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Emerging Economies’ Multinationals: General
Features and Specificities of the Brazilian and
Chinese Cases
Andrea Goldstein (OECD, Paris)
Fazia Pusterla (IADB, Washington)
‘Emerging Multinationals’ Conference
Copenhagen Business School
9-10 October 2008
Top 15 developing and transition economies in
terms of stocks of outward FDI, 1990, 2005
Rank
Economy
1990 Economy
1
Brazil
27.56 Hong Kong, China
2
Taiwan Province of China
20.39 British Virgin Islands
8.80
3
South Africa
10.08 Russian Federation
8.60
4
Hong Kong, China
8.00 Singapore
7.92
5
Singapore
5.24 Taiwan Province of China
6.95
6
Argentina
4.07 Brazil
5.11
7
China
2.99 China
3.31
8
Panama
2.81 Malaysia
3.18
9
Kuwait
2.46 South Africa
2.75
10
Mexico
1.79 Korea, Republic of
2.61
11
Malaysia
1.79 Cayman Islands
2.41
12
Korea, Republic of
1.55 Mexico
2.00
13
Saudi Arabia
1.26 Argentina
1.62
14
Bermuda
1.04 Chile
1.52
15
Libian Arab Jamahirya
0.89 Indonesia
0.98
Source: own calculations from UNCTAD, 2007
2005
33.61
Brazil and China’s outward FDI, flows and stock,
by destination, 2003-2005
Brazil
Developed Europe
Canada & US
Japan ANZ
Developing Asia
Latin America
ROW
Total
2003
39.14
17.90
0.71
n.a.
41.51
0.73
100.00
2004
64.36
12.92
0.56
n.a.
21.79
0.61
100.00
2005
66.75
15.10
0.37
n.a.
17.41
0.37
100.00
2006
69.51
10.83
0.25
n.a.
19.07
0.08
100.00
2005
1.29
1.62
1.35
71.37
n.a.
24.38
100.00
2006
4.04
2.83
0.7
85.5
n.a.
7.5
100.00
China
Developed Europe
Canada & US
Japan ANZ
Developing Asia
Latin America
ROW
Total
2003
1.19
1.65
1.66
79.84
n.a.
15.66
100.00
2004
1.13
1.62
1.49
74.50
n.a.
21.26
100.00
Sources: Banco Central do Brasil and 2006 Statistical Bulletin of China’s Outward Foreign Investment
Summary statistics for the largest companies
from Brazil and China
Brazil
a
Sales ($b)
Profits ($b) a
Assets ($b) a
Value ($b) a
Foreign assets ($b) b
Foreign sales ($b) b
Foreign jobs b
TNI b
Foreign affiliates b
Foreign plants c
R&D ($m) d
R&D 4-year growth d
R&D/sales d
Patents e
China
Total
255.49
32.84
693.93
367
Average
11.61
1.49
31.54
16.68
Total
438.33
54.62
2,930.56
1,357.82
Average
9.96
1.24
66.60
30.86
13.60
23.90
16,042
4.53
7.97
5,347
32.70
19.17
6.43
65,962
4.79
2.14
21,987
33.97
73
35
8.11
8.75
170
5
14.17
2.50
448.03
149.34
72.33
1.77
530.5
132.63
102.75
2.10
13
2.17
37
7.40
Source: Forbes Global 2000 for Sales, Profits, Assets, Value; UNCTAD (2006) for foreign assets, sales, jobs, and affiliates, and TNI; DTI Global R&D
Scoreboard for R&D, R&D growth and R&D/sales; Fleury and Fleury (forthcoming) and authors’ self-compilation for foreign plants; WIPO PatentScope for
patents
The IDP framework
• Dunning 1981, 1986  there is a relationship between a
country’s net foreign direct position (NOIP) and its
structure and level of economic development
– economic development as a process of structural changes
– these structural changes affect both inward and outward
investment (Durán and Ubeda, 2001)
• Ideally, as a country develops, the conditions for
domestic and foreign economies change, affecting not
only FDI flows but also OLI advantages and vice versa
• The government plays an important role in shaping a
country’s investment conditions, hence in affecting its
NOIP.
