World Report 2001 Promoting Linkages · some 3 per cent at the beginning of the 1980s to some 9 per...

United Nations Conference on Trade and Development

World Investment Report

2001

Chapter III

United Nations New York and Geneva, 2001

Promoting Linkages

CHAPTER III.THE LARGEST

TRANSNATIONAL CORPORATIONS

As in earlier years, this reportreviews recent developmentsin the universe of the largestnon-financial TNCs1 ranked bytheir foreign assets: the 100largest worldwide (table III.1),

the largest 50 TNCs from developingcountries (table III.9) and the largest 25TNCs from the economies in transition ofCentral and Eastern Europe (table III.16).The role of the top 100 is illustrated by thefact that their foreign assets , sales andemployment in 1999 accounted for roughly12 per cent, 16 per cent and 15 per cent ofthe es t imated foreign assets , sa les andemployment of the total number of the TNCsin the world, 2 which now comprises morethan 60,000 companies. And most of theirforeign operations are controlled by TNCsheadquartered in a handful of countries

(figure III.1 and chapter II). Similarly, thelocation of TNCs based in other groups ofeconomies (developing countries and thoseof Centra l and Eas tern Europe) i sgeographical ly l imited ( f igure I I I .1) .However, the role of the largest TNCs fromdeveloping countries is increasing: as notedin chapter I, the share of the developingeconomies in outward FDI has risen fromsome 3 per cent at the beginning of the 1980sto some 9 per cent in 2000. The third groupof TNCs, the 25 largest TNCs from Centraland Eastern Europe, under l ines someinteresting developments in what used to becentrally planned economies. A number ofcompanies of these countries are becomingincreasingly transnational. They are aboutto establish themselves as prominent playersof their own with international productionnetworks.

Figure III.1. Location of the largest 100 TNCs in the world, the largest 50 TNCs in developingcountries and the largest 25 TNCs based in Central and Eastern Europe,a 1999

Source : UNCTAD.a On the basis of the largest 100 TNCs in the world, the largest 50 TNCs in developing countries, and the largest 25 TNCs in Central and Eastern

Europe (including the countries of the former Yugoslavia) in this report (Chapter III).

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/...

91CHAPTER III THE LARGEST TRAN SN ATIO N AL CO RPO RATIO N S

Tabl

e II

I.1.

The

wor

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100

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NCs,

rank

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ble

III.1

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ts, 1

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ons

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rs a

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A. The 100 largest TNCsworldwide

1. Highlights

In 1999, General Electric maintainedits top posit ion among the world’s 100largest non-financial TNCs (table III .1)ranked by foreign assets. General Motorsmoved back to four th posi t ion, wi thExxonMobil replacing it in second place andRoyal Dutch Shell remaining in third place.Overall, the ranking remained fairly stable.Only a few changes occurred among the top10 TNCs: TotalFina moved up from thirty-second to the eighth rank and Nestlé moveddown to the eleventh rank.

Thirteen new entries and exits wereregistered in 1999 (tables III.2 and III.3).Three departures were caused by M&As(Hoechst , Mobi l and Rhone-Poulenc) .Repsol (Spain) appeared for the first timein the list of the top 100, as a result of theacquisition of YPF (Argentina). For the firsttime since this listing has been established,three f i rms among the top 100 TNCs,Hutchison Whampoa, Petróleos de Venezuela(PDVSA) and Cemex, were headquarteredin a developing country. PDVSA, which wasalso placed in the top 100 TNCs in previousyears, rose seven places to take eighty-fourthposition in the top 100 list. Since 1997, no

TNC from the Republic of Korea has hadsufficiently large foreign assets to enter thetop 100 listing.

Foreign assets. Growth in the totalamount of foreign assets held by the 100larges t TNCs cont inued in 1999. Tota lforeign assets increased by 10 per cent in1999, to $2.1 trillion (table III.4). The TNCsthat had the three most important increasesin foreign assets were al l petroleumcompanies (ExxonMobil , TotalFina andRepsol). Other companies that experiencedsignificant increases in their foreign assetshad a diversified industrial and geographicalbackground. The same observation appliesto the 10 TNCs with the largest decreasesin foreign assets.

TNCs from the United States raisedtheir share of the overall total of the foreignassets held by the world’s 100 largest TNCsby about 6 per cent (table III.5). The shareof EU TNCs has remained fairly stable since1990. However, in general the largercountries of the EU (Germany, France andSpain) increased considerably their relativeshare within this regional group at theexpense of the smaller country members.Japan, too, saw its share in ownership offoreign assets r ise in the top 100 TNClisting, by about 28 per cent during the pastdecade, testifying to the sustained outwardorientation of Japanese companies.

Table III.2. Newcomers to the world’s 100 largest TNCs, ranked by foreign assets, 1999

Ranked byForeign TNI a

assets TNI a Corporation Country Industry (Per cent)

13 11 Nippon Mitsubishi Oil Corporation Japan Petroleum expl./ref./distr. 82.416 54 Repsol-YPF SA Spain Petroleum expl./ref./distr. 51.625 48 Aventis France Pharmaceuticals/chemical 54.048 74 Hutchison Whampoa Hong Kong, China Diversified 38.071 61 AES Corporation United States Utility 45.582 90 Edison International United States Electronics 24.388 63 Usinor France Steel manufacturing 43.590 20 AstraZeneca Plc United States Pharmaceuticals 71.691 88 Lucent Technologies Inc. United States Electronics 25.993 75 Metro AG Germany Retailing 36.494 55 Texaco Inc. United States Petroleum expl./ref./distr. 51.295 12 Cadbury - Schweppes Plc United Kingdom Food/beverages 81.9

100 47 Cemex SA Mexico Construction 54.6

Source : UNCTAD/Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.

94 W orld Investm ent R eport 2001: Prom oting Linka g es

Foreign sales. Total foreign sales ofthe world’s largest 100 TNCs amounted toslightly more than $2.1 trillion in 1999 (tableIII.4), increasing by 3 per cent. TNCs fromthe petroleum industry captured four of theten largest increases in foreign sales, in therange of 20 - 50 per cent. As for the 10largest decreases in foreign sales, no clearpattern can be discerned: TNCs experiencingdeclines came from various countries andindustries .

Over the past decade, the share ofthe TNCs from the United States in the totalforeign sales of the world’s 100 largestTNCs decreased by about 5 percentagepoints, to around 25 per cent of the total.EU TNCs increased their relative share offoreign sales by about 5 percentage points,to almost 46 per cent. As with foreign assets,the share of TNCs headquartered in smallerEuropean countries decreased (the onlyexcept ion being The Nether lands) . Theoverall relative share of the EU increased,mainly due to a large, increase in the GermanTNCs’ share in the foreign sales of the top100 TNCs: an increase of about 7 percentagepoints, to almost 18 per cent of the total.The Japanese re la t ive share increasedslightly to 22 per cent.

Foreign employment. For the firstt ime, total foreign employment by the

largest TNCs decreased by about 8 per cent,whereas their total employment rose by 4per cent (table III.4). This is a reversal ofthe previously observed trend of decliningoveral l employment with r is ing foreignemployment (f igure III .2) . However,diverging from the overall trend, a numberof TNCs – led by McDonalds, GeneralMotors and Siemens – added considerablyto their foreign employment. Despite thelarge increases in foreign assets and foreignsales by a number of petroleum companies,

Table III.3. Departures from the world’s 100 largest TNCs, ranked by foreign assets, 1999a

Ranked in 1998 byForeign TNI b

assets TNI b Corporation Country Industry (Per cent)

16 43 Mobil Corporation d United States Petroleum expl./ref./distr. 58.628 23 Hoechst AG c Germany Pharmaceuticals/chemicals 71.631 26 Rhone-Poulenc SA c France Pharmaceuticals/chemicals 69.135 28 Cable And Wireless Plc United Kingdom Telecommunications 67.548 24 Nortel Networks Canada Telecommunications 70.861 74 RJR Nabisco Holdings United States Food/tobacco 36.971 9 SmithKline Beecham Plc United Kingdom Pharmaceuticals 82.389 61 Broken Hill Proprietary Australia Steel manufacturing 49.394 99 GTE Corporation United States Telecommunications 16.096 39 Imperial Chemical Industries United Kingdom Chemicals 60.297 68 Compaq Computer Corporation United States Computers 42.698 10 SCA Sweden Paper 80.899 70 ALCOA United States Aluminium manufacturing 41.7

Source: UNCTAD/Erasmus University database.a This also includes companies that could not be considered in 1998 because of the late arrival of the response to the UNCTAD questionnaire and

for which estimates could not be derived.b TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.c Formed Aventis in 1999.d Acquired by Exxon in 1999.

