United Nations Conference on Trade and Development

World Investment Report 2001

Promoting Linkages

United Nations
New York and Geneva, 2001
 Note
UNCTAD serves as the focal point within the United Nations Secretariat for all matters
related to foreign direct investment and transnational corporations. In the past, the Programme
on Transnational Corporations was carried out by the United Nations Centre on Transnational
Corporations (1975-1992) and the Transnational Corporations and Management Division of the
United Nations Department of Economic and Social Development (1992-1993). In 1993, the
Programme was transferred to the United Nations Conference on Trade and Development.
UNCTAD seeks to further the understanding of the nature of transnational corporations and
their contribution to development and to create an enabling environment for international
investment and enterprise development. UNCTAD's work is carried out through
intergovernmental deliberations, technical assistance activities, seminars, workshops and
conferences.

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 of
any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal
status of any country, territory, city or area or of its authorities, or concerning the delimitation of
its frontiers or boundaries. In addition, the designations of country groups are intended solely
for statistical or analytical convenience and do not necessarily express a judgement about the
stage of development reached by a particular country or area in the development process. The
reference to a company and its activities should not be construed as an endorsement by UNCTAD
of the company or its activities.

The boundaries and names shown and designations used on the maps presented in this
publication 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 in
tables have been omitted in those cases where no data are available for any of the elements in the
row;

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 full
period 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 compound
rates.

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 appropriate
acknowledgement.

UNITED NATIONS PUBLICATION

Sales No. E.01.II.D.

ISBN 92-1-112

Copyright © United Nations, 2001

All rights reserved
Manufactured in Switzerland
ii
 Preface

Investment is of decisive importance for the developing world. The only developing
countries that really are developing are those that have succeeded in attracting significant amounts
of foreign direct investment (FDI), and have mobilized the savings and resources of their own
citizens. Unfortunately, that is only a relative handful of countries. The rest of the developing
world, and especially the least developed countries, are almost entirely missing out — in spite of
the fact that many of them have put in place highly welcoming regulatory frameworks for foreign
investment 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 isolated
to 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 FDI
reached unprecedented levels in 2000. Policy makers in developing countries are seeking to
increase 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 approach
that carefully assesses location and other factors for success. These new strategies are being
pursued side-by-side with traditional schemes.

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

Helping the developing-country economies, and in particular those of the least developed
countries, to derive more benefits from FDI and from the increasingly integrated global economy
remains a crucial goal of the entire United Nations system. The statistics and analysis contained
in this thought-provoking Report are meant to contribute to that endeavour, and merit wide
readership.

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

iii
Acknowledgements

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

Principal research assistance was provided by Mohamed Chiraz Baly, Bradley Boicourt
and Lizanne Martinez. Research assistance was provided by Tadelle Taye. Three interns assisted
with the WIR01 at various stages: Maria Cristina D'Ornellas, Leander Kroezen and Pim
Schuitemaker. The production of the WIR01 was carried out by Christopher Corbet, Florence
Hudry, Zarah Lim, Mary McGee and Chantal Rakotondrainibe. Graphics were done by Diego
Oyarzun-Reyes. WIR01 was desktop published by Teresita Sabico. The Report was edited by
Frederick Glover.

Sanjaya Lall was principal consultant and adviser.

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

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

Comments were received during various stages of preparation from Arun Agrawal, Tilman
Altenburg, Subash Bijlani, Douglas van der Berghe, Kai Bethke, Mauro Borges Lemos, Andre de
Crombrugghe, 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, Michael
Mortimore, Lynn K. Mytelka, Njunguna S. Ndungu, Fionan O'Muircheartaigh, José Tomás Páez
Fernández, Nicholas Phelps, Anne Caroline Posthuma, Ganesh Rasagam, Pedro Roffe, Lorraine
Ruffing, 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 Stephen
Young.

Numerous officials of central banks, statistical offices, investment promotion agencies

and other government offices, and officials of international organizations and non-governmental
organizations, 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 Advisory
Service of the World Bank contributed inputs. A survey of linkages by foreign affiliates was
undertaken 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 gratefully
acknowledged.

iv
TABLE OF CONTENTS v

Table of contents

Page

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

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

PART ONE
THE 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 ............................................................................................... 9

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

2. Developing countries ........................................................................................... 19

a. Africa ...............................................................................................................
19
b. Developing Asia ............................................................................................ 23
c. Latin America and the Caribbean ..............................................................29
d. 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

vi World Investment Report 2001: Promoting Linkages

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1. FDI patterns ...........................................................................................................

47
2. Some comparative patterns ................................................................................. 53

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

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

1. Industrial location and the role of clusters ......................................................66

2. The location of corporate functions .................................................................72

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

CHAPTER III. THE LARGEST TRANSNATIONAL

CORPORATIONS .......................................................................................89

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

1. Highlights ..............................................................................................................
93
2. Transnationality ....................................................................................................96

B. The largest 50 transnational corporations from

developing countries .......................................................................104

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

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

CONCLUSION ...........................................................................................1 21

PART TWO
PROMOTING LINKAGES BETWEEN FOREIGN
AFFILIATES AND DOMESTIC FIRMS

INTRODUCTION ......................................................................................1 27

CHAPTER IV. BACKWARD LINKAGES: IMPACT,

DETERMINANTS AND TNC EXPERIENCE .......................................129

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

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

TABLE OF CONTENTS vii

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

1. Finding new local suppliers ........................................................................... 140

2. Transferring technology ................................................................................. 140
3. Providing training ...........................................................................................
144
4. Sharing information ........................................................................................
149
5. Extending financial support ........................................................................... 151

D. Conclusions .....................................................................................1 52

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

Annex to chapter IV. Supplier development activities

by foreign affiliates................................................................................1 57

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 and

deepening of linkages .....................................................................173

1. Information and matchmaking ....................................................................... 174

2. Technology upgrading .................................................................................... 175
3. Training .............................................................................................................
178
4. Finance .............................................................................................................
180

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

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

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

CHAPTER VI. KEY ELEMENTS OF

A LINKAGE PROMOTION PROGRAMME .........................................209

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

B. Identifying the targets ....................................................................212
viii World Investment Report 2001: Promoting Linkages

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

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

REFERENCES ..........................................................................................2 17

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

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

SELECTED UNCTAD PUBLICATIONS ON TRANSNATIONAL

CORPORATIONS AND FOREIGN DIRECT INVESTMENT .............347

QUESTIONNAIRE ....................................................................................3 56

Boxes
I.1. FDI regimes in 2000 ..........................................................................................................
6
I.2. FDI boom in Hong Kong, China: what ‘s behind the numbers? ........................................24
I.3. The evolving profile of FDI in China ............................................................................... 26
I.4. FDI in Yugoslavia ............................................................................................................
35
I.5. Government support for investors in Hungary .................................................................37
II.1. Cross-border M&As in 2000 ........................................................................................... 53
II.2. Inward FDI at the sub-national level: some examples ......................................................62
II.3. FDI in high technology industries in California ................................................................73
II.4. FDI in the electronics industry in Penang, Malaysia ........................................................74
II.5. FDI in financial services in the City of London ................................................................75
III.1. Assessing the international spread of the world’s largest TNCs .....................................103
III.2. Lukoil’s acquisition of Getty Petroleum .......................................................................... 119
IV.1. ENGTEK: from a backyard business to a global supplier ...............................................129
IV.2. Linkages to first-tier foreign suppliers ...........................................................................132
IV.3. Evidence on backward linkages .................................................................................... 134
IV.4. Linkages in the Peruvian mining industry .......................................................................138
IV.5. Sourcing in the food retailing industry: Carrefour and McDonald’s in Argentina ............ 139
IV.6. Nestlé’s supplier development programme in China .......................................................141
IV.7. Cooperation between foreign affiliates and local suppliers:
the case of LG Electronics in India ............................................................................... 144
IV.8. Upgrading supplier capabilities in the food processing industry in India .........................145
IV.9. Unilever in Viet Nam ....................................................................................................146
IV.10. Fostering linkages with local suppliers: the case of Toyota Motor Thailand ....................146
IV.11. The SMART model of Intel Malaysia ............................................................................149
IV.12. Motorola’s backward linkage programme in China ........................................................150
V.1. Suzuki’s local sourcing in Hungary ................................................................................ 166
V.2. The TRIMs Agreement in brief ..................................................................................... 167
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V.3. Experiences with local content requirements .................................................................169
V.4. Singapore’s Local Industry Upgrading Programme .......................................................176
V.5. Source Wales ................................................................................................................
179
V.6. Partnership for training: the UNIDO Partnership Programme to
strengthen the automotive component manufacturing industry in India ..........................181
V.7. Targeting potential local suppliers .................................................................................. 184
V.8. Ireland’s National Linkage Programme .........................................................................185
V.9. National and regional linkage development schemes in Malaysia ...................................187
V.10 The Czech Republic’s National Supplier Development Programme ...............................189
V.11. Measuring linkages and their economic impact – an overview ......................................192
VI.1 Coach an SME! ............................................................................................................213

