World Investment Report 2001: Promoting Linkages

United Nations Conference on Trade and Development

World Investment Report 2001Promoting Linkages

United NationsNew York and Geneva, 2001

Note

UNCTAD serves as the focal point within the United Nations Secretariat for all mattersrelated to foreign direct investment and transnational corporations. In the past, the Programmeon Transnational Corporations was carried out by the United Nations Centre on TransnationalCorporations (1975-1992) and the Transnational Corporations and Management Division of theUnited Nations Department of Economic and Social Development (1992-1993). In 1993, theProgramme was transferred to the United Nations Conference on Trade and Development.UNCTAD seeks to further the understanding of the nature of transnational corporations andtheir contribution to development and to create an enabling environment for internationalinvestment and enterprise development. UNCTAD's work is carried out throughintergovernmental deliberations, technical assistance activities, seminars, workshops andconferences.

The term “country” as used in this study also refers, as appropriate, to territories or areas;the designations employed and the presentation of the material do not imply the expression ofany opinion whatsoever on the part of the Secretariat of the United Nations concerning the legalstatus of any country, territory, city or area or of its authorities, or concerning the delimitation ofits frontiers or boundaries. In addition, the designations of country groups are intended solelyfor statistical or analytical convenience and do not necessarily express a judgement about thestage of development reached by a particular country or area in the development process. Thereference to a company and its activities should not be construed as an endorsement by UNCTADof the company or its activities.

The boundaries and names shown and designations used on the maps presented in thispublication do not imply official endorsement or acceptance by the United Nations.

The following symbols have been used in the tables:

Two dots (..) indicate that data are not available or are not separately reported. Rows intables have been omitted in those cases where no data are available for any of the elements in therow;

A dash (-) indicates that the item is equal to zero or its value is negligible;

A blank in a table indicates that the item is not applicable, unless otherwise indicated.

A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year;

Use of a hyphen (-) between dates representing years, e.g., 1994-1995, signifies the fullperiod involved, including the beginning and end years.

Reference to “dollars” ($) means United States dollars, unless otherwise indicated.

Annual rates of growth or change, unless otherwise stated, refer to annual compoundrates.

Details and percentages in tables do not necessarily add to totals because of rounding.

The material contained in this study may be freely quoted with appropriateacknowledgement.

UNITED NATIONS PUBLICATION

Sales No. E.01.II.D.

ISBN 92-1-112

Copyright © United Nations, 2001All rights reserved

Manufactured in Switzerland

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Preface

iii

Investment is of decisive importance for the developing world. The only developingcountries that really are developing are those that have succeeded in attracting significant amountsof foreign direct investment (FDI), and have mobilized the savings and resources of their owncitizens. Unfortunately, that is only a relative handful of countries. The rest of the developingworld, and especially the least developed countries, are almost entirely missing out — in spite ofthe fact that many of them have put in place highly welcoming regulatory frameworks for foreigninvestment and are carrying out other major economic, financial and political reforms. Often,however, a country lacks the necessary infrastructure, or its market is too small and too isolatedto be of interest. For many local markets trying to compete, the global market can be unforgiving.

Part One of the World Investment Report 2001 focuses on the geography of FDI. Flows of FDIreached unprecedented levels in 2000. Policy makers in developing countries are seeking toincrease this volume still further, but more importantly to improve its quality. Towards that end,a new generation of investment promotion strategies is emerging — a more targeted approachthat carefully assesses location and other factors for success. These new strategies are beingpursued side-by-side with traditional schemes.

The discussion in Part Two of the Report reflects the fact that international productionnetworks span more countries than ever before. There is a need to promote links between foreignaffiliates and domestic firms in developing countries, so as to strengthen the domestic enterprisesector. This is the bedrock of economic development, and would go a long way toward givingdomestic firms a foothold in international production networks while embedding foreign affiliatesmore fully in host economies.

Helping the developing-country economies, and in particular those of the least developedcountries, to derive more benefits from FDI and from the increasingly integrated global economyremains a crucial goal of the entire United Nations system. The statistics and analysis containedin this thought-provoking Report are meant to contribute to that endeavour, and merit widereadership.

Kofi A. AnnanNew York, July 2001 Secretary-General of the United Nations

Acknowledgements

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The World Investment Report 2001 (WIR01) was prepared - under the overall direction ofKarl P. Sauvant - by a team led by Anh-Nga Tran-Nguyen and comprising Victoria Aranda, AmericoBeviglia Zampetti, Harnik Deol, Kumi Endo, Wilfried Engelke, Torbjörn Fredriksson, MasatakaFujita, Kálmán Kalotay, Gabriele Köhler, Padma Mallampally, Abraham Negash, Ludger Odenthal,Miguel Pérez Ludeña, Katja Weigl and James Xiaoning Zhan. Specific inputs were received fromSung Soo Eun, Fulvia Farinelli, Günter Fischer and Paul Wessendorp.

Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourtand Lizanne Martinez. Research assistance was provided by Tadelle Taye. Three interns assistedwith the WIR01 at various stages: Maria Cristina D'Ornellas, Leander Kroezen and PimSchuitemaker. The production of the WIR01 was carried out by Christopher Corbet, FlorenceHudry, Zarah Lim, Mary McGee and Chantal Rakotondrainibe. Graphics were done by DiegoOyarzun-Reyes. WIR01 was desktop published by Teresita Sabico. The Report was edited byFrederick Glover.

Sanjaya Lall was principal consultant and adviser.

Experts from within and outside the United Nations provided inputs for WIR01. Majorinputs were received from Jorge Carrillo and Prasada Reddy. Inputs were also received fromPeter Brimble, Mike Crone, Sonia Ferencikova, Grazia Ietto-Gillies, Andrej Koperdan, XiaofangShen, Lu Yuebing and Xia Youfou.

A number of experts were consulted on various chapters. The special topic of Part Twowas discussed at an international workshop in Geneva in May 2001 in cooperation with theDevelopment Policy Forum of the German Foundation for International Development. Theassistance of Gudrun Kochendörfer-Lucius and Ina Dettmann-Busch of the Forum, is gratefullyacknowledged.

Comments were received during various stages of preparation from Arun Agrawal, TilmanAltenburg, Subash Bijlani, Douglas van der Berghe, Kai Bethke, Mauro Borges Lemos, Andre deCrombrugghe, Chris Darrol, Janelle Diller, László Dubcsák, Nigel Easton, Persephone Economou,Mario Frentz, István Fórián, Axèle Giroud, Anabel González, Khalil Hamdani, Robert Handfield,Tom Hayes, Neil Hood, Paul Hyman, Georg Kell, June-Dong Kim, Mark Koulen, Sushil Kumar,Don Lecraw, Henry Loewendahl, John A. Mathews, Jörg Mayer, Pradeep Mehta, Hafiz Mirza,Tony Mizen, Robert Lipsey, Sándor Molnár, Ricardo Monge, Theodore H. Moran, MichaelMortimore, Lynn K. Mytelka, Njunguna S. Ndungu, Fionan O'Muircheartaigh, José Tomás PáezFernández, Nicholas Phelps, Anne Caroline Posthuma, Ganesh Rasagam, Pedro Roffe, LorraineRuffing, Christiane Stepanek-Allen, Vit Svajcr, Taffere Tesfachew, Art Tolentino, Selma Tozanli,Rob van der Tulder, Peter Unterweger, Louis T. Wells, Archie Workman, Henry Yeung and StephenYoung.

Numerous officials of central banks, statistical offices, investment promotion agenciesand other government offices, and officials of international organizations and non-governmentalorganizations, as well as executives of a number of companies, also contributed to WIR01,especially through the provision of data and other information. The Foreign Investment AdvisoryService of the World Bank contributed inputs. A survey of linkages by foreign affiliates wasundertaken with the participation of the International Chamber of Commerce.

The Report benefited from overall advice from John H. Dunning, Senior Economic Advisor.

The financial support of the Governments of Germany, Norway and Sweden is gratefullyacknowledged.

vTABLE OF CONTENTS

Table of contents

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PREFACE ......................................................................................................iii

OVERVIEW .................................................................................................xiii

PART ONETHE GEOGRAPHY OF INTERNATIONAL PRODUCTION

INTRODUCTION ..........................................................................................3

CHAPTER I. THE GLOBAL PICTURE ....................................................5

A. The geographical dynamics of FDI: the setting ..............................5

B. The growth of FDI in 2000 ................................................................9

1. Developed countries ...............................................................................................9a. United States ..................................................................................................12b. European Union ............................................................................................12c. Japan ................................................................................................................18d. Other developed countries ..........................................................................19

2. Developing countries ...........................................................................................19a. Africa ...............................................................................................................19b. Developing Asia ............................................................................................23c. Latin America and the Caribbean ..............................................................29d. The least developed countries ....................................................................30

3. Central and Eastern Europe ................................................................................34

C. The Inward FDI Index .....................................................................39

Notes ............................................................................................................................44

CHAPTER II. MAPPING INTERNATIONAL PRODUCTION .............47

A. Global patterns .................................................................................47

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1. FDI patterns ...........................................................................................................472. Some comparative patterns .................................................................................53

B. Sub-national patterns .......................................................................59

C. Industrial and functional patterns ...................................................66

1. Industrial location and the role of clusters ......................................................662. The location of corporate functions .................................................................72

Notes ............................................................................................................................88

CHAPTER III. THE LARGEST TRANSNATIONALCORPORATIONS .......................................................................................89

A. The 100 largest TNCs worldwide ..................................................93

1. Highlights ..............................................................................................................932. Transnationality ....................................................................................................96

B. The largest 50 transnational corporations fromdeveloping countries .......................................................................104

C. The largest 25 TNCs from Central and Eastern Europe ............114

Notes ..........................................................................................................................119

CONCLUSION ...........................................................................................121

PART TWOPROMOTING LINKAGES BETWEEN FOREIGN

AFFILIATES AND DOMESTIC FIRMS

INTRODUCTION ......................................................................................127

CHAPTER IV. BACKWARD LINKAGES: IMPACT,DETERMINANTS AND TNC EXPERIENCE .......................................129

A. Why backward linkages matter ....................................................129

B. Linkage determinants ....................................................................133

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C. Creating and deepening linkages: what companies do ...............140

1. Finding new local suppliers ...........................................................................1402. Transferring technology .................................................................................1403. Providing training ...........................................................................................1444. Sharing information ........................................................................................1495. Extending financial support ...........................................................................151

D. Conclusions .....................................................................................152

Notes ..........................................................................................................................153

Annex to chapter IV. Supplier development activitiesby foreign affiliates................................................................................157

CHAPTER V. POLICIES TO STRENGTHEN LINKAGES ................163

A. The role of government policy.......................................................163

B. Trade and investment measures influencing linkages .................165

C. Specific measures to assist the creation anddeepening of linkages .....................................................................173

1. Information and matchmaking .......................................................................1742. Technology upgrading ....................................................................................1753. Training .............................................................................................................1784. Finance .............................................................................................................180

D. Specific government linkage promotion programmes .................183

Notes ..........................................................................................................................193

Annex to chapter V. Additional country programmes ........................197

CHAPTER VI. KEY ELEMENTS OFA LINKAGE PROMOTION PROGRAMME .........................................209

A. Setting policy objectives .................................................................211

B. Identifying the targets ....................................................................212

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C. Areas for specific policy measures ...............................................213

D. Organizational and institutional framework ................................214

REFERENCES ..........................................................................................217

ANNEX A. ADDITIONAL TEXT TABLES AND FIGURES ...............235

ANNEX B. STATISTICAL ANNEX .......................................................273

SELECTED UNCTAD PUBLICATIONS ON TRANSNATIONALCORPORATIONS AND FOREIGN DIRECT INVESTMENT .............347

QUESTIONNAIRE ....................................................................................356

Boxes

I.1. FDI regimes in 2000 ..........................................................................................................6I.2. FDI boom in Hong Kong, China: what ‘s behind the numbers? ........................................24I.3. The evolving profile of FDI in China ...............................................................................26I.4. FDI in Yugoslavia ............................................................................................................35I.5. Government support for investors in Hungary .................................................................37II.1. Cross-border M&As in 2000 ...........................................................................................53II.2. Inward FDI at the sub-national level: some examples ......................................................62II.3. FDI in high technology industries in California ................................................................73II.4. FDI in the electronics industry in Penang, Malaysia ........................................................74II.5. FDI in financial services in the City of London ................................................................75III.1. Assessing the international spread of the world’s largest TNCs .....................................103III.2. Lukoil’s acquisition of Getty Petroleum ..........................................................................119IV.1. ENGTEK: from a backyard business to a global supplier ...............................................129IV.2. Linkages to first-tier foreign suppliers ...........................................................................132IV.3. Evidence on backward linkages ....................................................................................134IV.4. Linkages in the Peruvian mining industry .......................................................................138IV.5. Sourcing in the food retailing industry: Carrefour and McDonald’s in Argentina ............ 139IV.6. Nestlé’s supplier development programme in China .......................................................141IV.7. Cooperation between foreign affiliates and local suppliers:

the case of LG Electronics in India ...............................................................................144IV.8. Upgrading supplier capabilities in the food processing industry in India .........................145IV.9. Unilever in Viet Nam ....................................................................................................146IV.10. Fostering linkages with local suppliers: the case of Toyota Motor Thailand ....................146IV.11. The SMART model of Intel Malaysia ............................................................................149IV.12. Motorola’s backward linkage programme in China ........................................................150V.1. Suzuki’s local sourcing in Hungary ................................................................................166V.2. The TRIMs Agreement in brief .....................................................................................167

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V.3. Experiences with local content requirements .................................................................169V.4. Singapore’s Local Industry Upgrading Programme .......................................................176V.5. Source Wales ................................................................................................................179V.6. Partnership for training: the UNIDO Partnership Programme to

strengthen the automotive component manufacturing industry in India ..........................181V.7. Targeting potential local suppliers ..................................................................................184V.8. Ireland’s National Linkage Programme .........................................................................185V.9. National and regional linkage development schemes in Malaysia ...................................187V.10 The Czech Republic’s National Supplier Development Programme ...............................189V.11. Measuring linkages and their economic impact – an overview ......................................192VI.1 Coach an SME! ............................................................................................................213

Figures

I.1. Geographical distribution of foreign affiliates, 1999 ..........................................................11I.2. The share of the Triad in world FDI flows and stocks, 1985 and 2000 ..............................11I.3. FDI stocks among the Triad and economies in which FDI from the Triad dominates,

1985 and 1999 .................................................................................................................13I.4. Developed countries: FDI outflows, 1999 and 2000 .........................................................14I.5. Destination and sources of United States FDI flows, 2000 ..............................................15I.6. Developed countries: FDI inflows, 1999 and 2000 ...........................................................16I.7. Developed countries: FDI flows as a percentage of gross

fixed capital formation, 1997-1999 ...................................................................................17I.8. Intra- and extra-EU FDI flows, 1995-1999 ......................................................................18I.9. FDI inflows and their share in gross fixed capital formation in Africa, 1990-2000 ........... 19I.10. Africa: FDI flows as a percentage of gross fixed capital formation,

top 20 countries, 1997-1999 .............................................................................................21I.11. Africa: FDI inflows, top 10 countries, 1999 and 2000 ......................................................22I.12. Africa: FDI outflows, top 10 countries, 1999 and 2000 ....................................................22I.13. FDI inflows and their share in gross fixed capital formation

in developing Asia, 1990-2000 .........................................................................................24I.14. FDI inflows as a percentage of gross domestic capital

formation in developing Asia, 1990-1999 .........................................................................27I.15. Asia and the Pacific: FDI inflows, top 20 economies, 1999-2000 .....................................28I.16. Developing Asia: FDI outflows, top 10 economies, 1999-2000 .........................................29I.17. FDI inflows and their share in gross fixed capital formation in Latin America

and the Caribbean, 1990-2000 .........................................................................................29I.18. Latin America and the Caribbean: FDI inflows, top 20 economies, 1999 and 2000 .......... 31I.19. Latin America and the Caribbean: FDI flows as a percentage of gross

fixed capital formation, top 20 economies, 1997-1999 ......................................................32I.20. Latin America and the Caribbean: FDI outflows, top 10 economies, 1999 and 2000 ........ 33I.21. FDI inflows and their share in gross fixed capital formation in Central and

Eastern Europe, 1990-2000 .............................................................................................34I.22. Central and Eastern Europe: FDI inflows, 1999 and 2000 ................................................34I.23. Central and Eastern Europe: FDI flows as a percentage of

gross fixed capital formation, 1997-1999 ..........................................................................36I.24. Central and Eastern Europe: FDI outflows, 1999 and 2000 .............................................37I.25. Transnationality index of host economies .........................................................................38

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I.26. The Inward FDI Index, by host economy: the top 30 and the bottom 20,1988-1990 and 1998-2000 ...............................................................................................41

I.1. Inward FDI stock, 1985 and 2000 ...................................................................................48II.2. Outward FDI stock, 1985 and 2000 .................................................................................49II.3. Share of developing countries in world FDI flows, 1980-2000 .........................................50II.4. Relative importance of FDI outflows from selected developing economies, 1997-1999 ... 50II.5. Inward FDI stock per $1,000 GDP, 1999 .........................................................................51II.6. Inward FDI stock per capita, 2000 ..................................................................................51II.7. Value of cross-border M&As and its share in world GDP, 1987-2000 ..............................53II.8. Cross-border M&A sales, 1987 and 2000 ........................................................................54II.9. Cross-border M&A purchases, 1987 and 2000 ................................................................55II.10. FDI and trade intensities, by region, 1990 and 1999 .........................................................57II.11. Location of foreign affiliates in Austria, by region, 1994 ..................................................60II.12. Distribution of sales by foreign affiliates in Japan, by area, 1997 .....................................60II.13. Distribution of FDI inflows in France, by region, 1997 .....................................................61II.14. Distribution of employees of foreign affiliates in Sweden, by county, 1999 .......................61II.15. Distribution of production of foreign affiliates in the United States, by state, 1992 ........... 62II.16. Industrial distribution of world FDI stock, 1988 and 1999 ................................................67II.17. The distribution of foreign affiliates in the semiconductor industry, 1999 .........................68II.18. The distribution of foreign affiliates in the biotechnology industry, 1999 ...........................69II.19. The distribution of foreign affiliates in the automobile industry, 1999 ...............................70II.20. The distribution of foreign affiliates in the TV and radio receivers industry, 1999 ............ 70II.21. The distribution of foreign affiliates in the textiles and clothing industry, 1999 .................71II.22. The distribution of foreign affiliates in food and beverage industry, 1999 .........................71II.23. The distribution of foreign affiliates of the largest 10 automobile TNCs,

by function, 1999 .............................................................................................................76II.24. The distribution of foreign affiliates of the largest 10 electronics TNCs,

by function, 1999 .............................................................................................................78II.25. The distribution of R&D facilities and locations of major universities in Europe, 1999 ..... 83II.26. The distribution of R&D facilities and locations of major universities

in the United States, 1999 ...............................................................................................84II.27. The distribution of R&D facilities and locations of major universities in Asia, 1999 ......... 86II.28. Functional integration of foreign affiliates of Toyota Motor Corporation

in ASEAN, 2000 ..............................................................................................................87III.1. Location of the largest 100 TNCs in the world, the largest 50 TNCs in developing

countries and largest 25 TNCs based in Central and Eastern Europe, 1999 .....................89III.2. Snapshot of the world’s 100 largest TNCs, 1990-1999 ...................................................96III.3. Global expansion of Ford Motor Company ......................................................................97III.4. Global expansion of Unilever N.V. ..................................................................................98III.5. Global expansion of Siemens A.G. ...................................................................................99III.6. Global expansion of Marubeni Corporation ....................................................................100III.7. Average transnationality index of the world’s 100 largest TNCs, 1990-1999 .................101III.8. The top 10 increases in transnationality among the

world’s 100 largest TNCs, 1998-1999 ...........................................................................102III.9. The top 10 decreases in transnationality among the

world’s 100 largest TNCs, 1998-1999 ...........................................................................102III.10. Trends among the largest 50 TNCs from developing economies, 1993–1999 .................107III.11. Global expansion of Cemex S.A. ...................................................................................108

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III.12. Major industry groups as per cent of largest 50, 1993 and 1999 .....................................110III.13. Major industry groups of the largest 50 TNCs and their average

transnationalization index, 1993 and 1999 .......................................................................111III.14. Foreign assets of the biggest investors from developing countries, 1998 and 1999 ..........113III.15. Global expansion of Pliva d.d. ........................................................................................117IV.1. Strategic options for foreign affiliates with regard to obtaining inputs ............................133V.1. Policy focus for the promotion of backward linkages ....................................................164V.2. The linkages policy environment ....................................................................................164

Tables

I.1. Selected indicators of FDI and international production, 1982-2000 .................................10I.2. Annual average FDI growth rate, 1986-2000 ..................................................................10I.3. The ten largest cross-border M&A purchases by South African firms, 1987-2000 .......... 23I.4. Concentration ratios of FDI, trade, domestic investment and

technology payments, 1985 and 2000 ...............................................................................39I.5. The Inward FDI Index, by region, 1988-1990 and 1998-2000 ..........................................43II.1. Share of the largest ten countries in world FDI flows, 1985 and 2000 .............................52II.2. Share of the largest recipients of FDI flows among developing economies,

1985 and 2000 .................................................................................................................52II.3. The share of top TNCs in outward FDI stock, selected countries, latest available year ... 52II.4. Cross-border M&As with values of over $1 billion, 1987-2000 ........................................56II.5. Geographical distribution of FDI flows, trade, domestic investment

and technology payments ................................................................................................56II.6. Geographical concentration of foreign affiliates in selected manufacturing

industries, by technological intensity, 1999 .......................................................................68II.7. Corporate networks of Japanese affiliates in the Americas, 1999 ....................................80II.8. Regional headquarters of foreign firms in Hong Kong, China,

by home economy and by industry, 1996-2000 .................................................................81II.9. Share of United States patents of world’s largest firms attributable to research in foreign

locations, 1969-1995 ........................................................................................................82III.1. The world’s 100 largest TNCs, ranked by foreign assets, 1999 ........................................90III.2. Newcomers to the world’s 100 largest TNCs, ranked by foreign assets, 1999 .................93III.3. Departures from the world’s 100 largest TNCs, ranked by foreign assets, 1999a ............ 94III.4. Snapshot of the world’s 100 largest TNCs, 1999 .............................................................94III.5. Country composition of the world’s largest 100 TNCs by transnationality index

and foreign assets, 1990, 1995 and 1999 ..........................................................................95III.6. Industry composition of the largest 100 TNCs, 1990, 1995 and 1999 ..............................101III.7. The world’s largest 10 TNCs in terms of transnationality, 1999 .....................................101III. 8. Averages in transnationality index, assets, sales and employment

of the largest 5 TNCs in each industry, a 1990, 1995 and 1999 ......................................102III.9. The largest 50 TNCs from developing economies, ranked by foreign assets, 1999 ......... 105III.10. Snapshot of largest 50 TNCs from developing economies, 1999 ...................................107III.11. The top five TNCs from developing economies in terms of transnationality, 1999 .......... 108III.12. Newcomers to the largest 50 TNCs from developing economies, 1999 ..........................109III.13. Departures from the largest 50 TNCs from developing economies, 1999 ........................110III.14. Industry composition of the top 50 TNCs from developing economies,

1993, 1996 and 1999 .......................................................................................................112

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III.15. Country composition of the largest 50 TNCs from developing economies,by transnationality index and foreign assets, 1993, 1996 and 1999 ..................................113

III. 16. The largest 25 non-financial TNCs based in Central and Eastern Europe,ranked by Foreign assets, 1999 ......................................................................................115

III.17. Gazprom: selected equity investments outside the Russian Federation by 2001 ..............116III.18. Selected publicly announced cross-border mergers and acquisitions

involving the largest 25 firms, January 1997 to May 2001 ...............................................118IV.1. Backward linkages and other relationships between foreign affiliates and

local enterprises and organizations ................................................................................131V.I. Notifications submitted under Article 5.1 of the TRIMs Agreement ..............................168V.2. Examples from international agreements (or attempts thereof) that prohibit,

condition or discourage certain host country operational measures ................................170V.3. The WTO Agreement on Subsidies ...............................................................................172VI.1 Specific government measures to create and deepen linkages .......................................210VI.2 Measures by foreign affiliates to create and deepen linkages ........................................214

Box figures

I.1.1. Types of changes in FDI laws and regulations, 2000 .........................................................6I.1.2. BITs concluded in 2000, by country group .........................................................................6I.1.3. Cumulative number of BITs and DTTs, 1990-2000 ............................................................7I.1.4. DTTs concluded in 2000, by country group ........................................................................71.2.1. Trends of FDI inflows into Hong Kong, China, 1994-2000 ...............................................24II.2.1. Distribution of FDI stock in China, by province and major city, 1999 ...............................63II.2.2. Distribution of FDI flows in Thailand, by province, 2000 .................................................63II.2.3. Location of foreign affiliates in Brazil, by city, 1999 ........................................................64II.2.4. Location of foreign affiliates in Mexico, by city, 1999 .....................................................64II.2.5. Distribution of foreign affiliates in Hungary, by region, 1998 ...........................................65II.2.6 Location of foreign affiliates in Poland, by city, 1999 ......................................................65II.3.1. Location of foreign affiliates and domestic firms in the microelectronics

industry in California, United States, 1999 .......................................................................73II.4.1. Location of foreign affiliates and domestic firms in the

electronics industry in Malaysia, 1999 .............................................................................74

Box tables

I.1.1. National regulatory changes, 1991-2000 ............................................................................6I.3.1. Exports of high-technology products from China by

ownership of production, 1996-2000 ................................................................................26I.4.1. FDI inflows into Yugoslavia, 1992-2000 ...........................................................................35I.4.2. Countries of origin of FDI inflows into Yugoslavia, 1996-2000 .........................................35I.4.3. Number of FDI projects in Yugoslavia, by industry, 1995-2000 ........................................35III.1.1. Network Spread Index of the world’s largest 97 TNCs, by country of origin .................104III.1.2. Network Spread Index of the world’s largest 94 TNCs, by industry ..............................104IV.10.1. Local procurement by Toyota Motor Thailand, 2001, by type of

supplier and type of input ..............................................................................................147V.1.1. Magyar Suzuki and its supplier network, 2001 ...............................................................166

F

OVERVIEW

THE GEOGRAPHY OFINTERNATIONAL

PRODUCTION

FDI flows reached record levelsin 2000…

oreign direct investment (FDI)continues to expand rapidly,enlarging the role of internationalproduction in the world economy.FDI grew by 18 per cent in 2000,faster than other economic

aggregates like world production, capitalformation and trade, reaching a record $1.3trillion. FDI flows are, however, expected todecline in 2001.

The global expansion of investmentf lows i s d r iven by more than 60 ,000transnational corporations (TNCs) with over800 ,000 aff i l i a tes abroad . Developedcountries remain the prime destination ofFDI, accounting for more than three-quartersof global inflows. Cross-border mergers andacquis i t ions (M&As) remain the mainstimulus behind FDI, and these are sti l lconcentrated in the developed countries. Asa result , inflows to developed countriesincreased by 21 per cent and amounted toa lit t le over $1 trill ion. FDI inflows todeveloping countries also rose, reaching$240 billion. However, their share in worldFDI flows declined for the second year ina row, to 19 per cent, compared to the peakof 41 per cent in 1994. The countries inCentral and Eastern Europe, with inflowsof $27 billion, maintained their share of 2per cent. The 49 least developed countries(LDCs) remained margina l in te rms ofattracting FDI, with 0.3 per cent of worldinflows in 2000.

With in the developed wor ld , theTriad – the European Union (EU), the UnitedStates and Japan – accounted for 71 per centof world inflows and 82 per cent of outflowsin 2000. Within the Triad, the EU has gainedboth as a recipient and source of FDI. Recordinflows ($617 billion) were stimulated byfurther progress in regional integration,while the United States and other WesternEuropean countries remain its main partnersoutside the region. Due to the take-overof Mannesmann by VodafoneAirTouch – thelargest cross-border merger deal so far –Germany became, for the first t ime, thelargest recipient of FDI in Europe. TheUnited Kingdom maintained its position asthe top source country worldwide for asecond year. The United States remainedthe world’s largest FDI recipient country asinflows reached $281 billion. Outflows with$139 billion decreased by 2 per cent. Japansaw its inflows in 2000 drop by 36 per centfrom the previous year to $8 billion, partlydue to the prolonged s low-down of thecountry’s economic growth, but also perhapsindicative of the fact that, in spite of itswelcoming FDI policies, other factors deterinvestment inflows. In contrast, outflowsfrom Japan rebounded to $33 billion, thehighest level in ten years. Among otherdeveloped countries , the most conspicuousevents were the unprecedented levels of FDIinto and from Canada, reflecting severalmajor M&A deals, in particular with partnersin Europe and the United States.

There were major differences in FDIt rends among deve loping count r ies . Incontrast to the experience in most other partsof the world, inflows to Africa (includingSouth Africa) declined in 2000 (for the firstt ime s ince the mid-1990s) , f rom $10.5billion to $9.1 billion. As a result, the shareof Africa in total FDI flows fell below 1

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per cent. The decline was mainly related totwo countries: South Africa and Angola. Inthe former country, fewer privatization andM&A deals caused the slow-down, while inthe latter, inflows in the petroleum sectordeclined. The Southern African DevelopmentCommunity maintained its position as themost important subregion for FDI inflowsin Africa. Its share in total FDI inflows intoAfrica was 44 per cent, compared to 21 percent in the f i rs t half of the 1990s. TheCommunity’s improved attractiveness to FDImay have been pr inc ipa l ly dr iven bycountry-specific factors, but at least someFDI inflows were also motivated by theeconomic integration of the region.

After tripling during the second halfof the 1990s, FDI flows into Latin Americaand the Caribbean also fell in 2000, by 22per cent, to $86 billion. This was mainly acorrection from 1999 – when FDI inflowsinto the region were greatly affected by threemajor cross-border acquisitions of LatinAmerican firms – rather than a shift in theunderlying trend. Privatization slowed downin 2000, but continues to be important asa factor driving inward FDI. In terms ofsectors, FDI into South America was mainlyin services and natural resources, whileMexico continued to receive the largestshare of inflows in manufacturing as wellas in banking.

In developing As ia , FDI inf lowsreached a record level of $143 billion in2000. The greatest increase took place inEast Asia; Hong Kong (China), in particular,experienced an unprecedented FDI boom,with inf lows amount ing to $64 bi l l ion,making it the top FDI recipient in Asia aswell as in developing countries. This upsurgein inflows has several explanations. First,it reflects a recovery from the economicturmoil of the recent past. Second, TNCsplanning to invest in mainland China have been“parking” funds in Hong Kong (China), inanticipation of China’s expected entry intothe WTO. Third, the increase reflects a majorcross-border M&A in telecommunications,which alone accounted for nearly one-thirdof the territory’s total FDI inflows. Fourth, thereis an element of increased “round-tripping” ofcapital flows into, and out of Hong Kong(China).

FDI flows to China, at $41 billion,remained fairly stable. In the course of itsnegotiations for membership in the WTO,China has amended some of its FDI policies.TNCs play an increasingly important rolein the Chinese economy; for example, taxcontributions by foreign affiliates accountedfor 18 per cent ($27 billion) of the country’stotal corporate tax revenues in 2000. Inflowsto South-East Asia (ASEAN-10) remainedbelow the pre-crisis level. The subregion’sshare in total FDI flows to developing Asiacontinued to shrink, and stood in 2000 at10 per cent, as compared with over 30 percent in the mid-1990s. This was largely dueto rising inflows into other countries in thereg ion and s ign i f ican t d ives tments inIndonesia since the onset of the financialcrisis. South Asia witnessed a drop in FDIinflows by 1 per cent over the previous year.Ind ia , the la rges t rec ip ien t in thesubcont inent , rece ived $2 b i l l ion .Notwithstanding these mixed trends, thelonger- te rm inves tment prospec ts fordeveloping Asia remain bright. In additionto the quality of the underlying determinantsfor FDI, greater economic integration islikely to boost FDI in the region.

Outward FDI from developing Asiadoubled in 2000, to $85 billion. Hong Kong(China) was the most important source ($63billion); more than half of its outward FDIwent to China. Outward FDI from Chinaand India also picked up.

FDI inflows into Central and EasternEurope also rose, to an unprecedented $27billion. Privatization-related transactionswere a key determinant of FDI inf lowsthroughout the region, with the exceptionof Hungary, where the privatization processhas by and large run its course, and theCommonwealth of Independent States, wherelarge-scale privatizations involving foreigninvestors have yet to begin. Outflows fromthe reg ion expanded even fas te r thaninflows, in spite of the fact that official dataon outward FDI are likely to underestimatethe actual outflows. (Some FDI by firms inthe Russian Federation go unreported, or arereported under other elements of the balanceof payments.)

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…but a mapping of the geographyof FDI patterns shows thatinternational production is

highly concentrated…

A mapping of FDI inflows indicatesthe ex ten t to which hos t count r ies a rein tegra t ing in to the g loba l iz ing wor ldeconomy. It also indicates indirectly thedis t r ibu t ion of benef i t s f rom FDI . Themapping of outward FDI shows whichcountries control the global distribution ofthis investment. Understanding the patternof FDI flows and stocks and its drivingforces is important for the formulation andimplementation of economic strategies andpolicies.

A comparison of the world maps ofinward and outward FDI in 2000 and 1985revea ls tha t FDI reaches many morecountries in a substantial manner than in thepast. More than 50 countries (24 of whichare developing countries) have an inwardstock of more than $10 billion, comparedwith only 17 countries 15 years ago (7 ofthem developing countries). The picture foroutward FDI i s s imi lar : the number ofcountries with stocks exceeding $10 billionrose f rom 10 to 33 (now inc luding 12developing countries, compared to 8 in 1985)over the same period. In terms of flows, thenumber of countries receiving an annualaverage of more than $1 billion rose from17 (6 of which were developing countries)in the mid-1980s to 51 (23 of which weredeveloping countr ies) a t the end of the1990s. In the case of outflows, 33 countries(11 developing countries) invested more than$1 billion at the end of the 1990s, comparedto 13 count r ies (on ly one deve lopingcountry) in the mid-1980s.

Despite its reach, however, FDI isunevenly distributed. The world’s top 30host countries account for 95 per cent oftotal world FDI inflows and 90 per cent ofstocks. The top 30 home countries accountfor around 99 per cent of outward FDI flowsand stocks, mainly industrialized economies.About 90 of the world’s largest 100 non-financial TNCs in terms of foreign assetsare headquartered in the Triad. More thanhalf of these companies are in the electricaland electronic equipment, motor vehicle, and

pet ro leum explora t ion and d is t r ibu t ionindustries. These TNCs play an importantro le in in te rna t iona l p roduct ion : theyaccounted (in 1999) for approximately 12per cent, 16 per cent and 15 per cent of thefore ign asse t s , sa les and employment ,respectively, of the world’s 60,000 plusTNCs. General Electric maintained in 1999its position as the largest TNC in the world.For the first time, three companies fromdeveloping countries (Hutchison Whampoa,Petróleos de Venezuela and Cemex) areamong the world’s 100 largest TNCs. Thet ransna t iona l iza t ion of companies i s aphenomenon increasingly observed not onlyin deve loped count r ies bu t a l so in thedeveloping world. The top 50 TNCs fromdeveloping countries – the largest of whichare comparable in size to the smallest ofthe top 100 worldwide – originate in some13 newly industrializing economies of Asiaand Lat in America as wel l as in SouthAfrica. They congregate in construction,food and beverages , and d ivers i f iedindustries. The largest 25 TNCs from Centraland Eastern Europe are somewhat moreevenly d is t r ibu ted among n ine homecountries. Transport, mining, petroleum andgas and chemicals and pharmaceuticals arethe most frequently represented industriesamong these TNCs. The transnationalityindex for the three groups of TNCs showsome divergent pat terns . The degree oftransnationalization increased for both thetop 50 TNCs and the top 25: from 37 percent in 1998 to 39 per cent in 1999 in thecase of the former; and from 26 per centto 32 per cent in the case of the latter. Thet ransna t iona l i ty of the top 100 TNCsremained fairly stable at a high level (53per cent).

The loca t iona l pa t te rns ofinternational production differ by countryand industry, and they change over time,partly in response to the shifting industrialcomposition of FDI. During the past tenyears, services have become more importantin international production because thissector has been liberalized for FDI relativelyrecently. In 1999, they accounted for morethan half of the total stock of inward FDIin developed countries and some one-thirdof that in developing countries. In manyservice industries, FDI tends to be spreadrelatively widely, reflecting the importance

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of proximity to customers. The same appliesto some manufacturing industries, in whichaccess to the domes t ic marke t i s thepredominant reason for investing abroad.However, the more advanced the level oftechnology in an industry, the higher thelevel of concentra t ion tends to be . Forexample , i f one takes s ix indus t r iesrepresenting different technological levels(semiconductors, biotechnology, automobiles,TV and radio receivers, food and beverages,and texti les and clothing), an industrialmapping shows FDI in biotechnology ash ighly concent ra ted , fo l lowed bysemiconductors and televisions and radioreceivers . In compar ison, the food andbeverages industry is more evenly spreadamong host countries. Foreign affiliates inh igh- technology indus t r ies tend toagglomerate in selected locations in thewor ld . This re f lec t s d i ffe rences in theindus t r ia l d i s t r ibu t ion of FDI in themanufacturing sector between developed anddeveloping countr ies . In the developedcountries, chemicals is the largest recipientindustry, while in developing countries FDIis concentrated in low-technology industries.

At the functional level, geographicalpatterns of FDI reflect efficiency considerationsof TNCs in the light of increasing competitivepressures , coupled wi th technologica ladvances that enable real-time links acrosslong distances and the liberalization of tradeand FDI policies. This encourages a greaterspread of all corporate functions. Even suchcritical corporate functions as design, R&Dand financial management are today becomingincreasingly internationalized to optimizecost, efficiency and flexibility. Take, forexample, the location of regional headquarters.Singapore and Hong Kong (China) haveattracted a number of regional headquartersto serve the Asian region, with the first locationhosting some 200 regional headquarters, andthe second 855 in 2000. In some industries,TNCs have set up integrated internationalproduct ion sys tems wi th an in t ra - f i rminternational division of labour spanningregions (as in automobiles) or continents(as in semiconductors). Within such complexsystems, the functions transferred to differentlocations vary greatly. Less industrializedlocations are assigned simpler tasks likeassembly and packaging, while more skill-and technology- in tens ive funct ions areal located to industr ial ly more advancedlocations.

…with countries varying greatlyin terms of their success in

attracting FDI, as revealed inthe new Inward FDI Index.

The concentration of FDI reflects theconcentration of economic activity moregenerally. Thus, exports, domestic investmentand technology payments are also highlyconcentrated. Richer and more competitiveeconomies naturally receive and send moreinternational direct investment than othereconomies.

To gauge the under ly ingattractiveness of a country for internationalinvestors, it is useful to take its relativeeconomic size and strength into account.The Inward FDI Index captures the abilityof countries to attract FDI after taking intoaccount their size and competitiveness. TheIndex is the average of three ratios, showingeach country’s share in world FDI relativeto i t s shares in GDP, employment andexports. An index value of “one” wouldtherefore mean that a country’s share inworld FDI matches its economic positionin terms of these three indicators.

The ranking of 112 countries in 1988-1990 and 137 in 1998-2000 shows a largedispersion of index values. For 1998-2000,the value of the Index ranges from 17.3 forthe lead ing economy, Belg ium andLuxembourg, to -0.8 for Yemen. Moreover,the rankings have changed significantly overt ime. S ingapore has s l ipped f rom f i r s tposition at the end of the 1980s to thirteenthposition a decade later. The fall in its indexvalue reflects a slower growth of FDI (byabout a half) than in its GDP and exportswhich more than doubled between the twoper iods . The pos i t ion of Sweden hasimproved considerably (moving from thetwenty-ninth spot to the fourth) , par t lyreflect ing a del iberate change in policydur ing the 1990s in favour of grea te ropenness towards inward FDI.

In 1998-2000, there were f ivecountries with an Inward FDI Index valueof one: Costa Rica, El Salvador, Hungary,Malays ia and S lovakia . There were 53countries with a value higher than one, and79 with values lower than one. The lastgroup, which “under-performs” in terms of

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attracting FDI, includes advanced economiesl ike Japan , I ta ly and Greece , newlyindustrializing economies like the Republicof Korea, Taiwan Province of China andTurkey, oil rich economies like Saudi Arabiaand a number of low income countries. FDIrecipients with high values of the Indexinc lude the major i ty of the deve lopedcountries, Hong Kong (China), Singaporeand some Central and Eastern Europeancountries.

In both periods, the Index value fordeveloped countries is about twice the worldaverage , whi le those for deve lopingcountries and economies in transition arebelow the world average. The differencesbetween the three groups of countries reflectmainly the influence of the employmentvariable: the developed and developingcountry groups have FDI shares roughly inproport ion to their GDP shares, but theformer receive far larger shares of worldFDI than their shares in world employment,while developing countries and economiesin t rans i t ion rece ive less . Wi th in thedeveloping world, the Inward FDI Indexvalues for South America and Central Asiaexceeded unity in 1998-2000. In the otherregions (and for these two regions in theearlier period), the Index value was belowone. South Asia, West Asia and North Africashow the lowest values; the reasons for thismay have more to do with political factorsthan economic ones. Sub-Saharan Africareceives FDI in line with its GDP share, butvery l i t t l e in re la t ion to i t s share inemployment; over time its FDI Index valuehas declined slightly. For the LDC group,the value of the FDI Index doubled betweenthe two periods, mostly due to increases inthe FDI to exports and FDI to GDP ratios.In fact, in the second period, the Index valuefor African LDCs exceeded one; it is nowalmost twice as high as that for sub-SaharanAfrica as a whole. The index value for otherLDCs has declined over the decade.

The Index sugges ts tha t Afr icareceives less FDI flows in comparison withthe region’s relative economic size. Theunderlying economic reality is that sub-Saharan Africa has lost share in both worldFDI inflows and other economic aggregates;African LDCs, however, have maintainedtheir share of FDI but have fallen furtherbehind in other economic aggregates.

Interpreting the Inward FDI Indexcalls for care and the use of evidence onother economic and pol icy var iab les .Nonetheless, it can provide a starting pointfor benchmarking how countries succeed inattracting FDI. Many of the countries atthe top of the ranking (with an index valuefar exceeding unity) are strong economiesthat are leveraging their economic strengththrough policies to attract more than their“normal” share of FDI. There are a lso,however, a few count r ies wi th weakeconomies bu t s t rong na tura l resourceendowments that occupy places at the top.A number of countries at the bottom areweak economies in which the influence ofo ther economic fac tors and pol ic iesapparently pulls inward FDI below levelsthat could be expected on the basis of theelements of economic strength covered bythe Index. There are others at the bottom,(such as Japan and the Republic of Korea),however, tha t have s t rong economicpositions overall but have chosen to restrictFDI (at least until fairly recently).

The expansion of internationalproduction is taking place in a

new international setting…

The rapidly changing internationalsetting is changing the drivers of FDI. Whilethe main traditional factors driving FDIlocation – large markets, the possession ofnatural resources and access to low-costunskilled or semi-skilled labour – remainrelevant, they are diminishing in importance,particularly for the most dynamic industriesand functions. As trade barriers come downand regional links grow, the significance ofmany national markets also diminishes.Primary industries account for a shrinkingshare of industr ial act ivi ty, and naturalresources per se p lay a smal ler ro le inattracting FDI for many countries. The roleof cheap “raw” labour i s s imi lar : evenlabour-intensive activities often need to becombined wi th new technologies andadvanced sk i l l s . The loca t ion of TNCactivity instead increasingly reflects threedevelopments : po l icy l ibera l iza t ion ,technical progress and evolving corporatestrategies.

Changes in the international policyenv ironment have a s t rong impact on

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locational decisions. Trade and investmentliberalization allows TNCs to specializemore and to search for competitive locations.TNCs have grea te r f reedom to chooselocations and the functions they transfer.Between 1991 and 2000, a total of 1,185regula tory changes were in t roduced innational FDI regimes, of which 1,121 (95per cent) were in the direction of creatinga more favourable environment for FDI.During 2000 alone, 69 countries made 150regulatory changes, of which 147 (98 percent ) were more favourable to fore igninvestors.

Technica l progress a ffec t s thegeography of FDI in many ways. Rapidinnovation provides the advantages thatpropel firms into international production.Thus, innovation-intensive industries tendto be increasingly transnational, and TNCshave to be more innovative to maintain theircompetitiveness. Innovation also leads tochanges in the s t ruc ture of t rade andproduction, with R&D-intensive activitiesgrowing fas te r than less technology-in tens ive ac t iv i t i es . The increasedtechnology intensity of products reduces theimportance of pr imary and s imple low-technology activities in FDI, while raisingtha t o f sk i l l - in tens ive ac t iv i t ies . Newinformation and communication technologiesintensify competition while allowing firmsto manage widely dispersed internationaloperations more efficiently. High-technologyac t iv i t ies prev ious ly out of reach ofdeveloping countries can now be placedthere because labour-intensive processeswithin those activities can be economicallyseparated and managed over long distances.

Many ac t iv i t i es in in tegra tedproduction systems are technology-intensiveand dynamic; their location in developingcountries can rapidly transform the FDI andcompetitive landscape there. Moreover, thepervasiveness of technical change means thatal l TNC ac t iv i t i es have to use newtechnologies effectively. Location decisionshave to be based on the abi l i ty of hostcountries to provide the complementaryskills, infrastructure, suppliers and institutionsto opera te technologies eff ic ient ly andflexibly. Technical progress, thus, forcesfirms involved in international productionto differentiate increasingly between the“haves” and “have-nots” in new FDI-

complementing factors when deciding whereto undertake different activities.

Manager ia l and organiza t ionalfac tors s t rengthen the new loca t iona ldeterminants of FDI. A greater focus on corecompetencies, with flatter hierarchies andstronger emphasis on networking, steersinvestments towards locations with advancedfactors and institutions, and, where relevant,distinct industrial clusters. New organizationalmethods (aided by new technologies) allowa more efficient management of globaloperations, encouraging a greater relocationof functions. Intense competition forces firmsto specialize in their core business, inducingTNCs to forge external l inks at variouspoints along the value chain (from designand innovation to marketing and servicing)and allow other firms (including TNCs) toundertake different functions.

Hence, the changing geography ofinternational production reflects the dynamicinteraction of many economic, organizationaland policy factors. While many of thesefac tors have long been re levant , the i rcombination today represents new forcesinfluencing TNC location decisions. To copesuccessfully with globalization and use FDIto their advantage, developing countriesmust understand these forces. They set theparameters within which policy makers haveto act , to at tract FDI and to extract thegreatest benefits in terms of technology,skills and market access, striking backwardlinkages and leveraging foreign assets toreach compet i t ive pos i t ions in g loba lmarkets.

…and leads to a concentrationat the sub-national

level as well…

The growing spread and mobility ofTNCs are making local conditions more, notless, important. The increased freedom forfactors and functions to move does not meanthat international production spreads equallyto all locations. Mobile factors only go and“stick” in places where efficient comple-mentary factors exist. Thus, FDI tends tobe fairly concentrated geographically withincountries, responding to the agglomerationeconomies that a lso inf luence domest icfirms. These economies relate to proximity

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to markets and factors of production, andthe ava i lab i l i ty of spec ia l ized sk i l l s ,innovatory capabi l i t i es , suppl ie rs andinstitutions. Intensifying competition forcesf i rms to spec ia l ize more in the i r corecompetencies and rely more heavily on linkswith external partners (suppliers, buyers oreven competitors) than in the past. Thesenetworking possibilities often induce TNCsto set up operations in close proximity to(competent) clusters of related firms.

Industrial clusters are playing anincreas ing ro le in economic ac t iv i ty,particularly in technology intensive activity.“Clusters” are concentrations of firms in oneor a few indus t r ies , benef i t ing f romsynergies created by a dense network ofcompetitors, buyers and suppliers. Clusterscomprise demanding buyers, specializedsuppliers, sophisticated human resources,f inance and wel l -deve loped suppor tins t i tu t ions . Such concent ra t ions ofresources and capabi l i t i es can a t t rac t“efficiency-seeking” FDI (and more andmore FDI is of this type). It also helps toat tract “asset-seeking” FDI to the moreadvanced host countries. In their inexorablesearch for new competi t ive advantages,TNCs seek “crea ted asse t s” such astechnology and skilled labour across theglobe. Clusters of innovative activity (as inSilicon Valley in California, Silicon Fen inCambridge (United Kingdom), WirelessValley in Stockholm or Zhong Guancum, asuburb of Beijing) have a distinct advantagein attracting such (high value) FDI.

These shifts in location factors poseimportant policy challenges for developingcountries. Many countries, in particular thepoorer and least industrialized ones, riskbecoming even more margina l to thedynamics of in te rna t iona l p roduct ionbecause they cannot meet the newrequirements for attracting high quality FDI.Simply opening an economy is no longerenough. There is a need to develop attractiveconfigurations of locational advantages.

Different configurations of advantagesattract different corporate functions andindus t r ies . In some h igh- technologyindustries like electronics, it may be possibleto attract final-stage assembly on the basisof cost-efficient semi-skilled labour andefficient export-processing facil i t ies. In

other activities, production facilities mayrequire well-developed local supply chains,a pool of skilled labour, close interactionwith other firms and knowledge-producinginstitutions in close proximity. Some back-office activities may require specializedski l l s (e .g . in account ing) . High va luefunctions like R&D or regional headquartersare part icularly demanding of advancedskills and institutions.

Investors – domest ic and foreignalike – seek to take advantage of dynamicclusters. In joining a cluster, they often addto its strength and dynamism. This, in turn,tends to attract new skills and capital, addingfurther to the dynamism of the location.Where agglomera t ion economies a resignificant, the rest of the country might beof little relevance to the locational decisionsof firms. Hence, attracting FDI in theseactivities depends increasingly on the abilityto provide efficient clusters. An internationalbank’s location choice is not so much achoice between the United Kingdom andGermany as between London and Frankfurt.

Just like competitive firms differentiatethemselves from their rivals by developingclearly identifiable products with recognizablebrand names, some countries, too, can, overtime, identify and develop their distinct“investment products”, and market them toforeign investors. For example, Bangalorein India has become a “brand name” for thedevelopment of software, with its pool ofhighly skilled engineers and competitivesoftware companies. Singapore and HongKong (China) enjoy a similar status in thearea of f inancia l serv ices and regionalheadquarters in Asia.

…which calls for a newgeneration of investment

promotion policies.

Using and strengthening clusters toattract FDI calls for new approaches, goingbeyond the first and second generations ofinvestment promotion policies. In the firstgeneration of investment promotion policies,many count r ies adopt marke t f r iendlypolicies. They liberalize their FDI regimesby reduc ing bar r ie rs to inward FDI ,strengthening standards of treatment forforeign investors and giving a greater role

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to market forces in resource al location.Virtually all countries – to varying degrees– have undertaken steps in this direction.Some count r ies , can go a long way inattracting FDI with these steps, if the basiceconomic determinants for obtaining FDI areright. In the second generation of investmentpromotion policies, governments go a stepfurther and actively seek to attract FDI by“marketing” their countries. This approachleads to the setting up of national investmentpromotion agencies. The World Associationof Inves tment Promot ion Agencies ,es tabl i shed in 1995, now has over 100members. Again, of course, the success ofproactive efforts depends, in the end, on thequality of the basic economic factors in ahost country.

The third generation of investmentpromot ion pol ic ies takes the enabl ingframework for FDI and a proactive approachtowards attracting FDI as a starting point.It then proceeds to target foreign investorsat the level of industries and firms to meettheir specific locational needs at the activityand cluster level, in light of a country’sdevelopmental priorities. Such a strategy,in turn, is greatly helped if a country cannurture specific clusters that build on thecount ry’s compet i t ive advantages ,capitalizing on the natural inclination offirms to agglomerate and that eventuallyacquire a brand name. A critical elementof such investment promotion is to improve– and marke t – par t icu la r loca t ions topotential investors in specific activities. Ofcourse , a count ry’s genera l economic ,political and regulatory features also matter,because they affect the efficiency of theclusters within it. But the key to successof such new investment promotion strategiesis that they actually address one of the basiceconomic FDI de te rminants whi leunders tanding the changing loca t ionstrategies of TNCs.

However, such a targeted approach,especially the development of locational“brand names”, is difficult and takes time.It requires fairly sophisticated institutionalcapacities. Third generation promotion is,never the less , g rowing in prac t ice , aswi tnessed by the pro l i fe ra t ion of sub-national agencies (of which a minimum of240 ex is t today) and even munic ipa linvestment promotion agencies.

This gives rise to another challenge:the need to coord ina te po l ic ies acrossvarious administrative levels in a country.I f that i s not done, there is a r isk thatcompetition among regions within a countryleads to “fiscal wars” and results in wasteas far as the welfare of the country as awhole is concerned. It also raises the riskthat promotion agencies, if they are unableto coordinate other policy-making bodies inthe country, will be unable to deliver on theirpromises to investors.

Regardless of the level at which FDIis promoted – and regardless of the precisemix of the three basic investment strategiesthat is being pursued – the competitivenessof the domestic enterprise sector and a poolof sk i l led people a re the key to the“product”. Strong local firms attract FDI;the entry of foreign affiliates, in turn, feedsinto the competitiveness and dynamism ofthe domestic enterprise sector. The strongestchannel for diffusing skills, knowledge andtechnology from foreign affiliates is thelinkages they strike with local firms andinstitutions. Such linkages can contributeto the growth of a v ibran t domes t icenterprise sector, the bedrock of economicdevelopment. For developing countries, theformation of backward linkages with foreignaff i l i a tes therefore assumes par t icu la rimportance. The challenge then is how topromote backward linkages – regardless ofthe type of investment promotion policy acountry pursues. This is the topic of PartTwo of WIR01.

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PROMOTING BACKWARDLINKAGES

Backward l inkages fromforeign affi l iates to domestic

firms can enhance thebenefi ts from FDI.

Par t One of WIR01 mapped thelocational pattern of the extent to whichcount r ies a t t rac t FDI . A key fac tordetermining the benefits host countries canderive from FDI are the linkages that foreignaffiliates strike with domestically ownedf i rms. Backward l inkages f rom fore ignaffiliates to domestic firms are importantchannels through which in tangib le andtangible assets can be passed on from theformer to the latter. They can contribute tothe upgrading of domestic enterprises andembed foreign affiliates more firmly in hosteconomies. Given the role that backwardlinkages can play in these respects, WIR01analyses how host country governments canbest promote efficient backward linkages byfore ign a ff i l i a tes . The approach i spragmatic. It draws on practical experienceas to what firms have done to forge linkages,and the measures that governments haveadopted to encourage linkages and theirdeepening. An underlying assumption is that,whatever the current level of backwardlinkages, linkages can be increased or deepenedfurther, with a view towards strengthening thecapabilities and competitiveness of domesticfirms.

Linkages offer benefits to foreignaffiliates and domestic suppliers, as well asto the economy in which they are forged asa whole . For fore ign a f f i l ia tes , loca lprocurement can lower production costs inhost economies with lower costs and allowgreater specialization and flexibility, withbe t te r adapta t ion of technologies andproducts to local conditions. The presenceof technologically advanced suppliers canprovide affiliates with access to externaltechnological and skill resources, feedinginto their own innovative efforts. The directeffect of linkages on domestic suppliers isgenera l ly a r i se in the i r ou tput andemployment. Linkages can also transmit

knowledge and skills between the linkedfirms. A dense network of l inkages canpromote production efficiency, productivitygrowth , t echnologica l and manager ia lcapabilities and market diversification forthe f i rms involved . F ina l ly, for a hos teconomy as a whole, linkages can stimulateeconomic activity and, where local inputssubstitute for imported ones, benefit thebalance of payments. The strengthening ofsuppliers can in turn lead to spillovers tothe rest of the host economy and contributeto a vibrant enterprise sector.

Where, as in developed countries, bothbuyers and suppliers are technologically strongand capable, knowledge flows run in bothdi rec t ions wi th a focus mainly on newtechnologies, products and organizationalmethods. Where, as in most developingcountries, suppliers are relatively weak, theflows are likely to be more one-sided, fromforeign affiliates (buyers) to domestic firms.They can also be expected to contain morebasic technological and managerial knowledge,in that suppliers are likely to lag furtherbehind international best practice frontiers;for this reason, they can be particularlyimportant.

Of course , no t a l l l inkages a reequally beneficial for host economies. Forexample , in h ighly pro tec ted reg imes ,foreign affiliates may strike considerablelinkages without much incentive to investin the upgrading of suppliers’ technologicalcapabil i t ies. Instead, such l inkages mayfoster a suppl ier base that is unable tosurvive international competition. Linkagesdeveloped in competitive environments andaccompanied by efforts to enhance suppliers’capabilities are likely to be technologicallymore beneficial and dynamic. The objectiveis not to promote linkages for their own sake,but to do so where they are beneficial tothe host economy.

The extent to which domestic firmsbenefit from linkages with foreign affiliatesa l so depends on the na ture of the i rrelationship. The intensity of the interactionbetween buyers and suppliers is affected bythe bargaining position of the two parties.A supplier of relatively simple, standardized,low-technology products and services istypically in a weak bargaining position vis-

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à-vis its buyer. Such suppliers may be highlyvulnerable to market fluctuations, and theirlinkages with foreign affiliates are unlikelyto involve much exchange of informationand knowledge. Foreign affiliates only investresources in building local capabilities whenthey expect such an effort to yield a positivereturn.

TNCs have a self-interestin forging links withdomestic suppliers,…

Organizational changes are makingsupply chain management more critical tothe competi t iveness of f i rms, includingTNCs. On average, a manufacturing firmspends more than ha l f i t s revenues onpurchased inputs. In some industries, suchas electronics and automotive, the proportionis even higher. Some firms are contractingout the entire manufacturing process toindependent “cont rac t manufac turers” ,keeping only such functions as R&D, designand marketing. In these cases, supply chainmanagement obviously becomes even moreimportant.

A foreign affiliate – like any otherfirm – has three options for obtaining inputsin a host country: import them; produce themlocally in-house; or procure them from alocal ( fore ign- or domest ica l ly owned)suppl ie r. The ex ten t to which fore ignaff i l ia tes forge l inkages wi th domest icsuppliers is determined by the balance ofcosts and benefits, as well as differencesin firm-level perceptions and strategies.While the costs and benefits reflect a largenumber of industry-specific factors, the mostimportant one concerns the local availabilityof qualified suppliers. Foreign affil iatesproducing primarily for the domestic marketgenerally procure a larger share of inputslocally than export-oriented ones or thosethat are part of integrated internat ionalproduction systems. In the latter case, costand quality considerations are particularlystringent, and affiliates tend to be guidedby corporate global sourcing strategies. Thelack of efficient domestic suppliers is oftenthe key obstacle to the creation of locall inkages. In many demanding activit ies,

TNCs therefore actively encourage foreignsuppliers to establish local faci l i t ies orprefer to produce in-house.

Many TNCs have supplier developmentprogrammes in host developing countries.Efforts can include finding suppliers andensuring efficient supply through technologytransfer, training, information sharing and theprovision of finance. The objective is usuallyto expand the number of efficient suppliers,and/or to help existing suppliers improve theircapabilities in one or several areas. However,supplier development efforts are typically notextended to all suppliers. Foreign affiliates tendto focus on a limited number of suppliersproviding the strategically most importantinputs. Where supplier development isundertaken, however, TNCs often offerconsiderable support to suppliers bytransferring technology, training suppliers’staff, providing business-related informationand lending financial support. The intensityof knowledge and information exchange inbuyer-supplier relationships tends to increasewith the level of economic development ofhost countr ies , par t icular ly in complexact ivi t ies , and where technological andmanagerial gaps with suppliers are not toowide.

…but governments can playan important role inpromoting linkages...

Although foreign affiliates have aninterest in creating and strengthening locallinkages, their willingness to do so can beinfluenced by government policies addressingdifferent market failures at different levels inthe linkage formation process. For example,TNCs may be unaware of the availability ofviable suppliers, or they may find it too costlyto use them as sources of inputs. In developingcountries, policies may be required tocompensate for weak financial markets or weakinstitutions like vocational schools, traininginstitutes, technology support centres, R&Dand testing laboratories and the like. Well-designed government intervention can raisethe benefits and reduce the costs of usingdomestic suppliers.

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The role of policy is most significantwhere there is an “information gap” on the partof both buyers and suppliers about linkageopportunities, a “capability gap” between therequirements of buyers and the supply capacityof suppliers and where the costs and risks forsetting up linkages or deepening them can bereduced. The linkage formation process isobviously affected by a host country’s overallpolicy environment, i ts economic andinstitutional framework, the availability ofhuman resources, the quality of infrastructureand political and macroeconomic stability. Butthe most important host country factor is theavailability, costs and quality of domesticsuppliers. Indeed, in addition to being a keydeterminant for the formation of efficientlinkages, the technological and managerialcapabilities of domestic firms also determineto a large extent the ability of a host economyto absorb and benefit from the knowledge thatlinkages can transfer. Weak capabilities ofdomestic firms increase the chances that foreignaffiliates source the most sophisticated andcomplex parts and components either internallyor from a preferred (foreign-owned) supplierwithin or outside a host country. For example,domestic firms in Taiwan Province of Chinaand Singapore supply complex inputs to foreignaffiliates, but far fewer do so in Malaysia,Thailand or Mexico.

The internat ional environment isevolving, as a result of globalization andliberalization, as well as changes in theinternational policy framework, includingWTO agreements and other internationalarrangements . Some pol icy ins t rumentstraditionally used to foster linkages are nowconsidered less relevant or are subject tonew multilateral rules, such as the WTOAgreement on Trade-related InvestmentMeasures (TRIMs) or the Agreement onSubsidies and Countervailing Measures. Forexample, local content requirements havebeen phased out by most countries. At thesame time, FDI and trade liberalization, aswell as more intense competition for FDI,have reduced the re l iance on o therinvestment performance requirements.

Well-targeted incentives to supportthe creation and deepening of linkages canhave a positive impact on linkages. Thoughtshould be given to render this category of

deve lopment - re la ted subs id ies non-actionable (i. e. not open to challenge) underWTO rules. On the other hand, preferentialtrade arrangements – with rules of originbased on the level of domestic value addedor local content – can have important effectson FDI and linkage creation by TNCs inpreference-receiving countries. In general,these effects are the more significant, thehigher the preferential margin associatedwith rules of origin and the lower the relatedadministrative costs. Linkage effects ofrules of origin, however, also depend onlocal supply capacity.

This new international setting has,thus, changed the scope for national policyopt ions . There is , however, f lexibi l i tywithin the exis t ing internat ional pol icyframework, e.g. in the form of extension oftransi t ion arrangements and differentialtreatment of countries at different levels ofdevelopment. While some agreements aresubject to further review, the challenge forpolicy makers is, therefore, to make use ofthe opt ions a l lowed wi th in the cur ren tframework, as well as other policy measuresthat are not subject to multilateral rules tointegrate FDI more deeply into their nationaleconomies and, in particular, benefit frombackward linkages.

In th i s new pol icy envi ronment ,active policy approaches that work with themarket are at a premium. Whereas there isno universally established best practice inlinkage promotion policy, important lessonscan be drawn from past experience. Linkagepromotion policies, like other developmentpolicies, are often highly context specificand need to be adapted to the spec i f icc i rcumstances preva i l ing in each hos tcountry. They need to be an integral partof broader development strategies, and theirsuccess often depends on factors that maynot appear in a nar row assessment oflinkages policies. Much also depends on howpol ic ies a re des igned , coord ina ted andimplemented in practice.

One approach involves encouraginglinkages through various measures to bringdomestic suppliers and foreign affiliatestogether and to strengthen their linkages inthe key areas of information, technology,

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t ra in ing and f inance . This i s a b roadapproach – it basically improves the enablingframework for linkages formation. A reviewof the experience of host countries yieldsa long menu of specific measures that canbe taken in this respect. Such measures caninc lude , for example , the provis ion ofinformat ion and matchmaking to he lpdomest ic f i rms l ink up wi th fore ignaffiliates; encouraging foreign affiliates topart ic ipate in programmes aimed at theupgrading of domestic suppliers’ technologicalcapabilities; promoting the establishment ofsupplier associations or clubs; the jointprovision of services (especially training); andvarious schemes to enhance domes t icsuppliers’ access to finance.

…perhaps best in the frameworkof a special linkage promotion

programme.

Another approach goes further in thatit involves the establishment of a specificlinkage promotion programme combining anumber of the measures just mentioned.This i s a p roac t ive approach which i stypically focused on a selected number ofindustries and firms, with a view towardsincreasing and deepening linkages betweenforeign affiliates and domestic firms. Aswith other policies that span a range ofproductive factors, activities and enterprises,it is advisable for policy makers that choosethis approach to “start small” (perhaps witha p i lo t scheme) and to bu i ld po l icymonitoring, flexibility and learning into theprogramme. The need for starting small isall the greater when resources are scarce.Moreover, it is essential for any programmeto seek close collaboration with the privatesector, both foreign affiliates and domesticsuppliers, in design and implementation.

Some countries have in fact set upspecific linkage programmes involving acombination of different policy measures,and targeting selected industries and firms.Such programmes have been put in placeprimarily by countries with a large foreignpresence and wi th a ( re la t ive ly) wel l -developed base of domestic enterprises. TheCzech Republic, Hungary, Ireland, Malaysia,Mexico, Singapore, Thailand and the UnitedKingdom have all made special efforts of

this kind. Some of the programmes areorganized at the national level while othershave been implemented as regional or localinitiatives. Three elements are common tothem: the provision of market and businessinformation; matchmaking; and managerialor t echnica l ass i s tance , t ra in ing and ,occasionally, financial support or incentives.Some programmes have also included FDIpromot ion ac t iv i t ies , to a t t rac t fore igninvestors in targeted industries. In each case,sustainable linkages will only be created ifboth foreign affiliates and domestic firmscan benefit from them.

The general features of a specialLinkages Promotion Programme are set outbelow. Such a programme should be seenmore as a se t o f bu i ld ing b locks tha tcountries might “mix and match” accordingto their specific circumstances, rather thana ready-made prescription that all countriescan apply. Clearly, the choice of measuresand the way they are combined must reflectthe level of development, policy capabilities,resources and objectives of each country.Even countries at similar levels of developmentmay choose different configurations of policyaccording to their enterprise and institutionalcapabilities.

The starting point for an effectivelinkage programme is a clear vision of howFDI f i t s in to the overa l l deve lopmentstrategy and, more specifically, a strategyto build production capacity. The vision hasto be based on a clear understanding of thestrengths and weaknesses of the economyand of the cha l lenges fac ing i t in aglobalizing world. A linkage programmeshould, in particular, address the competitiveneeds of domes t ic en te rpr i ses and theimplications these have for policies, privateand public support institutions and supportmeasures (including skills- and technology-upgrading).

1. Setting the policy objectivesof a linkage programme

Linkage programmes a re a t theintersection of two subsets of programmesand policies: those geared towards enterprisedevelopment (especially SME development)and those related to FDI promotion. Theformer are desirable in and by themselves,

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as a vibrant enterprise sector is the bedrockof economic growth and development; in thecontext of the promotion of linkages, thecapabilities of local firms are the single mostimportant determinant of success . FDIpromotion, in turn, increasingly focuses notonly on the quant i ty of FDI a count ryattracts, but also on it quality, includinglinkage opportunities.

Linkage programmes can have twobroad objec t ives : to increase domes t icsourcing by foreign affiliates (i.e. create newbackward l inkages) and to deepen andupgrade existing linkages – both with theultimate aim of upgrading the capacities oflocal suppliers to produce higher value-added goods in a competitive environment.These ob jec t ives a re in te rdependent :deepening may spin off new linkages, andspreading linkages may change their qualityand depth.

A government’s objectives should beshared with all principal stakeholders, astheir active participation is needed for thesuccess of any programme. Active dialogueand consultations are advisable right fromthe very beginning. This requires first andforemost:

• Initiating a public-private sector dialogue(perhaps in a “Linkage Forum”) withstakeholders, including foreign affiliates(and especially their procurementofficers), supplier industry associations,chambers of commerce, banks, serviceproviders, trade unions and governmentagencies (such as investment promotionagencies, development corporations,industrial zone authorities, industrydevelopment agencies).

• Disseminating “best practice” experiencesbased on companies’ programmes andactions and experiences of governmentprogrammes and measures in othercountries.

2. Identifying the targets of theprogramme

Governments, in cooperation withprivate sector institutions, need to definethe targets of a programme in terms of theindustries and, within them, the foreign

aff i l ia tes and domest ic suppl ie rs to beinvolved.

• Industries can be selected accordingto:

- the sectoral development prioritiesof a country, taking into account theextent of the presence of foreignaffiliates and capable domestic firms;

- the degree of match between localcapabilit ies and the inputrequirements of foreign affiliates;

- the nature of international productionsystems within the industry selected,which partly determines the degreeof autonomy of foreign affiliates withrespect to local sourcing (foreignaffiliates that are part of integratedinternational production systems arelikely to be more dependent on globalcorporate sourcing policies);

- the technology content of the activityand the scope for moving up thevalue-added chain.

Such an analysis is essential for anyl inkage s t ra tegy – wi thout i t , agovernment cannot dec ide how toallocate scarce resources. It also hasto take in to account t rends in thegrowth and spread of internat ionalproduct ion ne tworks and the i rimplications for domestic producers,drawing, among others, on continuousdialogue with key stakeholders.

• Foreign aff i l iates can be se lectedaccording to thei r wi l l ingness andpoten t ia l to es tab l i sh benef ic ia llinkages. Beyond that – and as part oftheir FDI promotion – governments cantarge t TNCs tha t a re par t icu la r lyinterested in developing strong supplylinks with domestic enterprises. Thelinkage programme may even supportlocal managers of foreign affiliates inlobbying their head offices to allowgreater autonomy in sourcing. In-depthconsultations with foreign affiliatescan then identify their specific linkageneeds.

• Suppliers can be selected on the basisof their commitment and capabilities(or potential capabilities) to meet the

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needs of fore ign a ff i l i a tes .“Commitment” can be tested throughcertain self-improvement requirements,wi th some ex te rna l gu idance andminimal support during the initial stageof selection. Other criteria that canbe used involve technologica lbenchmarking and sk i l l s audi t s .Specific criteria that have been usedinclude the size of the firm, productioncapabilities, ISO certification and age.However, one of the most importantelements to take into account is thecommitment of key managers (andespecially the chief executive officer)to the idea of continuous improvementand their willingness to upgrade theiropera t ions to meet in te rna t iona ls tandards requi red for success fu llinkages. The active cooperation ofchambers of commerce , bus inessassociations, support centres, serviceproviders and other pr iva te sec torinstitutions is very important here, asis the cooperation of SME developmentprogrammes , be they loca l o rinternational. (UNCTAD’s EMPRETECprogramme is an example of the latter.)“Linkage Workshops” for represen-tatives of foreign affiliates and localenterprises could provide the mechanismthrough which eventual programmeparticipants can be narrowed down.Subsequent “Business Cl inics” forLinkage Workshop participants couldthen allow for one-to-one consultationsfor pairs of linkage partners. Firmsprepared to go fur ther could thusundertake operational and managementaudits to determine the strengths andweaknesses of domestic partners.

3. Identifying specific measuresto be adopted

Governments need to be aware ofactions already taken by foreign affiliatesand domestic firms. Some of these mayneed to be encouraged and suppor ted .Governments can also act as facilitators andcatalysts and ensure that private institutionshave the incentives and resources needed.They can be particularly proactive in thefollowing key areas of linkage formation:information and matchmaking; technology

upgrading; training; access to finance. Therange of measures that can be taken in eachof these a reas i s wide . Thei r pr inc ipa lpurpose is to encourage and support foreignaffiliates and domestic firms to forge anddeepen l inkages . They a re ou t l ined –individually and as contained in programmes– in the main body of WIR01. Theyconstitute a menu from which governmentscan mix and match. Specific choices dependon the results of earlier consultations withexisting support institutions and relevantprogrammes in the publ ic and pr iva tesectors, as well as with key stakeholders onthe specific needs of an industry or set offirms. The results of the Linkage Forums,Linkage Workshops and Business Clinicsmentioned earlier and the identification ofpromising domestic firms are also of helphere. Governments could also encourageparticipating foreign affiliates to agree toa coaching and mentoring arrangement withpromising local firms.

These measures can be underpinnedby efforts to s trengthen the negotiat ingposition of local f irms vis-à-vis foreignaffil iates; for instance, by guidelines ormaking model contracts available. Specialinformal mechanisms can also help resolveproblems and disputes and contribute tomore lasting linkage relationships.

The resul t should be a c lear andfeasible programme of action. Naturally, ateach s tep of the implementa t ion of aprogramme, the government needs to havea clear idea about the costs involved andthe resources available.

4. Setting up an appropriateinstitutional and administrative

framework to implement andmonitor the programme

Governments can choose f rom anumber of op t ions in des igning theins t i tu t iona l f ramework for a l inkageprogramme:

• Make the programme a distinct part ofan exis t ing body or even se t up aspec ia l na t iona l - leve l l inkageprogramme under an independent bodyto act as the focal point for all relevant

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activities by different departments andinstitutions.

• Leave the design and implementationof the l inkage programme to localau thor i t i es , wi th cen t ra l advice ,encouragement and support from thecentral government . This approachmight be preferable in large countriesor where resources for l inkageprogrammes are l imi ted , or whereregions have distinct combinations oflocational advantages to offer.

• Involve the private sector as the mainexecut ing agency for the l inkageprogramme. Suppliers, affi l iates ortheir associations may set up such abody. The ro le of the governmentwould be to act as catalyst and fulfilregulatory and information functions.

The size of a programme depends onthe object ives sought and the resourcesavailable. Some programmes benefit fromexternal funding through financial assistanceprovided by donor countries. In the longerterm, however, the financial sustainabilityof linkage programmes if directly run bygovernments, requires sufficient governmentfunding support. Moreover, cost sharing bypar t ic ipa t ing f i rms (both buyers andsuppliers) is desirable, not only for fundingpurposes bu t a l so for assur ing se l f -commitments of the participants. This isfeasible, especially when a programme hasdemons t ra ted i t s usefu lness and i srecognized for its services. Needless to say,to c rea te t rus t and c red ib i l i ty amongenterprises, a programme must be staffedby professionals with the appropriate privatesector-related skills and background.

Linkage programmes can only workif they are networking effect ively withefficient intermediate institutions providingsuppor t in sk i l l bu i ld ing , t echnologydevelopment, logistics and finance. Theseinclude standards and metrology institutes,testing laboratories, R&D centres and othertechnical extension services, productivityand manager training centres and financialinstitutions. These can be public or private.It is also important that linkage programmeswork c lose ly wi th re levant pr iva teassociations – chambers of commerce and

indus t ry, manufac turers ’ assoc ia t ions ,investor associations and so on. Trade unionsand var ious in te res t g roups a re o therimportant stakeholders.

Finally, i t is important to have amonitoring system in place to evaluate thesuccess of a programme. Often, in a learning-by-doing process, a programme needs to beadjus ted and re f ined as exper iencesaccumula te and s i tua t ions change . Thesys tem could inc lude benchmarks andsurveys of users. Criteria could include thefollowing:

• Outreach: the number of companiesincluded in the programme over time.

• Impact: the impact of the programmecan be judged by such indicators asthe number of suppliers, linked up withforeign affiliates over time; the valueof deals and changes in these overtime; the share of domestic suppliersin the procurement by fore ignaffiliates; the extent to which R&Dact iv i t ies are being under taken bydomestic suppliers over time (includingthose resulting in patents); changes inexport volumes; the improvements inproductivity or the value added at thefirm or industry level; and whether alocal supplier establishes itself abroad.

• Cost effect iveness: the cost of theprogramme in l igh t o f the resu l t sachieved and the benefits obtained asdefined by the objectives laid out atthe beginning of the programme.

* * *

It is worth repeating that l inkageprogrammes bui ld on the mutua l se l f -interests of foreign affiliates and domesticfirms. Linkages are a stepping stone towardss t rengthening the compet i t iveness ofdomestic firms, giving them a foothold inin te rna t iona l p roduct ion ne tworks andembedding foreign affiliates fully in hosteconomies . At the same t ime, l inkageprogrammes should be seen as part of abroader set of FDI and SME policies. Asnetworks of viable suppliers often prosperin clusters of firms, attention needs to be

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given to the development of such clusters,particularly for knowledge-intensive industriesand activities. The third generation of FDIpromot ion pol icy – ta rge t ing fore igninvestors at the level of industries and firmsand using clusters to attract FDI (and, in

Rubens RicuperoGeneva, July 2001 Secretary-General of UNCTAD

turn, strengthening clusters through it) – hasa role to play here. In fact, the more linkagepromotion policies that go hand-in-hand withSME development and ta rge ted FDIpromotion policies, the more they are likelyto be successful.

PART ONE

THE GEOGRAPHY OFINTERNATIONAL PRODUCTION

INTRODUCTION

o

International production – activityunder the aegis of transnationalcorporations (TNCs) – continuesto grow strongly. The mainagent of international production,foreign direct investment (FDI),

does not flow evenly across countries. Thisunevenness persists, and in some casesincreases, over time. While this has longbeen a feature of the international economy,there are significant elements of change(WIR98). The growth of FDI in the pasttwo decades or so has been accompaniedby changes in its geographical pattern,indicating shifts in the investment climatein host countries and in the economic factorsdriving the location of international production.New locations are becoming attractive relativeto old ones. The activities relocated acrosscountries by direct investment are changing.Within TNCs, the specific corporate functionsundertaken by parent firms and foreignaffiliates (ranging from marketing to researchand development (R&D)) are changing inscope and depth. Sources of FDI are alsoincreasing and shifting.

These changes have importantimplications for host (as well as home)countries. The intangible assets that FDIoffers (knowledge, technology, skills,management know-how and market access)are becoming increasingly important foreconomic growth and development ascomplements to domestic resources in hostcountries. In the emerging global setting(reviewed below), FDI is becoming anessential link between national economies,as well as a catalyst for the growth ofdomestic investment and enterprisecompetitiveness. As determinants of locationare changing, countries can change theirability to receive FDI and to alter itscontributions. Policy makers need to knowthe trends: how FDI compares in its locationalpatterns with other means of transferring

productive assets, where it comes from,where it goes, which activities it affectsand which functions it transfers. Moreimportantly, they need to understand whythe patterns of FDI are evolving – to helpthem formulate FDI policies efficiently andrealistically.

Part One aims to contribute toanswers to these questions by documentingthe growth of FDI during the past year andintroducing a new index that seeks to capturethe attractiveness of host countries for FDI(chapter I). It then proceeds to a “mapping”of FDI inflows and outflows in the aggregateand, to the extent possible, at the industrialand functional levels (chapter II); and toa discussion of the largest TNCs of theworld, the developing countries and Centraland Eastern Europe (chapter III). Such amapping shows the origin, destination andconcentration of FDI flows and therebyindicates how the tangible and intangibleassets that constitute investment flows arespread. Mapping FDI, including over time,highlights the following:

• On the recipient side, the mappingshows the extent to which variousregions, countries and locations withincountries, attract FDI. At the level ofaggregate FDI, this indicates whetherlocations have suitable investmentenvironments and provide the immobileassets and other advantages neededto complement the mobile assets deployedby TNCs. At the industry or functionallevel, the mapping shows the specificlocational advantages of recipients: lowwages for semi-skilled labour for simplelabour-intensive operations; primaryresources for extraction; advanced skills,supplier networks and institutions foradvanced technology-intensive activities,and so on. Everything else being equal,this mapping also indicates, indirectly,

4 World Investment Report 2001: Promoting Linkages

the distribution of benefits associatedwith FDI among recipient regions,countries and sub-national localities,the extent of a host location’s integrationwith the global economy and its abilityto cope with the new technologies drivingglobalization. Mapping FDI patterns overtime can show if local assets are beingupgraded to attract continuing inwardFDI.

• On the inves t ing side, the mappingshows the extent to which firms fromvarious regions, countries and sub-nationallocations make direct investments abroad.It shows the interplay of three factors:competitive advantages of enterprises;location advantages of host countries;and the extent of reliance by firms ontransnationalization when exploiting theiradvantages abroad. Thus, a rise in acountry’s outward FDI can indicate anincreasing competitive advantage onthe part of national firms, or that firms,given their competitive advantages, findit strategically necessary to locate theiractivities abroad. The reasons for theirchoice of location not only need toreflect the cost of operating at home.They may also embrace strategicconsiderations like matching moves madeby their main competitors, investing inthe home markets of their rivals, switchingfrom exports to producing locally,

diversifying sources of supply or seekingto tap new sources of competitiveadvantage (like innovation). At adisaggregated level, the mapping showsthe industrial activities and functionsin which this interplay of competitiveand location advantages is taking place.Mapping FDI patterns in aggregate termsreveals which countries’ firms controlthe allocation of productive assets withinTNC production systems across theglobalizing world economy.

In sum, mapping FDI throws light on severalsignificant features of the global economy.It can illuminate the geography of investmentflows and of the accompanying intangibleasset flows that increasingly drive technology-based growth and competitiveness. It canshow which countries lead theinternationalization process: the main homecountries of the TNCs that exercise apowerful influence on economic life today,controlling the production taking place withintheir international production systems andpartaking of its resulting fruits. It can alsoshow, on the receiving side, where the flowsconcentrate and so, at least ostensibly, wherethe benefits of international production accrue.The conclusions then address briefly whatthe concentration of FDI at the sub-nationallevel means for investment promotion and,most notably, for the third generation ofinvestment promotion strategies.

CHAPTER I.THE GLOBAL PICTURE

FA. The geographical

dynamics of FDI: the setting

rom the perspective of developingcountries, the most importantaspect of a mapping ofinternational production concernsinward FDI. There are severalinfluences that have been, and

always will be, important to FDI inflows. Themost basic ones are political and economicstability and a welcoming environment for FDI(and for private enterprise in general). Otherimportant factors are ease of entry and exit,appropriate standards of treatment and disputesettlement, and a predictable and transparentregulatory framework. A typical FDI regimetoday, for example, has few restrictions onentry and operations, provides generalstandards of treatment (including guaranteesin such areas as the transfer of funds,expropriation and dispute settlement) andensures a competitive market framework.

The attractiveness of the regime also,increasingly, depends on the effectiveness ofFDI promotion. With rising competition for FDIand more discriminating investors, host countriesand regions (like individual states in the UnitedStates) recognize the need to undertakeproactive investment promotion efforts. Whilemany countries promote FDI, the mostsuccessful ones do this in a business-likemanner, with effective image building, lowtransaction costs for investors, carefultargeting, direct interaction with investors andgood support and follow-up services.

These general requirements ofinvestment attraction are taken for granted herein order to focus on the economic factors drivingFDI.1 The main traditional factors in FDIlocation are large domestic markets (historicallyoften reinforced by import tariff protection),the possession of natural resources and thepresence of cheap (unskilled or semi-skilled)labour. While these remain relevant, they areof diminishing importance, particularly for themost dynamic end of international production.Large markets remain attractive to investors

where local presence is important forcompetitive advantage, but as trade barriersare removed, the level of protection is declining.Moreover, as trade blocs and regional linksgrow, the significance of national markets assuch diminishes. Primary resources will alwaysdraw some FDI, but with new contractualextraction and marketing arrangements led bynational firms (WIR98), and given the diminishingrole of primary products in industrial activity,it is unlikely to be a dynamic draw. The roleof cheap “raw” labour is similar: it will attracta small number of investors, but even in simplelabour-intensive activities the need to use newtechnologies and skills for production suitedto sophisticated and demanding markets willreduce the draw of low wages.

The new determinants of locationreflect three developments: policy liberalization,rapid technical progress (particularly intransport, communications and information) andnew management and organizational techniques(WIR99). These are briefly taken up in turn.

Policy l iberalization alters manyparameters of international location. Tradeliberalization reduces the need for FDI tojump tariff barriers and intensifies competitionin existing activities. It also increases the sizeof accessible markets, including for exportactivities. Both can lead to changes in thefactors determining location. All enterpriseshave to raise technical efficiency and be moreresponsive to market forces to stay in business,not just in tradable activities but also in servicesand infrastructure. TNCs have to restructuretheir activities and deploy their assets to achieve“best practice” levels, reducing their presencewhere competitiveness is difficult to achieveand raising it where it is possible. This involvesshifting production and marketing sites in linewith costs, logistics and reliability factors. Italso involves relocating such functions as R&D,financial management, procurement andstrategic decision-making between countriesso as to maximize corporate efficiency.

Trade liberalization can have centripetaleffects (making for greater centralization) orcentrifugal ones (making for greater dispersion),


depending on the industry and corporatefunction. Take the automobile industry. Its R&D,which relies on advanced skills and has variouslinkage needs, tends to be located in a fewadvanced economies (including some newlyindustrializing economies) that have thenecessary trained personnel, related suppliersand technology services. Its productionprocesses, involving large scale economies, arelocated in a larger number of facilities servingregional or global markets; however, these arenow far fewer than during the heyday of importsubstitution when most countries had someassembly or manufacturing activity. Itsmarketing and servicing facilities are morewidely dispersed to meet customer needs. Inother industries, with different configurationsof technical, skill and market needs, thetendencies may be quite different. The mappingexercise shows this in chapter II below.

The liberalization of FDI regimes andthe strengthening of international standards forthe treatment of foreign investors (box I.1)allow firms greater freedom in makinginternational location decisions and in choosingthe mode for serving each market and meetingfunctional needs. TNCs can increasingly fine-tune and differentiate their combinations ofinternationalization modes (trade, majority- orwholly owned subsidiaries, joint ventures, non-equity alliances, licensing and so on) to suiteach activity and location. In conjunction withprivatization, this opens up new areas ofinternational production, allowing new activitiesto “go transnational” in ways inconceivable afew years ago: the emergence of previouslyhome-bound infrastructure providers asinternational investors is a recent example. Thespread of FDI in services, in turn, encouragesmanufacturing firms to cluster in locations inwhich service TNCs have set up facilities.

Box I.1. FDI regimes in 2000

FDI liberalization continues. Between 1991 and 2000, a total of 1,185 regulatory changes wereintroduced in national FDI regimes, of which 1,121 were in the direction of creating a more favourableenvironment for FDI (box table I.1.1). During 2000 alone, a total of 150 regulatory changes weremade by 69 countries. Of these, 147 (98 per cent) were more favourable to foreign investors (boxfigure I.1.1). At the international level, treaty making continues, complementing and reinforcingtrends at the national level. The number of bilateral investment treaties (BITs) quintupled duringthe 1990s and, by end-2000, had reached a total of 1,941. During 2000 alone, 78 countries concluded84 BITs. The single greatest number of the new treaties was between developing countries (36),43 per cent of the total (box figure I.1.2). The number of bilateral treaties for the avoidance of

Box table I.1.1. National regulatory changes, 1991-2000

Item 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Number of countries that introduced changesin their investment regimes 35 43 57 49 64 65 76 60 63 69

Number of regulatory changes 82 79 102 110 112 114 151 145 140 150of which:More favourable to FDI a 80 79 101 108 106 98 135 136 131 147Less favourable to FDI b 2 - 1 2 6 16 16 9 9 3

S o u r c e: U N C T A D , b a s e d o n n a t i o n a l s o u r c e s .a Including liberalizing changes or changes aimed at strengthening market functioning, as well as increased incentives.b Including changes aimed at increasing control as well as reducing incentives.

Box figure I.1.1. Types of changes in FDIlaws and regulations, 2000

Box figure I.1.2. BITs concluded in 2000,by country group

7CHAPTER I THE GLOBAL PICTURE

The increased freedom for factors andfunctions to move within the internationalproduction systems of TNCs does not, as alreadynoted, necessarily mean that internationalproduction spreads equally to all locations.Mobile factors only go to and “stick” in thoseplaces where efficient complementary factorsexist. One increasingly important factor is thepresence of other firms (TNCs and local firms)providing inputs, information and services inclusters – concentrations of firms in one or afew industries – benefiting from synergiescreated by a dense network of competitors,buyers and suppliers.2 To the extent that TNCsare able to provide leading edge inputs andservices, the geography of internationalproduction comes to reflect the cumulativeeffects of past FDI location.

Intensifying competition also forcesfirms to specialize in their core competencies.This induces TNCs to forge closer externallinks at various points along the value chain(from design and innovation to marketing andservicing) and allows other firms (includingTNCs) to undertake different functions. 3

Linkages can be established with suppliers,buyers and even competitors, and they canreach across the world. They can involve otherforeign affiliates or local (i.e. domesticallyowned) firms. This growing network surroundsand supports international production proper(under the direct control of TNCs). Thesenetworking possibilities can affect FDI location

in different ways. On the one hand, they caninduce TNCs to set up operations in closeproximity to (competent) clusters of relatedfirms and so increase FDI. On the other hand,they can allow TNCs to concentrate theirfacilities in established locations where theirneeds are met efficiently, while relating tonetworks over long distances. This can leadto a reduction in FDI by those firms.

The trend towards greater networkingcan have important implications for firms indeveloping countries. It can open up newavenues for competent developing countryfirms to link up with global production systemsas TNCs scan the globe for efficient and reliablesuppliers and subcontractors. Backwardlinkages from foreign affiliates to local firms,in particular, can become important channelsthrough which intangible and tangible assetscan be passed on from the former to the latter,contributing to an upgrading of the localenterprise population and “embedding” and“grounding” foreign affiliates more in their hosteconomies. Given the role that backwardlinkages can play in these respects (chapters IVand V of this report address the question ofhow more backward linkages by foreignaffiliates can be created, and existing onesdeepened), competent local firms can eventuallyeven “leverage” their linkages with TNCs tobecome global suppliers and sometimescompetitors. However, the new internationalregulatory framework restricts the use of some

Box I.1. FDI regimes in 2000 (concluded)

double taxation (DTTs) also increased, reaching a total of 2,118 at the end of 2000 (box figure I.1.3).During 2000, 57 DTTs were concluded by 59 countries (box figure I.1.4). At the regional and interregionallevels, the number of investment-related instruments continues to grow, especial ly in the formof free trade and investment agreements (annex table A.I.1).

Source : UNCTAD.

Box figure I.1.3. Cumulative number ofBITs and DTTs, 1990-2000

Box figure I.1.4. DTTs concluded in2000, by country group


of the tools used by governments in the pastto strengthen the positions of local firms assuppliers. The Agreement on Trade-relatedInvestment Measures (TRIMs), for example,prohibits the use of local content requirements.The stricter application of intellectual propertyrights under the Agreement on Trade-relatedAspects of Intellectual Property Rights (TRIPS)may make it more difficult and expensive forlocal firms to access foreign technology. Atthe same time, competition for FDI hasincreased considerably ( WIR98), creatingadditional parameters as to what host countriescan or cannot do to attract FDI and benefitfrom it.

Technical change affects thegeography of FDI in many ways. In fact, thedynamics of international production todaylargely reflect the nature, speed andpervasiveness of technical progress. Rapidinnovation provides the advantages that propelfirms into international production; thus,innovation-intensive industries especially tendto be increasingly transnational, and TNCs haveto be more innovative to maintain theircompetitiveness. Innovation also leads tochanges in the structure of trade and production,with R&D-intensive activities growing fasterthan less technology-based activities ( WIR99).The move up the technology scale furthermorereduces the importance of primary and simplelow-technology activities in FDI, while raisingthat of skill-intensive activities. The growingrole of skills means that low wages per seare increasingly insufficient as a determinantof FDI.

New transport, communication andinformation technologies intensify competitionwhile allowing firms to spread and manageinternational operations more efficiently. Therising cost of innovation leads firms (amongother options, including strategic alliances) tointernalize their technological advantages ratherthan sell them at arm’s length, raising the roleof FDI in technology transfer. These trendsare manifested most clearly in globallyintegrated production systems, in which differentsteps in the production process are located(under TNC control) in different places tooptimize cost-efficiencies and logistics. High-technology activities previously beyond thereach of developing countries can now be placedthere because labour-intensive processes canbe economically separated and managed overlong distances. Many activities in integrated

production systems are technology-intensiveand dynamic; their location in developingcountries can rapidly transform the prevailingFDI and competitive landscape. 4

It is not just the emergence of high-technology integrated production systems thatalters the geography of FDI. The pervasivenessof technical change means that al l TNCactivities have to use new technologieseffectively. The speed of change means,moreover, that TNCs continuously have toupgrade technologies to retain competitiveness,and the increasingly information-based natureof technology means that new sets of skillsand infrastructure are needed to utilize newtechnologies. Thus, location decisions have tobe based on the ability of host countries toprovide the complementary skills, infrastructure,suppliers and institutions to operate technologiesefficiently and flexibly. Technological progress,in other words, forces firms involved ininternational production increasingly todifferentiate between the “haves” and “have-nots” in new FDI-complementing factors whendeciding on where to undertake differentactivities.

One FDI-complementing factor ofgrowing significance is the presence ofgeographical clusters of economic activity,technical and skills inputs, specialized suppliersand demanding buyers, support institutions,finance and so on. Such an agglomeration ofresources and capabilities attracts “efficiency-seeking” FDI (and more and more FDI is ofthis type) in all economies. It also helps toattract “asset-seeking” FDI (Dunning, 1993,2000) to the more advanced host countries.In their inexorable search for new competitiveadvantages, TNCs seek “created assets” liketechnology across the globe. Clusters ofinnovative activity (as in Silicon Valley inCalifornia, Silicon Fen in Cambridge (England),Wireless Valley in Stockholm or ZhongGuancum, a suburb of Beijing) have a distinctadvantage in attracting such high level FDI.

Manager ia l and organiza t ionalfac tors strengthen the new locationaldeterminants of FDI. A greater focus on corecompetencies, with flatter hierarchies andstronger emphasis on networking, steersinvestments towards locations with advancedfactors and institutions and, where relevant,distinct clusters. New organizational techniques(aided by new technologies) stimulate a more


efficient management of global operations,encouraging a greater relocation of functions.“Complex” integration strategies of internationalproduction ( WIR93) can succeed only if firmsare able to adopt these new techniquesefficiently.

In sum, the changing geography ofinternational production reflects the dynamicinteraction of many economic, organizationaland policy factors. While many of these factorshave long been relevant, their combination todayreflects new forces influencing TNC locationdecisions. To cope successfully withglobalization and benefit from FDI, developingcountries must understand these forces. Theyset the parameters within which policy makershave to act to attract FDI, and to extract thegreatest benefits from it in terms of technology,skills and market access, striking backwardlinkages and leveraging foreign assets to reachcompetitive positions in global markets. Thefollowing brief review of the growth of FDIin 2000 and especially the subsequent mappingof international production and the discussionof the patterns it shows is an attempt to helpin this understanding. It indicates emerging aswell as declining opportunities by location. Itpoints to new sources of FDI, in developingas well as developed countries, and to smallfirms as to large ones as international investors. 5

B. The growth of FDIin 2000

FDI inflows continued their strongrecent growth to reach $1.3 trillion in 2000,though the pace was slightly slower than inthe previous two years (table I.1). In 2001,they are expected to decline. 6 By all measures(assets, sales, trade and employment of foreignaffiliates), FDI rose more rapidly in 1999 and2000 than such other aggregates as grossdomestic product (GDP), domestic investment,licensing payments and trade. It is noteworthy,in particular, that TNC activities have risenrapidly in 1999 (as well as during the precedingthree years) when world trade was stagnant,testifying to the growing role of FDI as themain force in international economic integration.The ratio of foreign affiliates’ sales to globalGDP was almost 50 per cent, with the salesvalue being over twice as high as the valueof world exports of goods and services. Over60,000 TNCs now own more than 820,000affiliates abroad, with some 55 countries hosting

more than 1,000 foreign affiliates (figure I.1and annex table A.I.2), and with a value ofFDI stock of over $6 trillion.

Looking at the recent past, as manyas 65 countries experienced an annual averagegrowth rate of 30 per cent or more between1986 and 2000 (table I.2); another 29 countrieshad FDI growth rates of 20-29 per cent. Interms of broad country groups, the developedworld continued to attract over three-quartersof global FDI inflows in the past two years.Its share has risen in recent years largelybecause of intense cross-border M&A activity.In 1999, the share of developing countriesfell by 6 percentage points, to 21 per cent; in2000 it declined yet further to 19 per cent.This was the lowest share since 1990, and itwas well below the 1990s peak of 41 per centin 1994. It was also lower than the shares ofdeveloping countries in world exports as wellas imports, and total world domestic investment.The 49 least developed countries (LDCs) asa group remained marginal in attracting FDI;however, FDI flows into that group are on therise, as is the role of FDI in their economies.Central and Eastern Europe maintained itsshare of about 2 per cent in 2000 in terms ofworld inflows.

1. Developed countries

The “Triad” – Japan, the EuropeanUnion (EU) and the United States – has longaccounted for the bulk of internationalproduction, providing and receiving most ofglobal FDI. During 1998-2000, the Triadaccounted for three-quarters of global FDIinflows and 85 per cent of outflows, and for59 per cent of inward and 78 per cent ofoutward FDI stocks. By the late 1990s it washome to nearly 50,000 TNCs and host to nearly100,000 foreign affiliates (figure I.1 and annextable A.I.2). 7 Compared with the mid-1980s,the Triad’s share in world inward FDI stockhas risen, while that in outward FDI stock hasdecreased (figure I.2). The EU’s shares ofstocks and flows, inward as well as outward,increased. 8 Those of the United States andJapan have declined, with those of Japanremaining relatively small. The rise in EU sharesis largely due to cross-border M&As. Thestructure of FDI within the Triad has alsochanged. Largely as a result of its prolongedeconomic slowdown, and later the Asianfinancial crisis, Japan has become somewhatmore important as a destination for FDI and


Table I.1. Selected indicators of FDI and international production, 1982-2000 (Billions of dollars and percentage)

Value at current prices Annual growth rate (Billions of dollars) (Per cent) Item 1982 1990 2000 1986-1990 1991-1995 1996-1999 1998 1999 2000

FDI inf lows 57 202 1 271 23.0 20.8 40.8 44.9 55.2 18.2FDI outflows 37 235 1 150 26.2 16.3 37.0 52.8 41.3 14.3FDI inward stock 719 1 889 6 314 16.2 9 .3 18.4 19.8 22.3 21.5FDI outward stock 568 1 717 5 976 20.5 10.8 16.4 20.9 19.5 19.4Cross border M&As a . . 151 1 144 26.4 b 23.3 50.0 74.4 44.1 49.3Sales of foreign affiliates 2 465 5 467 15 680 c 15.6 10.5 10.4 18.2 17.2 c 18.0 c

Gross product of foreign affiliates 565 1 420 3 167 d 16.4 7 .2 11.0 3 .2 27.2 d 16.5 d

Total assets of foreign affiliates 1 888 5 744 21 102 e 18.2 13.9 15.9 23.4 14.8 e 19.8 e

Export of foreign affiliates 637 1 166 3 572 f 13.2 14.0 11.0 11.8 16.1 f 17.9 f

Employment of foreign affiliates (thousands) 17 454 23 721 45 587 g 5 .7 5 .3 7 .8 16.8 5.3 g 12.7 g

GDP at factor cost 10 612 21 475 31 895 11.7 6 .3 0 .7 -0 .9 3 .4 6 .1

Gross fixed capital formation 2 236 4 501 6 466 h 12.2 6 .6 0 .6 -0 .6 4 .3 . .Royalties and Licence fees receipts 9 27 66 h 22.1 14.1 4 .0 6 .1 1 .1 . .Export of goods and non-factor services 2 124 4 381 7 036 h 15.4 8 .6 1 .9 -1 .5 3 .9 . .

Source: UNCTAD, based on FDI/TNC database and UNCTAD estimates.a Data are only avai lable from 1987 onward.b 1987-1990 on lyc Based on the fol lowing regression result of sales against FDI inward stock for the period 1982-1998: Sales=967+2.462*FDI inward stock.d Based on the following regression result of gross product against FDI inward stock for the period 1982-1998: Gross product=412+0.461*FDI

inward stock.e Based on the following regression result of assets against FDI inward stock for the period 1982-1998: Assets= -376+3.594*FDI inward

stock.f Based on the fol lowing regression result of exports against FDI inward stock for the period 1982-1998: Exports=231+0.559*FDI inward

stock.g Based on the following regression result of employment against FDI inward stock for the period 1982-1998: Employment=13 925+5.298*FDI

inward stock.h Data are for 1999.

Note: Not included in this table are the value of worldwide sales by foreign aff i l iates associated with their parent f irms through non-equityrelationships and the sales of the parent firms themselves. Worldwide sales, gross product, total assets, exports and employment offoreign affi l iates are estimated by extrapolating the worldwide data of foreign affi l iates of TNCs from France, Germany, Italy, Japan andthe United States (for sales and employment) and those from Japan and the United States (for exports), those from the United States(for gross product), and those from Germany and the United States (for assets) on the basis of the shares of those countries in theworldwide outward FDI stock.

Table I.2 . Annual average FDI growth rate, 1986-2000 (Percentage)

Growth rate Economy

More than 30% Afghanistan; Armenia; Azerbaijan; Bahamas; Bahrain; Bangladesh; Belarus; Bermuda; Bhutan; Bolivia; Brazil;Bulgaria; Cameroon; Cape Verde; Cayman Islands; China; Comoros; Croatia; Cuba; Czech Republic;Denmark; Djibouti; Eritrea; Ethiopia; Finland; Georgia; Germany; Guyana; Hungary; India; Ireland; Japan;Jordan; Kuwait; Lao People's Democratic Republic; Latvia; Lesotho; Lithuania; Macau, China; Malawi;Mongolia; Morocco; Mozambique; Myanmar; Netherlands Antilles; Nicaragua; Norway; Paraguay; Poland;Qatar; Romania; Samoa; São Tomé and Principe; Senegal; Slovenia; South Africa; Sweden; TFYR Macedonia;Tonga; Tuvalu; Uganda; United Republic of Tanzania; Venezuela; Viet Nam; and Virgin Islands

20-29.9% Anguilla; Argentina; Austria; Belgium and Luxembourg; Benin; Chad; Chile; Dominican Republic; Gabon; Ghana;Hong Kong, China; Islamic Republic of Iran; Israel; Kazakhstan; Republic of Korea; Lebanon; Malta; Republic ofMoldova; Nepal; Netherlands; Panama; Peru; Russian Federation; Saint Vincent and the Grenadines; Slovakia;Sudan; Togo; Trinidad and Tobago; and Ukraine

10-19.9% Angola; Burkina Faso; Cambodia; Canada; Colombia; Democratic Republic of Congo; Costa Rica; Côte d’Ivoire;Ecuador; Equatorial Guinea; Estonia; France; Gambia; Grenada; Guinea; Guinea-Bissau; Honduras; Iceland;Jamaica; Kiribati; Malaysia; Maldives; Mali; Mauritius; Mexico; New Caledonia; Pakistan; Philippines; Portugal;Saint Lucia; Saudi Arabia; Seychelles; Somalia; Sri Lanka; Switzerland; Tajikistan; Thailand; Tunisia; Turkey;United Kingdom; United States; Uruguay; Uzbekistan; Vanuatu; Yemen; Zambia; and Zimbabwe

0-9.9% Albania; Algeria; Antigua and Barbuda; Aruba; Australia; Barbados; Belize; Botswana; Dominica; Egypt; ElSalvador; Greece; Guatemala; Italy; Kenya; Kyrgyzstan; Madagascar; Namibia; New Zealand; Nigeria; PapuaNew Guinea; Saint Kitts and Nevis; Sierra Leone; Singapore; Solomon Islands; Spain; Swaziland; Syrian ArabRepublic; and Taiwan Province of China

Decline Brunei Darussalam; Burundi; Central African Republic; Congo; Cyprus; Fiji; Gibraltar; Haiti; Indonesia; Iraq;Democratic People’s Republic of Korea; Liberia; Libyan Arab Jamahiriya; Mauritania; Montserrat; Niger; Oman;Rwanda; Turkmenistan; United Arab Emirates; and Yugoslavia

Source: UNCTAD, FDI/TNC database.


Figure I.1. Geographical distribution of foreign affiliates, 1999(Number)

Source: Annex table A.1.2 in this report.

Figure I.2. The share of the Triad in world FDI flows and stocks, 1985 and 2000



less important as a source, although thecountry’s significance as an outward investoris still much greater than that as a FDI recipient.The United States continues to be the singlelargest host country for FDI, while its role aslargest outward investor has been taken overby the United Kingdom since 1999 and, also,France for the first time in 2000. The EU asa group remains dominant as both investor andrecipient. As a result, intra-Triad stocks accountfor the bulk of the Triad’s FDI stocks. Flowsbetween the Triad members are rising, with40 per cent of total outward FDI stock beinglocated in other Triad members in 1999, ascompared to one-third in 1985 (figure I.3). Thenumber of host countries in which the Triaddominates increased for Japan and the EU,but decreased for the United States between1985 and 1999 (figure I.3).

More specifically, this is how theindividual members of the Triad fared in 2000:

a. United States

Although slightly below the 1999 recordhigh, FDI in 2000 both from and to the UnitedStates reached high levels ($139 billion inoutflows and $281 billion in inflows), mainlyas a result of several large acquisitions thattook place in particular by and of firms basedin the EU. The country was the third largestoutward investor in 2000 (figure I.4).

United States FDI outflows in 2000continued to be driven by cross-border M&Asinvolving companies based in EU. Overall, theEU as a destination for United States outwardFDI accounted for nearly half of the total(figure I.5). Almost half of the country’soutward stock is located in EU countries. Asa result, the economic impact of United Statesinvestment is substantial in some EU countries.For example, United States affiliates accountedfor more than half of the total of employmentand value added in Ireland in 1997 (Eurostat,2000a). United States investment in the Asia-Pacific region picked up recently and returnedto levels close to those prior to the financialcrisis, with particularly strong growth inelectronics. Overall, the share of services inUnited States outward FDI increased, mainlydue to large acquisitions undertaken by financialinstitutions. The shares of the automobile andelectronics equipment industries picked up too,while chemicals and pharmaceuticals – mainly

boosted in 1999 by large acquisitions linkedto the need for global consolidation in theindustry and undertaken with a view to gainaccess to production technologies and R&D– lost dynamics. While the share of UnitedStates FDI going to developing countries slightlydecreased from 27 per cent in 1999 to 25 percent in 2000, it might revive again in responseto regulatory changes already undertaken orcurrently under discussion. For example, theAfrican Growth and Opportunity Act improvesmarket access for African exports at favourableterms; and negotiations with Chile are underway concerning that country’s membership inNAFTA.

Inflows into the United States in 2000were much more concentrated by source thanwere outflows by destination. Traditionally, theUnited Kingdom continues to be the mostimportant home country for the United States,followed by France; however, the share of FDIfrom the EU declined from 80 per cent in 1999to 72 per cent in 2000. Inflows took placeoverwhelmingly through acquisitions rather thangreenfield investments, undertaken by alreadyestablished foreign affiliates and increasinglyfinanced through reinvested earnings(Howenstine, 2001). Although in recent yearsthe United States had experienced net FDIinflows, in 2000 inflows were more than twicethe amount of outflows, mainly due to increasesin equity investments and intra-company loans(figure I.6). The industries with the largestincreases in 2000 were petroleum, computersand electronics, as well as telecommunicationsand financial services. The United States is alarge host and home country in absolute terms,but in terms of FDI flows as a share of domesticinvestment (gross fixed capital formation), thiscountry ranks almost in the middle among alldeveloped countries (figure I.7).

b. European Union

Within Western Europe, the EuropeanUnion (EU) accounts for more than 90 per centof both inward and outward FDI stocks. Whilerecord inflows into the EU were stimulatedby progress in regional integration, extra-EUflows were dominated by the United States.Rising FDI flows between EU and EuropeanFree Trade Association (EFTA) were the mainstimulus for FDI into other Western Europeancountries, reflecting also closer relationshipson other levels of international relations.


Figure I.3. FDI stocks among the Triad and economies in which FDI from the Triad dominates,1985 and 1999

(Billions of dollars)

Source: UNCTAD, FDI/TNC database.Notes: Associate partners are the host economies in which the Triad members account for at least 30 per cent of the total FDI inward stocks

or of the total FDI inward f lows within a 3-year average. Approval data were used for the fol lowing economies: Bangladesh, Bulgaria,Cambodia, Egypt, Kenya, Lao People’s Dem. Rep., Mexico, Mongolia, Myanmar and Taiwan Province of China. Data may not necessarilybe avai lable for each economy during both years 1985 and 1999. The EU Includes Austr ia (1990 instead of 1985 and 1998 insteadof 1999), Denmark (1991 instead of 1985 and 1998 instead of 1999), Finland (1991 instead of 1985 and 1998 instead of 1999), France(1989 instead of 1985 and 1998 instead of 1999), Germany (1998 instead of 1999), I taly (1994 instead of 1985 and 1998 instead of1999), Netherlands (1998 instead of 1999), Sweden (1986 instead of 1985) and the United Kingdom (1987 instead of 1985) that accountfor about 90 per cent of the EU outward stock. Japan’s outward stocks are cumulative flows on a balance-of-payments basis since1968 .


Figure I.4. Developed countries: FDI outflows, 1999 and 2000 a


Source: UNCTAD, FDI/TNC database.a Ranked on the basis of the magnitude of 2000 FDI outflows.


FDI inflows into the EU also reachedrecord levels in 2000 ($617 billion). As in therecent past, cross-border M&As explain thisgrowth. Deepened regional integration duringthe 1990s, in addition to political stability, marketsize and good infrastructure, are principaldrawing assets; further integration, as well asthe introduction of the Euro, are expected toaccentuate this trend. Within the EU, the UnitedKingdom was the largest outward investor in2000 and, at the same time, the largest investorworldwide for a second consecutive year (figureI.4), mainly due to major cross-border M&As:the largest deal in 2000 (indeed, the largestdeal ever worldwide), the acquisition ofMannesmann by VodafoneAirTouch, also droveup FDI flows into the target country – Germany.As a result, Germany became the most importantFDI recipient in the region (figure I.6). In asimilar vein, FDI flows to Belgium weresignificantly influenced by post-mergerrestructuring activities, which took place duringthe fourth quarter of 1999 and had led toretroactive adjustments of both inward andoutward flows; inflows into Belgium in 2000were considerably lower but continued theupward trend that had been observed up to1998 (annex tables B.1 and B.2).

Cross-border M&As were particularlyimportant in the area of telecommunications,as well as in the automobile industry. Althougha tendency towards consolidation andconcentration can also be observed in thebanking industry, it seems that WesternEuropean banks seek profits rather by expansioninto emerging markets (ECB, 2000). However,the formation of regional financial groups alsotook place, such as the creation of Nordea,the result of mergers between Merita Bank(Finland), Nordbanken (Sweden), Unidanmark(Denmark) and Christiania Bank ogKreditkasse. With few exceptions, about halfof the EU countries’ FDI took place withinthe region. One exception is Austria, whereFDI flows were remarkably dynamic andreached record levels in 2000, with more thantwo-thirds of the outflows directed towardsthe neighbouring countries of Central andEastern Europe. Inflows into Austria weredominated by the merger of Bank Austria withHypoVereinsbank, and Germany thereforeaccounted for about four-fifths of total inflows.FDI flows into Greece reached unprecedentedlevels in 2000, and the country’s accession tothe EMU in 2001 is expected to further assureinvestors’ confidence. Swedish outward

Figure I.5. Destination and sources of United States FDI flows, 2000(Percentage)

Source: UNCTAD, based on the U.S. Dept. of Commerce, Bureau of Economic Analysis (BEA), International Investment data,www.bea.doc.gov, data retr ieved in March 2001.

Notes: Afr ica includes South Africa. LAC stands for Latin America and the Caribbean.


Figure I.6. Developed countries: FDI inflows, 1999 and 2000 a


Source: UNCTAD, FDI/TNC database.a Ranked on the basis of the magnitude of 2000 FDI inflows.


Figure I.7. Developed countries: FDI flows as a percentage of gross fixed capital formation, 1997-1999 a

(Percentage)

Source: UNCTAD, FDI/TNC database.a Ranked on the basis of the magnitude of 1997-1999 FDI inf lows as a percentage of gross f ixed capital formation.


investment almost doubled, mainly due toinvestments in EU markets; inflows decreasedover the previous year (when FDI wassignificantly influenced by the merger betweenAstra and Zeneca), but were still considerablyabove their 1998 level. Similarly, the increasein outflows from France was largely attributedto the acquisition of Orange Plc by FranceTelecom in 2000, becoming the second largestoutward investor worldwide.