The IDP five stages
1. inward and outward FDI flows are very small. Domestic economies are
characterized by weak local demand, inadequate infrastructure and, in general,
a non-attractive environment for investment.
2. development of some location specific advantages. Increase in the inflow of
FDI. Internationalization activity of domestic firms does not develop yet. NOIP
becomes negative and usually inward FDI growth is faster than GDP growth.
3. As domestic firms become more competitive in comparison to foreign firms,
OFDI flows increase. Outward flows surpass inward flows, but NOIP remains
negative (i.e. inward FDI stock is bigger than outward FDI stock).
4. NOIP turns positive and the rate of outward foreign investment increases faster
than the rate of inward investment. Development of intra-industry production,
which will be followed by intra-industry trade.
5. NOIP will be oscillating around zero, alternating between positive and negative
balances, depending on the short-term evolution of exchange rates and
economic cycles.
Latecomers (developing countries and transition economies) may skip
these five stages -- especially
those which experience some
leapfrogging and accelerate the movement along the IDP (UNCTAD,
2007, Liu et al., 2005, Goldstein 2007).
The IDP in 2004
Source: WIR 2006, UNCTAD
Estimating the IDP
Quadratic form
(Dunning, 1981)
NOIP   0  1GDP   2 GDP 2  
Polynomial form
(Buckley and Castro, 1998; Bellak, 2001; Marton and McCarthy, 2007)
NOIP   0   1GDP   2 GDP 2   3 GDP 3   4 GDP 4  ...   n GDP n  
Data
• Annual data for the period 1980 to 2006 both for China
and Brazil.
• All variables are expressed in real terms (Liu et al., 2005
and Marton and McCarthy, 2007).
• VARIABLES:
– FDI Stocks from UNCTAD, 2007.
– Population from WDI.
– GDP deflator (1990=100) from UN National Accounts
Main Aggregates Database.
– GDP per capita from UN National Accounts Main
Aggregates Database.
Specification and Results
log( NOIP _ China )   0  1 log( GDP _ China )   2 log( GDP _ China 2 )  
NOIP _ Brazil   0  1 (GDP _ Brazil )   2 (GDP _ Brazil 2 ) 
  3 (GDP _ Brazil 3 )   4 (GDP _ Brazil 4 )  
China
Dependent Variable log (NOIP_China)
Brazil
Dependent Variable NOIP_Brazil
Log GDP_China
-17.25***
(.80)
GDP_Brazil
-40.51**
(17.66)
Log GDP_China2
1.18***
(.066)
GDP_Brazil2
Adj-R2
0.89
Adj-Rsq
.019**
(.008)
-4.32e-06
(1.89e-06)
3.51e-10
(1.54e-10)
0.76
Durbin-Watson statistics
0.83
Durbin-Watson statistics
1.37
GDP_Brazil3
GDP_Brazil4
Standard errors in parentheses
*** statistical significant at the 1% level, ** statistical significant at the 5% level
All variables are per capita and the constant was omitted
Conclusions and policy implications/1
• Corporate data, although limited to a small number of
MNCs due to data availability, suggest that Brazilian
and Chinese MNCs are grosso modo similar in size and
depth of their ownership advantages.
• Testing the IDP theory, we found a close relationship
between the level of national economic development
and the NOIP.
• The role of the government in enhancing the
movement along the path is crucial especially through
the promotion of outward FDI.
• Discovering, developing and sustaining ownershipspecific advantages is necessary to reach the levels of
competitiveness required for the next stages of the IDP.
Conclusions and policy implications/2
• Attitudes have been very different in the two
countries
– China: “Go abroad” policy measures; WTO
accession; necessity to develop and sustain
strong ownership and competitiveness specific
advantages under the surveillance and help of
the government institutions
– Brazil: new measures are only now being
implemented by BNDES APEX
• The role of the government in enhancing the
movement along the path should be more active in
Brazil