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UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

World Investment Report 2006 FDI from Developing and Transition Economies: Implications for Development

CHAPTER III EMERGING SOURCES OF FDI

United Nations

New York and Geneva, 2006

CHAPTER III

EMERGING SOURCES OF FDI

A. Developing andtransition economies gainground as home countries

Developed-country TNCs account for thebulk of global FDI. However, a review of differentdata sources shows an increased and significantinternational presence of firms from developingand transition economies.1 A small number ofeconomies are responsible for a high share of theseFDI outflows. Most of the investments have beenmade in the services sector. While interpretationsare complicated by the role of offshore financialcentres and by statistical limitations, the South-South element of the outward expansion ofdeveloping-country TNCs warrants specialattention. Estimates suggest that such FDI issignificant and growing. Moreover, for some of thelow-income recipients, FDI inflows are almostentirely from other developing countries.

1. FDI from developing and transitioneconomies increases

In order to assess the magnitude andimportance of the recent expansion of FDI fromdeveloping and transition economies, a number ofdifferent data sources have to be considered. Sinceit is only recently that many of these economieshave emerged as significant sources of FDI, thereare limited data available (box III.1). Nevertheless,available evidence suggests a clear trend: FDI fromdeveloping and transition economies has grownrapidly, particularly during the past two decades,and is continuing to gain momentum. Thus,

international production by TNCs from theseeconomies can be expected to become an importantaspect of the globalizing world economy.

a. Growing overseas investmentsfrom developing and transitioneconomies

As highlighted in chapter I , FDI fromdeveloping and transition economies has grownconsiderably and now accounts for about 17% ofworld outward flows. Outflows grew particularlyfast in the late 1990s and again in more recentyears, reaching $133 billion in 2005 (figure III.1).The value of the outward FDI stock of developingand transition economies reached $1.4 trillion in2005, or 13% of the world total. Although statisticaland measurement problems prevent a fullassessment of the position of developing andtransition economies in global FDI (box III.1),available data indicate that FDI from theseeconomies is on the rise.

FDI from developing countries has beengrowing for some time, with several periods ofrapid expansion since the 1970s, although on asmaller scale than in recent years (box III.2).Except for temporary corrections in 1990-1991,1998 and 2002-2003, it has experienced steadygrowth over the past two and a half decades, drivenby various factors (chapter IV). The share ofdeveloping and transition economies in globaloutward FDI has fluctuated between less than 4%and as high as 18% (figure III.1). In the 1980s, theirshare of global FDI outflows peaked at 10% in1982, mainly due to declining outflows fromdeveloped countries during the recession that was

106 World Investment Report 2006. FDI from Developing and Transition Economies: Implications for Development

Box III.1. Statistics on FDI from developing and transition economies – a cautionary note

Data on outward FDI from developingeconomies suffer from certain limitations. Officialstatistics on such FDI may be overestimated insome instances and underestimated in others. Thisbox sheds light on the nature and characteristicsof the data used in the WIR06.

Only a few developing countries report dataon outward FDI. In many cases, the FDI outflowsreported by UNCTAD are estimates based oninformation provided by the recipient countries.This method has been used for 23 of the 135developing and transition economies for whichUNCTAD reports such data.a As a result, thislimitation implies an underestimation of total FDIfrom developing and transition economies sinceit only captures FDI to those countries that reportinward FDI by origin. It also complicatesinternational comparisons, since FDI reported bya source country does not necessarily correspondto the amount of inflows reported by the recipientcountries.b

On the other hand, the volume of FDI fromdeveloping and transition economies may beinflated by the way in which TNCs finance theirinvestments (e.g. for tax reasons). Significantamounts of FDI from developing economies (e.g.Brazil and Hong Kong (China)) go to offshorefinancial centres. These centres, in turn, are alsomajor sources of FDI, thus contributing to theoverall volume of FDI from developing andtransition economies. A large part of the FDI fromoffshore financial centres is also undertaken byforeign affiliates of developed-country TNCs.Flows going back and forth between offshorefinancial centres and other developing countriesmay give rise to a “double-counting” of FDI (seealso boxes I.1 and I.2).c Finally, in somedeveloping and transition economies (e.g. China,

Source: UNCTAD.

a For example, outward FDI from most offshore financial centres, the United Arab Emirates and Saudi Arabia isderived in this way.

b Such discrepancies may be due to differences in the extent to which countries adhere to international and commonstandards in data collection as recommended by the International Monetary Fund (IMF), the Organisation for EconomicCo-operation and Development (OECD) and UNCTAD. (For details, see UNCTAD 2005c and box I.3).

c For example, FDI outflows from Hong Kong (China) to the British Virgin Islands have at times been significant: in2004, 45% of the total outward FDI stock of Hong Kong (China) went to the British Virgin Islands. When theseoutflows are redirected from the British Virgin Islands for investment in another economy (or returned to HongKong, China), they are recorded as outflows from the British Virgin Islands (Census and Statistics Department ofHong Kong, 2004).

Hong Kong (China) and the Russian Federation)a significant amount of FDI takes the form ofround tripping.

When assessing the role of FDI fromdeveloping and transition economies, it isimportant to recognize the difference between“immediate” and “ultimate” investor. Theinternational norm for FDI data compilation isto focus on the immediate investor. In some cases,significant outflows of FDI are the result ofinvestments by foreign affiliates of othercountries’ TNCs. For example, in 2005, foreignaffiliates of developed-country TNCs accountedfor one quarter of all cross-border M&Apurchases from Hong Kong (China). Suchtransactions may overestimate the role of TNCsfrom developing and transition economies.Conversely, some developing-country TNCs maybe registered in a developed country, despite thefact that their assets and central economicactivities remain in a developing country (e.g.SABMiller and Anglo American). When FDIprojects are undertaken from a developed countryby foreign affiliates of developing-country TNCs,they are not included in official data on FDI fromdeveloping-country TNCs, which results inunderestimation.

These statistical issues underline thedifficulties associated with measuring themagnitude and composition of FDI fromdeveloping and transition economies. It alsoimplies that FDI data based on balance-of-payments information must be interpretedcarefully. To obtain a more complete picture, FDIdata need to be complemented with other datasources, including those related to M&As,greenfield and expansion investment projects andto the activities of foreign affiliates.

107CHAPTER III

Figure III.1. FDI outflows from developing and transition economies, 1980-2005

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).

Box III.2. Early trends in FDI from developing countries

Until the 1960s, FDI from developingcountries was negligible. Since then, the outwardexpansion by developing-country TNCs hasfuelled three rounds of FDI growth during 1973-1978, 1985-1989 and 1991-1997. The two earlierepisodes of FDI expansion from the Southtriggered an interest in developing-country TNCsamong scholars (Lecraw 1977, Wells 1977, 1983,Kumar 1982, Lall 1983, Aggarwal 1984, ESCAPand UNCTC 1985, Dunning 1986). The new andlong wave of outward FDI growth, has led to arenewed interest since the early 1990s (Tolentino1993, Lecraw 1993, United Nations 1993, Ulgadoet al. 1994, Dunning et al.1997, Hoesel 1997).

The early increases of FDI from developingcountries differed in several ways from those inthe 1990s. In the 1970s and 1980s, the scale ofoutward FDI was very small compared withcurrent levels, and the flows were lessconcentrated. Moreover some of the top FDIsources were different: whereas earlier theyincluded countries from Africa, Latin America

Source: UNCTAD.

and West Asia, since the mid-1980s, East andSouth-East Asia have assumed greater importance,while Africa has lost significance.

In comparison with their developed-countrycounterparts, TNCs from developing economieshave generally been technological followers. Theliterature that emerged in the early 1980ssuggested that the ownership advantages of theseTNCs were derived from their ability to reducethe costs of production by applying technologyimported from developed countries (e.g. Wells1977, Kumar 1982) or from their experience ofoperating in less developed markets (Lall 1983).Later, researchers placed greater emphasis on thecatch-up process of developing-country TNCsbased on incremental learning (e.g. Vernon-Wortzel and Wortzel 1988, Cantwell andTolentino 1990, Lecraw 1993). As signified bythe choice of focus of this year’s WorldInvestment Report, there is renewed researchinterest in this area.

triggered by the second oil crisis. This shareincreased further in the early 1990s and remainedat above 15% during the period 1993-1997. Thistime, outflows were driven by the internationalexpansion of Asian TNCs, a process onlytemporarily interrupted by the Asian financialcrisis. In 2005, the share was about 17%. However,

it is only since the early 1990s that flows of FDIfrom developing and transition economies haveassumed significant proportions in absolute terms.Aggregate data suggest that such FDI flows, whichwere about $3 billion in 1980, had increased to $13billion 10 years later, shooting up thereafter to peakat $147 billion in 2000.


Figures on FDI flows should be interpretedwith care. Their volatility is partly the result ofvery large transactions in certain years involvingoffshore financial centres and Hong Kong (China).For example, in 2000, the latter economy, alongwith the three offshore centres of Bermuda, theBritish Virgin Islands and the Cayman Islands,accounted for as much as 76% of all outflows fromdeveloping and transition economies.2 In someyears during the 1990s, FDI flows from Hong Kong(China) were as large, or almost as large, as theflows from all other developing and transition


Figure III.2. Outward FDI flows from developing and transition economies, 1980-2005

economies combined. Nevertheless, evendiscounting FDI from offshore financial centresand Hong Kong (China), there has been a clearupward trend in outward FDI, which reached itshighest level in 2005: $87 billion (figure III.2).

Data on FDI stocks confirm the growingsignificance of FDI from developing and transitioneconomies. As recently as in 1990, only 6 countriesreported outward FDI stocks of more than $5billion; by 2005, that threshold had been exceededby 25 developing and transition economies (annextable B.2).

b. Cross-border mergers andacquisitions on the rise

Data on cross-border M&As provideadditional evidence of the rise of developing andtransition economies as a source of FDI. These dataare affected to a lesser extent than FDI flow databy problems related to round-tripping and trans-shipping. M&As are becoming an important modeof foreign entry, including for TNCs fromdeveloping and transition economies. The valueof their cross-border M&As showed an upwardtrend between 1987 and 1999, reaching anunprecedented level of close to $90 billion in 2005(figure III.3). The recent increase was drivenprimarily by companies from developing Asia. Asa result, between 1987 and 2005, the share ofdeveloping and transition economies in globalcross-border M&A activity rose from 4% to 13%in value terms and from 5% to 17% in terms of the

number of deals. Offshore financial centres playeda significant role in the South-North deals,particularly during the 1999-2001 period.3 But evenexcluding the offshore centres, there has been amarked upturn in M&A activity from the mid-1990sonwards (figure III.3).

In 2005, cross-border M&A purchases byTNCs based in developing countries (excludingoffshore financial centres) and transition economiesof target companies in the North and in the South,respectively, were almost equally large in valueterms (figure III.4). Since 2000, South-Northtransactions have shown particularly fast growth,indicating a growing need among companies in theSouth to acquire strategic assets in developedeconomies and/or speed up their expansion in thesemarkets. The value of South-North M&As(excluding transactions involving offshore centres)rose from $9 billion in 2003 to $43 billion in 2005.

109CHAPTER III

Developing-economy TNCs are engaged ina growing number of mega deals – up from only1 in 1990 to 19 in 2005, and corresponding to 12%(3% in 2000) of total deals having an acquisitionvalue of more than $1 billion (chapter I). However,it should be noted that among all 92 mega dealsundertaken by developing-economy TNCs during

the period 1987-2005, 15 were conducted bydeveloped-country TNCs registered in offshorefinancial centres (e.g. Tyco International, GlobalCrossing). Other cross-border deals involvedforeign affiliates in developing economies that areultimately owned by a developed-country TNC. In2005, such transactions made up approximately

Figure III.3. Cross-border M&As by TNCs from developing and transition economies,by origin of purchaser, 1987-2005

Source: UNCTAD, cross-border M&A database (www.unctad.org/fdistatistics).Note: The offshore financial centres included are the Bahamas, Bermuda, the British Virgin Islands and the Cayman Islands.

Figure III.4. Cross-border M&As by developing and transition economies,by destination, 1987-2005a

Source: UNCTAD.a In this figure, takeovers of targets in transition economies are included in “South”.


c. Greenfield and expansioninvestments

The third data source confirming the risingimportance of developing and transition economiesis information related to greenfield projects orexpansion of existing projects. Whereas the numberof projects is only a crude measure compared todata on the actual capital investments involved,it nevertheless provides an indication of the shareof companies based in different home countries.

The recorded number of FDI projectsoriginating from developing and transitioneconomies rose from close to 800 in 2002 to morethan 1,600 in 2003 (table III.3). Since then, thenumber has dropped somewhat, but has remainedwell above the 2002 level. In 2005, TNCs fromdeveloping and transition economies accounted forabout 15% of all FDI projects for whichinformation was available (table III.3). The tableshows that Asia has been the source of the bulkof these FDI projects.

16% of the total value of cross-border M&Asconcluded by firms from developing countries.Subject to such caveats, the developing economywith the highest value of cross-border M&As wasSingapore, followed by Hong Kong (China) andMalaysia (annex table B.4). Meanwhile, excludingTNCs registered in offshore financial centres, thetop acquirers (in terms of deal value) during 1987-2005 were SingTel (Singapore), followed byHutchison Whampoa (Hong Kong, China) andWeather Investments (Egypt) (table III.1).

Table III.2 presents a ranking of the largestcross-border deals by TNCs from developing andtransition economies, excluding acquisitions byfirms registered in offshore financial centres, forthe period 1987-2005. Several observations canbe made:

• 18 of the top 25 acquisitions were conductedafter 2000, confirming an increased frequencyof large transactions by TNCs from developingand transition economies in recent years.

• Asian companies dominate, accounting for60% of the top 25 deals.

• Most of the largest M&As involved takeoversof developed-country companies.

• South-South acquisitions were mainlyintraregional in nature.