Inflows from outside the EU aredominated by the United States but were ofless importance in 1999 than before. They wereoutperformed by intra-EU flows (figure I.8).

Outward FDI of the EU is increasinglydirected towards countries in Central andEastern Europe, in pursuit of favourablebusiness opportunities in the EU candidatecountries,9 and driven by privatization.

Other Western European countriesexperienced increasing FDI outflows in 2000,with Switzerland being the most important playerin both directions. While Swiss firms continueto direct about half of their investment to theEU (flows to EU countries in 1999 doubled),an increasing share goes to Central and EasternEurope, the United States and Latin America.Already in 1997, Switzerland was among thefive most important foreign investors in theEU (Eurostat, 2000b). FDI inflows to thiscountry slightly declined to $9.3 billion from

the record level in 1999 ($11 billion). Norway’soutward FDI flows continued their steep upwardtrend, with more than half of them directedto EU markets, while inflows in 2000 did notreach the record level of the previous year,when inflows were significantly boosted byreinvested earnings. While inflows into Icelandwere about the same level as in 1998, outflowsin 2000 almost doubled, due to several largeacquisitions, in particular, by Ossur, whichbecame the second largest manufacturer ofprosthetics worldwide, as well as in the financialsector (i.e., by Landsbanki and Islandsbanki).

c. Japan

While Japan’s economy continued tobe sluggish, FDI outflows from the countryrebounded after two consecutive years ofdecline, reaching in 2000 their highest levelin 10 years ($33 billion), driven by cross-borderM&As in telecommunications. 10 FDI inflowsinto Japan, on the other hand, dropped by 36per cent to $8.2 billion, from the 1999 recordhigh, reflecting a decline in FDI in themanufacturing sector, 11 although the trend ofattracting relatively high FDI inflows is likelyto continue, prompted by both internal andexternal factors.

Cross-border M&As played a role inthe interaction of these factors. The globalconsolidation through cross-border M&Asbetween United States and European

Figure I.8. Intra- and extra-EU FDI flows, 1995-1999(Percentage)

Source: Eurostat, 2000b.Note: Intra-EU figures represent the average of inward and outward flows as declared by Member States.


companies extends now to Japan in someindustries (e.g. automobiles), fuelling increasedFDI into Japan. In addition, the structuralchanges in leading Japanese industries (e.g.banking) stimulate FDI inflows into Japan,which, in turn, accelerate the speed of thecountry’s structural changes, and so on (WIR00,chapter II). Thus – and in spite of decliningFDI inflows in 2000 – the general FDI trendhas been upward during the past few years,driven by cross-border M&As in the finance,machinery and telecommunications industries.Greenfield investments in the retail, serviceand software industries are also rising (JETRO,2001).

d. Other developed countries

In other developed countries, cross-border M&As with partners based in Europeand the United States explain the surge inCanadian FDI, which reached unprecedentedlevels in both directions ($44 billion in outflowsand $63 billion in inflows in 2000). Recentinflows into Australia and New Zealand wereclosely linked to developments in the Asia-Pacific region, and further constrained byunfavourable exchange rate developments.Being largely commodity-based economies andpartly linked to economic developments in Japan,Australia and New Zealand have notexperienced significant FDI inflows in the1990s. Inflows in Australia in 2001 might besignificantly influenced by the planned mergerbetween Billiton of the United Kingdom andBHP of Australia, which (if it should take place)would create the second largest mining groupin the world. 12 Outflows from Australia in 2000were $5 billion, a turnaround compared to theprevious year and significantly above the

average inflows during the period of 1990-1999.The services sector above accounted for morethan half of the outflow.

Record FDI inflows into Canada in 2000(two and a half times greater than in the previousyear) mainly reflected one large acquisition.At the same time, outward FDI, increasingby more than twice, was also significantlystimulated by cross-border M&As. For FDIin both directions, the most important partnerswere the United States and European countries.The most important industries were foodprocessing, machinery and transport equipment(inflows) and electrical and electronicequipment, energy and metals (outflows).

2. Developing countries

Each region of the developing worldexperienced different FDI developments during2000.

a. Africa

FDI inflows into Africa (including SouthAfrica) declined from $10.5 billion in 1999 to$9.1 billion in 2000, after an increase of $2billion during the previous year (figure I.9).Consequently, the share of Africa in world FDIinflows – already low – became even smaller,falling below 1 per cent in 2000. Inflows tomajor recipients such as Angola, Morocco andSouth Africa halved. However, FDI flows intothese countries – as well as to Africa as awhole – are still much higher than those atthe beginning of the 1990s, mainly due to thesustained efforts of many governments to createa more business-friendly environment after

Figure I.9. FDI inflows andtheir share in gross fixed

capital formation in Africa, a

1990-2000

Source: U N C T A D , F D I / T N Cdatabase.

a Including South Africa.


turbulent and (in some countries) lost decadesin the 1970s and 1980s. However, a numberof African countries continue to rank high whenFDI inflows are placed in relation to their grossfixed capital formation (figure I.10). FDIoutflows from African countries continued tobe marginal, except for those from South Africa.

On a subregional basis, the year 2000saw some changes as compared to the yearbefore as far as inflows were concerned:

• FDI flows to North Africa remained almostat the same level as in the previous year($ 2.6 billion). Flows declined into Morocco– where FDI inflows have been particularlyvolatile over the past few years – andAlgeria. FDI flows to Sudan (where FDIis concentrated in petroleum explorationactivities) increased somewhat from $370million to $392 million (figure I.11). Egyptremained the most important recipient ofFDI flows in North Africa, with slightlyincreasing inflows ($1.2 billion comparedto $1 billion in 1999).

• FDI flows to sub-Saharan Afr icadecreased from $8 billion in 1999 to $6.5billion in 2000. Although 22 countriesexperienced lower inflows in 2000 ascompared to 1999, most of the reductionswere rather small. The overall decline inFDI inflows into sub-Saharan Africa wascaused by a sharp drop of inflows into twocountries: Angola and South Africa. InAngola, inflows to the country’s petroleumindustry took a pause from the dynamicdevelopment in previous years, while inSouth Africa reduced M&A activity playeda role in the downturn of inflows. The listof major recipients in sub-Sahara remainedlargely unchanged, with oil-producers suchas Angola, Egypt and Nigeria topping thelist, followed by South Africa.

• Due to the decline in Angola, FDI flowsinto the 34 LDCs in Africa dropped from$4.8 billion in 1999 to $3.9 billion in 2000.Leaving Angola aside, however, the groupmaintained almost the same level as in theprevious year. FDI inflows to the UnitedRepublic of Tanzania were almostunchanged from $183 million to $193 million.When classified by regions, the group ofAfrican LDCs was, in fact, the only regionalgrouping of LDCs that managed to increaseinflows over recent years. The share of

African LDCs in total FDI inflows into allLDCs stood at 90 per cent in 1999-2000,increasing from 70 per cent as the averagefor the period 1990-1998.

Within sub-Saharan Africa, the SouthernAfrica Development Community (SADC)has shown (in absolute as well as in relativeterms) the most significant increases sincethe early 1990s. While FDI inflows intothis grouping – due to the developmentsin Angola and South Africa – dropped from$5.3 billion in 1999 to $3.9 billion in 2000,this is still substantially above the averagelevel of FDI inflows of approximately $3.0billion that today’s SADC members receivedduring 1994-1998. While countries such asLesotho and Mauritius showed strongincreases, FDI flows to other SADCcountries declined: for example, Zimbabweexperienced a significant drop in inflowsfrom $444 million in 1998 to $ 59 millionin 1999 and only $30 million in 2000.

The overall outlook for FDI into Africahas not changed much as compared to lastyear when a joint UNCTAD/ICC survey amongalmost 300 TNCs yielded the result that 43per cent of the responding companies saw theinvestment conditions in Africa improving inthe period 2000-2003, while 46 per cent sawthe investment climate stay unchanged and only11 per cent expected a deterioration. As inthe past, much will depend on sustained effortson the part of African governments to improvefurther the prospects of political stability andeconomic growth.

On the FDI outflow side, South Africaaccounted for 40 per cent of the region’s totalof $1.3 billion FDI outflows in 2000 (figureI.12); this made South Africa by far thecontinent’s most important source of FDI. Thecountry has seen a major restructuring of itsindustry long dominated under the apartheidregime by quasi-monopolistic conglomerateswith interests in a wide range of industriesand little investments abroad (Goldstein, 2000).For big South African companies, the end ofapartheid also meant the beginning of a newera of intensified competition, forcing themto concentrate on core businesses and to divestfrom fringe activities. At the same time,companies such as South African Breweriesor Sappi in the paper industry realized that aninternationalization strategy includingacquisitions of companies abroad (table I.3)


Figure I.10. Africa: FDI flows as a percentage of gross fixed capital formation,top 20 countries, 1997-1999 a

(Percentage)



Figure I.11. Africa: FDI inflows, top 10 countries, 1999 and 2000 a



Figure I.12. Africa: FDI outflows, top 10 countries, 1999 and 2000 a

(Millions of dollars)



to explore new markets, and listing on foreignstock exchanges (most notably in London) totap into foreign capital sources, was essentialfor survival in the new climate of globalcompetition. 13

b. Developing Asia

FDI inf lows into developing Asiareached a record level of $143 billion in 2000(figure I.13). The 44 per cent increase over1999 was primarily due to an unprecedentedFDI boom in Hong Kong, China (box I.2). Thewave of M&As in the financial-crisis-hitcountries has now tapered off, reflecting botha slow-down in the rate of asset disposals andreduced pressure for further corporaterestructuring. FDI flows into China, $41 billionin 2000, remained at a level similar to that ofthe previous year (box I.3). Overall, the roleof FDI in Asian economies, as measured byits share in total investment, varies greatly fromcountry to country (figure I.14).

The 2000 Asia FDI boom (figure I.13)masks considerable sub-regional variations:

• North-East Asia has become the brightestspot for FDI in the developing world. Inflowsto the three economies (Hong Kong, China;the Republic of Korea; and Taiwan Provinceof China) reached $80 billion in 2000. Theirshare of total FDI in developing Asiaincreased from an annual average of 16per cent during the first half of the 1990sto over 55 per cent in 2000. With $64 billionof inflows, Hong Kong, China (box I.2)

overtook China as the single largest FDIrecipient in Asia (figure I.15).

• FDI inflows into China rose by 12 per centduring the first four months of 2001($11 billion), compared to the correspondingperiod in 2000. It is noteworthy that taxcontributions by foreign affiliates accountedfor 18 per cent of the country’s totalcorporate tax revenues in 2000 ($27 billion)harvesting some of the benefits createdby some $15 billion of annual average FDIinflows during the first half of the 1990s.It is also noteworthy that the portfolio ofFDI in China has been broadening overthe past years (box I.3). In its effort tobecome a member of WTO, China isconsidering to adopt a number of new policymeasures relating to FDI. China is also inthe process of formulating policies toencourage cross-border M&As.

• Inflows into South-East Asia (ASEAN-10) remained below the pre-crisis level.The subregion’s share in total FDI indeveloping Asia continued to shrink, fromover 30 per cent in the mid-1990s to 10per cent in 2000. This was largely due tosignificant divestments in Indonesia sincethe onset of the financial crisis.

• FDI inflows into South Asia remainedalmost the same in 2000, still below the1997 peak level. India, the largest recipientin the subcontinent, received $2.3 billion.

• Inflows into the least developed countriesof the region, which traditionally depend

Table I.3. The ten largest cross-border M&A purchasesby South African firms, 1987-2000

Value inCompany Year Acquired company Country million dollars

Anglo American Corp of SA Ltd . 1999 Minorco SA Luxembourg 2 137Institutional Investors 1994 SD Warren(Scott Paper Co.) United States 1 600Old Mutual PLC 2000 United Asset Management Corp. United States 1 456Dimension Data Holdings PLC 2000 Comparex-Eur Networking Ops Germany 1 347Sappi Ltd. 1997 KNP Leykam(KNP BT) Austria 1 313Gencor 1994 Cerro Matoso SA(Royal Dutch) Colombia 1 200Gencor 1994 Billiton Intl-Certain Assets Australia 1 144Shareholders a 1999 Liberty International PLC United Kingdom 920Old Mutual PLC 2000 Gerrard Group PLC United Kingdom 855Shareholders a 1999 Liberty International Holdings United Kingdom 831

Source: UNCTAD, cross-border M&A database.a A group of shareholders residing in South Africa who purchased this company.


heavily on FDI from their neighbours,remained at a very low level.

Outward FDI from the region doubledin 2000, to a record level of $85 billion. HongKong (China), with $63 billion outflows,continued to be the single largest investor ofthe region (box I.2). But FDI from China andIndia is also rising.

A new pattern of flows in terms ofsource and destination countries is emerging.TNCs from Hong Kong (China), Singapore andTaiwan Province of China have been very activeover the last two years, but with theirinvestments mainly focused on North-East Asia.Other Asian TNCs, particularly those basedin the Republic of Korea and Malaysia, aregradually resuming their overseas businessoperations. In the meantime, outwardinvestment from China and India is gainingmomentum. Faced with growing protectionagainst its exports and excess productivecapacity in low value-added but exportcompetitive industries (box I.3), Chinese TNCsengaged in “barrier-hopping” outwardinvestment, usually in the form of “investmentin kind”.14 Furthermore, the deepeningeconomic integration of Hong Kong (China)and Mainland China led to a significant increaseof outward investment from the Mainland toHong Kong over the past two years, accountingfor about 20 per cent of the total FDI inflowsto Hong Kong. 15 Most recently, Indian TNCsbegan asset-seeking investment via cross-border M&As, particularly in the softwareindustry in countries such as the UnitedKingdom and the United States.

The longer-term investment prospectsfor developing Asia remain bright. In additionto the quality of the underlying determinantsfor FDI, the intensified efforts of furthereconomic integration in various dimensions islikely to boost FDI in the region.

Box I.2. FDI boom in Hong Kong, China:what’s behind the numbers?

Hong Kong (China) has enjoyed anunprecedented FDI boom over the past twoyears. Inflows in 2000 skyrocketed to $64 billion,four times the inflows to ASEAN and well abovethose into mainland China – traditionally thesingle largest FDI recipient in the developingworld. The territory’s share of total Asia FDIrose from an annual average of 11 per centduring the first half of 1990s to 45 per centin 2000 (box figure I.2.1). The boom in inflowswas accompanied by a tripling of FDI outflows($63 billion).

Box figure 1.2.1. Trends of FDI inflows intoHong Kong, China, 1994-2000

Source : UNCTAD.

/ . . .

Figure I.13. FDI inflows and theirshare in gross fixed capital

formation in developing Asia,1990-2000



The upsurge in inflows by $40 billion over1999 was underpinned in part by a generalimprovement in the local business environmentfollowing the strong recovery of the economyover the past two years. A marked growth inreinvested earnings was related to the improvedprofit posit ion of foreign affi l iates in theeconomy. The advantageous geographica llocation, sound infrastructure and a low taxregime continue to position Hong Kong (China)as a bright spot for high value-added FDI andas a bus iness hub in the reg ion .

China’s imminent accession to WTO hasbeen another driving force for attracting FDIinto Hong Kong (China). TNCs planning toinvest on the mainland have been “parking”funds there (e.g. can be in the form of long-term loans to their affiliates in Hong Kong –one type of FDI), in anticipation of emergingbusiness opportunities in the mainland. Thiswas indirectly confirmed by the f indings ofa recent survey of over 3,000 foreign TNCs’regional headquarters and representative officesin Hong Kong (Hong Kong, China, Census andStatistics Department, 2001a): 45 per cent ofthe surveyed firms planned to increase theirinvestment in the mainland, and 93 per centconsidered the investment climate in China tobe favourable or very favourable over the nextf ive years .

The dramatic increase in FDI flows wasalso boosted by a prominent cross-border M&Adeal in the telecommunication sector. Accordingto public announcements, China Mobile (HongKong) Ltd. acquired in November 2000 sevenmobile networks in the mainland, with a dealvalue of $33 billion. a As the deal was partlyfinanced by capital raised through new sharesissued to its parent company in the British VirginIslands, FDI inflows of $23 billion into ChinaMobile (Hong Kong) was recorded in parallel.This acquisition alone accounted for over one-third of the territory’s total FDI inflows andmore than half of total outflows in 2000.Independently of this deal, both FDI inflowsand outflows relating to Hong Kong (China)still surged by 68 per cent ($17 billion) and

57 per cent ($11 billion), respectively.

The above cases demonstrate Hong Kong’spredominant role as a funding hub for businessin the region. Indeed, a considerable part ofthe investment flows into and out of Hong Kong(China) is related to business ventures in otherparts of the region, particularly in the mainland.The issue is further complicated by the “round-tripping” phenomenon, i.e. capital inflows andoutflows relating to Hong Kong (China) in theform of FDI via tax haven economies. Statisticsshows that tax haven economies were both oneof the largest recipients and sources of FDIrelated to Hong Kong (China) during 1998-2000.For example, more than half of the territory’soutward FDI is routed to such offshore financialcentres as the British Virgin Islands, the CaymanIslands and Bermuda. However, the actualdestination of the majority of these funds iselsewhere. Some of the funds are channelledto mainland China; others to elsewhere in theworld; and a sizeable portion even goes backto Hong Kong (China) or through the territoryto the mainland. Perhaps as much as 40 percent of total FDI inflows to Hong Kong (China)in 1998 was “Hong Kong-tax haven routing”.Indeed, the British Virgin Islands became thefourth largest source of FDI in China during1999-2000, whereas Hong Kong’s outward FDIdirectly to the mainland decreased since 1998.The “Hong Kong-tax haven routing” is nowinterwoven with the “mainland-Hong Konground-tripping” (Zhan, 1995), sometimesinvolving fund-raising in the Hong Kong stockmarket. Such a phenomenon, which can be bettertermed as “transit FDI” (Zhan, 2001), hasmanifested the dynamics of corporate financein the region’s financial centre.

It should be mentioned that FDI statisticsof Hong Kong (China) are compiled inaccordance with internat ional s tandardsstipulated in the Balance of Payments Manualpubl ished by the IMF and the BenchmarkDefinit ion of FDI published by the OECD.Nevertheless, like other aggregates, FDI datahardly reflect the complexity of corporate finance.

Box I.2. FDI boom in Hong Kong, China: what’s behind the numbers? (concluded)

Source: UNCTAD, par t ly based on Hong Kong, China, Census and Stat is t ics Department 2001a and2001b.

a This acquisition was, however, not recorded by the Government of China as an FDI inflow into China.


The portfolio of FDI in China has beenevolving over the past two decades. Inflowsused to concentrate in labour-intensive industriesduring the 1980s and then moved towardscapital-intensive ones during the early 1990s.In recent years, technology-intensive industrieshave been attracting more and more FDI. Theold image of the so-cal led “flying-geeseformation”, with China at the low level of thevalue-chain (i.e. mainly spillover from newlyindustrializing economies to China), is givingway to that of a r ising competit ive locationfor technology-intensive activities for TNCs.

Today, nearly 400 of the Fortune 500 firmshave invested in over 2,000 projects in China.The world’s leading manufacturers of computers,electronics, telecommunication equipment,pharmaceuticals, petrochemicals, and power-generat ing equipment have extended theirproduct ion networks to that country.

Most recently, even R&D activities haveemerged as a bright spot for FDI, with over100 R&D centres establ ished by TNCs.Microsoft, Motorola, GM, GE, JVC, Lucent-Bell,Samsung, Nortel, IBM, Intel, Du Pont, P&G,Ericsson, Nokia, Panasonic, Mitsubishi, AT&T,Siemens, to name a few, all have R&D facilitiesin China. Motorola, for example, has establishedR&D centres in the area of electronics, basedon $200 million in investment and 650 researchpersonnel. Microsoft invested $80 million ina Chinese research institute and has announcedthe investment of a further $50 million to createa Microsoft Asian Technology Center inShanghai . The need for the adaptat ion oftechnology to the huge local market has beenone of the push factors for TNCs to locate someof their R&D activit ies in the country. Theavailabil i ty of extensive hard and soft R&Dinfrastructure (particularly well-educated andhardworking researchers at low costs, includingmany graduates returned from abroad) is themain pull factor. Furthermore, the Governmenthas introduced policy measures to reform thenat ionwide science and technology system,promoting self-sustained and market-orientedresearch institutions. As a result, Chinese R&Dinstitutions are becoming proactive in seekingpartnerships with TNCs.

The prominence of FDI in technology-intensive industries is also manifested in China’sforeign trade. Exports of high and newtechnology products by foreign aff i l iatesincreased from $4.5 billion in 1996 to $29.8 billionin 2000 (box table I.3.1). They accounted forone-fourth of the total exports by foreignaffiliates, and 81 per cent of the country’s totalexports in high-technology products. Since thesecond half of the 1990s, China has significantlyreduced its imports of complete sets of advancedequipment and is now relying more and moreon FDI to acquire foreign technology. In fact,FDI has become the engine of growth of China’shigh-technology exports and an essential meansof inward technology transfer.

Box table I .3.1. Exports of high-technologyproducts from China by ownership of

production, 1996-2000

S t a t e - o w n e d F o r e i g nTota l en t e r p r i s es af f i l i a tes

Year ( M i l l i o n d o l l a r s ) (Per cen t ) (Per cen t )

1996 7 681 39 591997 1 6 3 1 0 . . . .1998 2 0 2 5 1 25 741999 2 4 7 0 4 23 762000 3 7 0 4 0 18 81

Source : UNCTAD, based on Ch ina , Min i s t ry o fSc ience and Techno logy .

In parallel with the above trends, the shareof FDI f lows into those industr ies in whichFDI traditionally concentrated (e.g. footwearand travel goods, toys, bicycles and electricalappliances) has been declining. Moreover, drivenby the excess productive capacity in the countryand encouraged by the ir increasedcompetitiveness in exports, Chinese firms inthose industries are now expanding to set upprocessing or assembly plants overseas. TheGovernment promotes those outward investmentsby provid ing such incent ives as loans a tpreferential terms and tax rebates. Specialguarantees and financial support through officialdevelopment ass is tance are a lso granted tothe investments in those countr ies that areidentif ied as high-risk locations.

Box I.3. The evolving profile of FDI in China

Source: UNCTAD.


Figure I.14. FDI flows as a percentage of gross fixed capitalformation in developing Asia and the Pacific, 1990-1999 a

(Percentage)




Figure I.15. Developing Asia and the Pacific: FDI inflows, top 20 economies, 1999-2000 a



c. Latin America and the Caribbean

After tripling during the second halfof the 1990s, annual FDI inflows into LatinAmerica and the Caribbean fell during the firstyear of the new century (figure I.17). 16 The$86 billion in inflows represent a decline of22 per cent over the previous year. However,this decline does not signal a shifting trend asit reflects an adjustment to the particularly largeflows in 1999 due to the acquisition of threelarge Latin American firms by foreign onesthat had taken place that year. Moreover,patterns differ by subregion. Although thecurrent volume of FDI represents an amount

unthinkable only a decade ago, there aredifferences by country in the industries in whichTNCs invest, as well as FDI prospects.

More specifically, with inward FDIflows of $34 billion (figure I.18), Brazil continuedto be the region’s largest host country in 2000,with most FDI going into the services sector.The pace of privatization slowed, but remainedimportant, accounting perhaps for up to22 per cent of total inflows, down from 28 percent in 1999. The single largest privatizationdeal was the sale of the controlling stake ofthe bank Banespa to the Spanish BSCH for$3.6 billion. Mexico, with $13 billion, was thesecond largest recipient, a 10 per cent increase

Figure I.16. Developing Asia: FDI outflows, top 10 economies, 1999-2000 a



Figure I.17. FDI inflows and theirshare in gross fixed capital

formation in Latin America and theCaribbean, 1990-2000



from the previous year. The manufacturingsector continued to attract half of the inflows,but the share of financial services jumped to31 per cent of total inflows from a 10 per centaverage in the previous five years. This wasthe result of take-overs by Spanish banks thatwere triggered (with some lag) by the liftingof the remaining restrictions on foreignownership of banks in 1999. BSCH acquiredSerfin for $1.6 billion; its rival BBVA mergedwith Bancomer with a capital injection of$1.9 billion. The trend continued into 2001with the acquisition of Banamex by Citicorpin May for $12.5 billion, the biggest M&A dealin Mexican history.

Argentina and Chile suffered significantdeclines in their FDI inflows, partly because1999 had seen three major M&As (Repsol’spurchase of YPF in Argentina; and EndesaEspaña’s purchase of Endesa and Enersis inChile). Inflows into some Andean countries,such as Colombia and Peru, were lower thanthose in the previous years, reflecting recentpolitical and economic instability, while inflowsinto Venezuela rose, due to significant purchasesin the services sector. These changes are alsoreflected in FDI inflows in relation to the sizeof domestic investment (figure I.19).

M&As continued to be important in2000, and were mainly directed to the servicessector. The largest transactions included theso-called Operación Verónica , during whichTelefónica de España increased its stakes inits affiliates in Argentina, Brazil and Peru toalmost 100 per cent, and acquisitions by Spanishbanks in Mexico and Brazil. In the electricalindustry, there were important purchases bythe AES Corporation (United States) in Brazil,Chile and Venezuela, amounting to $3.6 billion.

On the outflow side, Chile was thelargest investor, with outflows of almost $5billion (figure I.20) – an amount higher thaninflows. However, a good part of theinvestments abroad are undertaken by foreignaffiliates in Chile, such as Enersis (the electricitycompany owned by the Spanish group Endesa)and Entel (the former public telephonemonopoly now controlled by Telecom Italia).The single most important investment abroadby a Latin American company was the acquisitionby Cemex from Mexico of Southdown in theUnited States for $2.8 billion, which makesCemex the third largest cement company inthe world and one of the 100 largest TNCs inthe world (chapter III).

d. The least developed countries

The 49 LDCs – countries with anaverage annual per capita GDP under $900and low levels of capital, human andtechnological development – account for nearlya quarter of the world in terms of the numberof countries and more than one-tenth in termsof population. Meanwhile, their share of annualworld GDP is less than 1 per cent. To improvethis situation, and to achieve sustainablepoverty-reducing growth and development,domestic efforts and resources must bereinforced by external resources. Officialdevelopment assistance (ODA) constitutes, ofcourse, an essential component in this regard.During 1998-1999, ODA represented about two-thirds of total capital flows to LDCs. Giventhe structural characteristics of LDCs, ODAwill remain the most important source ofexternal finance for these countries. Thedeclining ODA trend therefore needs to bereversed. At the same time, it is important tosee how official aid can be complemented byother sources of external finance. FDI is ofparticular importance in this respect as it canbring not only much needed additional capitalbut also access to technology and know-how,as well as access to international markets. Ofcourse, FDI cannot substitute for ODA; in fact,ODA can help to create the conditions to makea country more attractive for FDI, e.g. wheninfrastructure is upgraded.

The data show that FDI, and theimportance of FDI, in the world’s 49 poorestcountries is on the rise: 17

• FDI to LDCs increased from $0.6 billionin 1990 to $4.4 billion in 2000. This growthwas broadly based: 24 LDCs experiencedan average annual growth rate of morethan 20 per cent and another 15 of thembetween 10 and 20 per cent during 1986-2000 (annex table A.I.3). Among these,African countries were particularlysuccessful in recent years, as noted above.

• Although the LDCs’ share of global FDIis a mere 0.5 per cent, this amount isimportant for them: as a percentage of totalinvestment in these countries, FDI rosefrom 4 per cent in 1988-1990 to 7 per centin 1997-1999. More than 90 per cent ofthese flows was through greenfieldinvestment, rather than cross-borderM&As. Privatizations involving FDI


Figure I.18. Latin America and the Caribbean: FDI inflows, top 20 economies, 1999 and 2000 a




Figure I.19. Latin America and the Caribbean: FDI flows as a percentage of gross fixedcapital formation, top 20 economies, 1997-1999 a

(Percentage)

Source: UNCTAD, FDI/TNC database.a Ranked on the basis of the magnitude of 1997-1999 FDI inf lows as a percentage of gross f ixed capital formation.b Lat in America and the Car ibbean.


accounted for only 2 per cent of all FDIin the LDCs in the 1990s. But privatizationsinvolving foreign investments can beimportant for individual LDCs, as the caseof the privatization of copper mines inZambia shows.

• There is a growing need to complementODA with private finance. ODA to LDCsdeclined from $16.7 billion in 1990 to $11.6billion in 1999. Bilateral ODA also declined,from $9.9 billion to $7.2 billion (annex figureA.I.1). In fact, 29 LDCs simultaneouslyexperienced increases in FDI anddecreases in bilateral ODA during the 1990s(annex figure A.I.2).

The geographical origin of FDI in LDCsis quite varied. France and the United Kingdomare the principal sources of FDI in AfricanLDCs, where Europe for a long time has playeda more important role than the United States.Most (three-quarters) of Japan’s FDI in AfricanLDCs consists of flag-of-convenienceinvestments in Liberia. In Asian LDCs,intraregional FDI is substantial, and firms fromMalaysia, Singapore and Thailand are majorinvestors.

Despite the obvious constraints oflimited purchasing power and scarcetechnological and human resources, investmentopportunities do exist in many areas. Investmentin the LDCs takes place in many industries.One of the challenges is therefore to ensurethat existing opportunities are adequatelycommunicated to the business community. 18

In fact, as of 1999, 44 of the Fortune 500firms had responded to such opportunities andhad invested in 31 LDCs (UNCTAD, 2001a).

Major efforts have been undertakenby LDCs to improve their investment climates. 19

At the national level, legislation in most LDCsnow offers a wide range of guarantees, non-discrimination between foreign and domesticinvestors, protection against expropriation, andpermission for foreign affiliates to repatriateprofits. Moreover, some leading industries havebeen liberalized and are now open to foreigninvestors.

The LDCs themselves have also beenactively promoting their countries to foreigninvestors; investment promotion agencies havebeen established in 37 LDCs, 25 of which havejoined the World Association of InvestmentPromotion Agencies (WAIPA, 2001).

At the bilateral level, as of 1 January2001 the 49 LDCs had concluded a total of241 BITs, more than 52 per cent of them duringthe 1990s alone. Other important measuresinclude the conclusion of 133 DTTs. Finally,a growing number of LDCs are now signatoriesof relevant multilateral agreements. Forexample, as of April 2001, 18 LDCs hadacceded to the Convention on the Recognitionand Enforcement of Foreign Arbitral Awards;33 had ratified the Convention on the Settlementof Investment Disputes between States andNationals of other States; 40 were membersof the Multilateral Investment GuaranteeAgency; and 32 were members of the WorldTrade Organization.

As this discussion shows, LDCs arenot unattractive to TNCs, and they have madesubstantial efforts for this purpose. AlthoughFDI inflows have responded, however, muchmore needs to be done to advance thedevelopment of this group of countries.

Figure I.20. Latin Americaand the Caribbean: FDI outflows,top 10 economies, 1999 and 2000 a


Source: UNCTAD, FDI/TNC database.a Ranked on the basis of the magnitude

of 2000 FDI outflows.


3. Central and EasternEurope

FDI inflows into Central and EasternEurope increased in 2000 to a new record levelof $27 billion (figure I.21). 20 Continuing thepattern of previous years, Western Europeancountries dominated these inflows, with membercountries of the EU accounting for the bulkof the flows (annex table A.I.5). But inflowscontinued to be uneven, with three countries

(Poland, Czech Republic and Russian Federation,in that order) absorbing two-thirds of theregion’s total inflows.

The overall surge of inflows into Centraland Eastern Europe in 2000 masks divergingtrends in individual countries. In Poland andHungary, FDI rose (in the latter slightly), whilein the Russian Federation and the Czech Republicit declined, in the latter despite a continuedincrease of greenfield investment (figure1.22).21 The most dramatic surge in FDI inflows

Figure I.21. FDI inflows andtheir share in gross fixed

capital formation in Centraland Eastern Europe, a

1990-2000


a Composed o f coun t r ies inCentral and Eastern Europe anddeve lop ing Europe exc lud ingMalta.

Figure I.22. Central and Eastern Europe: FDI inflows, 1999 and 2000 a




– a sixfold increase – was registered bySlovakia where the volume of inflows in 2000($2.1 billion) was almost as high as thecumulative inflows of the preceding nine years,reflecting a series of major FDI deals realizedin 2000.22 For the first time, inflows intoYugoslavia (which had not been reported inprevious years) are included in the FDIstatistics; they showed inflows of $29 millionin 2000 (box I.4). The three Baltic countries

(Latvia, Estonia and Lithuania, in that order)ranked high in terms of FDI inflows as apercentage of gross fixed capital formation(figure I.23).

Privatization-related FDI transactionswere a key determinant of FDI inflows, withthe exception of Hungary, where the privatizationprocess has by and large been completed, andthe Commonwealth of Independent States,

Box I.4. FDI in Yugoslavia

Since 1992, the National Bank of Yugoslavia has registered FDI inflows in the balance of paymentsof Yugoslavia in two years: 1997 ($740 million) and 1998 ($113 million). Additionally, the FederalMinistry for Foreign Economic Relations has reported the value of foreign investment contractsconcluded and registered under the Law on Foreign Investments since 1992. a The latter has includedthe domestic part of the mixed-company and joint venture projects, which – except in 1997 – hasaccounted for one-third to one-half of those figures. Taking 50 per cent of those values registeredby the Federal Ministry for Foreign Economic Relations as an indication of FDI inflows, the followingestimates can be established for the period 1992 to 1999 (box table 1.4.1).

Box table I.4.1. FDI inflows into Yugoslavia, 1992-2000

Item 1992 1993 1994 1995 1996 1997 1998 1999 2000

FDI cont racts reg is tered a ( $ m i l l i on ) 251 192 125 90 203 1 122 165 247 58Est imated FDI in f lows ($ mi l l ion ) 126 9 . 6 63 45 102 740 113 124 29FDI i n f l ows /GFCF (%) 5 . 7 3 . 9 2 . 6 1 . 5 5 . 2 3 1 . 3 5 . 9 5 . 3 . .FDI s tock /GDP (%) 0 . 7 1 . 7 2 . 1 2 . 2 2 . 8 6 . 0 7 . 8 8 . 6 . .

S o u r c e: UNCTAD FDI /TNC da tabase , based on in fo rmat ion p rov ided by the Federa l M in i s t r y fo r Fo re ign EconomicRe la t i ons and t he Yugos l av Chambe r o f Commerce and I ndus t r y .

a Including the domestic part of the mixed-company and joint venture projects.

In 1996-2000, the Netherlands, Greece and Luxembourg were the most important source countriesfor FDI inflows (box table 1.4.2).

In terms of the number of FDI contracts registered, trade, transport services and food productionwere the three main target industries of FDI in 1995-1998 (box table 1.4.3). In terms of value, TelecomItalia (through its affiliate Stet International Netherlands N.V.) and the Hellenic TelecommunicationsOrganization (OTE) were the top two investors in Yugoslavia.

Source: UNCTAD, based on information provided by the Federal Ministry for Foreign Economic Relationsand the Yugoslav Chamber of Commerce and Industry.

a The Law on Foreign Investments and its amendments have been published in the Official Gazette of the FederalRepublic of Yugoslavia, Nos. 79/1994, 15/1996 and 29/1996.

Box table I .4.2. Countries of origin of FDIinflows a into Yugoslavia, 1996-2000

(Mill ion of dollars)

Box table I .4.3. Number of FDI projects inYugoslavia, by industry, 1995-2000

Count ry Count ry

Nether lands 560 Bu lgar ia 10Greece 481 Italy 10Luxembou rg 102 United States 8Cyp rus 82 Aust r ia 8Bahamas 14 Hungary 4

S o u r c e : UNCTAD, based on data p rov ided by the Federa lM in i s t r y f o r Fo re ign Economic Re la t i ons .

a Approval basis.

Number Of which 100%Industry of projects foreign-owned

Trade 2 156 725Transport services 758 233Food 462 123Engineering 427 155Texti le 225 50Road transport 208 44Tourism 151 38Other services 132 31

Source : UNCTAD, based on information provided by theFederal Ministry for Foreign Economic Relationsand the Yugos lav Chamber o f Commerce andIndustry.


Figure I.23. Central and Eastern Europe: FDI flows as a percentage ofgross fixed capital formation, 1997-1999 a

(Percentage)

Source: UNCTAD, FDI/TNC database.a Ranked on the basis of the magnitude of 1997-1999 FDI inf lows as a percentage of gross f ixed capital formation.b Central and Eastern Europe.


where large-scale privatizations involvingforeign investors have not yet begun. 23 Thepurchase of a majority share in TelekomunikacjaPolska (Poland) by France Telecom for $4 billioncarried out in 2000 was the region’s largestprivatization and largest FDI transaction to date.

In the immediate future, privatizationwill continue to lead FDI inflows into the region.After 2002, however, most of the privatizationprocess is expected to be completed in someeconomies that are far advanced in the transitionprocess (especially the Czech Republic andPoland), and FDI patterns there may well cometo resemble the picture in Hungary now, whereFDI inflows are driven by additional greenfieldinvestments and, increasingly, by private cross-border M&As (annex table A.I.6).

FDI outflows from the region greweven faster than FDI inflows in 2000 in spiteof the fact that some of the transactions carriedout by firms in the Russian Federation withthe intention of establishing control overcompanies abroad go unreported, or arereported under other elements of the balanceof payments. If these outflows are estimated,the Russian Federation probably becomes amajor capital exporter. In Hungary, the second

largest outward investor in the region (figureI.24), the Government provides assistance tothe country’s outward investors (box I.5). Thebulk of these flows take place within the region(annex table A.1.7).

Box I.5. Government support for investorsfrom Hungary

Government-owned Corvinus InternationalInvestment Ltd., established in 1997, providesboth f inance (part icipation in share capital ,loans and guarantees) and advisory servicesto potential outward investors. The typical clientsof Corvinus are medium-sized Hungarianmanufacturing enterprises, although the schemeis open, in principle, to all firms and industries.Corvinus has under taken i ts largest equi tyinvestments into a Romanian bakery, a Romanianelectrical engines and spare-parts productionplant, a Slovakian dairy factory, a Chinese fruitprocessing plant, a Slovakian timber firm, anda Romanian timber firm. (Heti Világgazdaság ,27 February 1999, No. 8, p. 12; 13 May 2000,No. 19, p. 14; and 24 March 2001, No. 12, p.12).

Source : UNCTAD, based on information providedby Corvinus Internat ional InvestmentLtd .

Figure I.24. Central and Eastern Europe: FDI outflows, 1999 and 2000 a




*****The above review shows that FDI –

and international production – has grown fasterthan domestic investment and production.However, trends in FDI flows and the growthof international production differs by regionand country. Thus, the relative significanceof FDI in an economy varies among hostcountries. This is measured by the

transnationality index of host countries, whichis calculated as the average of the followingfour shares: FDI inflows as a percentage ofgross fixed capital formation; FDI inward stockas a percentage of GDP; value added of foreignaffil iates as a percentage of GDP; andemployment of foreign affiliates as a percentageof total employment. For the 30 developingcountries for which this index is estimated, itranges between 3 and 54 in 1998 (figure I.25).

Figure I.25. Transnationality index a of host economies b

(Percentage)

Source : UNCTAD estimates.a Average of the four shares : FDI inf lows as a percentage of gross f ixed capital formation for the past three years (1996-1998 and 1997-

1999 for CEE)); FDI inward stocks as a percentage of GDP in 1998 (1999 for CEE); value added of foreign aff i l iates as a percentage ofGDP in 1998 (1999 for CEE); and employment of foreign aff i l iates as a percentage of total employment in 1998 (1999 for CEE).

b Data cover selected economies. Data on value added are available only for Finland, Italy (1997), Norway, Portugal (1996), United States(1997), China (1997), India (1995) and Malaysia (1995). For other economies, data were est imated by applying the rat io of value addedof United States affil iates to United States outward FDI stock to total inward FDI stock of the country. Data on employment are availableonly for Austria, Denmark (1996), Finland, Germany, Ireland, Italy (1997), Portugal (1996), United States (1997), Hong Kong (China) (1997)and Indonesia (1996). For other countries, data were estimated by applying the ratio of employment of Finnish, German, Swiss and UnitedStates affiliates to Finnish, German, Swiss and United States outward FDI stock to total inward FDI stock of the economy. For Albania, Belarus,Bosnia and Herzegovina, Croatia, Estonia, Lithuania, the Republic of Moldova, Poland, Ukraine and Yugoslavia, the employment impactof foreign owned affi l iates was estimated on the basis of their per capita inward FDI stocks. For the benchmark data, see annex tableA.I.5. With the exception of the Czech Republic, Hungary and Slovenia, the value added of foreign owned f irms was estimated on thebasis of the per capita inward FDI stocks. For the benchmark data, see annex table A.I.6.


The most transnationalized host countryeconomy was Hong Kong, China, replacingTrinidad and Tobago. In the developed world,New Zealand held that position. There are sevencountries (two developed and five developingcountries) whose index value exceeds 30 percent. In general, the transnationality is higherin developing countries than in developedcountries. In Central and Eastern Europe thetransnationality index – prepared for the firsttime – surpassed 10 per cent on average,although it was still lower than the averagesfor both developed or developing countries(figure I.25). In Estonia and Hungary, the ratiowas close to 25 per cent, and in the CzechRepublic and Latvia it exceeded 15 per cent,indicating a high degree of internationalization.On the other hand, it was below 5 per cent inone-third of the countries covered.

C. The Inward FDI Index

The absolute FDI data used in thepreceding sections show a substantialconcentration of FDI flows. This, in turn,reflects the distribution of world economicactivity and international transactions moregenerally (see chapter II). For instance, exports,domestic investments and technology paymentsare also highly concentrated: the shares of thetop 10, 30 or 50 countries in these aggregatesare not very different from their shares in FDI(table I.4).24 This is to be expected. As a market-driven activity, FDI is similar in its pattern tothe patterns of trade, investment, technologyand industrial production among countries.

Richer, more competitive and more advancedeconomies naturally receive and make moreinternational direct investment than othereconomies. The marginalization of poorcountries from FDI flows is a part of theirmarginalization in economic activity generally,particularly in the modern industries in whichmost TNCs tend to operate.

This does not mean, however, that thedistribution of FDI inflows to countries orregions exactly match that of other economicaggregates. Clearly they do not – a numberof location factors not directly related toeconomic conditions influence FDI. Such thingsas political risk, government policy, internationalperceptions and the regional “image” can affectFDI differently from – sometimes moreintensely than – other aggregates. Thus, therecan be significant variations in national abilitiesto attract inward FDI, given such factors aseconomic size or international exposure.

It is interesting, therefore, to examinethe relative performance of countries in termsof attracting FDI, taking into account theirrelative economic strengths or positions in theglobal economy. Policy makers, in particular,are interested in comparing how well theircountries are doing in attracting FDI relativeto others. For this purpose, this report introducesa new index to facilitate such comparisons atthe national and regional levels. The InwardFDI Index is the unweighted average of threeratios reflecting the propensity to attract FDIafter adjusting for the relative economic sizeand strength of a host economy in the world.

Table I.4. Concentration ratios of FDI, trade, domestic investmentand technology payments, 1985 and 2000

(Percentages)

Inward FDI Outward FDI Domestic TechnologyItem Flows a Stock Flows a Stock Exports b investment c payments

top 10 countries1985 70.0 70.4 85.0 89.8 58.9 70.7 81.72000 73.0 67.7 83.2 81.2 56.2 73.7 80.4

top 30 countries1985 94.5 92.6 99.3 98.9 82.2 89.9 99.32000 93.0 89.2 98.9 98.1 83.6 91.0 98.8

top 50 countries1985 98.9 97.7 100.1 d 99.8 91.5 96.6 99.992000 97.6 96.2 100.0 99.8 91.5 96.7 99.95

Source: UNCTAD, FDI/TNC database.a The 1983-1985 average for 1985 and the 1998-2000 average for 2000.b Export of goods and non-factor services. 1999 data for 2000.c Gross f ixed capital formation. 1999 data for 2000.d Due to negative f lows for some countries, the share is more than 100 per cent.


The three ratios take a country’s share in worldFDI inflows and divide it by its share in eachof three global aggregates: 25 GDP, employmentand exports. This provides a benchmark of acountry’s international position as a destinationfor FDI. The Index simply indicates relativeperformance in attracting FDI; it does notmeasure the factors that account for suchperformance.

Higher GDP indicates larger markets,always a magnet for market-seeking FDI; itmay also reflect a larger resource base, againa magnet for certain forms of FDI. Employmentis very similar, indicating the size of the labourforce and potential market size. Higher exportsindicate greater openness to internationalmarkets and greater competitiveness in trade.Thus, ceteris paribus , a country with highershares of these global aggregates may beexpected to have larger shares of FDI inflows.Countries that receive more FDI than predictedby these aggregates – for whom the Indextakes a value greater than one – can bepresumed to have certain other advantages.

For instance, in comparison with similarcountries, they may offer a more conduciveregime for international investors (or they maybe tax havens). They may have highly skilledlabour, strong domestic research capabilitiesor excellent infrastructure. They may havestrong local firms that can become efficientsuppliers to TNCs. Or they may, in theperception of the international investmentcommunity, face good growth prospects.Similarly, countries with Index values of belowone may restrict FDI inflows, have competitiveweaknesses or poor growth prospects.

In a world where the determinants ofFDI are changing (see above), the Indexindicates – in a preliminary form – whetheror not host countries have some of the essentialingredients for attracting new investment flows.It is, in other words, a measure of “revealedcompetitive advantage” in attracting FDI afterdiscounting for size factors and export activity.

The Index covers 112 countries in 1988-1990 and 137 in 1998-2000, with all the valuestaken as averages for three years to avoidyear-by-year variations. The results areinteresting. There is a large dispersion aroundunity (figure I.26 and annex table A.I.10):clearly, countries vary greatly in their

attractiveness to TNCs after taking accountof their size and export activity.

For 1998-2000, the value of the Indexranges from 17.3 for the highest rankedeconomy, Belgium and Luxembourg to –0.8for Yemen. Moreover, the rankings havechanged significantly over time. For example,Singapore has slipped from first position atthe end of the 1980s to thirteenth position adecade later. This reflects relatively slow inwardFDI growth between the two periods, togetherwith a rapid increase (more than doubling) ofboth GDP and exports. (The relatively slowgrowth of FDI may reflect the indirect effectsof the Asian financial crisis.) The index forBrazil, by contrast, rose from 0.5 to 2.0 (annextable A.I.10), mainly as a result of a rise inthe FDI share relative to the export share,reflecting the domestic market orientation ofa good part of recent FDI inflows (into privatizedinfrastructure).

In 1998-2000, there were five countrieswith an Inward FDI Index of one, with theirshares of FDI inflows exactly matching theiraverage shares of world GDP, employment andexports (annex table A.I.10). These “balanced”countries include Costa Rica, El Salvador,Hungary, Malaysia and Slovakia. In ten morecountries, the index was close to one (between0.9 and 1.1). This group comprised only onedeveloped country (Australia), six developingcountries (including China) and three Centraland Eastern European countries. There are53 countries with a ratio higher than one and79 with ratios lower than one. The last group,which “under-performs” in terms of attractingFDI, includes advanced economies like Japan,Italy and Greece, newly industrializingeconomies like the Republic of Korea, TaiwanProvince of China and Turkey, oil richeconomies like Saudi Arabia and a number oflow-income countries. FDI recipients with highvalues of the Index (the “over-performers”)include the majority of the developed countries,Hong Kong (China), Singapore, and someCentral and Eastern European countries.

Interpreting the Index calls for careand the use of evidence on other economicand policy variables. A high value of the Index,for instance, need not always be a goodeconomic sign. For instance, it may reflecttransitory factors (like large one-offtransactions, say large M&As). It may also


Figure I.26. The Inward FDI Index, by host economy: the top 30 and the bottom 20,1988-1990 and 1998-2000



reflect a relative decline in a deflator of theindex, i.e. in GDP, employment or internationalcompetitiveness, to which FDI inflows havenot responded (in the period considered).Similarly, a country’s Index may fall becausea temporary crisis affects its FDI inflowsdifferently from its effects on other economicaggregates.

Nonetheless, the Inward FDI Index canprovide a starting point for benchmarking theextent to which countries succeed in attractingFDI. In general, countries with relatively strongand open economies are at the top of the rankingby the Index. These countries are leveragingtheir economic strength through policies toattract more than their “normal” share of FDI.There are also a few countries with weakeconomies but strong natural resourceendowments that occupy places at the top ofthe Index ranking. These include LDCs likeAngola and Mozambique. A number of countriesat the bottom of the Index ranking are weakeconomies in which the influence of othereconomic factors and policies apparently pullsinward FDI below levels that could be expectedon the basis of the elements of economicstrength embodied in the Index. There are alsoothers ranked at the bottom of the Index (suchas Japan and the Republic of Korea), that havestrong economic positions overall but havechosen to restrict inward FDI (at least untilfairly recently).

Many of the changes in the Index overtime are in line with changes in economicperformance and policy factors affecting FDI.Take, for example, Ireland, the most dynamiccountry in the developed world in terms ofrecent growth and competitive performance.Ireland has targeted and attracted FDI toupgrade its technological and export structure,in combination with enhancing its humanresources. It has succeeded in transforminga backward low-productivity economy into acentre of technology-intensive manufacturingand software activity. Its Inward FDI Indexshows that it has moved in its ranking fromthe forty-sixth position in 1988-1990 to thirdposition in 1998-2000, gaining in all the threeratios making up the Index – the increase inthe ratio with respect to employment share isparticularly striking. Similarly, Sweden’s riseon the Index (from twenty-ninth to fourthposition) reflects partly a deliberate policychange during the 1990s towards greater

openness to inward FDI (WIR99). The increasein the number of EU member countries in thetop 20 over the decade reflects, among otherfactors, the large and increasing influence ofregional integration on FDI flows. 26 Largecountries with more stable economicperformance and stable FDI-related policieshave tended to retain approximately their sameposition: the United Kingdom and United Statesare good examples. An economically stablecountry that becomes more open or attractivefor cross-border M&As can rapidly increaseits attractiveness for FDI: Germany has movedfrom seventy-second place to the twentiethover the decade. And so on.

Now consider the Index at the regionallevel (table I.5). In both periods, the Indexvalue for developed countries is about twicethe world average, while the Index values fordeveloping countries and Central and EasternEurope are below the world average. However,in the latter group, the Index value increasedrapidly between the two periods. The maindifference between the three groups of countriesarises, not surprisingly, from the employmentvariable. Both developed and developingcountries attract FDI roughly in proportion totheir shares in world GDP, but developedcountries receive far larger shares of FDI thantheir shares of employment, while developingcountries and economies in transition receiveless.

Within the developing world, the InwardFDI Index for South America and Central Asia,as well as developing Europe exceeded unityin 1998-2000. In the other regions (and forSouth America in the other period), the Indexvalue was below 1. West Asia, South Asia andNorth Africa show the lowest values for theIndex; the reasons for this may have more todo with political factors than economic ones.“Other” (sub-Saharan) Africa receives FDIin line with its GDP share but very little inrelation to its share in employment; over timeits FDI index value has declined slightly. Forthe LDC group as a whole, the FDI index valuedoubled between the two periods, mostly dueto increases in the FDI-per-exports and FDI-per-GDP ratios. In fact, in the second period,the Index value for African LDCs exceeded1; their Index value is now almost twice ashigh as that for sub-Saharan Africa as a whole.The index value for other LDCs has declinedover the decade.


The Inward FDI Index suggests thatAfrica receives less FDI flows than the region’srelative economic size. The underlyingeconomic reality is that sub-Saharan Africahas lost its share in both world FDI inflowsand other economic aggregates (annex tableA.I.11); African LDCs have, however,maintained their share of FDI but have fallenfurther behind in other economic aggregates.

In conclusion, the Inward FDI Indexis a useful addition to the analytical databaseon FDI flows. Carefully used, it can help policy-makers to benchmark their economies’performance with respect to competitors and“role models”, and provide information forstrategy formulation. The present Index is afirst attempt, and will be refined over time.

Table I.5. The Inward FDI Index, by region, 1988-1990 and 1998-2000

1988-1990 1998-2000FDI share/ FDI share/ FDI share/ FDI FDI share/ FDI share/ FDI share/ FDI

GDP employment export inward GDP employment export inwardRegion share a share b share c index share a share b share c index

World 1 .0 1 .0 1 .0 1 .0 1 .0 1 .0 1 .0 1 .0Developed economies 1 .0 4 .0 1 .1 2 .0 1 .0 4 .4 1 .1 2 .2

Western Europe 1 .3 4 .9 0 .9 2 .4 1 .6 6 .3 1 .1 3 .0European Union 1 .3 4 .8 1 .0 2 .4 1 .6 6 .4 1 .1 3 .0Other Western Europe 1 .1 5 .7 0 .6 2 .5 1 .1 5 .5 0 .6 2 .4

North America 1 .1 4 .7 2 .0 2 .6 0 .9 4 .4 1 .6 2 .3Other developed economies 0 .3 1 .1 0 .5 0 .6 0 .1 0 .5 0 .2 0 .3

Developing economies 1 .0 0 .2 0 .7 0 .6 1 .0 0 .3 0 .7 0 .7Africa 1 .0 0 .2 0 .7 0 .6 0 .7 0 .1 0 .6 0 .4

North Africa 0 .8 0 .4 0 .7 0 .6 0 .4 0 .2 0 .4 0 .3Other Africa 1 .2 0 .2 0 .8 0 .7 1 .0 0 .1 0 .7 0 .6

Latin America and the Caribbean 0 .8 0 .6 1 .0 0 .8 1 .1 1 .0 1 .6 1 .2South America 0 .7 0 .5 1 .0 0 .7 1 .2 1 .1 2 .6 1 .6Other Latin America and the Caribbean 1 .2 0 .8 1 .1 1 .0 0 .9 0 .7 0 .6 0 .7

Asia and the Pacific 1 .1 0 .2 0 .6 0 .6 0 .9 0 .2 0 .6 0 .6Asia 1 .1 0 .2 0 .6 0 .6 0 .9 0 .2 0 .6 0 .6

West Asia 0 .3 0 .2 0 .2 0 .2 0 .2 0 .2 0 .1 0 .2Central Asia .. .. .. .. 1 .7 0 .3 1 .3 1 .1South, East and South-East Asia 1 .3 0 .2 0 .7 0 .7 1 .1 0 .2 0 .6 0 .6 South Asia 0 .1 - 0 .3 0 .1 0 .2 - 0 .3 0 .2

Pacific 4 .5 1 .6 1 .9 2 .7 1 .2 0 .3 0 .5 0 .7Developing Europe 2 .2 3 .4 0 .5 2 .1 1 .2 1 .5 0 .6 1 .1Central and Eastern Europe 0 .2 0 .1 0 .2 0 .1 0 .9 0 .4 0 .6 0 .6

Memorandum: least developed countries dLDCs: total 0 .3 - 0 .6 0 .3 0 .6 0 .1 1 .0 0 .6 African LDCs 0.5 0 .1 0 .6 0 .4 1 .6 0 .1 1 .7 1 .1 Latin America and the Caribbean LDCs 0.3 - 0 .4 0 .3 0 .1 - 0 .2 0 .1 Asian and Pacific LDCs 0.1 - 0 .5 0 .2 0 .1 - 0 .2 0 .1 Asian LDCs 0.1 - 0 .5 0 .2 0 .1 - 0 .2 0 .1 West Asian LDCs .. .. .. .. -1.3 -0.2 -0.9 -0.8 South and South-East Asian LDCs 0.1 - 0 .5 0 .2 0 .2 - 0 .5 0 .2 Pacific LDCs .. .. .. .. .. .. .. ..

Source: UNCTAD.a The ratio of the region’s share of world FDI inflows to the region’s share of world GDP.b The ratio of the region’s share of world FDI inflows to the region’s share of world employment. The data are from the ILO’s LABSTA database

and the World Bank’s World Development Indicators, 2 0 0 1 .c The ratio of the region’s share of world FDI inf lows to the region’s share of world exports of foods and non-factor services.d LDCs as defined by the United Nations.

Note : The Indexes for some regions are based on incomplete coverage of countries in the region, due to lack of data on one or more variables.Also, the Indexes for Central Asia, Developing Europe and Central and Eastern Europe are not str ict ly comparable between the twoperiods because the number of countr ies included in each differed substantial ly between the two periods. The increase in the numberof countr ies covered by the Index for developing economies in the second period (from 86 to 100) can cause a moderate upward biasin that grouping's Index in the second per iod.


1 WIR98 reviewed the economic and policydeterminants of inward FDI and analysed themstatistically, drawing a distinction betweentraditional and new determinants of location.It found that traditional variables continueto exercise a s ignif icant impact on thegeographical pattern of inward FDI; domesticmarket size and growth, in particular, wereimportant in explaining FDI flows indeveloping countries – but new influenceswere also very important.

2 The presence of good infrastructure (e .g.te lecommunicat ions , bus iness services ,ut i l i t ies) is also a precondit ion.

3 In fact , in some technology-intensiveindustries like electronics, some firms chooseto special ize ent irely in innovation andmarketing, leaving the whole production chainto contract manufacturers. See Sturgeon, 1997.

4 The changing geography of world industryand the role of internat ional product ionsystems are explored in UNIDO, 2001.

5 The overwhelming majority of the 62,000 orso TNCs operat ing today are smal l andmedium-sized enterprises (SMEs) (Fujita, 1998;UNCTAD, 1998a). SME TNCs tend to remainsmall even after going international, and many,as those from Japan, prefer to invest inneighbouring countr ies . They have apreference for joint ventures and greenfieldinvestments. They also tend to have strongerbackward l inkages in host economies.However, SME investors face high informationcosts, and special efforts need to be madeby host countr ies to at t ract them.

6 Cross-border M&As for the first six monthsof 2001 declined by 17 per cent, to $300 billion,compared with the corresponding period ofthe previous year. This amount accounts foronly one-quarter of the total cross-borderM&As in 2000. Therefore, considering thefact that M&As constitute a substantial shareof FDI (chapter II), FDI flows are likely todecline in 2001.

7 The number of foreign affiliates is probablya substantial underestimation, among otherreasons because governments have a cut-off point in assets, sales or net income (inthe case of the United States, e.g. it is $3million for either one) or in the equity shareheld by foreign firms (in the case of Japan,e.g. it is more than one-third), below whichforeign affiliates are not recorded in officials ta t i s t i cs .

8 Irrespective of years, “EU” refers to the currentcomposit ion of the member states (15countr ies) throughout th is repor t .

9 Accord ing to a survey of the DeutscherIndustrie- und Handelstag (DIHT), among9,000 German manufacturing companies, more

than half of the respondents intending toundertake FDI in 2001 (and about 40 per centof a l l respondents planned to do so) areplanning to invest in one or more of thecandidate countries, mainly motivated by cost-or market access considerations, as well asto establish sales representative offices. Thissuggests that German investors are alreadypreparing for the enlargement of the EU (DIHT,2000).

10 Three of the five mega cross-border M&Asconcluded by Japanese firms in 2000 involvedthe NTT Group (annex table A.I.4). The $9.8billion acquisition of AT&T Wireless by NTTDocomo in 2000 (which is to be paid out in2001) was the largest FDI ever made by aJapanese company.

11 Interestingly, on an ex post facto (or priornotice) basis, FDI trends in 2000 showed thecomplete opposite trend. While FDI outflowson this basis declined by 23 per cent in fiscalyear 2000 to $50 billion, FDI inflows reachedrecord levels of $29 billion with a growthrate of 38 per cent. This asymmetric pictureof FDI flows in 2000 between actual flows(on a balance-of-payments basis) and notifiedflows (on an ex post facto basis) reveals well-known statistical problems (e.g. different timingof the recording of FDI, net basis recordingfor the former stat ist ics, and inclusion ofthe cancellation of FDI projects in the latters tat is t ics) .

12 Financial Times , 19 March 2001, p. 23.13 Financial Times , 6 June 2001.14 That is, Chinese investors use manufacturing

equipment as equity to form joint ventureswith local partners (who usually provide landand infrastructure) in other developingcountr ies .

15 I t should be noted that part of China’soutward investment in Hong Kong (China)is round-tr ipping.

16 FDI inflows into Latin American during the1990s can be divided into two differentpatterns. In Mexico and the Caribbean Basin,manufacturing TNCs (especially inautomobiles, electronics and clothing) soughtgreater eff iciency by integrat ing localproduction faci l i t ies into their regionalsystems, targeting the United States market.In South America, however, foreign investorsfocused on tradit ional act ivi t ies based onnatural resources and manufactured goodsproduced for local markets or services. Asa result , FDI did not generate s ignif icantimprovements in the internat ionalcompetitiveness of those countries. However,as significant amounts of FDI have flowedinto services, the long-term overal lcompetitiveness of these economies should

Notes


be affected positively. See ECLAC, 2001 fora fur ther d iscuss ion of these and re la tedi s su e s .

17 For details, see UNCTAD, 2001a.18 For this purpose, UNCTAD and the

International Chamber of Commerce prepareand publish investment guides for LDCs; seeUNCTAD-ICC, 2000a, 2000b, 2001a, 2001band forthcoming.

19 UNCTAD, upon the request of countr ies ,undertakes in-depth Investment Policy Reviewsfor developing countries; for LDCs, see UNCTAD,2000d and UNCTAD forthcoming c.

20 Central and Eastern Europe includes in thissect ion Albania, Belarus, Bosnia andHerzegovina, Bulgaria, Croatia, the CzechRepublic, Estonia, Hungary, Latvia, Lithuania,the Former Yugoslav Republic of Macedonia,the Republic of Moldova, Poland, Romania,the Russian Federation, Slovakia, Slovenia,Ukraine, and the Federal Republic ofYugoslavia (Serbia including Kosovo andMontenegro) .

21 According to CzechInvest , the va lue ofgreenfield projects mediated by the agencyrose from $523 million in 1999 to $1.1 billionin 2000; see “CzechInvest in numbers”, http://www.czechinvest.org/.

22 FDI transactions in 2000 included DeutscheTelekom’s (Germany) investment into Slovak

Telecommunications ($936 million), MOL’s(Hungary) share increase in the Slovnaftrefinery ($160 million), Neusiedler’s (Austria)investment into SCP Ruzomberok (pulp andpaper, $80 million) and U.S. Steel’s investmentin VSZ Kosice ($60 million). Informationprovided by the Ministry of Economic Affairsof Slovakia.

23 In the Russian Federation, for example, foreigninvestors acquired not more than 3 per centof potentially privatizable assets (until end-1998) (Kalotay and Hunya, 2000, p. 41).

24 Other economic aggregates also show similarpatterns: the leading 10 countries accountedfor 76 per cent of world manufacturing valueadded in 1998, 65 per cent of manufacturedexports and 91 per cent of industry-financedR&D (UNIDO, 2001).

25 I t may have been poss ib le to use o therindicators of relat ive economic size andstrength, but the three used here have thebroadest base and are the most comparableacross count r i es .

26 On the other hand, the fall in, and the lowlevel of the Index value for Greece indicatesthat the posi t ive inf luence of regionalintegration is probably conditioned by othercompeti t iveness-related factors.


CHAPTER II.MAPPING INTERNATIONAL PRODUCTION

The preceding chapter hasreviewed the set t ing withinwhich international production isevolving, documented thegrowth of FDI in 2000 andexamined the performance of

countries in terms of the extent to whichthey have succeeded in attracting FDI. Thischapter turns to the spread of FDI and, inpar t icular , examines i t a t the g lobal ,regional, national and sub-national levelsand also for a few industries and corporatefunctions. As the mapping in this chaptershows, FDI pat terns are not un i form.Internat ional product ion i s spat ia l lyconcentrated.

A. Global patterns

1. FDI patterns

Comparing the world maps forinward and outward FDI in 2000 with thoseprevailing in 1985 shows that the numberof countries receiving or investing sizeableamounts of FDI increased s ignif icant lybetween these two years (figures II.1 andII.2). Thus, by the end of 2000, 51 countriesreported inward FDI stocks of more than $10billion, compared with 17 countries in 1985(figure II.1). 1 Similarly, in terms of outwardstocks, 10 countries had invested more than$10 billion abroad in 1985; this number hadrisen to 33 by 2000 (figure II.2). The mapsclearly show the growth in the number ofcountries that have become major recipientsor sources of FDI. Among them, the numberof developing economies had risen from 7 in1985 to 24 in 2000 in the case of inwardFDI stocks, and from zero to 12 in the caseof outward s tocks. Some newlyindustrializing economies – led by HongKong (China) , S ingapore and TaiwanProvince of China – have emerged asimportant hosts and home economies forTNCs. As a result, the share of developingcountries as a group in world outward FDIflows rose from 5 per cent at the beginningof the 1980s, to 9 per cent in 2000 (figure

II.3). For some developing economies, theshare of outward FDI in gross fixed capitalformation is in fact h igher than (orcomparable to) tha t share for manydeveloped countries (figure II.4).

But what does the spread of FDI looklike if the size of economies is subjectedto adjustment? Two measures – GDP andpopulat ion – can be used for suchadjustment . Their use reveals d i f ferentpatterns (figures II.5 and II.6). In terms ofFDI as a share of GDP, several developingcountries are large host countries (figureII.5) – many more than those that are largein terms of absolute values of FDI. Of the141 countries in the world hosting more than$100 of stock per $1,000 GDP in 1999, 106are developing countries. 2 However, in termsof FDI per capi ta , large rec ip ients inabsolute terms such as China, Indonesia,Mexico and Venezuela appear fairly small(figure II.6).

While international production hasspread more widely than ever before theshare of the largest investor or recipientcountries has increased or stayed constantover the past 15 years. The share of thelargest ten host and home countries, forexample, has risen from 70 per cent to 73per cent for inward FDI flows over 1985-2000, and remained at 83-85 per cent in thecase of outward FDI flows (table II.1). Inthe developing world, the share of the largestten host economies has remained stable at77 per cent over this period (table II.2). Thelevel of concentrat ion has decl inedmarginally for FDI flows at the 30- and 50-country leve l . Outward FDI is moreconcentrated at every level – for flows aswell as stocks – than inward FDI.

Concentration also characterizes thenumber of firms that are important players:even though there are over 60,000 TNCs,only a handful of them accounted, in themajor home countr ies , for the bulk ofoutward FDI (table II.3). This makes itimportant to track the internationalization

48 W orld Investm ent R eport 2001: Prom oting Linka g es

Figure II.1. Inward FDI stock, 1985 and 2000

Source : UNCTAD, FDI/TNC database.

a) 1985

b) 2000


49CHAPTER II MAPPIN G IN TERN ATIO N AL PRO DU CTIO N

Figure II.2. Outward FDI stock, 1985 and 2000


a) 1985

b) 2000



Figure II.3. Share of developing countries in world FDI flows, 1980-2000(Percentage)

Figure II.4. Relative importance of FDI outflows from selected developing economies,a 1997-1999(Percentage)

Source : UNCTAD, FDI/TNC database.a FDI outflows as a percentage of gross fixed capital formation.




Figure II.5. Inward FDI stock per $1,000 GDP, 1999

Figure II.6. Inward FDI stock per capita, 2000


(Dollars)

(Dollars)


of the world’s top 100 TNCs, as well as the50 largest TNCs from developing countriesand the 25 largest from Central and EasternEurope – and this is done below in chapterIII.

The geography of in ternat ionalproduction, especial ly in the developedworld, is substantially determined by cross-border M&As. The completed value of suchtransactions maintained its momentum in2000, growing by 49 per cent to reach morethan $1.1 trillion (box II.1 and annex tablesB.7-10), 3 a figure that corresponds to 3.6per cent of world GDP (figure II.7). Thiss igni f icant increase in M&As was thestimulus in the 18 per cent growth rate ofFDI inflows in 2000. Cross-border M&Ashave thus become a decis ive factor indetermining the level as well as directionof FDI flows. Moreover, the number ofmega-deals (M&As worth more than $1billion) increased from 114 in 1999 to 175in 2000 (and their share in the total valueincreased from 68 per cent to 76 per cent(table II.4), such mega-deals can have amajor impact on FDI statistics of individualcountries.

M&A patterns are different from thoseof FDI per se. Indeed, the concentration ofcross-border M&As in developed countriesis higher than of FDI flows in these countries(figures II.8 and II.9). But this picture ischanging too: in 2000, there were 37developing countries that received more than$100 million of investment through M&As;in 1987, this number was negligible. Stilldeveloped countries continue to be the majorplayers both in terms of both sales andpurchases, and developing countries arepractically non-existent as large acquirers(figure II.9).

Table II.1. Share of the largest ten countriesin world FDI flows, 1985 and 2000

(Percentage)

1985 a 2000 b

Inward FDIUnited States 33.2 United States 25.1United Kingdom 6.2 United Kingdom 9.3Saudi Arabia 6.2 Germany 8.4Canada 4.9 Belgium and Luxembourg 7.5France 4.0 Netherlands 4.4Mexico 3.4 China 4.1Australia 3.3 France 4.0Spain 3.2 Canada 3.6Brazil 2.8 Hong Kong, China 3.4Netherlands 2.8 Sweden 3.3

Top 10 total 70.0 73.1

Outward FDIUnited States 20.9 United Kingdom 20.1United Kingdom 15.8 United States 14.6Japan 10.5 France 11.8Germany 8.9 Germany 8.6Netherlands 7.4 Belgium and Luxembourg 8.1Canada 6.6 Netherlands 6.0Switzerland 4.1 Spain 4.0France 4.0 Hong Kong, China 3.5Italy 3.7 Canada 3.4Sweden 3.1 Switzerland 3.3

Top 10 total 85.0 83.4

Source : UNCTAD, FDI/TNC database.a Average 1983-1985.b Average 1998-2000.

Table II.2. Share of the largest recipients ofFDI flows among developing economies,

1985 and 2000 (Percentage)

Economy 1985 a Economy 2000 b

Saudi Arabia 20.4 China 19.2Mexico 11.3 Hong Kong, China 16.0Brazil 9.2 Brazil 14.4China 7.0 Argentina 6.5Singapore 6.9 Mexico 5.6Malaysia 5.5 Korea, Republic of 4.0Egypt 4.7 Singapore 3.1Bermuda 4.6 Bermuda 2.8Hong Kong, China 4.3 Chile 2.7Argentina 2.7 Cayman Islands 2.4

Top 10 total 76.6 76.7

Source : UNCTAD, FDI/TNC database.a Average 1983-1985.b Average 1998-2000.

Table II.3. The share of top TNCs in outward FDIstock, selected countries, latest available year

(Percentage)

Country Year Top 5 Top 10 Top 15 Top 25 Top 50

Australia 1996 45.0 57.0 66.0 80.0 96.0Austria 1998 25.0 35.0 41.0 50.0 63.0Canada 1995 22.6 33.5 40.1 50.1 64.4Finland 1995 33.0 47.0 56.0 69.0 84.0France 1995 14.0 23.0 31.0 42.0 59.0Germany 1999 20.1 29.6 36.2 44.0 55.5Norway 1997 61.7 74.5 80.5 86.1 92.6Sweden 1999 25.2 41.2 51.2 64.6 80.7Switzerland 1999 32.0 47.0 56.0 67.0 81.0United Kingdom 1999 36.0 48.7 55.8 65.3 79.0United States 1999 13.9 22.6 28.7 37.9 52.1

Source: UNCTAD, based on informat ion provided bygovernments and WIR97, p. 34.


Box II.1. Cross-border M&As in 2000

Countries with large acquisitions by orof their firms are also large home and hostcountries for FDI. Thus, the United Statesand Germany were also the first and the secondlargest “target” countries (annex table B.7),while the United Kingdom and France werethe first and the second largest “acquiring”countries (annex table B.8). Among developedcountries, Belgium is a noteworthy countryin which M&A activity by both acquirers andsellers increased dramatically in 2000, as shownby a number of mega-deals involving firmslocated in that country (annex table A.I.4).

While the world economy has beengrowing at a somewhat slower pace – partlybecause of the performance of informationtechnology-related industries – the growthof cross-border M&As has been led by theseindustr ies. This seemingly contradictoryphenomenon is due to the fact that cross-borderM&As are motivated by a combination ofvarious factors ( WIR00 ) , among which themovement of the business cycle is only one.Thus, these industries (included partly underthe transport, storage and communicationsindustry and partly under the electrical andelectronic equipment industry) constituted thelargest target as well as acquiring sector in2000 (annex tables B.9 and B.10). While cross-border M&As in pharmaceuticals (includedin the chemical industry) more than halvedin 2000 while M&A activity in automobilesremained high (annex tables B.9 and B.10).Financial firms accounted for more than 20per cent of the total cross-border M&A salesand purchases in 2000.

Source : UNCTAD.

2. Some comparative patterns

There are interest ing differencesbetween patterns of FDI and other majormacroeconomic variables at the regionallevel. The most obvious one emerges fromcomparing the inward FDI and technologypayments pattern: it is entirely dominatedby the developed countries which receivesome 86 per cent of such payments whilethey account for “only” 76 per cent of theworld’s FDI inflows and 68 per cent of itsexports (table II.5).

Compar ing FDI and domes t icinves tment pa t t e rns 4 reveals that thedeveloped world and Central and EasternEurope account for higher shares of worldFDI flows than world domestic investment(table II.5). For the developing world, thepicture is the reverse (table II.5). However,at least until the financial crisis in 1997-1998, developing countries had receivedincreasing shares of world FDI comparedwith the ir shares of world domest icinvestment, reflecting significant increasesin their international investment inflowsrelative to those in other countries, whiledomestic investment in these economiesapparently kept pace with that elsewhere.Thus, the share of developing countries inworld FDI stock is still somewhat higherthan that in domestic investment (table II.5).

There are important d i f ferenceswithin the developing world. The financialcrisis in Asia reduced the share of South,East and South-East Asia in FDI inflows,pulling it below its share in world domesticinvestment. However, in terms of FDI stocks– which reflect long-term trends – the regionperformed better: its share in world FDIstock in 1999 was higher than its share inworld domestic investment. Latin Americaand the Caribbean received relatively highlevels of FDI in relation to its share ofdomestic investment in both flow and stockterms. FDI in Afr ica matches i ts ( low)domestic investment rates, confirming thefindings of the Inward FDI Index discussedin chapter I. In West Asia, the share ofdomestic investment far exceeds its shareof FDI (table II.5).

The geographical patterns of FDI andt rade exhibi t important s imi lar i t ies . Inparticular, recent data on FDI stocks and

Figure II.7. Value of cross-border M&As andits share in world GDP, 1987-2000

Source : UNCTAD, FDI/TNC and cross-border M&Adatabases.


Figure II.8. Cross-border M&A sales, 1987 and 2000

Source : UNCTAD, cross-border M&A database.

b) 2000

a) 1987



Figure II.9. Cross-border M&A purchases, 1987 and 2000

Source : UNCTAD, cross-border M&A database.

b) 2000

a) 1987



exports show broadly similar patterns (tableII.5), not unexpectedly since the factorsaffecting them overlap a great deal. Thus,advanced countries tend to both trade moreand engage more in FDI than developingcountries. Economic liberalization promotesboth t rade and FDI. Moreover , TNCsincreasingly shape trade patterns, accountingfor about two-thirds of world trade. About

one-third of total trade (or half of the TNCtrade) is intra-firm. Thus, the direction oftrade is directly affected by the locationstrategies and decisions of TNCs ( WIR96 ).

Regional patterns of trade and FDI,however, do differ: during the middle of the1980s (as well as at the beginning of the1990s (Petri, 1994)), FDI outflows weremore concentrated than exports. This isexemplified by the concentration ratios oftrade (and FDI) by the top 10, 30 and 50countries, as noted in chapter I (table I.4).A decade and a half la ter , th is overal lsituation had not changed much (table I.3).However, trade intensity 5 had declined withrespect to most of the partner regions ofNorth America and Asia during the 1990s(f igure I I .10) . At the same t ime FDIintensity 6 increased with respect to most ofthe partner regions of North America, theEU and Asia (figure II.10). The intensityof both intraregional FDI and intraregionaltrade has grown for the EU, but has declinedsomewhat for North America. IntraregionalFDI has intensified significantly in Asia, butnot intraregional trade. It is also noteworthythat, although North America retains strongFDI and trade links with Latin America andthe Car ibbean, af ter one decade, the i r

Table II.4. Cross-border M&As with values ofover $1 billion, 1987-2000

Number Percentage Value PercentageYear of deals of total (billion dollars) of total

1987 14 1.6 30.0 40.31988 22 1.5 49.6 42.91989 26 1.2 59.5 42.41990 33 1.3 60.9 40.41991 7 0.2 20.4 25.21992 10 0.4 21.3 26.81993 14 0.5 23.5 28.31994 24 0.7 50.9 40.11995 36 0.8 80.4 43.11996 43 0.9 94.0 41.41997 64 1.3 129.2 42.41998 86 1.5 329.7 62.01999 114 1.6 522.0 68.12000 175 2.2 866.2 75.7

Source: UNCTAD, cross-border M&A database.

Table II.5. Geographical distribution of FDI flows, trade, domestic investmentand technology payments, 1998-2000

(Annual average, percentage)

Memorandum:FDI FDI Domestic Technology FDI FDI

Region/country inflows outflows Exports a Imports a investments b payments inward stock outward stock 1998-2000 1998-1999 2000

Developed countries 76.3 92.9 68.4 69.7 74.5 85.6 66.7 87.8Western Europe 45.8 71.5 41.8 40.4 27.9 46.0 39.6 56.7European Union 44.3 67.9 39.4 38.2 26.5 45.7 37.6 52.1Japan 0.8 2.8 6.3 5.5 17.1 14.2 0.9 4.7United States 24.7 14.4 14.2 17.5 25.3 18.9 19.6 20.8Other developed countries 5.0 4.0 6.1 6.2 4.2 6.5 6.6 5.6

Developing countriesand economies 21.4 6.8 27.5 26.2 23.3 13.1 31.3 11.9Africa 0.8 0.1 1.6 1.5 1.4 0.8 1.5 0.3Latin America and the Caribbean 9.2 1.5 5.1 5.7 5.9 3.8 9.6 1.9Asia and the Pacific 11.2 5.2 20.4 18.5 15.8 0.1 20.0 9.7Asia 11.2 5.2 20.4 18.5 15.8 8.4 20.0 9.7

West Asia 0.4 - 2.9 2.8 2.6 - 1.0 0.1Central Asia 0.3 - 0.2 0.2 0.2 - 0.3 -South, East and South-East Asia 10.5 5.2 17.2 15.5 13.0 8.4 18.8 9.5

The Pacific - - 0.1 - - - 0.1 -

Central and Eastern Europe 2.3 0.3 4.1 4.2 2.2 1.3 2.0 0.3

World 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source : UNCTAD, FDI/TNC database.a Export and import of goods and non-factor services.b Gross fixed capital formation.


Figure II.10. FDI and trade intensities, by region,a 1990 and 1999

Source : UNCTAD, based on data from the United Nations Statistical Division, UNCTAD, Handbook of Statistics 2000 and other internationaland national sources.

a Calculated as follows :

where qab = intensity of region a's FDI in, or trade with region b,Iab = FDI by region a (home) in partner region b(host), or trade between region a and region b,* = World FDI stock or trade.

b Asia as a region is composed of China, Japan, Malaysia, Pakistan, Republic of Korea, Singapore, Taiwan Province of China and Thailand.

qab=Iab/Ia* I*b/I**


intensity has declined somewhat. The EUhas strengthened its links with Central andEastern Europe in both FDI and trade. EUlinks with North America are much strongerin FDI than in trade. Overall, however, theconcentration of both FDI and trade withinregions and neighbouring regions (reflectinghistorical, cultural or political ties, as wellas geographic proximity) remains adistinguishing feature. Moreover, withineach region, t rade l inks are somewhatstronger than FDI links.

Different types of FDI may affecttrade patterns in different ways. Resource-seeking FDI is likely to reinforce existingexport patterns of host economies where itexploi ts the same set of compet i t iveadvantages as local firms. It can changeexport patterns where it exploits differentresources or changes the level of localprocessing. Export-oriented manufacturingFDI can, again, reinforce existing advantages( say, in low-cost labour for c lo th ingexports), or change them by introducingtechnologies , sk i l l s , brand names andnetworks not avai lable to local f i rms. 7

Moreover, the rise of integrated internationalproduct ion systems provides s t r ik ingexamples of how FDI can alter trade patternsrapidly. Many developing countries – likeMalaysia, Thailand, Philippines and Mexico– have entered areas of technology-intensiveexport activity previously out of their reachby attracting the labour-intensive end ofhigh-technology TNC manufacturing. In fact,such TNC activity is the main driver of themost dynamic export growth in recent yearsin the developing world (Lall, 2001; UNIDO,2001).

Domestic market-oriented FDI is, byits very nature, unlikely to affect exportpatterns much, at least in the short term(though it may raise import propensitieswhere new technologies are introducedcalling for inputs not available in the hosteconomy); and, of course, it can replaceimports. In the long term, however, domesticmarket-oriented affiliates may enter exportmarkets once they have reaped the benefitsof scale, scope and learning economies. Theymay also indirectly affect trade, as in thecase of producer and infrastructure servicesaffecting exports. Recent changes in traderegimes in the developing world have led

to rat ional izat ion and the upgrading offoreign affiliates, followed by the growthof new exports . 8 In many cases , suchupgrading has been outside the reach of localenterprises.

With the growing mobil i ty ofproductive resources and trade liberalization,the old debate on whether FDI leads to tradeor t rade to FDI becomes increas inglyirrelevant ( WIR96 ). The real issue now iswhere firms choose to locate operations andhow they coordinate flows of products (orservices) between various locations. If theylocate them at home and serve a foreignmarket through exports, it shows up as tradein one direction; if they locate them abroadand serve the domestic market by imports,it shows up as FDI and trade in anotherdirection. Over time, as economies becomemore integrated (as within the EU), thedistinction between domestic investment andFDI on the one hand and FDI andinternational trade on the other will becomeless relevant for analysis and especially forpolicies. The important point for policy willbe which locat ions offer compet i t iveconditions for economic activity.

As economies integrate, moreover,clusters of competitive activity spill overnational borders. Thus, a country may havea stagnant cluster of activities in one regionwithin its boundaries and a dynamic one thatspreads over a border with a neighbour. Withfree factor movement, this is more and morelikely as synergies develop across bordersbetween similar activities. A quite differentpattern of international cluster formation isa lso emerging, where countr ies withdifferent factor costs form special economiczones to take advantage of these differences.The Singapore, Johor and Riau (SIJORI)“growth triangle” set up by Singapore andneighbouring provinces in Indonesia andMalaysia is an example in South-East Asia(Thant and Tang, 1996). Singapore has highwages and land costs, in contrast to i tsneighbours, but it is better endowed withcapital, skills and contacts with internationalinvestors. Setting aside a designated areawithout trade, labour and investment barriersis a good way to exploi t suchcomplementarities.


B. Sub-national patterns

Economic activities have always hada tendency to cluster geographically. Firmshave been attracted to sites where otherf i rms are located to take advantage ofexist ing external economies – markets,factors of production, specialized skills andsuppl iers , ins t i tu t ions and, especia l ly ,innovat ive capabi l i t ies (which wereoriginal ly ident i f ied as the essence ofeconomic clusters by Alfred Marshall, 1936).Natura l c lus ters can be de l ibera te lystrengthened by their members to overcomecommon difficulties or, where the firmsconcerned are smal l , to rea l ize scaleeconomies. Clusters can be promoted bypolicies to raise locational advantages, byse t t ing up advanced infras t ructure ,knowledge or skill creation facilities. Whilenew informat ion and communicat iontechnologies have reduced certain forcesmaking for proximity, others continue toexis t and affect locat ion. In fact , wi thgrowing networking among firms as a meansto innovate and achieve compet i t iveadvantage, the advantages of certain typesof clusters have grown.

As a resul t , po l icy and researchinterest in clusters and industrial districtshas also grown in recent years. 9 It has beenspurred by evidence on the dynamism ofSMEs located in industrial districts (in the“Third Italy” as well as in many developingcountries), the growth of high-technologyclusters in developed countries and the useof clustering as a tool of industrial strategy.I t i s therefore to be expected that thelocat ion of TNCs in home and hosteconomies reflects agglomeration forces.The following paragraphs focus on such sub-national FDI location patterns.

Home countries. The location of theheadquarters of the largest TNCs indicateswhere g lobal corporate power isconcentrated (f igure III .1). Most of thelargest 100 TNCs – they account for one-third of the assets of the world’s foreignaffiliates ( WIR99 ) – are headquartered ina few countries (United States, Japan, UnitedKingdom, France, Germany, Switzerland).There, they congregate in a few areas. Forexample, among these 100 largest TNCs, 10of the 11 larges t French TNCs are

headquartered in Paris; 6 of the 7 UnitedKingdom TNCs in London; and theheadquarters of 5 of the 18 Japanese havethe same address of Chiyoda-ku, Tokyo. Infact, more than a half of the 23,000 Japaneseforeign affiliates are owned by TNCs basedin Tokyo (Toyo Keizai, 1998). In Austria,45 per cent of the country’s 1,617 TNCswere based in Vienna in 1994 (ONB, 1996).Two-thirds of the headquarters of majorSwedish TNCs included in a recent surveyare located in Stockholm; and this share hasincreased over t ime ( ISA, 1999) . Thegeographical concentration of headquartersin certain locations is also observed for thelargest TNCs based in developing countriesas well as in Central and Eastern Europe(figure III.1).

The reasons for such agglomerationsare not difficult to find. They relate to theeconomies of being close to centres ofcorporate, political and financial decision-making, high levels of income, access totechnology and, especial ly , innovat iveact iv i t ies , univers i t ies , inst i tut ions andmodern infrastructure (including easy accessto international air transport) and quality oflife. Of course, there are also diseconomiesof agglomeration as costs, congestion andsocia l problems r ise , leading to somedispersal of headquarter functions awayfrom the major centres.

Host countries. There are similarpatterns in the location of foreign affiliates.Clusters of competitive domestic firms tendto attract foreign firms to their proximity,enhancing geographical concentration andspecial izat ion. In Austr ia , a half of a l lforeign affi l iates are located in Vienna(figure II.11); they accounted for 57 per centof the capi ta l and 51 per cent of theemployees of all foreign affiliates in thiscountry. The Tokyo metropolitan area hostsfour-fifths of all foreign affiliates operatingin Japan, and these accounted for some90 per cent of total sales by al l foreignaffiliates (figure II.12). Ile-de-France, with15 per cent of total FDI flows in this countryin 1997, is the largest of the 22 regions ofFrance in terms of FDI inflows (figure II.13).Three counties in Sweden – Stockholm,Västra Götaland and Skåne – accounted forover 60 per cent of employees of all foreignaffiliates in Sweden in 1999 (figure II.14).In the United States, California, New York,


Texas, I l l inois and New Jersey are theprincipal magnets; these five states aloneaccount for a half of the production offoreign affi l iates (figure II.15). Similarexamples can be found in other developedcountries, and in developing and transitioneconomies (box II.2).

Since clusters are clearly importantfor TNC location, it is necessary to analyse

FDI at local levels to formulate relevantpolicies to attract it. National level factorscontinue to be important in certain respects,but the cluster-based drivers of investmentoperate at lower levels. If internationalinvestors look for agglomeration advantageswhen making location decisions, policymakers must fully understand this. The nextsection takes up these issues at greaterlength.

Figure II.11. Location of foreign affiliates in Austria, by region, 1994

Source : UNCTAD, based on ONB,1996.

Figure II.12. Distribution of sales by foreign affiliates in Japan, by area, 1997(Billions of yen)

Source : UNCTAD, based on Japan, Ministry of International Trade and Industry, 2000.


Figure II.13. Distribution of FDI flows in France, by region, 1997(Millions of French francs)

Source : UNCTAD, based on information from France, Ministère de l’Economie des Finances et de l’Industrie, 1999.

Figure II.14. Distribution of employees of foreign affiliates in Sweden, by county, 1999

Source : NUTEK, 2000.


Box II.2. Inward FDI at the sub-national level: some examples

There have been some attempts to identify the factors affecting location decisions of foreignaffiliates within particular countries and to explain the uneven distribution of intra-country FDI.The focus of this research has been on developed countries, in particular the United States (Bagchi-Sen and Wheeler, 1989; Coughlin et al., 1991; Friedman, Gerlowski and Silberman, 1992; Glickmanand Woodward, 1988; Head et al., 1995, 1999; Nachum, 2000; Smith and Florida, 1994; Wheelerand Mody, 1992). In the United States, foreign affiliates (compared to domestic firms) appearto favour coastal states and states with low unionization rates, low wage rates and the absenceof right-to-work legislation. At the same time, however, several other characteristics of statesinfluence the location of United States and foreign-owned establishments. These include grossstate product, corporate taxes, per capita income and state budget on international activity (Shaver,1998). Agglomeration economies (proxied by infrastructure quality, degree of industrializationand stock of existing FDI) exhibit a high degree of statistical significance and have a largeand positive impact on the location of FDI (Wheeler and Mody, 1992). For a particular nationality,for example, the location decisions of Japanese TNCs in the United States were made to benefitfrom economies of agglomeration rather than in line with inter-state differences in endowmentsof natural resources, labour and infrastructure (Head et al., 1995).

Evidence on the sub-national distribution of FDI in developing countries and Central andEastern Europe is scarce. Nevertheless, information for a few countries shows some interestingfeatures.

In China, coastal provinces and cities account for the bulk of FDI (box figure II.2.1). About87 per cent of the FDI stock in 1999 was concentrated in 12 coastal regions. Guangdong isthe largest region; it held 29 per cent of all FDI stock that year. Agglomerated cities (proxiedby an accessibility index – the sum of the population of the city concerned divided by the squareof the distance between the city and each of the other major Chinese cities) have been observed

Figure II.15. Distribution of production of foreign affiliates in the United States, by state, 1992(Trillions of dollars)

Source : UNCTAD, based on United States, Department of Commerce, 1997.

/...


to have a better chance of attracting FDI than widely separated cities (Wei et al., 1998; Gong,1995). In Thailand, among 68 provinces, Rayong accounted for 31 per cent of total approvedFDI during 1987-2000, followed by Krung Thep (Bangkok province) (12 per cent) and ChonBuri (11 per cent) (box figure II.2.2).

Box figure II.2.1. Distribution of FDI stock in China, by province and major city, 1999(Millions of dollars)

Source: UNCTAD, based on China , MOFTEC, 2000.

Box figure II.2.2. Distribution of FDI stock in Thailand, by province, 2000a

(Millions of baht)

Source: UNCTAD, based on Board of Inves tment (BOI) , unpubl ished data .a Data refer to BOI-approved investment for the years 1987-2000.

Box II.2. Inward FDI at the sub-national level: some examples (continued)


In Latin America, there is a higher concentration of foreign affiliates in Brazil (aroundRio de Janeiro and São Paulo) than in Mexico (box figures II.2.3 and II.2.4). In Mexico, c itiesin Chihuahua, other border states with the United States and central states absorb almost allFDI (box figure II.2.4). Within the interior, Guadalajara has become the main city for the electronicsindustry, an industry that was started by TNCs and has remained almost exclusively foreign-owned (UNCTAD, 2000b).

Box figure II.2.3. Location of foreign affiliates in Brazil, by city, 1999a

Source: UNCTAD, FDI/TNC database on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).a On the basis of 1,285 majority-owned foreign affiliates identified.

Box figure II.2.4. Location of foreign affiliates in Mexico, by city, 1999a

Source: UNCTAD, FDI/TNC database on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).a On the basis of 1,476 majority-owned foreign affiliates identified.

Box II.2. Inward FDI at the sub-national level: some examples (continued)


In Central and Eastern Europe, in Hungary, both foreign and total economic activity arehighly concentrated in the Budapest area (box figure II.2.5); but the share of foreign activityconcentrated there is almost double the share of total economic activity. * In Poland, too, foreigninvestors prefer a limited number of large urban agglomerations, especially Warsaw, Katowiceand Poznan, though there is some spread of investment into other areas as well (box figure II.2.6).

Box figure II.2.5. Distribution of FDI flows in Hungary, by region, 1998(Billions of Forint)

Source: UNCTAD, based on data provided by the Hungarian Stat is t ical Off ice .

Box figure II.2.6 Location of foreign affiliates in Poland, by city, 1999a

Source: UNCTAD, FDI/TNC database on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet) . a On the basis of 1,517 majority-owned foreign affiliates identified.

These intra-country maps show with some exceptions that affiliates engaged in differenteconomic activities tend to agglomerate in the same areas. TNCs invest there to access locationadvantages that are common to any activities (e.g. infrastructure, availability of efficient andeffective production factors). There is a high geographic concentration in specific countriesand in specific areas within the countries.

Source : UNCTAD.* Data provided by the Hungarian Statistical Office.

Box II.2. Inward FDI at the sub-national level: some examples (concluded)


C. Industrial andfunctional patterns

As TNCs become more dependent onother firms for a myriad of functions relatedto their own operations, and on externalsources of knowledge for innovation, thelocation decisions of different firms becomemore in terdependent . In fact , as corecompetencies become more knowledge-intensive, the choice of location for theproduction, organization and use of theseassets emerge as an important competitiveadvantage for firms (Porter, 1994, 1998;Enright, 1995). Moreover, as the liberalizationof investment and trade policy allows TNCsgreater freedom to choose sites and modesof operation, TNCs are increasingly able tospecialize their operations at the level ofeach corporate function on a global scale.And as new technologies make it possibleto manage far-flung operations economicallyand efficiently, it also becomes technicallyfeasible to implement such locat ionstrategies in practical terms. The followingsect ions explore these factors a t theindustrial and functional levels, with someattention to the role of local clusters.

1. Industrial location and therole of clusters

Many locat ion factors tend to beindustry specific (Moomaw, 1998), though,within each industry, TNCs can and do varyin their strategies. Many of the differencesin patterns of location, concentration ordecentralization of investment can be tracedto industry- and firm-specific conditions andperceptions. Several issues arise here. Howand why do the geographical patterns ofactivities vary in different industries? Whyis there an uneven geographical distributionof FDI by industry? What expla insgeographical shifts of FDI in particularindustries over time?

At the broad sectoral level, the shareof services in FDI has risen significantlybetween 1988 and 1999, now accounting forabout half of inward FDI stock in the world(figure II.16; for details see annex tablesA.II.1-A.II.4). In developing countries alone,it accounted for some one-third of their total

inward FDI s tock. The shares of themanufacturing and primary sectors in theworld had fallen correspondingly, to 42 percent and 6 per cent, respectively, by the endof the 1990s: in developing countries theseshares were 55 per cent and 5 per cent,respectively (annex table A.II.4). This is asignificant change from the late 1980s, whenmanufacturing accounted for about two-thirds of FDI in developing countries.

Several reasons explain this shift.The services sector has been liberalized forFDI participation relatively recently; in mostcountries the process is still under way. Thishas stimulated large flows of investment inactivities like financial services, telecom-munications and utilities, including in thecontext of privatization. The trend alsoreflects the fact that the role of the servicessector in economic life has grown. Severalnew services (e.g. software, back-officeserv ices , ca l l cent res , da ta en t ry) areemerging in which there is considerablescope for international trade and the locationof facilities. Thus, the rise in the relativeimportance of services FDI reflects both a“stock adjustment” to liberalization and theemergence of new services, particularlythose that are tradable. This rise is likelyto continue in the foreseeable future.

Within manufactur ing, only twoindustries – chemicals and motor vehicles– have experienced a rise in their shares into ta l FDI. The leve l of geographicconcentration varies by industry. Taking sixindustries representing different technologicallevels: semiconductors and biotechnologyin high technology; automobiles and TV andradio receivers in medium-technology; andfood and beverages and textiles and clothingin low technology; a cursory examinationof the number of foreign affiliates and hostcountries suggests that, the more advancedthe technology, the higher the level ofconcentration. Thus, biotechnology is themost concentrated, 10 followed by s emi-conductors and TV and radio receivers. Thefood and beverage industry is the leastconcentrated (table II.6). Foreign affiliatesin semiconductors are located in 31 countries,while those in food and beverages operatein 101 countries. 11 The location of foreignaff i l ia tes in these industr ies showsconsiderable geographical variation (figures


Figure II.16. Industrial distribution of world FDI stock, 1988 and 1999(Shares in total FDI)

Source : UNCTAD, FDI/TNC database and annex tables A.II.1-A.II.4.a Data cover 24 countries in 1988 and 28 countries in 1999, accounting, respectively, for 83 and 79 per cent of world outward stock. Totals in

1988 do not include the countries in Central and Eastern Europe.b Data cover 47 countries in 1988 and 57 countries in 1999, accounting, respectively, for 82 and 81 per cent of world inward stock. Totals in 1988

do not include the countries in Central and Eastern Europe.Note : In order to represent as many countries as possible for each year, whenever data for the given years were not available, those for the latest

year available close to 1988 and 1999, respectively, were chosen. Furthermore, in the absence of actual data, approval data were used forsome countries.


II.17-22). In high-technology industries,affiliates tend to agglomerate in selectedlocations in the world (figures II.17 andII.18), while foreign affiliates in the foodand beverage industry are geographicallymore evenly spread over the globe (figureII.22).

The different degree of concentrationof FDI by industry reveals that thed is t r ibut ion of FDI by indust ry a t theregional and at the national levels is uneven.Within countries the locations hosting asignificant number of affil iates in high-technology industries are also limited. This

Table II.6. Geographical concentration of foreign affiliates in selected manufacturing industries,a

by technological intensity, 1999 (Share of total number of affiliates)

High technology Medium technology Low technologyTV and radio Food and

Share of industry total Semiconductors Biotechnology Automobile receivers beverages Textile

Top 3 host countries 0.496 0.627 0.294 0.356 0.237 0.287Top 5 host countries 0.629 0.710 0.440 0.502 0.353 0.401Top 10 host countries 0.787 0.852 0.710 0.696 0.561 0.601Top 20 host countries 0.945 0.953 0.884 0.893 0.747 0.795

Memorandum:Total number of foreign affiliates b 272 169 1296 253 2250 1445Total number of host countries 31 28 55 36 101 77

Source : UNCTAD, FDI/TNC database on the basis of who Owns Whom CD-ROM (Dun and Bradstreet).a Calculated as the share of the number of foreign affiliates in total foreign affiliates in the world in each specific industry.b Identified majority-owned foreign affiliates only.

Figure II.17. The distribution of foreign affiliates in the semiconductor industry, 1999a

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).a On the basis of 272 majority-owned foreign affiliates identified.


suggests that concentrat ion at the sub-national level is relatively high in high-technology industries. These observationsconf irm that only locat ions withtechnological capabilities can receive high-technology FDI, and this has not changedover the years: the mapping of foreignaffiliates in 1985 show patterns similar tothose in 1999 (annex figure A.II.1-II.2). Onthe other hand, in the case of low-technologyindustries, foreign affiliates were alreadyquite spread out over the globe in 1985, moreso than those in medium- or high-technologyindustries (annex figure A.II.3-II.6). Thisspread, however, is not as pronounced today.

Industrial patterns of FDI locationare changing over time. The concentrationof outward FDI wi th in the Tr iad hasremained stable over time across industriesand sectors. However, there has been a largeincrease of outward FDI in manufacturingfrom developing countries between 1988 and1999 (annex tab les A. I I .1 and A.I I .2) .Interest ingly, resource-r ich developingcountries only account for a small share ofoutward FDI in the extract ive sector ,

suggesting that the availability of naturalresources is not by itself sufficient to leadto the development of internat ional lycompetitive firms.

The dominance of developedcountries as destinations for FDI has beenaccentuated between 1988 and 1999 in mostindustries (annex tables A.II.3 and A.II.4).In electrical and electronic equipment andin motor vehicles and transport equipment,developing countries accounted for about25 and 37 per cent of world inward FDIstocks, respectively, in 1988, and for 36 and12 per cent in 1999. This may reflect thediminishing role played by the low cost ofunskilled labour and by protected marketsin attracting new FDI in these industries indeveloping countries. It does not mean,however, that established TNC bases in thedeveloping world in electronics orautomobiles are being closed. It may alsoref lect M&As in these industr ies(par t icu lar ly automobi les) a iming torationalize and cut back capacity rather thanto expand facilities.

Figure II.18. The distribution of foreign affiliates in the biotechnology industry, 1999a



Figure II.19. The distribution of foreign affiliates in the automobile industry, 1999a

Figure II.20. The distribution of foreign affiliates in the TV and radio receivers industry, 1999a

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).a On the basis of 1,296 majority-owned foreign affiliates identified.



Figure II.21. The distribution of foreign affiliates in the textiles and clothing industry, 1999a

Figure II.22. The distribution of foreign affiliates in food and beverage industry, 1999a




The industrial distribution of FDIstocks in manufacturing differs considerablybetween developed and developingcountries. In the former countries, chemicalsis the largest rec ip ient industry in themanufacturing sector, accounting for one-fifth of total FDI stock in manufacturing in1999, a share twice as high as the secondlargest recipient industry, motor vehicles andtransport equipment (annex table A.II.4). Butthe most dynamic industry in the developedworld is motor vehic les and t ransportequipment, which tripled its share of totalmanufacturing FDI stocks between 1988 and1999 (annex tables A.II.3 and A.II.4). Notsurprisingly, the share of low-technologymanufacturing has diminished in importancein developed countries. By contrast, inwardinvestment in developing countries remainsconcentrated in less technology-intensiveindustr ies . In Lat in America and theCaribbean food and beverages, as well aschemicals, are large recipient industries inmanufacturing. Chemicals, and electrical andelectronic equipment are the largestrec ipients in developing Asia . Theseindustries continue to dominate inward FDIin manufacturing. Meanwhile, the relativeimportance of manufacturing as a whole fellconsiderably in Lat in America and theCaribbean (from two-thirds of total FDIstock in 1988 to only one-third by the endof 1990s) , whi le i t remained s table indeveloping Asia (at 60 per cent).

The evidence suggests that TNCs insome industries tend to cluster in relativelysmall localities, often near local firms andother inst i tut ions. Biotechnology andmicroelectronics (box II.3) are examples.TNCs sometimes also develop new clustersin host countries that may be joined laterby indigenous firms. In the United Kingdom,for example, Japanese automobile companiesformed their own local clusters – Nissan innortheast England and Toyota in Derby(Dunning, 2000). In developing countries,the electronics industry in Penang, Malaysia,is an example (box II.4). Or they may joinexisting clusters and come to dominate themover time. This is illustrated by the City ofLondon (box II.5) and by the media clusterof central London, which foreign firms havehelped to transform into the second largestconcentration of media activity in the worldaf ter Hol lywood (Nachum and Keeble ,2000a, 2000b).

The a t t rac t ion of TNCs to loca lc lus ters a lso ref lec ts the dynamiccomparative advantages of host countries.When c lusters lose the ir compet i t iveadvantage, activities may move elsewhere. 12

To conclude, tradit ional explana-tions for FDI location have largely focusedon the factors affecting national location-speci f ic advantages . Whi le these arecertainly important, it is becoming clear thatmore attention has to be paid to location-specific features related to clusters at thesub-nat ional leve l . Agglomerat ioneconomies, in other words, have a significantimpact on the location decisions of TNCs(Head et al., 1995, 1999; Smith and Florida,1994). It is not only countries as a wholethat compete for FDI, but also particulargeographical sites within them. This hasimportant policy implications, addressedbelow in the conclusions of this part of thisreport.

2. The location of corporatefunctions

The location factors mentioned abovealso affect the functions performed abroadby foreign affiliates. TNCs, by definition,place some productive functions in hostcountr ies : resource-seeking ones locateextraction functions, and manufacturing oneslocate production functions, abroad. TNCsserving host country markets place theirnecessary market ing and d is t r ibut ionfunctions abroad, traditionally focused onspecif ic ( l imited) market segments .Historically, strategically critical corporatefunctions like design, R&D, strategic andfinancial management or the procurementof core inputs have been kept at head-quarters. It is possible in theory, however,for a TNC to p lace each funct ion in adif ferent locat ion to take advantage ofdifferent characteristics and thus optimizeefficiency for the company as a whole. Thereis growing evidence that this is taking place.

However, not every function can belocated abroad with equal ease. Some arebest located in geographical proximity witheach other (and near advanced economic orinnovation centres), while others can beeff ic ient ly dispersed. Some need to belocated close to the corporate decision-


Box II.3. FDI in high technology industries in California

A primary motive for FDI in California is to access the pool of knowledge and skills availablethere. Foreign firms investing in this cluster come from countries at various levels of technologicaldevelopment. Investors establish R&D facilities in the cluster and draw upon the knowledge-rich environment to upgrade their technological capabilities (Saxenian, 1994; Best, 2000). Anumber of foreign affiliates are located in this cluster (box figure II.3.1).

Box figure II.3.1. Location of foreign affiliates and domestic firms in the microelectronicsindustry in California, United States, 1999

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).

The cardiovascular medical products industry in Orange County in southern California,a highly innovative research and production centre for cardiovascular products and related devices,is another example of a cluster that has attracted foreign investors. Some affiliates started withgreenfield plants close to existing firms, others tapped directly into the knowledge base byacquiring successful start-up firms. The presence of large foreign firms like Siemens and Hoffmann-La Roche, in turn, has drawn the cluster into a global network of linkages, further raising itscompetitiveness by broadening its industry base and contributing to the generation of externaleconomies (De Vet and Scott, 1992).

In both of these cases, TNCs are instrumental in tapping, inducing and sustaining agglomeration.TNCs buy material and service inputs, with affiliates and local firms establishing interlinkagesof functional and spatial interdependence (Scott, 1992).

Source : UNCTAD.


Box II.4. FDI in the electronics industry in Penang, Malaysia

Although the electronics cluster in Penang was initiated by the Government, it was largelydeveloped by TNCs that have struck roots in the local economy. The cluster began when foreignelectronics firms set up assembly plants in the early 1970s, attracted by the cheap, trainableand English-speaking labour force (UNCTAD, 2000c). The success of the early investors ledto a steady stream of new TNCs, many of them global players in the electronics industry.

While foreign firms still dominate this cluster (box figure II.4.1), it has over the yearscontributed to the development of local suppliers, notably in areas such as metal stamping andprecision tools, contract manufacturing and assembly operations, production of plastics andpackaging materials. Most of these suppliers have been spin-offs from TNCs, with former employeesleaving after acquiring technical and marketing expertise to set up their own firms (UNCTAD,2000c). Some TNCs encouraged and supported these spin-offs with know-how and purchasecontracts, and have retained significant linkages with them (Driffield and Mohd Noor, 1999).

The development of the cluster has been strongly supported by the local authorities. ThePenang Development Corporation is playing a proactive role in attracting investors, supportinglocal suppliers and building support institutions for training and so on (see Part Two).

Box figure II.4.1. Location of foreign affiliates and domestic firms in theelectronics industry in Malaysia, 1999

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).

Source : UNCTAD.

making centre, while others do not. Someenjoy large scale-economies and so need toreach a critical minimum size to serve globalor regional needs efficiently; others can bedivided into discrete stages and be locatedfar apart according to cost considerations.All these factors are, moreover, changingover time. The maturing of international

networks and new communicat ions andorganizational technologies are altering theoptimal location of each function. The needfor proximity has diminished with the abilityto link sites across the globe in real time.Specialized skills are more readily available,and in some cases their cost can be far lower,in some host countries. The need to tap new


sources of innovation can make it imperativeto place advanced technological functionsin several locations. The old model of TNCsretaining critical functions at headquartersand le t t ing aff i l ia tes reproduce otherfunctions in each host country is giving wayto a more coherent and integrated locationpattern ( WIR93 ).

The automobile (figure II.23) andelectronics industries (figure II.24) providegood examples. Special service functionslike R&D, finance, insurance and so on arebeing placed in a few locat ions, whi leproduct ion is scat tered over a largergeographical range in different regions. Thepattern of distribution, marketing and salesdi f fers between the two industr ies . Inautomobiles, most marketing affiliates arelocated close to major markets, reflectinga separation between manufacturing andsales. In electronics, production units alsooften undertake sales activities; thus, thereare not as many affiliates engaged purelyin the latter function as in the case of the

automobile industry. A comparison of thecurrent pat terns in the d is t r ibut ion offunctions in these industries with thoseprevailing in 1985 shows a distinct evolutionin the establishment of foreign affiliates(annex figures A II.7 and A.II.8). In 1985,few R&D, other professional services andfinancial services affiliates were locatedabroad in either of the two industries. Theywere established only relatively recently.Equipment and part suppliers had followedautomobile companies abroad by 1985, butthey were not as d ispersed as today.Similarly, only few foreign affiliates wereengaged in distribution, marketing and salesin the electronics industry at that time. Thissugges ts that in tegrated in ternat ionalproduct ion systems were not yet wel lestablished in the mid-1980s.

Regional headquar ters . TNCssometimes separate managerial from otherfunctions and establish regional headquartersoverseas. These regional headquarters aregiven an important adminis t ra t ive or

Box II.5. FDI in financial services in the City of London

The City of London is an interesting case of foreign firms joining a traditional cluster,initially benefiting from it and later coming to dominate it. The origins of the City of Londonas a cluster of finance-related activities date back several centuries (Nachum, 2000). FinancialTNCs started to enter the cluster in the 1980s, at that time dominated by competitive, internationally-oriented and often very large United Kingdom firms. The main reason for the entry of foreignfirms was to gain access to the intangible (but immobile) assets and externalities contained inthis concentration. Physical proximity was essential for this.

Over the years, the foreign players increased their standing and acquired many incumbentfirms. The dominant players in the City are today foreign-owned. The London affiliates typicallyoccupy central positions within their corporate systems, often having managerial responsibilityfor the global operations of the parent companies or acting as European headquarters.

There were 537 foreign banks in London in 2000, constituting about two-thirds of all authorizedbanks based in the City of London. The combined assets of foreign banks in London in 1999amounted to £1,386 billion, compared with £1,254 billion in the case of United Kingdom banks(British Invisibles, 2001).

Foreign banks (initially overwhelmingly of United States origin) have been operating inLondon for over a century, but have arrived in large numbers only since the 1950s. Their presencehas significantly increased from the 1980s onwards; nearly a half of them (44 per cent) wereestablished after 1980. A large part of this growth resulted from investment by Japanese banks.

Although attracted to the cluster of local firms and by the strong economies of agglomerationthat it provided, the competitiveness of this cluster is largely dependent upon the performanceof foreign, rather than indigenous, firms.

Source : UNCTAD.


Figure II.23. The distribution of foreign affiliates of the largest ten automobile TNCs,a

by function, 1999

Assembly

Equipment and part supplies

Distribution, marketing and sales


Source: UNCTAD, FDI/TNC database, based on Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).a On the basis of 1,775 majority-owned foreign affiliates identified for ten large automobile TNCs (DaimlerChrysler Ag, Ford Motor Company Inc,

General Motors Corporation, Giovanni Agnelli E C. Societa’ In Accomandita Per Azioni (FIAT), Honda Motor Co. Ltd., Nissan Motor Co. Ltd.,Peugeot Sa, Renault, Toyota Motor Corp. and Volkswagen Ag.).

Note : The SIC codes used for the different functions are the following:

Assemblers: 3711-3713.Production equipment and parts: 3519-3592, 3824, 3999, 2221-3499, 3613-3699 and 3714.Distribution, communication and wholesale/retail : 4013-4789, 4813-484, 5012-5013, 5511-5599 and 7513-7515.Research and development (R&D) and professional services: 8731-8734, 8711-8721 and 8741-8742.Finance and insurance: 6011-6411.

R&D and other professional services

Finance and insurance

Figure II.23. The distribution of foreign affiliates of the largest ten automobile TNCs,a

by function, 1999


Figure II.24. The distribution of foreign affiliates of the largest ten electronics TNCs, a

by function, 1999

Production of equipment and parts



Source : UNCTAD, FDI/TNC database, based on Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).a On the basis of 1,557 majority-owned foreign affiliates identified for ten large electronics TNCs (Hitachi, Intel, Matsushita, Mitsubishi, Motorola,

NEC, Philips, Siemens, Sony and Toshiba).

Note : The SIC codes used for the different functions are the following:Production of equipment and parts: 3519-3592, 3824, 3999, 2221-3499, 3613-3699 and 3714.Distribution, communication and wholesale/retail : 4013-4789, 4813-484, 5012-5013, 5511-5599 and 7513-7515.Research and development (R&D) and professional services: 8731-8734, 8711-8721 and 8741-8742.Finance and insurance: 6011-6411.



