Recent Trends of Transnational Corporations. Related to Competitive Advantages of Economies of East Asia Countries

Transcription

1 Shizuko KATO Dr. and Prof. of Meiji University, Tokyo, Japan Recent Trends of Transnational Corporations Related to Competitive Advantages of Economies of East Asia Countries 1. Introduction We recognize that the world economy is being globalized more and more. As a logical result of that process, transnational corporations play more and more important roles in each economy and the world economy as a whole. In this paper we will give an outline of recent trends of transnational corporations (TNCs), and examine what kind of effects those trends have on competitive advantages of economies of East Asia countries. 2. Growth of TNCs of the developing and transition countries and their characteristics UNCTAD (United Nations Conference on Trade and Development)has its annual report, World Development Report (WIR). Its 2006 year edition has the subtitle, FDI from Developing and Transition Economies: Implications for Development, and 2007 edition has Transnational Corporations, Extractive Industries and development, As it shows clealy, in recent years on the one hand FDI from developing and transition economies is growing markedly, and on the other hand especially in extractive industries FDI from such countries plays more important role. Therefore at first we will seek the reasons of activation of TNCs from developing and transition economies and their characteristics on the basis of WIR, 2006, and at the next we will examine the case of extractive industries on the basis of WIR, The accumulative FDI from developing and transition economies dramatically increased from 335 bil. dollars in 1995 to 1,400 bil. dollars in Among such economies especially Asian countries and Russia have much importance. As for types of industries, tertiary industry (business service, financial service, trade) and manufacturing (electronics) has held big shares, and recently the share of primary industry (oil) is also

2 increasing. As for host countries, south-south investment has been dominating, and recently investment to developed countries is also increasing (UNCTAD, 2006, pp ). Nowadays the developing and transition economies have increased FDI earlier than the existing theories assume. It is because the globalization of economy has made competition in domestic markets severer and produced more chance to go out to the international market. TNCs find their way to abroad on the basis of some competitive advantages. We can notify three main advantages: (1) special expertise and technology, (2) access to home country s resources and activities, and (3) competency of production and service. For developed economies, special expertise and technology is the most vital, and for developed and transition economies the other two advantages are more important. TNCs have four strategies of FDI: resource-oriented, and creative asset-oriented. market-oriented, efficiency-oriented, And besides we can identify state-oriented strategy. FDI from developing economies without much natural resources (China, India) is mainly resource-oriented. We can hardly find creative asset-oriented strategy in TNCs of developing and transition economies. State-oriented strategy is often identified in such economies, especially in state owned TNCs (UNCTAD, 2006, pp ). The influence of FDI to a home country s economy depends on whether competitive advantages of TNCs can be improved and whether their advantages can lead to those of industries and economy as a whole. As for developed economies, the influence is generally positive. As for developing and transition economies, we do not have enough knowledge, however, we can assume similar influences. At least political, social, and ecological influence should be positive. When we try to maximize the positive influence which outward FDI gives to a home economy, and to minimize the negative influence, politics can play the major role (UNCTAD, 2006, pp ). 3. The Growth of TNCs from developing and transition economies in extractive industries

3 and their characteristics Until 1970 s the oil industry in capitalist countries was controlled by a few main TNC s (oil majors) from the USA and Western Europe. Since 1970 s the waves of nationalization of oil industry in the developing countries surged, and the oil majors lost their ruling position. After the end of the Cold War, quite big share of oil and natural gas industry was privatized and the oil major acquired some concessions. But the situation has not been changed drastically, and the 1-3 places of oil and natural gas extractive companies in the world (by production) were occupied by the state enterprises from developing and transition economies. Traditionally oil majors occupied controlling positions because of technology, transport, and distribution network. But nowadays there are specialized service companies, which domestic state enterprises can depend on related to such services. Some of the oil and natural gas enterprises from developing and transition economies are rapidly launching to overseas production. They include enterprises both of countries without natural resources and countries with rich natural resources. Some of them have expanded even to the downstream sector. When we think about FDI in extractive industries, we must pay attention to the three characteristics of this industry: (1) huge investment, big risk, and long duration of preparation, (2) significant ecological and social impact, (3) strategic importance for the states (especially in the case of oil and natural gas). Main competitive advantages of TNCs in extractive industries are the same as of TNCs in general: (1) special expertise and technology, (2) access to home country s resources and activities, and (3) competency of production and service. As to extractive industries, though special expertise and technology are not so important, difficult projects require special expertise and risk management competency. Access to home country s natural resources and financial resources is very important. In terms of competency of production and service, network of supply and distribution is especially important. We can identify 4+1 types of FDI strategy for TNCs in extractive industries in the same way as to TNCs in general (UNCTAD, 2006, pp ). (1) market-oriented: TNCs from countries with rich natural resources march into the

