inflows declined directly affected manufacturing in Mexico by more than 40 per cent – and this slowdown and the Caribbean basin.3 growth having been less affected by the global billion. so far the only large car producer in the country. The survey by MIGA (MIGA. FDI/TNC database.43 the respondents expected CEE to have improved or significantly improved prospects for FDI Most FDI outflows from Latin American in the next three to five years. Five countries (Poland.7 per cent in 2001. Chile highest proportion of positive responses for continued to be the largest investor abroad all regions in the world covered by the survey. FDI a Ranked on the basis of the magnitude of 2001 in the Czech Republic. particularly in maquila affected all regions except Africa – flows enterprises exporting to the United States. the Czech Republic (WIR98. followed by the Czech Republic. FDI its share of world inflows rose from 2 per into resource-based activities was especially cent in 2000 to 3. largest FDI recipient since 1998. 42 into CEE grew by two per cent in 2001. acquired Orowit in the United States and Slovakia) accounted for three-quarters for $610 million in January 2002. Central and Eastern investments. Hungary Bimbo. followed by Mexico with $3. the Czech Republic and the Russian (Billions of dollars) Federation (in that order) were the favoured locations for four-fifths of respondents (UNCTAD. all but Slovakia have dominated FDI inflows Figure III. half of it in promising region for FDI. the region’s second- FDI outflows. with $3.10). Poland.27). and sector declined by $4 billion in 2001. 68 . FDI continues to be highly concentrated Mexican companies continue to expand into by country.4 billion in total The survey by UNCTAD/AFII/Andersen inflows. Hungary and the Russian Federation. inputs for Volkswagen/Skoda.

the location and value of the investment. will modern and competitive goods or services. 289). skilled the value of a new investment. For the host communities.. also determines the amount and timing of the financial support. scheduled to start producing in 2005. or the investor and the host community. maintains at least 100 jobs (or 50 jobs if Hungary and Poland in the second half of 2001 the investment is made in one of the priority before settling on Kolin in the Czech Republic. Once environmentally-friendly technologies. FDI/TNC database. results in the development and venture partners had visited and pre-selected modernization of an existing business.000 jobs are expected to be created in service and supply firms. investors in Poland Cumulative assistance provided to an individual enterprise under various titles cannot exceed In May 2002. additional 7. locations) for at least five years. support for investment entered into force in Poland. at least 20 the biggest greenfield investment in the Czech new jobs are created for at least five years.10. these are (individually or together): The Czech Republic has succeeded in attracting this project partly by virtue of its • A subsidy determined as a percentage of geographical position within Europe.. the a timetable of the project. foreign and domestic investors.9. top 10 countries.9. Each agreement lays down the obligations of the investor and/or the community. these include: • Assistance in the creation or improvement of the physical infrastructure to support the investment made by the investor.5 billion. Toyota/PSA’s investment in the of the following conditions: Czech Republic • The value of the new investment is at least %10 million. The authorities in /.28. making it possible to manufacture research. based on information provided of such financial support. The plant they have started building will be • As a result of the investment. development and start-up costs. /. in particular Source: UNCTAD. it is expected to employ 3.000 per job for the creation of new employment.000. applicable to both by the Ministry of Economy of Poland.150 per employee for the training of the workers hired.000 people Financial support to new investments and produce some 300. Investments benefiting from the scheme should meet one Box III. aiming at a low-price niche. and • A subsidy of up to %1. operational. Central and Eastern Europe: FDI inflows.000 cars per year. 69 . the number of persons Ranked on the basis of the magnitude of 2001 FDI employed and training courses. but not engineers.. The agreement inflows. Republic since the start of the country’s transition • The investment involves technological to a market system. It stipulates the principles and forms Source: UNCTAD.. as well as its of public assistance provided for a given competitive system of incentives introduced location. in 1998 (WIR98. The new system of incentives for investors in Poland (concluded) 2000 and 2001 a (Billions of dollars) • A subsidy not exceeding the value of %4. or be about $1. Total investment. including innovation. The details of financial support to individual projects are spelt out in agreements concluded between the Ministry of the Economy and the investor.CHAPTER III REGIONAL TRENDS Figure III. The joint- %500. Toyota and PSA have agreed jointly to • The value of the new investment is at least develop and produce small cars in the Czech Republic. relatively developed infrastructure exceeding 50 per cent of the maximum amount and advantageous labour costs. a new law on financial the stipulated ceiling on allowable State aid. p. Box III. and the circumstances under Box III. The Kolin car plant is • The investment introduces modern. An can take a number of forms. and various industrial sites in the Czech Republic. For investors. The new system of incentives for which assistance is to be repaid by the investor.

the suppliers may not transfer any business to Baltic states) or very low GDP levels per the Czech Republic unless the orders exceed capita (e. For the large supplier their share in the gross fixed capital formation network currently serving mainly Skoda Auto of the region reached high levels by the (more than half of the world’s 50 leading end of the 1990s.g. 2 0 0 2 . a n d A n d e r s o n . Croatia.g. FDI inflows declined somewhat after a privatization-related peak in 2000. the Former Yugoslav Republic hub for countries poised to enter the EU. Slovakia’s inflows in 2001 were. Bulgaria and the Republic of their current capacities in Western Europe.000 people in the Czech Republic. Belarus. 70 . based on CzechInvest. 44 as well as ongoing Source: UNCTAD. for example. Toyota/PSA’s investment in the Czech Republic (concluded) telecommunications and banks to foreign investors in 2001. This increase was particularly high or exporting to the European continent. In terms Toyota/PSA plant may offer a new supply outlet. FDI/TNC database. 2002. Skoda Auto (an affiliate of Volkswagen). reflecting continued difficulties in Figure III. however. exception. Most of the other countries in the region saw their FDI inflows grow in 2001. Some of the highest FDI the Czech Republic hope that with the entry growth in the region. including investments by suppliers to foreign affiliates in the automotive and electronics industries (Ernst & Young. however. These high ratios Europe. helped by stability and above-average growth rates in the region. FDI inflows as a percentage of gross fixed capital formation. Central and Eastern Europe: the domestic business environment. Slovenia. Local suppliers. The Czech Republic is a notable Source: UNCTAD. Most of the inflows to Hungary took place in the form of associated FDI. of FDI (by about 40 per cent). notable competition in a market so far largely exceptions to the FDI growth trend were dominated by the incumbent local producer. On the other hand. reflects the of Toyota and PSA the country will become very low levels in 2000. Lithuania.10. 2 0 0 2 . Both PSA and Toyota have substantial. Latvia and the non-labour-intensive. of Macedonia. the highest 1998-2000 a inward FDI flow since its privatization (Percentage) programme ended in 1998. exceeding 25 per cent suppliers have facilities in the Czech Republic) in 1999. advanced supplier Republic of Moldova were the regional leaders networks around their plants in Western in 1998-2000 (figure III. World Investment Report 2002: Transnational Corporations and Export Competitiveness opened such key industries as Box III. consisting of firms not yet present reflect the small size of the national economies. Republic. Moldova). produces 7 per cent of GDP and 10 per cent Parallel with the surge of FDI inflows. its high ratio reflecting mainly C a r e y. observed in Bulgaria and Latvia. which employs 24. the in 1996-1999 (annex figure B.29. Estonia. despite the attractiveness of that country’s natural resources and high GDP growth. top 10 countries. privatization in some latecomer countries a Ranked on the basis of the magnitude of 1998-2000 and some industries. for some countries the car assembly centre and automotive supply (Yugoslavia. However. in the Czech Republic. Bosnia and Toyota and PSA would also introduce Herzegovina). of national exports.29). In Slovakia. robust GDP growth spurred a surge capital formation. 2002). the high inflows it has received. the second highest since the start of that country’s transition to a market economy. would have of FDI inflows relative to gross fixed capital to compete with other suppliers in Western formation Bulgaria. In FDI flows as a percentage of gross fixed Hungary. the Czech Europe. The steady performance of many CEE FDI inflows to the Russian Federation countries in attracting inward FDI in 2001 declined for the second year in succession means that the majority of these countries in 2001. nevertheless. these due either to small populations (e.5).

the performance of At the end of the millennium. such as Slovenia.30. one of the late-privatizing countries. Hungary. indices of Inward FDI Performance and Potential Three countries were below-potential recipients for six key countries (the Czech Republic. 45 With the exception of the to three: Belarus. Romania and the and two countries (Romania and the Former Russian Federation) (figure III. Note: As most of the countries in Central and Eastern Europe did not exist before 1992. Of the 17 CEE countries Republic of Macedonia. the two latter groups were For Estonia and Hungary – countries that characterized by greater geographical distance took an early lead in attracting privatization- from Western European markets and difficult related FDI – the Index fell somewhat as initial conditions for transition (EBRD. Poland. countries indicates a gradual shift in the nine countries were already front-runners geography of FDI towards that subregion. these countries combined and Slovenia. Romania and the Former Yugoslav into that group. number of front-runners remained the same: improved by 1998-2000. The above-potential group lost II). may be Albania but gained. The fact that most c o v e r e d b y U N C TA D ’s I n w a r d F D I of the newcomers are south-east European Performance and Inward FDI Potential indices. the Romania. moved out into the group of above-potential high-performance recipients of FDI (chapter economies. the group combining high FDI potential with high FDI of below-potential economies was reduced performance. At the other end of the spectrum. With the exception FDI performance shows more divergence. besides the Republic poised to move out of their present positions of Moldova.1 and annex table B. while the Republic of Moldova 1994 further deteriorated in 1998-2000.30) highlights Yugoslav Republic of Macedonia) were a tendency among all but the Russian Federation under-performers (low potential combined towards greater FDI potential over the 1990s. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected countries in Central and Eastern Europe.1. the weak performance of 1992- newcomer. while others. the period of the FDI Performance Index is adjusted for 1992-1994. 71 . 1992-1994 and 1998-2000 Source: UNCTAD. 2000). In contrast. based on table II.CHAPTER III REGIONAL TRENDS continue to keep their position as high-potential. of Slovenia. their privatization programmes were nearing completion. 2000). In the Russian nine. The composition of this group was Federation. in the early phase of transition (1992-1994). (low performance despite high potential). Figure III. a favourable geographical location (closeness to Western European markets) with good A more detailed analysis of UNCTAD’s initial conditions for transition (EBRD. where privatization with FDI did fairly stable: only Bulgaria joined it as a not take off. with low performance). 46 Estonia. the Russian Federation Republic of Moldova.

with Slovenia declined slightly. 1994). which helped them prepare themselves for more demanding forms of international competition. Hungary and by the traditionally strong ownership the Russian Federation that the ratio exceeds advantages of Slovene firms. 47 YUKOS.31). Case studies also demonstrate that these firms have successfully combined knowledge of foreign markets with their own R&D efforts (Jaklic and Svetlicic. FDI/TNC database. started investing abroad in the 1990s. Bosnia and Norwegian engineering firm. FDI Box III. The geography of outward fifths of the FDI from the region. according of Macedonia. The wave of outward FDI from outflows from CEE declined by 12 per cent Slovenia in 2001 (figure III. 37 and 252). The Russian FDI stock more than tripled. pushed affiliates (e. Deutsche Telekom-owned Slovene firms to go international in order to MATAV). top 10 economies. but restructured and privatized.g. Most of them 3 per cent (figure III. Rojec and Lebar. recorded FDI. most of the outward firms. /. had their origins in large and old. Hungary and Poland. which had already started 2000 and 2001 a to internationalize in the 1960s and 1970s. despite the conclusion becoming one of the most important hubs for of a major telecom acquisition by Hungary’s investment flows into the reconstruction of MATAV in the Former Yugoslav Republic south-eastern Europe.31. too. as well Herzegovina. mover motives. changed. FDI outflows from Hungary rapidly to gain importance. changes in the international environment pp. Indeed. The region’s share in world FDI outflows for that year was three- fifths of 1 per cent. an important factors. too.29). WIR01.11. they. Kvaerner. After 1993. Croatia and Slovenia) had strong of Slovenia’s total outward stock. the third largest Russian FDI of Slovene companies had been directed oil and gas company. are (Millions of dollars) the most transnationalized demonstrates that such early internationalization proved to be instrumental in the subsequent tide of outward FDI. They typically have above-average and fast-growing R&D expenditures and high-skilled labour intensity. Outward investors represent less than 2 per cent of the total corporate sector in terms of number of firms. such as rapid neighbouring countries (box III. Since 1994. 2002). despite the 1991. The fact that “old” firms. provide 30 per cent of employment and produce 40 per cent of exports (Jaklic and Svetlicic. Croatia. from $281 million to $898 million. all these other countries together account for two-thirds (Estonia. the Former Yugoslav as a stake in a Slovak pipeline and an oilfield Republic of Macedonia and Yugoslavia. These firms appear to have gained self- confidence from their early experience. A number of other countries to data from the Bank of Slovenia. began in Kazakhstan. although from a very low base. such as the small domestic market. which accounts for almost four. Central and Eastern although some new and smaller firms also Europe: FDI outflows. nevertheless. growth in outward FDI. it is only in Estonia. Before independence in a decrease in outflows in 2001. driven by “system-escape” motivations investment abroad of windfall gains from high (the need to circumvent the restrictions of oil and gas prices enjoyed by the leading Russian the socialist economy). up slightly from three. Apart from technological a Ranked on the basis of the magnitude of 2001 FDI outflows. In some countries such (especially in south-eastern Europe). companies. Most of these new investments This pattern of outward FDI from Slovenia from the smaller countries are directed to is driven both by pull factors.11. Figure III. displaying one of the highest Federation. 72 . From 1993 to 2001. The internationalization of Slovene firms is driven mainly by market-seeking and first- Source: UNCTAD. acquired the Anglo. Slovenia’s outward tenths of 1 per cent in 2000. Internationalization was largely helped formation. the disintegration of former Yugoslavia. part of outward FDI is carried out by foreign and the temporary loss of its market.. growth rates in CEE. Relative to gross fixed capital survive. World Investment Report 2002: Transnational Corporations and Export Competitiveness Judging from registered values. at developed markets (Svetlicic.. 2002). and push as Estonia.

they possess specific know-how picture changes. Overall. formation. The most transnationalized firms have over 20 affiliates worldwide. from 2. Internationalization has proved to be more useful as a leverage for survival than seeking protection from the Government. LDCs: FDI inflows as a there. other countries formerly part of Yugoslavia serve as a springboard for wider transnationalization. 16 of the 49 LDCs countries within the LDC group.33).6 billion. FDI in the attracted more FDI relative to gross domestic LDCs rose from an annual average of $0. the advantages. on downstream services such as marketing and percentage of gross fixed capital distribution. the share of LDCs in total they often make a contribution to local capital FDI flows to developing countries has declined formation. mainly on account of increased (It should be noted that no systematic data flows to Angola (figure III.. $3.11. it rose slightly in 2001 (figure III. labour-cost motives 2001. They are also aware that such advantages risk erosion exporters rose from less than 10 per cent over time if they do not move (back) into those during 1986-1990 to some 40 per cent by markets fast enough. top 10 countries. despite the general slowdown. One of the most important lessons from the Slovene case concerns the way firms from that county have used internationalization as an instrument to get out of a situation that combined the loss of previous markets with the crisis of transition. In turn.34).8 billion. the Sudan and Yemen) and other LDCs. FDI inflows to the 49 least developed FDI in LDCs as a group rose slightly to countries (LDCs) are small in absolute terms.5 billion and $2.3 per cent in 1986-1990 domestic capital formation during 1998-2000 to 1.6 and build on the fact that their products and billion in 2001.4 affiliates.3 of Slovene firms into countries of former billion. firms in LDCs and TNCs. FDI inflows about how to do business in the other countries rose from an annual average of $49 million of former Yugoslavia. based on Jaklic and Svetlicic.) Nevertheless. and to $1. compared to 13 per cent for all other developing countries (figure III. Slovenian firms can easily during 1986-1990 to an annual average of re-establish their previous business networks $1. Yugoslavia. FDI/TNC database.4 billion). For example. If the group Box III.5). Equatorial Guinea. a number already slightly higher than that of firms in a number of those countries. countries 4 8 In 2001.CHAPTER III REGIONAL TRENDS of $3. The share of the four oil brand names are well known there. The average outward investing Slovene firm has 4. but it was exist on non-equity linkages between domestic lower than its peak of 1999 ($5. In the first group. 1994.6 capital formation than the average developing billion during 1986-1990 to an annual average country (figure III.7 billion during 1996-2000.32 and annex table B. and These average figures hide large it is significantly higher in a number of variations. The share of FDI flows in gross over time. and Svetlicic et al.2 billion during 1996-2000. 1998-2000 a (Percentage) For many Slovene firms. The wave of outward FDI from of LDCs is split into major oil-exporting Slovenia (concluded) countries (Angola. a Ranked on the basis of the magnitude of 1998-2000 FDI inflows as a percentage of gross fixed capital D.8 per cent during 1996-2000. instead. although averaged 7 per cent for LDCs as a group. Source: UNCTAD. The least developed formation. however. Source: UNCTAD.32. $2. 73 . Their affiliates focus. 2002. This may be because so far few of them have located manufacturing capacities Figure III. The respective figures for the other have played only a minimal role in the expansion LDCs are $0.32).

6). Source: UNCTAD. FDI has increased rapidly in Clearly. attracting FDI inflows almost equal to those In Sierra Leone and Yemen. the United Republic performance differed greatly over the period of Tanzania experienced a dynamic growth 1986-2001 (or the period for which the data in FDI inflows in the 1990s (box III. Democratic Republic of Myanmare (Billions of dollars and percentage) Kiribati 0-9. the other. are available): Burundi. Equatorial to attract more FDI. f Annual average growth rate from 1994-2001. Figure III. 2000 and 2001 a indices are constructed are above-potential (Millions of dollars) economies. exceeded new FDI for the past several years. LDCs: FDI inflows and 10-19. Uganda and Zambia) are resource-rich countries. LDCs: FDI inflows. In particular. b Annual average growth rate from 1990-2001. saw an increase of 99 per cent. at one extreme. Mozambique. divestment has of Peru in 2001. some LDCs have the potential countries such as Bangladesh. at i n m o s t o f t h e y ears d u ri n g 1 9 8 6 -2 0 0 1 . World Investment Report 2002: Transnational Corporations and Export Competitiveness FDI in 21 LDCs grew faster than 20 per cent Guinea. However. According to UNCTAD’s Inward FDI Performance and Potential Indices. In contrast.35). . Mozambique. top eight out of the 25 LDCs for which these 10 countries. Annual average FDI growth rates in LDCs. 74 e Annual average growth rate from 1989-2001. c Annual average growth rate from 1988-2001. a Annual average growth rate from 1987-2001.33.6. 1986-2001 (Per cent) Growth rates Country More than 20% Angola Lesotho Bangladesh Malawi a Benin Malic Burkina Faso Mozambique Cape Verdea São Tomé and Principed Djibouti Senegal c Equatorial Guinea Sudana Ethiopiab Togo Source: UNCTAD. d Annual average growth rate from 1996-2001. and the United Republic 10 and 20 per cent (table III.9% Afghanistan a Madagascar their share in the world inflows and Chad Maldives developing-county inflows. several (e. Of these.9% Cambodia Samoaa Guinea Vanuatu Nepal Zambia Decline Bhutan b Niger Burundi Rwanda Central African Republic Sierra Leonea Comorosa Solomon Islands Eritread Somalia Haiti Tuvalu f Liberia Yemen Mauritania Source: UNCTAD. per annum. Angola. 17 of the 25 LDCs rank as under- Table III. Gambiaa Ugandac a Ranked on the basis of the magnitude of 2001 FDI Guinea-Bissau United Republic inflows. FDI/TNC database. Individual of Tanzania. with a higher rank for performance than for capacity (figure III. of Tanzaniac Lao People’s Democratic Republicc Figure III. FDI/TNC database.34. the Sudan. 1986-2001 a Congo. saw Angola was the largest recipient among LDCs a decline of 22 per cent.g.12). and in another seven at between Myanmar. Lesotho. while Uganda. Ethiopia. FDI/TNC database.

16- lost some of the gains of the mid-1990s. Foreign investors have restructured place – that foreign investors responded. and thus successful. After 1996. In banking. the sectoral composition of the benefits of these inflows to its economy. (except for poorly-performing Kenya). Box III. Leone (table II. and the diversification of the economy furthermore. However. and sound mining. and the largest or the encouragement of local science and single industry is gold. The United Republic of Tanzania: harnessing FDI for development The United Republic of Tanzania is a new (19 per cent). Noticeable overall impacts of ago. technology capacities). Overall. None Angola. but performance improved significantly for such LDCs as declined in the latter (figure III. At the end of 1998. 17). 1996.1). to 1985. especially in the programme began in earnest. The however. entrant in the FDI field. FDI has served as an engine of growth foundations for an enabling framework for FDI and has helped increase gold exports. services S o u rc e: U N C TA D . These positive impacts – which hardly both included by WIR98 among the seven front. The United Republic of Tanzania has. the scale of these impacts is still small and a number of desired impacts are not The largest sector for FDI in the United occurring (such as linkages to the local economy Republic of Tanzania is mining. achieving the country’s FDI objectives.12. of hard currency from tourism. FDI potential improved 1990 and 1998-2000. This suggests a share of mining in Republic of Tanzania is now to push FDI to new cumulative FDI inflows of above 50 per cent. During privatized enterprises. to attract higher levels of FDI inflows Judging from data on total investments in major than those received in the second half of the foreign affiliates. “to increase the annual inflows into the United Republic of Tanzania share of foreign direct investment in total external did not keep pace with the inflows into LDCs. Rwanda. a change The acceleration of inflows between 1992 from a negative to a positive contribution to and 1996 considerably improved the country’s the balance of payments. They have typically contributed a total of $1 billion in FDI. and to increase the scale and scope of during 1997-2000. and Tanzania (Tanzania Planning Commission. FDI include a contribution to the inflow of external resources (15 per cent in 1998). pp. compared to $90 million to the transfer of technology and skills. most of which were established 1990s. during 1995. it has contributed to the modernization of the considered “the best of its kind”) were put in industry.9 billion). objectives are. it received inflows comparable to those of Uganda ($1. among others. In reforms reached a critical mass.CHAPTER III REGIONAL TRENDS performers in the UNCTAD indices. and manufacturing (16 per cent). Between 1988. a Thus. existed until the mid-1990s go some way towards runners in Africa in FDI performance. the challenge for the United million. boosting their 1995-2000.36). when the country decided to initiate the Ghana and South Africa. (including especially the Tanzania Mining Act. 2000. although growing in absolute terms. Its efforts to harness The largest source of FDI in the country is the FDI to its development process date back nominally United Kingdom. resource inflows” and “to invest in export areas sub-Saharan Africa or neighbouring countries in which Tanzania has comparative advantage”. the largest projects is: mining (65 per cent). Although during the preceding six years (annex table B. after initial cumulative FDI in mining was estimated at $370 successes with FDI. market-oriented industries in which FDI is concentrated. an increased with a few exceptions. it was only As FDI inflows have increased. Mozambique and the Sudan. However. the impact is strongest in the industries in which This is a remarkable performance for a country FDI is concentrated. a These objectives were stated in the Planning Commission’s 1996 National Investment Promotion Policy document. growth. it has implications for the that was receiving hardly any FDI just 10 years entire economy. process of transition from a centrally-planned to a market-based economy. the Performance Index in Mozambique and Yemen. the United Republic of Tanzania received competitiveness. services. the in the second half of the 1990s – when the qualitative impact of FDI on the economy has economic situation improved. 75 .1). while falls into the category of front-runner or it deteriorated for Niger.1 billion) and Mozambique ($0. followed by the United States. have not been very share of FDI in capital formation. and Sierra below-potential economies. 2 0 0 2 c . frontiers. the contribution of FDI performance relative to other LDCs which foreign affiliates to overall exports and inflows have also worked hard to receive more FDI but. improved its position vis-à-vis away from agriculture towards mining and neighbouring countries. the privatization also become noticeable.

35. based on table II. Figure III. 1998-2000 Source: UNCTAD. 1988-1990 and 1998-2000 Source: UNCTAD. Note: The width of the band is 20 ranks around the 45 degree line.36.1. The UNCTAD Inward FDI Performance Index and Inward FDI Potential Index for selected LDCs. 76 . LDC rankings based on the UNCTAD Inward FDI Performance and Potential Indices. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure III.1 and annex table B.

though the share Lesotho Mali of the top five recipients is lower now Mozambique than it was in the late 1980s. Only a few (notably the United Republic of ODA (-) Tanzania and Zambia) have recorded Source: UNCTAD. FDI/TNC database and OECD Development Assistance in LDCs partly reflects the nature Committee. International Develop- to LDCs.CHAPTER III REGIONAL TRENDS The structure of external financial Table III. FDI inflows and ODA flows Committee. (Billions of dollars) a Calculated as the slope of the linear regression for FDI and ODA flows between 1990 and 2000. Niger Burkina Faso Rwanda Burundi But only in seven LDCs (Angola. of their privatization programmes. The limited extent of M&As Source: UNCTAD. FDI/TNC database and OECD Development Assistance Figure III.III. Growth trends a in FDI and flows to LDCs changed in the 1990s.38). Djibouti Thus most LDCs must rely on ODA as Equatorial Guinea Ethiopia their major source of finance.1). LDCs as a whole Cambodia received $12.37). did FDI Tuvalu Comoros inflows exceed bilateral ODA in 2000 Ye m e n Democratic Republic of the Congo and three of them are major oil exporters. by 1996-2001. on the other FDI (-) FDI (+) hand. while bilateral ODA Mauritania Bangladesh decreased during the 1990s (table III. online databases. 49 but declined in absolute and relative terms Angola between 1995 and 2000. the Sudan and Togo). became more prominent: in 28 LDCs Liberia Afghanistan FDI increased. International Development Statistics. FDI. the Gambia.9 billion to $7. Gambia Guinea Guinea-Bissau FDI flows into LDCs are also Kiribati highly concentrated.7). Solomon Islands Central African Republic Somalia Chad Myanmar. online databases. 50 The bulk United Republic of Tanzania Vanuatu of FDI in LDCs (more than 90 per cent) Zambia is through greenfield investments. Many LDCs have now enacted new 77 .7 billion during this Sierra Leone Uganda period (figure III. For example.37. In the Myanmar Nepal period 1986-1990. 1985-2001 ment Statistics. 1990-2000 Official development assistance (ODA) ODA (+) remained the largest component.8 billion in 1990. Democratic Republic compared to $16. the second largest M&A in LDCs so far has been the $260 million acquisition of Texaco Inc-Yetagun Natural in Myanmar 51 by Premier Oil Plc from the United Kingdom in 1997 (annex table A.7. the top five recipient Sao Tome and Principe countries accounted for 78 per cent of Senegal Sudan FDI inflows. M&As of any significance since 1987 (figure III. Some deals have not involved local firms but only foreign affiliates. bilateral ODA flows. The Benin Madagascar Bhutan Malawi amount of bilateral ODA declined from Eritrea Maldives $9. Samoa Cape Verde Equatorial Guinea.5 billion in bilateral and Haiti Lao People’s multilateral ODA in net terms in 2000. their share To g o had declined to 55 per cent. Lesotho.

the Lao People’s Democratic investment treaties (BITs) for the protection Republic and Myanmar. In the Asian the direction of liberalization. Examples are from France. that are not categorized as FDI. bilateral and multilateral 2000c. s e c t o r a l b re a k d o w n o f F D I i n L D C s . Uganda and Zambia (UNCTAD. climate at the national.2). TNCs LDCs have liberalized FDI regulations. Japan and the United Kingdom. there is no direct relationship between FDI and cross-border table A. UNCTAD and ICC. Nepal. the services sector accounts for the largest share of inward FDI stock in Cape Verde and Nepal. with the exception of a financed via both domestic and international capital markets few resource-based companies. Therefore. financial affiliates are rare in Note: Cross-border M&As (as well as privatizations) include purchases LDCs. The petroleum sector dominates FDI in a few LDCs. FDI/TNC database and cross-border M&A database. Firms from Malaysia.III. At the bilateral level. and Singapore developing countries grew rapidly. 1999a). sales and privatizations in LDCs. most of them States. “flag-of-convenience” investment in shipping all the changes made in 2001 to the national in Liberia accounts for some three-fourths regulatory frameworks in LDCs 53 were in of all Japanese FDI in Africa. 1987-2001 In the Lao People’s Democratic (Billions of dollars) Republic. breakdown of the largest foreign affiliates in LDCs by home country or revised legislation allowing foreign investors shows the dominance of investors to participate in privatization. Mauritania. Japanese repatriation and protection against expropriation. LDCs have also begun to conclude B I Ts a m o n g t h e m s e l v e s : 1 7 h a d b e e n There is limited information on the concluded by the end of 2001. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure III. Many Owing to proximity and history. Large Source: UNCTAD. there is considerable intraregional FDI. In Ethiopia. including Angola. 33 LDCs had entered show a broad industry distribution. Malaysia accounted and promotion of foreign investment. United levels. Indeed. Commercial Services. FDI to African LDCs has mainly been and offer incentives and stronger standards motivated for tax reasons: of treatment to foreign investors. At the national level. the largest recipient is the hotel industry. 41 LDCs had concluded 292 bilateral in Cambodia. 1999. and from Western Europe have been more active no longer discriminate between foreign and in African LDCs than those from the United domestic investors. FDI has gone mainly into agricultural production. 2001a. of 2001. by the end Singapore and Thailand are major investors of 2001. In the into 138 double taxation treaties (DTTs) Solomon Islands. M&A data most foreign affiliates are small are expressed as the total transaction amounts of particular by international standards (annex deals at the time of closure of the deals. 78 . Furthermore. the United Republic of LDCs have improved their investment Tanzania. from 10 and Thailand together for 39 per cent of at the end of the 1980s to 126 by the end the FDI stock in Myanmar in 1998. Thailand for 35 per were 138 BITs with developed countries cent of the FDI stock in the Lao People’s (36 during the 1990s) and BITs with other Democratic Republic in 1999. Countries for which data are available 52 In addition.39). There in Cambodia in 1997. While manufacturing is the largest sector for FDI in Cambodia and Uganda. cross-border M&A goes into the fisheries industry. The largest foreign affiliates in LDCs are spread across host countries and industries. of which for more than one-third of the FDI stock 126 were in the 1990s (figure III. for example. 2001. most FDI by the end of 2001 (39 during the 1990s. in contrast.c).b. now have legislation in place offering a range of guarantees to foreign investors. They allow profit States and Japan (UNCTAD.38. FDI inflows. LDCs. The geographical M&As.

39). Moreover. to main agreements bearing on investment: the ensure that reliable information on investment Agreement on Trade-related Investment opportunities and conditions reaches potential Measures (TRIMs). WAIPA. Efforts are needed to ensure that FDI flows to LDCs not only continue to grow. like Madagascar and the themselves. And. Policy Reviews to help improve national There are now 34 LDCs that are full members FDI regimes (box III. While FDI to LDCs has increased. ICSID Convention provides access to its UNCTAD undertakes in-depth Investment arbitration mechanism for investment disputes. Some. In addition. As of June 2002. knowledge. It also assists of the Multilateral Investment Guarantee LDCs in negotiating BITs and DTTs. which means that LDCs’ access to foreign savings has been declining. of fulfilling membership requirements. Foreign Arbitral Awards.39. 2001). They are thus parties to the three producing investment guides for LDCs. Private capital inflows have been by LDCs. 90 were with LDCs have been promoting inward developed countries.15). the sustainability of recent increases in FDI flows to LDCs remains a matter of concern. on Trade in Services (GATS) and the Agreement on Trade-related Aspects of Intellectual Property A growing number of LDCs recognize Rights (TRIPS). 4 with countries of Central and investment promotion agencies (IPAs) by Eastern Europe and 3 between LDCs June 2002. 2000d). have introduced “one-stop windows” has not picked up in recent years.9. The pace of concluding DTTs Sudan. as FDI is not a substitute for ODA. investment and intellectual property it offers to promote growth and reduce rights protection. and UNCTAD BITs and DTTs databases. The international community can play a role here. but are also upgraded to increase their developmental impact. ODA flows to LDCs need to increase. in particular. on the basis of the country tables and functions of both are different. The harness it to their development objectives. while allowing them to enjoy poverty. 41 with other developing FDI more actively: 38 countries had established countries. Jointly with the International Chamber of 30 of the LDCs have become members of Commerce (ICC).39). and Agreement (MIGA). in contrast to simplify procedures and facilitate the entry with BITs (figure III. to share experiences and help 20 LDCs had acceded to the Convention IPAs with technical assistance and training on the Recognition and Enforcement of (table III. which promotes multilateral agreements having a bearing cooperation among IPAs on a regional and on investment (table III.14). sufficient to attract enough FDI. of foreign investors. and six are in the process has facilitated 42 such agreements (box III. 1990-2001 increasing more slowly than official flows (Cumulative number) have been declining.13). with international principles and standards technology and access to international markets on trade. the General Agreement investors (box III. And 28 LDCs have joined the World Association of Investment LDCs are participating more in Promotion Agencies (WAIPA). Another 11 have observer the role that FDI can play in providing inputs status in the WTO.CHAPTER III REGIONAL TRENDS figure III.8). Complementarities between the two types 79 . and 37 LDCs had r atified or signed the Convention on the International organizations like Settlement of Investment Disputes between UNCTAD help countries to attract FDI and States and Nationals of Other States. by ensuring that investment opportunities are communicated to corporate executives and by helping LDCs enhance their attractiveness to investors. UNCTAD has also been the WTO. Many LDCs have improved their special treatment by reason of their development investment regimes but this has not proved status (UNCTAD. Of these. BITs and DTTs concluded pace with the flows to other developing countries. it has not kept Figure III. global scale. This brings LDCs in line other than finance: the skills. the characteristics Source: UNCTAD.

b Convention on the Settlement of Investment Disputes between States and Nationals of other States. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table III. e General Agreement on Trade in Services. c Convention Establishing the Multilateral Investment Guarantee Agency. a Convention on the Recognition and Enforcement of Foreign Arbitral Awards.8. 80 . as of June 2002 Country CREFAAa ICSID b MIGA c TRIMs d GATS e TRIPsf Afghanistan √ g Angola √ √ √ √ Bangladesh √ √ √ √ √ √ Benin √ √ √ √ √ √ Bhutan h h h Burkina Faso √ √ √ √ √ √ Burundi √ √ √ √ √ Cambodia √ i √ h h h Cape Verde √ h h h Central African Republic √ √ √ √ √ √ Chad  √ √ √ √ √ Comoros √ Democratic Republic of the Congo √ √ √ √ √ Djibouti √ √ √ √ Equatorial Guinea √ Eritrea √ Ethiopia i √ h h h Gambia √ √ √ √ √ Guinea √ √ √ √ √ √ Guinea Bissau i g √ √ √ Haiti √ i √ √ √ √ Kiribati Lao People’s Democratic Republic √ √ h h h Lesotho √ √ √ √ √ √ Liberia √ g Madagascar √ √ √ √ √ √ Malawi √ √ √ √ √ Maldives √ √ √ Mali √ √ √ √ √ √ Mauritania √ √ √ √ √ √ Mozambique √ √ √ √ √ √ Myanmar √ √ √ Nepal √ √ √ h h h Niger √ √ g √ √ √ Rwanda √ g √ √ √ Samoa √ √ h h h Sao Tome and Principe i h h h Senegal √ √ √ √ √ √ Sierra Leone √ √ √ √ √ Solomon Islands √ g √ √ √ Somalia √ Sudan √ √ h h h Togo √ √ √ √ √ Tuvalu Uganda √ √ √ √ √ √ United Republic of Tanzania √ √ √ √ √ √ Vanuatu √ h h h Yemen i √ h h h Zambia √ √ √ √ √ √ Source: UNCTAD. f Agreement on Trade-related Aspects of Intellectual Property Rights. LDC signatories to main international investment-related instruments. d Agreement on Trade-related Investment Measures. h Observer status in the WTO. g Countries in the process of fulfilling membership requirements of MIGA. i Signed but not ratified.

adopted in May investors on how they perceive current 2001 at the Third United Nations Conference investment conditions and opportunities. 2002b). UNCTAD’s Central African Republic √ Investment Policy Reviews (IPRs) are intended Chad √ to fill this void. competitive position in attracting FDI. Since investor response to maximize their developmental impact. and policy options. donor Governments. Liberia √ Madagascar √ The IPRs are funded primarily through extra- Malawi √ √ budgetary resources. as appropriate. Cambodia √ policy-makers are often unable to assess the Cape Verde √ √ impact of investment measures. A is based on both policy and non-policy factors. Lesotho. 81 . Maldives √ √ individual country projects are funded on a cost- Mali √ √ sharing basis by the United Nations Development Mauritania √ √ Programme (UNDP). Zambia √ √ The IPRs have a common format. They Tuvalu are also considered by UNCTAD’s Uganda √ √ Commission on Investment. Technology and United Republic of Tanzania √ √ Related Financial Issues. Egypt. investors are also surveyed. Existence of investment Box III. host Mozambique √ Myanmar √ Governments and. potential in attracting FDI and the effectiveness /. Ghana and Haiti √ √ Nepal. The final texts are widely Vanuatu √ √ Yemen √ √ disseminated. IPRs were Guinea-Bissau in progress in Botswana. such as technical studies or industry Samoa √ √ experts). and Governments are keen Country IPA of WAIPA to know how well their reforms are working: Afghanistan How much new FDI is coming in and is it of Angola √ √ the right kind? Does its impact on the national Bangladesh √ √ economy conform with the stated objectives? Benin √ √ What more should be done to improve the Bhutan quantity and quality of inflows? With the Burkina Faso Burundi dismantling of traditional monitoring systems. as of June 2002 Policy Reviews Many LDCs have significantly liberalized Member their FDI regimes. number of the measures proposed in the a key feature of the reviews is to survey actual LDC Programme of Action.13. They have been Equatorial Guinea Eritrea √ completed for three LDCs (Ethiopia.9. Mauritius. Other LDCs that have requested IPRs Kiribati √ √ Lao People’s Democratic Republic √ include Benin.. Sao Tome and Principe Senegal √ √ The IPRs are conducted by UNCTAD staff Sierra Leone √ √ and international and national experts. There are three sections: the country’s objectives and Source: UNCTAD. UNCTAD’s Investment promotion agencies in LDCs. Potential on the Least Developed Countries (UNCTAD. are of relevance in this respect and Overall. with inputs Solomon Islands √ √ Somalia from the Government and the private sector. More specifically.CHAPTER III REGIONAL TRENDS Table III. Comoros Democratic Republic of Congo √ √ IPRs are undertaken by UNCTAD upon Djibouti √ √ requests by Governments. Uganda Ethiopia √ √ and the United Republic of Tanzania) and five Gambia √ √ other countries (Ecuador. Sudan √ √ The reviews are discussed in workshops involving Togo √ public officials and other stakeholders. As of July 2002. The reviews examine how of capital flows need to expand in order policies affect FDI flows. information obtained from WAIPA. Peru Guinea √ √ and Uzbekistan). Mauritania and Lesotho √ √ Mozambique. the IPRs assess a country’s should be actively pursued. the local and Nepal √ √ transnational private sectors (by sponsoring Niger √ √ individual workshops or providing in-kind Rwanda support.. the FDI policy framework and administrative procedures. Cambodia.

