Lemaire Prest

8/2/2019 Lemaire Prest

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ModernManagementResearchConference(MMRC)

ISMUNIVERSITYOFMANAGEMENTANDECONOMICS,VILNIUS,LITHUANIA

INSIGTHSINTOTHESUSTAINABLEGROWTHOFBUSINESS

November

19

21,

2009

FOREIGNDIRECTINVESTMENT

INTHEGLOBALCRISISCONTEXT

ANANALYSIS

TO

DECISION

APPROACH

APPLICATION

1

ESCPEurope


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AGENDA

Whatisatstake:reciprocalinterests?

Purpose

and

context

:FGE,

Crisis

and

FDI

Context:initialtopresent

Chosenapproach:

from

environment

analysis

to

entry

decision

PositioningFGEonthegrid

ngo ngconsequenceso t ecr s s

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What is at stake?Reci rocal interests 1

FastGrowingEconomies(FGE)canexpectfromforeigndirect

investments

(FDI)

Directimpactsontechnologyupgrading,onreachinginternationalstandards,on

exportsincrease,onGDPpercapitaincrease..

in

a

short

term

perspective,

speeding

up

international

trade

and

investment

flowscountrysintegration

Indirectimpactsonlegalsystemevolution,onphysicalinfrastructures,on

educationenhancement,onculturalopening..

externalandinternalperspective (integrative)

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What is at stake?Reci rocal interests 2

ore gn rect nvestors areexpect ng rom ast row ng

Economies(FGE)

Expansionoftheirbusinessbeyondtheirareaoforigin,andoptimizationoftheir

valuechain

w eposs y o ocuson es oppor un esan ar ra e e weenvarious

locations

ThroughamoresteadyaccesstoFGEmarketsandresources

expectingfavorablelocalhostingconditionswhichwouldbebothtangibleandintangible

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Purpose of the analysis to decision approach:FGE, and FDI 1

FastGrowingEconomies(FGE)tendtoattractforeigndirect

investments

(FDI)

inanhorizontalizationperspective

inordertoservelocalneeds(FMCG,durables,services,utilities,infrastructures..)

and/orverticalizationperspective

level(costreduction,tangible/intangibleresourceseeking..)

rno an ue c ,

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FDIDECISION

APPROACHES

MACROECONOMICLEVEL

Hostingpoliciesoflocalauthorities

Enhancingvalueofnational/regionalareas

Generatinglocationadvantage*

LOCALISATIONDECISION

ANDDETERMINATIONOFENTRYSTRATEGY

MICRO

ECONOMIC

LEVEL

Searchforopportunitiesabroad

Relyingonownershipadvantages*

7

*RegardingDunningsOLItheory


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Init ial context of the approach (1) :from ro ressive inte rat ion to local Crisis

scon rontat ono countryan corporateapproac esta esp ace navar ety

ofgeo/eco/politicalcontexts,characterizedbyareaandtimeframedifferences,

forinstance,

Progressiveintegrationintoaworldeconomicopencommunity,allowingtoenvisage

anorganizedintensificationofFDIflows

ex.Vietnamfacing

WTO

integration

(NguyenNhu&Haughton,2002) Consecutivereintegrationfollowingacyclicalshock thatprovokedforatimeadrying

upofFDIbeforetheirresumptioncanbeconsidered Ar entina

reinte ration

a ter

2001

crisis.

(Carreraetal.,2003)

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Present context of the approach (2) :from Global Crisis to ost cr isis

Addressingearlyassessmentsassumingthatdecoupling wouldprotectFast

GrowingEconomiesfromthefinancialcrisis:

unsophisticatedFGEfinancialsystems,

whichcould

be

dominating

in

these

areas

Inorderto evaluatemoreimportantbutdifferentiatedimpacts,

e err ng ocon ras e s ua ons romacoun ry oano er, romasec or o

another,

9

ButintroducingnewpossibilitiesforFDIandevolvingpositioningofcountriesin

thatperspective


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SUCCESSIVESTEPS

Hence thisex lorator ualitativea roachreliesontwocountr casestudies

(VietnamandArgentina)andongoinglargeranalysis (BRIC)