4 downstream sector. (2) efficiency-oriented: TNCs establish manufacturing plants in a country with metal resources. (3) resource-oriented: TNCs march into a country with rich natural resources. (4) creative asset-oriented: TNCs acquire business with an advanced technology. (5) state strategy-oriented: TNCs, especially state owned TNCs, make FDI in line with their state policy. As to such resources as strategically important from the viewpoint of states, especially oil and natural gas industry, state-owned enterprises more easily acquire competitive advantages than private enterprises because of various reasons, and actually governments tend to entrust extractive industries to state-owned enterprises. But whether such state policy is more effective or not is still unknown (UNCTAD, 2007, pp ). 4. TNCs in Japan, Russia and China We have lists of the top TNCs in Japan, Russia and China by ranked by foreign assets and try to compare three country s top TNCs (Table 1, Table 2, and Table 3). 5. Conclusions (temporary) (1) The Rapid Growth of TNCs from Russia and China. It is natural in the period of globalization and hopeful for each economy and the world economy as a whole. We recognize their remarkable growth especially in extractive industries, and it is also understandable because Russia is rich in natural resources, and China is one of the biggest consumer countries of natural resources. (2) TNCs from Russia; their characteristics and future tasks Their sources of comparative advantages are Russia s natural resources and the rich state fund owing to higher prices of natural resources in the world market. The types of their FDI strategy are market-oriented, resource-oriented, and state strategy-oriented. Their TNI are low, in general. They should increase creative asset-oriented FDI and so create their expertise and technology as one of their competitive advantages.

5 (3) TNCs from China; their characteristics and future tasks Their main source of comparative advantages is China s efficient production with usage of cheap and abundant labor forces. The types of their FDI strategy are resource-oriented, creative asset-oriented and state strategy-oriented. Most of TNCs are state owned companies, although they own a number of private companies. Their TNI are low, in general. They should be more open and privatized in order to be real global players. Probably more open and privatized TNCs might be more eager to get expertise and technology through FDI, and more successful in doing so. (4) TNCs from Japan; their characteristics and future tasks Their sources of comparative advantages are expertise and technology, and production and service capability of Japan s manufacturing companies and worldwide general trading companies. The types of their FDI strategy are market-oriented, efficiency-oriented, and resource-oriented. Their TNI are high, in general. It has brought about a degree of hollowing out of industry. Manufacturing TNCs should continue making progress in their expertise and technology to avoid the loss of domestic employment, and trading TNCs should make sure of a stable supply of resources for Japan s economy. (5) Cooperation of East Asia countries through activities of TNCs As is seen above, TNCs from Japan, Russia and China have different comparative advantages and different FDI strategies. Mutual understanding and cooperation of TNCs shall be fruitful for all. (Literature) Imai, Masakazu (2006), Roshia kigyo wo gaikan suru, Eurasian Studies, no. 34 (in Japanese). Skolkovo-CPII (2007), Russian Multinationals Bullish on Foreign Markets (Press Release). UNCTAD (2006, 2007), World Investment Report. Zashev, Peter; Vahtra, Peeter, Liuhto, Kari (2007), Outward FDI of Russian

6 Enterprises, in: Valtteri Kaartemo (ed.), New Role of Russia Enterprises in International Business (PEI Electronic Publications). Хейфец, Б., Внещний сектор Российской экономики (2007), Вопросы экономики 2007 г., 11.