Figures
I.1. Geographical distribution of foreign affiliates, 1999 ..........................................................11
I.2. The share of the Triad in world FDI flows and stocks, 1985 and 2000 ..............................11
I.3. FDI stocks among the Triad and economies in which FDI from the Triad dominates,
1985 and 1999 .................................................................................................................
13
I.4. Developed countries: FDI outflows, 1999 and 2000 .........................................................14
I.5. Destination and sources of United States FDI flows, 2000 ..............................................15
I.6. Developed countries: FDI inflows, 1999 and 2000 ...........................................................16
I.7. Developed countries: FDI flows as a percentage of gross
fixed capital formation, 1997-1999 ................................................................................... 17
I.8. Intra- and extra-EU FDI flows, 1995-1999 ......................................................................18
I.9. FDI inflows and their share in gross fixed capital formation in Africa, 1990-2000 ........... 19
I.10. Africa: FDI flows as a percentage of gross fixed capital formation,
top 20 countries, 1997-1999 ............................................................................................. 21
I.11. Africa: FDI inflows, top 10 countries, 1999 and 2000 ......................................................22
I.12. Africa: FDI outflows, top 10 countries, 1999 and 2000 ....................................................22
I.13. FDI inflows and their share in gross fixed capital formation
in developing Asia, 1990-2000 ......................................................................................... 24
I.14. FDI inflows as a percentage of gross domestic capital
formation in developing Asia, 1990-1999 .........................................................................27
I.15. Asia and the Pacific: FDI inflows, top 20 economies, 1999-2000 .....................................28
I.16. Developing Asia: FDI outflows, top 10 economies, 1999-2000 .........................................29
I.17. FDI inflows and their share in gross fixed capital formation in Latin America
and the Caribbean, 1990-2000 ......................................................................................... 29
I.18. Latin America and the Caribbean: FDI inflows, top 20 economies, 1999 and 2000 .......... 31
I.19. Latin America and the Caribbean: FDI flows as a percentage of gross
fixed capital formation, top 20 economies, 1997-1999 ......................................................32
I.20. Latin America and the Caribbean: FDI outflows, top 10 economies, 1999 and 2000 ........ 33
I.21. FDI inflows and their share in gross fixed capital formation in Central and
Eastern Europe, 1990-2000 ............................................................................................. 34
I.22. Central and Eastern Europe: FDI inflows, 1999 and 2000 ................................................34
I.23. Central and Eastern Europe: FDI flows as a percentage of
gross fixed capital formation, 1997-1999 ..........................................................................36
I.24. Central and Eastern Europe: FDI outflows, 1999 and 2000 .............................................37
I.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 ................................................................................... 48
II.2. Outward FDI stock, 1985 and 2000 ................................................................................. 49
II.3. Share of developing countries in world FDI flows, 1980-2000 .........................................50
II.4. Relative importance of FDI outflows from selected developing economies, 1997-1999 ... 50
II.5. Inward FDI stock per $1,000 GDP, 1999 .........................................................................51
II.6. Inward FDI stock per capita, 2000 .................................................................................. 51
II.7. Value of cross-border M&As and its share in world GDP, 1987-2000 ..............................53
II.8. Cross-border M&A sales, 1987 and 2000 ........................................................................54
II.9. Cross-border M&A purchases, 1987 and 2000 ................................................................55
II.10. FDI and trade intensities, by region, 1990 and 1999 .........................................................57
II.11. Location of foreign affiliates in Austria, by region, 1994 ..................................................60
II.12. Distribution of sales by foreign affiliates in Japan, by area, 1997 .....................................60
II.13. Distribution of FDI inflows in France, by region, 1997 .....................................................61
II.14. Distribution of employees of foreign affiliates in Sweden, by county, 1999 .......................61
II.15. Distribution of production of foreign affiliates in the United States, by state, 1992 ........... 62
II.16. Industrial distribution of world FDI stock, 1988 and 1999 ................................................67
II.17. The distribution of foreign affiliates in the semiconductor industry, 1999 .........................68
II.18. The distribution of foreign affiliates in the biotechnology industry, 1999 ...........................69
II.19. The distribution of foreign affiliates in the automobile industry, 1999 ...............................70
II.20. The distribution of foreign affiliates in the TV and radio receivers industry, 1999 ............ 70
II.21. The distribution of foreign affiliates in the textiles and clothing industry, 1999 ................. 71
II.22. The distribution of foreign affiliates in food and beverage industry, 1999 .........................71
II.23. The distribution of foreign affiliates of the largest 10 automobile TNCs,
by function, 1999 .............................................................................................................
76
II.24. The distribution of foreign affiliates of the largest 10 electronics TNCs,
by function, 1999 .............................................................................................................
78
II.25. The distribution of R&D facilities and locations of major universities in Europe, 1999 ..... 83
II.26. The distribution of R&D facilities and locations of major universities
in the United States, 1999 ............................................................................................... 84
II.27. The distribution of R&D facilities and locations of major universities in Asia, 1999 ......... 86
II.28. Functional integration of foreign affiliates of Toyota Motor Corporation
in ASEAN, 2000 ..............................................................................................................
87
III.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 .....................89
III.2. Snapshot of the world’s 100 largest TNCs, 1990-1999 ...................................................96
III.3. Global expansion of Ford Motor Company ......................................................................97
III.4. Global expansion of Unilever N.V. .................................................................................. 98
III.5. Global expansion of Siemens A.G. ................................................................................... 99
III.6. Global expansion of Marubeni Corporation ....................................................................100
III.7. Average transnationality index of the world’s 100 largest TNCs, 1990-1999 ................. 101
III.8. The top 10 increases in transnationality among the
world’s 100 largest TNCs, 1998-1999 ...........................................................................102
III.9. The top 10 decreases in transnationality among the
world’s 100 largest TNCs, 1998-1999 ...........................................................................102
III.10. Trends among the largest 50 TNCs from developing economies, 1993–1999 ................. 107
III.11. Global expansion of Cemex S.A. ................................................................................... 108
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Page
III.12. Major industry groups as per cent of largest 50, 1993 and 1999 .....................................110
III.13. Major industry groups of the largest 50 TNCs and their average
transnationalization index, 1993 and 1999 ....................................................................... 111
III.14. Foreign assets of the biggest investors from developing countries, 1998 and 1999 ..........113
III.15. Global expansion of Pliva d.d. ........................................................................................
117
IV.1. Strategic options for foreign affiliates with regard to obtaining inputs ............................133
V.1. Policy focus for the promotion of backward linkages ....................................................164
V.2. The linkages policy environment ....................................................................................164

Tables
I.1. Selected indicators of FDI and international production, 1982-2000 .................................10
I.2. Annual average FDI growth rate, 1986-2000 ..................................................................10
I.3. The ten largest cross-border M&A purchases by South African firms, 1987-2000 .......... 23
I.4. Concentration ratios of FDI, trade, domestic investment and
technology payments, 1985 and 2000 ............................................................................... 39
I.5. The Inward FDI Index, by region, 1988-1990 and 1998-2000 ..........................................43
II.1. Share of the largest ten countries in world FDI flows, 1985 and 2000 .............................52
II.2. Share of the largest recipients of FDI flows among developing economies,
1985 and 2000 .................................................................................................................
52
II.3. The share of top TNCs in outward FDI stock, selected countries, latest available year ... 52
II.4. Cross-border M&As with values of over $1 billion, 1987-2000 ........................................56
II.5. Geographical distribution of FDI flows, trade, domestic investment
and technology payments ................................................................................................ 56
II.6. Geographical concentration of foreign affiliates in selected manufacturing
industries, by technological intensity, 1999 .......................................................................68
II.7. Corporate networks of Japanese affiliates in the Americas, 1999 ....................................80
II.8. Regional headquarters of foreign firms in Hong Kong, China,
by home economy and by industry, 1996-2000 .................................................................81
II.9. Share of United States patents of world’s largest firms attributable to research in foreign
locations, 1969-1995 ........................................................................................................
82
III.1. The world’s 100 largest TNCs, ranked by foreign assets, 1999 ........................................90
III.2. Newcomers to the world’s 100 largest TNCs, ranked by foreign assets, 1999 ................. 93
III.3. Departures from the world’s 100 largest TNCs, ranked by foreign assets, 1999a ............ 94
III.4. Snapshot of the world’s 100 largest TNCs, 1999 .............................................................94
III.5. Country composition of the world’s largest 100 TNCs by transnationality index
and foreign assets, 1990, 1995 and 1999 ..........................................................................95
III.6. Industry composition of the largest 100 TNCs, 1990, 1995 and 1999 ..............................101
III.7. The world’s largest 10 TNCs in terms of transnationality, 1999 .....................................101
III. 8. Averages in transnationality index, assets, sales and employment
of the largest 5 TNCs in each industry, a 1990, 1995 and 1999 ......................................102
III.9. The largest 50 TNCs from developing economies, ranked by foreign assets, 1999 ......... 105
III.10. Snapshot of largest 50 TNCs from developing economies, 1999 ...................................107
III.11. The top five TNCs from developing economies in terms of transnationality, 1999 .......... 108
III.12. Newcomers to the largest 50 TNCs from developing economies, 1999 ..........................109
III.13. Departures from the largest 50 TNCs from developing economies, 1999 ........................110
III.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 ..............116
III.18. Selected publicly announced cross-border mergers and acquisitions
involving the largest 25 firms, January 1997 to May 2001 ...............................................118
IV.1. Backward linkages and other relationships between foreign affiliates and
local enterprises and organizations ................................................................................
131
V.I. Notifications submitted under Article 5.1 of the TRIMs Agreement ..............................168
V.2. Examples from international agreements (or attempts thereof) that prohibit,
condition or discourage certain host country operational measures ................................170
V.3. The WTO Agreement on Subsidies ............................................................................... 172
VI.1 Specific government measures to create and deepen linkages .......................................210
VI.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 .........................................................6
I.1.2. BITs concluded in 2000, by country group ......................................................................... 6
I.1.3. Cumulative number of BITs and DTTs, 1990-2000 ............................................................7
I.1.4. DTTs concluded in 2000, by country group ........................................................................ 7
1.2.1. Trends of FDI inflows into Hong Kong, China, 1994-2000 ...............................................2 4
II.2.1. Distribution of FDI stock in China, by province and major city, 1999 ...............................63
II.2.2. Distribution of FDI flows in Thailand, by province, 2000 .................................................63
II.2.3. Location of foreign affiliates in Brazil, by city, 1999 ........................................................64
II.2.4. Location of foreign affiliates in Mexico, by city, 1999 .....................................................64
II.2.5. Distribution of foreign affiliates in Hungary, by region, 1998 ...........................................65
II.2.6 Location of foreign affiliates in Poland, by city, 1999 ......................................................65
II.3.1. Location of foreign affiliates and domestic firms in the microelectronics
industry in California, United States, 1999 .......................................................................73
II.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 ............................................................................ 6
I.3.1. Exports of high-technology products from China by
ownership of production, 1996-2000 ................................................................................ 26
I.4.1. FDI inflows into Yugoslavia, 1992-2000 ........................................................................... 35
I.4.2. Countries of origin of FDI inflows into Yugoslavia, 1996-2000 .........................................35
I.4.3. Number of FDI projects in Yugoslavia, by industry, 1995-2000 ........................................35
III.1.1. Network Spread Index of the world’s largest 97 TNCs, by country of origin ................. 104
III.1.2. Network Spread Index of the world’s largest 94 TNCs, by industry ..............................104
IV.10.1. Local procurement by Toyota Motor Thailand, 2001, by type of
supplier and type of input ..............................................................................................
147
V.1.1. Magyar Suzuki and its supplier network, 2001 ...............................................................166
 OVERVIEW

THE GEOGRAPHY OF Wi t h i n t h e d e v e l o p e d w o r l d , t h e
Triad – the European Union (EU), the United
INTERNATIONAL States and Japan – accounted for 71 per cent
PRODUCTION of world inflows and 82 per cent of outflows
in 2000. Within the Triad, the EU has gained
both as a recipient and source of FDI. Record
FDI flows reached record levels inflows ($617 billion) were stimulated by
in 2000… further progress in regional integration,
while the United States and other Western
European countries remain its main partners
oreign direct investment (FDI) outside the region. Due to the take-over

F
continues to expand rapidly, of Mannesmann by VodafoneAirTouch – the
enlarging the role of international largest cross-border merger deal so far –
production in the world economy. Germany became, for the first time, the
FDI grew by 18 per cent in 2000, largest recipient of FDI in Europe. The
faster than other economic United Kingdom maintained its position as
aggregates like world production, capital the top source country worldwide for a
formation and trade, reaching a record $1.3 second year. The United States remained
trillion. FDI flows are, however, expected to the world’s largest FDI recipient country as
decline in 2001. inflows reached $281 billion. Outflows with
$139 billion decreased by 2 per cent. Japan
The global expansion of investment saw its inflows in 2000 drop by 36 per cent
flows is driven by more than 60,000 from the previous year to $8 billion, partly
transnational corporations (TNCs) with over due to the prolonged slow-down of the
8 0 0 , 0 0 0 a ff i l i a t e s a b r o a d . D e v e l o p e d country’s economic growth, but also perhaps
countries remain the prime destination of indicative of the fact that, in spite of its
FDI, accounting for more than three-quarters welcoming FDI policies, other factors deter
of global inflows. Cross-border mergers and investment inflows. In contrast, outflows
acquisitions (M&As) remain the main from Japan rebounded to $33 billion, the
stimulus behind FDI, and these are still highest level in ten years. Among other
concentrated in the developed countries. As developed countries, the most conspicuous
a result, inflows to developed countries events were the unprecedented levels of FDI
increased by 21 per cent and amounted to into and from Canada, reflecting several
a little over $1 trillion. FDI inflows to major M&A deals, in particular with partners
developing countries also rose, reaching in Europe and the United States.
$240 billion. However, their share in world
FDI flows declined for the second year in There were major differences in FDI
a row, to 19 per cent, compared to the peak trends among developing countries. In
of 41 per cent in 1994. The countries in contrast to the experience in most other parts
Central and Eastern Europe, with inflows of the world, inflows to Africa (including
of $27 billion, maintained their share of 2 South Africa) declined in 2000 (for the first
per cent. The 49 least developed countries time since the mid-1990s), from $10.5
( L D C s ) r e m a i n e d m a rg i n a l i n t e r m s o f billion to $9.1 billion. As a result, the share
attracting FDI, with 0.3 per cent of world of Africa in total FDI flows fell below 1
inflows in 2000.
xiv World Investment Report 2001: Promoting Linkages