• Some of the acquirers merged with developed-country TNCs; Ambev’s takeover of JohnLabatt was part of a larger merger withInterbrew (Belgium), and YPF merged withRepsol (Spain) in 1999 (see section III.B.4).

Table III.1. Top 15 acquirers based in developingeconomies,a cumulative, 1987-2005

Value NumberRank ($ million)b Acquiring company Home economy of deals

1 36 475 SingTel Singapore 492 15 205 Hutchison Whampoa Ltd Hong Kong, China 583 12 799 Weather Investments II Sarl Egypt 14 12 484 Cemex Mexico 405 9 098 DBS Group (Bank / Holdings Ltd/DBS Land Ltd) Singapore 446 8 152 Ambev Brazil 57 6 925 Saudi Oger Ltd Saudi Arabia 28 6 325 Metro Curtainwall & Cladding Malaysia 29 6 209 Investcorp/Investcorp Bank BSC/Investcorp Bank EC Bahrain 29

10 5 634 America Movil SA Mexico 1911 5 567 CITIC Group China 2212 5 540 Singapore Power Pte Ltd Singapore 813 5 469 Flextronics International Ltd Singapore 5014 4 567 CNPC China 515 3 824 Mobile Telecommunications Co Kuwait 3

Source: UNCTAD, cross-border M&A database (www.unctad.org/fdistatistics).a Data refer to ultimate acquiring companies in developing economies, ranked in descending order of their

cumulative transaction values in 1987-2005.b Cumulative value in millions of dollars for the deals in which the transaction value is known, 1987-2005.

111CHAPTER III

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2. Growing importance of Asia as asource of FDI

The geographical composition of FDI fromdeveloping and transition economies has changedover time, mainly reflecting the growingimportance of Asia as a source region since themid-1980s (figure III.5). That region’s share of thetotal stock of FDI from developing and transitioneconomies stood at 23% in 1980, increasing to 46%by 1990 and to 62% in 2005. Conversely, therelative role of Latin America and the Caribbeanhas declined substantially, from 67% in 1980 to25% in 2005.

In terms of home countries, FDI fromdeveloping and transition economies is relativelyconcentrated.4 In 2005, the top 5 sources accountedfor 66% of the stock of FDI from these economies,and the top 10 for 83% (table III.4). Over time,the Latin America and Caribbean region hasdeclined in importance while FDI from developingAsia has surged. In 1980, Brazil led the list of topFDI sources, followed by Taiwan Province ofChina, Argentina and South Africa. Some WestAsian and North African countries were also amongthe leading investors. By 1990, while Brazilremained at the top, changes were noticeable formany other countries. The Asian newlyindustrializing economies (NIEs) – Hong Kong(China), the Republic of Korea, Singapore andTaiwan Province of China – as well as China andMalaysia were among the top 12 sources. Another10 years later, Brazil had fallen to fifth place,overtaken by three of the Asian NIEs and one

offshore financial centre (the British VirginIslands), while the West Asian and NorthAfrican countries had lost significance assource countries. Since 2000, the main newdevelopment in the list has been the growingimportance of the Russian Federation as asource of FDI: it moved to third positionin 2005. The country’s outward FDI stockshot up from $20 billion in 2000 to $120billion in 2005. Further down in the ranking,the tripling of the outward FDI stock ofMexico is also noteworthy. Argentina andSouth Africa have gradually slipped in theranking since 1990, while China hasremained firmly in the top 10.

In addition to comparisons of countriesin terms of FDI in absolute values – whichtends to place large countries high up inrankings – it is useful to consider outward

FDI patterns taking into account the size ofindividual economies. UNCTAD’s Outward FDIPerformance Index provides one way to compareoutward FDI from different countries in relativeterms, that is, comparing an economy’s share ofworld outward FDI against its share of world GDP(box III.3). According to this index, FDI from HongKong (China) was 10 times larger than would havebeen expected given its share of world GDP. Otherdeveloping economies with comparatively highoutflows include Bahrain, Malaysia, Panama,Singapore and Taiwan Province of China. By thesame token, many of the largest source countriesin absolute terms rank far down in the OutwardFDI Performance Index.

The relative importance and the industrialand geographical focus of FDI from a few of thetop FDI sources highlighted in table III.4 isillustrated by a more detailed account of FDI fromHong Kong (China), the Russian Federation,Singapore, Brazil, China, South Africa and theRepublic of Korea (in that order) (table III.5).Finally, the role of offshore financial centres is alsoaddressed briefly.

Hong Kong (China) is the largest source ofFDI from developing economies and the sixthlargest in the world in terms of outward FDI stockin 2005. The bulk of its overseas FDI is in services,and much of this is related to investments inoffshore financial centres in the Caribbean andChina. In fact, as of 2004, 49% of its outward stockwas in the British Virgin Islands and Bermuda.Hong Kong (China) also plays an important roleas a financial centre for investments into and out

Table III.3. Number of greenfield and expansion FDIprojects by firms based in developing and transition

economies, by source region, 2002-2005a

(Number of projects)

Source region 2002 2003 2004 2005

Africa 46 65 44 65Asia and Oceania 572 1 224 1 079 1 081 South, East and South-East Asia 463 1 021 905 870 West Asia 109 203 174 211Latin America and the Caribbean 89 151 171 97South-East Europe and CIS 75 173 190 188All developing and transition economies 782 1 613 1 480 1 418Share of developing and transitioneconomies in all greenfield andexpansion FDI projects in the world (%) 13.8 17.3 14.9 15.1

Source: UNCTAD, based on information from the LOCOMonitordatabase, and annex table A.I.1.

a Information is available only for 2002-2005. The LOCOMonitordatabase includes both announced and realized projects.

113CHAPTER III

of China – 39% of its overseas FDI stock was inChina in 2004. Some of the FDI outflows fromHong Kong (China) are by foreign affiliates ofTNCs from developed countries and China.5

The Russian Federation is the main sourceof FDI in South-East Europe and the CIS. Itcontributed to 95% of the region’s outward FDIstock in 2005, a high concentration of it being innatural resources. With $13 billion in FDI outflows,

the country became the third largest FDI sourceamong developing and transition economies in2005, after Hong Kong (China) and the BritishVirgin Islands. Russian TNCs in oil, gas and metalindustries are the major players (see sectionIII.B.5), but telecommunications companies arealso actively investing abroad. The largestproportion of its outward FDI has gone to thecountries of South-East Europe and the CIS.

Table III.4. Top 15 developing and transition economies in terms of stocks ofoutward FDI, 1980, 1990, 2000 and 2005

(Millions of dollars)

Rank Economy 1980 Economy 1990 Economy 2000 Economy 2005

1 Brazil 38 545 Brazil 41 044 Hong Kong, China 388 380 Hong Kong, China 470 458 2 Taiwan Province of China 13 009 Taiwan Province of China 30 356 Taiwan Province of China 66 655 British Virgin Islands 123 167 3 Argentina 5 970 South Africa 15 004 British Virgin Islands 64 483 Russian Federation 120 417 4 South Africa 5 541 Hong Kong, China 11 920 Singapore 56 766 Singapore 110 932 5 Mexico 1 632 Singapore 7 808 Brazil 51 946 Taiwan Province of China 97 293 6 Kuwait 1 046 Argentina 6 057 South Africa 32 319 Brazil 71 556 7 Libyan Arab Jamahiriya 870 China 4 455 China 27 768 China 46 311 8 Panama 811 Panama 4 188 Korea, Republic of 26 833 Malaysia 44 480 9 Bermuda 727 Kuwait 3 662 Malaysia 22 874 South Africa 38 503 10 Singapore 623 Mexico 2 672 Argentina 21 141 Korea, Republic of 36 478 11 Bahrain 598 Malaysia 2 671 Cayman Islands 20 553 Cayman Islands 33 747 12 Botswana 440 Korea, Republic of 2 301 Russian Federation 20 141 Mexico 28 040 13 Bahamas 285 Saudi Arabia 1 873 Bermuda 14 942 Argentina 22 633 14 Saudi Arabia 239 Bermuda 1 550 Chile 11 154 Chile 21 286 15 Malaysia 197 Libyan Arab Jamahiriya 1 321 Mexico 8 273 Indonesia 13 735

All developing and All developing and All developing and All developing andtransition economies 72 307 transition economies 148 913 transition economies 893 102 transition economies 1 399 963


Figure III.5. Outward FDI stock, by source region, 1980-2005



Singapore is the fourth largest source ofFDI from developing and transition economies.Four fifths of its outward FDI stock in 2003 wasin developing countries – 46% in South, East andSouth-East Asia and 25% in three offshore financialcentres. FDI from this country has been morewidely distributed than that from Hong Kong(China). Excluding offshore centres, China was themajor recipient of FDI from Singapore, followedby Malaysia, Hong Kong (China) and Indonesia.By 2004, Singapore’s FDI stock in developedcountries had amounted to $30 billion. TemasekHoldings, the State-owned holding company, andlarge government-linked companies (GLCs)accounted for a large proportion of this stock.Almost four fifths of FDI from Singapore has beenin services, notably in financial services.

Brazil has the strongest outward FDIposition in Latin America, being the source of about40% of that region’s FDI stock.6 Its FDI flows havebeen directed mainly to offshore financial centres,two thirds of them going to the Cayman Islands,the Bahamas and the British Virgin Islands in 2004.There are also sizeable stocks of Brazilian FDI inother countries of Latin America, such as Argentinaand Uruguay, and in developed countries such asDenmark, Luxembourg, Spain and the UnitedStates. The largest proportion of the investmentoutside the offshore centres is primarily in trade,mining and construction.

In 2005, FDI from China reached $11 billion,representing the fourth largest outflow fromdeveloping and transition economies (annex tableB.2). However, considering that many large M&A

Box III.3. The Outward FDI Performance Index

The Outward FDI Performance Indexmeasures the world share of an economy’s outwardFDI as a ratio of its share in world GDP (chapterI). The index in this box has been calculated onthe basis of outward FDI stocks (box table III.3.1).Among the leading economies in this ranking areseveral from South-East Asia, West Asia and LatinAmerica.

Some developing economies – Chile, HongKong (China), Malaysia and Singapore – as wellas economies in transition – Azerbaijan and theRussian Federation – have seen increases in theirindex values over the past 10 years (box tableIII.3.1). The fact that their FDI grew faster thantheir share of global GDP may indicate that theirenterprises are building ownership advantagesrapidly and/or are increasingly choosing to exploittheir advantages by establishing operations inforeign locations. Conversely, the values forBahamas, Brazil, Panama and Taiwan Province ofChina fell significantly.

The index value for Hong Kong (China) hasrisen at an exceptionally fast pace, partly reflectingits particular position as a staging post for FDIinto China and as a recipient of “round tripping”FDI by Chinese enterprises. For the 2003-2005period, Singapore and Panama also showeddisproportionately large outflows. However, apartfrom these economies, index values are on averagehigher for developed than for developing countries.Most of the large developing economies withconsiderable absolute levels of outward FDI, suchas Brazil, China, India and Mexico, are found atthe opposite end of the spectrum. The fact that their

Source: UNCTAD.

Box table III.3.1. UNCTAD’s Outward FDIPerformance Index, selected economies,

1993-1995 average and 2003-2005 average(Ranked by 2003-2005)

Rank Economy 1993-1995 2003-2005

1 Hong Kong, China 4.63 9.972 Norway 1.40 5.803 Luxembourg .. 4.994 Switzerland 4.32 4.425 Netherlands 4.13 4.226 Belgium .. 4.007 Singapore 3.61 3.978 Panama 5.45 3.369 United Kingdom 2.72 2.47

10 Sweden 2.80 2.4611 Ireland 3.32 2.2812 Denmark 1.32 1.8413 Finland 1.20 1.7614 France 1.33 1.6615 Iceland 0.24 1.6216 Canada 1.92 1.5017 Bahrain 1.84 1.4618 Germany 1.08 1.4119 Spain 0.59 1.4120 Malaysia 1.07 1.3921 Taiwan Province of China 1.68 1.1922 Australia 1.43 1.1223 Bahamas 4.12 1.1024 Azerbaijan .. 1.0925 Portugal 0.30 1.0626 Austria 0.48 0.9227 Chile 0.34 0.7628 Russian Federation 0.06 0.7329 Cyprus 0.08 0.7330 Malta 0.10 0.7041 Brazil 0.80 0.4259 Korea, Republic of 0.18 0.1862 Mexico 0.11 0.1367 Turkey 0.09 0.1071 China 0.26 0.0988 India 0.01 0.04

Source: UNCTAD.

index values are below 0.5 suggests considerablepotential for future expansion of FDI from theseeconomies.

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deals undertaken by Chinese companies arefinanced outside China, their outward investmentmay be significantly underestimated. Three quartersof China’s outward FDI goes to Hong Kong(China). Part of these outflows can be attributedto round tripping (chapter I). The main activitiesattracting Chinese investments are businessactivities, trade and natural resources. In recentyears, FDI in manufacturing and mining has grownespecially fast, accounting for 60% of total ChineseFDI outflows in 2005.

South Africa is the leading African sourceof FDI, accounting for over 70% of the region’stotal outward FDI stock. As early as the 1970s ithad already become a major source of FDI fromdeveloping countries. Flows have beenconcentrated in developed countries: three quartersof the country’s outward FDI stock is in Europeand about one tenth in North America.7 Althoughonly 9% of its outward FDI goes to Africa, thecountry is among the leading foreign investors inmany African countries. The industrial compositionof South African investment is relatively varied(see section III.B.2).