Figure II.24. The distribution of foreign affiliates of the largest ten electronics TNCs, a

by function, 1999


organizational role in a particular geographicarea, and are regarded by host countries asa valuable function to attract. Regionalheadquarters need a strategic location froma communications point of view, in orderto keep in close contact with other affiliates,access to high quality services and a readysupply of advanced skil ls, especially ininformation processing. Their need to collectinformation requires interaction with otherregional organizations, leading to strongagglomeration tendencies.

The development of the EuropeanSingle Market and the rapid growth ofSouth- East Asian economies have stimulatedTNCs to establish regional headquarters inthese areas. United States TNCs have beenestablishing European headquarters for somet ime. A number of Japanese TNCs arefollowing this trend, setting up regionalEuropean headquarters. More than 400 ofsome 23,000 Japanese foreign affiliates inthe world acted as regional headquarters by1997; the United States, Singapore, theUnited Kingdom and Hong Kong, China, inthat order, hosted two-thirds of the total(Toyo Keizai, 1998). In the Americas, morethan 70 per cent of Japanese manufacturingplants are engaged in some regionalmanagement functions (table II.7).

Two of the most successfuleconomies to attract regional headquartersin Asia are Hong Kong, China andSingapore: Hong Kong, China was, in 2000,the regional headquarters for some 855firms. Among them were 212 United StatesTNCs, fo l lowed by Japane se, Uni tedKingdom and Chinese TNCs (table II.8).Even f i rms from Singapore establ ishedregional headquarters there , wi th the i rnumber doubling during the past five years.Reflecting the economy’s characteristics,more than 40 per cent of the fore ignaffiliates with regional headquarters statuswere engaged in trade, followed by businessservices and financial services (table II.8).Singapore began to attract regional head-quarters actively when it introduced, in1996, var ious incent ives under anInternational Business Hub Programme. 13

By end-2000, some 200 foreign affiliatesthere had regional headquarters status; in2000 alone, 20 TNCs were awarded thatstatus. They include major TNCs such as3M, ABB, BMW, Caltex, Compaq, GeneralMotors, Hilton, IBM, Johnson Controls,Matsush i ta , Motoro la , Nokia , Ph i l ips ,Reuters and UPS. 14 A regional headquartersstrategy is attractive for a country in thati t g ives i t a s t ra tegic pos i t ion in thecorporate sys tems of TNCs and wins

favourable recognition inthe in ternat ionalinvestment community(Dicken and Kirkpatrick,1991).

R&D. While R&D issubject to the same factorsthat are dr iv ing theglobalization of other TNCact iv i t ies , there i s awidespread impression thatthere is greater “stickiness”in re locat ing innovat ionact iv i ty abroad than inother functions. Not onlyare there large transaction,communicat ion andcoordinat ion costs inreproducing R&D activitiesabroad, there are s trongsynergies betweencorpora te R&D and thescience and product ionsystem around i t . Theseexternal economies add to

Table II.7. Corporate networks of Japanese affiliatesin the Americas, 1999 a

(Number)

Regional Final Parts and R&Dheadquarters and Sales production materials and design

Economy managerial offices offices sites production centres

United States 897 877 887 446 580Canada 39 223 157 48 4Mexico 57 138 136 62 26Brazil 53 94 77 10 40Puerto Rico - 1 - - -Dominican Republic - - 1 - -El Salvador - 2 2 - -Honduras - 2 2 - -Costa Rica - 3 3 2 -Panama - 5 - - -Argentina 18 33 29 1 -Colombia 1 6 - - -Chile 1 8 1 - -Venezuela 16 19 16 - -Peru 1 3 1 - -Barbados - - 1 - -Unspecified - 5 - 1 -

Source : UNCTAD, based on JETRO, 2000.a On the basis of 1,223 plants, each of which may be engaged in more than one activity.


the inertia in setting up innovation functionsabroad (Porter, 1990).

However, that impression appears tobe largely based on evidence from the UnitedStates. It does not necessarily apply to otherhome countr ies . In fact , smal ler homecountries in Europe internationalized theirR&D many decades ago. Taking patentsregistered by TNCs in the United States bytheir head offices and affiliates abroad asan indicator of the international spread ofinnovative activity, the data show that manyTNCs perform significant proportions ofR&D abroad ( tab le I I .9 ) . 15 There wasextensive overseas patenting by TNCs evenin the inter-war period (Cantwell, 1995). Butnational tendencies differed. French, Swissand German TNCs had relatively low shares

(3-6 per cent ) of patents taken out byaffiliates. At the other end, Belgian TNCshad 95 per cent of patents arising abroad.United Kingdom, Italian and Swedish TNCsranked in the middle (with 28-31 per cent)and United States TNCs had moderately lowshares (7 per cent). In the period 1940-1968,affiliate patenting rose for most of Europe(from 12 to 27 per cent), but not for theUnited States (it fell to 4 per cent). After1970, foreign patent shares of United StatesTNCs rose steadily, exceeding those in thein ter -war per iod by 1991. TNCs f romEuropean countr ies cont inued to havegenerally higher ratios; the average declinedtill 1978 but has risen consistently since.In contrast, Japanese TNCs have continuedto keep most innovation activity at home(table II.9).

Table II.8. Regional headquarters of foreign firms in Hong Kong (China),by home economy and by industry, 1996-2000a

(Number)

Home economy/industry b 1996 1997 1998 1999 2000

Number of regional headquarters 816 903 819 840 855

By home economyUnited States 188 219 194 205 212Japan 122 121 109 114 127United Kingdom 90 86 95 82 81China 85 117 70 69 69Germany 40 53 59 55 50Netherlands 30 27 27 32 31Switzerland 27 30 28 32 29France 26 35 38 36 28Virgin Islands 16 21 9 17 22Canada 12 17 13 19 21Singapore 10 18 17 20 21Taiwan Province of China 25 28 26 28 21Others 158 163 144 139 149Total c 829 935 829 848 861

By industryWholesale/retail, import/export 408 435 412 444 422Business services 151 167 162 166 187Finance and banking 113 103 93 107 108Manufacturing 110 119 84 75 86Transport and related services 73 88 55 57 55Construction, architectural and civil engineering 45 41 50 32 33Real estate 26 34 25 23 20Telecommunication services 15 12 10 10 16Insurance 16 13 15 16 14Restaurants and hotels 9 9 4 6 5Diversified 3 12 8 10 11Others 9 11 15 3 19Totald 978 1 044 933 949 976

Source : Data provided by Census and Statistics Department, Government of Hong Kong, China.a As at 1 June.b Ranked in an ascending order.c The totals are higher than the actual numbers due to the inclusion of joint ventures undertaken by two or more foreign investors.d The totals are higher than the actual numbers due to the fact that some companies are engaged in more than one line of business.


There is a general tendency for TNCsto set up R&D facilities overseas accordingto the technological s trengths of hostcountries, initially to adapt technologies tolocal conditions and later to tap into itsinnovation capabilities and the use of skilledscientists (Cantwell and Santangelo, 1998).One manifestation of this trend is to set upaffi l iates abroad primari ly to undertakeR&D: such affiliates now exist in more than45 host countr ies ( f igures I I .25-27) ,compared to 26 in 1985 (annex f iguresII.A.9-11).

While there is a growing tendencyto locate R&D abroad, most such facilitiesare concentrated in a few countries, mostlyhighly industrialized. Thus, while JapaneseTNCs have established R&D centres in fourcountries in the Americas, most of them arein the United States (table II.7). Data onoverseas R&D by United States TNCs in1994 show that 77 per cent of the R&Dconducted in developing countr ies wasconcentrated in just four economies: Brazil,Mexico, Singapore and Taiwan Province ofChina ( WIR99 ) . The reasons are c lear .Innovation concentrates where there is ahigh density of specialized resources forinnovation: a large supply of highly trained

scient is ts , engineers and technic ians,proximity to universities and other researchinstitutions. More important, perhaps, therehas to be a presence of other innovativeenterprises that create cluster benefits.

There is also a growing tendency forR&D in some industr ies , such asautomobiles, to work jointly with first-tiersuppliers. This increases the tendency toconcentrate in es tabl ished locat ions .Mapping foreign affiliates engaged in R&Dand universities shows that the two tend tocluster close to each other (figures II.25-27) . 16

Foreign R&D at the sub-nationallevel is more concentrated geographicallythan most other functions. In the UnitedStates , for ins tance , two- th i rds of theJapanese R&D facilitie s (157 out of 251 R&Dfacilities) were located in four states (California,Michigan, New Jersey and Massachusetts) in1998, while only one-quarter of employees ofJapanese manufacturing affiliates (98,300 of422,400 employees) were located there. 17 In theUnited Kingdom, R&D is disproportionatelyconcentrated in South-East England (Dicken,1998; Cantwell and Iammarino, 2000). In thedeveloping world, there are almost no clusters

of foreign R&D facilities,except for Hong Kong,China, Singapore andrecently Zhong Guancum,a suburb of Beijing (figureII.27). 18 There are,however, many individualR&D facilities, mainlyserving production units(Reddy, 2000).

Production. Foreignproduction affiliates areamong the earliest – aftersales – to be establishedin most countries. Theyare also more dispersedgeographically than otherfunctions (again, apartfrom sales). As noted,traditional locationpatterns, servingprotected markets andaccessing naturalresources or low-costunskilled labour, arechanging. T he need now

Table II.9. Share of United States patents of world’s largest firmsattributable to research in foreign locations, 1969-1995

(Percentage)

Nationality of parent firm 1969-1972 1973-1977 1978-1982 1983-1986 1987-1990 1991-1995

United States 4.96 5.89 6.40 7.53 7.91 8.62Germany 12.77 11.05 12.07 14.47 17.05 20.72United Kingdom 43.08 41.24 40.47 47.09 50.42 55.79Italy 13.39 16.03 13.85 12.59 11.14 16.47France 8.16 7.74 7.17 9.19 18.17 33.17Japan 2.63 1.88 1.22 1.26 0.92 1.08Netherlands 50.40 47.37 47.65 53.99 53.96 55.69Belgium-Luxembourg 50.36 51.11 49.28 58.15 47.53 53.25Switzerland 44.36 43.63 43.78 41.59 42.99 52.47Sweden 17.82 19.90 26.20 28.94 30.60 42.42Austria a 5.06 16.76 19.84 11.82 8.00 -Norway a 20.00 1.67 12.31 32.50 37.14 20.22Finland a 18.87 27.11 26.89 18.67 27.94 39.49Canada 41.19 39.30 39.49 35.82 40.12 43.96Others 28.21 22.22 26.37 30.34 7.54 3.94Total 10.04 10.53 10.50 10.95 11.28 11.27Total excluding Japan 10.52 11.59 12.25 13.87 15.76 16.53Total European countries b 28.01 25.19 24.52 26.95 29.99 34.78

Source : Cantwell and Janne, 1997.a Patents less than 50 for several periods.b Germany, United Kingdom, Italy, France, Netherlands, Belgium-Luxembourg, Switzerland, Sweden,

Denmark, Ireland, Spain, Portugal, Greece, Austria, Norway and Finland.

82World Investment Report 2001: Promoting Linkages

Figure II.25. The distribution of R&D facilities and location of major universities in Europe, 1999

Source: UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).

Note: On the basis of 744 majority-owned foreign R&D facilities and 3,436 domestic R&D facilities identified.

83CHAPTE

R II MAPPING INTE

RNATIONAL PRODUCTION

Figure II.26. The distribution of R&D facilities and location of major universitiesin the United States, 1999


Note: On the basis of 357 majority-owned foreign R&D facilities and 1,476 domestic R&D facilities identified.


i s for compet i t iveness, eff ic iency andflexibil i ty. As a result, skil ls, advancedinfrastructure, state-of-the-art logist ics,supply networks and support institutions arebecoming key determinants of location.

These determinants vary accordingto industry, and also according to whereaffiliates are in the value chain. In integratedproduction systems, where affiliates are partof a complex global production strategy, thefunctions entrusted to specific units varygreatly. Those in less industrialized locationsare assigned simpler tasks like assembly andpackaging. Those in advanced locations areassigned more skill and technology intensivetasks. Where product ion involves closesupply linkages and the operation of just-in-time delivery, affiliates have to be locatedin dense networks of efficient suppliers andinfrastructure providers. The automobileindustry provides a prominent example ofan in tegrated product ion system. InThailand, automobile part makers (bothdomestic and foreign) are closely linked toautomobile assemblers. Similarly in Brazil,all automobile makers have invited theircore suppliers to be in close proximity totheir plants.

Integrated production systems havegrown in regions that have reduced tradebarriers between member countries and havestrong industrial capabilities. The essenceof this organizational form is geographicalspecialization by different parts of a TNCproduction system (e.g. components, sub-assemblies, semi-finished products). In theEU, for instance, TNCs in the automobileindustry have bui l t c losely kni t supplychains across several countries. A similarsystem is emerging in NAFTA, andincreasingly in ASEAN (figure II.28).

There is a d i f ferent form ofintegrated system that is more global thanregional. The semiconductor industry, forinstance, operates an integrated chain fromNorth America and Europe to Israel andSouth-Eas t As ia . Such systems makeeconomic sense where the product has a veryhigh value- to-weight ra t io and can beproduced in enormous volumes. For“heavier” products, or those less amenable

to scale economies, global systems are noteconomical.

Marketing and sales. Marketing andsales operations have to be located close to(actual and potential) customers, and are themost geographically dispersed of all TNCfunctions. There is little need to be nearother firms or clusters, though, of courseall firms serving a national market tend tolocate near major consumer centres. LargeTNCs have sales units in virtually everycountry (see table I I .7 for Japanesemanufacturing affiliates in the Americas andfigure II.23 for the automobile industry).Still, there are marketing and sales functionsof firms selling to other businesses, ratherthan final consumers. Such sales operationsmay also tend to cluster in areas hostingregional or global purchasing operations ofmajor firms.

*****

The growing role of internationalproduction in the world economy is enlargingthe geographica l spread of TNCs’internat ional product ion systems. Thechanging strategies of TNCs, including anincreasing trend towards organizing tradeand production in integrated internationalproduction systems, especially in certainmajor industries, is changing the patternsof FDI. The mapping of FDI patterns – inthe aggregate, by industry and by functionalactivity – in this chapter throws light on thelocat ion of FDI and i t s industr ia l andfunctional distribution across countries.International production continues to beconcentrated geographical ly – at theregional, national as well as the sub-nationallevels. Cross-border M&As as corporatestrategies of TNCs and clusters as locationaladvantages p lay an increas ing ro le indetermining the location of internationalproduct ion and, hence , FDI pat terns .Understanding the patterns of FDI and thedriving forces of production location indifferent industries, and within internationalproduct ion systems, i s important forformulating effective strategies and policieswith respect to FDI.

86World Investment Report 2001: Promoting Linkages

Figure II.27. The distribution of R&D facilities and location of major universities in Asia, 1999


Note: On the basis of 155 majority-owned foreign R&D facilities and 432 domestic R&D facilities identified.


Figure II.28. Functional integration of foreign affiliates of Toyota Motor Corporation in ASEAN, 2000

Source : UNCTAD, based on information from www.global.toyota.com.


1 Stocks are normally expressed in book value.During 1985 and 1999 the import price index(the deflator commonly used to revalueinternational transactions) increased by only8 percentage points. If world FDI stock isdeflated by this amount to approximate FDIstock in real prices, t he figures would notchange very much.

2 In the absence of appropriate stock variablesmeasuring size of economies, GDP – a flowvariable – is used to compare with FDIs tock .

3 UNCTAD’s data on cross-border M&Asinclude deals resulting in the acquisitionof more than 10 per cent equity share only.The value is on a completion basis, ratherthan on an announcement basis. However,the data suffer from other problems thatmake it impossible to compare the valueof M&As directly with FDI on a balance-of-payments basis. These problems include:the transaction value of M&As is notnecessarily paid out in the year a dealis completed; the financing of M&As isnot necessarily cross-border (funds canbe raised in domestic as well asinternational financial markets); and valuesare not on a net basis, i.e. not as differencesbetween gross acquisitions and divestmentabroad. For details, see WIR00 , chapterIV.

4 The differences in the nature of investmentbetween foreign and domestic investmentshould also be noted in this comparison.The bulk of the former investment indeveloped countries now takes placethrough cross-border M&As, which havedifferent impacts from domestic – real –i n v e s t m e n t .

5 This is measured by the ratio of the shareof partner region b in total trade (exportsand imports) of region a to the share ofthe region b in world trade.

6 FDI intensity is measured by the ratio ofthe share of partner b in FDI stock of regiona to the share of the region b in worldFDI stock.

7 This may also happen in developedcountries. For example, in the automobileand electronics industries in the UnitedKingdom, local firms (for various reasons)were unable to take advantage of thelocation advantages of the country. Exportstoday are dominated by foreign firms(notably Japanese), which were able touse their ownership advantages to exploit

the location advantages of the UnitedK i n g d o m .

8 See, for instance, the case studies inUNCTAD, 2000b.

9 The literature is quite extensive. See, e.g.Bell and Albu, 1999; Markusen, 1996; Nadvi,2001; OECD, 1994; Porter, 1998; Pyke andSengenberger, 1992; Pyke, Becattini andSengenberger, 1990; Rabellotti, 1997;Saxenian, 1994; Schmitz, 1995, 1999.

10 Biotechnology industry here includes invitro/in vivo diagnostic substances industry(SIC code 2835) and biological productsindustry (SIC code 2836).

11 On the basis of 272 majority-owned foreignaffiliates identified in the semiconductorindustry and 2,245 in food and beverages.

12 Examples of such shifts include the cutleryindustry of Sheffield (United Kingdom),which was displaced by a similar clusterin Solingen (Germany). Producers of low-and medium-priced watches in the Juraarea in Switzerland also came under greatpressure, first from Japanese companiesand then from a cluster of Hong Kongcompanies (Enright, 2000).

13 Under this Programme foreign affiliatesawarded regional headquarters status aretaxed at a concessional rate of 10 per centon the income arising from the provisionof approved services for up to 10 years;an extension is possible. Other income fromtheir overseas affiliates may also be eligiblefor effective tax relief.

14 Information obtained from SingaporeEconomic Development Board (www.sedb.com.sg ) .

15 Patents as a measure of technologicalactivity have advantages over R&Dexpenditures. Patents data are availablefor longer periods, in more detail and formore countries. In any case, both give verysimilar geographical distributions (Pateland Pavitt, 1991).

16 R&D affil iates are defined here as thoseengaged in commercial physical andbiological research (SIC 8731), commercialnon-physical research (SIC 8732), non-commercial research organizations (SIC8733) and testing laboratories (SIC 8734).

17 Data provided by United States Departmentof Commerce, Bureau of Economic Analysis.

18 Altogether foreign R&D facilities indeveloping countries were located in just18 countries in 1999.

Notes

CHAPTER III.THE LARGEST

TRANSNATIONAL CORPORATIONS

As in earlier years, this reportreviews recent developmentsin the universe of the largestnon-financial TNCs 1 ranked bytheir foreign assets: the 100largest worldwide (table III.1),

the largest 50 TNCs from developingcountries (table III.9) and the largest 25TNCs from the economies in transition ofCentral and Eastern Europe (table III.16).The role of the top 100 is illustrated by thefact that their foreign assets, sales andemployment in 1999 accounted for roughly12 per cent, 16 per cent and 15 per cent ofthe es t imated fore ign assets , sa les andemployment of the total number of the TNCsin the world, 2 which now comprises morethan 60,000 companies. And most of theirforeign operations are controlled by TNCsheadquartered in a handful of countries

(figure III.1 and chapter II). Similarly, thelocation of TNCs based in other groups ofeconomies (developing countries and thoseof Centra l and Eastern Europe) i sgeographical ly l imi ted ( f igure I I I .1) .However, the role of the largest TNCs fromdeveloping countries is increasing: as notedin chapter I, the share of the developingeconomies in outward FDI has risen fromsome 3 per cent at the beginning of the 1980sto some 9 per cent in 2000. The third groupof TNCs, the 25 largest TNCs from Centraland Eastern Europe, under l ines someinteresting developments in what used to becentrally planned economies. A number ofcompanies of these countries are becomingincreasingly transnational. They are aboutto establish themselves as prominent playersof their own with international productionnetworks.

Figure III.1. Location of the largest 100 TNCs in the world, the largest 50 TNCs in developingcountries and the largest 25 TNCs based in Central and Eastern Europe,a 1999

Source : UNCTAD.a On the basis of the largest 100 TNCs in the world, the largest 50 TNCs in developing countries, and the largest 25 TNCs in Central and Eastern

Europe (including the countries of the former Yugoslavia) in this report (Chapter III).

90 W orld Investm ent R eport 2001: Prom oting Linka g esTa

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91CHAPTER III THE LARGEST TRAN SN ATIO N AL CO RPO RATIO N S

Tabl

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A. The 100 largest TNCsworldwide

1. Highlights

In 1999, General Electric maintainedits top posit ion among the world’s 100largest non-financial TNCs (table III .1)ranked by foreign assets. General Motorsmoved back to four th pos i t ion , wi thExxonMobil replacing it in second place andRoyal Dutch Shell remaining in third place.Overall, the ranking remained fairly stable.Only a few changes occurred among the top10 TNCs: TotalFina moved up from thirty-second to the eighth rank and Nestlé moveddown to the eleventh rank.

Thirteen new entries and exits wereregistered in 1999 (tables III.2 and III.3).Three departures were caused by M&As(Hoechst , Mobi l and Rhone-Poulenc) .Repsol (Spain) appeared for the first timein the list of the top 100, as a result of theacquisition of YPF (Argentina). For the firsttime since this listing has been established,three f i rms among the top 100 TNCs,Hutchison Whampoa, Petróleos de Venezuela(PDVSA) and Cemex, were headquarteredin a developing country. PDVSA, which wasalso placed in the top 100 TNCs in previousyears, rose seven places to take eighty-fourthposition in the top 100 list. Since 1997, no

TNC from the Republic of Korea has hadsufficiently large foreign assets to enter thetop 100 listing.

Foreign assets. Growth in the totalamount of foreign assets held by the 100larges t TNCs cont inued in 1999. Tota lforeign assets increased by 10 per cent in1999, to $2.1 trillion (table III.4). The TNCsthat had the three most important increasesin fore ign assets were a l l petroleumcompanies (ExxonMobil , TotalFina andRepsol). Other companies that experiencedsignificant increases in their foreign assetshad a diversified industrial and geographicalbackground. The same observation appliesto the 10 TNCs with the largest decreasesin foreign assets.

TNCs from the United States raisedtheir share of the overall total of the foreignassets held by the world’s 100 largest TNCsby about 6 per cent (table III.5). The shareof EU TNCs has remained fairly stable since1990. However, in general the largercountries of the EU (Germany, France andSpain) increased considerably their relativeshare within th is regional group at theexpense of the smaller country members.Japan, too, saw its share in ownership offoreign assets r ise in the top 100 TNClisting, by about 28 per cent during the pastdecade, testifying to the sustained outwardorientation of Japanese companies.

Table III.2. Newcomers to the world’s 100 largest TNCs, ranked by foreign assets, 1999

Ranked byForeign TNI a

assets TNI a Corporation Country Industry (Per cent)

13 11 Nippon Mitsubishi Oil Corporation Japan Petroleum expl./ref./distr. 82.416 54 Repsol-YPF SA Spain Petroleum expl./ref./distr. 51.625 48 Aventis France Pharmaceuticals/chemical 54.048 74 Hutchison Whampoa Hong Kong, China Diversified 38.071 61 AES Corporation United States Utility 45.582 90 Edison International United States Electronics 24.388 63 Usinor France Steel manufacturing 43.590 20 AstraZeneca Plc United States Pharmaceuticals 71.691 88 Lucent Technologies Inc. United States Electronics 25.993 75 Metro AG Germany Retailing 36.494 55 Texaco Inc. United States Petroleum expl./ref./distr. 51.295 12 Cadbury - Schweppes Plc United Kingdom Food/beverages 81.9

100 47 Cemex SA Mexico Construction 54.6

Source : UNCTAD/Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.


Foreign sales. Total foreign sales ofthe world’s largest 100 TNCs amounted toslightly more than $2.1 trillion in 1999 (tableIII.4), increasing by 3 per cent. TNCs fromthe petroleum industry captured four of theten largest increases in foreign sales, in therange of 20 - 50 per cent. As for the 10largest decreases in foreign sales, no clearpattern can be discerned: TNCs experiencingdeclines came from various countries andindustries .

Over the past decade, the share ofthe TNCs from the United States in the totalforeign sales of the world’s 100 largestTNCs decreased by about 5 percentagepoints, to around 25 per cent of the total.EU TNCs increased their relative share offoreign sales by about 5 percentage points,to almost 46 per cent. As with foreign assets,the share of TNCs headquartered in smallerEuropean countries decreased ( the onlyexcept ion being The Nether lands) . Theoverall relative share of the EU increased,mainly due to a large, increase in the GermanTNCs’ share in the foreign sales of the top100 TNCs: an increase of about 7 percentagepoints, to almost 18 per cent of the total.The Japanese re la t ive share increasedslightly to 22 per cent.

Foreign employment. For the firstt ime, total fore ign employment by the

largest TNCs decreased by about 8 per cent,whereas their total employment rose by 4per cent (table III.4). This is a reversal ofthe previously observed trend of decliningoveral l employment with r is ing foreignemployment (f igure III .2) . However,diverging from the overall trend, a numberof TNCs – led by McDonalds, GeneralMotors and Siemens – added considerablyto their foreign employment. Despite thelarge increases in foreign assets and foreignsales by a number of petroleum companies,

Table III.3. Departures from the world’s 100 largest TNCs, ranked by foreign assets, 1999a

Ranked in 1998 byForeign TNI b

assets TNI b Corporation Country Industry (Per cent)

16 43 Mobil Corporation d United States Petroleum expl./ref./distr. 58.628 23 Hoechst AG c Germany Pharmaceuticals/chemicals 71.631 26 Rhone-Poulenc SA c France Pharmaceuticals/chemicals 69.135 28 Cable And Wireless Plc United Kingdom Telecommunications 67.548 24 Nortel Networks Canada Telecommunications 70.861 74 RJR Nabisco Holdings United States Food/tobacco 36.971 9 SmithKline Beecham Plc United Kingdom Pharmaceuticals 82.389 61 Broken Hill Proprietary Australia Steel manufacturing 49.394 99 GTE Corporation United States Telecommunications 16.096 39 Imperial Chemical Industries United Kingdom Chemicals 60.297 68 Compaq Computer Corporation United States Computers 42.698 10 SCA Sweden Paper 80.899 70 ALCOA United States Aluminium manufacturing 41.7

Source: UNCTAD/Erasmus University database.a This also includes companies that could not be considered in 1998 because of the late arrival of the response to the UNCTAD questionnaire and

for which estimates could not be derived.b TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.c Formed Aventis in 1999.d Acquired by Exxon in 1999.

Table III.4. Snapshot of the world’s100 largest TNCs, 1999

(Billions of dollars, number of employeesand percentage)

Change 1999 vs. 1998

Variable 1999 1998 (Per cent)

Assets Foreign 2 124 1 922 10.5 Total 5 092 4 610 10.5Sales Foreign 2 123 2 063 3.0 Total 4 318 4 099 5.3Employment Foreign 6 050 283 6 547 719 -7.6 Total 13 279 327 12 741 173 4.2Average index oftransnationality 52.6 53.9 -1.3 a

Source: UNCTAD/Erasmus University database.a The change between 1998 and 1999 is expressed in percentage points.


only one petroleum company, TotalFina, isamong the TNCs showing the ten largestincreases in terms of foreign employment.No Japanese company saw i ts fore ignemployment rise.

The 10 TNCs account ing for thelargest decl ines in foreign employmentdiffered from the 10 with the largest declinesin foreign sales. One company (Bayer) isalso among those recording the largestdeclines in foreign assets. This suggests thatfore ign employment , as much as tota lemployment, evolves somewhatindependent ly from the overal ltransnationalization strategy of a company.

National origin. The national origincomposition of the top 100 TNCs continuedto be fairly stable. Perhaps not surprisingly,91 of the top 100 are headquartered in theTriad (EU, Japan and the United States)(table III.5). The share of the Triad among

the top 100 TNC listings has risen graduallyover the past decade, mostly in favour ofJapan and at the expense of some smallerindustr ia l ized countr ies l ike Belgium,Norway and New Zealand. Increasingly,TNCs from the developing economies (HongKong (China), Mexico and Venezuela) areemerging and rising in the list of the world’s100 largest TNCs.

Industries . In 1999, the top 100TNCs were dominated by the same fourindustries as in previous years : electronicsand electrical equipment, motor vehicles,petroleum exploration and distribution, andfood and beverages (table III.6). Of the top100 TNCs, 55 were in one of theseindustries, and 32 in the first two industries.The growth of TNCs in these industries, asrepresented by Ford, Siemens and Unilever,shows the dramatic geographic expansionand increased number of foreign affiliates,especially since the mid-1980s (figures III.3-

Table III.5. Country composition of the world’s largest 100 TNCs by transnationality indexand foreign assets, 1990, 1995 and 1999

(Percentage)

Share in total of Average TNI a foreign assets of top 100 Number of entriesEconomy 1990 1995 1999 1990 1995 1999 1990 1995 1999

European Union 56.7 66.0 58.7 45.5 43.8 43.0 48 39 46France 50.9 57.6 55.7 10.4 8.9 11.6 14 11 13Germany 44.4 56.0 49.6 8.9 12.2 12.3 9 9 12United Kingdom b 44.4 56.0 49.6 8.9 12.2 12.3 12 10 8The Netherlands b 68.5 79.0 68.2 8.9 8.2 5.3 4 4 5Italy 38.7 35.8 50.1 3.5 2.3 2.6 4 2 4Sweden 71.7 80.6 71.8 2.7 1.7 1.3 5 3 3Finland - - 72.5 - - 0.5 - - 1Spain - - 44.8 - - 2.5 - - 2Belgium 60.4 70.4 - 1 0.9 - 1 2 -

North America 41.2 46.0 46.2 32.5 35.9 35.2 30 34 28United States 38.5 41.9 42.7 31.5 33.3 33.3 28 30 26Canada 79.2 76.5 92.0 1 2.7 1.9 2 4 2

Japan 35.5 31.9 38.4 12 15.1 15.4 12 17 18

Remaining countries 73.0 66.9 70.4 10 9.0 7.5 10 10 9Switzerland 84.3 83.6 93.1 7.5 6.6 4.6 6 5 4Australia b 51.8 - 69.3 1.6 - 1.5 2 3 2Hong Kong, China - - 38.5 - - 0.3 1Mexico - - 54.6 - - 0.8 1Venezuela - 44.4 29.8 - 0.4 0.4 - 1 1New Zealand 62.2 - - 0.5 - - 1 - -Norway 58.1 - - 0.4 - - 1 - -Republic of Korea - 47.7 - - 0.7 - - 1 -

Total of all listed TNCs 51.1 51.5 52.6 100 100 100 100 100 100

Source: UNCTAD, 1993 and Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.b Due to dual nationality, Royal Dutch Shell and Unilever are counted as an entry for both the United Kingdom and The Netherlands. In the

aggregate for the European Union and the total of all listed TNCs they are counted once. Rio Tinto Plc is counted as an entry for both theUnited Kingdom and Australia. In the aggregate for the total of all 100 listed TNCs it is counted once.


III.5). The relative decline of chemical firmsduring the past decade, from 12 in 1990 to7 in 1999, is noteworthy. This is partly theresult of substantial restructuring in thechemicals and pharmaceuticals industries.Traditionally, chemicals and pharmaceuticalswere organized wi th in the s t ructure ofindividual companies. Such a combinedstructure was seen to yield synergies. Sincethe second half of the 1990s, companiesswitched increas ingly to separat ingchemicals from pharmaceuticals and viceversa, into dist inct corporate structuresemphasizing synergies in areas other thanproduct ion and research. A s igni f icantdecline in the transnationality index wasrecorded in trading, which (together withdiversified) is essentially represented byJapanese Sogo Shoshas . They have beenres t ructur ing for some t ime, but the i rgeographical spread established in the pastis a l ready extens ive , as shown by themapping of foreign affiliates of MarubeniCorporation (figure III.6).

2. Transnationality

The “transnationality index” is theaverage of three ratios: foreign assets/totalassets, foreign sales/total sales and foreignemployment/total employment. It capturesthe foreign dimension of the overal lactivities of a firm. Between 1990 and 1999,the average transnationality index of theworld’s top 100 TNCs rose from 51 per centin 1990 to 55 per cent in 1997 but declinedto 53 per cent in 1999 (figure III.7). 3 Thegradual emergence in the listings of top 100

TNCs of large transnational utility, retailingand telecommunication companies with theirtraditionally large portfolio of domesticassets has contributed to the decline of thelist’s average transnationality index. Mostof these companies entered the list of thelargest 100 TNCs during the latter half ofthe 1990s, with an average transnationalityindex far below the overall average in 1999(table III.6). If these three industries wereexcluded, the index in 1999 would stand at56 per cent. Given the increasing liberalpolicy environment in which such companiesopera te , the i r t ransnat iona l i ty can beexpected to increase over the next decade,following the example of the motor vehicleindustry (see below).

In 1999, as in earlier years, the indexwas led by firms from countries with smalldomestic markets. For example, all fourSwiss TNCs among the world’s 100 largestTNCs feature in the listing of the top 10companies as measured by theirtransationality (table III.7). Meanwhile, onlytwo were headquartered in a relatively largeeconomy (United Kingdom), whose TNCsfor h is tor ica l reasons have a lwaysmaintained an above-average level oftransnationality (table III.5). Of course,TNCs from smaller home countries have togo abroad if they want to overcome theconstraints of their domestic market size,and to reach the economies of scale neededto make optimal use of their ownershipadvantages and to s tay compet i t ive .Interestingly, however, among the companieswith largest increases and decreases of thetransnationality index, only four are from

Figure III.2. Snapshot of the world’s 100 largest

TNCs, 1990-1999

Source : U N C T A D / E r a s m u sUniversity database.


Figure III.3. Global expansion of Ford Motor Company

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).

By 1970

By 1985

By 2000

Note : Based on 270 majority-owned foreign affiliates identified.




Figure III.4. Global expansion of Unilever N.V.


By 2000

By 1985

By 1970





Figure III.5 . Global expansion of Siemens A.G.


By 2000

By 1985

By 1970





Figure III.6. Global expansion of Marubeni Corporation


By 2000

By 1985

By 1970





smaller countries, suggesting that companiesfrom large home markets are more ofteninvolved in transnational expansion andretreat (figures III.8 and III.9).

Transnationality by industry variesto a great extent (table III.6). The mediaindustry topped the list with 87 per cent,

while trading was at the bottom with 18 percent. The transnationality index of the topfive firms in all industries that have at leastfive entries in the lists of both 1990 and1999 increased substantially over the period1990-1999 (table III.8). Food and beveragesf i rms exhibi ted the largest gains (28percentage points), and chemical firms the

Figure III.7. Average transnationality indexof the world’s 100 largest TNCs, 1990-1999

Source : UNCTAD/Erasmus University database.

Table III.6. Industry composition of the largest100 TNCs, 1990, 1995 and 1999

Average TNI a

per industry Number of entries (Per cent)

Industry 1990 1995 1999 1990 1995 1999

Media 2 2 2 82.6 83.4 86.9Food/beverages/tobacco 9 12 10 59.0 61.0 78.9Construction 4 3 2 58.8 67.8 73.2Pharmaceuticals 6 6 7 66.1 63.1 62.4Chemicals 12 11 7 60.1 63.3 58.4Petroleum exploration/refining/distribution and mining 13 14 13 47.3 50.3 53.3Electronics/electricalequipment/computers 14 18 18 47.4 49.3 50.7Motor vehicle and parts 13 14 14 35.8 42.3 48.4Metals 6 2 1 55.1 27.9 43.5Diversified 2 2 6 29.7 43.6 38.7Retailing - - 4 - - 37.4Utilities - - 5 - - 32.5Telecommunications 2 5 3 46.2 46.3 33.3Trading 7 5 4 32.4 30.5 17.9Machinery/engineering 3 1 - 54.5 37.9 -Other 7 5 4 57.6 59.4 65.7

Total/average 100 100 100 51.1 51.5 52.6

Source : UNCTAD, 1993 and Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated

as the average of three ratios: foreign assets to total assets, foreignsales to total sales and foreign employment to total employment.

Table III.7. The world’s largest 10 TNCs in terms of transnationality, 1999

Ranking 1999 by Ranked in 1998 byForeign Foreignassets TNI a assets TNI a Corporation Country Industry TNI a

57 1 57 2 Thomson Corporation Canada Media/publishing 95.411 2 10 3 Nestlé SA Switzerland Food/beverages 95.221 3 15 8 ABB Switzerland Electrical equipment 94.180 4 82 4 Electrolux AB Sweden Electrical equipment/electronics 93.259 5 62 6 Holcim (ex Holderbank) Switzerland Construction materials 91.827 6 27 13 Roche Group Switzerland Pharmaceuticals 91.535 7 69 5 British American Tobacco Plc United Kingdom Food/tobacco 90.724 8 12 7 Unilever United Kingdom/

The Netherlands Food/beverages 89.323 9 34 1 Seagram Company Canada Beverages/media 88.675 10 77 16 Akzo Nobel NV Netherlands Chemicals 82.6

Source : UNCTAD/Erasmus University database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign



Figure III.8. The top 10 increasesin transnationality among the

world’s 100 largest TNCs,1998-1999

(in percentage points)

Source : UNCTAD/Erasmus Universitydatabase.

Figure III.9. The top 10 decreases in transnationality among the

world’s 100 largest TNCs,1998-1999

(in percentage points)

Source : UNCTAD/Erasmus Universitydatabase.

Table III. 8. Averages in transnationality index, assets, sales and employmentof the largest 5 TNCs in each industry, a 1990, 1995 and 1999

(Percentage points, and per cent of top 100 total)

Transnationality Assets Sales EmploymentIndustry Year index Foreign Total Foreign Total Foreign Total

Petroleum 1990 57.7 15.1 10.6 15.8 11.9 5.5 4.21995 64.8 12.9 8.0 13.6 10.0 4.0 3.11999 70.1 13.6 8.3 13.5 9.8 4.1 2.8

Motor vehicles 1990 34.7 11.9 15.3 10.4 11.8 9.7 14.21995 38.6 14.0 17.3 9.6 13.4 9.7 13.51999 41.4 13.3 18.5 15.4 15.8 12.2 13.1

Electronics/electrical equipment 1990 36.1 6.4 7.4 4.7 6.3 6.5 9.61995 61.1 11.1 10.4 7.8 6.9 13.2 10.71999 59.6 12.7 13.0 9.5 8.3 13.6 10.5

Pharmaceuticals 1990 47.1 1.5 1.3 1.6 1.4 2.4 2.31995 68.0 3.8 2.5 2.4 1.7 3.4 2.51999 67.3 4.7 2.8 3.1 2.5 4.7 3.3

Chemicals 1990 51.6 5.3 4.2 5.9 4.5 4.8 5.41995 61.1 6.2 3.9 5.0 4.0 5.5 4.91999 53.9 3.1 2.9 3.8 3.1 3.3 3.2

Food/beverages 1990 60.8 7.2 5.6 5.8 5.0 11.7 7.61995 76.9 6.7 4.8 7.4 5.2 12.9 7.11999 88.7 6.3 3.3 6.1 3.2 10.5 5.1

Source : UNCTAD, 1993 and Erasmus University database.a Only industries that have at least five entries in the lists of the top 100 TNCs of 1990, 1995 and 1999.


smallest (about 2 percentage points). Thetop five motor vehicle companies remainedamong the least transnationalized during thewhole past decade, whereas the top five foodand beverages firms, closely followed bypharmaceutical and electronic firms, becamemore transnationalized over the same period.Only motor vehicle companies maintaineda transnationality index of below 50 per centat the end of the 1990s. Al l othermanufacturing industries saw their industry-spec i f ic t ransnat ional i ty ind ices r i sesubstantially above 50 per cent. However,the trend towards global consolidation inthe motor vehicle industry during the pastyears has made that industry the frontrunnerof transnationality in terms of its dynamicevolution: its index grew by 35 per centbetween 1990 and 1999.

The findings based on the analysisof the transnationality index are mirroredin the analysis of the Network Spread Index(NSI) of the world’s largest TNCs (boxIII.1). TNCs from small home countries aregenerally spread over more countries thanTNCs from large home countries. TNCs fromindustries with a consumer orientation havea h igher spread than TNCs f rom otherindustries.

Box III.1. Assessing the internationalspread of the world’s largest TNCs

The transnationality index presented inWIR since 1995 assesses the degree to whichcompanies gear their act ivi t ies outside oft h e i r home countries. WIR98 (pp. 43-44)introduced a complementary concept ofmeasuring the transnationalization of companies,the Network Spread Index (NSI).ª This indexfocuses on the extent to which companies locatetheir activities in foreign countries, and thusthe extent to which they follow strategies ofcross-border geographical diversification. Theindex is calculated as a ratio of the numberof foreign countries in which a TNC locatesits activities (N) as a percentage of the numberof foreign countries in which it could,potentially, have located (N*). The latter istaken as the number of countries that haveinward stocks of FDI (minus 1, excluding thehome country of the TNC) in the particularyear to which the calculations refer. In thiscase the year 1999 was the most recent yearfor which the data are available. Followingthe data from this report N* is 187. Usingthe Dun and Bradstreet ( Who Owns Whom)

/...

Box III.1. Assessing the international spreadof the world’s largest TNCs (continued)

ownership tree structure, the NSI has beenestimated for the top 100 TNCs listed in thisreport which are exclusively parent companies.

The results grouped by the country oforigin of each TNCs and by industry arepresented in box tables III.1.1 and III.1.2.The country-specific analysis shows TNCsfrom countries with a long history of FDI(Switzerland, Netherlands, United Kingdomand France) exhibiting an above average NSI.TNCs from the two largest economies in termsof GNP (United States and Japan) have a lowerthan average NSI, most likely because thesize of their domestic economy allows theirTNCs to concentrate more on home markets,in comparison with TNCs of similar size fromsmaller home countries.

TNCs in most of the industries includedhave NSIs ranging from 18 to 22 percentagepoints (box table III.1.2). Notable exceptionsare found among TNCs operating in the utilities,media and construction industries, which haveNSIs of below 10 per cent. TNCs in theautomotive, metals/mining andtelecommunications industries lie in between,with NSIs of around 13 per cent.

Industries in which the top TNCs havea higher NSI (like chemicals/pharmaceuticals,electronics and food and beverages) are toa large extent consumer-oriented industries,and TNCs operating in such industries followprimarily market-seeking strategies with regardto their transnationalization. TNCs from theutilities, media, construction/retailing/serviceand industries have a lower-than-average NSI,as they are industries that are more domestic-market oriented, part ial ly due to marketsegmentation (utilities), and partially due tocultural boundaries (media). Greaterliberalization is increasing the NSIs of TNCsin all industries mentioned above, and is likelyto do so even more in the future.

Consistent with the industry analyses,the companies with the highest NSI (over 30per cent) are Shell, Nestlé, Unilever, TotalFina,Aventis and ABB. At the other end of thespectrum, the lowest values for NSI (below5 per cent) are found for Wal-Mart, TexasUtil i t ies, Woodbridge Company, SouthernCompany, Royal Ahold NV, Mitsubishi, Petróleosde Venezuela and Hutchison Whampoa, AESCorporation, Cemax, Edison International andNippon Oil.

/...


B. The largest 50transnational corporationsfrom developing countries

The list of the largest TNCs fromdeveloping economies in 1999 underlinesthe power of the t ransnat ional izat ionprocess, as ref lected by the impressiveincrease in foreign assets and sales after as lowdown in 1998. What is even moreremarkable is that three firms have joinedthe group of the world’s largest 100 TNCs.

In 1999, Hutchison Whampoa Ltd.(Hong Kong, China) occupied the f i rs tposition, sending Petróleos de Venezuela tothe second rank, followed by Cemex SA fromMexico (table III.9). These three TNCs,ranked by the size of their foreign assets,were also among the world’s 100 largest

TNCs. In general, the top 50 TNCs fromdeveloping countries are of a smaller sizethan their counterparts in the top 100 list.The median foreign assets holdings for thetop 50 increased slightly from $1.5 billionin 1998 to about $1.6 billion in 1999, stillfar below the corresponding figure of $15.2billion for the top 100 group in 1999. Theoverall increase in foreign assets by the top50 was largely accounted for by the growthin foreign assets within the group of the topten companies on the list.

Developing country TNCs haverecovered from the setback of 1998 in theaftermath of the financial crisis in Asia. In1999, their assets and sales (total as wellas foreign) registered a significant increase,as compared with the levels reached in 1998(table III.10). Total employment, however,declined further, by 26.6 per cent, whileforeign employment decreased only by 4.3

Box table III.1.1. Network Spread Index ofthe world’s largest 97 TNCs,

by country of origin

Network spread (mean) NSI

Coun t ry o f o r ig in * (Per cent ) Rank

Swi tze r land 25.80 1Ne the r l ands 21.79 2Un i ted K ingdom 19.59 3France 19.93 4Ge rmany 18.89 5I t a l y 17.16 6Sweden 17.11 7Japan 14.29 8Un i ted S ta tes 13.18 9F i n l and 12.30 10Canada 8.56 11Aus t r a l i a 6.42 12Spa i n 5.88 13Venezue la 2.67 14Hong Kong, Ch ina 1.07 15

Mean NSI 15.63

Source : Ietto-Gillies, 2001, based on this report. * Companies having headquarters in more than one country are

counted as nationals of both countries. These companies include:Rio Tinto (UK/Australia), Shell (Netherlands/UK) and Unilever(Netherlands/UK). This accounts for a total of 97 instead of94.

Box table III.1.2. Network Spread Index ofthe world’s largest 94 TNCs,

by industry

Network spread (mean) NSI

Coun t ry o f o r ig in * (Per cent ) Rank

Chemical /Pharmaceut ical 21.80 1Food/Beverages/Tobacco 19.31 2Electronics/Electronical

Engineer ing 18.90 3Oi l /Pet ro leum 16.52 4Diversi f ied 16.44 5Telecommunicat ion 13.77 6Metals/Mining 13.37 7Other 12.83 8Automotive 12.83 9Retai l ing/Trading/Services 10.46 10Construct ion/Construct ion

Materials 8.02 11Media/Pr int ing/Paper 6.77 12Uti l i ty 4.01 13

Mean NSI 15.63

Source : Ietto-Gillies, 2001, based on this report.

Box III.1. Assessing the international spread of the world’s largest TNCs (concluded)

Source : Unpubl ished research by Grazia Ie t to-Gi l l ies and Marion Frenz, South Bank Univers i ty ,London , May 2001.

ª See Ietto-Gillies, 1998, The NSI for 1996 presented in WIR98 is not fully comparable to the one presented herebecause the current one is calculated on the basis of majority-owned affiliaties (“subsidiaries”) and not all affiliatesas in WIR98 . This is due to changes in the type of information given by the Dun and Bradstreet database.


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per cent reflecting, thus, a sharper drop indomestic employment. This reduction inemployment is perhaps a resul t of arestructuring of industries after the crisis.

On the other indicators, the top 50showed a more positive development. This

was largely due to the recovery effect afterthe financial crisis.

The overal l increase in thetransnationality index (TNI) for the wholegroup as compared to last year confirms thatthe top 50 TNCs, in general, pursued theirtransnationalization process even during thecr is i s years . This increase should beinterpreted with caution as i t is largelydriven by the increase in the ratio of foreignto total employment (figure III.10) whichin turn was the result of the sharp drop indomestic employment in 1998 and 1999. Yet,as fore ign asse ts and sa les have a lsoincreased, the transnational expansion of thetop 50 TNCs is noteworthy. TNCs from awide range of economies and industries arecontinuing with their trans-nationalizationpush of recent years. Companies such asSouth African Breweries and Barlow ofSouth Africa, Mexico’s Cemex, San Miguelfrom the Philippines, Pérez Companc ofArgentina, Singapore Telecommunicationsand LG Electronics from the Republic ofKorea – to name only a few – all recordedincreases in their TNI-index of 15 percentagepoints or more since 1995. The mapping ofthe global expansion of Cemex SA providesa good example of the rapidt ransnat ional iza t ion process of thesecompanies (figure III.11).

Table III.10. Snapshot of largest 50 TNCs from developing economies, 1999

(Billions of dollars, percentage andnumber of employees)

ChangeVariable 1999 1998 1999 vs. 1998

(Per cent)

AssetsForeign 129 109 18.3Total 531 449 18.4

SalesForeign 122 109 12.0Total 367 289 27.1

EmploymentForeign 383 107 400 475 -4.3Total 1 134 687 1 546 883 -26.6

Averageindex oftransnationality 38.9 36.6 2.3 a

Source : UNCTAD, FDI/TNC database.a The change between 1998 and 1999 is expressed in percentage

points.

Figure III.10. Trends among the largest 50 TNCs from developing economies, 1993–1999

Source: UNCTAD, FDI/TNC database.a The average transnationality index of the largest 50 TNCs is the average of the 50 individual company transnationality indices.


Figure III.11. Global expansion of Cemex SA

Table III.11. The top five TNCs from developing economies in terms of transnationality, 1999

Ranking byForeign TNI a

TNI a assets Company Economy Industry (Per cent)

1 19 Tan Chong International Ltd. Singapore Diversified 93.32 24 Orient Overseas International Ltd. Hong Kong, China Transportation 90.73 11 Neptune Orient Lines Ltd. Singapore Transportation 89.34 45 WBL Corporation Ltd. Singapore Electronics and electrical equipment 79.75 31 Guangdong Investment Ltd. Hong Kong, China Diversified 78.8

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios: foreign assets to total assets, foreign


Note : Based on 6 foreign affiliates identified. The first foreign affiliate was established in 1992 (Spain).

Note : Based on 21 foreign affiliates identified. There is only one affiliate in each country except in the Philippines (where there are two).

Source : UNCTAD, based on information from www.cemex.com.

1995

2001


As in previous years , the topcompanies in terms of transnationalizationcome from Asia (table III.11). In the caseof Hong Kong (China) and Singapore, it isnot surprising that the small size of theireconomies pushed companies to expandabroad. Indus t ry-spec i f ic fac tors a l socontribute to the composition of the list.Shipping companies, such as Neptune OrientLines as wel l as Orient OverseasInternational, have almost by definition mostof their assets “overseas”. 4 On the otherhand, petroleum companies as well as TNCsin the utilities, tend to have lower valuesof TNI, as much of their business is eitherst i l l concentrated on the exploration ofdomestic resources, or because expansionabroad had only recently been made possibleby the deregulation of telecommunications.

This year’s top 50 list features 12new companies that were not on the list lastyear. This figure is rather high as comparedto previous years, which recorded only fiveto seven new companies. The informationfor the list in this report is less complete,as data for TNCs from China were notavailable. On the other hand, improved andmore complete data for companies from theRepublic of Korea led to the insertion offour Korean companies that did not figureon the list in preceding years. Overall, thechanges in the composi t ion of the l is tremained in line with previous years. M&As

had an impact on the list, as the take-overof Argentina’s YPF and Chile’s Enersis bySpanish companies resulted in the departureof these companies from the list. On theother hand, the merger with another domesticcompany helped Savia of Mexico to beincluded in the top 50 for the first time(tables III.12 and III.13).

The industry composition of the top50 l is t has remained unchanged (f igureIII.12). Conglomerates with interests in awide range of industries accounted for thelion’s share in the combined foreign assetsas well as foreign employment of the top50 group. Fore ign sa les were large lyconcentrated on companies from “otherindustries” which are to a large extent Asiancompanies in the e lectronics industry.Companies whose business is more focusedon any par t icu lar industry , such asconstruction, food and beverages, as wellas petro leum explorat ion, ref inery anddistribution have declined in importancesince 1993, as shown by their respectiveshares in fore ign asse ts , sa les andemployment. In terms of absolute numbers,most companies on the top of the list – asin previous years – are d ivers i f iedcompanies. Due to the inclusion of newfirms, in particular from the Republic ofKorea, the e lec t ronics and e lec tr ica lequipment industry now accounts for thesecond largest group of companies, followed

Table III.12. Newcomers to the largest 50 TNCs from developing economies, 1999


Number assets TNI a Corporation Economy Industry (Per cent)

1 46 31 Berjaya Group Berhad Malaysia Diversified 28.82 47 23 De Beers Consolidated Mines South Africa Mining/ Other 38.83 44 32 Great Eagle Holdings Limited Hong Kong, China Hotel/Property 28.34 17 46 Hyundai Motor Co., Ltd. Korea, Republic of Automotive 10.95 11 3 Neptune Orient Lines Ltd. Singapore Transportation 89.36 24 2 Orient Overseas International Ltd. Hong Kong, China Transportation 90.77 38 41 Pohang Iron And Steel Co., Ltd. Korea, Republic of Iron and Steel 17.38 5 34 Samsung Corporation Korea, Republic of Diversified 27.49 32 26 Savia SA de CV Mexico Diversified 36.5

10 20 44 Singapore Telecommunications Ltd. Singapore Telecommunication 15.811 19 1 Tan Chong International Ltd. Singapore Automotive /Trading 93.312 49 48 Telekom Malaysia Berhad Malaysia Telecommunication 7.5

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for "transnationality index", which is calculated as the average of three ratios: foreign assets to total assets, foreign



by food and beverages as wel l as thepetroleum industry (table III.14). A noveltyin the l is t are two te lecommunicat ionscompanies, Singapore TelecommunicationsLtd. and Telekom Malaysia Berhad. Withtop 50 leader Hutchison Whampoa alsohaving significant interests in this industry,

together with some of the other diversifiedconglomerates on the list, this demonstratesthat TNCs from developing countries canalso make substantial inroads into dynamicand highly compet i t ive industr ies .Interestingly, most of the telecommunicationcompanies expand their operations, as do

Table III.13. Departures from the largest 50 TNCs from developing economies, 1999


Number assets TNI a Corporation Economy Industry (Per cent)

1 47 5 Asia Pacific Breweries Ltd. Singapore Food and beverages 74.82 36 42 China Harbor Engineering Company China Construction 16.13 15 17 China National Chemicals Import &

Export Corporation China Trade 41.44 37 32 China National Metals and Minerals

Imp and Exp Corp. China Trade 25.15 12 31 China State Construction Engineering

Corporation China Construction 26.86 35 23 Dong-Ah Construction Ind. Co., Ltd. Korea, Republic of Construction 34.87 20 28 Enersis, SA Chile Electric utilities or services 28.28 49 41 Sadia SA Industria e Comercio Brazil Food and beverages 16.29 24 44 Shougang Group China Steel and iron 14.4

10 45 33 Souza Cruz, SA Brazil Diversified 24.611 50 1 Want Want Holdings, Ltd. Singapore Food and beverages 97.912 13 36 YPF SA Argentina Petroleum expl./ref./distr. 19.8

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for "transnationality index", which is calculated as the average of three ratios: foreign assets to total assets, foreign


Figure III.12. Major industry groups as per cent of largest 50, 1993 and 1999



their developed countries’ counterparts, indeveloped and developing marketssimultaneously.

As for the most transnationalizedindustries (figure III.13 and table III.14),the picture has changed little. Among theindustries most frequently represented onthe list, food and beverages ranks highest,fol lowed by diversif ied companies,electronics and electrical equipment andconstruction. This suggests that the trendtowards transnationalization includes bothcompanies that primarily invest abroad insearch of foreign markets (such as food andbeverages) as well as those where efficiency-seeking is the prime motive for FDI (as isthe case of e lectronics and e lectr ica lequipment companies). The somewhat lowertransnationality index for petroleum andmining companies on the top 50 l is tsuggests, on the other hand, that companiesfor which natural-resource seeking is theprincipal reason for outward investmentmight find it more difficult or would havefewer incentives to transnationalize theiroperat ions . The increas ing TNI for thepetro leum companies ( table I I I .14)demonstra tes that over the years these

companies have also transnationalized theirbusiness. A comparison with the petroleumcompanies on the top 100 list – which scoremuch higher on the TNI index – also showsthat in this industry there is (in principle)as much potential for developing-countryTNCs to further transnationalize as thereis in other industries. 5

Despite the aforementioned increase ofthe transnationality index in general, andin the case of some companies in particular,the top 50 remain less transnationalized thanthe top 100. But the degree oftransnationali ty differs widely by homecountry, with smaller Asian economies suchas Hong Kong (China) , Singapore andTaiwan Province of China showing muchhigher levels of TNI, than larger countriessuch as India or China. In Latin America,Mexican companies are on average the mosttransnationalized. The rapid increase in theTNI for Mexican TNCs in recent years maysuggest that the opening up of the country(including its integration in the frameworkof NAFTA) has encouraged thetransnationalization of Mexican companies .South African companies, too, have steppedup their transnationalization process. The

Figure III.13. Major industry groups of the largest 50 TNCs and their average transnationalization index, 1993 and 1999



end of the apartheid era in 1994 opened formany South African firms (the only Africancompanies on the list) new possibilities toinves t abroad as wel l as increasedinternational competition compelled themto do so.

The top 50 list shows a gradual shifttowards Asian TNCs over time. The numberof Asian companies has increased from 32in 1996 and 1997, to 35 in 1999. This trendcontinued in 1999 as some Latin Americancompanies departed from the list due to take-overs by firms from developed countries anddue to re lat ive ly h igh increases of theforeign assets of TNCs from the Republicof Korea, Hong Kong (China), Singaporeand Malaysia. Asia increased its share inthe total foreign assets owned by the top50 companies, from 66 per cent (1998) tomore than 70 per cent in 1999. All Latin

American countries registered decliningshares (table III.15), while the share ofAfrican firms stabilized at the same lowlevel as in previous years. While in Asia,foreign assets – on average – increased forTNCs from all major countries (except forChina for which – as mentioned – data werenot avai lable th is year) , Mexican andVenezuelan TNCs were the only ones that(as a group) managed to increase their assetsabroad ( f igure I I I .14) . Whi le theimprovement of Asia’s posi t ion is areflection of the economic recovery in theregion, the decline of foreign assets of mostLatin American TNCs represented in the listmight be explained by the industrycomposi t ion of the two sets of f i rmsinvolved and the aforementionedacquisitions of some firms by companiesfrom developed countries.

Table III.14. Industry composition of the largest 50 TNCs from developingeconomies, 1993, 1996 and 1999

Average TNI a per industry Number of entries (Per cent)Industry 1993 1996 1999 1993 1996 1999

Diversified 12 11 14 25.6 32.3 44.3Food and beverages 7 8 5 15.6 32.8 45.0Construction 4 3 3 28.8 47.4 39.6Petroleum expl./ref./distr. 3 6 5 3.1 19.4 21.6Electronics and electrical equipment 7 5 6 28.1 35.6 41.5Electric Utilities or Services 1 .. 2 2.0 .. 25.3Steel and iron 5 1 3 11.6 37.6 34.2Trade .. 4 .. .. 44.6 ..Transportation 1 4 3 23.2 54.1 71.2Chemicals and pharmaceuticals 1 1 1 17.0 7.7 9.6Other 4 5 .. 23.6 38.1 ..Pulp and paper 2 .. 1 26.0 .. 63.7Tourism, hotel and property 3 2 2 33.1 33.2 37.9Automotive 1 .. 1 .. .. 10.9Media 1 .. .. .. .. ..Mining .. .. 2 .. .. 36.4Telecommunications .. .. 2 .. 59.4 11.7Average/total b 50 50 50 19.8 36.9 38.9

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for “transnationality index”, which is calculated as the average of three ratios:foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.b Numbers may not add up exactly due to rounding.

Note : This list does not include countries from Central and Eastern Europe.


Table III.15. Country composition of the largest 50 TNCs from developing economies,by transnationality index and foreign assets, 1993, 1996 and 1999

Share in total foreign assets Average TNI a per country of the largest 50 (Per cent) (Per cent)Region/economy 1993 1996 1999 1993 1996 1999

South, East and South-East Asia 21.8 31.8 39.1 70.6 65.7 72.1China .. 30.0 .. .. 8.2 ..Hong Kong, China 36.5 50.7 45.4 22.0 20.4 26.4India 6.4 7.7 9.6 0.4 0.8 0.7Korea, Republic of 20.2 45.6 27.8 24.8 24.4 23.2Malaysia 20.0 34.4 24.1 4.7 3.2 7.0Philippines 6.9 16.1 25.0 1.4 0.9 1.1Singapore 43.0 38.1 58.9 5.3 3.7 11.2Taiwan Province of China 19.6 32.1 43.9 12.3 4.2 2.4

Latin America 14.0 28.9 48.3 29.9 28.9 21.9Argentina .. 19.5 24.5 .. 2.6 1.1Brazil 17.4 13.1 30.2 12.0 6.2 5.6Chile 12.1 29.0 35.4 1.0 3.6 1.8Mexico 12.5 48.7 48.0 16.9 7.5 7.3Venezuela .. 44.9 29.8 .. 8.6 6.2

Africa .. 40.2 46.0 .. 5.4 5.9

Average/total b 19.8 35.1 38.9 100 100 100

Source : UNCTAD, FDI/TNC database.a TNI is the abbreviation for "transnationality index", which is calculated as the average of three ratios:foreign assets to total assets, foreign

sales to total sales and foreign employment to total employment.b Numbers may not add up exactly due to rounding.

Note : This list does not include countries from Central and Eastern Europe.

Figure III.14. Foreign assets of the biggest investors from developing economies, 1998 and 1999



C. The largest 25 TNCsfrom Central and Eastern

Europe

A successor to the lists of the top 25non-financial TNCs based in Central Europepublished in WIR99 and WIR00 , the rankingpresented in this section (table III.16) shows,for the first time, the largest TNCs of theRussian Federation together with those fromthe rest of Central and Eastern Europe. Itis based on 1999 data provided by the firmsresponding to the UNCTAD survey of thelarges t TNCs in Centra l and Eas ternEurope. 6 With the exception of Gazprom ,most of the leading outward investors of theRussian Federation are included in the list.With its annual sales above $10 billion 7 in1999 and its extensive international network(table III.17), Gazprom is likely to be oneof the top Central and Eastern EuropeanTNCs. However, consolidated informationon its international activities could not beobtained.

Compared with the ranking of the topCentra l European TNCs presented inWIR2000 , five firms exited from the top 25list for the following reasons:

• A take-over by other f irms . the corebusiness of VSZ a.s. Kosice (Slovakia) wastaken over by U.S. Steel, and PilsnerUrquell (Czech Republic) was acquired bySouth African Breweries; in other words,they became foreign affiliates.

• Change in the declared nationality of thefirm . Graphisoft changed its declarednationality to the place where its holdingcompany is registered (The Netherlands),instead of the place where top managementis located (Hungary).

• Displacement by others. Moldova SteelWorks (Republic of Moldova) and BudimexCapital Group (Poland) were displaced dueto larger firms not previously on the listtaking their place in the ranking.

The five newcomer firms are: LukoilOil Co., Primorsk Shipping Co. and FarEastern Shipping Co. (Russian Federation);Petrom SA National Oil Co. (Romania); andIntereuropa d.d. (Slovenia).

For most firms on the list, the growthof fore ign act iv i t ies (asse ts , sa les andemployment) was faster in 1999 than thatof the domest ic act iv i t ies . Thesedevelopments are reflected in an increasingtransnat ional i ty index ( tab le I I I .16) .Transportation (7 firms), petroleum andnatural gas (5 firms) and pharmaceuticals(3) are the industries in which firms figuremost frequently among the top 25. Theyare headquartered in nine countries: Croatia(5 f i rms) , S lovenia (5) , Hungary (4) ,Russian Federation (3), Czech Republic (2),Poland (2), Slovakia (2), Latvia (1), andRomania (1) (figure III.1). Notably absentare firms from Estonia, despite increasinglyimportant FDI outflows from that country(annex table B.2). This is due to the factthat more than 60 per cent of Estonia’soutward FDI stock was in finance in 2000,i.e. undertaken by firms in an industry notcovered in this survey (Kilvits and Purju,2001, p. 248). Moreover, the leading outwardinvesting Estonian banks are foreign owned(Hansapank is owned by Sweden’s Swedbankand Ühispank by Sweden’s SEB, idem. , p.255).

The internationalization efforts of thetop 25 firms of Central and Eastern Europeare fairly recent, and focus heavily on theEuropean continent. In the case of PlivaGroup, a pharmaceuticals company basedin Croatia, the parent company (Pliva d.d.)did not expand outside its home base overthe first 53 years of its existence (1921-1974). It established its first foreign affiliatein New York, and its first representativeoffice in Moscow, both in 1974 (f igureIII.15). Then, after a pause of 18 years, itrestarted international expansion, on a largescale and at a fast pace. By June 2001, thenumber of fore ign aff i l ia tes andrepresentative offices expanded to 14 each.With the exception of Pliva USA Inc., allthe foreign affiliates are on the Europeancontinent. As for the representative offices,there are two non-European locat ions :Bei j ing (opened in 1998) and Mumbai(opened in 2000). A salient feature of thecurrent expansions is the acquisit ion ofproduction and R&D capacities in the CzechRepublic, France, Germany and the UnitedKingdom.


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l ass

ets,

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ign

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l sal

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nd fo

reig

n em

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men

t to

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men

t.c

1998

dat

a.d

Inclu

ding

exp

ort s

ales

by

pare

nt fi

rm.

eUn

weig

hted

ave

rage

.


There are two reasons why thepotential pool of enterprises that could belisted in the top 25 is small. First, in thecase of Central and Eastern Europe, it isoften foreign affiliates that undertake FDIabroad. 8 The second reason is that some ofthe top 25 f i rms become targets ofacquisitions, as in the case of VSZ Kosicementioned above or in the case of Slovnaft,taken over by MOL Hungarian Oil & GasPlc. in 2000 (UNCTAD, 2000, pp. 92-93).In May 2001, MOL, which already owned32.9 per cent of the shares of TVK, made

an offer to take over all the remaining sharesof that firm.

Some of the top 25 firms have beenactive in cross-border M&As. Between 1997and May 2001, 6 f i rms carr ied out 21t ransac t ions ( tab le I I I .18) . Thesetransactions are not necessarily limited toneighbouring countries. In fact, Lukoil wasthe first Russian company to acquire in 2000an oil company in the United States (boxIII.2).

Table III.17. Gazprom: selected equity investments outside the Russian Federation by 2001

ShareTarget firm Host country (Per cent) Activity

GHW Austria 50 Gas tradingBelgazprombank Belarus 34.99 BankingBrestgazoapparat Belarus 51 Gas equipment manufacturingTopenergo Bulgaria 50 Gas trading and transportEesti Gaas Estonia 30.6 Gas trading and transportGasum Oy Finland 25 Gas distribution and transportationNorth Transgas Oy Finland 50 Construction of a pipeline beneath the Baltic SeaFRAgaz France 50 Gas tradingDitgaz Germany 49 Gas tradingVerbundnetz Gas Germany 5.3 Gas transportation and marketingWingas Germany 35 Gas transportation and storageWintershall Erdgas Handelshaus Germany 50 Exclusive trader until 2012 for all the gas

exported by Gazeksport (Russian Federation)Zarubezgas Erdgashandel Germany 100 Gas tradingPrometheus Gaz Greece 50 Marketing and constructionBorsodchem Hungary 25 a PetrochemicalsDKG-EAST Co. Inc. Hungary 38.1 Oil and gas equipment manufacturingGeneral Banking and Trust Co. Ltd. Hungary 25.5 BankingPanrusgas Hungary 40 Gas trading and transportTVK Hungary 13.5 a PetrochemicalsPromgaz Italy 50 Gas trading and marketingVolta Italy 49 Gas trading and transportLatvijas Gaze Latvia 16.25 Gas trading and transportStella-Vitae Lithuania 30 Gas tradingGazsnabtransit Moldova, Republic 50 Gas trading and transportPeter-Gaz Netherlands 51 Gas tradingEuropol Gaz Poland 48 Gas transportGas Trading Poland 35 Gas tradingWIROM Romania 25 b Gas tradingSlovrusgaz Slovakia 50 Gas trading and transportTagdem Slovenia 7.6 Gas tradingGamma Gazprom Turkey 45 Gas tradingDruzhkovskiy zavod gazovoi apparatury Ukraine 51 Gas equipment manufacturingInstitut Yuzhniigiprogaz Ukraine 40 ..Interconnector United Kingdom 10 Bacton (United Kingdom)-Zeebrugge (Belgium )

pipelineJugoRosGaz Yugoslavia 50 Gas trading and transportProgress Gas Trading Yugoslavia 50 Gas trading

Source: UNCTAD, based on Gazprom, 1999, pp. 86-102; Heinrich, 2001, p. 78; Liuhto, 2001, p. 27; and Westphal, 2000, pp. 61-63.a Financial investment through Milford Holdings Ltd. (Ireland).b Controlled through Wintershall Erdgas Handelshaus.


Figure III.15. Global expansion of Pliva d.d.

Note : There were 2 foreign affiliates established in 1974 (Russian Federation and United States).

Note : Based on 28 foreign affiliates identified, 14 of which are representative offices.

Source : UNCTAD, based on data provided by Pliva d.d.

By 1990

By 2001


ble

III.1

8. S

elec

ted

publ

icly

ann

ounc

ed c

ross

-bor

der m

erge

rs a

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cqui

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ns in

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ms,

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7 to

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1 Valu

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Year

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er c

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ian

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ania

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ni B

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upCr

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ance

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riaPl

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iva G

roup

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tiaLa

chem

a a.

s.Cz

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blic

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mac

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als

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il Oil C

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n Fe

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ty O

il Plc.

Unite

d St

ates

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leum

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al g

as71

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ngar

ian

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Gas

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ary

Slov

naft

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akia

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leum

& n

atur

al g

as26

2.0

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2000

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Gro

upCr

oatia

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ema

a.s.

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h Re

publ

icPh

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00Pl

iva G

roup

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tiaPh

arm

ascie

nce

UK L

td.

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d Ki

ngdo

mPh

arm

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0.0

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Pliva

Gro

upCr

oatia

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man

yPh

arm

aceu

tical

s42

.610

0.0

Sour

ce:

UNCT

AD, b

ased

on

firm

repo

rts.

aRe

nam

ed P

liva

Krak

ow in

199

8.b

Reso

ld in

200

0.c

Subs

eque

ntly

recla

ssifie

d as

fina

ncia

l inve

stm

ent.

dRe

sold

in 2

001.

ePl

us ta

x ar

rear

s of

abo

ut $

260

milli

on.

fEs

timat

e.


Box III.2. Lukoil’s acquisition of Getty Petroleum

Lukoil purchased Getty Petroleum Marketing Inc. for $71 million at the end of 2000. TheFirst Vice President of Lukoil stressed in this respect that “This is the first acquisition of apublicly held American company by a Russian corporation, and it is the first step in our expectedexpansion into the U.S. market. It is an excellent opportunity for LUKOIL because it gives usentree into the vast American market in partnership with a highly regarded brand. In the future,we may seek to supply the Getty stations with our own petroleum products” (Lukoil, 2000, p.1).

The acquired firm owns a chain of 1,260 retail outlets in 13 states. It also markets heatingoil and other petroleum products. The principal shareholders of Getty (which collectively ownedapproximately 40 per cent of Getty’s common stock) agreed to the transaction, subject to certainconditions. First, Getty’s headquarters were to remain in Jericho, Long Island, New York. Second,Lukoil had to make a best-effort promise to avoid laying off employees and to retain the majority(if not all) of the pre-acquisition management. Lukoil also intended to keep the Getty brand,considered as one of the premier and best-known retail brands of petroleum products in theUnited States.

The managers of both Lukoil and Getty argued that the transaction created major synergies.“The combination of Getty’s strong presence in the American market with LUKOIL’s capabilitiesas a world class integrated oil company is going to create a formidable new company,” saidthe chairperson and chief executive officer of Getty Petroleum Marketing (Lukoil, 2000, p. 2).

Source : Lukoi l , 2000.

Notes

1 Financial firms are not included becauseof the different economic functions of assetsof financial and non-financial firms andthe unavailability of relevant data for thefo rme r .

2 These estimates are based on the estimatesof the 1999 sales, assets and employmentof foreign affiliates of TNCs, as given intable I.1. These ratios, especially thoserelating to sales and assets, should betreated with caution, as the data on theforeign assets and sales of the top 100TNCs, mostly obtained through aquestionnaire completed by firms, maynot necessarily correspond exactly to thedefinition of foreign assets and sales usedin table I.1.

3 The average transnationality index of theworld's top 100 TNCs is the average ofthe 100 individual transnationality indices.

4 It should also be noted that many shippingcompanies have registered their fleets(which often represents a substantial partof their total assets) in so-called "flag-of-convenience" countries for tax or otherr e a s o n s .

5 The TNIs for the top 100 group were in1999 higher in all industry categories shownin table III.14 than the corresponding figuresfor the top 50 group.

6 These data were collected through aquestionnaire survey organized by UNCTADthat took place in February-June 2001 andcovered close to 100 firms from 15 Centraland Eastern European countries. Theintegration of Russian firms into this listhas been made possible by improvedreporting and improved response rate byfirms from that country to the surveyq u e s t i o n n a i r e .

7 As reported in the top 500 list of theFinancial Times, http://specials.ft.com/f t 5 0 0 / m a y 2 0 0 1 / e a s t e r n . h t m l .

8 Apart from the Estonian cases alreadymentioned, the most salient example isthe investment of Hungary's Matav, majoritycontrolled by Deutsche Telekom, intoMaktelekom (TFYR Macedonia), carriedout at the end of 2000. Another case isan investment by German-Austriancontrolled Dunapack (Hungary) intoRomania. Similarly, the Czech affiliate ofGermany's RWE Entsorgung has investedin Romania, and Swedish-owned CzechPramet in Bulgaria, while United States-owned Europharm Brasov has investedfrom Romania in the Republic of Moldova.


CONCLUSION

Wor ld FDI f lows areexpanding unabated. Theirpace of growth surpassesthat of most other economicaggregates. As a result,the role of international

production in the global economy is on therise. FDI liberalization, too, proceeds witha multitude of favourable changes in nationalregulatory regimes and supporting treatymaking at the international level. With thegrowing knowledge intensity of economicactivity, TNCs play a key part in creatingand applying advanced technologies andmanagerial practices across the globe. Theyalso account for a large proportion of worldtrade; about a third of world trade is in theform of intra-firm trade. In addition, theyinfluence international trade indirectly byset t ing up extensive networks ofprocurement and subcontracting relationswith other firms.

The location of TNC operations andfunctions is changing in response to newtechnologies , more l iberal pol ic ies andintensified competition. During the past twodecades , the geographical spread ofin ternat ional product ion has expandednoticeably. Nevertheless, i t is far fromevenly dis tr ibuted across the g lobe inabsolute terms. Developed countries and, inparticular, the Triad continue to dominate,receiving over three-fourths of global FDIinflows and originating over four-fifths ofoutward FDI f lows in 1998-2000.Developing countries have increased theirparticipation in international production –both as recipients of FDI and as outwardinvestors – during much of the 1990s, buttheir share as recipients has fallen duringthe past two years. The world’s top 30 hostcountries account for 93 per cent of inwardFDI flows and 90 per cent of stocks; thetop 30 home countries account for around99 per cent of outward FDI flows and stocks.The la t ter are main ly industr ia l izedeconomies and a few large or newly

industrializing developing countries andtransition economies. Within countries, FDItends to be fa i r ly concentratedgeographical ly, responding to the sameagglomeration economies that influencelocal f i rms. These economies re la te toproximi ty to markets and fac tors ofproduct ion, and the avai labi l i ty ofspecialized skills, innovatory capabilities,suppliers and institutions.

The geographical concentration ofin ternat ional product ion ref lec ts thelocational attractions of particular sites.These attractions arise from several factors:natura l resources , larger markets andcompetitive complementary inputs for TNCactivity. The even stronger concentration ofoutward FDI means that only a few homecountries have so far created the competitiveadvantages needed for a significant numberof their firms to invest abroad. Together,these are the regions, countries and sub-national areas that benefit more from, andexercise control over , in ternat ionalproduction.

The geographical concentration ofFDI often reflects the size and economicstrength of the recipient economies. Lowabsolute amounts of FDI inflows into smalleconomies, l ike the least developedcountries, may represent relatively highshares of their incomes or total investments.The Inward FDI Index provides acomparative picture of how host countriesfare wi th respect to inward FDI af teradjusting for their size, measured by GDP;labour force , measured by number ofemployed persons; and their competitiveadvantages as revealed in exportperformance. Ranking by the Index showsthat, in 1998-2000, the top economies in thisrespect were Belgium and Luxembourg,Hong Kong, China, Ireland, Sweden, andThe Netherlands. The value of the Indexvaries widely among individual countries.Although differences diminish to some


extent when groups of countr ies areconsidered, there are also some noticeabledifferences among them: the Index showsthat South America, Central Asia and theAfrican LDCs receive FDI in line with orabove their average shares of global GDP,employment and exports, but the majorityof developing regions do not. The patternssuggest that there are economic factors otherthan those captured by the Index thatinfluence a country’s international positionwi th respect to inward FDI. They a lsosuggest that government policies can leadto much higher FDI inf lows than thosepredicted by a country’s economic size andstrength.

Large TNCs dominate internationalproduction. Some 90 per cent of the world’slargest 100 TNCs are headquartered in theTriad. The e lectr ica l and e lectronicequipment, motor vehicle, and petroleumexplorat ion and d is t r ibut ion industr iesaccount for over a half of the world’s top100 TNCs. The top 50 TNCs f romdeveloping countries originate in 13 newlyindustrializing economies of Asia and LatinAmerica (and South Africa) only. The largestof these TNCs from developing countriesare as large as the smallest of the top 100worldwide. They congregate in construction,food and beverages, and divers i f iedindustries. The largest TNCs from Centraland Eastern Europe are more evenlydistr ibuted among home countries: ninecountries of the region figure in the list ofthe region’s top 25 TNCs. Transport, mining,petroleum and gas and chemicals andpharmaceuticals are the most frequentlyrepresented industries in the list of the top25 TNCs based in that region.

The locat ional pat terns ofinternational production differ not only bycountry but also by industry, and they changeover time, partly in response to the changingindustr ia l composi t ion of FDI. Withinmanufacturing, geographical concentrationis related to the technological level of theactivity: the more advanced a technology,the higher the level of concentration. In lesstechnology-intensive activities and whereproximity to customers matters – as withmany service industr ies – FDI is moredispersed. In some industr ies , t radeliberalization has allowed firms to reducethe number of production sites.

The geography of FDI can also beextended to the level of such corporatefunctions as R&D and financial management.Efficiency considerations, coupled withtechnological advances enabling real-timel inks across long dis tances and theliberalization of trade and FDI policies,encourage a greater spread of all corporatefunctions. In some industries, this has ledto the growth of integrated internationalproduction systems spanning regions (as inautomobi les) or cont inents (as insemiconductors) . Within these complexsystems, the funct ions t ransferred todi f ferent locat ions vary great ly . Lessindustrialized locations are assigned simplertasks like assembly and packaging, whileindustrially advanced locations are assignedmore ski l l - and technology-intensivefunctions.

International production tends tocluster in particular locations in home andhost countries, often near other firms andinstitutions. Major reasons for clustering areproximity to innovative and dynamic firmsand research centres and pools of knowledgeand skills created by agglomerations. TNCsmay also develop new clusters in hostcountries that are later joined by indigenousfirms. As developing countries move up thevalue chains of international production, therole of clusters in attracting and retaininginternational production tends to increase.

The drivers of FDI location haveimportant policy implications at the regional,national and local levels. Natural resourcesand unskilled labour – and perhaps evennat ional markets – are decreas ing insignificance. The new drivers are skills,technological capabilities, supply networks,good logistics and strong support institutionsto attract FDI. Their development becomeskey to attracting international production.

This ra ises impor tant po l icychallenges for the developing world. Manycountries, in particular the poorer and leastdeveloped ones, are increasingly marginal to thedynamics of in ternat ional product ion.Simply opening an economy is often nolonger enough to attract sustained inflowsof FDI and to upgrade i ts qual i ty .Governments need to take a more active andtargeted approach, especially if they seek

123CO N CLU SIO N

to attract competitive and export-orientedFDI. And part of such an approach is thatcountries need to identify and develop, overtime, distinct configurations of locationaladvantages.

Different configurations of locationaladvantages a t t rac t d i f fe ren t corpora tefunctions, and these may be either industryspecific or cut across industries. They offerseveral efficiency benefits to firms locatedin them. In some high-technology industrieslike electronics it may be possible to attractfinal-stage assembly on the basis of cheapsemi-skilled labour and efficient export-processing facilit ies. In other activities,production facilities may require developedsupply chains within an economy, a widerange of skills, interacting with other firmsand knowledge-producing institutions inclose proximity. Some back-office activitiesmay require specia l ized ski l ls (e .g . inaccounting). High value functions like R&Dor regional headquarters are particularlydemanding of advanced ski l ls andinstitutions. This is why many activities(natural resource extraction apart) tend toagglomerate in specific locations, a processfurther helped when firms concentrate oncore activities, outsourcing others.

Investors – domestic and foreignal ike – seek to take advantage of suchclusters. In joining a cluster, they often addto i ts s t rength. Where agglomerat ioneconomies are significant, the rest of thecountry might be of little relevance to theirlocational decisions. Hence, attracting FDIin these activities depends increasingly onthe ability to provide efficient clusters. Aninternational bank’s location choice is notso much a choice between the UnitedKingdom and Germany as between Londonand Frankfurt.

In today’s highly competitive worldeconomy, successful f irms different iatethemselves from their compet i tors bydeveloping clearly identifiable products withrecognizable brand names. The ability toattract FDI, especially high quality FDI,increasingly needs a similar “investmentproduct”: the world market for FDI is justas competitive as that for goods and services.One implication of this is that countries thatwant to attract high quality FDI and benefit

from it need to develop differentiated andeff ic ient c lus ters that of fer rea l andident i f iable locat ional advantages tointernat ional investors and eventual lybecome brand names recognizable to anynational or international investor seekingthis particular configuration of advantages.Bangalore in India has such a “brand name”for the development of software, as doSingapore and Hong Kong, China forfinancial services and regional headquarters.

Using clusters to attract FDI calls fornew promotion policies, going beyond thefirst and second generations of investmentpromotion policies. In the first generationof investment promotion policies, countriessimply liberalize their FDI regimes: theyreduce barriers to inward FDI, strengthenstandards of treatment for foreign investorsand enhance the functioning of markets(WIR94). Virtually all countries – to be sure,in varying degrees – have, over the pastdecade or so , under taken s teps in th isdirection. The assumption was that, once anenabling framework is in place, FDI inflowswill increase. Many countries, especiallythose with weak institutions, can go a longway in attracting FDI in this manner, if thebasic economic determinants for obtainingFDI are right ( WIR98 , ch. IV).

In the second generation of investmentpromotion policies, governments go furtherand act ive ly seek to a t t rac t FDI by“marketing” their countries (Wells and Wint,1990) . This approach f inds i t s typ ica lexpression in the establishment of nationalinvestment promotion agencies. In 2001,over 160 of such national agencies existed,of which over 100 were members of theWorld Association of Investment PromotionAgencies, established in 1995. Again, ofcourse, the success of proactive effortsdepends, in the end, on the quality of thebasic economic FDI determinants.

The third generation of investmentpromot ion pol ic ies takes the generalenabling framework for FDI and a proactiveapproach towards attracting FDI as a startingpoint. It then proceeds to target foreigninvestors at the level of industries and firmsand in light of a country’s developmentalpriorities. The objective is to match theimmobile locational advantages of a country


with the mobile competitive advantages offirms, with a view towards upgrading theformer. Such a strategy is greatly helped ifa country can nurture specific clusters thatbui ld on the country’s compet i t iveadvantages, that capitalize on the naturalinclination of firms to agglomerate, and thateventually acquire a brand name. 1 Thus,investment promotion increasingly needs toimprove – and market – particular (sub-national) clusters that appeal to potentialinvestors in specific activities. Of course,a country’s general economic, political andregulatory features also matter because theyaffect the efficiency of the clusters withinit. But the key to the success of such newinvestment promotion strategies is that theyactually address one of the basic economicFDI determinants.

It must be recognized, however, thatsuch a targeted approach, and especially thedevelopment of locational brand names, isdifficult, costly and takes time. Moreover,a more targeted and fine-tuned approach –which, in the end, seeks to match the specificfunctional needs of corporate investors withspecific locational products – requires fairlysophisticated institutional capacities. It is,however, facilitated by the proliferation ofsub-national agencies (of which a minimumof 240 exis t today) , and a lso even bymunicipal investment promotion agenciesthat as a rule, seek to market more specificinvestment products. But this gives rise toanother challenge: the need to coordinate

policies across various administrative levelsin a country. If that is not done, there is arisk that competition among regions withina country leads to “fiscal wars” and resultsin waste as far as the welfare of the countryas a whole is concerned.

Regardless of the level at which FDIis promoted – and regardless of the precisemix of the three basic investment-promotionstrategies outlined above that is pursued –the compet i t iveness of the domest icenterprise sector (including a pool of skilledpeople) is the key to the “product”. Stronglocal firms attract FDI; the entry of foreignaff i l ia tes , in turn, feeds in to thecompet i t iveness and dynamism of thedomestic enterprise sector. The strongestchannel for diffusing skills, knowledge andtechnology from foreign affiliates is thebackward linkages they strike with localfirms. This can contribute to the growth ofa vibrant domestic enterprise sector, thebedrock of economic development. Fordeveloping countries, backward linkages aretherefore par t icu lar ly impor tant . Thechallenge then is how to promote backwardl inkages – regardless of the type ofinvestment promotion policies that a countrypursues. This is the topic of Part Two ofthis report .

Note1 Jamaica is considering a branding strategy

for attracting FDI; see Bloom et al., 2001.

PART TWO

PROMOTING LINKAGESBETWEEN FOREIGN AFFILIATES

AND DOMESTIC FIRMS

INTRODUCTION

With the growing importanceof FDI in economic life,host countries seek not justmore such investment, butare also increasinglyinterested in its quality, in

terms of benefits for sustainable economicdevelopment. Perhaps the most importantway to tap these benefits is through productionlinkages between foreign affiliates anddomestic firms. Such linkages can take severalforms: backward , forward or horizontal(table IV.1). Backward linkages exist whenforeign affiliates acquire goods or servicesfrom domestic firms, and forward linkageswhen foreign affiliates sell goods or servicesto domestic firms. Horizontal l inkagesinvolve interactions with domestic firmsengaged in competing activities. Linkages,broadly defined, can also involve non-businessentities like universities, training centres,research and technology institutes, exportpromotion agencies and other official orprivate institutions.

The focus of Part Two of this reportis on the backward linkages of foreignaffiliates with domestic firms in hostdeveloping countries. These are definedas transactions that go beyond arm’s length,one-off relations (as in buying standardizedproducts off the shelf) and involve longer-term relations between firms. In fact, avery large proportion of intra-industrytransactions in every country involves linkagesin this sense, marked by sustained exchangesof information, technology, skills and otherassets. Linkages are of particular significanceto developing host economies, because theyprovide a means of diffusing valuableknowledge throughout the economy – throughdirect flows to the linked firms as well asspillovers to and from the latter. The benefitsprovided through linkages with foreign affiliates

tend to be of greater competitive significancethan those among domestic firms becauseof the stronger knowledge and skills baseof many foreign affiliates. Linkages withforeign affiliates can therefore be of greatimportance to the dynamism andcompetitiveness of the domestic enterprisesector – the bedrock of economicdevelopment. Foreign affiliates, in turn, canbenefit from backward linkages as they canreduce costs and enhance access to localtangible and intangible assets. Hence thereis a substantial mutual interest betweenforeign affiliates and domestic firms to createand deepen backward linkages.

Foreign affiliates, of course, do notonly link to domestic firms but also link,and quite frequently so, to other foreignaffiliates in a host country. However,backward linkages to other foreign affiliates,while often unquestionably important, donot offer the same type of benefits for hostdeveloping countries as those between foreignaffiliates and domestic (i.e. domesticallyowned) enterprises. The main reason is thatdomestic firms in developing countries aregenerally behind foreign affiliates as regardstechnology, human resources and othercompetitiveness-related factors, and hencewould benefit more in terms of capacity-building than would other foreign affiliates.Linkages with domestic firms are thereforethe primary focus of Part Two. Thediscussion, furthermore, ignores linkagesbetween domestic enterprises and foreignfirms that have no local direct investments(e.g. foreign buyers with supply contractsin developing countries). While these canalso be channels for transfers of technology,information and skills, they involve differentmechanisms and policies that are not thefocus of analysis here.

128 W orld Investm ent R eport 2001: Prom oting Linka g e s

Linkage promotion is not a new policyissue for developing countries (see, forexample, Lall, 1980; UNCTC, 1981), butit deserves renewed attention. To begin with,FDI has become much more important invirtually all developing countries (see PartOne); hence the issue of how to benefitfrom it has also become more important.Moreover, the economic setting is changing,and with it TNC procurement and supplychain management strategies. Intensifiedcompetition, policy liberalization and neworganizational practices are leading firmsto raise their reliance on external suppliersof goods and services. This opens up newpossibilities for greater (and often higherquality) linkages and makes the availabilityof suppliers a more important factor inattracting FDI (Part One). At the sametime, it imposes more stringent technological,managerial and scale demands on suppliers(and on their support institutions andinfrastructure).

Confronted with this changedlandscape, governments need to adapt theirpolicies. This is all the more necessary asthe ability of governments to promote efficientlinkages is subject to new constraints thatreduce their policy space. In particular, somefrequently used measures to promote linkages,like local content requirements, are no longerpermissible in the context of the WTO orother international agreements. It is stillpossible to promote linkages, but tools aredifferent from those used in the past. Giventhe rising significance of linkages for domesticcompetitiveness, it is important to be awareof these tools. The objective, of course,is not just to create linkages for their ownsake, but only when they are economicallydesirable and they enhance the efficiencyof domestic enterprises. It is possible to

promote inefficient linkages, for instance,by forcing their formation under protectedconditions, such that the linked supplierenterprises never become internationallycompetitive. This is costly for the hosteconomy, breeding inefficiency and high-cost production structures. More generally,there are trade-offs between deeper linkagesand greater dependence of suppliers onbuyers.

Chapter IV provides the backgroundto the policy discussion, outlining thesignificance of backward linkages for hosteconomies and the determinants of linkageformation. It also reviews the evidence onforeign affiliate initiatives to create anddeepen backward linkages in host developingcountries – without claiming that this reviewis exhaustive or that the cases presentedare representative. Still, it is clear that foreignaffiliates and domestic firms, in their ownself-interest, are forging linkages, and thatbest practices in this area can be emulated.At the same time, it is also clear thatwhatever the current level of backwardlinkages of foreign affiliates, linkages canbe increased or deepened further, with aview towards augmenting the capabilitiesof domestic firms. This is why policies aimedat promoting linkages are important –precisely the topic of chapter V, the keychapter of this Part. The conclusions inchapter VI highlight the main policy optionsavailable to host country governments andprovide the elements of a linkage promotionprogramme. In focusing on concrete policymeasures and ways to combine them intoprogrammes, this report seeks to identifypragmatic ways in which the contributionof FDI to the development of host countriescan be enhanced.

B

CHAPTER IV.BACKWARD LINKAGES: IMPACT,

DETERMINANTS AND TNC EXPERIENCE

A. Why backwardlinkages matter

ackward linkages are importantto both foreign affiliates anddomestic (linked) enterprises. 1

Take them in turn, starting withaf f i l ia tes . Most product iveenterpr ises buy a large

proportion of inputs - goods as well asservices - from other firms. 2 The ability tosource these locally can matter. If foreignaff i l ia tes can procure inputs local ly ,particularly in host economies in whichlabour cos ts are low, they can lowerproduction costs (some service inputs, forexample, may be very expensive to import).If they can subcontract directly to localsuppl iers , they can increase the i rspecialization and flexibil i ty, and adapttechnologies and products better and fasterto local condi t ions. Technological lyadvanced suppliers can provide affiliateswi th access to a pool of externaltechnological and skill resources, feedinginto their own innovative efforts. The trendto greater outsourcing and to concentrationon core competencies raises the competitivebenefits of having efficient support firmsclose by. This is why strong supplier clustersare of growing importance in the locationdecisions of firms, particularly for highvalue activities and functions (see Part One).

Domestic suppliers can also benefitfrom linkages with foreign affiliates. First,linkages raise output and employment inlinked supplier enterprises. The indirecteffects on supplier capabilities are probablymore important. Linkages can be powerfulchannels for diffusing knowledge and skillsbetween firms. 3 Inter-firm linkages nearlyalways entail an exchange of information,technical knowledge and ski l ls . Stronglinkages can promote production efficiency,product iv i ty growth, technological and

manager ia l capabi l i t i es and marketdiversification in supplier f irms. They canoften promote exports by linked enterprisesand, under the right conditions, domesticf i rms may develop to become globalsuppliers and/or TNCs in their own right(box IV.1). The strengthening of supplierscan in turn lead to various indirect effectsand spi l lovers for the res t of the hosteconomy. Spillovers can take place throughdemonstration effects, mobility of trainedlabour, enterprise spin-offs and competitioneffects (table IV.1). 4

Box IV.1. ENGTEK: from a backyardbusiness to a global supplier

Eng Teknologi Holdings Bhd (ENGTEK),headquartered in Penang, Malaysia, is a globalsupplier for the computer hard disk drive andthe semiconductor industries. This holdinghas nine companies in four countries (China,Malaysia, the Philippines and Thailand). Some2,000 employees generated a total revenueof about $63 million during the fiscal year2000, while cumulative capital investmentreached more than $34 million in that year.ENGTEK is run by a professional managementteam and has been quoted on the Kuala LumpurStock Exchange since 1993, moving to its mainboard in 1999.

Some 25 years ago, in 1974, the companystarted with a seed capital of $200, as a tinyfamily-run venture that produced jigs and fixturesin a make-shift backyard facility. What arethe main reasons for this exemplary growthfrom a no-name small and medium enterprise(SME) to a high-precision manufacturer thatsupplies competit ive, quality value-addedproducts and services to several global playersin the electronics industry?

First of all, there is the entrepreneurialdrive and the commitment of the founder family,including the vision of becoming the “best-in-class” technology corporation, the continuedtechnological and managerial upgrading ofthe company to achieve this goal, as well as

/...


Box IV.1. ENGTEK: from a backyardbusiness to a global supplier

(concluded)

the uncompromising stand on product quality,price and reliability concerning on-time delivery.Secondly, ENGTEK grew up in a policyenvironment conducive to enterprisedevelopment. Under Malaysia’s VendorDevelopment Programme, TNCs have beenencouraged to assist local suppliers to becomecompetitive at the global level. In addition,the Government accorded pioneer status toselect local SMEs, which entit led them togenerous tax rebates, thus strengthening theirinvestment base. ENGTEK has benefited fromboth factors. Thirdly, ENGTEK has engagedin closely-knit partnerships with TNCs. Forexample, Intel provided financial as well astechnical assistance needed for the companyto produce semi-automated wire bonders in1981. With partners such as Advanced MicroDevices, Bosch, Fujitsu, Hewlett Packard,Maxtor, Readrite and Seagate, ENGTEK hasbeen involved in designing products, bringingin its specific experience in product developmentand gaining a competitive edge vis-à-vis potentialcompetitors. As a first-tier supplier company,ENGTEK has been able to link up to the globalproduction systems of its TNC clients, movingup the value chain over time. Partnershipsalso helped ENGTEK to internationalize andto become a TNC on its own. Finally, ENGTEKrealized very early the risks related to anundiversified portfolio both of partners andproducts. To avoid dependence on one singlecustomer, ENGTEK consciously put effortsinto absorbing technology from a number ofclients. It widened its range of products,diversifying, e.g., from precision tools intomanufacturing of disk-drive components.Moreover, it developed is own technology fororiginal equipment manufacturing and achievedoriginal design manufacturing capabilities,which further reduced its dependency on anyparticular foreign affiliate.

Source : UNCTAD, based on ENGTEK’spresentat ion at the workshop onTechnological and Manager ia lUpgrading of SMEs through Linkageswith TNCs, Penang, 8-9 August 2000,organized by UNCTAD and INTEL;interview with Alfred Teh Eong Liang,CEO, ENGTEK, 10 Augus t 2000 ;www.engtek.com ; and Ras iah , 1999,p p . 2 3 8 - 2 4 2

Knowledge diffusion throughlinkages with foreign affiliates can offerspecific long-term (or dynamic) benefits tohost developing countries. Where, as inindustr ia l countr ies , both buyers andsuppliers are technologically strong andcapable , knowledge f lows run in bothdirections. Their focus is then often on newtechnologies, products and organizationalmethods. Where, as in most developingcountries, local suppliers are relatively weakin technological terms, the flows are likelyto be more one-sided, from foreign affiliatesto their domestic suppliers. They are alsolikely to contain more basic technologicaland manager ia l knowledge, in that thesuppl iers are l ike ly to lag behindinternational best practice frontiers. At atime when the international competit ivesetting makes it imperative for developingcountry enterprises to upgrade technologyand skills to best practice levels, this is ofparticular importance.

There i s another advantage ofl inkages between foreign aff i l ia tes anddomest ic f i rms: they increase the localintegration and “rooting” of TNCs and makethem less footloose. Since backward linkagesinvolve cost and effort by affiliates, strongerlinkages make it more difficult for them todivest. Moreover, TNC linkages with SMEscan promote the formation and upgradingof industrial clusters in host economies, animportant component of competitiveness(see Part One; Altenburg and Meyer-Stamer,1999).

However, not all linkages are equallybeneficial for a host economy; some maybe harmful. For instance, firms may strikeconsiderable linkages in protected industriesin which there is inadequate incentive toinvest in technological capabilities. Wheresuch l inkages lead to an uncompeti t ivesupplier base, there is a net economic costto the host economy. 5 This does not meanthat there is no scope for promoting infantindustries. But there is a difference betweenjudicious, highly selective and temporaryprotection to foster technological learning(say, in strongly export-oriented regimes)and open-ended protect ion to f i rms –domestic or foreign – that deters learningand upgrading.

131CHAPTER IV BACKWARD LIN KAGES: IMPACT, DETERMIN AN TS AN D TN C EXPERIEN CE

Table IV.1. Backward linkages and other relationships between foreign affiliates andlocal enterprises and organizations a

Relationship of foreign affiliate to local enterprise Relationship of foreign affiliate to non-business institution

Backward Forward HorizontalForm (sourcing) (distribution) (co-operation in production)

“Pure” market • “Off-the-shelf” • “Off-the shelf”transaction purchases sales

Short-term • Once-for-all or • Once-for-all orlinkage intermittent purchases intermittent sales

(on contract) (on contract)

Longer-term • Longer-term (contractual) • Longer-term • Joint projects with • R&D contracts with locallinkage arrangement for the (contractual) relation- competing domestic firm institutions such as universities

procurement of inputs for ship with local distri- and research centresfurther processing butor or end-customer • Training programmes for firms

• Subcontracting of the • Outsourcing from by universitiesproduction of final or inter- domestic firms to • Traineeships for students inmediate products foreign affiliates firms

Equity • Joint venture with supplier • Joint venture with • Horizontal joint venture • Joint public-private R&Drelationship • Establishment of new distributor or end- • Establishment of new centres/training

supplier-affiliate (by customer affiliate (by existing foreign centres/universitiesexisting foreign affiliate) • Establishment of new affiliate) for the production

distribution affiliate (by of same goods andexisting foreign affiliate) services as it produces

“Spil lover” • Demonstration effects in unrelated firms- Spillover on processes (incl. technology)- Spillover on product design- Spillover on formal and on tacit skills (shopfloor and managerial)

• Effects due to mobility of trained human resources• Enterprise spin-offs• Competition effects

Source : UNCTAD.a The shaded area represents the focus of Part Two.

Linkages may also involve excessivecosts for a host economy even underrelatively open conditions. The reason liesin the size and market power of foreignaffiliates. Exclusive linkages with large,monopsonistic foreign affiliates can lead toanti-competitive practices and unfair termsand conditions for suppliers (Altenburg,2000). The distribution of benefits betweenbuyers and sellers is subject to bargaining.Much depends on the technological contentof , and value added by, the act iv i t iesundertaken by suppliers. Suppliers of highvalue-added and sophisticated products andservices are genera l ly bet ter p laced tobenefit from linkages than those sell ingsimple products. Not only may the formerreceive higher shares of the revenuesgenerated by their buyers, they may alsohave greater scope for enhancing theirtechnological and organizational capabilitiesvia linkages. The most advanced suppliers,

such as first-tier suppliers in developedcountr ies , in teract increas ingly wi thcustomers in developing new technologiesand products.

Foreign affiliates may be in a strongbargaining position with respect to suppliers,and so apportion to themselves a large shareof the benefi ts of the relat ionship. Forexample , some fore ign aff i l ia tes exactperiodical price cuts from their suppliers(Brimble, 2001). Suppliers of simple price-sensitive inputs may, in addition, have tocompete with each other by cutting costs,making it difficult for them to raise revenuesand pay higher wages. Such suppliers maybe forced to bear a high share of the riskof market fluctuations. Moreover, whereemployees in supplier firms have lowerlevels of job security and lower rates ofunionization than employees in affiliates,there is another risk: outsourcing may be


used as a means to reduce employment inaff i l ia tes and to t ransfer pressure ontoemployees in supplier firms where terms ofemployment and remuneration may be lessformalized (ILO, 2001a, pp. 41-48; Blum,2001; Harrison, 1994); this is especially thecase with respect to lower-tier suppliers.However, the tendency of larger and strongerfirms to try to shift the burden of adjustingto falling demand to suppliers with limitedbargain ing power , or to source f romenterpr ises wi th no, or less formal ,employment arrangements to reduce labourcosts, applies regardless of ownership.

Where affiliates are “footloose” andprone to shift to lower cost locations aswages rise, local suppliers may again beforced to bear a high risk. The risk this timeis of closure rather than of lower returns.Finally, there is a risk that local firms aredisplaced by first-tier suppliers that followthe lead firm to a new location (box IV.2).Even where TNCs stay, there is a risk tosuppliers that become “locked in” to largebuyers. Their fortunes become tied to thoseof their main customers, exposing them topotential pressure from them and to lossesif the latter lose competitiveness. The samerisks arise, of course, from being locked intolarge domestic buyers.

In sum, backward linkages of foreignaff i l ia tes mat ter for host developingcountries because they provide opportunitiesfor production and employment by domesticsuppliers. More importantly, they constitutea direct channel for knowledge diffusion thatcan assist in upgrading domestic suppliers,technological and other capabilities, withspillover effects on the rest of the economy.Such knowledge diffusion is of particularimportance for domestic firms that are stillcatching up with internationally competitivepractices. The ability of foreign affiliates’linkages to contribute to domestic supplierdevelopment cannot, however, be taken forgranted. It depends on the markets in whichforeign affiliates operate and therefore theincentive that they have to set upinternationally competitive operations. Italso depends on the capabilities of domesticfirms. Where these are weak, few linkages

will occur. Moreover, linkages with largeforeign affiliates, like those with all largefirms, raise risks - such as the possibilityfor domest ic suppl iers of fac ingant icompet i t ive pract ices , unequalbargain ing posi t ions and excess ivedependence.

Box IV.2. Linkages to first-tierforeign suppliers

Many foreign investments are followedby an inflow of FDI by key foreign suppliers.This phenomenon (“sequential investment”)is particularly marked in the automobile andautomobile-parts industry, and in some segmentsof the electronics industry (UNCTAD, 2000a).In Brazil, for example, foreign componentsuppliers have located operations close to thefinal assembly plants of the leading carmakersthat have invested in the country. In 2000,General Motors opened a new factory inGravatai, Brazil. The plant was designed anddeveloped jointly by General Motors and 16of its global suppliers. a Given the increasingneed to rely on local sourcing, associateinvestments by the supplier TNCs were necessaryfor General Motors’ investment to function.However, while all but one of General Motors’first-tier suppliers to the Gravatai plant areforeign-owned, all use Brazilian suppliers atthe second- or third-tier of the supply chain.Similar developments have been observed forother car manufacturers and in other parts ofthe world (Humphrey, 1998; Mortimore, 1997;Pries, 1999). Similarly, in the TV industryin Tijuana, Mexico, foreign componentssuppliers, notably from Asia, establishedoperations in Mexico to follow United Statesand Japanese TV assembly TNCs (Carrillo,2001, p.9).

Technological and scale factors often meanthat first-tier suppliers to final assemblersin industries such as automotives are foreign-owned. In some cases, domestic supplier firmsare taken over by foreign firms. However,linkages between first-tier foreign affiliatesuppliers and domestic firms tend to developat the second- and third-tier levels.

Source : UNCTAD, based on various sources.a Tim Burt, “Components of an output revolution”,

Financial Times, 10 April 2001 and companyinterview.


B. Linkage determinants

A firm in any locat ion has threeoptions for obtaining inputs. It can importthem, produce them locally in-house orprocure them locally from other (foreign ordomestic) suppliers (figure IV.1). The extentto which foreign affiliates actually developl inkages with domest ic f i rms differsconsiderably (box IV.3). Foreign affiliatestend to be in a different position from localfirms: they come with international supplychains and with established suppliers thatknow their technical, quality, scale and costneeds and have the capability to keep upwith changing technologies. As a result,TNCs often find it economical to importinputs from these suppliers rather than buylocally. Where they need to procure inputslocally, they may find it more efficient to“internal ize” them (produce in-house)because of their technological advantagesover local f i rms. There may be otheradvantages in internalization: to avoid thecosts of searching for, negotiating with,

upgrading and monitoring external suppliers.For aff i l iates with valuable proprietarytechnologies, internalization also reducesthe r i sk of par t ing wi th va luabletechnological assets that can then leak outto competitors.

However, producing inputs in-housealso involves several costs. There is thecapi ta l cos t of se t t ing up product ionfac i l i t i es . There are fur ther cos ts inmanaging the production process. If inputsenjoy scale economies and a firm is unableto reap them as fully as an independentsupplier (that serves a number of customers),it will suffer from higher costs. If a firmhas to undertake activities very differentfrom its main area of specialization, it mayface ineff ic iencies and overextend i tsorganizational and technological capacity(Richardson, 1972; Penrose, 1959). Largefirms – particularly foreign affil iates indeveloping countries – may also have to paymuch higher wages than small domesticfirms.

Figure IV.1. Strategic options for foreign affiliates with regard to obtaining inputs

Source : UNCTAD.


The extent to which foreign affiliates establish backward linkages with domestic suppliersis usually measured by the local content of production or local sourcing by foreign affiliates.For many reasons, however, these measures may not accurately reflect the magnitude of backwardlinkages with domestic firms:

- Local content indicates the share of total outputs - components or intermediate productsand ancillary products and services - produced locally. This includes inputs producedby local (foreign and domestic) suppliers, i.e. local sourcing, as well as those producedin-house by the foreign affiliates.

- Local sourcing indicates the share of inputs supplied by firms in a host country, butvery often there is no information available on the ownership of suppliers (domesticallyowned or foreign-owned).

- Finally, sometimes the definition of local content, for the purpose of determining eligibilityunder rules of origin in the context of preferential trade arrangements, also includesinputs from other countries belonging to the same preferential trade area.

Bearing in mind these caveats, local content and local sourcing are the most commonlyused proxies for backward linkages. The following examples review some evidence on localcontent (and local sourcing), based on relevant literature.

Several studies have noted that the propensity to source locally is often lower amongforeign than domestic buyer firms. This has given rise to concerns in host countries that foreignaffiliates have too limited interactions with the rest of the host economy. In Nigeria, foreignaffiliates had a higher propensity to import than their local counterparts (Landi, 1986). Similarfindings were made in the case of Ireland, Republic of Korea and India (McAleese and McDonald,1978; Jo, 1980; Kumar, 1990). In Hungary, it was found in 1999 that on average the shareof inputs procured from Hungarian suppliers was markedly higher in the case of domesticproducers (59-62 per cent) than that of foreign affiliates (39 per cent) (Tóth, 2000). In asample of 12 foreign-owned firms in Costa Rica “over 95 per cent of physical inputs are supplied‘in house’ through their respective TNC networks” (UNCTAD, 2000a, p.104). Conversely,a small sample of national firms interviewed in the same survey sourced about 30 per centof their inputs locally (UNCTAD, 2000a, p.105).

In selected developed host countries, affiliates source between 10 and 20 per cent oftheir inputs locally (i.e. supplied by domestic or foreign-owned suppliers). The average percentageof local sourcing observed in studies of various United Kingdom regions, for instance, rangesfrom 10 to 25 per cent (Collis and Roberts, 1992; Phelps, 1993, 1997; Crone and Roper 1999;Turok, 1993). Some evidence suggests that local procurement increases overtime. In Ireland,for example, raw materials sourced locally as a percentage of total raw material inputs innon-food manufacturing increased from 16 per cent in 1986 to 19 per cent in 1994; and ina sample of affiliates in the electronics sector, the percentage of raw materials and componentsprocured locally increased from 8 per cent to 24 per cent in the same period (Görg and Ruane,1998). During the 1990s, foreign affiliates of Japanese TNCs increased their local procurementin basically all host country regions, primarily by buying more from other Japanese companiesin the respective host countries (Japan, METI, 2001).

In developing countries, the share of locally-sourced inputs by foreign affiliates variesby industry and region. Local sourcing by foreign affiliates is particularly low in the garmentsindustry – between 5 and 10 per cent (UNCTAD, 2000a). In the Dominican Republic andCosta Rica, for example, very limited subcontracting was observed, essentially restricted tofirms located in the industrial processing zone. Weak linkages were mainly attributed to thetariff regime of the main destination market, the United States. In Morocco, similarly, theshare of inputs from domestic and foreign-owned suppliers of the garments industry’s principalexport items was estimated at only 10 per cent in the late 1990s. As in the case of the Dominican

Box IV.3. Evidence on backward linkages

/...


Republic and Costa Rica, the trade regime, which allows for the duty-free import of intermediategoods used in export production (UNCTAD, 2000a, p. 101), worked against local sourcing.

In the electronics industry, sourcing patterns appear to differ significantly by host country.For example, in 2001, foreign affiliates in the colour TV industry in Tijuana, Mexico, sourcedabout 28 per cent of their inputs locally, of which only a very small proportion (3 per cent)was supplied by Mexican-owned firms (Carillo, 2001). Meanwhile, in Malaysia, locally-procuredcomponents by foreign affiliates in the electronics and electrical industries comprised 62 percent of exports in 1994; the corresponding figure for Thailand was 40 per cent (UNCTAD,2000a, p. 71). However, in both countries, the most strategic parts and components were suppliedmainly by foreign-owned companies rather than domestic ones (UNCTAD, 2000a, p. 71). Inthe hard disk drive industry, the level of local content provided by affiliates and domesticfirms in Thailand was estimated at 30 to 40 per cent of total production cost in 2001 (Brimble,2001, p. 2).

In the automobile industry, a global restructuring process has been under way for thepast two decades, with all the major automobile producers, and their component suppliers,locating in developing countries. Assemblers have been moving increasingly towards “globalsourcing” from preferred suppliers. Some of these locate in the production sites of the assemblers(box IV.2). This process has often been accompanied by a shake-out of domestically-ownedsupplier firms (UNCTAD, 2000a, pp. 148, 152, 162; Barnes and Kaplinsky, 2000). Localsourcing in the automobile industry has increased in host countries that have become globalexport bases for components. For instance in Mexico, local content from Mexican-owned suppliersand subcontractors stood at 30 per cent by 1995. Conversely, in Brazil, where local contentin the automobile industry had been at a very high 85 per cent in 1990, local input sharesfell throughout the 1990s. Imports of components rose from 8 to 24 per cent of productionbetween 1990 and 1996, resulting in a weakening of the local supplier industry (UNCTAD,2000a, p.152). A similar process has been observed in Argentina and Thailand (UNCTAD,2000a, p. 155) as well as in South Africa (Barnes and Kaplinsky, 2000). In Thailand, theautomobile industry’s local content is estimated at 19 per cent for passenger and heavy commercialvehicles and 25 per cent for pick-up trucks a (UNCTAD, 2000a, p. 161). Local content in theproduction by foreign affiliates in the Malaysian automobile industry was around 30-40 percent in 1996 (UNCTAD, 2000a, p. 165). In China, a policy of “localization” stipulated thatforeign affiliates in the automobile industry had to source 40 to 50 per cent of inputs locally.Several foreign affiliates reached this target, many by inducing their foreign suppliers to investin China. For example, the share of Shanghai Volkswagen Company’s local sourcing from affiliatesstood at 26 per cent in 2000, measured as purchases from foreign-invested suppliers in totallocal purchases (Xia and Lu, 2001, pp. 8-14).