per cent. The decline was mainly related to FDI flows to China, at $41 billion,
two countries: South Africa and Angola. In remained fairly stable. In the course of its
the former country, fewer privatization and negotiations for membership in the WTO,
M&A deals caused the slow-down, while in China has amended some of its FDI policies.
the latter, inflows in the petroleum sector TNCs play an increasingly important role
declined. The Southern African Development in the Chinese economy; for example, tax
Community maintained its position as the contributions by foreign affiliates accounted
most important subregion for FDI inflows for 18 per cent ($27 billion) of the country’s
in Africa. Its share in total FDI inflows into total corporate tax revenues in 2000. Inflows
Africa was 44 per cent, compared to 21 per to South-East Asia (ASEAN-10) remained
cent in the first half of the 1990s. The below the pre-crisis level. The subregion’s
Community’s improved attractiveness to FDI share in total FDI flows to developing Asia
may have been principally driven by continued to shrink, and stood in 2000 at
country-specific factors, but at least some 10 per cent, as compared with over 30 per
FDI inflows were also motivated by the cent in the mid-1990s. This was largely due
economic integration of the region. to rising inflows into other countries in the
region and significant divestments in
After tripling during the second half Indonesia since the onset of the financial
of the 1990s, FDI flows into Latin America crisis. South Asia witnessed a drop in FDI
and the Caribbean also fell in 2000, by 22 inflows by 1 per cent over the previous year.
per cent, to $86 billion. This was mainly a I n d i a , t h e l a rg e s t r e c i p i e n t i n t h e
correction from 1999 – when FDI inflows subcontinent, received $2 billion.
into the region were greatly affected by three Notwithstanding these mixed trends, the
major cross-border acquisitions of Latin l o n g e r- t e r m i n v e s t m e n t p r o s p e c t s f o r
American firms – rather than a shift in the developing Asia remain bright. In addition
underlying trend. Privatization slowed down to the quality of the underlying determinants
in 2000, but continues to be important as for FDI, greater economic integration is
a factor driving inward FDI. In terms of likely to boost FDI in the region.
sectors, FDI into South America was mainly
in services and natural resources, while Outward FDI from developing Asia
Mexico continued to receive the largest doubled in 2000, to $85 billion. Hong Kong
share of inflows in manufacturing as well (China) was the most important source ($63
as in banking. billion); more than half of its outward FDI
went to China. Outward FDI from China
In developing Asia, FDI inflows and India also picked up.
reached a record level of $143 billion in
2000. The greatest increase took place in FDI inflows into Central and Eastern
East Asia; Hong Kong (China), in particular, Europe also rose, to an unprecedented $27
experienced an unprecedented FDI boom, billion. Privatization-related transactions
with inflows amounting to $64 billion, were a key determinant of FDI inflows
making it the top FDI recipient in Asia as throughout the region, with the exception
well as in developing countries. This upsurge of Hungary, where the privatization process
in inflows has several explanations. First, has by and large run its course, and the
it reflects a recovery from the economic Commonwealth of Independent States, where
turmoil of the recent past. Second, TNCs large-scale privatizations involving foreign
planning to invest in mainland China have been investors have yet to begin. Outflows from
“parking” funds in Hong Kong (China), in the region expanded even faster than
anticipation of China’s expected entry into inflows, in spite of the fact that official data
the WTO. Third, the increase reflects a major on outward FDI are likely to underestimate
cross-border M&A in telecommunications, the actual outflows. (Some FDI by firms in
which alone accounted for nearly one-third the Russian Federation go unreported, or are
of the territory’s total FDI inflows. Fourth, there reported under other elements of the balance
is an element of increased “round-tripping” of of payments.)
capital flows into, and out of Hong Kong
(China).
OVERVIEW xv

…but a mapping of the geography petroleum exploration and distribution

industries. These TNCs play an important
of FDI patterns shows that role in international production: they
international production is accounted (in 1999) for approximately 12
highly concentrated… per cent, 16 per cent and 15 per cent of the
foreign assets, sales and employment,
A mapping of FDI inflows indicates respectively, of the world’s 60,000 plus
the extent to which host countries are TNCs. General Electric maintained in 1999
integrating into the globalizing world its position as the largest TNC in the world.
economy. It also indicates indirectly the For the first time, three companies from
distribution of benefits from FDI. The developing countries (Hutchison Whampoa,
m a p p i n g o f o u t w a rd F D I s h o w s w h i c h Petróleos de Venezuela and Cemex) are
countries control the global distribution of among the world’s 100 largest TNCs. The
this investment. Understanding the pattern transnationalization of companies is a
of FDI flows and stocks and its driving phenomenon increasingly observed not only
forces is important for the formulation and in developed countries but also in the
implementation of economic strategies and developing world. The top 50 TNCs from
policies. developing countries – the largest of which
are comparable in size to the smallest of
A comparison of the world maps of the top 100 worldwide – originate in some
inward and outward FDI in 2000 and 1985 13 newly industrializing economies of Asia
reveals that FDI reaches many more and Latin America as well as in South
countries in a substantial manner than in the Africa. They congregate in construction,
past. More than 50 countries (24 of which food and beverages, and diversified
are developing countries) have an inward industries. The largest 25 TNCs from Central
stock of more than $10 billion, compared and Eastern Europe are somewhat more
with only 17 countries 15 years ago (7 of evenly distributed among nine home
them developing countries). The picture for countries. Transport, mining, petroleum and
outward FDI is similar: the number of gas and chemicals and pharmaceuticals are
countries with stocks exceeding $10 billion the most frequently represented industries
rose from 10 to 33 (now including 12 among these TNCs. The transnationality
developing countries, compared to 8 in 1985) index for the three groups of TNCs show
over the same period. In terms of flows, the s o m e d i v erg en t p at t ern s . T h e d eg re e o f
number of countries receiving an annual transnationalization increased for both the
average of more than $1 billion rose from top 50 TNCs and the top 25: from 37 per
17 (6 of which were developing countries) cent in 1998 to 39 per cent in 1999 in the
in the mid-1980s to 51 (23 of which were case of the former; and from 26 per cent
developing countries) at the end of the to 32 per cent in the case of the latter. The
1990s. In the case of outflows, 33 countries transnationality of the top 100 TNCs
(11 developing countries) invested more than remained fairly stable at a high level (53
$1 billion at the end of the 1990s, compared per cent).
to 13 countries (only one developing
country) in the mid-1980s. The locational patterns of
international production differ by country
Despite its reach, however, FDI is and industry, and they change over time,
unevenly distributed. The world’s top 30 partly in response to the shifting industrial
host countries account for 95 per cent of composition of FDI. During the past ten
total world FDI inflows and 90 per cent of years, services have become more important
stocks. The top 30 home countries account in international production because this
for around 99 per cent of outward FDI flows sector has been liberalized for FDI relatively
and stocks, mainly industrialized economies. recently. In 1999, they accounted for more
About 90 of the world’s largest 100 non- than half of the total stock of inward FDI
financial TNCs in terms of foreign assets in developed countries and some one-third
are headquartered in the Triad. More than of that in developing countries. In many
half of these companies are in the electrical service industries, FDI tends to be spread
and electronic equipment, motor vehicle, and relatively widely, reflecting the importance
xvi World Investment Report 2001: Promoting Linkages

of proximity to customers. The same applies …with countries varying greatly

to some manufacturing industries, in which in terms of their success in
access to the domestic market is the
predominant reason for investing abroad. attracting FDI, as revealed in
However, the more advanced the level of the new Inward FDI Index.
technology in an industry, the higher the
level of concentration tends to be. For
example, if one takes six industries The concentration of FDI reflects the
representing different technological levels concentration of economic activity more
(semiconductors, biotechnology, automobiles, generally. Thus, exports, domestic investment
TV and radio receivers, food and beverages, and technology payments are also highly
and textiles and clothing), an industrial concentrated. Richer and more competitive
mapping shows FDI in biotechnology as economies naturally receive and send more
highly concentrated, followed by international direct investment than other
semiconductors and televisions and radio economies.
receivers. In comparison, the food and
beverages industry is more evenly spread To gauge the underlying
among host countries. Foreign affiliates in attractiveness of a country for international
high-technology industries tend to investors, it is useful to take its relative
agglomerate in selected locations in the economic size and strength into account.
w o r l d . T h i s r e f l e c t s d i ff e r e n c e s i n t h e The Inward FDI Index captures the ability
industrial distribution of FDI in the of countries to attract FDI after taking into
manufacturing sector between developed and account their size and competitiveness. The
developing countries. In the developed Index is the average of three ratios, showing
countries, chemicals is the largest recipient each country’s share in world FDI relative
industry, while in developing countries FDI t o i t s s h a r e s i n G D P, e m p l o y m e n t a n d
is concentrated in low-technology industries. exports. An index value of “one” would
therefore mean that a country’s share in
At the functional level, geographical world FDI matches its economic position
patterns of FDI reflect efficiency considerations in terms of these three indicators.
of TNCs in the light of increasing competitive
pressures, coupled with technological The ranking of 112 countries in 1988-
advances that enable real-time links across 1990 and 137 in 1998-2000 shows a large
long distances and the liberalization of trade dispersion of index values. For 1998-2000,
and FDI policies. This encourages a greater the value of the Index ranges from 17.3 for
spread of all corporate functions. Even such t h e l e a d i n g e c o n o m y, B e l g i u m a n d
critical corporate functions as design, R&D Luxembourg, to -0.8 for Yemen. Moreover,
and financial management are today becoming the rankings have changed significantly over
increasingly internationalized to optimize time. Singapore has slipped from first
cost, efficiency and flexibility. Take, for position at the end of the 1980s to thirteenth
example, the location of regional headquarters. position a decade later. The fall in its index
Singapore and Hong Kong ( C h i n a ) h a v e value reflects a slower growth of FDI (by
attracted a number of regional headquarters about a half) than in its GDP and exports
to serve the Asian region, with the first location which more than doubled between the two
hosting some 200 regional headquarters, and periods. The position of Sweden has
the second 855 in 2000. In some industries, improved considerably (moving from the
TNCs have set up integrated international twenty-ninth spot to the fourth), partly
production systems with an intra-firm reflecting a deliberate change in policy
international division of labour spanning during the 1990s in favour of greater
regions (as in automobiles) or continents openness towards inward FDI.
(as in semiconductors). Within such complex
systems, the functions transferred to different In 1998-2000, there were five
locations vary greatly. Less industrialized countries with an Inward FDI Index value
locations are assigned simpler tasks like of one: Costa Rica, El Salvador, Hungary,
assembly and packaging, while more skill- Malaysia and Slovakia. There were 53
and technology-intensive functions are countries with a value higher than one, and
allocated to industrially more advanced 79 with values lower than one. The last
locations. group, which “under-performs” in terms of
OVERVIEW xvii