App y nganenv ronmentana ys sto ec s on ramewor PREST

termsof

FDI

attractiveness

Inordertosuggest,

furtherindepthdevelopments(indexesselection,validationandmeasurement)

globalcrisis)

10


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ANINDUCTIVEAPPROACH

FromaFDIsexpansionperspective,twocaseshavebeen,then,consideredin

ordertostructuretheanalysis,

ThecaseofthelongprocessofVietnamjoiningtheWTO(Lemaire&Bui,2005/2008) ThecaseofthegradualshorterreopeningprocessofArgentinaafterthecrisisofDecember2001

(LemaireandLopez,2007) Thensomeapplicationshavebeeninitiatedinorderto extendtheapplicationto

TheBRICs,askeyFGE(ImpactofglobalcrisisonFGEforum,2009), Somematureeconomies whichhavebeendeeplyaddressedbythecrisisinordertomeasurethe

recessionconsequencesonFDIflowandnature

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STEP1:

ENVIRONMENTTODECISIONAPPROACH

ugges nganapp ca on, npara e ,o a ana ys s,

inanenvironmenttodecisionanalysisperspective(Lemaire,1993,2000,1997/2003): Relying,first,ontheidentificationofexternalpressuresexertingoneachlocalenvironment

Inorder,then,toevaluatetheresultingchallengesfacedbylocalauthoritiesandforeigninvestors

Leading,atlast,totheidentificationofsectors/modesofpresencebestsuitedtoeachcontext

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ANALYSISPRESTMODELAPPLYINGTOFDI

EXTERNALPRESSURES

ON

FDI

FDI

CHALLENGES

FDI

DECISIONS

POLITICALREGULATORY

TECHNOLOGICAL

PRESSURESWITHOTHERFDIHOSTSWITHOTHERFDIHOSTS

CHALLENGECHALLENGE

ENTRY

MODELEVELOF

COMMITMENT

DECISIONSDECISIONSREREDEPLOYMENTDEPLOYMENT

OFACTIVITIES&GEOTARGETSOFACTIVITIES&GEOTARGETS

CHALLENGECHALLENGE

OFTHELOCALOFFEROFTHELOCALOFFER

CHALLENGECHALLENGEFDIFDI

ECONOMIC&SOCIAL

13

EXTERNALPRESSURES

COUNTRYCHALLENGESCOUNTRYCHALLENGES

FDIDECISIONSFDIDECISIONS

PRESSURES


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EXTERNAL PRESSURESWITH EITHER POSITIVE OR NEGATIVE IMPACT ON FGEs FDI ATTRACTIVENESS

-FROM INSIDEFROM OUTSIDE

ORIGINATING

- measuresofde/reregulationdesigned

toadapt

the

framework

supporting

FDIlikelydevelopment,

- attitudeofneighbouring/partnering

countriesaffecting

eco/political

relations

In/decreaseintegrativeinfluencefrom

STRUCTURAL

LongTerm

- measuresofprivatisation

andrestructuringofthepublicsector

and/orStateOwnedcompanies

- adjustmentpoliciesofthemajor

regional,continental,worldmultigov.

internationaleconomicorganizations

IncentivetoadhereInternationalfiscal/

legal conventionsregulatingcorporate

TIME

(transport,

fin.

services,

distribution..)..

sensitivitytopoliticaltensions

..