Over the past two decades, the Republic ofKorea has been rapidly emerging as a source ofoutward FDI. At the end of 2004, the largest shareof i ts outward FDI stock was in Asia (43%)followed by North America (27%) and Europe(17%).8 Asia’s share of Korean FDI has beenincreasing since 1990 owing to rapidly growinginvestments in China. Sector-wise, most of this FDIgoes to manufacturing and trade (wholesale and

retail); as of 2004, 53% of the outward stock wasin manufacturing (especially in electronic andelectrical equipment), and 22% in trade.9

As mentioned above, a significant share ofFDI from developing and transition economiesoriginates from offshore financial centres. TheBritish Virgin Islands is by far the largest suchsource, with an outward FDI stock in 2005estimated at $123 billion. From a statistical pointof view, trans-shipping FDI via offshore financialcentres makes it difficult to estimate the real sizeof outward FDI from specific economies and byspecific companies (box III.1). In some years, flowsfrom these centres have been particularly large.However, since its peak in 2000, which was relatedto the global M&A boom (figure III.4), outwardFDI from offshore financial centres has declinedconsiderably to one tenth of the total flows of FDIfrom developing and transition economies in 2005(figure III.6).

3. Services dominateA sectoral breakdown of the outward FDI

stock from developing and transition economiesdemonstrates the importance of the services sector.It accounted for 81% of the total outward FDI stockof the developing and transition economies in 2004(table III.6). The concentration in services isparticularly accentuated in Hong Kong (China).As seen from the table, if that economy is excluded,the share of services in 2004 falls to about 71%,while that of manufacturing increases to 25%.10

Table III.5. Basic facts about the outward FDI stock of major developing andtransition economies, 2005 or latest year available

OutwardOutward Outward stock as

stock stock per share ofEconomy ($ millions) capita ($) GDP (%) Top five recipients Top three industries

Hong Kong, China 470 458 66 818 265 British Virgin Islands, China, Bermuda, Business activities; trade, transport;United Kingdom, Japana storage and communicationsa

Russian Federation 120 417 841 16 United States, Cyprus, Netherlands, Transport, storage and communications;United Kingdom, Germanyc mining, quarrying and petroleum; food,

beverages and tobaccoc

Singapore 110 932 25 646 94 British Virgin Islands, China, Malaysia, Finance; transport, storage andBermuda, Hong Kong (China)b communications; trade b

Brazil 71 556 384 9 Cayman Islands, Bahamas, British Business and finance activities; trade;Virgin Islands, Uruguay, United Statesb mining and constructiona

China 46 311 35 2 Hong Kong (China), Cayman Islands, Business activities; trade; mining,Virgin Islands, United States, quarrying and petroleuma

Russian Federationa

South Africa 38 503 812 16 United Kingdom, Luxembourg, Belgium, ..United States, Austriab

Korea, Republic of 36 478 763 5 United States, China, Netherlands, Trade; electronic and electricalBermuda, Hong Kong (China)c equipment; textiles and clothinga

Source: UNCTAD, annex tables B.2 and B.3 and FDI/TNC database (www.unctad.org/fdistatistics).a 2004.b 2003.c 2002.


In comparison, the share of services in the stockof outward FDI from developed countries stoodat 67% in 2004, and that of manufacturing at about28%.11

The dominance of services is confirmed infigure III.7, which shows the sectoral compositionof cross-border M&As by companies based indeveloping and transition economies. In 2005, forexample, 63% of the total value of suchtransactions involved services. By industry, thehighest shares that year were recorded for transport,

Figure III.6. Shares of the main offshore financial centresa in FDI flows from developingand transition economies, 1980-2005

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics).a These include Bermuda, the British Virgin Islands and the Cayman Islands.

Figure III.7. Cross-border M&A purchases by companies based in developing andtransition economies, by sector, 1987-2005

Source: UNCTAD, cross-border M&A database (www.unctad.org/fdistatistics).

Table III.6. Outward FDI stock of developingand transition economies, by sector, 2004

Percentage Millions of dollars share in total

2004 2004a 2004 2004a

Primary 11 420 11 532 1.3 3.1Secondary 117 047 92 821 13.5 24.7Tertiary 704 014 267 416 81.0 71.0Unspecified 37 075 4 693 4.3 1.2

Source: UNCTAD, FDI/TNC database.a Excluding Hong Kong (China).

117CHAPTER III

storage and communications (37%), mining (10%),financial services (10%) and food and beverages(7%).

In the primary sector , developing andtransition economies are important sources of FDIin agriculture, accounting in 2004 for 17% of theworld total (table III.7). Their investments inmining, quarrying and petroleum remain at a lowlevel from a global perspective. However, thissituation seems to be changing as a result of theincreased demand for natural resources bycompanies in such economies as China, India andthe Russian Federation (chapter II, chapter IV).In manufacturing , developing and transitioneconomies have made inroads into such industriesas electrical and electronic equipment (with an7.8% share of global outward FDI stock in thisindustry in 2004), non-metallic mineral products(4.3%) and rubber and plastic products (3.7%)(table III.7). In services, the shares of developingand transition economies in the global outward FDIstock are particularly high in trade (15%), businessactivities (14%), construction (12%), hotels andrestaurants (9%) and transport, storage andcommunications (8%).12

4. South-South FDI becomessignificant

The rise of FDI from developing as well astransition economies is of particular relevance tolow-income countries. In fact, most of the outflowsstay within the developing and transitioneconomies. UNCTAD estimates suggest thatSouth-South FDI has expanded especially fast overthe past 15 years.13

As shown in table III.8, total outflows fromdeveloping and transition economies amounted toabout $127 billion in 2004. However, in order todisregard flows that are undertaken for purelyfinancial reasons, it is appropriate to excludetransactions related to offshore financial centres.An analysis of the remaining total outflows fromdeveloping and transition economies shows anincrease in FDI, from about $4 billion in 1985 to$61 billion in 2004. Most of these investments weredestined for other developing or transitioneconomies (excluding offshore financial centres).In fact, FDI within that group of countriesincreased from $2 billion in 1985 to $59.8 billionin 2004. As data related to transition economies

account for a very small proportion of thesetransactions, this estimate can also be used asa proxy for the size of South-South FDI.14

The bulk of South-South FDI (excludingoffshore financial centres) is intraregional innature (figure III.8). In fact, during the period2002-2004, intra-Asian annual average flowsamounted to an estimated $48 billion, or morethan four fifths of all flows shown in figure III.8.Intraregional FDI accounted for almost half oftotal flows to Asia, and was particularlypronounced between and within East Asia andSouth-East Asia.15 Intra-ASEAN investmentaccounted for one fifth of total FDI stock in thissubregion. The second largest stream of FDIwithin the group of developing countries wasintraregional investment within Latin America,mainly driven by investors in Argentina, Braziland Mexico. Intraregional flows within Africawere an estimated $2 billion during 2002-2004,reflecting, in particular, South African FDI inthe rest of the continent.

Figure III.8 also shows that interregional FDIgoes primarily from Asia to Africa ($1.2 billion).For example, China and Malaysia are among thetop 10 sources of FDI in Africa (UNCTAD2005d). The second largest interregional capitalflow is from Latin America to Asia ($750

Table III.7. Outward FDI stock of developing andtransition economies, by sector and

selected industries, 2004

Value Share(millions of in world

Sector/industry dollars) (per cent)

Primary 11 420 2.6Agriculture, hunting, forestry and fishing 1 107 17.3Mining, quarrying and petroleum 10 313 2.4Manufacturing 117 047 4.4Food, beverages and tobacco 2 243 0.9Textiles, clothing and leather 3 043 2.0Wood and wood products 1 584 2.7Chemicals and chemical products 5 082 0.8Rubber and plastic products 1 050 3.7Non-metallic mineral products 1 082 4.3Metals and metal products 2 877 1.3Electrical and electronic equipment 17 745 7.8Motor vehicles and other transport equipment 1 722 0.5Services 704 014 10.3Electricity, gas and water 2 878 2.5Construction 6 949 11.7Trade 98 983 14.6Hotels and restaurants 8 476 8.7Transport, storage and communications 55 005 8.2Finance 162 476 7.3Business activities 350 572 14.0Other services 12 548 8.9Unspecified tertiary 4 710 1.5Unspecified 37 075 49.1

Total 869 556 8.7

Source: UNCTAD, based on annex table A.I.3.Note: Based on data for 16 developing and transition

economies. These economies accounted for 73% of thetotal outward FDI stock of developing and transitioneconomies in 2004.


million) while, perhaps somewhat surprisingly, totalflows of Asian FDI into the Latin American regionwere modest during the period 2002-2004.16

Investment flows between Latin America and Africawere negligible.

An analysis of host country data shedsadditional light on the growing role of FDI fromdeveloping and transition economies. Table III.9shows that the share of the stock of inward FDIin developing and transition economies controlledby firms based in developed countries fell from74% in 1990 to 44% in 2000. After that, the shareappears to have stabilized at about 46%.

The role of TNCs from developing andtransition economies as an important source ofinvestment is particularly pronounced in severallow-income countries. Figure III.9 depicts therelationship between the development stage of ahost country (as measured by real GDP per capita)and the shares of FDI from developing andtransition economies in total inward FDI. Amongthe countries with low incomes and highdependence on FDI from developing and transitioneconomies are China, Kyrgyzstan, Paraguay,Thailand and the LDCs of Bangladesh, Cambodia,Ethiopia, the Lao People’s Republic, Myanmar andthe United Republic of Tanzania. FDI from

Table III.8. FDI from developing and transition economies, 1985-2004(Billions of dollars)

FDI from developing and transition economiesTotal excluding offshore financial centres

FDI from all developing To other developingYear and transition economies Total To developed countries and transition economies

1985 4.3 3.8 1.9 2.01986 5.1 5.0 2.9 2.11987 6.7 6.3 4.2 2.11988 12.1 11.6 6.8 4.81989 19.6 15.2 6.7 8.51990 12.7 11.6 5.0 6.51991 13.7 10.7 3.7 7.01992 24.8 23.0 5.1 18.01993 40.8 34.1 2.6 31.51994 48.6 39.3 4.1 35.21995 56.0 46.3 4.6 41.81996 64.8 50.5 5.0 45.51997 82.7 54.5 11.0 43.51998 54.9 16.3 1.1 15.21999 91.9 38.7 7.5 31.22000 146.9 73.3 24.7 48.62001 79.4 46.5 10.7 35.92002 54.4 43.5 12.2 31.22003 46.3 36.6 9.6 27.02004 126.8 60.8 1.0 59.8

Source: UNCTAD, FDI database.Notes: Estimates of FDI from developing and transition economies were derived as follows. First, total FDI flows from developing

and transition economies were calculated from the data provided by recipient countries. The number of economiesused for these estimates vary between 32 and 82, depending on the year, but they account for most of the FDIflows from developing and transition economies Then, these estimates were broken down by destination (i.e. FDIto developed countries and to other developing and transition economies). Finally, the share of each group wasapplied to total outflows as reported by developing and transition economies (annex table B.1). This estimationprocess can be expressed as follows:(1) = Inward FDI into developed countries from developing and transition economies(2) = Inward FDI into other developing and transition economies from these economies(3) = (1) + (2) = total FDI from developing and transition economies(4) = (1)/(3)(5) = (2)/(3)

Outflows from developing and transition economies to developed countries = (4) x outflows from developing andtransition economies. Outflows from developing and transition economies to other developing and transition economies= (5) x outflows from developing and transition economies.

FDI estimates from developing and transition economies excluding offshore financial centres were calculated asfollows: first, FDI from the Caribbean and other America (mainly Bermuda, the British Virgin Islands and the CaymanIslands) were subtracted from the total FDI flows from developing and transition economies, using the data providedby recipient countries. Then the same procedures as above were used, applying the shares of each group (developingand transition economies to developed countries, and developing and transition economies to other developingand transition economies) to the total outflows from developing and transition economies (annex table B.1). Thelatter, however, was adjusted to exclude outflows to the offshore financial centres which, in turn, were derived fromdata provided by developing and transition source economies.

119CHAPTER III

Figure III.8. Intraregional and interregional flows in developing countries excludingoffshore financial centres, average 2002-2004


Source: UNCTAD, FDI/TNC database.Note: The figures above refer to the estimated value of interregional and intraregional flows of the three regions (Africa,

Latin America and Asia), excluding the main offshore financial centres. The figures were derived as follows: firsttotal inward FDI flows for each region are calculated from the data of individual recipient countries for the averageperiod 2002-2004 or latest period available. The share of each source group is applied to the total inflows of eachrecipient group for the period average 2002-2004. Eleven countries were covered in Africa (accounting for 45%of all inward flows to Africa in 2002-2004), 15 countries in Latin America (accounting for 99% of inward flows toLatin America) and 25 countries in Asia (accounting for 93% of inward flows to Asia). Due to differences in the coverageof countries, the sum of all figures presented here may not be comparable to the total FDI outflows from developingcountries (annex table B.1) and to table III.8. Furthermore, the total figures in table III.8 were estimated by applyingthe shares to the total outflows of developing as well as transition economies.

Table III.9. Inward FDI stock of developing and transition economies,by major country groups, 1990-2004a

Share in world inward stock (per cent)

Year World Developed countries Developing economies South-East Europe and CIS Unspecified

1990 100.0 73.8 22.2 0.0 4.01995 100.0 59.3 34.7 0.2 5.92000 100.0 44.4 51.4 0.1 4.12004a 100.0 46.3 49.8 0.2 3.7

Source: UNCTAD, FDI/TNC database.a Or latest year available.Notes: For 1990, 1995 and 2000, only recipient countries for which data for the three main regions were available, were

included. Therefore, the number of countries comprising the totals for developing countries and SEE and CIS asa group may vary for the years, depending on the availability of data for each recipient country. For 1990, 24 countriesare covered (accounting for 53% of inward stock to developing countries and SEE and CIS in 1990), 33 in 1995(accounting for 69% of inward stock to developing countries and SEE and CIS in 1995) and 32 in 2000 (accountingfor 72% of inward stock to developing countries and SEE and CIS in 2000).For 2004, data for the latest year available between 2001 and 2005 were used, covering 35 countries (accountingfor 62% of inward stock to developing countries and SEE and CIS in 2004). Data refer to 2005 for El Salvadorand Saudi Arabia; 2004 for Hong Kong (China), Macao (China), Madagascar, Malaysia, Myanmar, Pakistan, Philippines,South Africa, Sri Lanka, Thailand and Turkey; 2003 for Argentina, Armenia, Botswana, Singapore, Syrian Arab Republicand Uganda; 2002 for Azerbaijan, Cambodia, China, Kazakhstan, Mongolia, Peru, Republic of Korea, RussianFederation, Taiwan Province of China, Venezuela and Viet Nam; and 2001 for Bangladesh, Chile, Paraguay, UnitedRepublic of Tanzania and Zambia.


developing countries accounts for well over 40%of the total inward FDI of a number of LDCs (tableIII.10). As noted earlier, for many Africancountries, South Africa is a particularly importantsource of FDI. For example, more than 50% of allFDI inflows in Botswana, the Democratic Republicof the Congo, Lesotho, Malawi, Swaziland comefrom South African investors (Rumney and Pingo2004). Moreover, it is possible that the role ofSouth-South FDI is understated in official FDI data,since a significant amount of such investment goesto the informal sector of low-income economies,which is outside the realm of government statistics.