Table III.4. Snapshot of the world’s100 largest TNCs, 1999

(Billions of dollars, number of employeesand percentage)

Change 1999 vs. 1998

Variable 1999 1998 (Per cent)

Assets Foreign 2 124 1 922 10.5 Total 5 092 4 610 10.5Sales Foreign 2 123 2 063 3.0 Total 4 318 4 099 5.3Employment Foreign 6 050 283 6 547 719 -7.6 Total 13 279 327 12 741 173 4.2Average index oftransnationality 52.6 53.9 -1.3 a

Source: UNCTAD/Erasmus University database.a The change between 1998 and 1999 is expressed in percentage points.


only one petroleum company, TotalFina, isamong the TNCs showing the ten largestincreases in terms of foreign employment.No Japanese company saw i ts fore ignemployment rise.

The 10 TNCs account ing for thelargest decl ines in foreign employmentdiffered from the 10 with the largest declinesin foreign sales. One company (Bayer) isalso among those recording the largestdeclines in foreign assets. This suggests thatforeign employment , as much as totalemployment, evolves somewhatindependently from the overal ltransnationalization strategy of a company.

National origin. The national origincomposition of the top 100 TNCs continuedto be fairly stable. Perhaps not surprisingly,91 of the top 100 are headquartered in theTriad (EU, Japan and the United States)(table III.5). The share of the Triad among

the top 100 TNC listings has risen graduallyover the past decade, mostly in favour ofJapan and at the expense of some smallerindustr ia l ized countr ies l ike Belgium,Norway and New Zealand. Increasingly,TNCs from the developing economies (HongKong (China), Mexico and Venezuela) areemerging and rising in the list of the world’s100 largest TNCs.

Industries . In 1999, the top 100TNCs were dominated by the same fourindustries as in previous years : electronicsand electrical equipment, motor vehicles,petroleum exploration and distribution, andfood and beverages (table III.6). Of the top100 TNCs, 55 were in one of theseindustries, and 32 in the first two industries.The growth of TNCs in these industries, asrepresented by Ford, Siemens and Unilever,shows the dramatic geographic expansionand increased number of foreign affiliates,especially since the mid-1980s (figures III.3-

Table III.5. Country composition of the world’s largest 100 TNCs by transnationality indexand foreign assets, 1990, 1995 and 1999

(Percentage)

Share in total of Average TNI a foreign assets of top 100 Number of entriesEconomy 1990 1995 1999 1990 1995 1999 1990 1995 1999

European Union 56.7 66.0 58.7 45.5 43.8 43.0 48 39 46France 50.9 57.6 55.7 10.4 8.9 11.6 14 11 13Germany 44.4 56.0 49.6 8.9 12.2 12.3 9 9 12United Kingdom b 44.4 56.0 49.6 8.9 12.2 12.3 12 10 8The Netherlands b 68.5 79.0 68.2 8.9 8.2 5.3 4 4 5Italy 38.7 35.8 50.1 3.5 2.3 2.6 4 2 4Sweden 71.7 80.6 71.8 2.7 1.7 1.3 5 3 3Finland - - 72.5 - - 0.5 - - 1Spain - - 44.8 - - 2.5 - - 2Belgium 60.4 70.4 - 1 0.9 - 1 2 -

North America 41.2 46.0 46.2 32.5 35.9 35.2 30 34 28United States 38.5 41.9 42.7 31.5 33.3 33.3 28 30 26Canada 79.2 76.5 92.0 1 2.7 1.9 2 4 2

Japan 35.5 31.9 38.4 12 15.1 15.4 12 17 18

Remaining countries 73.0 66.9 70.4 10 9.0 7.5 10 10 9Switzerland 84.3 83.6 93.1 7.5 6.6 4.6 6 5 4Australia b 51.8 - 69.3 1.6 - 1.5 2 3 2Hong Kong, China - - 38.5 - - 0.3 1Mexico - - 54.6 - - 0.8 1Venezuela - 44.4 29.8 - 0.4 0.4 - 1 1New Zealand 62.2 - - 0.5 - - 1 - -Norway 58.1 - - 0.4 - - 1 - -Republic of Korea - 47.7 - - 0.7 - - 1 -

Total of all listed TNCs 51.1 51.5 52.6 100 100 100 100 100 100

Source: UNCTAD, 1993 and Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.b Due to dual nationality, Royal Dutch Shell and Unilever are counted as an entry for both the United Kingdom and The Netherlands. In the

aggregate for the European Union and the total of all listed TNCs they are counted once. Rio Tinto Plc is counted as an entry for both theUnited Kingdom and Australia. In the aggregate for the total of all 100 listed TNCs it is counted once.


III.5). The relative decline of chemical firmsduring the past decade, from 12 in 1990 to7 in 1999, is noteworthy. This is partly theresult of substantial restructuring in thechemicals and pharmaceuticals industries.Traditionally, chemicals and pharmaceuticalswere organized within the s t ructure ofindividual companies. Such a combinedstructure was seen to yield synergies. Sincethe second half of the 1990s, companiesswitched increasingly to separat ingchemicals from pharmaceuticals and viceversa, into dist inct corporate structuresemphasizing synergies in areas other thanproduct ion and research. A s ignif icantdecline in the transnationality index wasrecorded in trading, which (together withdiversified) is essentially represented byJapanese Sogo Shoshas . They have beenres t ructur ing for some t ime, but the i rgeographical spread established in the pastis a l ready extensive, as shown by themapping of foreign affiliates of MarubeniCorporation (figure III.6).

2. Transnationality

The “transnationality index” is theaverage of three ratios: foreign assets/totalassets, foreign sales/total sales and foreignemployment/total employment. It capturesthe foreign dimension of the overal lactivities of a firm. Between 1990 and 1999,the average transnationality index of theworld’s top 100 TNCs rose from 51 per centin 1990 to 55 per cent in 1997 but declinedto 53 per cent in 1999 (figure III.7). 3 Thegradual emergence in the listings of top 100

TNCs of large transnational utility, retailingand telecommunication companies with theirtraditionally large portfolio of domesticassets has contributed to the decline of thelist’s average transnationality index. Mostof these companies entered the list of thelargest 100 TNCs during the latter half ofthe 1990s, with an average transnationalityindex far below the overall average in 1999(table III.6). If these three industries wereexcluded, the index in 1999 would stand at56 per cent. Given the increasing liberalpolicy environment in which such companiesopera te , the i r t ransnat ional i ty can beexpected to increase over the next decade,following the example of the motor vehicleindustry (see below).

In 1999, as in earlier years, the indexwas led by firms from countries with smalldomestic markets. For example, all fourSwiss TNCs among the world’s 100 largestTNCs feature in the listing of the top 10companies as measured by theirtransationality (table III.7). Meanwhile, onlytwo were headquartered in a relatively largeeconomy (United Kingdom), whose TNCsfor h is tor ica l reasons have a lwaysmaintained an above-average level oftransnationality (table III.5). Of course,TNCs from smaller home countries have togo abroad if they want to overcome theconstraints of their domestic market size,and to reach the economies of scale neededto make optimal use of their ownershipadvantages and to s tay compet i t ive .Interestingly, however, among the companieswith largest increases and decreases of thetransnationality index, only four are from

Figure III.2. Snapshot of the world’s 100 largest

TNCs, 1990-1999

Source : U N C T A D / E r a s m u sUniversity database.


Figure III.3. Global expansion of Ford Motor Company

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).

By 1970

By 1985

By 2000

Note : Based on 270 majority-owned foreign affiliates identified.




Figure III.4. Global expansion of Unilever N.V.


By 2000

By 1985

By 1970





Figure III.5 . Global expansion of Siemens A.G.


By 2000

By 1985

By 1970





Figure III.6. Global expansion of Marubeni Corporation


By 2000

By 1985

By 1970





smaller countries, suggesting that companiesfrom large home markets are more ofteninvolved in transnational expansion andretreat (figures III.8 and III.9).

Transnationality by industry variesto a great extent (table III.6). The mediaindustry topped the list with 87 per cent,

while trading was at the bottom with 18 percent. The transnationality index of the topfive firms in all industries that have at leastfive entries in the lists of both 1990 and1999 increased substantially over the period1990-1999 (table III.8). Food and beveragesf i rms exhibi ted the largest gains (28percentage points), and chemical firms the

Figure III.7. Average transnationality indexof the world’s 100 largest TNCs, 1990-1999

Source : UNCTAD/Erasmus University database.

