lourdes casanova. diálogo (im)probable sobre multinacionales de economías emergentes
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Emerging Market Multinationals Report 2017Emerging Multinationals in a Changing World
Lourdes Casanova
Anne Miroux
Emerging Market Institute
2 Johnson | Cornell SC Johnson College of Business
The resilience of emerging economies in today’s challenging global environment
Their growing importance as foreign investors across all regions of the world
The role of outward FDI policies and their development phases
The trends that impact the expansion of eMNCs in the global corporate world
Specific country case studies: Brazil, Colombia…
What we cover in this report
3 Johnson | Cornell SC Johnson College of Business
4 Johnson | Cornell SC Johnson College of Business
E20
20 economies
Total GDP = $25.4 Trillion
Global GDP share (in PPP) = 46%
54% of world population
5 Johnson | Cornell SC Johnson College of Business
Emerging economies in a changing world….
• For a time, emerging economies have benefited from favorable external conditions: global demand, global trade, financial markets, investment flows, commodity prices…
• Today, EMs are facing a new paradigm:
– Strong protectionist tendencies
– Severe geopolitical tensions in some parts of the world
– Weak recovery in advanced economies
– Slowdown in global trade
– Lower commodity prices
– General tightening of external financial conditions
6 Johnson | Cornell SC Johnson College of Business
But resilient
• E20s have proved to be growth engine
• E20 account for about half of the world GDP (at PPP)
• Slowdown in 2016 for some E20: Brazil, Argentina, South Africa, Nigeria
• IMF short term projections:
– quite positive for emerging economies but risks persist
• Overall general sentiment is today more optimistic than pessimistic for emerging
economies.
7 Johnson | Cornell SC Johnson College of Business
E20s: Nominal GDP and GDP growth
Nominal GDP of E20s (in US$bn)
GDP Growth Rates
11,199 2,264
1,796
1,411
1,283
1,046
932
858
646
546
470
407
405
393
336
305
296
295
282
247
China
India
Brazil
Korea
Russia
Mexico
Indonesia
Turkey
Saudi…
Argentina
Poland
Thailand
Nigeria
Iran
Egypt
Philippi…
Malaysia
South…
Colombia
Chile
Source :EMR 2017
8 Johnson | Cornell SC Johnson College of Business
Inward FDI flows to E20 have plateaued in the past ten years while
Outward FDI flows almost doubled in last 10 years
Inward FDI Flows to E20 2000-2016 Outward FDI Flows from E20 2000-2016
Source: EMR 2017
0%
5%
10%
15%
20%
25%
30%
35%
40%
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
US
$ M
illio
ns
IFDI Flows to E20 Share (%) in global FDI Flows
0%
5%
10%
15%
20%
25%
$-
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
US$
Mill
ion
s
OFDI Flows from E20 Share (%) in global FDI Flows
9 Johnson | Cornell SC Johnson College of Business
OFDI from emerging economies – a study of greenfield FDI & M&As• Global Financial Crisis
– Turning point for OFDI from E20, both for greenfield and M&As.
– Asia, led by China, gained prominence in OFDIs while Latin America receded.
• Mode of Entry– Greenfield preferred for eMNCs initially
– Since crisis, M&As gained importance driven primarily by Korea and China
• Shift in geographical distribution– Greenfield still largely South-South mainly but share of developed countries increasing
– 60% of M&A value by the E20s largely to developed countries
– Europe, primary target of M&As in post crisis period
• Shift in Industry Targets– Service based and consumer related industries increasingly attractive
– Traditional sectors (energy and materials) declining in importance
– Interesting case of renewables
10 Johnson | Cornell SC Johnson College of Business
Some E20 Countries/USA: Announced Greenfield OFDI/Outbound M&AsTotal Amount, pre-crisis and post crisis-periods (2003-2008 and 2009-2016)
InvestorGreenfield OFDI
(total amounts)
Outbound M&A(total amounts)
CHINAPre-crisis: $184.6bn