attracting FDI, includes advanced economies Interpreting the Inward FDI Index
like Japan, Italy and Greece, newly calls for care and the use of evidence on
industrializing economies like the Republic other economic and policy variables.
of Korea, Taiwan Province of China and Nonetheless, it can provide a starting point
Turkey, oil rich economies like Saudi Arabia for benchmarking how countries succeed in
and a number of low income countries. FDI attracting FDI. Many of the countries at
recipients with high values of the Index the top of the ranking (with an index value
include the majority of the developed far exceeding unity) are strong economies
countries, Hong Kong (China), Singapore that are leveraging their economic strength
and some Central and Eastern European through policies to attract more than their
countries. “normal” share of FDI. There are also,
h o w e v e r, a f e w c o u n t r i e s w i t h w e a k
In both periods, the Index value for economies but strong natural resource
developed countries is about twice the world endowments that occupy places at the top.
average, while those for developing A number of countries at the bottom are
countries and economies in transition are weak economies in which the influence of
below the world average. The differences other economic factors and policies
between the three groups of countries reflect apparently pulls inward FDI below levels
mainly the influence of the employment that could be expected on the basis of the
variable: the developed and developing elements of economic strength covered by
country groups have FDI shares roughly in the Index. There are others at the bottom,
proportion to their GDP shares, but the (such as Japan and the Republic of Korea),
former receive far larger shares of world h o w e v e r, t h a t h a v e s t r o n g e c o n o m i c
FDI than their shares in world employment, positions overall but have chosen to restrict
while developing countries and economies FDI (at least until fairly recently).
i n t r a n s i t i o n r e c e i v e l e s s . Wi t h i n t h e
developing world, the Inward FDI Index The expansion of international
values for South America and Central Asia production is taking place in a
exceeded unity in 1998-2000. In the other
regions (and for these two regions in the new international setting…
earlier period), the Index value was below
one. South Asia, West Asia and North Africa The rapidly changing international
show the lowest values; the reasons for this setting is changing the drivers of FDI. While
may have more to do with political factors the main traditional factors driving FDI
than economic ones. Sub-Saharan Africa location – large markets, the possession of
receives FDI in line with its GDP share, but natural resources and access to low-cost
very little in relation to its share in unskilled or semi-skilled labour – remain
employment; over time its FDI Index value relevant, they are diminishing in importance,
has declined slightly. For the LDC group, particularly for the most dynamic industries
the value of the FDI Index doubled between and functions. As trade barriers come down
the two periods, mostly due to increases in and regional links grow, the significance of
the FDI to exports and FDI to GDP ratios. many national markets also diminishes.
In fact, in the second period, the Index value Primary industries account for a shrinking
for African LDCs exceeded one; it is now share of industrial activity, and natural
almost twice as high as that for sub-Saharan resources per se play a smaller role in
Africa as a whole. The index value for other attracting FDI for many countries. The role
LDCs has declined over the decade. of cheap “raw” labour is similar: even
labour-intensive activities often need to be
The Index suggests that Africa combined with new technologies and
receives less FDI flows in comparison with advanced skills. The location of TNC
the region’s relative economic size. The activity instead increasingly reflects three
underlying economic reality is that sub- developments: policy liberalization,
Saharan Africa has lost share in both world technical progress and evolving corporate
FDI inflows and other economic aggregates; strategies.
African LDCs, however, have maintained
their share of FDI but have fallen further Changes in the international policy
behind in other economic aggregates. e n v i ro n m e n t h a v e a s t r o n g i m p a c t o n
xviii World Investment Report 2001: Promoting Linkages

locational decisions. Trade and investment complementing factors when deciding where
liberalization allows TNCs to specialize to undertake different activities.
more and to search for competitive locations.
TNCs have greater freedom to choose M a n a g e r i a l a n d o rg a n i z a t i o n a l
locations and the functions they transfer. factors strengthen the new locational
Between 1991 and 2000, a total of 1,185 determinants of FDI. A greater focus on core
regulatory changes were introduced in competencies, with flatter hierarchies and
national FDI regimes, of which 1,121 (95 stronger emphasis on networking, steers
per cent) were in the direction of creating investments towards locations with advanced
a more favourable environment for FDI. factors and institutions, and, where relevant,
During 2000 alone, 69 countries made 150 distinct industrial clusters. New organizational
regulatory changes, of which 147 (98 per methods (aided by new technologies) allow
cent) were more favourable to foreign a more efficient management of global
investors. operations, encouraging a greater relocation
of functions. Intense competition forces firms
Te c h n i c a l p ro g re s s a ff e c t s t h e to specialize in their core business, inducing
geography of FDI in many ways. Rapid TNCs to forge external links at various
innovation provides the advantages that points along the value chain (from design
propel firms into international production. and innovation to marketing and servicing)
Thus, innovation-intensive industries tend and allow other firms (including TNCs) to
to be increasingly transnational, and TNCs undertake different functions.
have to be more innovative to maintain their
competitiveness. Innovation also leads to Hence, the changing geography of
changes in the structure of trade and international production reflects the dynamic
production, with R&D-intensive activities interaction of many economic, organizational
growing faster than less technology- and policy factors. While many of these
intensive activities. The increased factors have long been relevant, their
technology intensity of products reduces the combination today represents new forces
importance of primary and simple low- influencing TNC location decisions. To cope
technology activities in FDI, while raising successfully with globalization and use FDI
that of skill-intensive activities. New to their advantage, developing countries
information and communication technologies must understand these forces. They set the
intensify competition while allowing firms parameters within which policy makers have
to manage widely dispersed international to act, to attract FDI and to extract the
operations more efficiently. High-technology greatest benefits in terms of technology,
activities previously out of reach of skills and market access, striking backward
developing countries can now be placed linkages and leveraging foreign assets to
there because labour-intensive processes reach competitive positions in global
within those activities can be economically markets.
separated and managed over long distances.
…and leads to a concentration
Many activities in integrated at the sub-national
production systems are technology-intensive
and dynamic; their location in developing
level as well…
countries can rapidly transform the FDI and
competitive landscape there. Moreover, the The growing spread and mobility of
pervasiveness of technical change means that TNCs are making local conditions more, not
all TNC activities have to use new less, important. The increased freedom for
technologies effectively. Location decisions factors and functions to move does not mean
have to be based on the ability of host that international production spreads equally
countries to provide the complementary to all locations. Mobile factors only go and
skills, infrastructure, suppliers and institutions “stick” in places where efficient comple-
t o o p e r a t e t e c h n o l o g i e s e ff i c i e n t l y a n d mentary factors exist. Thus, FDI tends to
flexibly. Technical progress, thus, forces be fairly concentrated geographically within
firms involved in international production countries, responding to the agglomeration
to differentiate increasingly between the economies that also influence domestic
“haves” and “have-nots” in new FDI- firms. These economies relate to proximity
OVERVIEW xix

to markets and factors of production, and other activities, production facilities may
the availability of specialized skills, require well-developed local supply chains,
innovatory capabilities, suppliers and a pool of skilled labour, close interaction
institutions. Intensifying competition forces with other firms and knowledge-producing
firms to specialize more in their core institutions in close proximity. Some back-
competencies and rely more heavily on links office activities may require specialized
with external partners (suppliers, buyers or skills (e.g. in accounting). High value
even competitors) than in the past. These functions like R&D or regional headquarters
networking possibilities often induce TNCs are particularly demanding of advanced
to set up operations in close proximity to skills and institutions.
(competent) clusters of related firms.
Investors – domestic and foreign
Industrial clusters are playing an alike – seek to take advantage of dynamic
i n c r e a s i n g r o l e i n e c o n o m i c a c t i v i t y, clusters. In joining a cluster, they often add
particularly in technology intensive activity. to its strength and dynamism. This, in turn,
“Clusters” are concentrations of firms in one tends to attract new skills and capital, adding
or a few industries, benefiting from further to the dynamism of the location.
synergies created by a dense network of Where agglomeration economies are
competitors, buyers and suppliers. Clusters significant, the rest of the country might be
comprise demanding buyers, specialized of little relevance to the locational decisions
suppliers, sophisticated human resources, of firms. Hence, attracting FDI in these
finance and well-developed support activities depends increasingly on the ability
institutions. Such concentrations of to provide efficient clusters. An international
resources and capabilities can attract bank’s location choice is not so much a
“efficiency-seeking” FDI (and more and choice between the United Kingdom and
more FDI is of this type). It also helps to Germany as between London and Frankfurt.
attract “asset-seeking” FDI to the more
advanced host countries. In their inexorable Just like competitive firms differentiate
search for new competitive advantages, themselves from their rivals by developing
TNCs seek “created assets” such as clearly identifiable products with recognizable
technology and skilled labour across the brand names, some countries, too, can, over
globe. Clusters of innovative activity (as in time, identify and develop their distinct
Silicon Valley in California, Silicon Fen in “investment products”, and market them to
Cambridge (United Kingdom), Wireless foreign investors. For example, Bangalore
Valley in Stockholm or Zhong Guancum, a in India has become a “brand name” for the
suburb of Beijing) have a distinct advantage development of software, with its pool of
in attracting such (high value) FDI. highly skilled engineers and competitive
software companies. Singapore and Hong
These shifts in location factors pose Kong (China) enjoy a similar status in the
important policy challenges for developing area of financial services and regional
countries. Many countries, in particular the headquarters in Asia.
poorer and least industrialized ones, risk
b e c o m i n g e v e n m o r e m a rg i n a l t o t h e …which calls for a new
dynamics of international production
because they cannot meet the new generation of investment
requirements for attracting high quality FDI. promotion policies.
Simply opening an economy is no longer
enough. There is a need to develop attractive Using and strengthening clusters to
configurations of locational advantages. attract FDI calls for new approaches, going
beyond the first and second generations of
Different configurations of advantages investment promotion policies. In the first
attract different corporate functions and generation of investment promotion policies,
industries. In some high-technology many countries adopt market friendly
industries like electronics, it may be possible policies. They liberalize their FDI regimes
to attract final-stage assembly on the basis by reducing barriers to inward FDI,
of cost-efficient semi-skilled labour and strengthening standards of treatment for
efficient export-processing facilities. In foreign investors and giving a greater role
xx World Investment Report 2001: Promoting Linkages

to market forces in resource allocation. However, such a targeted approach,

Virtually all countries – to varying degrees especially the development of locational
– have undertaken steps in this direction. “brand names”, is difficult and takes time.
Some countries, can go a long way in It requires fairly sophisticated institutional
attracting FDI with these steps, if the basic capacities. Third generation promotion is,
economic determinants for obtaining FDI are nevertheless, growing in practice, as
right. In the second generation of investment witnessed by the proliferation of sub-
promotion policies, governments go a step national agencies (of which a minimum of
further and actively seek to attract FDI by 240 exist today) and even municipal
“marketing” their countries. This approach investment promotion agencies.
leads to the setting up of national investment
promotion agencies. The World Association This gives rise to another challenge:
of Investment Promotion Agencies, the need to coordinate policies across
established in 1995, now has over 100 various administrative levels in a country.
members. Again, of course, the success of If that is not done, there is a risk that
proactive efforts depends, in the end, on the competition among regions within a country
quality of the basic economic factors in a leads to “fiscal wars” and results in waste
host country. as far as the welfare of the country as a
whole is concerned. It also raises the risk
The third generation of investment that promotion agencies, if they are unable
promotion policies takes the enabling to coordinate other policy-making bodies in
framework for FDI and a proactive approach the country, will be unable to deliver on their
towards attracting FDI as a starting point. promises to investors.
It then proceeds to target foreign investors
at the level of industries and firms to meet Regardless of the level at which FDI
their specific locational needs at the activity is promoted – and regardless of the precise
and cluster level, in light of a country’s mix of the three basic investment strategies
developmental priorities. Such a strategy, that is being pursued – the competitiveness
in turn, is greatly helped if a country can of the domestic enterprise sector and a pool
nurture specific clusters that build on the of skilled people are the key to the
c o u n t r y ’s competitive advantages, “product”. Strong local firms attract FDI;
capitalizing on the natural inclination of the entry of foreign affiliates, in turn, feeds
firms to agglomerate and that eventually into the competitiveness and dynamism of
acquire a brand name. A critical element the domestic enterprise sector. The strongest
of such investment promotion is to improve channel for diffusing skills, knowledge and
– and market – particular locations to technology from foreign affiliates is the
potential investors in specific activities. Of linkages they strike with local firms and
c o u r s e , a c o u n t r y ’s g e n e r a l e c o n o m i c , institutions. Such linkages can contribute
political and regulatory features also matter, to the growth of a vibrant domestic
because they affect the efficiency of the enterprise sector, the bedrock of economic
clusters within it. But the key to success development. For developing countries, the
of such new investment promotion strategies formation of backward linkages with foreign
is that they actually address one of the basic a ff i l i a t e s t h e r e f o r e a s s u m e s p a r t i c u l a r
economic FDI determinants while importance. The challenge then is how to
understanding the changing location promote backward linkages – regardless of
strategies of TNCs. the type of investment promotion policy a
country pursues. This is the topic of Part
Two of WIR01.
OVERVIEW xxi