Table III.6. Industry composition of the largest100 TNCs, 1990, 1995 and 1999

Average TNI a

per industry Number of entries (Per cent)

Industry 1990 1995 1999 1990 1995 1999

Media 2 2 2 82.6 83.4 86.9Food/beverages/tobacco 9 12 10 59.0 61.0 78.9Construction 4 3 2 58.8 67.8 73.2Pharmaceuticals 6 6 7 66.1 63.1 62.4Chemicals 12 11 7 60.1 63.3 58.4Petroleum exploration/refining/distribution and mining 13 14 13 47.3 50.3 53.3Electronics/electricalequipment/computers 14 18 18 47.4 49.3 50.7Motor vehicle and parts 13 14 14 35.8 42.3 48.4Metals 6 2 1 55.1 27.9 43.5Diversified 2 2 6 29.7 43.6 38.7Retailing - - 4 - - 37.4Utilities - - 5 - - 32.5Telecommunications 2 5 3 46.2 46.3 33.3Trading 7 5 4 32.4 30.5 17.9Machinery/engineering 3 1 - 54.5 37.9 -Other 7 5 4 57.6 59.4 65.7

Total/average 100 100 100 51.1 51.5 52.6

Source : UNCTAD, 1993 and Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated

as the average of three ratios: foreign assets to total assets, foreignsales to total sales and foreign employment to total employment.

Table III.7. The world’s largest 10 TNCs in terms of transnationality, 1999

Ranking 1999 by Ranked in 1998 byForeign Foreignassets TNI a assets TNI a Corporation Country Industry TNI a

57 1 57 2 Thomson Corporation Canada Media/publishing 95.411 2 10 3 Nestlé SA Switzerland Food/beverages 95.221 3 15 8 ABB Switzerland Electrical equipment 94.180 4 82 4 Electrolux AB Sweden Electrical equipment/electronics 93.259 5 62 6 Holcim (ex Holderbank) Switzerland Construction materials 91.827 6 27 13 Roche Group Switzerland Pharmaceuticals 91.535 7 69 5 British American Tobacco Plc United Kingdom Food/tobacco 90.724 8 12 7 Unilever United Kingdom/

The Netherlands Food/beverages 89.323 9 34 1 Seagram Company Canada Beverages/media 88.675 10 77 16 Akzo Nobel NV Netherlands Chemicals 82.6

Source : UNCTAD/Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign



Figure III.8. The top 10 increasesin transnationality among the

world’s 100 largest TNCs,1998-1999

(in percentage points)

Source : UNCTAD/Erasmus Universitydatabase.

Figure III.9. The top 10 decreases in transnationality among the

world’s 100 largest TNCs,1998-1999

(in percentage points)

Source : UNCTAD/Erasmus Universitydatabase.

Table III. 8. Averages in transnationality index, assets, sales and employmentof the largest 5 TNCs in each industry, a 1990, 1995 and 1999

(Percentage points, and per cent of top 100 total)

Transnationality Assets Sales EmploymentIndustry Year index Foreign Total Foreign Total Foreign Total

Petroleum 1990 57.7 15.1 10.6 15.8 11.9 5.5 4.21995 64.8 12.9 8.0 13.6 10.0 4.0 3.11999 70.1 13.6 8.3 13.5 9.8 4.1 2.8

Motor vehicles 1990 34.7 11.9 15.3 10.4 11.8 9.7 14.21995 38.6 14.0 17.3 9.6 13.4 9.7 13.51999 41.4 13.3 18.5 15.4 15.8 12.2 13.1

Electronics/electrical equipment 1990 36.1 6.4 7.4 4.7 6.3 6.5 9.61995 61.1 11.1 10.4 7.8 6.9 13.2 10.71999 59.6 12.7 13.0 9.5 8.3 13.6 10.5

Pharmaceuticals 1990 47.1 1.5 1.3 1.6 1.4 2.4 2.31995 68.0 3.8 2.5 2.4 1.7 3.4 2.51999 67.3 4.7 2.8 3.1 2.5 4.7 3.3

Chemicals 1990 51.6 5.3 4.2 5.9 4.5 4.8 5.41995 61.1 6.2 3.9 5.0 4.0 5.5 4.91999 53.9 3.1 2.9 3.8 3.1 3.3 3.2

Food/beverages 1990 60.8 7.2 5.6 5.8 5.0 11.7 7.61995 76.9 6.7 4.8 7.4 5.2 12.9 7.11999 88.7 6.3 3.3 6.1 3.2 10.5 5.1

Source : UNCTAD, 1993 and Erasmus University database.a Only industries that have at least five entries in the lists of the top 100 TNCs of 1990, 1995 and 1999.


smallest (about 2 percentage points). Thetop five motor vehicle companies remainedamong the least transnationalized during thewhole past decade, whereas the top five foodand beverages firms, closely followed bypharmaceutical and electronic firms, becamemore transnationalized over the same period.Only motor vehicle companies maintaineda transnationality index of below 50 per centat the end of the 1990s. All othermanufacturing industries saw their industry-specif ic t ransnat ional i ty indices r isesubstantially above 50 per cent. However,the trend towards global consolidation inthe motor vehicle industry during the pastyears has made that industry the frontrunnerof transnationality in terms of its dynamicevolution: its index grew by 35 per centbetween 1990 and 1999.

The findings based on the analysisof the transnationality index are mirroredin the analysis of the Network Spread Index(NSI) of the world’s largest TNCs (boxIII.1). TNCs from small home countries aregenerally spread over more countries thanTNCs from large home countries. TNCs fromindustries with a consumer orientation havea h igher spread than TNCs f rom otherindustries.

Box III.1. Assessing the internationalspread of the world’s largest TNCs

The transnationality index presented inWIR since 1995 assesses the degree to whichcompanies gear their activit ies outside ofthe i r home countries. WIR98 (pp. 43-44)introduced a complementary concept ofmeasuring the transnationalization of companies,the Network Spread Index (NSI).ª This indexfocuses on the extent to which companies locatetheir activities in foreign countries, and thusthe extent to which they follow strategies ofcross-border geographical diversification. Theindex is calculated as a ratio of the numberof foreign countries in which a TNC locatesits activities (N) as a percentage of the numberof foreign countries in which it could,potentially, have located (N*). The latter istaken as the number of countries that haveinward stocks of FDI (minus 1, excluding thehome country of the TNC) in the particularyear to which the calculations refer. In thiscase the year 1999 was the most recent yearfor which the data are available. Followingthe data from this report N* is 187. Usingthe Dun and Bradstreet ( Who Owns Whom)

/...

Box III.1. Assessing the international spreadof the world’s largest TNCs (continued)

ownership tree structure, the NSI has beenestimated for the top 100 TNCs listed in thisreport which are exclusively parent companies.

The results grouped by the country oforigin of each TNCs and by industry arepresented in box tables III.1.1 and III.1.2.The country-specific analysis shows TNCsfrom countries with a long history of FDI(Switzerland, Netherlands, United Kingdomand France) exhibiting an above average NSI.TNCs from the two largest economies in termsof GNP (United States and Japan) have a lowerthan average NSI, most likely because thesize of their domestic economy allows theirTNCs to concentrate more on home markets,in comparison with TNCs of similar size fromsmaller home countries.

TNCs in most of the industries includedhave NSIs ranging from 18 to 22 percentagepoints (box table III.1.2). Notable exceptionsare found among TNCs operating in the utilities,media and construction industries, which haveNSIs of below 10 per cent. TNCs in theautomotive, metals/mining andtelecommunications industries lie in between,with NSIs of around 13 per cent.

Industries in which the top TNCs havea higher NSI (like chemicals/pharmaceuticals,electronics and food and beverages) are toa large extent consumer-oriented industries,and TNCs operating in such industries followprimarily market-seeking strategies with regardto their transnationalization. TNCs from theutilities, media, construction/retailing/serviceand industries have a lower-than-average NSI,as they are industries that are more domestic-market oriented, partially due to marketsegmentation (utilities), and partially due tocultural boundaries (media). Greaterliberalization is increasing the NSIs of TNCsin all industries mentioned above, and is likelyto do so even more in the future.

Consistent with the industry analyses,the companies with the highest NSI (over 30per cent) are Shell, Nestlé, Unilever, TotalFina,Aventis and ABB. At the other end of thespectrum, the lowest values for NSI (below5 per cent) are found for Wal-Mart, TexasUtilit ies, Woodbridge Company, SouthernCompany, Royal Ahold NV, Mitsubishi, Petróleosde Venezuela and Hutchison Whampoa, AESCorporation, Cemax, Edison International andNippon Oil.

/...


B. The largest 50transnational corporationsfrom developing countries

The list of the largest TNCs fromdeveloping economies in 1999 underlinesthe power of the t ransnat ional izat ionprocess, as ref lected by the impressiveincrease in foreign assets and sales after as lowdown in 1998. What is even moreremarkable is that three firms have joinedthe group of the world’s largest 100 TNCs.

In 1999, Hutchison Whampoa Ltd.(Hong Kong, China) occupied the f i rs tposition, sending Petróleos de Venezuela tothe second rank, followed by Cemex SA fromMexico (table III.9). These three TNCs,ranked by the size of their foreign assets,were also among the world’s 100 largest

TNCs. In general, the top 50 TNCs fromdeveloping countries are of a smaller sizethan their counterparts in the top 100 list.The median foreign assets holdings for thetop 50 increased slightly from $1.5 billionin 1998 to about $1.6 billion in 1999, stillfar below the corresponding figure of $15.2billion for the top 100 group in 1999. Theoverall increase in foreign assets by the top50 was largely accounted for by the growthin foreign assets within the group of the topten companies on the list.