Cross-border M&As were signed during the Third United Nations were also important in commercial lending. practical and serve two purposes at once: to furnish potential geared to implementation by decision-makers. and weaknesses as an investment location.I. Mali.7 billion.14. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box III.15. 2001. 6 developing and 2 developed countries) S o u rc e : U N C TA D . Two negotiating events took place (MIGA). fuelled by announcements of large-scale M&As. these third-party guides offer the the process of implementing the recommended critical advantage of credibility. Perrier Vittel of Nestlé.5 billion (annex Guides table A. participated in the bilateral negotiations. electronic security. Notes Cameroon. They provide policy The UNCTAD-ICC guides are intended to recommendations that are concise. and $6. Mozambique. food Conference on LDCs in Brussels. 2002) and were revisited France. Mauritius. Madagascar. Opportunities and conditions in Policy Reviews (concluded) LDCs: the UNCTAD . Comoros. August 2001 (MIGA. Ethiopia. 3 October 2001. is finalizing a underscored by a short concluding chapter that review of its fiscal incentives regime. according to which the United States emerged as the preferred investment location S o u rc e: U N C TA D . opportunities and countries seeking investors.. investors with an assessment tool and to furnish They also include proposals for coherent Governments with a marketing tool. Guinea. Malawi. These obtained through a survey among 129 TNCs negotiating events provide LDCs with the conducted by UNCTAD. Mauritania.net website by facilitating negotiations between partner of the Multilateral Investment Guarantee Agency countries. banking. These surveys revealed that the investment plans of the majority Box III. BIT negotiations with a focus on for Bangladesh. largest cross-border M&A deal undertaken in 9 treaties were negotiated. 6 Including the acquisition of Aqua Spring by /. This is actions.13. Its where the major foreign affiliates in IT-related objective is to bring together parties with services are United States-owned (UNCTAD. Chad.2). complementary interests: firms seeking forthcoming b). for example.ICC Investment Guides (concluded) of policies in leveraging the competitive strengths of a country. Similar results were 2001. Eritrea. such as the acquisition of the agrochemical since firms are driven by strategic considerations unit of Aventis by Bayer (Germany) for a reported as much as by locational advantages. in 2001. 3 Of Banamex by Citigroup for $12. The exception is Ireland. in summer 2001 and also to exchange experiences and compare updated by telephone interviews in November negotiating approaches. in May 2001. Mozambique LDCs and Uganda. 1 The acquisition of VoiceStream Wireless Corp. Egypt. In the first event. Opportunities and conditions in of respondents were unaffected by the events LDCs: the UNCTAD . A few being clearly structured and attractively countries have already implemented or are in presented. The guides are available on the UNCTAD assists LDCs in the area of BITs UNCTAD website and the ipanet. 2001a for the results of this survey).2). South Africa. As a result. 13 BITs were concluded. They were Belgium. industries. 4 The largest foreign affiliates in services (excluding The project on “investment guides and capacity-building for least developed countries” finance and insurance) in the EU are linked to is a collaborative venture by UNCTAD and the firms within the region. Switzerland and Zambia. Ghana.I. the Netherlands and Sweden in October a month after September 11.. among developed countries (see UNCTAD. Invest in France Agency opportunity not only to conclude treaties. Mali. insurance. Benin.1). but (AFII) and Andersen. Malaysia. Financial Times. UNCTAD’s Investment Box III. guides had been produced Box III. by Deutsche Telekom for $29. summarizes the perceptions of the private sector already established in the country of its strengths S o u rc e: U N C TA D . publishing and Another round for LDCs (Cambodia. Burundi. that transcend attracting foreign investment. International Chamber of Commerce (ICC). and 22 agreements 2001 (annex table A. “Bayer confirms CropScience countries have economic and social objectives purchase”. Mauritius. Apart from technical assistance and follow-up. Uganda and Zambia) was 2 About 200 leading TNCs were surveyed in July- organized to negotiate with Belgium-Luxembourg. 18 countries (10 LDCs. As of May 2002. 5 Increases in FDI inflows have continued in 2002.ICC Investment of September 11 (box I. 82 . Burkina Faso.15. This is not always a straightforward exercise. and work had started for Cambodia and Nepal. as well as FDI in telecoms and utilities.4 billion was the A total of 42 BITs were finalized and initialled.

in Mannesmann by VodafoneAirTouch for some 2001. Germany’s inflows in 2001 basis was small. 28 European distribution centres. border M&As in 2001 include the acquisition 23 Against the background of the acquisition of of full ownership of Axa Financial Inc. p. however. 83 . several call centres and shared-services centres. UNCTAD Inward FDI Performance Index (table 8 Cross-border M&A transactions completed in II.1). Apart from outflows from the United 14 Cross-border M&As by Italian TNCs included States to North and sub-Saharan Africa. another the acquisition of LASMO (United Kingdom) $48 million went to the continent without further by ENI and Euralux (Luxembourg) by Mediobanca specification of their precise regional destination. 20 For example. for FDI through a series of tax cuts. FDI inflows did not decline and the second largest outward investor in 2000. Quarterly Bulleting. Celestica (Canada). Movitel. 86 foreign investment projects 15 The Government of Iceland has systematically assisted by the Netherlands Foreign Investment made its business environment more attractive Agency (NFIA) were attracted into the country. utility company. This was essentially due to large worldwide (behind the United Kingdom) in 2000. Commerce. National Statistics. 23). by a simultaneous decline in FDI outflows from Pegasus. Flextronics for some $50 billion between mid-2000 and end. a 5 per cent The majority of investments were IT activities. there were some follow. “Telefónica avanza en la negociación South Africa. greenfield investments. since the lion’s share domestic investment declined by 3. the lowest in Europe. the takeover of but not on a notification basis. On the basis of the revised data. corporate income tax is applied to companies although investment in manufacturing also took registered in Iceland as International Trading place.CHAPTER III REGIONAL TRENDS 7 During 2001. investment compiled by Nihon Keizai Shimbun. In 2002.1 billion euro. outflows in 2000 were significantly (United States). 9 The FDI inflows and outflows of Belgium and 17 Investment in the United States was dominated Luxembourg were very modest in 2001 compared by such M&As as the $9. Similarly. between the Anglo-American Corporation. 11 French TNCs have invested significantly in In insurance. for a total reported value of September 2001. as the transaction and the manufacturing facilities in Europe. 2001 fell by 62 per cent in value from the previous 16 According to data on plant and equipment year’s record high.1 billion. para adquirir la firma mexicana Pegaso”. had acquired media companies 21 They are Solectron (United States). Telecom to become the latter’s largest shareholder. This was unsurprising. and the De Beers in the Mexican market such as Norcel. VodafoneAirTouch invested in Japan 1998 period. Telefónica acquired in FDI inflows to South Africa was accompanied a majority stake in the Mexican mobile operator. consideration the exceptionally large outflows “these inflows were largely a consequence of generated by the acquisition of Mannesmann the cancellation of the cross-shareholding by VodafoneAirTouch in 2000. totalling $24. Cedetel.3 per cent of FDI flows traditionally originates in the United in all industries. the decline in FDI inflows on the latter $200 billion in 2000. as mentioned earlier. While the majority of projects were Companies and engaged in export activities. Large cross. the value of transactions related to a cross. in spite up investments as well.4 billion in 2001. Therefore the increase 2. 7 April 2002. based on the UNCTAD FDI Potential Index. acquired Japanese firms in 2001. 22 The acquisition was not financed only by FDI. a former and Prudential. Belgium and Luxembourg became the second 19 On a notification basis. 2001 (Financial Times.I. International (Singapore). SCI Systems (United States) and Jabil Circuit Furthermore. which 13 Including acquisitions of telephone operators is the non-resident company. 12 This looks less dramatic when one takes into 24 According to the South African Reserve Bank. The country’s originating mainly from the United States as corporate income tax of 18 per cent is now among in previous years and despite the recession. El País.0 billion and $1. and some related value were determined and reflected 70 per cent of Japanese manufacturing affiliates in the balance-of-payments statistics only in Western Europe were considering expanding retroactively. for $4. 2001). 18 Japanese TNCs also expanded existing border M&A deal. Nihon Keizai Shimbun. Furthermore. 21 December 2001). United States firms. Mining Company” (SARB. their facilities in 2001-2002 (JETRO. Vivendi. inflows.2). divestments during that year that were recorded 10 Against the background of the largest ever cross. The country’s attractiveness for FDI.3 billion investment in Lucent Technologies after the data were significantly revised to reflect by Furukawa Electric. are still above the annual average of the 1995. The exceptionally high of AT&T Wireless by NTT Docomo and the amounts in 2000. border M&A transaction. in FDI inflows on a balance-of-payments basis. 2002).8 billion acquisition with the previous year. respectively. 2002). in 2002 by 12. is reflected in its high ranking headquarters. though this potential is not matched in terms and two new R&D establishments were located of actual FDI performance according to the in the Netherlands in 2001 (NFIA. which States and Blue Circle Industries in the United accounted for more than half of Canada’s total Kingdom (annex table A. of the United Seagram by Vivendi (France) in 2000. became evident only $2. Bajacel. Orange Plc of the United Kingdom. as reported by the largest FDI recipient (behind the United States) Ministry of Finance.9 per cent. See chapter V for a further influenced by France Télécom’s acquisition of analysis of contract manufacturers. such as AIG the United States recently. It is expected to decline further States (United Kingdom. Twenty-two European of its small size. 25 Data from United States Department of 13 February 2001.

30 While the swap of Anglo American and De Beers 2002. normally used for infrastructure projects (e. the Czech Republic. since the Government of Venezuela raised 28 Some respondents to the UNCTAD/AFII/ royalties in November 2001 from 16. the Republic of complex deal led to a large-scale repatriation Moldova and Slovakia. represent approximately 75 per cent of all FDI 40 EIU. related FDI in Africa during the 1990s. States.. Hungary. but system. investors is the new rule that the State oil The MIGA survey mentioned Mozambique. 4 February 2002. estimated 31 In 2002. Switzerland. (Burkina Faso. the Sudan and 37 Two other important deals in Mexico were the the United Republic of Tanzania) in 2001. their local stakes in the Brazilian telecom industry from Asia. Cambodia. A good example is FDI to State-owned Petrobras and the way the national telecommunications which is insignificant for power grid apportioned electricity across the the home countries included in table III. and in particular.9 per 2002). the Netherlands. d’Ivoire. Woori Finance Holding. For stake in Iusacell for $1 billion. cent. Germany. information is available only at 38 Both surveys. De Beers who also held Anglo American shares 46 Belarus.6 per cent Andersen survey also mentioned Nigeria and to 30 per cent. FDI became the largest component 33 Foreign firms are already actively involved in of net resource flows (see chapter I. the FDI prospects for Argentina also relatively 27 Due to the unavailability of relevant data. translated into FDI flows. however. EPZ exports also fell in Costa or from other African countries. 2001a). EIU. and power plants) planned in many parts of Myanmar and Zambia. Secretaría de Asian companies (in particular from Malaysia) Economía. the absence of data for certain home and local) and regulators related mainly to the countries might bias the results in certain restrictive terms of natural gas sales by the respects. conducted before the debt default the sectoral level. Albania also fell in the of capital to South Africa.9 per cent for the Spotlight. Lesotho. Congo. 4 February which accounted for a large share in privatization. Sierra Leone. the Democratic Republic of the 2002. $400 million deal to take over three auto plants 48 This section updates the Overview of UNCTAD. these were Angola. instead. Business Latin America. USA-RSA Business developing countries and 0. 27 February 2002. Another deterrent to foreign Angola as interesting locations (UNCTAD. Eritrea. Nonetheless. Lithuania. Myanmar and the FDI because of the special financing schemes Sudan.html Nepal. 18 January 2002. in this transaction is Texaco Inc.go. acquisition of the insurance company SCA by 84 . overall. 2002b. and France. Poland.kr/osis/osismain. Côte monopoly. Nigeria. must hold a majority stake in new joint ventures. infrastructure development (in particular water 50 In 1986-1990. including South Rica (27 per cent) and the Dominican Republic Africa. 36 For an in-depth examination of FDI issues relating 53 There were eight changes in six countries to Latin America and the Caribbean. see ECLAC. Business Latin America. Morocco. For an up-to-date analysis of the economic signed a tentative deal to invest $1 billion in situation of LDCs. see UNCTAD. the Russian Federation and Slovenia. 8 February 2002). Telefónica (Spain) from a number of other significant home and Portugal Telecom. had ranked their figures by individual industry. 32 Taipei Times. decided not to increase countries for FDI in Africa. 44 In 2001. here give a fair picture of the recent trends in 43 Prospects for new FDI in oil have been fading the sectoral composition of FDI flows into Africa. as reported in annex table B. 2001). sold part of their interest in Anglo American 47 The registered outflows of the Russian and repatriated the capital to South Africa. 35 http://koreaexim. Myanmar. Mali. Business Latin America. Federation do not include capital flight.3. Petróleos de Venezuela (PDVSA).g. the acquisition by Vodafone of a 34 per cent the United Kingdom and the United States.3 per cent for the 29 DeloitteToucheTohmatsu. 41-46). Ghana and Kenya.3 because of perceived adverse market conditions include the most important home countries and (EIU. shares might have contributed to additional 45 Croatia. though they do not bring in much Angola. World Investment Report 2002: Transnational Corporations and Export Competitiveness 26 FDI outflow data to Africa are available for ING from the Netherlands for $800 million. pp. Mauritius. in 1996-2001. FDI outflows from South Africa. 2002. This is partly due above-potential category as it had high to the fact that some key shareholders in performance despite low potential. this high.A). from Daewoo Motors Co. Liberia. and Lehman Brothers 2001c. the real GDP of CEE grew by 2. developed countries (UNDESA and UNCTAD. sectoral analysis does not include FDI outflows 39 Two large telecom operators. Senegal. Lao People’s Democratic Republic. Switzerland. announced a to exceed $20 billion per year.3 per cent in 2001 (Mexico. Ethiopia. while all other countries report and devaluation of December 2001. compared with 2. these were this region. Much 42 Exports by the maquila sector in Mexico fell of the FDI in this industry was undertaken by by 3. 51 The ultimate parent firm of the acquired company build-operate-transfer or project finance). Cape Verde. Cambodia. is 52 Bangladesh. of the United 34 Assuming that every dollar of cross-border M&As. the Latvia. flows from OECD-DAC member countries during 41 Differences between investors (both foreign 1996-2000. 49 In developing countries taken as a whole.8. Solomon Islands and Uganda. Lesotho. Estonia. Although the figures in table III. in that order (MIGA. the figures provided (2 per cent). General Motors Corp.

17). Indeed.1). Even some of the 25 largest TNCs from CEE is of the regulars in the top 10 – such as the increasing as well. sales and industries. some TNCs from Africa. at the height of the stock market deals concluded in that year and crowned boom a n d c r o s s . the largest 50 from developing countries 1. CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS This chapter looks at developments A. In top 10 also testifies to these factors. border M&As that engulfed all major of the estimated foreign assets. expanded significantly past decade (see annex table A.000 TNCs now and other “new economy” industries. The in size. as a group. two major factors that affected the ranking sales and employment of the top 100 TNCs of the top 100 in 2000: first. by the acquisition of Mannesmann (Germany) Things have changed considerably in 2001 – ranked eighteenth in 1999 – which. The lion’s share of their foreign 2000 saw the peak of an almost uninterrupted operations is controlled by companies 10-year-long stock-market rally in North headquartered in a limited number of countries. It should be noted that the data – The company’s ascent to the top was the and therefore the discussion – refer to the result of a string of cross-border takeover year 2000. 1 ranked by their foreign assets in worldwide 2000: the 100 largest worldwide (table IV.I. the role of the largest TNCs in dramatically increased asset valuations based in these countries is growing. T h e a s c e n t o f a n o t h e r t e l e c o m from developing countries – have recently company – Telefonica (Spain) – into the been expanding abroad at a brisk pace. despite for the companies listed in these markets the fact that the share of developing countries and actively involved in M&As. The foreign assets. ExxonMobil and BP . respectively.1). and 2002 – as exemplified by events in the consequently. telecoms industry.3). 2 ) . Vodafone (United Kingdom) Europe (CEE) (table IV. these will be discussed Vodafone’s appearance in the list highlights in next year ’s WIR. America and Western Europe. the peak of an unprecedented wave of cross- 14 per cent and 14 per cent. as addition. opted for a strategy of international that turned what was originally a utility growth.b o r d e r M & A a c t i v i t i e s .1 and annex and somewhat related to the first. operating in the world (table I. This resulted Nonetheless. most of all the telecommunications employment 2 of some 65. in total FDI outflows has declined over the the top 100. disappeared from the list. have.I.1). climbed to the top position among the world’s 100 largest non-financial TNCs (table IV. both foreign and total (table – which dominate the list of the largest I V. The 100 largest TNCs in the universe of the largest non-financial TNCs. company into the largest media and telecom The degree of transnationalization of a number company by foreign assets.10) and the largest 25 from the economies in transition of Central and Eastern In 2000. the year table A. the year marked in the year 2000 accounted for 11 per cent. partly through cross-border M&As. petroleum companies. in recent to the fourth spot after a series of acquisitions years. second. Highlights (table IV. with two-digit growth rates in their largest TNCs from Asia and Latin America assets and sales. more does the rise of Vivendi Universal (France) specifically from South Africa.

E. 33 119 81 700 82 534 105 828 30 020 123 303 47.1 28 91 15 89 Wal-Mart Stores United States Retail 25 742 78 130 32 100 191 329 300 000 1300 000 24. . ChevronTexaco United States Petroleum expl. 31 944 48 776 15 891 42 563 16 455 37 387 29.4 13 64 .3 29 43 29 27 Honda Motor Japan Motor vehicles 25 576 46 146 41 909 57 454 56 200 112 400 59. .6 20 87 16 54 Repsol YPF Spain Petroleum expl. 20 788 45 688 19 311 44 606 21 279 69 969 39.5 30 26 43 25 Alcatel France Machinery and equipment 24 461 39 524 25 269 29 487 .7 35 31 41 33 Bayer Germany Pharmaceuticals 21 288 33 917 24 875 28 818 65 900 122 100 67./ref.2 6 46 3 43 Royal Dutch/Shell United Kingdom/ Netherlands Petroleum expl.7 /.86 Table IV.8 38 85 5 76 Ford Motor United States Motor vehicles 19 874 283 390 51 691 170 058 185 264 350 117 30. China Diversified 41 881 56 610 2 840 7 311 27 165 49 570 55.3 21 51 20 32 BMW Germany Motor vehicles 31 184 45 910 26 147 34 639 23 759 93 624 56. 42 576 77 621 65 016 117 095 21 693 69 265 47. 74 807 122 498 81 086 149 146 54 337 95 365 57..1 9 55 30 73 Telefónica Spain Telecommunications 55 968 87 084 12 929 26 278 71 292 148 707 53.7 26 8 . .7 37 49 24 8 Unilever United Kingdom/ Netherlands Diversified 20 382 52 587 26 067 44 254 215 000 295 000 56.. 2000 (Millions of dollars and number of employees) Ranking in 2000: Ranking in 1999: Assets Sales Employment Foreign Foreign TNI a assets TNIa assets TNIa Corporation Home economy Industry b Foreign Total Foreign c Total Foreign Total (Per cent) 1 15 .1 39 1 86 34 Rio Tinto United Kingdom/ Australia Mining & quarrying 19 405 19 443 9 735 9 972 33 415 34 399 98./ref. 131 598 72.8 31 5 35 7 British American Tobacco United Kingdom Tobacco 23 860 25 076 16 374 17 603 82 583 86 805 94./distr./ref.5 7 24 10 18 BP United Kingdom Petroleum expl. 57 451 75 173 105 626 148 062 88 300 107 200 76. 210 709 35.2 23 77 .2 14 52 48 53 Hutchison Whampoa Hong Kong. gas and water . Vodafone United Kingdom Telecommunications 221 238 222 326 7 419 11 747 24 000 29 465 81./distr.7 5 84 4 82 General Motors United States Motor vehicles 75 150 303 100 48 233 184 632 165 300 386 000 31.7 World Investment Report 2002: Transnational Corporations and Export Competitiveness 36 74 36 67 Eni Italy Petroleum expl./ref.1 16 93 7 50 DaimlerChrysler Germany/ United States Motor vehicles . 187 087 48 717 152 446 83 464 416 501 24.4 27 19 17 13 Diageo United Kingdom Food & beverages 25 980 37 550 15 880 18 470 59 587 72 474 79.4 24 3 21 3 ABB Switzerland Machinery and equipment 28 619 30 962 22 528 22 967 151 340 160 818 94..3 22 48 22 42 Sony Japan Electrical & electronic equipment 30 214 68 129 42 768 63 664 109 080 181 800 57.9 18 4 11 2 Nestlé Switzerland Food & beverages 35 289 39 954 48 928 49 648 218 112 224 541 94.9 15 23 19 57 Suez France Electricity. 101 728 149 000 143 044 206 083 64 000 97 900 67../distr. The world’s top 100 non-financial TNCs..7 4 42 47 79 Vivendi Universal France Diversified 93 260 141 935 19 420 39 357 210 084 327 380 59./distr.4 11 57 9 49 IBM United States Electrical & electronic equipment 43 139 88 349 51 180 88 396 170 000 316 303 53. . Anglo American United Kingdom Mining & quarrying 26 000 30 616 18 100 20 570 230 000 249 000 88./distr./ref.8 10 47 50 80 Fiat Italy Motor vehicles 52 803 95 755 35 854 53 554 112 224 223 953 57. 114 951 41 843 86 882 83 338 186 788 39.7 19 62 . gas and water 38 521 43 460 24 145 32 211 117 280 173 200 77. .3 3 30 2 22 ExxonMobil United States Petroleum expl../distr. TotalFinaElf France Petroleum expl.4 2 73 1 74 General Electric United States Electrical & electronic equipment 159 188 437 006 49 528 129 853 145 000 313 000 40./ref./distr.6 33 37 46 36 BASF Germany Chemicals 23 208 36 197 26 332 33 746 48 917 103 273 63.4 32 66 34 68 Nissan Motor Japan Motor vehicles 23 347 51 610 28 680 48 717 39 698 133 833 44. ranked by foreign assets.7 8 80 6 81 Toyota Motor Japan Motor vehicles 55 974 154 091 62 245 125 575 .0 17 11 31 14 News Corporation Australia Media 36 108 39 279 12 777 14 151 24 500 33 800 84.2 34 18 27 6 Roche Switzerland Pharmaceuticals 22 960 42 469 17 232 17 537 56 099 64 758 79.5 12 44 12 45 Volkswagen Germany Motor vehicles 42 725 75 922 57 787 79 609 160 274 324 402 59.On Germany Electricity.1.2 40 56 25 48 Aventis France Pharmaceuticals 19 264 38 142 14 088 20 940 44 477 d 102 489 53.9 25 10 33 35 Philips Electronics Netherlands Electrical & electronic equipment 27 885 35 885 33 308 34 870 184 200 219 429 85. ./ref.

7 57 33 . 75 229 31 301 71 388 .1 73 81 78 86 Merck & Co United States Pharmaceuticals 11 648 40 155 7 292 40 363 26 200 49 300 33. Cable & Wireless United Kingdom Telecommunications 10 622 34 321 10 253 14 678 48 833 54 919 63. The world’s top 100 non-financial TNCs. 48...3 55 69 32 44 Motorola United States Telecommunications 14 713 42 343 21 796 37 580 58 000 147 000 44.4 75 17 77 23 Danone France Food & beverages 10 949 16 179 9 910 13 413 88 285 86 657 81. 38 867 15.4 74 45 69 46 Robert Bosch Germany Machinery and equipment 11 079 22 800 21 140 29 360 108 761 198 666 58. 448 000 41..5 54 22 70 19 Stora Enso Oys Finland Paper 14 727 19 841 11 348 12 112 26 697 41 785 77..4 45 41 61 77 Carrefour France Retail 17 137 24 065 28 664 60 298 209 542 330 247 60.. THE LARGEST TRANSNATIONAL CORPORATIONS 87 . WPP Group United Kingdom Business services 12 145 13 372 3 657 4 453 .3 51 71 14 41 Siemens Germany Electrical & electronic equipment . . Verizon Communications United States Telecommunications 14 466 164 735 1 976 63 423 . Japan Tobacco Japan Tobacco 9 959 29 159 3 760 41 180 .7 78 36 .2 81 32 98 37 Bridgestone Japan Rubber/tyres 9 756 18 884 10 894 18 591 89 754 102 615 65.4 71 72 61 40 Canon Japan Electrical & electronic equipment 11 737 24 627 4 997 24 185 47 177 86 673 40.5 69 28 87 30 Volvo Sweden Motor vehicles 12 133 21 053 16 237 17 489 47 565 72 031 72. . . . 2000 (continued) (Millions of dollars and number of employees) Ranking in 2000: Ranking in 1999: Assets Sales Employment CHAPTER IV Foreign Foreign TNI a assets TNIa assets TNIa Corporation Home economy Industry b Foreign Total Foreign c Total Foreign Total (Per cent) 41 79 44 69 Texas Utilities Company (TXU) United States Electricity. 34 009 27 505 48 871 .9 67 39 62 24 McDonald's United States Restaurants 12 475 21 685 8 420 14 245 250 000 364 000 61. Table IV.5 64 96 .3 63 50 71 61 AES United States Electricity.7 43 59 .3 66 38 68 31 Ericsson Sweden Telecommunications 12 640 26 352 23 261 29 828 62 698 105 129 61.. ranked by foreign assets.3 47 27 42 26 Coca-Cola United States Food & beverages 16 560 20 830 12 740 20 460 28 200 37 000 72.1.9 62 78 55 71 Matsushita Electric Industrial Japan Electrical & electronic equipment 13 745 72 518 33 974 68 862 143 773 290 448 39. gas and water 13 659 31 033 4 185 6 691 .2 52 9 90 20 Astrazeneca United Kingdom Pharmaceuticals 15 000 18 000 15 009 15 804 47 000 57 000 86. 248 053 82. GlaxoSmithKline United Kingdom Pharmaceuticals 11 953 27 447 18 528 27 006 58 000 107 517 55..9 72 92 52 96 Sumitomo Japan Wholesale trade 11 672 39 286 10 135 80 000 9 153 30 715 24. .3 61 86 65 93 RWE Germany Electricity.2 70 53 . 220 089 9.2 49 2 56 1 Thomson Canada Media 15 522 15 699 6 094 6 514 33 600 36 000 95.7 46 60 67 70 Procter & Gamble United States Diversified 16 967 34 194 19 913 39 951 .9 /. .1 44 58 39 51 Hewlett-Packard United States Electrical & electronic equipment .. 51 195 78.8 68 21 .... Pfizer United States Pharmaceuticals 19 100 33 500 10 000 29 400 56 000 90 000 51.7 80 98 59 99 Itochu Japan Wholesale trade 9 894 41 626 18 736 97 944 . gas and water 13 800 60 000 16 400 44 600 45 513 152 132 29.. 87 944 53..6 58 100 .1 65 16 63 17 Michelin France Rubber tyres 12 900 15 950 12 557 14 326 96 504 128 122 81.7 48 68 48 62 Peugeot France Motor vehicles 16 334 46 963 28 466 42 978 54 500 172 400 44. Compagnie De Saint-Gobain France Non-metallic mineral products 14 487 29 222 19 829 26 798 125 130 171 125 65.2 79 97 .9 42 89 45 85 Mitsui & Company Japan Wholesale trade 19 118 64 071 45 901 128 162 5 659 39 344 26. 263 552 4... 41 703 18.9 53 14 75 52 Royal Ahold Netherlands Retail 14 827 23 990 33 653 48 000 . gas and water 19 224 43 420 7 761 22 009 4 677 16 540 35. . 26 606 56. Deutsche Post Germany Transport and storage 13 495 139 380 8 965 30 707 51 613 278 705 19.7 60 99 73 100 SBC Communications United States Telecommunications 14 300 98 651 6 900 51 374 .0 59 70 38 47 Johnson & Johnson United States Pharmaceuticals 14 436 34 245 12 139 29 846 49 338 101 901 43. .3 50 61 57 60 Dow Chemical United States Chemicals 15 500 35 991 16 747 29 534 24 000 53 289 48.1 76 40 100 47 Cemex Mexico Non-metallic mineral products 10 887 15 759 3 028 5 621 15 448 25 884 60.1 56 95 54 95 Hitachi Japan Electrical & electronic equipment 14 650 92 804 22 110 75 483 67 819 337 911 21. .9 77 75 80 97 Nissho Iwai Japan Wholesale trade 10 672 29 145 19 496 52 213 1 951 4 313 39.

Schweppes United Kingdom Food & beverages 8 845 9 651 5 412 6 834 29 648 36 460 84. .88 Table IV. foreign to total sales and foreign to total employment.9 94 65 88 63 Usinor France Metal and metal products 8 541 14 297 5 190 14 771 24 180 60 521 44.5 96 90 97 56 Mitsubishi Motors Japan Motor vehicles 8 169 28 732 15 084 37 905 2 091 24 360 25.. foreign sales and foreign employment were not available.. 31 342 28. Carnival United States Tourism 9 200 9 800 598 3 779 27 000 32 000 64.4 Source: UNCTAD/Erasmus University database. c In a number of cases companies reported only total foreign sales without distinguishing between export from the parent company and sales of their foreign affiliates. foreign investors may hold a minority share of more than 10 per cent. .7 85 35 . 8 017 57 089 49 780 53 234 5 458 46 920 39.7 83 25 .6 97 76 83 83 Petróleos de Venezuela Venezuela Petroleum expl./ref.2 84 83 49 72 Fujitsu Japan Electrical & electronic equipment 9 476 41 936 15 275 44 229 71 000 187 399 31. Republic of Electrical & electronic equipment 8 750 17 709 9 331 18 558 20 072 46 912 47. Some foreign sales figures might therefore also include parent company exports. 7 690 36 594 11 790 19 305 3 808 23 450 32.. Alcan Canada Metal and metal products 9 030 18 407 8 523 9 244 26 000 37 000 70. d Employment for outside Europe. foreign sales to total sales and foreign employment to total employment.5 93 12 74 10 AkzoNobel Netherlands Pharmaceuticals 8 600 10 900 11 900 12 600 55 600 68 400 84. .3 90 13 95 12 Cadbury . . The world’s top 100 non-financial TNCs. Petronas Malaysia Petroleum expl.7 88 29 ./ref. .5 89 88 66 87 Marubeni Japan Wholesale trade 9 000 52 682 40 000 96 438 . b Industry classification for companies follows the United States Standard Industrial Classification. a The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets. Pearson United Kingdom Media 9 556 13 062 4 580 5 787 18 817 24 688 76. 178 000 22.7 98 54 28 38 Renault France Motor vehicles 7 936 19 653 24 121 37 383 98 000 166 114 54. Interbrew Belgium Food & beverages 9 274 10 383 6 704 7 384 33 000 36 463 90. 2000 (concluded) (Millions of dollars and number of employees) Ranking in 2000: Ranking in 1999: Assets Sales Employment Foreign Foreign TNI a assets TNIa assets TNIa Corporation Home economy Industry b Foreign Total Foreign c Total Foreign Total (Per cent) 82 20 81 15 L'Air Liquide France Chemicals 9 643 10 700 5 760 7 480 20 900 30 300 78. . In case of non-availability. . World Investment Report 2002: Transnational Corporations and Export Competitiveness Note: In some companies. Norsk Hydro Asa Norway Diversified 9 378 22 191 16 118 17 727 21 901 38 166 63. Philip Morris United States Diversified 7 425 79 067 32 051 63 276 .2 87 34 . LG Electronics Korea. .1. Conoco United States Petroleum expl. ranked by foreign assets. ./ref. they are estimated using secondary sources of information or on the basis of the ratios of foreign to total assets./distr. Data on foreign assets.1 91 6 79 4 Electrolux Sweden Electrical & electronic equipment 8 810 9 519 13 089 13 576 78 969 87 128 93. .8 100 94 . 8 311 15 618 10 621 31 936 8 280 17 579 44./distr.2 92 63 .5 86 7 . ./distr.6 99 82 .9 95 67 .