Post-crisis: $578.7bn
Growth: +181%
Pre-crisis: $166.3bn
Post-crisis: $798bn
Growth: +380%
KOREA
Pre-crisis period: $126.2bn
Post crisis: $218.2bn
Growth: +73%
Pre-crisis period: $26.3bn
Post-crisis period: $111.1bn
Growth: +322%
INDIAPre-crisis period: $90.77bn
Post-crisis period: $146.28bn
Growth: +61%
Pre-crisis period: $63.2bn
Post-crisis period: $79.1bn
Growth: +25%
BRAZILPre-crisis period: $29.4bn
Post-crisis period: $37.78bn
Growth: +28%
Pre-crisis period: $60.76bn
Post-crisis period: $28.8bn
Growth: -3%
USAPre-crisis period: $918.96bn
Post-crisis period: $1,037.9bn
Growth: +13%
Pre-crisis period: $1,518.8bn
Post-crisis period: $2,186.6bn
Growth: +44%
11 Johnson | Cornell SC Johnson College of Business
Greenfield OFDI from China
Greenfield OFDI by Region Greenfield OFDI by Sector
13%
24%
18%
1%
3%
4%
4%1%
5%
4%
1%
24%
21%
12%
9%
9%
8%
6%4%3%
3%
3%
3%
18%
Real EstateCoal, Oil and Natural
Gas
Metals
Business Services
Alternative/Renewable energy
Automotive OEM
Communications
Warehousing &Storage
Hotels & Tourism
Financial Services
ElectronicComponents
Other
Pre-crisis(Jan.03 --> Dec.08)
Post-crisis(Jan.09 --> Dec.16)
61%
6%
6%
9%11%
2%
4%
47%
7%
7%
15%12%
9%
4%
Asia-Pacific
WesternEurope
EmergingEurope
Latin America& Caribbean
Africa
North America
Middle East
Pre-crisis(Jan.03 --> Dec.08)
Post-crisis(Jan.09 --> Dec.16)
13 Johnson | Cornell SC Johnson College of Business
eMNCs occupy ~33% of Global Fortune 500 list
1111111111111112222344677771010101315
242929
51108
133
Belgium
Bermuda
Denmark
Finland
Indonesia
Israel
Liechtenstein
Malaysia
Malta
Netherlands…
Norway
Saudi Arabia
Thailand
United Arab…
Venezuela
Luxembourg
Mexico
Singapore
Turkey
Sweden
Ireland
Russia
Taiwan
Australia
Brazil
India
Italy
Canada
Netherlands
Spain
Switzerland
South Korea
United…
France
Germany
Japan
China
United States
Countries Represented in the Fortune Global 500
(2017)
Growth in eMNCs representation on Fortune 500
(2005-2017)
16
China, 108
South Korea, 15
Brazil,India, 7
México, 2
175
U.S., 133
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eMNCs: half of top 5 companies in 8 industry sectors (Fortune Global 500)
Source: EMR 2017
2004Rank
1 Citigroup Inc Valero Energy Corp GM Nippon Telegraph Bouygues SA BP plc Anglo American plc Arcelor
2 Credit Suisse Deutsche Bahn AG Ford Verizon Vinci SA Exxon Mobil Corp BHP Billiton Ltd. Nippon Steel
3 HSBC SNCF DaimlerChrysler Deutsche Telekom Skanska AB Royal Dutch/Shell RAG AG Norsk Hydro ASA
4 BNP Paribas East Japan Railway Toyota Vodafone Kajima Corporation Total JFE Holdings Inc
5 Fortis Lufthansa Voklswagen France Telecom Taisei Corporation Chevron Texaco Alcoa Inc
Banking Logistics Automobile Telecom Engineering &
Construction
Petroleum
Refining
Mining, Crude-
Oil Production
Metals
2015Rank
1 ICBC * Deutsche Post Volkswagen AT&T CSCEC * Sinopec * Glencore ArcelorMittal
2 CCB * MAERSK Toyota Motor Verizon CREC * Royal Dutch/Shell PEMEX * POSCO *
3 AgBank * American Airlines Daimler China Mobile * CRCC * CNPC * CNOOC * ThyssenKrupp
4 BNP Paribas Delta Airlines Exor Group Nippon Telegraph CPCG * Exxon Mobil BHP Billiton Ltd. China MinMetals *
5 Bank of China * Lufthansa GM Deutsche Telekom CCCC * BP ConocoPhillips NSSMC
Banking Logistics Automobile Telecom Engineering &
Construction
Petroleum
Refining
Mining, Crude-
Oil Production
Metals
2017Rank
1 ICBC * USPS Toyota Motor AT&T CSCEC * Sinopec * Glencore China Minmetals *
2 CCB * Deutsche Post Volkswagen Verizon CREC * CNPC * CNOO * ArcelorMittal
3 AgBank * China Post Group * Daimler China Mobile * CRCC * Royal Dutch/Shell Pemex * China Baowu Steel*
4 Bank of China * UPS GM Nippon Telegraph CPCG * Exxon Mobil Shenhua Group* POSCO *
5 BNP Paribas HNA Group* Ford SoftBank Group CCCC * BP Rio Tinto Group HBIS Group *
Banking Logistics Automobile Telecom Engineering &
Construction
Petroleum
Refining
Mining, Crude-
Oil Production
Metals
Legend / Color code:
UNITED STATES UNITED KINGDOM BELGIUM MEXICO
