Emerging Economies’ Multinationals: General Features and Specificities of the Brazilian and Chinese Cases Andrea Goldstein (OECD, Paris) Fazia Pusterla (IADB, Washington) ‘Emerging Multinationals’ Conference Copenhagen Business School 9-10 October 2008

Top 15 developing and transition economies in terms of stocks of outward FDI, 1990, 2005 Source: own calculations from UNCTAD, 2007

Brazil and China’s outward FDI, flows and stock, by destination, Brazil Developed Europe Canada & US Japan ANZ Developing Asian.a. Latin America ROW Total China Developed Europe Canada & US Japan ANZ Developing Asia Latin American.a. ROW Total Sources: Banco Central do Brasil and 2006 Statistical Bulletin of China’s Outward Foreign Investment

Summary statistics for the largest companies from Brazil and China BrazilChina TotalAverageTotalAverage Sales ($b) a Profits ($b) a Assets ($b) a , Value ($b) a , Foreign assets ($b) b Foreign sales ($b) b Foreign jobs b 16,0425,34765,96221,987 TNI b Foreign affiliates b Foreign plants c R&D ($m) d R&D 4-year growth d R&D/sales d Patents e Source: Forbes Global 2000 for Sales, Profits, Assets, Value; UNCTAD (2006) for foreign assets, sales, jobs, and affiliates, and TNI; DTI Global R&D Scoreboard for R&D, R&D growth and R&D/sales; Fleury and Fleury (forthcoming) and authors’ self-compilation for foreign plants; WIPO PatentScope for patents

The IDP framework Dunning 1981, 1986  there is a relationship between a country’s net foreign direct position (NOIP) and its structure and level of economic development –economic development as a process of structural changes –these structural changes affect both inward and outward investment (Durán and Ubeda, 2001) Ideally, as a country develops, the conditions for domestic and foreign economies change, affecting not only FDI flows but also OLI advantages and vice versa The government plays an important role in shaping a country’s investment conditions, hence in affecting its NOIP.

The IDP five stages 1.inward and outward FDI flows are very small. Domestic economies are characterized by weak local demand, inadequate infrastructure and, in general, a non-attractive environment for investment. 2.development of some location specific advantages. Increase in the inflow of FDI. Internationalization activity of domestic firms does not develop yet. NOIP becomes negative and usually inward FDI growth is faster than GDP growth. 3.As domestic firms become more competitive in comparison to foreign firms, OFDI flows increase. Outward flows surpass inward flows, but NOIP remains negative (i.e. inward FDI stock is bigger than outward FDI stock). 4.NOIP turns positive and the rate of outward foreign investment increases faster than the rate of inward investment. Development of intra-industry production, which will be followed by intra-industry trade. 5.NOIP will be oscillating around zero, alternating between positive and negative balances, depending on the short-term evolution of exchange rates and economic cycles. Latecomers (developing countries and transition economies) may skip these five stages -- especially those which experience some leapfrogging and accelerate the movement along the IDP (UNCTAD, 2007, Liu et al., 2005, Goldstein 2007).

The IDP in 2004 Source: WIR 2006, UNCTAD

Estimating the IDP Quadratic form (Dunning, 1981) Polynomial form (Buckley and Castro, 1998; Bellak, 2001; Marton and McCarthy, 2007)

Data Annual data for the period 1980 to 2006 both for China and Brazil. All variables are expressed in real terms (Liu et al., 2005 and Marton and McCarthy, 2007). VARIABLES: –FDI Stocks from UNCTAD, –Population from WDI. –GDP deflator (1990=100) from UN National Accounts Main Aggregates Database. –GDP per capita from UN National Accounts Main Aggregates Database.

Specification and Results Standard errors in parentheses *** statistical significant at the 1% level, ** statistical significant at the 5% level All variables are per capita and the constant was omitted

Conclusions and policy implications/1 Corporate data, although limited to a small number of MNCs due to data availability, suggest that Brazilian and Chinese MNCs are grosso modo similar in size and depth of their ownership advantages. Testing the IDP theory, we found a close relationship between the level of national economic development and the NOIP. The role of the government in enhancing the movement along the path is crucial especially through the promotion of outward FDI. Discovering, developing and sustaining ownership- specific advantages is necessary to reach the levels of competitiveness required for the next stages of the IDP.

Attitudes have been very different in the two countries –China: “Go abroad” policy measures; WTO accession; necessity to develop and sustain strong ownership and competitiveness specific advantages under the surveillance and help of the government institutions –Brazil: new measures are only now being implemented by BNDES APEX The role of the government in enhancing the movement along the path should be more active in Brazil Conclusions and policy implications/2