2 24 20 Aegon Netherlands Insurance 18.9 47 9 Aventis France Pharmaceuticals 31. number of – which remain the largest automobile employees and percentage) manufacturers on the list – and Fiat. a 1987-2001 Valueb (bllions of Number Rank Name Home country Industry dollars) of deals 1 Vodafone United Kingdom Telecommunications 297.3 106 15 Zurich Insurance Switzerland Insurance 22. the ranking of the top Total 6 293 5 101 23. 2000 Dutch/Shell.9 101 14 Suez France Electric.8 24 5 Mannesmann Germany Telecommunications & engineering 44. last measured by value added (box IV.8 In general.9 595 Top 20 937.1 136 11 General Electric United States Electronic and electrical equipment 25.6 94 19 Seagram Canada Food and beverages 20.2 59 273 Source: UNCTAD cross-border M&A database. 89 .3. gas and water distribution 23. 1999 among the car manufacturers.2.1 98 3 Daimler-Benz/DaimlerChrysler Germany/United States Motor vehicles 54.3 3.3).8 28 Top 10 713. stable compared to previous years: the Indeed. and of cross-border M&As. Toyota Motor and General Motors (Billions of dollars. BP spent $94 billion for its 98 cross-border – consolidated their positions through a number M&A transactions during 1987-2001. General Electric concluded 228 cross-border the composition of the top 10 remained fairly M&As during the same period (table IV. Table IV. some of the largest TNCs are larger remaining places were filled with regulars than many countries.6 73 7 ZENECA Group United Kingdom Pharmaceuticals 35.7 1 370 Total 4 605.5 52 18 Deutsche Bank Germany Banking 20. including General Electric.8 fifth of the total value of cross-border M&A Total 14 257 204 13 385 861 6. Assets Foreign 2 554 2 115 20.3). The top 20 TNCs ranked by value of cross-border M&A activity. Many of the largest TNCs also figure in this league. if the size of both is on the list.7 52.4 100 is also related to the degree of their Sales participation in cross-border M&As.8 16 8 BT United Kingdom Telecommunications 32. For example.6 Total 4 797 4 318 11.5 Average index of deals during the past 15 years: 1987-2001 transnationality 55.6 82 17 Citigroup United States Banking 21. based on data from Thomson Financial Securities Data Company. and number of M&As in which some of the largest have been involved. a Includes cross-border M&As concluded by their affiliates.7 47 6 AXA/AXA-UAP France Insurance 41. M&A activity has made large TNCs larger a The change between 1999 and 2000 is expressed than ever.6 88 4 Deutsche Telekom Germany Telecommunications 52.6 28 2 BP United Kingdom Petroleum 94.4 228 12 Roche Holding Switzerland Pharmaceuticals 24. Snapshot of the world’s top year’s largest TNC by foreign assets.7 37 16 News Corporation Australia Media 22. The Foreign 2 441 2 129 14.1 largest 20 companies most actively involved Employment in cross-border M&As accounted for one- Foreign 7 132 946 6 057 557 17. Despite these changes.7 38 10 Nestlé Switzerland Food and beverages 28.7 23 13 Allianz/Allianz Holding Germany Insurance 23. which Change replaced DaimlerChrysler 3 in third place Variable 2000 1999 2000 vs.1).CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS Table IV. The recent boom in Source: UNCTAD/Erasmus University database. This is illustrated by the value in percentage points.4a (table IV. Royal 100 TNCs. b Includes only the deals for which information on transaction values is available.

b Value added is estimated by applying the 30 per-cent share of value added in the total sales. value 1. 2000).1. of 7 trading companies for which the data on value added were available. the world’s largest TNC was ExxonMobil. 2000. /.On 20 13 India 457 46 Pakistan 62 79 Oman 20 14 Australia 388 47 General Motors 56b 80 Sony 20b 15 Netherlands 370 48 Peru 53 81 Mitsubishi 20c 16 Taiwan Province of China 309 49 Algeria 53 82 Uruguay 20 17 Argentina 285 50 New Zealand 51 83 Dominican Republic 20 18 Russian Federation 251 51 Czech Republic 51 84 Tunisia 19 19 Switzerland 239 52 United Arab Emirates 48 85 Philip Morris 19b 20 Sweden 229 53 Bangladesh 47 86 Slovakia 19 21 Belgium 229 54 Hungary 46 87 Croatia 19 22 Turkey 200 55 Ford Motor 44 88 Guatemala 19 23 Austria 189 56 DaimlerChrysler 42 89 Luxembourg 19 24 Saudi Arabia 173 57 Nigeria 41 90 SBC Communications 19d 25 Denmark 163 58 General Electric 39b 91 Itochu 18c 26 Hong Kong. Based on this measure. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box IV.. half of the largest value- in 1999 (Anderson and Cavanagh. Of the added entities ranked between 51 and 100 were 50 largest “economies”. 14 were TNCs and 36 individual firms (box table IV. 2000. d Value added is estimated by applying the 37 per-cent share of value added in the total sales. Value added is defined as the sum of salaries. Republic of 457 45 ExxonMobil 63b 78 E. According to one company equals the size of the economies of Chile comparison of the sales volume of firms with or Pakistan in terms of value added. c Value added is estimated by applying the 16 per-cent share of value added in the total sales..5 per cent of world GDP there were 29 TNCs.a not. pre-tax profits and depreciation and amortisation. Box table IV. China 163 59 Toyota Motor 38b 92 Kazakhstan 18 27 Norway 162 60 Kuwait 38 93 Slovenia 18 28 Poland 158 61 Romania 37 94 Honda Motor 18b 29 Indonesia 153 62 Royal Dutch/Shell 36 95 Eni 18 30 South Africa 126 63 Morocco 33 96 Nissan Motor 18b 31 Thailand 122 64 Ukraine 32 97 Toshiba 17b 32 Finland 121 65 Siemens 32 98 Syrian Arab Republic 17 33 Venezuela 120 66 Viet Nam 31 99 GlaxoSmithKline 17 100 BT 17 Source: UNCTAD. depreciation and amortization.2 trillion to almost $4. a GDP for countries and value added for TNCs. For firms. the sales of the top 200 100 of a combined country-company list for 2000.1.5 times between these two years.1). it ranked 45th in a compared to that of countries’ economies. Are some TNCs bigger than countries? There is no doubt that TNCs have been However. How large are the top TNCs vis-à-vis economies in 2000? (Billions of dollars) Value a Value a Value a Rank Name of TNC/economy added Rank Name of TNC/economy added Rank Name of TNC/economy added 1 United States 9 810 34 Greece 113 67 Libyan Arab Jamahiriya 31 2 Japan 4 765 35 Israel 110 68 BP 30 3 Germany 1 866 36 Portugal 106 69 Wal-Mart Stores 30c 4 United Kingdom 1 427 37 Iran. as combined list of countries and non-financial an indicator of the influence that the former have companies (box table IV.8 trillion between 1990 pre-tax income (De Grauwe and Camerman. In the top the GDP of countries. 90 . economies.1. and 2000. 2002). and $3.1). of 66 manufacturers for which the data were available. 2000. Islamic Republic of 105 70 IBM 27b 5 France 1 294 38 Egypt 99 71 Volkswagen 24 6 China 1 080 39 Ireland 95 72 Cuba 24 7 Italy 1 074 40 Singapore 92 73 Hitachi 24b 8 Canada 701 41 Malaysia 90 74 TotalFinaElf 23 9 Brazil 595 42 Colombia 81 75 Verizon Communications 23d 10 Mexico 575 43 Philippines 75 76 Matsushita Electric Industrial 22b 11 Spain 561 44 Chile 71 77 Mitsui & Company 20c 12 Korea. firms accounted for 27. with an estimated $63 billion The size of large TNCs is sometimes in value added in 2000. were countries. The size of this in the world economy. a comparison of the sales of firms growing in size at rates exceeding those of many with the GDP of countries is conceptually flawed. of 22 other tertiary companies for which the data on value added were available. UNCTAD’s added can be estimated as the sum of salaries 100 TNCs also increased their total sales. The sales of the 500 largest firms as GDP is a value-added measure and sales are in the world nearly tripled between 1990 and 2001.1. A comparable yardstick requires that sales while world GDP in current prices increased be recalculated as value added. from and benefits.1.

9 2.On Germany Electricity. Table IV./ref./distr.6 58 100 Verizon Communications United States Telecommunications 4. 44./distr. The newcomers have a number of the media.5 4. S o u rc e : U N C TA D .5 that fell within the combined top 100 list of Top 50 TNCs 2.5 70 53 GlaxoSmithKline United Kingdom Pharmaceuticals 55. has declined somewhat over the past decade (box table IV. foreign sales to total sales and foreign employment to total employment.1.8 Top 100 TNCs 3.6 23 77 E.2 79 97 Japan Tobacco Japan Tobacco 18. Newcomers to the world’s top 100 TNCs. 47./distr.5 99 82 Petronas Malaysia Petroleum expl.1 68 21 WPP Group United Kingdom Business services 78. 2000 Ranking by Foreign TNIa assets TNIa Corporation Home country Industry (Per cent) 1 15 Vodafone United Kingdom Telecommunications 81. a slight concentration in service industries. Fortune. 32. largest TNCs accounted for 4.2 19 62 TotalFinaElf France Petroleum expl.9 be noted that the number of the largest TNCs Top 20 TNCs 1.8 1.7 88 29 Alcan Canada Metal and metal products 70. • Most of the newcomers are from Europe. This increase – amounting to largest 100 TNCs in world GDP.7 83 25 Pearson United Kingdom Media 76.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS Box IV. gas and water 39.4. a The transnationlity index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets.3 per cent of world GDP in 2000. 91 . Those of the 100 larger over the past decade.5 92 63 LG Electronics Korea.2. database on the largest TNCs. In total.4 Source: UNCTAD/Erasmus University database. Republic of Electrical & electronic equipment 47.2 87 34 Carnival United States Tourism 64.5). five less than in 2000.4 26 8 Anglo American United Kingdom Mining & quarrying 88./ref. a “The Fortune Global 500”. The concentration ratio of the cent in 1990.4 and IV. It should Top 10 TNCs 1. but • They come from a wide range of also from smaller countries such as Belgium industries.2 85 35 Norsk Hydro Asa Norway Diversified 63. The concentration of Value added as a value added in the 10 to 50 largest TNCs.4 13 64 ChevronTexaco United States Petroleum expl./ref. Are some TNCs bigger than countries? (concluded) The value-added activities of the largest value added of the largest 100 TNCs in world TNCs have grown faster than those of GDP confirm that their size has become even countries in recent years.2). although there seems to be and Norway.5 per Box table IV.0 0. interesting features: especially from the United Kingdom.1. percentage of world GDP as measured by the share of their value added Number of TNCs 1990 2000 in GDP.8 100 94 Philip Morris United States Diversified 22. 1990 and 2000 some $600 billion – was almost equivalent (Per cent) to the GDP of Spain. compared with 3. however.4 43 59 Pfizer United States Pharmaceuticals 51.1.5 86 7 Interbrew Belgium Food & beverages 90. 22 April 1991 and 15 April 2002.3 companies and countries was 24 in 1990.4 78 36 Cable & Wireless United Kingdom Telecommunications 63. Increases in the share of Source: UNCTAD.1 57 33 Compagnie De Saint-Gobain France Non-metallic mineral products 65. 47./distr.5 95 67 Conoco United States Petroleum expl. 22 entries were registered in 2000 (tables in particular in telecommunications and IV.0 64 96 Deutsche Post Germany Transport and storage 19./ref.

/distr./distr. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table IV. a United States-based utility. They include four German firms. 51. up from 45 per cent telecommunications company also dropped at the beginning of the 1990s./distr. This is a out.3 89 92 Atlantic Richfield United States Petroleum expl.4 53 66 Du Pont (E. ON and LG Electronics. 82. 11 of the 22 departures are explained gained more prominence on the top 100 list. China). 34. with the exception A record five firms among the top o f Ve r i z o n a n d . France.3 13 11 Nippon Mitsubishi Oil Japan Petroleum expl. telecommunications and electronics. t o a l e s s e r d e g r e e . while the number Southern Company.7 37 78 Chevron United States Petroleum expl. both traditional ones like oil and • While most of the new entrants figure petroleum. TNCs from developing countries in 1999.8 76 94 Southern Company United States Utility 19.4 94 55 Texaco United States Petroleum expl. Cemex Japan Tobacco. developing-country firms the list.5.) de Nemours United States Chemicals 41. and “new economy” ones like in the lower ranks of the top 100 list.3 Source: UNCTAD/Erasmus University database. industries. Petroleos de Venezuela and LG are already in advanced stages of their Electronics (Republic of Korea) – are transnationalization processes. and the composition of developed-country eight from the United States and two from firms changed (table IV. the exit of other companies restructuring in the course of the EU resulted from partial acquisitions: For instance./distr.I. Departures from the world's top 100 TNCs. of European firms on the list remained 92 .2 85 64 Viag Germany Diversified 43./ref./ref.3 91 88 Lucent Technologies United States Electronics 25.2 96 91 Toshiba Japan Electronics 23. (Mexico). suggesting three (led by Vodafone) made it immediately that firms from developing countries have into the top quartile.4 18 58 Mannesmann Germany Telecommunications/engineering 48. E. The industry most affected has been petroleum and mining (with six companies • Firms from the EU accounted for more disappearing from the list or being absorbed than half of the total foreign assets of into a newly formed company).8 82 90 Edison International United States Electronics 24. One the top 100 firms.6 26 84 Mitsubishi Japan Diversified 29. • Almost all newcomers.6). reflecting the dynamic the potential to become global players in process characterized by M&As.2 40 53 Elf Aquitaine France Petroleum expl.6 72 28 Compart Italy Food & beverages 63. As for the companies exiting from In the 1990s. a This also includes companies that could not be considered because of their late responses to the UNCTAD questionnaire and for which estimates could not be derived./distr.8 64 16 Glaxo Wellcome United Kingdom Pharmaceuticals 76.5 93 75 Metro Germany Retailing 36.3 84 29 Montedison Group Italy Chemicals/agrindustry 62.3 58 5 Holcim (ex Holderbank) Switzerland Construction materials 91. as is evident headquartered in a developing country. 51./distr. • Two of the newcomers are companies lost its place as the result of a sell-off of that ranked high on the list of top 50 most of its overseas operations. Whampoa (Hong Kong.7 51 65 Veba Group Germany Diversified 42./ref. 70. Hutchison Deutsche Post. 2000 a Ranking in 1999 by Foreign TNI assets TNI Corporation Home country Industry (Per cent) 8 21 Total Fina France Petroleum expl. While these were cases of full direct consequence of a comprehensive acquisitions. Thus./ref./ref./ref. a range of industries.9 23 9 Seagram Canada Beverages/media 88. These from their above-average transnationality companies are involved in a variety of index figures. 100 TNCs – Petronas (Malaysia). by M&As. Philip Morris. 23. integration process.9 92 39 Crown Cork & Seal United States Packaging 57. Petronas.

9 46.5 10.4 0. 1 1 - New Zealand . their share in foreign assets has remained stable • Although the United States is still the or fallen. 1 1 - Norway 63.6 9.2 1.1 100 100 100 100 100 100 Source: UNCTAD and Erasmus University database. b Due to dual nationality.1 0.9 14 10 12 The Netherlandsb 84.9 64. 1 Republic of Korea 47.9 10.6.2 . 0.4 9.9 12.4 79.4 .4 6. 1 .1 12.4 . 2 .7 2.7 1. .0 16 17 12 Other economies 48.0 2.5 3 5 6 Australiab 0. .2 33.2 8.2 8.5 27.7 83.0 41.8 . while such deals fifth.0 44.9 35. - Total/average for all economies 57.3 12.6 84.4 .5 47.0 8. 0. 0.4 . 3.1 66. 1 .7 . Liberal M&A legislation Their share in the foreign assets of the in the United States facilitates the takeover top 100 firms increased to more than a of firms in that country. 1. .9 66.0 41.7 53. firms grew larger by merging or more on M&As within the United States. 0. .9 32.4 13 11 14 Germany 45.8 0. the trend list. Firms from the United Kingdom had no alternative but to expand through were at the forefront of this process: foreign acquisitions. 0.6 50.5 .7 80.4 1 .9 56. China 55.4 60.3 0.5 49 39 48 France 63.2 8. - Spain 41.9 73. . . . 1 Malaysia 32. This is because firms were engaged in cross-border M&As.0 10 10 10 Switzerland 89.9 76. . - Hong Kong.7 2.3 3. 62. 1990. 0.6 7.4 0.5 . taking over rivals inside and outside the while their European rivals often have EU.0 68.5 25 34 30 United States 43.7 .0 7. fewer Japanese firms home country for the single largest number are to be found at the top end of the of companies on the list.8 .3 31. - Belgium 90. its importance list. 93 .7 15. In the aggregate for the total of all 100 listed TNCs. Thus. 58.8 45. and their number grew to 14. . 1 . Home economies of the world’s top 100 TNCs by transnationality index and foreign assets.5 23 30 28 Canada 82.0 2 4 2 Japan 35.3 0.6 71.3 .6 .3 3.7 1.9 . the have hurdles to pass in Europe.3 1.5 2. a The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets.0 1 2 1 North America 62.0 10. While at the end of the 1980s and in this respect has declined somewhat the beginning of the 1990s many Japanese over the past decade.6 35.5 79.6 1 3 2 Venezuela 39.0 56. 1.8 51. . Rio Tinto Plc is counted as an entry for both the United Kingdom and Australia. .9 10 9 9 United Kingdomb 76.5 51. third largest after the United States and Japan.0 43. In the aggregate for the European Union and the total of all listed TNCs. .7 3 3 5 Finland 77.1 35. Royal Dutch Shell and Unilever are counted as an entry for both the United Kingdom and The Netherlands. 51.6 . from 12 to 16 in the past 10 years.5 21. While a similar development could • Japanese firms fell back in the top 100 be observed for French firms. United States companies have focused the burst of the stock market bubble Table IV.9 2.9 3 4 4 Italy 48.6 .2 57.3 .CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS stable. foreign sales to total sales and foreign employment to total employment.9 . 1995 and 2000 Share in total of Average TNIa foreign assets of top 100 Number (Per cent) (Per cent) of entries Economy 2000 1995 1990 2000 1995 1990 2000 1995 1990 European Union 67.8 .9 1.5 2 2 4 Sweden 75. Although their number has increased there was less obvious. it is counted once.8 38. - Mexico 60.0 8.9 31.2 28.0 12. 1 .7 44.4 .2 70. . 0. they are counted once.9 38.8 68.

2). up by more than 14 per cent impressive double-digit increase in their foreign from 1999. almost half (48) of the top 100 strategies) through spin-offs of certain companies experienced double-digit growth segments of their businesses following rates in foreign sales. 4 Total foreign sales largest increases in foreign assets were Vivendi of the world’s 100 largest TNCs amounted Universal. The top 10 by increase in their foreign assets as a result foreign sales include a number of automobile of M&As underlines the importance of these manufacturers (Toyota. Firms from companies that rank high on the list by foreign three industries – electrical and electronic assets can be found at the bottom when equipment. The most dynamic increases and operations (see footnote 3 for an example). the variation in the fortunes Foreign assets. Pfizer and Rio Tinto. TotalFinaElf ($83 billion). the first to be hit by the economic DaimlerChrysler (-60 per cent) heads this slowdown. followed by Siemens (-41 per cent) and strategies that included the sale of Unilever. activities during 1999-2000. motor vehicles and pharmaceuticals it comes to ranking by foreign sales. TNCs from the petroleum interest in telecoms abroad). as was the case foreign assets. which ranks ninth. an unprecedented number of TNCs industry other than petroleum and automobiles (20) in the top 100 suffered declines. more than 20 per cent. assets (in the context of changed corporate In general. In addition to technical reasons operational fundamentals of the companies related to the definition of foreign assets in that year. but has a considerable with foreign assets. as a result to slightly more than $2. The only company in an hand. Growth in foreign of the top 100 with respect to foreign assets assets held by the 100 largest TNCs continued underlines the importance of the dynamic in 2000. pointing to the Cable&Wireless and Hutchinson Whampoa increasing importance of foreign sales. The reasons for this are the same • The fact that a quarter of the companies as those explaining the reduction in foreign that experienced a reduction of their assets. Volkswagen and Ford. All these companies industry feature prominently in the list of too were involved in major M&As.5 trillion (table IV. companies that experienced significant increases with ExxonMobil ($143 billion). Total foreign assets increased by developments in M&A activities during 2000. contrary to foreign sales. On the other in that order). in foreign sales were recorded for two there are several other reasons for this: petroleum companies from developing countries. However. Royal Dutch/ background. The TNCs that registered the three Foreign sales. followed by Aventis of France. of total sales (11 per cent). as with restructuring or M&As. BP ($106 had a diversified industrial and geographic billion). Interestingly.4 trillion in 2000 of M&As. than 5 per cent. companies were in a wide range of industries. 20 per cent recorded lower with Siemens and Infineon. All in all. P et ro l eo s d e Ven ezu el a an d P et ro n a s o f • Some companies reduced their foreign Malaysia. no clear pattern can be electrical and electronic equipment industries discerned: TNCs experiencing declines came suggests that these firms were among from various countries and industries. to $2. These included Telefonica. Other the largest TNCs ranked by foreign sales. suggesting – accounted for more than half of all the that share price developments. World Investment Report 2002: Transnational Corporations and Export Competitiveness in Japan at the beginning of the decade industries. However. particularly cases experiencing reduced foreign assets in these industries. Some telecom firms also saw an (table IV. In sum. manufacturing operations abroad to contract most declines in foreign assets were no bigger manufacturing (chapter V). many telecom such as telecommunications. some of the declines in foreign left many firms (with some exceptions) assets might have been a corporate without the means for larger M&As (see response to dimmer economic prospects. As for the 10 steepest declines foreign assets in 2000 were from the in foreign sales. sales. had little to do with the in 2000. the fact that 45 of Shell ($81 billion) and ChevronTexaco ($65 the companies saw a double-digit rate of billion) leading in the list. • Finally. 94 . chapter III). This expansion exceeded that assets. with just over $51 billion with the exception of “new economy” ones in foreign sales.2). These among the top 10 by foreign sales is IBM. As (which is diversified. Verizon. and responded with cost-savings list. given that an economic slowdown As for the distribution of foreign sales had begun in 2000 in at least some of the largest 100 TNCs by country of origin.

At first sight. telecommunications. especially in Europe. Foreign employment companies from the United States. In some industries. to an unprecedented 7 million top 100. After a number of M&A their foreign employment by 10 per cent deals between Swiss firms as well as between or more. some companies in these industries. a major reversal in foreign employment by Japanese companies now mostly occupy the the top 100. given the M&A activity in some of the Asian crisis and in response to the of these industries. although their share in foreign Foreign employment. The largely industries with the most remarkable increase overlapped with the 10 that experienced in the number of firms on the list were the largest declines in foreign sales. mining and retail). first signs of the global slowdown already while M&As led to the disappearance of looming on the horizon. The explanation is that. they also brought new entrants. Together workforce suggests that. which by the top 100 firms rose by more than now form little more than a quarter of the 17 per cent. oil and and electrical equipment. most companies on the list. although the number of to host countries in chapter I can also be EU companies has increased since 1995 used to capture the foreign dimension of and they have regained the position they the activities of the top TNCs. this trend on the list has been at the expense of was reversed in 2000. than at the beginning of the 1990s (1990: 12. t h e r e w a s s o m e Industries. although the number since the trend in total employment did not of companies from non-Triad countries has c h a n g e . Again. these companies employment increased at a steady rate of now come from a larger pool of countries. this stability is remained highly cost-sensitive in the aftermath remarkable. the subsequent absence of significantly expanding their foreign employment such deals led to the gradual departure of in 2000 were spread across the top 100 several Swiss firms from the list. explain companies going through a post-merger this trend.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS it closely resembles the distribution of foreign has stabilized at a considerably higher level assets (table IV. as including five developing countries. as against a third 10 years ago. to be more active in terms of M&A deals. The 10 TNCs accounting for the most notably petroleum. 2. The with the other parameters for the firms making prominence of Switzerland as a home country up the list of top 100. petroleum exploration and distribution. as they list and over all industries. The average of three ratios for a firm: foreign number of Japanese companies on the list assets/total assets. foreign sales/total sales 95 . The national-origin composition of the top 100 TNCs continued The Transnationality Index applied to be fairly stable.7). of companies that reduced their foreign and food and beverages (table IV. Many telecommunications and utilities. It is the had held at the beginning of the 1990s. about 6 per cent (table IV. The list of the top 100 concentration mainly in the industries in which TNCs in 2000 was dominated by the same most of the M&A action took place during industries as in previous years: electronics that year (i. motor vehicles and petroleum. The increase in the list had reduced their foreign employment number of European and Japanese companies by almost 8 per cent in 1999. restructuring phase. despite the ongoing they account for 47 of the 100 companies wave of cross-border M&As. but another 35 actually reduced Swiss and non-Swiss firms in the first half their workforce abroad. 2000: 16). The companies of the 1990s.e.6). There was assets and sales has remained constant. at around 10.2). these entrants included largest reductions in foreign employment companies from developing countries. Deregulation TNCs among those that experienced the and privatization of these industries in the largest declines in foreign assets were past decade. The large number parts. such as DaimlerChrysler and Aventis. including companies were overtaken by other firms that continued such as Vivendi Universal (100 per cent). performance varied for non-Triad-TNCs on the list has been considerably: but some 20 companies increased drastically reduced. BP (42 per cent) and Telefonica (75 per cent). Transnationality National origin. A s i n t h e p r e v i o u s y e a r. This is particularly remarkable country distribution is that. t o t a l been stable. H o w e v e r. out of a total of more than 14 million Another interesting feature of the home- employees. While the companies on the lower end of the list.

8 15 14 13 Electronics/electrical equipment/computers 50.6 6 5 7 Trading 26. that the companies on the list have become while total assets expanded more rapidly Figure IV.3 47. 3 4 Total/average 58. foreign employment/total employment of the top 100 expressed in percentages. 67. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table IV.0 59.9 51.3 46. In recent years.9 54.3 .8 .8 63. – from 51 per cent in 1991 to almost 56 when foreign sales and employment grew per cent in 2000 (figure IV. Note: The ratios represent the averages of the individual ratios of foreign assets/total assets.5 49. the Between 1991 and 2000.3 47.4 63. and foreign employment/total employment. . 5 .1 2 2 6 Construction .1.1 100 100 100 Source: UNCTAD and Erasmus University database. 5 This means faster than sales and employment generally. it is possible that the average TNI in some instances could be higher than any of the foreign/ total ratios.3 12 14 13 Pharmaceuticals 61. - Chemicals 63.7.3 60. - Retailing 57.8 58.8 50.9 55. 4 .8 . As a result.4 37.4 57.7 6 2 2 Other 60. a The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets.3 35.7 27.5 3 1 3 Media 85. foreign sales/ total sales.5 51.4 12 18 14 Petroleum exploration/refining/distribution and mining 70.0 8 12 9 Telecommunications 45.1 66. Industry composition of the top 100 TNCs.4 46. This was also the case in 2000. the average upward trend of this Index has been driven Transnationality Index value of the world’s mainly by the sales and employment top 100 TNCs rose – with some interruptions components. foreign sales to total sales and foreign employment to total employment. 1995 and 2000 Average TNI a per industry (Per cent) Number of entries Industry 2000 1995 1990 2000 1995 1990 Motor vehicle and parts 59.1 43.I). . more transnationalized.4 83.1 61.6 59. 1990-2000 Source: UNCTAD/Erasmus University database. The average transnationality index (TNI) of the top 100 TNCs is the average of their individual transnationality indices.6 29. 96 .1 9 6 6 Food/beverages/tobacco 70.5 32. 1990.4 5 5 7 Utilities 47. The transnationalization of the world’s top 100 TNCs.4 82.1 3 11 12 Machinery/engineering 75.6 3 2 2 Metals 57.8 30.7 42.2 7 5 2 Diversified 51.

in which ever- markets results in relatively low foreign. . In 2000. t h e h i g h e s t transnationality indices: in 2000 a quarter transnationality index value (table IV. as in earlier years. a The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets. on average. At the same time. in part index value of 75 per cent or higher. TNCs in food and beverages. Table IV. o n a v e r a g e . They those in food and beverage. many and Philips of the Netherlands. locating manufacturing and distribution half of the companies on the top 10 list centres in key regions.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS than foreign assets. As for the industry composition companies to realize economies of scale on the list. including British American Tobacco.9 18 4 11 2 Nestlé Switzerland Food & beverages 94. (25) of the companies on the list had an Petroleum has a lower average rank. they made strides include ABB and Nestlé of Switzerland.4 52 9 90 20 Astrazeneca United Kingdom Pharmaceuticals 86. Companies from the United States towards more efficient production also inspired and Japan are not on the list. All these made to cut costs by reducing the number companies have pursued a strategy of of parts and components produced in the consolidating their market position by home country and decentralizing their acquisitions of competitors in Europe. The world’s top 10 TNCs in terms of transnationality.2 86 7 . foreign sales to total sales and foreign employment to total employment. however. t h e This was particularly true for the importance of their relatively large home pharmaceutical industry. in international expansion during the 1990s. at least in the so-called “new economy”.4 91 6 79 4 Electrolux Sweden Electrical & electronic equipment 93. Taking the average the expansion of the value of total assets of the five largest companies by foreign counterbalanced the increase in foreign assets. . 2000 Ranking in 2000 Ranking in 1999 Foreign Foreign TNIa assets TNI assets TNI Corporation Home country Industry (Per cent) 39 1 86 34 Rio Tinto United Kingdom Mining & quarrying 98. too.9). Interbrew Belgium Food & beverages 90. assets for each of the major industrial groups The increase in the Transnationality Index on the list. 97 . North production to low-cost locations in (or close America or other strategically important to) key markets. while the foreign which is predominantly a tobacco firm but assets/total assets ratio actually fell slightly has a considerable interests in food and between 1990 and 2000. increased significantly. a number While the top companies in electronics/electrical of the largest firms in the top 10 in terms equipment and pharmaceutical industries were of transnationality were from countries with transnationalized much less. Electrolux of Sweden. More companies pursued a rigorous regionalization remarkable. This largely mirrors the transnationality Thus.2 26 8 . beverages operations. h a v e . than small domestic markets (table IV. while because a number of the petroleum companies in 1999 there were only 16.8). Efforts were also are from the United Kingdom. Even though cross-border M&As with foreign competitors.2 49 2 56 1 Thomson Canada Media 95. of the top 100 in general. increasing fixed costs for R&D drove to-total ratios. Both the sales and the top 10 come from the food and beverages employment components of the Index have industry. t h e y h a v e e x p a n d e d i n t e r n a t i o n a l l y. Anglo American United Kingdom Mining & quarrying 88. Another fifth are the valuation of TNCs’ assets was subject mining companies. for the entire list was driven by a larger together with TNCs from the pharmaceutical number of companies with very high i n d u s t r y. As already mentioned. are based in the United States with many of their activities still taking place at home.7 Source: UNCTAD/Erasmus University database.8. Interbrew of Belgium In the first of the two industries. to changes in the stock market at the end of the 1990s and the beginning of this decade. is the fact that almost strategy.7 31 5 35 7 British American Tobacco United Kingdom Tobacco 94.9 25 10 33 35 Philips Electronics Netherlands Electrical & electronic equipment 85.3 24 3 21 3 ABB Switzerland Machinery and equipment 94. the drive markets. a third of the companies in the through M&As.