In many of the transition economies in Eastern Europe, FDI has only been present sincethe early 1990s. It is therefore of interest to note some examples of high levels of local sourcing.In Poland, a sample of some 30 foreign affiliates responding to a 1997 survey reported that75 per cent of inputs were then sourced from local firms, compared to 65 per cent at thetime of their establishment in the early 1990s (Floyd, 2000). In the Czech Republic, Volkswagen-Skoda in the mid-1990s was sourcing roughly three-quarters of its inputs from suppliers basedin the country. Of Skoda’s 279 registered suppliers, 174 (62 per cent) were Czech-owned,19 were Slovak-owned and 86 were foreign affiliates and joint ventures with firms from theUnited States, United Kingdom, Germany, Italy and France (Skoda Auto, 2001). The degreeof local sourcing – again, not necessarily from domestically owned firms – is much relatedto policies pursued in the preferred destination market of the European Union.

Source : UNCTAD, based on var ious sources .a The official figure is higher: 45 – 60 per cent, depending on the car model. See UNCTAD 2000a, p. 160.

Box IV.3. Evidence on backward linkages (concluded)


Excess ive in ternal izat ion cantherefore lead to a loss of flexibility, higherlabour costs and diversion into unrelatedtechnologies. The global trend is to focuson core competencies and to contract outother components and services, reflectingboth the cost and complexi ty oftechnological change and intensifyingcompetitive pressures. Specialization is justas much a feature of international productionsystems. TNCs are combining the spread offacilities abroad under their managementcontrol wi th a growing web of supplyrelationships with independent firms at eachstage of product ion. In fact , in someindustries, firms are subcontracting out theentire manufacturing process to independent“contract manufacturers”, retaining forthemselves only such functions as R&D,design and marketing (Kagami and Kuchiki,2000). Most contract manufacturers hailfrom industrial countries; however, some areappearing in industr ia l iz ing developingcountries like Singapore.

The decision to source locally in ahost country depends on the cost, quality,reliability and flexibility of local suppliersre la t ive to suppl iers abroad. Proximitymatters in many sourcing choices. Beingnear suppliers can make procurement moreflexible and easier to negotiate and monitor.It is essential where much information andtechnical interchange is required forefficiency. Where the input is a constantlyused service, again, it is more efficient tohave the provider nearby. An eff ic ientnetwork of suppliers allows affiliates toreduce risk or disruptions in input supplyand to adjust capaci ty ut i l izat ion morereadily to market conditions. Trust, whichplays an important role in all transactions,is eas ier to develop with face- to-faceinteraction.

However, establishing linkages canbe an expensive process. In any setting,efforts are needed to ident i fy sui tablesuppliers and ensure that they can meet theexacting needs of buyers. Sometimes thiscan be facilitated by meso-institutions suchas chambers of commerce, businessassocia t ions or providers of bus inessdevelopment services (Doner and Schneider,2000) . For ins tance , some bus iness

associat ions serve as a venue for theexchange of business information, which caninclude specif ic data on subcontract ingopportuni t ies , or on opportuni t ies fordeepening linkages. 6

In many developing countries theeffort required may be particularly greatbecause of the lack of efficient domesticsuppliers - the main obstacle to the creationof more linkages (Halbach, 1989; Altenburg,2000; Battat et al., 1996; UNCTAD, 2000b;Crone, 1999 and 2000). 7 Where the costsand risks are particularly high but proximityis important for eff ic iency, TNCs mayencourage foreign suppliers to establishlocal facilities or they may decide to producein-house. Where the costs and risks arelower, they may make efforts to identifypotential domestic suppliers and assist themin reaching the eff ic iency and qual i tystandards needed. 8 Where proximity is notimportant , foreign aff i l iates may retainsourcing links with independent suppliersabroad or with other plants in their TNCsystems. 9 Central ized or pooled group-sourc ing arrangements may encourageaffiliates to use foreign sources even whenlocal suppliers are available. 10

While the extent of local linkagesgenerally and those with domestic firms inpart icular ref lects the balance of thesebenefits and costs in the short term, TNCsmay display differences in their sourcingbehaviour in similar situations. Apart fromdifferences in firm-level perceptions andstrategies, this may reflect the businesspractice and culture of their home countries.For example , Japanese TNCs, whichemphasize close inter-firm collaboration,seem to find it more difficult to establishlocal linkages abroad than United Statesfirms, which are more market-oriented intheir procurement. 11 United States affiliatesin Malaysia rely more on local supplies thando firms from either Japan or the EuropeanUnion. On the other hand, Japanesecompanies, once they enter into supplyre lat ionships with local f i rms, seem toestabl ish deeper and more long-termrela t ionships than the i r Uni ted Statescounterpar ts ( Inst i tute of DevelopingEconomies, 1994).


Still , local sourcing patterns changeover t ime and as exper ience grows,suggesting that the nationality of TNCsshould become less important in comparisonwith other TNC-related factors in explaininglocal linkages. What are these other factors?The main ones are the following:

Investment motives and strategies.The propensity of foreign affiliates to forgelocal linkages is affected by the motive forinvest ing in a host country. Domest ic-market-oriented affiliates generally purchasemore locally than do export-oriented firms. 12

Domestic suppliers find it easier to serveact iv i t ies a imed at domest ic markets ,particularly where quality and technicalrequirements are lower (as in protectedmarkets). They also have the advantage ofknowing local consumer preferences. Insome developing countries, local sourcingby affiliates may also be motivated by thedesire to avoid exchange rate risks. On theother hand, cost and quality requirementsare much more stringent in export-orientedactivities (and host countries also tend toimpose fewer controls on sourcing of inputsin export-oriented affiliates). In particular,fore ign af f i l ia tes tha t are par t ofinternational production systems are likelyto be more dependent on global corporatesourcing policies and, thus, less able tochoose suppliers freely. While such affiliates(e .g . in the automot ive and e lectronicindustr ies) source large numbers ofcomponents, sub-assemblies and serviceslocally, with major opportunities for firmsthat qualify as suppliers they tend to reducethe number of first-tier suppliers and enterinto closer relationships with those thatremain. 13

These core suppliers are expected tohave a capability to manufacture and supply– on a global basis – complex systems, tohave independent design capacity and tosolve problems jointly with the assembler.Such stringent requirements make it morediff icul t for domest ic suppl iers in hostcountries to enter the supply chain. 14 Hence,domest ic f i rms in developing countr iessupply ing to af f i l ia tes that are par t ofintegrated product ion systems typical lybelong to a lower tier and provide relativelysimple inputs – cardboard boxes, plastic and

foam rubber packaging materials, metalstamping, die-making and simple assembly(Ganiatsos, 2000, Yoon, 1994; Carril lo,2001; UNCTAD, 2000a) .15 However,domestic suppliers that manage to survivein this competi t ive environment enjoyincreased productivity, technology upgradingand export growth (box IV.1).

Technology and market posit ion.Linkages reflect the technology used andthe market pos i t ion of TNCs. Fore ignaffiliates making standardized products withmature, non-proprietary technologies tendto prefer external ized, arm’s lengthprocurement: there are many suppliers tochoose from, and i t is not necessary todevelop special capabilities in any supplier.Where products are spec ia l ized andtechnologically advanced, on the other hand,affiliates tend to prefer in-house productionor to retain relationships with a few selectedsuppl ie rs . 16 TNCs in pr ice-sens i t ivesegments respond more to wage differencesthan those in markets where innovation andqual i ty are impor tant . The former aregeneral ly re lat ively foot loose and lesswilling to invest in local skills and supplierupgrading. 17

Role ass igned to a f f i l ia tes . Thedegree of autonomy given to aff i l ia tesaffects sourcing: greater autonomy allowsmore development of local suppliers. In turn,affiliates with stronger local links are likelyto be given more autonomy (Zanfei, 2000).In Mexico, for example, the lack of localautonomy as regards purchasing was foundto be an impediment to l inkagedevelopment. 18 Affiliates considered to be“centres of excellence”, with regional orglobal mandates for complete products,services or technology, tend to be moreintegrated with local suppliers (Frost et al.,1999; Holm and Pedersen, 2000).

Age o f fore ign a f f i l ia tes . Manystudies have found that local procurementby foreign affiliates tends to increase overtime. 19 The more experience a TNC gathersin a foreign country, the more managers arerecruited locally and the more knowledgeit gains about local suppliers, the lower thecosts of sourcing locally. 20


Mode of establishment. For similarreasons, affiliates established through M&Asare l ike ly to have s t ronger l inks wi thdomestic suppliers than those establishedthrough greenfie ld investment ( WIR00;Scott-Kennel and Enderwick, 2001). Thelatter take time and effort to develop locallinkages while the former have “ready-made”linkages that are likely to be retained if theyare ef f ic ient . For example , a s tudy ofJapanese TNCs concluded that acquiredaff i l iates had signif icant ly higher localcontent levels than those established throughgreenfie ld investment due to their pre-acquis i t ion embeddedness in the localeconomy (Belderbos et al., 2001). Similarly,affiliates of Swedish TNCs and affiliates inCentral and Eastern European countries havebeen found to rely more on imports of inputswhen established via greenfield investment;in the case of the Swedish TNCs’ affiliates,this difference persisted also in the longer-term. If, on the other hand, existing linkagesare inefficient, M&As may lead to a switchto foreign suppliers ( WIR00).

S i ze o f a f f i l i a t e . Large fore ignaffiliates have been found to source lesslocally than small ones: they can internalizetheir operations better, and local suppliersf ind i t d i f f icul t to supply very largevolumes. 21

The linkage potential also varies byindustry (box IV.3). It is easier to sourceexternally when the technology is divisibleinto discrete stages and services than whenit is a continuous process.

• In the primary sector the scope for linkagesbetween foreign affiliates and localsuppliers is often limited. Productionprocesses tend to be continuous and capitalintensive. 22 Still, possibilities exist, forexample in mining (see box IV.4).

• The manufacturing sector has a broadrange of linkage-intensive activities, butthere are large variations by industry. Foodprocessing involves high ratios ofintermediate inputs to total production andextensive backward linkages betweenforeign affiliates and domestic suppliersof raw and packaging materials. By

Box IV.4. Linkages in the Peruvianmining industry

In 1998, Peru’s mining industry purchasedgoods and services for $1.37 billion, of which$800 million were acquired locally and $570million were imported (Peru, SNMPE, 1999,p. 13). The production capacities of domesticfirms in goods and services that are inputsfor the mining industry and, hence, their abilityto supply, vary considerably (UNCTAD, 2000c,p. 63).a Until recently, the local supply capacitieshave not been fully utilized, mainly becausethere has been little incentive for local firmsto upgrade as the markets have been virtuallymonopolized and protected. As a result, theircosts and quality have not kept abreast withthe standards required by large-scale minesthat can purchase inputs from more competitivesources abroad.

For certain inputs, however (e.g. powergeneration and technical services), domesticfirms already have strong capabilities. In Peru,relatively few users need to rely on self-generated power (Peru, SNMPE, 1999, p. 40).This is a favourable factor for mining firmsas they are able to save the capital costs ofsetting up power generation facilities, andcan benefit from the economies of scale inpower generation. Significant local capabilitieshave developed in technical services, too. Thisis supported by undergraduate and post-graduatecourses in geology, mine engineering,environmental engineering and metallurgy,offered at local universities. Domestic firmsare able to conduct technical and feasibilitystudies, and have the necessary capabilitiesin related civil and structural engineering andconstruction. The Peruvian environmentalengineering design and monitoring servicesare considered to be of particularly highstandards.

Source: UNCTAD, based on UNCTAD, 2000c.a The variation of local supplier capabilities is

confirmed by concrete case studies in gold andcopper mining. A case study on gold mining jointventure Minera Yanacocha S.A. (Kuramoto, 2000)has found that, sub-national variations set aside,local sourcing is substantial in both goods andservices, but more developed in the latter. Anothercase study on Southern Peru Copper Corporationhas found that in 1998, this firm sourced more than60 per cent of i ts purchases local ly (TorresZorrilla, 2000, pp. 45-46). The most importantitems sourced exclusively from within Peru werediesel oil, fuel oil and ball bearings. On the otherhand, rubber tyres and tubes, t ransportat ionequipment and parts, and earth-moving equipmentwere mostly imported (Torres Zorrilla, 2000, p.47).


contrast, textiles and clothing showrelatively low local linkages; the textileindustry needs considerable sophisticationand size to provide the variety and qualityof fabrics needed by foreign affiliates thatgenerally produce clothing for export. 23

Engineering activities offer linkageopportunities because processes aredivisible. However, where technical needsare stringent, as in machinery and precisioninstrument s, subcontracting tends to belimited.

• The tertiary sector, led by finance, trading,tourism and utilities, accounts for growingshares of FDI in developing countries. Thescope here for dividing production intodiscrete stages and subcontracting out largeparts to independent domestic firms is alsolimited. Still, some service industries suchas retailing and construction offerconsiderable potential for linkages withphysical input supplier (box IV.5).Similarly, foreign hotel operators can makesignificant local purchases of foodstuffs,furniture and fittings (Dunning, 1993).Increasingly, the services component ofsome activities is being subcontracted toreduce wage costs. (“Back office” servicesby airlines, banks or retailers are goodexamples.) Developing countries like Indiaare making inroads into this market; 24 but,at this time, this subcontracting is primarilyinternational. It may spread locally asservices within developing countries areupgraded and telecommunications improve.

The above review shows that thedegree of linkages is affected by a numberof factors, with notable differences betweenindustries, activities and TNCs. Basically,the extent of linkages established dependson the balance of costs and benef i tsinvolved. Still, the creation and deepeningof linkages are sometimes of mutual interestto fore ign aff i l ia tes and local f i rms.Unsurprisingly, then, there are examples ofTNCs that make considerable efforts in orderto foster local linkages, while others do not.Some evidence on such efforts is reviewedin the next section.

Box IV.5. Sourcing in the food retailingindustry: Carrefour and McDonald’s in

Argentina

Foreign affiliates in food retailing aretypically oriented towards the domestic market,and hence rely to a high degree on locallyprocured inputs. The Argentinean retail sectorprovides some illustrations of typical strategiesvis-à-vis local suppliers.

Carrefour’s sourcing strategy differs byproduct groups.ª Since the merger with Promodèsin 2000, Carrefour has begun centralizing itssourcing in response to growing competitionwith other retailers, such as Ahold, Wal-MartStores and Casino. For processed food products,one central procurement office serves all retailoutlets in Argentina; in fact, in some cases,one supplier delivers a particular product toall outlets in the MERCOSUR area. Thus,suppliers need to operate a sufficient scaleto meet the demand of the entire network. Inthe area of fresh and staple foods , localsuppliers, producing local brands with strongmarket recognition for individual retail outlets,predominate; many of these were originallydomestic brand-name food firms that had beenacquired by TNCs since the late 1990s.

McDonald’s uses a similar sourcingstrategy in most of its affiliates in differentcountries, with minor local adaptations. b InArgentina, about 87 per cent of McDonald’sbasic food products are sourced locally. Oncea supplier and McDonald’s have agreed onstandards and quality guarantees along thefood chain, c contracts tend to be long-term.Moreover, McDonald’s then transmits i tsinternational know-how to its supplier. As aconsequence, supplying to McDonald’s is oftenconsidered an indication of quality and reliabilityand can lead to new contracts with other buyers.As in the case of Carrefour, supplier firmsto McDonald’s are today predominantly foreignaffil iates, following mergers with or fullacquisitions of previously locally owned firms.Some greenfield investments have also beenundertaken. For example, McCain (United States)established a large plant to produce frozenfries in the main potato-gro wing area ofArgentina.

Source : UNCTAD, based on Green and Tozanli,2001.

ª Carrefour had 364 retail outlets in Argentina, witha turnover of 2.2 billion euros in 2000.

b The company had 173 outlets in Argentina at thebeginning of 2001.

c This includes standards regarding employment,food processing and preservation, as well as withrespec t to env i ronmenta l concerns such asprov i s ions for the recyc l ing o f packag ingmaterials.


C. Creating and deepeninglinkages: what companies do

Many TNCs have spec ia l izedorganizational units and procedures to dealwith suppliers and subcontractors. Someeven have special supplier developmentprogrammes. 25 A survey of TNCs in theautomobile and electronics industries foundthat 16 out of 18 automotive TNCs hadadopted a s t ra tegy for g lobal suppl ierdevelopment, while the corresponding datafor e lec t ron ics TNCs was 8 out of 15(Handfield and Krause, 1999). For instance,in Malaysia, four of e leven electronicsaffiliates surveyed had such programmes(Giroud, 2001a) ; a survey in NorthernIreland found 38 per cent of foreign affiliateswith similar programmes (Crone and Roper,1999). 26 However, what matters for thepresent d iscussion is not so much thefrequency of such efforts. The point is that,whatever some TNCs have done can beemulated by other firms that seek to createand strengthen linkages with local suppliers.Some examples are given in this section andthe annex to this chapter. They are notnecessarily representative and are mostlybased on experiences in economically moreadvanced developing countries. Still, theydo give an insight into what companies cando. 27

Whether as part of special supplierdevelopment programmes or not, efforts tocreate and deepen linkages involve steps forfinding suppliers and ensuring efficientsupply through technology t ransfer ,provid ing t ra in ing, shar ing businessinformation and/or giving financial support.The ultimate objective usually is to expandthe number of suppl iers that meet therequirements of foreign affiliates in termsof cost, quality and timely delivery, and/or to help existing suppliers improve theircapabilities in one or more areas. For someTNCs, efforts to upgrade supplier activitiesare par t of a corporate s t ra tegy tak ingbroader economic and social considerationsinto account. Activities that foreign affiliatesundertake to implement their programmesand achieve their objectives are reviewedbrief ly below; addi t ional deta i ls andexamples are contained in the annex to thischapter.

1. Finding new local suppliers

In host developing countr ies andeconomies in transition, where supply chainsare generally not well developed, there isa part icular need for efforts to identifypotential suppliers. This may be especiallyimportant for affiliates that depend on inputsthat cannot be imported easily or producedin-house. There are many ways for foreignaffi l iates to do this, of which the mostcommon ones are as follows:

• Making public announcements about theneed for suppliers and the requirementsthat firms must meet on costs and quality,ability to undertake continuousimprovement, technological capabilitiesand delivery. Provision of such informationis quite common. For example, it is animportant part of Nestlé’s activities relatedto the selection of suppliers (box IV.6).

• Supplier visits and quality audits arecommonly used to evaluate and developnew (as well as existing) suppliers indeveloped and developing countries. Forexample, in the United Kingdom andSingapore, about 60 per cent of theaffiliates conduct site visits to audit thequality of suppliers (PACEC, 1995; Tan,1990). The corresponding figure inNorthern Ireland is 47 per cent (Crone andRoper, 2001). Regular follow-ups ondelivery, inventory performance, qualityrating and cost improvements are relativelycommon.

As noted, efforts in f inding newsuppliers are likely to be the most frequentin foreign affiliates that are highly dependenton having access to a dynamic base of localsuppliers. Factors that affect the behaviourof foreign affiliates in this respect includehost country trade policies, the nature ofinputs required and the competitive aspectsof the supply s t ructure of the fore ignaffiliates.

2. Transferring technology

To ensure that the inputs procured meetthe ir s t r ingent technical requirements ,foreign aff i l iates often have to providesuppliers not just with specifications butsometimes also with assistance in raising


Nestlé operates 18 factories in China, producing a large variety of products includingbeverages, milk products, infant nutrition, ice cream, cooking aids, chocolate and confectionery.In 2000, the company’s turnover in China was about CHF1 billion. High quality packagingis required to transport products and store under difficult climatic conditions, taking safety,health and environmental considerations into account. Nestlé initially had major difficultiesin finding packaging of the required quality. In 1992, much of the company’s supplies wereimported. To expand the number of viable suppliers, Nestlé decided in 1994 to engage inactive supplier development; by 1997, 98 per cent of its needs were covered by local suppliers.

As a basis for its selection of suppliers of agricultural and dairy produce, as well aspackaging materials, Nestlé develops “specification sheets” that state the requirements towhich every procured product or service must conform. The selection of suppliers is basedon various criteria, including the acceptance of Nestlé’s specifications, acceptance of auditsand inspection, the existence of a well-structured quality assurance system, technical competencein their field of activity, good quality record, reliability and economic viability.

Nestlé’s approach in China to develop suppliers of packaging materials was pragmaticand directed to concrete needs. When possible and economically feasible, the company workedwith local suppliers to help them meet quality standards by providing information, technicalassistance and sometimes also financial support.

• Information provision. The main contribution was to help suppliers improve their understandingof specifications required, and to improve certain commercial and quality aspects. Supplierswere given the information needed to meet the quality standards of Nestlé. Informationhas also been given to help suppliers contact Nestlé affiliates in other countries.

• Technical assistance. Nestlé staff visited the suppliers’ premises before buying and againlater whenever needed, and gave advice on technical aspects of production. Productionassistance is given by specifying and improving quality assurance elements, helpingto avoid and analyse defects in first deliveries, giving the chance to deliver in smallquantities, etc. Nestlé’s Quality Assurance Department gave assistance in productioncontrol and to improve the quality control system of suppliers. One supplier, for instance,was helped to overcome problems related to printing quality, bonding strength of thelaminate and heat sealability.

Nestlé’s efforts to establish proper quality control procedures contributed to an improvementof the competitiveness of suppliers of packaging materials, and some of them subsequentlyexported to Russia, the Republic of Korea and elsewhere in Asia. So far, Nestlé has dealtwith 154 suppliers of packaging materials, 45 of which are foreign affiliates or joint ventureswith foreign affiliates, and 109 are local. Of the ten main suppliers, six are domestic companies,three are foreign affiliates and one is a joint venture.

Nestlé’s affiliates in China also assist providers of raw materials. For example, majorefforts were undertaken in China to help develop local growers of coffee. During the firsttwo years of operation of a Nescafé factory established in 1991 (of which Nestlé controlled60 per cent and a Chinese state company the remaining 40 per cent), all green coffee wasimported. To facilitate a switch to local supplies, Nestlé set up an Agricultural TechnicalAssistance Service (ATAS) to promote the cultivation of coffee in China. The ATAS in Chinabegan its activities in 1990 and, by 1996, employed 17 agronomists and agro-techniciansand 33 farm-hands working on two Nestlé experimental, demonstration and teaching farms.The ATAS offered a number of services, such as advice on which sites are best suited forcoffee plantations; how to terrace the land and select the coffee to be planted; and how toplant, use fertilizers, prune, fight pests and diseases, etc. In 1995, Nestlé created a ProfessionalTraining Department to provide technical and practical training to a number of target groups:those responsible for growing and selling coffee, agronomists and civil servants and individualsinterested in entering the business. Some agronomists have been trained as trainers, in orderto be able to extend the training to more people.

Box IV.6. Nestlé’s supplier development programme in China

Source : UNCTAD, based on Nest lé , 2001 and company in terv iews.


suppliers’ technological capabili t ies. 28

Such assistance tends, for obvious reasons,to be more prominent in developingcountries.

A number of studies throw light on theextent or incidence of technology transfer– broadly defined to include the transfer ofproprietary technology as well as technicalsupport or assistance of various other kinds– from foreign affiliates to local supplierfirms. 29 For example, a survey of 30 largeforeign-affiliate manufacturing plants in theUnited Kingdom found that 67 per cent madecontrac tua l arrangements on productspecification, 60 per cent provided technicalass is tance on qual i ty assurance andorganizational issues through visits, and 27per cent of the foreign affiliates providedmanagement advice to their local suppliers(PACEC, 1995). Similar results were notedin a Northern Ireland study, with 18 per centto 76 per cent of the respondents indicatingknowledge transfer activities of one kindor another (Crone and Roper, 1999, table7.5). In both of these studies, at least halfof the managers of the foreign affiliatessurveyed were of the view that theknowledge transfers had had a posi t iveimpact on their suppliers’ competitivenessin terms of pr ice , qual i ty or de l iveryconditions (Crone and Roper, 1999).

In developing countries, a number ofstudies on the electrical and electronicsindustries have focused on the transfer oftechnology by foreign affil iates to theirsuppliers. For example, a study carried outamong eight foreign affiliates and 16 localsubcontracting firms in the electronics sectorin Singapore showed that s ignif icanttechnology t ransfer took place throughlearning opportuni t ies provided by theexposure to foreign affiliates, e.g. throughtest ing and diagnost ic feedback (Wong1992). Direct transfer of technology wasstated to be of moderate importance and tookplace mainly through technical support, suchas the advice or t ra in ing in qual i tymanagement systems and other goodmanufactur ing pract ices . The types oftechnologies transferred were mostly relatedto processes, especially in quality-controltechniques. In another s tudy in theelectronics industry in Singapore, focusingon or ig inal equipment manufactur ingarrangements between foreign affiliates and

local supplier f irms, 89 per cent of thefore ign aff i l ia tes reported providingtechnical support as part of their efforts todevelop their suppliers (Tan, 1990). In theelectronics industry of Malaysia, foreignaff i l ia tes were found to have providedsignificant technical support to their localsuppliers (Ismail, 1999; UNDP, 1993). Suchsupport included solving specific technicalproblems (Capannelli, 1999) and assistingin factory layout, production planning andmachinery installation (Ismail, 1999).

The extent of technology transferappears to r i se the more af f i l ia tes arecommitted to long-term relationships withsuppl iers , the greater the technica lcomplementarity between their activities,and the more specialized or custom-made(rather than standardized) are the inputssupplied. 30 Transfers of knowledge are alsolikely to be positively influenced by the sizeof affiliates and their export-orientation. 31

Needless to say, the extent of technologytransfer also depends on the host economyand the level of development of local firms.TNCs invest in building local capabilitiesonly when the investment can be expectedto yield a return in a reasonable period.Where potential suppliers lack the minimumbase of ski l ls and know-how needed toabsorb technologies and managementprac t ices (and suppor t ins t i tu t ions arelacking or weak), TNCs may find it tooexpensive or risky to try and bring them upto the standards needed. Given minimumlevels of capability, moreover, affiliatesdifferentiate their technological relationsaccording to individual suppliers. Primaryattention is typically given to a l imitednumber of key suppliers that provide themost complex and strategically importantinputs, the production of which requiresclose interaction between the buyer andsupplier. Highly ranked suppliers receivelarger and higher value-added orders, along withgreater technical assistance and know-how .

Technology transfer by fore ignaffiliates to suppliers can be categorizedaccording to the area of technologyinvolved; an affiliate may engage in severalsimultaneously (boxes IV.7 and IV.8).

The first area of technology transferrelates to product technology. Forms oftransfer include the following (see also theannex to this chapter):


• Provision of proprietary product know-how .The incidence of transfer of proprietarytechnology is relatively low. When itoccurs , such transfers seem to concentrateon a few “preferred suppliers” (see e.g.box IV.9) (Wong, 1992; Yoon, 1994;Handfield et al. 2000).

• Transfer of product designs and technicalspecifications. Such transfers can take theform of detailed technical specificationsand designs to enable local suppliers tomanufacture the required inputs. Somestudies have found this to be the main formof transfer of product-related technology(Wong, 1992; Ismail, 1999).

• Technical consultations with suppliers tohelp them master new technologies. Someaffiliates provide advice to local supplierson product characteristics or parameters.Such technical support activity helps localsuppliers in adopting and absorbing newproduct-related technology.

• Feedback on product performance to helpsuppliers improve performance . Suchfeedback reports often include diagnosticmeasures. Regular feedback to suppliershas been found to be more frequent inforeign affiliates that have implementedspecial programmes on supplierdevelopment (Crone and Roper, 1999).

• Collaboration in R&D. Such buyer-supplier relationships typically require acritical minimum level of researchcapability of the host countries involved.In some cases, collaboration in R&D mayinvolve local universities or researchinstitutes (see e.g. box IV.8).

The main forms of transfer of processtechnology are (see also the annex to this chapter):

• Provision of machinery and equipment tosuppliers. Foreign affiliates sometimestransfer machine-embodied processtechnology by providing machinery/equipment to local suppliers. Suchequipment may be related to themanufacturing of the product to bepurchased or testing equipment for qualitycontrol.

• Technical support on production planning,quality management, inspection andtesting. Such support includes assistingsupplying firms in improving their

manufacturing processes, quality controlmethods, inspection and testing methods.Affiliates may also advise supplier firmson the selection/use of process equipment/technologies.

• Visits to supplier facilities to advise onlayout, operations and quality. Personnelof foreign affiliates visit suppliers’premises in order to provide advice onfactory layout, installing machinery,production planning, production problemsand quality control. Such visits may takeplace weekly or monthly or whenever theneed arises. Sometimes it may also involveseconding affiliates’ engineers to thesupplier’s factory for a certain number ofdays (Ismail, 1999).

• Formation of “cooperation clubs” forinteracting with or among suppliers ontechnical issues. Such clubs are particularlycommon in Japanese TNCs and sometimesarrange for activities such as quality controlpresentations, discussions of case studieson quality improvement, value analysis andcost reduction activities; and also organizeworkshops on technical guidance andtraining (see box IV.10; also see box V.5). 32

• Assistance to employees to set up their ownfirms. Employees of foreign affiliates aresometimes given support to start their ownbusiness and become suppliers. Havingworked in an affiliate, the employee-turned-entrepreneur has a better understanding ofthe requirements of the affiliate. In additionto procurement guarantees, affiliatesprovide know-how, equipment andtechnical assistance to such start-upfirms.33

Organizat ional and manageria lknow-how can be transferred in the followingways (see also the annex to this chapter):

• Assistance with inventory management andthe use of just-in-time and other systems.Such assistance is of particular importancewhere the continuous supply to suit aforeign affiliate’s production schedule isvital. This applies, for example, to theautomotive industry.

• Assistance in implementing qualityassurance systems (including ISOcertification). Some foreign affiliatesprovide support to their suppliers in


Box IV.7. Cooperation between foreignaffiliates and local suppliers: the case of

LG Electronics in India

Some foreign affiliates use advanced andsystematic techniques for transferring technologyand information to linked enterprises, basedon their experience elsewhere. For instance,the Indian affiliate of the Korean TNC, LGElectronics, uses techniques for supplierdevelopment such as “early supplierinvolvement” to implement the Six Sigma systemof statistical analysis for quality and productivityimprovement. It helps them with process redesignand re-engineering and direct on-line supply.It provides them with global cost benchmarks,data not easily available to local counterparts.Suppliers are provided with assistance in “factoryinnovation” to improve quality and profits.Some are helped to set up facilities close tothe buyer to improve logistics. Selected vendoremployees are sent to overseas plants, invitedto regular meetings and presented with awards.They can part icipate in LG’s t ra in ingprogrammes and are instructed in e-commercetechniques. By being exposed to global qualityand cost standards, they can meet export marketdemands directly; LG helps them to enter exportmarkets.

Source : UNCTAD, based on Kalyankar, 2000.

designing and implementing qualityassurance systems or total quality controlsystems. The nature of such systems areoften industry-specific.

• Introduction to new practices such asnetwork management or financial,purcha se and marketing techniques.Foreign affiliates can offer importantadvice related to various othermanagement-related areas, with importantpositive effects on supplier performance(see, e.g. boxes IV.9 and IV.10).

The technology t ransfer andupgrading process can take a long time andmay, in some cases, precede actual supplyactivity. For example, when the Frenchcompany Saint Gobain decided to set up afloat glass plant in Chennai, India, it hadmajor technical problems with potentiallocal suppliers. Firms were disorganized andscattered. Their technological capabilitieswere limited and they lacked ability to reachminimum standards unaided (Saint Gobain,2001). Saint Gobain set up specialized teams

to develop suppliers three years before evenstarting productive operations. The teams,with experts in several disciplines from Indiaand abroad, provided assistance on rawmater ia l evaluat ion, engineer ing andtechnical services, information technologysupport, packaging materials developmentand logis t ics management . Each teamworked with suppliers to develop cost andbusiness models, to train a largely illiteratelabour force ; and to educate f i rms inmanagement concepts. Moreover, the teamsacted as intermediaries to help firms obtainloans, where needed, from f inancialinstitutions. Four years after the first teamswere sent to India, 80 per cent of the rawmaterial requirements were indigenized.Moreover, several suppliers began supplyingother TNCs in India.

There are thus various ways in whichtechnology l inkages between foreignaffi l iates and domestic suppliers can beformed and strengthened. The realization ofthe full potential benefits derived from suchlinkages by the recipients also involves thetransfer of capacity to understand, use andimprove a given technology (Komoda, 1986).I t involves adapt ing the acquiredtechnology, as well as its absorption by therecipients (Baranson and Roark, 1985).Complete absorpt ion at the f i rm-levelinvolves the recipient gaining the capabilityto undertake innovat ive act iv i tyindependently to improve upon products andproduction processes (Baranson and Roark,1985; Narayanan, 1999). The transfer ofproprietary technology usually comes withrestrictions on its usage. Therefore, effortson the part of a recipient firm to absorbacquired technologies and to improve uponthem further become even more crucial.

3. Providing training

The human resource base of supplierf i rms is v i ta l to the success andsustainabil i ty of l inkages. Assistance inhuman resource development therefore oftenforms part of l inkages, and expands thescope for deeper spillovers of skills andknowledge. While evidence on skill linkagesis difficult to collect, what exists suggeststhat they can be significant. In the Malaysianelectronics industry, for example, themajority (10 out of 11) of foreign affiliates


The food industry is of special interest as it is one of the most linkage-intensive industriesand also of great importance in many developing countries. It generates extensive and stronglocal linkages as a result of the use of perishable agricultural inputs, such as milk and vegetables.Difficulties in importing the required inputs, coupled with restrictions on land ownershipin many countries, can make it necessary for foreign affiliates in food processing to relyon sourcing from domestic producers and to engage in efforts to develop new and upgradeexisting suppliers.

Field research (conducted by UNCTAD in India in 2001) involved interviews with fourleading foreign affiliates of TNCs in the food processing industry of India (Pepsi Foods Ltd.,GlaxoSmithKline Beecham Ltd., Nestlé India Ltd. and Cadbury India Ltd.). It revealed thateach firm on average sourced locally 93 per cent of their raw material (tomato, potato, basmatirice, groundnut, cocoa, fresh milk, sugar, wheat flour, etc.), and 74 per cent of other inputs(plastic crates, glass bottles, refrigerators, ice chests, corrugated boxes, craft paper, etc.).This high level was achieved in part as a result of comprehensive efforts by these companiesto assist in the development of local suppliers.

In order to improve the sourcing of key produce in terms of reliable quantities and consistentquality, the four companies have undertaken a number of measures to strengthen their relationshipswith suppliers:

• Collaboration in product development. All four affiliates are engaged in product developmentwith local research institutes or universities to develop hybrid varieties of crops andvegetables and new agricultural implements to alter cropping patterns and to raise productivity.For example, Pepsi Foods’ R&D team has so far evaluated more than 215 varieties/hybridsof chilli, which is believed to be the largest scientific evaluation of chillies at any location.Pepsi’s technology in chilli cultivation has raised its yield three times, to about 20 tonsper hectare. In addition, Pepsi R&D has developed 15 new agricultural implements tofacilitate planting and harvesting in India.

• Technology transfer and training. New hybrid varieties, implements and practices aretransferred to suppliers (primarily farmers) through Farmer Training Camps. Pepsi providesits contract farmers, free of cost, with various agricultural implements and hybrid seeds/plantlets, as well as process know-how. Cadbury India has a procurement and extensionservices team that imparts training to potential and existing suppliers on new techniquesin planting, harvesting, quality control and post-transplantation care of cocoa crop throughtechnical bulletins, video demonstrations, slides and charts and live demonstrations onthe use of various agricultural implements.

• Introduction of contract farming. Growers are contracted to plant the processors’ cropson their lands and to deliver to the processors, at pre-agreed prices and quantities ofoutput based upon anticipated yields and contracted acreage. Towards this end, a processorusually provides the farmers with selected inputs like seeds/seedlings, information onagricultural practices and regular inspection of the crop and advisory services on crops.Farmers have the choice to leave some part of the output free from the contract arrangementto sell it in the open market.

• Financial assistance is provided to growers through the involvement of agricultural developmentbanks. For example, GlaxoSmithKline Beecham acts as a guarantor enabling its suppliersto take bank loans .

Technology transfer to local farmers has apparently had a positive impact. For example,prior to Pepsi’s activities (in 1989), the tomato yield was 16 tons/hectare in Punjab; by 1999,the yield of Pepsi’s suppliers in Punjab had increased to 52 tons/hectare. A report basedon the impact of a number of food processing projects by foreign affiliates indicated thatforeign affiliates had contributed to better farming practices (e.g. hybrid seeds, transportationinnovation) that resulted in increased incomes and yields (McKinsey & Company, 1997).

Box IV.8. Upgrading supplier capabilities in the food processing industry in India

Source: UNCTAD, based on f ie ld research.


In Viet Nam, domestic suppliers account for 40 per cent of Unilever’s production volume,20 per cent of its raw materials and 87 per cent of its packaging materials. As local suppliersinitially often lack the necessary financial resources, technology, quality control, safety standardsand environmental awareness to qualify as suppliers, Unilever assists its local suppliers directlyin a number of ways to develop their supply capabilities.

For its five key suppliers, Unilever provides extensive training programmes and offersfinancial support to upgrade their equipment. Direct technology transfers are made in theform of equipment and machinery, formulations and processing, quality assurance and analyticalmethods and other best practices. Unilever managers provide on-ground support to help raiseefficiency, quality control and consistency of the products supplied. For example, Bicico ChemicalsCosmetic Enterprise became a supplier of detergent paste to Unilever in 1996. When the companyshowed an interest in expanding its capabilities, Unilever assisted in the start-up and buildingof a liquid detergent plant in 1997. A second plant was added in 1999. In addition, Unileverprovided technology for a powder bleach plant, a detergent paste plant and quality assuranceequipment. Business growth and jobs created at Bicico have developed favourably. Accordingto Unilever, Bicico’s production volume grew from 3,000 tons in 1996 to 23,000 tons in 2000.In the same period, turnover grew from $18,000 to $285,000, and the number of employeesfrom 12 to 250.

In the case of its 76 suppliers of raw materials and 54 suppliers of packaging materialsin Viet Nam, Unilever defines quality standards required, establishes the technology inputneeded to achieve these requirements and, where appropriate, provides the financial supportto ensure long-term growth. In addition, Unilever conducts training on quality standards, inspectionand testing methods and warehousing specifications. In 1997, for example, Quang An 1 Companybecame a supplier of plastic bottles for Unilever’s factory in Hanoi. Unilever establishedquality standards, sampling procedures and analytical test methods and provided staff training.The assurance of a steady business volume also allowed Quang An to invest in new equipment.Apart from increasing their business with Unilever sixfold in three and a half years, QuangAn’s improved capabilities enabled it to win new business from other TNCs and local companies.

Toyota Motor Thailand (TMT ) has established an extensive network of linkages withsupplier firms within the country. TMT’s first-tier suppliers in January 2001 comprised 575firms, of which 134 supplied core auto-parts and 441 supplied other materials and facilities(box table IV.10.1). Of the former, Japanese joint ventures and Toyota-related companiesaccounted for 55 per cent of firms and 79 per cent of the value of supplies. Thai firms withJapanese technical assistance and other Thai firms accounted for 27 per cent of the numberof suppliers but only 8 per cent of the value of supplies. In the case of materials and facilities,wholly owned Thai firms accounted for 60 per cent of the number of suppliers, but only 14per cent of the supplied value. It is estimated that the second- through fourth-tier suppliersof TMT’s supply chain comprise around 1,500 largely Thai-owned firms, but the actual numbermay be lower since the economic crisis of 1997-1998 caused serious financial problems formany smaller suppliers.

During the economic downturn following the East Asian financial crisis, TMT gave significantfinancial support to its first-tier suppliers. In order to prevent bankruptcies among its suppliers,TMT provided some 1.6 billion baht from Toyota Motor (Japan) through a number of programmes:an advance payment revolving fund; dead stock purchase schemes at cost; and advance paymentsfor tooling expenses.

Toyota has declared its intention to procure all parts and components locally (100 percent local procurement – as distinguished from 100 per cent local content) at TMT by 2003,rising from its present level of around 70 per cent. In order to achieve this, TMT announceda special project in 2000 (the so-called “Thai for Excellent Project”) and explained the planto its suppliers. Toyota decided to aim for 100 per cent local procurement in the anticipationof the automotive liberalization foreseen by the ASEAN Free Trade Area in 2003, and inresponse to high competition with other automobile companies.

This is the first time that Toyota seeks full local procurement. Eventually this approachcould also be extended to other ASEAN countries. The reason why this approach was pioneered

Box IV.9. Unilever in Viet Nam

Source : UNCTAD, based on Uni lever , 2001.

Box IV.10. Fostering linkages with local suppliers: the case of Toyota Motor Thailand

/...


in Thailand is that Toyota had already established a wide range of supporting industries there,including for key components, such as engines and major body parts. These key componentsare generally produced by Toyota’s affiliates (not by domestic firms). The major remainingparts to be procured locally include certain precision transmission parts and electronic controls.

Toyota Cooperation Club

The Toyota Cooperation Club (TCC) plays an important role in TMT’s efforts to strengthenits local suppliers’ capabilities. TCC is an association of suppliers to TMT, with a currentmembership of 92 first-tier suppliers. Suppliers eligible to apply for membership must haveannual sales of five million baht to TMT and at least a three-year relationship. There arecurrently six major types of activities at the TCC: (1) annual conferences; (2) TCC ExecutiveCommittee meetings; (3) Quality Assurance Kaizen (steady improvements) activities; (4) CostKaizen activities; (5) quality control circle activities; and (6) TCC lectures.

These activities are open to all members of the TCC. Activities (3) through (5) are limitedto first-tier suppliers, while activity (6) is open to all suppliers. Although TMT was involvedin the establishment of the suppliers’ association, the major players in the activities of theAssociation are its key suppliers. The Executive Committee of TCC consists of representativesfrom its 12 key suppliers, which include not only some Japanese subcontractors in Thailand(e.g. Denso (Thailand)), but also domestic suppliers (e.g. CH. Auto Parts Co.).

The members of the Executive Committee host various activities at their companies todiffuse the Toyota Production System and quality control mechanisms to other local suppliers.For example, some members organize a series of seminars/training courses on issues relatedto cost-efficiency, quality assurance and delivery. There are also study groups on, e.g. plantoperation with a view to proposing ways and means to utilize Kaizen. In these activities,TMT and Toyota’s Operation Management Division in Japan provide technical advice andguidance. Toyota’s approach is to encourage suppliers to make their own efforts to improvetheir competitiveness, in a voluntary learning process (“jishiuken”).

The TCC has not only provided opportunities for suppliers to learn best practices fromeach other in management and quality control, but also fostered cooperation among suppliers.In addition, a “Supplier Centre” has been set up at TMT headquarters to provide the necessaryinformation for its suppliers. This includes prototypes of all major parts, lists of suppliersand their performance for each month, and information on specifications of major parts andcomponents.

Although TMT appears to be interested in extending the activities of the TCC to tier-two to tier-four suppliers, the programmes to support these suppliers are relatively weak.This is due in part to the desire of the first tier suppliers to deal with their own suppliersby themselves and to be responsible for them, and in part due to a lack of resources (bothfinancial and personnel) on the part of TMT. With some exceptions, TMT efforts are limitedto encouraging first-tier suppliers to work with their own suppliers in a similar manner tothat adopted by TMT with its first-tier suppliers. Innovative ways of involving lower-tiersuppliers in some of the higher-level activities of the TCC are needed to upgrade capabilitiesand understanding. Government support to such activities could help to reach local suppliers.

Box table IV.10 .1 . Local procurement by Toyota Motor Thai land, 2001,by type o f suppl i er and type o f input

Purchasing of key parts Purchasing of other materials and components and facilities

Number of Distribution of Number of Distribution of Type of supplier suppliers purchases (Per cent) suppliers purchases (Per cent)

Toyota-owned firms in Thailand 4 37 - -Japanese joint ventures 69 42 103 78Thai firms with Japanese technical assistance 17 7 3 2Non-Japanese joint ventures 6 2 71 6Pure Thai firms 19 1 264 14Firms in ASEAN under the ASEAN BBC prog ramme a 19 11 - -Total 134 100 441 100

Source : Information provided by Toyota Motor Thai land. a Brand-to-brand complementation scheme.

Box IV.10. Fostering linkages with local suppliers: the case of Toyota Motor Thailand(concluded)

Source: UNCTAD, based on Br imble , 2001.


in a 1996 study provided some training tolocal suppliers on quality testing and processyields, product testing and problem spotting,new management techniques and productionprocess (Giroud, 2001a). In Costa Rica,according to a survey of suppliers to Intel,35 per cent of service providers and 17 percent of goods providers received trainingfrom that TNC (Larraín et al., 2001). InIndonesia, where ski l led labour is veryscarce , a few suppl iers among thoseinterviewed for an assessment of the supply-side situation in a number of industriesmentioned the training assistance they hadreceived from their TNC clients (Battat etal., 1996). In India, three out of four largeforeign affiliates covered by a case-studyof the food-processing industry providedtraining to their suppliers’ personnel (seebox IV.8) . In Mexico, according to theresults of a questionnaire-survey, all thefore ign-owned automobi le-assemblerssurveyed provided support to suppliers fortraining, mainly related to quality control(Altenburg, 2000, p. 28). Such support was,however, largely confined to f irs t- t iersuppl iers , which were general ly a lsoaffiliates of foreign firms. 34

There is some evidence to suggestthat the impact of linkages on training (andlabour management) tends to be higher thelonger the duration of a relationship and thesmaller the size of a supplier firm relativeto an affiliate (PACEC, 1995). Skill transfersseem to be h igher for suppl iers inmanufacturing than in services. In somecases , TNCs a lso extend the i r t ra in ingassistance to potential suppliers (boxes IV.11and IV.12; Saint Gobain, 2001).

In developing host countries, localf i rms of ten face f inancia l , sk i l l andinstitutional constraints in improving humanresources. Many are unaware of their skillgaps or of means to remedy them. Giventheir knowledge of skill needs and trainingmethods, fore ign aff i l ia tes can play asignificant role in helping suppliers to audittheir human resources and mount effectiveupgrading programmes. They can use anumber of methods to do so:

• Training courses in affiliates for suppliers’personnel. Some foreign affiliates organizetraining courses for local suppliers’personnel. These can take several formsand can include broad productivity-

enhancing areas related to organizationaland managerial practices. Since trainingcourses require considerable expenditureand organizational effort, they are likelyto be offered only when there is anexpectation of high returns to both sidesdue to a sustained long-term relationship.Courses may also be offered in cooperationwith meso-institutions such as industrygroups or public sector agencies at the locallevel as, for example, the Penang SkillsDevelopment Centre (box IV.11).

• Offering access to internal trainingprogrammes in affiliates or abroad.Foreign affiliates that have internal trainingcourses of their own or are part of TNC-systems with internal training coursessometimes also open them up to theirsuppliers’ employees. (see e.g. box IV.11).

• Sending teams of experts to suppliers toprovide in-plant training. The purpose ofsuch visits can be to provide training onimprovements in technology or processmanagement.

• Promotion of cooperative learning amongsuppliers, through associations and clubs.Such events can promote the exchange ofbusiness information among suppliers andforeign affiliates (box IV.10). 35

In addi t ion, informal exchangesbetween affiliates and suppliers can be avaluable source of ideas and information onhuman resource development, particularlyin more developed host countries in whichthe gap between suppliers’ and affiliates’skill levels is small.

The s ize , range and content offoreign affiliates’ training programmes interms of the various kinds of act ivi t iesmentioned vary. Several factors explainedthese var ia t ions . They inc lude thecharacter i s t ics of the TNCs and the i raff i l ia tes as wel l as of the domest icsuppliers: size, resource-base, capabilitiesand bus iness cul ture . St ra teg ies andobjectives matter as does the nature of theiractivities. The duration and closeness of therelationship is an important determinant.Finally, the costs of providing training andthe inducement provided by governments,provincial authorities and interested civil-society groups, can influence the extent andnature of training provided.


Intel Malaysia has developed one of the most comprehensive programmes for supportingsupplier development and upgrading. Local suppliers are used by Intel in the areas of subcontracting,tooling and fabrication, equipment service support, transportation and packaging, operatingsupplies, construction and infrastructure support as well as information technology supplies.

Intel’s so-called “SMART” approach consists of five steps. The first is to select suppliersthat are willing and capable of participating in the programme. Potential candidates are soughtvia open houses and links with business organisations like the Small and Medium IndustriesDevelopment Corporation and various Chambers of Commerce. Intel analyses a candidatefrom four perspectives: its management (including the vision of the CEO and the companies’financial stability); its human resources; its technical, materials and process capabilities;and its cost competitiveness.

In the second stage, Intel assists selected suppliers by initial training. The next stepis to allocate business to suppliers at the level of complexity appropriate to their capabilitiesand the needs of Intel. Intel then helps raise supplier capabilities by continuous trainingand coaching. The ultimate and fifth step is to develop firms into global suppliers, with theability to meet international standards and export directly. The goal is that Intel should notaccount for more than 20 per cent of any supplier’s sales.

Continuous training of suppliers is provided partly by inviting them to send their staffto Intel’s internal training courses and partly through courses in the Penang Skills DevelopmentCentre (PSDC). PSDC analyses gaps in the capability of the suppliers’ workforce and providescourses to plug these gaps. While the PSDC assumes responsibility to package and deliverthe courses, most courses are contributed by Intel and other foreign affiliates in Penang.

Coaching involves regular supplier reviews and continuous dialogue. Through the supplierreviews, Intel shares new information on technical roadmaps and expected future technicaland business requirements early in the process. When appropriate, teams of engineers or relevantexperts from Intel are sent to suppliers to assist.

A number of suppliers have participated in Intel’s programme. According to the company’sestimates, about four out of five selected companies eventually become suppliers. For “direct”suppliers, which supply large volumes of components, the success rate is almost 100 percent. Intel Malaysia spends extra resources on coaching these suppliers. In the case of “indirect”suppliers, the success rate is about 70 per cent. Several SMEs have eventually become TNCsin their own right. In 2000, six were listed on the main board of Kuala Lumpur Stock Exchange,while another seven were listed on the second board.

According to Intel, tax incentives provided by the Government have been importantin motivating it to invest in developing local SMEs as suppliers. Under the “Pioneer” scheme(see box V.8 on the Malaysian government programme), Intel has negotiated with the Governmentand agreed on a financial support package, from which it benefits if it meets certain agreedcriteria, including one relating to supplier development. Currently, according to Intel, thetax incentives are about $50 million per year. There are also specific government funds available,which suppliers can use to finance upgrading efforts. TNCs in Penang work closely withgovernment institutions and PSDC.

Box IV.11. The SMART model of Intel Malaysia

Source : UNCTAD, based on In te l , 2001; Wong, 2000 and company in terv iews.

4. Sharing information

A continuous flow of informationfrom buyers is necessary for linked firmsto coordinate production and investmentplans, reduce transaction costs and optimizedelivery. The importance of information

rises with accelerating innovation, rapidmarket changes and intensi fy ingcompetit ion. 36 Apar t f rom provid ingsuppliers with information on their ownbusiness plans, foreign affiliates can assistsuppliers by giving access to a broad rangeof technical, market and business


Since its establishment in China in 1987, Motorola has become one of the country’slargest inward investors, with a direct investment stake of more than $3.4 billion, two whollyowned affiliates, 8 joint ventures, and 18 R&D centres.

Working in full partnership with China’s State Development and Planning Commission(SDPC), Motorola has established the Centre for Enterprise Excellence, a programme to providehigh-level training to selected state-owned enterprises. The main objective of the programmeis to develop Motorola’s supplier base by strengthening especially quality, production andproductivity through classroom and on-site instruction as well as outreach activities. Motorolaand the SDPC have developed a three-step model for that purpose: training of participantsfor two weeks; selection of high-potential state-owned enterprises for further development(after a 6-12 months joint effort, Motorola qualifies selected enterprises as suppliers); andprovision of finance, jointly with the SDPC, to selected firms. This final step has so far notbeen implemented as the firms selected have had access to alternative sources of funding.

Since 1998, Motorola and SDPC have developed a training curriculum in quality andproductivity management for the chief executive officers, managers and technical staff ofselected Chinese state-owned enterprises. They recruit and train professors from major universitiesin Beijing and Tianjin to provide courses in areas such as leadership development, strategicplanning, marketing, quality control (Six Sigma), internal controls, finance, and human resourcedevelopment. By early 2001, 449 enterprises from 23 provinces, covering 1,516 chief executiveofficers, middle level managers and technicians, have participated in the programme. Thetrainees come from a wide range of industries, including electronics, telecommunications,computer hardware, software, media, and general trading or commercial enterprises. Motorolaand the SDPC plan to expand this programme to reach 1,000 enterprises over the next fewyears.

Recently the programme was extended beyond Beijing to the interior of Western China.In 2000, Motorola and SDPC held sessions in Xian and Chengdu. By 2001, 400 chief executiveofficers, middle level managers and technicians from 85 enterprises had participated in theprogramme there. There are plans to continue this programme in Western China through 2001.By offering to share the company’s experience in quality and productivity management withChinese companies, it contributes to the reform of state-owned enterprises, a priority objectiveof the Government of China. Taking this programme outside Beijing serves the Government’sobjective of promoting more balanced growth. The successful reform of the state-owned-enterprisesector contributes, in turn, to a more favourable business environment.

At the same time, the programme supports Motorola’s efforts to expand its supplier baseand achieve localization goals, which helps Motorola minimize costs, control inventory andreduce new product cycle time, all of which are critical factors for success in an industrycharacterized by rapid technological change. Moreover, the programme has generated goodwilland enhanced corporate access to central and provincial government leaders.

The programme has been adjusted over time. Initially, the plan was to undertake thetraining effort together with four or five other TNCs. However, after about a year, these planswere scrapped because each company had its own training priorities and corporate cultureand it was difficult to make the programme work for multiple firms. The content of the programmeis also continuously updated and new training methods are introduced, such as e-learningas a means to accelerate the dissemination of the training materials.

As of end-2000, 63 of the participating state-owned enterprises had joined the 700-plusChinese firms currently supplying Motorola. Companies that become certified suppliers toMotorola continue to receive various types of support to ensure they remain qualified. By2000, the average percentage of locally manufactured parts and components in a cellular phonemanufactured in a Motorola plant in China had reached 65 per cent. It is expected that Motorola’slocal procurement will exceed $1.5 billion, and the number of local suppliers will exceed1,000 by the end of 2001.

Box IV.12. Motorola’s backward linkage programme in China

Source: UNCTAD, based on Motoro la , 2001.


information. For instance, they often haveextensive knowledge of international anddomestic market potential, market and pricet rends , and sources of raw mater ia ls .Information can flow from a foreign affiliateto its domestic suppliers either informallyor through contractual arrangements. Foreignaffiliates can use the following methods toinform local suppliers (see the annex to thischapter for examples):

• Informal exchanges of information onbusiness plans and future requirements.Representatives of foreign affiliates visittheir local suppliers to inform them aboutnew market developments or futurestrategies. This kind of information assistsdomestic suppliers in making decisions oncapital investments and business plans tomatch the needs of their buyers.

• Provision of annual purchase orders(confirmed periodically). Information inadvance on purchasing orders is likely tobe important for most suppliers. It isparticularly helpful for just-in-timearrangements, where the strict deliveryschedules demanded by foreign affiliatestend to entail additional costs for suppliers,who have to build up higher levels ofinventories before receiving purchasingorders in order to avoid late deliverypenalties (Sison, 2000).

• Provision of market information,particularly on foreign markets. Forexample, information on global markettrends can help SME suppliers diversifytheir customers and/or markets, thusreducing their dependence on a single largebuyer or market. In some cases, foreignaffiliates actively assist their vendors infinding new customers in other parts ofthe TNCs’ network (see e.g. box IV.6).

• Encouraging suppliers to join businessassociations, participate in fairs andfacilitate networking (see box IV.10). Thesecan provide a framework for foreignaffiliates to communicate with a largenumber of suppliers, giving informationon different aspects of their activities.

Sharing of information with theirsuppliers is a common feature of linkageprogrammes that some TNCs implement.This is an essential element for the matching

of capaci t ies of suppl iers wi th therequirements from foreign affiliates buyers.Foreign affiliates that have implementedsupplier development programmes tend tobe the most active in terms of providingmarket- and technology-related informationto their suppliers (Crone and Roper, 1999).

5. Extending financial support

Finance is a necessary part of alllinkages between affiliates and suppliers.The primary financial linkage is pricing, butit can also include financial assistance frombuyers to suppliers. In developing countries,the shortage of finance is often a majorconstraint for local firms. Studies suggesthowever , that there is re lat ive ly lowincidence of financial support to suppliersby foreign investors (Lall, 1980; Halbach,1989; Battat et al., 1996, Carrillo, 2001).37

In this respect, foreign affiliates may notbe all that different from other buyer firms.Never the less , in a survey of SMEs inEurope, 38 TNCs were the leas t -of tenment ioned group of s low payers , whencompared with local firms, both public andpr ivate . When i t does occur , f inancia lsupport appears to take place in the caseof suppl iers wi th whom aff i l ia tes haveestablished close cooperation.

Foreign aff i l ia tes with re lat ivelystrong financial positions can help domesticsuppliers in various ways (see the annex tothis chapter for examples):

• Providing special or favourable pricingfor suppliers’ products . Under normalcircumstances, buying firms have aninterest in fixing prices at a level belowarm’s length prices, as a trade-off for long-term security and stability. Foreignaffiliates are no exception. Some foreignaffiliates stipulate future price reductionsin line with anticipated technicalprogress.39 At the same time, affiliates maysometimes offer preferential prices to newsuppliers to help them get established(UNCTC, 1981).

• Helping suppliers’ cash flow throughadvance purchases and payments, promptsettlements and provision of foreignexchange. Advance payments or purchasescan help the liquidity situation of suppliers,particularly during financial crises (see e.g.


box IV.10). This could also be helpful inaddressing exchange rate fluctuationswhich might affect suppliers, notably ifthey are sourcing inputs from overseas tomeet the buyers’ requirements. 40

• Longer-term assistance through theprovision of capital; guarantees for bankloans; the establishment of funds forworking capital or other supplier needs;infrastructure financing; sharing of thecosts of specific projects with suppliers;and leasing. When the procurement of newequipment necessary to produce thestipulated amount and quality of goods istoo costly for a domestic supplier, a foreignaffiliate can buy the equipment and leaseit to its supplier.

In general, finance can be a seriousbott leneck for the development of theproductive capacities of suppliers, or forfunding their current operational costs. Thefinancial and cash flow situation of supplierscan be improved and strengthened if thereis a commitment on the part of thef inancia l ly s t ronger buyer-par tners toprovide short-term and/or long-term supportthrough various channels. In practice, in thecontext of backward l inkages , fore ignaffiliates provide finance to their suppliersrelatively infrequently, suggesting that thetangible benefits for themselves that theyperceive from such support are often lowerthan their expected costs. 41 However, anumber of them are involved in supportingsuppl iers in var ious ways , ra is ing thepossibility that the extent of such assistancecould be increased.

D. Conclusions

The evidence , scat tered as i t i s ,suggests that a number of TNCs take varioussteps to develop linkages between theirfore ign aff i l ia tes and suppl iers in hostdeveloping countr ies or economies intransition. Some affiliates provide assistancein a broad range of areas, whereas othersmay only support suppliers on an ad hocbas is , i f a t a l l . The most in tensere la t ionships are those affect ing thetechnological status of suppliers and theirability to meet the scale, quality and costneeds of the buyer. Meanwhile, it is clear

that i t has become more diff icul t fordomestic firms in host developing countriesto qualify as suppliers to foreign affiliates,in particular to affiliates that are a part ofintegrated international production systems.In such cases, TNCs tend to focus theirsuppl ier development efforts on keysuppl iers providing the most importantinputs. On the other hand, when TNCs havea strong self-interest in developing theirsupplier base in a host country, foreignaffiliates can extend considerable supportto enhance the competit iveness of theirdomestic suppliers.

The t ransfer of informat ion ontechnical specif icat ions and product ionrequirements is, of course, a necessary partof a l l l inkages; beyond th is , there aregenerally considerable f lows of advice,information, assistance and support frombuyers to suppliers. The shape linkages takevaries by location, activity, firm, the stateof domestic and other local firms, the natureof activities, the duration and closeness ofthe buyer-seller-relationship and the costsand risks involved. The general picture ishowever, clear: TNCs invest in linkages ifand when they are expected to yie ld apositive (and competitive) return. 42 Indeed,a survey of 84 companies in Japan, theRepublic of Korea, United Kingdom andUnited States in a wide range of industriesshowed that most, but not all, buying firmsfound that, supplier development activitiesdid improve suppliers’ cost, quality, deliveryperformance and cycle time (Handfield etal., 2000).43

The development, management andevaluat ion of suppl ier re la t ions are anecessary part of supply chain managementby any enterpr ise . TNCs t ransfer th isfunct ion, wi th i t s range of search,evaluation, interaction and other functions,to their affiliates in most host economies.As more effective supply chain managementbecomes essential to their competitivenessand dynamism, TNCs seek broader, moreefficient and responsive supplier networkswherever they locate. As they shift morefacilities, and a larger variety of functionsabroad, the range of potent ia l l inkagesincreases. With technical progress and itsr is ing informat ion intensi ty , thetechnological and skil l content of many


l inkages becomes higher. With therationalization of production across regions,they also have greater scale requirements.

Forming and maintaining linkagesinvolve costs and risks, which clearly varyaccording to local supply capabilities andinfrastructure. This is why a TNC makingthe same product in different host countriesmay have very different local sourcingpatterns. The available information does notal low the quant if icat ion of l inkages bylocation. The broad picture, however, is thatlocal l inkages, especially with domesticf i rms, r ise wi th the level of localdevelopment , part icular ly in complexactivit ies. It is more l ikely that foreignaffiliates source from domestic suppliers andengage in supplier development when thetechnological and managerial gaps betweenthem and their local suppliers are not toowide.

The lack of comprehensiveinformation makes it difficult to assess fullysuppl ier development effor ts by TNCs.Clearly, companies undertake such activitiesbecause they make sense from a businessperspective. Whether supplier developmentprogrammes are effective or not dependsfurthermore not only on efforts made byforeign affiliates, but on the efforts madeby local suppliers. It is obvious that, in orderfor l inkages to be favoured and forassistance through linkages to contribute toan improvement of the competitiveness ofdomestic enterprises in a host country, strongcommitment on the part of the supplier firmsis required.

Finally, although companies have ase l f - in teres t in es tabl ish ing andstrengthening links with local suppliers, itis clear that various government policies canpromote linkages between foreign affiliatesand domestic firms and help to increase thewillingness of foreign affiliates to assistthe i r l inked par tners . Whi le most TNCsupplier development efforts are organizedand implemented by parent f i rms andespecial ly their foreign affi l iates, someinvolve close collaboration with public, orsemi-private, institutions. Well-designedgovernment policies can further stimulatesuch effor ts . Indeed, th is is in a hostcountry’s economic interest, since linkages

between f i rms that increase thecompetitiveness of the firms involved canultimately contribute to the performance ofthe economy as a whole . The role ofgovernments in creat ing and deepeningl inkages between foreign aff i l ia tes anddomestic firms is hence the topic of the nextchapter.

Notes1 Defined as enterprises in which no single

foreign equity participation is more than 10per cent of capital. At the level of the economyor industry, the efficient use of domesticresources and capabilit ies may be a moreimportant consideration than the question ofthe ownership composition of the supplierswith whom the linkages are established.However, countries also see backward linkagesas a means to strengthen domestic enterprisesand to support domestic entrepreneurship.

2 On average, a manufacturing firm spends morethan half of its revenues on purchased inputs(Burnes and Whittle, 1995, cited in Handfieldet al., 2000). A growing proportion of inputsis now knowledge-or information-intensive.

3 In an enclave situation, in which foreignaffiliates have basically no direct links withdomestic firms, the dissemination of TNC-specific knowledge to the host economy asa whole depends entirely on externalities andspillovers. Where local inputs substitute forimported ones, linkages also benefit the balanceof payments.

4 While there is a large empirical literature onFDI and spillovers (e.g. Kokko, 1994; Katz,1987; Gerschenberg, 1987; Aitken and Harrison,1991; WIR95), there are hardly any empiricalstudies in the literature that analyse explicitlythe link between linkages and spillovers(Blomström et al., 2000, p. 116).

5 See, for example, Barnes and Kaplinsky, 2000;Battat et al. , 1996; UNCTAD, 2000a.

6 For example, the Brazil Auto Parts Association(Sindipeças) intermediated between suppliersand manufacturer (Doner and Schneider, 2000).

7 For example, 70 per cent of the foreignelectronics firms in Scotland that attemptedto increase local sourcing were constrainedby the lack of efficient local suppliers of keyinputs (Turok, 1993). Similarly, in the electricalequipment and electronics industries in Mexicoand the Republic of Korea, the main constraintto local procurement by foreign affiliates wasthe inadequate technological level of localenterprises. Common concerns among foreignaffiliates included the lack of quality control,inability to deliver on time and high pricescharged by local suppliers (UNCTAD, 2000a,


p. 66; Yoon, 1994).8 In Mexico, IBM assisted the local firm Ureblock

to start producing packaging materials thatwere not available from any supplier in thecountry at the time. Now Ureblock has a200m 2 building in the IBM plant and itsresponsibilities in the production process rangefrom cleaning the final product to labelling,packaging and final delivery to the IBMdistribution department (Dussel, 1999).

9 In some regions of the United Kingdom, forinstance, one in seven foreign affiliates obtainedmore than half of its material inputs fromgroup sources (Crone, 2000).

10 See, for example, Phelps, 1993; Crone, 1999;Kelegama and Foley, 1999; Carrillo andGonzalez, 1999.

11 Lim and Fong, 1991; Iannone, 1989; Driffieldand Mohd Noor, 1999; UNCTAD, 2000a. Lowlinkages between Japanese affiliates and localfirms may also be related to the Japanesepreference for greenfield investment whenexpanding abroad (Belderbos et al., 2001).

12 Reuber et al. , 1973; UNCTAD, 2000a;Altenburg, 2000; Belderbos et al., 2001.

13 During the 1990s, for example, the numberof suppliers to Fiat’s manufacturing plant inBetim, Brazil, was more than halved from500 to around 200 (Borges Lemos et al., 2000);the number of suppliers to Fiat’s Polish plantfell by 33 percent between 1992 and 1996(Balcet and Enrietti, 1998); and to its Turkishplant by 56 percent between 1992 and 1999(Balcet and Enrietti, 2000). Similardevelopments have been noted for othercarmakers (also see box IV.2).

14 Suzuki’s affiliate in Hungary, for example,only negotiates with potential suppliers thatare already ISO9000 and QS9000 certified(company interview).

15 Even in developed economies like the UnitedKingdom and the United States, productssourced locally by foreign affiliates are oftenof a standardized or technically unsophisticatednature (Turok, 1993; Crone and Roper, 1999;Crone and Watts, 2000; Chung et al., 1994).

16 This may explain why technology-intensiveJapanese TNCs have relatively low local contentabroad, particularly in developing countries(Belderbos et al., 2001). An analysis of inwardFDI in Ireland suggests that foreignmanufacturing affiliates with the largestpurchasing linkages tend to have a relativelylow R&D intensity and therefore may havethe least to offer to a local supplier in termsof technology and knowledge transfer(Breathnach and Kelly, 1999).

17 In the Central American apparel industry, someAsian investors relocated from higher-wageto lower-wage countries while United Statesbrand-name companies rarely relocated despite

considerable intra-regional wage differentials(Altenburg, 2000, p. 40).

18 Brannon et al., 1994; Lowe and Kenney, 1999.After NAFTA came into force, foreign affiliatesappear to have been given a higher degreeof autonomy (Carrillo et al., 1999, p. 56).

19 Driffield and Mohd Noor, 1999; Mair et al.,1988; Turok, 1997; Castellani and Zanfei,1998; Halbach, 1989; Yoon, 1994; McAleeseand McDonald, 1978; O’Farrell and O’Loughlin,1981; Görg and Ruane, 1998; Scott-Kenneland Enderwick, 2001.

20 For example, the number of domestic suppliersto Honda of America gradually increased fromabout 30 in 1983 to more than 400 in 1997(Handfield and Krause, 1999).

21 An Irish study shows that large and expandingforeign affiliates had relatively low levelsof local procurement (Görg and Ruane, 1998).In Mexico the small size of local supplierswas found to be an obstacle to linkage creationby large foreign electronic and auto-parts firms(Carrillo et al., 2001). Other studies confirmthat larger affiliates tend to have weaker locallinkages (Schachmann and Fallis, 1989; Halbach,1989; Barkley and McNamara, 1994).

22 Studies of the mining industry in Chile – theleader in mining-support industries in LatinAmerica (UNCTAD, 2000c) – found thatforeign-owned mining companies operate inan “enclave” with few links to local industry(UNCTAD, 2000a; Culverwell, 2000).

23 A survey of garments production in CostaRica, the Dominican Republic and Moroccoshowed local sourcing by affiliates of between5 and 10 per cent (UNCTAD, 2000a, chapter4).

24 As The Economist , 3 May 2001, noted, Indiais becoming the “Back office to the world”by undertaking a variety of services for foreignbanks, airlines, insurance companies, travelagents and so on. Most of the work is donein captive (wholly owned) facilities, savingthe companies involved around 40-50 per centof the cost. Some independent subcontractorsare entering the field (e.g. in medicaltranscription and call centres), but almostall their work is for companies located abroad.

25 Examples of companies having such programmesin developing countries are Anglo-American,BASF, Cadbury, Daewoo Corporation, Fiat,GlaxoSmithKline Beecham, Hitachi, IBM, Intel,LG, Matsushita, Motorola, Nestlé, Pepsi Foods,Philips, Saint Gobain, Siemens, Toshiba, Toyota,Unilever and Volkswagen. This list is by nomeans exhaustive, but represents responsesprovided by firms to a joint UNCTAD-ICCrequest for case studies as well as examplesreferred to in the literature. These cases arepart of the analysis below.

26 Other studies show a lower frequency of such


efforts. For example, a survey of the SouthAfrican automotive industry found that supplierdevelopment efforts by foreign carmakers andtheir first-tier suppliers were very modest andthat they had become rarer in recent years(Barnes and Kaplinsky, 2000).

27 The information on companies has beencompiled from responses to a survey of affiliatesin developing countries and economies intransition conducted by UNCTAD and theInternational Chamber of Commerce in 2000/2001.

28 Expertise and skills can be transmitted betweenbuyers and suppliers in both directions, andin developed host countries they probablyare. But this also happens in the more advanceddeveloping countries. For example, in Singapore,local SMEs were found to play an importantrole in transferring knowledge on local technicalspecifications, standards, management stylesand local culture, as well as soft technologyto their TNC customers (Chew and Yeung,2001).

29 Technology transfer to suppliers generallytakes the form of technical support ratherthan the transfer of proprietary know-how(Wong, 1992; Hobday, 1995; Ernst, 1997).Proprietary knowledge refers to product and/or process related know-how developed andowned by a TNC and usually protected througha patent or copyright or industrial design ortrade secret. One reason for the limited transferof proprietary technology may, of course, bethat the foreign affiliate does not itself possessthe know-how to produce a part or componentit procures externally.

30 For example, in Thailand, technology transfer(both direct and indirect) took place in 38per cent of the cases involving low-specificityproducts and 57 per cent of medium-specificityproducts, whereas the corresponding figurefor high-specificity products was 80 per cent(Supapol, 1995). See also Chung et al., 1994.

31 See Giroud, 2001a; Halbach, 1989; Supapol,1995; Gultom-Siregar, 1995; Wong, 1992.

32 The first “Supplier Associations” date backto 1939 when Toyota created one in Japanwith its ten most important suppliers (Handfieldand Krause, 1999).

33 Such spin-offs have become important playersin the support industry in the electronics sectorin Malaysia (Hobday, 1999), Singapore(Mathews, 1999) and the Republic of Korea(Bloom, 1992; Kim, 1999).

34 In the television-manufacturing industry ofMexico, a somewhat similar situation seemsto prevail: nearly half of the foreign-ownedlocal suppliers (to foreign-affiliatemanufacturers) covered by a questionnairesurvey received training (along with technical

assistance) from the respective foreign affiliatesfor their employees, but less than a fifth oflocally owned firms (generally second- or third-tier suppliers) received training for theiremployees from the buyers (foreign affiliatesor locally owned) to whom they supplied(Carrillo, 2001).

35 See the section on technology transfer.36 “Information is one of the most important

hurdles standing in the way of the morewidespread adoption of backward linkages.The whole concept of subcontracting revolvesaround the idea of information dissemination,since subcontracting is expected to facilitatethe matching of capacities of the small-scalefirms with demand emanating from the largefirms. There is thus a need for effectiveinstitutional arrangements for the collectionand dissemination of business informationrelevant to the large and small units operatingin the respective industrial sectors” (ITC, 1998,pp. 11-12).

37 For instance, eight of 11 foreign affiliatesin a survey of the Malaysian electronics industrydid not provide any financial support tosuppliers (Giroud, 2001a). Affiliates thatprovided financial support mentioned that itwas limited in time and scope, and was nota part of regular company practice. In Singaporein the mid-1980s, only 19 per cent of the UnitedStates-owned affil iates and 12 per cent ofthe Japanese-owned ones provided financialassistance to suppliers, but the practice wasmore common for European affiliates, withmore than 50 per cent providing such assistance(Tan, 1990).

38 The survey was conducted by Grant ThorntonInternational (GTI, 1997). It should be notedthat the survey report drew attention to thepossibility that some respondents might havelumped foreign affiliates and large local firmstogether.

39 Suzuki in Hungary sources items from exclusivesuppliers and stipulates price reductions of2-4 per cent per year (company interview;Schweitzer, 2001) According to a survey inIndia in the early 1990s, 2 out of the 10 foreignaffiliates mentioned professional costing and“worked out prices” with suppliers as theirmethod to determine a mutually agreed price(Kumar, 1995).

40 In the Mexican maquiladora industry, forexample, contracts are signed in Mexican pesoseven if suppliers purchase raw materials indollars. When they get paid a month or morelater, payments do not take exchange ratechanges into account, often at significant coststo suppliers (Carrillo et al., 2001).

41 Foreign affiliate-local firm financialarrangements are likely to be more prevalent


in forward linkages, especially if the relationshipis governed by a franchising agreement. Inthe food and beverages industry, for example,companies such as Coca-Cola and Unileveroften provide preferential credit lines andequipment free of charge to retailers. Butthese arrangements are often challenged ongrounds of anti-competitive effects, as, inexchange for these contributions, retailersare required to distribute exclusively theproducts of the TNC of foreign affiliatessupplying the product for distribution.

42 For example, in the case of its so-called RC5programme in Brazil, Fiat explicitly statesthat it expects to benefit through pricereductions on a participating supplier’s outputor to share the pecuniary gains the programmehelps to achieve. In fact,mainly for this reason,

a number of suppliers have chosen not toparticipate in the programme (Borges Lemoset al., 2000). Varity Perkins, a producer ofdiesel engines, similarly expects to share thebenefits a supplier enjoys as a result of supplierdevelopment efforts. However, instead ofrequiring an equal split on savings, Perkinsrequires that a supplier agrees not to raiseprices the following year, unless it has torespond to increases in raw material prices(Handfield et al., 2000).

43 The survey and field interviews showed thatin most cases, pitfalls were related to a lackof commitment or of technical and humanresources on the part of suppliers to implementthe improvements required (Handfield et al.,2000).


The fo l lowing are addi t ionalexamples of measures taken by foreignaff i l ia tes to s t rengthen the i r backwardlinkages with local firms:

1. Finding new local suppliers

• Making public announcements about therequirements that firms need to meet toqualify as suppliers . In Slovakia, theDevelopment of Suppliers Department (setup by a local Volkswagen sales affiliate,Skoda Auto Slovensko) informs potentialsuppliers on standards they have to fulfilto become suppliers; all suppliers must firstget a VDA 6.1 quality certificate (QS 9000level) required for the supplies to theGerman automotive industry (Ferencikovaand Koperdan, 2001). Intel Malaysia isanother example (box IV.11). One part ofits supplier development strategy is tosearch for and help domestic enterprisesto reach the stipulated quality standardsand upgrade their various activities in orderto qualify as suppliers to Intel. The mostimportant characteristic of a local firm isthat its top management is committed tolearning, to investing resources, time andeffort to work with Intel Malaysia with aview to upgrading its capabilities and skills(Wong, 2000). Another kind of informationsupport is to help potential suppliersestablish themselves a presence close tothe affiliate’s own plant. In Hungary, forexample, Suzuki’s affiliate is collaboratingwith local authorities to inform potentialsuppliers on how to establish themselvesin the region by, among other actions,organizing outreach events and providingmaterial containing information oninfrastructure and financing possibilities(box V.1).

• Supplier visits and quality audits. InSlovakia, the Development of SuppliersDepartment maps the potential of localsuppliers through visits and analysis oftechnology, capacity, quality managementsystems and financial performance. Thisis followed by a special audit, classifyingcandidates into three groups: ready tosupply, conditional supplier and rejects.

Those in the first two categories are givenassistance by representatives of Skoda AutoSlovensko – to bring them to the requiredlevels. The suppliers who finally meet thecriteria start receiving order demand quotesand enter the process of competing for acontract. 1 In Hungary, the affiliate ofSuzuki carries out a full-fledged supplieraudit (on management and accountingpractices, technology and workingmethods) of suppliers. 2

2. Transferring technology

Product-related technology

• Provision of proprietary product know-how .Some foreign affiliates transfer theirproduct-related proprietary knowledge totheir local supplier firms by licensingknow-how or granting supplier firmspermission to use it. For instance, AstraResearch Centre India (ARCI) licensed itsproduct know-how for reagents (which areused in DNA research) to a newly formedlocal firm, Gene India. This firm producesthese reagents and supplies to ARCI as wellas to other research institutes in India andabroad. Prior to such technology transferby ARCI, these reagents were imported(Reddy, 2000).

• Transfer of product designs and technicalspecifications. The provision of productdesign specifications was noted as one ofthe main channels for technology transferto local suppliers in the electronicsindustries of Thailand, China, Indonesia,Republic of Korea and Thailand (ESCAP/UNCTAD, 1995). In a study focusing onJapanese foreign affiliates and their localsuppliers in the electrical and electronicsindustry in Malaysia, 70 per cent of theforeign affiliates were frequentlyinteracting with local supplier firms toprovide them with product-related technicalspecifications, 32 per cent to provide toolsand 5 per cent to provide information onplant establishment (Giroud, 2000, p. 584).In some cases, a foreign affiliate maychange the design of an input specificallyto suit a local supplier’s production

Annex to chapter IV. Supplier development activitiesby foreign affiliates


capabilities (Giroud, 2001a). Affiliates alsoprovide advance technical informationabout changes in their products. Provisionof such information appears to be moreprevalent in some industries, such asautomobiles and electronics, than in others.For instance, Fiat’s affiliate in Brazilprovides the specifications for newproducts to local suppliers in advance(Borges Lemos et al., 2000). Although thesource of such specifications may be theTNC headquarters, local suppliers need tobe involved in adapting the product to localconditions, as well as adjustingcustomization to specific markets. Thisfacilitates technological cooperationbetween foreign affiliates and local supplierfirms, enabling the latter to developcomponents for a new product.

• Technical consultations with suppliers tohelp them master new technologies. In asurvey of 33 foreign affiliates in NorthernIreland, a majority of the affiliates (76 percent) was observed to have provided suchsupport through monthly contacts fordiscussion of technical issues (Crone andRoper, 2001).

• Feedback on product performance to helpsuppliers improve performance. After thesupply of a product by the supplier(s),foreign affiliates can provide feed-back onits performance, which helps suppliers infurther improving the product (see Croneand Roper, 2001; box IV.6).

• Collaboration in R&D. Some affiliatescollaborate with their local suppliers inproduct development through joint R&D.Collaboration in product development wasobserved, for example, in 44 per cent ofthe foreign affiliates covered by a NorthernIreland study (Crone and Roper, 2001).Such collaboration may also involve localresearch institutes or universities. In India,Singapore and Malaysia, foreign affiliateshave been found to be involved in R&Dcooperation in product-related technologieswith local firms and research institutes(Reddy, 2000; Hobday, 1999, p. 95).Research institutes were involved insupplying specific R&D inputs to affiliates.The local firms involved in R&Dcooperation with foreign affiliates, inaddition to developing products, may alsomanufacture them for supply to foreign

affiliates. Through such cooperation inR&D, there is scope for transfer ofapplication knowledge and methodologiesinvolved in product and processdevelopment to local supplier firms and/or research institutes (Reddy, 2000).

Transfer of process technology

• Provision of machinery and equipment tosuppliers. Magyar Suzuki, the Hungarianaffiliate of Suzuki of Japan, installedproduction equipment in the industrial parkof Esztergom, adjacent to its own site, tobe shared with suppliers (Suzuki, 2001).Foreign affiliates in the food processingindustry in India are another illustrationof the provision of embodied anddisembodied technologies to local suppliers(box IV.8).

• Technical support for production planning,quality management, inspection andtest ing. In a study of the electronicsindustry in Singapore, focusing on originalequipment manufacturing arrangementsbetween foreign affiliates and localsupplier firms, 89 per cent of the foreignaffiliates reported providing technicalsupport as part of their efforts to developtheir suppliers (Tan, 1990). In theelectronics industry of Malaysia, foreignaffiliates have given significant technicalsupport to their local suppliers (Ismail,1999; UNDP, 1993). Such support includedsolving specific technical problems(Capannelli, 1999) and assisting in factorylayout, production planning and machineryinstallation (Ismail, 1999). In a NorthernIreland survey, 31 per cent of the foreignaffiliates covered advised their supplierson the selection and use of processequipment, and 34 per cent assistedsuppliers in improving their manufacturingprocesses (Crone and Roper, 2001). InChina’s automobile industry, two foreignaffiliates are reported to provide technicalassistance through quality control to theirlocal suppliers (Xia and Lu, 2001).

• Visits to supplier facilities to advise onlayout, operations and quality. Someaffiliates form special teams to assistsuppliers in process know-how or inoperating equipment. For instance, PepsiFoods, India formed an extension team toadvise its contract farmers in improved


methods of cultivation and the use ofadvanced agricultural implements (PepsiFoods, 2000). Such visits are of specialimportance to the supplier firms, becausethey facilitate transfer of “tacit knowledge”related to production process and qualitycontrol (Ernst, 1997).

• Formation of “cooperation clubs” forinteracting with suppliers on technicalissues. The activities organized by suchclubs have contributed to significantimprovements in the quality of supplies anddelivery schedules, as well as in costreductions for the suppliers (UNCTAD,2000a, p. 161).

• Assistance to employees to set up their ownfirms . For instance, in the Republic ofKorea, recognizing the dependence of theKorean electronics industry on importedmouldings, Motorola set up a mouldingproduction division within its factory andtrained its employees at its headquartersin the United States. When some of theseemployees wanted to set up their ownmould-making firms, Motorola encouragedthem by offering to procure their productand allowed them to use Motorola’sequipment and facilities at low prices. Byoffering such incubation facilities,Motorola contributed to the creation ofabout ten spin-off firms, including Hanmi,Kookje, Micron and Crown Precision,which became leading semiconductor-moulding producers in the Republic ofKorea (Kim, 1999).

Organizational and managerial know-how

• Assistance with inventory management andthe use of just-in-time and other systems.For instance, foreign affiliates providedtechnical training to local automobile-partssuppliers in Mexico in just-in-timeprocedures, and this led to improvedperformance by the suppliers (Peres Nunez,1990). Such assistance in inventorymanagement techniques, which enablesuppliers to tailor their products to order,is integrated by Japanese foreign affiliatesin the Republic of Korea into theirassistance in introducing the TotalProductive Maintenance Approach (Kim,1999).

• Assistance in implementing qualityassurance systems (including ISOcertification). In the United Kingdom, asurvey of 30 large foreign-affiliatemanufacturing plants found that 60 per centperformed visits for the provision oftechnical assistance on quality assuranceand organizational issues (PACEC, 1995).In Northern Ireland, 48 per cent of theforeign affiliates surveyed reported thatthey provide such assistance (Crone andRoper, 2001). The experience of Hei JiyaElectronics Co, a local manufacturer ofliquid crystal displays and modules inChina, illustrates such assistance. Thecompany entered into a supplierrelationship with an affiliate of Motorola,which assisted the local company bysending teams of technical and managerialpersonnel to its premises to advise onimproving its production management,technology and quality system. Hei Jiyawas certified as a qualified Motorolasupplier in 1997 for supply of componentsfor pagers. Due to this technical assistance,Hei Jiya obtained ISO 9001 certificationin 1999 and became a supplier to otherelectronics manufacturers (Motorola,2001). Similarly, in the Republic of Korea,Halla Electronics, an automobile partsmanufacturing joint venture of Ford,assisted nine local supplier firms in theirefforts to obtain ISO 9002 certification(Kim, 1999).

• Introduction to new practices such asnetwork management or financial,purchase and marketing techniques . In aNorthern Ireland survey, a quarter of theaffiliates are reported to be involved inintroducing new managerial andorganizational techniques to local supplierfirms (Crone and Roper, 2001).

3. Providing training

• Training courses in affiliates for suppliers’personnel . In Penang, Malaysia, severalforeign affiliates and large domestic firmsprovide training courses offered at thePenang Skills Development Centre (PSDC).Subject areas for the courses include totalquality management, project management,occupational safety and health (Wong,


2000, p. 74; Intel, 2001). In Viet Nam,the local affiliate of Unilever conductstraining in quality standards, inspectionand testing methods, and warehousingspecifications for its suppliers. Trainingis conducted by Unilever and its keysuppliers, and financed by Unilever.Supplier employees receiving traininginclude staff involved in quality assuranceand safety and hygiene, and machine tooloperators (Unilever, 2001). In Slovakia,the local manufacturing affiliate ofVolkswagen provides, in collaboration withthe Suppliers Development Department ofSkoda Auto Slovensko, training forsuppliers in human resource managementand quality standards (Ferencikova andKoperdan, 2001). In Brazil, the car-manufacturing affiliate of Fiat in BeloHorizonte provides training to its suppliers(now largely foreign-owned) in just-in-timemethods so that disruption of deliveriesis minimized (Borges Lemos et al., 2000).In India, Maruti, an affiliate of Suzuki thatmanufactures cars, provides training totechnical personnel of its suppliers (Juneja,2000). Most of the examples cited aboveinvolve large-scale operations in highlycompetitive areas in which suppliercapabilities can make a big difference tocosts and standards.

• Offering access to internal trainingprogrammes in affiliates or abroad. FiatPoland invites its local suppliers toparticipate in the Fiat Group’s internaltraining programmes. The programmecovers training of the sales force,management development, support to thereengineering of the production system andto the introduction of new products, andtechnological training (Fiat, 2001). Someof the electronics foreign affiliates includedin a study of Malaysian electronic firmsprovided practical training related tomanufacturing processes at their ownfacilities (Giroud, 2001a). About 80 percent of the training provided by Intel CostaRica to its suppliers of services also tookplace at Intel’s Costa Rican facilities(Larraín et al., 2001). Pepsi Foods India’sProcurement and Extension Services Teamorganizes farmer training camps to take thefarmers on a tour of the PepsiCo Researchand Development Centre.

• Sending teams of experts to suppliers toprovide in-plant training . A number ofelectronics foreign affiliates in Malaysiagives such assistance (Giroud, 2001a). Onepurpose of such visits was to providetraining on improvements in technology.In a somewhat different context, the food-processing affiliate of Pepsi Foods in Indiahas established, under the direction andmanagement of the Punjab Agro IndustriesCorporation, a procurement and extensionservices team for providing training inworld-class mechanized agro-technologyto local farmers who are contracted tosupply fruits and vegetables to Pepsi.Training is conducted through technicalbulletins, video demonstrations, slides andcharts of new techniques, and livedemonstrations on the use of variousagricultural implements and on operationssuch as crop transplanting. 3 Similarly,Nestlé provides training for upgradingdairy-farming methods to suppliers in LatinAmerica and China (box IV.6). 4

4. Sharing information

• Informal exchange of information onbusiness plans and future requirements cantake place through meetings and visits. Forexample, in India, during the 1980s, aleading truck manufacturer, Ashok Leyland(majority-owned by British Leyland)provided each supplier with schedules ofanticipated six-, three- or one-monthpurchasing orders (Lall, 1980). 5

• Consultation on future strategies. Somesuppliers consult regularly with theirbuyers about their own future strategiesand requirements. In Northern Ireland,foreign affiliates give suppliers advancenotice of production plans (Crone andRoper, 2001). In Poland, an affiliate of Fiatprovides local suppliers with newinformation on future businessrequirements (Fiat, 2001).

• Provision of annual purchase orders. InSingapore, the likelihood of foreignaffiliates sharing their production andpurchase forecasts with local SMEsuppliers is high when the length of buyer-supplier relationships exceeds two years(Chew and Yeung, 2001).


• Provision of market information. Someforeign affiliates in the United Kingdompass on knowledge on market trends totheir local partners (PACEC, 1995). In theMERCOSUR area and in China, Nestléactively assists selected suppliers inbecoming regional suppliers to Nestlé. 6

Hitachi’s semiconductor Malaysian affiliateexchanges information on market trendswith its SME suppliers and assists themin expanding their business scope byintroducing them to other Hitachiaffiliates. 7 According to some successfulsuppliers in Asia, once their reliability isproven to one large foreign affiliate,reference is provided to other assemblersor manufacturers within the same businessnetwork or other foreign affiliates,generating further opportunities (Sison,2000; ESCAP/UNCTAD, 1995; Moran,1999).

• Encouraging suppliers to join businessassociations or fairs and facilitatingnetworking. One example of a businessassociation involved in informationprovision is the International Disk DriveEquipment and Materials Association(IDEMA) in Thailand. IDEMA hassupported the development of a Thailand-based group of hard disk drivemanufacturers that aims at promotingbusiness networking, facilitatinginformation sharing through educationprogrammes and technical symposia/conferences, and also provides a forum forthe global discussion of technical issuesfaced by the industry. IDEMA Thailand’sactivities are planned by leadinginternational companies, such as Seagate,Fujitsu, Read-Rite, KR Precision, IBM,ENGTEK and Magnecomp, andinformation is shared between TNCs andtheir suppliers.

5. Extending financial support

• Pricing. In Brazil, Fiat agrees on targetprices and gives “some guaranteesregarding quantities” under one type ofcontract which covers the duration of thelifetime of a car model, but nocommitments of any kind on other types(Borges Lemos et al., 2000).

• Advance and prompt payments. ToyotaThailand raised its advance purchases andearly payments when its local suppliersfaced severe liquidity problems in the Asianfinancial crisis (Muramatsu, 2000; boxIV.10). Siemens in the Republic of Koreahad a policy of paying small and medium-sized suppliers promptly instead of theusual deferred payment of 30 days (Yoon,1994). Another example is from a surveyof electrical and electronics TNCs andsuppliers in India, according to which somesuppliers benefited from advance paymentsfrom their foreign affiliate buyers forbuying raw materials, or from directsupplies of raw materials from foreignaffiliates, although they were not in aliquidity crisis (Kumar, 1995).

• Medium and long-term finance . Unileverin Viet Nam offered financial support tofive key suppliers to upgrade equipmentand cover the costs of extensive training(Unilever, 2001). It also bought equipmentand provided it to a supplier on leasingterms. Another example is that of NestléChina, which financed the tooling costs ofa tin can supplier for sweetened condensedmilk (Nestlé, 2001). In Ecuador, Nestlé’sServicio de Fomento Agropecuario (SFA)offers preferential credit lines to milkfarmers for the purchase of cows,machinery and fertilizers (for fodderproduction). In Malaysia, Intel offeredcapital to Eng Hardware in 1981 to enableit to become a supplier of precisionmachine tooling (box IV.1). Foreignaffiliates can assist suppliers by providingguarantees to facilitate access to banklending; one example of such assistanceis that of GlaxoSmithKline Beecham inIndia, which has established links with alocal agricultural bank to enable its milksuppliers take loans from that bank againstits guarantees. Some foreign affiliatesprovide capital to local suppliers throughpublic institutions. One example is FundoFiat (Fiat Fund), created by Fiat Brazil tofinance private investments in the Brazilianautomobile-parts industry and managed bya state-owned financial institution (BorgesLemos et al., 2000). Another example isco-funding by Fiat (together with theGovernment and UNIDO) of a programmein India to strengthen the automotive


component manufacturing industry (boxV.6). When the main bottleneck to theexpansion and modernization of suppliers’capacities is in the underlyinginfrastructure, foreign affiliates participatein the financing of such infrastructure. Itwas reported that Nestlé’s SFA in Ecuadorco-financed the construction of rural roadsto facilitate market access for smallsuppliers. 8 Some foreign affiliates alsoshare the cost of improving the skills andcapacities of suppliers, as with financingtrainers at PSDC in Penang; trainers areseconded by foreign affiliates and paid bythem. The Korean automotive company,Daewoo Corporation, has sometimeshelped to finance suppliers’ improvementprojects in the Republic of Korea,Indonesia and Poland, e.g. by providingcollateral to allow them to borrow fundsat reduced rates for new equipment, or byassisting in the procurement of rawmaterials (Handfield and Krause, 1999).

Notes1 The Supplier Development Department has

visited some 160 companies, of which, 42companies are now supplying to the concern.Of the 42 companies, 12 companies werepreviously not supplying for the Skoda brand.

2 Information obtained through interview withSuzuki, Hungary.

3 Based on information obtained from PepsiFoods Ltd. India.

4 Based on information obtained from Nestlé.5 In addition, this truck manufacturer and its

suppliers had intensive discussions to ascertainwhether or not a buyer’s future needs matchedsuppliers’ capacities based on long-term businessplans of both sides.

6 Information obtained from Nestlé.7 See “Experiences in SME linkages”, presentation

given by Leow Teik Thye, at the InternationalWorkshop on Technological and ManagerialUpgrading of SMEs through Linkages withTNCs, organized jointly by UNCTAD and Intelin Penang, Malaysia, August 2000.

8 Source: http://www.nestle.com.ec/ecuador/campo/sfa.htm.

IA. The role of government

policy

CHAPTER V.POLICIES TO STRENGTHEN LINKAGES

s there a need for governmentsto promote actively the creationand deepening of l inkages?There are certainly conditionsunder which the benefi ts ofl inkages are so c lear to

enterprises that no policies are needed toencourage firms to strike them. However,markets may fail to create efficient linkages,raising the cost to both parties of enteringinto long-term supply relat ionships andreducing the ability of domestic firms tobecome competitive suppliers. Failures canarise at several levels. TNCs may be unawareof potential suppliers, or may find it toocostly to locate or deal with them. They maybe reluctant to invest in bui lding localcapabilities because the benefits leak outto other buyers. Local capabilities may betoo far below the levels needed to make itfeasible for TNCs to invest in improvingthem. Or domestic suppliers may not haveaccess to technology or finance.

Hence, governments can encouragethe creation and deepening of backwardlinkages by lowering the costs and raisingthe rewards of linkage formation for bothTNCs and local firms. The objective is, asstated earlier, not to create linkages for theirown sake, but rather to stimulate linkagesthat raise the efficiency of production andcontribute to the diffusion of knowledge andskills from TNCs to the local enterprisesector. The assumption is that, whateverproductive linkages there are, there is roomfor encouraging the creation of more anddeeper linkages.

This chapter rev iews, therefore ,policy measures taken in different countriesto promote l inkages, wi th a v iew toestablishing a “menu” of instruments thatcountries can use for this purpose, in this

important area a t the in tersec t ion ofenterprise development and FDI policies.The focus of the policy discussion is narrow:it is l imited to the relationship betweenforeign affiliates and local firms (figureV.1). This is not to minimize the importanceof other policy areas: for example, withoutforeign affiliates (and, hence, a policy toattract FDI) and domestic firms (and, hence,a policy that promotes their growth andcompeti t iveness) , the precondit ions forl inkages do not exist . Indeed, the morepolicy measures aimed at promoting linkagesare consistent with, and embedded in, abroad range of po l ic ies that fac i l i ta teenterprise development (figure V.2) , thehigher the chances for linkage-promotionpolicies to succeed.

Care must be taken, however, whendrawing lessons from the experience ofdi f ferent countr ies . Not a l l measuresreviewed in this chapter have always yieldedposi t ive resul ts in terms of promot ingefficient linkages, if for no other reason thanthat they may have been applied to meetdifferent policy objectives. Success alsodepends on whether other policies are inplace. For instance, the promotion of supplyl inks may be successful because i t i scomplemented by a general pol icy oftechnology upgrading or industrial training.A certain strategy may work only in aspecific historical, cultural, institutional orpol i t ical context , making i t diff icul t totranspose it to a different setting. In otherwords, many linkage promotion measuresare context-specific, and the role of theenterpr ise and industry determinantsdiscussed in chapter IV needs to be takeninto account. Moreover, the description ofa policy per se does not capture the way ithas been implemented in a part icularcountry, i f only because properimplementat ion may require s t rongins t i tu t ional capaci t ies ; not everygovernment may have adequate resourcesfor this purpose. Hence, if the same policyis implemented elsewhere, but without the


Figure V.1. Policy focus for the promotion of backward linkages

Source : UNCTAD.

Figure V.2. The linkages policy environment

Source : UNCTAD.

165CHAPTER V PO LICIES TO STRENGTHEN LIN KAGES

same efficiency, flexibility or participationof stakeholders, it may yield quite different– and perhaps disappointing – results.

Given th is caveat , there arenevertheless important lessons to be learnedfrom the policy experience of differentcountries. Many of the problems of linkagecreation are generic. Market failures tendto occur across countries – even though theexact nature and incidence of such failurescan vary by level of development and thespecific national context. Governments haveto make a broad strategic choice on the levelat which they tackle such failures. Some canbe addressed at a broad level – for instance,by encouraging information exchange orskill creation. Others are better addressedat more specific sectoral or activity levels,by targeting linkage policies to industriesin which TNCs are most active. Still otherscan be geared to particular geographicallocat ions , such as dynamic c lus ters ofin teres t to fore ign inves tors . Manygovernments have policies at all levels, withthe differences in emphasis and nuancerather than strategy.

It is important to note, however, thatthe pol icy space avai lable for nat ionallinkage policies is narrowing. A number ofthe direct measures used in the past toincrease local purchases are being phasedout, as a result of autonomous liberalizationby host countr ies , the decl ine ofinterventionist policies and rules agreed inthe context of the WTO and otherinternational agreements. This does not meanthat the role of policy is less important -on the contrary. But more attention needsto be given to policies that are in line withmarket forces and that build, in particular,on the mutual interests of both foreignaffiliates and domestic firms (see chapterIV) to create and deepen linkages and fostercompetitiveness and economic growth. Thechallenge for each country is to identifywhich kind of measures are appropriateunder i t s spec i f ic c i rcumstances . Theultimate aim is to strengthen productivecapacities of suppliers and, in particular,help them to produce higher value-addedgoods and services in an internationallycompetitive environment. In the process, somedomestic suppl iers may expandinternationally and become TNCs in theirown right (see box IV.1.)

This chapter reviews policy measuresof relevance for linkage formation. SectionB discusses some broad policy measures,notably in the areas of trade and investment,that can influence the behaviour of foreignaffiliates, against the backdrop of recentdevelopments in the international regulatoryenvironment. The analysis then turns, insection C, to specific measures that can begenerally applied with a view to facilitatingmore and deeper linkages. Section D showshow a number of countries have combinedseveral of these measures in to targetedcomprehensive linkage programmes.

B. Trade and investmentmeasures influencing

linkages

Many host country policies affect theoperations of foreign affiliates in variousways. Some of them can – often indirectlyand incidentally, but also, at times, throughdeliberate use for this purpose – encouragel inkages . The focus of th is sect ion isspecifically on various trade and investmentmeasures of relevance to linkages.

High tariffs on imports required byforeign affiliates could in theory lead to anincrease in local sourcing of needed inputsby affect ing the i r re la t ive costs f romdifferent sources . However , import-substitution policies of this kind have beengenerally discontinued.

Rules of origin determine the nationalorigin of a product for the purpose (amongothers) of granting preferential treatment.Rules of or igin based on the level ofdomestic value added or local content, andimplemented as part of preferential tradearrangements, 1 can have important effectson FDI and l inkage creat ion in thepreference-receiving countries (UNCTAD,1999). In general, these effects are the mores ignif icant , the h igher the preferent ia lmargin and the lower the administrativecosts associated with origin compliance. Onthe other hand, excessively stringent rulestied to a minor preferential margin havelimited impact.


In the case of the Japaneseautomobi le manufacturer Suzuki’sinvestment in Hungary, for example, rulesof origin under the Association Agreementwith the European Community were a factorin the firm’s decision to locate there, createlocal l inkages and increase local valueadded, so as to enjoy duty-free access forcar exports to the European Union (box V.1).However, while rules of origin can lead toa relocation of activities to developing hostcountries, they do not necessarily lead tomore or deeper linkages with local (let alonedomestic) firms in those countries. Mexico,for ins tance , has a t t rac ted new FDI inelectronics and television sets from firmswishing to have preferent ia l access toNAFTA’s two northern partners; but theimpact on the share of local suppl iersappears to have been negligible so far; the

bulk of parts and components, especiallysophisticated ones, are produced by foreignaffiliates (Carrillo, 2001). This suggests that,where local supply capacity is weak, foreignaffiliates are likely to meet local contentprovisions contained in rules of origin eitherthrough internal ized production or hostcountry-based fore ign-owned suppl iersrather than domestic ones. 2 In addition,rules of origin have other shortcomings,including the way in which they are designedand implemented. 3

Traditionally, the most prominenttool to encourage foreign affiliates to linkup with local firms has been local contentrequirements , either mandatory or in returnfor incentives. Local content requirements– like rules of origin – do however notnecessari ly lead to l inkages, as foreign

Box V.1 . Suzuki’s local sourcing in Hungary

Magyar Suzuki started commercial production in Hungary in 1992. Suzuki’s decision tolocate in Hungary and to source from domestic suppliers is partly the result of the preferentialtreatment given to goods, including cars, of Hungarian origin by the EU; its plant was largelyoriented, from the outset, towards that market. Between 1992 and 1999, Magyar Suzuki exported62 per cent of its cumulative output, mostly to the EU. In order for Magyar Suzuki cars to beconsidered of Hungarian origin (and enjoy EU duty free treatment), Magyar Suzuki had to relyon Hungarian inputs (or materials originating in the EU and in other European countries which,through so-called cumulation, are considered as local inputs) for at least 60 per cent of its cars’value. Magyar Suzuki’s relatively high local value added also reflects company philosophy, whichseeks to increase local involvement to avoid making its plants an enclave in the local environment.As a result, in 2000, 29 per cent of the components used by Magyar Suzuki was produced bythe firm itself, 26 per cent was provided by its Hungarian suppliers – both domestic and foreign-owned, while 15 per cent was imported from the EU and 30 per cent from Japan.

Employing 2,100 persons directly, Magyar Suzukiis a major employer in the medium-sized town ofEsztergom. It purchases a wide range of raw materials,parts and components from primary and secondarysuppliers, and its indirect impact creates employmentto 31,000 persons in 263 companies (box table V.1.1).In 2000, it had a high share of local value addedcompared to most of the other major foreign affiliatesin Hungary; only some electronics firms establishedthrough acquisitions (General Electric, Electrolux)matched its share (Hungary, 2001a, p.3).

In 2000, to promote further its local embeddedness, Magyar Suzuki prepared a cluster-focusedsubcontracting promotion plan, the Mid-Hungarian Automotive Cluster. Magyar Suzuki decidedto provide information on infrastructure and financing facilities to potential suppliers, both foreignand Hungarian. In the same year, Magyar Suzuki organized international seminars (for 47 potentialforeign suppliers) and produced, jointly with the local authorities, other public relations materialsto disseminate information. In 2001, the Esztergom Industrial Park had 560 000 m 2 open space,equipped with water pipeline, sewage, electricity, gas and telecommunications network, availablefor potential newcomers.

Source: UNCTAD, based on informat ion provided by Magyar Suzuki .

Box table V.1.1. Magyar Suzuki and itssupplier network, 2001

Item No. of enterprises Employees

Magyar Suzuki 1 2 100Primary suppliers 55 10 400Secondary suppliers 208 20 800Total 264 33 300

Source : Magyar Suzuki.


aff i l ia tes can decide to in ternal izeproduct ion wi th in the i r host countryoperations. Although it is not clear howwidely local content requirements have beenused in the past, 4 they (together with othertrade-related investment measures (TRIMs)are now being phased out as a result ofchanges in host countr ies’ economicstra tegies ( f rom protect ionis t to openstra teg ies) and of in ternat ionalcommitments, in particular the 1995 WTOTRIMs Agreement (box V.2). Only a limitednumber of countr ies have requested anextension of the transition period for theTRIMs they had notified under Article 5.1of the Agreement (table V.1). 5 In any case,the experience with local contentrequirements is mixed (box V.3).

There are o ther hos t countryoperat ional measures (UNCTAD,forthcoming a) that can lead to linkages,even though this may not be among theirprincipal objectives. In particular: 6

• Joint venture requirements can lead tohigher levels of local sourcing, reflecting

the greater familiarity of joint venturepartners with local suppliers. But, again,the evidence is mixed: some studiesconcluded that even voluntary jointventures are not more likely to strikelinkages than wholly owned affiliates(Moran, 1998; Driffield and Mohd Noor,1999).

• Export performance requirements may notalways lead to a substantial increase inlinkages; but where they lead to linkages,these tend to have a higher quality –precisely because export markets are moreexacting and hence foreign affiliates needto upgrade suppliers where this is needed.Such requirements seem to have played arole in pushing TNCs when automotive andelectronics industry firms incorporatedproduction facilities in developingcountries and economies in transition intotheir international sourcing strategies,creating new patterns of internationalproduction (Moran, 1998, p.50). Foreignaffiliates in these industries, in turn, formedstrong backward linkages with domesticsuppliers, who received a continuous flow

Box V.2. The TRIMs Agreement in brief

The TRIMs Agreement, which entered into force on 1 January 1995, specifies in its Article2 that,“[w]ithout prejudice to other rights and obligations under GATT 1994, no Member shallapply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT1994” (WTO, 1995). An illustrative list in the annex of the Agreement describes measures thatare inconsistent with Articles III (4) and XI (1). These cover essentially the following typesof measures: local content requirements; trade-balancing requirements; foreign exchange balancingrequirements; and restrictions on exportation. The Agreement bans not only TRIMs that are mandatory,but also those whose compliance is necessary in order to obtain an advantage; it applies onlyto investment measures related to trade in goods; it does not cover trade in services.

Article 4 of the TRIMs Agreement allows developing countries to deviate temporarily fromthe obligations of the Agreement, as provided for in Article XVIII of GATT and related WTOprovisions on safeguard measures for balance-of-payments difficulties. With regard to transitionperiods, developed, developing and least developed countries were given, respectively, two,five and seven years from the date of entry into force of the WTO Agreement to eliminate notifiedTRIMs. Furthermore, upon request, the transition period could be extended for developing andleast developed countries that demonstrate particular difficulties in implementing the provisionsof the Agreement. (WTO members that, as of June 2001, had sought extensions of the transitionperiod were Argentina, Chile, Colombia, Egypt, Malaysia, Mexico, the Philippines, Pakistan,Romania and Thailand.)

The TRIMs Agreement is subject to further review by the Council on Goods no later thanfive years after the date of its entry into force (Article 9). In this context, several proposalshave been circulated, including the following: maintaining the present list of restrictions oreven reducing the coverage of such list; extending the phase-out period to allow developingcountries more time to address their specific needs regarding economic, financial or social policies;and increasing the coverage of the list of prohibited TRIMs.

Source : UNCTAD, forthcoming a.


Table V.I. Notifications submitted under Article 5.1 of the TRIMs Agreement*

Member Date of communication a Industry Category of the illustrative list

Argentina 30 March 1995; Automotive industries Local content and trade-balancing21 March 1997

Barbados 31 March 1995 Pork processing enterprises Local content

Bolivia b 24 June 1998 Hydrocarbons sector Restrictions on exportation

Chile c 14 December 1995 Automotive industries Local content and trade balancing

Colombia 31 March 1995; Agro-industry Local content and trade balancing4 June 1995;31 July 1995;30 September 1996

Costa Rica d 30 March 1995 General Local content

Cuba e 18 July 1995 Fuel, raw and other materials, Local contenttools, equipment, spare partsaccessories, consumer goods;transport and marine insurance

Cyprus f 30 October 1995 Cheese and groundnuts products Local content

DominicanRepublic 26 April 1995 General Local content and trade balancing

Ecuador 20 March 1996 Automotive industries Local content

Egypt 29 September 1995 General Not specified

India 31 March 1995; Consumer goods Restrictions on exportation22 December 1995;18 March 1996;11 April 1996

Indonesia 23 May 1995; Automotive industries, utility Local content28 October 1996 boilers, soyabean and fresh

milk products

Malaysia 31 March 1995; General and automotive industries Local content14 March 1996

Mexico 31 March 1995 Automotive industries Not specified

Nigeria g 17 July 1996 General Not specified

Pakistan 30 March 1995 General Local content

Peru 3 March 1995 Milk powders, anhydrous fat Local contentand other milk products

Philippines 31 March 1995 Automotive industries and Local content and foreign-exchangecoconut-based chemicals balancing

Poland h 28 September 1995 Cash registers Local content

Romania 31 March 1995 General Local content

South Africa 19 April 1995 Automotive industries, telecom- Local contentmunication equipment, tea andcoffee

Thailand 30 March 1995 Automotive industries, Local contentmanufacture of milk and dairyproducts, aluminium sheets,TV picture tubes, transformers,air-conditioners and paper products

Uganda 17 June 1997 General Not specified

/...


Table V.I. Notifications submitted under Article 5.1 of the TRIMs Agreement*

Member Date of communication a Industry Category of the illustrative list

Uruguay 31 March 1995; Automotive industries Local content30 August 1995

Venezuela 31 March 1995 Automotive industries Local content

Source: UNCTAD, forthcoming a.* Under Article 5.1 of the TRIMs Agreement, members were required to notify to the Council for Trade in Goods, within 90 days after the date of

entry into force of the WTO Agreement, any TRIMs that are not in conformity with the Agreement. A decision adopted by the WTO GeneralCouncil in April 1995 provided that governments that were not members of the WTO on 1 January 1995, but were entitled to become originalmembers within a period of two years after 1 January 1995, should make notifications under Article 5.1 within 90 days after the day of theiracceptance of the WTO Agreement.

a Most of the TRIMs notified are probably no longer in place as only ten members (Argentina, Chile, Colombia, Egypt, Malaysia, Mexico, thePhilippines, Pakistan, Romania and Thailand) have sought an extension of the transition period.

b Bolivia subsequently submitted a notification indicating that it does not apply any TRIMs that are not in conformity with the Agreement.c Initially, Chile notified its measure under the Automotive Statute as a prohibited subsidy under the WTO Agreement on Subsidies and Countervailing

Measures. However, after further analysis, this measure was also notified as a TRIM.d Costa Rica subsequently submitted a notification indicating that it intends to eliminate measures notified under Article 5.1 in advance of the

expiry of the transition period.e Cuba subsequently informed the Committee that the measures notified by Cuba under Article 5.1 are no longer in force.f This notification superseded Cyprus’ previous one of 29 June 1995; Cyprus subsequently submitted a notification indicating that it has eliminated

measures notified under Article 5.1.g Nigeria subsequently submitted a notification indicating that the Nigerian Enterprises Promotion Act of 1989 has been repealed and replaced

with the Nigerian Investment Promotion Commission Decree 1995.h Poland had subsequently submitted a notification indicating that it has eliminated measures notified under Article 5.1.