PROMOTING BACKWARD knowledge and skills between the linked

firms. A dense network of linkages can
LINKAGES promote production efficiency, productivity
growth, technological and managerial
capabilities and market diversification for
Backward linkages from t h e f i r m s i n v o l v e d . F i n a l l y, f o r a h o s t
foreign affiliates to domestic economy as a whole, linkages can stimulate
economic activity and, where local inputs
firms can enhance the substitute for imported ones, benefit the
benefits from FDI. balance of payments. The strengthening of
suppliers can in turn lead to spillovers to
Part One of WIR01 mapped the the rest of the host economy and contribute
locational pattern of the extent to which to a vibrant enterprise sector.
countries attract FDI. A key factor
determining the benefits host countries can Where, as in developed countries, both
derive from FDI are the linkages that foreign buyers and suppliers are technologically strong
affiliates strike with domestically owned and capable, knowledge flows run in both
firms. Backward linkages from foreign directions with a focus mainly on new
affiliates to domestic firms are important technologies, products and organizational
channels through which intangible and methods. Where, as in most developing
tangible assets can be passed on from the countries, suppliers are relatively weak, the
former to the latter. They can contribute to flows are likely to be more one-sided, from
the upgrading of domestic enterprises and foreign affiliates (buyers) to domestic firms.
embed foreign affiliates more firmly in host They can also be expected to contain more
economies. Given the role that backward basic technological and managerial knowledge,
linkages can play in these respects, WIR01 in that suppliers are likely to lag further
analyses how host country governments can behind international best practice frontiers;
best promote efficient backward linkages by for this reason, they can be particularly
f o r e i g n a ff i l i a t e s . The approach is important.
pragmatic. It draws on practical experience
as to what firms have done to forge linkages, Of course, not all linkages are
and the measures that governments have equally beneficial for host economies. For
adopted to encourage linkages and their example, in highly protected regimes,
deepening. An underlying assumption is that, foreign affiliates may strike considerable
whatever the current level of backward linkages without much incentive to invest
linkages, linkages can be increased or deepened in the upgrading of suppliers’ technological
further, with a view towards strengthening the capabilities. Instead, such linkages may
capabilities and competitiveness of domestic foster a supplier base that is unable to
firms. survive international competition. Linkages
developed in competitive environments and
Linkages offer benefits to foreign accompanied by efforts to enhance suppliers’
affiliates and domestic suppliers, as well as capabilities are likely to be technologically
to the economy in which they are forged as more beneficial and dynamic. The objective
a w h o l e . F o r f o re i g n a f f i l i a t e s , l o c a l is not to promote linkages for their own sake,
procurement can lower production costs in but to do so where they are beneficial to
host economies with lower costs and allow the host economy.
greater specialization and flexibility, with
better adaptation of technologies and The extent to which domestic firms
products to local conditions. The presence benefit from linkages with foreign affiliates
of technologically advanced suppliers can also depends on the nature of their
provide affiliates with access to external relationship. The intensity of the interaction
technological and skill resources, feeding between buyers and suppliers is affected by
into their own innovative efforts. The direct the bargaining position of the two parties.
effect of linkages on domestic suppliers is A supplier of relatively simple, standardized,
generally a rise in their output and low-technology products and services is
employment. Linkages can also transmit typically in a weak bargaining position vis-
xxii World Investment Report 2001: Promoting Linkages

à-vis its buyer. Such suppliers may be highly TNCs therefore actively encourage foreign
vulnerable to market fluctuations, and their suppliers to establish local facilities or
linkages with foreign affiliates are unlikely prefer to produce in-house.
to involve much exchange of information
and knowledge. Foreign affiliates only invest Many TNCs have supplier development
resources in building local capabilities when programmes in host developing countries.
they expect such an effort to yield a positive Efforts can include finding suppliers and
return. ensuring efficient supply through technology
transfer, training, information sharing and the
TNCs have a self-interest provision of finance. The objective is usually
to expand the number of efficient suppliers,
in forging links with and/or to help existing suppliers improve their
domestic suppliers,… capabilities in one or several areas. However,
supplier development efforts are typically not
Organizational changes are making extended to all suppliers. Foreign affiliates tend
supply chain management more critical to to focus on a limited number of suppliers
the competitiveness of firms, including providing the strategically most important
TNCs. On average, a manufacturing firm inputs. Where supplier development is
spends more than half its revenues on undertaken, however, TNCs often offer
purchased inputs. In some industries, such considerable support to suppliers by
as electronics and automotive, the proportion transferring technology, training suppliers’
is even higher. Some firms are contracting staff, providing business-related information
out the entire manufacturing process to and lending financial support. The intensity
independent “contract manufacturers”, of knowledge and information exchange in
keeping only such functions as R&D, design buyer-supplier relationships tends to increase
and marketing. In these cases, supply chain with the level of economic development of
management obviously becomes even more host countries, particularly in complex
important. activities, and where technological and
managerial gaps with suppliers are not too
A foreign affiliate – like any other wide.
firm – has three options for obtaining inputs
in a host country: import them; produce them …but governments can play
locally in-house; or procure them from a an important role in
local (foreign- or domestically owned)
s u p p l i e r. T h e e x t e n t t o w h i c h f o r e i g n promoting linkages...
a ff i l i a t e s f o rg e l i n k a g e s w i t h d o m e s t i c
suppliers is determined by the balance of Although foreign affiliates have an
costs and benefits, as well as differences interest in creating and strengthening local
in firm-level perceptions and strategies. linkages, their willingness to do so can be
While the costs and benefits reflect a large influenced by government policies addressing
number of industry-specific factors, the most different market failures at different levels in
important one concerns the local availability the linkage formation process. For example,
of qualified suppliers. Foreign affiliates TNCs may be unaware of the availability of
producing primarily for the domestic market viable suppliers, or they may find it too costly
generally procure a larger share of inputs to use them as sources of inputs. In developing
locally than export-oriented ones or those countries, policies may be required to
that are part of integrated international compensate for weak financial markets or weak
production systems. In the latter case, cost institutions like vocational schools, training
and quality considerations are particularly institutes, technology support centres, R&D
stringent, and affiliates tend to be guided and testing laboratories and the like. Well-
by corporate global sourcing strategies. The designed government intervention can raise
lack of efficient domestic suppliers is often the benefits and reduce the costs of using
the key obstacle to the creation of local domestic suppliers.
linkages. In many demanding activities,
OVERVIEW xxiii

The role of policy is most significant development-related subsidies non-

where there is an “information gap” on the part actionable (i. e. not open to challenge) under
of both buyers and suppliers about linkage WTO rules. On the other hand, preferential
opportunities, a “capability gap” between the trade arrangements – with rules of origin
requirements of buyers and the supply capacity based on the level of domestic value added
of suppliers and where the costs and risks for or local content – can have important effects
setting up linkages or deepening them can be on FDI and linkage creation by TNCs in
reduced. The linkage formation process is preference-receiving countries. In general,
obviously affected by a host country’s overall these effects are the more significant, the
policy environment, its economic and higher the preferential margin associated
institutional framework, the availability of with rules of origin and the lower the related
human resources, the quality of infrastructure administrative costs. Linkage effects of
and political and macroeconomic stability. But rules of origin, however, also depend on
the most important host country factor is the local supply capacity.
availability, costs and quality of domestic
suppliers. Indeed, in addition to being a key This new international setting has,
determinant for the formation of efficient thus, changed the scope for national policy
linkages, the technological and managerial o p t i o n s . T h e r e i s , h o w e v e r, f l e x i b i l i t y
capabilities of domestic firms also determine wi t h i n t h e ex i s t i n g i n t ern at i o n al po l i c y
to a large extent the ability of a host economy framework, e.g. in the form of extension of
to absorb and benefit from the knowledge that transition arrangements and differential
linkages can transfer. Weak capabilities of treatment of countries at different levels of
domestic firms increase the chances that foreign development. While some agreements are
affiliates source the most sophisticated and subject to further review, the challenge for
complex parts and components either internally policy makers is, therefore, to make use of
or from a preferred (foreign-owned) supplier the options allowed within the current
within or outside a host country. For example, framework, as well as other policy measures
domestic firms in Taiwan Province of China that are not subject to multilateral rules to
and Singapore supply complex inputs to foreign integrate FDI more deeply into their national
affiliates, but far fewer do so in Malaysia, economies and, in particular, benefit from
Thailand or Mexico. backward linkages.

The international environment is In this new policy environment,

evolving, as a result of globalization and active policy approaches that work with the
liberalization, as well as changes in the market are at a premium. Whereas there is
international policy framework, including no universally established best practice in
WTO agreements and other international linkage promotion policy, important lessons
arrangements. Some policy instruments can be drawn from past experience. Linkage
traditionally used to foster linkages are now promotion policies, like other development
considered less relevant or are subject to policies, are often highly context specific
new multilateral rules, such as the WTO and need to be adapted to the specific
Agreement on Trade-related Investment circumstances prevailing in each host
Measures (TRIMs) or the Agreement on country. They need to be an integral part
Subsidies and Countervailing Measures. For of broader development strategies, and their
example, local content requirements have success often depends on factors that may
been phased out by most countries. At the not appear in a narrow assessment of
same time, FDI and trade liberalization, as linkages policies. Much also depends on how
well as more intense competition for FDI, policies are designed, coordinated and
have reduced the reliance on other implemented in practice.
investment performance requirements.
One approach involves encouraging
Well-targeted incentives to support linkages through various measures to bring
the creation and deepening of linkages can domestic suppliers and foreign affiliates
have a positive impact on linkages. Thought together and to strengthen their linkages in
should be given to render this category of the key areas of information, technology,
xxiv World Investment Report 2001: Promoting Linkages

training and finance. This is a broad this kind. Some of the programmes are
approach – it basically improves the enabling organized at the national level while others
framework for linkages formation. A review have been implemented as regional or local
of the experience of host countries yields initiatives. Three elements are common to
a long menu of specific measures that can them: the provision of market and business
be taken in this respect. Such measures can information; matchmaking; and managerial
include, for example, the provision of or technical assistance, training and,
information and matchmaking to help occasionally, financial support or incentives.
domestic firms link up with foreign Some programmes have also included FDI
affiliates; encouraging foreign affiliates to promotion activities, to attract foreign
participate in programmes aimed at the investors in targeted industries. In each case,
upgrading of domestic suppliers’ technological sustainable linkages will only be created if
capabilities; promoting the establishment of both foreign affiliates and domestic firms
supplier associations or clubs; the joint can benefit from them.
provision of services (especially training); and
various schemes t o e n h a n c e d o m e s t i c The general features of a special
suppliers’ access to finance. Linkages Promotion Programme are set out
below. Such a programme should be seen
…perhaps best in the framework more as a set of building blocks that
countries might “mix and match” according
of a special linkage promotion to their specific circumstances, rather than
programme. a ready-made prescription that all countries
can apply. Clearly, the choice of measures
Another approach goes further in that and the way they are combined must reflect
it involves the establishment of a specific the level of development, policy capabilities,
linkage promotion programme combining a resources and objectives of each country.
number of the measures just mentioned. Even countries at similar levels of development
This is a proactive approach which is may choose different configurations of policy
typically focused on a selected number of according to their enterprise and institutional
industries and firms, with a view towards capabilities.
increasing and deepening linkages between
foreign affiliates and domestic firms. As The starting point for an effective
with other policies that span a range of linkage programme is a clear vision of how
productive factors, activities and enterprises, FDI fits into the overall development
it is advisable for policy makers that choose strategy and, more specifically, a strategy
this approach to “start small” (perhaps with to build production capacity. The vision has
a pilot scheme) and to build policy to be based on a clear understanding of the
monitoring, flexibility and learning into the strengths and weaknesses of the economy
programme. The need for starting small is and of the challenges facing it in a
all the greater when resources are scarce. globalizing world. A linkage programme
Moreover, it is essential for any programme should, in particular, address the competitive
to seek close collaboration with the private needs of domestic enterprises and the
sector, both foreign affiliates and domestic implications these have for policies, private
suppliers, in design and implementation. and public support institutions and support
measures (including skills- and technology-
Some countries have in fact set up upgrading).
specific linkage programmes involving a
combination of different policy measures, 1. Setting the policy objectives
and targeting selected industries and firms. of a linkage programme
Such programmes have been put in place
primarily by countries with a large foreign Linkage programmes are at the
presence and with a (relatively) well- intersection of two subsets of programmes
developed base of domestic enterprises. The and policies: those geared towards enterprise
Czech Republic, Hungary, Ireland, Malaysia, development (especially SME development)
Mexico, Singapore, Thailand and the United and those related to FDI promotion. The
Kingdom have all made special efforts of former are desirable in and by themselves,
OVERVIEW xxv