4 7.7 6. Toyota Motor and Mitsubishi Motors were among those that experienced the biggest decline (figure IV. Many of that topped the Index in 1999.8 2.0 5.5 4. the companies (In percentage points) with the largest increases in transnationality come from Europe and.6 8.9 2.5 4. 1990.8 5. Figure IV.7 13.7 1990 36.4 2. such as Unilever or Roche.4 11. a and their shares in the assets.5 9.1 10.1 1990 60.4 12. this mirrors the leaps in transnationalization as a result of cross-border M&As.8 2.1 7.2 12.4).2 3.6 5.7 3.6 9.0 13.1 11.7 11.4 9.4 2.6 Pharmaceuticals 2000 64.3 6. Again.0 4.8 1995 61.1 2.5 2.9 8.9 6.5 1990 34.8 7.8 2.6 10.2 5.1 1990 57. values declined considerably.3 Chemicals 2000 60.1 3.9 1990 51.9 10.5 1995 64.3 6.6 1.6 15. All in all.4 5.8 6.9 13.4 Food/beverages 2000 86. Source: UNCTAD/Erasmus University database. There are also individual examples of firms on this list.8 11.2 3.0 3.0 17. which can differ significantly from those of their competitors.0 4.8 9.3 4.9 5.0 11.2).1 10.8 5.0 3.2 5.9 10.0 3.7 4.9 2.4 7.8 11.8 3.9 10. The 10 biggest increases in transnationality As with the ranking of the top among the world’s top 100 TNCs.3 9.1 10.6 Source: UNCTAD and Erasmus University database.5 4.3 1.1 6.7 7.8 2. 1995 and 2000.4 4.4 7.7 15.9 15. for which the values developed differently from the average for their industries.2 10.4 2. 98 .6 5.4 1.9 7.6 3.3 10.0 1995 38.2. 1995 and 2000 (Percentage) Assets Sales Employment Industry Year TNI Foreign Total Foreign Total Foreign Total Petroleum 2000 59.1 1. a Only industries that have at least five entries in the lists of the top 100 TNCs of 1990.1 8.0 3. 1999-2000 TNCs in the Index.3 3.3). The increases in the Index values at is composed of TNCs from a greater variety the top are much larger than for companies of industries in 2000 (figure IV.6 13.2 1995 76.8 12.1 6.1 1995 68.0 19. Average transnationality index of the top 5 TNCs in each industry. from France and Germany. in particular. This highlights the importance of individual firm strategies for transnationalization. the list of companies withthese companies are also newcomers (table the largest rises in the Transnationality Index IV.0 3. For some companies.9.8 12.5 1.7 2.6 3.2 Electronics & electrical equipment 2000 52.3 1995 61.4 7.9 4. sales and employment of the top 100.5 1990 47.5 2.3 2.6 14.7 14.2 Motor vehicles 2000 36.8 7.9 5.6 1.2 12.6 15. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table IV.

increased more modestly by 5 per cent. only Petroleos de total sales fell by $63 billion as compared Venezuela (which now ranks fourth in the to 2000. Foreign top 100. The increased transnationalization 3. with an increase of only influenced the aggregate figures for the whole 0. economic downturn took its toll and has led to a considerable slowing down of this process. 99 . In 2001. These five companies also made it to the list of the top 100 The economic slowdown that started companies worldwide in 2000. clear that the global lower than those in 1999.10). Since all the foreign group (table IV. Not only has the growth and employment continued to grow by 3.3.000. the acquired by Vodafone a few months later). the aggregate figures would than the totals. Thus. spread evenly among the 50. on the other hand. It was driven largely by a handful of Preliminary data suggest that some dominant companies. assets of the top 50. even though To g e t h e r w i t h C e m e x . than foreign sales as most companies continued resulting in an increase in its foreign interests. The 50 largest TNCs transnationality among the world's top 100 TNCs. many among the top 50 benefited from the still positive economic climate in developed- country markets and the recovery of developing economies from the effects Source: UNCTAD/Erasmus University database.10). the M&A wave slowed considerably in 2001 Petroleos de Venezuela and Petronas. The 10 biggest decreases in B. rose by almost company. This meant that total sales developing country to be directly affected expanded – in relative terms – more modestly by the M&A battles in developed countries. 1999-2000 from developing countries (In percentage points) 1.000. they have also significantly virtually stagnated. of the Asian financial crisis of the late 1990s. with their investments abroad. although total employment been impressive. and stands out particularly figures for the reporting companies. Orange.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS Figure IV. This is a record in 2000 and continued throughout 2001 also number of developing-country TNCs on the led to a decline in sales and employment top 100 list.11). however. Hutchison Whampoa (Hong through the following year. the greater transnationalization actually drop for the remaining TNCs on of operations of the top 100 seemed set to the list from developing countries to levels continue. because. Foreign employment. It is however. of the trends observed for 2000 continued In 2000. it as a result of the global economic slowdown accounted for just under half of all foreign and the stock market decline (see chapter I). Foreign assets grew by 21 per cent and foreign sales by an impressive 56 per cent. At the same time. 6 total assets of this group increased by some It was one of the few companies from a $88 billion.7 per economic importance of these companies cent or 102. If these top five were components grew faster or decreased less to be excluded. Highlights The trend towards increased transnationalization of the 50 largest TNCs from developing countries continued in 2000 (table IV. Developments in 2001 was not. to Mannesmann (in turn $50 billion in 2001.8 per cent or 43. China) consolidated its top position foreign assets of approximately half of the (table IV. the combined Kong. won in 1999 in the aftermath firms on the top 100 list. L G E l e c t r o n i c s . for which figures of the sale of its interest in the telecom are already reported for 2001. While the top 50 were less affected by the wave of cross-border M&As in 2000 than the top 100. Foreign sales accounted for slightly top 50) was large enough to make it to the less than 20 per cent of that line. for years.

Republic of Electrical & electronic equipment 3 898 25 085 23 055 31 562 16 981 60 977 34./ref.8 5 27 Petronas Malaysia Petroleum expl. .0 26 36 Perez Companc Argentina Petroleum expl.3 World Investment Report 2002: Transnational Corporations and Export Competitiveness 32 10 Gruma Mexico Food & beverages 1 169 2 280 1 253 1 901 8 959 16 897 51.1 33 14 Acer Taiwan Province of China Electrical & electronic equipment 1 143 3 956 1 447 4 760 3 554 12 300 26.. China Diversified 4 578 16 412 565 2 633 800 23 530 15.8 29 12 Fraser & Neave Singapore Food & beverages 1 318 4 211 944 1 551 7 826 10 750 49..9 24 30 San Miguel Philippines Food & beverages 1 738 3 061 300 1 861 3 091 14 864 28. China Transport and storage 1 819 2 155 2 382 2 395 3 792 4 414 80.1 25 17 Jardine Matheson Hong Kong. China Chemicals 2 603 4 701 10 755 18 036 600 8 600 36.6 23 45 Posco Korea./distr.10.9 11 7 Sappi South Africa Paper 3 239 4 768 3 601 4 718 9 399 19 276 57. 2 845 2 500 12 640 12. 1 614 5 493 420 1 546 625 3 301 22./distr. Republic of Motor vehicles 2 488 25 393 4 412 25 814 6 532 84 925 10. ranked by foreign assets.6 27 49 Petrobras Brazil Petroleum expl. China Construction 2 076 4 022 981 2 058 7 118 11 354 48. 8 017 57 089 49 780 53 234 5 458 46 920 35. The top 50 non-financial TNCs from developing economies. China Diversified 1 641 10 339 7 148 10 354 50 000 130 000 37./ref. 1 535 39 136 3 756 26 955 627 38 908 5..5 6 43 New World Development Hong Kong.7 4 20 Petróleos de Venezuela Venezuela Petroleum expl.9 22 46 Singtel Singapore Te l e c o m m u n i c a t i o n s 1 790 8 143 .100 Table IV.3 20 24 South African Breweries South Africa Food & beverages 1 966 4 384 1 454 5 424 15 763 48 079 31. China Electrical & electronic equipment 2 116 2 322 652 809 8 511 8 560 81. & Exp.3 2 8 Cemex Mexico Non-metallic mineral products 10 887 15 759 3 028 5 621 15 448 25 884 54. Republic of Electrical & electronic equipment 8 750 17 709 9 331 18 558 20 072 46 912 42.4 16 42 Keppel Singapore Diversified 2 293 22 180 338 3 657 5 910 16 389 16. Republic of Diversified/trade 3 900 10 400 8 300 40 700 175 4 740 18.8 3 15 LG Electronics Korea. 2000 (Millions of dollars and number of employees) Ranking by Assets Sales Employment Foreign TNI a assets TNI a Corporation Home economy Industry b Foreign To ta l Foreign c To ta l Foreign To ta l (Per cent) 1 11 Hutchison Whampoa Hong Kong.7 31 6 Savia Mexico Diversified 1 233 3 625 718 814 7 390 9 787 59. Imp. China Diversified 41 881 56 610 2 840 7 311 27 165 49 570 50.7 17 2 First Pacific Hong Kong./ref.5 30 23 Metalurgica Gerdau Brazil Metal and metal products 1 259 3 532 1 267 2 658 3 958 13 565 33.9 12 26 COFCO China Food & beverages 2 867 4 543 4 767 12 517 350 26 000 30.3 21 3 Orient Overseas International Hong Kong./distr.8 13 1 Guangdong Investment Hong Kong.4 18 13 Citic Pacific Hong Kong.8 7 39 Samsung Corporation Korea./ref. Republic of Metal and metal products 1 777 15 901 2 311 10 873 2 741 26 261 12.9 9 4 Neptune Orient Lines Singapore Transport and storage 3 812 4 360 4 498 4 673 6 840 8 734 78. 7 690 36 594 11 790 19 305 3 808 23 450 29.8 28 25 Singapore Airlines Singapore Transport and storage 1 445 9 473 4 084 5 326 2 972 27 513 30.5 8 21 Samsung Electronics Korea.6 19 34 Grupo Carso Mexico Diversified 2 043 8 827 4 000 9 315 19 542 89 954 26./distr. China Diversified 2 852 4 605 460 634 6 837 7 875 88.5 /.2 14 19 China National Chemicals.6 15 47 Hyundai Motor Korea.6 10 29 Companhia Vale Do Rio Doce Brazil Mining & quarrying 3 660 10 269 758 4 904 6 285 17 634 28.

gas and water . 702 23 769 4 206 7 110 314 14 404 19. foreign to total sales and foreign to total employment. b Industry classification for companies follows the United States Standard Industrial Classification./distr.. ranked by foreign assets. In case of non-availability. 3 899 5.0 44 48 Hongkong Electric Holdings Hong Kong. THE LARGEST TRANSNATIONAL CORPORATIONS 101 . gas and water 811 6 622 . China Business services 1 026 13 900 834 1 929 5 000 60 000 17..8 38 41 Swire Pacific Hong Kong. foreign sales and foreign employment were not made available.8 37 44 Copec Chile Petroleum expl. China Business services 751 3 755 196 372 601 3 004 27. China Electricity.7 39 50 CLP Holdings . 6 216 . Data on foreign assets.8 46 38 Sabic Saudi Arabia Petroleum expl.. a The transnationlity index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets.8 41 18 Sime Darby Malaysia Diversified 878 2 417 1 751 2 887 6 856 27 126 36. 2000 (concluded) (Millions of dollars and number of employees) CHAPTER IV Ranking by Assets Sales Employment Foreign TNI a assets TNIa Corporation Home economy Industry b Foreign Total Foreign c Total Foreign Total (Per cent) 34 33 Amsteel Malaysia Diversified 1 143 3 453 544 1 416 37 094 50 218 43. Table IV.10./ref.4 36 37 United Microelectronics Taiwan Province of China Electrical & electronic equipment 1 087 9 454 1 611 3 485 770 9 373 19. they are estimated using secondary sources of information or on the basis of the ratios of foreign to total assets. foreign sales to total sales and foreign employment to total employment. Some foreign sales figures might therefore also include parent company exports..1 50 9 Hume Industries Malaysia Construction 593 1 178 931 1 341 6 536 12 545 51. 1 076 7 121 1 102 3 611 610 8 856 15. Note: In some companies. China Electricity. 1 456 300 2 366 8./distr.7 40 5 WBL Singapore Electrical & electronic equipment 879 1 106 338 534 12 467 13 374 70.6 35 16 Barloworld South Africa Diversified 1 110 2 260 1 730 3 380 9 006 21 966 42. c In a number of cases companies reported only total foreign sales without distinguishing between export from the parent company and sales of their foreign affiliates.6 Source: UNCTAD/Erasmus University database.9 45 32 Great Eagle Holdings Hong Kong. The top 50 non-financial TNCs from developing economies. 3 135 . foreign investors may hold a minority share of more than 10 per cent.1 49 35 Panamerican Beverages Mexico Food & beverages 594 2 937 960 2 560 5 000 26 000 23.3 47 40 China Metals And Minerals China Metal and metal products 645 2 375 984 3 830 580 7 524 18.0 43 28 Berjaya Group Malaysia Diversified 832 3 352 954 2 052 5 500 21 783 29. .2 48 22 Pepkor South Africa Retail 608 1 365 1 029 4 095 30 000 68 272 34.China Light & Power Company Hong Kong./ref..7 42 31 Varig Brazil Transport and storage 863 1 872 1 175 2 915 1 168 16 710 28.

these increases were mainly driven by a handful of large TNCs Assets Foreign 155 659 129 000 20. 102 . However.8 when consolidated into the average TNI Sales for the group (figure IV. Average TNI 34.3 from Hong Kong (China) and Singapore (table Total 1 317 983 1 134 687 16. sales and employment of the top number of new entrants was in line with 50 occur in a few companies is also reflected figures from 1999 (table IV. but mixed new to the list. except continued their recovery in the aftermath for COFCO and China National Chemicals of the 1997 financial crisis in Asia. followed by two shipping companies. This is no surprise modestly than the values for the other two as most newcomers are relatively small. in 2000. FDI/TNC database. Hume Industries of Malaysia and foreign employment increased much more Pepkor of South Africa. a Change is measured in percentage points. Snapshot of top 50 TNCs the previous year. the top 50 developing-country TNCs for most of the newcomers is low. In 2000. although of China. The fact that the dynamic increases in the aggregate values of foreign With 11 new firms on the list. 1999 in average TNI at the same time may seem (Per cent) paradoxical. the decrease Variable 2000 1999 2000 vs. 2000 improved their position on the Transnationality (Millions of dollars. which faintly replicated among the top 50.6 38. As in 1999. This was also the case in 2000. variables.2 IV. Over the past few years. is also at the top of the list. while 25 had a lower Index value and number of employees) than in 1999. Another striking difference industries. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table IV. a Saudi Arabian company trajectories of individual companies on the on the list. occupy the top ranks on the The list of the 50 largest developing.3 Industry-wise.6 billion. as most of them had been results in foreign employment. The three increase in the Change a foreign/total ratios and yet. The Transnationality Index value list.11.9 -4. for which assets. value for the top 50 as a whole decreased four Korean companies had to be dropped by 4 percent in 2000 compared to that for (table IV. data were not available in 1999. the median the list. on the other hand. the differences between the are the utilities companies. Another electronics firm. The average Transnationality Index As for departures from the list. most firms saw an expansion on the lower ranks of the list are not entirely of their foreign assets and sales.7 Traditionally. Overall.7 whose statistical weight tends to be mitigated Total 540 489 531 000 1.4). there is now.14) because of a lack of data. notably telecoms and the media.3 billion in 1999 to $16. the diversified Guangdong Investments and the electronics firm. Most of the newcomers of large firms. there between the top 50 and the top 100 for has been no clear trend in terms of either the year 2000 is that the stronger presence industry or geographic origin of the of “new” service industries among the top newcomers. with Sabic. on and off the top 50 for several years.13). While the aggregate figures are making it only to the bottom ranks on the significantly influenced by those of a handful list by foreign assets. At the other end of that ranking top 100 list. Foreign 189 897 122 000 55. Index.7 Total 391 429 367 000 6. except for the entry of a limited 100. list of the 100 largest TNCs worldwide when much of its manufacturing is carried out it comes to the relative importance of the in other low-cost locations across South- topmost companies in the two lists. percentage Index. mirrors a trend among the top 100.12). Singapore- country TNCs differs strikingly from the based WBL. Despite the divergent growth for the first time. and more stable. It is remarkable that.6 come from a wide range of countries and billion in 2000. the assets. 20 TNCs from developing economies. is not number of telecom companies. entered For the top 100. Other than that. the most transnationalized Employment developing-country companies have been Foreign 403 473 383 107 5. Neptune Orient Lines and Orient Overseas International. In the East Asia. the newcomers increased from $15. Pacific. in the stagnant median value for foreign a number of Chinese companies. it stood at $1. with scores of leading companies and the rest are smaller less than 10 per cent. First Source: UNCTAD.

The transnationalization of the top 50 TNCs from developing economies.2 36 36 United Microelectronics Taiwan Province of China Electrical & electronic equipment 22.6 Source: UNCTAD. China Transport and storage 80. a The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets. China Electrical & electronic equipment 81. 2000 Ranking by Foreign TNI Assets TNI Corporation Home economy Industry (Per cent) 11 28 COFCO China Food & beverages 34.12. FDI/TNC database. FDI/TNC database. Table IV. & Exp. gas and water 9.6 42 31 Varig Brazil Transportation 31.7 18 34 Grupo Carso Mexico Diversified 29. 103 . Table IV. FDI/TNC database.6 5 39 WBL Singapore Electrical & electronic equipment 70. The top 5 TNCs from developing economies in terms of transnationality.8 Source: UNCTAD. 2000 Ranking by Foreign TNIa TNIa assets Company Home economy Industry (Per cent) 1 12 Guangdong Investment Hong Kong.2 48 24 Pepkor South Africa Retail 37.4 47 39 China Metals And Minerals China Steel & metals 20.9 4 9 Neptune Orient Lines Singapore Transport and storage 78.0 38 40 Swire Pacific Limited Hong Kong.2 13 20 China National Chemicals. Newcomers to the top 50 TNCs from developing economies. China Electricity. Imp.13.4 3 20 Orient Overseas International Hong Kong.2 2 16 First Pacific Hong Kong.9 46 37 Sabic Saudi Arabia Oil & petroleum 21.9 50 9 Hume Industries Malaysia Construction 51. The average transnationality index of the top 50 TNCs is the average of the 50 individual company transnationality indices. 1993-2000 Source: UNCTAD. foreign employment/total employment of the top 50 expressed in percentages. foreign sales to total sales and foreign employment to total employment. China Chemicals 40.1 44 48 Hongkong Electric Holdings Hong Kong. foreign sales/total sales. China Diversified 88.4. Note: Note: The ratios represent the averages of the individual ratios of foreign assets/total assets. China Real Estate 19.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS Figure IV.

6 47 23 De Beers Consolidated Mines South Africa Steel & metals 38. Republic of Oil & petroleum 15. domestic firms that began the top 100 list has seen numerous M&As to transnationalize or possessed an attractive leading to the absorption of many of the enough home market.3 of the top 50 list has remained unchanged Food and beverages 6 5 8 35.9 63.4 8 45 Sunkyong Group Korea.8 of the top 50.6 45.8 28.4 10. In recent years. the top 50 indicates that the dynamic growth trend in are spread over a wide range of industries.1 41.5 41 47 Reliance Industries India Chemicals 9. 6 5 5 21. In particular. 104 . however. world has not been fully replicated in developing countries. foreign 2000 (figure IV. Republic of Electrical & electronic equipment 25. has moved fast. The fact that Telekom share in foreign sales and the third highest Malaysia has departed from the list further in foreign employment. the top industry has advanced at a slower pace in 100 have been subject to more structural developing countries. Departures from the top 50 TNCs from developing economies. been almost absent in the case of the top were taken over by rival competitors from developed countries.6 9. industry that saw the largest increase Note: This list does not include countries from Central and in numbers.0 (table IV. there are some differences could be that the liberalization of the telecom from the top 100. the industry composition Electronics 7 6 4 42.3 35.1 39.6 30. electronics and industrial companies.8 sales./ref.5 19 1 Tan Chong International Singapore Automotive 93. the b Numbers may not add up exactly due to rounding. China Leisure & hospitality 47.5 companies. They account for 40 per Steel and iron 3 3 3 21. like many Latin top 100 companies.5 after the petroleum.3 20. Industry 2000 1999 1998 2000 1999 1998 Diversified 11 14 11 40. Firms classified as Petroleum expl.1 Overall.5 44.5 Source: UNCTAD. Seven of the 50 sales to total sales and foreign employment to total employment.6 7.2 36.3 25. Average TNI a with their foreign assets consequently Number of per industry reduced so much that they could no entries (Per cent) longer make it to the top 50.5 39.8 “diversified” represent 11 of the 50 Transportation 4 3 3 54.7 45. companies spun off a number of 1998 1999 and 2000 foreign operations and business units. Its relative importance Eastern Europe.2 cent of the combined foreign assets Electric Utilities or Services 2 2 3 7. following a drastic Source: UNCTAD.3 40.6 Other 6 6 5 32.5). 10.6 34.2 18 14 Hyundai Engineering & Construction Korea. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table IV. Republic of Diversified 49.9 - In terms of their share in total foreign Pulp and paper 1 1 1 57. Some TNCs from developing economies./distr. Automotive 1 1 . In those in which it changes. the “new economy” industries in the developed just like the top 100.2 27. This phenomenon has American telecom or other utility operators. FDI/TNC database.1 35 36 Samsung Korea.8 48 15 Hong Kong And Shanghai Hotels Hong Kong. companies were in electronics.0 47. Many of the companies dropping off the in the top 50 group is second highest in list in 2000 had been on and off the list terms of its share in foreign assets and its in previous years.3 33 33 Tatung Taiwan Province of China Electrical & electronic equipment 28. One reason for this However. Industry composition of the top 50 disappearing from the list.6 18.7 63. 2000 Ranking in 1999 TNI Foreign in 1999 assets TNI Corporation Home economy Industry (Per cent) 6 13 Daewoo International Korea.15.15). Republic of Industrial 48. Overall.7 the combined foreign employment. decline in their share from 17 per a cent in 1999 to only 11 per cent in The transnationality index (TNI) is calculated as the average of the following three ratios:foreign assets to total assets.4 49 48 Telekom Malaysia Malaysia Telecommunications 7. FDI/TNC database.2 Chemicals and pharmaceuticals 1 1 1 36.2 50.5 21. since the mid-1990s. thus Table IV. and 43 per cent of Construction 2 3 6 50.6 71.14. they rank only fourth Average/total b 50 50 50 34.

105 . 1999 and 2000 (Percentage) Source: UNCTAD.5. FDI/TNC database. Shares of industry groups among the top 50.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS Figure IV.

list that has pursued a real globalization The most transnationalized industry was pulp strategy. 106 . such as Hong Kong As for transationalization trends by (China) and Singapore. petroleum. however. notably the United States. such as Brazil or China over the period 1998-2000. followed by transport. widely by home country. unsurprisingly ranking industry. In Given the large increases in foreign other words. in 6 out of 12 industries. such as South African Breweries increased its share in total foreign sales of (box IV. in 1999. on average. There are.2). the high figure 50 were affected by the M&A surge. though became takeover targets for developed-country the value exceeds 40 per cent in all of them. such as h as d ecl i n ed s i n ce 1 9 9 8 . competitors. diversified. and chemicals and attained a transnationality level as high as pharmaceuticals industries. those from Hong Kong (China). One such example is Cemex. FDI/TNC database. a and paper. different aggregates among the main industry nonetheless. s o m e M ex i c a n Petronas in petroleum. transportation. the top 50 from 22 to 38 per cent. In some of them. Figure IV. and China National companies remain in the small group on the Chemicals in chemicals and pharmaceuticals. Although these trends are the immediate result of the Index value for firms from that country changes in individual companies. Given this. it is remarkable that Mexican TNCs have construction. with firms from smaller Asian economies. the average much higher on the Index than firms from Transnationalization Index value increased larger countries.5). TNCs from developing countries assets. developing-country firms surpasses that of their peers from developed countries. These were the (table IV.6). sales and (to a lesser extent) foreign have transnationalized their operations much employment in 2000. such represents only one company – Sappi of as Hutchison Whampoa. which players”. The top 50: Industry groups and their average transnationality index.15 and figure country markets. a United States.7). The most dramatic changes countries that aspire to become “global have occurred in the petroleum industry. and in telecom companies in Europe and the food and beverages have. and companies that eventually lower level of transnationalization. This was mainly due to the expansion of Petronas and The degree of transnationality differs Petróleos de Venezuela. such as Argentina’s YPF that It should be noted that there is not a single was taken over by the Spanish company.16 and figure IV.6. As noted earlier. In the former. diversified. Electronics. World Investment Report 2002: Transnational Corporations and Export Competitiveness 50. industry in which the Index average of Repsol. which had interests South Africa. electronics. only a few of the top IV. with scores firm that successfully entered developed- of 58 and 55 per cent (table IV. it is remarkable how less and still depend much more on their little this has affected the distribution of the home-country business. a few companies from developing groups (figure IV. 1999-2000 (Percentage) Source: UNCTAD.

to transfer core competencies in production mililitre bottle – twice the industry average. and from synergies. Some of its brands on South Africa’s eastern coast. further refinancing of loans at lower rates. employs over 31. per cent. because of of loans had to be in “hard” currencies like sanctions. In a second step of its the currency problem. transnationalization that are rarely seen in SAB’s expansion into other emerging markets. worth deficiencies in basic infrastructure – and its some $5 billion. Since there is little geographic overlap between the two brewers. Like other South African level. for instance. almost as global market leaders. two-thirds of the company’s profits were in South African rand.000 people and rand lost 37 per cent against the dollar. It became apparent. The the dollar. It uses computers to which they are sold. which is to say most South Africans. now floating freely and SAB owns and operates 108 breweries in weakening steadily. whom the company helped to start (SAB) is an interesting example of the international their own small trucking businesses. A global player in brewing: South African Breweries The evolution of South African Breweries employees. operated within what is best described as a “siege be it in rand or other currencies. in May 2002. especially into countries with large markets but The company therefore began to consider a low level of penetration by developed-country acquisitions in Europe and the United States. they can rough and the power supply sporadic. Since SAB and its affiliates already and robots to load bottles onto trucks. did little to solve the problem of a countries face when trying to establish themselves shortage of hard currency. and making sure industrial countries. not only in South Africa but also in much of southern One solution was to list SAB on a major Africa. In poor and rural areas. every year for the past two add up to $75 million a year from cost-cutting decades. the 24 countries. the roads are acquisitions. South and distribution from their high-technology Africa’s patchy infrastructure also deters potential South African breweries to their international rivals. unable to expand abroad. The company was able to cut prices because it The company pursues a market-seeking. transnationalization process.2.) This has developed into the world’s fourth largest creates serious difficulties for a company brewer by volume. making it the world’s second abnormal market – requiring a high degree of largest brewer after world leader Anheuser- flexibility to overcome problems such as Busch. making it one of the most in rand from around 65 per cent to under 35 efficient competitors in the industry. will cut reliance on earnings efficient production. opened in 2000 are virtually synonymous with the country in at a cost of $60 million. SAB invested heavily in countries such as China and After considering a number of opportunities bought a number of formerly State-owned (such as Bass Brewery in the United Kingdom). that the company could use its to expand into other developing-country markets. SAB has reduced its prices in real terms. Given the limited per raise capital for its acquisitions and the capita income in much of its home region. boosted productivity. The proposed SAB-Miller deal. the benefits might For one thing. for the moment. The SAB finally announced. Companies were virtually immune of inputs such as machinery or the refinancing from foreign competition but. This is in contrast to TNCs from and villages along poor roads. only 13 enjoy a low-cost structure. SAB continued to be in the form of “weak” currencies. This would growth could only be achieved by venturing also improve SAB’s financial viability and relieve into new markets. breweries in Central and Eastern Europe. the pressure for people run a plant that turns out 50. which look overseas to that distributors have refrigerators and. price-sensitive customers.. Thus. such as SAB using Miller’s thus avoiding charges of abusing its monopoly. expansion of a developing-country TNC. brewing skills in developed-country markets. While the lion’s share of its revenues businesses during the apartheid years. and Miller would be no control the quantity of hops used to brew beer exception. both because it highlights motives for Despite these strengths and achievements.000 hectolitres cost reduction is not so great as to drive them of beer per week in the standard bottle of 750. (In 2001. generators. acquiring privatized breweries in international stock market. From the mid-1990s onwards. distribution to market its Pilsner Urquell in the and it has wooed poor. with high profit margins in operating and competing at the international some countries. drivers who deliver its beer: many are former /. In the past. company had created a virtual monopoly.. if outsource production to reduce costs and necessary. the acquisition economy”. It has ties with the truck increase distribution channels.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS Box IV. United States. the company started moreover. developed-country firms and because it illustrates although helping to achieve output and revenue the challenges latecomers from developing growth. Its new bottling plant multi-domestic strategy. its firm’s international expansion has been driven acquisition of the Miller Brewing Company in by its skill in coping with the demands of an the United States. which helped it to neighbouring countries. SAB has concentrate on market penetration and revenue long experience in getting crates to remote towns growth. 107 . competitors.

Financial Times.6 10.2 58.7 33 36 38 China 28. FDI/TNC database.8 73.9 26. Foreign assets of the largest TNCs from developing countries.8 22. a The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets.2 6. 25 May 2002.1 4.0 1.9 44. - Africa 41.9 5 4 3 Venezuela 35.3 21.4 5.6 7.0 45.5 19.6 38. and company site (http://www.1 24.com).4 2. Reuters.3 34.8 3. “SAB’s bid to buy Miller raises eyebrows”.3 1 1 1 West Asia 19. Table IV.9 27.7 5. “SAB aims to wrap up Miller deal next week”.2 7.4 1 1 1 Mexico 42.2 7.9 13. 4 December 2001.2 7. “A pilsner’s Bohemian rhapsody”.5 33.8 23.5 4.1 25.4 2. May 23.3 5 5 6 Philippines 28. A global player in brewing: South African Breweries (concluded) This case also illustrates the emergence the intense competition of developed-country of a second stage of competition between markets find themselves in a world ruled by firms developing-country TNCs.2 48.1 1. The New York Times.1 35. 1 . small cage”.9 . World Investment Report 2002: Transnational Corporations and Export Competitiveness Box IV. 0. foreign sales to total sales and foreign employment to total employment.4 56. 0.2 16. Republic of 23.6 24.1 43. 24 September 2001.4 100 100 100 50 50 50 Source: UNCTAD.0 11 11 10 India .7 5 9 6 Malaysia 38. 1999 and 2000 (Percentage and number) Average TNIa Share in total foreign per country assets of the top 50 Number of entries Economy 2000 1999 1998 2000 1999 1998 2000 1999 1998 South. 10 August 2000. 108 .4 39.3 27.0 30.0 4.4 22.2 1. 24.4 23.3 . 3 Hong Kong.2 7.9 58.3 7.6 7.7 1. 1998. China 42.16. Financial Times.8 35. based on “Big lion.5 .7 5.1 1. Business Week. “It’s Miller time in Johannesburg”. those that survive that are masters of branding and marketing.2 18. The Economist.8 3.9 6.9 7.4 11.1 32.9 48.5 . Financial Times.3 5.4 21.6 4 3 3 Chile 15.8 29. Source: UNCTAD. Home countries of the top 50 TNCs from developing economies.3 72.1 30.1 1 1 1 Brazil 24.8 .8 3 .0 28. 1999 and 2000 (Billions of dollars) Source: UNCTAD.4 46.7 0.1 1.8 1. “A niche brewer is making waves”.0 6. Note: This list does not include countries from Central and Eastern Europe. 22 April 2002. 2002.4 2 2 2 Latin America 28. 8.3 4 4 3 Average/total b 31.8 31.7.3 12 10 9 Argentina 22. East and South-East Asia 32. 1 1 Korea. 30 May 2002.8 0.2. b Numbers may not add up exactly due to rounding. .0 52. “SAB seals deal to buy Miller stake for $5bn”. 9.sabplc. Figure IV.0 45.0 65. by transnationality index and foreign assets.2 6 7 9 Taiwan Province of China 23. . FDI/TNC database.7 .5 1 1 1 Singapore 43.

in the face of increased competition and limited On first sight. growth potential on the domestic market. of companies from Latin America rose from For one. It is calculated as the ratio of the number of foreign countries (N) in which a TNC operates wholly-owned affiliates to the number of foreign countries (N*) in which it could potentially operate.8). and strategically TNCs from smaller economies such as invested abroad in core business areas. the level firms also saw a decline in their Index values of the Network Spread Index does not in 2000 as compared to 1999: except for appear to be dependent on the region Venezuela (Petróleos de Venezuela). most developed-country TNCs 10 to 12. on average. The main findings are: 109 . a number of them in China. Latin American well represented on the list. 2. TNCs from the and beverages (South African Breweries). The Index measures the degree of transationalization of a company by measuring the number of countries in which it has foreign affiliates. however. Average Network Spread while the number of South African companies Index of the top 50. complementing the findings regarding the Transnationality Index Source: UNCTAD. is in all cases. The Network Spread Index For the first time this year. companies from Taiwan Province of China. The latter number is calculated for the countries (excluding the home country) which had a positive FDI stock in 2001. Singapore and Hong Kong (China). is no contradiction. no by home economy. the pulp and paper (Sappi). As in previous years.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS facilitated by the North American Free Trade • The aggregated Network Spread Index Agreement (NAFTA) (WIR01). since many Asian firms registered a slight decline of the companies from these economies in their values on the Transnationalization have their foreign operations concentrated Index in 2000. Who Owns Whom 2002 CD-ROM. The fact from all other countries experienced a decline. remained at four.8. very low companies also have a high Index value. text of this section. firms in which a company originates. 2000 company from any other African country (Percentage points) made it to the list. this result is surprising. The (Barloworld) – a handful of the long-isolated aggregated Index value for all other firms of South Africa undertook restructuring. based on information from Dun & and the other ratios mentioned in the main Bradstreet. The number developed countries is not surprising. Republic of Korea have. defining them as potential locations for FDI. but was still high (33). The analysis of these results reveals some interesting aspects of the transnationalization of the top 50 TNCs. that the Index values for developing The number of entries for Asia fell modestly countries are well below those for in 2000. Figure IV. this covered 187 countries. and trails the aggregated Network Spread In various industries – retail (Pepkor). All in all. South African for the top 50. including an increase in the number of Mexican companies. This. developing countries is considerably lower. With countries Hong Kong (China) and Singapore accounted from the different developing regions being for much of this decline. Falling Index values for in a limited number of locations abroad. For the first time a company from West Asia was on the list. food Index for the top 100. WIR has also calculated the Network Spread Index for the top 50 TNCs and compares it with that for the top 100. diversified companies highest Index value (figure IV. spun given the high transnationality values of off non-core business segments.

is partially they also have a longer history of explained by the fact that the individual international expansion. often. have much smaller Index values. a n d TNC to explore developing-country therefore.g. the top 50 (e. Who Owns Whom. 2002 CD-ROM. to a lesser extent. with the automotive industry. The ranking beverages. the The Network Spread Index rankings electrical and other utilities are the least for individual industries show some similarities transnationalized industries by this criterion.9). high in the top 100 rank relatively low among although there are simi. production networks to explore locational chemicals and. and pulp and paper. while industry Index values for developing- it is much easier for a developed-country c o u n t r y T N C s a r e m u c h l o w e r. on average. beginning transnationalization than others. and the creation of complex that rank high on both lists are electronics. Figure IV. based on information from Dun & Bradstreet. also in geographical reach. among developed as closely resembles that of industries by well as developing countries. Also. developing than in developed countries. and the top 100 than for the top 50 therefore. On the other hand. food and advantages is not necessary. the picture higher for developed-country TNCs than is unclear: some industries that rank relatively for developing-country TNCs. However. and. of course. There are also industries with of industries by the Network Spread Index a low Index ranking.9. finally. between the top 100 and the top 50 TNCs (Percentage points) Source: UNCTAD. almost by definition. the reverse is much more difficult. All other industries. 110 . such dual industries are much wider for as transport. This. Unsurprisingly. For most other industries. World Investment Report 2002: Transnational Corporations and Export Competitiveness are simply much bigger in size. The industries intensive. the same industry is in question. The Network construction as well as electrical and other Spread Index in almost all industries is utilities. the widest are at a more advanced stage of spread. but Investment in these industries is capital. it might be also related to the fact that • Electronics is the industry in which some industries in developing countries companies have. (figure IV. Comparison of the Network Spread Index by industry. for developed and developing countries. in a much narrower corridor. oscillate markets. they are by no means identical. oil and petroleum or larities between the two groups when diversified companies). the there are industries that rank higher in differences in Index values for indivi. These include the Transnationality Index.