The issue of the economic efficiency of local content requirements in creating linkagesbetween foreign affiliates and local firms has been much debated. Some studies have arguedthat, under certain circumstances, mandatory measures can be useful in giving local firmsthe opportunity to build supply capabilities (Balasubramanyan, 1991; Halbach, 1989). Evidencesuggests that local content requirements contributed to the development of supplier industriesin the Republic of Korea (Wong, 1992), Taiwan Province of China (Dahlman and Sananikone,1990), Brazil, Mexico and Thailand before the 1990s (UNCTAD, 2000a). One study foundthat local content and other market reservation schemes had a positive influence on the developmentof domestic suppliers to foreign affiliates geared to domestic markets (Halbach, 1989, pp.16-17).

Other studies have questioned the usefulness and efficiency of local content requirementsand market reservations (Moran, 1998 and 1999). While they lead to higher local linkages,they can diminish the profitability of foreign investments and therefore reduce the attractivenessof the host countries involved as FDI locations, particularly when local suppliers are notcompetitive. Some evidence suggests that local content requirements discouraged manufacturinginvestment from Japan and the United States (Hackett and Srinivasan, 1998). In liberalizedtrade regimes, they may make foreign affiliates uncompetitive and reduce their export potentialor even their ability to survive. The prolonged use of local content requirements can alsolead to high costs, poor quality and a lack of long-term competitiveness in supplier industries(UNCTC, 1981). Thus, using surveys of the automobile industry (Bale and Walter, 1986),the petrochemical industry (Gray and Walter, 1984) and the informatics industry (Frischtak,1986), one observer concluded that the use of “local content requirements in highly protectedmarkets is not only extremely costly, but also quite ineffective” (Moran, 1998, p. 5). Anotherrecent study (Xia and Lu, 2001) showed that local content requirements in China did promotethe development of domestic suppliers but at the cost of low efficiency, high costs of productionand hence a loss of competitiveness of the enterprises concerned.

The case for local content requirements rests essentially on the need to promote infantsupply firms by providing support (in the form of assured demand) during their learningperiods. The issue is thus similar to that of infant industry protection. Where used carefully,with offsetting measures to ensure that suppliers face competitive pressures and have accessto the technology and skills they need to improve their capabilities, they can foster efficientsuppliers. Where used in a protected setting, with few pressures to invest in building competitivecapabilities, they can result in inefficient suppliers that saddle the economy with high costs,outdated technologies or redundant skills.

Source : UNCTAD.

Box V.3. Experiences with local content requirements


of technical and managerial improvementsand benefited from economics ofagglomeration, scale and scope (Moran,1998, chapter V). It is difficult, however,to generalize, on the basis of these industryexperiences, that export-performancerequirements invariably produce favourableoutcomes as regards linkages to domesticsuppliers in host countries.

While these two kinds of measuresare not prohibited by the TRIMs Agreement,a number of interregional, regional andbi lateral agreements (or drafts thereof)expl ic i t ly probibi t , condi t ion (e .g . onincentives) or discourage them (and otherhost country operational measures) (table

V.2). In contrast to the TRIMs Agreement,however, such agreements in some casesallow these additional measures (or someof them) in so far as they are l inked toincentives (UNCTAD, forthcoming a). Incontemplating linkage-enhancing measures,governments need therefore to be aware thatsome countries (or groups of countries) havealready agreed to prohibit these in someinvestment agreements, suggesting, perhaps,that the same issues may eventually be raisedat the multilateral level.

While the measures described in thepreced ing paragraphs are prescr ip t ive ,countries can also offer incentives to foreignaff i l ia tes to encourage the creat ion of

Table V.2. Examples from international agreements (or attempts thereof) that prohibit, conditiona

or discourage certain host country operational measures b

Host country operational measure Instrument

Requirements to establish a joint venture with domestic participation GATS; draft MAI

Requirements for minimum level of domestic equity participation GATS; draft MAI

Requirements to locate headquarters for a specific region or the world market draft MAI

Employment performance requirements draft MAI

Export performance requirements NAFTA Canada – Barbados BIT;Canada – Philippines BIT;Canada – Trinidad and Tobago BIT;Canada – Venezuela BIT;El Salvador – Peru BIT;Malaysia – United Arab Emirates BIT;Mexico – Switzerland BIT;United States – Trinidad and Tobago BIT;United States – Bolivia BIT; draft MAI

Restrictions on sales of goods or services in the territory where they are El Salvador – Peru BIT ;produced or provided NAFTA; United States – Bolivia BIT;

draft MAI

Requirements to supply goods produced or services provided to a United States – Trinidad and Tobago BIT;specific region or the world market exclusively from a given territory draft MAI

Requirements to act as the exclusive supplier of goods produced NAFTA; Mexico-Switzerland BITor services provided

Requirements to transfer technology, production processes or NAFTA; Canada – Barbados BIT;other proprietary knowedge Canada – Philippines BIT;

Canada – Trinidad and Tobago BIT;Canada – Venezuela BIT;El Salvador – Peru BIT;Mexico – Switzerland BIT;United States – Trinidad and Tobago BIT;United States – Bolivia BIT; draft MAI

R&D requirements United States – Trinidad and Tobago BIT;United States – Bolivia BIT; draft MAI

Source : based on UNCTAD, forthcoming a.a For example, certain performance requirements are permitted in so far as they are linked to incentives.b Provisions on performance requirements may be subject to exceptions, derogation, reservations, safeguards and the like. As in the case of

GATS, they may apply only to sectors, for which specific commitments have been made. Moreover, provisions on performance requirementsmay be subject to national treatment and most-favoured-nation treatment provisions.


linkages (provided that relevant internationalobl igat ions are observed) . Direc t andtargeted measures are tax exemptions foraffiliates from corporate income tax, value-added tax or sa les tax . 7 Thus , somegovernments, like that of Indonesia, exemptexporters from value-added tax to encouragethe use of local inputs (Felker and Jomo,2000). In other cases, affiliates are allowedto t reat the costs re la ted to l inkagesformation as tax-deductible expenses. Forexample, in Malaysia , large companiespar t ic ipat ing in an Industr ia l LinkageProgramme (ILP) can claim expenditureincurred for the training of employees,product development, testing and factoryauditing (to ensure the quality of vendors’products), as a deduction in the computationof income tax (Malaysia , MITI, 2001).Linkage creation is also used as one of thecriteria to grant “pioneer” or similar statusto foreign investors. “Pioneer” status usuallyentitles firms to various types of fiscal orfinancial incentives, or to other benefits.In Malaysia, for example, pioneer status isgranted to companies proposing tomanufacture promoted products or undertakepromoted act iv i t ies , taking in toconsiderat ion the value added, level oftechnology and industrial linkages involvedin the projects (Malaysia, MIDA, 2001). TheThai Board of Investment also offers avariety of incentives to promote investmentprojects that use domestic resources anddevelop bas ic and support industr ies(Thai land, BOI, 2001) . Moreover ,sometimes changes of the tax system itselfcan facilitate linkages. 8

It is difficult to isolate the impactof incentive measures on linkage formationfrom that of other measures that usually formpart of an incentive package, or from theimpact of economic conditions in a hosteconomy. Some studies have found thatincentives can be important in developingsubcontracting relations; on the other hand,if local suppliers are not able to meet theneeds of foreign investors eff icient ly,incentives alone are unlikely to have animpact on linkages. 9 Furthermore, specialattention needs to be given to avoid grantingincentives in situations in which linkageswould be forged even in the absence ofincentives, which would then simply resultin windfall gains for foreign affiliates. In

any event, the use of incentives must becompatible with the TRIMs Agreement andthe Agreement on Subsidies andCountervailing Measures. Hence, particularcare needs to be taken in the design andimplementation of linkage-related incentiveschemes. Under the TRIMs Agreement, localcontent requirements and other trade-relatedinvestment measures ment ioned in theAgreement, are prohibited if they are acondition “to obtain an advantage”. In otherwords, an incentive linked to a local contentrequirement is not considered permissible.Incent ives are a lso covered by theAgreement on Subsidies to the extent thatthey fall within the definition of a subsidycontained in the Agreement. And again, theuse of subsidies contingent upon the use ofdomestic over imported goods (“importsubst i tu t ion subs id ies”) is forbidden,although transition periods are provided fordeveloping (five years) and least developedcountries (eight years) (table V.3). On theother hand, while forgoing local contentrequirements, developing countries may findit useful to encourage linkages through well-targeted incentives to foreign affiliates (ordomestic firms for this purpose) that engagein linkage creation and deepening activities,such as technology upgrading and thetraining of local suppliers. But incentivesof this kind are currently open to challenge(“actionable”). Thought should therefore begiven to adapting the relevant WTO rulesto render this category of development-related subsidies non-actionable. To avoidfree riding, affiliates receiving incentivescould be required to commit matchingresources.

Issues perta ining to performancerequirements and incentives often arise inthe context of concrete negotiations betweengovernments and TNCs, especially of largeFDI projects. Contractual arrangementswith fore ign investors can offer hostgovernments an opportunity to encouragethe formation of local linkages by includingthis element in their award procedures.Under the Umbrella Subcontracting Schemeof Malaysia, for example, the Governmentgranted procurement contracts wi thoutcompetitive tendering to a furniture marketintermediary company in exchange for itsmarketing the products of medium-sizedlocal companies (Meyanathan, 1994) .


Privatization transactions may also offeropportunities to keep linkage considerationin mind. For example, when Volkswagenbought Skoda (Czech Republic) in 1991, oneof the best-effort commitments it made wasto rely increasingly on domestic suppliers. 10

Finally, thought could be given to thepossibility that home countries encouragetheir TNCs through fiscal, financial andother incentives to forge local linkages indeveloping countr ies . Some developedcountries give support in the form of loans,government-sponsored insurance and equityfinancing for FDI in developing countriesand economies in transit ion (UNCTAD,2001b). In some cases, such assistance isl imi ted to SMEs. So far , however , thedevelopment of linkages between foreignaffiliates and local firms does not appearto have been emphasized in theseprogrammes, although there is progress inthis direct ion. The Government of theUnited Kingdom published, in December2000, a Whi te Paper on In ternat ionalDevelopment which noted that “[e]ven withgood policies in place, it can be difficultfor some developing countries to stimulatedomestic investment and attract foreigninvestment”. One of the measures theGovernment of United Kingdom announcedto deal with this situation is that it wouldestablish a “Business Linkages ChallengeFund” which “will support enterprises in

developing countries to form linkages withdomestic and international partners. It willfacilitate knowledge transfer and improveaccess to the informat ion and marketsnecessary to compete in a global economy”(United Kingdom, 2000, pp. 61-62).

* * * * *

Developments in the global economyand changes in the internat ional pol icyframework, including commitments in WTOand other international arrangements, havechanged the scope for nat ional pol icyoptions. Some measures that were appliedin the past are now considered less relevantor non-permissible in this new environment.However, there is f lexibi l i ty within theexist ing framework, e.g. in the form ofextension of transition arrangements anddif ferent ia l t reatment of countr ies a tdifferent level of development. Moreover,some agreements are subject to furtherreview. The challenge for policy makers is,therefore , how to adjust to th is newinternational policy framework, make useof the options allowed within this frameworkand use other policy measures which are notsubject to multilateral rules to integrate FDImore deeply into their national economiesand, in particular, benefit from backwardlinkages. Some of these other measures arediscussed below.

Table V.3. The WTO Agreement on Subsidiesa

Developed DevelopingType of subsidy countries countries Least developed countries

Subsidies contingent on use of domestic goods Prohibited Prohibited after 5 years Prohibited after 8 years(end of 1999) (end of 2002)

Subsidies contingent on export performance Prohibited Prohibited after 8 years Permissible (also for the 20(end of 2002) b, c countries listed in Annex VII

of the Agreement as long as theirGNP per capita remains below$1,000 per year) c

Subsidies that may cause adverse effects to “Actionable”d “Actionable”d “Actionable”d

the interests of another WTO member

Source : UNCTAD.a The table does not summarize the provisions of the Agreement related to countervailing measures. The Agreement does not cover subsidies

provided for the services sector.b This period may be extended in particular cases on the basis of specific economic, financial and development needs.c Developing and least developed countries are required to phase out export subsidies to products for which they gain more than a 3.25 per cent

share of world trade for two consecutive years. The phase out periods are two years for developing countries and eight years for LDCs.d “Actionable” subsidies are not prohibited per se but they are open to complaint through the WTO dispute settlement mechanism. They can also

be subject to countervailing measures applied by importing countries.


C. Specific measures toassist the creation anddeepening of linkages

The discussion so far has dealt withcer ta in broad pol icy measures that caninfluence the behaviour of foreign affiliatesin terms of linkage development. Beyondthese, there are two basic (mutually notexclusive) approaches that can be pursued.One involves encouraging l inkages ingenera l , regardless of the industr iesinvolved. This is a broad approach – itbas ica l ly seeks to make the regulatoryframework more conducive for l inkageformation. The discussion below providesa menu of pol icy measures that can beconsidered under this approach. The otherapproach, d iscussed in sect ion D, goesfurther in that it involves the establishmentof a specific linkage promotion programmededicated to increasing and deepeningl inkages between foreign aff i l ia tes anddomestic firms.

The linkage process is affected bya host country’s overall policy environment,including its economic and institutionalframework, the avai labi l i ty of humanresources, infrastructure and the degree ofpol i t ica l and macroeconomic s tabi l i ty .Moreover, it is evident that the volume andnature of inward FDI determine the potentialfor l inkage format ion; for th is reason,targeting foreign investors with l inkagepotential can be a part of a general FDItargeting strategy and hence an element inlinkage promotion. But perhaps the singlemost impor tant hos t country fac torinf luencing l inkage format ion is theavai labi l i ty of loca l suppl iers wi thcompetitive costs and quality. This is, ofcourse , re la ted to a country’s level ofdevelopment. The technological andmanagerial capabilities of domestic firmsalso determine to a large extent the abilityof a host economy to absorb and benefit fromthe knowledge that linkages can transfer.In par t icular , the tendency for fore ignaffiliates to source the most sophisticatedand complex parts and components eitherinternally or from a preferred (foreign-owned)supplier within or outside a host countrydepends essentially on the capabilities oflocal companies. Another key requirement,

often stressed by TNCs, is the “right attitude”towards continuous improvement and, inparticular, a commitment to upgrade qualityon the part of suppliers; this is regarded bysome as more important than the actual levelof quality at any given point in time (Yoon,1994; Belderbos et al., 2001; Altenburg,2000). 11

The process of linkage formation isa lso affected by the avai labi l i ty ofsupporting meso-institutions. Public andprivate providers of financial, technologicaland training support often play key rolesin the process of fostering the developmentof viable suppliers. Without this kind ofinstitutional support, domestic firms maybe unable to get a required qual i tycertificate, training or capital needed tobecome competitive. Moreover, the costsincurred for foreign affiliates may simplybe too high for them to get engaged insupplier development activities.

Support of another kind may also beimportant. Domestic suppliers – becausethey are typical ly smal l in s ize andeconomical ly weak – can be at adisadvantage when negotiating with buyers,especially when a single firm is the onlyor main customer. Governments can help toa certain extent to balance the negotiatingpos i t ions of buyers and suppl iers . Forexample, guidelines, model contracts orsimilar instruments setting out minimumrequirements may be useful. In the Republicof Korea, the 1984 Act on Fair Transactionsand Subcontracting gave the Governmentsupervisory authority to monitor buyer-supplier transactions (Meyanathan, 1994).In India , pol icy measures have beenimplemented to strengthen the legal andins t i tu t ional f ramework for l inkageformation, including a proposal to preventlarge enterpr ises from abusing theirposi t ion. 12 The re la t ionship betweendomestic suppliers and their buyers is oftena del icate one and therefore requiresconstant attention and care.

This sec t ion focuses f i rs t onmeasures related to information provisionand matchmaking to help domestic firms linkup with foreign affiliates. It then examinesvar ious means to s t rengthen exis t ingl inkages in the areas of technologyupgrading, training and financial assistance.


In each of these areas, specific measuresare presented as they have been taken bygovernments. They represent a “menu” ofsorts from which governments can choosein l ight of their specific circumstances.Typically, these measures do not distinguishbetween foreign affi l iates and domesticf i rms and they can be appl ied acrossindustries.

1. Information andmatchmaking

The first set of policy measures tohelp domestic firms link up with foreignaff i l ia tes involves the provis ion ofinformation and matchmaking. Such effortsmay be needed to help overcome informationfailures as regards linkage opportunities. Themost prominent ones are:

• Provision of information. Governments canact as facilitators by gathering anddisseminating information on linkageopportunities and by guaranteeing theaccuracy of the information provided. Theinformation may include details aboutprices paid for particular components,qualities and even the products andprocesses used. It may consist simply ofa list of inputs and materials availablelocally. Or it may include the names,locations and profiles of the supplier firmsand some company information, along withdata on the characteristics and structureof supplier industries. The information canbe made available through simple hand-outs or brochures, but the recent tendencyin most programmes is to use electronicdatabases. Of course, the more detailed andcomplex the data, the more useful they areto users – but the higher the cost ofproviding the information. (Governmentsmay charge a fee for the use of theinformation services.) Information can alsobe provided through public announcements,linkage-information seminars and missions,and by international exhibitions. Insteadof direct intervention, governments cansupport information exchanges by privateinstitutions; some are promoted byinternational organizations like UNIDO. 13

It must be recognized, however, thatmaintaining a reliable, up-to-date broad-based database is difficult and costly and

that, unless it fulfils these criteria, itsusefulness may be limited.

• Matchmaking. Matchmaking implies amore active government role and focusingon the specific capabilities and needs ofindividual buyers and suppliers andworking closely with them to reach supplyarrangements. It can take many forms:facilitating one-to-one TNC-supplierencounters and negotiations, acting ashonest broker in negotiations, supportingsupplier audits, providing advice onsubcontracting deals, sponsoring fairs,exhibitions, missions and conferences.Governments can also organize meetingsto bring suppliers and buyers in particularindustries together, to enable them to showtheir products, make contacts and initiatedeals. They can try to establish the inputneeds of foreign affiliates and identify partsand components for local supply. They canmonitor linkages and act as trouble-shooters when problems arise. The IrishNational Linkage Programme, for example,helps with bureaucratic processes andinstitutions in subcontracting arrangementsand with resolving problems and disputesin linkage relationships (box V.8). The mostcommon types of matchmaking activityconsist of arranging individual meetingsand visits to plants. The “Meet the Buyer”Programme in the Czech Republic arrangesmeetings between foreign investors andpotential Czech suppliers as part ofCzechInvest support measures (CzechRepublic, 2001; box V.10). In Thailand,the Unit for Industrial LinkageDevelopment (BUILD) of the Board ofInvestment arranges for visits to assemblyplants by potential suppliers. Since theinitiation of the Vendors’ Meet CustomerProgramme in 1997, there have been about50 visits to factories (Thailand, Office ofthe Prime Minister, 2001; see annex E tothis chapter). In Mexico’s state of BajaCalifornia Norte, a variety of trade fairsbring supplies and buyers together (seeannex D to this chapter).

Many linkage-promotion efforts putemphasis on overcoming the informationgap. In many countries such institutions aschambers of commerce or industryassociations can be valuable sources ofinformation for foreign affiliates that arenewcomers in these countries. Based on the


experience of information and matchmakingactivities in different countries, some lessonscan be drawn. First, public initiatives canindeed play a role in enhancing theavailability of information. This may beparticularly important with regard to foreignaffiliates that have recently invested in ahost country. Second, matchmakingactivities, however, make sense only whenthere are v iable suppl iers . Third ,matchmaking in i t ia t ives need to becomplemented by efforts at enhancing thecompetence and capabilities of domesticsuppl iers . Matchmaking cannot remedysupplier weaknesses but can be an importantcomplement. Fourth, matchmaking effortsshould be based on close collaboration withthe private sector. The active participationof foreign affiliates is a key factor for thesuccess at matchmaking programmes andtrade fairs (see, e.g. Carrillo, 2001).

2. Technology upgrading

The technological capabi l i t ies oflocal firms are key determinants of theirabi l i ty to qual i fy as suppl iers to f i rmsoperat ing in increasingly compet i t ivemarkets. They also influence the extent towhich suppliers are able to take advantageof the opportunities for further technologicalimprovement that linkages may provide.More and more foreign affiliates demandthat their suppliers comply with qualitys tandards such as ISO9000, QS9000,HACCP and VDA. Accordingly, thetechnological upgrading of local supplierfirms is a priority for host countries, andseveral governments have adopted measuresto encourage technology transfer from buyerfirms to supplier firms and to strengthentechnological cooperation between the two.These measures may be general or focusparticularly on suppliers to large firms,including foreign affiliates. Often, they arepart of comprehensive programmes topromote backward l inkages (see sectionV.D). They are, moreover, implementedagainst the background of increasingly openpolicy frameworks for FDI and also growingpressure — including through the TRIPSagreement — to s trengthen inte l lectualproperty regimes. The issue may be of lessrelevance for buyer-supplier transfers as theytypically do not seem to involve the transferof proprietary technology (see chapter IV).

In general, however, firms, including foreignaffiliates, are hesitant to transfer proprietarytechnology in an environment in which theprotection of intellectual property is notrobust , because of the potent ial r isk ofimitation by competitors. 14 Some studieshave found that the intellectual propertyregime in a host country could affect theinflow of FDI and the type of technologytransferred, particularly in high technologyindustr ies such as chemicals ,pharmaceuticals, machinery and electricalequipment (Mansfield, 1995; Maskus, 1997;UNCTAD, 1993). 15

Against th is background, somemeasures that are specifically relevant toencouraging technology t ransfer f romforeign affiliates to their local suppliersinclude:

• Technology transfer as a performancerequirement . Technology transferrequirements are used by governments(unless they have entered specific treatyobligations to the contrary), sometimes inconjunction with the provision of anincentive (e.g. tax incentive), to induce thetransfer of technologies from TNCs, notonly to their foreign affiliates and jointventure partners, but also to local firmsthat are subcontractors of foreign affiliates.The Republic of Korea used technologytransfer requirements to domestic firms inthe 1960s (Kim, 1999) but subsequentlydiscontinued their application in 1989, asthe measure did not produce the expectedresult. 16 More recently, agreements inChina’s automobile and autoparts industriesstipulated a certain degree of transfer oftechnology (Xia and Lu, 2001). However,such arrangements may be phased out inthe light of China’s accession to WTO.

• Partnerships with foreign affiliates. Somegovernments use foreign affiliates aspartners in technology upgradingprogrammes. Singapore’s Local IndustryUpgrading Programme (box V.4) givesresponsibility to managers seconded byaffiliates to the Economic DevelopmentBoard to identify potential suppliers, andevaluate their capabilities and designprogrammes to remedy their weaknesses.Foreign affiliates participating in theprogramme then transfer technology andskills to suppliers to upgrade the


capabilities of the latter. (Box V.4 alsoillustrates the success of one local firmin upgrading its technology throughparticipation in the programme.) TheGovernment provides organizational andfinancial support.

The ul t imate aim of encouragingtechnology transfer, including to suppliers,is to strengthen the innovatory capacity offirms in developing countries. In this regard,incen t ives to encourage innovat ion indomestic firms and R&D cooperation playa crit ical role. Some governments offerincentives to firms (foreign and domestic)for R&D cooperation with other firms orresearch institutes. This creates another –and potentially valuable – form of backwardlinkages (which may also include directinput by suppliers). For example, startingin 1991, Brazil gave fiscal incentives toinformat ion technology companies thatinvested at least 5 per cent of local salesin R&D, and 46 per cent of the expenditurewas on projects developed joint ly withBrazilian universities or research centres.Between 1993 and 1998, 272 companies(including affiliates of leading TNCs likeEr icsson, NEC and Compaq) avai ledthemselves of these incentives (Galina,2001). Motorola drew upon this incentiveto es tabl ish a Brazi l ian centre forsemiconductor component developmentwhich it built into a global research centrein col laborat ion with local univers i t ies(Galina, 2001).

Some governments give similarincent ives to univers i t ies and researchinstitutes to cooperate in R&D with firms(again, both domestic and foreign). TheGovernment of India gives incent ives(bonuses and royal ty shares f rom newproducts ) to na t iona l labora tor ies tostrengthen linkages with enterprises. At thesame time, it has reduced budgetary supportfor laboratories, forcing them to raise fundsfrom corporate sources (Reddy, 2000, p. 79).Institutes with a strong research base aresubcontracting R&D work from industry.TNCs like Intel and Motorola are using theresearch capabilities of the Indian Institutesof Technology for developing semiconductorsand chip designing methodologies.

Besides the measures implementedby host country governments , homecountr ies too , can take measures toencourage technology transfer by foreignaffiliates to local suppliers in host countries.Some international agreements, includingTRIPS, encourage technology transfer fromhome to host countr ies . To the extentmeasures to that effect are successful andfore ign aff i l ia tes es tabl ish technologylinkages with domestic firms, they contributeto a s trengthening of the technologicalcapacities of domestic host country firms.Home country incentives can be useful inthis respect – building for example on theprovisions of the TRIPS Agreement. One ofthe Agreement’s object ives is that “the

Box V.4. Singapore’s Local Industry Upgrading Programme

The Economic Development Board (EDB) of Singapore was established in 1961 as a governmentagency replacing the Industrial Promotion Board of 1957. Its initial aim was to increase employmentby attracting FDI. The composition of FDI targeted by the Board has subsequently followeda pattern of technological upgrading, both in terms of industry and of corporate function. Itmoved to more sophisticated and export-oriented industries – e.g. computer parts, computer peripherals,software packages and silicon wafers – in the 1970s, and began to target high-technology industriesrequiring specialist skills, such as integrated circuits, computers, industrial electronic equipmentand speciality chemical products since the 1980s.

The EDB added a linkage programme to its FDI targeting strategy in 1986 when it establishedthe Local Industry Upgrading Programme (LIUP) to upgrade, strengthen and expand the poolof local suppliers to foreign affiliates, by enhancing their “efficiency, reliability and internationalcompetitiveness” (Singapore, EDB, 2001a, p. 2). Simultaneously, the EDB created the SmallEnterprise Development Bureau to provide support to SMEs. This was corroborated by the 1988SME Master Plan, which promotes and develops selected SMEs, such as those that are innovativestart-ups or possess critical mass, capability and commitment to innovate and grow. From itsinception, the LIUP has been part of a wider development vision and industrial policy. Mostrecently, under its “Industry 21” initiative, the EDB seeks to develop Singapore into a “hub

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of knowledge-driven industries” (Singapore, EDB, 2001a, p. 1). Singapore follows a long-term human resources development plan, based on projections of future growth industries.For example, university programmes and students are directed into study courses accordingto future skills needs of the economy (Singapore, EDB, 2001a).

LIUP is implemented in 3 phases:

• Phase 1: improvement of overall operational efficiency, such as production planning andinventory control, plant lay out, financial and management control techniques.

• Phase 2: introduction and transfer of new products or processes to local enterprises.

• Phase 3: joint product, process research and development with foreign affiliates’ partners.

Activities can be undertaken concurrently under the three phases. The role of the LIUPis to offer organizational and financial support to upgrade and develop vendors. It operateswith the involvement of foreign firms, and TNCs are encouraged to enter into long-term contractswith local suppliers and assist them to upgrade their products and processes (see box). Whilethe initiative was initially launched for the electronics cluster, the LIUP now covers medicalproducts, petroleum and petrochemicals, marine, transportation and logistics, education andinformation technology clusters (Singapore, EDB, 2001a).

The LIUP’s activities include a variety of support measures. For instance, the EDB contributesto the salary of a foreign affiliate’s representative seconded to a local supplier to make theaffiliate’s supplier more competitive. Specific benefits are offered to those TNCs that enrolthemselves in the vendor development programme. Thus,the Government of Singapore can maintain its influenceover the character and content of the capital upgradingprocess.

Local suppliers are encouraged to expandinternationally, e.g. follow their TNC customers whenthey establish plants elsewhere, notably in South-EastAsia. This extends the LIUP programme beyond aconventional local linkage development programme.

Over time, the economy has developed substantialcontractual buyer-supplier arrangements, with knowledgetransfers flowing in both directions (Chew and Yeung,2001). For example, in 1999, about 30 foreign affiliatesand 11 large local enterprises, government-l inkedcompanies and government agencies were partneringsome 670 vendors under the LIUP. Most of these werein the electronics or electrical industries. In the mid-1990s, among the suppliers that had participated inthe programme, productivity had increased by an averageof 17 per cent, and value added per worker by 14 percent (Battat et al., 1996). Some local firms, such asAdvanced Systems Automation and ManufacturingIntegrated Technology, have managed to evolve fromdomestic suppliers to internationalized companiesperforming highly complex functions (Mathews, 1999).Both these companies are today preferred global first-tier suppliers to their TNC customers . This would suggestthat Singapore’s approach, combining a targeted FDIpromotion strategy with a linkage programme, has hadpositive effects on economic deepening.

Source : UNCTAD, based on Singapore , EDB, 2001a; Bat ta t e t a l . , 1996; Chew and Yeung,2001; Mathews , 1999; Tan 1990; and communica t ions f rom John Mathews (May 2001) .

Box V.4. Singapore’s Local Industry Upgrading Programme

FJ Industrial and Hewlett Packard

FJ Industrial, a domestically-ownedfirm in Singapore, started its operationsas a small manufacturer of aluminiumand plastic nameplates. It graduated tobecome the first local firm to manufacturemembrane switches and circuits, whichare technologically more advanced andare aimed at replacing the mechanicalpush-buttons on computer keyboards,copy machines, calculators microwaveovens, etc. Under the LIUP, HewlettPackard’s affiliate in Singapore assistedFJ Industrial in diversifying into thesetechnologically sophisticated products.It helped its supplier to set up productionfacilities with process control equipmentand sanitized rooms. FJ’s factory managerand an engineer were provided trainingon the manufacture of membrane switchesand circuits at the Olin Hunt SpecialtyProducts factory in Los Angeles, HewlettPackard placed a large order on FJIndustrial for switches and circuits forincorporation in its new generationcalculators and computers.

Source: UNCTAD, based on Lim andFong , 1991 , pp . 130-131 .


protection and enforcement of intellectualproperty rights should contribute to thetransfer and dissemination of technology”(Article 7). In addition, some clauses referspecifically to the promotion of transfer oftechnology to LDCs. The Agreementrecognizes the special needs andrequirements of its least developed membersby providing for assistance to them by thedeveloped country members on the issue oftechnology transfer. More specifically,Article 66(2) requires developed countrymembers to “provide incent ives toenterpr ises and ins t i tu t ions in the i rterritories for the purpose of promoting andencouraging technology transfer to leastdeveloped country members in order toenable them to create a sound and viabletechnological base”. Further, Art icle 67s ta tes tha t , “in order to fac i l i ta te theimplementat ion of this Agreement,developed country Members shall provide,on request and on mutually agreed terms andcondi t ions , technical and f inancia lcooperation in favour of developing andleast developed country Members”. 17

In conclusion, the experience off i rms (see chapter IV) and of se lec tedcountries suggests that the most successfultechnological linkage measures are two-pronged, directed at both suppliers andbuyers. Policies aimed only at inducing orencouraging foreign affiliates to transfertechnology have generally not been veryeffect ive . Those address ing only localsuppl ier f i rms have done bet ter , butcomprehensive policies addressing bothsides of the equation have turned out best.Par tnersh ips wi th fore ign af f i l ia tes inupgrading supplier capabilities have beenparticularly effective.

3. Training

Developing countries attach a highpriority to human resource development(particularly in SMEs). They pay particularattent ion therefore to strengthening thehuman-resource-development dimensions ofsuppl ier l inkages, including those withforeign affiliates. Policy instruments in thisarea range from measures that form part ofbroad-based policies for SME development

and/or comprehensive supplier developmentprogrammes, to programmes or measurestargeting learning interrelationships betweensupplier- and client-enterprises in particularindustries. Government training programmesthat are targeted solely at SMEs or localsuppl iers – implemented by severalcountr ies , inc luding, wi th considerablesuccess by a few developing countries – notinvolving buyers, can strengthen training andski l ls-development interact ion betweenforeign aff i l ia tes and their domest icsuppliers. But the measures considered hereare those that are related more specificallyto the promotion of training and educationalassistance for suppliers’ employees by (orinvolving) buyer (or potential) buyer firms,including especially foreign affiliates.

However, only a few countr iesprovide fiscal or financial incentives to firms( including fore ign aff i l ia tes) for th ispurpose. The Republic of Korea gives taxincentives to large firms (domestic as wellas fore ign) to compensate par t ly forexpendi tures on human resourcedevelopment in SMEs (including suppliers).(These expenditures are eligible for a taxcred i t of up to 10 per cent . 18 ) Somecountries provide financial support to firms,including suppliers to affiliates, that sendworkers for t ra in ing or incur t ra in ingexpenses . In Singapore , the Ski l l sDevelopment Fund of the SingaporeProductivity and Standards Board givesf inancia l ass is tance to companies fortraining their workers. Thailand grants a 150per cent tax deduction for training expensesrecognized by the Ministry of Labour; inthe past, this has been relatively hard toobtain, although improvements have beenmade recently (Brimble, 2001). In Malaysiaand Hungary, t ra in ing cos ts can besubsidised.

On the whole, however, the mainfocus of the measures pursued by hostcountr ies for s t rengthening in ter- f i rmlinkages in the area of training and skillsis on assisting buyer and supplier linkagesin general , and al though few of themspecifically and exclusively target foreignaffiliates and their domestic suppliers, theyare also of direct relevance to l inkagesbetween them. Host country measuresinclude:


• Promoting supplier associations. Supplierassociations established with governmentsupport can help build training linkages.For instance, the Republic of Koreaencourages big companies (includingforeign affiliates) to help organize SMEsupplier associations and participate intheir training and other programmes. In1999, 6,100 subcontractors received

management assistance and training frombig firms through this system. 19 The“Source Wales” Programme of the WelshDevelopment Agency also uses a supplierassociation as a forum to exchange skillsand techniques between clients andsuppliers, with major customers orconsultants hired by the programme, actingas tutors for SMEs (Morgan, 1997; box V.5).

The Welsh Development Agency – one of the sub-national development agencies in theUnited Kingdom – runs a programme called “Source Wales”. Since it combines matchmakingand supplier upgrading activities, it is in essence a linkage programme. It is not exclusiveto foreign affiliates, but Source Wales works closely with foreign affiliates, and they are majorplayers in the different programme activities.

In terms of matchmaking, Source Wales runs a custom-built supplier database that recordsthe capabilities of Welsh enterprises. a This helps firms elsewhere in the United Kingdom aswell as foreign affiliates to find suitable Welsh suppliers. The buyers’ commercial, technicaland quality requirements and the selection criteria by which they choose potential suppliersare also disseminated.

Source Wales sponsors or is involved in various business improvement programmes, coveringa broad range of activities:

• The Winning Business Programme targets ambitious, growth-oriented companies operatingin medium or fast-growth market segments and young entrepreneurial companies producingniche products or services. b The Programme offers practical help by improving the understandingof the situation of each business, identifying marketing performance indicators, providingmarketing tools and transferring necessary skills and expertise to ensure sustainable improvement.

• The Lean Methodologies Programme aims at increasing a company’s productivity, qualityand delivery. The Programme trains companies in the use of a fact-based diagnostic processto identify the non-value-adding activities within the business. A tailor-made action planis then designed to abolish these.

• A Strategic Direction Programme develops business strategies by helping companies usesuch strategic management instruments as market analysis and future planning. In this process,a designated Source Wales programme manager meets with a company to discuss its currentsituation and ideas for the future. A trained assessor then performs a benchmark test toestablish the current position, highlighting strengths and weaknesses and areas in needof improvement. At the end of the Programme, the company has a comprehensive strategy,with measurable achievement targets. Approximately one year after the Programme hasbeen completed, a second benchmark is carried out to measure progress. c

• The Workplace Management Programme provides training in tools and techniques to helpovercome problems associated with a company’s “culture”, such as resistance to change.A team selected from a company’s staff is trained in team-work and problem-solving anduse of analysis tools. d

• The Activity Based Management Programme aims to help Welsh companies improve customerservice levels by analysing the complete cost structure of a business and eliminating coststhat do not add value. The Programme tackles issues such as sales and marketing strategies,organization and process development, cost reduction, performance measurement, reductionin quality costs and management reporting systems.

Another modality is that of “Supplier Associations”, a forum in which new skills andtechniques are exchanged among clients and suppliers, and in which the major subcontractorsact as tutors for SMEs (Morgan, 1997). These Associations are either initiated by foreign-owned buyers, or by supplier firms, and are generally organized by the industry involved.Source Wales offers two types of events for the benefit of these Associations: the first involves

Box V.5. Source Wales

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• Support for private sector trainingprogrammes. Government agencies mayassist large firms, including foreignaffiliates, to undertake training targetedat SMEs.20 Public support for traininglinkages between affiliates and supplierscan also be provided at the local level. ThePenang Skills Development Centre inPenang plays an important role in puttingtogether training courses contributed byTNCs to upgrade skills in the supplierworkforce (Intel, 2001). In Singapore,public-private-sector cooperation fortraining is an important part of the LocalIndustry Upgrading Programme.

• Collaboration with international agencies.International agencies can participate intraining efforts for suppliers in hostcountries. The UNIDO partnershipprogramme, in its first phase aimed at theautomotive component industry in westernIndia, began in 1999 as a collaborativeeffort of the Government of India, Fiat andnon-governmental institutions and groupswithin India (see box V.6). 21

Insufficient information makes itdifficult to evaluate the different kinds ofgovernment measures in the area of training

out l ined above. Exper ience with someprogrammes, such as those of Wales ,Singapore and Penang in Malaysia, suggeststhat the returns to well-conceived initiativesto promote learning and skills developmentamong local suppliers can be high. Bestpractice involves mobilizing the cooperationof buyer enterprises to overcome resourceand organizational constraints, and stafftargeted for training, and periodic evaluationof t ra in ing programmes and fo l low-up.Furthermore, in many cases, governmentscan re ly on externa l par tners for theprovision of the required training.

4. Finance

Financ ia l re la t ionsh ips are anecessary part of linkages between foreignaffiliates and their domestic suppliers. Theyrange f rom the pr ic ing of a suppl ier’sproduct to the provis ion of long- termfinance. While possibilities to help suppliersin pricing negotiations in a market-basedeconomy are limited, there may be a needfor l egal pro tec t ion aga ins t unfa i rcontractual arrangements and other unfairbusiness practices. Competition policy hasan important role to play here. A government

annual or bi-annual strategy meetings among contractors and supplier firms; the second consistsof periodical conferences and seminars. Costs of speakers, of organizing the meeting venueand of incidentals are absorbed by Source Wales (Izushi, 1999, p. 743).

In terms of supplier development, major original equipment manufacturers are engagedeither on a one-to-one basis or among a network of firms. In either case, the programmesare delivered by third-party consultants and managed by Source Wales. For example, SourceWales has worked on supplier development programmes with large foreign affiliates of Ford(Bridgend plant), Sony (Bridgend plant) and Robert Bosch (Llantrisant plant). The latter arereferred to as “sponsors” or “lead companies”. Sometimes lead companies are the most advancedin terms of best-practice capabilities. In other cases, lead companies actually learn from participatingsuppliers, if these are more capable. According to an evaluation undertaken in 1996 , the SourceWales programme was effective and innovative (Segal Quince Wicksted, 1996, cited in Morgan,1997).

An important feature of Source Wales is that it is staffed by professionals with hands-on experience of international markets and industries. This facilitates a constructive dialoguewith major industrial buyers.

Box V.5. Source Wales (concluded)

Source : UNCTAD.a According to the website of the Welsh Development Agency, the system contained more than 4,300 companies

as of January 2001.b Other criteria relate to a company’s culture, the attitude and motivation of the employees and the leadership

capability of key managers.c In a related programme, Source Wales consultants teach companies how to carry out a benchmarking exercise

on their own.d One element is an “improvement toolbox” that examines workplace organization; waste elimination; change-

over time reduction; just-in-time production techniques; total productive maintenance, etc.


can also sponsor legal assistance systemsfor suppliers negotiating contracts with largefirms and provide suppliers with informationon benchmark prices and alternative businessopportuni t ies , or encourage businessassociations to do so.

In developing countr ies , whereshortage of finance is a major constraintfacing domestic suppliers ( in particularSMEs), the challenge is mainly to encouragethe provision of financial support by foreignaffiliates to their domestic suppliers, sincethe former are generally likely to be in abetter financial position than the latter. Suchsupport, when it occurs, can directly increasefinancial resources available to suppliers,

contribute to reducing the cost of financefor them, and/or reduce the uncertaintysurrounding the sustainability of financialflows. I t can be encouraged by variousgovernment measures (which, as in otherareas, do not necessarily have to distinguishbetween foreign affi l iates and domesticfirms):

Short-term finance

• Governments can encourage a shorteningof payment delays through tax measures.In the Republic of Korea, for example, taxreductions of up to 10 per cent of the totalcorporation or income tax are offered toencourage prompt payments to suppliers. 22

The UNIDO Partnership Programme is jointly implemented by UNIDO, the Governmentof India, selected TNCs and other large corporations, research institutions and civil societyorganizations. a Its objective is to create a pool of competent and internationally competitivedomestic component suppliers in India’s automotive industry. That is expected, in turn, toresult in the formation of strong linkages between foreign affiliates and domestic suppliersin the industry. The programme is targeted at SMEs that are second- and third-tier suppliersin the industry – suppliers that do not supply directly to car manufacturers but rather to firmsthat do. Target firms are characterized by an employment size ranging from 20 to 80 employeesand also by specific difficulties in accessing technology, human resources, information andfinance and integrating them into their operations. In its first phase, which began in 1999,the programme was directed at automotive component manufacturers in the Mumbai-Pune regionof western India.

Training is a major component of the programme. Training activities are jointly designedby the project partners (including target companies) based on inputs provided by the TNCsamong them – FIAT in phase I and FORD in phase II – on requirements which suppliers areexpected to fulfil. Four international experts (two specialists in automobile manufacturing;one in plastics; and a fourth expert with extensive experience in rubber and rubber-extrusionproducts, identified through the participating institutions, including FIAT) are responsiblefor the design and implementation of the enterprise-oriented shop-floor training and trainingof junior engineers . In addition, experts from Automotive Research Association of India andAutomotive Component Manufacturing Association of India, provide technical and managerialtraining and expose managers of participating enterprises to international best practices. Eachparticipating company pays a fee of INR20,000, regardless of the number of people trained.However, in phase II, which was launched in August 2000, each participating company willpay a fixed price for specific services, also depending on the number of managers or employeestrained. So far 300 Indian firms – an average of about 15 persons per firm – have receivedtraining under the programme. The core activity of the programme is shop-floor training inworld-class manufacturing methods such as the 5Ss (abbreviated from the Japanese wordsSeiri , Seiton , Seison , Seiketsu , and Shitsuke, meaning housekeeping, workplace organization,cleanup, keep cleanliness, and discipline – simple but effective methods to organize the workplace);and Poka-Yoke (Japanese for “mistake-proofing”), also known as Zero Quality Control. Inaddition, UNIDO software for financial planning and business performance assessment is installedand training given on how to use these tools. A UNIDO survey of participating companiesand survey results revealed significant improvements in productivity, training for continuousimprovement and quality standards.

Box V.6. Partnership for training: the UNIDO Partnership Programme to strengthen theautomotive component manufacturing industry in India

Source: UNIDO, 2000, and o ther in format ion prov ided by UNIDO.a The budget for the programme was $305,000, funded equally by Fiat, the Government of India and UNIDO.


• Governments can limit payment delaysthrough legislation. Again, in the Republicof Korea, the Fair Subcontract TransactionsAct mandates a time limit (60 days) ondelayed payments. In India, the Intereston Delayed Payments to Small Scale andAncillary Industrial Undertakings Act of1993 stipulates that payment tosubcontractors should be made within 30days.

• Governments can make arrangements toguarantee the recovery of delayedpayments. In the Republic of Korea andTaiwan Province of China, public guaranteefunds offer up to 100 per cent coverage onpromissory notes. The Government ofHungary has two non-refundable facilities(the Economic Development and the Smalland the Medium-sized EnterprisesDevelopment Targeted Allocations) to re-finance borrowings by subcontractors.

• Governments can offer indirect financingto suppliers channelled through theirbuyers. In Mexico, for example, a State-owned development bank operates an“AAA Trust Fund” that provides the mostcreditworthy large firms (categorized as“triple A”) with funds to financepreferential credit lines to their suppliers. 23

Medium- to long-term finance

• Governments can offer tax credits orreductions and other fiscal benefits to firmsproviding long-term funds to suppliers. Anexample is the Fundo Fiat in Brazil (BorgesLemos et al ., 2000).

• Governments can co-finance supplierdevelopment programmes along with theprivate sector. This is the case with thePenang Skills Development Centre, theUNIDO programme for upgradingautomotive component manufacturers inIndia, and the Government of India’s co-financing and subsidization ofsubcontracting exchanges.

• Governments may take a direct role inproviding finance to local firms to improvetheir capacities. For example, theGovernment of Hungary provides firms thatare suppliers to large firms (a good numberof which are foreign affiliates) financialsupport for new investments, the re-

financing of loans and improving operatingcapabilities. This is done on a cost-sharingbasis, with half the costs covered by thefirms. From 2000, consultants working forfirst-tier suppliers providing support forleasing by SMEs can also apply forfinancial assistance. In the MexicanPrograma de Desarrollo de Proveedores ,the national development bank financessuppliers to large companies (again, mostof which are foreign affiliates).

• Mandatory transfer of funds from foreignaffiliates to local suppliers. Although sucha scheme has not yet been tried in practice,in theory, it could emulate the mechanismsof the Foster Father Business Partnerprogramme in Indonesia (initiated in 1992),while avoiding its shortcomings. The latter“strongly encouraged” all large firms toallocate 1-5 per cent of their profits to smallenterprises. One of its weak points wasthat it did not link the use of thoseresources to improvements in theproduction and supplying capabilities andeconomic efficiency of supplier SMEsbenefiting from the scheme. Anothershortcoming was that most of thebeneficiaries of the scheme were selectedby the authorities, without sufficientconsideration of their potential as suppliersto large firms. Due to a lack of tangiblebenefits for them, foreign affiliates showedlittle interest in participating, making thescheme non-enforceable (Altenburg, 2000,p. 50; Kian Wie, 1994, pp. 106-107;Swisscontact, 1996, p. 10-11).

Finally, as in the case of other linkage areas,home country governments can takemeasures to encourage financial support bytheir TNCs to local suppliers in developingcountries. Examples include:

• Two-step loans . Credit lines may beprovided to foreign affiliates or local banksfor loans to local suppliers. For instance,the Japan Bank for InternationalCooperation offers credit lines to localstate-owned banks in host countries forloans to local firms including suppliers toJapanese affiliates. Additionally, during theAsian financial crisis, as part of emergencymeasures, the Bank authorized Japaneseaffiliates in Thailand to use its loans forworking capital so that they could alsoextend financial assistance to crisis-hit


local suppliers in the form of advancepurchases and advance payments. (Undernormal circumstances, loans by this bankcan be used for the purchase of machineryand equipment only.) 24

• Using official development assistance(ODA). ODA resources can be used to fund(together with firms and host governments)supplier development programmes in a hosteconomy. In Mexico, for example, theTijuana Development Council manages andcoordinates the Fondo Tijuana (withresources from the Inter-AmericanDevelopment Bank) to finance localsuppliers in the electronics cluster. Thefive-year budget (2000-2005) of the Fondohas $2.7 million for technical cooperationand $12 million for a venture capital fund.(See the text on Mexico in the annex ofthis chapter.)

*****

Governments have an important roleto play in countries that do not have a well-functioning capital market. One of thethings they can do is to encourage foreignaffiliates to extend financial support to theirdomestic suppliers through measures toinf luence the regulatory framework forfinancial linkages or through the provisionof co-financing or guarantees in financialarrangements between foreign affiliates andlocal suppliers. However, direct financialparticipation can be costly for governments,and the benefits derived from it need to beassessed carefully relative to its costs.

D. Specific governmentlinkage promotion

programmes

The above review has highlightedvarious measures to bring suppliers andforeign affiliates together and to strengthentheir linkages, regardless of the industriesinvolved. Some countries have taken a moreproactive approach by setting up specificlinkage promotion programmes dedicated toincreasing and deepening linkages betweenforeing affiliates and domestic firms. Theseprogrammes combine several of thesespecific measures and typically focus on a

limited number of industries and firms.Target ing is a lmost inevi table whengovenments allocate scarce resources forindustr ia l development , and i t i seconomical ly just i f iable when differentact ivi t ies offer varying scope fortechnological learning, skill building orspillover benefits. Governments use variousmeans for se lect ing targets for l inkagecreat ion (box V.7) . Somet imes, theseprogrammes are organized at the nationallevel. In other cases, they are part of sub-national strategies. These latter programmesare characterized by a cluster approach,some running in paral le l to nat ionwidelinkage efforts, others being stand-aloneinitiatives (annex table V.2).

Not surpr is ingly, most speci f iclinkage programmes are in countries witha significant FDI presence and a strong localsupplier base. 25 Most of these countrieshave institutions for SME development andFDI promotion, as well as the skills andfinancial resources to staff and fund linkageprogrammes.

Common object ives of suchprogrammes are to increase domest icproduction and employment; improve thecurrent account; make TNCs more rootedin the local economy; and, above al l ,upgrade the capabi l i t ies of domest icenterprises. The relative importance of theseobjectives varies and has shifted over time.For example, the programmes in Ireland (boxV.8) and Singapore (box V.4) were initiallytr iggered by the need to increaseemployment; subsequent ly, technologyupgrading took precedence.

Three elements are common to thespecial national-level linkage programmes:

• the provision of market and businessinformation;

• matchmaking by such means as trade fairsor data bases;

• support to local enterprises throughprovision of managerial and technicalassistance, training, audits and,occasionally, by financial assistance orincentives.

The relative weight assigned to each of theseelements depends upon the objectives of theindividual programme. It also depends on


the level of enterprise development, theinvolvement of the pr ivate sector indetermining the needs of f irms and thefinancial and human resources available forthe programmes. Programmes aiming mainlyat facilitating the establishment of linkagestend to emphasise matchmaking betweendomestic firms and foreign affiliates. Thoseaiming mainly at upgrading the technologicalcapabi l i t ies of domest ic f i rms place astronger emphasis on technical and othersupport to domestic firms with supplierpotent ia l . This of ten inc ludes s t rategicdecisions on the activities to be covered inthe programme.

The earliest programmes (table 2 inthe annex to this chapter), dating from themid-1980s, were undertaken in Ireland,Singapore and Malaysia (box V.9). The Thail inkage programme s tar ted in 1992.Programmes in the Czech Republic (boxV.10) and Hungary date from the mid-1990sand that in Costa Rica began in 2000. 26

Linkage programmes at the sub-nat ional level focus on subregions orindustries. 27 Their objectives go beyondsimply creat ing l inkages , increas ingemployment and balancing t rade andinclude:

Box V.7. Targeting potential local suppliers

Targeting potential suppliers implies, first, the identification of industries in which localfirms have the capacity to forge linkages or in which this capacity can be successfully developed.In the case of Ireland, for example, realistic supply opportunities were identified in metal andplastic components industries, although other industries (such as printing, packing, automationequipment, electronics manufacture assembly, and system testing equipment) were also exploredfor potential local sourcing (Battat et al., 1996; Crone, 2001).

Governments have used various criteria to select local firms with the potential of becomingsuppliers to foreign affiliates. These relate to technical and production capabilities, size, ownership,industry and the quality of the top management of local firms in terms of vision and eagernessto improve their firms and benefit from government support. Thus, in Ireland, a prime considerationfor selecting companies as beneficiaries of government support is the attitude of the managementof the local firm. In identifying potential domestic suppliers, some governments work closelywith foreign affiliates to ensure that they identify market requirement properly (especially asto demand, supply capacities and quality and other requirements) and, from the beginning, involvethe private sector in their efforts. This is the case with the Irish National Linkage Programme(NLP), Singapore’s Local Industry Upgrading Programme (Singapore, EDB, 2001b), Costa Rica’sProvee project and Thailand’s BUILD Programme (Thailand, Office of the Prime Minister (BOI),2001). (See boxes below and the annex to this chapter.)

Suppliers selected for linkage programmes are sometimes classified into different categories,based on firms’ capabilities, competitive advantages and chances of success in a linkage programmeaimed at enhancing their capabilities. For example, in the case of the Irish National LinkageProgramme, only 70-80 suppliers out of an estimated 750 on its database were selected to beincluded in its supplier development programme (Crone, 2001; Ireland, 2001a). In Hungary,the Government has classified local suppliers in four categories: already suppliers; ready tobecome suppliers; suppliers that require assistance in specific areas to become suppliers; firmsthat cannot become suppliers in the short term. Half of the Government’s resources are providedto the first category of firms on a cost sharing basis, while not more than 40 per cent are devotedto firms in the second category, and only 10 per cent to firms in the two last categories (Hungary,2001b). In the UNIDO Programme on Industrial Subcontracting and Supply Chain Management,the selected local companies should meet at least two of four criteria: more than nine employees;specialised equipment; specialised manufacturing process; and ISO9000 certification. a The UNIDOPartnership Programme (box V.6) for the development of autoparts suppliers in western Indiatargets second- and third-tier suppliers according to the following criteria: 50 per cent ISO9000or self-certified companies; a minimum of two years in operation; non-captive sub-suppliers(with at least two unrelated customers); and committed and motivated management. a

Source : UNCTAD.a Information provided by UNIDO.


Since the mid-1980s, Enterprise Ireland has been operating various linkage programmesdesigned to improve the integration of foreign enterprise into the Irish economy. The currentNational Linkage Programme (NLP) was introduced in 1998. Enterprise Ireland is a governmentorganization, established in 1985 under the Ministry of Finance. a Its enterprise developmentactivities take place in the context of Ireland’s current National Development Plan (2000-2006) (Ireland, Ministry of Finance, 2000). Its core mission is “to work in partnership withclient companies to develop a sustainable competitive advantage, leading to a significant increasein profitable sales, exports and employment” (Enterprise Ireland, 2001, p.1). Accordingly,the agency works in partnership with private industry and other institutions, notably universities.It pursues two tasks: first, to support Irish enterprises to build capacity, innovate and createnew partnerships; second, to assist international investors to source and identify key suppliersin Ireland.

With a staff of about 15 people, the NLP functions primarily as a brokerage servicewith the aim of promoting local sourcing by foreign affiliates in Ireland. Under its linkageprogramme, NLP representatives initially visited foreign affiliates to determine their sourcingrequirements and made efforts to match these with the production profiles of local suppliers.However, local suppliers encountered a variety of difficulties in terms of capabilities andcapacities to meet the standards set by foreign affiliates. The programme hence increasinglyturned to capacity building.

The NLP was focused primarily on potential suppliers to TNCs in the electronics industry,engineering and, more recently, the healthcare industry. “Realistic” supply opportunities wereidentified in metal and plastic components, while such industries as printing and packaging,automation equipment, electronics manufacture assembly and system testing equipment, werealso explored to determine whether local sourcing could potentially increase.

The NLP closely cooperates with foreign affiliates, as well as with their parent companies,to identify specific parts and components that may be supplied domestically and to identifythe domestic firms that show the greatest potential. A key criterion used for selecting companiesto participate in the supplier development programme is the attitude of the management teamsof local firms, which should be “forward thinking, ambitious, and dynamic” (Crone, 2001,p. 2). b

With the carefully selected local firms, the NLP works to resolve operational problems,making use of available assistance programmes. The agency helps suppliers design supportprogrammes, conducts development activities and assists suppliers entering into subcontractingarrangements with foreign affiliates. A wide range of services is currently offered to potentialsuppliers. c Recently, and in response to the growing need for suppliers to become sub-assemblers,the NLP is also actively promoting a restructuring of local industry by “marrying” suppliercompanies, rather than focusing on single-component providers to the foreign affiliates.

As each company has its own distinctive ambitions, capabilities and needs, the agencyaims at delivering solutions tailored to the individual circumstances of each enterprise. A“Development Adviser” is the company’s main contact point in Enterprise Ireland. This professionalstaff member helps suppliers to assess their needs and capabilities, formulate an agreed “growthplan” and identify the range of services and resources needed to execute the plan.

Under a “Networks/Value Adding Partnerships” scheme (which seeks to help small companiesovercome limitations imposed by their size), eight networks were set up in industries, rangingfrom cheese making to mould making, with a view to undertaking joint research and development,marketing and procurement-related activities. Reportedly, this scheme resulted in additional salesof Irish £16.7 million for participating companies in 1997 (Ireland, Minister for Finance, 2000,p. 230).

To support SMEs more generally, the National Plan has allocated Irish £128 millionto support marketing capabilities focussed on SMEs, as these often fail to undertake marketdevelopment on their own, due to a lack of expertise, financial resources and the perceivedrisks involved. The supplier development programme has focused on 70 to 80 firms, rangingfrom small specialist suppliers to firms of up to 150 employees. Activities include (Ireland,Minister for Finance, 2000, p. 139 f):

• market information and research on market trends, competition, logistics, market strategyoptions, product development and design upgrading of skills;

/...

Box V.8. Ireland’s National Linkage Programme


• sectoral and company promotional activities, such as trade fairs, advertising, literatureand public relations;

• training in areas including that of supply chain management

Enterprise Ireland also runs a sophisticated electronic database, covering supplier firmsin 20 industries, called the supplier search facility (Enterprise Ireland, 2001). Searches canbe run by industry, by company or by product. The industries covered include aerospace,agricultural machinery, automotive components, electronics and engineering sub-supply, pharmaceuticals,textiles and clothing and other consumer products, natural resource-based industries (suchas the foodstuffs, timber) and services (such as print and packaging, process control andinstrumentation and telecommunications). Any firm in Ireland is eligible for inclusion. Thesite covers approximately 750 supplier companies.

Between 1985 and 1987, an estimated 250 foreign affiliates have been actively involvedin the linkage programme. During that period, affiliates operating in Ireland increased theirlocal purchases of raw materials fourfold, from Irish £438 million to £1,831 million, andmore than doubled their purchases of services from Irish £980 million to over £2 billion.In the electronics industry alone, the value of inputs sourced locally rose from 12 to 20 percent over the same period. On average, suppliers saw their sales increase by 83 per cent,productivity by 36 per cent and employment by 33 per cent. d Several have become successfulinternational subcontractors; some of the larger domestic supplier companies involved in theNLP have subsequently been acquired by foreign TNCs.

Surveys aimed at evaluating the impact of the NLP have been undertaken by the NationalPolicy and Advisory Board for Enterprise, Trade, Investment, Science, Technology and Innovation(Forfas) since 1996. For the electronics industry, it was concluded that, by the mid-1990s,a ceiling of around 20 per cent of material input purchases from within Ireland had beenreached. It was unlikely that this indu stry would grow much beyond its current size levelbecause of a lack of indigenous capability in technologically complex subsectors (Crone,2001).

Some observers found that the demand for the agency’s brokering services has diminishedover time. Recent inward investors tend to be better-equipped in terms of procurement staff,many having recruited staff with knowledge of local sourcing opportunities. In response, theresources devoted to the NLP have recently been scaled down, and some activities previouslyundertaken by the NLP are now provided in a more targeted fashion by the International BusinessLinkages Department of Enterprise Ireland with a staff of eight people.

In summary, the combination of programmes provided by Enterprise Ireland has contributedto the emergence of suppliers of high-quality goods and services, delivering to affiliates aswell as to other buyers. Some lessons that were drawn from the Irish case are that:

• Matchmaking requires accompanying measures to upgrade the capabilities of potentialand existing suppliers; the need for matchmaking as such may diminish over time asthe composition of affiliates and their motivations for locating in a given country, ortheir local knowledge, changes.

• Supplier development efforts should be selective, in order to achieve the best outcomesfrom limited resources. For example, efforts should focus on those SMEs that have thegreatest potential for growth. The NLP normally ignored the smallest firms because theywere considered unlikely to grow to a size that is large enough to enable them to winbusiness with foreign affiliates (Crone, 2001).

• Close collaboration with foreign affiliates and their parent TNCs is crucial.

• Close coordination and collaboration amongst the various government agencies involvedin assisting local suppliers are important elements.

Box V.8. Ireland’s National Linkage Programme (concluded)

Source: UNCTAD, based on the Enterpr ise Ire land websi te and informat ion provided by Enterpr iseI re land , as we l l as Crone , 2000 and 2001.

a Originally, the programme was implemented by the Industrial Development Authority.b This is similar to the approach taken in the linkage programme in Penang state, Malaysia.c Services are offered in business planning and information, research, development and design; production and

operations; marketing and business development; human resource development and finance.d Data provided by Enterprise Ireland.


In Malaysia, linkage policies have been unified under the umbrella of the Second IndustrialMaster Plan (1996-2005), a formulated and implemented by the Ministry of International Tradeand Industry (Malaysia, MITI, 2001). This Master Plan pursues an approach to industrial developmentthat has strong implications for the creation and deepening of linkages: its core objectiveis to move the economy up the value chain, from assembly-based and low value-added activitiestowards activities in R&D, product design, distribution and marketing. A related objectiveis to support the evolution of internationally competitive clusters; these are to be nurturedby integrating key manufacturers with their suppliers and with key business services, and bydeveloping the requisite infrastructure and institutions. The approach seeks to generate backwardand forward linkages and domestic spin-offs, as well as to develop domestic SMEs (Malaysia,MITI, 2001).b Institutionally, the Master Plan brings together public and private sector players. c

Within this broader context, the Malaysian Industrial Development Authority (MIDA)is the principal agent for the promotion and coordination of industrial development, includingforeign and local investment in manufacturing (Malaysia, MIDA, 2001). At the operationallevel, two agencies are responsible for the promotion of industrial linkages: the Small andMedium Industries Corporation, a specialized agency that provides advisory services, guidanceand assistance to enhance the competitiveness of the SMEs in Malaysia, and the Ministryof Entrepreneur Development.

The Industrial Linkages Programme of the Small and Medium Industries Corporationoffers a number of incentives. d Large companies participating in the Industrial Linkages Programmecan claim tax deductions for expenditure incurred in supplier-related support activities, suchas training, product development and testing, or factory auditing ensuring the quality of vendors’products. Suppliers (“vendors”), including SMEs, are eligible for incentives if they manufacturepromoted products within an approved Industrial Linkages Programme. This is either a fulltax exemption at statutory income levels for a period of five years under the pioneer status;or an investment tax allowance of 60 per cent on qualifying capital expenditure incurred withina period of five years. Suppliers in an approved Industrial Linkages Programme, who are capableof reaching world class standards in terms of price, quality and capacity, are eligible for similarincentives. e

In a related effort, the Small and Medium Industries Corporation launched a Global SupplierProgramme in 1999, which is aimed at strengthening the competitiveness of Malaysian SMEs,so that they become suppliers not only to foreign affiliates of TNCs, but also evolve intoglobal suppliers. f It has the following objectives:

• to invite TNCs to share resources in terms of specialist trainers and training materials;

• to raise funding from the state and federal governments for such initiatives as the HumanResources Development Fund and the training grant provided under the Skills UpgradingProgramme which finances up to 50 per cent of the training costs;

• to explain tax incentives, such as the Double Deduction Incentives; and

• to ensure the commitment of local companies to participate actively in the Global SupplierProgramme.

The Global Supplier Programme currently operates two initiatives. The first is trainingin critical skills and the second is an initiative to build linkages with TNCs. The traininginitiative focuses on helping participants acquire competencies to adopt and use new technologies;it has three levels of training. g All trainers come from participating TNCs and are technicalpersonnel with many years of “hands-on” experience. They are therefore in a position to assessthe suppliers’ performance as well as evaluate the effectiveness of the training.

Under the linkage initiative, foreign affiliates “adopt” local companies and guide themfor upgrading in leadership skills and technology. The selection criteria for this programmeare dependent on conditions agreed between the foreign affiliates and the participating localsuppliers. In most cases, this would be a long term commitment of up to two years with regular

Box V.9. National and regional linkage development schemes in Malaysia

/...


reviews between foreign affiliates and the local suppliers. Quarterly review meetings are chairedby representatives of participating foreign affiliates, with participation of the chief executiveofficers of the Small and Medium Industries Corporation. The state of Penang, location ofmost of the major electronics affiliates in the country, has been actively implementing thisprogramme. This initiative has been operational since 2000; eight TNCs and nine SMEs arecurrently involved.

Neither at the national nor at the state level has there been a systematic assessment ofthe effectiveness of policy instruments in fostering local input linkages and technology transfer.Nevertheless, a recent study (Jomo, Felker and Rasiah, 1999) examined the impact of variouspolicy measures on local sourcing in Malaysia. It concluded that investment incentives, suchas those available under the Promotion of Investment Act of 1986, can be effective in fosteringlocal input linkages as well as technology transfer.

At the firm level, there is some anecdotal evidence of local firms that have forged strongsupplier partnerships with TNCs. These firms have benefited from programmes such as theVendor Development Programme (the predecessor to the Global Supplier Programme), buthave also on their own initiative developed their capability to expand their range of productsand services and cultivate new customers. The establishment of the Penang Skills DevelopmentCentre has encouraged more TNCs to participate in the Human Resources Development Fund;utilization of this fund by TNCs is now much more extensive compared to that of local firms.

In Penang, incentives to encourage the physical relocation of small firms to industrialestates adjacent to the free industrial zones have proven to be a key policy tool in the processof developing linkages and technology transfer. The physical proximity of firms to their customersallowed a greater degree of interaction and diffusion of modern manufacturing practices. Afew of these small “backyard” firms have grown into international suppliers of products suchas moulds and dies.

Box V.9. National and regional linkage development schemes in Malaysia (concluded)

Source: UNCTAD.a This Plan had several precursors. The 1958 Pioneer Industries Ordinance was conceived as a mechanism within

Malaysia’s import substitution strategy, granting tax holidays, giving tariff exemptions for import-substitutinginvestment, and adopting a cascading tariff structure. The first Industrial Master Plan (1986-1995) contained detailedtargets for technology transfer and local content and was complemented by the 1986 Promotion of Investments Actwhich offered a new set of Pioneer status tax holidays. In 1991, this was revamped so as solely to grant pioneerstatus tax benefits if a firm fulfilled two of four criteria: value added of 30-50 per cent; local content levels of 20-50 per cent; technology intensity as indicated by share of managerial and technical staff in total employees; andindustrial linkages (see Felker and Jomo, 2000, p. 23 et seq.).

b The industries enjoying support are electrical and electronics, chemicals, petrochemicals, pharmaceuticals, textilesand apparel, transportation, the automotive industries and aerospace, as well as natural-resource based clusters,such as wood-based and agro-based and food products (Malaysia, MITI, 2001).

c The Industrial Co-ordination Council, chaired by the Minister of International Trade and Industry, includesrepresentatives of the public and private sectors. Its 19 Industry Cluster Working Groups, co-chaired by the privatesector, identify issues and opportunities for the development of industry clusters.

d An immediate predecessor of the Industrial Linkage Programme was the Vendor Development Programme, introducedby the MITI in 1993. Under this modality, TNCs and their affiliates offering guaranteed purchasing contracts andtechnical support to local suppliers received incentives or, more generally, support in their investment undertakings(see Felker and Jomo, 2000, pp. 23-30).

e Full tax exemption at statutory income level for 10 years, or an investment tax allowance of 100 per cent onqualifying capital expenditure incurred within a period of five years. The incentives are administered by MIDA.See Malaysia, MIDA, 2001; Driffield and Mohd Noor, 1999.

f It evolved from an initiative by Motorola which approached the Penang Skills Development Centre to outsourcetheir supplier training programme. To initiate this proposed programme, Motorola invited its suppliers to a SupplierResource Transformation meeting at the Penang Skills Development Centre. A comprehensive package on vendortraining was conceptualized in the form of the Global Supplier Programmr. Subsequently, eight other TNCs decidedto incorporate the Global Supplier Programme into their own vendor development programmes.

g The Global Supplier Programme training offers various “packages”. Package 1 is a basic course on corecompetencies, comprising presentation skills, meeting and negotiating techniques, time management and projectmanagement. Package 2 introduces to various quality standards and statistical packages and is delivered in 8.5training days spread over four months. Package 3 is an advanced programme that teaches design capabilities (CAD/CAM; design for assembly or manufacturability, etc.). There are also modular courses teaching various engineeringsubjects.


It is one of the strategic goals of the foreign investment promotion agency of the CzechRepublic, CzechInvest, to support the country’s supplier base and to link it to foreign affiliates.It is also a way to convince potential foreign investors to locate in the Czech Republic. Itis in this context that the agency introduced its Supplier Development Programme in 1999,designed to improve links between Czech suppliers of components and services and foreignaffiliates operating in the Czech Republic. It has three objectives: to promote modern industrialtechnology, to heed environmental protection considerations and to raise qualifications ofthe local labour force’s.

In January 2001, the Supplier Development Programme introduced a new “Twinning Programme”,co-funded by the EU and the Government of the Czech Republic. This two-year subprogrammefocuses specifically on the electronics and electro-technical industry. For a local supplierto qualify for the Twinning Programme, annual revenues must exceed $2 million. If the Programmeproves to be successful, the Supplier Development Programme is expected to extend its coverageto other industries for the 2003-2005 period. At the end of the Twinning Programme, CzechInvestplans to prepare a detailed evaluation and send the information to the Government.

The Supplier Development Programme currently consists of three elements:

• Collection and distribution of information regarding the products and capabilit ies ofpotential Czech component suppliers, so as to enable foreign manufacturers to short-list and contact potential new suppliers. The profiles of potential suppliers are availablethrough CzechInvest’s website; it currently covers 1,000 firms .

• Matchmaking, comprising three elements: First, “Meet-the-Buyer” events between foreigninvestors and potential Czech suppliers. The sessions focus on identifying the type ofcomponents and services that foreign investors are considering subcontracting. Such meetingsare on offer to incoming manufacturing affiliates as part of CzechInvest’s standard packageof support. Second, seminars and exhibitions are organized with and for Czech suppliersand foreign affil iates. Third, the matchmaking programme takes the form of concreteproposals to potential foreign investors, indicating potential suppliers in the Czech Republic. a

• Upgrading of selected Czech suppliers . Since 2000, CzechInvest has organized upgradingprogrammes for selected Czech suppliers that meet predefined criteria in high-technologyindustries, such as electronics, or for selected engineering firms supplying to a widerange of industries (e.g. machine spare parts producers, plastic form producers and packagingfirms). The selected firms produce an upgrading plan, tailored to their individual capacitiesand requirements. Progress is monitored with quantifiable performance benchmarks thatcompare Czech companies with their competitors from the EU. The upgrading processusually includes consultancy and training support in such areas as the utilization of technology,general management operations, ISO certification and organizational change. A secondcomponent is training in a wide range of areas, including finance, management, qualityassurance and marketing. b The costs of training are shared evenly by the Governmentof the Czech Republic and the EU. Assistance and advice currently cover financial restructuringand productivity improvement. As a means of providing assistance to accessing finance,results of the training programme are to be presented to private sector bankers with theaim of promoting the financing of the trained electronics suppliers. These programmesaim to improve the selected suppliers’ financial, production and inventory management,as well as their capacity to undertake purchasing and quality control.

Initially, the Government of the Czech Republic had financed the operational costs ofthe programme (about $3 million for a three-year period), with co-funding from the EU’s Phareprogramme. The Government plans to continue the Supplier Development Programme duringthe EU accession negotiations, and expects that it would subsequently qualify for the EU’sStructural Fund programmes. The Ministry of Labour has indicated to CzechInvest that it wouldcontribute funds to support the development of investment in areas with high rates of unemployment.CzechInvest periodically evaluates the progress made by the suppliers .

Box V.10 The Czech Republic’s National Supplier Development Programme

/...


• intensifying interaction among firms in acluster of industries or in a (spatiallydispersed) network of enterprises;

• creating an environment conducive tocontinuous technological upgrading;

• enhancing the quality of FDI and rootingforeign affiliates more firmly in the localeconomy.

Cluster-oriented programmes seek tobuild on location specific capabilities anduse “third generation” investment promotionstrategies. (See conclusion, Part One.) Theytherefore exploit the two-way interactionbetween clusters and FDI, one strengtheningthe other. The emphasis is on moving up thevalue chain and linking local value chainswith global ones. Several programmes thatbegan as national programmes have evolvedinto cluster-oriented programmes (e.g. thatof Scotland).

In c luster-or iented programmes,linkages between local firms and foreignaffiliates are considered an (automatic) by-product , not the primary objective. Themeasures used are broader than in the specialnational programmes. They typicallyencompass matchmaking, institution buildingand strengthening the competitiveness of

suppliers. The main instruments are technologypolicy, with R&D and technical support forlocal firms. Emphasis is placed on the goodfunctioning of such institutions as standardsand quality bureaux, business networks andprofessional associations. Examples of thisapproach are the Global Supplier Programmeof Penang state, Malaysia, the Mexicannational and local level programmes, thehigh-technology linkage programme in CostaRica, as well as the regional programmesin the United Kingdom, namely that innortheastern England, the Source Walesprogramme and several initiatives under theScottish Enterprise Network (see box V.5and annex to chapter V).

There is a third, broader category ofprogrammes, which is not within the focusof th is chapter but never the less mer i tsment ion. These programmes are notexclusively geared to linking foreign andlocal firms, but have an indirect impact onlinkages. Examples range from the supplierdevelopment and “ancillarization” initiativesin India to the SME schemes of mostdeveloping economies.

Linkage programmes can be locatedin different agencies. Some come under theauspices of foreign investment promotionagencies as in Thai land and the Czech

Institutionally, CzechInvest is linked to other parts of the Government, notably the Ministryof Industry, one of the SME promotion agencies, an export development agency and a technicaluniversity. Suppliers and foreign affiliates, industry associations (such as the Confederationof Industry and Transportation, the Chamber of Commerce, the Electro-technical Industry Association)and others represent the private sector. Service providers, including the standards institute,quality centres, the technical university, training centres and financial institutions (banks,venture capital funds) are also engaged in the CzechInvest schemes. For instance, the CzechExport Bank is prepared to finance exports of the Czech electronics industry, and the CzechGuarantee Bank envisages providing soft loans to suppliers.

CzechInvest’s strategy for 2000-2004 now covers support to domestic investment as well.This ties in well with its mission to promote linkages. Other adaptations in the programmeare an increasing attention to training and financial assistance. Moreover, similar to manyof the other linkage programmes, the creation of clusters and supply-chain management arereceiving more attention.

Box V.10 The Czech Republic’s National Supplier Development Programme (concluded)

Source : UNCTAD, based largely on informat ion provided by CzechInvest .a When CzechInvest receives a request from an investor, it identifies potential suppliers from the database and provides

their data to the investor, together with a one-page questionnaire. As a follow-up, if the investor is interested in anyof the potential suppliers, CzechInvest introduces the foreign investor to the potential supplier and negotiates adeal on behalf of the investor.

b The trainers are drawn from Sheffield Hallam University in the United Kingdom. The training programme has 60candidate companies, of which 20 had to be selected by October 2001 for full training. The others will have accessto low-cost training in specific areas.


Republ ic . Others are in tegra l par ts ofeconomic development agencies such as theEconomic Development Board of Singapore,Enterprise Ireland, the Malaysian Ministryof International Trade and Industry and itsoperational arm, the Malaysian IndustrialDevelopment Authority; and the Ministryof Economic Affairs of Hungary. Yet othersare part of regional development strategiesas in the northeastern England, Scottish andWelsh programmes in the United Kingdom.

In most instances, as in Ire land,Wales, Singapore or Thailand, the publicagency liaises with the private sector, viaa jo int s teer ing commit tee or throughconsultations. The northeastern Englandprogramme has an interesting variation. Itinvolves the local and national government,the business community and trade unions;interaction with regional universit ies isespecially well established.

Funding sources for linkage programmesare mixed. In most special national andcluster- and network-development programmes,the bulk of funding is provided by thegovernment agency concerned. In someprogrammes, staff is seconded from withinthe agency, but not provided with financialresources (e.g. the BUILD programme inThai land) . Other programmes havesucceeded in raising considerable financefrom internat ional and domest ic publ icsources (Czech Republic, Mexico, CostaRica).

*****

I t i s d i f f icul t to make a fu l levaluat ion of government l inkageprogrammes. Each takes place in a specificeconomic environment, and it is not possibleto ascribe the establishment or deepeningof linkages to any particular measure. Thereare always many other factors that mayinfluence the process. (For a review ofvarious attempts to measure linkages, seebox V.11).

In general, the effectiveness of al inkage programme is largely contextspecif ic , predicated on the economicenvironment and institutional setting. Iflocal firms have well-functioning linkagesamong themselves, it is more likely that they

will actively engage in a linkage programme.Similarly, active programme implementationmay be helped by the presence of effectivedomestic and international chambers ofcommerce, or other groups representingenterpr ises ( the case of Thai land, forexample), or a strong involvement of theGovernment ( the cases of Costa Rica ,Malaysia and the Uni ted Kingdom).Assessments of the programmes in Singaporeand Thailand have found these to have beensuccessful in that they have contributed toan increased number of linkages, higherproductivity, more local value added, and/or improved capabilities and productivityof local suppliers. 28

More generally, the main ingredients ofsuccessful linkages programmes are:

• Strong political commitment. Programmespursued at the sub-national level may havemore impact, particularly in large countries,since they allow for a focused approachand a bundling of resources, and are moreamenable to close interaction amongstakeholders.

• Clear delineation of the lines ofresponsibility, with coherence among goalsand measures. Some linkage programmes,notably in the newer generation of cluster-oriented programmes, tend to haveconflicting or overlapping lines ofauthority, with overall policy responsibilityand implementation situated in differentministries and agencies. Such a situationcalls for special efforts to coordinate.

• Effective public-private partnerships.Linkages will only be sustained if they aretechnically viable and commerciallyprofitable for the firms involved. Supplierscan induce governments to assist them byencouraging local sourcing by affiliates.Foreign affiliates and their parentcompanies can help the governmentidentify the scope for local sourcing andgive advice on programmes needed. To beconvincing and generate mutual trust,linkage programmes need to be staffed byprofessionals with the appropriate skillsand background.

Finally, the more linkage promotionprogrammes are embedded in policies thatfacilitate enterprise development in general


Collecting and analysing evidence on linkages is a crucial prerequisite for evaluatingpolicies on linkages. Linkages may be measured in different ways. One set of measures relatesto the extent of linkages in an economy. Another focuses on the economic impact of linkagesin terms of increased competitiveness of local firms, contribution to growth and employment,and so on.

Extent of linkages. The simplest indicator of the extent of l inkages is the number oflinkages. One way to do this is to simply count the number of relationships between foreignaffiliates and domestic suppliers. This was one of the indicators used to evaluate the SingaporeanLIUP (Mathews, 1999). A similar approach was used in Hungary to evaluate the Subcontractors’Target Programme: the share of domestic firms in the number of suppliers to affiliates. Thisindicator was also used in Costa Rica to estimate linkages between local suppliers and free-zone firms. Another frequently used measure is the value of contracts of local suppliers; thiswas used in Thailand to assess the BUILD programme.

Measuring the share of affiliates’ locally sourced inputs in total inputs (in value terms)shows the importance of local sourcing but does not indicate the role of local firms in suchsourcing. This measure was used in Ireland to evaluate the National Linkage Programme inthe electronics industry (Crone, 2001). Other studies, for Sweden (Ivarsson, 1996), Malaysia(Giroud, 2001b), Thailand (Supapol, 1995) and Scotland and Northern Ireland, also used thisindicator.

The share of locally sourced inputs is part of the “retained value” measure, the purposeof which is to measure the embeddedness of foreign affiliates in the local economy and hosteconomies’ share in value-added. “Retained value” is the sum of the local wages paid by aforeign affiliate, inputs sourced locally, profits accruing to local shareholders and local taxespaid.

A variation of this is the share of value added by local suppliers in total value addedby foreign affiliates. The local content of foreign affiliate production (the inverse of the ratioof imports to production) is sometimes used to capture the degree to which affiliates linkwith the host economy; studies in Thailand, Malaysia, India and China have used this indicator.Local content does not, however, capture linkages properly since it includes affiliates’ in-house production. Indicators that allow this distinction are therefore preferable. It is alsodesirable to measure linkages with locally owned firms rather than with affiliates of foreignsuppliers. Such data, however, are often difficult to collect.

Depth of linkages. This set of measures is more complex. The impact of linkages fallsinto two broad categories: macro and micro. At the macro level, the effect of linkages canbe assessed by their contribution to increases in employment, output or exports. These aredifficult to calculate unless a realistic counterfactual (what would have happened in the absenceof the linkages) assessment can be posited.

At the micro level, the contribution of linkages can be measured by the growth in supplierproductivity, improvements in the quality of their products and the shift into higher valueproducts. Such indicators are also used to measure productivity, technology-intensity and soon by other types of analysis. The challenge is to distinguish the effects of linkages fromthose of other factors that also affect productivity, technological capacity and product range.While it is almost impossible to obtain definite answers on the basis of quantitative data,surveys of foreign affiliates and their suppliers can provide useful information in this regard.

Because of data availability, efforts to assess linkage programmes have focused on thefirst group of indicators. The number of supplier contracts resulting from linkages supportedby the programmes has been used to measure outreach. Some programmes use evidence onthe use of different components of the programmes. In Costa Rica, a study (Monge; 2000)of linkages in free zones uses evidence on companies collaborating with local suppliers andon those transmitting technical specifications or providing training to suppliers.

Little evidence is available on how agencies that run linkage programmes measure theeconomic impact of their programmes. It is difficult to establish a clear link between macroor micro indicators and linkage programmes. A question related to the cost e ffectiveness ofprogrammes is whether any increase in linkages would have been achieved in any event, i.e.without government intervention.

Box V.11. Measuring linkages and their economic impact – an overview

Source : UNCTAD.


(figure V.2), the higher is the likelihood thatthey will succeed. It is vital to have well-functioning institutions to channel two-wayflows of information between governmentsand stakeholders and to provide industrialservices. At the political level, institutionsa lso comprise bus iness assoc ia t ions ofvarious kinds, as well as representatives oftrade unions and possibly of other localinterest groups.

* * *

There is clearly scope for governmentsupport to promote linkages between foreignaffiliates and local suppliers. The aboveanalysis shows how wide the range of policymeasures is, although the effectiveness ofthe measures used cannot be fully assessedwith the evidence at hand. Moreover, themore specific measures are embedded inbroader policies aimed at strengthening thedomestic enterprise sector, the more difficultit becomes to isolate the specific effects oflinkage promotion policies. At the sametime, the space for policy interventions thatdirectly influence the operations of foreignaffiliates of relevance to linkage formationhas now become more limited than it wasa decade or two ago. In this new context,measures that are in line with market forcesare at a premium, correcting of course forstructural weaknesses that are characteristicof developing countr ies . In par t icular ,governments are increasingly relying onmeasures that address market failures andreduce the costs and r isks for l inkagepartners. This requires the full involvementand cooperation of the linkage partners –foreign affiliates and domestic suppliers –and their associations.

Notes

1 Examples include free trade agreements andautonomous or negotiated preferential tradeschemes, such as the Generalized System ofPreferences (GSP), the Global System of TradePreferences (GSTP) among developing countries,the Cotonou Agreement and the CaribbeanBasin Initiative.

2 As noted earlier (box IV.2), attracting foreignsuppliers can also have advantages. Whenforeign suppliers are involved, there can besecondary effects on domestic suppliers ifthey source from second- or third-tier suppliers.

3 For example, stringent rules (e.g. with veryhigh domestic content requirements) maydiscourage investment, particularly in leastdeveloped countries. When the same rulesof origin apply to a number of countries, whatmay suit the capacity of some may be difficultto achieve for others. To mitigate some ofthese problems and facilitate the use of tradepreferences, rules of origin may allow forthe “cumulation” of inputs originating in otherdeveloping countries participating in thepreferential scheme (see UNCTAD, 1998b,for a more detailed analysis of cumulationrules). Furthermore, in the case of autonomouspreferential trade schemes, rules of originare decided unilaterally by the preference-giving country.

4 No systematic recent data are available. A1989 survey of 31 developing countries showedthat 23 had local content requirements (andfour had trade-balancing requirements). Innine countries, local content requirementsapplied in all industries and, in one country,in all but one industry (mining and petroleumextraction). These figures do not take intoaccount ad hoc local content requirementsnegotiated with individual foreign investors,usually in exchange for incentives; thus theactual figures may be higher (United StatesTrade Representative, “1989 TRIMs Survey”,cited in Battat et al., 1996, table 2, p. 14);On the other hand, a 1977 benchmark surveyof United States foreign affiliates found that,in that year, only 3 per cent of the foreignaffiliates of United States TNCs were subjectto minimum local content requirements(UNCTC, 1991, p.14). Foreign affiliates locatedin developing countries were subject to suchrequirements twice as often (6 per cent) asthe world average. The same survey carriedout in 1982 found a lower usage of local contentrequirements, both worldwide (around 2 percent) and in developing countries (2 per cent,ibid., p. 15). The two data series arenevertheless not directly comparable sincefirms with sales of less than $3 million werenot included in the later survey. In 1982,a United States International Trade Commissionstudy of United States-owned motor vehicles,chemicals and high-technology TNCs revealedmajor differences across industries in termsof being subject to local content requirements(ibid., pp. 16-17). In motor vehicles, a highpercentage of United States-owned affiliates(37) was subject to such requirements. Inthe meantime, in chemicals, the comparableratio was 3 per cent and in office equipment,computers and accounting machines, it wasonly 10 per cent.

5 In the context of the Uruguay Round agreementsimplementation discussions some developingcountries have proposed that they should have


another opportunity to notify existing TRIMswhich they would then be allowed to maintainuntil the end of a new transition period.

6 See also below, the section on technologyupgrading.

7 An example is the Center-Satellite FactorySystem in Taiwan Province of China whichincludes a package of fiscal (tax depreciation)and financial incentives to encourage largefirms – foreign and domestic – to engage inlocal supplier relations (Dahlman andSananikone, 1990, pp. 108-109).

8 A value-added tax can be a source ofencouragement for establishing backwardlinkages. Traditional turnover taxes leviedon the full value of products and servicestransacted between firms may deter linkages(and favour radical integration) by raisingtax liabilities on stages of production spreadover independent firms. By contrast, value-added taxes, imposed only on additional valueat each stage may favour linkages. Thisconsideration appeared to have played a rolewhen Thailand introduced a value-added tax(Battat et al., 1996).

9 Thus, Driffield and Mohd Noor (1999) foundthat foreign affiliates that have been givenpioneer status incentives have stronger backwardlinkages in the local economy. The successof the Centre-Satellite Factory System of TaiwanProvince of China has been attributed to theincentive package as much as to the fact thatthe island’s SMEs were competitive; theincentive package was combined with advisoryservices to strengthen local suppliers (Altenburg,2000, p. 56; Dahlman and Sananikone, 1990,pp. 108-109).

10 Up to mid-1996, both the number of domesticsuppliers and their share in the supply of partsand materials of Skoda decreased. On theother hand, the absolute value of suppliesfrom Czech suppliers increased, and thesesuppliers became increasingly internationallycompetitive (Zemplinerova, 1996; Havas, 2000).

11 Some suppliers are unwilling to receive supportfrom a buying firm. This may be becausethey are reluctant to share information relatedto costs and processes; they may not be awareof the need for improvement; or there maybe a lack of trust between the two firmsinvolved (Handfield et al., 2000).

12 Information provided by the Government ofIndia on its Ancillary Development Programme.

13 In 1996, UNIDO helped the Government ofIndia to set up a subcontracting exchange jointlywith the Indian Small Industries DevelopmentOrganization (SIDO). By 2000, the exchangehad included 1,100 subcontractors in itsdatabase.

14 It is often argued that the relevance ofintellectual property protection in connectionwith transfer of technology is strong where

high, easily imitable technology is at stake,such as the case of computer software; it isalso strong in cases where “tacit”, non-codifiedknowledge is essential to put a technologyinto operation (Correa, 2000).

15 However, as stated by one scholar (Maskus,1997, p. 16): “economists cannot be entirelyoptimistic about the implications of strongerIPRs for technology transfer”.

16 The measure did provide access to foreigntechnologies, but very often not state-of-the– art technologies. Over time, the measurewas perceived to be a liability, as the end-result would be a transfer of out-of-datetechnologies, while discouraging foreign firmsto invest in the Republic of Korea. (Informationobtained through informal discussion withan official of the Government of the Republicof Korea.)

17 See UNCTAD 2000c; UNCTAD 2001c;UNCTAD 2001d; UNCTAD forthcoming a;UNCTAD forthcoming b.

18 Communication from the Government of theRepublic of Korea.

19 Information obtained from the Korea Federationof Small Business.

20 In Taiwan Province of China, the Center-Satellite(CS) Factory System, aimed at strengtheningrelationships between large enterprises andtheir “satellite” suppliers, includes trainingamong its programmes (Battat et al., 1996).Initially, the CS Development Center (CSD)– a government agency – tried to persuadefirms to establish a CS factory system. Then,“center factories” and the CSD assisted satellitefirms draw up plans to help suppliers in variousways, including training key personnel andincreasing awareness of best practice byarranging visits by supplier personnel to plantslocally and overseas. In Malaysia and Thailand,national productivity councils act as catalyzersand organizers in setting up training coursesfor suppliers and inducing foreign affiliatesto become involved in the training courses.

21 Information provided by UNIDO.22 Information on the Special Tax Treatment

Control Law provided by the Government ofthe Republic of Korea.

23 Information obtained from http://www.nafin.com.mx/Gran_empresa_y_gobierno/Geg_fide.htm ; see also the text on Mexicoin the annex to this chapter.

24 Information obtained from the Japan Bankfor International Cooperation.

25 FDI as a share of gross fixed capital formationhas consistently exceeded the respective region’saverage in, for example, Ireland, the UnitedKingdom, Malaysia, Singapore, Costa Rica,Hungary and the Czech Republic.

26 See the annex to this chapter for informationon the programmes in Thailand, Hungary andCosta Rica.


27 The analytical underpinning of this type oflinkage programme is based on ideas similarto those in the work on competitive advantageand on clusters (see Part One). At the politicallevel, several of these programmes build ona clear “vision” or development strategy;examples include the Malaysian Vision 2020Manifesto of 1991 (which had pinpointed theneed to deepen and upgrade the industrial

structure, see Felker and Jomo, 2000, p. 22)and the Industry 21 Initiative in Singapore(Singapore, EDB, 2001a).

28 See, for example, Battat et al., 1996 onSingapore. On Thailand, Board of Investmentreply to the UNCTAD 2000 survey; the ThaiBoard of Investment survey examined linkagesbetween and among foreign affiliates, localfirms and joint ventures.



This annex contains descriptions ofother government programmes that promotel inkages, not included in chapter V. Asummary of all programmes reviewed isprovided in table 2.

1. United Kingdom:the regional development agency for

the northeast 1

“One Northeast” is the regionaldevelopment agency for the northeastern regionof England in the United Kingdom. 2 Its aimis to further “the economic development ofthe region, by encouraging new investment andentrepreneurial growth, the expansion anddevelopment of educational opportunities, andthe redevelopment of the region’s industrial,logistics, and urban and rural infrastructures”(One Northeast, 2001, p. 1). The programmeis part of a greater Regional Action Plan andthe Regional Eco nomic Strategy.

The objectives of One Northeast areto link existing FDI with local suppliers andto attract new FDI that matches the localsuppliers’ potential. It works notably with localfirms tow ards upgrading their productivecapacity, and assists affiliates in identifyingsuppliers. Activities include:

• Information provision . An electronicdatabase lists regional manufacturing firms(8,500 companies) and summarizes theircapabilities (One Northeast, 2001). Thefocus is on industries and industrialactivities with high potential, includingchemicals; food and beverages andagriculture-related industries; the lifesciences; and specialized business services,tourism and other services.

• Consultancy services. One Northeastconsultant teams identify potentialsuppliers, prepare profiles of theircapabilities and assist them in becomingsuppliers.

• Benchmarking . The agency offersbenchmarking services. To identify andselect suitable local suppliers, sub-contracting firms can avail themselves of

a management tool named the SupplierCapability Assessment Tool (SCAT),developed by One Northeast together withGlasgow University (see box 1).

Funding for One Northeast as a wholeaverages £6 million per annum, of whichthe supplier development activities accountfor around £450,000 (One Northeast, 2001;Harding et al., 1996, p. 57). Roughly one-third comes from the Department of Tradeand Industry, the Invest in Britain Bureauand the Regional Supply Office; one-thirdfrom the local authority and private sectorcontr ibut ions, sponsorship and sales ofbusiness services; and the remainder fromthe European Union and other donors(Loewendahl, 2001). One Northeast has 190staff members, of whom 10 persons workspecifically on supplier benchmarking anddevelopment (as of mid-2001).

The agency gauges success by thenumber of jobs created and by the increasesin the turnover of local firms. Accordingto One Northeast, the expenditure on supplychain programmes has generatedconsiderable new contracts for the region’sSMEs (Loewendahl, 2001).

2. United Kingdom:the Scottish Enterprise programme 3

The programme of Scot t i shEnterprise (a government agency that reportsdirectly to the Ministry of Enterprise) seeksto a t t ract FDI and to fos ter economicdevelopment. 4 Scot t i sh Enterpr ise i sdesigned as a “fully integrated economicdevelopment agency”. 5 I t s ac t iv i t i esembrace economic and social goals, notablyto:

• support business start-ups and help existingcompanies to expand;

• make Scotland a more competitive locationthrough the provision of business sites andpremises and in improving the businessenvironment;

• promote and encourage exports;

• attract inward investment;

Annex to chapter V. Additional country programmes


• develop skills, break down barriers toemployment and ensure that disadvantagedgroups and areas are included.

Enterprises, local authorit ies andother public institutions, trade unions, aswel l as educat ional bodies , are ac t ivepartners in the agency, brought together viaa set of Local Enterprise Fora created in2000. Scottish Enterprise is publicly funded.The annual budget for the entire agency was£440 million in 2000/2001. It is expectedto generate a proportion of its own revenuethrough returns on investment and the saleand lease of property. Fifteen of the agency’sstaff work directly on supplier developmentactivities.

Since 1997, Scottish Enterprise hasbeen pursuing a cluster-oriented approachto regional economic development. It targetsthose industr ies in which Scot land ispart icular ly s trong, so as to s trengthenlinkages and to encourage investment inleading-edge technologies generated in localuniversities. The approach includes giving

increasing attention to second-and third-tiersuppliers. Clusters have been promoted inoil and gas, food and beverages, forestryindustries, microelectronics (including opto-electronics), semiconductors, biotechnologyand services (such as tourism and software,including multimedia) (Scottish EnterpriseNetwork, 2001).

The first Scottish Supplier DevelopmentProgramme dates from 1989, followed bythe Scottish Supplier Base Forum establishedshortly thereafter. The original objective wasto accelerate growth in the Scottish economyby creating an infrastructure of excellence,comprising component manufacturing andsub-assembly as well as manufacturing. Inthis initial phase, the industry focus was onthe plast ic moulding and sheet metalindustries.

Since 1989, surveys have beenunder taken per iodica l ly to ascer ta inweaknesses in the Scottish supplier base andexamine the requirements of electronicsTNCs. Scottish Enterprise finances supplieraudits, performed by contracted consultants

Box 1. The Supplier Capability Assessment Tool

The Supplier Capability Assessment Tool (SCAT) guides audits of potential suppliers andassists both subcontractors and supplier firms in finding linkage opportunities. It providesprocurement managers of inward investor enterprises with comparative information not readilyavailable. SCAT assesses the potential supplier firms’ culture and gives an indication of thelong-term stability of the management team. The range of skills in companies is profiled, asare the recruitment and training strategies and staff turnover. Together with the audited accountsand the firms’ organigramme, this allows a “holistic view” of the audited firms’ performanceand potential at the time of assessment. A two standard-method questionnaire is used:

• “SCAT 1”, compiled in a short factory tour;

• “SCAT 2”, which is a more comprehensive assessment and takes a full day to complete.

It examines production processes and explores the performance of manufacturing methods,such as just-in-time production, continuous improvement and quality control, and benchmarking,logistics and e-commerce applications. Environmental performance is also scrutinized, suchas recycling provisions. This assessment entails a tour of the entire plant (manufacturing area,offices, canteen, rest rooms, reception area and grounds). The assessment is consolidatedelectronically. The software allows for an instant comparison among the firms assessed. Boththe potential supplier and clients receive the report; clients also receive a more detailed assessmentwhich includes a financial appraisal. Typically, three to four companies tendering for a particularcontract from an inward investor or a domestic company would be assessed. It is a client whothen selects a supplier. One Northeast is not commercially involved at any time, but it financesthe process. The client is obliged to inform One Northeast of all ensuing contracts and to registerany increase in jobs. Such information is reported to the Department of Trade and Industryof the Government of the United Kingdom, and to the European Union, and can also be usedas a tool to assess the programme itself.

Source: UNCTAD, based on Archie Workman, One Northeast .


working to a se t of s tandard quest ionsdeveloped at the agency. The audits, whichtypically engage three consultants for a one-month period, are available to current orpotential suppliers to foreign affi l iates.Based on the consultants’ reports, ScottishEnterpr ise , together with suppl iers andforeign affiliates, develops a strategy forsupplier upgrading which continues over atwo-to-three-year period. Monthly meetingsmonitor progress.

The Supplier Base Forum currentlyhas approximately 100 members: foreignaffiliates and local suppliers that have atleast 50 per cent of their business activitiesin the electronics sector. Membership is byinvitation or by application. The SteeringCommittee is made up of Scottish Enterpriseas the initiator of the Forum and electedmembers. The Forum organizes supplierdevelopment; moreover, i t provides anopportuni ty for formal and informalnetworking, and sharing information on thesourc ing requirements and pat terns offoreign affiliates.

The Suppl ier Base Forum wascomplemented in 1993 by the Scot t ishElectronics Forum. It comprises originalequipment manufactures in the electronicsindus t ry. Var ious assoc ia t ions provideinstitutional support to this Forum. Theyinclude the Nat ional MicroelectronicsInstitute (owned by major United States andEuropean semiconductor companies), theScottish Opto-Electronics Association, theScottish Advanced Manufacturing Centre,Edutronic (a specialist industry-led surfacemount t ra in ing fac i l i ty) and theMicroelectronics Imaging and AnalysisCentre (Peters et al., 2000).

As a means of indirect evaluation,Scottish Enterprise tracks the share of localpurchasing in annual purchasing patterns oforiginal equipment manufacturers in theelectronics industry. The goal is for localsourcing (from domestically or foreign-owned suppliers) to reach 40 per cent forany given product (Krause and Handfield,1999). The agency not only supports localsuppliers but is also active in attractingfore ign suppl iers to support fore ignaffiliates’ sourcing needs.

According to selective interviewsconducted by an academic research team(Krause and Handfield, 1999), some foreignaff i l ia tes require the i r suppl iers to beinvolved in Scottish Enterprise programmes.This suggests that foreign affiliates assessthe programme favourably.

3. Costa Rica’s High TechnologySupplier Project 6

Since the late 1990s, Costa Rica’sFDI in i t ia t ives have focused on thedevelopment of high-technology industries,notably semiconductors, health care andcommunication/information industries. 7 Inth is connect ion, the country adopted alinkages-related programme in 2000, theproject Costa Rica Provee – Developmentof Suppl iers for Mul t inat ional HighTechnology Enterpr ises . The overal lobjective of this programme is to developan internationally-competitive local supplierbase, in close cooperat ion with foreignaffiliates in the country and by encouragingl inkages between the high-technologyrelevant foreign affi l iates and domesticsuppl iers . This in terac t ion i s meant toexpedite the technological upgrading of localSMEs and to increase local value added inthe operations of foreign affiliates in high-technology act iv i t ies . The project wastr iggered by the observat ion that high-technology affiliates were sourcing only 5-7 per cent of their intermediate inputs fromlocal suppliers.

The project i s sponsored andimplemented jointly by a group of publicand private sector institutions: the CostaRican Investment Board, the Costa RicaForeign Trade Corporation, the NationalHigh Technology Center Foundation (apr ivate ins t i tute wi th a l ink to theGovernment), the Costa Rica Chamber ofIndustry and the Ministry of Economy,Industry and Trade. For the initial three-yearperiod, the Inter-American DevelopmentBank provided financial support ($900,000),which complements the $600,000 of localfunds.

The Costa Rica Provee has structuredthe linkage-providing process into threephases, each consisting of several steps:


Analys is o f demand. The projectreviews all high-technology affiliates locatedin Costa Rica, and pre-selects affiliates,based on their size, technological level andwhether they have a methodology forsupplier evaluation in place. In the firstround, of ten high-technology affi l iatesidentified by the project, six indicated theirinterest in and willingness to participate inthe programme. They identified the areasof metals and mechanics, containers, moulds,packaging material and plastic products asthose where they would be willing to sourcelocally. Their sourcing requirements wereanalysed and matched wi th Costa RicaProvee’s database of local suppliers.

Projec t deve lopment . The in i t ia lphase is fo l lowed by an evaluat ion ofpotential suppliers, undertaken jointly byCosta Rica Provee and representatives ofthe participating high-technology affiliates.The affiliates and the suppliers agree upona series of business development activities.A bidding process then identifies providersof technical assistance and training servicesin response to the suppliers’ requirements.

Projec t execut ion . The suppl ierreceives technical assistance and training,sponsored by Costa Rica Provee, followedby another audit carried out by the high-technology affiliate, to assess the suppliers’abil i ty to meet the previously specif iedrequirements. This then leads to an actualcontract.

The first such linkage activity wasinitiated in early 2001. Babyliss Conair, anaffiliate of Conair (United States), neededa suppl ier of meta l l ic bodies for i t sproduct ion of hairdryers . The project’sdatabase identified five potential suppliers.The project’s Executive Unit and BabylissConair representatives jointly undertookintensive factory visits (over a three-weekperiod), auditing and screening the potentialsupplier firms. At the end of the process,Babyliss Conair selected Leogar S.A. andawarded a contract of over $750,000 for thesupply of 35,000 metallic bodies for theproduction of hairdryers during 2001. CostaRica Provee will provide technical assistanceand training to Leogar at an estimated costof $20,000. 8 As a result of the contract,Leogar’s turnover is expected to increaseby about 18 per cent. This also led to a

fol low-on contract with Tecnimatr iz yMotrosa , es tabl i shed through Babyl issLeogar, to design and produce inputs, at avalue of about $150,000. Babyliss Conairis considering continuing cooperation withLeogar S.A. (Egloff, 2001; IADB, 2001;Larraín et al., 2001).

It is too early for an assessment ofthe Costa Rica Provee Pro jec t as theprogramme became operational only in 2000.Nevertheless, the Executive Unit is alreadyreviewing the project’s design, reflectingon the lessons learned dur ing the f i rs tmonths of its operation. Only a limitednumber of high-technology foreign affiliatesappeared in a position to enhance linkageswith local suppliers effect ively. On thesupplier side, domestic SMEs were findingit difficult to meet the priority needs of high-technology foreign affiliates and were rarelyin a posi t ion to outperform compet ingforeign suppliers because of their own higherunit production costs. Moreover, domesticsuppliers had problems in terms of access tofinance. Therefore, at present, considerationsare under way to redesign the project. Theaim is to ensure that the linkage programmematches the country’s strategic objectives,and concentrates on the quality of linkagesin terms of their technological content.

4. Linkage-related programmes inMexico 9

Recognizing the lack of l inkagesresulting from the particular logic of themaquiladoras programme, 10 the Governmentof Mexico began pursuing a more proactivesupplier development policy in the early1990s, notably encouraging foreign affiliatesto source f rom local companies . TheNat ional Industr ia l Modernizat ion andForeign Trade Programme (1990-1994), forexample, was designed to promote locally-embedded industr ia l c lus ters . Pol icyelements included a new standardization andquality policy; promotion of total qualitycontrol through various meso-institutions;technological modernizat ion based onindustr ia l reorganizat ion schemes; andstrategies to favour outsourcing (SanchezUgarte, et al. , 1994).

In 1993, another programme designedto facilitate linkages with domestic supplierswas introduced — the empresas integradoras


programme. I t encourages cooperat ionamong suppl iers in the form of jo intventures. These enjoy a simplified corporatetax system, preferential access to credit linesof the Nat ional Finance Agency andass is tance in technology and t ra in ing(Altenburg et al., 1998).

Complementing this, the Governmentreformed in 1995 the export promotionprogrammes that had been instituted in the1980s. Inputs from Mexico were exemptedfrom value-added tax in order to removedisadvantages to local suppliers.

Building on these developments, theIndustr ia l Pol icy and Fore ign TradeProgramme, introduced in 1996, aimed atdeveloping highly competitive regional andindustrial clusters with increasing numbersof micro, small and medium-sized firms.Simultaneously, the Government adopted aProgramme for the Development ofSuppliers. Some 500 large companies areregistered in this programme, among themmany major fore ign aff i l ia tes . ThisProgramme has two main components: first,financial assistance for suppliers throughthe National Finance Agency; and, second,information and matchmaking activities,such as databanks and trade fairs wherepotent ia l suppl iers can present the i rproducts. 11 A comprehensive internet-based

suppl ier database, es tabl ished in 1997,consol idates informat ion from var iousexisting registers. 12

These federa l programmes arecomplemented by a number of initiatives atthe sub-national level to promote FDI, speedup paperwork, provide information, creatematchmaking databases and organizeregional subcontracting fairs. The Secretariatof Industrial Development of the state ofBaja California Norte has been particularlyactive. I t cooperates closely with otherpublic-sector agencies and institutions, suchas employment services, a project on qualityand modernization called Calidad Integraly Modernización, 13 with the National FinanceAgency, the Bancomex, as well as with theprivate sector, including maquiladoraassociations and local business organization s.

In Ti juana, for example, a broadal l iance of pr ivate and publ ic sectorinstitutions have coalesced to support thecluster’s development (table 1). Fundingis provided in large measure by the “FondoTijuana”, coordinated by the DevelopmentCouncil of Tijuana. This fund, a ten-yearproject launched in 2000, is co-financed bythe Inter-American Development Bank, theNat ional Finance Agency and pr ivateinvestors from Mexico as well as from theUnited States. It is meant to enable local

Table 1. The main public and private agencies relevant to linkage development in Tijuana, BajaCalifornia Norte, Mexico, 2001

Institution Public Private

Development Council of Tijuana (Consejo de Desarrollo de Tijuana (CDT)) X XEducational Linkage Committee (Comité de Vinculación Educativa) X XMinistry of the Economy (Secretaría de Economía) XSecretariat of Economic Development, State Government (Secretaría de Desarrollo Económico-Gobiernodel Estado de Baja California Norte) XNational Finance Agency (Nacional Financiera-Financiamiento y Asistencia a la Pequeña Empresa ) XBorder Governors Forum (Foro de Gobernadores Fronterizos) XEntrepreneur Coordination Council (Consejo Coordinador Empresarial (CCE) XUnited States-Mexico Chamber of Commerce XNational Industry Chamber (Cámara Nacional de la Industria y la Transformación (CANACINTRA)) XMaquiladora Industry Association- West Coast (Asociación de la Industria Maquiladora Zona Costa) XEconomic and Industrial Development Council of Tijuana (Desarrollo Económico e Industrial

de Tijuana (DEITAC) XWestern Maquiladora Trade Association XJapanese Maquiladora Trade Association XKorean Maquiladora Trade Association XNational Chamber of the Electronics, Telecommunications and Informatics Industries (Cámara Nacional de la

Industria Electrónica, Telecomunicaciones e Informática (CANIETI) XProduCen (Productivity Centre for the Electronics Industry of Baja California) X

Source : UNCTAD, based on Carrillo, 2001.


companies (old or newly established ones)to become suppl iers in the e lectronicscluster. The funding comprises $2.7 millionfor technical cooperation and $12 millionin the form of a venture capital fund forfirms that want to become suppliers to themaquila industry. In the first phase, 17 firmswere to receive support (7 existing firmsand 10 newly established firms).

In summary, Mexico has a numberof measures and programmes for thepromotion of supplier linkages. However,these programmes may need to be bettercoordinated to achieve more impact andbecome integrated into an overal lf ramework. With respect to Ti juana,feedback from various surveys suggests thatne i ther fore ign aff i l ia tes nor Mexicansuppliers were sufficiently aware of existinginitiatives (Carrillo et al., 1997; Escamilla,2000, pp. 221-222; Carrillo, 2001). Therewas a general opin ion among pr ivateassociations that industrial policy neededto be reinforced, with a focus on developingspecif ic industr ies and products and toincrease technological sophis t icat ion,competitiveness and value-added activities.In a s imi lar ve in , several companiesinterviewed mentioned the lack of clarityin customs regulations and maquila statusas obs tac les for sourc ing inputs f romMexican companies (Carrillo, 2001). 14 Itmay be that these shortcomings wil l beaddressed as the maquiladora programmeis phased out, and the various recent linkage-related and supplier development initiativescome on stream.

5. Thailand’s BUILD programme 15

In the context of its activities onpromoting domestic and foreign investment,the Board of Investment of Thailand (BOI),situated in the Office of the Prime Minister,created a linkage programme in 1992. It ismanaged by the BOI’s Unit for IndustrialLinkage Development (BUILD). Theprogramme is designed to “ac t a s anintermediary between manufacturers ofready-made products and small and medium-sized manufactures of parts, which wil lresult in the linkage of industries and thetransfer of product ion technology”(Thailand, BOI, p. 6), thus linking large

enterprises – foreign or domestic – withSMEs. The main objec t ives are tostrengthen the assembler and parts supplierrelationship; to promote the development ofsuppl ie rs , no tab ly SMEs; to increaseproduction efficiency and quality; and topromote cooperat ion among fore igninvestors, Thai parts manufacturers and theThai Government towards this end.

The programme encompasses fivemain activities: providing information aboutsubcontracting opportunities, notably via acomprehensive computer ized database;matchmaking services for individual firms;technical and management assistance to localsuppl iers interested in developing sub-contract ing re la t ionships; provis ion ofdetailed technical and market informationon establishing supplier industries in areaswith high potential; and the organization andcoordination of training courses to upgradethe marketing and technological capabilityof small and medium-sized local suppliers(BOI, p. 7).

To date, BUILD has concentrated itsactivities mostly on information provisionand matchmaking services. Two specificact ivi t ies were launched in 1997: 16 theVendors Meet Customers Programme (VMC)and the ASEAN Suppor t ing Indus t ryDatabase (ASID).

The VMC Programme wasestablished to stimulate domestic sourcingof par ts and components , par t icu lar lyautomotive and electronics parts. BOI actsas a broker to match buyers or assemblersand vendors or suppliers. The programmearranges for suppliers to visi t assemblyplants. Such visits enable potential suppliersto learn about the product and processrequirements of assemblers , whi leassemblers make contact with potential localsubcontractors. It can also be an opportunityfor suppliers to agree on strategic alliancesor a sharing of orders when the scale exceedstheir individual firm’s capacity to delivercomponents to an assembler . As aconsequence, a group of roughly 70 domesticsuppl iers , members of the BUILDprogramme, 17 established a SubcontractingPromotion Club in 1999. Members shareinformation on incoming orders andsubcontract each other.


Assemblers submit lists of importedparts to BUILD, al lowing parts makerscapable of producing l i s ted par ts toparticipate in the factory visit, and meet withthe purchas ing depar tment . S ince theprogramme began in 1997, there have beenclose to 50 visits to factories. During itsfirst three years, BUILD focused on localassemblers . In 2001, BUILD star ted toexpand its activities to overseas markets.In early May 2001, the Unit organized amission to Germany focusing on theautomotive industry. Various meet ingsbetween BUILD members and industryassociations in Germany were arranged.

ASID provides information on over12,000 manufacturers in various ASEANindustries, of which roughly 7,000 firms arein Thailand. It is one of ASEAN’s initiativesto increase awareness of supplier industriesin member countries. Investment promotionorganizat ions in the ASEAN membercountries are responsible for developing thisweb-based database, and updating the datato permit free global access to ASEANindustry information.

With regard to technical andmanagement assistance, BUILD has informalrelationships with various organizations,such as the Industrial Finance Corporationof Thailand, the Market for AlternativeInvestment – which is Thailand’s versionof the United States NASDAQ – and theNational Science and TechnologyDevelopment Agency, to assist suppliercompanies in solving diff icul t ies andmeeting customers’ demand. BUILD hasdeveloped formal connect ions with thevocational education system, but dependson informal connections with most othergovernment agencies providing services orsupport to SMEs. However, to some extent,BUILD is constrained by its inability, andindeed its lack of mandate, to provide directsupport to strengthening the managerial andtechnical capacity of Thai suppliers, whichis why i t re l ies on other governmentprogrammes in this area.