as a vibrant enterprise sector is the bedrock a ff i l i a t e s a n d d o m e s t i c s u p p l i e r s t o b e

of economic growth and development; in the involved.
context of the promotion of linkages, the
capabilities of local firms are the single most
important determinant of success. FDI • Industries can be selected according
promotion, in turn, increasingly focuses not to:
only on the quantity of FDI a country
attracts, but also on it quality, including - the sectoral development priorities
linkage opportunities. of a country, taking into account the
extent of the presence of foreign
Linkage programmes can have two affiliates and capable domestic firms;
broad objectives: to increase domestic - the degree of match between local
sourcing by foreign affiliates (i.e. create new capabilities and the input
backward linkages) and to deepen and requirements of foreign affiliates;
upgrade existing linkages – both with the - the nature of international production
ultimate aim of upgrading the capacities of systems within the industry selected,
local suppliers to produce higher value- which partly determines the degree
added goods in a competitive environment. of autonomy of foreign affiliates with
These objectives are interdependent: respect to local sourcing (foreign
deepening may spin off new linkages, and affiliates that are part of integrated
spreading linkages may change their quality international production systems are
and depth. likely to be more dependent on global
corporate sourcing policies);
A government’s objectives should be - the technology content of the activity
shared with all principal stakeholders, as and the scope for moving up the
their active participation is needed for the value-added chain.
success of any programme. Active dialogue
and consultations are advisable right from Such an analysis is essential for any
the very beginning. This requires first and linkage strategy – without it, a
foremost: government cannot decide how to
allocate scarce resources. It also has
• Initiating a public-private sector dialogue to take into account trends in the
(perhaps in a “Linkage Forum”) with growth and spread of international
stakeholders, including foreign affiliates production networks and their
(and especially their procurement implications for domestic producers,
officers), supplier industry associations, drawing, among others, on continuous
chambers of commerce, banks, service dialogue with key stakeholders.
providers, trade unions and government
agencies (such as investment promotion • F o re i g n a f f i l i a t e s c a n b e s e l e c t e d
agencies, development corporations, according to their willingness and
industrial zone authorities, industry potential to establish beneficial
development agencies). linkages. Beyond that – and as part of
their FDI promotion – governments can
• Disseminating “best practice” experiences t a rg e t T N C s t h a t a r e p a r t i c u l a r l y
based on companies’ programmes and interested in developing strong supply
actions and experiences of government links with domestic enterprises. The
programmes and measures in other linkage programme may even support
countries. local managers of foreign affiliates in
lobbying their head offices to allow
greater autonomy in sourcing. In-depth
2. Identifying the targets of the consultations with foreign affiliates
programme can then identify their specific linkage
needs.
Governments, in cooperation with
• Suppliers can be selected on the basis
private sector institutions, need to define
of their commitment and capabilities
the targets of a programme in terms of the
(or potential capabilities) to meet the
industries and, within them, the foreign
xxvi World Investment Report 2001: Promoting Linkages

needs of foreign a ff i l i a t e s . upgrading; training; access to finance. The

“Commitment” can be tested through range of measures that can be taken in each
certain self-improvement requirements, of these areas is wide. Their principal
with some external guidance and purpose is to encourage and support foreign
minimal support during the initial stage affiliates and domestic firms to forge and
of selection. Other criteria that can deepen linkages. They are outlined –
be used involve technological individually and as contained in programmes
benchmarking and skills audits. – in the main body of WIR01. They
Specific criteria that have been used constitute a menu from which governments
include the size of the firm, production can mix and match. Specific choices depend
capabilities, ISO certification and age. on the results of earlier consultations with
However, one of the most important existing support institutions and relevant
elements to take into account is the programmes in the public and private
commitment of key managers (and sectors, as well as with key stakeholders on
especially the chief executive officer) the specific needs of an industry or set of
to the idea of continuous improvement firms. The results of the Linkage Forums,
and their willingness to upgrade their Linkage Workshops and Business Clinics
operations to meet international mentioned earlier and the identification of
standards required for successful promising domestic firms are also of help
linkages. The active cooperation of here. Governments could also encourage
chambers of commerce, business participating foreign affiliates to agree to
associations, support centres, service a coaching and mentoring arrangement with
providers and other private sector promising local firms.
institutions is very important here, as
is the cooperation of SME development These measures can be underpinned
programmes, be they local or by efforts to strengthen the negotiating
international. (UNCTAD’s EMPRETEC position of local firms vis-à-vis foreign
programme is an example of the latter.) affiliates; for instance, by guidelines or
“Linkage Workshops” for represen- making model contracts available. Special
tatives of foreign affiliates and local informal mechanisms can also help resolve
enterprises could provide the mechanism problems and disputes and contribute to
through which eventual p r o g r a m m e more lasting linkage relationships.
participants can be narrowed down.
Subsequent “Business Clinics” for The result should be a clear and
Linkage Workshop participants could feasible programme of action. Naturally, at
then allow for one-to-one consultations each step of the implementation of a
for pairs of linkage partners. Firms programme, the government needs to have
prepared to go further could thus a clear idea about the costs involved and
undertake operational and management the resources available.
audits to determine the strengths and
weaknesses of domestic partners. 4. Setting up an appropriate
institutional and administrative
3. Identifying specific measures framework to implement and
to be adopted monitor the programme

Governments need to be aware of Governments can choose from a

actions already taken by foreign affiliates number of options in designing the
and domestic firms. Some of these may institutional framework for a linkage
need to be encouraged and supported. programme:
Governments can also act as facilitators and
catalysts and ensure that private institutions • Make the programme a distinct part of
have the incentives and resources needed. an existing body or even set up a
They can be particularly proactive in the special national-level linkage
following key areas of linkage formation: programme under an independent body
information and matchmaking; technology to act as the focal point for all relevant
OVERVIEW xxvii

activities by different departments and i n d u s t r y, m a n u f a c t u r e r s ’ a s s o c i a t i o n s ,

institutions. investor associations and so on. Trade unions
and various interest groups are other
• Leave the design and implementation important stakeholders.
of the linkage programme to local
authorities, with central advice, Finally, it is important to have a
encouragement and support from the monitoring system in place to evaluate the
central government. This approach success of a programme. Often, in a learning-
might be preferable in large countries by-doing process, a programme needs to be
or where resources for linkage adjusted and refined as experiences
programmes are limited, or where accumulate and situations change. The
regions have distinct combinations of system could include benchmarks and
locational advantages to offer. surveys of users. Criteria could include the
following:
• Involve the private sector as the main
executing agency for the linkage • Outreach: the number of companies
programme. Suppliers, affiliates or included in the programme over time.
their associations may set up such a
b o d y. T h e r o l e o f t h e g o v e r n m e n t • Impact: the impact of the programme
would be to act as catalyst and fulfil can be judged by such indicators as
regulatory and information functions. the number of suppliers, linked up with
foreign affiliates over time; the value
The size of a programme depends on of deals and changes in these over
the objectives sought and the resources time; the share of domestic suppliers
available. Some programmes benefit from in the procurement by foreign
external funding through financial assistance affiliates; the extent to which R&D
provided by donor countries. In the longer activities are being undertaken by
term, however, the financial sustainability domestic suppliers over time (including
of linkage programmes if directly run by those resulting in patents); changes in
governments, requires sufficient government export volumes; the improvements in
funding support. Moreover, cost sharing by productivity or the value added at the
participating firms (both buyers and firm or industry level; and whether a
suppliers) is desirable, not only for funding local supplier establishes itself abroad.
purposes but also for assuring self-
commitments of the participants. This is • Cost effectiveness: the cost of the
feasible, especially when a programme has programme in light of the results
demonstrated its usefulness and is achieved and the benefits obtained as
recognized for its services. Needless to say, defined by the objectives laid out at
to create trust and credibility among the beginning of the programme.
enterprises, a programme must be staffed
by professionals with the appropriate private * * *
sector-related skills and background.

Linkage programmes can only work It is worth repeating that linkage

i f t h e y a r e n e t w o r k i n g e ff e c t i v e l y w i t h programmes build on the mutual self-
efficient intermediate institutions providing interests of foreign affiliates and domestic
support in skill building, technology firms. Linkages are a stepping stone towards
development, logistics and finance. These strengthening the competitiveness of
include standards and metrology institutes, domestic firms, giving them a foothold in
testing laboratories, R&D centres and other international production networks and
technical extension services, productivity embedding foreign affiliates fully in host
and manager training centres and financial economies. At the same time, linkage
institutions. These can be public or private. programmes should be seen as part of a
It is also important that linkage programmes broader set of FDI and SME policies. As
work closely with relevant private networks of viable suppliers often prosper
associations – chambers of commerce and in clusters of firms, attention needs to be
xxviii World Investment Report 2001: Promoting Linkages

given to the development of such clusters, turn, strengthening clusters through it) – has
particularly for knowledge-intensive industries a role to play here. In fact, the more linkage
and activities. The third generation of FDI promotion policies that go hand-in-hand with
p r o m o t i o n p o l i c y – t a rg e t i n g f o r e i g n S M E d e v e l o p m e n t a n d t a rg e t e d F D I
investors at the level of industries and firms promotion policies, the more they are likely
and using clusters to attract FDI (and, in to be successful.

Rubens Ricupero
Geneva, July 2001 Secretary-General of UNCTAD
 PART ONE

THE GEOGRAPHY OF
INTERNATIONAL PRODUCTION
 INTRODUCTION

onternational production – activity productive assets, where it comes from,

I
under the aegis of transnational where it goes, which activities it affects
corporations (TNCs) – continues and which functions it transfers. More
to grow strongly. The main importantly, they need to understand why
agent of international production, the patterns of FDI are evolving – to help
foreign direct investment (FDI), them formulate FDI policies efficiently and
does not flow evenly across countries. This realistically.
unevenness persists, and in some cases
increases, over time. While this has long Part One aims to contribute to
been a feature of the international economy, answers to these questions by documenting
there are significant elements of change the growth of FDI during the past year and
(W I R 9 8). The growth of FDI in the past introducing a new index that seeks to capture
two decades or so has been accompanied the attractiveness of host countries for FDI
by changes in its geographical pattern, (chapter I). It then proceeds to a “mapping”
indicating shifts in the investment climate of FDI inflows and outflows in the aggregate
in host countries and in the economic factors and, to the extent possible, at the industrial
driving the location of international production. and functional levels (chapter II); and to
New locations are becoming attractive relative a discussion of the largest TNCs of the
to old ones. The activities relocated across world, the developing countries and Central
countries by direct investment are changing. and Eastern Europe (chapter III). Such a
Within TNCs, the specific corporate functions mapping shows the origin, destination and
undertaken by parent firms and foreign concentration of FDI flows and thereby
affiliates (ranging from marketing to research indicates how the tangible and intangible
and development (R&D)) are changing in assets that constitute investment flows are
scope and depth. Sources of FDI are also spread. Mapping FDI, including over time,
increasing and shifting. highlights the following:

