Foreign operations of Swedish Manufacturing Firms Pehr-Johan Norbäck The Research Institute of Industrial EconomicsIFN) The Research Institute of Industrial Economics (IFN)

Outline: 1.Why study Multinational Enterprises (MNE) and Foreign Direct Investments (FDI)? 2.The IFN survey on the foreign activities of Swedish Multinational firms 3.How is the survey used in research 4.Discussion

1. Why study FDI? Source: Blonigen, 2007

1. Why study Foreign Direct investment?  FDI has grown tremendously!  What explains the increase in FDI?  Theory (vertical, horizontal, platform FDI)  Empirical work (estimate the importance of these explanations)  Policy implications? Host country (recipients of FDI: China) Home country (headquartering MNEs: Sweden)

2. The IFN survey Outward stock of Swedish FDI (Swedish firms investing abroad) % of GDP Sweden Industrialized countries Source: World Investment Report 1997, Sweden Industrialized countries Early concern for exports of Swedish jobs to low-wage countries

3. The IFN (IUI) Survey Purpose Investigate the extent and direction of the foreign operations of Swedish Multinational Firms (MNF). Firms included All Swedish manufacturing firms with more than 50 employees and at least one majority-owned affiliate

2. IFN-survey, cont: Definitions  Parent Firm: company which is registered in Sweden and which is not an affiliate to a foreign or Swedish firm.  Affiliate: company in which the parent firm holds directly or indirectly more than 50% of the voting rights  Producing affiliate: production of goods (extraction, manufaturing or assembly)  Sales affiliate: sales, installation and services. - :.

The Process Parent Company IFN Affiliate A-form B-form

Number of firms and affiliates Hakkala and Zimmerman, (2005)

Turnover and exports All firms Employment Firms with producing affiliates Accounting Investments, Capital, assets Technology: R&D, licenses, cooperation Additional: Classifications, wages, skill-level Distribution Sales, exports employment The A-form: Parent company

The A-form: Link to Statistics Sweden (SCB) ”Ericsson”

Composition of sales Composition of employment (Sweden vs abroad)

Composition of employment abroad: Hakkala and Zimmerman, (2005)

R&D Marketing Additional information on request/special topic (varies by survey)

Accounting Investments, capital, assets Technology R&D Employment skills, wages Intra-firm trade Production, exports, imports from Sweden The B-form: The Affiliate Producing affiliates Unique database for studying globalization in terms of location decisions and organization in Multinational firms!

Ericsson Affiliate X The B-form: The Affiliate Level Entry mode: (Acquisition or greenfield entry) China

Composition of sales of the affiliate Composition of imports in the affiliate The B-form: The Affiliate Level

Accounting information R&D

4. Example: Globalization and MNEs Local sales of affiliates (B-form) Exports from affiliates (B-form) Export- from Sweden (A-form) China: Rest of the World (R): Sweden Affiliate Germany

4. Globalization and MNEs Local sales of affiliates (B-form) Exports from affiliates (B-form) Export- from Sweden (A-form) China: Rest of the World (R): Sweden Affiliate Examine the impact on FDI from :  Trade barriers  GATT/WTO  Taxes/treaties  Corruption  Wage costs,  Entry mode and R&D (See References) Germany

Does GATT/WTO affect trade and trade policy: Yes: since accession increases intra-firm trade! 2.Globalisation! Source: Norbäck, Urban and Westerberg (2007)

4. Entry mode and R&D Many governments seek to attract FDI! Governments sceptical towards foreign acquisitions of local firms and favor greenfield FDI Suppose that a government wants to encourage R&D in affiliates to MNEs: Should it restrict cross-border acquisitions?

Merger and Acquisitions Greenfield investment (ii) Average probability of doing R&D year 0 0 Acquired affiliates are more likely to do R&D than affiliates started from greenfield entry... Source: Hakkala, Norbäckand Bertrand (2007)

...and acquired affiliates also have a higher R&D intensity than affiliates started from greenfield entry Mergers and Acquisitions Greenfield investment (i) Average R&D intensity (%) (All observations) year 0 Source: Hakkala, Norbäckand Bertrand (2007)

5. Should there be a new survey 2007/2008? Decrease in the number of participating mother firms (MNEs): (Hakkala and Zimmerman, 2005)

5. Why is there a fall in participating firms?  Foreign acquisitions of large Swedish MNEs  Volvo Cars,  Pharmacia  Less peer pressure to answer the survey?  Too many questions?  Too complicated? Compulsory survey?