CONJECTURAL

(crossborder,terrorism)fromtheregion

orbeyond..

stabilityofthepoliticalsystem,State

commitments

and

economic

policies

financialauthoritiesonthe

creditworthinessofthecountry

exposuretoeconomiccrisesand

politicaldisturbances

coming

from

ShortTerm,

strikesandsocialmovements,

interethnictensions,xenophobic

outbreaks..

naturaldisasters..

outsi e

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EXTERNALPRESSURES s

ECONOMIC&SOCIALORIGINATING

-Population

dynamics

in/decreasing

local

-foreign

expectancies

for

better

FROM INSIDEFROM OUTSIDETHECOUNTRY

STRUCTURAL

costeffectiveness

- evolutionofpurchasingpower,middleclass

developmentandpovertyreduction

- In/decreasedavailabilityandaccessibility

conditions

longlastingunder evaluation of foreign

competitors currency

Improvementof localassetsinother

LongTerm ofnaturalresourcesintheMT/LT

-permanence

of

practices

distorting

freecompetition(ex.corruption,State

preferenceforlocalactors)..

countrieshosting FDI

reallocation

of

MNCs

corporate

FDI

portfolio

TIME

PERSPECTIVE- currencyfluctuationsand

rawmaterialsand commodities

worldpriceschanges

drying

up

of

foreign

funding

due

to

- Internallossofconfidence

inthecountryseconomyresultingfrom

unexpected

economicevents

CONJECTURAL

ShortTerm

foreignfinancialcrisis

- abruptshiftsofforeigncustomers

tastes(fashion)

foreigndemandfluctuationforproducts

(e.g.realestatebubblebursting)

bottlenecks insomesectorsof

productiongeneratinginflation

15

ecomovesaffectingcustomerscountries


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EXTERNALPRESSURESWITHEITHERPOSITIVEORNEGATIVEIMPACTONFDI

FROM INSIDEFROM OUTSIDE

ORIGINATING

- existenceoflocalcompetencies

developedthrougheducational

system(both

for

production

as

for

- compliancewithinternationalstandards

ofquality,

environment

and

safety

(e.g. ISOstandards)

STRUCTURAL

LongTerm

managementan organ sat on

levelofinfrastructureswithin

thecountryandconnectivitywiththe

RoW(roads,telecommunications,

energysupply,inwater,portand

- complianceforlocalproductsandservices

withthemostdemandingcertification

systems(USandEU)

- logisticalcapability(controlofthesupply

TIME

airportfacilities..)

-access

to

IT

and

communication

systems

(forex.broadbandInternet)as

informationprocessingcapacities

-

, , ..

CONJECTURAL

technologyoriginatingfromexternal

sources,

developmentpotentialoflocalR&D

(resourcesand

structures)

related

to

ShortTermo n erna ona researc ne wor s

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STEP2:

POSSIBLECORPORATEENTRYSTRATEGIES

InordertointroduceacomparativemappingofFGEsattractiveness,

relyingon

two

major

axes

stemming

from

the

previous

analysis,

from

a

thelevelofinfrastructureupgradingbothtangible(utilities,commodities,equipment

,.. , ..

localresources

management (natural

as

intellectual

resources)

thelocalauthoritiestocontrolandlimittheirconsequencesfordomesticasforforeign

actorsasnationalsocialconsistencyandsolidarity.

IndexestobeselectedinconnectionwithmajorFrenchECA

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EXPLORATORYDYNAMICMAPPINGOFFGEs

FDIATTRACTIVENESS

Thisstepbystepanalysistendstoimplythattwomajorfactorscouldbe

retainedtodifferentiatethevariousFGEasFDIstargets

infrastructurelevel

,largely

linked

with

the

structural

dimensions

of

all

three

sets

of

externalpressuresofthePRESTmodel

andinstabilitysensitiveness,largelylinkedwiththeirrespective conjecturaldimensions

Generating

specific

challenges

in

each

FGE,

it

suggests

tothehostingcountriesauthorities,somedirectionstobefollowedinordertoupgrade

theirpositioningandtoattractthemostappropriateinvestments,throughdeveloping,

either,abettercontrolofthecountryssensitivitytoinstabilityandconjecturalshocks,

and/or,measurestoupgradethelargespanofinfrastructuresexpectedbytheirhosts

tothepotentialforeigndirectinvestors,aclearerevaluationofthelocalcontextfroman

toarbitratebetweengoandnogoandtodecideofitsleveloflocalcommitment,

andtoselectactivitiesandobjectiveswhichcouldbeenvisaged,leadingtodesigningitsFDIspossiblelocal

economicmodel

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THE4xiMODELFOURBOXESEXPLORATORYDYNAMICMAPPINGOFFGEsFDIATTRACTIVENESS