Merkur and Iskraemeco – are all from Slovenia. not all top TNCs in the however. Novoship is a fast expanding Russian transport firm. for do not figure on the top 25 list. firms are shown prominently on the list of the 25 largest TNCs.17). such sales and foreign employment. Skoda Group Plzen (Czech Most of the 25 largest non-financial Republic) underwent a bankruptcy procedure TNCs based in CEE continued to grow in (Kirkland and Kuchar. it increased its foreign assets from less than one million to over $60 million in one year. In addition. trends). Preliminary data suggest that changes Source: UNCTAD survey of the top TNCs in in the top 25 list will continue in 2001.10. foreign firms fast expanding abroad in 2001. Mercator grew even faster: with the opening of large supermarkets in Bosnia and Herzegovina and Croatia. Figure IV.12). Latvia. From 1999 to 2000. The other three – Mercator. mainly by domestic firms – hence these intensive than most manufacturing activities.10). The 25 largest TNCs from F o r e x a m p l e . With eight firms. other firms. Slovnaft (Slovakia). activities that are more capital. In other countries. Lukoil Oil. TNC Richter increased only moderately (confirming previous Gedeon (Csonka. All Russian firms in the sample the fact that the outward FDI of the Russian are involved either in natural resources or Federation and Slovenia was carried out in transport. followed 10 times higher than the average for other by Croatia. foreign assets of more than $4 billion. The industry composition of the list remained stable in 2000. Merkur more than tripled its foreign assets. The remaining transnationalized and have a higher Network five entries are shared among five countries Spread Index. Poland. This country composition reflects composition. example. However. Of the four newcomers. an important part of outward FDI region are on a growth path. Their place may be taken by growth rates of their foreign assets. Slovenia is the for Russian firms on the list is more than most represented country on the list. the developing countries. While most was carried out by foreign affiliates. These large differences may (Czech Republic. Transport (7 firms). 7 while their domestic employment contracted. the average in 2000. They achieved double digit and abroad. Yukos. are on an outward expansion path. Hungary and the Russian firms (figure IV. resulting in 2000. 2002). foreign country concentration of the top 25 rose sales and foreign employment. Trade caught up with 3 companies counterparts. In foreign assets. Elektrim (Poland) and Croatian Airlines (Croatia). Central and Eastern Europe. which often comparison of Russian and involves withdrawal from foreign activities. and the their domestic assets and domestic sales Hungarian pharmaceutical firms. They are also more Federation (4 firms each). However. expanding more abroad than at home a further shrinking of assets both at home (table IV. which Russian and Slovene firms (box III. as the Russian oil firm. four firms (Russian firms = 100 per cent) left this list in 2000: Motokov (Czech Republic). 2000 As a result of these changes. 2002). Slovak and Polish firms are undergoing major restructuring.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS C. Ti s z a i Ve g y i K o m b i n á t (Hungary) 8 and KGHM Polska Miedz (Poland) Central and Eastern Europe substantially rolled back their foreign presence in 2001. Romania partly be due to differences in the industry and Slovakia). 111 . The top 25 TNCs of CEE: some Czech. Data for the top 25 in 2000 confirm petroleum and natural gas (4 firms) and that Russian TNCs are much larger and pharmaceuticals (3 firms) kept their more globally spread than their non-Russian prominence. the largest with on this list. compares with the largest 10 TNCs from Compared with previous years.

7 23 23 Petrom Romania Petroleum and natural gas 28.0 112.1 21 21 Merkur Slovenia Trade 37.2 870 18 016 9.6 758.0 20 000 130000 34.17. c 1999 data.4 104.. The top 25 non-financial TNCs based in Central and Eastern Europe.2 462.2 11 8 Krka Slovenia Pharmaceuticals 129.0 12 20 MOL Hungarian Oil and Gas Hungary Petroleum and natural gas 102.3 1 389.3 420. World Investment Report 2002: Transnational Corporations and Export Competitiveness a Based on survey responses.5 1 308 2777 59.0 149 77 630 4.0 2 423.0 271.1 777.8 18 15 Skoda Group Plzen Czech Republic Diversified .5 1 400 14 159 32.1 139.4 212.0 3 151.1 129.0 10..0 780.7 587.0 173.0 183. 206.5 590 6691 46.4 5 24 Hrvatska Elektroprivreda Croatia Energy 296.6 27.4 187. 3 775 13.1 85.6 19 597 64.0d 46.0 273.0 7 778.4 444.9 49 1 943 10.7 26 18 562 2.0 1 124 1748 87.8 1 107.5 38.7 487 13 208 4.3 4 5 Primorsk Shipping Russian Federation Transport 256.9 20 18 Matador Slovakia Rubber and plastics .0 585.6 9 9 Pliva Group Croatia Pharmaceuticals 181.0 88 7406 53.2 481.8 231.7 10 3 Atlantska Plovidbac Croatia Transport 138. d Including export sales by the parent firm.0 39.0 191..8 3 632. Data on foreign assets. 509 63. foreign to total sales and foreign to total employment.. .5 22 25 KGHM Polska Miedz Poland Mining and quarrying 32.6 .0 .0 12 008.4 49 2 952 33.8 536.9 16.7 Average 323.0 2 524.0 19.8 89 2 944 7. 10 628 26.0 15 19 Petrol Group Slovenia Petroleum and natural gas 98.5 516 6827 31.9 915. In case of non-availability.2 103.5 24 16 Iskraemeco Slovenia Electrical machinery 25.8 42.0 .9 537.8 465.0 383.4 14 2 Adria Airwaysc Slovenia Transport 116.0 191.2 7.8 208 4548 25.6 13 14 Tiszai Vegyi Kombinát Hungary Chemicals 101.0 d 1 187.6 45.7 1 190.9 384.9 7 10 Far Eastern Shipping Russian Federation Transport 236. 210.0 263 8873 38.0 128.0 134. 15877 4.6 16 22 Mercator Slovenia Retail trade 65.8 1 230.8 482.0 299.8 272.3 Source: UNCTAD survey of top TNCs in Central and Eastern Europe.0 154.3 6 7 Gorenje Group Slovenia Domestic appliances 236. foreign sales and foreign employment were not available..0 483 3 322 40.2 1 146.0 46. foreign sales to total sales and foreign employment to total employment. they are estimated using secondary sources of information or on the basis of the ratios of foreign to total assets. 440.6 2 645 7857 39.2 280 2 159 24.0 144.8 316. b The transnationality index (TNI) is calculated as the average of the following three ratios: foreign assets to total assets.2 -0.3 449.2 Change from 1999 (per cent) 22.5 66.0 513 2 168 16.7 .4 d 358.4 25 17 Intereuropa Slovenia Trade 23.112 Table IV.7 2 6 Novoship Russian Federation Transport 963.0 62. .0d 14 436.7 3 281..7 44.3 129.3 116.2 19 12 Malév Hungarian Airlines Hungary Transport 41. .. a ranked by foreign assets.5 372.0 470.5 17 4 Zalakerámia Hungary Clay product and refractory 60. 2000 (Millions of dollars and number of employees) Ranking by Foreign Assets Sales Employment TNIb assets TNIb Corporation Country Industry Foreign Total Foreign Total Foreign Total (Per cent) 1 11 Lukoil Oil Russian Federation Petroleum and natural gas 4 189.9 11.8 8 13 Podravka Group Croatia Food and beverages ..8 93.2 1 055.5 615.0 1 958 2 966 60.0 303.3 400.4 -7.7 3 1 Latvian Shippingc Latvia Transport 459..

Their the 1999 sales. Hutchison Whampoa was offered a 5 per cent Electrical power 4. 4 It should be noted that foreign sales include IV. affiliates of the top TNCs by some 10 per cent.1. There relating to sales and assets.78 Machinery and equipment 9. A few months later. p. especially those of transport. in the case I. In such cases. A small number 10 foreign markets. At the end of 1 Financial firms are not included because of 2001. Croatian and sales of the top 100 TNCs. 27 (287). timber and pulp 28. 2 These figures are based on the estimates of stage of transnational expansion. in key maritime locations. 3 The descent of this company from the seventh wide. However. however. obtained mainly through a questionnaire completed by firms. as given here. the average lead exporter of the TNCs surveyed – approximately 22 per sells in 27 countries.1.1. some differences by origin with caution. these through outward FDI. took over Tiszai Vegyi Kombinát. 114. these ratios.18 and annex table A. Industry NSI 5 The average Transnationality Index value of the world’s top 100 TNCs is the average of Petroleum and natural gas 8.57 shares in return. as the data on the foreign assets and industry. by industry. based on Expert (Moscow). 16 July 2001. If this sample is representative. 9 figures have been used for all companies cited in this section. see table III. Indeed. as shown in table in neighbouring countries or. on average. 2000 especially in the primary and manufacturing sectors.IV. 6 In 1999.1). the Network Spread Index of the former the different economic functions of assets stood at less than 4 per cent.59 to Mannesmann and received Mannesmann Chemical and petrochemical 14. WIR00. States are now considered to be its home the Index values are only a third of those countries. is above may not necessarily correspond to the average. While the average Russian TNC is present in less than sales of foreign affiliates of TNCs as well as exports from parent firms. and Slovene firms.08 stake in Vodafone in return for its Mannesmann Coal and coke 3. when Vodafone took over Mannesmann. sales and employment.47 2000. the company sold its interest in Orange Iron and steel 24. the network spread is relatively in table I. the differences in the network spreads reflect corporate choices between serving markets through trade or through FDI.24 of the companies on the list. 8 In 2002.57 the 100 individual transnationality indices Non-ferrous metallurgy 8.18. 7 See WIR99. to the fourteenth place on the list is due to the fact that both Germany and the United Even for Russian TNCs. in spring Wood. most of financial and non-financial firms and the of the leading TNCs in CEE are at an early non-availability of relevant data for the former. 90. For international production and (Per cent) exports from parent firms of Japanese TNCs. 92. p. should be treated are. In machinery and pharmaceuticals definition of foreign assets and sales used as well. 113 . The Network Spread Index overestimate the actual sales of foreign of the top 50 Russian exporters. In petroleum and natural cent – distinguish between the two categories gas. WIR01. foreign sales figures. This resulted in lower figures for for the top exporters of the country (table foreign assets. The Index of Russian. MOL Hungarian Oil & Gas Plc. p.CHAPTER IV THE LARGEST TRANSNATIONAL CORPORATIONS The Network Spread Index of the 25 largest TNCs of Central and Eastern Notes Europe is significantly lower than that of the world’s largest TNCs. As only total foreign sales is twice as frequent as the spread of firms figures are available for most companies. assets and employment of investments abroad are undertaken either foreign affiliates of TNCs. 9 It should be noted that some of the top Russian oil and gas exporters are also leading outward investors. No. Source: UNCTAD. the spread of markets through exports in their reporting.57 shares. Table IV. for example.

PART TWO TNCs AND EXPORT COMPETITIVENESS .

World Investment Report 2002: Transnational Corporations and Export Competitiveness 116 .

This oriented FDI and benefit from it. Export competitiveness the importance that Governments attach to is important and challenging. but it should it. The principal economies of scale and scope by offering conclusions were that TNCs exert a strong larger and more diverse markets. but play to foster export competitiveness in tapping their potential is not easy. one chapter was devoted to wages. services and challenge posed by competitiveness. the growth allows developing countries to diversify away of supplier networks and new multilateral from dependence on a few primary-commodity disciplines. policies developing countries (and economies oriented TNC activities are embedded in a in transition) might consider to attract export- broader national development strategy. make to host economies in the developing that much of the international flow of goods world is to enhance their export is handled within TNCs in the form of intra- competitiveness. Part Three then deals with the is essential to ensure that attracting export. export-oriented TNC activities is itself an intensely competitive business. But it also means diversifying of developing host countries. and expanding the base of domestic corporate strategies that are driving most firms able to compete globally. Attracting association with TNCs. Greater competitiveness international production systems. Introduction to Part Two INTRODUCTION One of the contributions TNCs can influence on the patterns of world trade. the most obvious implying to boosting the export performance of a number higher exports. 3 Developing countries find it essential for development. TNCs can understood in order to achieve a better help raise competitiveness in developing understanding of the role that policy can countries in some or all of these ways. 117 . The link between FDI and trade is Improved export competitiveness allows not new but well worth revisiting. 1 but technologies they need to raise living standards also in the light of the changing nature of and productivity. It also permits the realization of greater the link between FDI and trade. In WIR99. Coherent and consistent policy support activities. thus. which is essential to sustain rising development. This year ’s the export basket. of the recent changes in the pattern of competitiveness is sustained and it is generally international trade. and that inward FDI has contributed has many facets. upgrading the looking in greater detail at the role of TNCs technological and skill content of export in increasing export competitiveness and the activity. is particularly important as there is a possible tension between the principal objective of That export competitiveness 2 is of Governments – which is to maximize national growing interest to countries at all levels welfare – and the principal objective of TNCs of development is clear: the sheer volume – which is to maximize their global corporate of analysis and benchmarking testifies to competitiveness. of income and employment. Developed countries regard competitiveness be seen not as an end in itself but as a means as a prerequisite for maintaining high levels to an end – which is development. as part of the exports and move up the skills and technology examination of FDI and the challenge of ladder. and even some A c c o r d i n g l y. especially countries to earn more foreign exchange and in the light of the growing attention to the so to import the products. P a r t Tw o o f W I R 0 2 of the countries that have succeeded may explores the changing nature of export find it difficult to sustain competitiveness competitiveness and the role that TNCs play as their wages rise and market conditions in enhancing it in different countries and change. sustaining higher rates report builds on the findings of WIR99 by of export growth over time. These have to be accompanied by rising incomes. Export competitiveness firm trade.

This is. raising export out more and more functions to independent competitiveness means more than liberalizing firms. medium-technology activities. falling transport and communication intensive and internationally branded products. The second is rapid and skill intensive ones (UNCTAD. rare. and TNCs often take the role of Exporting feeds back into the capacities that coordinating local producers in addition to underlie competitiveness: exposure to world setting up their own affiliates. suppliers ensure that the non-export sectors of an or buyers – and with institutions such as economy grow and that the benefits of growth research laboratories. In many competition provides enterprises with greater technologically complex activities. which reinforces the upgrading. but the economy. costs. In some low-technology not otherwise undertake. 4 An export-oriented economy also tends to attract more efficient While the growth of international TNC activities. it is less well known that there is a growing There is ample recent evidence that tendency for firms. but not all. which results in unexpected manufacture arrangements). the emerging global production export sector is de-linked from the rest of system is becoming more multifaceted . to take trade and investment. Their costs and risks. and many. TNCs are now can allow developing countries to enter involved in the whole spectrum of technology-intensive activities that they could manufactured exports. including by liberalization. particular. The most successful advantage of differences in costs and logistics. it segments. a number of exporting What lies behind these trends? Three economies have been able to grow on the forces are driving them. TNCs This is not to argue that building export also increasingly use national suppliers and competitiveness is a complete strategy for contractors in host economies. other international players are also allows them to build new productive capacities. World Investment Report 2002: Transnational Corporations and Export Competitiveness New forms of export competitiveness. of global value chains in many low. new skills and capacities. The first is policy back of their export drives. which makes it imperative for TNCs can contribute to the export firms to tap world markets and share the competitiveness in host countries. With the spread forms of relocation to new sites. TNCs access to information and technology than are particularly important because a large exposure to domestic competition alone and part of trade is internal to their international leads to more vigorous efforts to acquire production systems. with its rising costs and risks. competition. which opens up national markets moving up the technological ladder from and allows all kinds of FDI and non-equity labour-intensive activities towards technology arrangements. it is possible to improve export with tighter coordination by lead players competitiveness without raising growth rates in each international production system. The technologies for local exporters (through arm’s. active. the “death” of distance – also makes but it goes much further. However. It is only one of a does not stop here: leading TNCs are also number of elements needed for development. with global “footprints” matching those the process. relied manufacturers are themselves often large on FDI or non-equity forms to spearhead TNCs. even large TNCs. countries had to make determined efforts Some are even opting out of production to develop new capabilities and to attract altogether. 2002a). third. is increasing length licensing and original-equipment. of their principals and with their own subcontractors and suppliers. If the on. The main suppliers and contract from TNCs. spreading them internationally. or living standards for the population at large. In the process. with new 118 . technological change. universities and so are spread throughout the economy. reflecting both of these. however. Thus.and geared to international systems of production. However. All drew heavily on new technologies and marketing. Specialization economic development. leaving contract manufacturers foreign capabilities to complement domestic to handle it while they focus on innovation ones. Technological change – in contribution is important in technology. production systems is well recognized. entering into joint innovation arrangements It has to be complemented by measures to with other firms – competitors. to export-oriented development is not only feasible specialize more narrowly and to contract but also rewarding. They have always it economical to integrate distant operations been significant players in primary exports and ship products and components across and the main source of new industrial the globe in a search for efficiency.

first movers tend to build strong and non-equity arrangements. It starts with the characteristics of technological sophistication than before. in the exports of many countries. It describes systems face uncertainty about their changes in global competitiveness patterns. The Multifibre suppliers linked to the TNCs’ production Arrangement is an example. As a group. deterioration of the terms of trade – often referred to as the “fallacy of composition” TNCs have played an important role d i l e m m a ( U N C TA D . for technological reasons. especially with liberalization. and as competition pushes risks: firms to spread their activities more widely to strengthen their competitive • The bulk of TNC-related export activity advantages. c h . production systems: input suppliers. TNCs also increasingly need efficient supplier networks that can operate Part Two of WIR02 deals with these globally and at much higher levels of themes. Host countries that cannot muster new Trade patterns are changing rapidly. 2 0 0 2 a . Introduction to Part Two ownership and contractual arrangements. more stringent demands on participants. The in export competitiveness. systems can spread further. systems. international production systems. But there are regimes and improve their infrastructure risks and there are opportunities. will grow further. North America and the European Union. It is possible that the export dynamism seen in the leading “winners” will spread • International production is spreading and to other developing countries and economies can be expected to do so as countries in transition as international production gathers further liberalize trade and investment pace and increases in scope. exemplifying • Even “insiders” to international production them for a number of firms. on which many countries have quantitatively) and the main country “winners” relied. region and But there are also opportunities: activity. for generating exports from developing • The entry-level requirements of competitive countries and economies in transition is thus production are rising. This offers considerable scope to although TNCs are also significant players enterprises from host economies that build in many countries that are not major global the capabilities to meet TNCs’ needs. without upgrading. 119 . A number of low-technology the direct role of TNCs in exports (their systems such as textiles. capabilities may lose their competitive edge: with technology-intensive activities growing even first-mover advantages may not last consistently faster than others. in developing economies and economies • Leading TNCs are increasingly drawing in transition is concentrated in a handful independent enterprises into their of economies. such systems are still largely concentrated by country. and indirectly by entering phased out or else eroded by further trade into contractual arrangements. as noted. But. However. cumulative advantages. and • It is unclear whether some large production involving new activities. may have peaked in growth. developing countries and economies in • A concentration of exports from developing transition have done well in export countries on a few manufacturers might competitiveness. requirements. rapidly raising their market lead to oversupply and a subsequent shares and upgrading into advanced activities. prospects. directly • Some trade arrangements that caused a by establishing in those countries affiliates spreading of international production in incorporated into the TNCs’ international some low-technology industries will be production systems. clothing and indirect contribution is difficult to trace footwear. The potential clusters of suppliers and institutions. Not only is high. exporters. tapping this potential technological progress pushing up skill is not easy. 4 ) . The main messages more high-technology systems are imposing of the analysis are as follows. East Asia and in regions contiguous to service providers and strategic partners. through both FDI markets. reaping economies It will continue to take new forms and o f s c a l e a n d s c o p e a n d d ra wi n g upon incorporate new locations. First the and skills. Once production has been All the signs are that the export role rationalized to serve regional or world of TNCs in host countries. mainly in East and South.

The • Advances in transport technology may Government of the United Kingdom’s Third open up new possibilities for high-value White Paper on competitiveness starts: “Improving competitiveness is central to raising agricultural and other primary products. activities then spread to cheaper and less 3 For instance. Cabinet Office. sustainable basis” (OECD. regions. creating a high skills. it does not • Rising costs and congestion may at some mean raising world market shares by keeping wages low. but by changes in the world evident in the software industry. 1996. can flourish and where we can find opportunities rather than threats in changes we cannot avoid” It is too early. of course. ones. they will have to strengthen their capabilities. “Competitiveness [should] be understood as • The increased tradability of services as the ability of companies. It is about the “death” of distance is most evident. Thus. o p e n i n g n e w s o u r c e s o f TNCs and competitiveness. the underlying rate of growth of the economy • New globalized activities will emerge and enhancing living standards… The need as the economic logic of relocation and to improve our competitiveness is not imposed networking spreads. 4 There is a debate on whether exporting leads specific. see WIR95. the net outcome of all these trends. industries. For an analysis of the concept of competitiveness. 120 . though even the former may need a period If developing countries and economies in of infant-industry protection when building transition are to strengthen competitiveness advanced capabilities in local enterprises (Lall. This is already by Government. attract and stimulate activities suited to their endowments. p. Improving competitiveness is not about driving down living standards. relatively high factor systems will open entirely new areas for income and factor employment levels on a a n i n t e r n a t i o n a l d i v i s i o n o f l a b o u r. and upgrade them over time. export-oriented FDI for developing 2 “Export competitiveness” is taken here in the countries. broad sense outlined above. where economy. The technology rising. 1994. production systems are strong. high productivity and but it will also affect other service and therefore high wage economy where enterprise manufacturing activities. to forecast (United Kingdom. while being and remaining exposed to associated with international production international competition. (with or without direct TNC participation). The results 10). p. 2001b). The forces driving international to greater enterprise productivity or vice versa. 2002). 23). and while raising incomes.and context. capability literature establishes that export- oriented economies enjoy healthier and more competitiveness calls for higher local competitive capabilities than inward-looking capabilities in all activities and all countries. World Investment Report 2002: Transnational Corporations and Export Competitiveness • TNC suppliers and contract manufacturers Notes are going transnational to retain competitiveness and to serve lead firms 1 For a discussion of the broader question of e f f e c t i v e l y. but competition The relationship between the two is probably for export-oriented TNC activities is also interactive (Westphal. see Lall. well as of specialized service functions nations and supranational regions to generate. the OECD has this to say: congested areas. 2001. but sustaining world market shares stage offset first-mover advantages. Achieving and sustaining export. are very likely to be industry.

As over great distances. Several forces combine sought to devise new forms of governance to drive this process: to manage their dispersed activities.g. logistics and markets coordination of knowledge-intensive (WIR93). Given system is made possible by the freedom their growing importance in shaping investment . international production systems and standardized customs administration have emerged within which TNCs locate and port operations as well as international different parts of the production processes. falling barriers to international have deployed new systems to enhance transactions have not only invigorated global their internal and external coordination. p. • The rapid decline in barriers to international International production systems are trade and investment flows. orchestrated markets. as TNCs have their production activities. What is distinct about the rise functions such as design and R&D. since its competitors may mobilize by TNCs. During the past 15 continued apace in recent years. markets through arm’s-length transactions The advent of the Internet has dramatically but given rise to elaborate corporate systems lowered the costs of information exchange of organizing the production process. wherever they may be located. 2000. in particular. 122). even when these TNC activities affect the export are situated in widely dispersed locations. first. of goods. performance of host countries through a • The greater ease of the international flows range of equity and non-equity relationships. Drivers and features to move goods. In some industries TNCs to dramatic changes in the global (e.g. the intensity of integration on regional producers must contest all of the markets or global scales and. Advances in transport of a firm – is organized under the common and communication technologies have governance of TNCs. resources. in others (e. the emphasis in which their competitors operate and on the efficiency of the system as a whole draw on sources of competitive advantage (Kaplinsky. C o r p o r a t e where they produce and how they coordinate strategies have evolved too. across and fibre-optic networks further facilitate the globe. of international production systems as compared • These two forces have. more broadly. they economic environment. and TNCs years. their have led to consolidation and oligopolistic search for enhanced competitive advantage competition. CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS A. In other words. No longer global markets increasingly involve competition can a dynamic firm focus only on familiar between entire production systems. rather than between individual profits or resources across the globe. together. major is. led to to earlier organizational structures and stronger competition among leading TNCs. services and knowledge among linked corporate entities with minimal impediments. garments). The creation thus evolving as corporations respond to of a corporate international production economic and technological forces. strategies characterizing TNC operations In a growing range of industries. factories or firms. second. and. semiconductors and automobiles). More streamlined a result. to through an optimal global configuration of a d i ff u s i o n o f m a r k e t p o w e r. The rise of such integrated international All of this has led to profound changes production systems reflects the response of in industrial structures. the operations business coordination. to take advantage of fine differences international production. including the in costs. services and ideas and the What is common to all of them is that resulting drop in the costs of cross-border production – and. telecommunication gateways and satellite including various services functions.

World Investment Report 2002: Transnational Corporations and Export Competitiveness

and trade patterns, understanding their affiliates and deployed globally, with each
dynamics is essential for any developing unit in the system guided by a headquarters
country that seeks to enhance its export company (sometimes referred to as an
competitiveness through the activities of international production system “flagship”
TNCs. – see Rugman and D’Cruz, 2000). In Intel’s
hierarchical international production system,
Three core elements of international individual affiliates specialize in particular
production systems are critical in this context: stages of innovation or production and are
governance, global value chains and geographic closely integrated into the parent firm’s global
configuration. network. At the other end of the spectrum
are systems in which an integrated set of
The first element is governance, or business functions is decentralized to multiple
the structure of control that determines the centres, often regional headquarters, that
geographic and functional distribution of wield considerable autonomy. An example
business activities and ensures their is the distribution of “global product mandates”
coordination. International production system to various affiliates. In this case, international
governance occurs in forms ranging from production system governance takes on a
ownership (or equity) linkages that provide more horizontal character. Toyota presents
direct managerial supervision, to various an intermediate case, in that affiliates in
non-equity linkages in which formally the United States and Thailand have been
independent intermediaries – suppliers, given “regional product mandates” for certain
producers and marketers – are linked through product lines. These two aspects of
a variety of relationships such as franchising, governance (equity or internalized vs. non-
licensing, subcontracting, marketing contracts, equity or externalized, and hierarchical vs.
common technical standards or stable, trust- horizontal) are related. In general, equity-
based business relationships. Intel has created based international production systems tend
an international production systems in which t o b e o rg a n i z e d h i e r a r c h i c a l l y, w h i l e
equity – or ownership – links form the basis externalized systems operate more horizontally.
for common governance of the members Yet the distinction is important, for the two
of the system (section B.1 below), while criteria are not always perfectly correlated.
Limited Brands has established a system In the garments industry, for example, the
based on non-equity relationship (section international division of labour has, over
B.2 below). Toyota exemplifies a mixture time, become vertically specialized and
of both approaches, by combining close links hierarchically integrated under the leadership
among its own fully-owned assembly of brand-holding flagship companies like
subsidiaries with a multi-tiered network of Limited Brands despite the near-absence
formally independent subcontractors (section of equity links. On the other hand, some
B.3 below). The case study of Ericsson TNCs with global networks of wholly-owned
(section B.4 below) traces the transition subsidiaries have moved towards more
in control from a largely equity-based system horizontal forms of coordination.
to an almost fully non-equity-based system
(although Ericsson has retained direct control
A striking recent governance trend
over manufacturing, i.e. over product lines
in many manufacturing and service international
related to its core focus on innovation and
production systems is a shift towards the
design). The continuum of international
systematic outsourcing of a greater range
production system governance thus reflects
of activities, including back-office operations
the degree of control over corporate activities.
like customer service and even R&D. This
Equity-based governance systems internalize
reflects TNCs’ efforts to focus on their
control and allow stronger protection of firm-
“core competencies”, i.e. those activities
specific advantages like technology, as in
in which they can deploy proprietary
the case of Intel. Where these advantages
advantages, wield market power or otherwise
lie in brand names and marketing – as in
enjoy higher returns. The trend suggests
the case of Limited Brands – more
in particular that technological advances
externalized forms of control may suffice.
and competitive pressures have altered the
A related issue is the degree of balance between two opposing firm-specific
functional hierarchy in the system. In some advantages sought by TNCs – internalization
international production systems, each stage versus specialization – in favour of the latter.
of production is assigned to specific corporate The outsourcing trend has complex implications
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for global industry structures, creating entire to distinguish activities with widely varying
new industries. In particular, leading TNCs inputs, capacity requirements and financial
in a range of industries have begun to exit returns, even within the same industry or
from manufacturing altogether. In response, production process. As a result, there is
contract manufacturers have emerged to a general trend towards functional
specialize exclusively in providing turnkey specialization, which contrasts with the type
manufacturing services (see section B.5 of vertically integrated structures that
below). Contract manufacturing differs from characterized many TNCs until quite recently.
the earlier system of original equipment Intel, for example, focuses on the design
manufacturers sub-contracting in that the and manufacture of microprocessors and
brand-holding TNC does not simply draw a few related products (see section B.1
on subcontractors for extra production capacity, below), rather than combining captive in-
but rather outsources the entire manufacturing house chip production with the production
function for individual product lines or, in of computer systems, as was long the strategy
some cases like Cisco Systems, the entire of IBM, NEC and Samsung. In many
product range. industries, TNCs have recently tended to
focus more on the knowledge-intensive, less
Despite the outsourcing trend, direct tangible, functions of the value-chain such
equity and managerial control remain key as product definition, R&D, managerial
sources of competitive strength in certain services, and marketing and brand
industries. Even when international production management. This has long been true of
systems are highly externalized, TNCs typically the garment industry, where leading TNCs
exert powerful authority through their control focus almost exclusively on design and
of key functions, such as brand management marketing (see Limited Brands, 2001). Even
and product definition, as well as through in many “high-technology” industries, however,
the setting and enforcing of technical, quality manufacturing as well as logistics and
and delivery standards throughout a network distribution have become standardized and
of formally independent producers. more easily tradable. In consequence, contract
electronics manufacturers have grown rapidly
The second element of an international (section B.5 below).
production system is the organization and
distribution of production activities and other In general, international production
functions in what is commonly known as systems may be distinguished by the functional
the global value chain. It extends from activity on which a TNC focuses and which
technology sourcing and development through gives it governance authority over the broader
production to distribution and marketing (figure production system. Intel’s core strategy is
V.1). The core competitive advantages of to establish market dominance through the
TNCs can reside anywhere along the value innovation and design that differentiate its
chain, although, in practice, they tend to products. Hence the activities that result
cluster in one component. Value chains are in a finished Intel product are those of a
becoming fragmented, as business functions “technology-driven” international production
are differentiated into ever more specialized system. Toyota’s core competence is its
activities. Functional specificity allows TNCs ability continuously to improve quality and
Figure V.1. The global value chain of product components

Source: UNCTAD.

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productivity in the complex automotive industry. production system flagship customers (Sturgeon
Automotive international production systems and Lester, 2002). Related to this is the
are thus “production-driven”. Finally, in recent trend towards “postponement”, in
many consumer-product sectors, the ability which components are made or assembled
to build brand value and capitalize on changing as close to the final point of sale as possible
tastes and styles is the key to competitive in order to reduce transport costs, which
strength, as exemplified by Limited Brands’ remain important for a range of products.
success in the garments industry. Such This may pose great challenges to those
international production systems are “marketing- “winners” in the global export trade that
driven”. have previously thrived as accommodating,
but distant, off-shore production platforms.
These two elements of international
production systems – governance and the Perhaps a more striking trend has
value chain – can be used to analyse a been the geographic dispersal of other global
variety of international production systems value chain functions. The internationalization
involved in international investment and exports. of business service and support functions
Table V.1 provides a matrix of international has progressed rapidly in recent years. Even
production system systems with illustrations innovation, presumably the function most
taken from the case studies presented below. firmly anchored in home countries by
specialized skills and strategic motivations,
The third element of international is increasingly being carried out on a global
production systems, which holds particular stage. Developed countries continue to perform
interest for developing countries, is their most of the research aimed at radical
geographic configuration in an effort to breakthroughs, but the developing world now
acquire a portfolio of locational assets that carries out significant R&D.
maximizes the competitiveness of the corporate
system as a whole. The past 15 years have Simplified, three sorts of drivers are
seen great changes in the determinants of acting simultaneously on the locational decisions
the optimal location of TNC activities, and of TNCs and their partners in international
hence in the geographic distribution of production systems. Cost differentials remain
technology, production and marketing activities a fundamental factor in the location of
within international production systems. productive activities. Changing governance
Production has been internationally dispersed models and functional differentiation (the
for decades, but the trend towards integration first two elements of an international production
over ever larger geographic scales is relatively system) have subjected a growing range
new. Supply chains have extended to new of activities to the logic of cost optimization,
areas of the globe and integrated formerly including R&D and managerial processes
distinct regional production zones. Contract like accounting, information systems
manufacturing and the production of key development, and marketing. In locational
components in electronics and other industries decision-making, however, production costs
have witnessed a consolidation trend in the are always evaluated relative to the efficiency
past few years. The surviving large-scale and productivity of a location. This point
supplier firms increasingly seek a global is often overlooked in discussions of
presence, particularly by co-locating near comparative costs, but it is particularly crucial
the key facilities of their international in that a major focus of TNCs’ geographic

Table V.1. Examples of different international production systems

TNCs’ governance Internalized Mixed Externalized
functional focus (Equity-based control) (Equity- and non-equity-based control) (Non-equity-based control)

Technology-driven Case 1: semiconductors – Case 4: telecom equipment –
Intel Ericsson/Flextronics

Production-driven Case 3: automotive – Toyota

Marketing-driven Case 2: garments –
Limited Brands / Li & Fung

Source: UNCTAD.