The BUILD programme is part of theBOI and has eight full-time staff membersand a budget averaging some five millionbaht annually. There are plans to make itself-supporting in the future by charging

f i rms for the i r par t ic ipat ion in BUILDpromotion activities.

The BOI of Thailand has assessedBUILD’s impact , us ing the cumulatedtransaction values of business deals as aproxy to measure the programme’s success.Three evaluations have been carried out todate through interviews andquest ionnaires . 18 The BOI surveyedapproximately 400 firms, including 100 percent Thai-owned companies, joint venturesand wholly foreign-owned companies.

At the time of the first evaluation,six companies had established industriallinkages, with business deals accounting for120 million baht. By the time of the secondevaluation, industrial linkage deals increasedto a value of 1,030 million baht, covering58 companies. In the third evaluation, 98companies were identified as successful,with business deals accounting for 2,638million baht. This amounts roughly to a 200-fold increase in the value of contractsgenerated over a short period of three years.It is also of interest to note that, of the 98firms that had recorded supplier contractsin 1999-2000, a majority (59 firms) werewholly Thai-owned. These 98 companies hadestablished business deals predominantlywith assemblers which are TNCs (62 per centof the value of business deals registered).Approximately a quarter of the transactionsestablished were among members of theBUILD database and 10 per cent of dealswas wi th overseas contrac tors . Thesecomprised wholly Thai-owned firms as wellas joint ventures. Thus, one of the expectedbenefits to Thailand – to expand industrialactivity through FDI – was met.

6. Hungary’s Integrators’Subcontracting Programme 19

In 1998, the Ministry of EconomicAffairs of the Government of Hungaryintroduced the Subcontractors TargetProgramme. It was subsequently relaunchedas the In tegra tors’ Subcont rac t ingProgramme and designated as one of thecentra l programmes wi th in a nat ionaldevelopment plan. 20 The promotion ofsupplier links is partly driven by the need


to prepare local industry for competitionwithin the European Union before thecountry becomes a full member.

The Programme initially aimed atpromoting direct l inkages between finalassemblers and local SMEs, regardless ofownership . Current ly , i t s focus is onpromoting links between first tier suppliers– called “integrators” – and their second-and third-tier suppliers (Hungary, 2001a).Most of the first-tier firms in the priorityindustries are foreign-owned, and roughly80 per cent of the second-tier supplier firmsare fu l ly Hungar ian-owned. Thus , theprogramme is de facto a programmepromoting l inkages between foreignaffiliates and domestic firms. Originally, theprogramme focused on the automobi leindustry, electronics and rubber and plastics;it subsequently added textiles, furniture,building materials, services and retail tradeto the list of priority industries.

The In tegra tors’ Subcont rac t ingProgramme gives pr ior i ty to re la t ive lyadvanced suppl ier f i rms: hal f of theresources are provided to firms that arealready suppliers to foreign affiliates, andanother 40 per cent to firms that are veryc lose to that s ta tus . Speci f ica l ly , thefollowing types of services are available:

• Access to a national subcontractingdatabase and related information services,managed jointly by the Ministry ofEconomic Affairs and the HungarianInvestment and Trade DevelopmentAgency. The database contains screeneddata on 1,500 potential and existingsubcontracting enterprises in themachinery, vehicles, electronics, rubber andplastics industries. The data are collectedby Supplier Information Centres whosetasks are to inform participating firmsabout the Programme, collect informationon buyer needs, identify potential andexisting subcontractors, and helpsubcontractors logistically and inimproving their management.

• Education, training, consultancy services .The main areas for training and educationare: strategic business management andmanagement training; quality assurance(with special emphasis on the introductionof a new version of ISO 9000); the

implications of, and conditions for,accession to the European Union; logistics;and e-business and e-commerce. 21

• Promotion of the international presenceof Hungarian firms. These activitiesorganize or catalyse business contacts andmeetings between potential suppliers andbuyers and facilitate Hungarianparticipation in relevant international fairsand exhibitions.

• Financial support and grants from theMinistry of Economic Affairs. The Ministryof Economic Affairs offers grants toexisting and potential subcontractors. In2001, two additional sources of financewere introduced: a grant covering up to30 per cent of the costs of qualitymanagement and insurance, expansion ofproduction or product range, developmentof logistics and informatics; and a grantcovering up to 50 per cent of the costsinvolved in cluster development. TheGovernment also financially supportssupplier audits, covering up to 75 per centof the cost, with a ceiling of HUF400,000.22

Moreover, innovation centres, as wellas universities and research institutes indirectlysupport the Integration SubcontractingProgramme by coordinating relevant aspectsof research and development.

The In tegra tors’ Subcont rac t ingProgramme – and its precursors – havereached a fairly extensive network of firms.In mid-1999, the programme covered 1,438suppl ier f i rms, represent ing 110,000employees (14 per cent of the tota lemployment in manufacturing). The valueof deals contracted and signed through thethen National Subcontracting InformationNetwork reached HUF 1.4 bi l l ion ($6million) in 1999. The duration of contractsvaried between 6 and 12 months. Between1998 and 2000, a number of key foreignaffiliates (e.g. Opel, Audi, Suzuki, Ford,General Electric, Nokia and Electrolux)s igned 76 suppl ier contracts under theprogramme. The value of 21 of the contractspublicly announced was HUF 5.9 billion($24.5 million) per annum. 23 According tolatest estimates, the share of Hungarian firmsamong the suppliers to foreign affiliatesincreased from 16 per cent in 1999 to 21per cent in 2000 (Peredi, 2000).


Notes1 This section is based on information from

One Northeast and an abridged version ofLoewendahl, 2001.

2 It succeeded the Northern DevelopmentCompany, established as a tripartite body in1986, comprising representatives from localpolitical parties, the business community andtrade unions (Loewendahl, 2001).

3 This part A draws largely on informationprovided by Scottish Enterprise and Krauseand Handfield, 1999.

4 Scottish Enterprise was established in 1991under the Enterprise and New Towns (Scotland)Act of 1990, combining the former ScottishDevelopment Agency and the Training Agencyin Scotland.

5 The programme also has social goals, witha focus on employment and on creating an“inclusive society”. The annual report states:“Our purpose is to help the people of Scotlandcreate and sustain jobs, prosperity and a highquality of life” (Scottish Enterprise Network,2001, p. 1).

6 Based on information provided by the CostaRica Provee, 2001; Monge, 2000; Egloff, 2001;ECLAC, 2000; IADB 2001.

7 At its inception, the Costa Rican InvestmentBoard pursued an investment promotion strategyfocused on textiles. As wage levels increased,and competition from lower-wage emergingmarkets rose in the early 1990s, it began totarget other industries such as the electrical,electronic and telecommunication industries.It is against the background of this shift intotargeting high-technology that the countrysuccessfully attracted Intel in 1996. For adetailed analysis of the evolution of CostaRica’s FDI policy, see for example ECLAC,2000.

8 In particular, this will consist in trainingregarding electrostatic painting environment,environment protection guidelines and newproduction floor layout, as well as accompanyingworkshops and conferences and theestablishment of a permanent informationnetwork with the foreign affiliate. As a result,Leogar was able to improve in productiontechnology which has also enhanced its potentialto become a supplier to other foreign affiliatesin the future.

9 The following is based on Carrillo, 2001 andinformation from SECOFI.

10 The maquiladoras programme, through lowtariffs on component imports, has favouredthe processing of these components for re-exports, with limited opportunities to createlinkages with domestic suppliers.

11 Apart from those organized under theProgramme for the Development of Suppliers,

a variety of other fairs have been introduced.They include: input exhibits by potentialsuppliers; exhibits by maquila clients; firmsthat completely “dismantle” their productsso that visitors can identify the components;highly specialized exhibits, such as plasticinjection and packing; and exhibits promotedby one TNC only, such as Sony (Altenburget al. , 1998; Carril lo, 2001).

12 It provides a computer-based matchmakingprogramme as well as data on size of firmsand capacity. However, some firms have beenhesitant to register in it for fear of disclosingtoo much information.

13 The “Calidad Integral y Modernización”initiative is designed to address the lack ofcompetitiveness of local SMEs, resulting frompoor education or management techniques.The project, launched in 1987 by the WorldBank, trains industrial workers. Since 1993,supplier development has been integrated intothe programme and has been carried out jointlywith regional agencies. Advisory servicesand training in the areas of information,financing and technology are provided by privateconsultants and, depending on the size of theparticipating company, subsidized up to 70per cent by the project. An example is thecooperation between Volkswagen de Mexicoand its suppliers with the initiative.

14 For example, the changes stipulated by Article303 of the NAFTA imposes import duties,as of 1 January 2001, on all components,materials, equipment and tools imported fromoutside of NAFTA, but destined to the NAFTAcountries. This eliminated the “no-duty” statusof the Mexican maquiladora industry whichhad hitherto applied to merchandise exportedto the United States or Canada.

15 The following is based on Office of the PrimeMinister (BOI), 2001, and on other informationprovided by the Board of Investments (BOI).

16 This became pressing when the economic crisisof 1997-1998 offered an opportunity forpotential suppliers as they had cost advantagesvis-à-vis imported intermediate inputs as aresult of the currency devaluation. At thattime, subcontracting l inkages were alsoperceived as a step towards initiating jointventure arrangements, which could serve toreplenish the capital of ailing domestic firms.

17 Firms register to become members of BUILD;there is no screening, and fees are not levied.The programme foresees, for a later time,classifying participating firms into threedivisions.

18 Information provided by the BOI.19 Based on information provided by the Ministry

of Economic Affairs of Hungary.20 “The primary objective of the… subprogram[s]

is to loosen up the current dual structure of


the Hungarian economy, and to continue tostrengthen Hungarian SMEs’ l inks tomultinational companies with a foothold inHungary in terms of production, innovationand information” Hungary, Ministry of EconomicAffairs, 2001, p. 1.

21 The latter is provided by the HungarianInvestment and Trade Development Agencywith a view to preparing Hungarian suppliersfor Internet-based bidding for internationalcontracts .

22 In 1999, 28 supplier firms applied for suchaudits, of which 27 received assistance, fora total value of HUF 5.4 million. Another61 firms applied for assistance, of which 31firms received assistance, for the value ofHUF 84.9 million.

23 The value of the other contracts was keptconfidential.


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I

CHAPTER VI.KEY ELEMENTS OF

A LINKAGE PROMOTION PROGRAMME

n conclusion, the extent andnature of backward linkagesbetween foreign aff i l ia tesand domestic supplier firmsdepend on many factors .Trends in the g lobal

environment encourage firms to concentrateon their core activities and rely more onother f i rms for non-core funct ions andinputs. Where the mutual self-interest offoreign affiliates and domestic firms withsupplier capabilities leads to the creationand deepening of l inkages, no furtherencouragement by governments is needed.Indeed, evidence shows that linkages evolveover time, as foreign affiliates become moreintegrated in the local economy.

However , th is does not a lwayshappen. In fac t , i t i s a reasonableassumption that, whatever the given levelof linkages, this can be increased in manycases. Hence there is a role for judiciouspolicy intervention to promote the creationand deepening of linkages, as a strategic toolto promote the development of domesticenterprises. Governments can promote thecreation and deepening of linkages in manyways.

In formulating l inkage promotionpolicies, governments need to understandthe main determinants involved (chapter IV).Not all of them are amenable to policyinfluence. For example, it is difficult forgovernments to influence corporate strategiesor the technical characteristics of the activitiesof foreign affiliates. They can, however,influence other factors affecting the costsand benefits of linkage development.

To do so, they must be aware of TNCprocurement strategies and the competitivesett ing of each industry in which f irmsoperate. The increased concentration ofTNCs on core act iv i t ies creates newopportunities for independent suppliers, butit also raises greater challenges for domesticfirms. Uncompetitive domestic suppliers

may f ind themselves excluded in theincreasingly demanding environment ofra t ional ized supply chains . This i sparticularly true when it comes to foreignaf f i l ia tes tha t are par t o f in tegra tedinternational production systems, for whichscale , s tandards requirements andtechnological demands are particularly high.Some act iv i t i es and TNCs are moreamenable to the outsourcing of inputs thanare others, and governments that understandthe competitive needs and strategies of TNCscan attract new investments more effectivelyand root them more deeply in theireconomies.

The role of policy is most significantwhere there is an “information gap” on thepart of both buyers and suppliers aboutlinkage opportunities, a “capability gap”between the requirements of buyers and thesupply capacity of suppliers and where thecosts and risks of setting up linkages ordeepening them can be reduced. While theinternational regulatory framework is stillevolving, the challenge for policy makersis to make use of the options available withinthe current framework and use other policymeasures which are not subjec t tomul t i la tera l ru les to encourage andaccelerate the linkage formation process.Governments are refocusing their policyintervent ion towards addressing marketfailures and reducing the costs involved forl inkage par tners to create and deepenl inkages, wi th the ul t imate a im ofstrengthening the productive capabilities andcompetitiveness of domestic suppliers. Suchintervention needs to be undertaken in closepartnership with the private sector.

Whereas there is no universal lyaccepted best practice in linkage promotionpolicy, important lessons can be drawn frompast experience. Linkage promotion policies,like other development policies, are oftenhighly context-specif ic and need to beadapted to the part icular c ircumstancesprevailing in each host country. They need

210 W orld Invesm ent R eport 2001: Prom oting Linka g es

to be an integral part of broader developmentstrategies, and their success often dependson factors that may not appear in a narrowassessment of linkage policies. Much alsodepends on how policies are designed,coordinated and implemented in practice.

There are two basic (mutually notexclus ive) approaches through whichlinkages can be promoted. One involvesencouraging l inkages through var iousmeasures to bring domestic suppliers andforeign affiliates together and to strengthentheir l inkages in the key areas ofinformation, technology, t ra ining andf inance . This i s a broad approach – i tbasically improves the enabling frameworkfor linkage formation. A range of measurescan be ut i l ized here among whichgovernments can pick and choose in lightof their objectives and circumstances. (TableVI.1 contains a number of measures that arerelevant here.)

The other approach goes further inthat i t involves the es tabl ishment of a

specif ic l inkage promot ion programmecombining a number of the measures justmentioned. This is a proactive approachwhich is typically focused on a selectednumber of industries and firms dedicatedto increasing and deepening l inkagesbetween foreign affi l iates and domesticfirms. As with other policies that span arange of productive factors, activities andenterprises, it is advisable for policy makersthat choose this approach to “start small”(perhaps with a pilot scheme) and to buildpolicy monitoring, flexibility and learninginto any programme. The need for startingsmall is all the greater when resources arescarce. Moreover, it is essential for anyprogramme to seek close collaboration withthe private sector, both foreign affiliates andlocal suppliers, in design and implementation.

The general features of a specificLinkage Promotion Programme are set outbelow. This programme should be seen moreas a set of building blocks that countriesmight “mix and match” according to theirspecific circumstances, rather than a ready-

Table VI.1. Specific government measures to create and deepen linkages

Information and Matchmaking Technology upgrading Training Finance

Provision of information: • Technology transfer • Promoting supplier • Legal protection against unfair•Handouts and brochures. as a performance associations. contractual arrangements and•Constantly updated electronic requirement. • Collaboration with other unfair business practices.databases. • Partnership with the private sector for • Encouraging a shortening of

•Linkage information seminars, foreign affiliates. one-stop service, payment delays through taxexhibitions and missions. • Incentives for R&D including training. measures.

cooperation. • Support for private • Limiting payment delays throughMatchmaking: • Home-country sector training legislation.

•Acting as honest broker in incentives. programmes. • Guaranteeing the recovery ofnegotiations. • Collaboration with delayed payments.

•Supporting supplier audits. international • Indirect financing to suppliers•Providing advice on agencies. channeled through their buyers.subcontracting deals • Tax credits or tax reductions and

•Sponsoring fairs, exhibitions, other fiscal benefits to firmsmissions and conferences. providing long-term funds to

•Organizing meetings, suppliers.visits to plants. • Co-financing development

programmes with the privatesector.

• Direct role in providing finance tolocal firms.

• Mandatory transfer of funds fromforeign affiliates to localsuppliers.

Home country measures• Two-step loans.• Using ODA.

Source: UNCTAD.

211CHAPTER VI KEY ELEMEN TS O F A LIN KAGE PRO M O TIO N PRO G RAMME

made prescription that all countries canapply. Clearly, the choice of measures andthe way they are combined must reflect thelevel of development, policy capabilities,resources and objectives of each country –indeed it must take into account the principaldeterminants outlined earlier (chapter IV).Even countries at similar levels of developmentmay choose different c onfigurations of policyaccording to their enterprise and institutionalcapabilities.

The starting point for an effectivelinkage programme is a clear vision of howFDI f i ts into the overal l developmentstrategy and, more specifically, a strategyto build production capacity. The vision hasto be based on a clear understanding of thestrengths and weaknesses of an economy andof the challenges facing it in a globalizingworld. A l inkage programme should, inparticular, address the competitive needs ofdomestic enterprises and the implicationsthey have for policies, private and publicsupport institutions and support measures( including ski l ls- and technology-upgrading).

A precondition for linkage formationis of course that there is inward FDI andthat there are capable suppliers (or supplierswith the potential for upgrading). Where thisis the case, the steps that need to be followedin designing a linkage programme include:

1. setting the policy objectives of a linkageprogramme;

2. identifying the specific measures to beadopted;

3. identifying the targets of the programme;

4. setting up an appropriate institutional andadministrative framework to implement andmonitor the programme.

Naturally, experience with respect toprogrammes of this sort in other countriescan be helpful when considering the actionsto be taken in connection with each of theses teps . (The pr inc ipal character is t ics oflinkage programmes in a number of countriesare summarized in chapter V.D). Moreover,at each step of the implementation of aprogramme, the government needs to havea clear idea about the costs involved andthe resources available.

A. Setting policy objectives

The starting point is a clear visionof a development strategy, supported by acoherent set of economic policies in theareas of investment, trade, technology andenterpr ise development . In par t icular ,linkage programmes are at the intersectionof two subsets of programmes and policies:those geared towards enterprise development(especially SME development) and thoserelated to FDI promotion. The former aredesirable in and by themselves, as a vibrantenterprise sector is the bedrock of economicgrowth and development; in the context ofthe promotion of linkages, the capabilitiesof local firms are the single most importantdeterminant of success. FDI promotion, inturn, increasingly focuses not only on thequantity of FDI, a country attracts but alsoon i ts qual i ty, including l inkageopportunities.

Linkage programmes can have twobroad object ives : to increase domest icsourcing by foreign affiliates (i.e. create newbackward l inkages) and to deepen andupgrade existing linkages, both with theultimate aim of upgrading the capacities oflocal suppliers to produce higher value-added goods in a competitive environment.These object ives are interdependent :deepening may spin off new linkages, andspreading linkages may change their qualityand depth.

A government’s objectives should beshared with all principal stakeholders, astheir active participation is needed for thesuccess of any programme. Active dialogueand consultations are advisable right fromthe very beginning. This requires first andforemost:

• Initiating a public-private sector dialogue(perhaps in a “Linkage Forum”) withstakeholders, including foreign affiliates(and especially their procurement officers),supplier industry associations, chambersof commerce, banks, service providers,trade unions and government agencies(such as investment promotion agencies,development corporations, industrial zoneauthorities, industry developmentagencies).


• Disseminating “best practice” experiencesbased on companies’ programmes andactions and experiences of governmentprogrammes and measures in othercountries.

B. Identifying the targets

Governments, in cooperation withprivate sector institutions, need to definethe targets of a programme in terms of theindustries and, within them, the foreignaff i l ia tes and domest ic suppl iers to beinvolved.

• Industries can be selected according to:

- the sectoral development priorities ofa country, taking into account the extentof the presence of foreign affiliates andcapable domestic firms;

- the degree of match between localcapabilities and the input requirementsof foreign affiliates;

- the nature of international productionsystems within the industry selected,which partly determines the degree ofautonomy of foreign affiliates withrespect to local sourcing (foreignaffiliates that are part of integratedinternational production systems arelikely to be more dependent on globalcorporate sourcing policies);

- the technology content of the activityand the scope for moving up the value-added chain.

Such an analysis is essential for any linkagestrategy – without it, a government cannotdecide how to allocate scarce resources.It also has to take into account trends inthe growth and spread of internationalproduction networks and their implicationsfor domestic producers, drawing, amongothers, on continuous dialogue with keystakeholders.

• Foreign affiliates can be selectedaccording to their willingness and potential

to establish beneficial linkages. Beyondthat – and as part of their FDI promotion– governments can target TNCs that areparticularly interested in developing strongsupply links with domestic enterprises. Thelinkage programme may even support localmanagers of foreign affiliates in lobbyingtheir head offices to allow greaterautonomy in sourcing. In-depthconsultations with foreign affiliates canthen identify their specific linkage needs.

• Suppliers can be selected on the basis oftheir commitment and capabilities (orpotential capabilities) to meet the needsof foreign affiliates. “Commitment” canbe tested through certain self-improvementrequirements, with some external guidanceand minimal support during the initial stageof selection. Other criteria that can be usedinvolve technological benchmarking andskills audits. Specific criteria that havebeen used include the size of firms,production capabilities, ISO certificationand the age of firms. However, one of themost important elements to take intoaccount is the commitment of key managers(and especially the chief executive officer)to the idea of continuous improvement andtheir willingness to upgrade theiroperations to meet international standardsrequired for successful linkages. The activecooperation of chambers of commerce,business associations, support centres,service providers and other private sectorinstitutions is very important here, as isthe cooperation of SME developmentprogrammes, be they local or international.(UNCTAD’s EMPRETEC programme is anexample of the latter.) “LinkageWorkshops” for representatives of foreignaffiliates and local enterprises couldprovide the mechanism through whicheventual programme participants can benarrowed down. Subsequent “BusinessClinics” for Linkage Workshop participantscould allow for one-to-one consultationsfor pairs of linkage partners. Firmsprepared to go further could thus undertakeoperational and management audits todetermine the strengths and weaknesses ofdomestic partners.


C. Areas for specificpolicy measures

Governments need to be aware ofactions already taken by foreign affiliatesand domestic firms. Some of these may needto be encouraged and supported. A numberof such possible actions were listed earlierin this Part of this report (chapter IV andits annex); for ease of reference, they arelisted in table VI.2. Governments can alsoact as facilitators and catalysts and ensurethat private institutions have the incentivesand resources needed. They can beparticularly proactive in the following keyareas of linkage formation:

• information and matchmaking;• technology upgrading;• training;• finance.

The range of measures that can betaken under each heading is wide. Theirpr inc ipal purpose i s to encourage andsupport foreign affiliates and domestic firmsto strike up and deepen linkages. They wereoutlined – individually and as contained inprogrammes – earlier in this Part of thereport (chapter V and its annex); for easeof reference, these measures are listed intable VI.1. They constitute a menu fromwhich governments can mix and match.Specific choices depend on the results ofearlier consultations with existing supportinstitutions and relevant programmes in thepublic and private sectors, as well as withkey stakeholders on the specific needs ofan industry or set of firms. The results ofthe Linkage Fora, Linkage Workshops andBusiness Clinics mentioned earlier and theidentification of promising domestic firmsare also of help here. Governments couldalso encourage par t ic ipat ing fore ignaff i l ia tes to agree to a coaching andmentoring arrangement with promising localfirms (see box VI.1).

Box VI.1. Coach an SME!

Source: UNCTAD.

As part of its efforts to promote backward linkages, a government can encourage foreignaffiliates to adopt promising domestic firms (typically SMEs) that are (or have the potentialto become) suppliers and assist them in the continuous upgrading of management skills andtechnology. The specific activities and results of such an effort would be agreed between theforeign affiliates and the domestic firms. It could be, say, a three-year commitment with regularreviews to ensure that specific targets are met. This calls for an investment of time and a commitmentby both the foreign and domestic firms.

Possible activities include:

• Participating TNCs give one or a few selected domestic suppliers access to their innovationcentres and corporate training programmes.

• Engineers and management consultants from the foreign affiliates visit the firms on a regularbasis and provide advice.

• The foreign affiliates assign a few staff members to the firms for a limited period.

• Foreign affiliates give opportunities for the manufacturing of inputs or the provision ofservices to the firms on a limited basis and increase such opportunities gradually.

• Foreign affiliates assess progress together with the supplier firms; a process of continuousmanagerial, technological and human-resource improvement is developed.

• Foreign affiliates share market information and strategy with the supplier firms so thatthe latter can pre-position themselves ready for changes ahead.

• Foreign affiliates provide firms with additional business opportunities through businessmatching, brokering strategic alliances, trade fairs and exhibitions.

• Foreign affiliates encourage their partners to diversify their customer base.

An approach along these lines has been successfully implemented in Penang, Malaysia (Wong,2000).


These measures can be underpinnedby efforts to strengthen the negotiat ingposition of local firms vis-à-vis foreignaffiliates. For instance, guidelines or makingmodel contracts available. Special informalmechanisms can also help resolve problemsand disputes and contribute to more lastinglinkage relationships.

The resul t should be a clear andfeasible programme of actio n.

D. Organizational andinstitutional framework

Governments can choose from anumber of opt ions in designing theins t i tu t ional f ramework for a l inkageprogramme:

• Making the programme a distinct part ofan existing body or even to set up a specialnational-level linkage programme under anindependent body to act as the focal pointfor all relevant activities by differentdepartments and institutions.

Product technology:• Provision of proprietary product

know-how.• Transfer of product designs and

technical specifications.• Technical consultations with

suppliers to help them masternew technologies.

• Feedback on product performanceto help suppliers improveperformance.

• Collaboration in R&D.

Process technology:• Provision of machinery and

equipment to suppliers.• Technical support on production

planning, quality management,inspection and testing.

• Visits to supplier facilities toadvise on lay-out, operationsand quality.

• Formation of “cooperation clubs”to interact with suppliers ontechnical issues.

• Assistance to employees to setup their own firms.

Organization and managerialknow-how assistance:• Assistance with inventory

management (and the use ofjust-in-time and other systems).

• Assistance in implementing qualityassurance systems.

• Introduction to new practicessuch as network managementor financial, purchase andmarketing techniques.

•Providing specialor favourablepricing forsuppliers’products.

•Helping suppliers’cash flow throughadvance purchasesand payments,prompt settlementsand provision offoreign exchange.

•Long-term financialassistance throughthe provision ofcapital; guaranteesfor bank loans; theestablishment offunds for workingcapital or othersuppliers needs;infrastructurefinancing; sharingof the costs ofspecific projectswith suppliers; andleasing.

• Training courses inaffiliates forsuppliers’ personnel.

• Offering access tointernal trainingprogrammes inaffiliates or abroad.

• Sending teams ofexperts to suppliersto provide in-planttraining.

• Promotion ofcooperative learningamong suppliers.

Table VI.2. Measures by foreign affiliates to create and deepen linkages

Finding new Sharing Giving financiallocal suppliers Transferring technology Providing training information support

• Making publicannouncementsabout the needfor suppliers andthe requirementsthat firms mustmeet on cost andquality.

• Supplier visitsand quality audits.

·• Informalexchangesof informationon businessplans and futurerequirements.

·• Provision ofannual purchaseorders.

·• Provision ofmarketinformation.

·• Encouragingsuppliers tojoin businessassociations.

Source: UNCTAD.


• Leave the design and implementation ofthe linkage programme to local authorities,with central advice, encouragement andsupport from the central government. Thisapproach might be preferable in largecountries or where resources for linkageprogrammes are limited or where regionshave distinct combinations of locationaladvantages to offer.

• Involve the private sector as the mainexecuting agency for the linkageprogramme. Suppliers, affiliates or theirassociations may set up such a body. Therole of the government would be to act ascatalyst and fulfil regulatory andinformation functions.

The size of a programme depends onthe objectives sought and the resourcesavailable. Some programmes benefit fromexternal funding through financial assistanceprovided by donor countries. In the longerterm, the financial sustainability of linkageprogrammes, directly run by governments,requires adequate government funding.Moreover, cost sharing by part icipatingf i rms (both buyers and suppl iers) i sdesirable, not only for funding purposes butalso for assuring self-commitment of theparticipants; this is feasible, especially whena programme has demonstrated its usefulnessand is recognized for its services. Needlessto say, to create trust and credibility amongenterprises, a programme must be staffedby profess ionals wi th the appropr ia teprivate-sector related skills and background.

Linkage programmes can only workif they are networking effect ively withefficient intermediate institutions providingsupport in ski l l bui ld ing, technologydevelopment, logistics and finance. Theseinclude standards and metrology institutes,testing laboratories, R&D centres and othertechnical extension services, productivityand management t ra in ing centres andfinancial institutions. These can be publicor private. It is also important that linkageprogrammes work closely with relevantprivate associations – chambers of commerceand industry, manufacturers associations,investor associations and so on. Trade unionsand var ious in teres t groups are o therimportant stakeholders.

Finally, i t is important to have amonitoring system in place to evaluate thesuccess of a programme. Often , in alearning-by-doing process, a programmeneeds to be adjusted and ref ined asexper iences accumulate and s i tuat ionschange. The system could includebenchmarks and surveys of users (see boxV.11 for an overview of existing approacheson measuring the impact of l inkageprogrammes). Criteria could include thefollowing:

• Outreach: the number of companiesincluded in the programme over time.

• Impact: the impact of the programme canbe judged by such indicators as the numberof suppliers linked up with foreignaffiliates over time, the value of deals andchanges in these over time; the share ofdomestic suppliers in procurement byforeign affiliates, the extent to which R&Dactivities are being undertaken by domesticsuppliers over time (including thoseresulting in patents); changes in exportvolumes; the improvements in theproductivity or value-added at the firm orindustry level; and whether a local supplierestablishes itself abroad.

• Cost effectiveness: the cost of theprogramme in light of the results achievedand the benefits obtained as defined by theobjectives laid out at the beginning of theprogramme.

*****

It is worth repeating that a linkageprogramme should be seen as part of abroader set of FDI and SME policies. Asnetworks of viable suppliers often prosperin clusters of firms, attention needs to begiven to the development of such clusters,part icular ly for knowledge- intens iveindustr ies and act iv i t i es . The th i rdgeneration of FDI promotion policy (see theconclusion of Part One) – targeting foreigninvestors at the level of industries and firmsand using clusters to attract FDI and, in turn,strengthening clusters through it – has a roleto play here . In fact , the more l inkagepromotion policies go hand-in-hand withSME development and targeted FDIpromotion policies (and, for that matter, anumber of other policies – see figure V.2),the more they are likely to be successful.


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235AN N EX A

ANNEXES


Annex A. Additional text tables and figures

P a g eTables

A.I.1. Main international instruments dealing with FDI, 1998-2000 .................................................................. 237A.I.2. Number of parent corporations and foreign affiliates,

by area and economy, latest available year ........................................................................................... 239A.I.3. Annual average FDI growth rates in LDCs, 1986-1999 ......................................................................... 243A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000 .......................................... 244A.I.5. Geographical sources of FDI inflows into selected Central and

Eastern European countries, 2000 .......................................................................................................... 249A.I.6. Selected private cross-border M&As in Hungary, 1999-April 2001 ....................................................... 251A.I.7. Geographical distribution of FDI outflows from selected Central

and Eastern European countries, 2000 ................................................................................................... 252A.I.8. Employment of foreign affiliates in selected Central and Eastern

European countries, 1998 and 1999 ....................................................................................................... 253A.I.9. Value added of foreign affiliates in the Czech Republic, Hungary

and Slovenia, 1998 and 1999 .................................................................................................................. 253A.I.10. The Inward FDI Index, by host economy, 1988-1990 and 1998-2000 ................................................. 254A.I.11. Shares of regions in global FDI inflows, GDP and exports, 1988-1990 and 1998-2000 ..................... 256A.II.1. FDI outward stock, by industry and by region, 1988 ............................................................................. 257A.II.2. FDI outward stock, by industry and by region, 1999 ............................................................................. 258A.II.3. FDI inward stock, by industry and by region, 1988 ................................................................................ 259A.II.4. FDI inward stock, by industry and by region, 1999 ................................................................................ 260

Figures

A.I.1. FDI inflows and ODA flows to LDCs, 1985-2000 ..................................................................................... 261A.I.2. Growth trends in FDI and bilateral ODA flows, 1990-1999 ..................................................................... 261A.II.1. The distribution of foreign affiliates in the semiconductor industry, 1985 ................................................ 262A.II.2. The distribution of foreign affiliates in the biotechnology industry, 1985 ................................................ 262A.II.3. The distribution of foreign affiliates in the automobile industry, 1985 ..................................................... 263A.II.4. The distribution of foreign affiliates in the TV and radio receivers industry, 1985 ................................. 263A.II.5. The distribution of foreign affiliates in the textile and clothing industry, 1985 ......................................... 264A.II.6. The distribution of foreign affiliates in food and beverage industry, 1985 .............................................. 264A.II.7. The distribution of foreign affiliates of the largest 10 automobile TNCs,

by function, 1985 ....................................................................................................................................... 265A.II.8. The distribution of foreign affiliates of the largest 10 electronics TNCs,

by function, 1985 ....................................................................................................................................... 267A.II.9. The distribution of R&D facilities and location of major universities in Europe, 1985 ............................ 269A.II.10. The distribution of R&D facilities and location of major universities

in the United States, 1985 ......................................................................................................................... 270A.II.11. The distribution of R&D facilities and location of major universities in Asia, 1985 ................................. 271

237AN N EX A

Annex table A.I.1. Main international instrumentsa dealing with FDI, 1998-2000

Yearb Title Setting Level Form Status

Agreement between the European Communities and theGovernment of the United States of America on theApplication of Positive Comity Principles in the European Community-

1998 Enforcement of their Competition Laws United States Bilateral Binding Adopted

Agreement Establishing the Free Trade Area between Caribbean Community-1998 the Caribbean Community and the Dominican Republic Dominican Republic Regional Binding Adopted

1998 Free Trade Agreement between Chile and Mexico Chile-Mexico Bilateral Binding Adopted

Protocol Amending the Treaty Establishing the Caribbean1998 Community. Protocol III: Industrial Policy. Caribbean Community Regional Binding Adopted

1998 Framework Agreement on the ASEAN Investment Area ASEAN Regional Binding Adopted

Trade and Investment Cooperation Arrangement between1998 Canada and MERCOSUR Canada & MERCOSUR Regional Binding Adopted

Memorandum of Understanding on Trade and Investmentbetween the Governments Canada, Costa Rica, Canada and Central

1998 El Salvador, Guatemala, Honduras and Nicaragua American countries Regional Non-binding Adopted

OECD Council Recommendation on Counteracting1998 Harmful Tax Competition OECD Regional Non-binding Adopted

OECD Council Recommendation Concerning Effective1998 Action Against Hard Core Cartels OECD Regional Non-binding Adopted

1998 Draft Multilateral Agreement on Investment OECD Regional Binding Not adopted

ILO Declaration on fundamental Principles and International Labour1998 Rights at Work Office Multilateral Non-binding Adopted

Consumer Unity & Non-1998 Draft International Agreement on Investment Trust Society Governmental Non-binding Not adopted

Towards a Citizens’ MAI: an Alternative Approach toDeveloping a Global Investment Treaty Based on Non-

1998 Citizen’s Rights and Democratic Control Council of Canadians Governmental Non-binding Adopted

Resolution of the European Parliament on EuropeanUnion Standards for European Enterprises Operatingin Developing Countries: towards a European

1999 Code of Conduct European Parliament Regional Non-binding Adopted

1999 Criminal Law Convention on Corruption Council of Europe Regional Binding Adopted

1999 OECD Principles of Corporate Governance OECD Regional Non-binding Approved

Model Clauses for Use in Contracts Involving International Chamber1999 Transborder Data Flows of Commerce Model Non-binding Adopted

World Development Non-1999 Core Standards Movement Governmental Non-binding Not adopted

Rules and Recommendations on Extortion andBribery in International Business Transactions International Chamber of Non-

1999 (1999 Revised Version) Commerce Governmental Non-binding Adopted

1999 Civil Law Convention on Corruption Council of Europe Regional Binding Adopted

1999 The Treaty Establishing the East African Community East African Community Regional Binding Adopted

Agreement between the Government of the United Statesof America and the Government of Australia on Mutual

1999 Antitrust Enforcement Assistance Australial- United States Bilateral Binding Adopted

Agreement between the Government of the United Statesof America and the Government of the FederativeRepublic of Brazil Regarding Cooperation BetweenTheir Competition Authorities in the Enforcement of

1999 Their Competition Laws Brazil- United States Bilateral Binding Adopted

/...


Annex table A.I.1. Main international instruments a dealing with FDI, 1998-2000 (concluded)

Yearb Title Setting Level Form Status

Agreement between the European Communities andthe Government of Canada Regarding the Application

1999 of their Competition Laws Canada- Eurpean Union Bilateral Binding Adopted

Agreement between the Government of the United Statesof America and the Government of Japan Concerning

1999 Cooperation on Anticompetitive Activities Japan- United States Bilateral Binding Adopted

1999 Short-Term Measures to Enhance ASEAN Investment Climate ASEAN Regional Binding Adopted

Free Trade Agreement between Mexico, El Salvador,2000 Guatemala and Honduras The Northern Triangle Regional Binding Adopted

Revised OECD Declaration on International Investmentand Multilateral Enterprises (including the Revised Binding/

2000 Guidelines for Multinational Enterprises and commentaries) OECD Regional non-binding Adopted

Revised United Nations Model Taxation Convention2000 between Developed and Developing Countries United Nations Multilateral Model Adopted

Agreement between New Zealand and Singapore on2000 Closer Economic and Partnership New Zealand- Singapore Bilateral Binding Adopted

Protocol VIII: Competition Policy, ConsumerProtection, Dumping and Subsidies amending the

2000 Treaty of Chaguaramas Caribbean Community Regional Binding Adopted

Revised Partnership Agreement between the Membersof the African, Caribbean and Pacific Group of States African, Caribbean andof the One Part, and The European Community and the Pacific-European

2000 Its Member States, of The Other Part community Regional Binding Adopted

S o u r c e : UNCTAD. The ins t ruments l i s ted here are reproduced in whole or in par t in UNCTAD, Internat ional InvestmentInstruments: A Compendium, vols . IV, V and VI (Uni ted Nat ions publ icat ion, Sales Nos. E.00. I I .D.13. 14, andfo r thcoming) .

a Bilateral treaties for the promotion and protection of investment (BITs) and for the avoidance of double taxation (DTTs) are not includedin this table. For an up-to-date l ist of BITs, as of 1 January 2000, see Bilateral Investment Treaties, 1959-1999 (UNCTAD/DITE/IIA/2), avai lable on the Internet: www.unctad.org/en/pub/poitei iad2.en.htm. The l ist of bi lateral associat ion, partnership and cooperat ionagreements signed by the European Community and/or the European Free Trade Association and third countries, and including investmentprovis ions, is avai lable in a separate table.

b Dates given re late to or ig inal adopt ion. Subsequent rev is ions of inst ruments are not inc luded, unless expl ic i t ly stated.

Bilateral association, cooperation, framework and partnership agreements signed by theEuropean Community, by the European Free Trade Association and by the United States

with third countries, including investment-related provisions (1998-January 2001)

Country/territory/group of countries Date of signature Date of entry into force

European Communityand its member States

Turkmenistan 25 May 1998 Not yet in forceSouth Africa 11 October 1999 Not yet in forceMexico 19 March 2000 . .

European Free Trade Associationand its member States

Palestine Authority 30 November 1998 1 July 1998The Former Yugoslav Republic of Macedonia 19 June 2000 Not yet in forceMexico 27 November 2000 Not yet in force

Untied States

Egypta 1 July 1999 1 July 1999Ghana 26 February 1999 26 February 1999Jordan 24 October 2000 . .South Africa 18 February 1999 18 Febrruary 1999Nigeria 16 February 2000 . .Viet Nam 13 July 2000 . .

S o u r c e : U N C T A D .a Investment Incent ive Agreement between the Government of the United States and the Government of the Arab Republ ic of Egypt.

239AN N EX A

Annex table A.I.2. Number of parent corporations and foreign affiliates, by area and economy, latest available year

(Number)

Parent corporations Foreign affiliatesArea/economy Year based in economya located in economya

Developed economies 49 944 b 95 485 b

Western Europe 38 733 b 62 729 b

European Union 33 249 b 53 753 b

Austria 1997 896 2 464Belgium/Luxembourg 1997 988 c 1 504 c

Denmark 1998 9 356 2 305 d

Finland 2000 1 200 ba 2 006 d

France 1998 1 695 9 494Germany 1998 8 492 12 042 e

Greece 1991 .. 798Ireland 1998 39 f 1 140 g

Italy 1997 806 1 769 h

Netherlands 1993 1 608 i 2 259 i

Portugal 1999 1 100 j 3 500 j

Spain 1998 857 k 7 465Sweden i 2000 5 118 4 324United Kingdom m 1998 1 094 2 683

Other Western Europe 5 484 b 8 976 b

Gibraltar 1999 .. 14Iceland 1999 78 47Liechtenstein 1999 .. 41Norway 1998 900 n 3 100 n

Switzerland 1995 4 506 5 774

North America 5 109 b 23 665 b

Canada 1997 1 722 4 562United States 1997 3 387 o 19 103 p

Other developed countries 6 102 b 9 091 b

Australia 1999 610 2 539Israel 1999 .. 81Japan 1998 4 334 3 321 q

New Zealand 1998 217 1 106South Africa 1998 941 2 044

Developing economies 12 588 b 489 504 b

Africa 167 b 4 669 b

Algeria 1999 .. 6Angola 1999 .. 21Benin 1999 .. 5Botswana 1999 .. 8Burkina Faso 1999 .. 8Burundi 1999 .. 3Central African Republic 1999 .. 4Chad 1999 .. 3Congo 1999 .. 20Cote d’Ivoire 1999 .. 91Democratic Republic of the Congo 1999 .. 4Djibouti 1999 .. 8Egypt 1999 .. 99Equatorial Guinea 1999 .. 1Ethiopia 1998 .. 21 r

Gabon 1999 .. 33Gambia 1999 .. 5Ghana 1999 .. 54Guinea-Bissau 1999 .. 1Kenya 1999 .. 96Lesotho 1999 .. 411Madagascar 1999 .. 17Malawi 1999 .. 1Mali s 1999 3 33Mauritania 1999 .. 2

/...



(Number)


Mauritius 1999 .. 20Morocco 1999 .. 156Mozambique 1999 .. 12Namibia 1999 .. 2Niger 1999 .. 5Nigeria 1999 .. 48Rwanda 1999 .. 2Senegal 1999 .. 27Seychelles 1998 - 30Sierra Leone 1999 .. 1Sudan 1999 .. 3Swaziland 2000 12 53Togo 1999 .. 5Tunisia 2000 142 a j 2 086United Republic of Tanzania 1999 .. 27Uganda 1999 .. 22Zambia 1999 2 t 1 179Zimbabwe 1998 8 36

Latin America and the Caribbean 2 019 b 26 784 b

Antigua and Barbuda 1999 .. 6Aruba 1999 .. 19Argentina 1999 .. 635Bahamas 1999 .. 55Barbados 1999 .. 42Belize 1999 .. 4Bermuda 1999 .. 147Bolivia 1996 .. 257Brazil 1998 1 225 8 050British Virgin Islands 1999 .. 36Cameroon 1999 .. 47Cayman Islands 1999 .. 188Chile 1998 478 u 3 173 v

Colombia 1995 302 2 220Costa Rica 1999 .. 111Dominica 1999 .. 7Dominican Republic 1999 .. 92Ecuador 1999 .. 121El Salvador 1990 .. 225Grenada 1999 .. 8Guatemala 1985 .. 287Guyana 2000 4 s 59Haiti 1999 .. 6Honduras 1999 .. 30Jamaica 1998 .. 177Mexico 1993 .. 8 420Netherlands Antilles 1999 .. 143Nicaragua 1999 .. 21Panama 1999 .. 279Paraguay 1995 .. 109Peru 1997 10 w 1 183 x

St. Kitts and Nevis 1999 .. 5Saint Lucia 1999 .. 15Saint Vincent and the Grenadines 1999 .. 4Suriname 1999 .. 9Trinidad and Tobago 1999 .. 65 y

Uruguay 1997 .. 123Venezuela 1999 .. 406

Developing Europe 70 b 1 637Bosnia and Herzegovina 1999 .. 7Croatia 1997 70 353Malta 1999 .. 82Slovenia 1997 .. 1 195 az

/...

241AN N EX A


(Number)


Asia 10 332 b 456 414 b

South, East and South-East Asia 9 883 b 445 929 b

Afghanistan 1999 .. 3Bangladesh 1999 .. 161 z

Bhutan 1997 .. 2Brunei 1999 .. 27Cambodia 1997 .. 598 aa

China 1999 379 ab 364 345 ac

Hong Kong, China 1998 819 ad 6 247 ae

India 1995 187 af 1 416Indonesia 1995 313 2 241 ae

Lao People’s Democratic Republic 1997 .. 669 ag

Macau 1999 .. 86Malaysia 1999 .. 15 567 ah

Maldives 1999 .. 2Mongolia 1998 .. 1 400Myanmar 1998 .. 299 a i

Nepal 1999 .. 224Pakistan 1998 59 644Philippines 1995 .. 14 802 ak

Republic of Korea 1999 7 460 6 486Singapore 1997 .. 24 114Sri Lanka 1998 .. 305 a l

Taiwan Province of China 1994 666 am 2 026Thailand 1998 .. 2 721 an

Viet Nam 1996 .. 1 544

West Asia 449 b 2 227 b

Bahrain 1999 .. 28Cyprus 1999 .. 118Iran 1999 .. 16Jordan 1999 .. 8Kuwait 1999 .. 6Lebanon 1999 .. 24Oman 1995 92 ao 351 ao

Qatar 1999 .. 11Saudi Arabia 1989 .. 1 461Syrian Arab Republic 1999 .. 5Turkey 1995 357 136United Arab Emirates 1999 .. 59Yemen 1999 .. 4

Central Asia - 7 669 Armenia 1999 .. 1 604 ap

Azerbaijan 1999 .. 2Georgia 1998 .. 190 aq

Kazakhstan 1999 .. 1 865 ar

Kyrgzstan 1998 .. 4 004 as

Uzbekistan 1999 .. 4

The Pacific - 589Fiji 1997 .. 151Kiribati 1999 .. 1New Caledonia 1999 .. 1Papua New Guinea 1998 .. 345 at

Samoa 1999 .. 9Solomon Islands 1996 .. 56 au

Tonga 1999 .. 4Vanuatu 1999 .. 22

Central and Eastern Europe 780 b 236 829 b

Albania 1995 .. 2 422 av

Belarus 1994 .. 393Bulgaria 1994 26 918Czech Republic 1999 660 t 71 385 a x

Estonia 1999 .. 3 066 ay

Hungary 1998 .. 28 772 az

/...


Annex table A.I.2. Number of parent corporations and foreign affiliates, by area and economy, latest available year (concluded)

(Number)


Latvia 1999 .. 107Lithuania 1999 16 ab 1 893Poland 1998 58 f 35 840 bb

Romania 1998 20 f 71 318 bc

Russian Federation 1994 .. 7 793Slovakia 1997 .. 5 560 bd

Ukraine 1999 .. 7 362

World 63 312 821 818

S o u r c e : UNCTAD, based on nat ional sources.

a Represents the number of parent companies/foreign aff i l iates in the economy shown, as defined by that economy. Deviat ions from thedef in i t ion adopted in the World Investment Report (see sect ion on def in i t ions and sources in the annex B) are noted below.Venezuela, Samoa, Yemen are from Who Owns Whom CD-Rom 2000 (London, Dun & Bradstreet) .

b Inc ludes data for only the countr ies shown below.c Provis ional f igures by Banque Nat ionale de Belg ique.d Direct ly and indi rect ly owned fore ign af f i l ia tes (subsid iar ies and associates) , exc luding branches.e Does not include the number of foreign-owned holding companies in Germany which, in turn, hold part ic ipat ing interests in Germany

( indi rect foreign part ic ipat ing interests) .f As of 1994.g Refers to the number of foreign-owned aff i l iates in Ireland which receive assistance from the Industr ial Development Authority (IDA).h Relates to parent companies and foreign af f i l iates in agr icul ture and industr ia l act iv i t ies (source: REPRINT database, Polytechnics

University of Milano/CNEL.i As of October 1993.j Prel iminary est imate. The number of foreign aff i l iates in Portugal as of 1998.k Includes those Spanish parent enterpr ises which, at the same t ime, are control led by a di rect investor.l Data provided by Sveriges Riksbank. Includes those Swedish parent companies which, at the same t ime, are control led by a direct

investor. The number of foreign aff i l iates relates only to major i ty-owned f i rms.m Data on the number of parent companies based in the United Kingdom, and the number of foreign aff i l iates in the United Kingdom

are based on the register of companies held for inquiries on the United Kingdom FDI abroad, and FDI into the United Kingdom conductedby the Central Stat ist ical Off ice. On that basis, the numbers are probably understated because of the lags in ident i fy ing investmentin greenfield sites and because some companies with small presence in the United Kingdom and abroad have not yet been identi f ied.

n Approximat ion by Norges Bank. The number of parent companies as of 1997.o Represents a tota l of 2,618 non-bank parent companies in 1996 and 60 bank parent companies in 1994 wi th at least one foreign

affi l iate whose assets, sales or net income exceeded $3 mil l ion, and 709 non-bank and bank parent companies in 1994 whose aff i l iate(s)had assets, sales and net income under $3 million. Each parent company represents a fully consolidated United States business enterprise,which may consist of a number of individual companies.

p Data for 1996. Represents a tota l of 13,108 bank and non-bank af f i l ia tes in 1996 whose assets, sales or net income exceeded $1mil l ion, and 5,551 bank and non-bank af f i l iates in 1992 with assets, sales and net income under $1 mi l l ion, and 534 United Statesaff i l iates that are depository inst i tut ions. Each aff i l iate represents a ful ly consol idated United States business entreprise, which mayconsist of a number of indiv idual companies.

q Only foreign affi l iates that have over 20 per cent stake in their affi l iates located in Japan, plus the number of foreign affi l iates, insuranceand real estate industr ies in November 1995 (284).

r Represents the number of foreign af f i l ia tes that received permission to invest dur ing 1992-May 1998.s As of 1988.t As of 1997.u Estimated by Comité de Inversiones Extranjeras.v Number of foreign companies registered under DL600.w Less than 10.x Out of th is number, 811 are major i ty-owned foreign aff i l iates, whi le 159 aff i l iates have less than 10 per cent equi ty share.y An equi ty stake of 25 per cent or more of the ordinary shares or vot ing power.z Number of investment projects registered with the Board of Investment.a a Number of projects approved, both domest ic and foreign, s ince August 1994.a b As of 1989.ac Cumulat ive number of registered industr ia l enterpr ises wi th foreign capi ta l .a d Number of regional headquarters as of 1 June 1998.a e As of 1996.a f As of 1991.a g Number of projects l icensed s ince 1988 up to end 1997.a h May 1999. Refers to companies with foreign equity stakes of 51 per cent and above. Of this, 3,787 are ful ly owned foreign aff i l iates.a i Number of permit ted foreign enterpr ises up to end-February 1998.aj As of 1999.ak This f igure refers to d i rect ly and indi rect ly owned foreign af f i l ia tes.a l Number of projects approved under sect ion 17 of the BOI law which provides for incent ives.a m Number of approved new investment projects abroad in 1998.a n Data refer to the number of BOI-promoted companies which have been issued promot ion cert i f icates dur ing the per iod 1960-1998,

aving at least 10 per cent of foreign equi ty part ic ipat ion.a o As of May 1995.a p Accumulated number of jo int ventures and fore ign enterpr ises registered as of 1 November 1999.a q Number of cases of approved investments of more than 100,000 dol lars registered dur ing the per iod of January 1996 up to March

1 9 9 8 .ar Joint ventures and foreign f i rms operat ing in the country.as Joint venture companies establ ished in the economy.a t Number of appl icat ions received s ince 1993.a u Number of foreign investment projects approved in 1996.a v 1,532 jo int ventures and 890 whol ly-owned foreign af f i l iates.a w The number refers to the registered f i rms.ax Out of th is number 53,775 are ful ly-owned foreign af f i l iates. Includes jo int ventures.a y As of 15 March 1999. Only registered aff i l iates with the Estonian Commercial Register.az Data are for the number of investment projects.b a As of 1998.b b Number of f i rms with foreign capital.bc The number of af f i l iates establ ished dur ing December 1990-December 1999.b d Includes joint ventures with local f i rms.

Note : T he data can vary s igni f icant ly f rom preceding years, as data become avai lable for countr ies that hadnot been covered before, as def in i t ions change, or as o lder data are updated.

243AN N EX A

Annex table A.I.3. Annual average FDI growth rate in LDCs, 1986-2000 (Percentage)

Growth rate Economy

More than 30% Afghanistan; Bangladesh; Bhutan; Cape Verde; Comoros; Djibouti; Eritrea; Ethiopia;Lao People’s Democratic Republic; Lesotho; Malawi; Mozambique; Myanmar; Samoa;Sao Tome and Principe; Senegal; United Republic of Tanzania; Tuvalu; and Uganda

20-29.9% Benin; Chad; Nepal; Sudan; and Togo

10-19.9% Angola; Burkina Faso; Cambodia; Democratic Republic of Congo; Equatorial Guinea;Gambia; Guinea; Guinea-Bissau; Kiribati; Maldives; Mali; Somalia; Vanuatu; Yemen; andZambia

0-9.9% Madagascar; Sierra Leone; and Solomon Islands

Decline Burundi; Central African Republic; Haiti; Liberia; Mauritania; Niger; and Rwanda

Source : UNCTAD, FDI /TNC database.

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106

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t11

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114

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Natio

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Gar

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vest

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116

1.6

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118

1.6

BP A

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120

1.6

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122

1.5

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123

1.5

Volvo

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125

1.5

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128

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132

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134

1.4

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139

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141

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AES

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143

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144

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ralia

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145

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h Bo

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146

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147

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Telia

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81.

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149

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150

1.2

Relia

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nerg

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153

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61.

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157

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158

1.1

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159

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160

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161

1.1

Billit

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162

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163

1.1

Thom

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165

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249AN N EX A

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.

251AN N EX A

Annex table A.I.6. Selected private cross-border M&As in Hungary, 1999-April 2001

ShareMonth/ Buyer Seller Target firm Value acquired NotesYear (million $) (%)

Jan 1999 Gala Italia (Italy) Avonmore Foods Pásztó Tejfeldolgozó not revealed 100.0Corp. (Netherlands) és-forgalmazó Kft.

(milk and dairy)

Mar 1999 CG Sat/Matel (France) not available Jásztel Rt. (telephone) not revealed 100.0 Previous ownersasked for $ 30 million.

Jun 1999 Friesland Europe Holding not available Mizo-Baranyatej not revealed 40.0Beheer (Netherlands) (milk and dairy)

Jul 1999 Irisbus (joint venture of not available Ikarus Rt. 19.5 75.0 Irisbus additionallyIveco Italy and Renault (bus production) spent $ 10 million onFrance / Fiat Group) reducing Ikarus’ debts.

Sep 1999 PSINet (United States) not available Elender Rt. (internet 32.0 100.0service)

Nov 1999 VNU Budapest Rt. not available Egyesült Kiadói Holding not revealed 100.0 Estimated value:(VNU Netherlands) Rt. (publishing) $32-60 million.

Nov 1999 Delhaize-Le Lion S.A. Julius Meinl Inter- Csemege Julius Meinl 196.1 98.4 % of the supermarkets(Belgium) national (Austria) Rt. and Kft. (Rt.) and 35.7 % of the

(supermarkets) logistics unit (Kft.)

Nov 1999 United Pan-Europe not available Monor Telefon 45.0 48.0 Increased UPC’sCommunications Társaság Rt. share to 95 %.(United States)Magyarország Kft.

Jan 2000 Perrier Vittel S.A. Lucienne Investments Kékkúti Ásványvíz Rt. not revealed 31.1(France) Ltd. (Jersey) (mineral water)

Feb 2000 Magic Software not available Onyx Softwarehouse not revealed 51.0Enterprises (Israel) Kft.

Apr 2000 Perrier Vittel S.A. public purchase offer Kékkúti Ásványvíz Rt. 8.1 37.1 Increased Perrier’s(France) (mineral water) share to 68.2 %.

Apr 2000 Net.IPO AG (Germany) not available Index.hu Rt. 2.9 25.1& German Investment Rt.

May 2000 Net.IPO AG (Germany) not available NET Média Kft. not revealed 35.0

Jul 2000 Deutsche Telekom SBC/ Ameritech Matáv Rt. 2 200.0 29.8 Increased Deutsche(Germany) (United States) Telekom’s share to 59.5%.

Jul 2000 ING Bank (Netherlands) Citibank Rt. ING’s retail business not revealed 100.0and 12 Hungarianbranch offices

Sep 2000 Milford Holdings Ltd. Croesus Capital Borsodchem Rt. not revealed 24.8 Hostile bid; legality of(Ireland; controlled by Management; transaction under invest-Russian Gazprom) Franklin Templeton igation by the Hungarian

Investments Financial SupervisoryAuthority.

Sep 2000 Media Development Private investors Magyarnarancs.hu not revealed 47.0 Paid in capital: $ 10Loan Fund (United States- Lapkiadó Kft. thousand.Czech Republic) (newspaper)

Oct 2000 Schneider Electric not available Prodax Elektromos not revealed 100.0 Sales in 1999: $ 6Industries S.A. (France) Szerelvénygyártó Rt. million; paid in

(electric equipment) capital: $0.3 million.

Dec 2000 Generali-Providencia Postabank Értékpapír- Elsö Hazai not revealed 100.0 Paid in capital:Biztosító Rt. forgalmazási és Pénztárszervezö $ 0.3 million.

Befektetési Rt. és Müködtetö Rt.(pension fund)

Dec 2000 Neckermann (Germany) MOL Hungarian Oil MOL Travel not revealed 100.0 Sales in 2000:& Gas Plc. $ 2.7 million.

Dec 2000 Deutsche Investitions-und Shares bought on the Globus Rt. (canning 6.2 30.0 Committed to $ 7Entwicklungsgesell-schaft GmbH stock exchange factories) million capital increase.

Dec 2000 Electricité de France Fortum Power (Finland); Budapesti Erömü Rt. not revealed 89.0 Sales in 1999:International S.A. Tomen Corporation (power generation) $ 101 million; paid

(Japan) in capital: $ 46 million.

Jan 2001 Group 4 Securitas private persons Banktech Security not revealed 100.0 Paid in capital: $ 80(Netherlands) Pénzsszállító Szolgálat Rt. thousand.

Jan 2001 Salina Investment BV not available Láng Kiadó és Holding 13.8 minority(Netherlands; affiliate of Rt. (publishing)Emerging Europe CapitalInvestors/United States)

Mar 2001 Canal+ (France) Private investors Minimax (broadcasting) not revealed 80.0

Apr 2001 Cogne Acciai Speciali s.r.l. (Italy) Receiver Diósgyöri Acélm!üvek Rt. (steel)14.3 100.0

Source: UNCTAD, based on G. Tóth, 2000.


Annex table A.I.7. Geographical distribution of FDI outflows from selected Centraland Eastern European countries, 2000

Host region and country Croatia Czech Republic Estonia Hungary a Total

Central and Eastern Europe 42.0 100.4 137.4 334.0 613.8Albania 0.1 . . . . . . 0.1Belarus . . - -0.1 . . -0.1Bosnia and Herzegovina 19.9 - . . . . 19.9Bulgaria . . 0.1 . . . . 0.1Croatia . . 0.7 . . 3.2 3.9Czech Republic - . . . . 43.1 43.1Hungary 0.5 1.5 . . . . 2.0Latvia . . . . 110.8 . . 110.8Lithuania . . 0.1 23.5 . . 23.6Macedonia, TFYR 5.2 . . . . . . 5.2Poland 16.4 30.3 0.8 4.1 51.6Romania . . - . . 8.4 8.4Russian Federation . . 18.7 2.2 10.0 31.0Slovakia -1.2 44.5 . . 265.2 308.5Slovenia 1.1 . . . . . . 1.1Ukraine . . 1.8 0.1 . . 1.9Yugoslavia - 2.7 . . . . 2.7

Developed countries -9.9 13.2 -7.0 198.3 194.6

European Union 7.9 10.5 -7.0 197.7 209.1Austria 2.6 1.3 . . 30.1 34.0Denmark . . . . . . 118.5 118.5Finland . . -7.5 . . -7.5France . . -1.5 . . . . -1.5Germany 0.1 2.6 . . 40.5 43.2Italy 1.4 - . . 1.4 1.4Luxembourg -0.3 1.4 . . . . 1.1Netherlands . . 2.1 0.3 8.7 11.1Spain . . 0.4 . . . . 0.4Sweden . . 0.2 0.2 . . 0.4United Kingdom 4.2 3.9 . . . . 8.1

.Other Western Europe -0.3 -0.5 - -5.6 -6.4

Switzerland -0.3 -0.5 . . -5.6 -6.4

Other developed countries -17.5 3.2 - 6.2 -8.1United States -17.5 3.2 . . 6.2 -8.1

Developing countries -8.2 4.0 2.4 24.3 22.5 Africa -6.6 - - - -6.6

Liberia -6.6 . . . . . . -6.6

Latin America and the Caribbean -1.6 4.6 - 0.3 3.3Antigua -1.6 . . . . . . -1.6Virgin Islands . . 4.6 . . . . 4.6

Developing Asia - -0.6 2.4 24.0 25.8Azerbaijan . . 0.1 . . . . 0.1China . . 0.1 . . . . 0.1Cyprus . . . . 2.4 34.6 37.0Kazakhstan . . -0.8 . . . . -0.8Korea, Republic of . . . . . . -11.1 -11.1

The Pacific - - - - -

Other and not specified 0.2 0.5 24.3 -7.3 17.8

Total 24.1 118.1 157.0 549.3 848.6

S o u r c e : U N C T A D .a FDI equi ty paid in cash only. Data for Central and Eastern Europe include data for other Europe.

253AN N EX A

Annex table A.I.8. Employment of foreign affiliates in selected Central andEastern European countries, 1998 and 1999

1998 1999Employment As a percentage Employment As a percentage

Total of foreign of total Total of foreign of totalCountry employment owned firms employment employment owned firms employment

Bulgaria 2 086 291 80 325 3.9 1 994 284 106 822 5.4Czech Republic 4 865 700 154 223 3.2 4 764 099 196 550 4.1Hungary 3 697 700 580 701 15.7 3 811 500 584 059 15.3Latvia 1 043 000 107 000 10.3 1 037 800 107 500 10.4Macedonia, TFYR 405 726 10 038 2.5 413 205 11 488 2.8Romania 8 812 600 55 300 0.6 8 419 600 72 600 0.9Russian Federation 57 860 000 969 000 1.7 60 631 000 1 034 000 1.7Slovakia 2 032 109 60 243 3.0 1 988 187 72 142 3.6Slovenia 745 169 40 223 5.4 758 473 40 557 5.3Total 81 548 295 2 057 053 2.5 83 818 148 2 225 718 2.7

Source : UNCTAD, based on nat ional sources.

Annex table A.I.9. Value added of foreign affiliates in the Czech Republic, Hungary and Slovenia,1998 and 1999

1998 1999Value added As a percentage Value added As a percentage

Total of foreign of total Total of foreign of totalCountry value added owned firms value added value added owned firms value added

Czech Republic (korun million) 1 640 254 150 336 9.2 1 674 300 . . . .Hungary (forint million) 10 087 434 2 436 100 24.1 11 436 500 2 734 700 23.9Slovenia (tolar million) 2 790 898 152 401 5.5 3 110 409 126 717 4.1

Source : UNCTAD, based on nat ional sources.


Annex table A.I.10. The Inward FDI Index, 1988-1990 and 1998-2000 1988-1990 1998-2000FDI inflow share over: FDI inflow share over:

GDP Employment GDP EmploymentEconomy share a share b Exports c Ratio Economy share a share b Exports c Ratio

Singapore 12.7 26.5 1.4 13.5 Belgium and Luxembourg 8.5 40.8 2.6 17.3Belgium and Luxembourg 3.8 16.8 1.0 7.2 Hong Kong, China 6.3 24.5 1.1 10.6Seychelles 6.7 9.2 2.4 6.1 Ireland 5.1 20.3 1.2 8.9Hong Kong, China 5.0 11.8 0.7 5.9 Sweden 4.4 18.8 2.2 8.5New Zealand 3.9 10.6 2.8 5.8 Netherlands 3.5 13.5 1.3 6.1Lesotho 7.5 0.9 7.9 5.4 Malta 4.5 9.3 1.2 5.0Netherlands 3.0 11.3 1.1 5.1 Lesotho 7.4 0.9 6.2 4.8United Kingdom 3.0 9.7 2.5 5.1 Denmark 1.9 9.3 1.2 4.2Australia 2.7 9.4 3.2 5.1 Angola 7.7 1.1 2.8 3.9Spain 2.4 7.5 2.6 4.2 United Kingdom 2.0 7.7 1.7 3.8Swaziland 6.4 3.0 1.6 3.7 Finland 2.0 8.1 1.2 3.7Portugal 3.0 3.6 2.1 2.9 Azerbaijan 5.6 0.5 4.9 3.6Switzerland 1.3 6.6 0.7 2.9 Singapore 2.2 7.5 0.3 3.3Papua New Guinea 4.9 1.4 2.3 2.9 Argentina 1.3 3.8 3.3 2.8Belize 4.5 2.5 1.5 2.8 Seychelles 3.1 4.5 0.9 2.8United States 1.1 4.7 2.2 2.7 Canada 1.8 5.7 1.0 2.8Malaysia 4.3 2.4 1.1 2.6 Bolivia 3.1 1.0 3.9 2.7Bahrain 1.9 5.3 0.3 2.5 Trinidad and Tobago 3.0 3.4 1.5 2.6Chile 3.5 2.1 2.0 2.5 Switzerland 1.1 5.7 0.6 2.5Fiji 3.5 2.8 1.2 2.5 Germany 1.2 5.3 0.9 2.5Zambia 4.1 0.8 2.4 2.4 Bahrain 2.1 4.7 0.6 2.5France 1.1 4.8 1.0 2.3 Norway 1.1 5.4 0.7 2.4Canada 1.2 4.7 0.9 2.3 United States 0.9 4.3 1.8 2.3Malta 2.2 3.4 0.5 2.1 Chile 2.4 2.4 2.1 2.3Trinidad and Tobago 2.3 2.7 1.0 2.0 Mozambique 1.9 0.1 4.2 2.1Cyprus 1.8 3.2 0.7 1.9 Armenia 2.6 0.5 3.1 2.0Nigeria 3.7 0.4 1.5 1.9 Czech Republic 2.7 2.3 1.0 2.0Norway 0.9 4.2 0.5 1.9 Brazil 1.2 1.0 3.7 2.0Sweden 0.9 3.8 0.6 1.8 France 0.8 3.9 0.7 1.8Benin 2.5 0.3 2.5 1.8 Nicaragua 2.9 0.3 1.9 1.7Costa Rica 2.4 1.2 1.4 1.7 Israel 1.0 3.3 0.6 1.7Argentina 1.1 1.7 2.1 1.7 Spain 1.0 3.1 0.8 1.6Greece 1.2 2.3 1.3 1.6 Estonia 2.5 1.5 0.7 1.6Egypt 2.6 0.7 1.4 1.6 Panama 2.3 1.7 0.6 1.5Guatemala 1.9 0.6 2.1 1.5 Jamaica 2.2 1.2 1.2 1.5Myanmar 0.5 0.1 4.0 1.5 Swaziland 2.7 1.1 0.7 1.5Thailand 2.4 0.6 1.4 1.5 Austria 0.8 3.3 0.4 1.5Denmark 0.8 3.2 0.4 1.5 Qatar 0.7 3.2 0.5 1.5Botswana 2.0 1.7 0.6 1.4 Kazakhstan 2.1 1.0 1.3 1.5Gabon 1.2 2.0 0.6 1.3 Sudan 1.0 0.1 3.1 1.4Mexico 1.3 1.0 1.3 1.2 New Zealand 1.0 2.4 0.8 1.4Dominican Republic 1.9 0.5 1.1 1.2 Croatia 1.6 1.6 0.9 1.4Jamaica 1.8 0.8 0.7 1.1 Poland 1.5 1.1 1.3 1.3Italy 0.5 2.2 0.5 1.1 Bulgaria 1.9 0.7 1.0 1.2Finland 0.5 2.2 0.4 1.1 Dominican Republic 1.8 0.8 0.9 1.2Ireland 0.7 2.2 0.2 1.0 Bahamas 1.0 2.1 0.5 1.2Mauritius 1.5 1.2 0.4 1.0 Venezuela 1.2 1.0 1.3 1.2Philippines 1.6 0.3 1.1 1.0 Zambia 1.7 0.2 1.6 1.2Ecuador 1.4 0.6 0.9 1.0 Uganda 1.1 0.1 2.3 1.2Colombia 1.1 0.5 1.1 0.9 Georgia 1.1 0.2 2.1 1.1Taiwan Province of China 0.9 1.5 0.3 0.9 Lithuania 1.7 0.8 0.9 1.1Honduras 1.3 0.3 0.7 0.8 Latvia 1.7 0.8 0.8 1.1China 1.0 0.1 1.3 0.8 Guyana 2.2 0.5 0.5 1.1Rwanda 0.6 0.1 1.5 0.7 Slovakia 1.5 1.0 0.6 1.0Austria 0.4 1.6 0.2 0.7 Malaysia 1.6 1.0 0.3 1.0Bolivia 1.0 0.3 0.9 0.7 Costa Rica 1.5 0.9 0.5 1.0Malawi 1.1 0.1 0.9 0.7 Hungary 1.2 1.2 0.5 1.0Bahamas 0.5 1.3 0.2 0.6 El Salvador 1.2 0.5 1.1 1.0Togo 1.0 0.2 0.7 0.6 China 1.3 0.1 1.3 0.9Iceland 0.3 1.3 0.2 0.6 Gabon 1.0 1.1 0.6 0.9Barbados 0.6 0.9 0.2 0.6 Moldova, Republic of 1.8 0.1 0.8 0.9Israel 0.4 1.1 0.2 0.6 Papua New Guinea 1.6 0.3 0.7 0.9Chad 0.7 0.1 0.8 0.5 Australia 0.5 1.6 0.6 0.9Brazil 0.4 0.3 0.9 0.5 Ecuador 1.1 0.5 1.0 0.9Paraguay 0.6 0.6 0.3 0.5 Portugal 0.7 1.2 0.6 0.8Indonesia 0.8 0.1 0.6 0.5 Peru 0.7 0.5 1.3 0.8Morocco 0.6 0.2 0.6 0.5 United Republic of Tanzania 0.9 0.1 1.5 0.8Tunisia 0.7 0.4 0.3 0.5 Iceland 0.4 1.7 0.3 0.8Saudi Arabia 0.3 0.9 0.2 0.5 Cambodia 1.3 0.1 1.0 0.8Pakistan 0.5 0.1 0.8 0.5 Romania 1.1 0.3 0.9 0.8Turkey 0.5 0.3 0.6 0.5 Colombia 0.8 0.5 1.0 0.8Germany 0.3 0.9 0.2 0.5 Jordan 1.0 0.7 0.5 0.7Uruguay 0.5 0.3 0.4 0.4 TFYR Macedonia 0.9 0.8 0.5 0.7Hungary 0.6 0.4 0.3 0.4 Mexico 0.8 0.7 0.6 0.7Korea, Republic of 0.4 0.5 0.3 0.4 Togo 1.1 0.1 0.9 0.7Venezuela 0.5 0.4 0.3 0.4 Namibia 1.0 0.6 0.4 0.7Senegal 0.6 0.1 0.4 0.4 Honduras 1.1 0.2 0.6 0.6Syrian Arab Republic 0.4 0.3 0.3 0.4 Mauritius 0.8 0.9 0.3 0.6Madagascar 0.5 0.0 0.5 0.3 Saudi Arabia 0.3 1.3 0.2 0.6Guyana 0.7 0.1 0.2 0.3 Tunisia 0.9 0.5 0.5 0.6Jordan 0.4 0.4 0.2 0.3 Korea, Republic of 0.6 0.9 0.3 0.6Kenya 0.5 0.1 0.4 0.3 Malawi 1.0 0.0 0.8 0.6Sri Lanka 0.5 0.1 0.3 0.3 Kyrgyzstan 0.9 0.1 0.7 0.5

/...

255AN N EX A

Annex table A.I.10. The Inward FDI Index, 1988-1990 and 1998-2000 1988-1990 1998-2000FDI inflow share over: FDI inflow share over:

GDP Employment GDP EmploymentEconomy share a share b Exports c Ratio Economy share a share b Exports c Ratio

Mozambique 0.3 0.0 0.5 0.3 Ethiopia 0.6 0.0 1.0 0.5Namibia 0.4 0.3 0.1 0.3 Myanmar 0.1 0.0 1.4 0.5Côte d'Ivoire 0.4 0.1 0.3 0.3 Thailand 0.9 0.3 0.4 0.5Haiti 0.3 0.0 0.4 0.3 Guatemala 0.6 0.2 0.7 0.5El Salvador 0.2 0.1 0.2 0.2 Zimbabwe 0.9 0.1 0.5 0.5Ghana 0.2 0.0 0.2 0.2 Nigeria 0.8 0.1 0.6 0.5Peru 0.2 0.1 0.2 0.1 Paraguay 0.5 0.3 0.5 0.5Burkina Faso 0.1 0.0 0.2 0.1 Côte d'Ivoire 0.8 0.2 0.4 0.5Ethiopia 0.1 0.0 0.2 0.1 Chad 0.5 0.0 0.6 0.4India 0.1 0.0 0.2 0.1 Senegal 0.6 0.1 0.5 0.4United Republic of Tanzania 0.1 0.0 0.1 0.1 Fiji 0.5 0.4 0.2 0.4Nepal 0.1 0.0 0.1 0.1 Mongolia 0.7 0.1 0.3 0.4Poland 0.1 0.0 0.0 0.0 Egypt 0.4 0.2 0.6 0.4Nicaragua 0.1 0.0 0.0 0.0 Italy 0.2 0.7 0.2 0.4Kuwait 0.0 0.0 0.0 0.0 Taiwan Province of China 0.3 0.6 0.1 0.4Algeria 0.0 0.0 0.0 0.0 Benin 0.5 0.1 0.5 0.4Bangladesh 0.0 0.0 0.0 0.0 Morocco 0.4 0.2 0.4 0.3Japan 0.0 0.0 0.0 0.0 Uruguay 0.3 0.4 0.3 0.3Macau, China 0.0 0.0 0.0 0.0 Tajikistan 0.8 0.0 0.2 0.3Angola 0.0 0.0 0.0 0.0 Philippines 0.6 0.1 0.3 0.3Uganda 0.0 0.0 -0.1 0.0 Greece 0.2 0.5 0.2 0.3South Africa 0.0 -0.1 0.0 -0.1 South Africa 0.2 0.4 0.2 0.3Iran, Islamic Republic of -0.1 -0.1 0.0 -0.1 Slovenia 0.3 0.5 0.1 0.3Sudan -0.1 0.0 -0.3 -0.1 Ukraine 0.5 0.1 0.3 0.3Zimbabwe -0.2 0.0 -0.1 -0.1 Cyprus 0.2 0.5 0.1 0.3Qatar -0.1 -0.3 0.0 -0.2 Belize 0.3 0.3 0.2 0.2Cameroon -0.3 -0.1 -0.3 -0.2 Botswana 0.3 0.3 0.2 0.2Panama -2.7 -1.9 -0.6 -1.7 Sri Lanka 0.4 0.1 0.2 0.2Suriname -24.9 -20.9 -7.3 -17.7 Ghana 0.4 0.0 0.2 0.2

Barbados 0.2 0.3 0.1 0.2Russian Federation 0.3 0.1 0.2 0.2Madagascar 0.3 0.0 0.3 0.2Pakistan 0.2 0.0 0.3 0.2India 0.2 0.0 0.3 0.2Uzbekistan 0.2 0.0 0.2 0.2Belarus 0.4 0.1 0.0 0.2Japan 0.1 0.3 0.1 0.2Haiti 0.1 0.0 0.2 0.1Turkey 0.1 0.1 0.1 0.1Burkina Faso 0.1 0.0 0.2 0.1Bangladesh 0.1 0.0 0.2 0.1Rwanda 0.1 0.0 0.3 0.1Cameroon 0.2 0.0 0.1 0.1Kenya 0.1 0.0 0.1 0.1Kuwait 0.1 0.1 0.0 0.1Syrian Arab Republic 0.1 0.1 0.0 0.1Nepal 0.1 0.0 0.1 0.0Iran, Islamic Republic of 0.0 0.0 0.0 0.0Algeria 0.0 0.0 0.0 0.0Eritrea 0.0 0.0 0.0 0.0Macau, China 0.0 0.0 0.0 0.0Suriname -0.3 -0.2 -0.2 -0.2Indonesia -0.7 -0.1 -0.4 -0.4Yemen -1.3 -0.2 -0.9 -0.8

S o u r c e : UNCTAD, FDI /TNC database.a The rat io of the economy’s share of world FDI inflows to the economy's share of world GDP.b The rat io of the economy's share of world FDI inf lows to the economy's share of world employment.c The rat io of the economy's share of world FDI inf lows to the economy’s share of world export.


Annex table A.I.11. Share of regions in global FDI inflows, GDP and exports,1988-1990 and 1998-2000

(Percentage)

FDI inflows GDP Exports a

Region/country 1988-1990 1998-2000 1988-1990 1998-1999 1988-1990 1998-1999

Developed countries 82.7 76.3 79.9 76.8 73.6 68.4Western Europe 43.3 45.3 32.2 29.6 45.6 41.8European Union 41.4 43.8 30.6 28.2 42.6 39.4Other developed countries 39.4 31.0 47.7 47.2 28.0 26.6

Developing countries and economies 17.1 21.4 17.7 20.8 21.9 27.5Africa 1.8 0.8 1.7 1.4 2.4 1.6North Africa 0.7 0.2 0.9 0.8 1.2 0.7Other Africa 1.1 0.6 0.8 0.6 1.2 0.8Latin America and the Caribbean 4.7 9.2 5.2 6.9 4.3 5.1South America 2.5 6.1 3.7 4.9 2.5 2.4Other Latin America and the Caribbean 2.1 3.2 1.6 2.0 1.7 2.7

Asia and the Pacific 10.6 11.1 10.2 12.3 14.7 20.4Asia 10.5 11.1 10.2 12.3 14.6 20.4West Asia 0.6 0.4 2.4 2.3 4.0 2.9Central Asia 0.0 0.3 0.2 0.2 0.0 0.2South, East and South-East Asia 9.9 10.4 7.7 9.8 10.5 17.2The Pacific 0.1 0.0 0.0 0.0 0.1 0.1

Central and Eastern Europe 0.2 2.3 2.4 2.5 4.5 4.1

Memorandum

Least developed countries 0.4 0.4 0.8 0.7 0.6 0.5Africa 0.4 0.4 0.5 0.3 0.4 0.3Latin America and the Caribbean 0.00 0.002 0.013 0.013 0.013 0.007Asia and the Pacific 0.03 0.1 0.3 0.4 0.1 0.2Asia 0.02 0.05 0.3 0.4 0.1 0.2The Pacific 0.01 0.004 0.003 0.003 0.006 0.007

Oil-exporting countries 1.5 0.7 3.2 2.7 5.6 3.8Africa 0.6 0.3 0.7 0.4 1.0 0.6

North Africa 0.1 -0.0 0.4 0.3 0.5 0.3Other Africa 0.5 0.3 0.2 0.2 0.5 0.3

Latin America and the Caribbean 0.3 0.5 0.3 0.4 0.5 0.4South America 0.2 0.5 0.3 0.4 0.5 0.4Other Latin America and the Caribbean 0.1 0.1 0.02 0.02 0.1 0.05

Asia 0.7 -0.1 2.2 1.9 4.1 2.8West Asia 0.3 0.3 1.7 1.5 3.4 2.1South, East and South-East Asia 0.4 -0.3 0.5 0.4 0.7 0.7

All developing countries minus China 15.4 17.2 16.0 17.5 20.5 24.4

Southern African Development Community (SADC) 0.2 0.4 0.7 0.6 1.1 0.8

League of Arab States 1.0 0.5 2.2 1.9 3.4 2.4

MENA b 1.3 0.6 3.3 3.0 5.2 3.7

World 100.0 100.0 100.0 100.0 100.0 100.0

Source : UNCTAD, FDI /TNC database.a Export of goods and non-factor serv ices.b Middle East and North Afr ica (MENA) refers to countr ies in West Asia and North Afr ica.

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ll as

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ard

stoc

k on

an

appr

oval

bas

is in

Tai

wan

Prov

ince

of C

hina

.Th

ey a

ccou

nted

for 3

0 pe

r cen

t of t

otal

out

ward

sto

ck in

Asia

in 1

988.

dBa

sed

on o

utwa

rd s

tock

in C

olom

bia

acco

untin

g fo

r 3 p

er c

ent o

f tot

al o

utwa

rd s

tock

in L

atin

Am

erica

and

the

Carib

bean

in 1

988.

eIn

cludi

ng o

ther

dev

elop

ing

coun

tries

.f

Not i

nclu

ding

Cen

tral a

nd E

aste

rn E

urop

e.


nex

tabl

e A.

II.2.

F

DI o

utwa

rd s

tock

, by

indu

stry

and

by

regi

on, 1

999

(Val

ues

in m

illion

s of

dol

lars

and

sha

res

in p

erce

ntag

es)

Deve

lopi

ng c

ount

ries

Deve

lope

d

Latin

Am

erica

Ce

ntra

l and

Sect

or/in

dust

ry

coun

tries

a

Afric

ab

Asia

c

and

the

Carib

bean

d

T

otal

East

ern

Euro

pee

Wor

ldVa

lue

Shar

eVa

lue

Shar

eVa

lue

Shar

eVa

lue

Shar

eVa

lue

Shar

eVa

lue

Shar

eVa

lue

Shar

eTo

tal

3 31

3 81

5 1

00.0

94

100

.0 8

9 25

9 1

00.0

3 2

02 1

00.0

93

555

100

.0 2

098

100

.03

408

469

100

.0Pr

imar

y 2

85 4

65 8

.6 3

2.9

1 5

62 1

.7 6

2 1

.9 1

626

1.7

30

1.4

287

121

8.4

Agric

ultu

re, h

untin

g, fo

rest

ry a

nd fi

shin

g 1

750

0.1

1 0

.8 3

08 0

.3 5

8 1

.8

367

0.4

7 0

.3 2

125

0.1

Min

ing,

qua

rryin

g an

d pe

trole

um 2

83 7

15 8

.6 2

2.0

1 2

53 1

.4 4

0.1

1 2

59 1

.3 2

2 1

.0 2

84 9

96 8

.4Se

cond

ary

1 16

1 25

8 3

5.0

76

80.

5 3

0 78

7 3

4.5

321

10.

0

31 1

83 3

3.3

459

21.

91

192

900

35.

0Fo

od, b

ever

ages

and

toba

cco

153

310

4.6

....

642

0.7

237

7.4

878

0.9

50

2.4

154

239

4.5

Text

iles,

clo

thin

g an

d le

athe

r 2

3 04

7 0

.7..

.. 9

41 1

.1 3

0.1

9

46 1

.0 1

7 0

.8 2

4 00

8 0

.7W

ood

and

wood

pro

duct

s 4

2 34

6 1

.3..

.. 4

61 0

.5 1

36 4

.2

597

0.6

21

1.0

42

964

1.3

Publ

ishin

g, p

rintin

g an

d re

prod

uctio

n of

reco

rded

med

ia 4

058

0.1

....

--

--

--

140.

7 4

072

0.1

Coke

, pet

role

um p

rodu

cts

and

nucle

ar fu

el 2

6 54

4 0

.8..

.. 3

--

-3

--

- 2

6 54

7 0

.8Ch

emica

ls an

d ch

emica

l pro

duct

s 2

91 7

19 8

.8..

.. 1

430

1.6

83

2.6

1 5

73 1

.6 9

5 4

.5 2

93 3

27 8

.6Ru

bber

and

pla

stic

prod

ucts

17

018

0.5

....

266

0.3

--

2

67 0

.3 1

0 0

.5 1

7 29

5 0

.5No

n-m

etal

lic m

iner

al p

rodu

cts

10

338

0.3

....

407

0.5

- 17

1- 5

.4

236

0.3

22

1.0

10

596

0.3

Met

al a

nd m

etal

pro

duct

s 8

8 13

9 2

.7..

.. 1

012

1.1

5 0

.2

1 01

6 1

.1 5

5 2

.6 8

9 21

1 2

.6M

achi

nery

and

equ

ipm

ent

62

529

1.9

....

102

0.1

28

0.9

1

30 0

.1 1

7 0

.8 6

2 67

6 1

.8El

ectri

cal a

nd e

lect

roni

c eq

uipm

ent

93

886

2.8

....

3 8

31 4

.3-

-

3 83

1 4

.1 1

8 0

.9 9

7 73

5 2

.9Pr

ecisi

on in

stru

men

ts 1

8 85

0 0

.6..

.. 9

2 0

.1-

-

92

0.1

130.

6 1

8 95

4 0

.6M

otor

veh

icles

and

oth

er tr

ansp

ort e

quip

men

t 1

63 5

81 4

.9..

.. 3

53 0

.4-

-

353

0.4

--

163

935

4.8

Oth

er m

anuf

actu

ring

58

633

1.8

....

144

0.2

2-

14

5 0

.21

- 5

8 77

9 1

.7Re

cycli

ng 4

7-

....

--

--

-

-1

- 4

7-

Unsp

ecifie

d se

cond

ary

107

212

3.2

76

80.

5 2

1 10

3 2

3.6

--

21

179

22.

6 1

24 5

.9 1

28 5

16 3

.8Te

rtiar

y1

804

744

54.

5 1

6 1

6.6

56

158

62.

9 2

816

88.

0

58 9

90 6

3.1

1 6

06 7

6.5

1 86

5 34

1 5

4.7

Elec

tricit

y, g

as a

nd w

ater

63

340

1.9

....

--

--

-

- 9

34.

4 6

3 43

3 1

.9Co

nstru

ctio

n 1

3 69

4 0

.4..

.. 1

153

1.3

22

0.7

1

175

1.3

17

0.8

14

886

0.4

Trad

e 2

24 2

92 6

.8..

.. 1

1 41

0 1

2.8

249

7.8

11

660

12.

5 2

91 1

3.9

236

242

6.9

Hote

ls an

d re

stau

rant

s 1

9 62

3 0

.6..

.. 1

0.0

5 0

.1

6-

32

1.5

19

660

0.6

Tran

spor

t, st

orag

e an

d co

mm

unica

tions

171

145

5.2

....

3 6

09 4

.0 4

43 1

3.8

4

051

4.3

240

11.

4 1

75 4

37 5

.1Fi

nanc

e 8

97 7

15 2

7.1

....

29

780

33.

4 2

033

63.

5 3

1 81

4 3

4.0

673

32.

1 9

30 2

02 2

7.3

Busin

ess

activ

ities

288

313

8.7

....

5 3

20 6

.0 5

2 1

.6

5 37

2 5

.7 2

10 1

0.0

293

895

8.6

Publ

ic ad

min

istra

tion

and

defe

nce

--

....

--

--

--

--

--

Educ

atio

n 1

34-

....

--

--

--

--

134

-He

alth

and

soc

ial s

ervic

es 2

73-

....

--

--

--

1 -

274

-Co

mm

unity

, soc

ial a

nd p

erso

nal s

ervic

e ac

tivitie

s 4

168

0.1

....

--

13

0.4

13

- 1

8 0

.9 4

198

0.1

Oth

er s

ervic

es 9

6 00

4 2

.9 1

6 1

6.6

4 8

85 5

.5-

- 4

901

5.2

30

1.4

100

935

3.0

Unsp

ecifie

d te

rtiar

y 2

6 04

3 0

.8..

..-

--

--

--

- 2

6 04

3 0

.8

Unsp

ecifi

ed 6

2 34

8 1

.9-

- 7

53 0

.8 3

0.1

756

0.8

3 0

.1 6

3 10

7 1

.9

Sour

ce:

UNCT

AD, F

DI/T

NC d

atab

ase.

aBa

sed

on o

utwa

rd s

tock

in A

ustra

lia, A

ustri

a (1

998)

, Can

ada

(199

8), D

enm

ark

(199

8), F

inla

nd (1

998)

, Fra

nce

(199

8), G

erm

any

(199

8), I

cela

nd, I

taly

(199

8), N

ethe

rland

s (1

998)

, Nor

way

(199

7), S

wede

n,Sw

itzer

land

(199

8), t

he U

nite

d Ki

ngdo

m a

nd th

e Un

ited

Stat

es (1

998)

that

acc

ount

ed fo

r 84

per c

ent o

f tot

al o

utwa

rd s

tock

in d

evel

oped

cou

ntrie

s in

199

9.b

Base

d on

out

ward

sto

ck in

Swa

zilan

d th

at a

ccou

nted

for 0

.5 p

er c

ent o

f tot

al o

utwa

rd s

tock

in A

frica

in 1

999.

cBa

sed

on a

ctua

l out

ward

sto

ck in

Indi

a (1

992)

, Kaz

akhs

tan

(199

8), R

epub

lic o

f Kor

ea (1

998)

, Sin

gapo

re (1

998)

and

Tha

iland

, as

well a

s ou

twar

d st

ock

on a

n ap

prov

al b

asis

in T

aiwa

n Pr

ovin

ce o

fCh

ina.

The

y ac

coun

ted

for 3

5 pe

r cen

t of t

otal

out

ward

sto

ck in

Asia

in 1

999.

dBa

sed

on o

utwa

rd s

tock

in C

olom

bia

acco

untin

g fo

r 2 p

er c

ent o

f tot

al o

utwa

rd s

tock

in L

atin

Am

erica

and

the

Carib

bean

in 1

999.

eBa

sed

on a

ctua

l out

ward

sto

ck in

Cze

ch R

epub

lic (1

998)

, Est

onia

, Lat

via, S

lova

kia a

nd S

love

nia

that

acc

ount

ed fo

r 16

per c

ent o

f tot

al o

utwa

rd s

tock

in C

entra

l and

Eas

tern

Eur

ope

in 1

999.

259AN N EX A

Anne

x ta

ble

A.II.

3. F

DI in

ward

sto

ck, b

y in

dust

ry a

nd b

y re

gion

, 198

8(V

alue

s in

milli

ons

of d

olla

rs a

nd s

hare

s in

per

cent

ages

)

Deve

lopi

ng c

ount

ries

Dev

elop

ed

La

tin A

mer

icaSe

ctor

/indu

stry

cou

ntrie

sa

Af

rica

b

A

siac

a

nd th

e Ca

ribbe

and

Tot

ale

W

orld

f

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Tota

l 8

90 4

56 1

00.0

4 5

13 1

00.0

65

131

100

.0 4

6 96

4 1

00.0

119

016

100

.01

009

471

100

.0Pr

imar

y 9

1 70

4 1

0.3

2 3

38 5

1.8

8 5

39 1

3.1

4 4

96 9

.616

309

13.

7 1

08 0

13 1

0.7

Agric

ultu

re, h

untin

g, fo

rest

ry a

nd fi

shin

g 2

144

0.2

47

1.0

1 4

19 2

.2 6

01 1

.3 2

192

1.8

4 3

35 0

.4M

inin

g, q

uarry

ing

and

petro

leum

89

560

10.

1 6

0.1

7 1

21 1

0.9

3 8

95 8

.3 1

1 83

2 9

.9 1

01 3

92 1

0.0

Unsp

ecifie

d pr

imar

y-

- 2

286

50.

6-

--

- 2

286

1.9

2 2

86 0

.2Se

cond

ary

350

751

39.

4 9

40 2

0.8

44

851

68.

9 3

0 90

8 6

5.8

77

340

65.

0 4

28 0

91 4

2.4

Food

, bev

erag

es a

nd to

bacc

o 2

9 86

7 3

.4..

.. 2

996

4.6

3 2

83 7

.06

325

5.3

36

192

3.6

Text

iles,

clo

thin

g an

d le

athe

r 1

1 46

5 1

.3..

.. 3

205

4.9

1 1

51 2

.5 4

368

3.7

15

834

1.6

Woo

d an

d wo

od p

rodu

cts

9 3

31 1

.0..

.. 2

002

3.1

960

2.0

3 0

82 2

.6 1

2 41

3 1

.2Pu

blish

ing,

prin

ting

and

repr

oduc

tion

of re

cord

ed m

edia

9 5

98 1

.1..

.. 1

58 0

.2-

- 1

65 0

.1 9

763

1.0

Coke

, pet

role

um p

rodu

cts

and

nucle

ar fu

el 5

7 29

5 6

.4..

.. 3

203

4.9

1 2

04 2

.6 4

414

3.7

61

708

6.1

Chem

icals

and

chem

ical p

rodu

cts

42

936

4.8

....

8 3

03 1

2.7

6 7

04 1

4.3

15

088

12.

7 5

8 02

4 5

.7Ru

bber

and

pla

stic

prod

ucts

6 0

28 0

.7..

.. 1

019

1.6

1 0

36 2

.2 2

070

1.7

8 0

97 0

.8No

n-m

etal

lic m

iner

al p

rodu

cts

11

257

1.3

....

1 4

37 2

.2 8

68 1

.8 2

332

2.0

13

589

1.3

Met

al a

nd m

etal

pro

duct

s 2

7 83

9 3

.1..

.. 8

032

12.

3 2

642

5.6

10

685

9.0

38

523

3.8

Mac

hine

ry a

nd e

quip

men

t 2

9 38

5 3

.3..

.. 2

379

3.7

4 0

06 8

.5 6

468

5.4

35

853

3.6

Elec

trica

l and

ele

ctro

nic

equi

pmen

t 3

6 92

0 4

.1..

.. 9

024

13.

9 3

044

6.5

12

104

10.

2 4

9 02

4 4

.9Pr

ecisi

on in

stru

men

ts 4

815

0.5

....

7-

--

16

- 4

831

0.5

Mot

or v

ehicl

es a

nd o

ther

tran

spor

t equ

ipm

ent

10

236

1.1

....

1 1

80 1

.8 4

655

9.9

5 9

78 5

.0 1

6 21

4 1

.6O

ther

man

ufac

turin

g 8

152

0.9

....

1 3

99 2

.1 1

356

2.9

2 7

59 2

.3 1

0 91

1 1

.1Un

spec

ified

seco

ndar

y 5

5 62

8 6

.2 9

40 2

0.8

507

0.8

--

1 4

87 1

.2 5

7 11

5 5

.7Te

rtiar

y 4

17 9

75 4

6.9

1 2

35 2

7.4

11

128

17.

1 1

1 54

0 2

4.6

24

684

20.

7 4

42 6

59 4

3.9

Elec

tricit

y, g

as a

nd w

ater

2 1

80 0

.2-

- 7

- 5

- 3

09 0

.3 2

489

0.2

Cons

truct

ion

4 1

48 0

.5-

- 1

582

2.4

163

0.3

1 7

47 1

.5 5

895

0.6

Trad

e 1

28 2

71 1

4.4

--

1 0

15 1

.6 2

054

4.4

3

292

2.8

131

564

13.

0Ho

tels

and

rest

aura

nts

6 3

02 0

.7-

- 2

822

4.3

14

- 2

847

2.4

9 1

49 0

.9Tr

ansp

ort,

stor

age

and

com

mun

icatio

ns 6

427

0.7

--

557

0.9

237

0.5

82

0 0

.7 7

247

0.7

Fina

nce

159

886

18.

0 1

4 0

.3 1

723

2.6

3 1

39 6

.7 4

994

4.2

164

881

16.

3Bu

sines

s ac

tivitie

s 7

5 42

2 8

.5-

- 9

23 1

.4 3

07 0

.7 1

331

1.1

76

753

7.6

Educ

atio

n 4

--

--

--

--

- 4

-He

alth

and

soc

ial s

ervic

es 3

23-

--

--

--

--

324

-Co

mm

unity

, soc

ial a

nd p

erso

nal s

ervic

e ac

tivitie

s 1

897

0.2

--

4-

1-

7-

1 9

04 0

.2O

ther

ser

vices

21

422

2.4

80

1.8

2 4

22 3

.7 5

620

12.

0 8

124

6.8

29

546

2.9

Unsp

ecifie

d te

rtiar

y 1

1 69

2 1

.3 1

140

25.

3 7

2 0

.1-

- 1

212

1.0

12

904

1.3

Unsp

ecifi

ed 3

0 02

6 3

.4-

- 6

13 0

.9 2

0-

682

0.6

30

708

3.0

Sour

ce:

UNCT

AD, F

DI/T

NC d

atab

ase.

aBa

sed

on in

ward

sto

ck in

Aus

tralia

(199

1), A

ustri

a, C

anad

a, D

enm

ark

(199

1), F

inla

nd (1

991)

, Fra

nce

(198

9), G

erm

any,

Icel

and,

Ital

y, N

ethe

rland

s (1

986)

, Nor

way,

Swe

den

(199

2), S

witz

erla

nd (1

993)

,th

e Un

ited

King

dom

and

the

Unite

d St

ates

that

acc

ount

ed fo

r 88

per c

ent o

f tot

al in

ward

sto

ck in

dev

elop

ed c

ount

ries

in 1

988.

bBa

sed

on in

ward

sto

ck in

Cap

e Ve

rde

(199

0), N

amib

ia (1

990)

, Nig

eria

and

Swa

zilan

d th

at a

ccou

nted

for 2

1 pe

r cen

t of t

otal

inwa

rd s

tock

in A

frica

in 1

988.

cBa

sed

on a

ctua

l inwa

rd s

tock

in H

ong

Kong

(Chi

na),

Indi

a, In

done

sia (1

992)

, Kaz

akhs

tan

(199

5), P

akist

an, P

hilip

pine

s, R

epub

lic o

f Kor

ea, S

inga

pore

and

Tha

iland

, as

well a

s in

ward

sto

ck o

n an

app

rova

lba

sis in

Ban

glad

esh,

Cam

bodi

a (1

994)

, Lao

Peo

ple’

s De

m. R

ep.,

Mal

aysia

, Mon

golia

(199

0), M

yanm

ar (1

995)

, Nep

al, R

epub

lic o

f Kor

ea, S

ri La

nka,

Tai

wan

Prov

ince

of C

hina

, Vie

t Nam

. Th

ey a

ccou

nted

for 7

3 pe

r cen

t of t

otal

inwa

rd s

tock

in A

sia in

198

8.d

Base

d on

inwa

rd s

tock

in A

rgen

tina

(198

9), B

olivi

a, B

razil

, Col

ombi

a, P

arag

uay

(199

5), P

eru

and

Vene

zuel

a ac

coun

ting

for 5

8 pe

r cen

t of t

otal

inwa

rd s

tock

in L

atin

Am

erica

and

the

Carib

bean

in19

88.

eIn

cludi

ng o

ther

dev

elop

ing

coun

tries

.f

No

t inc

ludi

ng C

entra

l and

Eas

tern

Eur

ope.


nex

tabl

e A.

II.4.

F

DI in

ward

sto

ck, b

y in

dust

ry a

nd b

y re

gion

, 199

9(V

alue

s in

milli

ons

of d

olla

rs a

nd s

hare

s in

per

cent

ages

)

Deve

lopi

ng c

ount

ries

Deve

lope

d

Latin

Am

erica

C

entra

l and

Sect

or/in

dust

ry

coun

tries

a

Afric

ab

Asia

c

and

the

Carib

bean

d

T

otal

e

East

ern

Euro

pef

W

orld

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Valu

eSh

are

Tota

l2

520

194

100

.0 1

6 56

7 1

00.0

796

615

100

.0 1

93 4

24 1

00.0

1

014

657

100

.0 9

8 37

1 1

00.0

3 63

3 22

3 1

00.0

Prim

ary

144

426

5.7

2 2

56 1

3.6

28

072

3.5

23

236

12.

0 5

5 01

6 5

.4 2

419

2.5

201

867

5.5

Agric

ultu

re, h

untin

g, fo

rest

ry a

nd fi

shin

g 4

605

0.2

612

3.7

10

736

1.3

1 0

48 0

.5 1

2 52

8 1

.2 4

56 0

.5 1

7 59

0 0

.5M

inin

g, q

uarry

ing

and

petro

leum

139

821

5.5

332

2.0

17

336

2.2

22

188

11.

5 4

1 17

6 4

.1 1

963

2.0

182

961

5.0

Unsp

ecifie

d pr

imar

y-

1- 0

.0 1

312

7.9

--

--

1 3

12 0

.1-

- 1

311

-

Seco

ndar

y 9

16 3

47 3

6.4

7 1

96 4

3.4

479

422

60.

2 6

3 35

4 3

2.8

553

004

54.

5 4

2 77

3 4

3.5

1 51

2 12

4 4

1.6

Food

, bev

erag

es a

nd to

bacc

o 6

8 36

1 2

.7..

.. 1

0 75

4 1

.3 1

0 86

3 5

.6 2

1 91

7 2

.2 1

1 51

4 1

1.7

101

792

2.8

Text

iles,

clo

thin

g an

d le

athe

r 2

3 98

1 1

.0..

.. 9

534

1.2

1 6

89 0

.9 1

1 25

4 1

.1 1

020

1.0

36

255

1.0

Woo

d an

d wo

od p

rodu

cts

36

823

1.5

....

9 8

48 1

.2 3

546

1.8

13

693

1.3

2 8

35 2

.9 5

3 35

1 1

.5Pu

blish

ing,

prin

ting

and

repr

oduc

tion

of re

cord

ed m

edia

36

123

1.4

....

451

0.1

140

0.1

6

06 0

.1 1

084

1.1

37

813

1.0

Coke

, pet

role

um p

rodu

cts

and

nucle

ar fu

el 5

3 56

7 2

.1..

.. 1

4 29

2 1

.8 2

2-

14

314

1.4

879

0.9

68

760

1.9

Chem

icals

and

chem

ical p

rodu

cts

190

707

7.6

....

32

547

4.1

13

074

6.8

46

802

4.6

4 1

81 4

.3 2

41 6

89 6

.7Ru

bber

and

pla

stic

prod

ucts

18

269

0.7

....

2 3

78 0

.3 1

649

0.9

4 1

86 0

.4 9

49 1

.0 2

3 40

4 0

.6No

n-m

etal

lic m

iner

al p

rodu

cts

24

116

1.0

....

6 0

00 0

.8 2

979

1.5

9 3

61 0

.9 4

233

4.3

37

710

1.0

Met

al a

nd m

etal

pro

duct

s 7

7 81

4 3

.1..

.. 2

3 26

7 2

.9 5

042

2.6

28

371

2.8

1 9

75 2

.0 1

08 1

60 3

.0M

achi

nery

and

equ

ipm

ent

73

017

2.9

....

9 2

20 1

.2 5

085

2.6

14

453

1.4

4 3

38 4

.491

809

2.5

Elec

trica

l and

ele

ctro

nic

equi

pmen

t 8

1 80

3 3

.2..

.. 4

2 20

5 5

.3 3

003

1.6

45

355

4.5

2 20

7 2

.2 1

29 3

65 3

.6Pr

ecisi

on in

stru

men

ts 4

8 26

8 1

.9..

.. 3

53-

237

0.1

66

2 0

.1 1

78 0

.2 4

9 10

8 1

.4M

otor

veh

icles

and

oth

er tr

ansp

ort e

quip

men

t 9

2 33

8 3

.7..

.. 4

744

0.6

7 6

58 4

.0

12 5

95 1

.2 5

642

5.7

110

575

3.0

Oth

er m

anuf

actu

ring

22

033

0.9

....

7 1

03 0

.9 5

02 0

.3 7

608

0.7

112

0.1

29

752

0.8

Recy

cling

65

-..

..-

- 1

3-

13

- 1

3-

92

-Un

spec

ified

seco

ndar

y 6

9 06

1 2

.7 7

196

43.

4 3

06 7

28 3

8.5

7 8

53 4

.1

321

815

31.

7 1

613

1.6

392

490

10.

8

Terti

ary

1 39

9 30

2 5

5.5

7 1

14 4

2.9

267

503

33.

6 1

01 0

03 5

2.2

378

727

37.

3 4

9 25

2 5

0.1

1 82

7 28

2 5

0.3

Elec

tricit

y, g

as a

nd w

ater

57

938

2.3

--

6 0

21 0

.8 2

1 71

5 1

1.2

27

749

2.7

3 3

85 3

.4 8

9 07

2 2

.5Co

nstru

ctio

n 1

1 07

5 0

.4 6

37 3

.8 2

0 09

3 2

.5 9

90 0

.5

21 7

69 2

.1 2

711

2.8

35

556

1.0

Trad

e 3

22 8

03 1

2.8

75

0.5

32

730

4.1

12

013

6.2

45

379

4.5

12

699

12.

9 3

80 8

82 1

0.5

Hote

ls an

d re

stau

rant

s 2

8 34

4 1

.1-

- 9

542

1.2

528

0.3

10

094

1.0

803

0.8

39

241

1.1

Tran

spor

t, st

orag

e an

d co

mm

unica

tions

155

089

6.2

1 7

02 1

0.3

18

234

2.3

13

772

7.1

34

873

3.4

9 62

59.

8 1

99 5

88 5

.5Fi

nanc

e 5

18 8

41 2

0.6

3 4

84 2

1.0

14

037

1.8

23

834

12.

3

42 2

63 4

.2 1

3 35

3 1

3.6

574

456

15.

9Bu

sines

s ac

tivitie

s 2

05 7

37 8

.2-

- 1

42 2

63 1

7.9

27

699

14.

3 1

70 3

19 1

6.8

3 2

31 3

.3 3

79 2

87 1

0.4

Publ

ic ad

min

istra

tion

and

defe

nce

--

--

20

--

- 2

0-

50

-70

-Ed

ucat

ion

35

--

- 9

9-

1-

1

01-

4-

140

-He

alth

and

soc

ial s

ervic

es 6

320

0.3

--

4 4

27 0

.6 5

1-

4 4

79 0

.4 1

764

1.8

12

564

0.3

Com

mun

ity, s

ocia

l and

per

sona

l ser

vice

activ

ities

8 4

31 0

.3-

- 2

6-

218

0.1

2

71-

279

0.3

8 9

81 0

.2O

ther

ser

vices

70

688

2.8

905

5.5

17

405

2.2

90

-

18 4

01 1

.8 1

8 -

89

107

2.5

Unsp

ecifie

d te

rtiar

y 1

4 00

2 0

.6 3

10 1

.9 2

606

0.3

92

- 3

008

0.3

1 33

018

340

0.5

Unsp

ecifi

ed 6

0 11

9 2

.4-

- 2

1 61

8 2

.7 5

831

3.0

27

910

2.8

3 9

27 4

.0 9

1 95

6 2

.5

Sour

ce:

UNCT

AD, F

DI/T

NC d

atab

ase.

aBa

sed

on in

ward

sto

ck in

Aus

tralia

, Aus

tria

(199

8), C

anad

a (1

998)

, Den

mar

k (1

998)

, Fin

land

(199

8), F

ranc

e (1

998)

, Ger

man

y (1

998)

, Ice

land

, Ita

ly (1

998)

, Net

herla

nds

(199

8), N

orwa

y, P

ortu

gal (

1996

),Sw

eden

, Swi

tzer

land

(199

8), t

he U

nite

d Ki

ngdo

m a

nd th

e Un

ited

Stat

es th

at a

ccou

nted

for 8

4 pe

r cen

t of t

otal

inwa

rd s

tock

in d

evel

oped

cou

ntrie

s in

199

9.b

Base

d on

inwa

rd s

tock

in C

ape

Verd

e (1

995)

, Egy

pt (1

995)

, Nam

ibia

(199

4), N

iger

ia (1

992)

and

Swa

zilan

d (1

993)

that

acc

ount

ed fo

r 42

per c

ent o

f tot

al in

ward

sto

ck in

Afri

ca in

199

9.c

Base

d on

act

ual in

ward

sto

ck in

Geo

rgia

(199

8), H

ong

Kong

(Chi

na) 1

997,

Indi

a (1

995)

, Ind

ones

ia (1

996)

, Kaz

akhs

tan

(199

8), P

akist

an (1

997)

, Phi

lippi

nes,

Sin

gapo

re a

nd T

haila

nd, a

s we

ll as

inwa

rdst

ock

on a

n ap

prov

al b

asis

in B

angl

ades

h, C

ambo

dia

(199

7), C

hina

(199

7), L

ao P

eopl

e’s

Dem

. Rep

., M

alay

sia (1

997)

, Mon

golia

, Mya

nmar

(199

8), N

epal

, Rep

ublic

of K

orea

(199

8), S

ri La

nka

(199

8),

Taiw

an P

rovin

ce o

f Chi

na a

nd V

iet N

am (1

996)

. Th

ey a

ccou

nted

for 9

3 pe

r cen

t of t

otal

inwa

rd s

tock

in A

sia in

199

9.d

Base

d on

inwa

rd s

tock

in A

rgen

tina,

Bol

ivia

(199

0), B

razil

(199

8), C

olom

bia,

Par

agua

y, P

eru

and

Vene

zuel

a ac

coun

ting

for 5

8 pe

r cen

t of t

otal

inwa

rd s

tock

in L

atin

Am

erica

and

the

Carib

bean

in 1

999.

eIn

cludi

ng o

ther

dev

elop

ing

coun

tries

.f

Base

d on

act

ual in

ward

sto

ck in

Bel

arus

(199

8), B

ulga

ria (1

998)

, Cro

atia

, Cze

ch R

epub

lic (1

998)

, Est

onia

, Hun

gary

(199

8), L

atvia

, Lith

uani

a, T

FYR

Mac

edon

ia (1

998)

, Rep

ublic

of M

odov

a (1

998)

, Pol

and,

Rom

ania

, Rus

sian

Fede

ratio

n, S

lova

kiia,

Slo

veni

a (1

998)

, Ukr

aine

(199

8), t

hat a

ccou

nted

for 9

8 pe

r cen

t of t

otal

inwa

rd s

tock

in C

entra

l and

Eas

tern

Eur

ope

in 1

999.

261AN N EX A

Annex figure A.I.1. FDI inflows and ODA flows to LDCs, 1985-2000(Billions of dollars)

S o u r c e : UNCTAD, FDI /TNC database and OECD Development Ass is tance Commit tee, In ternat iona l Development Stat is t ics ,onl ine databases.

Annex figure A.I.2. Growth trends in FDI and bilateral ODA flows, 1990-1999

Source : UNCTAD, 2000a, p. 4.a Calculated as the s lope of the l inear regression for FDI and ODA f lows between 1990 and 1999.


Annex figure A.II.2. The distribution of foreign affiliates in the biotechnology industry, 1985

Source : UNCTAD, FDI /TNC database, on the bas is o f Who Owns Whom CD-Rom 2000 (Dun and Bradst reet ) .Note: On the basis of 94 major i ty-owned foreign aff i l iates ident i f ied.

Annex figure A.II.1. The distribution of foreign affiliates in the semiconductor industry, 1985

Source : UNCTAD, FDI /TNC database, on the bas is o f Who Owns Whom CD-Rom 2000 (Dun and Bradst reet ) .Note: On the basis of 70 major i ty-owned foreign aff i l iates ident i f ied.

263AN N EX A

Source : UNCTAD, FDI /TNC database, on the bas is o f Who Owns Whom CD-Rom 2000 (Dun and Bradst reet ) .Note: On the basis of 494 major i ty-owned foreign af f i l iates ident i f ied.

Annex figure A.II.3. The distribution of foreign affiliates in the automobile industry, 1985

Annex figure A.II.4. The distribution of foreign affiliates in the TV andradio receivers industry, 1985



Annex figure A.II.5. The distribution of foreign affiliates in the textile and clothing industry, 1985

Annex figure A.II.6. The distribution of foreign affiliates in the food and beverage industry, 1985


Source : UNCTAD, FDI /TNC database, on the bas is o f Who Owns Whom CD-Rom 2000 (Dun and Bradst reet ) .Note: On the basis of 1,003 major i ty-owned foreign af f i l iates ident i f ied.