Developing country TNCs haverecovered from the setback of 1998 in theaftermath of the financial crisis in Asia. In1999, their assets and sales (total as wellas foreign) registered a significant increase,as compared with the levels reached in 1998(table III.10). Total employment, however,declined further, by 26.6 per cent, whileforeign employment decreased only by 4.3

Box table III.1.1. Network Spread Index ofthe world’s largest 97 TNCs,

by country of origin

Network spread (mean) NSI

Count ry o f o r ig in * (Per cent ) Rank

Swi tze r land 25.80 1Ne the r l ands 21.79 2Un i ted K ingdom 19.59 3France 19.93 4Ge rmany 18.89 5I t a l y 17.16 6Sweden 17.11 7Japan 14.29 8Un i ted S ta tes 13.18 9F i n l and 12.30 10Canada 8.56 11Aus t r a l i a 6.42 12Spa i n 5.88 13Venezue la 2.67 14Hong Kong, Ch ina 1.07 15

Mean NSI 15.63

Source : Ietto-Gillies, 2001, based on this report. * Companies having headquarters in more than one country are

counted as nationals of both countries. These companies include:Rio Tinto (UK/Australia), Shell (Netherlands/UK) and Unilever(Netherlands/UK). This accounts for a total of 97 instead of94.

Box table III.1.2. Network Spread Index ofthe world’s largest 94 TNCs,

by industry

Network spread (mean) NSI

Count ry o f o r ig in * (Per cent ) Rank

Chemical /Pharmaceut ical 21.80 1Food/Beverages/Tobacco 19.31 2Electronics/Electronical

Engineer ing 18.90 3Oi l /Pet ro leum 16.52 4Diversi f ied 16.44 5Telecommunicat ion 13.77 6Metals/Mining 13.37 7Other 12.83 8Automotive 12.83 9Retai l ing/Trading/Services 10.46 10Construct ion/Construct ion

Materials 8.02 11Media/Pr int ing/Paper 6.77 12Uti l i ty 4.01 13

Mean NSI 15.63

Source : Ietto-Gillies, 2001, based on this report.

Box III.1. Assessing the international spread of the world’s largest TNCs (concluded)

Source : Unpublished research by Grazia Iet to-Gil l ies and Marion Frenz, South Bank Universi ty ,London, May 2001.

ª See Ietto-Gillies, 1998, The NSI for 1996 presented in WIR98 is not fully comparable to the one presented herebecause the current one is calculated on the basis of majority-owned affiliaties (“subsidiaries”) and not all affiliatesas in WIR98 . This is due to changes in the type of information given by the Dun and Bradstreet database.


Tabl

e II

I.9.

The

larg

est 5

0 TN

Cs fr

om d

evel

opin

g ec

onom

ies,

rank

ed b

y fo

reig

n as

sets

, 199

9(M

illion

s of

dol

lars

, num

ber o

f em

ploy

ees)

Ran

king

by

Ass

ets

Sal

es

Empl

oym

ent

TN

I a

Fore

ign

asse

tsTN

I a

Corp

orat

ion

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omy

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stry

b

Fore

ign

Tota

lFo

reig

nTo

tal

Fore

ign

Tota

l(P

er c

ent)

124

Hutc

hiso

n W

ham

poa

Ltd.

Hong

Kon

g, C

hina

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rsifie

d..

48

157

2 0

96 7

108

.. 4

2 51

038

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tróle

os d

e Ve

nezu

ela

Vene

zuel

aPe

trole

um e

xpl./

ref./

dist

r. 8

009

47

250

13

332

32

600

15

000

47

760

29.8

310

Cem

ex S

AM

exico

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truct

ion

6 9

73 1

1 89

6 2

504

4 8

41..

20

902

54.6

439

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nas

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rolia

m N

asio

nal B

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alay

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r...

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992

.. 1

5 95

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18

578

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534

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sung

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tion

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ble

III.9

. T

he la

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t 50

TNCs

from

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econ

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s, ra

nked

by

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1 5

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52.3

Sour

ce:

UNC

TAD,

FDI

/TNC

dat

abas

e.a

TNI i

s th

e ab

brev

iatio

n fo

r “tra

nsna

tiona

lity in

dex”

, whi

ch is

cal

cula

ted

as th

e av

erag

e of

thre

e ra

tios:

fore

ign

asse

ts to

tota

l ass

ets,

fore

ign

sale

s to

tota

l sal

es a

nd fo

reig

n em

ploy

men

t to

tota

l em

ploy

men

t.b

Indu

stry

cla

ssific

atio

n fo

r com

pani

es fo

llows

the

Unite

d St

ates

Sta

ndar

d In

dust

rial C

lass

ificat

ion

which

is u

sed

by th

e Un

ited

Stat

es S

ecur

ities

and

Exch

ange

Com

miss

ion

(SEC

).c

With

in th

e co

ntex

t of t

his

list,

Sout

h Af

rica

is tre

ated

as

a de

velo

ping

cou

ntry

.d

The

com

pany

is in

corp

orat

ed in

Ber

mud

a an

d th

e gr

oup

is m

anag

ed fr

om H

ong

Kong

(Chi

na).

..Da

ta o

n fo

reig

n as

sets

, for

eign

sal

es o

r for

eign

em

ploy

men

t wer

e no

t mad

e av

aila

ble

for t

he p

urpo

se o

f thi

s st

udy.

In

case

of n

on a

vaila

bility

, the

y ar

e es

timat

ed u

sing

seco

ndar

y so

urce

s of

info

rmat

ion

or o

n th

e ba

sisof

the

ratio

s o

f for

eign

to to

tal a

sset

s, fo

reig

n to

tota

l sal

es a

nd fo

reig

n to

tota

l em

ploy

men

t.


per cent reflecting, thus, a sharper drop indomestic employment. This reduction inemployment is perhaps a resul t of arestructuring of industries after the crisis.

On the other indicators, the top 50showed a more positive development. This

was largely due to the recovery effect afterthe financial crisis.

The overal l increase in thetransnationality index (TNI) for the wholegroup as compared to last year confirms thatthe top 50 TNCs, in general, pursued theirtransnationalization process even during thecr is is years . This increase should beinterpreted with caution as i t is largelydriven by the increase in the ratio of foreignto total employment (figure III.10) whichin turn was the result of the sharp drop indomestic employment in 1998 and 1999. Yet,as fore ign asse ts and sa les have a lsoincreased, the transnational expansion of thetop 50 TNCs is noteworthy. TNCs from awide range of economies and industries arecontinuing with their trans-nationalizationpush of recent years. Companies such asSouth African Breweries and Barlow ofSouth Africa, Mexico’s Cemex, San Miguelfrom the Philippines, Pérez Companc ofArgentina, Singapore Telecommunicationsand LG Electronics from the Republic ofKorea – to name only a few – all recordedincreases in their TNI-index of 15 percentagepoints or more since 1995. The mapping ofthe global expansion of Cemex SA providesa good example of the rapidt ransnat ional iza t ion process of thesecompanies (figure III.11).

Table III.10. Snapshot of largest 50 TNCs from developing economies, 1999

(Billions of dollars, percentage andnumber of employees)

ChangeVariable 1999 1998 1999 vs. 1998

(Per cent)

AssetsForeign 129 109 18.3Total 531 449 18.4

SalesForeign 122 109 12.0Total 367 289 27.1

EmploymentForeign 383 107 400 475 -4.3Total 1 134 687 1 546 883 -26.6

Averageindex oftransnationality 38.9 36.6 2.3 a

Source : UNCTAD, FDI/TNC database.a The change between 1998 and 1999 is expressed in percentage

points.

Figure III.10. Trends among the largest 50 TNCs from developing economies, 1993–1999

Source: UNCTAD, FDI/TNC database.a The average transnationality index of the largest 50 TNCs is the average of the 50 individual company transnationality indices.


Figure III.11. Global expansion of Cemex SA

Table III.11. The top five TNCs from developing economies in terms of transnationality, 1999

Ranking byForeign TNI a

TNI a assets Company Economy Industry (Per cent)

1 19 Tan Chong International Ltd. Singapore Diversified 93.32 24 Orient Overseas International Ltd. Hong Kong, China Transportation 90.73 11 Neptune Orient Lines Ltd. Singapore Transportation 89.34 45 WBL Corporation Ltd. Singapore Electronics and electrical equipment 79.75 31 Guangdong Investment Ltd. Hong Kong, China Diversified 78.8

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign


Note : Based on 6 foreign affiliates identified. The first foreign affiliate was established in 1992 (Spain).