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allocation of value-chain activities is to achieve and the need to protect technology assets
s y s t e m i c efficiencies across their entire leads to an internalized, vertically integrated
international production systems. A given approach. On the other hand, success in
location, therefore, is judged by how cost- the garments industry requires knowledge
efficiently it performs a given function in of fast-changing market trends; hence,
coordination with functions located elsewhere, externalizing production to a horizontal array
and not merely in isolation. of independent subcontractors confers cost
advantages so long as these are able to
Asset-seeking motives are also leading meet design, quality and delivery standards.
TNCs to tap skills and knowledge in a more Then there are the national origins of
systematic way on the global scale. As noted international production systems (Borrus et
above, advances in information processing al., 2000). For example, electronics TNCs
and telecommunications enhance TNCs’ abilities headquartered in the United States typically
to coordinate complex functions over great pursue outsourcing strategies while maintaining
distances. This not only allows them to deploy tight equity control over their vertically
functions in new locations, but also enhances specialized subsidiaries. Japanese TNCs
their interest in mobilizing a wider range in the same industry, by contrast, display
of skills and knowledge in a greater variety a strong preference for integrated production,
of locations. governed through a mixture of equity control
and close non-equity linkages with key
Finally, clustering has become a key suppliers (although this is beginning to change).
influence on TNCs’ locational decision-making. These different structural, sectoral and national
Earlier studies have described the fortuitous characteristics are combined (as exemplified
emergence of geographic concentrations of by the case studies provided below) in the
related activities in production, specialized context of corporate strategies of individual
services, R&D and the like (Schmitz and firms aiming at systemic firm-specific
Nadvi, 2000). Increasingly, however, cluster- advantages.
formation is a global process reflecting
recognition by a number of TNCs of the The drivers and features of
value of co-location with suppliers, competitors, international production systems signal one
service providers, and knowledge- point of particular interest to developing
intermediaries. Their intentional efforts to countries: Governments that seek export-
capture tacit-knowledge spillovers suggests oriented FDI need to go beyond trade and
that first-mover advantages for nodes in FDI policies and assess their locational
international production systems may be durable advantages in the international production
despite the increasing mobility of TNC assets system context. More specifically:
and functions. Alternatively, it might suggest
that countries seeking to enter into international
“the issue is no longer whether trade
production systems, or seeking to occupy leads to FDI or FDI to trade; whether
more complex niches within such systems, FDI substitutes for trade or trade
might need to reach a critical mass of related substitutes for FDI; or whether they
investments before doing so. complement each other. Rather, it is:
how do firms access resources –
These broad structural trends are now wherever they are located – in the interest
crucial drivers of the geographic reorganization of organizing production as profitably
of TNC activities. Paradoxically, TNC activities as possible for the national, regional
of all sorts are becoming increasingly or global markets they wish to serve?
“footloose”, even as geographic clusters grow In other words, the issue becomes: where
in importance. While distance might matter do firms locate their value-added activities?
less for many transactions, proximity and In these circumstances, the decision
access to tacit or partly tacit knowledge where to locate is a decision where
is increasingly vital for competitive advantage. to invest and from where to trade. And
Nonetheless, it must also be recognized that it becomes a FDI decision, if a foreign
these trends are not the only determinants location is chosen. It follows that,
of geographic configurations of international increasingly, what matters are the factors
production systems. There are also sectoral that make particular locations
and national (or cultural) factors. For advantageous for particular activities,
example, competitive strength in for both, domestic and foreign investors”
microprocessors depends on design innovation, (WIR96, p. xxiv).
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World Investment Report 2002: Transnational Corporations and Export Competitiveness

Developing countries need to identify their In terms of ownership advantages,
locational strengths and weaknesses in relation competition has been fierce in the
to their competitors and in relation to the semiconductor industry, and Intel, the market
factors that influence the configuration of l e a d e r, h a s s e t t h e p a c e ( t a b l e V. 2 ) . I t
international production systems. Only then adapted better to the evolution of the
can they properly tailor policies to enhance industry in which there was a long period
their locational advantages. Moreover, in of fast growth (1982-1995), followed by
seeking to attract export-oriented TNC consolidation (1995-1998), followed by a
activities or induce existing affiliates (or short boom and then a sharp fall.1
local companies) to upgrade their niches
within given international production systems, Intel jumped from seventh to first
Governments need to discern where rank by sales in the semiconductor industry
governance authority resides within various between 1983 and 2001, and is today by
systems so that their efforts are targeted at far the largest chipmaker in the world.
the right decision-makers. Both these issues Its sales increased 42 times between 1983
are taken up further in Part Three of WIR02. and 2000 before declining in 2001 as the
IT market fell. It accounts for about
one-quarter of global sales in
B. Case studies semiconductors, mostly to the computer
industry. It also accounts for one quarter
1. Control through equity o f t h e R & D u n d e r t a k e n b y t h e i n d u s t r y,
relations in a technology-driven and has been the biggest investor during
the past decade. Intel’s capital expenses
international production in 2001 were $7.3 billion. The company
system: Intel has developed significant technological
and production advantages: it has been
Semiconductors were the most dynamic able to squeeze more transistors onto silicon
products in world trade during the period 1985- wafers for computers than its competitors
2000, when their exports grew from $26 billion and it has developed larger silicon wafers,
to $235 billion. The demand for semiconductors reducing fabrication costs by about one third.2
comes mainly from the IT industries (computers,
telecommunications and consumer electronics). Intel exploited its manufacturing
By 2000, they represented 5 per cent of world prowess by integrating its production system
trade, up from 1.5 per cent in 1985, and they and establishing identical plants in numerous
accounted for 20 per cent of the trade in high- locations to obtain the optimal global
technology non-resource-based manufactures, configuration of its production facilities. This
the most dynamic category of world trade. system allowed the company to locate
particular activities in the sites most suited

Table V.2. The world’s leading semiconductor manufacturers, 2001
(Billions of dollars)

Rank 2001 Rank 1983 Company (Home country/region) Sales 1983 Sales 2000 Sales 2001

1 7 Intel (United States) 0.7 29.7 22.7
2 5 Toshiba (Japan) 0.9 11.0 7.2
3 3 NEC (Japan) 1.3 10.9 7.0
4 2 Texas Instruments (United States) 1.6 10.3 6.7
5 .. STMicroelectronics (EU) .. 7.8 6.3
6 .. Samsung Electronics (Republic of Korea) .. 10.6 5.1
7 1 Motorola (United States) 1.6 7.9 5.0
8 4 Hitachi (Japan) 1.0 7.4 4.7
9 .. Infineon (EU) .. 6.8 4.6
10 10 Philips (EU) 0.5 6.3 4.6
Total top 10 9.4 108.6 73.6
Semiconductor industry 17.4 204.4 139.0

Source: UNCTAD, based on IC Insights, cited by Semiconductor Electronics Resource Centre, www.dir-electronics.com
and UNCTC, 1986.

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CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS

for them. It kept the high-value elements seventeenth among foreign exporters from
of the semiconductor cost structure (wafer China.
production and fabrication) predominantly
in the United States and shifted the more Many of Intel’s competitors have
labour-intensive assembly-and-testing activities reorganized their own international production
to lower-cost sites (table V.3). Thus, Intel systems, following Intel’s lead and on the
has kept its production process internalized. basis of the same overall intra-firm division
More specifically, it has 13 fabrication plants of labour. 7 In the process, a number of
a n d 11 a s s e m b l y - a n d - t e s t i n g s i t e s i n 7 firms have consolidated their activities. For
countries. About half of its 86,200 employees example, Motorola has reduced the number
work in its Technical Manufacturing Group. of its plants from 29 to 14 since 1997, and
It has expanded internationally with fabrication Hitachi reduced its plants from 13 to 8, shifting
facilities in Israel (1985 and 1999) and Ireland3 production from Japan to China and Malaysia.
(1993 and 1998) and concentrated its labour-
intensive operations in Malaysia (1988, 1994, With regard to transnationalization,
1996 and 1997), 4 the Philippines (1979, 1995, I n t e l ’s o p e r a t i o n s a n d i t s i n t e r n a t i o n a l
1997-1998), 5 Barbados (1977, later closed), production system are designed to distance
China (1997, 2001) and Costa Rica (1997 itself from competitors by protecting its
and 1999). 6 Today, about two-thirds of technological advantages inside subsidiaries
Intel’s manufacturing workforce is in the strategically located in its home country,
U n i t e d St a t e s , 11 p e r c e n t i n M a l a y s i a , or in Ireland and Israel. In the case of
8 per cent in the Philippines, 4 per cent in assembly and testing facilities, it has expanded
Ireland, 3 per cent in Israel, 2 per cent in internationally to incorporate a few carefully
Costa Rica and 1 per cent in China. It is selected sites in low-cost locations but always
the leading national exporter from Ireland, in fully-owned operations. It is an international
the Philippines and Costa Rica, and ranks production system that is hierarchical,

Table V.3. Intel’s manufacturing sites, January 2002

Country Facility Function Year built Current process technology Employees

United States Facility 1 Wafer fabrication 1978, 1992, 1996,
1999, 2003a 0.13-, 0.25-, 0.35-micron 16 000

Facility 2 Wafer fabrication 1980, 1993, 2002a 0.13- 0.18-, 0.25-, 0.35-micron 5 500

Facility 3 Wafer fabrication 1988 0.13-, 0.18-micron 8 500

Facility 4 Wafer fabrication 1994 0.28-, 0.35-, 0.50-micron 2 700
Facility 5 Wafer fabrication,
assembly and testing 1996, 1999, 2001 0.13-, 0.18-micron 10 000
Facility 6 Systems
manufacturing 1996 .. 1 400

Facility 7 Wafer fabrication 2001 0.18-micron 1 845

Ireland Facility Wafer fabrication 1993, 1998, 2004a 0.18-, 0.25-micron 3 400

Israel Facility 1 Wafer fabrication 1985 0.35-, 0.50-, 0.75-, 1.0-micron 800
Facility 2 Wafer fabrication 1999 0.18-micron 1 500

Malaysia Facility 1 Board manufacturing,
assembly and testing 1996, 1997 .. 7 790
Facility 2 Assembly and testing 1988, 1994, 1997 ..

Philippines Facility 1 Assembly and testing 1997, 1998 .. 5 984
Facility 2 Assembly and testing 1979, 1995 ..

China Facility Assembly and testing 1997, 2001 .. 1 227

Costa Rica Facility Assembly and testing 1997, 1999 .. 1 845

Source: www.intel.com, January 2002.
a Estimated construction completion.

127

has also been utilized by many of its competitors.11 -1. while some developed of infrastructure.43 1.8 Intel. Infineon Philips Republic of Korea 0. logistics.82 8. Winners and losers in semiconductor exports. factors. 1. Texas Instruments Thailand 0.6 Italy 3. Table V. NEC. The data are classified at 3 or 4 digits of the Standard International Trade Classification (Rev.54 2.04 41.73 34.2 United Kingdom 6. Philips). of Intel.com/ (table V.7 Principal losers United States 29. a SITC 7599: parts and accessories of data-processing equipment. They too have moved Locational advantages also play a the more labour-intensive stages of their role. As semiconductors enjoy the cost of transport is low relative to the unencumbered access to most markets.52 1. Samsung Philippines 0.4).41 1. b As of January 2002. value of the output. Hitachi. ST.27 -3. 8 Intel’s strategy of locating labour- The semiconductor industry is thus a good intensive activities in low-wage areas.90 -33. Hong Kong.4.1 Intel. As technology-intensive stages in the production to developing countries.14 8. Toshiba. Morocco and Malta (ST).4 France 6.76 3. Philips Malaysia 0.2 Germany 8.81 7. Motorola. Toshiba.7 Source: UNCTAD.7 Intel.9 Texas Instruments. China 3. Developing economies with semiconductor affiliates not mentioned here: Singapore (NEC. Hitachi. often semiconductor production process can be the same ones as Intel. The selection improved their shares by almost 35 percentage process for the plant that was located in points. c The concept of “market share increase” is based in the import market shares as calculated by the CAN computer programme on international competitiveness of UN-ECLAC. mainly developed.46 2.76 4. Hitachi.73 4. Infineon.htm). ST. mainly example of a global value chain driven by in Asia.92 2. NEC Total 7. Samsung Taiwan Province of China 2. China (Motorola. Philips). Host country incentives a total of eight winners (mainly from Asia) can be important as well.1 Toshiba.88 -1. Texas Instruments. Hitachi. Texas Instruments. Philips. in which the value of individual years represents 3-year rolling averages (two-year average of the year 2000) to emphasize the structural aspects of change.8 Japan 13.23 3.37 3. and then moving to yet lower-wage carefully protected technological advantages. a handful of East and subsidiary for assembly and testing functions South-East Asian countries have registered include the availability of a technical high increases in their export-market shares workforce. In the case in these locational decisions.07 2.40 -14.36 7. Infineon. locations.01 3. a 1985-2000 (Per cent) Market share increase.72 10. Economy 1985 2000 1985-2000c Top 10 TNCs presentb in winner economies Principal winners China 0. Philips Costa Rica . Motorola. which is based on the United Nations’ Comtrade database. Indonesia (NEC). Infineon. The period of analysis is 1985-2000. business costs countries have experienced large declines and supplier capabilities (www. it is economical to pursue market-access factors do not play a role a global production strategy.2). Texas Instruments. During the period 1985-2000. based on the United Nations’ Comtrade database.71 -4.97 15.01 38. NEC. while seven.4 Intel Ireland 2. the quality in semiconductors. World Investment Report 2002: Transnational Corporations and Export Competitiveness integrated (with associated intra-firm trade) Costa Rica exemplifies the interplay of these and based on tightly controlled subsidiaries.83 10.28 1.8 Hong Kong. ST.2 Texas Instruments. thereby creating separated from labour-intensive ones and a clustering effect.64 7. construction costs.14 -2.intel.8 Total 73. 128 .39 -5. the principal factors that the firm takes into account in establishing a new As a result. Motorola.5 Intel. pressroom/kits.

since of greater diversity and are willing to pay its domestic inputs count as “NAFTA content” higher prices. the trade data and the Republic of Korea. Principal winners Mexico 1. United States Mexico profits from rules of origin that give buyers prefer standardized products at low it advantages over competitors. garments in the United States. other words.4 4.5 therefore occupy an important place in global Taiwan Province of China 15. relations in a marketing-driven while the North American and West European markets have regional suppliers.7 3.0 2. Control through non-equity countries compete in most major markets. This by the relocation of the labour-intensive section simply presents one example of the segments of semiconductor international kinds of networking relationships being established production systems. and so tend to to a number of countries. in comparison Dominican Republic 1. a very high proportion of these no attempt is made here to match the corporate trade gains and losses were accounted for strategies of the leaders with trade data. In in distorted trade flows. Buyers Hong Kong.7). outwear non-knit. countries (Sturgeon. illustrating the earlier arrival of newcomers in the industry from observation about the importance of such economies such as Taiwan Province of China relationships for exports.3 -36. 129 . The quality finishing. In practice. schemes and mechanisms – quotas. All of these Ta k e t h e U n i t e d St a t e s m a r k e t . Still. Another factor was the through non-equity forms. Thus. Europeans prefer high quality products Central America and the Caribbean. China 22. the key variable for the location of manufacturing plants is market access. STIC 844: undergarments non-knit.1 2. mainly as international production system: a result of trade restrictions (tables V. 2000 cent of world imports (from $41 to $174 billion) (Percentage) during the period 1985-2000. In this situation.7 8.9 Total 51. Clothing remains an important component Table V. especially from prices. rising from 2. Within NAFTA.3 11.9 production side of garments.5.5 is an ample supply of capable garment makers. the Caribbean have been important in the choice of supplier and Africa (see chapter VII).4 Honduras 0.5 - Limited Brands V. Total 11. assistance.2 -14. SITC 845: outer garments knit non-elastic.0 3.0 12. there are high entry barriers in Principal losers marketing in the garment industry. For that reason.6 to complex technology-and-scale-intensive El Salvador 0. and it is relatively easy to create new ones Source: UNCTAD. Finally. SITC 846: undergarments knitted. United States rules favour clothing The characteristics of demand for assembled offshore from United States inputs. also granting special access of all three major markets. North America ($58 billion in 2000) Economy 1985 2000 1985-2000 and Western Europe ($72 billion) are the most important markets for garments. 2002). SITC 843: women’s production process is very advanced.5 industries like electronics and automobiles.6 14.2 However.8 24.4 to 3. It accounted for 20 per cent of low-technology non-resource- Market share based manufactures in 2000 (up from 17 per increase cent). based on the United Nations’ Comtrade by providing design inputs and some technical database.2 4.9 15. do capture the international and regional aspects of garments markets: China and several Asian 2. 1985. preferential Competition increasingly takes place not so market access and regional integration – result much at the level of firms as networks. the fragmentation of the a SITC 842: men’s outwear non-knit. Winners and losers in North of world trade. Japanese buyers prefer high and those of its competitors do not.1 per American garment a imports.2 value chains and dominate the industry.6 2. Europe and and they give special market access to Japan differ greatly.6 35.9 Barriers to entry are low on the China 8.3 -12. this means European Union uses a similar mechanism that very few suppliers can meet the needs (see chapter VII). the quotas specialize in one or two. There Republic of Korea 13. of the Multifibre Arrangement have also strongly influenced locational decisions.CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS economies lost a similar percentage.8 -9. and these differences assemblers from Central America.2 2.5 3.

6 1. based on the United Nations’ Comtrade database. based on the United Nations’ Comtrade their brand identity. such as quality.8 3.9 2. beauty Romania 1. China 5. to a significant degree. p.4 -15. Winners and losers in West the top 50 apparel and accessory retailers European garment a imports.7. from $5 to $10 billion. STIC 844: undergarments non-knit.1 3.8 -10. mainly SITC 845: outer garments knit non-elastic. Sears Roebuck Industries is “to identify manufacturing partners and J.7 6.5 6. By 1992.com). These companies are controlling a growing overarching concern to contain costs is share of the United States market: in 1977. 1999. Mast is well Total 55. 2000 it calls its “global network of relationships.9 and personal care) products.0 25. SITC 843: women’s and 400 factories in 37 countries. its net sales doubled Total 9.8 0. includes 53 joint ventures (42 in Asia. marketing.1 It also supplies other retailers.2 3. SITC 846: Sri Lanka) and 600 individual associates undergarments knitted.5 Total 41. It does so through a database.9 -4. importers and distributors of apparel (http:// Principal winners www. Its independent division.1 4. Li & Fung has been Total 25. Penney. It Indonesia 0.3 -3.4 2..1 is a leading specialty retailer of intimate Morocco 1.mastindustries. The Gap and /www.2 47.1 An example is Limited Brands.6 73. SITC 843: women’s value chain in which it operates through outwear non-knit. Thus.6.3 50.3 1.5 7. Continued success for Economy 1985 2000 1985-2000 buyers in the garments industry depends. is one of the world’s largest increase Economy 1985 2000 1985-2000 contract manufacturers. on identifying and Principal winners China 1. advantages: retail sales outlets and brand management.614 stores in the United States. STIC 844: undergarments non-knit.3 million garments to Limited Brands per year.3 3.4 3. The company uses Table V.0 -2.2 4. Market share Mast Industries. tempered by additional factors. Turkey 2.4 7. The latter outwear non-knit. 130 .7 -5. 1985. as well as garment specialty in the right place at the right time” (http:/ retailers like Liz Claiborne. The key competitive advantage of Mast General retailers like Wal-Mart.3 2. both design and market a production migration strategy that constantly clothing but do not make the products they searches for production opportunities.6 Viet Nam 0. the share of the top 50 had risen to 53 per cent and that Market share of the top 5 to 18 per cent (Abernathy et increase al.7 one of the most important ones (box V.e.C.7 a new expansionary phase (Limited Brands. Mast has Limited Brands.2 were $9 billion). Principal losers Mast Industries delivers over 200 Republic of Korea 34. China 9. Source: UNCTAD. Taiwan Province of China 15. This sell. (including 400 in Asia and 165 in North America).8 the United States in 1963.4 0.1 Hong Kong.1 5.9 35. 1985. (Per cent) resources and support personnel” (http:// www. External suppliers China 25.0 and other apparel and non-apparel (i. Limited Brands influences the global a SITC 842: men’s outwear non-knit.com). SITC 846: undergarments knitted.7 1.1 -20. 2000 held 28 per cent of the market and the top (Percentage) 5 held 9 per cent.4 7. 76).com).1 between 1990 and 1999.mastindustries.2 2.0 3.0 -49.0 include a host of firms. but it refocused on “fewer Hong Kong.8 1.1).9 Tunisia 1. Founded in Poland 0. In 2001 it had 4.6 a bit of a setback thereafter (sales in 2001 Germany 10. Principal losers The dynamism of Limited Brands suffered Italy 18.5 positioned globally to supply products that enable its customers to establish and maintain Source: UNCTAD.7 9.1 3. which is based on its two principal SITC 845: outer garments knit non-elastic.9 -29.6 86. 2001).8 21.7 contracting the best supplier networks. Winners and losers in both in-house and external suppliers in what Japanese garment a imports.thelimited.4 but better brands” and now seems set for Republic of Korea 3.7 Bangladesh 0. global network of 18 offices in 12 countries a SITC 842: men’s outwear non-knit. World Investment Report 2002: Transnational Corporations and Export Competitiveness Table V.

Li & Fung claims to handle 10 mainly from North America (75 per cent) and (Magretta. In 1995. 2001. Gereffi. Once a design was agreed upon. The and shippers. and more would make it over- logistics. Buyers would indicate the type Li & Fung presides over a large network of garment they were considering. h t t p : / / w w w. In the 1960s and 1970s. 9). time. China. but on linkages. the Republic of Korea and value added lets us charge more for our services” Singapore. and Li & Fung. Magretta. such as Limited product sourcing and product delivery. would prepare alternative designs. product carries the name of the buyer and the Box V. during the late 1970s. worldwide trading company that manages a global including the proposing of items and batch mixes logistics chain for its retailer clients and partners. 1998. 2001. the agent would Pakistan and Sri Lanka. as well as in Egypt.1. 2001. Li & Fung took control of complete garments S o u rc e : U N C TA D b a s e d o n L i & F u n g L i m i t e d . Li & Fung: a full-package provider Li & Fung Limited is an example of a programmes for a season for a particular buyer. The firm packaging).500 suppliers. buyers manages the “full package”: product development. for incoming orders. India. The process has since It is a full-package provider that brokers high. Li & Fung bought Inchcape quality control and on-time delivery. testing) remained mostly in Hong Kong. c o m / a b o u t / i n d e x . The firm is headquartered & Fung “dissect the value chain” (Magretta. in its own description. The manufacturing part of the process volume garments and fashion accessories (Li & has become highly complex and dispersed.2 that are the most cost-efficient. 131 .lifung. It coordinates its global network providers”. the EU market and providing itself with an package supplier went through several stages. 2001. Europe – and operates through a network of 68 It does not own any production facilities. p. and the product billion. a British trader based in Hong Kong. M a t h e w s .CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS manufacturing flexibility. During the 1970s and 1980s. and deliverer of manufacturing programmes” (http/ /www. while the actual manufacturing was 106). of whom 2. 1998. dependent on the supplier (Magretta. h t m l . 109). its orders came value chain. 1998). was the case for many conventional TNCs). broadening buyer connections into The evolution of Li & Fung into a full. Li & Fung operated as India. but offices in 40 countries. p. l i f u n g . Europe (21 per cent) (Li & Fung Limited.000 people worldwide. 6). It has an annual turnover of about $4. were mainly from the United States. capacity and timely There are also external “full-package delivery. “Front end” functions factory’s output – less would not give it the clout (design. comprises components produced in numerous In 2001. source all components (from yarns and trims to Madagascar. Buying Services. regionally. in Hong Kong. with offices in Taiwan a commission from the retailer and “the higher Province of China. China. Li & Fung receives a regional sourcing agent. The “full package” involves independent by way of the Mast Connection. 72 per cent of the turnover was in the locations. p. Out of 15 steps in the manufacturing garments segment. identify a manufacturing site and generally takes between 30 to 70 per cent of a arrange the logistics. and is listed on its stock Manufacturing is farmed out to those locations market. 1998.com). notably Bangladesh.000 are reportedly active at any given In the second stage. 106). p. 1998). deepened. In sum. The firm had about 700 customers in 2000 The firm’s specialty is supply-chain – mainly large retailers in the United States and management within its global supply network. set from different locations. including Brands. and delivery rhythms. Morocco and South Africa. which uses intermediaries supplying products according to advanced networking technology and the the buyer’s design. assembled by the intermediaries’ Internet to create a reliable global network production network (in which the intermediaries of Mast associates. has indirect employment links with 1. customers themselves may have no equity interest). employing about 5.5 million functioning. developing countries. Activities comprised “assortment (Magretta. 1998. established network of offices in Bangladesh. engineering and production planning) to secure orders or reserve production capacity and “back end” functions (quality control. China. of contract suppliers in China and other Asian as the agent. tapping into the resources of partners The third phase began in the late 1980s: and sharing the risk with them. the company’s transnationalization commissioned from low-cost locations in one process is based not on the possession of or more countries. manufacturers. Li Fung Limited. Until the mid-1990s. p. There are estimates that Li & Fung thus the business became more sophisticated. Pakistan and Sri Lanka. The firm has packaging”: assembling components for a product manufacturing contracts with 7. as a “manager workers (Magretta. domestic assets that can be exploited abroad (as manufacturing was located predominantly in China.

billion between 1985 and 2000. non-resource-based manufactures. of each site by adding assembly lines in In most developing countries with substantial the more convenient ones and dropping them automobile industries. Ford. automobile Fung are skilled intermediaries that excel production systems tend to be national or in organizing supplier networks. These FDI-based production systems are. quality control restructuring has taken place. drawing on their ability to coordinate production-driven international complex production. Caribbean basin. take it upon themselves automobile TNCs. This industry The first contains buyer-driven value chains accounts for about 30 per cent of medium- in which brand owners (à la Limited Brands) technology. This can involve the retailer overseeing production capacity both at home and abroad some of the individual elements of the (PricewaterhouseCoopers. assembly. Or it can involve the contracting old ones. In the Republic of Korea Multifibre Arrangement is dismantled. TNCs are in the rest. Of these. but buyer-driven chains dominate had “transnationalized” a good part of its international trade in the industry. however. Instead of establishing their 30 per cent in Western Europe 9 has not own production facilities. trade and financial networks production system: Toyota efficiently (box V.8 per different worlds in the garments industry: cent and grew from $149 billion to $486 an expanding world and a shrinking one. These manufacturers have been passenger cars in the European Union. Strong and delivery from distinct providers. and Japanese market-access schemes that give them an manufacturers two-thirds of their passenger advantage until the quota system of the cars in Japan. The automobile industry maintained One might say that there are two its large share of world trade at 8. United forced offshore to low-wage sites by States manufacturers half their passenger heightened competition. as Li & Fung does. however. FDI is not regional. European manufacturers still that maintain FDI-based international production produce almost three-quarters of their systems. 2001). they can contract stopped auto TNCs from continuing to expand them. without the need to close down dominant. becoming less representative A few firms dominate the world motor of the industry as a whole. even though to adapt to the changing competitive situation many producers have large stakes overseas. and Mast Industries division of Limited Brands new plants and equipment have replaced does. only one company. 2000). The – a new entrant with a strong domestic Sara Lee companies involved in garment industry – national manufacturers supplied production are typical examples. rather than global. Despite international subcontracting process such surface calm. In 2000. World Investment Report 2002: Transnational Corporations and Export Competitiveness intermediary has no influence over its distribution. to undertake the whole production process. Both factors have influenced the of full-package providers that. The high weight- necessarily involved in the generation of to-price ratio of motor vehicles and strict exports in this first world of garments.1). production (defined as over 40 per cent of 132 . government policies to protect domestic markets and support local production slow The second world of the garments the pace of globalization in this industry. any site. That gives them the flexibility to automobile manufacturers. Both Mast and Li & Unlike electronics. as The competitors have swallowed weak ones. after which some of those different production sites in one region (the companies sold their assets to foreign TNCs. the top 10 accounted strategy appears to rely on production as for three-quarters of global production (table well as marketing advantages to drive the V. industry contains brand-name manufacturers For example. value chain. This kind of industry. for example) that produce In other words. Control through equity and East Asian firms were the first to become full. can move the production systems of third The existence of excess capacity in the parties based on their design and marketing order of 25 per cent in North America and competencies. They use almost 90 per cent of the total until the Asian foreign affiliates based in three or four financial crisis. home markets are still central similar products. a harsh industry-wide as sourcing inputs.8). on the basis international expansion of the principal of the design received. 3. non-equity relations in a package suppliers to foreign buyers (Gereffi. and rely on preferential cars in North America.

oica. based on UNCTC. Taiwan Province • Defects prevented rather than rectified. Brazil.7 58. its quality circles. OECD. TNC stems primarily from its lean production • Active involvement in root-cause diagnosis system. its superiority allowed it to establish from raw materials to finished product. Argentina.7b 4.0 million) and Daimler Benz (0. dealers.1 35. accounting for 86 per Toyota used to supply North America cent of its sales. of voluntary export restraints and quotas.0 .5 3. In 1990.8 2.4 10 Honda Japan 1. of the Toyota Production System.7a 3. Malaysia.5 60.9 48.4 2. 30. The • Production “pulled” by customer demand small production scale and export volumes rather than “pushed” to suit machine of the latter mean that they do not play loading. its tiered suppliers to eliminate all non-value-adding steps.5 . 48. less efficient ones supplying domestic • Integrated single-piece production flow markets in such developing economies as with low inventories.5 6 PSA France 2.8 million) and Daimler Benz (0. production outside the home country) in 1980. 2000 1980 1994 2000 1980 2000 units units units foreign foreign produced produced produced production production Rank Company Home country (Millions) (Millions) (Millions) (Per cent) (Per cent) 1 General Motors United States 6..7 8.7 million). it relied on a number of strengths intrinsic Its international production system combines to the Toyota Production System: a set of modern. (see annex table A.6 14.1 for the main ones).7 5 DaimlerChrysler Germany 1.1 1. Although it was interruptions and variability.1 2 Ford United States 4. This new capacity Japan. Yet it was Toyota that had stimulated them) to make major inroads in world change in the industry. a significant role in the global expansion skilled operators.0 2.2 6.9 2.2 5. and economies in transition.0 2.8 5. Venezuela and Viet Nam. 1996. Indonesia.7 <20 75.3 Total world 34. 133 . • Small batches made just in time.0 8. a latecomer in establishing its corporate • Closer integration of the value chain. a Sum of Chrysler (1. foreign production and Europe mainly by way of exports from accounted for 30 per cent. all but Toyota had passed that other Japanese manufacturers that acquired threshold. and timely procurement. of China.3 7 Fiat Italy 1. including the shift automobile markets.5 19.5 7.1 8 Nissan Japan 3.7 37. ranked by vehicle production. its regional networks in the heart of the through partnerships with suppliers and home markets of its principal competitors.2 48.1 3 Toyota Japan 3.4 40.V.8. efficient plants with a set of older.4 Source: UNCTAD. By 2000. At the end of 2001. 1997). South Africa. 1983. system. These strengths enabled Toyota (and By 2000. the Philippines.htm).9 49. Toyota had 12 plants In order to establish itself successfully in in Japan and 43 plants in 26 other countries the highly competitive United States market.. b Sum of Chrysler (2.9 18.1 Total top 10 28.1 2. • Production line jigs with identical specifications worldwide to add/switch Toyota’s success as a major automobile models easily. Organisation Internationale des Constructeurs d’Automobiles (www.0 1.6 .0 40.9 million). It moved abroad only when access is critical to Toyota’s plan to raise its global to those markets became restricted because market share by half (from 10 to 15 per cent).3 4 Volkswagen Germany 2. Teamwork with flexible multi.CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS Table V.6 2.7 2..4 44.net/htdocs/main.2 6. 51.6 9 Renault France 2. Toyota’s production was heavily concentrated in Japan.3 54. The top 10 automobile manufacturers.1 29. India.8 42. first through exports of production facilities to developing countries and later through FDI (Mortimore.

6 3.3 per cent In the modern and most competitive of world trade (up from 1. Toyota has indicated that it will extend its partly because of excessive spending by international production system around core telecom operators on licences to operate regional markets to lower-cost sites. This has Mexico for North America. Winners and losers in the automobile industry a exports to the North American market. with the top externalized. Nissan. consumer electronics one example of how one company reoriented and media industries – is leading to shorter its production in that country (box V. the developing country that to cut costs and make better use of existing has gained the most from developments in facilities.2. non-resource-based trade.com. however.10) for Western the leading TNCs.4 12. Production is scheduled to start – at least 500. Honda United States 12.2). Parts are.FT. Nissan Canada 23. a SITC 7810: passenger motor cars.3 per cent in 1985) part of its international production system. DaimlerChrysler. Honda Republic of Korea 0. Nissan. World Investment Report 2002: Transnational Corporations and Export Competitiveness driving them to close down less efficient 4. 2000 (Per cent) Market share increase.3 12.7 44.9 20.3). Ford.8 -2. Volkswagen. exports exceeded $173 billion. Toyota. rapid technological the industry is Mexico. providers are included (www. the industry has faced a sharp downturn.2 Toyota. which increased its change – including the development of new market share by 12 percentage points between standards for mobile telephony and closer 1985 and 2000 (table V. the total value of telecom equipment exceptions.0 5. like third-generation mobile telephony. indications that Toyota too will be expanding operations in production system: Ericsson lower-cost sites – partly as a result of the successful copying of Toyota’s production Telecom equipment was among the innovations by its competitors. precisely at a time when their cash flow Table V. Control in transition in a plants and seek out lower-cost production technology-driven international sites. Locational criteria relate mainly 10 exporting countries accounting for 73 to market size in the case of the principal per cent of the total. and Turkey and triggered a dramatic restructuring among the Czech Republic (box III. There are. 134 .5 GM. it represented 3. Economy 1985 2000 1985-2000 Top 10 TNC presentb Principal winners Mexico 0. and accounted for 14.2 Source: UNCTAD. b For developing countries with automotive affiliates not mentioned here. Toyota.3 GM. Renault. based on the United Nations’ Comtrade database.V. Volkswagen.7 3. 1985.4 GM. most dynamic exports during the period 1985- 2000.9). see annex table A.1 -13. international production system.2 11. markets. DaimlerChrysler.000 worldwide if service in 2005.3 28. Ford. with a few 2000.0 Total 24. Recently. At the same time.9. Ford.7 48. to a large degree. l e s s c o m p e t i t i v e p a r t s o f t h e To y o t a After the boom of the late 1990s. invest more in R&D and innovative solutions. Fiat Total 68.1 Principal losers Japan 41.3 per cent of high- Toyota maintains its ownership advantage technology.2 May 2002). and to market access in the older. Volkswagen is integration of the telecom.8 GM. DaimlerChrysler.5 -20. Over-capacity is driving manufacturers So far. Honda Germany 15. By 2000.6 -4. including massive job cuts Europe. In in fully-owned assembly plants.7 29. Ford. DaimlerChrysler.0 7. product cycles and forcing companies to Ford is another (box V.

were producing at half their capacity Government decided to open its borders to the due to the weakness of both markets. Volkswagen’s success provided another that guaranteed both highest quality and strong boost to the international competitiveness competitive costs had to be found. Volkswagen de México in 1995 to allocate it to the plant in Puebla. negotiations. United 2000 – was already on the agenda. increasing capacity in 1977. four-fifths of these to of different models to supply the Mexican North America. These exports from Puebla domestic market could now be sourced from accounted for 60 per cent of the Volkswagen other assembly plants all over the world. this allowed Mexican Mexico was selected as the sole production automobile assemblers to reduce the production centre for Volkswagen in the regiona and suitably complexity of their Mexican plants to a few modernized and upgraded as a result. b a s e d o n m a t e r i a l p r o v i d e d b y t h e D e p a r t m e n t o f C o m m u n i c a t i o n s . and in Pennsylvania. G o v e r n m e n t A ff a i r s a n d C o r p o r a t e St r a t e g y o f Vo l k s w a g e n d e M é x i c o . After of the Mexican automobile industry. also market. the first Beetle left the assembly of this car (which had meanwhile been baptized lines of Volkswagen de México in Puebla. not sales in North America. focused its local production almost exclusively Mexico. the very competitive cost levels both of the plant itself and of the Mexican supplier base. Volkswagen decided to upgrade its Mexican Its subsidiary has become the third biggest facilities further. production of the first-generation Golf the Volkswagen plant in Puebla and creating began. Both plants import of assembled cars in advance of the actual were producing the same Golf and Jetta models. a Given comparable quality levels. It decided to start production manufacturing operation among foreign firms of the prototype called Concept 1. time. achieving only small. thus increasing scale effects for total production of 380. but. while the United States market could still be supplied from Mexico after the closing of the Pennsylvania plant. 135 . followed soon after by the Jetta. reminiscent in Latin America and the sixth biggest export of the traditional Beetle silhouette. For the Volkswagen Group. Volkswagen’s strategy in Mexico In 1967. to most Volkswagen factories in the world. At the same modern technology platform. The low volumes 300.000 vehicles in 2001. production in Mexico meant investing several scale exports of the classic Beetle model. characteristically inefficient by international standards. The two North American plants. which is the United States. F e b r u a r y. a broad supplier base in Mexico and the fact that closing the Mexican plant would have meant abandoning the Mexican market.500 new jobs. Strategically. improved cost competitiveness.CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS Box V. 2 0 0 2 . has been able to improve its competitive situation in the North American market based solely on As NAFTA was implemented in 1994. and NAFTA providing a clear long-term framework with regard to both market access and the gradual elimination of performance requirements. The 1. Volkswagen opted to close its United a supplier of engines and other components States operation in favour of its Mexican one. but on a operation of all firms in the region. Volkswagen finally decided the following 20 years. reviewing several alternatives for the production S o u rc e : U N C TA D . in with Europe – eventually signed in December Puebla. arguments in favour of the Mexican plant were lower production costs.000 were exported. In hundred million dollars. its upgraded and modernized plants in Mexico. bringing more than 20 auto part operation was typical of the import-substituting suppliers to Mexico and building new production investments made in protected markets at the facilities. A new trade agreement operations. imported from Germany. faced with a decision on how to product source for its most important growth organize its production for the North American market. The New Beetle project is the most prominent example of how globalization is In 1989. The That decision was ratified when Volkswagen Mexican operations of Volkswagen have been assigned to its Mexican operations the worldwide transformed into a world-class manufacturing production of the new Beetle model. Mexico. Volkswagen took a strategic determining the strategy of the automotive decision to consolidate its North American industry for Mexico.b The decision to locate the New Beetle on the domestic market. A production site time. the Puebla operation is not only the main In sum. and the States. with the remaining being only from the NAFTA region. During the “New Beetle”). b The main reasons for this decision were the excellent quality levels achieved in the Puebla plant after six years of export experience to the United States. Of the product lines.2. Volkswagen platform.