The relative importance of South-South FDIin developing host countries is confirmed by micro-level data. While TNCs from developing ortransition economies were responsible for 15% ofall greenfield and expansion FDI projects in theworld during the period 2002-2005, their share wasconsiderably higher in developing and transitioneconomies, and especially high in West Asia (33%)and Africa (29%) (table III.11).

Investment from developing and transitioneconomies sti l l accounts for a small share ofinflows to developed countries, but it is startingto rise. For example, the share of developing and

Figure III.9. Relationship between real GDP per capita and the share of developing andtransition economies in total FDI inflows,a 2002-2004b

Source: UNCTAD based on FDI TNC/FDI database (www.unctad.org/fdistatistics) for FDI data and UNCTAD secretariat forGDP data.

a Based on 76 economies.b The periods 2000-2002 and 2001-2003 were used where data for 2003 and/or 2004 were not available.

121CHAPTER III

transition economies in FDI inflows into the UnitedKingdom rose from 2% in 1994 to 11% in 2004.There is also an increasing number of foreignaffiliates of TNCs from developing and transitioneconomies in some developed countries (tableIII.12). For example, in Japan their numberincreased from 157 in 1990 to 277 in 2001, andin Sweden, from 3 in 1990 to 266 in 2003. As

highlighted in chapter VI, this trend has generatedmixed reactions among stakeholders in developedhost countries.

Table III.10. FDI from developing and transitioneconomies to selected LDCs, various years

Flows StockShare in total Share in total

Recipient economy Period/year FDI (%) Year FDI (%)

Bangladesh 1995-1997 9 1995 172002-2004 39 2001 13

Cambodia 1995-1997 63 1994 812002-2004 64 a 2002 73

Ethiopia 1992-1994 100 1995 772002-2004 51 .. ..

Lao People’s Dem. Rep. 1995-1997 93 a 1990 47 b

2002-2004 45 a 1999 70 b

Madagascar 2003 29 2003 272004 54 2004 36

Mozambique 2003 103 b .. ..2004 47 b .. ..

Myanmar 1995-1997 39 a 1990 33 b

2002-2004 56 a 2004 61 b

Nepal 1990-1992 46 b 1990 58 b

1996-1998 65 b 1999 63 b

Solomon Islands 1994-1996 56 b .. ..Uganda .. .. 1999 48

.. .. 2003 36United Rep. of Tanzania .. .. 1998 36

1999-2001 41 2001 44Vanuatu 1999 7 .. ..

2000-2002 19 .. ..Zambia .. .. 2000 21

.. .. 2001 20

Source: UNCTAD, FDI/TNC database.a Based on information provided by the ASEAN Secretariat.b Data are on an approval basis.

Table III.11. FDI projects undertaken by TNCsfrom developing or transition economies,

by destination region, 2002-2005

Share of allFDI projects

in regionPartner region/economy Number (per cent)

Total world 5 310 15.4Developed countries 1 306 8.9Developing economies 3 312 20.8

Africa 339 28.6Latin America and the Caribbean 414 15.3Asia and Oceania 2 559 21.3

West Asia 507 33.2South, East and South-East Asia 2 048 19.5

South-East Europe and the CIS 692 18.3

Source: UNCTAD, based on information from OCOconsulting, LOCOmonitor website(www.locomonitor.com).

Table III.12. Number of foreign affiliates ofTNCs from developing and transitioneconomies, selected developed host

countries, various years(Number of affiliates)

Host country Year Number of affiliates

Finland 1995 242001 40

France 1995 1982001 235

Ireland 1998 192002 31

Italy 1991 221999 38

Japan 1990 1572001 277

Poland 1997 122001 17

Slovenia 1996 2812000 294

Swedena 1990 32003 266

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics)

a Majority-owned foreign affiliates only.


B. Global and regionalplayers emerging from

developing and transitioneconomies

The expansion of FDI from developing andtransition economies is steadily transforming theuniverse of TNCs. TNCs based in these emergingsources of FDI have multiplied rapidly in the pastdecade, but they have very diverse characteristics.Although most of them are relatively small, anumber of large TNCs with global reach have alsoappeared on the scene. Their presence is observedmore in some industries than in others, but withnotable variations between different homeeconomies and regions. Compared with theirdeveloped-country counterparts, State ownershipis relatively common among the largest TNCs fromdeveloping and transition economies, especiallyin the primary sector.

In order to gain a better understanding ofthe scope and nature of the phenomenon, and toset the stage for the subsequent analysis of driversand the economic implications, as well as for thepolicy discussion, this section provides an overviewof the main TNCs in different parts of thedeveloping world and in South-East Europe andthe CIS. The picture that emerges is one ofsignificant diversity both between and withinregions, as far as the characteristics of TNCs areconcerned.

1. The rise of TNCs from developingand transition economies

Developing and transition economies nowaccount for an estimated one fourth of the totalnumber of TNCs in the world (annex table A.I.6).Statistics from governments that report data on thenumber of parent companies indicate fast growthin recent years. For example, the number of parentcompanies in Brazil, China, Hong Kong (China),India and the Republic of Korea increased over thepast decade by 450% from 2,700 to more than14,800 (table III .13). By comparison, thecorresponding growth rate of parent companiesbased in developed countries was only 47% in thesame period.

Most of these parent companies are relativelysmall TNCs with a limited geographical reach.However, the number of large TNCs is on the rise.One indication of this is the growing number of

developing-country firms that appear on listsshowing the largest companies in the world. Around1990, there were only 19 such companies amongthe Fortune 500; by 2005, the number had risento 47.17 Rankings of companies in several importantindustries show the competitive positions of TNCsfrom developing and transition economies (tableIII.14). Some have achieved important globalpositions in industries such as automotives,chemicals, electronics, petroleum refining and steel,and in services such as banking, shipping,telecommunications and construction. Developing-economy TNCs have a particularly strong presencein container shipping, petroleum refining and steel.

The average size of the largest developing-economy TNCs has risen significantly, as has thedegree of their transnationalization (chapter I). Theshares of their foreign to total assets, sales andemployment rose rapidly during the period 1993-2004. Their foreign affiliates have become morewidely distributed globally, not only in developingand transition economies, but also in developedcountries (figure III.10). Still, as noted in chapterI (table I .18), the 100 largest TNCs fromdeveloping countries show a relatively strongpreference for locations in developing economiescompared with the 100 largest global TNCs. Forthe latter group of TNCs the five most favouredlocations were all developed countries; for theformer, three of the five were developingeconomies (Hong Kong (China), China andSingapore).

Another distinguishing feature between thelargest TNCs globally and those from developingcountries is the role of State ownership. Amongthe top 100 TNCs in the world (annex table A.I.11),only five are majority-owned by the State, three

Table III.13. Number of parent companies,selected developing economies, selected years

Rate ofEarly Early increase

Economy 1990s (year) 2000s (year) (Per cent)

Brazil 566 (1992) 1 225 (2005) 116China 379 (1993) 3 429 (2005) 805Hong Kong (China) 500 (1991) 948 (2002) 90India 187 (1991) 1 700 (2003) 809Korea, Republic of 1 049 (1991) 7 460 (2005) 611Total 2 681 14 762 451

Developed countries 34 280 50 520 47

Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), and annex table A.I.6.

Note: See footnotes in annex table A.I.6 for the nature ofdata.

123CHAPTER III

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Figure III.10. Distribution of foreign affiliates by TNCs from developing and transitioneconomies, 1989 and 2005

Source: UNCTAD, FDI/TNC database, on the basis of Who Owns Whom (Dun and Bradstreet).Note: Based on 11,736 majority-owned foreign affiliates in 2005 (8,877 in 1999 and 2,851 in 1989) that were established

by 8,038 TNCs from developing countries (5,913 and 1,681, respectively).

of which are developing-country TNCs (CITICGroup, Petronas, Singtel).18 In contrast, almosta quarter of the 100 largest developing-countryTNCs are State-owned. State ownership isparticularly common in the primary sector.

The following subsections provide additionalinformation on the main players, both regional andglobal, that have emerged in Africa, Asia, Latin

America, and South-East Europe and the CIS,highlighting some of their specific characteristics.The analysis draws on UNCTAD field research aswell as some recent studies by various internationalorganizations, private consultancy firms andacademics. Special attention is paid to geographicaland industrial distribution, market orientation(regional versus global) and ownership patterns.

125CHAPTER III

2. TNCs from Africa

In terms of major players, TNCs from SouthAfrica have undertaken the most outwardinvestment among African countries. In NorthAfrica, Egyptian TNCs have been the majorplayers.19 Beyond these two home countries,African outward FDI involves mainly small andmedium-sized enterprises (SMEs) with fairlylimited foreign assets. Sector-wise, the top Africaninvestors are active in a wide range of industries.Many of them have a significant presence invarious parts of the African continent as well asin West Asia, and some TNCs have also venturedfurther afield. Among the top TNCs from Africa,private ownership predominates, but intransportation and energy, State-owned investorsplay a significant role.

South Africa is home to most of the largestAfrican TNCs. In UNCTAD’s list of top 100 non-financial TNCs from developing countries (annextable A.I.12), 10 out of 11 African companies arefrom South Africa. Ranked by foreign assets, theleading ones in 2004 were Sasol, Sappi and theMTN Group, whereas by total sales the top triowere Sasol, Metro Cash & Carry and Bidvest (tableIII.15). The industrial composition of the Africanoutward investors is remarkably varied, rangingfrom mining to chemicals, metals and paperproduction in manufacturing, and retail, telecoms,media and transportation in services.

The internationalization of South Africanfirms accelerated after 1990, following the removalof sanctions and the Government’s liberalization

of outward FDI.20 Some of the large TNCs havealready reached a relatively high level ofinternationalization, with more than half of theirsales and assets abroad. The internationalizationof many South African TNCs has focused mainlyon the African region. Of the top 100 companieslisted on the Johannesburg Stock Exchange in 2005,60 have direct ownership of foreign affiliates inthe rest of Africa; another 26 are holding companiesthat indirectly control foreign affiliates in Africa(Edge Institute 2005).21 Nine companies haveforeign affiliates only in non-African locations,all of them in the United Kingdom, the UnitedStates and Switzerland, with one exception(Harmony Gold Mining, which has a presence inPeru and Papua New Guinea).22 South Africanbanks, including Standard Bank, ABSA Group,FNB/RMB, Nedbank and Nedcor, are also activethroughout the region, and some have a globalpresence. For example, Standard Bank Groupoperates in 17 African countries and 21 others.

While large private companies play a leadingrole in outward FDI, State-owned enterprises (e.g.Eskom and Transnet) and SMEs have alsocontributed to the increased FDI from South Africa.These companies tend to place more emphasis oninvestments close to home and in neighbouringAfrican countries (Spicer 2006). Consequently,their investments outside Africa are insignificant.The outward expansion by Eskom and Transnetreflects the Government’s efforts to boostdevelopment throughout Southern Africa as partof its commitment to the New Partnership forAfrica’s Development (NEPAD) initiative (Rumney2005).

Table III.15. Top South African non-financial TNCs, ranked by sales, 2004

Sales Degree of internationalization

Company ($ billion) Industry Foreign to total sales (%) Foreign to total assets (%)

Sasol 10.7 Industrial chemicals 38 38Metro Cash & Carry 9.1 Retail .. ..Bidvest 9.0 Trading activities 35 44Transnet 8.2 Transportation .. ..Telkom 7.6 Telecommunications 2 3Eskom 7.6 Electricity .. ..Barloworld 6.5 Diversified 54 51Imperial Holdings 6.2 Automotives .. ..MTN Group 5.1 Telecommunications 37 57Shoprite Holdings 4.8 Retail 10 16Sappi 4.7 Paper 74 68Tiger Brands 4.5 Agroindustry .. ..Massmart Holdings 4.2 Retail 5 6Nampak 3.1 Packaging 74 68AngloGold Ashanti 2.9 Mining 67 50

Source: UNCTAD, based on Jeune Afrique L’intelligent, 2006, company information and the UNCTAD/Erasmus Universitydatabase on largest TNCs.


3. TNCs from Asia

The recent rise of TNCs from developingcountries has been driven mainly by Asia. Thisregion now accounts for around four fifths of thetop 100 TNCs from developing countries (chapterI). The expansion of the Asian TNCs has takenplace in the context of rapid economic growth insome Asian economies that have successfullyintegrated into the global production system.Although interrupted by the 1997 financial crisis,

the development performance of many of theseeconomies has been outstanding in comparison withboth developed countries and other parts of thedeveloping world.26 The expansion of the AsianTNCs has also been closely intertwined with theevolving regional institutional and policy context.Many of these companies have benefited frombeing part of regional or global productionnetworks, the formation of which has beenfacilitated by progressive regional integration.Meanwhile, an actively outward-oriented policy

Some significant global players of SouthAfrican origin (e.g. Anglo American, Billiton(precursor to BHP Billiton), Dimension Data, OldMutual and South African Breweries (precursor toSABMiller)), shifted their primary listing from theJohannesburg Stock Exchange to the London StockExchange between 1997 and 2000, thus droppingout of UNCTAD’s list of large TNCs fromdeveloping countries. By transferring their primarylisting to London (partly to access the internationalfinancial markets) and subsequently undertakingM&As, many of them became leading globalplayers. For example, Anglo American has emergedas one of the top global mining companies,23 andthe merger of South African Breweries in 2002 withMiller (United States) created SABMiller, thesecond largest brewing company in the world.