Note : Based on 21 foreign affiliates identified. There is only one affiliate in each country except in the Philippines (where there are two).

Source : UNCTAD, based on information from www.cemex.com.

1995

2001


As in previous years , the topcompanies in terms of transnationalizationcome from Asia (table III.11). In the caseof Hong Kong (China) and Singapore, it isnot surprising that the small size of theireconomies pushed companies to expandabroad. Indus t ry-spec i f ic fac tors a l socontribute to the composition of the list.Shipping companies, such as Neptune OrientLines as wel l as Orient OverseasInternational, have almost by definition mostof their assets “overseas”. 4 On the otherhand, petroleum companies as well as TNCsin the utilities, tend to have lower valuesof TNI, as much of their business is eithersti l l concentrated on the exploration ofdomestic resources, or because expansionabroad had only recently been made possibleby the deregulation of telecommunications.

This year’s top 50 list features 12new companies that were not on the list lastyear. This figure is rather high as comparedto previous years, which recorded only fiveto seven new companies. The informationfor the list in this report is less complete,as data for TNCs from China were notavailable. On the other hand, improved andmore complete data for companies from theRepublic of Korea led to the insertion offour Korean companies that did not figureon the list in preceding years. Overall, thechanges in the composi t ion of the l is tremained in line with previous years. M&As

had an impact on the list, as the take-overof Argentina’s YPF and Chile’s Enersis bySpanish companies resulted in the departureof these companies from the list. On theother hand, the merger with another domesticcompany helped Savia of Mexico to beincluded in the top 50 for the first time(tables III.12 and III.13).

The industry composition of the top50 l is t has remained unchanged (f igureIII.12). Conglomerates with interests in awide range of industries accounted for thelion’s share in the combined foreign assetsas well as foreign employment of the top50 group. Foreign sales were largelyconcentrated on companies from “otherindustries” which are to a large extent Asiancompanies in the electronics industry.Companies whose business is more focusedon any par t icular indust ry , such asconstruction, food and beverages, as wellas petroleum explorat ion, ref inery anddistribution have declined in importancesince 1993, as shown by their respectiveshares in fore ign asse ts , sa les andemployment. In terms of absolute numbers,most companies on the top of the list – asin previous years – are divers i f iedcompanies. Due to the inclusion of newfirms, in particular from the Republic ofKorea, the e lect ronics and e lect r icalequipment industry now accounts for thesecond largest group of companies, followed

Table III.12. Newcomers to the largest 50 TNCs from developing economies, 1999


Number assets TNI a Corporation Economy Industry (Per cent)

1 46 31 Berjaya Group Berhad Malaysia Diversified 28.82 47 23 De Beers Consolidated Mines South Africa Mining/ Other 38.83 44 32 Great Eagle Holdings Limited Hong Kong, China Hotel/Property 28.34 17 46 Hyundai Motor Co., Ltd. Korea, Republic of Automotive 10.95 11 3 Neptune Orient Lines Ltd. Singapore Transportation 89.36 24 2 Orient Overseas International Ltd. Hong Kong, China Transportation 90.77 38 41 Pohang Iron And Steel Co., Ltd. Korea, Republic of Iron and Steel 17.38 5 34 Samsung Corporation Korea, Republic of Diversified 27.49 32 26 Savia SA de CV Mexico Diversified 36.5

10 20 44 Singapore Telecommunications Ltd. Singapore Telecommunication 15.811 19 1 Tan Chong International Ltd. Singapore Automotive /Trading 93.312 49 48 Telekom Malaysia Berhad Malaysia Telecommunication 7.5

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for "transnationality index", which is calculated as the average of three ratios: foreign assets to total assets, foreign



by food and beverages as wel l as thepetroleum industry (table III.14). A noveltyin the l is t are two telecommunicat ionscompanies, Singapore TelecommunicationsLtd. and Telekom Malaysia Berhad. Withtop 50 leader Hutchison Whampoa alsohaving significant interests in this industry,

together with some of the other diversifiedconglomerates on the list, this demonstratesthat TNCs from developing countries canalso make substantial inroads into dynamicand highly competi t ive industr ies .Interestingly, most of the telecommunicationcompanies expand their operations, as do

Table III.13. Departures from the largest 50 TNCs from developing economies, 1999


Number assets TNI a Corporation Economy Industry (Per cent)

1 47 5 Asia Pacific Breweries Ltd. Singapore Food and beverages 74.82 36 42 China Harbor Engineering Company China Construction 16.13 15 17 China National Chemicals Import &

Export Corporation China Trade 41.44 37 32 China National Metals and Minerals

Imp and Exp Corp. China Trade 25.15 12 31 China State Construction Engineering

Corporation China Construction 26.86 35 23 Dong-Ah Construction Ind. Co., Ltd. Korea, Republic of Construction 34.87 20 28 Enersis, SA Chile Electric utilities or services 28.28 49 41 Sadia SA Industria e Comercio Brazil Food and beverages 16.29 24 44 Shougang Group China Steel and iron 14.4

10 45 33 Souza Cruz, SA Brazil Diversified 24.611 50 1 Want Want Holdings, Ltd. Singapore Food and beverages 97.912 13 36 YPF SA Argentina Petroleum expl./ref./distr. 19.8

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for "transnationality index", which is calculated as the average of three ratios: foreign assets to total assets, foreign


Figure III.12. Major industry groups as per cent of largest 50, 1993 and 1999

Source: UNCTAD, FDI/TNC database.


their developed countries’ counterparts, indeveloped and developing marketssimultaneously.

As for the most transnationalizedindustries (figure III.13 and table III.14),the picture has changed little. Among theindustries most frequently represented onthe list, food and beverages ranks highest,fol lowed by diversif ied companies,electronics and electrical equipment andconstruction. This suggests that the trendtowards transnationalization includes bothcompanies that primarily invest abroad insearch of foreign markets (such as food andbeverages) as well as those where efficiency-seeking is the prime motive for FDI (as isthe case of e lect ronics and electr icalequipment companies). The somewhat lowertransnationality index for petroleum andmining companies on the top 50 l is tsuggests, on the other hand, that companiesfor which natural-resource seeking is theprincipal reason for outward investmentmight find it more difficult or would havefewer incentives to transnationalize theiroperat ions . The increasing TNI for thepetroleum companies ( table I I I .14)demonstra tes that over the years these

companies have also transnationalized theirbusiness. A comparison with the petroleumcompanies on the top 100 list – which scoremuch higher on the TNI index – also showsthat in this industry there is (in principle)as much potential for developing-countryTNCs to further transnationalize as thereis in other industries. 5

Despite the aforementioned increase ofthe transnationality index in general, andin the case of some companies in particular,the top 50 remain less transnationalized thanthe top 100. But the degree oftransnationali ty differs widely by homecountry, with smaller Asian economies suchas Hong Kong (China) , Singapore andTaiwan Province of China showing muchhigher levels of TNI, than larger countriessuch as India or China. In Latin America,Mexican companies are on average the mosttransnationalized. The rapid increase in theTNI for Mexican TNCs in recent years maysuggest that the opening up of the country(including its integration in the frameworkof NAFTA) has encouraged thetransnationalization of Mexican companies .South African companies, too, have steppedup their transnationalization process. The

Figure III.13. Major industry groups of the largest 50 TNCs and their average transnationalization index, 1993 and 1999

Source: UNCTAD, FDI/TNC database.


end of the apartheid era in 1994 opened formany South African firms (the only Africancompanies on the list) new possibilities toinvest abroad as wel l as increasedinternational competition compelled themto do so.

The top 50 list shows a gradual shifttowards Asian TNCs over time. The numberof Asian companies has increased from 32in 1996 and 1997, to 35 in 1999. This trendcontinued in 1999 as some Latin Americancompanies departed from the list due to take-overs by firms from developed countries anddue to re la t ively high increases of theforeign assets of TNCs from the Republicof Korea, Hong Kong (China), Singaporeand Malaysia. Asia increased its share inthe total foreign assets owned by the top50 companies, from 66 per cent (1998) tomore than 70 per cent in 1999. All Latin

American countries registered decliningshares (table III.15), while the share ofAfrican firms stabilized at the same lowlevel as in previous years. While in Asia,foreign assets – on average – increased forTNCs from all major countries (except forChina for which – as mentioned – data werenot avai lable th is year) , Mexican andVenezuelan TNCs were the only ones that(as a group) managed to increase their assetsabroad ( f igure I I I .14) . Whi le theimprovement of Asia’s posi t ion is areflection of the economic recovery in theregion, the decline of foreign assets of mostLatin American TNCs represented in the listmight be explained by the industrycomposi t ion of the two sets of f i rmsinvolved and the aforementionedacquisitions of some firms by companiesfrom developed countries.