) to contract manufacturers. Shaiken and Herzenberg. making use of the United States production- sharing market-access mechanism and the In short. Ford’s strategy in Mexico Ford was one of the most globalized only in the Mexican market.9 countries. where it made in Latin America and the eighth biggest export sizeable investments in assembly operations. 7 Motorola United States 22. 2000 and this has resulted in increased demand (Billions of dollars) for the installation and upgrading of modern telecom infrastructure. and the timing of the privatization 4 Lucent Technologies United States 25. Prior to 1987. 1 0 ) w i t h r a t h e r s i m i l a r production plants from about 70 to less than ownership-specific advantages.3 standards. Of significance for Rank Company Home country Sales the configuration of international production systems in this industry were differing 1 Ericsson Sweden 31. 136 . In 1987. operation of all firms in the region.099 of them. Ford’s operations there firms was to integrate Mexico into its benefited from the NAFTA rules of origin. Ericsson has Eight companies in 2000 accounted for about maintained two kinds of foreign affiliates: 54 per cent of worldwide sales of telecom plants needed for the development and equipment ($381 billion). 1998. 11 The market for telecom equipment t h e w o r l d ’s l a rg e s t s u p p l i e r o f t e l e c o m is dominated by a small number of large equipment. The situation of Ericsson exemplifies means that a good part of their energy is this in many ways. It then subsidiaries in Mexico became the third biggest sought to compete better in the North American manufacturing operation among foreign firms market by producing in Mexico. international production system and to focus its operations there on two compact-sized The building of Ford’s new production vehicles and one engine with state-of-the-art capacity in Mexico resulted in dramatic changes technology. its products were sold production-sharing mechanism and the NAFTA rules of origin. where national or regional priorities 6 Siemens Germany 22. most equipment vendors Source: Gartner Dataquest. (Cisco Systems. Source: UNCTAD.6 In response to the rapid market growth of the late 1990s.8 of incumbent service providers in many 5 Cisco Systems United States 23. 1995. 10 worldwide and outsourcing production a router specialist. mainly in Europe. There were a great automobile companies in the early 1990s. Ford’s response to the loss of Mexican maquiladora export scheme (see chapter market share in the United States to Japanese VII). manufacturers. Ford’s the United States.3. the timing of the shift to mobile 3 Nokia Finland 27.2 phones. By 2000.204 vehicles of Ford’s production capacity was located outside and exporting 181. reduced the number of its T N C s ( t a b l e V.co. both manufactured for export. 20.za/stats/ expanded their international production systems top_telecoms_infrastructrue_vendors_2000. based on ECLAC. That industry. share in the United States. is the principal exception. www. Mortimore. directed at the need to improve efficiency.10. over half the company was producing 193. 10 For the most manufacturing of new products whose part. Beginning in 1994. It many models.cellular. It in the quality and type of models produced in was helped in this by the United States Mexico. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box V. 1995.htm. and Shaiken.3 2 Nortel Networks Canada 30. long-term growth of the companies is involved. they drive their value chains through production is not standardized enough to technological advantages in the sense that new technologies have led to a surge in Table V.8 8 Alcatel France 21. and production rarely exceeded invested heavily in foreign markets and lower.8 sometimes came to the fore. Carrillo. In 1980. and now have to adapt to the crisis in the the immediate threat is to survival. During the past decade. The top telecom equipment the use of mobile phones and the Internet. 1998b. Ericsson. 1987. Ford began to cost production sites to rectify its loss of market export two models from its new plant.000 units per year.

mobile of Asia are likely to move there. with a presence also in India. plants to contract manufacturers such as Hungary and Poland). phone handsets are made in Brazil. levels. and sales and electronics manufacturer. Hungary. which (Malaysia. in June 2000. Sourced components are aggregated of plants. Other countries that have electronic manufacturers for cost-sharing attracted telecom manufacturing include some reasons. 15 subsidiaries for equipment manufacture. Flextronics outsources almost all manufacturing to contract took over all related Ericsson facilities in manufacturers around the globe. capital exposure as well as risk. India. This type of operation requires policies affecting access to international the ability to adapt quickly to shifting tastes markets. such as design. Solectron. the United Kingdom Networks reduced its overall workforce in and parts of Ericsson’s plant in Lynchburg. For site selection. Manufacturing focuses on other parts of the telecom and repair operations in Europe. it focuses on efficiency factors plus domestic An analysis of the production systems market demand. equipment industry reveals many similarities with those of Ericsson and Nokia. in the United States. strengthen their strategic relationships with Siemens has the widest geographical spread Ericsson. Ericsson country) and 10 other countries.000. The former produce their international production systems. trade assembly. Republic of Korea and the United States. l e v e l o f b u r e a u c r a c y. most equipment d r a m a t i c a l l y. Nortel Brazil. R&D. The latter engage per cent of the worldwide market of about in high-volume manufacturing concentrated 400 million units in 2001. It is the world’s leading close to the design and development units mobile phone maker. Nokia only adds a new Ericsson protects its core technological plant if it is clear that there is a market advantages through its fully-controlled for many millions of units per year from subsidiaries. In the case of China. Telecom expects exports to grow significantly in the infrastructure is produced in China. Indonesia and the Russian Federation may Finland. production and a very reliable and flexible material- costs (including labour costs). Sweden.c o r e makers have set up production plants in production has been externalized to contract Brazil and China. high-volume the following host-country factors: market production of key inputs (engines) is s i z e . q u a l i t y o f concentrated in selected production units. infrastructure (including customs clearance while all factories are involved in final procedures. 14 Due to the need for high- availability of contractors and suppliers. Motorola marketing. Mexico. The firm is disposing of many in Central and Eastern Europe (e. a major deal under 137 . and to reduce requirements. and Ericsson’s competitors have been under the most cost-efficient plants for the more similar pressures to restructure and adjust standardized products. Malaysia. Germany. EPZs). partners or first-tier suppliers are required. China. in South-East Asia Flextronics (see below) and Solectron. 2001 from 93. In January 2001. 13 The company in a few low-cost sites like China. and Asia were outsourced to the contract product development. M u c h o f t h e n o n e . the latter being particularly of the other main actors in the telecom relevant to the telecom industry. Singapore and Thailand). the Russian Federation. Cisco Systems. Operations in other parts Malaysia and the United Kingdom. and the supply system. In choosing locations for its that plant. so that a smaller number of strategic Turkey and Ukraine. mainly by Virginia. North America equipment value chain. Poland has production facilities in Finland (the home and Estonia. the tax system. with a share of 35 that can remove “bugs”.g. Switzerland.CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS motivate a shift to low-wage countries. Ericsson takes into account In the case of mobile phones. volume production. the be candidates for future production plants. Finland. level of political risk. Ericsson now divesting its non-core activities. Estonia. 12 announced.000 to 48. coming years. Ericsson transferred its Most of the key players have complete supply chain for mobile phones streamlined and outsourced considerable parts to the contract electronics manufacturer of their production in reaction to the industry Flextronics to improve economies of scale crisis and the corresponding systemic efficiency and volume production flexibility. at the highest possible assembly and testing Romania. East are willing to purchase them in order to Asia (Republic of Korea) and Mexico. An non-standardized products and need to be example is Nokia. for example. Outside The role of outsourcing has grown the EU and the United States.

for transmission and reception). Sweden and Finland reporting the manufacturing plants in the United States largest increases. based on the United Nations’ Comtrade international production systems based on database. Siemens. b and receivers. Over the period 1985-2000. 17 Through these and other behind many of these changes. there is a growing Motorola focus on core competencies and a greater China 0.1 5. In China.0 7. 2000 presentb high-cost to low-cost locations (particularly in a small number of developing countries Principal winners Republic of Korea 3.2 their value chains by way of their technological advantages in core products and through Source: UNCTAD. ownership advantages of their advanced India (Siemens) and Egypt (Siemens). TNCs in their in-house production systems. Nokia.9 -12. As of January 2002. Ericsson and Nokia are to Celestica. Siemens. Ericsson and many It should be mentioned that. • Throughout the industry.1 4.5 10. 45.6 -24. more selective about where locations include a strong potential for domestic they locate manufacturing operations. expanding only in countries like China that developed supply infrastructure.7 Total 52. Principal losers Japan 29. by The case of the technological internalizing them. 4 ) t o e x p l o i t t h e c o m p e t i t i v e in-house production in order to reduce costs. a plan in April 2000 to increase the share five countries had market share gains of manufacturing by contract partners from corresponding to almost 30 percentage points 20 per cent to 60 per cent over 18 to 24 in total.0 7. that it would expand its manufacturing base in Table V. at the end of 2001.6 15. Mexico. In of the principal features of international its dealings with telecom operators. with the Republic of Korea. Ericsson outsources much of its previous – b o x V. Winners and losers in telecommunications equipment a Shandong Province. months. therefore. market growth as well as a relatively well. the production systems in this industry: a company prefers to operate through its technological leader facing restructuring international production systems. telecom equipment TNCs drive United States 23. Nokia.2 7. reliance on contract manufacturers for more Motorola standardized and less sophisticated products.4 -37.6 sites has not affected the design and R&D activities in these sites. Nokia. Lucent cut its workforce by almost or via the manufacturers they contract. pressures during a harsh industry-wide recession combines with a fast-growing and Facing that competitive situation in mobile efficient production specialist (Flextronics phones. The (Ericsson. increasing in this equipment affiliates not mentioned here include: Brazil manner their production efficiency. technologies are protected in a similar fashion as Intel’s in the semiconductor industry. Mexico 1. Lucent announced.1 39.4 Nortel. Ericsson’s principal leadership of Ericsson in the telecom advantages are in equipment for ground stations equipment value chain demonstrates some (i. 18 exports.5 Thus. 1985. They telecom equipment prefer that production become.000 in 2001.e.4 6.5 11. Sweden 2.6 Ericsson • The downsizing of high-cost production Finland 2.7 30. Singapore (Motorola). Nortel. Thailand (Siemens). 2000 (Per cent) This analysis suggests the following: • Most telecom companies are relocating Market share increase.11.2 5. advantages of both.11). radio and related transmitters and less technologically sophisticated items. on the other hand. offer both efficiency-enhancing possibilities and strong domestic demand. Nonetheless.8 Nokia and economies in transition).04 5. either directly measures. Developing economies with telecom and they rely on others. World Investment Report 2002: Transnational Corporations and Export Competitiveness which Flextronics was to take over a The geographical shift in the exports significant part of Motorola’s mobile phone of telecom equipment has been dramatic production. Malaysia (Motorola).7 Ericsson.5 8. 16 Lucent has transferred two China.2 Nokia Total 9. with regard to of its principal competitors are focused more locational advantages (as well as the typical on restructuring than on the expansion of efficiency-seeking considerations). Motorola). foreign affiliates for the more standardized a SITC 7643: television. Top 8 TNCs high-volume manufacturing activities from Economy 1985 2000 1985. 138 . Lucent Technologies unveiled (table V.7 5.

more on efficiency through economies of a Estimated.5 12. C. their Important bonuses for the countries presence has an immediate impact on trade.3 technological capacity and speed of innovation. For example.5 of the global value chain. exports. firms tend to focus Source: UNCTAD.2 sector. The effects for host countries $58 billion to $139 billion. and.12. they are able demonstrate the diversity of international to develop new process technologies and production systems and suggest a trend towards sometimes even help their principals with less hierarchical international production systems product innovation. and especially export-oriented electronics manufacturers. Conclusions The increasing intensity of competition Table V. Some estimates may become even more important if the suggest that the share of the total market process of outsourcing leads to a concentration for electronics equipment controlled by contract of production and export activities in a small manufacturers will increase from 8 per cent number of clusters.CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS the stronger expansion of international Mexico and Malaysia. p.6 11. through which they serve their customers (typically other TNCs). 2002.12). In consequence. course. EU and the United States. other new forms are low-cost locations and to support clients rapidly appearing.1 Celestica Canada 0.6 4. especially industrial parks. Outsourcing becomes more advantages. been around in the garment and electronics They go global. The largest four contract more numerous the local linkages with manufacturers each had revenues of over suppliers. from in China. introducing new products and their own international production systems providing aftersales repair services centres. They achieve greater efficiency through higher capacity use because they generalized: the rise of contract can simultaneously assemble or manufacture manufacturers products for several original equipment manufacturers using the same plant. in 1999 to 18 per cent in 2004 the greater the numbers of plants and the (www.com). TNC responses to this Company Headquarters 1995 2002a competitive pressure vary according to their competitive advantages at different stages Solectron United States 1. they with more non-equity elements.9 In the medium-technology sector (characterized by mature technologies). the global market has become the sixth largest exporter in for contract manufacturers in electronics had Hungary and one of the top 15 TNC exporters been expected to grow by 140 per cent. the bulk of their facilities are located in Brazil. Outside the move to other locations (box V. that attract leading contract manufacturers include the increased scope advantages that The growth of contract manufacturing can accompany such an investment. the less likely will TNCs be to $10 billion in 2002 (table V. As they evolve. based on Sturgeon. 14. 1995 and 2002 industries means that leading companies are (Billions of dollars) continually challenged by competitors and newcomers. In the low-technology sector (where 139 . While non. undertake a host of manufacturing-related equity forms linked to supplier networks have functions such as logistics and procurement.4 13. Jabil Circuit United States 3. Hungary. recently. China. scale. of North America and Europe. That competition in itself provokes Revenue strategic reactions. followed by Singapore production systems within this value chain and Thailand and. It is expanding not only in upgrading of economic activities. The five largest contract in all industries. both to take advantage of industries for a while. Japan (chapter currently comes from contract manufacturers III). clustering can be exemplified by the electronics segment effects and the associated longer-term of this market. rather than the technological drivers. By These case studies have served to building in-house capabilities. In the high-technology Flextronics International Singapore 0. Contract manufacturers offer many 5. Flextronics Between 1998 and 2002. Especially impressive are in all their major production sites around contract manufacturers that actually establish the world. competitive advantage lies mainly in SCI Systems/Sanmina United States 3.4).solectron. but also in Asia.7 16.

flextronics. 2 0 0 1 a n d o t h e r m a t e r i a l s . provides the necessary capabilities for the This demonstrates how the boundaries between company to undertake high-volume production contractee and contractor blur over time as and provide cost-effective delivery of finished strategic partners reassign tasks along the products within a day or two to the product global value chain. India. manufacturing operations in multiple locations not by the contract manufacturer. access The most labour-intensive operations are in to inexpensive and easily accessible land. However. It takes into consideration factors wireless base stations. China. the quality where the right mix of skilled labour is available..1). the like Silicon Valley (United States) and Sweden. conducive to manufacturing for the world including the manufacture of routers and market. Europe. a Time. Malaysia contract manufacturers are obliged to and North America that complement its Industrial accompany their clients in different markets and continually improve Box table V. capabilities of domestic suppliers. in eight locations endeavouring to improve efficiency in those in five countries (i. 2001). Israel... plants.e. the company has quality-of-life aspects (Pfaffstaller. Industrial manufacturing engineering contract manufacturers Location Park operation centre must establish suitable inter-national production North America . PC parts. most in electronic manufacturing services. like most of the more table V. Flextronics: specializing in the manufacture of others’ products A closer look at some aspects of the Parks. Flextronics. and Other developed countries . 2002 their process technology and production efficiency. These help the firm to overcome sophisticated contract electronics manufacturers. S o u rc e : U N C TA D . which were strategy of one of the fastest growing companies typically set up as greenfield investments.. infrastructure bottlenecks as they are large also provides such services as product enough to attract suppliers to set up shop close introduction centres and design and engineering to them. Hungary.1. where Flextronics makes. are performed in places such as the productivity of the workforce.4. among investment incentives. Each Flextronics’ Industrial Park centres to its strategic partners and buyers. With corporate headquarters competitors. Flextronics expects host countries to offer an environment The most sophisticated operations. Mexico and Poland). mouse assemblies and customs clearance procedures and numerous mobile phones. expanded rapidly into Central and Eastern Europe. other things. Source: http://www. of public utilities and infrastructure. 18 14 systems of their own. China. then is in low-cost economies. the value In addition. Regional Design and For both reasons.4. Brazil. and often lack the efficiency- in Singapore. become leading investors East and South-East Asia 2 9 2 with a critical influence Central and Eastern Europe 4 2 2 on the export- Total 8 40 29 competitiveness of host countries. international production system. b a s e d o n P f a ff s t a l l e r. Flextronics also has regional chain is driven by the owners of the products. Flextronics’ selected global facilities. of the regional manufacturing operations are provides a better understanding of what drives acquisitions of existing plants previously the transnationalization strategies of contract controlled by Flextronics’ key customers or manufacturers.4. within Brazil.com/Globalman. labour market rules. In contrast to the latter. 5 August 2001. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box V. Doumen. 140 . greatly reducing the freight costs of incoming components and outgoing When investing in the expansion of its products. 6 9 Western Europe . 1 2 have consequently Latin America 2 4 . a In Europe. owner’s end-users. in revenues in 1995 to about $13 billion in 2002. Flextronics cements its strategic relationships A significant share of Flextronics’ production with the former owners in this manner. Since Flextronics specializes in the manufacture of other firms’ products. Flextronics grew from $448 million seeking characteristics of its Industrial Parks. Flextronics has developed what it calls integrated “Industrial Parks” (box Flextronics.

key suppliers raise the barriers to market despite these general tendencies. including help with product and component million (www.htm). While United States international production systems on the basis and Japanese leaders were fighting for market shares. Texas Instruments.htm). Non.4 per cent open up new opportunities for developing in 1998. TNCs are setting up share in the late 1990s). however. However.CHAPTER V INTERNATIONAL PRODUCTION SYSTEMS barriers to entry are low). cost cutting and logistics. while The spreading of international Ericsson has completely outsourced it. In the telecom industry. TNCs play a critical role in many making a strong comeback (peaking with about manufactured exports. depends not only on the either in R&D and design (technology strategies of firms but also on the policies development).2 per cent during 1982-1988).htm). Nokia focuses more on in-house production of mobile phones.intel. The contract international production systems. such as the labour-intensive international production systems if their parts of the production process. then and the multiplication of supplier networks falling back and reaching a low of 26.pdf. through either FDI or non-equity supplier forms. The slicing pdf_files/nichols. g l o b a l s u p p l i e r s m u s t in 2000 (www. design.5 per The splitting of the global value chain cent to 51.com/intel/finance/presentations/ with cheap but efficient labour.9 billion H o w e v e r. production systems. c o m / i n t e l / c o m m u n i t y / i r e l a n d / at low cost.com/intel/ perform a wide range of value-added functions community/philippines/aboutsite. technology. inventory it is not in the list of the top ten semiconductor management.com/costarica. of the value chain also means that new 3 By end 2000. 1 During the first period. from the optimal configuration of their production 9 per cent to about 20 per cent over the period process by spreading production to locations (based on data from the Semiconductor Industry that offer significant advantages in production Association). winning significant market share (from 32. in transition. lithography and capacity. The main United States transnational countries and economies in transition to producers (Motorola. Japanese TNCs mounted a serious challenge to United States producers. 4 Intel’s investment in Malaysia totalled $1. significant role in the configuration of core functions. and – equally Most of the industry leaders reviewed important – the upgrading of activities of above are keeping their core competitive foreign affiliates in specific locations along advantages in-house in their home countries.intel. component sourcing. the value chain. Intel’s investment in Ireland opportunities in the export of services open surpassed $3 billion. Intel and AMD) collectively participate in international production systems. 141 . Thus. see http:/ labour-intensive activities are moved to sites /www. and importance of suppliers’ operations. as global value chains are more and more finely Notes sliced into specialized functional and geographical elements.3 per cent) before Indeed. or production processes. packaging and outbound makers. manufacturing phenomenon epitomizes these outsourcing trends as the complete production The next chapter looks at global process is outsourced. or of host countries. increasingly provide independent process 5 Intel’s investment in the Philippines surpassed development capabilities and the ability to $1 billion by 2000 (www. it should entry for the smaller and younger suppliers be noted that firms in the same sector can from developing countries and economies react in quite different ways to similar stimuli. testing. The latter can play a sales outlets and brand management. the assembly governments have a clear understanding of of less sophisticated products.htm). of corporate strategies that seek to obtain more than doubling their market shares. reached bottom in 1989 (at 37. 6 Intel’s investment in Costa Rica was about $450 associated with the manufacturing process.intel. new producers were making inroads. aboutsite. 2 On Intel’s lead in flash memory design costs and access to third markets. It increases the scale competitiveness patterns. i n t e l . While retaining their 50 per cent of the global semiconductor market core competencies.com/intel/community/malaysia /aboutsite. National Semiconductor. or the logistical how they “fit in” with the corporate strategies organization of product distribution are that determine the nature and location of outsourced to low-cost sites. A new $2 billion wafer up to countries that can provide these services fabrication unit was under construction ( w w w. 7 AMD is Intel’s most direct competitor. The increasing demands put on marketing are the most critical.intel.

jsp. 17 http://www. 2001. 14 For example. 13 See www3.gartner. making the efficiency of the overall production network a key competitive factor.com/5_about/ press_releases/2002_02/pr20020204b. partly in response to increased competition. Egloff. 142 . Nokia’s production of about 140 million mobile phones in 2001 implies the handling of several million components every hour. World Investment Report 2002: Transnational Corporations and Export Competitiveness 8 See Spar. depending on whether it will produce engines or assemble mobile handsets. 2001b.jsp.lucent. 10 See http://www3. 2000. 1998.lucent. Rodriguez-Clare. 15 For Nokia. 9 See “Car manufacturing: incredibly shrinking plants”. relying mainly on contract manufacturers for assembly.com/press/1201/011225. 12 In 2001.gartner.html.com/5_about/press_releases/ 2002_03/pr20020311a. 18 http://www. The Economist.coa.html.coa. a deal was concluded between Sony Corporation and Ericsson to merge their mobile phone businesses worldwide.com/News/602409. 11 April 2002.com/press/0901/010904. 11 This section is based on direct interviews with Ericsson executives. every factory needs to be designed to serve a certain well-defined market and to be adapted accordingly.vnunet. 16 http://www. Shiels.

categories equally or favours some categories It is possible to grow in stagnant markets. medium-technology 50 per cent in 1984 and reaching 28 per and high-technology products. while the high-technology group mostly developing economies. new demand patterns. low-technology. new ways of organizing refinements cannot be incorporated into this and locating production. and this may conceal the United States. some simpler than others. w h i c h a i m s o n l y t o p r o v i d e a new international trade rules and preferences. if one focuses on those economies process level. trade competitiveness statistics on trade in services at the same is measured by shares in world exports (Lall. that technological sophistication rises across and that of low-technology products in the these categories: primary and resource-based early 1990s (figure VI. The list is at the start. These logistical factors. variations at a disaggregated product or However. although growing in importance. 20 economies account for over three quarters of the value A few words of caution are in order of world trade (figure VI. Germany and Japan.1). led by China. new policies and analysi s . a list containing products. classification is based on the core process.2). By this measure. may have products with stable or relatively and also including a number of economies simple technologies. growth. Services. over the past several decades. are not patterns considered in this discussion. new products into high-technology ones. CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS A. level of detail as those for trade in goods. reasonably accurate general picture of broad Perhaps the most important driver of the trends.3). High- and economies in transition are among the technology semiconductor manufacture needs principal beneficiaries. and a number of developing countries processes. significant changes are taking place in world but all products go through a variety of trade. It is assumed in total world trade peaked in the early 1980s. with the latter based manufactures have steadily lost shares further divided into four groups: resource. they are shown as a sub. And products can move significantly. Whether rapid and that have specialized in these products may sweeping technological change affects all find it hard to sustain high export growth. intensity. 1 So what are the structural trends in trade patterns? The most basic trend concerns A broad classification of merchandise fundamental changes in the total trade exports distinguishes between primary composition. changing patterns of exports is technological p ro g re s s .1). Primary products and resource- products and manufactures. The share of resource-based products category in some instances. led by involve aggregation. Non-resource- information and communication technology based manufactures have been driving export products are an important part of the high. In other words. For instance.2 Since cent by 2000 (figure VI. with changing levels of technology technology group. Global competitiveness over others is still open to question. 2000b). relatively simple assembly and testing while low-technology apparel manufacture needs Tr a d e p a t t e r n s a r e c h a n g i n g sophisticated design. These changes also reflect across categories – the application of structural shifts in production caused by biotechnology can transform resource-based new technologies. 1998. another list emerges. t h e in transition (figure VI. All technology categorizations dominated by developed countries. M o r e o v e r. high-technology long-term trends. falling below based. If this reflects products are at one end. the low-technology that have gained market share during 1985. . it suggests that countries products at the other. because of the unavailability of sufficiently detailed Traditionally. group may have some technology-intensive 2000.

Shares of resource-based and non-resource-based products in world trade. 144 . World export market shares.2. 1985-2000 The 20 economies with the largest The 20 winner economies. 2000 market share gains. a Three-year moving averages are used. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure VI. For 2000. 1976-2000 a (Percentage) Source: UNCTAD. based on the United Nations Comtrade database. 2000. 1985-2000 (Percentage) (Percentage) Source: UNCTAD. and changes. based on the United Nations Comtrade database. a two-year average (1999-2000) is used.1. Figure VI. based on export export market shares.

exports of high-technology being said. the share of parts and Ireland). 3 Asian imports of telecom equipment consisted High-technology products are the most of components for further assembly (Ng dynamic export category. countries that are among the high export performers (the ASEAN-5. the share of parts and components products by developing countries amounted in total machinery exports rose somewhat to $450 billion – $64 billion more than primary for the developed countries as a group. This means that the same foreign-exchange earners for the developing inputs may be counted several times. exports of more technology-intensive products.3. Such trade is particularly exporters. $45 billion more than low-technology 26 per cent in 1978 to 30 per cent in 1995 exports. for example. as in low-technology products. office intense. and perhaps most striking. 2001. Hummels. components and parts can be while falling behind them in exports of primary involved in numerous cross-border trade products and resource-based manufactures. $140 billion more than medium- 145 . but it has to be at the expense of other (Yeats. the countries but also for developing ones whose ratio of parts and components in total competitive edge has traditionally been in manufacturing imports in 1996 varied between resource-based exports and labour-intensive a quarter to almost half for a group of manufactures. In the telecom industry. from exports. 2001). 5 operations before being incorporated into High-technology exports are now the largest the final products. 4 Mexico and Third. for half the total the level of technology and the less the exports. based on the United Nations Comtrade database. At the country level. Ng and Yeats. components in total trade is rising (Feenstra. Second. developing countries are raises the question as to the precise dimension growing faster than industrial countries in of the increase in trade values given that. When entry is easy and competition important in telecom equipment. 1999). This Fourth.4). constant machinery. 1998. This world. and electric machinery (Yeats. In 2000. while almost three-quarters of all reliance on natural resources (figure VI. effort is required to stay ahead of competitors. 1999). increasingly. not just for industrial and Yeats. 2001). on average. Ishii and Yi. trade in parts and components e x p o r t s g ro w f a s t e r t h e m o re a d v a n c e d accounted. Shares of manufactured products in world exports by technology groupings. 1976-2000 (Percentage) Source: UNCTAD. motor and non-motor vehicles.CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS Figure VI.

Latin During the period 1985-2000. However. 2) level. over 1985-2000. what the most dynamic exporters have been UNCTAD. concentrated at the country level. 2001a.to fast- imported components) rather than complex growing segments. 2002a. But there are able to do. And this is physical and technological inputs (Lall. 2000). relatively few developing in China. And local products and more demanding functions. and $215 billion more than resource-based exports. What very uneven. is an important part of manufacturing or R&D using substantial local any competitiveness strategy. relatively simple exports. of China have moved into the most complex they moved into more technology-intensive areas of manufacturing and design. World Investment Report 2002: Transnational Corporations and Export Competitiveness Figure VI. In addition. A large proportion simple to complex products – in addition of high-technology exports by developing to upgrading quality and efficiency in existing countries reflects.1). Average annual growth rates of world exports. over time (while upgrading the Republic of Korea and Taiwan Province the quality of the exports they were producing). by technology intensity. They started with simple products exceptions. at the America has made some gains but on a much f o u r. this concentration rose for every The structural trends also suggest that sustained export growth tends to involve a move up the technology ladder – from 146 .4. what are more so over time (table VI. shifting from slow. Regional and national export performance remains So much for structural trends. although there are also some from the other technology Moreover. the most North Africa have only managed marginal dynamic products – defined here as the top improvements. West Asia and Classification (SITC. South Asia. ch. technology exports. based on the United Nations Comtrade database. competitiveness in this manner. East and South-East and which are the up-and-coming countries? Asia has been the largest gainer in all categories apart from primary products. good production labour-intensive operations (assembling mainly “positioning”. from the high-technology group. export performance is highly groups (box VI. III). Rev. and functions and.3 per cent market share. and seems to be becoming is changing? More specifically. content is growing in many countries in which high-technology exports have taken root.1). Within the most dynamic products in world trade the developing world. for instance. And. of course. even in the slow-growing primary of world trade and that increased their market and resource-based exports in which it is share between 1985 and 2000 – are mainly specialized. Economies such as Singapore. Sub-Saharan Africa has lost 40 that accounted for at least 0. Lemoine.d i g i t St a n d a r d I n t e r n a t i o n a l Tr a d e smaller scale. backward linkages countries have thus far been able to build are expanding (WIR01. 1985-2000 (Percentage) Source: UNCTAD.

infants’.6 36 7849 Other parts and accessories of motor vehiclesa 2.16 0.28 0. cardigans.53 1.9 5 5417 Medicaments 0. indoor games 0.4 14 7525 Peripheral units for data processing equipment 0. Rev.44 0. For a full description of the Trade and Development Report methodology.49 0.17 0.12 5 445 24 599 10.CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS Box VI.32 0.99 295 55 942 41. unworked.27 0.74 0.84 36.24 2 736 22 087 14.5 11 8942 Children’s toys.56 13 976 186 887 18.38 2.83 0. 1985-2000 a The 40 most dynamic products in world The 12 electronics items in the list exports comprise only 5 per cent of the 786 accounted for 13 per cent of world exports in products at the SITC. women’s. 2002.2 12 8939 Miscellaneous articles of chemicals 0.60 0. engines.30 5 012 33 062 13.55 4 704 45 962 16.86 0.30 17 446 128 882 14. see UNCTAD. knitted or crocheted.5 6 7649 Parts and accessories for telecom and recording apparatusa 0.06 5 814 22 249 9. S o u rc e : U N C TA D . colour 0.10 37 954 129 051 8.5 37 6672 Diamonds (except sorted industrial diamonds).19 4 712 25 648 12.25 83 547 285 222 8.0 26 8211 Chairs and other seats 0.3 3 7524 Digital central storage units. 2) that accounted for at least 0. in 2000.6 percentage points of the Three manufacturing industries stand out: increase.22 5 495 30 281 12. a The methodology used here is quite similar to that used in UNCTAD’s Trade and Development Report 2002.13 7 603 31 865 10. Butkevicius and Kadri.39 8 132 47 829 12.49 0.1. 2002a. The WIR selects from the universe of world imports only those products (at four digits of the SITC.13 4 589 21 955 11.24 0. separately consigned 0.45 0.1. ranked by change in market share. girls’.14 7 599 32 368 10.20 0.58 0.81 1 811 50 614 24.0 13 7924 Aircraft.14 11 618 45 617 9. twin-sets.4 18 8462 Under garments.0 35 5156 Heterocyclic compounds. tanks.30 0.20 3 735 23 025 12. pullovers.15 6 594 29 987 10.3 40 7929 Aircraft parts a (except tyres.90 5. of textile fabrics 0.98 0.4 8 7523 Complete digital central processing units 0.8 20 7522 Complete digital data processing machines 0. mechanically propelled (other than helicopters) 0. radio and related transmitters and receivers 0. Most of these cent of the value of total exports.26 0.30 2 578 25 009 16.8 9 7721 Electrical apparatus for making/breaking electrical circuits 0.41 10 919 58 297 11. for pipes.39 6 804 43 509 13.91 0.15 5 161 25 015 11.27 5 285 32 259 12.6 30 8439 Other outer garments. which accounted for for 19 of the 40 most dynamic products. 1985-2000 (Millions of dollars and percentage) Market Share Value SITC Annual Rank code Product 1985 2000 Increment 1985 2000 growth rate 17764Electronic microcircuits 0. providing only 0. Rev.0 7 7641 Telephonic and telegraphic apparatus 0.58 0.32 0.0 34 7611 Television receivers.8 10 7788 Other electrical machinery and equipmenta 0. they accounted for nearly 40 per growth between 1985 and 2000.77 0. per cent of exports but grew relatively slowly. and ranks them according to the increase in their market shares between 1985 and 2000.9 25 7149 Parts of non-electrical engines and motorsa 0.64 1.1.33 0.44 0.24 0. As a group. the main electronics.32 11 248 54 390 11.8 Total above products 21.01 0.40 0.71 8 985 68 452 14. cut 0. high-technology products revolve around these products grew at 12 per cent annually over information and communication technologies.40 0. of cotton 0.9 23 8219 Other furniture and partsa 0.9 38 7139 Parts of the internal combustion piston enginesa 0. transistors and similar semiconductor devices 0.40 0.54 0.30 0.40 0.44 0. 2.22 0.79 0.67 1.0 27 8983 Gramophone records and other sound or similar recordings 0. and under 2 per cent of world trade and provided for almost one-quarter of the total import value 0.47 0. vats 0.58 0. electrical parts) 0.92 0.53 0. Mayer. cable.1 24 7763 Diodes.42 0.55 0.05 0. the automotive growth of 8.45 0. 2000 and for almost 9 percentage points of export But by 2000. The Trade and Development Report selected dynamic products according to the criterion of average annual export value growth (at three digits of the SITC.33 1.82 3. bars. the 15-year period (compared to overall export In medium-technology products. Dynamic products in world exports.44 5 160 40 845 14.17 4 122 22 722 12.71 14. Box table VI.50 0.28 0.61 11 346 70 633 13. 4-digit SITC.1 33 5989 Chemical products and preparationsa 0.17 5 609 27 880 11.45 0.1 29 8451 Jerseys.5 21 7810 Passenger motor cars 4. valves etc. automotive and apparel.18 4 366 24 006 12.40 0.34 7 496 43 222 12.66 0. strip and the like 0.16 0. They also accounted for almost 10 percentage points of the growth in world trade in 1985-2000. Rev.7 19 7768 Piezo-electric crystals. based on the United Nations’ Comtrade database. 2) between 1980 and 1998.87 372 006 2 031 347 12.34 0. accounting products were in apparel. 147 . jumpers etc.4 17 5148 Other nitrogen-function compounds 0.43 0.5 22 5839 Other polymerisation and copolymerisation products 0.45 0.37 6 815 42 483 13. 2 four-digit level.27 3 400 26 035 14.3 28 8720 Medical instruments and appliancesa 0.06 5 854 22 168 9.33 per cent of total world trade in 2000.78 0.1 31 7284 Machinery and parts for specialized industries 0.2 16 7731 Insulated electric wire. nucleic acids 0. Rev.02 2. 0.6 32 7132 Internal combustion piston engines for road vehicles 0.46 0.23 2. a Not elsewhere specified.1 15 7712 Other electric power machinery and partsa 0.40 0.4 39 7492 Taps.15 0. Dynamic products in world trade. boiler shells.68 0. cocks.0 Source: UNCTAD.29 0.34 0.41 0.2 per cent) and raised their market industry (four items) accounted for nearly 9 shares by 15 percentage points.02 1.9 4 7643 Television.28 0.39 0.32 2 829 26 929 16.04 8 334 29 475 8. In low-technology products.33 0. parts of transistors and cathode valvesa 0.15 0.83 0.48 0.9 2 7599 Parts and accessories for data processing machinesa 1. The differences are minor.82 0.6 percentage points of the increase.31 0.11 0.09 14 166 50 741 8.28 2 714 24 145 15.