INDISPUTABLE INSISTENTINSISTENT

Combining:Combining:Combining:Combining:

HighlevelofcontrolinstabilityHighlevelofcontrolinstability

andofconjecturalshocksandofconjecturalshocks

RelativelylowlevelofRelativelylowlevelof

Capacityto

control

--

instability and conjecturalinstability and conjecturalshocksshocks

--infrastructureinfrastructure

andconjectural

shocks

infrastructureinfrastructure

IMMATURE INOPERATIVE

Combining:Combining:

Low level of controlLow level of control


Low level of controlLow level of controlinstability and conjecturalinstability and conjectural

shocksshocks

Relatively low level ofRelatively low level of


Already high level ofAlready high level of

20Levelofinfrastructuretoupgrade

infrastructureinfrastructure infrastructureinfrastructure

+

-

-


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THE4xiMODELFOURBOXESINITIALLYEXPLOREDCOUNTRIESPOSITIONNING

INDISPUTABLE INSISTENTINSISTENT

Combining:Combining:Combining:Combining:VN

HighlevelofcontrolinstabilityHighlevelofcontrolinstability

andofconjecturalshocksandofconjecturalshocks

RelativelylowlevelofRelativelylowlevelof

Capacityto

control

--


--infrastructureinfrastructure

andconjectural

shocks

infrastructureinfrastructure






ARG


Relatively low level ofRelatively low level of


Already high level ofAlready high level of


infrastructureinfrastructure infrastructureinfrastructure

+

-

-


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THE4xiMODELFOURBOXESexploratoryBRICcontrastedregionalapproach(1)

INDISPUTABLE

Coastal

Capacityto

control Southern

andconjectural

shocks IMMATURE INOPERATIVE

SW India

Russia

22Levelofinfrastructuretoupgrade +

-

-


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THE4xiMODELFOURBOXESexploratoryBRICcontrastedregionalapproach(2)

INDISPUTABLE

Central

Capacityto

control Northern

China

andconjectural

shocks IMMATURE INOPERATIVE

Brazil

Eastern

NE IndiaRussia

23Levelofinfrastructuretoupgrade +

-

-

i O O O S


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THE4xiMODELFOURBOXESFROMCOUNTRYPOSITIONING

INSISTENTINSISTENT FGEPOSITIONING

SustainableSustainable targetedtargeted presencepresence

throughthrough partnershipspartnerships

Overallrecommendedrecommended

Entrystrategy

CapitalintensiveenvisageableCapitalintensiveenvisageable

Sectorsofinfrastructures(e.g.utilities)andSectorsofinfrastructures(e.g.utilities)andTypeofsector

goodsandserviceswithhugeexistinggoodsandserviceswithhugeexisting

demanddemand

toselect

HORIZONTALISATION>VERTICALIZATIONHORIZONTALISATION>VERTICALIZATIONor VERTICALIZATIONor VERTICALIZATION

choicechoice

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THE4xiMODELFOURBOXESCORPORATEOPERATIONALIMPLICATIONS

INDISPUTABLE

INSISTENTINSISTENT

SustainableSustainable targetedtargeted presencepresencethrou hthrou h artnershi sartnershi s

Permanentdiversifiedpresence

100%subsidiary

Capitalintensive


Sectorsofinfrastructures(e.g.utilities)andSectorsofinfrastructures(e.g.utilities)and

