Internationalization of Asian MNCs in

Brazil: Factors and Motivations

Gilmar Masiero University of São Paulo, Brazil gilmarmasiero@gmail.com

Mário Henrique Ogasavara University of Fortaleza, Brazil marioga@unifor.br

Agenda

• Introduction

• Overview of Asian FDI in Brazil

• Timing of market entry

• Factors and Motivations for FDI

• Methodology

• Analysis and Discussion

• Conclusion

Introduction

• Firm internationalization

▫ MNCs from developed countries (i.e. US and Europe)

▫ New players -> emerging countries

Global Latinas

Dragons MNCs

▫ Fortune Global 500 (2011)

1/3 (163) Asian MNCs 38% ranking 2005

Introduction

• Asian MNCs studies

▫ Japanese and recently Chinese firms

▫ Operating in developed and Asian countries

▫ Few studies of Asian MNCs in Latin America ( Brazil)

• Brazil

▫ Main recipient of investments among LA countries

▫ 30.4% of all FDI inflows -> first decade 21st century

▫ Asian FDI -> Japan, South Korea and China

Introduction

• Research questions

▫ Are there significant differences in the main factors

considered by Asian MNCs when investing in Brazil?

▫ What are the motivations of early Asian MNC entrants?

▫ How do early Asian contrast with later entrants who

have only established subsidiaries in Brazil in the last

decade?

Overview of Asian MNCs in Brazil

• Japanese FDI

▫ 1st wave of investments (1930s)

Investors pioneers-> agriculture and textile industries

▫ 2nd wave of investments (1970s)

13% of total FDI in Brazil

Partnership with large scale government projects in basic

industries (petrochemical, aluminum, pulp and paper)

▫ Slowdown 1980s-1990s

Brazil -> economic problems; Japan -> lost decade

▫ 3rd wave of investments (Late 1990s – 2000s)

Celebration of 100 years of Japanese immigration in Brazil

Japanese subsidiaries in Brazil by year and sector (1911-2008)

0

10

20

30

40

50

60

70

80

1911 1934 1938 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

Manufacturing Primary Services Wholesale

Overview of Asian MNCs in Brazil

• South-Korean FDI

▫ 1st wave of investments (1990s)

Korean policy shift presence Korean firms abroad

31 Korean companies entering in Brazil

▫ Slowdown late 1990s

Asian economic crisis

▫ 2nd wave of investments (mid-2000s)

Automobile and electronics industries

Overview of Asian MNCs in Brazil

• Chinese FDI

▫ New player in 2000s

Chinese policy of “Going global strategy”

2010

FDI of US$ 12.7 billion in Brazil

Mostly acquisitions of foreign companies operating in Brazil

US$ 1.5 billion -> greenfield investments

FDI from Asian countries to Brazil (2001-2009)

Trade Flow 2001-2010 (US$ billion)

Brazil China South Korea Japan

2001 2010 2001 2010 2001 2010

Export 1.9 21.8 0.7 3.4 1.9 6.4

Import 1.3 23.4 1.5 7.8 3.0 6.3

Total Trade 3.2 45.2 2.2 11.2 4.9 12.7

Timing of market entry

• Importance of timing in the firm internationalization

• First mover

Prior research -> performance

Economic, preemptive, technological and behavioral factors

Ecology population model

RBV

• Late mover

Can also gain advantages

Resolution of technological and market uncertainty

Inertia of early entrants

Introduce newer and better products and services

Factors and Motivations for FDi

• Dunning (1993)

Market-seeking

Resource-seeking

Efficiency-seeking

Strategic motives-seeking

• IMF (2009)

Market size and growth prospects

Infrastructure cost

Political environmental

Legal and regulations aspects

Methodology • Data source

▫ Primary data : Survey

▫ Questionnaire in 5 languages (ENG, POR, JAP, CHI, KOR)

• Sample

▫ 195 companies confirmed the receipt of survey

At least 3 contacts by phone

31 answered the survey (one duplicate entry)

▫ Final: 30 Asian firms (15,4% response rate)

▫ Early entrant (before 2000) 56% and Late entrant 44% of our sample

• Tests

▫ No problem related to non-response bias

▫ T-test statistics to compare differences between early and late entrants

Descriptive Statistics by entry timing

Industry sector

20% Machinery & Equipment

12% each -Transportation ,Banking,

8% each - Automobile parts, Chemicals, Software, Telecommunication

Location

Sao Paulo state (84%)

Entry mode

44% WOS

22% Licensing

17% JV

6% acquisitions

11% others

Descriptive Statistics by country of origin

Japanese firms

More experienced in the local market

Higher number of expatriates and employees

Larger in terms of investment capital

Korean firms

Higher annual revenues

- Sample of companies in the financial and automobile industry

Factors to invest in Brazil

• Market factors

• Human Resource factors

• Infrastructure factors

• Political & Governmental factors

• Legal & Regulatory factors

• Tax Related & Economic factors

Factors to invest in Brazil (main) by entry timing

All Cases

Market

Tax related /economic

Human resource

Early entrants

Legal and regulatory

Tax related /economic

Human resource

Late entrants

Market

Tax related /economic

Legal and regulatory

Factors to invest in Brazil (main) by country of origin

Factors to invest in Brazil (Detailed) by entry timing

Factors to invest in Brazil (Detailed) by country

Motivations to invest in Brazil

• Market-seeking

• Resource-seeking

• Efficiency-seeking

• Strategic asset-seeking

Motivations to invest in Brazil (main) by entry timing

Motivations to invest in Brazil (main) by country of origin

Motivations to invest in Brazil (Detailed) by entry timing

Motivations to invest in Brazil (Detailed) by country of origin

Preliminary insigths from the survey I

• Chinese flows of FDI are promising due US$ 13 billions just in 2010. An historical record from Esat Asia and any other single region

• Despite the world crisis an East Asia (Japanese and Korean) new wave of FDI is happening in Brazil

• The size and growth of the Brazilian market were the most and human resources the least considered factor for East Asian companies to establish operations in Brazil

• Market-seeking was the most and efficiency-seeking the least strong motivation to invest in Brazil

• Technical & Financial support to invest in Brazil varies a lot from each of East Asia MNT and country

• The perception and the impact of the legal & fiscal system were considered the most important by all Asian MNT

• All the Administrative, Political, Social & Cultural Systems (mainly complicated administrative procedures) were scored high in both perception and impact

Preliminary insigths from the survey II

• Unstable exchange rates were considered very important and obtaining finacial support the least important by all East Asian MNT

• Dificulties in recruting managers and workers were considered very important by all the companies operating in Brazil

• Underdeveloped infrastructure, supply and logistics were also considered very important by all East Asia companies operating in Brazil

• The findings and insigths about the main aspects of EastAsian companies operations in Brazil must be carrefully studied to better design government and corporate policies to keep and deepen the interest them in the Brazilian market.