Table III.14. Industry composition of the largest 50 TNCs from developingeconomies, 1993, 1996 and 1999

Average TNI a per industry Number of entries (Per cent)Industry 1993 1996 1999 1993 1996 1999

Diversified 12 11 14 25.6 32.3 44.3Food and beverages 7 8 5 15.6 32.8 45.0Construction 4 3 3 28.8 47.4 39.6Petroleum expl./ref./distr. 3 6 5 3.1 19.4 21.6Electronics and electrical equipment 7 5 6 28.1 35.6 41.5Electric Utilities or Services 1 .. 2 2.0 .. 25.3Steel and iron 5 1 3 11.6 37.6 34.2Trade .. 4 .. .. 44.6 ..Transportation 1 4 3 23.2 54.1 71.2Chemicals and pharmaceuticals 1 1 1 17.0 7.7 9.6Other 4 5 .. 23.6 38.1 ..Pulp and paper 2 .. 1 26.0 .. 63.7Tourism, hotel and property 3 2 2 33.1 33.2 37.9Automotive 1 .. 1 .. .. 10.9Media 1 .. .. .. .. ..Mining .. .. 2 .. .. 36.4Telecommunications .. .. 2 .. 59.4 11.7Average/total b 50 50 50 19.8 36.9 38.9

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios:foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.b Numbers may not add up exactly due to rounding.

Note : This list does not include countries from Central and Eastern Europe.


Table III.15. Country composition of the largest 50 TNCs from developing economies,by transnationality index and foreign assets, 1993, 1996 and 1999

Share in total foreign assets Average TNI a per country of the largest 50 (Per cent) (Per cent)Region/economy 1993 1996 1999 1993 1996 1999

South, East and South-East Asia 21.8 31.8 39.1 70.6 65.7 72.1China .. 30.0 .. .. 8.2 ..Hong Kong, China 36.5 50.7 45.4 22.0 20.4 26.4India 6.4 7.7 9.6 0.4 0.8 0.7Korea, Republic of 20.2 45.6 27.8 24.8 24.4 23.2Malaysia 20.0 34.4 24.1 4.7 3.2 7.0Philippines 6.9 16.1 25.0 1.4 0.9 1.1Singapore 43.0 38.1 58.9 5.3 3.7 11.2Taiwan Province of China 19.6 32.1 43.9 12.3 4.2 2.4

Latin America 14.0 28.9 48.3 29.9 28.9 21.9Argentina .. 19.5 24.5 .. 2.6 1.1Brazil 17.4 13.1 30.2 12.0 6.2 5.6Chile 12.1 29.0 35.4 1.0 3.6 1.8Mexico 12.5 48.7 48.0 16.9 7.5 7.3Venezuela .. 44.9 29.8 .. 8.6 6.2

Africa .. 40.2 46.0 .. 5.4 5.9

Average/total b 19.8 35.1 38.9 100 100 100

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for "transnationality index", which is calculated as the average of three ratios:foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.b Numbers may not add up exactly due to rounding.

Note : This list does not include countries from Central and Eastern Europe.

Figure III.14. Foreign assets of the biggest investors from developing economies, 1998 and 1999

Source : UNCTAD, FDI/TNC database.


C. The largest 25 TNCsfrom Central and Eastern

Europe

A successor to the lists of the top 25non-financial TNCs based in Central Europepublished in WIR99 and WIR00 , the rankingpresented in this section (table III.16) shows,for the first time, the largest TNCs of theRussian Federation together with those fromthe rest of Central and Eastern Europe. Itis based on 1999 data provided by the firmsresponding to the UNCTAD survey of thelarges t TNCs in Cent ra l and Eas ternEurope. 6 With the exception of Gazprom ,most of the leading outward investors of theRussian Federation are included in the list.With its annual sales above $10 billion 7 in1999 and its extensive international network(table III.17), Gazprom is likely to be oneof the top Central and Eastern EuropeanTNCs. However, consolidated informationon its international activities could not beobtained.

Compared with the ranking of the topCentra l European TNCs presented inWIR2000 , five firms exited from the top 25list for the following reasons:

• A take-over by other f irms . the corebusiness of VSZ a.s. Kosice (Slovakia) wastaken over by U.S. Steel, and PilsnerUrquell (Czech Republic) was acquired bySouth African Breweries; in other words,they became foreign affiliates.

• Change in the declared nationality of thefirm . Graphisoft changed its declarednationality to the place where its holdingcompany is registered (The Netherlands),instead of the place where top managementis located (Hungary).

• Displacement by others. Moldova SteelWorks (Republic of Moldova) and BudimexCapital Group (Poland) were displaced dueto larger firms not previously on the listtaking their place in the ranking.

The five newcomer firms are: LukoilOil Co., Primorsk Shipping Co. and FarEastern Shipping Co. (Russian Federation);Petrom SA National Oil Co. (Romania); andIntereuropa d.d. (Slovenia).

For most firms on the list, the growthof fore ign act iv i t ies (assets , sa les andemployment) was faster in 1999 than thatof the domest ic act ivi t ies . Thesedevelopments are reflected in an increasingt ransnat ional i ty index ( table I I I .16) .Transportation (7 firms), petroleum andnatural gas (5 firms) and pharmaceuticals(3) are the industries in which firms figuremost frequently among the top 25. Theyare headquartered in nine countries: Croatia(5 f i rms) , S lovenia (5) , Hungary (4) ,Russian Federation (3), Czech Republic (2),Poland (2), Slovakia (2), Latvia (1), andRomania (1) (figure III.1). Notably absentare firms from Estonia, despite increasinglyimportant FDI outflows from that country(annex table B.2). This is due to the factthat more than 60 per cent of Estonia’soutward FDI stock was in finance in 2000,i.e. undertaken by firms in an industry notcovered in this survey (Kilvits and Purju,2001, p. 248). Moreover, the leading outwardinvesting Estonian banks are foreign owned(Hansapank is owned by Sweden’s Swedbankand Ühispank by Sweden’s SEB, idem. , p.255).

The internationalization efforts of thetop 25 firms of Central and Eastern Europeare fairly recent, and focus heavily on theEuropean continent. In the case of PlivaGroup, a pharmaceuticals company basedin Croatia, the parent company (Pliva d.d.)did not expand outside its home base overthe first 53 years of its existence (1921-1974). It established its first foreign affiliatein New York, and its first representativeoffice in Moscow, both in 1974 (figureIII.15). Then, after a pause of 18 years, itrestarted international expansion, on a largescale and at a fast pace. By June 2001, thenumber of foreign aff i l ia tes andrepresentative offices expanded to 14 each.With the exception of Pliva USA Inc., allthe foreign affiliates are on the Europeancontinent. As for the representative offices,there are two non-European locat ions:Bei j ing (opened in 1998) and Mumbai(opened in 2000). A salient feature of thecurrent expansions is the acquisition ofproduction and R&D capacities in the CzechRepublic, France, Germany and the UnitedKingdom.


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There are two reasons why thepotential pool of enterprises that could belisted in the top 25 is small. First, in thecase of Central and Eastern Europe, it isoften foreign affiliates that undertake FDIabroad. 8 The second reason is that some ofthe top 25 f i rms become targets ofacquisitions, as in the case of VSZ Kosicementioned above or in the case of Slovnaft,taken over by MOL Hungarian Oil & GasPlc. in 2000 (UNCTAD, 2000, pp. 92-93).In May 2001, MOL, which already owned32.9 per cent of the shares of TVK, made

an offer to take over all the remaining sharesof that firm.

Some of the top 25 firms have beenactive in cross-border M&As. Between 1997and May 2001, 6 f i rms car r ied out 21t ransac t ions ( tab le I I I .18) . Thesetransactions are not necessarily limited toneighbouring countries. In fact, Lukoil wasthe first Russian company to acquire in 2000an oil company in the United States (boxIII.2).