265AN N EX A

Annex figure A.II.7. The distribution of foreign affiliates of the largest tenautomobile TNCs, by function, 1985

Assembly

Equipment and parts supplies



Source : UNCTAD, FDI /TNC database, on the bas is o f Who Owns Whom CD-Rom 2000 (Dun and Bradst reet ) .Note: On the basis of 688 major i ty-owned foreign aff i l iates ident i f ied for ten large automobi le TNCs (DaimlerChrysler AG, Ford Motor

Company Inc, General Motors Corporation, Giovanni Agnell i E C. Societa' In Accomandita Per Azioni (FIAT), Honda Motor Co. Ltd.,Nissan Motor Co. Ltd., Peugeot SA, Renault, Toyota Motor Corp. and Volkswagen AG.).

The SIC codes used for the di f ferent funct ions are the fol lowing:

Assemblers: 3711-3713.Equipment and parts suppl ies: 3519-3592, 3824, 3999, 2221-3499, 3613-3699 and 3714.Distr ibut ion, market ing and sales: 4013-4789, 4813-484, 5012-5013, 5511-5599 and 7513-7515.R&D and other professional services: 8731-8734, 8711-8721 and 8741-8742.Finance and insurance: 6011-6411.

Annex figure A.II.7. The distribution of foreign affiliates of the largest tenautomobile TNCs, by function, 1985 (concluded)

267AN N EX A

Annex figure A.II.8. The distribution of foreign affiliates of the largest tenelectronics TNCs, by function, 1985

Production of equipment and parts



Annex figure A.II.8. The distribution of foreign affiliates of the largest tenelectronics TNCs, by function, 1985 (concluded)



Source: UNCTAD, FDI /TNC database, based on Who Owns Whom CD-Rom 2000 (Dun and Bradst reet ) .Note: On the basis of 616 majority-owned foreign aff i l iates identif ied for ten large electronics TNCs ( Hitachi, Intel, Matsushita, Mitsubishi,

Motorola, NEC, Phil ips, Siemens, Sony and Toshiba).

The SIC codes used for the di f ferent funct ions are the fol lowing:Product ion of equipment and parts: 3519-3592, 3824, 3999, 2221-3499, 3613-3699 and 3714.Distr ibut ion, market ing and sales: 4013-4789, 4813-484, 5012-5013, 5511-5599 and 7513-7515.R&D and professional serv ices: 8731-8734, 8711-8721 and 8741-8742.Finance and insurance: 6011-6411.

269ANNEX A

Ann

ex f

igur

e A

.II.9

. Th

e di

stri

butio

n of

R&

D f

acili

ties

and

loca

tion

of m

ajor

uni

vers

ities

in E

urop

e, 1

985

Sou

rce:

UN

CTA

D,

FDI/

TNC

dat

abas

e, o

n th

e ba

sis

of W

ho O

wns

Who

m C

D-R

om 2

000

(Dun

and

Bra

dstr

eet)

.N

ote:

On

the

basi

s of

242

maj

ority

-ow

ned

fore

ign

R&

D f

acili

ties

and

1,05

5 do

mes

tic R

&D

fac

ilitie

s id

entif

ied.

270 World Investment Report 2001: Promoting LinkagesA

nnex

fig

ure

A.II

.10.

Th

e di

stri

butio

n of

R&

D f

acili

ties

and

loca

tion

of m

ajor

uni

vers

ities

in U

nite

d St

ates

, 198

5

Sou

rce:

UN

CTA

D,

FDI/

TNC

dat

abas

e, o

n th

e ba

sis

of W

ho O

wns

Who

m C

D-R

om 2

000

(Dun

and

Bra

dstr

eet)

.N

ote:

On

the

basi

s of

66

maj

ority

-ow

ned

fore

ign

R&

D f

acili

ties

and

585

dom

estic

R&

D f

acili

ties

iden

tifie

d.

271ANNEX A

Ann

ex f

igur

e A

.II.1

1.

The

dist

ribu

tion

of R

&D

fac

ilitie

s an

d lo

catio

n of

maj

or u

nive

rsiti

es in

Asi

a, 1

985

Sou

rce:

UN

CTA

D,

FDI/

TNC

dat

abas

e, o

n th

e ba

sis

of W

ho O

wns

Who

m C

D-R

om 2

000

(Dun

and

Bra

dstr

eet)

.N

ote:

On

the

basi

s of

58

maj

ority

-ow

ned

fore

ign

R&

D f

acili

ties

and

190

dom

estic

R&

D f

acili

ties

iden

tifie

d.

273DEFIN ITIO N S AN D SO U R CES

Annex B: Statistical annex

Definitions and sources .......................................................................................................... 275

A. General definitions ...................................................................................................... 275

I. Transnational corporations ................................................................................ 2752. Foreign direct investment .................................................................................. 2753. Non-equity forms of investment ....................................................................... 276

B . Availability, limitations and estimates of FDI data providedin the World Investment Report ................................................................................ 276

1. FDI flows .............................................................................................................. 276(a) FDI inflows ................................................................................................. 277(b) FDI outlows ................................................................................................ 282

2. FDI stocks ............................................................................................................ 286

C. Data revisions and updates ...................................................................................... 287

D. Data verification ........................................................................................................... 287

E. Definitions and sources of the data in annex tables B.5-B.10 ..................... 288

1. Annex table B.5 and B.6 ................................................................................... 2882. Annex tables on M&As (B.7-B.10) ................................................................ 289

Annex tables

B.1 FDI inflows, by host region and economy, 1989-2000 ............................................. 291B.2 FDI outflows, by home region and economy, 1989-2000 ......................................... 296B.3 FDI inward stock, by host region and economy,

1980, 1985, 1990, 1995, 1999 and 2000 ....................................................................... 301B.4 FDI outward stock, by home region and economy,

1980, 1985, 1990, 1995, 1999 and 2000 ....................................................................... 307B.5 FDI flows as a percentage of gross fixed capital formation,

by host region and economy, 1989-1999 ..................................................................... 312B.6 FDI stock as a percentage of gross domestic product,

by host region and economy, 1980, 1985, 1990, 1995 and 1999 ............................. 325B.7 Cross-border M&A sales, by region/economy of seller, 1987-2000 ...................... 338B.8 Cross-border M&A sales, by region/economy of purchaser, 1987-2000 .............. 344B.9 Cross-border M&A, by sector and industry of seller, 1987-2000 .......................... 345B.10 Cross-border M&A, by sector and industry of purchaser, 1987-2000 ................. 346

Page

DEFINITIONS AND SOURCES

A. General definitions

1. Transnational corporations

Transnational corporations (TNCs) are incorporated or unincorporated enterprisescomprising parent enterprises and their foreign affiliates. A parent enterprise is definedas an enterprise that controls assets of other entities in countries other than its home country,usually by owning a certain equity capital stake. An equity capital stake of 10 per cent ormore of the ordinary shares or voting power for an incorporated enterprise, or its equivalentfor an unincorporated enterprise, is normally considered as a threshold for the control ofassets. 1 A foreign affiliate is an incorporated or unincorporated enterprise in which aninvestor, who is resident in another economy, owns a stake that permits a lasting interest inthe management of that enterprise (an equity stake of 10 per cent for an incorporated enterpriseor its equivalent for an unincorporated enterprise). In the World Investment Report , subsidiaryenterprises, associate enterprises and branches are all referred to as foreign affiliates oraff i l iates .

• Subsidiary: an incorporated enterprise in the host country in which another entity directlyowns more than a half of the shareholder’s voting power and has the right to appoint orremove a majority of the members of the administrative, management or supervisorybody.

• Associate: an incorporated enterprise in the host country in which an investor owns atotal of at least 10 per cent, but not more than a half, of the shareholders’ voting power.

• Branch: a wholly or jointly owned unincorporated enterprise in the host country whichis one of the following: (i) a permanent establishment or office of the foreign investor; (ii)an unincorporated partnership or joint venture between the foreign direct investor andone or more third parties; (iii) land, structures (except structures owned by governmententities), and /or immovable equipment and objects directly owned by a foreign resident;(iv) mobile equipment (such as ships, aircraft, gas- or oil-drilling rigs) operating within acountry other than that of the foreign investor for at least one year.

2. Foreign direct investment

Foreign direct investment (FDI) is defined as an investment involving a long-termrelationship and reflecting a lasting interest and control of a resident entity in one economy(foreign direct investor or parent enterprise) in an enterprise resident in an economy otherthan that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreignaffiliate). 2 FDI implies that the investor exerts a significant degree of influence on themanagement of the enterprise resident in the other economy. Such investment involvesboth the initial transaction between the two entities and all subsequent transactions betweenthem and among foreign affiliates, both incorporated and unincorporated. FDI may be undertakenby individuals as well as business entities.

Flows of FDI comprise capital provided (either directly or through other relatedenterprises) by a foreign direct investor to an FDI enterprise, or capital received from anFDI enterprise by a foreign direct investor. There are three components in FDI: equitycapital, reinvested earnings and intra-company loans.

• Equity capital is the foreign direct investor’s purchase of shares of an enterprise in acountry other than its own.


• Reinvested earnings comprise the direct investor’s share (in proportion to direct equityparticipation) of earnings not distributed as dividends by affiliates or earnings not remittedto the direct investor. Such retained profits by affiliates are reinvested.

• Intra-company loans or intra-company debt transactions refer to short- or long-termborrowing and lending of funds between direct investors (parent enterprises) and affiliateenterprises.

FDI stock is the value of the share of their capital and reserves (including retainedprofits) attributable to the parent enterprise, plus the net indebtedness of affiliates to theparent enterprise. 3 FDI flow and stock data used in the World Investment Report are notalways defined as above, because these definitions are often not applicable to disaggregatedFDI data. For example, in analyzing geographical and industrial trends and patterns ofFDI, data based on approvals of FDI may also be used because they allow a disaggregationat the country or industry level. Such cases are denoted accordingly.

3. Non-equity forms of investment

Foreign direct investors may also obtain an effective voice in the management ofanother business entity through means other than acquiring an equity stake. These arenon-equity forms of FDI, and they include, inter alia , subcontracting, management contracts,turnkey arrangements, franchising, licensing and product sharing. Data on transnationalcorpora te ac t iv i ty th rough these fo rms are usua l ly no t separa te ly iden t i f i ed inbalance-of-payments statistics. These statistics, however, usually present data on royaltiesand licensing fees, defined as “receipts and payments of residents and non-residents for: (i)the authorized use of intangible non-produced, non-financial assets and proprietary rightssuch as trademarks, copyrights, patents, processes, techniques, designs, manufacturing rights,franchises, etc., and (ii) the use, through licensing agreements, of produced originals orprototypes, such as manuscripts, films, etc.”4

B. Availability, limitations and estimates of FDIdata presented in the World Investment Report

1 . FDI flows

Data on FDI flows in annex tables B.1 and B.2, as well as most of the tables in thetext, are on a net basis (capital transactions’ credits less debits between direct investorsand their foreign affiliates). Net decreases in assets (FDI outward) or net increases inliabilities (FDI inward) are recorded as credits (recorded with a positive sign in the balanceof payments), while net increases in assets or net decreases in liabilities are recorded asdebits (recorded with a negative sign in the balance of payments). In the annex tables, aswell as in the tables in the text, the negative signs are deleted for practical use. Hence,FDI flows with a negative sign in the World Investment Report indicate that at least one ofthe three components of FDI (equity capital, reinvested earnings or intra-company loans) isnegative and not offset by positive amounts of the remaining components. These are instancesof reverse investment or disinvestment.

UNCTAD regularly collects published and unpublished national official FDI data directlyfrom central banks, statistical offices or national authorities on an aggregated and disaggregatedbasis for its FDI/TNC database. These data constitute the main source for the reporteddata on FDI flows. These data are further complemented by the data obtained from otherinternational organizations such as the International Monetary Fund (IMF), the World Bank,the Organization for Economic Co-operation and Development (OECD), the EconomicCommission for Europe (ECE) and the Economic Commission for Latin America and theCaribbean (ECLAC), as well as UNCTAD’s own estimates.


For the purpose of assembling balance-of-payments statistics for its member countries,IMF publishes data on FDI inflows and outflows in the Balance of Payments StatisticsYearbook . The same data are also available in the International Financial Statistics ofIMF for certain countries. Data from IMF used in the World Investment Report wereobtained directly from the CD-ROMs of IMF containing balance-of-payments statistics andinternational financial statistics. For this year’s Report , International Financial Statisticsand Balance-of-Payments CD-ROMs, June 2001, were used.

For those economies for which data were not available from national official sourcesor the IMF or for those for which available data do not cover the entire period of 1980-2000that is used in the World Investment Report 2001 , data from the World Bank’s WorldDevelopment Indicators 2001 CD-ROM were used. This report covers data up to 1999and reports data on net FDI flows (FDI inflows less FDI outflows) and FDI inward flowsonly. Consequently, data on FDI outflows, which we report as World Bank data, are estimatedby subtracting FDI inward flows from net FDI flows.

For those economies in Latin America and the Caribbean for which the data are notavailable from one of the above-mentioned sources, data from ECLAC were utilized. Datafrom ECE were also utilized for those economies in Central and Eastern Europe, CentralAsia and selected economies in Developing Europe for which data are not available fromone of the above-mentioned sources.

Furthermore, data on the FDI outflows of the OECD, as presented in its publication,Geographical Distribution of Financial Flows to Developing Countries, and as obtainedfrom their web databank, are used as proxy for FDI inflows. As these OECD data arebased on FDI outflows to developing economies from the member countries of the DevelopmentAssistance Committee (DAC) of OECD, 5 inflows of FDI to developing economies may beunderestimated. In some economies, FDI data from large recipients and investors are alsoused as proxies.

Finally, in those economies for which data were not available from either of theabove-mentioned sources or only partial data (quarterly or monthly) were available, estimateswere made by annualizing the data if they are only partially available (monthly or quarterly)from either the IMF or national official sources; using data on cross-border mergers andacquisitions (M&As) and their growth rates; and using UNCTAD’s own estimates.

The following sections give details of how FDI flow data for each economy used inthe Report were obtained.

a. FDI inflows

Those economies for which national official sources data were used for the period,1980-2000, or part of it, are listed below.

Period Economy

1980-2000 Bolivia; Chile; Colombia; Finland; Republic of Korea; Taiwan Province of China; Thailand andTurkey

1985-2000 Burundi and Senegal1986-2000 Ecuador; Hungary; Poland and the United States1987-2000 Netherlands1988-2000 Iceland; Mauritius and Slovenia1990-2000 Aruba; Australia; Austria; Bahamas; Belize; Botswana; Brazil; Bulgaria; Canada; Czech Republic;

Denmark; Dominican Republic; Egypt; France; Germany; Ghana; Guatemala; Honduras; Indonesia;Jamaica; Malaysia; Mexico; Mozambique; Namibia; Pakistan; Paraguay; Peru; Philippines;Portugal; Seychelles; Singapore; Slovakia; South Africa; Sri Lanka; Swaziland; Switzerland;United Republic of Tanzania; Togo; Trinidad and Tobago; Tunisia; United Kingdom; Yemen;Venezuela and Viet Nam.

1991-2000 Haiti; Nicaragua and Romania


Period Economy

1992-2000 Albania; Argentina; Estonia; Guyana; Latvia; Republic of Moldova; Russian Federation; Ukraineand Yugoslavia

1993-2000 Croatia and Mali1994-2000 Kuwait; Kyrgyzstan; TFYR Macedonia; Norway; Spain and Sweden1995-2000 Costa Rica1996-2000 Bosnia and Herzegovina; India and Malta1997-2000 Uruguay1998-2000 Greece; Hong Kong, China, Morocco and Uganda1999-2000 Belgium and Luxembourg; Benin; China; El Salvador; Ireland; Italy and Japan1989-1999 Armenia1990-1999 Angola; Antigua and Barbuda; Côte d’Ivoire; Dominica; Grenada; Kenya; Lesotho; Madagascar;

Rwanda; Saint Kitts and Nevis; Saint Lucia; Saint Vincent and the Grenadines and Zimbabwe1992-1999 Burkina Faso; Kazakhstan; Mongolia and Niger1994-1999 Zambia1995-1999 Anguilla, Montserrat and Oman1997-1999 Bahrain1999 Cambodia1990-1998 Malawi1992-1998 Eth iop ia1996-1998 Gambia1997-1998 Tajikistan1994-1996 Georgia1995-1996 Uzbekistan1994-1995 Turkmenistan1994 Azerbaijan1992 Belarus and Lithuania

As mentioned above, one of the main sources for annex table B.1 is the IMF. Thoseeconomies for which IMF data were used for the period, 1980-2000, or part of it, are listedbelow.

Period Economy

1980-2000 Panama1984-1985, 1989 and 1996-2000 Sudan1989-2000 Myanmar1993-2000 Belarus; Lithuania2000 Kazakhstan1980-1999 Barbados; Cyprus; Fiji; Israel; Jordan; Libyan Arab Jamahiriya; New

Zealand; Nigeria; Papua New Guinea; Saudi Arabia; Solomon Islandsand Vanuatu

1981-1984 and 1986-1999 Bangladesh1986-1999 Guinea and Maldives1988-1999 Lao People’s Democratic Republic1993-1999 Syrian Arab Republic1995-1999 Azerbaijan1996-1999 Nepa l1997-1999 Georgia1980-1998 Belgium and Luxembourg; China; Ireland; Italy; Japan and Suriname1980-1995 and 1998 Mauritania1980-1993 and 1995-1998 El Salvador1986-1998 Cape Verde1992-1998 Cambodia1994-1998 Iran, Islamic Republic of1980-1997 Greece and Morocco1991-1997 Uganda1996-1997 Turkmenistan1980 and 1982-1996 Bahrain1980-1981, 1986-1988 and 1993-1996 Uruguay1989-1996 Equatorial Guinea1994-1996 Tajikistan1980-1995 Cameroon; Gabon; Malta; Netherlands Antilles and Sierra Leone1981, 1987-1989 and 1991-1995 Gambia1987-1995 Comoros1991-1995 India


Period Economy

1992-1995 Dj ibout i1980-1994 Central African Republic; Costa Rica and Oman1980-1984 and 1988-1994 Benin1981; 1984-1985 and 1990-1994 Brunei Darussalam1983 and 1985-1994 Kiribat i1984-1994 Chad1986-1994 Montserra t1990-1994 Anguilla1992-1994 Uzbekistan1994 New Caledonia1980-1993 Norway; Spain and Sweden1984-1993 Tonga1993 Kuwait and Kyrgyzstan1980-1992 Mal i1980-1991 Algeria; Argentina; Niger and Zambia1980-1989 Antigua and Barbuda; Australia; Austria; Bahamas; Botswana; Brazil;

Burkina Faso; Canada; Côte d’Ivoire; Dominica; Dominican Republic;Egypt; France; Germany; Ghana; Grenada; Guatemala; Haiti; Honduras;Indonesia; Jamaica; Kenya; Lesotho; Mexico; Malaysia; Pakistan;Paraguay; Peru; Philippines; Portugal; Rwanda; Saint Kitts and Nevis;Saint Lucia; Saint Vincent and the Grenadines; Seychelles; Singapore;South Africa; Sri Lanka; Swaziland; Switzerland; Togo; Trinidad andTobago; Tunisia; United Kingdom; Venezuela; Yemen and Zimbabwe

1980 and 1986-1989 Mozambique1981-1989 Denmark1981 and 1984-1989 Belize1985-1989 Angola1989 Madagascar and Nicaragua1980-1988 Congo1980-1987 Iceland and Mauritius1980-1981, 1983, 1985 and 1987 Malawi1982-1987 Liberia1980-1986 Netherlands1980-1985 Ecuador; Guyana; Poland and the United States1982-1985 Somalia1980-1984 Senegal1981-1982 Hungary

Those economies for which World Bank data were used for the period, 1980-1999,or part of it, are listed below.

Period Economy

1981-1999 Democratic Republic of Congo1991-1999 Congo and Liberia1992-1999 Algeria and Nepal1995-1999 Central African Republic; Lebanon; Tonga and Chad1996-1999 Cameroon; Comoros; Djibouti; Gabon and Sierra Leone1996-1997 and 1999 Mauritania1997-1999 Equatorial Guinea1999 Gambia; Guinea-Bissau; Malawi1992-1994 and 1998 Samoa1997 Kiribati and Uzbekistan1993-1995 Somalia1992-1993 Zambia1990-1991 Eth iop ia1991 Burkina Faso1988-1989 Viet Nam1981-1984 Burundi1989 Czech Republic


Those economies for which ECLAC data were used for the period, 1980-2000, orpart of it, are listed below.

Period Economy

1990-1997 Virgin Islands

Those economies for which ECE data were used for the period, 1980-2000, or partof it, are listed below.

Period Economy

1999-2000 Tajikistan1998-2000 Turkmenistan and Uzbekistan

Those economies for which FDI inflows data were unavailable from the above-mentionedsources, the estimates of UNCTAD are used by employing the following methodologies:

• Annualized data

Estimates were applied by annualizing quarterly data obtained from either nationalofficial sources or the IMF for the economies and the years listed below.

(a) National official sources

Year Latest quarter Economy

1999 Third quarter Ethiopia

(b) IMF


2000 First quarter Armenia and New Zealand Second quarter Vanuatu Third quarter Israel

1994 Third quarter Tonga

• Proxy

One of the main methodologies for estimating FDI inflows for economies for whichthe data are not available is that OECD data on outward flows from DAC member countriesare used as proxy for FDI inflows. Those economies, for which this methodology is appliedfor the period, 1980-2000, or part of it, are listed below (these data were available until1999 only at the time of the compilation of inflow data).

Period Economy

1980-1999 Bermuda; Cayman Islands; Gibraltar andUnited Arab Emirates

1980-1995 and 1997-1999 Iraq1980 and 1982-1999 Cuba1980 and 1983-1999 Qatar1980-1981, 1986-1992 and 1998-1999 Somalia1980, 1982-1989 and 1998-1999 Virgin Islands1980-1982, 1987 and 1991-1999 Afghanistan1982-1983 and 1985-1999 Macau, China1982-1983, 1987-1988 and 1995-1999 Brunei Darussalam1983, 1985-1986, 1988-1993, 1995-1996 and 1998-1999 New Caledonia1987-1999 Democratic People’s Republic of Korea1994, 1996 and 1998-1999 Tuvalu


Period Economy

1996-1999 Netherlands Antil les1996 and 1999 Occupied Palestinian Territory1997-1999 Eritrea1999 Suriname1984-1992 and 1994-1998 Guinea-Bissau1987-1989, 1993 and 1995-1998 São Tomé and Principe1981, 1983-1988, 1990-1991 and 1995-1997 Samoa1990-1991 and 1995-1997 Bhutan1995 Bosnia and Herzegovina1980-1994 Lebanon1980-1983, 1986-1988 and 1990-1994 Sudan1994 El Salvador1980-1993 Iran, Islamic Republic of1980-1992 Kuwai t1980-1981 and 1983-1992 Syrian Arab Republic1982-1985 and 1989-1992 Uruguay1980-1991 Nepa l1980-1987 and 1989-1991 Dj ibout i1986-1991 Guyana1986 and 1991 Mongol ia1991 Albania1980-1990 India1980-1981 and 1988-1990 Liberia1981, 1985-1988 and 1990 Nicaragua1982-1986 and 1990 Gambia1980, 1982, 1985 and 1988-1990 Uganda1989-1990 Congo1990 Burkina Faso and Haiti1980-1989 United Republic of Tanzania1982, 1984, 1986 and 1988-1989 Malawi1985 and 1987-1989 Namibia1989 Aruba1980-1988 Ethiopia and Madagascar1981-1988 Equatorial Guinea1980-1987 Yugoslavia (former)1980, 1983-1984 and 1986-1987 Myanmar1985-1987 Benin1981-1982 and 1985-1986 Viet Nam1980-1985 Mald ives1981-1985 Mozambique1980-1981 and 1983-1985 Guinea1980 and 1985 Bangladesh1985 Lao People’s Democratic Republic1980-1984 Angola1980-1983 Chad1981 Bahrain1980 Burundi and Democratic Republic of Congo

• Cross-border M&As

Data on cross-border M&As and their growth rates were used to estimate FDI inflows.Those economies for which this methodology was used are listed below.

Period Economy

2000 Bahrain; Cape Verde; Chad; Ethiopia; Gabon; Jordan; Kenya; Lebanon and United Arab Emirates

• Estimates of UNCTAD

Estimates of UNCTAD using national and secondary sources and information havebeen applied to the economies or the periods if FDI inflow data from the above-mentionedsources are not available. Those economies, for which estimates of UNCTAD were usedfor the period, 1980-2000, or part of it, are listed below.


Period Economy

1995-1996 and1998-2000 Kiribat i1997 and 2000 New Caledonia1988 and 2000 Dj ibout i1999-2000 Iran, Islamic Republic of; S ão Tomé and Principe and Samoa2000 Afghanistan; Algeria; Angola; Anguilla; Antigua and Barbuda; Azerbaijan;

Bangladesh; Barbados; Bermuda; Brunei Darussalam; Burkina Faso; Cambodia;Cameroon; Cayman Islands; Central African Republic; Comoros; Congo;Democratic Republic of Congo; Côte d’Ivoire; Cuba; Cyprus; Dominica;Equatorial Guinea; Eritrea; Fiji; Gambia; Georgia; Gibraltar; Grenada; Guinea;Guinea-Bissau; Iraq, Democratic People’s Republic of Korea; Lao People’sDemocratic Republic; Lesotho; Liberia; Libyan Arab Jamahiriya; Macau, China;Madagascar; Malawi; Maldives; Mauritania; Mongolia; Montserrat; Nepal;Netherlands Antilles; Niger; Nigeria; Occupied Palestinian Territory; Oman;Papua New Guinea; Qatar; Rwanda; Saint Kitts and Nevis; Saint Lucia; SaintVincent and the Grenadines; Saudi Arabia; Sierra Leone; Solomon Islands; Somalia;Suriname; Syrian Arab Republic; Tonga; Tuvalu; Virgin Islands; Zambia andZimbabwe

1999 Cape Verde1980-1997 Hong Kong, China1995 Sudan1989 Eth iop ia1986 Namibia

b. FDI outflows

Those economies for which national official sources data were used for the period,1980-2000, or part of it, are listed below.

Period Economy

1980-2000 Chile; Finland; Republic of Korea; Taiwan Province of China; Thailand; UnitedKingdom and United States

1986-1989 and 1990-2000 Poland1987-2000 Netherlands and Turkey1988-2000 Iceland and Mauritius1990-2000 Australia; Austria; Belize; Botswana; Brazil; Burundi; Canada; Denmark; Egypt;

France; Germany; Indonesia; Jamaica; Kuwait; Namibia; Pakistan; Philippines;Portugal; Romania; Senegal; Seychelles; Singapore; South Africa; Swaziland;Switzerland; Togo; Tunisia and Venezuela

1990 and 1998-2000 Morocco1991-2000 Hungary1992-2000 Argentina; Aruba; Colombia; Estonia; Latvia; Slovakia and Slovenia1993-2000 India; Croatia; Czech Republic and Russian Federation1994-2000 Republic of Moldova; Norway; Spain; Sweden and Ukraine1995-2000 Bulgaria; Costa Rica; Lithuania and Malta1996-2000 Benin and Mali1997-1998 and 2000 Uruguay1998-2000 Belgium and Luxembourg; Greece; Hong Kong, China; Ireland and Japan1999-2000 El Salvador; Italy and Trinidad and Tobago1980-1999 Bolivia and Malaysia1983-1999 Zimbabwe1990-1999 Bahamas; Bangladesh; Côte d’Ivoire and Nigeria1991-1999 C y p r u s1992-1999 Niger1993-1999 Burkina Faso1994-1999 Kazakhstan1995-1999 K e n y a1996-1999 TFYR Macedonia1997-1999 Bahrain and Belarus1998-1999 Azerbaijan1999 Armenia1992-1998 Albania and Mexico1998 Tajikistan1992 and 1995-1997 Bosnia and Herzegovina1995-1997 Peru1992-1993 and 1996 Guyana


As mentioned above, one of the main sources for annex table B.2 is the IMF. Thoseeconomies for which IMF data were used for the period, 1980-2000, or part of it, are listedbelow.

Period Economy

2000 Belarus and Kazakhstan1980-1999 Barbados; Fiji; Israel and New Zealand1980-1996 and 1999 Jordan1980-1982 and 1987-1999 Libyan Arab Jamahiriya1982-1999 China1995-1999 Paraguay and Syrian Arab Republic1998-1999 Kyrgyzstan1999 Georgia1980-1998 I t a l y1997-1998 Dominica1998 Armenia and Peru1980-1997 Belgium and Luxembourg and Japan1988-1997 Cape Verde1990-1997 Ireland1991-1997 Morocco1990-1996 Bahrain1993-1996 Dominican Republic1996 El Salvador and Guinea1980-1995 Cameroon and Netherlands Antilles1985-1995 Sri Lanka1980-1994 Costa Rica and Gabon1980-1983, 1985-1989 and 1991-1994 Chad1982-1994 Central African Republic1990 and 1993-1994 Angola1993-1994 Mal ta1994 Kiribat i1980-1993 Norway; Spain and Sweden1990-1993 Tonga1980-1991 Algeria; Colombia and Niger1980-1983 and 1989-1991 Argentina1989-1991 Czechoslovakia (former) and Equatorial Guinea1990-1991 Hai t i1980-1990 Papua New Guinea1985 and 1987-1990 C y p r u s1990 Comoros1980-1989 Australia; Austria; Brazil; Canada; Denmark; Egypt; France;

Germany; Kenya; Kuwait; Portugal; Senegal; Seychelles; Singapore;South Africa and Swaziland

1981-1989 Tunis ia1982-1989 Venezuela1983-1989 Switzerland1984-1989 Pakistan1989 Bahamas and Burundi1982-1988 Uruguay1986-1988 Mauritania1988 Lesotho1983-1987 Trinidad and Tobago1986-1987 Iceland1980-1986 Burkina Faso and Netherlands1982-1986 Yemen1980-1985 Botswana and Poland1981-1984 Benin1981 Nigeria

In the case of unavailability of data from the above-mentioned sources, estimateswere applied by annualizing quarterly data obtained from either national official sources orthe IMF for the economies and the years listed below.


(a) National official sources


2000 Second quarter Malays ia

(b) IMF


2000 First quarter New ZealandThird quarter Israel

The World Bank reports only data on net FDI flows and FDI inward flows. Therefore,for selected economies FDI outward flows were estimated by subtracting FDI inflows fromnet FDI flows. This methodology was used for the economies and years listed below.

Period Economy

1988-1989 and 1992-1999 Uganda1991; 1995 and 1997-1999 Lao People’s Democratic Republic1992-1999 Uzbekistan1994-1999 Myanmar1997-1999 Eth iop ia1998-1999 Turkmenistan1999 Tajikistan1990-1992 and 1996-1998 Mozambique1990-1993 and 1997-1998 Oman1990, 1992-1993 and 1997-1998 Rwanda1991-1992; 1995 and 1998 Papua New Guinea1992-1993 and 1998 United Republic of Tanzania1994-1998 Georgia1996 and 1998 Mongol ia1997-1998 Jordan and Sri Lanka1995-1997 Azerbaijan1996-1997 Kyrgyzstan1986-1988, 1990-1994 and 1996 Saint Vincent and the Grenadines1991 and 1995-1996 Angola1993 and 1995-1996 Belarus and Equatorial Guinea1990-1995 Sierra Leone1990-1991 and 1995 Saint Lucia1990 and 1992-1995 Mald ives1992-1995 Mal i1980-1984, 1990-1991 and 1993-1994 Paraguay1990-1994 Saint Kitts and Nevis and Trinidad and Tobago1993-1994 Uruguay1986-1993 Dominica1989-1993 El Salvador1990-1993 Grenada1993 Nicaragua1990-1992 Madagascar and Solomon Islands1992 Bulgaria and Lesotho1990-1991 Honduras1991 Comoros and Kenya1990 Mauritania1980-1981, 1983, 1985-1987 and 1989 Togo1986-1989 Bangladesh and Tonga1987 and 1989 Belize1984-1987 Mauri t ius1980-1983 Pakistan1980 Mexico and Nigeria


In the case of economies for which FDI outflows data were unavailable from theabove-mentioned sources, three methodologies are used to calculate the estimates of UNCTAD.

• Proxy

Inflows of FDI to large recipient economies were used as a proxy. Those economiesfor which this methodology was used for the period, 1980-2000, or part of it, are listedbelow.

Proxy countries/region Period Economy

United States only 1981-2000 Bermuda; Panama and United Arab Emirates1982-2000 Lebanon1996-2000 Netherlands Antilles and Nicaragua1981-1996 and 1999 Saudi Arabia1981-1991 and 1999 Mexico1992 and 1997-1998 Dominican Republic1993-1998 Haiti; Honduras and Virgin Islands1994-1998 Guatemala1995-1998 Saint Kitts and Nevis and Trinidad and Tobago1997-1998 Angola1980-1997 Liberia1993-1997 Antigua and Barbuda1988-1989 and 1994-1996 Oman1989-1991 and 1995-1996 Uruguay1993-1996 Ecuador1995-1996 Gabon1984-1989 Ireland1994-1995 Guyana1995 Central African Republic1993-1994 Bosnia and Herzegovina1992-1993 Peru1981-1986 and 1988-1989 Bahrain1982-1989 Nigeria1981-1988 Bahamas1984-1988 Argentina

United States and Sweden 1997-1998 Saudi Arabia

Germany; Norway; Sweden andthe United States 1997 Greece

European Union and theUnited States 1991-1996 Greece

1992-1996 Iran, Islamic Republic of1980-1992 India1980-1989 Phil ippines and Indonesia

Germany 1997-1998 Iran, Islamic Republic of

China; European Union andthe United States 1980-1995 Hong Kong, China

China; European Union; Japan andthe United States 1996 Hong Kong, China

Germany; Sweden and theUnited States 1997 Hong Kong, China

• Cross-border M&As

Data on cross-border M&As and their growth rates were used to estimate FDI outflows.Those economies are listed below.


Period Economy

2000 Kenya and Mexico1998-1999 Cayman Islands1999 Peru1996 and 1998 Ghana1995-1998 Qatar1991; 1993 and 1995-1996 Brunei Darussalam1993 Cambodia

• Estimates of UNCTAD

Those economies, for which information from national and secondary sources and informationwere used for the period, 1980-2000, or part of it, are listed below.

Period Economy

1980-1997 and 2000 Cayman Islands1992 and 1999-2000 Hai t i1994 and 2000 Peru1995-2000 Chad1995; 1997 and 1999-2000 Mongol ia1996-2000 Central African Republic and Malawi1997-2000 Brunei Darussalam Gabon1997 and 1999-2000 Ghana1998-2000 Cape Verde1999-2000 Albania; Angola; Antigua and Barbuda; Dominica; Dominican Republic; Ecuador;

Guatemala; Guyana; Honduras; Iran, Islamic Republic of; Mozambique;Nicaragua; Oman; Papua New Guinea; Qatar; Rwanda; Saint Kitts and Nevis;Sri Lanka; United Republic of Tanzania and Virgin Islands

2000 Armenia; Azerbaijan; Bahamas; Bahrain; Bangladesh; Barbados; Bolivia; BurkinaFaso; China; Côte d’Ivoire; Cyprus; Ethiopia; Fiji; Georgia; Jordan; Kyrgyzstan;Lao People’s Democratic Republic; Libyan Arab Jamahiriya; Myanmar; Niger;Nigeria; Paraguay, Saudi Arabia, Syrian Arab Republic; Tajikistan; TFYRMacedonia; Turkmenistan; Uganda; Uzbekistan and Zimbabwe

1999 Uruguay1992 Czech Republic

Up to 1994, the United States data on FDI outflows and outward stocks were adjustedfor the financial sector of the Netherlands Antilles. This is because considerable intra-companyloans between United States parent enterprises and their financial affiliates in the NetherlandsAntilles are in many respects more akin to portfolio investment than to FDI. Since thatyear, however, the United States Department of Commerce has changed its methodology inreporting FDI outward flows to the Netherlands Antilles by excluding investment in thefinance sector reported under intra-company loans.

2. FDI stocks

Annex tables B.3 and B.4, as well as some tables in the text, present data on FDIstocks at book value or historical cost, reflecting prices at the time when the investmentwas made.

For a large number of economies (as indicated in the footnotes of annex tables B.3and B.4), FDI stocks are estimated by either cumulating FDI flows over a period of time oradding flows to an FDI stock that has been obtained for a particular year from nationalofficial sources or the IMF data series on assets and liabilities of direct investment.

In this year’s Report the IMF data on assets and liabilities of direct investmentwere also used for some countries. Those economies for which IMF data were used forthe period, 1980-2000, or part of it, are listed below.


Economy Inward stock Outward stock

Australia 1986-1989 None Austria 1980-1989 1980-1989 Bahrain 1989-1999 1989-1999 Belgium and Luxembourg 1981-1998 1981-1997 Bulgaria 1998-1999 1998-1999 Colombia None 1980-1991 El Salvador 1996-1999 1996-1999 Estonia 1996 None France None 1987-1989 Israel 1997-1999 1999 Italy None 1980-1998 Japan 1980-1999 1980-1999 Kyrgyzstan 1993-1998 None Latvia 1995 None Lithuania 2000 2000 Malaysia 1980-1994 None Myanmar 1999-2000 None Namibia 1989 None Netherlands 1980-1986 1980-1986 New Zealand 1989-2000 1992-2000 Norway None 1980-1987 Panama 1996-2000 None Paraguay None 1995-1999 Peru 1986-2000 1991-2000 Romania None 1990-1999 Spain None 1980-1991 Swaziland 1981-1990 1981-1990 Sweden 1982-1985 1982-1985 Switzerland None 1984-1989 Uruguay None 1983-1987 Venezuela None 1980-1999

C. Data revisions and updates

All FDI data and estimates in the World Investment Report are continuously revised.Because of the ongoing revision, FDI data reported in the World Investment Report maydiffer from those reported in earlier Reports or other publications of UNCTAD. In particular,recent FDI data are being revised in many economies according to the fifth edition of thebalance-of-payments manual of IMF. Because of this, the data reported in last year’s reportmay be completely or partly changed in this report.

The country coverage for this year’s World Investment Report was expanded toinclude: Bhutan, Eritrea, Occupied Palestinian Territories, São Tomé and Principe, Tuvaluand Yugoslavia.

D. Data verification

In compiling data for this year’s Report , requests for verifications and confirmationwere made to national official sources for virtually all economies to reflect the latest datarevisions and accuracy. In addition, Web sites of certain national official sources were alsoconsulted. This verification process continued until end of June 2001. Any revisions madeafter this process are not reflected in the Report .

Below is a list of economies for which data were checked through either means. Forthe economies, which are not mentioned below, the UNCTAD Secretariat could not havethe data verified or confirmed by respective governments.


Communiqués

Australia; Austria; Bahamas; Bangladesh; Banque Centrale de l'Afrique de l'Ouest; Belize; Botswana;Brazil; Burundi; Canada; China; Colombia; Costa Rica; Cyprus; Denmark; Egypt; Finland; France; Germany;Ghana; Greece; Guatemala; Guyana; Hong Kong, China; Iceland; India; Indonesia; Iran, Islamic Republicof; Jamaica; Republic of Korea; Kuwait; Mauritius; Mexico; Netherlands; Nicaragua; Oman; Pakistan,Philippines; Portugal; Rwanda; Seychelles; Singapore; South Africa; Spain; Swaziland; Sweden;Switzerland; Taiwan Province of China; Trinidad and Tobago; Tunisia; Turkey; United Kingdom; UnitedRepublic of Tanzania; Uganda; Uruguay; United States and Yemen

Web sites

Angola; Argentina; Aruba; Austria; Bahrain; Belgium and Luxembourg; Bolivia; Botswana; Bulgaria;Canada; Chile; Colombia; Costa Rica; Denmark; Dominican Republic; Eastern Caribbean Central Bank;Ecuador; Egypt; El Salvador; Ethiopia; Finland; France; Germany; Guatemala; Haiti; Honduras; HongKong, China; Iceland; India; Ireland; Italy; Japan; Republic of Korea; Kyrgyzstan; Malta; Morocco;Mozambique; Namibia; Nicaragua; Netherlands; Norway; Paraguay; Peru; Philippines; Portugal; SouthAfrica; Spain; Sri Lanka; Swaziland; Sweden; Switzerland; Taiwan Province of China; United Republicof Tanzania; Thailand; Tunisia; Turkey; United Kingdom; United States and Venezuela.

E. Definitions and sources of the data inannex tables B.5 - B.10

1. Annex tables B.5 - B.6

These two annex tables show the ratio of inward and outward FDI flows to grossfixed capital formation or gross domestic capital formation (annex table B.5) and inwardand outward FDI stock to GDP (annex table B.6), respectively. All of these data are incurrent prices.

The data on GDP were obtained from UNCTAD Secretariat. For some economiessuch as Taiwan Province of China, the data are supplemented from national sources. Thedata on gross fixed capital formation were obtained from IMF's international-financial-statisticsCD-ROM, June 2001.

For economies for which data on gross fixed capital formation were unavailable, thefollowing data were used from the above IMF's statistics:

Gross capital formation:

Barbados, Ethiopia, Indonesia, Nigeria, Oman, Romania, Suriname and Syrian Arab Republic

In the case of economies for which gross fixed capital formation data were unavailablefor the IMF, such as Taiwan Province of China, the data are supplemented from nationalsources or World Bank data on gross domestic fixed investment, obtained from the WorldDevelopment Indicators 2001 CD-ROM.

For annex table B.5, figures exceeding 100 per cent may result from the fact that,for some economies, the reported data on gross fixed capital formation do not necessarilyaccurately reflect the value of capital formation and that FDI flows do not necessarilytranslate into capital formation.

Data on FDI are from annex tables B.1-B.4.


2. Annex tables on M&As (B.7 - B.10)

FDI is a balance-of-payment concept, involving, thus, cross-border transfer of funds.Cross-border M&A statistics shown in the report are based on information reported byThomson Financial Securities Data Company. In some cases, these include M&As betweenforeign affiliates and firms located in the same host economy. Such M&As conform to theFDI definition as far as the equity share is concerned. However, the data do include purchasesvia domestic and international capital markets, which should not be considered as FDI flows.Although it is possible to distinguish types of financing used (syndicated loans, corporatebonds, venture capital etc.) for M&As, it is not possible to trace the origin or country sourcesof the funds used. Therefore, the data used in the report include the funds not categorizedas FDI.

FDI flows are recorded on a net basis (capital account credits less debits betweendirect investors and their foreign affiliates) in a particular year. On the other hand, M&Adata are expressed as the total transaction amount of particular deals, not as differencesbetween gross acquisitions and divestment abroad by firms from a particular country. Transactionamounts recorded in the UNCTAD M&A statistics are those at the time of closure of thedeals, not at the time of announcement. The M&A values are not necessarily paid out in asingle year.

Cross-border M&As are recorded in both directions of transactions; i.e. when across-border M&A takes place, it registers as both a sale in the country of the target firm(annex table B.7), and as a purchase in the home country of the acquiring firm (annex tableB.8). Data showing cross-border M&A activities on an industry basis are also recorded assales and purchases (annex tables B.9-B.10). Thus, if a food company acquires a chemicalcompany, this transaction is recorded in the chemical industry in the table on M&As byindustry of seller (annex table B.9) and also recorded in the food industry in the table onM&As by industry of purchaser (annex table B.10).

Notes

1 In some countr ies, an equity stake other than that of 10 per cent is s t i l l used. In the UnitedKingdom, for example, a stake of 20 per cent or more was a threshold unti l 1997.

2 This general defini t ion of FDI is based on OECD, Detailed Benchmark Definition of ForeignDirect Investment , third edition (Paris, OECD, 1996) and International Monetary Fund, Balanceof Payments Manual , f i f th edit ion (Washington, D.C., IMF, 1993).

3 There are, however, some exceptions. For example, in the case of Germany, loans granted byaffi l iate enterprises to their parent enterprises are not deducted from the stock.

4 International Monetary Fund, op. cit . , p. 40.5 Includes Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands,

Norway, Spain, Sweden, the United Kingdom and the United States .


291AN N EX B

Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (Millions of dollars)

1989-1994Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

World 200 145 331 068 384 910 477 918 692 544 1 075 049 1 270 764

Developed countries 137 124 203 462 219 688 271 378 483 165 829 818 1 005 178

Western Europe 79 757 117 175 114 852 137 516 273 398 485 321 633 163

European Union 76 634 113 480 109 642 127 626 261 141 467 154 617 321

Austria 1 045 1 904 4 426 2 654 4 533 2 975 9 374Belgium and Luxembourg 9 163 10 689 14 064 11 998 22 691 119 693 87 129Denmark 1 918 3 194 598 2 472 7 328 11 410 15 748Finland 646 1 063 1 109 2 119 12 144 4 605 8 228France 12 357 23 675 21 961 23 173 30 984 47 069 44 152Germany 3 376 12 025 6 572 12 245 24 277 55 940 176 055Greece 999 1 053 1 058 984 85 560 1 115Ireland 912 1 447 2 618 2 743 11 035 14 929 16 320Italy 3 338 4 842 3 546 3 700 2 635 6 749 11 383Netherlands 7 242 12 322 16 107 11 169 37 948 42 579 55 011Portugal 1 912 685 1 494 2 478 3 115 1 145 4 263Spain 11 123 6 161 6 585 7 697 14 214 15 758 36 615Sweden 3 366 14 453 5 070 10 968 19 564 60 801 21 499United Kingdom 19 236 19 969 24 435 33 227 70 590 82 941 130 428

Other Western Europe 3 123 3 695 5 210 9 890 12 257 18 167 15 843

Gibraltar 44 11a - 22a 126a - 162a 17a - 6a

Iceland 8 - 9 84 149 148 61 157Norway 764 1 470 2 070 2 979 3 331 6 698 6 353Switzerland 2 307 2 222 3 078 6 636 8 940 11 390 9 339

North America 48 227 68 029 94 090 114 923 197 009 320 126 344 450

Canada 5 692 9 257 9 635 11 525 22 575 25 150 63 335United States 42 535 58 772 84 455 103 398 174 434 294 976 281 115

Other developed countries 9 139 18 258 10 745 18 938 12 757 24 371 27 565

Australia 5 790 11 970 6 110 7 670 5 983 6 355 11 675Israel 380 1 349 1 387 1 628 1 754 2 363 5 349a

Japan 969 39 200 3 200 3 268 12 741 8 187New Zealand 1 940 3 659 2 231 2 624 1 191 1 410 1 477a

South Africa 60 1 241 818 3 817 561 1 502 877

Developing countries and economies 59 578 113 338 152 493 187 352 188 371 222 010 240 167

Africa 3 952 4 694 5 622 7 153 7 713 8 971 8 198

North Africa 1 533 1 209 1 214 2 359 2 299 2 530 2 616

Algeria 12 5 4 7 5 7 6a

Egypt 741 598 636 891 1 076 1 065 1 235Libyan Arab Jamahiriya 76 - 107 - 135 - 82 - 152 - 128 -a

Morocco 352 335 357 1 079 329 847 201Sudan - 5 -a - 98 371 371 392Tunisia 358 378 351 366 670 368 781

Other Africa 2 419 3 485 4 408 4 795 5 415 6 442 5 582

Angola 215 472 181 412 1 114 2 471 1 800a

Benin 56 13 36 27 38 61 30Botswana - 29 70 70 100 96 37 30

/ . . .


Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (continued) (Millions of dollars)


Burkina Faso 7 10 17 13 10 13 12a

Burundi - 2 - - 2 - 12Cameroon - 31 7 35 45 50 40 45a

Cape Verde 1 26 29 12 9 15a 30a

Central African Republic - 3 3 5 6 5 13 8a

Chad 13 13 18 15 16 15 50a

Comoros - - 2 2 2 1 2a

Congo 4 3 8 9 4 5 6a

Congo, Democratic Republic of - 2 1 2 1 1 1 1a

Côte d’Ivoire 75 268 302 450 314 279 290a

Djibouti - 3 5 5 6 5 5a

Equatorial Guinea 16 127 376 20 24 120 55a

Eritrea .. .. .. -a - 2a 1a -a

Ethiopia 7 14 22 288 261 68a 80a

Gabon - 16 - 113 312 143 211 200 90a

Gambia 9 8 12 13 14 14 14a

Ghana 72 107 120 82 56 63 110Guinea 15 - 24 17 18 63 33a

Guinea-Bissau 2 -a 1a 10a -a 3 5a

Kenya 25 32 13 40 42 42 60a

Lesotho 169 275 286 269 262 136 223a

Liberia 154 21 17 15 16 10 14a

Madagascar 15 10 10 14 16 58 29a

Malawi 12 25 44 22 70 60 51a

Mali 2 123 47 74 36 51 56Mauritania 6 7 5 3 - 2 2a

Mauritius 24 19 37 55 12 49 277Mozambique 21 45 73 64 213 382 139Namibia 70 153 129 84 77 111 124Niger 17 16 20 25 9 - 11a

Nigeria 1 231 1 079 1 593 1 539 1 051 1 005 1 000a

Rwanda 7 2 2 3 7 2 4a

São Tomé and Principe .. -a -a -a -a -a -a

Senegal 19 35 5 177 60 136 107Seychelles 20 40 30 54 55 60 56Sierra Leone 8 - 2 5 4 5 1 3a

Somalia - 5 1 .. .. -a 61a 20a

Swaziland 67 44 22 - 15 165 90 - 37Togo 6 38 27 23 42 70 60Uganda 23 121 121 175 210 222 254United Republic of Tanzania 15 150 149 158 172 183 193Zambia 90 97 117 207 198 163 200a

Zimbabwe 13 118 81 135 444 59 30a

Latin America and the Caribbean 17 506 32 311 51 279 71 152 83 200 110 285 86 172

South America 7 647 19 546 30 694 45 264 53 303 75 863 55 081

Argentina 2 694 5 609 6 949 9 162 7 281 24 147 11 152Bolivia 96 374 426 879 955 1 014 731Brazil 1 498 5 475 10 496 18 743 28 480 31 362 33 547Chile 1 220 2 956 4 633 5 219 4 638 9 221 3 674Colombia 346 1 321 1 880 2 933 4 186 4 002 273Ecuador 271 470 491 695 831 636 708Guyana 57 74 93 53 47 48 67Paraguay 79 98 144 230 336 66 96Peru 673 2 048 3 242 1 697 1 880 1 969 556Suriname - 82 - 21 19 - 9 9 - 18a - 12a

/ . . .

293AN N EX B



Uruguay 63 157 137 126 164 229 180Venezuela 732 985 2 183 5 536 4 495 3 187 4 110

Other Latin America and the Caribbean 9 859 12 765 20 585 25 889 29 898 34 422 31 090

Anguilla 10b 18 33 21 28 40 48a

Antigua and Barbuda 36 31 19 23 27 27 31a

Aruba 34 1 84 196 84 392 - 228Bahamas 10 107 88 210 147 149 251Barbados 11 12 13 15 16i 17 14a

Belize 16 21 17 12 19 56 28Bermuda 1 553 641a 3 971a 2 928a 5 395a 6 443a 6 648a

Cayman Islands 179 42a 1 232a 3 151a 4 348a 6 468a 4 783a

Costa Rica 202 337 427 407 612 620 400Cuba 6 5a 19a 1a 15a 9a 13a

Dominica 17 54 18 21 7 18 16a

Dominican Republic 161 414 97 421 700 1 338 953El Salvador 12 38 - 5 59 1 104 231 185Grenada 17 20 19 35 51 46 37a

Guatemala 88 75 77 85 673 155 228Haiti 4 - 2 4 4 11 30 13Honduras 48 69 90 128 99 237 282Jamaica 144 147 184 203 369 524 456Mexico 6 571 9 526 9 902 13 841 11 612 11 915 13 162Montserrat 6 3 - 3 3 8 2a

Netherlands Antilles 22 10 2 826a 1 038a 892a 401a 777a

Nicaragua 28 75 97 173 184 300 265Panama 167 267 410 1 256 1 219 517 393Saint Kitts and Nevis 25 20 35 20 32 42 38a

Saint Lucia 39 33 18 48 83 94 75a

Saint Vincent and the Grenadines 20 31 43 92 89 46 76a

Trinidad and Tobago 250 299 355 1 000 732 643 662Virgin Islands 186 470 510 500 1 348a 3 656a 1 483a

Asia and the Pacific 37 888 75 856 94 506 107 347 95 850 100 030 143 763

Asia 37 659 75 293 94 351 107 205 95 599 99 728 143 479

West Asia 2 181 - 2 2 892 5 488 6 580 936 3 427

Bahrain 237 431 2 048 329 180 448 500a

Cyprus 91 82 50 68 56 65 63a

Iran, Islamic Republic of - 23 17 26 53 24 33a 36a

Iraq 1 2a .. 1a 7a - 7a -a

Jordan 6 13 16 361 310 158 300a

Kuwait - 4 7 347 20 59 72 16Lebanon 10 35 80 150 200 250 180a

Oman 119 29 60 65 101 21 62a

Occupied Palestinian Territory .. .. 4a .. .. 1a -a

Qatar 48 94a 339a 418a 347a 144a 303a

Saudi Arabia 502 - 1 877 - 1 129 3 044 4 289 - 782 1 000a

Syrian Arab Republic 98 100 89 80 80 91 84a

Turkey 708 885 722 805 940 783 982United Arab Emirates 90 399a 301a 232a 253a - 13a 100a

Yemen 300 - 218 - 60 - 139 - 266 - 329 - 201

Central Asia 399 1 655 2 053 3 210 3 015 2 568 2 704

Armenia 7 25 18 52 232 130 133a

Azerbaijan 22c 330 627 1 115 1 023 510 883a

/ . . .




Georgia 8c 5 45 243 265 82 197a

Kazakhstan 677d 964 1 137 1 321 1 152 1 587 1 249Kyrgyzstan 24e 96 47 83 109 35 19Tajikistan 10c 15 16 4 30 21 24Turkmenistan 100c 100 108 108 64 80 100Uzbekistan 45d 120 55 285 140 121 100

South, East and South-East Asia 35 078 73 639 89 406 98 507 86 004 96 224 137 348

Afghanistan -f -a -a - 1a -a 6a 2Bangladesh 6 2 14 141 190 179 170a

Bhutan 1g -a 1a -a .. .. ..Brunei Darussalam 6b 13a - 69a 2a - 20a - 38a - 19a

Cambodia 52d 151 294 204 121 135 153a

China 13 951 35 849 40 180 44 237 43 751 40 319 40 772Hong Kong, China 4 164 6 213a 10 460a 11 368 14 776 24 591 64 448India 394 2 144 2 591 3 613 2 614 2 154 2 315Indonesia 1 524 4 346 6 194 4 677 - 356 - 2 745 - 4 550Korea, Democratic People’s Republic of 119 -a 2a 307a 31a - 15a 108a

Korea, Republic of 869 1 776 2 325 2 844 5 412 10 598 10 186Lao People’s Democratic Republic 19 95 160 91 46 79 72a

Macau, China - 2 2a 6a 2a - 18a 9a - 2a

Malaysia 3 964 5 816 7 296 6 513 2 700 3 532 5 542Maldives 6 7 9 11 12 12 12a

Mongolia 7f 10 16 25 19 30 25a

Myanmar 135 277 310 387 314 253 240Nepal 4 8 19 23 12 4 13a

Pakistan 304 719 918 713 507 531 308Philippines 879 1 459 1 520 1 249 1 752 737 1 489Singapore 4 798 8 788 10 372 12 967 6 316 7 197 6 390Sri Lanka 102 65 133 435 206 177 217Taiwan Province of China 1 229 1 559 1 864 2 248 222 2 926 4 928Thailand 1 927 2 004 2 271 3 627 5 143 3 562 2 448Viet Nam 651 2 336 2 519 2 824 2 254 1 991 2 081

The Pacific 229 564 155 142 251 302 284

Fiji 61 70 2 16 107 - 33 30a

Kiribati - -a -a 1 -a -a -a

New Caledonia 12 -a -a 10a -a 4a 5a

Papua New Guinea 116 455 111 29 110 296 200a

Samoa 5b 3a 1a 20a 3 2a 8a

Solomon Islands 13 2 6 34 9 10 18a

Tonga - 2 2 3 2 2 2a

Tuvalu -d .. -a .. -a -a -a

Vanuatu 22 31 33 30 20 20 20a

Developing Europe 232 477 1 085 1 699 1 608 2 723 2 035

Bosnia and Herzegovina .. -a - 2 1 10 90 117Croatia 119e 114 511 540 935 1 474 899Malta 70 132 277 81 267 822 639Slovenia 71 176 186 321 165 181 181TFYR Macedonia 24c 10 12 16 118 32 170Yugoslavia 95c 45 102 740 113 124 29

Central and Eastern Europe 3 444 14 268 12 730 19 188 21 008 23 222 25 419

Albania 33f 70 90 48 45 41 92Belarus 12d 15 105 352 203 444 90Bulgaria 50b 90 109 505 537 819 1 002Czech Republic 563 2 562 1 428 1 300 3 718 6 324 4 595

/ . . .

295AN N EX B

Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (concluded) (Millions of dollars)


Estonia 153d 202 151 267 581 305 398Hungary 1 152 4 453 2 275 2 173 2 036 1 944 1 957Latvia 95d 180 382 521 357 348 407Lithuania 24d 73 152 355 926 486 379Moldova, Republic of 20d 67 24 79 74 39 128Poland 788 3 659 4 498 4 908 6 365 7 270 10 000Romania 140f 420 265 1 215 2 031 1 041 998Russian Federation 850d 2 016 2 479 6 638 2 761 3 309 2 704Slovakia 137b 195 251 206 631 356 2 075Ukraine 186d 267 521 624 743 496 595

Memorandum

Least developed countries h

Total 1 430 2 016 2 450 2 976 3 679 5 176 4 414Africa 890 1 659 1 657 2 170 3 207 4 774 3 894Latin America and the Caribbean 4 - 2 4 4 11 30 13Asia and the Pacific 535 359 788 802 461 373 508Asia 497 323 748 717 429 340 461West Asia 300 - 218 - 60 - 139 - 266 - 329 - 201South, East and South-East Asia 197 540 808 855 695 669 662

The Pacific 38 37 41 85 33 33 47

Oil-exporting countries i

Total 5 370 6 652 13 198 18 180 13 256 5 250 5 915Africa 1 521 1 339 1 963 2 028 2 233 3 560 2 902North Africa 87 - 102 - 131 - 75 - 147 - 121 6Other Africa 1 434 1 441 2 094 2 103 2 380 3 681 2 896Latin America and the Caribbean 1 253 1 754 3 030 7 231 6 058 4 466 5 480South America 1 003 1 455 2 674 6 231 5 326 3 823 4 818Other Latin America and

the Caribbean 250 299 355 1 000 732 643 662Asia 2 596 3 559 8 205 8 921 4 964 - 2 776 - 2 467West Asia 1 067 - 800 2 081 4 242 5 340 7 2 102South, East and South-East Asia 1 529 4 359 6 125 4 679 - 376 - 2 783 - 4 569

All developing countries minus China 45 627 77 489 112 313 143 115 144 620 181 691 199 395

Developed Asia 1 349 1 388 1 588 4 828 5 022 15 104 13 536Developed Pacific 7 730 15 628 8 340 10 294 7 174 7 764 13 152

Africa including South Africa 4 013 5 936 6 440 10 970 8 274 10 474 9 075Other Africa including

South Africa 2 479 4 727 5 226 8 611 5 976 7 944 6 459

Central and Eastern Europeand Developing Europe(excluding Malta) 3 605 14 612 13 539 20 806 22 348 25 123 26 815

S o u r c e : UNCTAD, FDI /TNC database.a Est imates. For detai ls , see “def in i t ions and sources” in annex B.b Annual average f rom 1990 to 1994.c 1 9 9 4 .d Annual average f rom 1992 to 1994.e Annual average f rom 1993 to 1994.f Annual average f rom 1991 to 1994.g Annual average f rom 1990 to 1991.h Least developed countr ies include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde, CentralAfr ican Republ ic, Chad, Comoros, Democrat ic Republ ic of Congo, Dj ibout i , Equator ial Guinea, Er i t rea, Ethiopia, Gambia, Guinea, Guinea-Bissau, Hait i , Kir ibat i , Lao People's Democrat ic Republ ic, Lesotho, Liber ia, Madagascar, Malawi, Maldives, Mal i , Mauri tania, Mozambique,Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan, Togo, Tuvalu,Uganda, United Republ ic of Tanzania, Vanuatu, Yemen and Zambia.i Oi l -export ing countr ies inc lude: Alger ia, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, I ran, Is lamic Republ icof, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab Emiratesand Venezuela.


Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (Millions of dollars)


World 228 281 355 284 391 554 466 030 711 914 1 005 782 1 149 903

Developed countries 203 231 305 847 332 921 396 868 672 027 945 687 1 046 335

Western Europe 114 151 173 624 204 317 242 425 475 226 761 102 820 322

European Union 105 194 159 036 183 180 220 416 454 266 720 052 772 949

Austria 1 334 1 131 1 934 1 987 2 745 3 301 3 346Belgium and Luxembourg 6 126 11 603 8 026 7 252 28 675 122 304 82 977Denmark 2 195 2 347 1 984 3 715 44 920 12 557 8 561Finland 1 750 1 497 3 595 5 278 18 637 6 613 23 154France 20 448 15 756 30 420 35 583 48 612 120 617 172 478Germany 19 515 39 049 50 804 41 798 88 581 109 795 48 557Greece - 14b 66a - 18a 4a 262 - 555 - 2 141Ireland 305 820 727 1 008 3 906 4 267 2 090Italy 5 634 7 024 8 697 10 414 12 407 6 746 12 098Netherlands 13 421 20 201 32 115 24 607 37 424 61 264 73 054Portugal 305 688 784 1 908 3 009 3 340 5 784Spain 3 125 4 076 5 397 12 626 18 926 42 084 53 716Sweden 6 796 11 215 4 667 12 648 24 369 21 924 39 481United Kingdom 24 249 43 562 34 047 61 590 121 794 205 795 249 794

Other Western Europe 8 957 14 588 21 137 22 009 20 960 41 050 47 373

Iceland 14 24 63 55 74 117 382Norway 1 146 2 354 4 922 4 221 2 120 4 982 7 368Switzerland 7 798 12 210 16 152 17 732 18 767 35 952 39 623

North America 54 846 103 538 97 523 118 835 165 588 160 966 183 304

Canada 5 822 11 464 13 097 23 066 34 584 18 415 44 047United States 49 024 92 074 84 426 95 769 131 004 142 551 139 257

Other developed countries 34 234 28 685 31 081 35 608 31 213 23 620 42 709

Australia 2 522 3 284 7 086 6 449 3 381 - 2 906 5 231Israel 429 733 1 042 795 972 1 030 2 685a

Japan 29 576 22 508 23 442 26 059 24 152 22 743 32 886New Zealand 1 062 - 337 - 1 533 - 45 928 803 1 342a

South Africa 645 2 498 1 044 2 351 1 779 1 949 564

Developing countriesand economies 24 925 48 987 57 584 65 745 37 750 57 978 99 546

Africa 876 509 28 1 704 897 632 744

North Africa 10 194 101 429 372 284 382

Algeria 21 .. .. .. .. .. ..Egypt 29 93 5 129 46 38 51Libyan Arab Jamahiriya - 47 83 63 282 304 226 271a

Morocco 23c 15 30 9 20 18 59Tunisia 4 3 2 9 2 3 2

Other Africa 866 316 - 73 1 275 526 348 362

Angola -c - - - 1a - 1a -a -a

Benin .. .. 12 12 2 23 1Botswana 9c 41 - 1 4 4 1 4Burkina Faso 4d - - 1 5 5 4a

/ . . .

297AN N EX B

Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (continued) (Millions of dollars)


Burundi - - - - - - -Cameroon 20 - .. .. .. .. ..Cape Verde - - - - -a -a -a

Central African Republic 5 6a 6a 6a 6a 6a 6a

Chad 10 8a 7a 5a 7a 6a 6a

Comoros -e .. .. .. .. .. ..Côte d’Ivoire 92c 56 33 34 36 27 32a

Equatorial Guinea -f - - .. .. .. ..Ethiopia .. .. .. 8 171 - 46 44a

Gabon 13 - 1a - 1a -a -a -a -a

Ghana .. .. 150a 50a 30a 77a 52a

Kenya -g 13 25 5 14 30 40a

Lesotho -h .. .. .. .. .. ..Liberia 105 - 96a - 430a 1 028a .. .. ..Madagascar - i .. .. .. .. .. ..Malawi .. .. 2a - 6 3a 3a

Mali - j - 4 5 27 50 6Mauritania -k .. .. .. .. .. ..Mauritius 15 4 3 3 14 6 13Mozambique - i .. - - - -a -a

Namibia 2c - 4 - 22 1 1 2 2Niger 9 2 18 8 10 - 6a

Nigeria 538 104 42 58 107 92 86a

Rwanda -l .. .. - - -a -a

Senegal 8 - 3 2 - 10 6 18Seychelles 3 16 13 10 3 9 7Sierra Leone -c - .. .. .. .. ..Swaziland 18 30 - 11 - 10 23 10 - 14Togo 4 6 13 4 22 41 23Uganda 30 119 11 15 20 - 8 9a

United Republic of Tanzania -m .. .. .. - -a -a

Zimbabwe 11 13 51 28 9 9 15a

Latin America and the Caribbean 3 698 7 306 5 549 14 391 8 048 21 753 13 442

South America 1 826 3 779 3 884 8 228 9 045 8 860 9 747

Argentina 482 1 498 1 600 3 654 2 323 1 249 912Bolivia 2 2 2 2 3 3 2a

Brazil 595 1 163 520 1 660 2 609 1 375 2 984Chile 314 751 1 188 1 866 2 797 4 855 4 778Colombia 65 285 68 442 1 041 623 625Ecuador - 2d 2a 1a .. .. -a -a

Guyana - j -a - 1a .. .. -a -a

Paraguay 9c 5 5 6 6 6 6a

Peru 9j 8 - 17 85 24 220a 110a

Uruguay 3 - 26a 11a 13 9 11a 9Venezuela 357 91 507 500 233 518 321

Other Latin America and the Caribbean 1 872 3 527 1 665 6 163 - 997 12 893 3 695

Antigua and Barbuda - 1a - 2a - 1a - 2a .. 1a -a

Aruba 3j 2 - - 2 1 - 8 12Bahamas - - - - 1 - -a

Barbados 2 3 4 1 - 1 1a

Belize 2 3 6 4 6 10 10Bermuda 107 501a - 144a 1 853a - 139a 9 737a 74a

Cayman Islands 114 450a 400a 1 800a 100a 100a 667a

Costa Rica 4 6 6 4 5 5 3Dominica - 2f .. .. - 2 2 2a

/ . . .




Dominican Republic 7j 15 14 1a 1a 6 3a

El Salvador -f .. 2 .. .. 54 - 7Grenada - l .. .. .. .. .. ..Guatemala - 20n - 24a 2a 1a 2a 2a 2a

Haiti - 6c 1a 1a -a -a -a -a

Honduras -c - 2a - 2a - 1a - 1a 1a -a

Jamaica 47c 66 93 57 82 95 74Mexico 349 - 263 38 1 108 1 363 1 214a 1 600a

Netherlands Antilles 1 - - 1 242a - 2 434a - 2 712a 36a 1 108a

Nicaragua -o .. - 9a .. .. - 2a -a

Panama 216 329a 860a 328a 1 121a - 124a - 1 248a

Saint Kitts and Nevis -c - 2a - 2a - 2a - 1a - 1a - 1a

Saint Lucia -e - .. .. .. .. ..Saint Vincent and the Grenadines -c .. - .. .. .. ..Trinidad and Tobago -c 1a 1a 1a 1a 264 25Virgin Islands 3 130d 2 444a 1 639a 3 444a - 830a 1 500a 1 371a


Asia 20 335 41 149 51 924 49 393 28 617 35 421 85 204

West Asia 294 - 991 2 273 - 281 - 1 698 656 1 284

Bahrain 63 - 16 305 48 181 163 131a

Cyprus 10 16 35 27 57 166 83a

Iran, Islamic Republic of 25j 3a -a 61a 17a 30a 36a

Jordan - 13 - 27 - 43 181 121 5 102a

Kuwait 232 - 1 022 1 740 - 969 - 1 867 23 254Lebanon 1 - 2a - 2a - 3a - 5a - 1a - 4a

Oman - 1a 1a - - 10a 3a

Qatar .. 30a 40a 20a 20a 30a 23a

Saudi Arabia - 28 13a 187a 195a - 472a - 125a - 134a

Syrian Arab Republic .. - 100 - 89 - 80 - 82 - 263 - 142a

Turkey 28c 113 110 251 367 645 870United Arab Emirates - 7 1a - 11a - 11a - 33a - 27a 61a

Central Asia 1j 316 - 13 191 329 318 280

Armenia .. .. .. .. 12 13 8a

Azerbaijan .. 175 36 64 137 336 179a

Georgia - 2n 2 - 14 7 44 1 17aKazakhstan -n - - 1 8 4 4Kyrgyzstan .. .. - - - - -a

Tajikistan .. .. .. .. - 17 6a

Turkmenistan .. .. .. .. 68 - 45 8a

Uzbekistan 2j 139 - 35 118 60 - 8 57a


Bangladesh - 2 13 5 30 24 20a

Brunei Darussalam 26p 20a 40a 10a 10a 20a 13a

Cambodia 2o .. .. .. .. .. ..China 2 154 2 000 2 114 2 563 2 634 1 775 2 324a

Hong Kong, China 9 236 25 000a 26 531a 24 407a 16 973 19 339 63 036India 19 119 244 113 48 79 336Indonesia 752 1 319 600 178 44 72 150Korea, Republic of 1 350 3 552 4 670 4 449 4 740 2 550 3 697Lao People’s Democratic Republic -q - .. - 5 - - - 2a

Malaysia 681 2 488 3 768 2 626 785 1 640 2 919Maldives -c - .. .. .. .. ..

/ . . .

299AN N EX B



Mongolia .. 1a - 2e - 1a 1a

Myanmar - 12n - 42 8 - 26 43 59 25a

Pakistan 5 - 7 - 25 5 - 21 - 11Philippines 139 98 182 136 160 128 95Singapore 1 915 3 442 6 827 9 360 555 4 011 4 276Sri Lanka 4 7 .. - - 5a 2a

Taiwan Province of China 3 578 2 983 3 843 5 243 3 836 4 420 6 701Thailand 201 835 816 447 124 344 59

The Pacific 12 - 2 10 30 63 53 49

Fiji 15 - 3 10 30 63 53 49a

Kiribati -n .. .. .. .. .. ..Papua New Guinea - 4r - .. .. - -a -a

Solomon Islands - i .. .. .. .. .. ..Tonga -f .. .. .. .. .. ..

Developing Europe 4 24 73 227 125 118 107

Bosnia and Herzegovina 1j 8 29 - 2 .. .. ..Croatia 13d 6 30 186 97 35 28Malta -d 5 6 17 15 45 30Slovenia - 1j 6 8 26 11 38 48TFYR Macedonia .. .. - 1 1 1 1a

Central and Eastern Europe 125 450 1 049 3 417 2 137 2 118 4 022

Albania 12j 12 10 10 1 7a 6a

Belarus -o 8 3 2 2 - -Bulgaria -h - 8 - 29 - 2 - 17 - 2Czech Republic 77j 37 153 25 127 90 118Czechoslovakia (former) 12g .. .. .. .. .. ..Estonia 3j 2 40 137 6 83 157Hungary 22b 43 - 3 431 481 249 532Latvia - 22j - 65 3 6 54 17 8Lithuania .. 1 - 27 4 9 13Moldova, Republic of 18n - - - - - -Poland 14 42 53 45 316 31 126Romania 8c 3 2 - - 9 16 - 11Russian Federation 122d 358 771 2 597 1 011 1 963 3 050Slovakia 13j 8 52 95 146 - 372 23Ukraine 8n 10 - 5 42 - 4 7 1

Memorandum

Least developed countries s

Total 156 2 - 332 1 065 359 171 169Africa 162 42 - 354 1 092 286 87 126Latin America and the Caribbean - 6 1 1 - - - -Asia and the Pacific - 2 - 41 21 - 27 73 84 43Asia - 2 - 41 21 - 27 73 84 43South, East and South-East Asia - 2 - 41 21 - 27 73 84 43The Pacific - - - - - - -

Oil-exporting countries t

Total 1 905 528 3 427 291 - 1 540 1 032 1 097Africa 515 186 104 339 409 316 355 North Africa - 37 83 63 282 304 226 271

Other Africa 552 103 41 57 105 90 84

/ . . .


Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (concluded) (Millions of dollars)


Latin America and the Caribbean 356 94 509 501 234 783 346South America 357 93 508 500 233 519 321Other Latin America and

the Caribbean - 1 1 1 1 264 25Asia 1 034 249 2 813 - 549 - 2 183 - 67 396

West Asia 274 - 1 090 2 173 - 737 - 2 237 - 159 232South, East and South-East Asia 761 1 339 640 188 54 92 163


Developed Asia 30 005 23 241 24 484 26 854 25 124 23 773 35 572Developed Pacific 3 584 2 947 5 553 6 404 4 309 - 2 102 6 573

Africa including South Africa 1 521 3 007 1 072 4 055 2 677 2 581 1 308 Other Africa including South Africa 1 511 2 813 971 3 626 2 305 2 297 926

Central and Eastern Europe and Developing Europe (excluding Malta) 129 469 1 117 3 627 2 247 2 191 4 099

S o u r c e : UNCTAD, FDI /TNC database.a Est imates. For detai ls , see “def in i t ions and sources” in annex B.b Annual average f rom 1991 to 1994.c Annual average f rom 1990 to 1994.d Annual average f rom 1993 to 1994.e Annual average f rom 1990 to 1991.f Annual average f rom 1989 to 1993.g Annual average f rom 1989 to 1991.h 1 9 9 2 .i Annual average f rom 1990 to 1992.j Annual average f rom 1992 to 1994.k 1 9 9 0 .l Annual average f rom 1990 to 1993.m Annual average f rom 1992 to 1993.n 1 9 9 4 .o 1 9 9 3 .p Annual average f rom 1991 to 1993.q 1 9 9 1 .r Annual average f rom 1989 to 1992.s Least developed countr ies include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,

Central African Republic, Chad, Comoros, Democratic Republic of Congo, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gambia, Guinea,Guinea-Bissau, Hait i , Kir ibat i , Lao People's Democrat ic Republ ic, Lesotho, Liber ia, Madagascar, Malawi, Maldives, Mal i , Mauri tania,Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,Togo, Tuvalu, Uganda, United Republ ic of Tanzania, Vanuatu, Yemen and Zambia.

t Oil-export ing countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republicof, Iraq, Kuwait, Libyan Arab Jamahir iya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates and Venezuela.

301AN N EX B

Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 1999 and 2000 a

(Mil l ions of dollars)

Host region/economy 1980 1985 1990 1995 1999 2000

World 615 805 893 567 1 888 672 2 937 539 5 196 046 6 314 271

Developed countries 374 968 546 281 1 397 983 2 051 739 3 353 701 4 210 294

Western Europe 200 814 254 139 786 607 1 208 564 1 944 544 2 501 470

European Union 185 738 236 507 739 561 1 131 427 1 835 045 2 376 244

Austria 3 163 3 762 9 884 17 532 23 472 27 400Belgium and Luxembourg 7 306 18 447 58 388 116 570 285 015b 372 144b

Denmark 4 193 3 613 9 192 23 801 36 420 52 168c

Finland 540 1 339 5 132 8 465 18 315 23 037France 22 862d 33 636d 100 043 185 374 240 797 266 653Germany 36 630 36 926 119 619 192 898 284 899 460 953c

Greece 4 524 8 309 14 016e 19 306e 21 993e 23 107e

Ireland 3 749 4 649 5 502f 11 706f 43 031f 59 351f

Italy 8 892 18 976 57 985 63 456 108 542 115 085Netherlands 19 167 24 952 66 958 112 433 192 578 247 589c

Portugal 3 665g 4 599g 10 571 18 381 22 873 26 560Spain 5 141 8 939 65 916 130 657 115 495 142 420Sweden 2 891 4 333 12 461 31 089 74 018 76 980United Kingdom 63 014 64 028 203 894 199 760 367 598 482 798

Other Western Europe 15 077 17 632 47 045 77 136 109 499 125 225

Gibraltar h 33 98 263 432 391 385Iceland ..i, j 64j 147 129 476 518Norway 6 577k 7 412k 12 391 19 513 30 738l 37 091l

Switzerland 8 506 10 058 34 245 57 063 77 893 87 232c

North America 137 195 249 249 507 783 658 734 1 136 615 1 432 948

Canada 54 149 64 634 112 872 123 181 170 983 194 321United States 83 046 184 615 394 911 535 553 965 632 1 238 627

Other developed countries 36 959 42 893 103 593 184 441 272 542 275 877

Australia 13 173 25 049 73 644 104 074 123 094 113 610Israel 1 633m 2 038m 2 940m 6 269m 18 000 23 350c

Japan 3 270 4 740 9 850 33 508 46 116 54 303c

New Zealand 2 363 2 043 7 938 25 574 33 555 31 960South Africa 16 519 9 024 9 221 15 016 51 777 52 654c

Developing countriesand economies 240 837 347 237 487 694 849 376 1 740 377 1 979 262

Africa 16 195 24 830 39 427 60 898 88 771 95 381

North Africa 5 567 8 952 15 259 24 337 32 021 33 347

Algeria h 1 320 1 281 1 316 1 377 1 400 1 407Egypt h 2 260 5 703 11 043 14 102 17 770 19 005Libyan Arab Jamahiriya h ..i ..i ..i ..i ..i ..iMorocco h 189 440 917 3 034 5 647 5 848Sudan h 28 76 54 53 893 1 285Tunisia 5 835n 6 876n 7 259 11 038 12 075 11 566

/ . . .


Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 1999 and 2000 a (continued)



Other Africa 10 627 15 878 24 168 36 561 56 750 62 034

Angola h 61 675 1 024 2 921 7 098 8 898Benin h 32 34 159 386 548 578Botswana 698n 947n 1 309 1 126 1 387 1 226Burkina Faso h 18 24 39 86 138 150Burundi h 7 24 30 33 36 47Cameroon h 330 1 125 1 044 1 062 1 232 1 277Cape Verde .. .. 4o 38o 102o 132o

Central African Republic h 50 77 95 76 105 113Chad h 123 187 243 305 369 419Comoros p 2 2 17 19 26 28Congo h 314 484 569 586 612 618Congo, Democratic Republic of h 532 444 373 382 387 388Côte d’Ivoire h 530 699 975 1 624 2 968 3 258Djibouti q 3 3 6 14 35 40Equatorial Guinea .. 6r 25r 239r 779r 834r

Eritrea .. .. .. .. -s -s

Ethiopia h 110 114 128 169 808 888Gabon h 512 833 1 208 954 1 820 1 910Gambia h 21 20 36 81 134 147Ghana h 229 272 315 822 1 143 1 253Guinea q 1 2 69 131 254 287Guinea-Bissau t - 4 8 16 31 36Kenya h 391 481 673 736 873 933Lesotho u 5 26 155 1 343 2 296 2 519Liberia h 599 991 2 184 2 246 2 304 2 318Madagascar h 37 48 104 169 268 297Malawi h 100 137 185 250 446 496Mali v 12 33 38 162 371 427Mauritania h ..i 39 57 92 103 104Mauritius h 20 37 163 251 404 681Mozambique h 15 17 42 202 933 1 072Namibia 1 935d 1 951d 2 047 1 708 1 520 1 644Niger h 188 203 284 361 415 427Nigeria h 2 405 4 417 8 072 14 065 19 254 20 254Rwanda h 54 133 213 231 244 248São Tomé and Principe .. .. -o -o 1o 1o

Senegal h 150 188 268 333 712 818Seychelles h 54 105 204 321 521 577Sierra Leone h 77 66 ..i ..i 2 5Somalia h 29 4 ..i ..i 58 78Swaziland 243w 104 336 535 559 414Togo h 176 210 268 307 469 529Uganda h 9 7 4 272 1 000 1 255United Republic of Tanzania h 47 91 93 325 987 1 180Zambia v 330 425 987 1 256 1 941 2 141Zimbabwe h 186 187 124 342 1 061 1 091

Latin America and the Caribbean 49 960 79 673 116 678 201 616 520 282 606 907

South America 29 253 42 136 66 699 112 159 330 174 385 709

Argentina 5 344 6 563 9 085 27 828 62 289 73 441c

Bolivia 420 592 1 026 1 564 4 843 5 574c

Brazil 17 480 25 664 37 143 42 530 164 105 197 652c

Chile 886 2 321 10 067 15 547 39 258x 42 933x

/ . . .

303AN N EX B




Colombia 1 061 2 231 3 500 6 407 19 408 19 682Ecuador 719 982 1 626 3 434 6 088y 6 796y

Guyana h ..i ..i ..i 366 606 673Paraguay h 218 298 396 884 1 661 1 756Peru 898 1 152 1 330 5 991 8 890 9 900Suriname h ..i 40 ..i ..i ..i ..iUruguay h 727 794 1 007 1 464 2 120 2 300Venezuela 1 604 1 548 2 260 6 975 21 736 25 846c

Other Latin America and the Caribbean 20 707 37 536 49 979 89 457 190 108 221 198

Anguilla .. .. 11z 69z 192z 240z

Antigua and Barbuda u 23 94 292 437 533 564Aruba aa .. .. 132 204 959 732Bahamas h 523 519 562 718 1 313 1 564Barbados h 102 124 169 225 287 301Belize h 12 10 73 153 256 284Bermuda h 5 131 8 053 13 849 23 996 42 733 49 382Cayman Islands ab 222 1 479 1 749 2 737 17 936 22 719Costa Rica 672 957 1 447 2 733y 4 798y 5 198y

Cuba h - - 2 40 84 97Dominica u - 11 71 197 260 276Dominican Republic 239 265 572 1 707y 4 261y 5 214y

El Salvador 154ac 181ac 212ac 293 1 815 2 001c

Grenada u 1 13 70 167 319 357Guatemala h 701 1 050 1 734 2 202 3 190 3 418Haiti h 79 112 149 153 202 215Honduras h 92 172 383 646 1 200 1 482Jamaica h 501 458 727 1 504 2 784 3 240Mexico 8 105aad 18 802ad 22 424 41 130 78 060 91 222Montserrat .. .. 40ae 62ae 75ae 77ae

Netherlands Antilles h 539 27 177 293 5 450 6 227Nicaragua h 109 109 115 354 1 108 1 373Panama 2 426g 3 107g 2 163g 3 245 6 711 7 104Saint Kitts and Nevis af 1 32 160 244 373 411Saint Lucia ag 93 197 315 512 756 831Saint Vincent and the Grenadines p 1 9 48 181 451 527Trinidad and Tobago 976 1 719 2 093 3 634y 6 364y 7 026y

Virgin Islands ag 1 39 240 1 622 7 636 9 119


Asia 173 347 241 266 328 232 580 697 1 118 416 1 261 776

West Asia .. i 28 393 30 951 41 412 57 309 60 736

Bahrain 61d 399d 552 2 403 5 408 5 908c

Cyprus h 460 789 1 146 1 576 1 816 1 879Iran, Islamic Republic of h 2 609 2 427 1 686 1 944 2 079 2 115Iraq h ..i ..i ..i ..i ..i ..iJordan ah 155 493 615 627 1 471 1 771Kuwait h 30 33 26 12 510 527Lebanon v 20 34 53 138 818 998Oman h 481 1 200 1 721 2 208 2 455 2 517Occupied Palestinian Territory .. .. .. .. 6ai 6ai

Qatar h 83 77 55 435 1 684 1 987

/ . . .





Saudi Arabia h ..i 21 828 22 500 22 423 27 845 28 845Syrian Arab Republic h - 37 374 915 1 255 1 338Turkey 107 360 1 320 5 103y 8 353y 9 335y

United Arab Emirates h 409 482 751 1 769 2 542 2 642Yemen 195n 283n 180 1 882 1 089 888

Central Asia .. .. .. 3 937 14 384 17 088

Armenia .. .. .. 34m 441 574Azerbaijan .. .. .. 352aj 3 627aj 4 510ajGeorgia .. .. .. 32 292b 489b

Kazakhstan .. .. .. 2 895ak 8 092ak 9 341ak

Kyrgyzstan .. .. .. 144 419b 438k

Tajikistan .. .. .. 25aj 96aj 120aj

Turkmenistan .. .. .. 200aj 560aj 660aj

Uzbekistan .. .. .. 255al 856al 956al


Afghanistan h 11 11 12 12 17 19Bangladesh 63 112 147am 180am 703am 873am

Bhutan .. .. 2z 2z 3z 3z

Brunei Darussalam h 19 33 30 68 ..i ..iCambodia 191n 191n 191n 498 605 758c

China 6 251m 10 499m 24 762m 137 435m 305 922l 346 694l

Hong Kong, China 138 767an 144 231an 162 665an 188 544an 405 327 469 776c

India 1 177 1 075 1 667am 5 684am 16 656am 18 971am

Indonesia 10 274 24 971 38 883 50 601 65 188 60 638c

Korea, DemocraticPeople’s Republic of .. .. 572o 716o 1 041o 1 149o

Korea, Republic of 1 140 2 160 5 186 9 443 32 143 42 329Lao People’s Democratic Republic h 2 - 13 211 587 659Macau, China v 2 10 10 4 3 1Malaysia 5 169 7 388 10 318 28 732ao 48 773ao 54 315ao

Maldives q 5 3 25 61 105 117Mongolia .. .. -ae 38ae 127ae 152ar

Myanmar 5ap 5ap 173ap 1 091ap 2 287 2 408Nepal 1 2 12 39 97 111Pakistan 688 1 079 1 928 5 552 10 303 10 611c

Philippines 1 281 2 601 3 268 6 086 11 199 12 688c

Singapore 6 203 13 016 28 565 59 582 82 859b 89 250b

Sri Lanka 231 517 681am 1 297am 2 248am 2 465am

Taiwan Province of China 2 405 2 930 9 735am 15 736am 22 996am 27 924am

Thailand 981 1 999 8 209 17 452 21 717al 24 165al

Viet Nam h 7 38 230 6 286 15 875 17 956

The Pacific 1 180 1 183 2 226 2 903 3 453 3 737

Fiji 358 393 402e 739e 831e 860e

Kiribati .. -aq -aq 1aq 4aq 5aq

New Caledonia ah 12 12 53 87 100 105Papua New Guinea 748 683 1 582 1 667 1 911l 2 111l

Samoa h - 1 8 28 54 62Solomon Islands v 28 32 70 126 184 202

/ . . .

305AN N EX B




Tonga .. -ar -ar 7ar 16ar 19ar

Tuvalu .. .. .. -aj -aj -aj

Vanuatu v 33 62 110 249 352 372

Developing Europe 156 286 1 131 3 262 9 455 11 461

Bosnia and Herzegovina .. .. .. 66an 165b 282b

Croatia .. .. .. 477g 4 028 4 927c

Maltaah 156 286 465 922 2 368 3 007S lovenia .. .. 666ac 1 763 2 684 2 865c

TFYR Macedonia .. .. .. 33aj 210aj 380aj

Central and Eastern Europe .. 49 2 996 36 424 101 968 124 715

Albania .. .. .. 201al 425al 517al

Belarus .. .. .. 50al 1 153al 1 243al

Bulgaria .. .. 108an 445an 2 403 3 404ac

Czech Republic .. .. 1 363as 7 350 17 552 21 095Estonia .. .. .. 674ag 2 441 2 840ac

Hungary .. 49an 569 10 007 19 299 19 863Latvia .. .. .. 616 1 795 2 081Lithuania .. .. .. 352 2 063 2 334Moldova, Republic of .. .. .. 93 315 444Poland .. .. 109 7 843 26 475 36 475c

Romania .. .. 766 1 150 5 441 6 439c

Russian Federation .. .. .. 5 465 16 541 19 245c

Slovakia .. .. 81 1 268 2 817 4 892c

Ukraine .. .. .. 910 3 248 3 843c

Memorandum

Least developed countries at

Total 3 422 5 127 8 273 17 014 30 580 34 874Africa 2 807 4 312 7 182 12 482 24 289 28 183

Latin America and the Caribbean 79 112 149 153 202 215Asia and the Pacific 536 704 943 4 379 6 088 6 476

Asia 474 609 755 3 976 5 493 5 834West Asia 195 283 180 1 882 1 089 888South, East and South-East Asia 279 326 574 2 094 4 405 4 947

The Pacific 62 95 188 404 595 642

Oil-exporting countries au

Total 11 677 57 952 79 388 111 435 167 496 173 411 Africa 548 2 266 6 860 14 636 24 421 27 323

North Africa ..i ..i ..i ..i ..i ..iOther Africa 3 291 6 409 10 873 18 526 28 784 31 680

Latin America and the Caribbean 3 300 4 248 5 979 14 043 34 188 39 668South America 2 323 2 529 3 886 10 409 27 824 32 642Other Latin Americaand the Caribbean 976 1 719 2 093 3 634 6 364 7 026

Asia 7 829 51 438 66 549 82 755 108 887 106 420West Asia ..i 26 434 27 636 32 086 43 757 45 859South, East and South-East Asia 10 292 25 004 38 913 50 669 65 130 60 561


/ . . .


Annex table B.3. FDI inward stock, by host region and economy,1980, 1985, 1990, 1995, 1999 and 2000 a (concluded)


Host region/economy 1980 1985 1990 1995 1 999 2 000

Developed Asia 4 903 6 778 12 790 39 777 64 116 77 653Developed Pacific 15 536 27 092 81 582 129 648 156 649 145 570

Africa including South Africa 32 714 33 853 48 648 75 914 140 548 148 035 Other Africa including South Africa 27 146 24 901 33 389 51 577 108 527 114 688

Central and Eastern Europe and Developing Europe - 49 3 662 38 764 109 055 133 169

Source : UNCTAD, FDI /TNC database.a For the countr ies for which the stock data are est imated by either cumulat ing FDI f lows or adding f lows to FDI stock in a part icular

year, notes are g iven below.b Estimated by adding f lows to the stock of 1998.c Estimated by adding f lows to the stock of 1999.d Stock data pr ior to 1989 are est imated by subtract ing f lows.e Estimated by adding f lows to the stock of 1989.f Estimated by adding f lows to the stock of 1986.g Stock data pr ior to 1996 are est imated by subtract ing f lows.h Est imated by accumulat ing f lows since 1970.i Negat ive accumulat ion of f lows. However, th is value is included in the regional and global total .j Stock data pr ior to 1988 are est imated by subtract ing f lows.k Stock data pr ior to 1987 are est imated by subtract ing f lows.l Estimated by adding f lows to the stock of 1997.m Stock data pr ior to 1997 are est imated by subtract ing f lows.n Stock data pr ior to 1990 are est imated by subtract ing f lows.o Est imated by accumulat ing f lows since 1987.p Est imated by accumulat ing f lows since 1978.q Est imated by accumulat ing f lows since 1973.r Est imated by accumulat ing f lows since 1982.s Est imated by accumulat ing f lows since 1997.t Est imated by accumulat ing f lows since 1975.u Est imated by accumulat ing f lows since 1977.v Est imated by accumulat ing f lows since 1971.w Stock data pr ior to 1981 are est imated by subtract ing f lows.x Estimated by adding f lows to the stock of 1995.y Estimated by adding f lows to the stock of 1990.z Est imated by accumulat ing f lows since 1990.a a Estimated by accumulat ing f lows since 1989.a b Estimated by accumulat ing f lows since 1974.ac Stock data pr ior to 1993 are est imated by subtract ing f lows.a d Stock data pr ior to 1990 are est imated by accumulat ing f lows since 1970.a e Estimated by accumulat ing f lows since 1986.a f Est imated by accumulat ing f lows since 1980.a g Estimated by accumulat ing f lows since 1976.a h Estimated by accumulat ing f lows since 1972.a i Est imated by accumulat ing f lows since 1996.a j Est imated by accumulat ing f lows since 1994.ak Est imated by accumulat ing f lows since 1993.a l Est imated by accumulat ing f lows since 1992.am Estimated by adding f lows to the stock of 1988.a n Stock data pr ior to 1998 are est imated by subtract ing f lows.a o Estimated by adding f lows to the stock of 1994.a p Stock data pr ior to 1999 are est imated by accumulat ing f lows since 1971.a q Estimated by accumulat ing f lows since 1983.a r Est imated by accumulat ing f lows since 1984.as Stock data pr ior to 1992 are est imated by subtract ing f lows.a t Least developed countr ies include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,


a u Oil-export ing countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republicof, Iraq, Kuwait, Libyan Arab Jamahir iya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates and Venezuela.

Note : For data on FDI stock which are calculated as an accumulat ion of f lows, pr ice changes are not taken into account.

307AN N EX B

Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 1999 and 2000 a


Home region/economy 1980 1985 1990 1995 1999 2000

World 523 854 707 786 1 717 444 2 879 380 5 004 831 5 976 204

Developed countries 507 366 675 215 1 637 265 2 621 165 4 379 976 5 248 522

Western Europe 235 113 319 299 867 373 1 477 712 2 678 358 3 387 781

European Union 212 997 293 050 790 324 1 312 539 2 448 719 3 110 905

Austria 530 1 343 4 273 11 702 19 127 21 100Belgium and Luxembourg 6 037 9 551 40 636 88 526 256 667b 339 644b

Denmark 2 065 1 801 7 342 24 703 37 550 46 111b

Finland 737 1 829 11 227 14 993 33 849 53 046France 23 599d 37 072d 120 179 207 992 348 325 496 741Germany 43 127 59 909 148 457 258 142 394 254 442 811c

Greece 853e 853e 853e 865e 557e ..b, fIreland .. 202g 2 150g 4 037g 13 94g 16 035g

Italy 7 319 16 600 57 261 109 176 181 871 176 225Netherlands 42 135 47 772 102 608 167 556 252 827 325 881c

Portugal 511h 583h 900h 3 173h 11 385 17 351Spain 1 931 4 455 15 652 43 685 106 786 160 202Sweden 3 721 10 768 49 491 73 143 107 331 115 574United Kingdom 80 434 100 313 229 294 304 847 684 246 901 769

Other Western Europe 22 115 26 249 77 050 165 173 229 639 276 876

Iceland 63i 63i 75 180 452 698Norway 561 1 093 10 888 22 514 36 765j 44 133j

Switzerland 21 491 25 093 66 087 142 479 192 422 232 045c

North America 243 955 294 161 515 350 817 120 1 317 986 1 445 532

Canada 23 777 43 127 84 829 118 105 187 197 200 878United States 220 178 251 034 430 521 699 015 1 130 789 1 244 654

Other developed countries 28 299 61 755 254 541 326 333 383 632 415 209

Australia 2 260 6 653 30 507 53 009 87 529 83 220Israel 179k 661k 1 169 3 937 7 177 9 862c

Japan 19 610 43 970 201 440 238 452 248 778 281 664c

New Zealand 529l 1 508l 6 398l 7 630 7 155 6 906South Africa 5 722 8 963 15 027 23 305 32 993 33 557c

Developing countriesand economies 16 484 32 546 79 821 252 861 611 363 710 305

Africa 1 113 6 937 12 475 15 590 18 766 19 440

North Africa 427 576 1 007 1 050 2 224 2 602

Algeria m 98 156 183 233 233 233Egypt n 39 91 163 365 582 633Libyan Arab Jamahiriya o 162 207 517 175 1 050 1 320Morocco n 116 116 130 247 324 383Tunisia 11k 6k 15 30 35 33

Other Africa 686 6 361 11 468 14 540 16 542 16 837

Benin p - 2 2 2 51 53Botswana 440k 440k 447 650 597 519Burkina Faso q 3 3 3 12 23 27

/ . . .


Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 1999 and 2000 a (continued)



Burundi .. .. -r -r 2r 2r

Cameroon s 23 53 150 227 227 227Cape Verde .. .. 1t 5t 5t 6t

Central African Republic u - 2 18 46 71 77Chad v - 1 36 80 105 111Comoros p .. .. 1w 2w 2w 2w

Côte d’Ivoire .. .. 31w 517w 647w 679w

Equatorial Guinea .. .. -r -r -r -r

Ethiopia .. .. .. .. 133x 177x

Gabon q 78 103 164 206 203 203Ghana .. .. .. .. 307y 359y

Guinea .. .. .. .. - y - y

Kenya u 18 60 99 112 186 226Lesotho .. .. -t -t -t -tLiberia z 48 361 453 717 1 315 1 315Madagascar .. .. .. -aa - aa -aa

Malawi .. .. .. .. 11ab 15ab

Mali u 22 22 22 22 107 113Mauritania .. .. 3ac 3ac 3ac 3ac

Mauritius .. - 2ad 94ad 120ad 133ad

Mozambique .. .. .. -aa -aa -aa

Namibia .. .. 80 20 39 41c

Niger q 2 8 54 109 145 152Nigeria v 5 5 193 9 653 10 957 11 256 11 341Rwanda .. .. - w - w - w - w

Senegal o 7 43 49 96 113 131Seychelles ae 14 44 61 94 129 136Swaziland 19 9 38 136 95 95Togo af 8 8 12 40 120 144Uganda .. .. .. 255ag 292ag 301ag

Zimbabwe .. 10ah 88ah 137ah 234ah 249ah

Latin America and the Caribbean 9 119 13 920 19 476 48 207 97 864 111 051

South America 7 126 8 217 10 554 24 688 54 607 64 098

Argentina 6 128ai 6 079ai 6 105ai 10 696 19 277 20 189c

Bolivia -aj 1aj 9 18 27 29c

Brazil 652 1 361 2 397 5 941ak 12 105ak 15 089ak

Chile 42 102 178 2 809al 13 515al 18 293al

Colombia 136 301 402 1 027 3 202 3 827Ecuador .. .. .. 2am 4am 4am

Guyana m .. .. .. 2an 1an 1an

Paraguay m 126ao 138ao 137ao 179 208 214Peru 3 38 63 567 494 348Uruguay m 16ap 32 42aq 20aq 64aq 73aq

Venezuela 23 165 1 221 3 427 5 710 6 031c

Other Latin America and the Caribbean 1 993 5 703 8 922 23 519 43 258 46 953

Aruba an .. .. .. 10 2 13Bahamas ar 285 154 1 535 1 286 2 163 2 164c

Barbados m 5 12 23 32 39 40Belize .. .. .. 12aa 37aa 47aa

Bermuda as 724 2 002 1 550 2 321 13 628 13 702Cayman Islands at 10 740 868 1 940 4 340 5 007Costa Rica v 7 27 44 67 87 90Dominica .. .. .. .. 5x 7x

Dominican Republic .. .. .. 38an 59an 62an

/ . . .

309AN N EX B




El Salvador .. .. 54 h 53 h 58 52 c

Grenada .. .. - w - w - w - w

Guatemala .. .. .. .. - y 9 y

Haiti .. .. .. 1 am 3 am 3 am

Jamaica m 5 5 42 308 635 709Mexico 136 au 533 au 575 au 4 132 7 039 ab 8 639 ab

Netherlands Antilles ae 9 10 21 23 .. f .. f

Nicaragua .. .. .. - an .. f, an .. f, an

Panama as 811 2 204 4 188 4 573 6 758 5 510Saint Kitts and Nevis .. .. - w .. f, w .. f, w .. f, w

Saint Lucia .. .. - w - w - w - w

Saint Vincent and the Grenadines .. .. 1 a w - a w - a w - a w

Trinidad and Tobago .. 15 ah 20 ah 21 ah 288 ah 313 ah

Virgin Islands .. .. .. 8 704 an 14 457 an 15 828 an

Asia and the Pacific 6 252 11 690 47 613 187 840 492 971 577 946

Asia 6 240 11 652 47 520 187 701 492 676 577 602

West Asia 1 454 2 137 6 312 5 843 6 793 8 077

Bahrain 628 a x 657 a x 719 1 044 1 740 1 871 c

Cyprus .. - ad 8 ad 77 ad 362 ad 446 ad

Iran, Islamic Republic of .. .. .. 77 ag 184 ag 220 ag

Jordan o 23 26 16 .. f 186 288Kuwait u 568 930 3 662 2 802 1 729 1 983Lebanon as 1 40 .. f .. f .. f .. f

Oman as 1 40 7 5 16 19Qatar .. .. .. 30 am 140 am 163 am

Saudi Arabia as 228 420 1 811 1 685 1 470 1 335Syrian Arab Republic .. .. .. .. f, a .. f, am .. f, am

Turkey .. .. .. 268 aa 1 641 aa 2 511 aa

United Arab Emirates as 5 19 99 66 .. f 45Yemen .. 4 a y 5 a y 5 a y 5 a y 5 a y

Central Asia .. .. .. - 512 704

Armenia .. .. .. .. 25 az 33 az

Azerbaijan .. .. .. .. 473 az 652 az

Kazakhstan .. .. .. - 14 18 c

Kyrgyzstan .. .. .. .. - az 1 az

South, East and South-East Asia 4 785 9 516 41 207 181 858 485 371 568 821

Bangladesh .. .. 6 ac 9 ac 81 ac 100 ac

Brunei Darussalam .. .. .. 71 aa 151 aa 164 aa

Cambodia .. .. .. 2 an 2 an 2 an

China 39 131 2 489 ba 15 802 ba 24 888 ba 27 212 ba

Hong Kong, China 148 bb 2 344 bb 11 920 bb 78 833 bb 321 696 384 732 c

India 235 l 250 l 281 l 496 al 980 al 1 316 al

Indonesia .. 49 bc 25 bc 1 295 2 189 2 339 c

Korea, Republic of 127 461 2 301 10 233 22 337 25 842Lao People’s Democratic Republic .. .. .. - aa .. f, aa . f, aa

Malaysia 197 1 374 2 671 11 143 16 880 ab 19 799 ab

Maldives .. .. - 1 w 1 w 1 w

Mongolia .. .. .. 1 am 4 am 5 am

Myanmar .. .. .. .. f, b 30 bd 55 bd

Pakistan 40 129 250 403 501 490 c

Philippines 171 171 155 1 220 1 858 1 953 c

Singapore 3 718 k 4 387 k 7 808 35 050 48 940 ab 53 216 ab

/ . . .





Sri Lanka .. 1ad 8ad 37ad 42ad 43ad

Taiwan Province of China 97 204 12 888be 25 144be 42 486be 49 187be

Thailand 13 14 404 2 173 2 312b 2 371b

The Pacific 13 37 93 139 295 343

Fiji at 2 15 87 132 287 336Kiribati .. .. .. -bd -bd -bd

Papua New Guinea 10 22 7ba 7ba 8ba 8ba

Solomon Islands .. .. - w - w - w - w

Tonga .. .. -ac -ac -ac -ac

Developing Europe .. .. 258 1 225 1 762 1 869

Bosnia and Herzegovina .. .. .. 13an 40an 40an

Croatia .. .. .. 703 1 024 1 052c

Malta .. .. .. 5an 87an 117an

Slovenia .. .. 258 504 607 655c

TFYR Macedonia .. .. .. .. 4y 5y

Central and Eastern Europe 4 25 358 5 353 13 492 17 377

Albania .. .. .. 48ag 76ag 82ag

Belarus .. .. .. 8an 16an 16an

Bulgaria .. .. .. 105bf 90 88c

Czech Republic .. .. .. 345 698 784Estonia .. .. .. 68h 272 429c

Hungary .. .. 197 383 1 565 2 012Latvia .. .. .. 231 244 241Lithuania .. .. .. 1 26 29Moldova, Republic of .. .. .. 18 19 19Poland 4k 25k 95 539 1 365 1 491c

Romania .. .. 66 121 133 122c

Russian Federation .. .. .. 3 015 8 586 11 637c

Slovakia .. .. .. 374 296ab 320ab

Ukraine .. .. .. 97 105 106c

Memorandum

Least developed countries bg

Total 90 455 666 1 353 2 617 2 788 Africa 90 450 655 1 389 2 502 2 629

Latin America and the Caribbean .. .. .. 1 3 3Asia and the Pacific - 4 11 ..f 113 156

Asia - 4 11 ..f 113 156West Asia .. 4 5 5 5 5South, East and South-East Asia - - 7 ..f 108 151

The Pacific - - - - - -

Oil-exporting countries bh

Total 1 796 7 953 18 082 21 996 25 732 26 830Africa 343 5 658 10 517 11 571 12 742 13 098

North Africa 260 362 700 408 1 283 1 554Other Africa 83 5 296 9 817 11 163 11 459 11 544

Latin America and the Caribbean 23 180 1 241 3 450 6 001 6 348South America 23 165 1 221 3 429 5 714 6 035Other Latin Americaand the Caribbean .. 15 20 21 288 313

Asia 1 431 2 115 6 324 6 975 6 989 7 385West Asia 1 431 2 066 6 299 5 609 4 649 4 881South, East and South-East Asia - 49 25 1 366 2 340 2 503

/ . . .

311AN N EX B

Annex table B.4. FDI outward stock, by home region and economy,1980, 1985, 1990, 1995, 1999 and 2000 a (concluded)



All developing countries minus China 16 445 32 416 77 333 237 060 586 476 683 094

Developed Asia 19 789 44 631 202 609 242 389 255 955 291 527Developed Pacific 2 788 8 161 36 905 60 639 94 684 90 125

Africa including South Africa 6 835 15 900 27 502 38 895 51 759 52 996 Other Africa including South Africa 6 408 15 325 26 495 37 845 49 535 50 394

Central and Eastern Europeand Developing Europe 4 25 616 6 573 15 167 19 129

S o u r c e : UNCTAD, FDI /TNC database.a For the countr ies for which the stock data are est imated by either cumulat ing FDI f lows or adding f lows to FDI stock in a part icular

year, notes are g iven below.b Estimated by adding f lows to the stock of 1997.c Estimated by adding f lows to the stock of 1999.d Stock data pr ior to 1987 are est imated by subtract ing f lows.e Stock data pr ior to 1997 are est imated by subtract ing f lows.f Negat ive accumulat ion of f lows. However, th is value is included in the regional and global total .g Estimated by accumulat ing f lows since 1984.h Stock data pr ior to 1996 are est imated by subtract ing f lows.i Stock data pr ior to 1988 are est imated by subtract ing f lows.j Estimated by adding f lows to the stock of 1996.k Stock data pr ior to 1990 are est imated by subtract ing f lows.l Stock data pr ior to 1992 are est imated by subtract ing f lows.m Estimated by accumulat ing f lows since 1970.n Estimated by accumulat ing f lows since 1977.o Estimated by accumulat ing f lows since 1972.p Estimated by accumulat ing f lows since 1979.q Estimated by accumulat ing f lows since 1974.r Estimated by accumulat ing f lows since 1989.s Estimated by accumulat ing f lows since 1973.t Estimated by accumulat ing f lows since 1988.u Estimated by accumulat ing f lows since 1975.v Estimated by accumulat ing f lows since 1978.w Estimated by accumulat ing f lows since 1990.x Estimated by accumulat ing f lows since 1997.y Estimated by accumulat ing f lows since 1996.z Estimated by using the inward stock of the United States as a proxy and accumulat ing f lows since 1994.a a Estimated by accumulat ing f lows since 1991.a b Estimated by adding f lows to the stock of 1998.ac Estimated by accumulat ing f lows since 1986.ad Est imated by accumulat ing f lows since 1985.ae Est imated by accumulat ing f lows since 1976.a f Estimated by accumulat ing f lows since 1971.a g Estimated by accumulat ing f lows since 1992.a h Estimated by accumulat ing f lows since 1983.a i Stock data pr ior to 1991 are est imated by subtract ing f lows.aj Stock data pr ior to 1986 are est imated by accumulat ing f lows since 1980.ak Estimated by adding f lows to the stock of 1990.a l Estimated by adding f lows to the stock of 1992.a m Estimated by accumulat ing f lows since 1995.a n Estimated by accumulat ing f lows since 1993.a o Stock data pr ior to 1995 are est imated by subtract ing f lows.a p Stock data pr ior to 1983 are est imated by subtract ing f lows.a q Estimated by adding f lows to the stock of 1987.ar Estimated by using the inward stock of the United States as a proxy and accumulat ing f lows since 1999.as Estimated by using the inward stock of the United States as a proxy and accumulat ing f lows since 1993.a t Estimated by accumulat ing f lows since 1980.a u Estimated by using the inward stock of the United States as a proxy up to 1991.a w Estimated by accumulat ing f lows since 1987.ax Stock data pr ior to 1989 are est imated by subtract ing f lows.a y Estimated by accumulat ing f lows since 1982.az Estimated by accumulat ing f lows since 1998.b a Estimated by adding f lows to the stock of 1989.b b Estimated by using the inward stock of the United States as a proxy from 1980 to 1983 and by using the inward stock of the United

States and China as a proxy f rom 1984 to 1997.bc Estimated by using the inward stock of the United States as a proxy up to 1992.b d Estimated by accumulat ing f lows since 1994.b e Estimated by adding f lows to the stock of 1988.b f Stock data pr ior to 1998 are est imated by subtract ing f lows.b g Least developed countr ies include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,


b h Oil-export ing countr ies include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran,Islamic Republicof, Iraq, Kuwait, Libyan Arab Jamahir iya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates and Venezuela.

Note : For data on FDI stock which are calculated as an accumulat ion of f lows, pr ice changes are not taken into account.


Annex table B.5. Inward and outward FDI flows as a percentage of gross fixedcapital formation, by region and economy, 1989-1999

(Percentage)

1989-1994Region/economy (Annual average) 1995 1996 1997 1998 1999

Worldinward 4.1 5.3 5.9 7.5 10.9 16.3outward 4.9 5.7 6.2 7.4 11.6 15.4

Developed countriesinward 3.7 4.4 4.8 6.1 10.6 17.0outward 5.5 6.7 7.2 8.9 14.7 19.4

Western Europeinward 5.3 6.6 6.4 8.3 15.6 27.3outward 7.6 9.7 11.4 14.6 27.0 42.8

European Unioninward 5.4 6.7 6.5 8.1 15.7 27.7outward 7.5 9.4 10.8 14.0 27.2 42.6

Austriainward 2.7 3.5 8.2 5.5 9.1 5.9outward 3.6 2.1 3.6 4.1 5.5 6.5

Belgium and Luxembourginward 19.7 17.9 24.3 22.2 40.3 213.4outward 13.3 19.4 13.9 13.4 50.9 218.0

Denmarkinward 7.5 9.5 1.7 7.5 20.8 33.0outward 8.6 6.9 5.8 11.3 127.4 36.3

Finlandinward 3.5 5.0 5.1 9.6 50.3 20.4outward 8.2 7.1 16.6 24.0 77.3 29.2

Franceinward 4.8 8.1 7.6 9.2 11.7 17.5outward 7.9 5.4 10.6 14.1 18.3 45.0

Germanyinward 1.0 2.2 1.3 2.7 5.4 11.8outward 5.2 7.1 9.8 9.2 19.6 23.1

Greeceinward 5.3 4.8 4.4 4.1 - 2.0outward - - - - 1.0 -2.0

Irelandinward 10.9 12.8 19.2 17.0 58.4 92.0outward 3.9 7.2 5.3 6.2 20.7 26.3

Italyinward 1.6 2.4 1.6 1.8 1.2 3.1outward 2.6 3.5 3.8 4.9 5.7 3.1

Netherlandsinward 12.3 15.8 20.6 15.3 50.2 56.4outward 22.7 26.0 41.1 33.7 49.5 81.1

Portugalinward 9.9 2.8 5.8 9.6 11.2 4.0outward 1.5 2.8 3.0 7.4 10.9 11.5

Spaininward 10.1 5.3 5.6 7.0 10.7 13.1outward 2.9 3.5 4.6 11.5 14.3 35.0

Swedeninward 9.4 38.9 12.3 31.1 52.0 153.7outward 16.3 30.2 11.3 35.8 64.8 55.4

United Kingdominward 10.7 10.9 12.5 15.1 28.7 32.5outward 14.0 23.7 17.4 28.0 49.5 80.6

/ . . .