In UNCTAD’s list of top 100 developing-country TNCs, the only African TNC that is notfrom South Africa is Orascom ConstructionIndustries (Egypt). This company, along with

Orascom Telecom Holdings, Orascom Hotels andDevelopment and Orascom Technologies, is asubsidiary of Orascom Group, which in turn isowned by the Sawiris family (box III.4). LargeState-owned enterprises also play an important rolein the Egyptian economy,24 but their level ofinternationalization is generally low.

Beyond South Africa and Egypt, Algeria,Botswana, Côte d’Ivoire, Liberia, the Libyan ArabJamahiriya, Morocco and Nigeria all have outwardFDI stocks of over $500 million (annex tableB.2).25 With few exceptions, TNCs from thesecountries are SMEs. However, they do not confineall their investments to the region. For example,more than half of the Nigerian outward FDI hasgone to developed countries. These countries’TNCs invest mainly in natural resources. Forexample, Oando Group (Nigeria’s largest energygroup) has investments in a range of energycompanies across West Africa and has expandedits operations into Southern African countries,including Angola and South Africa.

Box III.4. The Orascom Group

The total capitalization of the OrascomGroup amounts to more than 40% of the overallvalue of the Egyptian stock market (Bonaglia andGoldstein 2006).

Orascom Telecom Holdings has used aseries of acquisitions to achieve its strategicobjective of becoming the number one mobiletelecom operator in the Middle East and Africa.In 2000, the company bought an 80% stake inTelecel, which at the time held licences in 15 sub-Saharan African countries. In 2001, it securedthe mobile network licence in Algeria with a bidof $737 million. In recent years, the company haswidened its geographic coverage. In 2004, itexpanded to Bangladesh, Iraq, Pakistan andTunisia. In May 2005, via its financial vehicle

Source: UNCTAD.

(Weather Investments), it entered the Europeanmarket by acquiring Wind Telecommunicazioni(Italy), an operator with 14 million subscribersand i4.7 billion in revenues (2004), in a dealvalued at $12.8 billion (table III.2). In December2005, it invested $1.3 billion to buy a 19.3% stakeof Hutchison Telecommunications InternationalLimited (Hong Kong, China), which operates ineight different countries or territories.

Orascom Construction Industries is the thirdlargest construction contractor in Africa after theArab Contractors (O.A.O. & Co.) (Egypt) andGrinaker-LTA (South Africa). More than half ofthe company’s total revenues came from foreignmarkets in 2003. The corresponding share for thelarger Arab Contractors was only 14%.

127CHAPTER III

approach over the past few decades has helpedenhance the global reach of TNCs from the region.Indeed, a number of them have emerged ascompetitive global players (table III.14). Operatingin a wide spectrum of service and manufacturingindustries, some are very large and highlyinternationalized. While there are importantexamples of State-owned or government-linkedenterprises, in particular in monopolized servicesor natural resources, most of the top Asian TNCsare privately owned.

Countries and subregions in Asia vary widelyin terms of economic size, industrial structure,resource abundance, development level andstrategy, and, consequently, so do the characteristicsof their TNCs. The analysis in this section istherefore divided into three parts: TNCs from Eastand South-East Asia, from South Asia and from WestAsia. Almost all the largest Asian TNCs come fromEast and South-East Asia, with some exceptions, suchas IT service providers from South Asia and somecompanies from West Asia. To provide a fullerpicture, attention is given to both large TNCs inEast and South-East Asia as well as relatively smallones in South Asia and West Asia.

a. TNCs from East and South-EastAsia

The subregion of East and South-East Asiais home to most of the top TNCs from the South;of the top 100 developing-country TNCs in 2004,77 were based in this subregion. Five of them arealso among the top 100 global TNCs (annex tableA.I.11). Ranked 16th globally by foreign assets,Hutchison Whampoa (Hong Kong, China) leads,followed by Petronas (Malaysia), Singtel(Singapore), Samsung Electronics (Republic ofKorea) and CITIC Group (China). TNCs from thissubregion are concentrated in a handful ofrelatively high-income economies: the four AsianNIEs, China and Malaysia (annex table A.I.12).

The 77 largest TNCs from East and South-East Asia operate in a wide variety of industries.In the primary sector, there are four State-ownedoil companies: Petronas (Malaysia), CNPC andCNOOC (both China) and PTTEP (Thailand). Inservices, transportation counts 8 TNCs, followedby trade (4), hotels (4) and telecommunications(3) – all of which are location-bound, non-tradableactivities. In manufacturing, there are as many as18 companies in the electronics, computers andperipherals category, most of which are from the

NIEs. Another five TNCs are found in the food andbeverages industry.

The rise of these and other TNCs in Eastand South-East Asia has taken place in the contextof rapid industrial upgrading in the subregion.During the 1970s, companies from this subregioncontributed to the first wave of FDI fromdeveloping countries, although to a lesser degreethan their Latin American counterparts. Inparticular, companies from the four Asian NIEsaccelerated their overseas expansion in the 1980s.By the mid-1990s, large enterprises from otherSouth-East Asian economies, especially Malaysia andThailand, also began to expand abroad, interruptedonly briefly by the Asian financial crisis. Theinternationalization of Chinese companies sincethe launch of that country’s open-door policy, andin particular after the mid-1990s, has also added tothe growing importance of Asian TNCs.

Among developing-country TNCs,companies from the NIEs pioneered the pursuit ofa global strategy. Different characteristics andstructures of these economies have influenced thespecialization and strengths of their corporations.As trade entrepôts and financial centres, HongKong (China) and Singapore are home to some verylarge TNCs in the services sector, such asHutchison Whampoa, Singtel, Singapore Airlinesand PSA International. The Republic of Korea andTaiwan Province of China boast a number of largeand competitive TNCs in manufacturing, whileSingapore also has large TNCs in manufacturing,particularly in electronics and food and beverages.

In the Republic of Korea, Hyundai Motor,LG. Chem, Samsung Electronics, LG Electronics,SK and Posco are examples of companies that haveestablished global positions in such industries asautomotives, chemicals, electronics, petroleumrefining and steel (table III.14). These companieshave evolved from chaebols – large, private-ownedconglomerates that have been supported byproactive government policies. Strongly hit by the1997 financial crisis, the chaebols had to undertakerestructuring programmes (Chang 2003), whichresulted in a more diversified ownership structure,sometimes with significant foreign participation.Consequently, they have become stronger and morefocused global players. For example, SamsungElectronics long modelled itself on Sony, whichwas already an established global brand in 1969when Samsung was a start-up in a Quonset hut.27

By 2004, Samsung Electronics’ revenue hadsurpassed that of Sony and its profits were fivetimes higher (box III.5).


Box III.5. Internationalization of Samsung Electronics

In 1969, Samsung entered the electronicsindustry with the incorporation of SamsungElectronics Co., which became listed on the KoreaStock Exchange in 1975. Initially, its focus wason the development of mass production capability.International linkages were established throughthe creation of joint ventures with foreigntechnology suppliers such as NEC, Sanyo andCorning Glass Works, enabling it to acquireproduct designs and marketing outlets. As itscapabilities grew, it ventured into internationalproduction.

Samsung’s earliest overseas productionefforts were a Portuguese joint venture operationstarted in 1982, and an investment in the UnitedStates in 1984. Following unsatisfactory resultswith production in that country, the companybegan to concentrate more on establishing low-cost manufacturing plants in Mexico, Central andEastern Europe and South-East Asia. It was onlyby reorienting its international production to low-cost operations in peripheral areas that it was ableto match its capabilities with its network structure.Meanwhile, encouraged by its profitability in itssemiconductor business, Samsung Electronics

began to acquire new capabilities throughacquisition of or direct investment in foreign firmsin the 1990s.

As of 2005, Samsung Electronics’ domesticsales represented only 18% of its total revenueand the remaining comprised overseas sales inAsia (42%), Europe (24%), the United States(15%) and others (1%). The company had 67foreign affiliates (26 production sites, 38 salesaffiliates and 3 logistics centres) and 20 brancheson almost every continent. Employees abroadcomprised 37% of the total workforce. In 2005,the company invested $5.4 billion in R&D (i.e.9.4% of its total sales). Its six research centreslocated in the Republic of Korea and its tenoverseas centres (in China, India, Israel, Japan,the Russian Federation, the United Kingdom andthe United States), drive the company’s effortsto developing leading technologies in digitalmedia, telecommunications, digital appliancesand semiconductors. At the end of 2005, nearly25% of its employees were directly involved inits 16 R&D centres.

Source: UNCTAD, based on Kim (1997) and information provided by Samsung Electronics.

Similar to Samsung and LG, Acer (TaiwanProvince of China) has become a globallyrenowned brand. Most other electronics companiesfrom Taiwan Province of China, in contrast toKorean firms, have focused only on one part of theglobal value chain, building their globalcompetitiveness based on original equipmentmanufacturing (OEM). Their rapid internationa-lization in recent years has helped this economyobtain a strong position in the list of top 100developing-economy TNCs – 15 companies enteredthe list , all privately owned and mostly incomputers and electronics. Hon Hai PrecisionIndustry is now the third largest electronicscompany in Asia after Samsung Electronics andLG Electronics (table III.14).28

Of the 15 Singaporean companies in the listof the top 100 developing-country TNCs, 6 areGLCs:29 Singtel, Capitaland, Neptune Orient Lines,Singapore Airlines, Keppel Corporation andSembcorp Industries. In fact, according to a rankingof the top 100 Singapore International Companiesconducted by IE Singapore in 2005, all the top fiveSingapore-based TNCs are GLCs (UNCTAD

2005b). Transformed from former SOEs, GLCshave played a key role in the Singaporeaneconomy.30 The State continues to retain significantcontrol over them, primarily through TemasekHoldings (box III.6) and three other holdingcompanies: Singapore Technologies, MinComHoldings and MND Holdings.

As in Singapore, some of the largest overseasinvestors from Malaysia are State-owned, includingPetronas and Misc Corp. Bhd. The bulk of Petronas’overseas investments are concentrated in upstreamexploration and extraction activities, mainly inAfrica and South-East Asia. FDI in services isprimarily in finance, utilities and construction(PricewaterhouseCoopers 2005d; Tham 2006).Investments in manufacturing abroad are infabricated metal products, machinery andequipment, palm oil, and wood and wood-basedproducts. Although GLCs play an important role,l ike in Singapore, private-owned businessconglomerates account for the main share of theoutward FDI stock. Many of these conglomerateshave a high degree of both industrial andgeographical diversification.31

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Box III.6. Overseas investments of Temasek Holdings

Temasek Holdings is a State-ownedcompany that has 48 key investments andeffective shareholdings, with a total portfoliovalue of $62 billion as of 31 March 2005. Thecompany’s investments cover many industries,including telecommunications and media,financial services, property, transportation andlogistics, energy and resources, infrastructure,engineering and technology, as well aspharmaceuticals and biosciences.

Temasek is the largest outward investorfrom Singapore. In March 2005, about half of itsinvestments were overseas, spanning destinationsin ASEAN (excluding Singapore) (9%), Australia

(18%), East Asia (8%), Europe (5%), South Asia(2%) and the United States (6%). It has investedin some large foreign enterprises such as ICICIBank, Mahindra & Mahindra and the ApolloHospital Group in India; China Construction Bankand China COSCO Holdings in China; BankDanamon and Bank Internasional Indonesia inIndonesia; Quintiles Transnational Corp. (UnitedStates); and Hana Bank (Republic of Korea). Overthe next 8-10 years, Temasek expects itsSingaporean assets to shrink to about one thirdof its operating assets, while another third wouldbe in the rest of developing Asia and theremaining third in the OECD countries.

Source: UNCTAD, based on information from the company website.

Table III.16. Selected large “ethnic Chinese” companies in South-East Asia,ranked by market capitalization


Non-financial companies

GeographicCompany Country Industry Market Value Sales scope

Singapore Press Holdings Limited Singapore Publishing 4 021 581 RegionalCity Developments Limited Singapore Hotels 3 928 1 408 GlobalGenting Berhad Malaysia Hotels 3 541 1 223 RegionalIOI Corporation Berhad Malaysia Agriculture & fisheries 3 032 1 314 GlobalShin Corporations Public Company Thailand Telecommunications 2 725 493 RegionalYTL Power International Berhad Malaysia Utilities 2 643 891 GlobalVenture Corporation Limited Singapore Electronic equipment 2 550 1 889 GlobalYTL Corporation Berhad Malaysia Utilities 2 189 1 160 GlobalFraser and Neave Limited Singapore Soft drinks 2 170 2 039 GlobalWant Want Holdings Limited Singapore Food products 1 637 524 Regional

Financial companies

GeographicCompany Country Industry Market Value Sales scope

United Overseas Bank Limited Singapore Banking 12 971 1 928 GlobalOverseas-Chinese Banking Corporation Singapore Banking 10 820 1 564 GlobalPublic Bank Berhad Malaysia Banking 6 008 1 328 RegionalBangkok Bank Public Company Limited Thailand Banking 4 671 1 203 GlobalGreat Eastern Holdings Limited Singapore Life insurance 4 049 4 661 RegionalKasikorn Bank Public Company Limited Thailand Banking 3 162 878 GlobalHong Leong Bank Berhad Malaysia Banking 2 162 367 RegionalHong Leong Credit Berhad Malaysia Banking 1 063 668 GlobalBank of Ayudhya Public Company Limited Thailand Banking 856 387 RegionalMetropolitan Bank and Trust Company Philippines Banking 847 410 Global

Source: UNCTAD, based on Asia Weekly, 9 October 2005.