These changes have important • On the recipient side, the mapping

implications for host (as well as home) shows the extent to which various
countries. The intangible assets that FDI regions, countries and locations within
offers (knowledge, technology, skills, countries, attract FDI. At the level of
management know-how and market access) aggregate FDI, this indicates whether
are becoming increasingly important for locations have suitable investment
economic growth and development as environments and provide the immobile
complements to domestic resources in host assets and other advantages needed
countries. In the emerging global setting to complement the mobile assets deployed
(reviewed below), FDI is becoming an by TNCs. At the industry or functional
essential link between national economies, level, the mapping shows the specific
as well as a catalyst for the growth of locational advantages of recipients: low
domestic investment and enterprise wages for semi-skilled labour for simple
competitiveness. As determinants of location labour-intensive operations; primary
are changing, countries can change their resources for extraction; advanced skills,
ability to receive FDI and to alter its supplier networks and institutions for
contributions. Policy makers need to know advanced technology-intensive activities,
the trends: how FDI compares in its locational and so on. Everything else being equal,
patterns with other means of transferring this mapping also indicates, indirectly,
4 World Investment Report 2001: Promoting Linkages

the distribution of benefits associated diversifying sources of supply or seeking

with FDI among recipient regions, to tap new sources of competitive
countries and sub-national localities, advantage (like innovation). At a
the extent of a host location’s integration disaggregated level, the mapping shows
with the global economy and its ability the industrial activities and functions
to cope with the new technologies driving in which this interplay of competitive
globalization. Mapping FDI patterns over and location advantages is taking place.
time can show if local assets are being Mapping FDI patterns in aggregate terms
upgraded to attract continuing inward reveals which countries’ firms control
FDI. the allocation of productive assets within
TNC production systems across the
• On the i n v e s t i n g side, the mapping globalizing world economy.
shows the extent to which firms from
various regions, countries and sub-national In sum, mapping FDI throws light on several
locations make direct investments abroad. significant features of the global economy.
It shows the interplay of three factors: It can illuminate the geography of investment
competitive advantages of enterprises; flows and of the accompanying intangible
location advantages of host countries; asset flows that increasingly drive technology-
and the extent of reliance by firms on based growth and competitiveness. It can
transnationalization when exploiting their show which countries lead the
advantages abroad. Thus, a rise in a internationalization process: the main home
country’s outward FDI can indicate an countries of the TNCs that exercise a
increasing competitive advantage on powerful influence on economic life today,
the part of national firms, or that firms, controlling the production taking place within
given their competitive advantages, find their international production systems and
it strategically necessary to locate their partaking of its resulting fruits. It can also
activities abroad. The reasons for their show, on the receiving side, where the flows
choice of location not only need to concentrate and so, at least ostensibly, where
reflect the cost of operating at home. the benefits of international production accrue.
They may also embrace strategic The conclusions then address briefly what
considerations like matching moves made the concentration of FDI at the sub-national
by their main competitors, investing in level means for investment promotion and,
the home markets of their rivals, switching most notably, for the third generation of
from exports to producing locally, investment promotion strategies.
 CHAPTER I.
THE GLOBAL PICTURE

A. The geographical where local presence is important for

competitive advantage, but as trade barriers
dynamics of FDI: the setting are removed, the level of protection is declining.
Moreover, as trade blocs and regional links
rom the perspective of developing grow, the significance of national markets as

F
countries, the most important such diminishes. Primary resources will always
aspect of a mapping of draw some FDI, but with new contractual
international production concerns extraction and marketing arrangements led by
inward FDI. There are several national firms (WIR98), and given the diminishing
influences that have been, and role of primary products in industrial activity,
always will be, important to FDI inflows. The it is unlikely to be a dynamic draw. The role
most basic ones are political and economic of cheap “raw” labour is similar: it will attract
stability and a welcoming environment for FDI a small number of investors, but even in simple
(and for private enterprise in general). Other labour-intensive activities the need to use new
important factors are ease of entry and exit, technologies and skills for production suited
appropriate standards of treatment and dispute to sophisticated and demanding markets will
settlement, and a predictable and transparent reduce the draw of low wages.
regulatory framework. A typical FDI regime
today, for example, has few restrictions on The new determinants of location
entry and operations, provides general reflect three developments: policy liberalization,
standards of treatment (including guarantees rapid technical progress (particularly in
in such areas as the transfer of funds, transport, communications and information) and
expropriation and dispute settlement) and new management and organizational techniques
ensures a competitive market framework. (WIR99). These are briefly taken up in turn.

The attractiveness of the regime also, Policy liberalization alters many

increasingly, depends on the effectiveness of parameters of international location. Trade
FDI promotion. With rising competition for FDI liberalization reduces the need for FDI to
and more discriminating investors, host countries jump tariff barriers and intensifies competition
and regions (like individual states in the United in existing activities. It also increases the size
States) recognize the need to undertake of accessible markets, including for export
proactive investment promotion efforts. While activities. Both can lead to changes in the
many countries promote FDI, the most factors determining location. All enterprises
successful ones do this in a business-like have to raise technical efficiency and be more
manner, with effective image building, low responsive to market forces to stay in business,
transaction costs for investors, careful not just in tradable activities but also in services
targeting, direct interaction with investors and and infrastructure. TNCs have to restructure
good support and follow-up services. their activities and deploy their assets to achieve
“best practice” levels, reducing their presence
These general requirements of where competitiveness is difficult to achieve
investment attraction are taken for granted here and raising it where it is possible. This involves
in order to focus on the economic factors driving shifting production and marketing sites in line
FDI. 1 The main traditional factors in FDI with costs, logistics and reliability factors. It
location are large domestic markets (historically also involves relocating such functions as R&D,
often reinforced by import tariff protection), financial management, procurement and
the possession of natural resources and the strategic decision-making between countries
presence of cheap (unskilled or semi-skilled) so as to maximize corporate efficiency.
labour. While these remain relevant, they are
of diminishing importance, particularly for the Trade liberalization can have centripetal
most dynamic end of international production. effects (making for greater centralization) or
Large markets remain attractive to investors centrifugal ones (making for greater dispersion),
6 World Investment Report 2001: Promoting Linkages

depending on the industry and corporate The liberalization of FDI regimes and
function. Take the automobile industry. Its R&D, the strengthening of international standards for
which relies on advanced skills and has various the treatment of foreign investors (box I.1)
linkage needs, tends to be located in a few allow firms greater freedom in making
advanced economies (including some newly international location decisions and in choosing
industrializing economies) that have the the mode for serving each market and meeting
necessary trained personnel, related suppliers functional needs. TNCs can increasingly fine-
and technology services. Its production tune and differentiate their combinations of
processes, involving large scale economies, are internationalization modes (trade, majority- or
located in a larger number of facilities serving wholly owned subsidiaries, joint ventures, non-
regional or global markets; however, these are equity alliances, licensing and so on) to suit
now far fewer than during the heyday of import each activity and location. In conjunction with
substitution when most countries had some privatization, this opens up new areas of
assembly or manufacturing activity. Its international production, allowing new activities
marketing and servicing facilities are more to “go transnational” in ways inconceivable a
widely dispersed to meet customer needs. In few years ago: the emergence of previously
other industries, with different configurations home-bound infrastructure providers as
of technical, skill and market needs, the international investors is a recent example. The
tendencies may be quite different. The mapping spread of FDI in services, in turn, encourages
exercise shows this in chapter II below. manufacturing firms to cluster in locations in
which 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 were
introduced in national FDI regimes, of which 1,121 were in the direction of creating a more favourable
environment for FDI (box table I.1.1). During 2000 alone, a total of 150 regulatory changes were
made by 69 countries. Of these, 147 (98 per cent) were more favourable to foreign investors (box
figure I.1.1). At the international level, treaty making continues, complementing and reinforcing
trends at the national level. The number of bilateral investment treaties (BITs) quintupled during
the 1990s and, by end-2000, had reached a total of 1,941. During 2000 alone, 78 countries concluded
84 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 changes
in their investment regimes 35 43 57 49 64 65 76 60 63 69
Number of regulatory changes 82 79 102 110 112 114 151 145 140 150
of which:
More favourable to FDI a 80 79 101 108 106 98 135 136 131 147
Less 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 FDI Box figure I.1.2. BITs concluded in 2000,
laws and regulations, 2000 by country group
CHAPTER I THE GLOBAL PICTURE 7

The increased freedom for factors and in different ways. On the one hand, they can
functions to move within the international induce TNCs to set up operations in close
production systems of TNCs does not, as already proximity to (competent) clusters of related
noted, necessarily mean that international firms and so increase FDI. On the other hand,
production spreads equally to all locations. they can allow TNCs to concentrate their
Mobile factors only go to and “stick” in those facilities in established locations where their
places where efficient complementary factors needs are met efficiently, while relating to
exist. One increasingly important factor is the networks over long distances. This can lead
presence of other firms (TNCs and local firms) to a reduction in FDI by those firms.
providing inputs, information and services in
clusters – concentrations of firms in one or a The trend towards greater networking
few industries – benefiting from synergies can have important implications for firms in
created by a dense network of competitors, developing countries. It can open up new
buyers and suppliers. 2 To the extent that TNCs avenues for competent developing country
are able to provide leading edge inputs and firms to link up with global production systems
services, the geography of international as TNCs scan the globe for efficient and reliable
production comes to reflect the cumulative suppliers and subcontractors. Backward
effects of past FDI location. linkages from foreign affiliates to local firms,
in particular, can become important channels
Intensifying competition also forces through which intangible and tangible assets
firms to specialize in their core competencies. can be passed on from the former to the latter,
This induces TNCs to forge closer external contributing to an upgrading of the local
links at various points along the value chain enterprise population and “embedding” and
(from design and innovation to marketing and “grounding” foreign affiliates more in their host
servicing) and allows other firms (including economies. Given the role that backward
TNCs) to undertake different functions. 3 linkages can play in these respects (chapters IV
Linkages can be established with suppliers, and V of this report address the question of
buyers and even competitors, and they can how more backward linkages by foreign
reach across the world. They can involve other affiliates can be created, and existing ones
foreign affiliates or local (i.e. domestically deepened), competent local firms can eventually
owned) firms. This growing network surrounds even “leverage” their linkages with TNCs to
and supports international production proper become global suppliers and sometimes
(under the direct control of TNCs). These competitors. However, the new international
networking possibilities can affect FDI location regulatory 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 interregional
levels, the number of investment-related instruments continues to grow, especially in the form
of free trade and investment agreements (annex table A.I.1).
Box figure I.1.3. Cumulative number of Box figure I.1.4. DTTs concluded in
BITs and DTTs, 1990-2000 2000, by country group

Source : U N C T A D .
8 World Investment Report 2001: Promoting Linkages

of the tools used by governments in the past production systems are technology-intensive
to strengthen the positions of local firms as and dynamic; their location in developing
suppliers. The Agreement on Trade-related countries can rapidly transform the prevailing
Investment Measures (TRIMs), for example, FDI and competitive landscape. 4
prohibits the use of local content requirements.
The stricter application of intellectual property It is not just the emergence of high-
rights under the Agreement on Trade-related technology integrated production systems that
Aspects of Intellectual Property Rights (TRIPS) alters the geography of FDI. The pervasiveness
may make it more difficult and expensive for of technical change means that a l l TNC
local firms to access foreign technology. At activities have to use new technologies
the same time, competition for FDI has effectively. The speed of change means,
increased considerably ( WIR98), creating moreover, that TNCs continuously have to
additional parameters as to what host countries upgrade technologies to retain competitiveness,
can or cannot do to attract FDI and benefit and the increasingly information-based nature
from it. of technology means that new sets of skills
and infrastructure are needed to utilize new
T e c h n i c a l c h a n g e affects the technologies. Thus, location decisions have to
geography of FDI in many ways. In fact, the be based on the ability of host countries to
dynamics of international production today provide the complementary skills, infrastructure,
largely reflect the nature, speed and suppliers and institutions to operate technologies
pervasiveness of technical progress. Rapid efficiently and flexibly. Technological progress,
innovation provides the advantages that propel in other words, forces firms involved in
firms into international production; thus, international production increasingly to
innovation-intensive industries especially tend differentiate between the “haves” and “have-
to be increasingly transnational, and TNCs have nots” in new FDI-complementing factors when
to be more innovative to maintain their deciding on where to undertake different
competitiveness. Innovation also leads to activities.
changes in the structure of trade and production,
with R&D-intensive activities growing faster One FDI-complementing factor of
than less technology-based activities ( WIR99). growing significance is the presence of
The move up the technology scale furthermore geographical clusters of economic activity,
reduces the importance of primary and simple technical and skills inputs, specialized suppliers
low-technology activities in FDI, while raising and demanding buyers, support institutions,
that of skill-intensive activities. The growing finance and so on. Such an agglomeration of
role of skills means that low wages per se resources and capabilities attracts “efficiency-
are increasingly insufficient as a determinant seeking” FDI (and more and more FDI is of
of FDI. this type) in all economies. It also helps to
attract “asset-seeking” FDI (Dunning, 1993,
New transport, communication and 2000) to the more advanced host countries.
information technologies intensify competition In their inexorable search for new competitive
while allowing firms to spread and manage advantages, TNCs seek “created assets” like
international operations more efficiently. The technology across the globe. Clusters of
rising cost of innovation leads firms (among innovative activity (as in Silicon Valley in
other options, including strategic alliances) to California, Silicon Fen in Cambridge (England),
internalize their technological advantages rather Wireless Valley in Stockholm or Zhong
than sell them at arm’s length, raising the role Guancum, a suburb of Beijing) have a distinct
of FDI in technology transfer. These trends advantage in attracting such high level FDI.
are manifested most clearly in globally
integrated production systems, in which different Managerial and organizational
steps in the production process are located f a c t o r s strengthen the new locational
(under TNC control) in different places to determinants of FDI. A greater focus on core
optimize cost-efficiencies and logistics. High- competencies, with flatter hierarchies and
technology activities previously beyond the stronger emphasis on networking, steers
reach of developing countries can now be placed investments towards locations with advanced
there because labour-intensive processes can factors and institutions and, where relevant,
be economically separated and managed over distinct clusters. New organizational techniques
long distances. Many activities in integrated (aided by new technologies) stimulate a more
CHAPTER I THE GLOBAL PICTURE 9