goodsandserviceswithhugeexistingdemandgoodsandserviceswithhugeexistingdemand

Allsectors

withdomesticandinternational

existingandpotentialdemand

Capacityto

control

HORIZONTALISATION>VERTICALIZATIONHORIZONTALISATION>VERTICALIZATION

VERTICALIZATION


andconjectural

shocks

Limited/occasionalpresence

MinimalcapitalConditional presence

Throughpartnership

Limitedcapital

Import/Exporttradingactivities

linkedwithnaturalresources

andkeyneeds

HORIZONTALIZATION>

Valorizationoflocaltangibleand

intangibleresourceswithlimited

exposuretodomesticdemand

VERTICALIZATION>


VERTICALIZATIONHORIZONTALIZATION

+

-

-


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INOPERATIVE CORPORATEOPERATIONALIMPLICATIONS

INDISPUTABLE

INSISTENTINSISTENT


Permanentdiversifiedpresence

100%subsidiary

Capitalintensive




Allsectors

withdomesticandinternational

existingandpotentialdemand

Capacityto

control


VERTICALIZATION

IMMATURE INOPERATIVEINOPERATIVE

andconjectural

shocks


MinimalcapitalConditionalConditional presencepresence

ThroughpartnershipThroughpartnership

LimitedcapitalLimitedcapital



andkeyneeds

HORIZONTALIZATION>

ValorizationoflocaltangibleandValorizationoflocaltangibleand

intangibleresourceswithlimitedintangibleresourceswithlimited

exposuretodomesticdemandexposuretodomesticdemand

VERTICALIZATION>VERTICALIZATION>


VERTICALIZATIONHORIZONTALIZATIONHORIZONTALIZATION

+

-

-


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INDISPUTABLE CORPORATEOPERATIONALIMPLICATIONS

INDISPUTABLEINDISPUTABLE

INSISTENTINSISTENT


PermanentdiversifiedpresencePermanentdiversifiedpresence

100%subsidiary100%subsidiary

CapitalintensiveCapitalintensive




AllsectorsAllsectors

withdomesticandinternationalwithdomesticandinternational

existingandpotentialdemandexistingandpotentialdemand

Capacityto

control


VERTICALIZATIONVERTICALIZATION


andconjectural

shocks




LimitedcapitalLimitedcapital



andkeyneeds

HORIZONTALIZATION>







+

-

-


28/31

IMMATURE CORPORATEOPERATIONALIMPLICATIONS

INDISPUTABLEINDISPUTABLE

INSISTENTINSISTENT


PermanentdiversifiedpresencePermanentdiversifiedpresence

100%subsidiary100%subsidiary

CapitalintensiveCapitalintensive




AllsectorsAllsectors

withdomesticandinternationalwithdomesticandinternational

existingandpotentialdemandexistingandpotentialdemand

Capacityto

control


VERTICALIZATIONVERTICALIZATION


andconjectural

shocks




Limited

capitalLimited

capitalImport/Exporttradingactivities


andkeyneeds

HORIZONTALIZATION>







+

-

-


29/31

WHATABOUTTHECRISISEFFECTS?

GlobalmayhemhashitquitedifferentlyvariouslargeFGEandsectors: TheexampleofVietnam: crisis,whatcrisis?

Thecontrasted

diagnosis

applying

to

BRICs:

ReorientatesChinesepolicies

ImpactsinalimitedwayIndia

AffectssignificantlyBrazilbutwithinarelativelyshortperiodoftime

Butwithlimitedconsequences(atleastinsomeFGE)onFDI: Differentialof rowthremaine ual ifnotsu erior betweenFGEandmature

economies(5%to7%),hencetheFGEattractivenessremainshigh

FGEspoliciestendtobecomemorefocusedanddemanding(improvingtheirpositioningonthetwoaxes):

capac y ocon ro ns a y g ereconom cmon or ng, g econom cagen smora

acceleratedinfrastructureimprovements(Keynesianpolicies,inboundasmuchasoutbound)

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LIMITSANDFURTHERRESEARCH

Be ondthisex lorator a roachfurtherresearchhastobe ursuedin

orderto,

morepreciselyandcomprehensivelyidentifyandevaluatethe4xi

modelstwoaxesindicators ECA

moresystematically

collect

appropriate

data

in

order

to

position

more

accuratelyeachFGEonthetwoaxesretained correspondent

testand

validate

the

rid

in

cor orate

circles encom assin

different

sectors

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THANKYOUFORYOURATTENTION!

Q&

A

?

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Lemaire Prest