7 Table 1. Russia's top non-financial TNCs, ranked by foreign assets, 2006 (Millions of US$ and no. of employees) Assets Sales Employment No. of affiliates Listed in Ranking Name Industry Main product & Service Foreign/ Foreign/T Foreign TNI b (%) II c Ownership a RTS, MICEX LSE, NYSE Total(%) otal(%) /Total( 1 Lukoil Oil/gas oil and natural gas 18,921 48, ,706 67, , , Private RTS, MICEX LSE 2 Gazprom Oil/gas natural gas 10, , ,909 82, , , State-owned RTS, MICEX LSE 3 Severstal Metals/mining steel 4,546 18, ,519 12, ,000 99, Private RTS, MICEX LSE 4 Rusal Metals/mining alminium 4,150 14, ,790 13, , , Private RTS 5 Sovcomflot Transport maritime transport 2,530 2, , State-owned 6 Norilsk Nickel Metals/mining nickel, palasium, cobalt, copper 2,427 16, ,569 11, ,600 83, Private RTS LSE 7 AFK Sistema Telecoms/retail telecoms, high technology, real estate, retail, finance, mass 2,290 20, ,537 10, ,700 92, Private RTS, MICEX LSE 8 VimpelCom Telecoms/retail telecoms 2,103 8, , ,630 21, Private RTS NYSE 9 Novoship Transport maritime transport 1,797 1, , State-owned RTS 10 TNKBP Oil/gas oil 1,601 23, ,092 35, ,000 70, Private RTS 11 Evraz Metals/mining steel 1,322 8, ,075 8, , , Private LSE 12 FESCO Transport maritime, railway, car transport 1,074 1, n. a , Private RTS 13 PriSCo Transport maritime transport 1,055 1, , Private RTS 14 Novolipetsk Steel Metals/mining steel 964 8, ,572 6, ,252 71, Private RTS LSE 15 RAO UES Electricity electricity , ,119 32, , , State-owned RTS, MICEX 16 TMK Metals/mining steel pipe 490 3, ,076 3, ,700 49, Private RTS, MICEX LSE 17 Eurochem Agrichemical agrichemical 456 1, ,452 1, ,170 26, Private 18 GAZ Manufacturing automobile 366 2, , , Private RTS 19 OMZ Manufacturing heavy machine (for atomic power, oil, natural gas, mining industry) ,965 16, Private RTS, MICEX LSE 20 Alrosa Metals/mining diamond 294 7, ,912 3, , State-owned RTS 21 ChTPZ (Arkley Capital Metals/mining steel pipe 244 1, , ,800 25, Private RTS 22 Alliance Oil Oil/gas oil 211 1, , ,700 8, Private 23 Acron Agrichemical agrichemical 200 1, ,000 13, Private RTS, MICEX 24 Euroset Telecoms/retail cell phone , ,050 34, Private 25 Mechel Metals/mining coal and steel 116 4, ,112 4, ,424 76, Private RTS NYSE Total 58, , , , ,345 2,106, a: "state-owned" means majority control by the state, and "private" means all except state-owned. b: TNI is calculated as the average of the following three ratios: foreign assets to total assets, foreign sales to total sales and foreign employment to total employment. c: II is calculated as the number of foreign affiliates divided by number of all affiliates (Note: Affiliates counted in this table refer to only majority-owned affiliates). Sources: SKOLKOVO-CPII, Web sites of companies and stock exchanges.

8 Ranki ng Table 2. China's top non-financial TNCs, ranked by foreign assets, 2005 (Millions of dollars and number of employees) Assets Sales Employment No. of Foreig Foreig Foreig TNI Listed in Name Industry Foreig II Ownership /Total( Total /Total( /Total( (%) Total (subsidiaries) Foreign n %) %) %) 1 CITIC Group Diversified 14,891 99, ,109 8, ,915 93, State owned (HK, Shenzhen) China Ocean Shipping (Group) 2 Company Transport and storage 10,657 18, ,463 15, ,230 69, State owned HK China State Construction 3 Engineering Corp. Construction 5,578 13, ,400 14, , , State owned China National Petroleum 4 Corporation Petroleum expl./ref./distr. 5, , ,505 85, ,000 1,167, State owned 5 Sinochem Corp. Petroleum expl./ref./distr. 4,820 8, ,711 22, , State owned (HK, Shenzhen) 6 Lenovo Group Computer and related activitie 3,147 5, ,456 13, ,300 19, Mixed HK 7 China National Offshore Oil Petroleum and natural gas 2,716 14, ,775 8, , State owned (NY, HK) 8 TCL Corporation Electrical & electronic equipme 2,179 3, ,282 6, ,892 65, State owned (HK, Shenzhen) 9 Cofco International Ltd Food & beverages 1,372 1, ,004 2, ,417 6, State owned HK 10 China Minmetals Corp. Metal and metal products 950 5, ,514 14, , State owned (HK) Total 51, , , , ,465 1,598, Sources: UNCTAD, 2007, pp Web sites of companies.

9 Table 3. Japan's top non-financial TNCs, ranked by foreign assets, 2005 (Millions of dollars and number of employees) Assets Sales Employment No. of affiliates Listed in Rankin Name Industry Foreign Foreign/ Foreign/ TNI (%) II Ownership g /Total( Total(%) Total(%) TYO LSE, NYSE 1 Toyota Motor Corp. Motor vehicles 131, , , , , , Private TYO LSE, NYSE 2 Honda Motor Comp. Ltd. Motor vehicles 66,682 89, ,791 87, , , Private TYO NYSE 3 Nissan Motor Co. Ltd. Motor vehicles 53,747 97, ,771 83, , , Private TYO 4 Mitsubishi Corp. Wholesale trade 44,827 88, , , ,322 53, Private TYO 5 Mitsui & Co. Ltd. Wholesale trade 40,335 72, ,491 36, ,587 40, Private TYO 6 Sony Corp. Electrical & electronic equipment 38,559 90, ,216 66, , , Private TYO LSE, NYSE 7 Marubeni Corp. Wholesale trade 23,043 39, ,068 27, ,058 27, Private TYO 8 Hitachi Ltd. Electrical & electronic equipment 21,219 85, ,051 83, , , Private TYO NYSE 9 Matsushita Electric Industrial CoElectrical & electronic equipment 17,891 67, ,904 78, , , Private TYO NYSE Total 437, , , , ,839 1,585, Sources: UNCTAD, 2007, pp Web sites of the companies.

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