Table III.17. Gazprom: selected equity investments outside the Russian Federation by 2001

ShareTarget firm Host country (Per cent) Activity

GHW Austria 50 Gas tradingBelgazprombank Belarus 34.99 BankingBrestgazoapparat Belarus 51 Gas equipment manufacturingTopenergo Bulgaria 50 Gas trading and transportEesti Gaas Estonia 30.6 Gas trading and transportGasum Oy Finland 25 Gas distribution and transportationNorth Transgas Oy Finland 50 Construction of a pipeline beneath the Baltic SeaFRAgaz France 50 Gas tradingDitgaz Germany 49 Gas tradingVerbundnetz Gas Germany 5.3 Gas transportation and marketingWingas Germany 35 Gas transportation and storageWintershall Erdgas Handelshaus Germany 50 Exclusive trader until 2012 for all the gas

exported by Gazeksport (Russian Federation)Zarubezgas Erdgashandel Germany 100 Gas tradingPrometheus Gaz Greece 50 Marketing and constructionBorsodchem Hungary 25 a PetrochemicalsDKG-EAST Co. Inc. Hungary 38.1 Oil and gas equipment manufacturingGeneral Banking and Trust Co. Ltd. Hungary 25.5 BankingPanrusgas Hungary 40 Gas trading and transportTVK Hungary 13.5 a PetrochemicalsPromgaz Italy 50 Gas trading and marketingVolta Italy 49 Gas trading and transportLatvijas Gaze Latvia 16.25 Gas trading and transportStella-Vitae Lithuania 30 Gas tradingGazsnabtransit Moldova, Republic 50 Gas trading and transportPeter-Gaz Netherlands 51 Gas tradingEuropol Gaz Poland 48 Gas transportGas Trading Poland 35 Gas tradingWIROM Romania 25 b Gas tradingSlovrusgaz Slovakia 50 Gas trading and transportTagdem Slovenia 7.6 Gas tradingGamma Gazprom Turkey 45 Gas tradingDruzhkovskiy zavod gazovoi apparatury Ukraine 51 Gas equipment manufacturingInstitut Yuzhniigiprogaz Ukraine 40 ..Interconnector United Kingdom 10 Bacton (United Kingdom)-Zeebrugge (Belgium)

pipelineJugoRosGaz Yugoslavia 50 Gas trading and transportProgress Gas Trading Yugoslavia 50 Gas trading

Source: UNCTAD, based on Gazprom, 1999, pp. 86-102; Heinrich, 2001, p. 78; Liuhto, 2001, p. 27; and Westphal, 2000, pp. 61-63.a Financial investment through Milford Holdings Ltd. (Ireland).b Controlled through Wintershall Erdgas Handelshaus.


Figure III.15. Global expansion of Pliva d.d.

Note : There were 2 foreign affiliates established in 1974 (Russian Federation and United States).

Note : Based on 28 foreign affiliates identified, 14 of which are representative offices.

Source : UNCTAD, based on data provided by Pliva d.d.

By 1990

By 2001


ble

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Box III.2. Lukoil’s acquisition of Getty Petroleum

Lukoil purchased Getty Petroleum Marketing Inc. for $71 million at the end of 2000. TheFirst Vice President of Lukoil stressed in this respect that “This is the first acquisition of apublicly held American company by a Russian corporation, and it is the first step in our expectedexpansion into the U.S. market. It is an excellent opportunity for LUKOIL because it gives usentree into the vast American market in partnership with a highly regarded brand. In the future,we may seek to supply the Getty stations with our own petroleum products” (Lukoil, 2000, p.1).

The acquired firm owns a chain of 1,260 retail outlets in 13 states. It also markets heatingoil and other petroleum products. The principal shareholders of Getty (which collectively ownedapproximately 40 per cent of Getty’s common stock) agreed to the transaction, subject to certainconditions. First, Getty’s headquarters were to remain in Jericho, Long Island, New York. Second,Lukoil had to make a best-effort promise to avoid laying off employees and to retain the majority(if not all) of the pre-acquisition management. Lukoil also intended to keep the Getty brand,considered as one of the premier and best-known retail brands of petroleum products in theUnited States.

The managers of both Lukoil and Getty argued that the transaction created major synergies.“The combination of Getty’s strong presence in the American market with LUKOIL’s capabilitiesas a world class integrated oil company is going to create a formidable new company,” saidthe chairperson and chief executive officer of Getty Petroleum Marketing (Lukoil, 2000, p. 2).

Source : Lukoi l , 2000.

Notes

1 Financial firms are not included becauseof the different economic functions of assetsof financial and non-financial firms andthe unavailability of relevant data for thef o r m e r .

2 These estimates are based on the estimatesof the 1999 sales, assets and employmentof foreign affiliates of TNCs, as given intable I.1. These ratios, especially thoserelating to sales and assets, should betreated with caution, as the data on theforeign assets and sales of the top 100TNCs, mostly obtained through aquestionnaire completed by firms, maynot necessarily correspond exactly to thedefinition of foreign assets and sales usedin table I.1.

3 The average transnationality index of theworld's top 100 TNCs is the average ofthe 100 individual transnationality indices.

4 It should also be noted that many shippingcompanies have registered their fleets(which often represents a substantial partof their total assets) in so-called "flag-of-convenience" countries for tax or otherr e a s o n s .

5 The TNIs for the top 100 group were in1999 higher in all industry categories shownin table III.14 than the corresponding figuresfor the top 50 group.

6 These data were collected through aquestionnaire survey organized by UNCTADthat took place in February-June 2001 andcovered close to 100 firms from 15 Centraland Eastern European countries. Theintegration of Russian firms into this listhas been made possible by improvedreporting and improved response rate byfirms from that country to the surveyq u e s t i o n n a i r e .

7 As reported in the top 500 list of theFinancial Times, http://specials.ft.com/f t 5 0 0 / m a y 2 0 0 1 / e a s t e r n . h t m l .

8 Apart from the Estonian cases alreadymentioned, the most salient example isthe investment of Hungary's Matav, majoritycontrolled by Deutsche Telekom, intoMaktelekom (TFYR Macedonia), carriedout at the end of 2000. Another case isan investment by German-Austriancontrolled Dunapack (Hungary) intoRomania. Similarly, the Czech affiliate ofGermany's RWE Entsorgung has investedin Romania, and Swedish-owned CzechPramet in Bulgaria, while United States-owned Europharm Brasov has investedfrom Romania in the Republic of Moldova.


CONCLUSION

Wor ld FDI f lows areexpanding unabated. Theirpace of growth surpassesthat of most other economicaggregates. As a result,the role of international

production in the global economy is on therise. FDI liberalization, too, proceeds witha multitude of favourable changes in nationalregulatory regimes and supporting treatymaking at the international level. With thegrowing knowledge intensity of economicactivity, TNCs play a key part in creatingand applying advanced technologies andmanagerial practices across the globe. Theyalso account for a large proportion of worldtrade; about a third of world trade is in theform of intra-firm trade. In addition, theyinfluence international trade indirectly byset t ing up extensive networks ofprocurement and subcontracting relationswith other firms.

The location of TNC operations andfunctions is changing in response to newtechnologies , more l iberal pol icies andintensified competition. During the past twodecades , the geographical spread ofinternat ional product ion has expandednoticeably. Nevertheless, i t is far fromevenly dis t r ibuted across the globe inabsolute terms. Developed countries and, inparticular, the Triad continue to dominate,receiving over three-fourths of global FDIinflows and originating over four-fifths ofoutward FDI f lows in 1998-2000.Developing countries have increased theirparticipation in international production –both as recipients of FDI and as outwardinvestors – during much of the 1990s, buttheir share as recipients has fallen duringthe past two years. The world’s top 30 hostcountries account for 93 per cent of inwardFDI flows and 90 per cent of stocks; thetop 30 home countries account for around99 per cent of outward FDI flows and stocks.The la t ter are mainly indust r ia l izedeconomies and a few large or newly

industrializing developing countries andtransition economies. Within countries, FDItends to be fa i r ly concentra tedgeographical ly, responding to the sameagglomeration economies that influencelocal f i rms. These economies re la te toproximity to markets and fac tors ofproduct ion, and the avai labi l i ty ofspecialized skills, innovatory capabilities,suppliers and institutions.

The geographical concentration ofinternat ional product ion ref lects thelocational attractions of particular sites.These attractions arise from several factors:natura l resources , la rger markets andcompetitive complementary inputs for TNCactivity. The even stronger concentration ofoutward FDI means that only a few homecountries have so far created the competitiveadvantages needed for a significant numberof their firms to invest abroad. Together,these are the regions, countries and sub-national areas that benefit more from, andexercise control over , in ternat ionalproduction.

The geographical concentration ofFDI often reflects the size and economicstrength of the recipient economies. Lowabsolute amounts of FDI inflows into smalleconomies, l ike the least developedcountries, may represent relatively highshares of their incomes or total investments.The Inward FDI Index provides acomparative picture of how host countriesfare wi th respect to inward FDI af teradjusting for their size, measured by GDP;labour force , measured by number ofemployed persons; and their competitiveadvantages as revealed in expor tperformance. Ranking by the Index showsthat, in 1998-2000, the top economies in thisrespect were Belgium and Luxembourg,Hong Kong, China, Ireland, Sweden, andThe Netherlands. The value of the Indexvaries widely among individual countries.Although differences diminish to some


extent when groups of countr ies areconsidered, there are also some noticeabledifferences among them: the Index showsthat South America, Central Asia and theAfrican LDCs receive FDI in line with orabove their average shares of global GDP,employment and exports, but the majorityof developing regions do not. The patternssuggest that there are economic factors otherthan those captured by the Index thatinfluence a country’s international positionwith respect to inward FDI. They a lsosuggest that government policies can leadto much higher FDI inflows than thosepredicted by a country’s economic size andstrength.

