Businesses based in developing countries - especially Asian firms - are mirroring the behaviour of their counterparts in industrialized nations, investing their money in foreign markets at a pace more rapid than expected and expanding their operations over borders to take advantage of differences in technology, labour and production costs, UNCTAD data reveal.
Outward foreign direct investment (OFDI) from emerging markets was more widespread than thought, reaching a stock of $929 billion in 2003, UNCTAD statistics show (table 1). Such investment is also growing at a much faster rate than outward investment from developed countries. The number of emerging markets that reported OFDI data grew from 70 in 1985 to 122 in 2003 (table 2). Some emerging markets have become significant outward investors - more so than some developed countries, particularly if measured in terms of the ratio of OFDI flows to gross fixed capital formation (tables 3 & 4). In addition, more emerging markets are now encouraging their firms to transnationalize as a way of improving competitiveness. Such firms aim to benefit from the international division of labour, strengthening national economic development on the way. The policy environment for OFDI is improving and more emerging-market firms have the potential to go abroad, UNCTAD says.
OFDI stock from emerging markets grew sevenfold between 1990 and 2003, from $131 billion to $929 billion, as compared with 3.5 times for developed countries. The share of emerging markets in world outward FDI stock rose from 7% in 1990 to over 11% in 2003. About 68% of the OFDI stock from emerging markets in 2003 was from Asia, followed by Latin America (20%), the transition economies (8%) and Africa (4%).
OFDI flows are dominated by Asia (figure 1). Some economies, such as those of Hong Kong, the Republic of Korea, Malaysia and Singapore, are established investors; others, such as those of Brazil, China, India and Mexico, are at the take-off stage. Emerging investors from such countries as Chile, Iran, Egypt, Nigeria, South Africa, Thailand, Turkey and the United Arab Emirates have the potential to be significant investors in their regions and elsewhere. Asia dominates the top 50 transnational corporations (TNCs) based in developing countries (in terms of their foreign assets), with 32 enterprises. Hong Kong led with 11 enterprises, followed by Singapore (9). The top 50 TNCs specialize in a wide range of products, from electrical and electronic goods to food and beverages and natural resources.
Their recent performance reflects the transnationalization of firms from emerging markets as measured by their share of foreign assets, sales and employment in the respective totals of the top 50 TNCs (figure 2). The foreign shares of assets and employment of the top 50 TNCs are comparable to those of the world´s top 100 TNCs (based on their foreign assets). Asian TNCs in the top 50 are noticeably more transnationalized than their Latin American counterparts. African TNCs, too, are quite transnationalized, but they are all from South Africa. Central and Eastern European firms have only recently embarked on the transnationalization path. These firms and others not on the top 50 list are playing an increasing role in linking national production systems, thereby improving their competitiveness by acquiring a portfolio of locational assets.
Emerging market firms are investing abroad to improve their export competitiveness, expand markets, gain access to resources and technology, take advantage of cheaper labour, and improve R&D capabilities. Some are buying well-known global brands and forming strategic alliances with firms elsewhere to be global players. Examples are Lenovo´s (China) acquisition of IBM´s PC division, TCL´s (China) merger with Thomson´s Television and DVD operation (France) and Tata Tea´s (India) acquisition of Tetley Tea (UK). OFDI from emerging markets also contributes to stronger South-South cooperation, as the bulk of it is among emerging markets. Emerging market TNCs are investing in all sectors: natural resources, manufacturing and services.
OFDI from emerging markets is receiving increasing international attention. UNCTAD, the Ministry of Development, Industry and Foreign Trade of Brazil and Fundacao Dom Cabral (FDC) are jointly organizing a seminar on Global Players from Emerging Markets: Brazil on 30 May 2005 in São Paulo. Corporate executives, policy makers and experts will discuss issues related to the transnationalization of Brazilian firms and policy implications (1).
Tables and figures
Table 1. Outward FDI stock, selected regions and economies, 1990, 2003 (Millions of dollars)
Table 2. Emerging markets: OFDI flows, by range and economy, 1985 and 2003
Table 3. The top 15 emerging markets in terms of FDI outflows, 1983-1989, 1993-1995 and 2001-2003 (Billion of dollars)
Table 4. FDI outflows as percentage of gross fixed capital formation, selected economies, 1983-2003 (Per cent)
Figure 1. Emerging markets: outwards FDI flows by region, 1985-2003 (Billion of dollars)
Figure 2. Comparison of the foreign share of the top 100 TNCs, the 50 largest TNCs based in developing countries and regions, and the 25 largest TNCs based in Central and Eastern Europe, 2002 (Per cent)