Linkages with developed-country TNCshave played a significant role in private companies’domestic development and international expansionin countries such as Thailand (Peng, Au and Wang2001, Pananond 2006).32 Also important are thenetworks of “ethnic Chinese”.33 A stream of social,cultural and institutional literature suggests thatthe emergence of South-East Asian TNCs is part

of the overall internationalization process of“ethnic Chinese” businesses in Asia (Kao 1993,Weidenbaum and Hughes 1996).34 Indeed, a largenumber of “ethnic Chinese” companies havebecome important regional players in South-EastAsia, and some of them have started going global(table III.16). For example, the highest rankingThai company in the table, Shin Corporations, is


a major telecommunications operator in Thailand,and a regional player in its industry. It is activein neighbouring countries such as Cambodia andthe Lao People’s Democratic Republic.

Chinese TNCs emerged later than theircounterparts in the NIEs. The first generation ofChinese TNCs were mainly large State-ownedenterprises operating in monopolized industriessuch as financial services, shipping, internationaltrading and natural resources. Many of them startedoperations abroad after China adopted its open-door policy in the late 1970s. CITIC Group,founded in 1979 by the Chinese CentralGovernment,35 is a diversified financial andindustrial conglomerate, which has grown into oneof the top 100 TNCs in the world. Other leadingChinese State-owned TNCs include COSCO, ChinaState Construction Engineering Corporation,CNPC, Sinochem, CNOOC, China Minmetals andCOFCO. Hong Kong (China) is usually the firststop along the path of the internationalization ofthese first-generation Chinese TNCs, and it remainsthe major location for their “overseas” operations.36

In recent years, State-owned Chinese companies(including CNPC, CNOOC and Minmetals) haveemerged as important players in natural resources,driven by their growing ambition to secure controlof such resources abroad.

The second generation of major ChineseTNCs emerged after the early 1990s in competitivemanufacturing industries, in particular those relatedto electronics and information and communicationtechnologies (ICT).37 Companies such as Haier andTCL are now global players in consumerelectronics; Lenovo has become the third largestpersonal computer (PC) manufacturer in the worldfollowing the acquisition of IBM’s PC business;38

Huawei Technologies (box III.7) and ZTE arecompeting against developed-country TNCs in theglobal telecom equipment market. Some relativelysmall Chinese companies have also become highlyinternationalized in a wide range of industries.39

The second generation of Chinese TNCs havediverse ownership structures, including privateownership, local government ownership and foreignparticipation.

b. TNCs from South Asia

In terms of size, TNCs from South Asia arestill not comparable to those from East and South-East Asia. Only one company – Oil and NaturalGas Corporation (ONGC) – from India features inUNCTAD’s list of top 100 developing-countryTNCs (chapter I). India dominates the list ofleading TNCs from this subregion.40 With the

Box III.7. Huawei Technologies: a global player in telecom equipment

In China’s telecom equipment market, leadingdomestic firms such as Huawei and ZTE arecompeting head-to-head with foreign TNCs.Huawei, a privately owned company establishedin 1988, is the largest and best known. After rapiddevelopment since the mid-1990s, Huawei’s globalrevenue reached $5.6 billion in 2005, with almosthalf of its sales from international markets. Thecompany has established eight regionalheadquarters and more than 85 subsidiaries in theworld. It has overseas R&D centres in India, theRussian Federation, Sweden and the United States.Its products are sold in more than 100 countries.Currently, Huawei provides telecom products andsolutions to over 270 operators worldwide,including 22 of the world’s 50 largest operators.

Huawei is one of the most innovativecompanies in China.a In 2005, the company filed249 property cooperation treaty (PCT) patentapplications, giving it the third highest rankingamong firms from developing countries and the37th in the world in terms of the number of suchpatents.b Huawei has become a leading player inmany segments of the global telecom equipmentindustry including fixed networks, mobilenetworks, data communications and opticalnetworks. It is now one of the few companies inthe world to provide end-to-end 3G solutions. Ithas Wideband Code-Division Multiple-Access(WCDMA) contracts in 18 countries and territories,which gives it a leading position in this high-endsegment of mobile telecom equipment.

Source: UNCTAD, based partly on information from company websites.

a By the end of 2005, Huawei had applied for 9,600 Chinese patents and 1,547 international and foreign patents. It hashad the highest number of patent applications in China since 2002 (Source: National Bureau of Statistics of Chinaand WIPO).

b “Exceptional growth from North East Asia in record year for international patent filings”, 3 February 2006, WorldIntellectual Property Organization (WIPO), Press Release 436.

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increased openness of the economy since the mid-1990s, Indian firms have begun to go global. Inseveral industries – software and IT services,pharmaceuticals and biotechnology, hotels andhospitality, automotives and other branded products– they have diversified their operations andinvestments across the world. But it is in softwareand IT services, the most dynamic component ofthe Indian economy, where the main TNCs arefound. They are the pioneers in offshoreoutsourcing of software and IT-enabled services(WIR04). Although most Indian outward FDI stockis still in manufacturing, overseas investment insoftware and IT services has grown rapidly alongwith pharmaceuticals; companies such as Dr.Reddy’s, Infosys (box III.8), Ranbaxy, TCS andWipro have made sizeable overseas investments.

Large Indian companies in industries suchas steel and chemicals have also begun tointernationalize by acquiring upstream companies,for instance in Australia and Canada. In the energysector, India’s State-owned groups, such as ONGCVidesh Limited, Indian Oil Corporation and OilIndia, have acquired equities in exploration,refining and retailing.

The United States is the main destination foroverseas investments by Indian TNCs, followedby the Russian Federation, Mauritius and Sudan,

in that order. While most of the investments in theRussian Federation and Sudan have been in oilexploration, those to the United States have beenmainly in IT services and pharmaceuticals.

c. TNCs from West Asia

West Asia is an important capital exporteras a result of its large oil revenues.41 However,most of the petrodollars have until recently beendirected towards portfolio investments, andoutward FDI remains small but growing. In fact,Turkey – a non-oil producing country – is theleading source of FDI from West Asia: its outwardFDI stock accounts for about half of the total FDIstock of the region (see also box II.14).

Koç Holding and Sabanci Holding – Turkey’stwo largest industrial and financial conglomerates– and Turkish Petroleum Corporation (TPAO) aremajor outward investors. Controlled by privatefamilies, Koç Holding (whose subsidiary Arcelikhas been expanding abroad recently, see box V.1)42

and Sabanci Holding became highly diversifiedduring the import-substitution regime before thelate 1980s. Since then, they have increased theirgeographical diversification abroad and reducedtheir industrial diversification at home.43 The State-owned petroleum enterprise, TPAO, aims toparticipate in international oil and natural gasexploration through the Turkish PetroleumInternational Company. Its outward FDI is about$2.7 billion, most of which is related to projectsin Azerbaijan implemented in the early 1990s.44

Saudi Basic Industries Corporation, majority-owned by the Government of Saudi Arabia, is oneof the leading players in the global chemicalindustry (table III.14), controlling about 5% of theworld petrochemical markets.45 It exports morethan two thirds of i ts production to over 100countries. It has offices spread across the globe,including two major manufacturing complexes inGermany and the Netherlands and one R&D centrein the United States.

Other major TNCs from oil-rich West Asiancountries include the large State-owned oilcompanies. The operations of companies such asSaudi Aramco (Saudi Arabia) and KuwaitPetroleum Corporation (Kuwait) span the globe.46

Regional TNC players from West Asia can also befound in such services as telecommunications,construction and port and terminal operations.Telecom operators include Investcom (UAE),Mobile Telecommunications Co. (Kuwait) and

Box III.8. India’s Infosys goes global

Infosys Technologies was created in 1981in Bangalore. With over 52,000 employeesworldwide, it now provides consulting and ITservices to clients globally. The company haspursued an international strategy to strengthenits competitive position and become a globalplayer. Infosys has over 30 foreign affiliatesworldwide, covering all countries and territorieswhere its major customers are located. InfosysTechnologies’ global initiatives began with theopening of its first subsidiary in the United Statesin 1987. Its first European subsidiary was createdin the United Kingdom in 1996, followed byaffiliates in Belgium, Germany and Sweden(1997), France (2000), the Netherlands (2001)and Switzerland (2002). In 2005, Infosys set upits first overseas operations centre in the CzechRepublic and bought RASInfo (France).a

Source: UNCTAD.

a See e.g. “Infosys BPO subsidiary opens Czechcenter”, Computer Business Review Online, 23September 2005 (www.cbronline.com).


Etisalat (UAE), which mainly focus on West Asiaand Africa.47 National Petroleum Construction Co.(UAE) and National Co. for Mechanical &Electrical Works Ltd. (Kuwait) are notable regionalconstruction TNCs in the Middle East. In port andterminal operations, State-owned Dubai PortsWorld – or DP World – (UAE) received globalattention when it acquired P&O (United Kingdom),which was the fourth largest port operator in theworld (chapter VI). The deal made DP World oneof the top three global port operators, withterminals across five continents.

4. TNCs from Latin America and theCaribbean

The evolution of TNCs from Latin Americaand the Caribbean (LAC) has been heavilyinfluenced by changing institutions and policiesin the region over the past few decades. While theregion was the leading source of FDI from theSouth until the mid-1980s, LAC firms have recentlynot internationalized at the same pace as their Asiancounterparts. Today, the main TNC players fromLAC (also referred to as “trans-Latins”) are basedin Brazil and Mexico. In general, the “trans-Latins”concentrate in certain primary industries, some massconsumption manufacturing and a few servicesindustries (ECLAC 2006). With a few exceptions,most TNCs have a strong regional focus in theirinternationalization strategies, and the share of theirinternational sales in total sales tends to be low.

Outward FDI is not a new phenomenon inLAC. In fact, Argentina appears to have been oneof the first developing countries to have firms withindustrial plants abroad (box III.9). Moreover,during the 1960s and the 1970s firms fromArgentina, Brazil and Mexico were part of the “firstwave” of FDI from the South (Dunning et. al. 1996,Chudnovsky and López 2000). Since the early1990s, some Latin American enterprises haveembarked on a new strategy of internationalization,including through FDI. For many companies,outward expansion has been a response to the wide-ranging trade liberalization, deregulation andprivatization policies that took place throughoutthe region in the 1990s (chapter IV).

Ranked according to total sales in 2004, thelargest “trans-Latin” company was PDVSA(Venezuela), followed by Petrobras (Brazil) andTelmex (Mexico) (table III.17, ECLAC 2006).Meanwhile, in UNCTAD’s list of the top 100 TNCsfrom developing countries, which ranks companiesby foreign assets, Cemex (Mexico) heads the list(chapter I). The dominance of Brazil and Mexicoas home countries is evident from both lists.48 Intable III.17, 12 of the 15 largest firms are fromthese two countries, with one firm each fromArgentina, Chile and Venezuela completing the list.Meanwhile, none of the “trans-Latins” were amongthe global top 100 TNCs in 2004.

Sector-wise, the largest TNCs areconcentrated mainly in natural-resource extraction(petroleum or mining) or in resource-based

Box III.9. Early Argentinean TNCs

Argentina was one of the first developingcountries with firms internationalizing via FDI(Chudnovsky and López 2000, United Nations1993). Many Argentinean enterprises were quickto establish foreign affiliates in other LatinAmerican countries, and some even expandedfurther afield (Garrido and Wilson 1998, ECLAC2006). For instance:

- Alpargatas, a textile manufacturer, set upa manufacturing affiliate in Uruguay in1890, and later in Brazil.

- In the late 1920s and during the 1930s,S.I.A.M di Tella, a mechanical engineeringcompany, and Quilmes Bemberg, a brewerycompany, established production plants inneighbouring countries.

Source: UNCTAD.

- Bunge & Born, a conglomerate inagribusiness and food products, had affiliatesin Brazil before the 1930s, and expanded itsproductive activities during the 1960s and1970s to Paraguay, Peru and Venezuela, andlater even to Austria, Belgium, Canada,France, Germany, the Netherlands and Spain.

- The petroleum company Astra has affiliatesin Brazil , Mexico, Peru and the UnitedStates.

- Holding companies, such as Perez Compancand Techint, spread their productive activitiesmainly in Latin America, but also had somefinancial affiliates in Europe and the UnitedStates.

- Soldati and SOCMA invested in extractive,engineering and construction industries.

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manufacturing (steel, cement), two are intelecommunications and the rest are in food andbeverages. The only conglomerate in table III.17,Grupo Alfa, has diverse activities, includingpetrochemicals and synthetic fibres, aluminiumcomponents, refrigerated and frozen foods andtelecoms.

Very few TNCs from Latin America haveemerged as global players. Cemex is the only“trans-Latin” that can be considered a “major TNCat the global level” (ECLAC 2006, p. 79).49 It hasevolved into one of the three largest cementproducers in the world, with operations in morethan 30 countries. Techint and CVRD are aimingfor world leadership in their specific marketsegments.50 Only in a handful of the othercompanies listed in table III.17 – América Móvil,Grupo Alfa – did foreign sales exceed 50% of thecompanies’ total sales in 2004 (Ibid.). Moreover,apart from the petroleum and mining companiesin the table, overseas investment has rarely gonebeyond the Americas. The immediate focus of theinternationalization strategy of many leading“trans-Latins” has been to grow into regionalchampions, drawing on leading positions in theirdomestic markets or capitalizing on opportunitiesarising out of privatization and deregulation inother countries of the region.