CHINA AUSTRALIA SWEDEN SOUTH KOREA
GERMANY LUXEMBOURG DENMARK
JAPAN NETHERLANDS ITALY * from E20 countries
FRANCE SWITZERLAND NORWAY
15 Johnson | Cornell SC Johnson College of Business
eMNCs still behind in profit margins
8.7%
59.7%
18.8%
4.0% 4.0% 4.7%7.1%
45.4%
25.5%
9.9%
5.7% 6.4%
<0% <5% <10% <15% <20% 20%+
E20 G-7
Source: EMR 2017
Profit Margin Distribution of Top 145
Companies from E20 & G7
Profit Margin
% of
companies
70% of the E20 companies have
profit margins <5% vs ~50% in G7
16 Johnson | Cornell SC Johnson College of Business
Profit margins U.S. companies higher than China’s
Comparison of Chinese and US Companies Gross Profit Margin Comparison
2.02%
10.72%
14.99%
7.52%
1.34%
14.20%
7.06%
5.23%
Energy (35) Financials (53) Technology(22)
All companies(500)
United States China
Source EMR 2017
Capital Structure partly explains difference in profit margins
17 Johnson | Cornell SC Johnson College of Business
eMNCs: Beyond cost leadership
• Traditionally eMNCs considered low-cost competitors to G-7
MNCs
• Focused on efficiency, quality, productivity across value chains
• Building brand recognition in home countries. Limited push for
branding and innovation on global scale.
– eMNCs among largest firms in world (Fortune Global 500);
much less visible among top global brands
– But increasing number of eMNCs among the top global brand
18 Johnson | Cornell SC Johnson College of Business
eMNCs: bridging the price gap with G7 counterparts
Laptop Prices for Top US and Chinese Brands Cellphone Prices for Top US and Chinese Brands TV Prices for Top US and Chinese Brands
Desktop Prices for Top US and Chinese Brands AC Prices for Top US and Chinese Brands
399
349
229
281 263
243
Average, 294
Frigidaire Honeywell RCA Arctic King Haier Midea
US China
1661 1573
1989
741 800 916753 673
1026
635
Average, 1,077
LG
Sam
sun
g
Son
y
Shar
p
Hit
ach
i
TCL
LeEc
o
His
en
se
Viz
io
Sce
ptr
e
Korea Japan China US
- Similar price ranges in a number of cases
- In few cases, the price of the eMNC product is higher
- The case of Huawei in cellphones
Camera Prices for Top US and Chinese Brands
$400
$170 $170
$300 $270
$497
Yi 360 VR SamsungGear 360
Yi ActionCam
4k/30fps
GoProAction
Camera
Yi ActionCam
4k/60fps
GoProAction
Camera
20 Johnson | Cornell SC Johnson College of Business
Still, progress in global branding is noticeable
12%19%
73%
70%
15%11%
2009 2017
E20 G7 OTHER
• The increased participation of emerging market
brands among top global brands suggests an
increased attention from eMNCs for branding
and product differentiation.
• A transition in process that may have significant
consequences for established multinationals
whose tremendous profits and market
evaluations are largely based on brand value
• An issue worth continuing exploring
Share of E20,G7 and ROW in Top 500 Brands
G7
E20
Other
21 Johnson | Cornell SC Johnson College of Business
Emerging Multinationals Looking Forward
• New industries and new markets:
• From South to the North
• Investments changes increasingly prioritize consumer markets
globally away from traditional sectors to service based
• Building new capabilities: from price competition to global brands
• Becoming formidable competitors, showing E20 increasing power
• Societal demands
• Sustainability
• Corporate Governance
• Code of Conduct
22 Johnson | Cornell SC Johnson College of Business
Challenges: IS POVERTY A BUSINESS ISSUE?
Poverty in Latin America
Lourdes Casanova
Director of the Emerging Markets Institute
@lourdescasanova
Anne Miroux
Former Director, Division on Technology and
Logistics, UNCTAD
Faculty Fellow, Emerging Markets Institute
Emerging Markets Institute
THANK YOU
24 Johnson | Cornell SC Johnson College of Business
EMERGING MARKET
MULTINATIONALS REPORT(EMR) 2017
EMERGING MULTINATIONALS IN A CHANGING WORLD
Emerging Markets Institute
Cornell S.C. Johnson College of Business, Cornell University
Lourdes Casanova, Senior Lecturer, Director
Anne Miroux, Visiting Fellow