313AN N EX B

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixedcapital formation, by region and economy, 1989-1999 (continued)

(Percentage)


Other Western Europeinward 3.7 3.8 5.5 11.2 13.6 20.7outward 11.0 15.0 22.3 25.3 23.0 46.8

Icelandinward 0.7 -0.8 5.7 9.6 7.4 3.1outward 1.2 2.0 4.3 3.5 3.7 6.0

Norwayinward 3.1 4.8 6.2 8.4 9.1 19.7outward 4.6 7.7 14.7 11.9 5.8 14.6

Switzerlandinward 4.0 3.4 5.1 13.2 17.1 22.0outward 14.1 18.6 27.0 35.3 35.8 69.6

North Americainward 4.8 5.6 7.1 8.0 11.8 18.0outward 5.4 8.6 7.4 8.3 9.9 9.1

Canadainward 5.2 9.4 9.2 9.7 19.2 20.0outward 5.3 11.7 12.5 19.3 29.5 14.7

United Statesinward 4.8 5.3 7.0 7.9 11.3 17.9outward 5.4 8.3 7.0 7.3 8.5 8.6

Other developed countriesinward 0.8 1.1 0.7 1.4 1.1 1.8outward 3.0 1.8 2.1 2.6 2.8 1.8

Australiainward 8.1 14.5 6.7 8.1 6.9 6.7outward 3.6 4.0 7.8 6.8 3.9 -3.1

Israelinward 2.7 6.4 6.1 7.3 8.7 11.9outward 3.0 3.5 4.6 3.6 4.8 5.2

Japaninward - - - - - 1.1outward 2.9 1.5 1.7 2.2 2.4 1.9

New Zealandinward 24.2 29.0 16.0 20.0 11.7 11.4outward 12.0 -2.7 -11.0 - 9.1 6.5

South Africainward - 5.2 3.5 15.8 2.5 7.6outward 3.2 10.4 4.5 9.7 8.0 9.8

Developing countries and economiesinward 5.2 7.7 9.1 10.9 11.7 13.8outward 2.4 3.3 3.7 3.9 2.8 3.3

Africainward 5.8 6.7 7.6 9.1 8.8 10.4outward 1.7 1.1 - 3.0 1.4 1.0

North Africainward 3.6 2.9 2.8 5.2 4.5 4.9outward - 0.7 - 1.4 1.0 0.8

/ . . .



(Percentage)


Algeriainward - - - - - -outward - .. .. .. .. ..

Egyptinward 5.7 5.3 5.1 6.1 6.1 5.6outward - 0.8 - 0.9 - -

Libyan Arab Jamahiriyainward 2.0 -2.5 -2.7 -1.5 -2.8 -2.5outward -0.9 1.9 1.3 5.3 5.6 4.5

Moroccoinward 5.7 4.7 5.0 15.6 4.1 9.9outward - - - - - -

Sudaninward - - - 3.8 14.7 14.6outward .. .. .. .. .. ..

Tunisiainward 9.2 8.7 7.7 7.8 13.6 7.0outward - - - - - -

Other Africainward 9.6 11.9 14.4 14.2 14.7 18.9outward 5.3 1.6 - 4.9 1.8 1.3

Angolainward 34.1 51.2 31.2 23.1 73.8 191.5outward - - - - - -

Benininward 22.8 3.5 9.2 7.1 9.3 13.9outward .. .. 3.1 3.2 0.5 5.3

Botswanainward -3.0 6.4 6.6 8.8 8.0 2.6outward 0.8 3.7 - - - -

Burkina Fasoinward 1.5 1.8 2.6 1.9 1.4 1.8outward 1.0 - - - 0.8 0.6

Burundiinward - 1.9 - - 3.4 -outward - 0.5 - - 0.7 1.0

Camerooninward -1.5 0.6 2.5 3.1 3.1 2.7outward 1.0 - .. .. .. ..

Cape Verdeinward 1.1 12.6 15.0 6.1 4.5 7.8outward 0.6 - - - - -

Central African Republicinward -2.0 2.0 13.5 6.3 3.6 14.8outward 3.7 4.0 16.6 7.4 4.5 7.1

Chadinward 12.9 7.8 9.3 6.8 6.6 6.9outward 10.5 5.1 3.4 2.4 2.8 2.8

Comorosinward 2.7 2.3 5.0 5.2 5.1 2.6outward 2.4 .. .. .. .. ..

Congoinward 0.7 - 1.0 1.8 0.8 1.1outward .. .. .. .. .. ..

Congo, Democratic Republic ofinward - - - - - -outward .. .. .. .. .. ..

/ . . .

315AN N EX B


(Percentage)


Côte d’Ivoireinward 9.2 20.9 22.4 29.6 15.7 17.2outward 11.5 4.4 2.4 2.3 1.8 1.7

Djiboutiinward 1.7 7.7 11.2 10.5 13.4 11.0outward .. .. .. .. .. ..

Equatorial Guineainward 43.8 108.4 135.2 6.5 6.2 37.1outward - - - .. .. ..

Eritreainward .. .. .. - -0.6 0.5outward .. .. .. .. .. ..

Ethiopiainward 0.8 1.6 1.9 27.5 23.4 6.2outward .. .. .. 0.8 15.3 -4.2

Gaboninward -2.2 -10.5 23.7 10.5 11.8 13.5outward 1.1 - - - - -

Gambiainward 12.9 10.1 14.4 18.0 18.7 18.2outward .. .. .. .. .. ..

Ghanainward 6.1 7.8 8.4 5.0 3.4 4.0outward .. .. 10.5 3.1 1.8 4.9

Guineainward 3.1 - 3.3 2.3 2.6 8.8outward .. .. - .. .. ..

Guinea-Bissauinward 2.3 - 2.0 27.3 1.5 6.2outward .. .. .. .. .. ..

Kenyainward 1.5 1.7 0.7 2.1 2.2 2.6outward - 0.7 1.4 - 0.8 1.9

Lesothoinward 37.0 48.2 52.0 47.8 60.2 31.4outward - .. .. .. .. ..

Liberiainward 149.0 21.6 17.6 15.5 16.5 10.3outward 110.2 -98.7 -444.8 1 064.0 .. ..

Madagascarinward 4.4 2.8 2.2 3.2 3.4 12.7outward - .. .. .. .. ..

Malawiinward 4.0 12.3 19.6 8.9 36.1 26.8outward .. .. 0.9 - 2.9 1.3

Maliinward 0.6 20.5 7.6 12.6 5.7 8.4outward - - 0.6 0.8 4.3 8.1

Mauritaniainward 3.8 3.8 4.0 1.8 - 1.2outward - .. .. .. .. ..

Mauritiusinward 3.2 1.9 3.3 5.0 1.3 4.2outward 1.7 - - - 1.4 0.5

Mozambiqueinward 4.9 8.2 12.9 10.3 24.3 55.5outward - .. - - - -

/ . . .



(Percentage)


Namibiainward 13.4 21.4 17.3 14.2 14.0 17.7outward - - -2.9 - - -

Nigerinward 6.6 8.3 8.4 11.1 3.5 -outward 3.8 1.0 7.4 3.6 4.0 -

Nigeriainward 37.3 23.9 35.4 25.2 12.7 16.0outward 15.8 2.3 0.9 1.0 1.3 1.5

Rwandainward 2.4 1.0 1.0 0.9 2.2 0.5outward - .. .. - - -

São Tomé and Principeinward -1.4 - 1.7 0.8 2.3 1.6outward .. .. .. .. .. ..

Senegalinward 3.2 5.3 0.7 22.4 6.4 16.4outward 1.2 -0.5 - - 1.1 0.7

Seychellesinward 21.1 26.2 18.0 31.7 26.3 33.0outward 2.7 10.4 7.9 5.8 1.4 4.9

Sierra Leoneinward 11.4 -3.1 10.5 29.9 19.2 2.8outward - -0.6 .. .. .. ..

Somaliainward -1.2 - .. .. - 29.0outward .. .. .. .. .. ..

Swazilandinward 32.0 10.3 6.1 -3.5 116.2 28.9outward 7.7 7.1 -3.1 -2.3 16.2 3.1

Togoinward 2.5 19.3 14.1 12.6 20.2 35.8outward 1.7 2.9 6.7 2.4 10.8 21.0

Ugandainward 3.5 11.9 12.5 17.1 20.4 22.1outward 4.5 11.7 1.1 1.5 1.9 -0.8

United Republic of Tanzaniainward 1.4 14.6 13.9 14.0 12.8 13.8outward - .. .. .. - -

Zambiainward 23.9 10.5 8.2 14.1 15.6 11.7outward .. .. .. .. .. ..

Zimbabweinward 0.8 6.8 4.2 8.0 44.0 3.8outward 0.7 0.8 2.7 1.7 0.9 0.6

Latin America and the Caribbeaninward 6.2 9.6 12.3 15.9 17.6 27.3outward 1.0 1.2 1.4 2.5 2.9 3.1

South Americainward 4.5 7.4 11.3 15.1 18.1 35.4outward 1.1 1.4 1.4 2.8 3.1 4.1

Argentinainward 8.6 12.1 14.1 16.1 12.2 47.7outward 1.1 3.2 3.3 6.4 3.9 2.5

/ . . .

317AN N EX B


(Percentage)


Boliviainward 11.8 35.9 35.6 58.4 49.1 62.3outward - - - - - -

Brazilinward 1.7 3.8 7.0 11.7 18.4 31.3outward 0.7 0.8 - 1.0 1.7 1.4

Chileinward 13.7 19.0 27.1 27.2 24.4 62.4outward 3.0 4.8 7.0 9.7 14.7 32.8

Colombiainward 3.6 6.4 9.0 13.6 24.4 38.6outward 0.7 1.4 - 2.0 6.1 6.0

Ecuadorinward 10.3 14.1 14.5 18.5 20.1 16.9outward - - - .. .. -

Guyanainward 26.3 26.4 30.0 15.9 22.5 17.1outward - .. - .. .. -

Paraguayinward 5.5 4.7 6.6 10.6 17.7 3.9outward - - - - - -

Peruinward 7.9 15.8 25.7 12.0 13.8 17.5outward - - - 0.6 - 2.0

Surinameinward -22.9 -7.7 6.6 -2.9 3.1 -6.1outward .. .. .. .. .. ..

Uruguayinward 3.4 6.0 4.8 4.1 4.9 7.5outward - -1.0 - - - -

Venezuelainward 7.5 7.7 19.6 33.3 24.6 19.6outward 3.6 0.7 4.6 3.0 1.3 3.2

Other Latin America and the Caribbeaninward 10.2 18.5 15.7 18.4 16.1 13.5outward 0.9 - 1.3 1.6 2.4 1.2

Antigua and Barbudainward 25.0 17.3 9.0 10.1 10.3 8.9outward -0.7 -1.1 - -0.9 .. -

Arubainward .. .. .. .. .. ..outward .. .. .. .. .. ..

Bahamasinward 1.6 15.3 14.3 32.7 22.6 23.5outward - - - - - -

Barbadosinward 4.7 4.5 5.3 4.4 5.5 5.9outward 0.7 1.3 1.4 - - -

Belizeinward 12.9 16.0 12.1 8.2 12.4 27.5outward 1.4 2.0 4.1 2.7 3.6 4.8

Costa Ricainward 12.8 15.1 20.9 17.3 21.0 20.6outward - - - - - -

Dominicainward 28.8 74.6 25.4 26.1 8.6 23.9outward -2.9 .. .. 1.1 3.2 2.7

/ . . .



(Percentage)


Dominican Republicinward 8.8 18.1 3.9 14.3 19.1 31.0outward - 0.6 0.6 - - -

El Salvadorinward 1.3 2.1 - 3.3 55.6 11.5outward - .. - .. .. 2.7

Grenadainward 21.0 22.5 18.7 30.7 39.9 30.9outward - .. .. .. .. ..

Guatemalainward 6.3 3.5 3.7 3.1 20.7 4.8outward -1.1 -1.1 - - - -

Haitiinward - -0.7 1.0 1.0 2.4 5.7outward -3.0 - - .. .. -

Hondurasinward 6.2 7.3 9.5 10.8 6.4 14.2outward - - - - - -

Jamaicainward 12.7 8.9 9.8 9.4 18.6 26.1outward 4.0 4.0 4.9 2.6 4.1 4.7

Mexicoinward 10.1 20.6 16.7 17.7 13.2 11.7outward 0.5 -0.6 - 1.4 1.5 1.2

Nicaraguainward 7.8 16.7 19.0 28.3 26.6 31.1outward - .. -1.8 .. .. -

Panamainward 17.0 13.0 19.9 54.7 46.4 18.3outward 49.4 16.0 41.8 14.3 42.7 -4.4

Saint Kitts and Nevisinward 31.0 24.2 31.2 16.3 25.9 37.8outward - -2.4 -1.8 -1.7 -0.8 -0.9

Saint Luciainward 35.2 31.2 15.1 33.4 70.9 73.8outward - - .. .. .. ..

Saint Vincent and the Grenadinesinward 33.8 38.5 54.1 106.2 88.3 51.5outward - .. - .. .. ..

Trinidad and Tobagoinward 32.3 37.0 37.3 65.2 46.9 47.7outward - - - - - 19.6

Asia and the Pacificinward 4.9 7.2 8.2 9.3 9.5 9.6outward 3.0 4.1 4.7 4.4 2.9 3.5

Asiainward 4.9 7.2 8.2 9.3 9.5 9.6outward 3.0 4.1 4.7 4.4 2.9 3.5

West Asia inward 1.3 - 1.9 3.3 4.0 0.6 outward 0.7 -0.8 1.5 - -1.0 -

Bahraininward 24.9 42.5 271.1 43.3 20.7 49.7outward 6.1 -1.6 40.4 6.3 20.8 18.1

/ . . .

319AN N EX B


(Percentage)


Cyprusinward 6.2 4.8 2.8 4.4 3.5 3.9outward 0.7 0.9 1.9 1.7 3.5 10.0

Iran, Islamic Republic ofinward - - - - - -outward - - - - - -

Jordaninward 0.5 0.7 0.8 19.3 18.5 9.7outward -0.7 -1.4 -2.1 9.7 7.2 -

Kuwaitinward - - 7.9 - 1.4 1.9outward 8.4 -27.7 39.5 -23.7 -45.4 0.6

Lebanoninward 0.8 1.0 2.0 3.8 4.2 5.9outward - - - - - -

Omaninward 6.9 1.4 2.9 2.3 3.0 0.9outward - - - - - -

Occupied Palestinian Territoryinward .. .. - .. .. -outward .. .. .. .. .. ..

Qatarinward 3.2 3.8 10.7 12.1 11.5 4.5outward .. 1.2 1.3 0.6 0.7 0.9

Saudi Arabiainward 2.1 -7.5 -4.7 11.1 16.6 -3.1outward - - 0.8 0.7 -1.8 -

Syrian Arab Republicinward 1.5 0.7 0.6 0.6 0.6 0.6outward .. -0.7 -0.6 -0.6 -0.6 -1.8

Turkeyinward 2.1 2.2 1.6 1.6 1.9 1.9outward - - - 0.5 0.7 1.6

United Arab Emiratesinward 0.9 3.7 2.7 1.8 1.9 -outward - - - - - -

Yemeninward 8.2 -9.0 -4.0 -12.0 -16.2 -24.3outward .. .. .. .. .. ..

Central Asiainward 3.8 13.8 15.1 26.6 27.8 21.4outward - 3.0 - 1.7 2.5 3.1

Armeniainward 2.0 12.2 6.2 19.5 75.7 42.9outward .. .. .. .. 3.8 4.3

Azerbaijaninward 2.5 73.1 67.9 78.0 64.2 38.8outward .. 38.8 3.9 4.5 8.6 25.5

Georgiainward 19.4 3.9 16.4 64.6 66.1 23.5outward -4.9 1.4 -5.2 1.8 11.0 -

Kazakhstaninward 13.3 25.1 31.4 36.7 30.4 43.3outward - - - - - -

Kyrgyzstaninward 14.7 31.2 11.3 37.2 50.3 17.7outward .. .. - - - -

/ . . .



(Percentage)


Tajikistaninward 2.1 5.1 3.3 0.9 7.5 4.8outward .. .. .. .. - 4.0

Uzbekistaninward 1.4 2.0 0.8 5.3 3.6 2.3outward - 2.3 -0.5 2.2 1.5 -

South, East and South-East Asiainward 5.9 8.2 9.1 10.1 10.4 11.2outward 3.5 4.8 5.2 5.2 3.7 4.1

Bangladeshinward - - - 2.9 3.8 3.2outward - - - - 0.6 -

Bhutaninward 1.2 - 1.0 -0.5 .. ..outward .. .. .. .. .. ..

Cambodiainward 17.1 23.5 36.1 34.7 28.0 22.2outward 0.7 .. .. .. .. ..

Chinainward 7.9 14.7 14.3 14.6 12.9 11.3outward 1.3 0.8 0.8 0.8 0.8 -

Hong Kong, Chinainward 14.8 14.6 21.7 19.8 29.9 60.2outward 30.2 58.7 55.1 42.5 34.3 47.4

Indiainward 0.6 2.4 2.9 3.8 2.9 2.4outward - - - - - -

Indonesiainward 4.0 7.6 9.2 7.7 -1.6 -11.0outward 1.6 2.3 0.9 - - -

Korea, Republic ofinward 0.8 1.0 1.2 1.7 5.7 9.3outward 1.2 2.0 2.4 2.7 5.0 2.2

Lao People’s Democratic Republicinward 19.4 20.7 29.4 19.2 14.6 17.8outward - - .. -1.1 - -

Macau, Chinainward - - - - -1.1 0.6outward .. .. .. .. .. ..

Malaysiainward 19.4 15.0 17.0 15.1 13.9 20.1outward 2.8 6.4 8.8 6.1 4.0 9.3

Maldivesinward 8.6 9.6 12.4 15.2 15.3 16.4outward - - .. .. .. ..

Mongoliainward 4.5 3.9 5.9 10.0 7.0 11.4outward .. - - 0.8 - -

Myanmarinward 2.8 1.9 1.6 1.6 1.0 0.7outward - - - - - -

Nepalinward 0.6 0.9 1.9 2.2 1.2 -outward .. .. .. .. .. ..

Pakistaninward 3.7 7.1 8.9 7.3 5.7 6.5outward - - - - - -

/ . . .

321AN N EX B


(Percentage)


Philippinesinward 7.5 8.9 7.8 6.2 12.7 5.1outward 1.1 0.6 0.9 0.7 1.2 0.9

Singaporeinward 30.3 31.2 29.7 35.3 20.6 26.1outward 11.2 12.2 19.6 25.5 1.8 14.5

Sri Lankainward 4.2 1.9 4.0 11.8 5.2 4.1outward - - .. - - -

Taiwan Province of Chinainward 2.9 2.4 3.0 3.4 - 4.4outward 9.0 4.5 6.1 7.9 6.1 6.7

Thailandinward 5.0 2.9 3.0 7.2 20.7 13.7outward - 1.2 1.1 0.9 - 1.3

The Pacificinward 16.6 44.0 12.1 7.1 29.1 27.2outward 2.7 - 4.3 12.4 8.8 5.6

Fijiinward 30.4 27.3 1.1 6.4 56.3 -15.1outward 8.3 -1.1 4.3 12.4 32.9 24.1

Kiribatiinward 0.8 1.4 3.3 4.8 2.4 2.4outward - .. .. .. .. ..

Papua New Guineainward 12.6 50.6 12.4 3.8 20.9 40.9outward - - .. .. - -

Tongainward 3.9 9.3 9.4 14.0 9.3 9.3outward - .. .. .. .. ..

Vanuatuinward 42.0 42.8 54.8 48.0 31.3 32.1outward .. .. .. .. .. ..

Developing Europeinward 6.3 3.0 6.4 6.3 9.4 16.4outward - - - 1.5 0.8 0.8

Croatiainward 6.5 3.9 12.6 11.0 18.1 31.3outward 0.7 - 0.7 3.8 1.9 0.7

Maltainward 9.7 12.7 28.9 9.6 31.1 99.6outward - - 0.6 2.0 1.7 5.4

Sloveniainward 1.5 1.8 2.0 3.7 1.8 2.0outward - - - - - -

TFYR Macedoniainward 4.6 1.3 1.6 2.4 18.9 5.2outward .. .. - - - -

Central and Eastern Europeinward 4.8 9.3 7.0 10.7 13.7 18.4outward - - 0.6 1.9 1.4 1.7

/ . . .



(Percentage)


Belarusinward - - 2.6 9.9 3.5 9.9outward - - - - - -

Bulgariainward 3.6 4.5 8.1 44.0 37.9 41.4outward - - -2.1 - - 0.9

Czech Republicinward 6.4 15.4 7.7 8.0 23.6 44.5outward 0.7 - 0.8 - 0.8 0.6

Estoniainward 28.2 21.8 12.9 20.6 38.3 23.6outward 0.7 - 3.4 10.6 - 6.4

Hungaryinward 15.7 49.7 23.5 21.4 18.3 18.8outward - - - 4.2 4.3 2.4

Latviainward 24.0 26.7 41.0 49.3 21.5 21.3outward -4.0 -9.7 - 0.6 3.3 1.0

Lithuaniainward 3.4 5.2 8.4 15.2 35.4 20.3outward .. - - 1.2 - -

Moldova, Republic ofinward 3.7 29.1 7.1 20.5 19.7 17.8outward 3.4 - - - - -

Polandinward 5.2 15.5 15.1 14.5 15.9 17.8outward - - - - 0.8 -

Romaniainward 2.7 5.5 3.3 16.3 25.3 16.6outward - - - - - -

Russian Federationinward 2.2 2.8 2.8 8.0 5.7 11.0outward - - 0.9 3.1 2.1 6.5

Slovakiainward 3.5 4.0 3.7 2.8 7.8 5.9outward - - 0.8 1.3 1.8 -6.1

Ukraineinward 2.2 3.1 5.6 6.2 9.0 8.1outward - - - - - -

Memorandum

Least developed countries a

Totalinward 5.7 5.2 5.4 5.9 6.2 7.9outward 1.8 - -1.0 2.8 0.7 -Africa

inward 6.6 11.4 11.0 12.9 18.3 28.3outward 3.7 0.8 -5.2 12.9 2.8 0.9

Latin America and the Caribbeaninward - -0.7 1.0 1.0 2.4 5.7outward -3.0 - - .. .. -

Asia and the Pacificinward 4.2 1.5 2.6 2.3 1.1 0.7outward - - - - - -

Asiainward 4.0 1.3 2.5 2.2 1.0 0.7outward - - - - - -

/ . . .

323AN N EX B


(Percentage)


West Asiainward 8.2 -9.0 -4.0 -12.0 -16.2 -24.3outward .. .. .. .. .. ..

South, East and South-East Asiainward 2.1 2.5 2.9 2.7 1.8 1.4outward - - - - - -

The Pacificinward 30.0 33.6 41.2 37.2 24.3 24.6outward - .. .. .. .. ..

Oil-exporting countries bTotal

inward 2.8 3.7 6.6 8.5 7.3 2.8outward 1.5 - 1.8 - -0.9 0.6Africa

inward 6.4 5.8 8.2 7.8 7.4 13.5outward 2.4 1.7 0.9 2.3 2.4 2.2

North Africainward - -0.6 -0.8 - -0.8 -0.7outward -1.9 1.9 1.3 5.3 5.6 4.5

Other Africainward 23.6 19.5 29.1 21.6 19.8 38.6outward 10.4 1.6 0.6 0.6 0.9 1.0

Latin America and the Caribbeaninward 9.5 10.4 19.6 33.0 25.3 20.9outward 3.1 0.6 3.3 2.8 1.2 3.7

South Americainward 8.1 9.0 18.4 30.6 23.8 19.1outward 3.3 0.6 3.5 3.0 1.3 2.6

Other Latin America and the Caribbeaninward 32.3 37.0 37.3 65.2 46.9 47.7outward - - - - - 19.6

Asiainward 1.7 2.5 5.1 5.4 3.9 -1.9outward 1.0 - 1.7 - -1.7 -

West Asiainward 1.0 -1.0 2.2 4.0 5.0 -outward 0.6 -1.3 2.3 -0.7 -2.1 -

South, East and South-East Asiainward 4.0 7.6 9.2 7.7 -1.6 -11.0outward 1.6 2.3 0.9 - - -

All developing countries minus Chinainward 4.7 6.3 7.9 10.0 11.3 14.7outward 2.6 3.8 4.4 4.6 3.5 4.2

Developed Asiainward - - - - - 1.3outward 2.9 1.6 1.8 2.2 2.5 2.0

Developed Pacificinward 9.8 16.4 7.9 9.6 7.4 7.3outward 4.5 3.1 5.3 5.9 4.5 -2.0

Africa including South Africainward 4.6 6.3 6.6 10.6 7.5 9.9

outward 2.3 4.2 1.4 5.0 3.0 3.0

/ . . .


Annex table B.5. Inward and outward FDI flows as a percentage of gross fixedcapital formation, by region and economy, 1989-1999 (concluded)

(Percentage)


Other Africa including South Africainward 5.5 8.9 9.7 14.9 10.1 14.7outward 4.1 6.4 2.1 7.2 4.4 4.9

Central and Eastern Europe and Developing Europe (excluding Malta)inward 4.7 8.7 6.9 10.4 13.2 17.7outward - - 0.6 1.9 1.3 1.6

Source : UNCTAD, FDI /TNC database.a Least developed countr ies include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,


b Oil-export ing countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republicof, Iraq, Kuwait, Libyan Arab Jamahir iya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates and Venezuela.

325AN N EX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product, byregion and economy, 1980, 1985, 1990, 1995 and 1999

(Percentage)

Region/economy 1980 1985 1990 1995 1999

Worldinward 6.0 7.8 9.2 10.3 17.3outward 5.3 6.4 8.6 10.2 16.7

Developed countriesinward 4.7 6.1 8.4 9.2 14.5outward 6.4 7.5 9.8 11.8 19.0

Western Europeinward 5.5 8.5 11.1 13.6 22.4outward 6.5 10.7 12.2 16.6 30.8

European Unioninward 5.3 8.3 11.0 13.4 22.2outward 6.2 10.3 11.7 15.5 29.6

Austriainward 4.0 5.7 6.2 7.6 11.2outward 0.7 2.0 2.7 5.1 9.2

Belgium and Luxembourginward 5.9 22.0 28.3 40.1 108.3outward 4.9 11.4 19.7 30.4 97.5

Denmarkinward 6.3 6.2 6.9 13.2 20.9outward 3.1 3.1 5.5 13.7 21.5

Finlandinward 1.1 2.5 3.8 6.7 14.5outward 1.4 3.4 8.3 11.9 26.8

Franceinward 3.4 6.4 8.4 12.1 17.1outward 3.6 7.1 10.1 13.5 24.7

Germanyinward 4.0 5.3 7.3 8.0 13.7outward 4.7 8.6 9.1 10.7 18.9

Greeceinward 11.3 24.9 16.9 16.6 17.7outward 2.1 2.6 1.0 0.7 0.4

Irelandinward 19.5 24.5 12.2 18.6 50.7outward .. 1.1 4.8 6.4 16.4

Italyinward 2.0 4.5 5.3 5.8 9.4outward 1.6 3.9 5.2 10.0 15.8

Netherlandsinward 11.1 19.5 23.6 28.4 50.1outward 24.5 37.3 36.2 42.4 65.7

Portugalinward 12.8 19.4 15.3 17.6 21.2outward 1.8 2.5 1.3 3.0 10.6

Spaininward 2.4 5.4 13.4 23.3 20.5outward 0.9 2.7 3.2 7.8 19.0

Swedeninward 2.3 4.3 5.4 13.4 32.7outward 3.0 10.7 21.5 31.6 47.4

United Kingdominward 11.7 14.0 20.8 18.0 26.8outward 15.0 21.9 23.4 27.4 49.8

/ . . .


Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995 and 1999 (continued)

(Percentage)

Region/economy 1980 1985 1990 1995 1999

Other Western Europeinward 8.9 11.0 13.4 16.6 26.3outward 13.1 16.5 22.0 35.8 55.4

Icelandinward - 2.2 2.3 1.8 5.6outward 1.9 2.2 1.2 2.6 5.3

Norwayinward 10.4 11.7 10.7 13.3 21.1outward 0.9 1.7 9.4 15.4 25.3

Switzerlandinward 8.4 10.8 15.0 18.6 29.9outward 21.1 27.0 28.9 46.3 73.9

North Americainward 4.6 5.7 8.3 8.7 12.2outward 8.2 6.7 8.4 10.7 14.1

Canadainward 20.6 18.6 19.7 21.5 27.9outward 9.0 12.4 14.8 20.6 30.6

United Statesinward 3.1 4.6 7.1 7.6 11.1outward 8.1 6.2 7.8 9.9 13.0

Other developed countriesinward 2.8 2.7 3.0 3.2 5.4outward 2.1 3.8 7.3 5.7 7.6

Australiainward 8.8 15.6 24.9 29.4 31.6outward 1.5 4.2 10.3 15.0 22.5

Israelinward 7.5 8.4 5.6 7.2 18.2outward 0.8 2.7 2.2 4.5 7.2

Japaninward 0.3 0.4 0.3 0.7 1.0outward 1.9 3.3 6.8 4.6 5.7

New Zealandinward 10.6 9.1 18.4 42.6 62.6outward 2.4 6.7 14.8 12.7 13.3

South Africainward 21.3 16.3 8.6 11.2 39.5outward 7.4 16.2 14.1 17.4 25.2

Developing countries and economiesinward 10.2 14.1 13.4 15.6 28.0outward 0.9 1.6 2.6 4.8 10.1

Africainward 4.6 7.4 11.1 18.2 21.0outward 0.4 2.7 4.4 5.5 4.9

North Africa inward 4.1 5.8 8.2 13.6 13.7 outward 0.3 0.4 0.6 0.6 1.0

Algeriainward 3.1 2.2 2.1 3.3 3.0

outward 0.2 0.3 0.3 0.6 0.5

/ . . .

327AN N EX B


(Percentage)

Region/economy 1980 1985 1990 1995 1999

Egyptinward 9.9 16.4 25.6 23.9 19.2outward 0.2 0.3 0.4 0.6 0.6

Libyan Arab Jamahiriyainward - - - - -outward 0.4 0.7 1.7 0.9 3.7

Moroccoinward 1.0 3.4 3.5 9.2 16.0outward 0.6 0.9 0.5 0.7 0.9

Sudaninward 0.4 0.6 0.4 0.7 9.7outward .. .. .. .. ..

Tunisiainward 66.7 83.0 59.0 61.2 57.0outward 0.1 - 0.1 0.2 0.2

Other Africainward 4.9 8.7 14.3 23.5 29.9outward 0.5 5.4 10.4 12.8 10.4

Angolainward 1.8 9.9 13.2 57.7 121.1outward .. .. .. .. ..

Benininward 2.2 3.2 8.6 19.2 22.8outward - 0.2 - - 2.1

Botswanainward 67.4 78.1 38.7 24.6 23.1outward 42.5 36.3 13.2 14.2 10.0

Burkina Fasoinward 1.4 1.7 1.4 3.7 5.2outward 0.2 0.2 0.1 0.5 0.9

Burundiinward 0.7 2.1 2.6 3.3 5.1outward .. .. - - 0.3

Camerooninward 4.9 13.8 9.4 13.3 14.0outward 0.3 0.6 1.3 2.9 2.6

Cape Verdeinward .. .. 1.3 9.0 17.6outward .. .. 0.4 1.1 0.9

Central African Republicinward 6.2 8.9 6.4 6.7 10.0outward - 0.2 1.2 4.0 6.7

Chadinward 11.9 18.9 15.1 21.1 23.4outward - 0.1 2.2 5.6 6.7

Comorosinward 1.6 1.7 6.8 9.0 13.3outward .. .. 0.4 0.7 0.8

Congoinward 18.4 22.4 20.3 27.9 26.9outward .. .. .. .. ..

Congo, Democratic Republic ofinward 3.6 6.2 4.0 6.0 5.9outward .. .. .. .. ..

Côte d’Ivoireinward 5.2 10.0 9.0 16.2 26.4

outward .. .. 0.3 5.2 5.8

/ . . .



(Percentage)

Region/economy 1980 1985 1990 1995 1999

Djiboutiinward 1.0 1.0 1.3 2.8 6.9outward .. .. .. .. ..

Equatorial Guineainward .. 7.0 19.2 145.7 112.0outward .. .. 0.2 - -

Eritreainward .. .. .. .. -outward .. .. .. .. ..

Ethiopiainward 2.7 2.0 1.6 3.1 12.4outward .. .. .. .. 2.0

Gaboninward 12.0 22.7 20.3 19.2 35.1outward 1.8 2.8 2.7 4.2 3.9

Gambiainward 8.5 9.1 11.3 21.1 30.6outward .. .. .. .. ..

Ghanainward 5.2 6.0 5.4 12.7 15.0outward .. .. .. .. 4.0

Guineainward - 0.2 2.5 3.6 6.9outward .. .. .. .. -

Guinea-Bissauinward 0.1 2.7 3.3 6.4 14.1outward .. .. .. .. ..

Kenyainward 5.5 7.8 7.9 8.1 8.2outward 0.2 1.0 1.2 1.2 1.8

Lesothoinward 1.3 10.3 24.9 157.7 262.7outward .. .. - - -

Liberiainward 53.6 90.5 181.7 1123.0 661.8outward 4.3 33.0 37.7 358.5 377.7

Madagascarinward 0.9 1.7 3.4 5.4 7.2outward .. .. .. - -

Malawiinward 8.1 12.2 10.2 17.1 24.5outward .. .. .. .. 0.6

Maliinward 0.7 2.7 1.5 6.6 13.7outward 1.3 1.8 0.9 0.9 4.0

Mauritaniainward - 5.7 5.6 8.6 10.7outward .. .. 0.3 0.3 0.3

Mauritiusinward 1.8 3.5 6.2 6.3 9.6outward .. - - 2.4 2.8

Mozambiqueinward 0.5 0.5 2.0 10.4 22.4outward .. .. .. - -

Namibiainward 85.5 137.2 83.8 51.2 49.4outward .. .. 3.3 0.6 1.3

Nigerinward 7.4 14.1 11.8 21.9 20.1outward - 0.6 2.2 6.6 7.0

/ . . .

329AN N EX B


(Percentage)

Region/economy 1980 1985 1990 1995 1999

Nigeriainward 2.6 5.5 28.3 50.0 44.5outward - 6.4 33.9 39.0 26.0

Rwandainward 4.6 7.8 8.2 17.4 12.5outward .. .. - - -

São Tomé and Principeinward .. .. 0.8 - 2.5outward .. .. .. .. ..

Senegalinward 5.0 7.3 4.7 7.4 14.9outward 0.2 1.7 0.9 2.1 2.4

Seychellesinward 36.8 62.1 55.4 63.3 95.5outward 9.4 25.9 16.6 18.5 23.6

Sierra Leoneinward 6.4 5.5 - - 0.2outward .. .. .. .. ..

Somaliainward 4.8 0.5 - - 4.3outward .. .. .. .. ..

Swazilandinward 41.8 28.9 39.1 42.2 45.7outward 3.3 2.4 4.5 10.7 7.8

Togoinward 15.5 27.5 16.5 23.4 31.1outward 0.7 1.1 0.7 3.0 8.0

Ugandainward - 0.2 0.1 4.7 15.8outward .. .. .. 4.4 4.6

United Republic of Tanzaniainward 0.9 1.3 2.2 7.0 11.2outward .. .. .. .. ..

Zambiainward 8.5 18.9 30.0 35.9 58.4outward .. .. .. .. ..

Zimbabweinward 2.8 3.3 1.4 4.8 18.6outward .. 0.2 1.0 1.9 4.1

Latin America and the Caribbeaninward 6.5 10.9 10.3 11.8 25.6outward 1.3 2.0 1.8 2.9 4.9

South Americainward 6.0 9.0 8.5 8.5 23.3outward 1.5 1.8 1.4 1.9 3.8

Argentinainward 6.9 7.4 6.4 9.9 22.1outward 8.0 6.9 4.3 3.8 6.8

Boliviainward 8.4 11.6 21.1 23.3 56.9outward - - 0.2 0.3 0.3

Brazilinward 7.4 11.5 8.0 6.0 21.6outward 0.3 0.6 0.5 0.8 1.6

Chileinward 3.2 14.1 33.2 26.2 55.2outward 0.2 0.6 0.6 4.7 19.0

/ . . .



(Percentage)

Region/economy 1980 1985 1990 1995 1999

Colombiainward 3.2 6.4 8.7 8.0 21.9outward 0.4 0.9 1.0 1.3 3.6

Ecuadorinward 6.1 8.1 15.2 19.1 32.5outward .. .. .. - -

Guyanainward - - - 58.9 93.4outward .. .. .. 0.3 0.2

Paraguayinward 4.9 6.5 7.5 9.8 20.6outward 2.8 3.0 2.6 2.0 2.6

Peruinward 4.3 6.1 4.1 10.1 15.5outward - 0.2 0.2 1.0 0.9

Surinameinward - 4.1 - - -outward .. .. .. .. ..

Uruguayinward 7.2 16.8 12.0 8.1 10.5outward 0.2 0.7 0.5 0.1 0.3

Venezuelainward 2.7 2.6 4.7 9.0 20.9outward - 0.3 2.5 4.4 5.5

Other Latin America and the Caribbeaninward 7.2 14.5 14.6 22.6 31.2outward 0.8 2.4 3.0 6.6 7.5

Anguillainward .. .. 54.1 275.9 660.9outward .. .. .. .. ..

Antigua and Barbudainward 20.9 46.5 74.5 88.6 92.1outward .. .. .. .. ..

Arubainward .. .. 15.2 16.5 79.3outward .. .. .. 0.8 0.1

Bahamasinward 39.2 22.4 18.1 20.8 33.3outward 21.3 6.6 49.4 37.2 54.9

Barbadosinward 11.8 10.3 9.9 12.1 13.2outward 0.6 1.0 1.3 1.7 1.8

Belizeinward 6.3 4.9 18.1 26.0 36.2outward .. .. .. 2.0 5.2

Bermudainward 837.1 774.3 871.0 1176.3 1936.2outward 118.1 192.5 97.5 113.8 617.5

Cayman Islandsinward .. .. 355.5 395.5 2075.9outward .. .. 176.4 280.3 502.3

Costa Ricainward 13.9 24.4 25.3 30.3 43.3outward 0.1 0.7 0.8 0.7 0.8

Cubainward - - - 0.2 0.4outward .. .. .. .. ..

/ . . .

331AN N EX B


(Percentage)

Region/economy 1980 1985 1990 1995 1999

Dominicainward 0.1 10.7 42.9 88.5 108.0outward .. .. .. .. 2.2

Dominican Republicinward 3.6 5.9 8.1 14.3 24.9outward .. .. .. 0.3 0.3

El Salvadorinward 4.3 4.7 4.4 3.1 14.8outward .. .. 1.1 0.6 0.5

Grenadainward 1.7 9.8 31.7 60.6 106.6outward .. .. - - -

Guatemalainward 8.9 10.8 22.7 15.0 17.7outward .. .. .. .. -

Haitiinward 5.4 5.6 5.0 5.8 5.2outward .. .. .. - -

Hondurasinward 3.6 4.7 12.5 16.3 22.5outward .. .. .. .. ..

Jamaicainward 18.7 22.7 17.1 28.6 45.4outward 0.2 0.2 1.0 5.9 10.4

Mexicoinward 3.6 10.4 8.5 14.4 16.4outward - 0.3 0.2 1.4 1.5

Netherlands Antillesinward 62.3 2.5 11.4 11.9 231.7outward 1.1 0.9 1.3 0.9 -

Nicaraguainward 5.1 4.1 11.4 18.8 48.1outward .. .. .. - -

Panamainward 68.4 57.5 40.7 41.0 69.9outward 22.9 40.8 78.8 57.8 70.4

Saint Kitts and Nevisinward 2.1 40.5 102.0 104.8 122.2outward .. .. 0.1 - -

Saint Luciainward 70.1 90.7 75.7 93.4 119.4outward .. .. - - -

St Vincent & the Grenadines.inward 2.0 7.5 24.4 68.9 157.9outward .. .. 0.6 0.4 0.3

Trinidad and Tobagoinward 15.7 23.7 41.3 68.4 90.9outward .. 0.2 0.4 0.4 4.1

Virgin Islandsinward 0.2 3.9 15.3 87.2 408.2outward .. .. .. 468.0 772.9

Asia and the Pacificinward 14.3 17.5 15.5 17.3 30.2outward 0.7 1.0 2.7 5.7 13.6

Asiainward 14.2 17.4 15.4 17.3 30.2outward 0.7 1.0 2.7 5.7 13.6

/ . . .



(Percentage)

Region/economy 1980 1985 1990 1995 1999

West Asiainward - 7.5 6.0 7.0 9.3outward 0.6 1.3 3.3 1.0 1.1

Bahraininward 2.0 10.8 13.8 43.8 100.0outward 20.5 17.7 18.0 19.0 32.2

Cyprusinward 21.4 32.6 20.6 17.9 20.1outward .. - 0.2 0.9 4.0

Iran, Islamic Republic ofinward 2.8 3.2 1.8 1.9 2.1outward .. .. .. - 0.2

Iraqinward - - - - -outward .. .. .. .. ..

Jordaninward 4.0 9.6 15.3 9.5 19.3outward 0.6 0.5 0.4 - 2.4

Kuwaitinward 0.1 0.2 0.1 - 1.7outward 2.0 4.3 19.8 10.6 5.8

Lebanoninward 0.5 0.9 1.9 1.2 5.5outward - 1.1 - - -

Omaninward 8.1 12.0 16.3 16.1 15.7outward - 0.4 - - 0.1

Occupied Palestinian Territoryinward .. .. .. .. 0.2outward .. .. .. .. ..

Qatarinward 1.1 1.3 0.8 5.7 16.9outward .. .. .. 0.4 1.4

Saudi Arabiainward - 25.2 21.5 17.8 20.0outward 0.1 0.5 1.7 1.3 1.1

Syrian Arab Republicinward - 0.2 1.6 1.8 6.5outward .. .. .. - -

Turkeyinward 0.2 0.5 0.9 3.0 4.4outward .. .. .. 0.2 0.9

United Arab Emiratesinward 1.4 1.8 2.2 4.4 5.3outward - - 0.3 0.2 -

Yemeninward 3.7 4.5 3.8 51.0 16.1outward .. - 0.1 0.1 -

Central Asiainward .. .. .. 8.8 32.0outward .. .. .. - 2.2

Armeniainward .. .. .. 1.2 23.1outward .. .. .. .. 1.3

Azerbaijaninward .. .. .. 14.6 81.4outward .. .. .. .. 10.6

/ . . .

333AN N EX B


(Percentage)

Region/economy 1980 1985 1990 1995 1999

Georgiainward .. .. .. 1.1 7.0outward .. .. .. .. ..

Kazakhstaninward .. .. .. 14.5 51.9outward .. .. .. - -

Kyrgyzstaninward .. .. .. 9.7 23.1outward .. .. .. .. -

Tajikistaninward .. .. .. 3.9 10.4outward .. .. .. .. ..

Turkmenistaninward .. .. .. 4.6 31.9outward .. .. .. .. ..

Uzbekistaninward .. .. .. 2.5 6.0outward .. .. .. .. ..

South, East and Southeast Asiainward 23.4 21.2 18.4 19.7 34.4outward 0.8 1.0 2.7 6.8 16.2

Afghanistaninward 0.5 0.3 0.2 0.3 1.0outward .. .. .. .. ..

Bangladeshinward 0.4 0.5 0.5 0.5 1.5outward .. .. - - 0.2

Bhutaninward .. .. 0.6 0.7 0.8outward .. .. .. .. ..

Brunei Darussalaminward 0.4 0.9 0.8 1.4 -outward .. .. .. 1.4 2.8

Cambodiainward 12.0 10.3 13.4 17.0 19.4outward .. .. .. - -

Chinainward 3.1 3.4 7.0 19.6 30.9outward - - 0.7 2.3 2.5

Hong Konginward 487.0 413.6 217.5 135.4 255.5outward 0.5 6.7 15.9 56.6 202.8

Indiainward 0.7 0.5 0.6 1.7 3.6outward 0.1 0.1 - 0.1 0.2

Indonesiainward 14.2 28.6 34.0 25.0 46.2outward .. - - 0.6 1.6

Korea, Democratic People’s Republic ofinward .. .. 3.0 12.0 18.7outward .. .. .. .. ..

Korea, Republic ofinward 1.8 2.3 2.0 2.1 7.9outward 0.2 0.5 0.9 2.2 5.5

Lao Peoples Dem. Republicinward 0.4 - 1.4 11.9 42.8outward .. .. .. - -

/ . . .



(Percentage)

Region/economy 1980 1985 1990 1995 1999

Macauinward .. 0.6 0.3 - -outward .. .. .. .. ..

Malaysiainward 21.1 23.7 24.1 32.9 65.3outward 0.8 4.4 6.2 12.8 22.6

Maldivesinward 11.4 3.9 17.1 22.5 30.2outward .. .. 0.3 0.4 0.3

Mongoliainward .. .. - 3.9 14.1outward .. .. .. 0.1 0.5

Myanmarinward - - 0.7 2.3 4.0outward .. .. .. - -

Nepalinward - - 0.3 0.9 2.0outward .. .. .. .. ..

Pakistaninward 2.9 3.5 4.8 9.1 17.2outward 0.2 0.4 0.6 0.7 0.8

Philippinesinward 3.9 8.5 7.4 8.2 14.9outward 0.5 0.6 0.3 1.6 2.5

Singaporeinward 52.9 73.6 76.3 70.0 97.5outward 31.7 24.8 20.9 41.2 57.6

Sri Lankainward 5.7 8.7 8.5 10.0 14.2outward .. - 0.1 0.3 0.3

Taiwan Provinceinward 5.8 4.7 6.1 6.0 8.0outward 0.2 0.3 8.0 9.7 14.7

Thailandinward 3.0 5.1 9.6 10.4 17.5outward - - 0.5 1.3 1.9

Viet Naminward 0.2 0.6 3.6 31.1 55.6outward .. .. .. .. ..

The Pacificinward 22.4 24.3 28.8 25.1 35.0outward 0.3 1.0 1.9 1.8 5.1

Fijiinward 29.7 34.4 30.5 37.0 50.2outward 0.2 1.3 6.6 6.6 17.3

Kiribatiinward .. - 1.2 2.5 6.8outward .. .. .. - -

New Caledoniainward 1.0 1.4 2.1 2.4 2.8outward .. .. .. .. ..

Papua New Guineainward 29.4 28.2 49.1 33.1 53.5outward 0.4 0.9 0.2 0.1 0.2

Samoainward 0.8 1.3 5.6 17.9 27.8outward .. .. .. .. ..

/ . . .

335AN N EX B


(Percentage)

Region/economy 1980 1985 1990 1995 1999

Solomon Islandsinward 24.2 20.3 33.0 38.5 52.8outward .. .. - - -

Tongainward .. 0.2 0.7 4.5 9.2outward .. .. - - -

Vanuatuinward 29.1 52.4 71.9 105.0 141.0outward .. .. .. .. ..

Developing Europeinward 13.8 28.2 5.8 7.4 18.8outward .. .. 1.5 2.9 3.5

Bosnia and Herzegoviniainward .. .. .. 4.5 6.1outward .. .. .. 0.9 1.5

Croatiainward .. .. .. 2.5 20.2outward .. .. .. 3.7 5.1

Maltainward 13.8 28.2 20.1 28.4 65.4outward .. .. .. 0.1 2.4

Sloveniainward .. .. 3.8 9.4 13.0outward .. .. 1.5 2.7 2.9

TFYR Macedoniainward .. .. .. 1.6 6.1outward .. .. .. .. 0.1

Central and Eastern Europeinward .. 0.2 1.5 5.2 13.3outward - - 0.3 0.8 1.8

Albaniainward .. .. .. 8.3 16.0outward .. .. .. 2.0 2.9

Belarusinward .. .. .. 0.3 8.3outward .. .. .. - 0.1

Bulgariainward .. .. 0.5 3.4 19.9outward .. .. .. 0.8 0.7

Czech Republicinward .. .. 4.3 14.5 33.0outward .. .. .. 0.7 1.3

Estoniainward .. .. .. 18.6 47.9outward .. .. .. 1.9 5.3

Hungaryinward .. 0.2 1.7 22.4 39.9outward .. .. 0.6 0.9 3.2

Latviainward .. .. .. 13.8 26.9outward .. .. .. 5.2 3.7

Lithuaniainward .. .. .. 5.8 19.7outward .. .. .. - 0.2

/ . . .



(Percentage)

Region/economy 1980 1985 1990 1995 1999

Moldova, Republic ofinward .. .. .. 6.5 28.8outward .. .. .. 1.3 1.7

Polandinward .. .. 0.2 6.6 17.2outward - - 0.2 0.5 0.9

Romaniainward .. .. 2.0 3.2 16.1outward .. .. 0.2 0.3 0.4

Russian Federationinward .. .. .. 1.6 4.4outward .. .. .. 0.9 2.3

Slovakiainward .. .. 0.6 7.3 14.6outward .. .. .. 2.2 1.5

Ukraineinward .. .. .. 2.5 10.5outward .. .. .. 0.3 0.3

Memorandum

Least developed countries a

Totalinward 2.8 4.3 5.0 9.5 14.2outward 0.6 2.6 1.1 1.0 1.5Africa

inward 3.2 5.9 8.0 16.9 27.3outward 0.6 3.9 2.4 4.2 4.9

Americainward 5.4 5.6 5.0 5.8 5.2outward .. .. .. - -

Asia and the Pacificinward 1.5 1.6 1.3 4.3 5.0outward .. - - - -

Asiainward 1.4 1.4 1.0 3.9 4.5outward .. - - - -

West Asiainward 3.7 4.5 3.8 51.0 16.1outward .. - 0.1 0.1 -

South, East and Southeast Asiainward 0.9 0.9 0.8 2.1 3.8outward .. .. - - -

The pacificinward 18.1 24.4 34.7 52.6 69.9outward .. .. - - -

Oil-exporting countries b

Totalinward 1.6 9.0 12.0 13.8 21.2outward 0.4 1.7 3.9 2.8 3.3Africa

inward 0.3 1.3 5.0 14.4 18.5outward 0.2 3.3 8.3 12.3 10.3

North Africainward - - - - -outward 0.3 0.4 0.8 0.7 1.7

Other Africainward 3.2 6.8 24.2 46.1 50.9outward - 6.3 28.5 33.8 23.6

/ . . .

337AN N EX B

Annex table B.6. Inward and outward FDI stocks as a percentage of gross domestic product,by region and economy, 1980, 1985, 1990, 1995 and 1999 (concluded)

(Percentage)

Region/economy 1980 1985 1990 1995 1999

Americainward 4.3 5.4 9.3 14.0 26.4outward - 0.3 2.3 3.4 4.6

South Americainward 3.3 3.5 6.6 10.9 22.7outward - 0.3 2.5 3.6 4.7

Other Americainward 15.7 23.7 41.3 68.4 90.9outward .. 0.2 0.4 0.4 4.1

Asiainward 1.7 13.3 14.4 13.7 20.6outward 0.6 0.9 2.2 1.2 1.4

West Asiainward - 8.9 8.0 8.1 11.4outward 0.6 1.4 3.7 1.5 1.3

South, East and Southeast Asiainward 13.3 27.5 33.0 24.5 44.5outward .. - - 0.7 1.6

All developing countries minus Chinainward 10.9 15.7 14.1 15.0 27.5outward 1.0 1.8 2.8 5.2 11.6

Developed Asiainward 0.5 0.5 0.4 0.8 1.4outward 1.8 3.3 6.7 4.6 5.7

Developed Pacificinward 9.0 14.8 24.1 31.4 35.3outward 1.6 4.5 10.9 14.7 21.4

Africa including South Africainward 7.6 8.6 10.5 16.2 25.4outward 2.0 5.0 7.0 9.3 10.1Other Africa including South Africa

inward 9.2 10.5 12.1 17.8 33.8outward 3.1 8.8 12.2 15.3 17.1

Central and Eastern Europe and Developing Europe (excluding Malta)inward .. 0.2 1.7 5.2 13.4outward - - 0.4 0.9 1.9

S o u r c e : UNCTAD, FDI /TNC database.a Least developed countr ies include: Afghanistan, Angola, Bangladesh, Benin, Bhutan, Burkina Faso, Burundi, Cambodia, Cape Verde,


b Oil-export ing countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republicof, Iraq, Kuwait, Libyan Arab Jamahir iya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United ArabEmirates and Venezuela.


nnex

tab

le B

.7.

Cro

ss-b

orde

r M

&A

sal

es,

by r

egio

n/ec

onom

y of

sel

ler,

198

7-20

00(M

illio

ns o

f do

llars

)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

TOTA

L W

ORL

D74

509

115

623

140

389

150

576

80 7

1379

280

83 0

6412

7 11

018

6 59

322

7 02

330

4 84

853

1 64

876

6 04

41

143

816

Deve

lope

d co

untri

es72

804

112

749

135

305

134

239

74 0

5768

560

69 1

2711

0 81

916

4 58

918

8 72

223

4 74

844

5 12

868

1 13

31

057

230

Wes

tern

Eur

ope

13 2

0934

274

48 9

4967

370

38 5

2045

831

40 5

9857

262

79 1

1488

512

121

548

194

388

370

468

610

647

Eur

opea

n Un

ion

12 7

6131

012

47 3

5862

133

36 6

7644

761

38 5

3755

280

75 1

4381

895

114

591

187

853

357

311

586

521

Au

stria

8 2

53 3

2 1

89 2

44 1

07 4

17 5

40 6

09 8

562

259

3 55

1 3

80 5

74

Belg

ium

919

793

805

4 46

9 8

14 4

932

201

1 02

61

710

8 46

95

945

6 86

524

984

7 31

8

Denm

ark

- 2

18 2

25 4

96 2

72 9

9 5

90 5

70 1

99 4

59 5

663

802

4 61

59

122

Fi

nlan

d 2

0 8

0 2

29 5

1 4

63 2

09 3

91 5

501

726

1 19

9 7

354

780

3 14

46

896

Fr

ance

1 42

63

018

3 33

88

183

2 62

39

150

8 49

716

290

7 53

313

575

17 7

5116

885

23 8

3435

018

G

erm

any

1 06

91

300

4 30

16

220

3 40

75

521

2 28

54

468

7 49

611

924

11 8

5619

047

39 5

5524

6 99

0

Gre

ece

- 2

2-

115

70

413

52

15

50

493

99

21

191

245

Ire

land

36

205

735

595

282

81

1 45

3 2

42 5

87 7

242

282

729

4 73

95

246

Ita

ly62

13

095

3 00

32

165

3 86

53

672

3 75

46

909

4 10

22

764

3 36

24

480

11 2

3718

877

Lu

xem

bour

g 5

0 5

- 5

31 8

2-

254

380

280

506

3 49

2 3

57

360

4 21

0

Neth

erla

nds

1 25

61

182

3 96

51

484

3 49

09

362

4 77

92

789

3 60

73

538

19 0

5219

359

39 0

1033

656

Po

rtuga

l 9

11

768

213

194

668

356

63

144

793

86

427

211

2 98

0

Spai

n93

8 7

231

593

3 83

25

373

4 66

81

967

3 61

51

257

1 46

34

074

5 70

05

841

22 2

48

Swed

en 8

75 1

921

849

4 48

92

478

2 45

51

844

6 01

69

451

3 86

33

327

11 0

9359

676

13 1

12

Unite

d Ki

ngdo

m5

534

19 9

1726

515

29 1

0213

020

7 86

39

699

11 8

0736

392

31 2

7139

706

91 0

8113

2 53

418

0 02

9

Oth

er W

este

rn E

urop

e 4

483

262

1 59

15

237

1 84

41

070

2 06

11

982

3 97

16

617

6 95

86

535

13 1

5724

126

An

dorra

--

--

--

--

--

--

- 6

G

ibra

ltar

--

--

4-

--

- 9

- 8

16

G

uern

sey

--

--

--

--

--

--

26

88

Ic

elan

d-

--

- 1

--

--

4-

--

-Je

rsey

--

--

--

--

--

--

31

14

Li

echt

enst

ein

--

--

--

--

--

- 9

--

M

an Is

land

--

--

--

--

--

--

- 3

6

Mon

aco

- 6

69 2

1-

--

--

8-

752

- 2

76 1

9

Norw

ay 1

0 2

39 6

01 6

68 8

43 4

871

887

397

271

2 19

82

660

1 18

28

703

10 6

13

Switz

erla

nd 4

382

353

969

4 56

9 9

97 5

82 1

741

585

3 69

24

407

3 54

55

344

4 11

313

334

Nor

th A

mer

ica

57 9

1872

641

79 2

3360

427

31 8

8418

393

22 2

9149

093

64 8

0478

907

90 2

1722

5 98

027

5 88

440

1 42

9 C

anad

a6

153

8 73

710

412

5 73

13

658

2 55

42

313

4 36

411

567

10 8

398

510

16 4

3223

950

77 0

79 U

nite

d St

ates

51 7

6563

904

68 8

2154

697

28 2

2615

839

19 9

7844

730

53 2

3768

069

81 7

0720

9 54

825

1 93

432

4 35

0 O

ther

dev

elop

ed c

ount

ries

1 67

75

834

7 12

36

442

3 65

44

337

6 23

74

464

20 6

7221

303

22 9

8324

761

34 7

8145

154

Aus

tralia

1 54

54

380

4 70

42

545

2 59

22

446

3 19

12

975

17 3

6013

099

14 7

9414

737

11 9

9621

699

Isr

ael

- 1

06 1

34 4

4 5

8 2

93 1

8 2

35 3

03 5

411

097

1 75

42

854

2 34

6 J

apan

27

29

1 61

2 1

48 1

78 2

30 9

3 7

50 5

411

719

3 08

34

022

16 4

3115

541

New

Zea

land

89

1 32

0 6

743

704

815

1 15

71

430

317

1 82

84

839

1 34

62

316

1 59

84

397

Sou

th A

frica

17

--

- 1

0 21

11

506

187

640

1 10

62

664

1 93

21

902

1 17

1De

velo

ping

cou

ntrie

s1

704

2 87

55

057

16 0

525

838

8 11

912

782

14 9

2815

966

34 7

0064

573

80 7

5573

601

69 6

64 A

frica

143

-1

039

485

37

177

301

154

200

700

1 68

2 6

751

215

2 02

8 N

orth

Afri

ca 1

43-

24

- 1

139

242

100

10

211

680

456

914

956

Al

geria

--

--

1-

--

--

--

42

127

Eg

ypt

143

- 2

4-

- 1

31 1

77 1

7 1

0 1

71 1

02 4

8 7

38 5

28

Mor

occo

--

--

--

64

83

- 4

0 5

78 5

123

-

Suda

n-

--

--

8-

--

--

--

-

Tuni

sia

--

--

--

--

--

- 4

02 1

1 3

01 /...

339ANNEX B

Ann

ex t

able

B.7

. C

ross

-bor

der

M&

A s

ales

, by

reg

ion/

econ

omy

of s

elle

r, 1

987-

2000

(co

ntin

ued)

(Mill

ions

of

dolla

rs)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Oth

er A

frica

--

1 01

5 4

85 3

6 3

8 5

9 5

4 1

91 4

891

002

220

301

1 07

2

Bots

wana

--

--

--

--

4 1

1 4

--

-

Cam

eroo

n-

--

--

--

- 4

0-

--

-

Cape

Ver

de-

--

--

--

--

--

- 8

3-

Ce

ntra

l Afri

can

Repu

blic

--

--

--

4-

2 1

--

1-

Ch

ad-

--

--

--

--

--

--

21

Co

ngo

--

--

--

--

61

14

--

--

Cô

te d

’Ivo

ire-

--

--

--

- 2

3 1

5 1

94-

- 8

De

m. R

ep. o

f the

Con

go-

--

--

--

--

89

--

--

Et

hiop

ia-

--

--

--

--

--

- 3

6-

G

abon

--

- 4

48-

--

--

- 3

9-

- 2

2

Gha

na-

--

--

--

1 4

48

52

- 3

8 4

G

uine

a-

--

--

--

- 3

9 5

0-

--

-

Keny

a-

- 1

5-

--

--

- 2

5-

--

18

M

adag

asca

r-

--

--

--

--

58

0-

4-

M

alaw

i-

--

--

--

--

60

- 1

0-

-

Mal

i-

--

--

--

- 1

8 1

--

- 1

32

Mau

ritiu

s-

--

--

--

--

- 1

0-

- 2

61

Moz

ambi

que

--

--

--

- 4

0 1

4 1

1-

13

1-

Na

mib

ia-

--

- 3

6 0

--

--

3-

--

Ni

geria

--

1 00

0-

--

--

--

- 1

2 1

8 1

5

Rwan

da-

--

--

--

--

--

- 2

-

Sene

gal

--

--

--

--

--

107

- 6

6 6

Si

erra

Leo

ne-

--

--

- 3

4-

- 0

--

--

Sw

azila

nd-

--

37

--

--

--

387

--

-

Ugan

da-

--

--

--

--

55

29

11

- 3

2

Unite

d Re

p. o

f Tan

zani

a-

--

--

- 2

1 1

2 2

17

1 2

3-

415

Za

mbi

a-

--

--

--

- 1

8 2

7 1

73 1

50 1

133

Zi

mba

bwe

--

--

- 3

8-

1 1

7 2

- 2

4 5

Lat

in A

mer

ica

and

the

Carib

bean

1 30

51

305

1 92

911

494

3 52

94

196

5 11

09

950

8 63

620

508

41 1

0363

923

41 9

6445

224

Sou

th A

mer

ica

196

1 14

8 3

227

319

2 90

12

109

2 84

07

324

6 50

916

910

25 4

3946

834

39 0

3335

584

Ar

gent

ina

- 6

0 2

76

274

302

1 16

41

803

1 31

51

869

3 61

14

635

10 3

9619

407

5 27

3

Boliv

ia-

- 1

5 2

6-

--

- 8

21 2

73 91

1 1

80 2

32 1

9

Braz

il19

6 2

87 2

217

158

174

624

367

1 76

16

536

12 0

6429

376

9 35

723

013

Ch

ile-

38

260

434

338

517

276

891

717

2 04

42

427

1 59

58

361

2 92

9

Colo

mbi

a-

764

- 3

41 4

9 3

1 8

1 24

8 6

72

399

2 51

61

780

302

1 58

9

Ecua

dor

--

--

- 4

9-

44

35

105

27

79

214

153

G

uyan

a-

--

17

7-

--

--

1-

23

-

Para

guay

--

--

--

--

- 2

7 2

11

- 6

5

Peru

--

--

15

174

62

3 08

2 9

45 8

44 91

1 1

62 8

61 1

07

Urug

uay

--

18

--

- 5

40

19

--

36

- 2

7

Vene

zuel

a-

--

11

2 03

2-

62

337

278

1 07

21

946

3 22

0 2

762

409

Oth

er L

atin

Am

eric

a an

d Ca

ribbe

an1

110

157

1 60

74

176

628

2 08

82

270

2 62

72

127

3 59

815

663

17 0

892

931

9 64

0

Antig

ua a

nd B

arbu

da-

--

--

--

--

--

24

- 5

Ar

uba

--

--

- 3

--

--

23

--

-

Baha

mas

30

83

27

120

210

915

79

214

2 1

04 3

2 2

8-

25

Ba

rbad

os-

--

- 1

89-

- 4

6 6

4-

--

- /...


nnex

tab

le B

.7.

Cro

ss-b

orde

r M

&A

sal

es,

by r

egio

n/ec

onom

y of

sel

ler,

198

7-20

00 (

cont

inue

d)(M

illio

ns o

f do

llars

)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Be

lize

--

--

--

--

--

- 6

2-

3

Berm

uda

1 07

9-

214

1 29

6 5

0 4

52

50

251

1 27

75

601

11 6

35 9

243

596

Br

itish

Virg

in Is

land

s-

--

143

6-

- 8

9 4

12 2

54 1

9 4

13

284

Ca

yman

Isla

nds

- 5

374

170

138

41

--

- 2

45-

- 1

22 5

4

Cos

ta R

ica

--

64

3-

- 1

17

96

27

28

2 7

1 2

1

Cuba

--

--

--

--

299

- 3

00 3

8-

477

Do

min

ican

Repu

blic

--

--

--

--

0 4

6-

28

673

464

El

Sal

vado

r-

--

--

--

- 4

0-

41

978

--

G

rena

da-

--

--

--

--

- 5

--

-

Gua

tem

ala

--

- 3

3-

29

--

26

30

582

101

13

Ha

iti-

--

--

--

--

--

2-

-

Hond

uras

--

--

5-

- 1

--

- 3

67-

314

Ja

mai

ca-

--

108

--

62

262

0 1

2-

34

--

M

exic

o 1

54

395

2 32

6 1

0 9

611

864

1 91

3 7

191

428

7 92

73

001

859

3 96

5

Neth

erla

nds

Antil

les

--

533

8 0

--

2 2

91-

- 8

6-

-

Nica

ragu

a-

--

--

--

--

23

42

- 1

1 1

15

Pana

ma

- 1

5-

--

- 6

73

9 1

4 6

52 2

16 1

51 1

30

Sain

t Kitt

s an

d Ne

vis

--

--

--

--

- 7

8-

--

-

Puer

to R

ico

--

--

- 1

42-

--

--

- 6

174

Tr

inid

ad a

nd T

obag

o-

--

- 1

7 2

2 1

77 2

--

205

--

-

Wes

t Ind

ies

--

--

--

--

--

760

--

- D

evel

opin

g Eu

rope

--

--

- 4

3 2

3 8

6 1

12 7

8 2

38 1

91

473

225

Bos

nia

and

Herz

egov

ina

--

--

--

--

--

--

- 4

5 C

roat

ia-

--

--

43

23

45

94

48

61

16

1 16

4 1

46 M

alta

--

--

--

--

--

- 3

250

- S

love

nia

--

--

--

0 4

1 1

8 3

0 1

33-

14

- T

FYR

of M

aced

onia

--

--

--

--

--

--

45

34

Yug

osla

via..

....

.. ..

..-

- .

- 4

5-

--

Asi

a25

61

569

2 08

94

073

2 18

23

614

7 34

74

701

6 95

013

368

21 2

9316

097

28 8

3922

182

Wes

t Asi

a-

59

60

113

131

203

71

49

222

403

368

82

335

970

Ab

u Dh

abi

--

--

- 5

8-

--

--

--

-

Bahr

ain

--

--

--

4-

--

--

36

161

Jo

rdan

--

--

--

--

26

--

--

567

Ku

wai

t-

--

--

- 6

--

--

--

-

Leba

non

--

--

--

--

--

168

11

- 5

4

Om

an-

--

- 7

8-

15

--

7-

- 2

8-

Q

atar

--

--

43

- 1

2-

--

--

--

Sa

udi A

rabi

a-

- 2

--

24

--

8 2

6-

--

2

Syria

n Ar

ab R

epub

lic-

--

--

--

--

--

- 3

-

Turk

ey-

59

58

113

9 1

16 3

5 4

9 1

88 3

70 1

44 7

1 6

8 1

82

Unite

d Ar

ab E

mira

tes

--

--

--

--

--

56

- 2

00 4

Ye

men

--

--

- 5

--

--

--

--

Cen

tral

Asi

a-

--

--

- 9

- 4

503

221

2 34

0 1

74 7

3 1

07

Arm

enia

--

--

--

--

--

- 1

73 2

9-

Az

erba

ijan

--

--

--

--

- 1

--

- 3

6

Geo

rgia

--

--

--

--

--

3 1

40

1

Kaza

khst

an-

--

--

--

- 4

503

216

2 33

7-

- 7

0

Uzbe

kist

an-

--

--

- 9

--

4-

- 4

-/..

.

341ANNEX B

Ann

ex t

able

B.7

. C

ross

-bor

der

M&

A s

ales

, by

reg

ion/

econ

omy

of s

elle

r, 1

987-

2000

(co

nclu

ded)

(Mill

ions

of

dolla

rs)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Sou

th, E

ast a

nd S

outh

-Eas

t Asi

a 2

561

510

2 02

93

960

2 05

13

411

7 26

74

652

6 27

89

745

18 5

8615

842

28 4

3121

105

Ba

ngla

desh

--

--

--

--

--

- 3

3-

-

Brun

ei D

arus

sala

m-

--

--

- 2

--

--

--

-

Cam

bodi

a-

--

--

--

--

0 1

--

-

Chin

a-

--

8 1

25 2

21 5

61 7

15 4

031

906

1 85

6 7

982

395

2 24

7

Dem

ocra

tic P

eopl

e’s

Repu

blic

of

--

--

--

--

--

--

2-

Ho

ng K

ong,

Chi

na 1

811

046

826

2 62

0 5

681

674

5 30

81

602

1 70

33

267

7 33

0 9

384

181

4 79

3

Indi

a-

--

5-

35

96

385

276

206

1 52

0 3

611

044

1 21

9

Indo

nesi

a 2

9 1

00 1

50-

149

233

169

206

809

530

332

683

1 16

4 8

19

Lao

Peop

le’s

Dem

. Rep

.-

--

--

- 1

0-

--

--

--

M

acau

--

--

29

--

--

--

--

-

Mal

aysi

a-

20

701

86

128

46

518

443

98

768

351

1 09

61

166

441

M

ongo

lia-

--

--

--

1-

--

- 1

-

Mya

nmar

--

--

--

10

- 9

- 2

60-

--

Ne

pal

--

--

--

2-

13

--

--

-

Pakis

tan

--

- 1

- 2

2 5

--

1 12

4 8

02

259

6 6

Ph

ilippi

nes

25

45

161

15

63

404

136

828

1 20

8 4

624

157

1 90

51

523

366

Ko

rea,

Rep

ublic

of

--

68

- 6

73 0

2 1

192

564

836

3 97

310

062

6 44

8

Sing

apor

e 2

1 2

62 1

141

143

237

276

362

355

1 23

8 5

93 2

94 4

682

958

1 53

2

Sri L

anka

--

- 1

--

30

10

126

35

275

96

22

2

Taiw

an P

rovi

nce

of C

hina

- 3

8 9

11

- 3

16

16

42

50

601

24

1 83

7 6

44

Thai

land

--

- 7

0 7

9 4

98 4

2 8

9 1

61 2

34 6

333

209

2 01

12

569

Vi

et N

am-

--

--

--

2 1

6 6

3-

59

19

The

Pac

ific

--

--

28

- 2

37

67

46

257

41

110

5Co

ok Is

land

s-

--

--

--

--

--

--

1Fi

ji-

--

--

--

--

5-

- 4

-Fr

ench

Pol

ynes

ia-

--

--

--

--

2-

--

-M

arsh

all I

sland

s-

--

--

--

- 1

6-

--

--

Papu

a Ne

w G

uine

a-

--

- 2

8-

2 3

6 5

1 3

9 2

57 4

1 1

06-

Solo

mon

Isla

nds

--

--

--

- 1

--

--

--

Vanu

atu

--

--

--

--

--

--

- 4

Cent

ral a

nd E

aste

rn E

urop

e-

- 2

7 2

85 8

182

602

1 15

51

333

5 93

83

601

5 52

65

101

9 14

816

922

Alba

nia

--

--

--

--

1-

--

4 1

6Bu

lgar

ia-

--

--

- 2

0 9

0 3

2 7

1 4

97 6

11

133

582

Czec

h Re

publ

ic-

--

--

- 2

26 4

082

366

507

671

362

2 40

21

924

Form

er C

zech

oslo

vaki

a-

--

- 4

77 7

80-

--

--

--

-Es

toni

a-

--

--

--

- 2

8 2

3 6

4 1

49 1

14 1

31Hu

ngar

y-

- 2

4 2

26 2

67 3

92 3

82 1

392

106

1 59

4 2

98 6

12 5

371

117

Latv

ia-

--

--

--

3 2

3 5

7 6

3 1

1 2

0 3

42Li

thua

nia

--

--

--

- 9

--

12

632

427

173

Pola

nd-

- 4

- 7

41

396

197

357

983

993

808

1 78

93

707

9 31

6Re

publ

ic o

f Mol

dova

--

--

--

--

--

2-

- 2

7Ro

man

ia-

--

--

--

181

229

94

391

1 28

4 4

47 5

36Ru

ssia

n Fe

dera

tion

--

- 5

9-

33

309

63

100

95

2 68

1 1

47 1

80 7

58 S

lova

kia

--

--

--

21

83

4 1

38 3

8 5

4 4

11

849

Ukr

aine

--

--

--

--

66

30

1 0

136

151

Mul

tinat

iona

la-

--

--

--

30

100

--

665

2 16

2-

Sour

ce:

UN

CTA

D,

cros

s-bo

rder

M&A

dat

abas

e.a

Invo

lvin

g se

llers

in m

ore

than

tw

o co

untr

ies.


nnex

tab

le B

.8.

Cro

ss-b

orde

r M

&A

pur

chas

es,

by r

egio

n/ec

onom

y of

pur

chas

er,

1987

-200

0(M

illio

ns o

f do

llars

)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

TOTA

L W

ORL

D74

509

115

623

140

389

150

576

80 7

1379

280

83 0

6412

7 11

018

6 59

322

7 02

330

4 84

853

1 64

876

6 04

41

143

816

Deve

lope

d co

untri

es71

874

113

413

135

786

143

216

77 6

3574

431

72 4

9811

6 59

717

3 73

219

8 25

727

2 04

251

1 43

070

6 51

91

094

031

Wes

tern

Eur

ope

33 0

6849

690

74 2

6592

567

42 4

7349

753

43 0

1075

943

92 5

3911

0 62

815

4 03

532

4 65

853

9 24

285

2 73

5 E

urop

ean

Unio

n32

617

40 1

4171

365

86 5

2539

676

44 3

9140

531

63 8

5781

417

96 6

7414

2 10

828

4 37

351

7 15

580

1 74

6

Aust

ria-

- 2

1 2

36 2

08 6

2 1

69 2

3 1

57 4

242

302

1 77

12

254

Be

lgiu

m 2

0 1

88 3

09 8

13 2

22 6

25 1

813

107

4 61

13

029

2 05

32

225

13 3

5716

334

De

nmar

k 1

6 6

3 2

61 7

67 5

73 2

58 3

72 1

72 1

52 6

381

492

1 25

05

654

4 59

0

Finl

and

58

172

979

1 13

6 5

68 8

98

417

471

1 46

41

847

7 33

32

236

20 1

92

Fran

ce3

244

5 48

617

594

21 8

2810

380

12 3

896

596

6 71

78

939

14 7

5521

153

30 9

2688

656

168

710

G

erm

any

1 63

41

857

3 46

86

795

6 89

44

409

4 41

27

608

18 5

0917

984

13 1

9066

728

85 5

3058

671

G

reec

e-

- 1

00 3

16

19

127

21

- 2

2 01

81

439

287

3 93

7

Irela

nd 6

7 5

481

174

730

390

358

457

1 44

71

166

2 26

51

826

3 19

64

198

5 57

5

Italy

3 32

71

373

1 96

15

314

816

5 16

7 8

161

622

4 68

91

627

4 19

615

200

12 8

0116

932

Lu

xem

bour

g 5

9 8

0-

734

1 02

3 4

151

555

244

51

1 03

7 9

73 8

912

847

6 04

0

Neth

erla

nds

2 71

62

350

3 29

25

619

4 25

15

304

2 84

88

714

6 81

112

148

18 4

7224

280

48 9

0952

430

Po

rtuga

l-

- 1

4 1

7 1

81 5

02 1

4 1

44 3

29 9

6 6

124

522

1 43

42

657

Sp

ain

212

582

1 31

84

087

2 77

3 9

831

053

3 82

8 4

603

458

8 03

815

031

25 4

5239

443

Sw

eden

1 64

53

104

2 64

512

572

2 88

21

813

1 92

33

118

5 43

22

058

7 62

515

952

9 91

421

559

Un

ited

King

dom

19 6

2124

339

38 2

2925

873

8 50

112

080

19 9

1126

675

29 6

4136

109

58 3

7195

099

214

109

382

422

Oth

er W

este

rn E

urop

e 4

529

549

2 90

06

043

2 79

75

362

2 47

812

086

11 1

2213

954

11 9

2840

285

22 0

8750

989

G

ibra

ltar

--

--

3-

--

--

--

- 1

8

Icel

and

--

--

- 7

--

--

--

- 4

9

Jers

ey-

--

--

--

--

--

- 6

-

Liec

hten

stei

n-

--

160

--

- 6

2 1

0-

142

- 8

-

Mon

aco

--

--

35

113

- 4

--

--

- 3

18

Norw

ay 5

3 1

9 1

261

380

1 30

1 2

70 1

43 6

431

276

3 95

61

212

1 17

01

382

7 37

6

Switz

erla

nd 3

999

530

2 77

44

503

1 45

84

973

2 33

611

378

9 83

69

998

10 5

7439

115

20 6

9143

228

Nor

th A

mer

ica

32 1

3838

577

47 8

6230

766

20 7

0217

190

25 5

3433

610

69 8

3369

501

99 7

0917

3 03

913

8 88

119

8 91

5 C

anad

a3

727

14 3

979

002

3 13

94

106

2 15

54

129

5 07

912

491

8 75

718

840

35 6

1818

571

39 6

46 U

nite

d St

ates

28 4

1224

181

38 8

6027

627

16 5

9615

035

21 4

0528

531

57 3

4360

744

80 8

6913

7 42

112

0 31

015

9 26

9 O

ther

dev

elop

ed c

ount

ries

6 66

825

146

13 6

5919

883

14 4

617

488

3 95

57

044

11 3

6018

128

18 2

9713

733

28 3

9642

381

Aus

tralia

2 51

39

355

5 56

13

806

1 47

2 6

761

852

1 60

26

145

9 28

311

745

8 14

710

138

10 8

56 I

srae

l-

--

28

28

61

393

143

106

484

254

791

605

2 36

1 J

apan

3 15

613

514

7 52

514

048

11 8

774

392

1 10

61

058

3 94

35

660

2 74

71

284

10 5

1720

858

New

Zea

land

685

2 25

3 5

691

854

883

923

252

44

573

1 18

0 7

85 9

971

421

1 91

3 S

outh

Afri

ca 3

15 2

4 5

146

201

1 43

6 3

524

196

593

1 52

22

766

2 51

45

715

6 39

3De

velo

ping

cou

ntrie

s2

614

2 18

03

990

7 03

53

057

4 82

710

439

10 1

6412

779

28 1

2732

544

19 2

0457

702

42 1

35 A

frica

100

--

- 2

29 3

09 5

4 2

5 5

2 6

25 3

4 1

63 4

7 2

66 N

orth

Afri

ca-

--

--

309

54

9 1

1 8

- 3

40

213

Eg

ypt

--

--

--

18

--

--

- 7

213

Lib

yan

Arab

Jam

ahiri

ya-

--

--

309

- 5

--

- 3

--

M

oroc

co-

--

--

- 3

6 4

- 8

--

10

-

Tuni

sia

--

--

--

--

11

--

- 2

3-

Oth

er A

frica

100

--

- 2

29-

- 1

6 4

1 6

18 3

4 1

60 7

53

Bo

tswa

na-

--

--

--

- 4

--

--

-

Cent

ral A

frica

n Re

publ

ic-

--

--

--

--

63

--

-- /...

343ANNEX B

Ann

ex t

able

B.8

. C

ross

-bor

der

M&

A p

urch

ases

, by

reg

ion/

econ

omy

of p

urch

aser

, 19

87-2

000

(con

tinue

d)(M

illio

ns o

f do

llars

)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

G

abon

--

--

229

--

--

--

--

-

Gha

na-

--

--

--

- 3

5 5

06-

137

- 4

Ke

nya

100

--

--

--

--

--

--

3

Libe

ria-

--

--

--

--

15

--

--

M

aurit

ius

--

--

--

--

- 4

34

7 7

-

Nam

ibia

--

--

--

--

- 1

1-

--

-

Nige

ria-

--

--

--

- 2

--

--

-

Unite

d Re

publ

ic of

Tan

zani

a-

--

--

--

--

--

--

3

Ugan

da-

--

--

--

--

--

--

-

Zam

bia

--

--

--

--

- 1

5-

--

43

Zi

mba

bwe

--

--

--

- 1

6-

4-

16

--

Lat

in A

mer

ica

and

the

Carib

bean

142

100

992

1 59

7 3

871

895

2 50

73

653

3 95

18

354

10 7

2012

640

44 7

6718

614

Sou

th A

mer

ica

- 1

0 9

1 1

30 2

69 5

941

795

682

3 40

55

939

6 03

89

510

3 87

42

191

Ar

gent

ina

--

- 1

0 1

81-

71

62

1 98

4 3

211

170

3 54

51

313

675

Bo

livia

--

--

--

--

- 0

--

--

Br

azil

- 2

2-

45

63

439

158

379

1 16

72

357

3 51

71

908

429

Ch

ile-

--

--

443

828

293

794

3 82

71

497

591

322

507

Co

lom

bia

--

--

--

11

10

91

272

157

436

102

203

Ec

uado

r-

--

--

--

22

50

45

--

--

Pe

ru-

--

--

--

7 6

2 2

37 4

4 4

7 2

20 6

2

Surin

ame

--

--

2-

--

--

--

--

Ur

ugua

y-

--

--

8-

120

3-

- 2

5-

1

Vene

zuel

a-

7 8

9 1

20 4

1 8

0 4

46 1

0 4

2 7

1 8

131

348

9 3

14 O

ther

Lat

in A

mer

ica

and

Carib

bean

142

91

901

1 46

7 1

181

300

712

2 97

1 5

462

415

4 68

23

130

40 8

9316

423

Ba

ham

as-

83

- 1

- 1

7-

9 1

42 3

44 2

3 5

1 4

59-

Ba

rbad

os-

--

--

--

--

- 1

5 2

- 4

9

Beliz

e-

--

--

- 5

5 1

25

--

63

318

-

Berm

uda

9-

24

483

115

130

112

189

17

703

1 18

92

139

35 1

5111

492

Br

itish

Virg

in Is

land

s 2

--

--

- 4

44

62

260

56

- 4

0 4

89

Caym

an Is

land

s-

--

--

- 2

4 5

30-

207

99

99

77

24

C

osta

Ric

a-

--

--

--

- 2

7 3

--

-

Cuba

--

--

--

- 8

--

--

--

Do

min

ican

Repu

blic

--

--

--

--

--

--

109

-

El S

alva

dor

- -

--

--

--

--

--

-1

G

uate

mal

a-

--

--

--

--

- 4

8-

--

Ja

mai

ca-

--

16

- 1

0-

- 4

--

--

-

Mex

ico

--

837

680

3 8

88 3

092

190

196

867

3 15

4 6

732

216

4 23

1

Neth

erla

nds

Antil

les

132

8 1

6 2

88-

11

33

- 9

9 7

7-

308

2

Pana

ma

--

--

--

--

- 1

7 8

9 1

002

215

5

Puer

to R

ico

--

--

--

--

--

--

- 1

25

Trin

idad

and

Tob

ago

--

24

--

245

175

--

--

5-

5 D

evel

opin

g Eu

rope

--

--

--

7-

- 3

100

1 1

1 3

2 C

roat

ia-

--

--

--

--

1 1

00 1

3 2

2 M

alta

--

--

--

7-

--

0-

4-

Slo

veni

a-

--

--

--

--

--

- 4

10

TFY

R of

Mac

edon

ia-

--

--

--

--

2-

--

- /...


nnex

tab

le B

.8.

Cro

ss-b

orde

r M

&A

pur

chas

es,

by r

egio

n/ec

onom

y of

pur

chas

er,

1987

-200

0 (c

oncl

uded

)(M

illio

ns o

f do

llars

)

Regi

on/e

cono

my

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

Asi

a2

372

2 08

02

998

5 43

82

441

2 62

47

843

6 48

68

755

19 1

3621

690

6 39

912

873

22 8

95 W

est A

sia

170

124

253

2 11

2 1

13 1

051

013

1 19

91

697

1 58

93

797

399

1 53

81

750

Ab

u Dh

abi

--

- 5

28-

--

--

--

--

-

Bahr

ain

--

168

1 53

7-

- 81

1 3

00-

-1

472

45

563

79

Cy

prus

--

--

--

--

- 4

11

881

- 7

3 1

5

Iran,

Isla

mic

Repu

blic

of-

--

--

--

--

--

--

-

Jord

an-

--

--

--

--

--

--

22

Ku

wai

t 1

70-

83

- 1

12-

--

4 6

48-

- 1

19 3

2

Leba

non

--

--

--

21

- 3

0 5

8-

--

O

man

--

--

--

--

--

8 5

5-

-

Qat

ar-

--

--

--

--

42

--

- 2

Sa

udi A

rabi

a-

--

--

100

182

630

1 67

1 3

50 3

34 2

17 3

1 55

0

Turk

ey-

- 2

--

--

11

19

356

43

4 8

8 4

8

Unite

d Ar

ab E

mira

tes

- 1

24-

48

1-

- 2

57-

153

2 7

7 6

55 2

Ye

men

--

--

- 5

--

--

--

37

- C

entr

al A

sia

--

--

--

--

450

--

--

6

Kaza

khst

an-

--

--

--

- 4

50-

--

- 6

Sou

th, E

ast a

nd S

outh

-Eas

t Asi

a2

202

1 95

62

745

3 32

52

329

2 51

86

830

5 28

76

608

17 5

4717

893

6 00

111

335

21 1

39

Afgh

anist

an-

--

--

13

--

--

--

--

Ba

ngla

desh

--

--

--

--

12

--

--

-

Brun

ei D

arus

sala

m-

--

--

- 2

02-

31

189

--

--

Ch

ina

- 1

7 2

02 6

0 3

573

485

307

249

451

799

1 27

6 1

01 4

70

Dem

ocra

tic P

eopl

e’s

Repu

blic

--

--

--

--

--

--

- 2

Ho

ng K

ong,

Chi

na2

166

1 64

9 7

731

198

1 34

21

263

4 11

32

267

2 29

92

912

8 40

22

201

2 32

15

768

In

dia

- 2

2 1

1-

1 3

219

109

29

80

1 28

7 1

1 1

26 9

10

Indo

nesi

a-

260

- 4

9 3

16

50

32

163

218

676

39

243

1 44

5

Mal

aysi

a-

- 2

7 1

44 1

49 1

48 7

74 8

121

122

9 63

5 8

941

059

1 37

7 7

61

Mac

au-

--

--

--

--

--

- 4

50-

Ph

ilippi

nes

--

--

14

- 2

5 4

2 1

53 1

90 5

4 1

330

75

Pa

kista

n-

--

--

--

--

--

--

6

Repu

blic

of K

orea

--

235

33

187

72

74

500

1 39

21

659

2 37

9 1

871

097

1 71

2

Sing

apor

e 7

8 7

64 4

38 5

70 2

94 8

491

174

892

2 01

82

888

530

4 72

08

847

Sr

i Lan

ka-

--

--

--

2-

--

26

8-

Ta

iwan

Pro

vinc

e of

Chi

na 2

9-

464

1 38

5-

131

- 3

0 1

22 4

433

628

408

1 13

8

Thai

land

--

269

18

59

1 3

8 1

2 1

44 1

80 5

5 4

3 1

54 5

Vi

et N

am-

--

--

6-

1-

11

27

--

- T

he P

acifi

c-

--

--

- 2

8-

22

8-

- 4

328

Fiji

--

--

--

--

--

--

4-

Nau

ru-

--

--

- 2

8-

--

--

--

Pap

ua N

ew G

uine

a-

--

--

--

- 1

3 8

--

- 3

28 V

anua

tu-

--

--

--

- 9

--

--

-Ce

ntra

l and

Eas

tern

Eur

ope

8-

6-

14

22

113

329

59

501

175

1 00

71

542

1 66

1 B

ulga

ria 8

--

--

--

--

3 6

0-

797

8 C

zech

Rep

ublic

--

6-

--

19

51

48

176

60

142

13

775

For

mer

Cze

chos

lova

kia-

--

--

4-

--

--

--

- E

ston

ia-

--

--

--

22

- 1

5 1

12

5 2

Hun

gary

--

--

--

62

- 2

- 6

64

118

379

Lat

via

--

--

--

18

--

--

--

- L

ithua

nia

--

--

--

--

--

--

1-

Pol

and

--

--

14

- 8

11

8 2

3 4

5 4

65 1

32 1

18 R

oman

ia-

--

--

--

--

- 0

--

- R

ussi

an F

eder

atio

n-

--

--

18

6 2

45-

242

2 3

01 5

2 2

25 S

lova

kia

--

--

--

- 1

2 4

2 1

- 4

24 2

4 U

krai

ne-

--

--

--

--

--

23

- 1

30Un

spec

ified

13

30

606

325

4-

- 1

0-

- 4

--

7M

ultin

atio

nala

--

--

3-

14

10

23

139

83

8 2

815

982

Sour

ce:

UN

CTA

D,

cros

s-bo

rder

M&A

dat

abas

e.a

Invo

lvin

g pu

rcha

sers

in

mor

e th

an t

wo

coun

tries

.

345ANNEX B

Ann

ex t

able

B.9

. C

ross

-bor

der

M&

As,

by

sect

or a

nd i

ndus

try

of s

elle

r,

1987

-200

0(M

illio

ns o

f do

llars

)

Sect

or/in

dust

ry19

8719

8819

8919

9019

9119

9219

9319

9419

9519

9619

9719

9819

9920

00

Tota

l74

509

115

623

140

389

150

576

80 7

1379

280

83 0

6412

7 11

018

6 59

322

7 02

330

4 84

853

1 64

876

6 04

41

143

816

Prim

ary

10 7

953

911

1 94

15

170

1 16

43

637

4 20

15

517

8 49

97

935

8 72

510

599

10 0

009

815

Agric

ultu

re, h

untin

g, fo

rest

ry, a

nd fi

shin

g 3

431

809

225

221

548

301

406

950

1 01

9 4

982

098

6 67

3 6

561

110

Min

ing,

qua

rryin

g an

d pe

trole

um10

452

2 10

21

717

4 94

9 6

173

336

3 79

54

568

7 48

07

437

6 62

83

926

9 34

48

705

Man

ufac

turin

g42

393

73 7

2789

596

75 4

9536

176

43 2

2243

204

69 3

2184

462

88 5

2212

1 37

926

3 20

628

8 09

029

1 65

4Fo

od, b

ever

ages

and

toba

cco

3 80

314

462

8 71

912

676

5 12

79

398

7 75

113

528

18 1

086

558

22 0

5317

001

28 2

4250

247

Text

iles,

clo

thin

g an

d le

athe

r 6

17 8

121

720

1 28

1 7

31 7

601

173

1 43

12

039

849

1 73

21

632

5 27

62

526

Woo

d an

d wo

od p

rodu

cts

2 01

31

793

9 17

67

765

2 71

41

588

2 03

14

262

4 85

55

725

6 85

47

237

9 45

623

562

Publ

ishin

g, p

rintin

g, a

nd re

prod

uctio

n of

reco

rded

med

ia1

196

11 7

416

544

2 30

5 3

535

192

1 18

32

747

1 34

110

853

2 60

712

798

10 2

484

875

Coke

, pet

role

um a

nd n

ucle

ar fu

el3

980

17 8

689

151

6 48

05

676

1 59

61

479

4 21

65

644

13 9

6511

315

67 2

8022

637

45 0

15Ch

emica

ls an

d ch

emica

l pro

duct

s16

836

5 00

818

368

12 2

755

773

5 58

111

393

20 0

6126

984

15 4

3035

395

31 8

0686

389

30 4

46Ru

bber

and

pla

stic

prod

ucts

1 69

63

620

1 38

72

745

574

228

265

997

4 31

33

943

2 30

62

264

3 78

64

723

Non-

met

allic

min

eral

pro

duct

s1

249

2 45

23

887

5 63

01

113

5 41

02

204

5 20

12

726

2 84

06

153

8 10

012

129

11 6

63M

etal

and

met

al p

rodu

cts

1 45

91

606

6 39

94

426

2 24

62

534

2 25

22

743

2 51

58

728

9 85

38

376

10 8

2516

782

Mac

hine

ry a

nd e

quip

men

t 8

322

878

2 07

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ents

.

SELECTED UNCTAD PUBLICATIONS ONTRANSNATIONAL CORPORATIONS AND

FOREIGN DIRECT INVESTMENT(For more information, please visit www.unctad.org/en/pub on the web.)

A. Individual studies

Ten Years of World Investment Reports: The Challenges Ahead. Proceedings of an UNCTADspecial event on future challenges in the area of FDI. UNCTAD/ITE/Misc.45. Free-of-charge.Available from http://www.unctad.org/wir .

World Investment Report 2000: Cross-border Mergers and Acquisitions and Development. 368p. Sales No. E.99.II.D.20. $45. Selected materials available also from http://www.unctad.org/wir/contents/wir00content.en.htm.

World Investment Report 2000: Cross-border Mergers and Acquisitions and Development. AnOverview . 75 p. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir00content.en.htm.

World Investment Report 1999: Foreign Direct Investment and the Challenge of Development .536 p. Sales No. E.99.II.D.3. $45. Selected materials available from http://www.unctad.org/wir/contents/wir99content.en.htm.

World Investment Report 1999: Foreign Direct Investment and the Challenge of Development.An Overview . 75 p. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir99content.en.htm.

World Investment Report 1998: Trends and Determinants . 430 p. Sales No. E.98.II.D.5. $45.Selected materials available from http://www.unctad.org/wir/contents/wir98content.en.htm.

World Investment Report 1998: Trends and Determinants. An Overview. 67 p. Free-of-charge.Available also from http://www.unctad.org/wir/contents/wir98content.en.htm.

World Investment Report 1997: Transnational Corporations, Market Structure and CompetitionPolicy. 420 p. Sales No. E.97.II.D.10. $45. Selected materials available from http://www.unctad.org/wir/contents/wir97content.en.htm.

World Investment Report 1997: Transnational Corporations, Market Structure and CompetitionPolicy. An Overview. 70 p. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir97content.en.htm.

World Investment Report 1996: Investment, Trade and International Policy Arrangements.332 p. Sales No. E.96.II.A.14. $45. Selected materials available from http://www.unctad.org/wir/contents/wir96content.en.htm.

World Investment Report 1996: Investment, Trade and International Policy Arrangements.An Overview. 51 p. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir96content.en.htm.

World Investment Report 1995: Transnational Corporations and Competitiveness. 491 p. SalesNo. E.95.II.A.9. $45. Selected materials available from http://www.unctad.org/wir/contents/wir95content.en.htm.


World Investment Report 1995: Transnational Corporations and Competitiveness. An Overview.51 p. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir95content.en.htm.

World Investment Report 1994: Transnational Corporations, Employment and the Workplace.482 p. Sales No. E.94.II.A.14. $45. Selected materials available from http://www.unctad.org/wir/contents/wir94content.en.htm.

World Investment Report 1994: Transnational Corporations, Employment and the Workplace.An Executive Summary . 34 p. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir94content.en.htm.

World Investment Report 1993: Transnational Corporations and Integrated InternationalProduction. 290 p. Sales No. E.93.II.A.14. $45. Selected materials available from http://www.unctad.org/wir/contents/wir93content.en.htm.

World Investment Report 1993: Transnational Corporations and Integrated InternationalProduction. An Executive Summary . 31 p. ST/CTC/159. Free-of-charge. Available also fromhttp://www.unctad.org/wir/contents/wir93content.en.htm.

World Investment Report 1992: Transnational Corporations as Engines of Growth. 356 p. SalesNo. E.92.II.A.19. $45. Selected materials available from http://www.unctad.org/wir/contents/wir92content.en.htm.

World Investment Report 1992: Transnational Corporations as Engines of Growth: An ExecutiveSummary. 30 p. Sales No. E.92.II.A.24. Free-of-charge. Available also from http://www.unctad.org/wir/contents/wir92content.en.htm.

World Investment Report 1991: The Triad in Foreign Direct Investment . 108 p. SalesNo.E.91.II.A.12. $25. Full version is available also from http://www.unctad.org/wir/contents/wir91content.en.htm.

World Investment Directory. Vol. VII (Parts I and II): Asia and the Pacific . 646 p. SalesNo. E.00.II.D.11. $80.

World Investment Directory. Vol. VI: West Asia . 192 p. Sales No. E.97.II.A.2. $35.

World Investment Directory. Vol. V: Africa . 508 p. Sales No. E.97.II.A.1. $75.

World Investment Directory. Vol. IV: Latin America and the Caribbean. 478 p. Sales No.E.94.II.A.10. $65.

World Investment Directory 1992. Vol. III: Developed Countries . 532 p. Sales No. E.93.II.A.9.$75.

World Investment Directory 1992. Vol. II: Central and Eastern Europe . 432 p. Sales No.E.93.II.A.1. $65. (Joint publication with the United Nations Economic Commission for Europe.)

World Investment Directory 1992. Vol. I: Asia and the Pacific . 356 p. Sales No. E.92.II.A.11.$65.

Investment Policy Review of Ecuador. 117 p. UNCTAD/ITE/IPC/Misc.2. Forthcoming. Summaryavailable from http://www.unctad.org/en/docs/poiteipcm2sum.en.pdf.

Investment and Innovation Policy Review of Ethiopia. 115 p. UNCTAD/ITE/IPC/Misc.4.Forthcoming. Advance copy available from http://www.unctad.org/en/docs/poiteipcm4.en.pdf .

Investment Policy Review of Mauritius. 84 p. Sales No. E.01.II.D.11. $22. Advance copy availablefrom http://www.unctad.org/en/docs/poiteipcm1.en.pdf.

349Selected UNCTAD Publications onTransnational Corporations and Foreign Direct Investment

Investment Policy Review of Peru . 108 p. Sales No. E.00.II.D. 7. $22. Summary available fromhttp://www.unctad.org/en/docs/poiteiipm19sum.en.pdf.

Investment Policy Review of Uganda. 75 p. Sales No. E.99.II.D.24. $15. Summary availablefrom http://www.unctad.org/en/docs/poiteiipm17sum.en.pdf.

Investment Policy Review of Egypt. 113 p. Sales No. E.99.II.D.20. $19. Summary availablefrom http://www.unctad.org/en/docs/poiteiipm11sum.en.pdf.

Investment Policy Review of Uzbekistan. 64 p. UNCTAD/ITE/IIP/Misc. 13. Free-of-charge.Full version available also from http://www.unctad.org/en/docs/poiteiipm13.en.pdf.

(Presentation of the Investment Policy Reviews is available from http://www.unctad.org/en/pub/investpolicy.en.htm.)

FDI in Least Developed Countries at a Glance. 150 p. UNCTAD/ITE/IIA/3. Free-of-charge.Full version available also from http://www.unctad.org/en/pub/poiteiiad3.en.htm.

Foreign Direct Investment in Africa: Performance and Potential. 89 p. UNCTAD/ITE/IIT/Misc. 15. Free-of-charge. Full version available also from http://www.unctad.org/en/docs/poiteiitm15.pdf.

International Investment Instruments: A Compendium, vol. IV. 319 p. Sales No. E.00.II.D.13.$55, vol. V. 505 p. Sales No. E.00.II.D.14. $55.

International Investment Instruments: A Compendium . Vol. I. 371 p. Sales No. E.96.II.A.9;Vol. II. 577 p. Sales No. E.96.II.A.10; Vol. III. 389 p. Sales No. E.96.II.A.11; the 3-volumeset, Sales No. E.96.II.A.12. $125.

Bilateral Investment Treaties 1959-1999 143 p. UNCTAD/ITE/IIA/2, Free-of-charge. Availableonly in electronic version from http://www.unctad.org/en/pub/poiteiiad2.en.htm.

Bilateral Investment Treaties in the Mid-1990s , 314 p. Sales No. E.98.II.D.8. $46.

TNC-SME Linkages for Development: Issues-Experiences-Best Practices. Proceedings of theSpecial Round Table on TNCs, SMEs and Development, UNCTAD X, 15 February 2000, Bangkok,Thailand. 113 p. UNCTAD/ITE/TEB1. Free-of-charge.

Handbook on Foreign Direct Investment by Small and Medium-sized Enterprises: Lessonsfrom Asia . 200 p. Sales No. E.98.II.D.4. $48.

Handbook on Foreign Direct Investment by Small and Medium-sized Enterprises: Lessonsfrom Asia. Executive Summary and Report of the Kunming Conference . 74 p. Free-of-charge.

Small and Medium-sized Transnational Corporations. Executive Summary and Report of theOsaka Conference . 60 p. Free-of-charge.

Small and Medium-sized Transnational Corporations: Role, Impact and Policy Implications .242 p. Sales No. E.93.II.A.15. $35.

Measures of the Transnationalization of Economic Activity. 93 p. Sales No. E.01.II.D.2. $20.

The Competitiveness Challenge: Transnational Corporations and Industrial Restructuring inDeveloping Countries. 283 p. Sales No. E.00.II.D.35. $42.

Integrating International and Financial Performance at the Enterprise Level. 116 p. SalesNo. E.00.II.D.28. $18.


FDI Determinants and TNCs Strategies: The Case of Brazil . 195 p. Sales No. E.00.II.D.2.$35. Summary available from http://www.unctad.org/en/pub/psiteiitd14.en.htm.

The Social Responsibility of Transnational Corporations. 75 p. UNCTAD/ITE/IIT/Misc. 21.Free-of-charge. Out of stock. Full version available only from http://www.unctad.org/en/docs/poiteiitm21.en.pdf.

Conclusions on Accounting and Reporting by Transnational Corporations . 47 p. Sales No.E.94.II.A.9. $25.

Accounting, Valuation and Privatization . 190 p. Sales No. E.94.II.A.3. $25.

Environmental Management in Transnational Corporations: Report on the Benchmark CorporateEnvironment Survey . 278 p. Sales No. E.94.II.A.2. $29.95.

Management Consulting: A Survey of the Industry and Its Largest Firms. 100 p. Sales No.E.93.II.A.17. $25.

Transnational Corporations: A Selective Bibliography, 1991-1992. 736 p. Sales No. E.93.II.A.16.$75.

Foreign Investment and Trade Linkages in Developing Countries. 108 p. Sales No. E.93.II.A.12.$18.

Transnational Corporations from Developing Countries: Impact on Their Home Countries .116 p. Sales No. E.93.II.A.8. $15.

Debt-Equity Swaps and Development . 150 p. Sales No. E.93.II.A.7. $35.

From the Common Market to EC 92: Regional Economic Integration in the European Communityand Transnational Corporations . 134 p. Sales No. E.93.II.A.2. $25.

The East-West Business Directory 1991/1992 . 570 p. Sales No. E.92.II.A.20. $65.

Climate Change and Transnational Corporations: Analysis and Trends . 110 p. Sales No.E.92.II.A.7. $16.50.

Foreign Direct Investment and Transfer of Technology in India . 150 p. Sales No. E.92.II.A.3.$20.

The Determinants of Foreign Direct Investment: A Survey of the Evidence . 84 p. Sales No.E.92.II.A.2. $12.50.

Transnational Corporations and Industrial Hazards Disclosure. 98 p. Sales No. E.91.II.A.18.$17.50.

Transnational Business Information: A Manual of Needs and Sources . 216 p. Sales No.E.91.II.A.13. $45.

The Financial Crisis in Asia and Foreign Direct Investment: An Assessment. 101 p. SalesNo. GV.E.98.0.29. $20.

Sharing Asia’s Dynamism: Asian Direct Investment in the European Union. 192 p. Sales No.E.97.II.D.1. $26.

Investing in Asia’s Dynamism: European Union Direct Investment in Asia. 124 p. ISBN 92-827-7675-1. ECU 14. (Joint publication with the European Commission.)


World Economic Situation and Prospects 2001. 51 p. Sales No. E.01.II.C.2. $15. (Joint publicationwith the United Nations Department of Economic and Social Affairs.)

International Investment towards the Year 2002 . 166 p. Sales No. GV.E.98.0.15. $29. (Jointpublication with Invest in France Mission and Arthur Andersen, in collaboration with DATAR.)

International Investment towards the Year 2001 . 81 p. Sales No. GV.E.97.0.5. $35. (Jointpublication with Invest in France Mission and Arthur Andersen, in collaboration with DATAR.)

Liberalizing International Transactions in Services: A Handbook. 182 p. Sales No. E.94.II.A.11.$45. (Joint publication with the World Bank.)

The Impact of Trade-Related Investment Measures on Trade and Development: Theory, Evidenceand Policy Implications. 108 p. Sales No. E.91.II.A.19. $17.50. (Joint publication with the UnitedNations Centre on Transnational Corporations.)

Transnational Corporations and World Development . 656 p. ISBN 0-415-08560-8 (hardback),0-415-08561-6 (paperback). £65 (hardback), £20.00 (paperback). (Published by InternationalThomson Business Press on behalf of UNCTAD.)

Companies without Borders: Transnational Corporations in the 1990s . 224 p. ISBN 0-415-12526-X. £47.50. (Published by International Thomson Business Press on behalf of UNCTAD.)

The New Globalism and Developing Countries. 336 p. ISBN 92-808-0944-X. $25. (Publishedby United Nations University Press.)

B. IIA Issues Paper Series(Executive summaries are available from http://www.unctad.org/iia.)

Illicit Payments. Forthcoming.

Home Country Operational Measures. Forthcoming.

Host Country Operational Measures. 109 p. Sales No E.01.II.D.18. $15.

Social Responsibility. 91 p. Sales No. E.01.II.D.4. $15.

Environment. 105 p. Sales No. E.01.II.D.3. $15.

Transfer of Funds. 65 p. Sales No. E.00.II.D.38. $10.

Employment. 69 p. Sales No. E.00.II.D.15. $10.

Taxation. 111 p. Sales No. E.00.II.D.5. $15.

International Investment Agreements: Flexibility for Development. 176 p. Sales No. E.00.II.D.6.$15.

Taking of Property. 70 p. Sales No. E.00.II.D.4. $12.

Trends in International Investment Agreements: An Overview. 121 p. Sales No. E.99.II.D.23.$ 12.

Lessons from the MAI. 43 p. Sales No. E.99.II.D.26. $ 10.

National Treatment. 75 p. Sales No. E.99.II.D.16. $12.


Fair and Equitable Treatment. 76 p. Sales No. E.99.II.D.15. $12.

Investment-Related Trade Measures. 52 p. Sales No. E.99.II.D.12. $12.

Most-Favoured-Nation Treatment . 54 p. Sales No. E.99.II.D.11. $12.

Admission and Establishment . 49 p. Sales No. E.99.II.D.10. $12.

Scope and Definition . 80 p. Sales No. E.99.II.D.9. $12.

Transfer Pricing . 58 p. Sales No. E.99.II.D.8. $12.

Foreign Direct Investment and Development . 70 p. Sales No. E.98.II.D.15. $12.

C. Serial publications

Current Studies, Series A

No. 30. Incentives and Foreign Direct Investment . 98 p. Sales No. E.96.II.A.6. $30. [Outof print.]

No. 29. Foreign Direct Investment, Trade, Aid and Migration. 100 p. Sales No. E.96.II.A.8.$25. (Joint publication with the International Organization for Migration.)

No. 28. Foreign Direct Investment in Africa . 119 p. Sales No. E.95.II.A.6. $20.

No. 27. Tradability of Banking Services: Impact and Implications . 195 p. Sales No.E.94.II.A.12. $50.

No. 26. Explaining and Forecasting Regional Flows of Foreign Direct Investment . 58p. Sales No. E.94.II.A.5. $25.

No. 25. International Tradability in Insurance Services . 54 p. Sales No. E.93.II.A.11.$20.

No. 24. Intellectual Property Rights and Foreign Direct Investment . 108 p. Sales No.E.93.II.A.10. $20.

No. 23. The Transnationalization of Service Industries: An Empirical Analysis of theDeterminants of Foreign Direct Investment by Transnational Service Corporations . 62 p. SalesNo. E.93.II.A.3. $15.

No. 22. Transnational Banks and the External Indebtedness of Developing Countries:Impact of Regulatory Changes . 48 p. Sales No. E.92.II.A.10. $12.

No. 20. Foreign Direct Investment, Debt and Home Country Policies . 50 p. Sales No.E.90.II.A.16. $12.

No. 19. New Issues in the Uruguay Round of Multilateral Trade Negotiations . 52 p.Sales No. E.90.II.A.15. $12.50.

No. 18. Foreign Direct Investment and Industrial Restructuring in Mexico. 114 p. SalesNo. E.92.II.A.9. $12.

No. 17. Government Policies and Foreign Direct Investment . 68 p. Sales No. E.91.II.A.20.$12.50.


ASIT Advisory Studies (formerly Current Studies, Series B; the full list is available from http://www.unctad.org/asit/ASIT%20Studies.htm.)

No. 16. Tax Incentives and Foreign Direct Investment: A Global Survey. 180 p. Sales No.E.01.II.D.5. $23. Summary available from http://www.unctad.org/asit/resumé.htm.

No. 15. Investment Regimes in the Arab World: Issues and Policies. 232 p. Sales No. E/F.00.II.D.32.$39.

No. 14. Handbook on Outward Investment Promotion Agencies and Institutions . 50 p. SalesNo. E.99.II.D.22. $ 15.

No. 13. Survey of Best Practices in Investment Promotion. 71 p., Sales No. E.97.II.D.11.$ 35.

No.12. Comparative Analysis of Petroleum Exploration Contracts. 80 p. Sales No. E. 96.II.A.7.$35.

No.11. Administration of Fiscal Regimes for Petroleum Exploration and Development. 45 p.Sales No. E. 95.II.A.8.

No.10. Formulation and Implementation of Foreign Investment Policies: Selected Key Issues.84 p. Sales No. E. 92.II.A.21. $12.

No.9. Environmental Accounting: Current Issues, Abstracts and Bibliography. 86 p. Sales No.E. 92.II.A.23.

UNCTAD-International Chamber of Commerce Series of Investment Guides (Summary ofthe Series is available from http://www.unctad.org/en/pub/investguide.en.htm.)

An Investment Guide to Uganda: Opportunities and Conditions. 76 p. UNCTAD/ITE/IIT/Misc.30. Free-of-charge. Full version available also from http://www.unctad.org/en/docs/poiteiitm30.en.pdf. (Joint publication with the International Chamber of Commerce.)

An Investment Guide to Bangladesh: Opportunities and Conditions. 66 p. UNCTAD/ITE/IIT/Misc.29. Free-of-charge. Full version available also from http://www.unctad.org/en/docs/poiteiitm29.en.pdf. (Joint publication with the International Chamber of Commerce.)

Guide d’investissement au Mali. 108 p. UNCTAD/ITE/IIT/Misc.24. Free-of-charge. Full versionavailable also from http://www.unctad.org/fr/docs/poiteiitm24.fr.pdf. (Joint publication with theInternational Chamber of Commerce, in association with PricewaterhouseCoopers.)

An Investment Guide to Ethiopia: Opportunities and Conditions. 69 p. UNCTAD/ITE/IIT/Misc.19. Free-of-charge. Full version available also from http://www.unctad.org/en/docs/poiteiitm19.en.pdf. (Joint publication with the International Chamber of Commerce, in associationwith PricewaterhouseCoopers.)

D. Journals

Transnational Corporations (formerly The CTC Reporter ).

Published three times a year. Annual subscription price: $45; individual issues $20.


United Nations publications may be obtained from bookstores and distributors throughout theworld. Please consult your bookstore or write to:

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All prices are quoted in United States dollars.

For further information on the work of the Division on Investment, Technology andEnterprise Development, UNCTAD, please address inquiries to:

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Palais des Nations, Room E-10054CH-1211 Geneva 10, Switzerland

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QUESTIONNAIRE

World Investment Report 2001:Promoting Linkages

Sales No. E.01.II.D.12

In order to improve the quality and relevance of the work of the UNCTAD Divisionon Investment, Technology and Enterprise Development, it would be useful to receivethe views of readers on this and other similar publications. It would therefore be greatlyappreciated if you could complete the following questionnaire and return to:

Readership SurveyUNCTAD Division on Investment, Technology and Enterprise Development

United Nations Office in GenevaPalais des Nations

Room E-10054CH-1211 Geneva 10

Switzerland

1. Name and address of respondent (optional):

2. Which of the following best describes your area of work?

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4. What is your assessment of the contents of this publication?

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6. Please indicate the three things you liked best about this publication:

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8. If you have read more than the present publication of the UNCTAD Division on Investment,Enterprise Development and Technology, what is your overall assessment of them?

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9. On the average, how useful are these publications to you in your work?

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Documents

World Investment Report 2001: Promoting Linkages