The sectoral composition as well as theregional focus of TNCs from this region largelyreflects the productive and technologicalspecialization that was fostered by decades ofimport substitution policies. Although the roots of

industrialization in Latin America wereconsolidated and deepened as a result ofthe import substitution developmentmodel, the high protective barriersundermined the incentives to innovateand upgrade technologically (Bethell2003, Quadros Carvalho and Bernardes1998, Bonelli 1998). Following the debtcrisis triggered in 1982, the import-substitution model was abandoned formore outward-oriented strategies. Oneafter the other, Latin American countriesin the 1980s began dismantling tariffsand other trade barriers, liberalizingprices, interest rates and capital markets,privatizing State-owned enterprises andreducing government intervention in theeconomy.

In this new environment, theactivities and industries that managed togrow were mainly non-tradable services

(telecommunications, electricity, water sanitation),manufacturers of industrial commodities based onnatural raw materials (e.g. pulp and paper, iron andsteel, aluminium, petrochemical products) andindustries that had been given preferential treatment(maquila assembly industries). Those that sufferedthe most were knowledge-intensive industries suchas pharmaceuticals, chemicals and scientificinstruments, as well as those engaged in labour-intensive production of non-durable consumergoods, such as footwear, clothing or furniture.These were industries that were unable to meet theglobal competition once protective barriers hadbeen dismantled (Cimoli et. al. 2001, Katz 2001).51

Faced with greater competition, some firms viewedoutward FDI as necessary to their survival, whichtriggered market-seeking, resource-seeking andstrategic asset-seeking investments (chapter IV).

In addition to the companies listed in tableIII.17, a number of Latin American niche playersdeserve mention. For example, Televisa (Mexico)is the world’s largest producer and broadcaster ofSpanish language programming; Embraer (Brazil)is one of the few prominent LAC companies thathas progressed to become a world leader in atechnology-intensive industry.52 Chilean wineproducers, such as Concha y Toro and Viña SantaRita, are active in Argentina; and Empresas SantaCarolina has vineyards in Argentina, Paraguay andPeru (Holmgren 2005).

A number of “trans-Latins” have disappearedfrom the rankings, having been acquired by TNCsfrom other countries. In the energy sector, for

Table III.17. Largest TNCs from Latin America andthe Caribbean, ranked by sales, 2004

Ranking among topSales 100 developing-

Company Home country Industry ($ billion) country TNCs

PDVSA Venezuela Petroleum 63.2 10Petrobras Brazil Petroleum 40.8 13Telmex Mexico Telecom 12.4 -América Móvil Mexico Telecom 12.1 18CVRD Brazil Mining 10.4 25Grupo Femsa Mexico Beverages 8.4 50Cemex Mexico Cement 8.1 6Metalurgica Gerdau Brazil Steel 7.4 33Techint Argentina Steel 6.4 -Grupo Alfa Mexico Diversified 5.3 -ENAP Chile Petroleum 4.7 -Grupo Bimbo Mexico Food 4.6 -Grupo México Mexico Mining 4.4 -Usiminas Brazil Steel 4.6 -Grupo Imsa Mexico Metallurgy 3.3 82

Source: UNCTAD, based on ECLAC, 2006 and UNCTAD/ErasmusUniversity database.


example, Argentinean oil and gas producers YPFand Perez Companc had already begun tointernationalize when they were taken over byRepsol (Spain) in 1999 and Petrobras (Brazil) in2003, respectively. The electric utility companiesChilgener and Enersis (Chile) were taken over byEndesa (Spain) in 1999 and AES Corporation(United States) in 2001 respectively (box II.16).La Moderna-Seminis (Mexico), that had acquiredinnovative biotechnology firms in developedcountries, was later taken over by Monsanto(United States).

Conversely, some TNCs from Latin Americahave also been among the bidders for targetcompanies in other countries, and sometimes inresponse to privatization programmes in the region:

• Gerdau acquired Ameristeel, a former Japanese-owned affiliate in the United States, in 1999;

• Techint acquired the Mexican steel producerHylsamex in 2005. It also led a consortiumthat eventually won the bid in the privatizationof Sidor, a Venezuelan steel producer.

• Grupo Macri (Argentina) participated in theprivatization of transport and infrastructurein Brazil;

• Telmex expanded its activities throughoutLatin America when markets were liberalized.

• América Móvil applied an aggressive strategyto take control of the mobile telecoms businessin other parts of LAC when several TNCsdecided to withdraw from the region in theearly 2000s (ECLAC 2004).53

• Similarly, due to the withdrawalof major TNCs from the retailtrade, several Chilean companiesdecided to expand into newmarkets in the region. Forexample, as a result of a series ofacquisitions, the department storeFalabella is now the second largestcompany in its sector in LatinAmerica, surpassed only by Wal-Mart (ECLAC 2004).

5. TNCs from South-EastEurope and the CIS

As noted above (section III.A),outward FDI from South-East Europeand the CIS is mainly from the RussianFederation, but there are also some

notable companies in Azerbaijan, Croatia andRomania. The industrial specialization of thelargest outward investors from the region has beenstrongly influenced by the legacy of a plannedeconomy as well as an abundance of certain naturalresources. Indeed, the main transition-economycompanies that have embarked on internationalexpansion have based their competitiveness onaccess to various natural resources. Only a fewTNCs from the Russian Federation have emergedas global players; most others remain at bestregional players, with investments mainly invarious other members of the CIS. The role of theState is still significant in FDI from the RussianFederation.

In the case of the Russian Federation, a fewleading TNCs are very large, even by globalstandards. For example, in terms of foreign assets,Lukoil would be ranked 10th on the list of the topnon-financial TNCs from developing economies(chapter I). Overall, the Russian firms can bedivided into three tiers, measured by total sales(table III.18; chapter I). The first tier comprisesthe two oil and gas companies, Gazprom andLukoil, both with sales of more than $33 billionin 2004, and the electricity behemoth UES, withsales of almost $25 billion. The second tier, withsales of $5-7 bill ion sti l l mostly involvescompanies in natural resources (Norilsk Nickel,Severstal, Evraz, RusAl etc.), while the remainingTNCs – the third tier – are relatively small.

Russian TNCs are at very different stagesof outward expansion. The oil and gas giants(Gazprom, Lukoil), as well as some other firms

Table III.18. Largest TNCs from South-EastEurope and the CIS, ranked by sales, 2004

SalesCompany Home country Industry ($ billion)

Gazprom Russian Federation Natural gas 36.4Lukoil Russian Federation Petroleum and natural gas 33.8Unified Energy Systems (UES) Russian Federation Electricity 24.8Norilsk Nickel Russian Federation Mining 7.0Severstal Russian Federation Metals and metal products 6.6Evraz Russian Federation Mining and steel 5.9Sistema Russian Federation Consumer services 5.7RusAl Russian Federation Metal mining services 5.4Mechel Russian Federation Metals and metal products 3.6Alrosa Russian Federation Non-metallic mineral mining 2.8Pliva Croatia Pharmaceuticals 1.1Podravka Group Croatia Food, beverages and

pharmaceuticals 0.6

Source: UNCTAD, based on company information and UNCTAD/ErasmusUniversity database.

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(Sistema, Alrosa, Mechel, Norilsk Nickel, RusAl,Severstal) have taken considerable steps in theirinternationalization strategy spreading to a diverseset of host countries. However, only a few of themcan be considered as aspiring to become “globalplayers”. Lukoil is perhaps the most well-knowncase. The company has exploration and productionactivities in other members of the CIS, Africa, LatinAmerica and West Asia, as well as refining in theCIS, and downstream distribution affil iatesworldwide, in at least 15 countries. Its internationalexpansion also covers developed-countrymarkets.54

Gazprom’s international activities are notwell documented and the value of its foreign assetsis not publicly known. However, the company,which is majority-owned by the State, is reportedto be in control of more than 93% of Russia’snatural gas production and about a quarter of theworld’s known gas reserves.55 In Europe alone,it has operations in at least 19 countries, involvingnatural gas distribution and processing activities(Heinrich 2005). It operates in the majority of theother members of the CIS as well.56

Norilsk Nickel is considered to be the thirdlargest Russian TNC in terms of foreign assets. Itis a world leader in the production of severalstrategic metals, including palladium, platinum,nickel, cobalt and copper (Vahtra and Liuhto2005).57 The company is particularly active inBelgium, Switzerland, South Africa, the UnitedKingdom and the United States (WIR04). RusAlis the world’s second largest primary aluminiumproducer after Alcoa (United States), and the fifthlargest alumina producer in the world (UNCTAD2004a, p. 3).58 Severstal is a relative newcomerto the international natural-resource/iron and steelscene, having leapfrogged to global status throughits acquisition of Rouge Industries (United States)in 2003 and Lucchini Industries (Italy) in 2005.59

Other firms, even such large ones as UES,have more limited foreign operations, oftenconfined to South-East Europe and the CIS. State-owned UES continues to focus principally on theRussian market, but has a presence throughinternational consortia in the power station andenergy distribution activities of some CIS members(Armenia, Georgia, the Republic of Moldova andUkraine). It has a strategic goal of introducing acommon CIS electricity system, a politicallysensitive strategy vis-à-vis partner countries.60

The absence of technology-based companiesfrom the group of Russian TNCs is notable,

especially in light of the country’s defence-relatedtechnology traditions. One exception is in themobile telecom market of the CIS, into whichseveral Russian companies have expanded, mainlythrough acquisitions. The three largest mobileservice providers of the subregion – MobileTeleSystems/MTS, VimpelCom and MegaFon – areall from the Russian Federation (see also Lisitsynet al. 2005. p. 15).61

Some of the large outward investor firms(e.g. Lukoil, Norilsk Nickel, Mechel) are privatelyowned. Foreign investors have taken minoritystakes in a few companies (e.g. Conoco-Phillipsowns 10% of Lukoil) or majority shares (e.g. BPowns 50% plus one share in TNK-BP). Other firms,such as Gazprom and UES, remain State-owned.In the case of Gazprom, the State increased itsshare to become a majority owner as recently as2005. The internationalization strategies ofresource-based companies, especially the State-owned ones, are influenced by Russian foreignpolicy (chapter VI).62 The future role of theRussian State in outward FDI remains uncertain,but recent indications suggest that its share andinfluence in natural resources may increase throughthe strengthening of its participation in Gazpromand its acquisition of some privately owned assets.

In Croatia, two TNCs account for most ofthe outward FDI: the generic pharmaceuticalproducer Pliva and the food producer Podravka(table III.18). These two companies acquiredimportant technological skills and built regionalbrand names in their respective fields long beforethe disintegration of the former Yugoslavia and thetransition to a market economy. Most of theiroutward expansion is fairly recent and has focusedon the European continent (WIR01, p. 141).63

C. Salient features of theemerging sources of FDI

The overview presented in this chapter ofthe emerging sources of FDI – both countries andcompanies – allows for certain general observationsthat can serve as a basis for the analysis in subsequentchapters of drivers, impacts and policy implications.

The review of data related to FDI statistics,cross-border M&As and greenfield FDI projectsreveals a number of trends and characteristics worthhighlighting:


• Over the past two decades, FDI flows fromdeveloping and transition economies haverisen fast in absolute as well as relative terms.

• Of the emerging sources among developingand transition economies, developing Asia andthe Russian Federation have assumedincreased importance since 1990, while theshares of Latin America and Africa havedeclined.

• Sectorally, the bulk of FDI from developingand transition economies is in tertiaryactivities, notably in business, financial andtrade-related services. However, significantFDI has also been reported in manufacturing(e.g. electronics) and, more recently, in theprimary sector (oil exploration and mining).

• FDI from developing countries is especiallyimportant for other developing countries.From a host-country perspective, South-Southflows account for the bulk of inward FDI intomany low-income economies.

• The value of FDI among developing andtransition economies increased from about $2billion in 1985 to around $60 billion in 2004,excluding flows to and from offshore financialcentres. Most of these flows were intraregionalin nature, dominated by FDI among economiesin East and South-East Asia.

• At the same time, there is also a noticeableincrease in the presence of TNCs fromdeveloping and transition economies in manydeveloped countries.

While the diversity of the home economiesnow emerging as significant FDI sources preventsfar-reaching generalizations of the characteristicsof TNCs from developing and transition economies,it is nevertheless possible to identify certain salientfeatures.

First, although more economies are emergingas FDI sources, there is still a relatively highconcentration of countries from which the majorTNCs originate. In Africa, South Africa dominates;in Latin America, major TNCs are from Brazil andMexico; in the CIS it is the Russian Federation thatis responsible for almost all significant outwardinvestors. The picture is somewhat more diversefor Asia, where the four NIEs, along with China,India, Malaysia and Thailand, all have a growingnumber of companies with a strong foreignpresence. At the same time, a number of smallerTNCs from a wider range of developing countriesare also increasing their foreign activities, mostlyat the regional level.

Second, in terms of industrial distributiona few industries are better represented than others,but with important regional variation. In alldeveloping regions and in the Russian Federation,the primary sector (oil, gas, mining) and resource-based manufacturing (metals, steel) have seen theemergence of major TNCs. Some of them are nowcompeting head-on with their developed-countryrivals; examples include Sasol in Africa (as wellas the former South African companies, AngloAmerican and BHP Billi ton); CVRD, ENAP,Petrobras and Petroleos de Venezuela in LatinAmerica; Baosteel, CNPC, CNOOC, Petronas,Posco and PTTEP in Asia; and Gazprom and Lukoilin the Russian Federation.

Another cluster of activities involving manydeveloping-economy TNCs are financial services,infrastructure services (electricity, telecom-munications, transportation services) and goodsthat are relatively difficult to export (cement, foodand beverages). Because of their non-tradablenature, these economic activities typically requireFDI if a company wishes to serve a foreign market.With few exceptions (such as Cemex and the formerSouth African companies, Old Mutual andSABMiller), however, most of the developing-country TNCs in these areas are mainly regionalplayers, with limited (if any) activities in otherparts of the world.64

A third cluster of activities includes thosethat are the most exposed to global competition,such as automotives, electronics (including semi-conductors and telecommunications equipment),garments and IT services. Almost all the majorTNCs from developing or transition economies inthese industries are based in Asia. Electroniccompanies l ike Acer, Huawei and SamsungElectronics, the automobile firms, Hyundai Motorand Kia Motor, or relatively smaller TNCs in theIT services industry, such as Infosys or WiproTechnologies, are already among the leaders in theirrespective industries.