Large TNCs dominate internationalproduction. Some 90 per cent of the world’slargest 100 TNCs are headquartered in theTriad. The e lect r ical and e lect ronicequipment, motor vehicle, and petroleumexplorat ion and dis t r ibut ion indust r iesaccount for over a half of the world’s top100 TNCs. The top 50 TNCs f romdeveloping countries originate in 13 newlyindustrializing economies of Asia and LatinAmerica (and South Africa) only. The largestof these TNCs from developing countriesare as large as the smallest of the top 100worldwide. They congregate in construction,food and beverages , and divers i f iedindustries. The largest TNCs from Centraland Eastern Europe are more evenlydistributed among home countries: ninecountries of the region figure in the list ofthe region’s top 25 TNCs. Transport, mining,petroleum and gas and chemicals andpharmaceuticals are the most frequentlyrepresented industries in the list of the top25 TNCs based in that region.

The locat ional pa t terns ofinternational production differ not only bycountry but also by industry, and they changeover time, partly in response to the changingindustr ia l composi t ion of FDI. Withinmanufacturing, geographical concentrationis related to the technological level of theactivity: the more advanced a technology,the higher the level of concentration. In lesstechnology-intensive activities and whereproximity to customers matters – as withmany service industr ies – FDI is moredispersed. In some indust r ies , t radeliberalization has allowed firms to reducethe number of production sites.

The geography of FDI can also beextended to the level of such corporatefunctions as R&D and financial management.Efficiency considerations, coupled withtechnological advances enabling real-timel inks across long dis tances and theliberalization of trade and FDI policies,encourage a greater spread of all corporatefunctions. In some industries, this has ledto the growth of integrated internationalproduction systems spanning regions (as inautomobi les) or cont inents (as insemiconductors) . Within these complexsystems, the funct ions t ransferred todifferent locat ions vary great ly . Lessindustrialized locations are assigned simplertasks like assembly and packaging, whileindustrially advanced locations are assignedmore ski l l - and technology-intensivefunctions.

International production tends tocluster in particular locations in home andhost countries, often near other firms andinstitutions. Major reasons for clustering areproximity to innovative and dynamic firmsand research centres and pools of knowledgeand skills created by agglomerations. TNCsmay also develop new clusters in hostcountries that are later joined by indigenousfirms. As developing countries move up thevalue chains of international production, therole of clusters in attracting and retaininginternational production tends to increase.

The drivers of FDI location haveimportant policy implications at the regional,national and local levels. Natural resourcesand unskilled labour – and perhaps evennat ional markets – are decreasing insignificance. The new drivers are skills,technological capabilities, supply networks,good logistics and strong support institutionsto attract FDI. Their development becomeskey to attracting international production.

This ra ises impor tant pol icychallenges for the developing world. Manycountries, in particular the poorer and leastdeveloped ones, are increasingly marginal to thedynamics of in ternat ional product ion.Simply opening an economy is often nolonger enough to attract sustained inflowsof FDI and to upgrade i ts qual i ty .Governments need to take a more active andtargeted approach, especially if they seek

123CO N CLU SIO N

to attract competitive and export-orientedFDI. And part of such an approach is thatcountries need to identify and develop, overtime, distinct configurations of locationaladvantages.

Different configurations of locationaladvantages a t t rac t d i f ferent corpora tefunctions, and these may be either industryspecific or cut across industries. They offerseveral efficiency benefits to firms locatedin them. In some high-technology industrieslike electronics it may be possible to attractfinal-stage assembly on the basis of cheapsemi-skilled labour and efficient export-processing facilities. In other activities,production facilities may require developedsupply chains within an economy, a widerange of skills, interacting with other firmsand knowledge-producing institutions inclose proximity. Some back-office activitiesmay require special ized ski l ls (e .g . inaccounting). High value functions like R&Dor regional headquarters are particularlydemanding of advanced ski l ls andinstitutions. This is why many activities(natural resource extraction apart) tend toagglomerate in specific locations, a processfurther helped when firms concentrate oncore activities, outsourcing others.

Investors – domestic and foreignalike – seek to take advantage of suchclusters. In joining a cluster, they often addto i ts s t rength. Where agglomerat ioneconomies are significant, the rest of thecountry might be of little relevance to theirlocational decisions. Hence, attracting FDIin these activities depends increasingly onthe ability to provide efficient clusters. Aninternational bank’s location choice is notso much a choice between the UnitedKingdom and Germany as between Londonand Frankfurt.

In today’s highly competitive worldeconomy, successful f i rms differentiatethemselves f rom their compet i tors bydeveloping clearly identifiable products withrecognizable brand names. The ability toattract FDI, especially high quality FDI,increasingly needs a similar “investmentproduct”: the world market for FDI is justas competitive as that for goods and services.One implication of this is that countries thatwant to attract high quality FDI and benefit

from it need to develop differentiated andeff ic ient c lus ters that offer rea l andident i f iable locat ional advantages tointernat ional investors and eventual lybecome brand names recognizable to anynational or international investor seekingthis particular configuration of advantages.Bangalore in India has such a “brand name”for the development of software, as doSingapore and Hong Kong, China forfinancial services and regional headquarters.

Using clusters to attract FDI calls fornew promotion policies, going beyond thefirst and second generations of investmentpromotion policies. In the first generationof investment promotion policies, countriessimply liberalize their FDI regimes: theyreduce barriers to inward FDI, strengthenstandards of treatment for foreign investorsand enhance the functioning of markets(WIR94). Virtually all countries – to be sure,in varying degrees – have, over the pastdecade or so , under taken s teps in thisdirection. The assumption was that, once anenabling framework is in place, FDI inflowswill increase. Many countries, especiallythose with weak institutions, can go a longway in attracting FDI in this manner, if thebasic economic determinants for obtainingFDI are right (WIR98 , ch. IV).

In the second generation of investmentpromotion policies, governments go furtherand ac t ively seek to a t t rac t FDI by“marketing” their countries (Wells and Wint,1990) . This approach f inds i t s typica lexpression in the establishment of nationalinvestment promotion agencies. In 2001,over 160 of such national agencies existed,of which over 100 were members of theWorld Association of Investment PromotionAgencies, established in 1995. Again, ofcourse, the success of proactive effortsdepends, in the end, on the quality of thebasic economic FDI determinants.

The third generation of investmentpromotion pol ic ies takes the generalenabling framework for FDI and a proactiveapproach towards attracting FDI as a startingpoint. It then proceeds to target foreigninvestors at the level of industries and firmsand in light of a country’s developmentalpriorities. The objective is to match theimmobile locational advantages of a country


with the mobile competitive advantages offirms, with a view towards upgrading theformer. Such a strategy is greatly helped ifa country can nurture specific clusters thatbui ld on the country’s compet i t iveadvantages, that capitalize on the naturalinclination of firms to agglomerate, and thateventually acquire a brand name. 1 Thus,investment promotion increasingly needs toimprove – and market – particular (sub-national) clusters that appeal to potentialinvestors in specific activities. Of course,a country’s general economic, political andregulatory features also matter because theyaffect the efficiency of the clusters withinit. But the key to the success of such newinvestment promotion strategies is that theyactually address one of the basic economicFDI determinants.

It must be recognized, however, thatsuch a targeted approach, and especially thedevelopment of locational brand names, isdifficult, costly and takes time. Moreover,a more targeted and fine-tuned approach –which, in the end, seeks to match the specificfunctional needs of corporate investors withspecific locational products – requires fairlysophisticated institutional capacities. It is,however, facilitated by the proliferation ofsub-national agencies (of which a minimumof 240 exis t today) , and a lso even bymunicipal investment promotion agenciesthat as a rule, seek to market more specificinvestment products. But this gives rise toanother challenge: the need to coordinate

policies across various administrative levelsin a country. If that is not done, there is arisk that competition among regions withina country leads to “fiscal wars” and resultsin waste as far as the welfare of the countryas a whole is concerned.

Regardless of the level at which FDIis promoted – and regardless of the precisemix of the three basic investment-promotionstrategies outlined above that is pursued –the competi t iveness of the domesticenterprise sector (including a pool of skilledpeople) is the key to the “product”. Stronglocal firms attract FDI; the entry of foreignaff i l ia tes , in turn , feeds in to thecompeti t iveness and dynamism of thedomestic enterprise sector. The strongestchannel for diffusing skills, knowledge andtechnology from foreign affiliates is thebackward linkages they strike with localfirms. This can contribute to the growth ofa vibrant domestic enterprise sector, thebedrock of economic development. Fordeveloping countries, backward linkages aretherefore par t icular ly impor tant . Thechallenge then is how to promote backwardl inkages – regardless of the type ofinvestment promotion policies that a countrypursues. This is the topic of Part Two ofthis report .

Note

1 Jamaica is considering a branding strategyfor attracting FDI; see Bloom et al., 2001.

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