Characteristics and Impacts of the arrival of Chinese and Indian Firms in Europe: first evidence Christian Milelli Françoise Hay Copenhagen Business School 9-10/10/2008

Purpose of the research Better understanding of the surge of FDI flows from developing countries Targeting Chinese and Indian firms at the forefront of the rising wave

Purpose of the research Tackle economic impacts on recipient countries Europe as a Case-study Due to well-known limits of macro data on FDI we inclined to a firm-level analysis

Outline

1. A firm-level analysis 1.1 Data collection Founded on an exclusive database plus selected face-to-face interviews conducted across Europe (second half of 2007) Database coverage: time period (since 1980), space (EU), investments (significant operations, i.e. more than 10 employees), amount (1,200 operations) Methodology: descriptive, inductive, and comparative

1. A firm-level analysis 1.2 Methodology Methodology of the current research: descriptive, inductive, comparative and exploratory

1.3 Main empirical findings History Number of establishments

1.3 Main empirical findings Modes of entry GreenfieldBuy-out China 60.5%32% Hong Kong 12%86% India46%49 % 8

1.3 Main empirical findings Geographic distribution See following maps - Firms from China - Firms from India 9

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1.3 Main empirical findings Functions China Hong Kong India Production 36%33% 38% R-D 23% 4%2% Services 62%57%55% 12

1.3 Main empirical findings Sectoral composition Firms from Mainland China Equipment 46% Telecommunication 21.7% Electrical-Electronic 17.6% Machinery 6.6% Motor Vehicles10% Transport6.6% Chemicals and chemical products6.6% Household appliances6 % Textile-Clothing 5.7% Finance1.5% 13

1.3 Main empirical findings Sectoral composition Firms from India Software, Consultancy42% Chemicals & chemical products 19.3% Pharmacy 13% Other chemical products 6.5% Electrical & Electronic 4.5% Motor vehicles 3.5% Food & Beverages3.5% Machinery 3% Textile & Clothing3% 14

2. Impacts Difficult to assess because: Too early to assess what effects might be at play Europe: not a homogeneous bloc as countries and groups within countries may be affected differentially (producers, workers, consumers) Impacts may change over time Direct and indirect effects overlap as they depend on: the strategies and motives of the investors (access to markets, sale networks, know how, brands, niches, …) the comparative advantages of the recipient country the activities, the mode of entry,...

2.1 A systematic framework Inspired by Kaplinsky & Messner (2008) Complementary impacts versus Competitive impacts Focus on economic aspects: - FDI - Trade - Employment - Competition 16

FDI Nature of impacts Impacts and causal connections Complementary A fresh source of FDI for European economies Competitive Compete with FDI from other countries - particularly Developing ones - in Europe, 17

Trade Nature of impacts Impacts and causal connections Complementary FDI from China and India support the imports of cheap consumer goods and inputs (China), and of services (India) Competitive Chinese and Indian Imports potentially displace local producers increase trade deficit (or reduce it when production activities are created) increase the influence of developing countries upon international organizations (WTO) 18

Employment Nature of impactsImpacts and causal connections Complementary Extra jobs (Huawei, COSCO…) Jobs safeguarded (China BlueStar, Hut. Whampoa, Johnson Electric...) Vacant crenels occupied, some industries revived Competitive Lay-off resulting from relocation (TCL, Fooktin, YGM, Greencool...) Some European activities are disappearing 19

Competition Nature of impacts Impacts and causal connections Complementary European firms spurred to adopt more efficient manufacturing processes, and to innovate Competitive New competitors for European firms - Backed by their State (Chinese firms), low manufacturing costs, large home market, … - Able to absorb and replicate the ’best practices’ and technologies they acquired from Western companies (at home through partnerships or overseas) 20

3. Perspectives Chinese and Indian perspectives in Europe seem to be contrasting (perceived or effective?) However, complementary impacts (FDI) should increase and be welcomed (even SWFs!) The same is true for employment with a mild if not a positive impact on Europe’s job levels 21

3. Perspectives The anticipated results for trade are more mixed (with more competitive impacts), particularly from Chinese FDI. Actually, Chinese investments in Europe can contribute to the deepening of the EU trade deficit with China Last, in competition domain both impacts are at play, with ‘over-competition’ in some industries based on very different strategies. Also, larger choice and lower prices for European consumers (wealth effect) 22

END Thank you …