2 3.9 0.3 16.0 6.9 1.9 66. This also overstates the relative gain in the group’s market World Investment Report 2002: Transnational Corporations and Export Competitiveness shares over time.2 28.4 10.9 3.7 68.6 10.2 1.6 2.4 18.5 2.2 5.3 33.8 22.1 1.2 56.6 4.4 4.2 4.4 0.0 40. a Based on three-year average for 1985 (1984-1986) and a two-year average for 2000 (1999-2000).8 1. 1985 and 2000 a (Percentage) Of which Developed Developing East and South.6 2.1 18.2 1.7 1.3 0.1 3.9 63.5 4.4 17. Latin America and Middle East and Sub-Saharan countries b CEEb countriesb East Asia the Caribbean North Africa South Asia Africa Product 1985 2000 1985c 2000 1985 2000 1985 2000 1985 2000 1985 2000 1985 2000 1985 2000 Primary products 38.8 26.4 5.3 High-technology 83. by region.1 0.8 2.3 1.2 0.9 29.9 30.0 1.4 5.0 6.4 46.0 0. .5 12.9 3.6 10.6 35.4 0.2 5.3 0.6 40.4 49.2 1.4 0.9 Total 68.8 1.8 0.8 3. The structure of world trade in major product categories.3 4.9 0.2 4.6 61.8 6.8 1.6 0.6 0.3 0.9 33.4 Medium-technology 89.3 0.5 5.4 3.8 0.2 78.8 10.5 13.7 7.3 0.0 Source: UNCTAD.0 10.8 0.1.4 0.6 1.6 32.6 2.0 0.7 1.7 1. c The share of CEE in exports is understated for 1985 because data are lacking in a number of countries.3 Manufactures based on natural resources 68.6 22.1 Other transactions 71.7 5.0 0.1 2.4 9.4 0.4 20.9 0.8 4.2 21.2 58.7 2. b These three regions add up to 100 per cent for each export category.5 30. based on the United Nations’ Comtrade database.9 1.3 Manufactures not based on natural resources 81.4 1.2 29.1 0.7 11.4 11.2 0.6 8.2 63.6 0.6 4.5 0.5 0.2 1.5 0.3 8.148 Table VI.2 Low-technology 66.1 0.

Source: UNCTAD.g. some leading to sustained increases. Japan in high-technology exports). others not. Thus different factors can drive an increase in market share. based on the United Nations’ Comtrade database and UN- ECLAC’s TRADECAN. while in 2000 it was the highest in the high . up from 57 per cent in 1985. Number of developing market shares are hard to gain and hard and CEE countries with exports of to sustain. • Of the mature Asian newly industrializing economies. market shares can also be gained because of temporary advantages such as preferential market access for labour-intensive. technology category.6. from the highest to the lowest by rise in market share (table VI. Some points of interest to note when looking at the export winners in each category: • China figures at the top of the list in all categories of exports. China is a winner 149 . (e.5). except for resource-based manufactures in which it ranks third. There technologies and trade patterns. (Winners are fewer large exporters the higher the are analysed in more detail in the annex technology level. Growing market Another measure of concentration. (Percentage) the 10 leading developing- country exporters accounted for some 80 per cent of total manufactured exports by the developing world. indicates a high of a country to keep up with changing degree of concentration (figure VI.) Note that winners do not include large exporters that have not improved How have individual countries fared their competitive position during 1985-2000 in increasing their market shares during 1985. to this chapter. the degree of concentration was highest in the low- technology category. shares show dynamic competitiveness (static the number of developing countries and competitiveness being shown by market shares economies in transition with exports of $500 at a point in time) and reveal the ability million or more in 2000. even 2000? The “winners” are economies that though they might have the largest market have raised their world market shares by shares over the whole period. low-technology goods. Shares of the top 10 exporters of manufactured technology category exports in developing countries (figure VI. This suggests that entry barriers into the at least 0.6). ranked high-technology category have become higher.CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS Figure VI. In 2000. based on the United Nations’ Comtrade database and UN-ECLAC’s TRADECAN.2). Hong Kong.5. The pattern of country concentration in 2000 differed from that in 1985. In 1985. 6 Source: UNCTAD. It needs to be emphasized that export Figure VI. On the other hand. A genuine improvement in $500 million or more international competitiveness can result from the upgrading of human resources or the use of improved technologies.1 per cent over the period.

with Hungary showing the and in the low-technology sector. perhaps the across the board. the Philippines are prominently placed and Tunisia in low-technology. Honduras) and high-technology technology operations to low-cost countries (Costa Rica) goods. This reflects in large so in low-technology (Dominican Republic. in which they have appears in all categories of non-resource- lost market shares).04 per cent. low technology. High-technology Medium-technology Low-technology Rank All sectors manufactures based manufactures manufactures manufactures manufactures 1 China Ireland China China China China 2 United States United States Mexico Malaysia Mexico United States 3 Republic of Korea China Malaysia Taiwan Province of China United States Mexico 4 Mexico Republic of Korea United States Republic of Korea Republic of Korea Indonesia 5 Malaysia India Thailand Singapore Spain Thailand 6 Ireland Russian Federation a Republic of Korea Mexico Taiwan Province of China Malaysia 7 Thailand Thailand Singapore Philippines Malaysia Canada 8 Taiwan Province of China Indonesia Philippines Thailand Thailand Turkey 9 Singapore Israel Indonesia Ireland Hungary India 10 Spain Japan Taiwan Province of China Finland Indonesia Poland 11 Philippines Switzerland Ireland Hungary Poland Viet Nam 12 Hungary Chile Hungary Indonesia Czech Republic a Bangladesh 13 Viet Nam Spain Spain Israel Portugal Honduras 14 India Australia Poland Costa Rica Singapore Dominican Republic 15 Israel Poland Turkey Poland Turkey Pakistan 16 Poland Hong Kong. 150 . • From the European periphery. Mexico is by far the strongest performer. a 1995-2000. but especially in non. Singapore and its absence. most surprising fact is their prominence resource-based sectors. ranking high virtually • Among developed countries. based manufactures.2. in high-technology and low-technology. b 0. India appears among a r e H u n g a r y. The top 20 export winners.1 per cent increment in market share between 1985 and 2000 are included in the list. to a lesser extent. the picture specialize in resource-based manufactures is different. Note: Only countries with at least a 0. • In Latin America. P o l a n d a n d t h e C z e c h the winners in resource-based manufactures Republic. The Russian Pakistan and Sri Lanka appear only in Federation appears only once as a winner. low-technology products. 1985-2000 Resource-based Non-resource. on the list for all sectors. • The leaders among the winners from CEE • From South Asia. Of the new “tigers”. Table VI. while Morocco appears Malaysia. China India Czech Republic a Argentina Tunisia 17 Turkey United Arab Emirates Israel Turkey India Sri Lanka 18 Czech Republic Mexico Viet Nam Malta Ireland El Salvador 19 Chile Iran Czech Republic a Spain Slovakia a Guatemala 20 Portugal Argentina Bangladesh Morocco b Australia Morocco Source: UNCTAD calculations. based on the United Nations’ Comtrade database. and fall into two groups: those that In high-technology products. Thailand and. while strongest growth in all categories except other countries such as Bangladesh. top 10 of several categories (except resource-based manufactures and low. in resource-based manufactures. Turkey technology products. part the transfer of segments of high- El Salvador. Other countries in resource-based manufactures. as does Slovakia in medium-technology products. with only four industrial (Argentina and Chile) and those that do country winners. by TNCs. with even South Africa failing Taiwan Province of China appear in the to appear among the top 20. by technology category. where from the region rank far behind Mexico they make up 8 of the 23 top winners. World Investment Report 2002: Transnational Corporations and Export Competitiveness only in resource-based manufactures while • Sub-Saharan Africa is conspicuous by the Republic of Korea.

however. Of the economies in transition. markets. automotive and The role of TNCs in expanding exports apparel. Ireland. the global winner in resource-based • Asian winners have gained market shares products and the runner-up in low. The countries is highly concentrated: the 10 resources and market access TNCs can bring leading developing-country exporters can complement a country’s own resources accounted for some four-fifths of total and capabilities and can provide some of the manufactured exports of developing missing elements for greater competitiveness. 151 . regional. TNCs played exporter in most non-resource-based an important role in the export performance categories but has suffered from stagnant of many of the most dynamic products in or falling market shares during the period the winner countries. • The distribution of trade among developing and especially home-country. However. • It is also noteworthy that many small Spain and the United States lead the economies – such as Costa Rica. Other Taiwan Province of China and Singapore strong high-technology performers are – are among the most dynamic ones. as discussed considered. and low-technology exports has to do with its export of components for overseas and countries in Latin America and the assembly. Host countries can build upon these to enter new export activities and improve their • A number of developing economies have performance in existing ones. in that it is difficult the benefits of exports. the United States did in general needs to be reviewed. especially those of resource-based manufactures. It is a large As will be discussed below. the role of TNCs in exports level. along with access to global. Israel and Finland. limited by financial constraints. Caribbean have gained only in North American markets (see the annex to this • Japan. Before discussing to raise shares beyond a certain (high) that. This needs to be complemented by sharing on is not surprising.CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS • In non-resource-based products. economy. The overall picture are found mainly in three manufacturing industries: electronics. exploitation of natural resources or low- Hungary registered the greatest advance. managerial know-how they can bring with them. figures among the winners only in resource-based products. Mexico. does not appear at all in high. making its B. The main conclusions of the analysis What role do TNCs play in the trade in this section are the following: performance of countries? • The most dynamic products in world trade 1. cost labour. achieved important gains in market shares in technology-intensive industries of non. raise its high market shares in all but high-technology products. driven by its own TNCs. Malaysia. Taiwan Province of China and in additional capital and investing it in the Thailand. foreign affiliates contribute to the export performance of host countries by bridging the resource gap and taking the risk of developing new exports. Ireland. In such cases. TNCs and exports performance all the more remarkable. Part of the Western and Eastern European winners strong growth of its medium-technology have gained only in European markets. raised its market share). of host developing countries derives from • Trade in parts and components has the additional capital. countries in 2000. European technology. The United States. In some cases. Most other large industrialized below export performance in and by itself countries are in a similar situation. winners in the developed world. However. the Republic of Korea. technology and assumed more importance. the second largest industrialized chapter). in all major markets (Japanese. and North American). help increase exports simply by bringing Singapore. TNCs can the Philippines. The most countries in which domestic investment is noteworthy are China. while the winners technology products (where it is the largest from the other regions have advanced exporter in absolute terms but has not only in the context of regional markets.

or by introducing affiliates and contractual partners in host more complex technologies. export-oriented affiliates can aspect of the historical role of TNCs in provide training for the local workforce and building up developing-country exports of upgrade technical and managerial skills that raw materials and labour-intensive benefit the host economy more broadly than manufacturing exports. particularly in developing host countries with competitive assets for countries without a strong industrial skill export-oriented production in technology. Such assets are often firm-specific. Regardless of the technological capabilities. As in the domestic entrepreneurial community. the income earned by employees. If relocation also benefit from the lobbying activities of of foreign affiliates occurs with little warning. The case of Moreover. it means exports by developing countries and economies that a number of the benefits that can be in transition. This is the strategic mode of TNC participation. skills development and knowledge competitiveness depends on the host transfer opens up prospects for further government’s ability to boost the human capital dissemination to other enterprises and the and technological infrastructure. on independently. market access.) TNCs feed benefits back into local skill This means that a wider group of firms and technology systems. This involves foreign may fail to materialize in the host country affiliates’ privileged access to TNCs’ intra. In particular. regulatory (WIR01). Their future training. their exports and the factors underlying competitiveness get rooted in the host economy. to TNCs’ customers in global. 152 . When TNCs are unwilling the “raw material” the host economy provides to part with their ownership-specific advantages – general education and training. regional and local value-added may not be increased and home-country markets. development and regional trade. by facilitating their access to associated with export-oriented foreign affiliates new and larger markets. countries to markets can spill over to suppliers and other domestic firms. providing information. headquartered in Penang. World Investment Report 2002: Transnational Corporations and Export Competitiveness The provision of capital has been an important Finally. While this resources. This applies especially technologies). these links of foreign developing labour skills. see WIR01.7 How much TNCs invest in countries and economies in transition to acquire employee training depends. by further case of technology. TNCs can provide for new employees. treatment of exports from competitive host In labour-intensive industries. the transfer of challenge facing countries that have already such assets by TNCs to their foreign affiliates attracted significant TNC export activity or non-equity partners in host countries through at low technological levels. assets and capabilities. dynamic firm markets and access at arm’s length comparative advantages may not be developed. In addition. when conditions change and profit prospects is an example of a local supplier that engaged are affected. TNCs might resolve some of the short-term can enhance the demand conditions facing efficiency-related problems of TNCs. In turn. Malaysia. standards and most valuable ones such as state-of-the-art quality. It also involves the affiliates may not embed themselves in the access of non-equity partners to TNCs’ local economy by building linkages to the international production systems. More sophisticated operations – complex intensive and dynamic products in world manufacture. TNCs can leave countries ENGTEK. institutional support. FDI becomes particularly important to export-oriented investments in advanced for export competitiveness. TNCs in their home countries for favourable a host country can face serious problems. characterized countries. of course. depending on TNCs for all improvements in export competitiveness Besides strengthening the supply brings its own risks for host countries. (including domestic enterprises) can develop assistance and contracts. headquarters functions – entail more skill costly and difficult for firms in developing creation. design. (On linkages. host countries may conditions or perceptions of risks. base. Export-oriented TNC activity in closely-knit partnerships with TNCs and is particularly sensitive to changes in the through this network became a global supplier cost of production. technical (as is the case with many of the newest and skills. economy at large. On the other hand. (UNCTAD. TNCs capacities of export-oriented industries in may focus solely on the static comparative host countries through the transfer of advantages of a host country. and the like. 2002a). Even simple operations need considerable training More importantly.

All this suggests particular attention needs to be given to that the international intra-firm division of upgrading and the sustainability of export. case of the affiliates’ exports to non-affiliated firms (58 per cent). 2002). a All this suggests that countries need shift from low. V). in all of which more than 30 per cent of exports are accounted for by foreign affiliates.and medium-technology to pay attention not only to attracting export. The share of high-technology the benefits from export-oriented TNC manufactures in intra-firm exports of United activities once they have attracted them. In particular. do TNCs play in trade? The significance of exports by foreign affiliates in total exports of host countries There is no way to calculate the varies. then. Although the ability 1993. such as Argentina. 2002a). if equipment was higher in the case of exports all countries aim at exporting the same from United States foreign affiliates to products at the same time. 8 in non-resource-based manufacturing). there is also the risk that were intra-firm in 1998. Two-thirds of these exports Finally. total exports of their home countries rose Over time. trade in parts and – through incentives and by lowering labour components has assumed greater importance standards. although this is the manufactures can be observed since the basis for benefiting from them. 2001a). Department of Commerce. table VI. data simply of foreign affiliates (as distinct from domestic do not exist on that part of international firms) show that their contribution is often trade that firms. of a single corporate system).3). sudden shifts trade (i. Brazil. of the poorest host economies. growth (WIR95.1). particularly export-oriented FDI for which international competition is particularly strong As noted earlier. there is also a risk of relocation from 27 per cent in 1990 to 31 per cent of labour-intensive production to lower-cost in 1998 in the case of United States TNCs sites. including both intra. international production systems. labour is intensifying – the hallmark of oriented production. They also early 1980s in intra-firm trade (annex table need to pursue active policies to increase A. but 1983 to 43 per cent in 1998. as compared to 55 host countries attempt to attract FDI – most per cent in 1983.e. 153 . Finland and Slovenia (see latter half of the 1990s. as the wage level increases with income (United States. To begin with. The significance of TNCs in host-country When it comes to trade associated with foreign exports is not limited to countries that have affiliates. undertake via non-equity forms. Estonia. an extrapolation from some leading benefited as export winners (as discussed industrialized countries that do collect such in the preceding section). trade among the various parts in production locations – due.CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS by an investment in capital not important More importantly. This can be gaining in importance within corporate lead to a race to the top as far as incentives systems. 1998. ch. is corroborated by data for United States foreign- affiliate exports. States affiliates rose from 29 per cent in The trade balance is relevant here. METI.2 for the list of top 20 exporters firm and third-party transactions (WIR99). The share to changes in regulations. Such trade also appears to economic or social standards. MITI. At the same time. incentives or of intra-firm exports by parent firms in the preferential schemes – may occur more often. while it remained stable in the of TNCs to switch locations diminishes with case of Japanese TNCs at around 38 per the technology intensity of exports for many cent (Japan.VI. it can also be observed data puts the share of trade involving TNCs in other countries. VI. environmental standards or other in world trade. Scattered national data on the share precise share. most of them affiliated firms (65 per cent) than in the may well be worse of (UNCTAD. for example. manufacturing exports towards high-technology oriented TNC activities. Japan. it represents This trend towards increasing intra-firm trade a serious problem requiring policy attention. an estimated one- enough to represent a big loss for investors third of world trade consists of intra-firm in the case of disinvestment. the share of exports are concerned and a race to the bottom in electronic components and accessories in terms of social benefits for workers and as a percentage of total exports of electronic the economy as a whole. What role. under the common governance considerable and is growing over time (table of TNCs. at around two-thirds of world trade for the Canada. In addition.

21 in Colombia. 20 in Chile. 21j 2001 50 g 44 h 1999 26 33j. 2000 14 . 1998 4 4 2000 24 . 10 1995 44 c 39 c 1997 . Part One). role of TNCs has been to extract and export for example. from the Central Statistics Office. accounting for 47. the main economic sectors is considered the sector and the role of TNCs in it remains separately? important for many countries and can help them move into higher-value-added activities 2..... the availability of natural resources In developing countries. Japan 1988 4 3 Peruf 1995 25 .k Chile f 1995 16 . i Data from Soon (2001).k Bolivia f 1995 11 . all industries and manufacturing.l 1999 80 86j... a Share of exports of foreign affiliates in the manufacturing sector in merchandise exports of host economies. Total exports generated by foreign affiliates are thus likely to be considerably larger (based on a survey undertaken by the Korea Institute of Economy and Technology. 2002b). d Data refer to local units. 5 Finland 1995 8 10 India 1985 3 3 1999 26 31 1991 3 3 France b 1996 22 27 Malaysia 1985 26 18 1998 21 26 1995 45 49 Ireland b 1991 . b Data for exports of foreign affiliates refer to exports of majority-owned foreign affiliates only. Primary products (World Bank. Although the share of 54 countries depend on a limited number this sector in world trade is declining (as of primary products for the lion’s share of Table VI.. 26 j 2000 60 35j... Census of Industrial production.l 2000 56 52j. based on the UNCTAD FDI/TNC database. e Data from Swedish ITPS. 2001. f Data for exports of foreign affiliates were based on 1998-2000 average and were provided by ECLAC. 2002....k Source: UNCTAD.. Austria 1993 23 14 1999 26 15 Costa Rica 2000 50 .. 2000 21 . Shares of foreign affiliates in the exports of selected host economies. Estonia b 1995 . Manufacturing includes mining and quarrying. Romania 2000 21 .3.. j Data on the exports of foreign affiliates from Andrea Eltetö (2000). 15 j Developing economies: 1998 ... Canada b 1994 46 c 41 c Hong Kong.. 2000 28 . k 1998. World Investment Report 2002: Transnational Corporations and Export Competitiveness How does the picture look if each of it is in world FDI – see WIR01. 15 i Portugal b 1996 23 21 Singapore 1994 . 93 in Mexico and 9 in Peru.. China 1991 17 g 16 Slovenia 1994 . 74 d Mexico f 1995 15 . h 2000. 38 Sweden b 1990 21 e 21 e Taiwan Province of China1985 17 18 1999 39 e 36 e 1994 16 17 United States 1985 19 6 1999 15 14 Central and Eastern Europe: Czech Republic 1993 . 35 1999 17 21 1999 .... 47 j Argentina f 1995 14 .. In Africa. a selected years (Percentage) Economy Year All industries Manufacturing a Economy Year All industries Manufacturing a Developed countries: Colombia f 1995 6 . For many of the poorest countries. 1999 . g Data from MOFTEC. Netherlands b 1996 44 22 Republic of Korea 1999 . Hungary 1995 58 52 j. 160 in Brazil. 90 d 2000 31 . International Trade and Integration Division.. 2000 29 . c Data for exports of foreign affiliates from OECD... l 1993. the traditional is their only comparative advantage.5 per cent of the stock of FDI in the Republic of Korea. a good many of the continent’s primary products.. 1999 9 . Based on a sample of 385 foreign-owned firms. 82 in Argentina. 154 . China 1985 .k Brazil f 1995 18 . Poland b 1998 48 35 j. based on exports of 267 exporting companies out of a sample of 305 manufacturing foreign affiliates.

diamonds alone accounted for (Humphries. needs to be strengthened information technologies has resulted in a (ILO. TNCs provide farm inputs (seeds. is controlled by foreign affiliates producers (Humphries. for 25 per cent of EU imports). shift of the main value added from simple discovery and deployment of capital to the S o u rc e : U N C TA D . These issues have been In petroleum. including health p. either through out- to serve expanded markets has led to an grower schemes or through contract farming increased role for export-oriented FDI (box arrangements.2) – Horticulture is a rapidly growing export was the second most important export item item. hazards for workers unprotected from chemicals used in flower growing. new resource- based exports are emerging. In Papua New Guinea. As the value added in the supply chemicals and fertilizers). VI. gold and copper for various forms of cooperation with the together accounted for almost half the exports technological leaders. 2002). This shift not only makes 79 per cent of exports in 1999. the Namibian water diamond industry. which in 2001 together traditional exporter countries are increasing set up a project in Kenya to introduce technological sophistication and value added alternatives to toxic chemicals (FAO. 2002). In other extractive the effectiveness of the local enforcement of industries. rely significantly on FDI. although often European Union market in 2001 (FPEAK. 2002). where they used to through flower production to marketing and distribution. course. 2001. chains are increasingly led by large retailers TNCs play an important role in Kenya’s that. export industry In Kenya. 2000. build long-term direct. In more traditional horticulture alone. arrangements with TNCs. while copper mining activities increasingly technology- and nickel represented an additional 5 per intensive. often with TNC involvement Box VI. its share in exports increased from merchandise exports (Kenya. The reason for this close control own production facilities as well as is the capital.and technology-intensity of flower transportation and distribution facilities (box production. The supply chain is under the departure from the historical role of TNCs common governance of TNCs.000 people and and other tropical fruits).3). 2002). such as horticulture. The Government of Kenya has a number of laws through both equity and non-equity limiting the exposure of workers to chemicals. optimum distribution. i n and improvements in capital efficiency Botswana. a key primary product. application of intelligence on known deposits 155 . the increasing application of new these laws. In in 1999 (Ericsson. 2002). 2001). not without problems. the industry to smallholder farmers. 223). the value (17 per cent) and Israel (16 per cent) (idem). 2000. the role of TNCs exported flowers worth $110 million to the continues to be important. To i l l u s t r a t e .CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS t h e i r e x p o r t e a r n i n g s . In contrast.2 Kenya’s dynamic horticultural at one or more points of the value chain.and The fast expansion of flower production is. however. recognized by the Food and Agriculture new entrants into export markets (such as Organization and the United Nations Angola). Central Bureau of Statistics. for example. In the flower segment of of Statistics. 2001). in their quest for cost reduction and horticulture. from breeding in food value chains. 199). channelled through the fresh produce exporters associations (idem). In fisheries. accounting for 16 per cent of total and 2001. through more specialized non-equity forms By 2001 Kenya had become the leading flower focused on marketing and distribution supplier of the European Union (accounting (UNCTAD and Cyclope. De Beers and Namco have While natural resources are generally established joint ventures with Namibian not dynamic in world trade. although it varies between segments. Central Bureau 12 to 16 per cent (Kenya. for example.4). p. Over the four-year period between 1997 in 2001. the quest by developed. horticulture – with substantial TNC involvement (box VI. but also re-emphasizes the need cent. 60 to 70 per cent of VI. while Environmental Programme. Close to 90 per cent of Kenya’s flower production. the exportable fruits and vegetables are grown country TNCs for new sources of supply by small-scale local farmers. 161-163). is becoming increasingly knowledge. pp. supply relationships with locally-owned for example. 2002). This is a (FPEAK. ahead of Colombia In most of these commodities. technical support and chain moves away from catch or breeding quality control as well as market information towards freezing and transport. typically TNCs. the 70 leading Kenyan grower agricultural commodities (such as bananas firms employed more than 50. of skills-intensive (UNCTAD and Cyclope.

which established a joint • Demand for preserved products has been venture with an airline company. Developing- defining the structure of international trade country firms are thus seeking stronger equity and in determining who will be included in (e. and processed fruit.g. many commodity- dependent countries seek to diversify out of • An increasing number of domestic exporters basic food commodities into higher-value-added control land to increase supervision of the products by moving into food-processing (e. food value chains. for example. market requirements • The food-processing industry is well are transmitted from large buyers to exporters.g. instead. For example. in producer countries to ensure continuity of supply and provide the resources needed With the growth of international sourcing for increased local processing. (e. of fruits and vegetables and the increasing some importers in the United Kingdom have concentration of retailing in developed invested in production facilities. some leading TNCs no longer create new opportunities for developing-country own factories or logistic facilities in developing exports. distribution and transport . Homegrown. One example to raw materials. soluble coffee in many developing • Exporters in developing countries invest countries). More recently. Some networks and brands. This strategy. In the past.g. 2 0 0 0 f . importer in the United Kingdom) to diminish Del Monte in Costa Rica and Dole in Honduras. stagnant in developed countries as • Importers in developed countries invest consumers’ tastes shift towards fresh directly in exporting companies and in farms produce. In the value chains of fresh products than for unprocessed ones. 156 . The development of niche markets for 1995). joint ventures) or non-equity (e. the preservation and transformation of raw Some large producers and exporters in Africa materials into such products as instant coffee have invested in neighbouring countries and fruit juice) or by developing new types to gain access to land. large. is of fresh vegetables. the recent patterns of FDI for upgrading. is how to link with developed- However. capital and markets is Kenya’s largest horticultural exporter. strategic or excluded from the network. in which a greater emphasis is placed case. S o u rc e : U N C TA D . while improving their in the food industry show the following competitiveness. they own retail outlets and development of entire-channel marketing brand names in developed countries.of non-traditional Homegrown’s establishment of its own agricultural products in Latin America (e. The food value chain To minimize the negative effects of characteristics: commodity dependency. They were also often the largest in importers – or create their own importing exporters . as in the case of the higher-value fresh fruits and vegetables can apparel industry. necessary to achieve economies of scale. TNCs invested primarily Africa. the role of TNCs in host countries in Europe but also in the Middle East and is changing. production process and secure supplies.3. In this systems. there are no equity links between the on the closer management and monitoring of retailers and the rest of the value chain. The question arising from the countries. In the value chain of food products. many African not easy to implement. locally-owned exporters control the • Many developing countries lack the access transport of their products.g. of their exports and contracted the rest to medium and large domestic growers (Thrupp. however. a small number of TNCs controls who then take control of production and the worldwide supply and distribution shipment to meet those requirements.and also responsible for the companies – in developed countries (e. to supply supermarkets all year round in plants for the production of processed food from their own farms. the risk of being displaced by exporters from both in pineapple exports). not only countries. alliances) links with international partners who provide greater access to markets and resources Accordingly.g. World Investment Report 2002: Transnational Corporations and Export Competitiveness Box VI. established. because: exporters are encouraged by United Kingdom supermarkets to take on more of the • Tariff barriers in developed countries are processing activities formerly controlled frequently higher for processed food by importers. the retailers play a decisive role in country firms within the chain.g. they produced most other countries.

and exports are expected are considerably less transnationalized to reach between $2. In the Economist Intelligence Unit. international production systems. In 2000.3 1 5 ) . the list of the largest Box VI. most TNCs have preferred production of a growing number of to acquire existing companies that already possessed concessions. Services become two of the major exporters of fresh fish (after Norway. Chile and China have 3. and are the two countries that have potential for export-oriented FDI in developing increased their world market share the most over countries and economies in transition is the period. Asia appears to be more advanced than other regions in attracting firms and hired Namibian staff to employ both types of export-oriented FDI in front-line technology (the sweeping of the services: FDI related to service exports ocean floor outside the coast) in deep-water and FDI related to service functions in extraction. demand encouraged the major companies to seek compared to 51 per cent of the production out new sites for production. the United States and the Russian Services are a sector in which the Federation). for example. p p . 2 0 0 1 g . $950 million in 2000. for a number of reasons: has been in the category of fresh fillets (SITC 0343) where Chilean exports accounted for almost • Services account for more than two-thirds 20 per cent of world imports in 2000. or places that make more logistical sense. t h e from salmon farming.8 per cent in 1991).5 and $3 billion by 2010. In bauxite s e c t o r. (tenth) and Jamaica (twelfth) (Ericsson. of three (table VI. 2001 and and export them from there. 9 As the tradability of services optimal conditions in the natural environment increases as a result of the use of modern and the availability of labour and other inputs. Europe. up from 2 of the GDP of developed countries per cent in 1985.5 billion. suggests that there is a considerable Many of these ventures involve non-equity potential for firms to transnationalize and forms of TNC participation. or 5. rather than FDI. 1990). a collapse in prices meant that a 50 per in non-service areas and include R&D. and Chile offered of goods. foreign affiliates of TNCs from for all markets. Although local companies (with important These countries are therefore strengthening assistance from the Government) developed the their ability to produce more services salmon industry. Chile’s principal success in this industry considerable.4). as manufacturing affiliates. as well as into only a 1 per cent rise in export revenues. occupying the forty-ninth spot at the 3- digit level of the SITC. an industry that reached world’s principal export markets. 2000. Source : UNCTAD. about 40 per services (or their components) will shift cent of total production was in the hands of foreign to developing countries. 2 (using the same criteria as the box VI. for many But the industry is also subject to the price corporations. Most of these exports come ( U N C TA D . Growing international production entered international trade. the top three exporters • In 1999. information and communication technologies Because salmon rearing in Chile is subject to (Sauvant. This technology is more knowledge. service exports are ancillary fluctuations typical of other primary products: to their international production activities in 2001. it can be expected the Government concessions. A number of TNCs Salmon producers are expected to maintain output relocate these services to lower-cost sites levels in 2002. All this intensive than traditional on-land mining. such as contractual for countries to attract FDI in the services arrangements. and 57 per cent in the economies in transition. India in the 50 most dynamic exports in the period 1985. 3 0 0 . based on ECLAC. developing world.CHAPTER VI PATTERNS OF EXPORT COMPETITIVENESS mining. 1 0 The Chilean salmon industry still has the • United States data suggest that services firms potential to develop further. 157 . North America and Japan have become major exporters. based than manufacturing firms – by a factor on estimated future investments of $1. However. FDI in the salmon industry 15 producers controlling more than four- in Chile fifths of world output in 2000 includes not only TNCs but also State enterprises from Fish is the only primary product included Guinea (fifth). procurement centres. cent increase in the volume of exports translated sales and marketing. By 1999. did. 2002b.3 per cent of the total the share of services in GDP had surpassed exports of the country (up from 1. By 1999. Venezuela (seventh).4. 2002). Rev. 50 per cent in the developing world.1). only 12 per cent of service were all foreign affiliates.

the majority for 16 per cent of India’s total exports in 2000/ (58 per cent) of the 3.nasscom. 158 . and therefore are not fully comparable to sales by foreign affiliates.001 firms operating in the technology park were foreign-owned at the end of 2001 (STPI. a Bangalore attracted 38 per cent.6 billion in investments (NASSCOM.1). 1992 and 1997 Even in the city of Bangalore. They cluster their Economic Census of the United States Census