The sectoral composition of TNCs fromdifferent home economies reflects their respectivecomparative advantages (i.e. variations in the costsof factors such as labour, land and capital). Moreimportantly, however, it also reflects differencesin competitive advantage (i .e. the capacity totransform any given inputs into products andservices at maximum profit) (Kogut 1985).Competitive advantage, in turn, has been fosteredin different ways through government policies andinstitutions (chapter VI). A distinguishing featureof the environment in which TNCs in East and

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South-East Asia operate, compared to those in LatinAmerica, has been a stronger emphasis on outward-oriented policies in the former subregion.

In all regions studied in this chapter,intraregional FDI plays a key role in TNC-controlled international networks. This is especiallytrue in Latin America and in the CIS, but also toa large extent in South Africa and in Asia. Thesubregion of East and South-East Asia has thelargest number of TNCs with global aspirations.

Finally, as regards the ownership form ofTNCs from different parts of the developing world,private ownership is the most common. However,compared with TNCs from developed countries,there is a relatively high incidence of Stateinvolvement. This is particularly pronounced inChina and Singapore, and, more generally, for mostTNCs dealing with natural resources. In fact,among the top 100 TNCs from developingcountries, almost all corporations in the oil andgas industry are State-owned. In South Africa, theGovernment is also actively involved ininfrastructure-related outward investment. Stateownership may imply that factors other thaneconomic ones influence the internationalizationstrategies of the investing firms (chapter IV).

The next chapter provides a more detailedanalysis to explain why and how TNCs fromdeveloping and transition economies have expandedinternationally.

Notes1 Unless otherwise stated, the term “developing and

transition economies” in this chapter refers to alldeveloping economies and economies in South-EastEurope and the Commonwealth of Independent States(CIS).

2 As noted in box III.1, these flows often originated fromforeign affiliates of developed-country TNCs.

3 Between 1999 and 2001, transactions by companiesregistered in offshore financial centres accounted for morethan $70 billion, or 29% of the total value of cross-borderM&As by acquirers based in developing and transitioneconomies.

4 In the case of developing countries, the concentrationof outward FDI is higher than the concentration of inwardFDI.

5 For example, more than half of all cross-border M&Aacquirers based in Hong Kong (China) in 2005 werecontrolled by TNCs based outside it. Foreign affiliatesowned by developed-country TNCs accounted for aboutone quarter of the value of all such deals (box III.1) andforeign affiliates of Chinese TNCs accounted for aboutone third of this total (UNCTAD, cross-border M&Adatabase).

6 It should be noted that this percentage relates to the FDIstock of Latin America and the Caribbean excluding themain offshore financial centres.

7 There was a marked push by large, privately ownedcompanies to invest abroad in the mid-1990s followingthe relaxation of international sanctions and theliberalization of foreign exchange controls. The Londonlistings of major South African companies in the mid-1990s contributed to the rapid growth of its outward FDI.

8 Source: Exim Bank of Korea.9 Source: Bank of Korea (2005). “Effects of outward FDI

in manufacturing on domestic employment (in Korean)”,Monthly Bulletin, November 2005.

10 The increase in the share of manufacturing when HongKong (China) is excluded from the table also reflectsa decline in the share of unspecified FDI.

11 Services also dominate cross-border M&As, accountingfor 66% of the number of purchases by companies basedin developing and transition economies in 2005.

12 The relatively high share of developing and transitioneconomies in unspecified FDI is mainly due to FDI fromHong Kong (China).

13 Not many developing countries provide a geographicalbreakdown of destinations of FDI outflows. Datalimitations prevent a precise calculation of the magnitudeof such flows.

14 Using stock data, the value of South-South FDI (excludingoffshore financial centres) was an estimated $502 billionin 2004, based on data from developing and transitionhome economies, and $895 billion based on data fromdeveloping and transition host economies. The lattercorresponds to about half of total inward FDI stock inthese economies in 2004. These figures were derivedusing data for the latest year available between 2001 and2005 (mostly in 2004) for 15 reporting home economiesand 35 reporting host economies, which accounted for77% and 67%, respectively, of the total outward andinward stock of developing and transition economies in2004.

15 Most FDI from East Asia went mainly to the moredeveloped South-East Asian countries. Intraregional FDIwithin East Asia had been rising until recently, largelydominated by FDI into China.

16 In fact, most FDI flows between Asia and Latin Americaand the Caribbean involve inflows and outflows fromoffshore financial centres, which are not included in figureIII.8.

17 Similarly, in the Forbes list of top 500 non-United Statescompanies, the number of companies from developingand transition economies almost doubled between 1997and 2002. Forbes ceased to provide this list after 2002.

18 The developed-country TNCs on the list with majorityState ownership are Electricité de France (France) andStatoil (Norway).

19 A ranking of the largest African companies in terms ofsales, placed the Algerian oil company, Sonatrach in topposition (Jeune Afrique L’intelligent, 2006). Howeverdue to its limited international activities, it is not includedin UNCTAD’s list of the largest TNCs from developingcountries. Of the top 30 companies, 26 were from SouthAfrica.

20 Before 1990, apartheid and isolation largely restrictedSouth African companies to the country and the SouthernAfrica region.


21 Many of these companies had a foreign presence beyondAfrica as well.

22 The five remaining companies do not have any foreignaffiliates at all.

23 Anglo American plc was formed as part of the company’srestructuring in May 1999. With its primary listing onthe London Stock Exchange, it is majority owned byUnited Kingdom institutions and the second largestmining company in the Fortune 500 list in 2005.

24 Nine out of the 20 top Egyptian companies are State-owned.

25 Countries such as Kenya and Mauritius also have notableoutward FDI. India is the main recipient of FDI fromMauritius.

26 Eight East Asian economies – China, Hong Kong (China),Indonesia, Malaysia, the Republic of Korea, Singapore,Taiwan Province of China and Thailand – had been amongthe 12 fastest-growing economies in the world for 30years since 1960.

27 “The perpetual crisis machine: Samsung has never beenmore successful than now”, Fortune, 5 September 2005.

28 Hon Hai makes everything from PCs for Hewlett Packardto cell phones for Nokia and PlayStation 2 game consolesfor Sony.

29 In Singapore, a company is termed a GLC when theGovernment holds at least a 20% stake.

30 Since the late 1980s, many former State-owned enterpriseshave been listed on the Singapore Stock Exchange.

31 For instance, Sime Darby Group, one of Malaysia’sleading TNCs has a comprehensive range of businessactivities carried out by 300 companies in over 20 foreignlocations, particularly in China, Hong Kong (China),Singapore and Australia.

32 Some studies identified some broader genericorganizational skills, such as the ability to combineforeign and domestic resources, as key factors in thedevelopment of business groups from late industrializingcountries (see Kock and Guillén 1998, Guillén 2000).

33 The term “ethnic Chinese” here refers to companies thatare owned and managed by people of ethnic Chineseorigin.

34 The “overseas Chinese” networks provide ethnic Chineseentrepreneurs with business intelligence, sources ofcapital, and the necessary political linkages (Hamiltonand Biggart 1988, Redding 1990, 1995, Brown 1998),thereby giving them a competitive advantage (Haley, Tanand Haley 1998).

35 Similar companies focusing on international businessesestablished by the Chinese central Government includeChina Resources and China Merchants.

36 In the mid-1990s, some provincial governmentsestablished so-called “window companies” in Hong Kong(China), such as Guangdong Investment Limited, BeijingEnterprises Holdings Ltd., Tianjin Development HoldingsLimited and Shanghai Industrial Holdings. Today, thesecompanies, as well as flagship subsidiaries of centralGovernment-owned China Resources and ChinaMerchants, are considered to be TNCs from Hong Kong(China).

37 Positive spillovers from inward FDI, coupled withsupportive government policies, contributed to theemergence of these Chinese electronics companies (Liang2004).

38 After this acquisition, the company ranked third in theglobal PC market, with a market share of 7.2%, followingDell (17.2%) and Hewlett Packard (15.7%) in the fourthquarter of 2005, according to estimates of InternationalData Corp.

39 Examples include Glanz, Pearl River Piano Corporationand Zhenhua Harbour Equipment.

40 Some SMEs with international operations exist in otherSouth Asian countries. Although expectations of theinternationalization of companies from LDCs such asBangladesh are low, results of a survey show that someBangladeshi banks and companies have investmentsabroad (Frans 2003). Except for investments by theBangladeshi banks, however, these overseas investmentsare not reflected in balance-of-payments data, as theyhave been financed by foreign funds.

41 The total trade surplus of Middle East oil exporters hasbeen forecast at $300 billion for 2006 (Washington Post,7 March 2006).

42 In retail services, Koç Holding’s Migros Group has beenexpanding overseas faster than at home. Its foreignaffiliates’ sales in Azerbaijan, Bulgaria, Kazakhstan andthe Russian Federation accounted for 16% of its totalsales ($1.7 billion) and 39% of its total profits in 2004.

43 In 2004, 37% of Koç Holdings’ total sales were fromexports and foreign affiliates’ sales; these rose from $1billion in 2000 to $7 billion in 2004.

44 Source: Treasury of Turkey.45 SABIC is the 10th largest petrochemicals company in

the world; it is 3rd in polyethylene production, 6th inpolypropylene and 4th in polyolefins overall.

46 Saudi Aramco, for instance, has grown from essentiallyan exploration and production company prior to the 1990sto an integrated global petroleum company. The companyoperates in North Africa, Asia, the Pacific Rim and theUnited States.

47 For instance, MTC operates in 19 countries in the MiddleEast and sub-Saharan Africa, providing mobile voice anddata services to over 14 million customers. Investcomoperates GSM mobile networks, e.g. in Benin, Ghana,Guinea-Bissau, Liberia, Sudan, Syrian Arab Republicand Yemen. Investcom has also recently been awardedGSM licences in Afghanistan and Guinea, expanding itsoperations to 10 countries.

48 In the list of top 100 TNCs from developing countries,10 out of 11 entries from the Latin American region arefrom these two countries, with PDVSA being the singularexception.

49 ECLAC (2006) notes that Cemex not only has a high levelof sales abroad and an international network, it has alsocaptured a significant global market share.

50 For example, Techint’s affiliate, Tenaris, is the world’slargest seamless pipe producer for the oil industry, withmanufacturing in nine countries, and CVRD is the largestglobal producer of iron ore and pellets, and the secondlargest global producer of manganese and iron alloys,with activities in five continents.

51 In 1996, locally owned firms dominated LAC marketsin beverages, glass, petrochemicals, steel, textiles, cement,pulp and paper, and agribusiness. They had a significantpresence in food products, machinery and equipment,household appliances and tobacco. However, they hadlittle or no presence in technology- or marketing-intensive

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products like automobiles, telecom equipment, computers,and chemicals, in which foreign TNCs assumed theleading roles (Garrido and Wilson 1998).

52 It is now the world’s largest maker of small commercialaircraft (those with fewer than 110 seats).

53 América Móvil is now, together with the SpanishTelefónica, a main wireless telecom company in LatinAmerica, with more than 75 million clients in Argentina,Brazil, Chile, Colombia, Ecuador, El Salvador, Guatemala,Honduras, Mexico, Paraguay, Peru and Venezuela(www.americamovil.com).

54 In 2000, for example, Lukoil entered the United Statesthrough the acquisition of Getty Petroleum Marketing.At the other end of the value chain, Lukoil’s mostimportant strategic move has been the acquisition in 2005of Nelson Resources (Canada), an oil company thatoperates exploration and extraction facilities inKazakhstan.

55 See, for example, www.hoovers.com/globaluk/sample/co/factsheet.xhtml (accessed 10 January 2006).

56 Its position will be further strengthened after theconsolidation of Sibneft (now Gazprom Neft) into itsoperations, especially in the petroleum extraction andrefinery segments.

57 Norilsk has been expanding abroad through a series ofinvestments in trading and mining companies, such asa 51% stake in Stillwater Mining (United States) in 2003,a 20% stake in Gold Fields Ltd. (South Africa), and theacquisition of the metal trading company, Norimet (UnitedKingdom) in 2000.

58 It controls bauxite mining in Guinea and Guyana, it ownssmelters in Armenia, Guyana, Nigeria (acquired in 2006)and Ukraine, and has joint venture refinery partners inAustralia and Jamaica, as well as a marketing presencein developed-country markets.

59 It also entered into a coke producing joint venture andhas started to build a greenfield steel plant in the UnitedStates. The company’s plants in the United States supplythe major car producers, among others.

60 Its first major investment outside the CIS was theacquisition of power stations in Varna and Ruse inBulgaria, announced in May 2005.

61 As of end 2005, MTS was present in various markets,VimpelCom focused on Kazakhstan, Tajikistan andUkraine, and MegaFon on Tajikistan. In addition, AlfaGroup – the majority shareholder of VimpelCom and thejoint venture partner of BP in the BP-TNK company –held shares in a Ukrainian and a Kyrgyz operator.

62 See, for example, “Gosudarstvo podderzhit expansiyurossiyksogo biznesa na zarubezhnykh rynkakh” (The Statesupports the expansion of Russian business on foreignmarkets), Pravda.ru, 25 March 2005, www.pravda.ru/economics/2005/7/21/63/19414_expansion.html (accessed3 February 2006).

63 Pliva acquired a major manufacturing operation in Polandin 1997. It has a presence in the EU and China, the CIS,India and the United States. In the case of Podravka, afood producer, its affiliates are located in Europe,Australia and the United States.

64 Hutchison Whampoa’s ownership stake in the mobiletelecoms operator “3”, and Singtel are importantexceptions.

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