efficient management of global operations, more than 1,000 foreign affiliates (figure I.1
encouraging a greater relocation of functions. and annex table A.I.2), and with a value of
“Complex” integration strategies of international FDI stock of over $6 trillion.
production ( WIR93) can succeed only if firms
are able to adopt these new techniques Looking at the recent past, as many
efficiently. as 65 countries experienced an annual average
growth rate of 30 per cent or more between
In sum, the changing geography of 1986 and 2000 (table I.2); another 29 countries
international production reflects the dynamic had FDI growth rates of 20-29 per cent. In
interaction of many economic, organizational terms of broad country groups, the developed
and policy factors. While many of these factors world continued to attract over three-quarters
have long been relevant, their combination today of global FDI inflows in the past two years.
reflects new forces influencing TNC location Its share has risen in recent years largely
decisions. To cope successfully with because of intense cross-border M&A activity.
globalization and benefit from FDI, developing In 1999, the share of developing countries
countries must understand these forces. They fell by 6 percentage points, to 21 per cent; in
set the parameters within which policy makers 2000 it declined yet further to 19 per cent.
have to act to attract FDI, and to extract the This was the lowest share since 1990, and it
greatest benefits from it in terms of technology, was well below the 1990s peak of 41 per cent
skills and market access, striking backward in 1994. It was also lower than the shares of
linkages and leveraging foreign assets to reach developing countries in world exports as well
competitive positions in global markets. The as imports, and total world domestic investment.
following brief review of the growth of FDI The 49 least developed countries (LDCs) as
in 2000 and especially the subsequent mapping a group remained marginal in attracting FDI;
of international production and the discussion however, FDI flows into that group are on the
of the patterns it shows is an attempt to help rise, as is the role of FDI in their economies.
in this understanding. It indicates emerging as Central and Eastern Europe maintained its
well as declining opportunities by location. It share of about 2 per cent in 2000 in terms of
points to new sources of FDI, in developing world inflows.
as well as developed countries, and to small
firms as to large ones as international investors. 5 1. Developed countries
B. The growth of FDI The “Triad” – Japan, the European
Union (EU) and the United States – has long
in 2000 accounted for the bulk of international
production, providing and receiving most of
FDI inflows continued their strong global FDI. During 1998-2000, the Triad
recent growth to reach $1.3 trillion in 2000, accounted for three-quarters of global FDI
though the pace was slightly slower than in inflows and 85 per cent of outflows, and for
the previous two years (table I.1). In 2001, 59 per cent of inward and 78 per cent of
they are expected to decline. 6 By all measures outward FDI stocks. By the late 1990s it was
(assets, sales, trade and employment of foreign home to nearly 50,000 TNCs and host to nearly
affiliates), FDI rose more rapidly in 1999 and 100,000 foreign affiliates (figure I.1 and annex
2000 than such other aggregates as gross table A.I.2). 7 Compared with the mid-1980s,
domestic product (GDP), domestic investment, the Triad’s share in world inward FDI stock
licensing payments and trade. It is noteworthy, has risen, while that in outward FDI stock has
in particular, that TNC activities have risen decreased (figure I.2). The EU’s shares of
rapidly in 1999 (as well as during the preceding stocks and flows, inward as well as outward,
three years) when world trade was stagnant, increased. 8 Those of the United States and
testifying to the growing role of FDI as the Japan have declined, with those of Japan
main force in international economic integration. remaining relatively small. The rise in EU shares
The ratio of foreign affiliates’ sales to global is largely due to cross-border M&As. The
GDP was almost 50 per cent, with the sales structure of FDI within the Triad has also
value being over twice as high as the value changed. Largely as a result of its prolonged
of world exports of goods and services. Over economic slowdown, and later the Asian
60,000 TNCs now own more than 820,000 financial crisis, Japan has become somewhat
affiliates abroad, with some 55 countries hosting more important as a destination for FDI and
10 World Investment Report 2001: Promoting Linkages

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 inflows 57 202 1 271 23.0 20.8 40.8 44.9 55.2 18.2
FDI outflows 37 235 1 150 26.2 16.3 37.0 52.8 41.3 14.3
FDI inward stock 719 1 889 6 314 16.2 9.3 18.4 19.8 22.3 21.5
FDI outward stock 568 1 717 5 976 20.5 10.8 16.4 20.9 19.5 19.4
Cross border M&As a .. 151 1 144 26.4 b 23.3 50.0 74.4 44.1 49.3
Sales 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 available from 1987 onward.
b 1987-1990 only
c Based on the following 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 following 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 affiliates associated with their parent firms through non-equity
relationships and the sales of the parent firms themselves. Worldwide sales, gross product, total assets, exports and employment of
foreign affiliates are estimated by extrapolating the worldwide data of foreign affiliates of TNCs from France, Germany, Italy, Japan and
the 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 the
worldwide 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 of
Moldova; 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; El
Salvador; Greece; Guatemala; Italy; Kenya; Kyrgyzstan; Madagascar; Namibia; New Zealand; Nigeria; Papua
New Guinea; Saint Kitts and Nevis; Sierra Leone; Singapore; Solomon Islands; Spain; Swaziland; Syrian Arab
Republic; 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.

CHAPTER I THE GLOBAL PICTURE 11

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

Source: UNCTAD, FDI/TNC database.

12 World Investment Report 2001: Promoting Linkages

less important as a source, although the boosted in 1999 by large acquisitions linked
country’s significance as an outward investor to the need for global consolidation in the
is still much greater than that as a FDI recipient. industry and undertaken with a view to gain
The United States continues to be the single access to production technologies and R&D
largest host country for FDI, while its role as – lost dynamics. While the share of United
largest outward investor has been taken over States FDI going to developing countries slightly
by the United Kingdom since 1999 and, also, decreased from 27 per cent in 1999 to 25 per
France for the first time in 2000. The EU as cent in 2000, it might revive again in response
a group remains dominant as both investor and to regulatory changes already undertaken or
recipient. As a result, intra-Triad stocks account currently under discussion. For example, the
for the bulk of the Triad’s FDI stocks. Flows African Growth and Opportunity Act improves
between the Triad members are rising, with market access for African exports at favourable
40 per cent of total outward FDI stock being terms; and negotiations with Chile are under
located in other Triad members in 1999, as way concerning that country’s membership in
compared to one-third in 1985 (figure I.3). The NAFTA.
number of host countries in which the Triad
dominates increased for Japan and the EU, Inflows into the United States in 2000
but decreased for the United States between were much more concentrated by source than
1985 and 1999 (figure I.3). were outflows by destination. Traditionally, the
United Kingdom continues to be the most
More specifically, this is how the important home country for the United States,
individual members of the Triad fared in 2000: followed by France; however, the share of FDI
from the EU declined from 80 per cent in 1999
a. United States to 72 per cent in 2000. Inflows took place
overwhelmingly through acquisitions rather than
Although slightly below the 1999 record greenfield investments, undertaken by already
high, FDI in 2000 both from and to the United established foreign affiliates and increasingly
States reached high levels ($139 billion in financed through reinvested earnings
outflows and $281 billion in inflows), mainly (Howenstine, 2001). Although in recent years
as a result of several large acquisitions that the United States had experienced net FDI
took place in particular by and of firms based inflows, in 2000 inflows were more than twice
in the EU. The country was the third largest the amount of outflows, mainly due to increases
outward investor in 2000 (figure I.4). in equity investments and intra-company loans
(figure I.6). The industries with the largest
United States FDI outflows in 2000 increases in 2000 were petroleum, computers
continued to be driven by cross-border M&As and electronics, as well as telecommunications
involving companies based in EU. Overall, the and financial services. The United States is a
EU as a destination for United States outward large host and home country in absolute terms,
FDI accounted for nearly half of the total but in terms of FDI flows as a share of domestic
(figure I.5). Almost half of the country’s investment (gross fixed capital formation), this
outward stock is located in EU countries. As country ranks almost in the middle among all
a result, the economic impact of United States developed countries (figure I.7).
investment is substantial in some EU countries.
For example, United States affiliates accounted b. European Union
for more than half of the total of employment
and value added in Ireland in 1997 (Eurostat, Within Western Europe, the European
2000a). United States investment in the Asia- Union (EU) accounts for more than 90 per cent
Pacific region picked up recently and returned of both inward and outward FDI stocks. While
to levels close to those prior to the financial record inflows into the EU were stimulated
crisis, with particularly strong growth in by progress in regional integration, extra-EU
electronics. Overall, the share of services in flows were dominated by the United States.
United States outward FDI increased, mainly Rising FDI flows between EU and European
due to large acquisitions undertaken by financial Free Trade Association (EFTA) were the main
institutions. The shares of the automobile and stimulus for FDI into other Western European
electronics equipment industries picked up too, countries, reflecting also closer relationships
while chemicals and pharmaceuticals – mainly on other levels of international relations.
CHAPTER I THE GLOBAL PICTURE 13

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 flows within a 3-year average. Approval data were used for the following economies: Bangladesh, Bulgaria,
Cambodia, Egypt, Kenya, Lao People’s Dem. Rep., Mexico, Mongolia, Myanmar and Taiwan Province of China. Data may not necessarily
be available for each economy during both years 1985 and 1999. The EU Includes Austria (1990 instead of 1985 and 1998 instead
of 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), Italy (1994 instead of 1985 and 1998 instead of
1999), Netherlands (1998 instead of 1999), Sweden (1986 instead of 1985) and the United Kingdom (1987 instead of 1985) that account
for about 90 per cent of the EU outward stock. Japan’s outward stocks are cumulative flows on a balance-of-payments basis since
1968.
14 World Investment Report 2001: Promoting Linkages

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

(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI outflows.
CHAPTER I THE GLOBAL PICTURE 15

FDI inflows into the EU also reached Cross-border M&As were particularly
record levels in 2000 ($617 billion). As in the important in the area of telecommunications,
recent past, cross-border M&As explain this as well as in the automobile industry. Although
growth. Deepened regional integration during a tendency towards consolidation and
the 1990s, in addition to political stability, market concentration can also be observed in the
size and good infrastructure, are principal banking industry, it seems that Western
drawing assets; further integration, as well as European banks seek profits rather by expansion
the introduction of the Euro, are expected to into emerging markets (ECB, 2000). However,
accentuate this trend. Within the EU, the United the formation of regional financial groups also
Kingdom was the largest outward investor in took place, such as the creation of Nordea,
2000 and, at the same time, the largest investor the result of mergers between Merita Bank
worldwide for a second consecutive year (figure (Finland), Nordbanken (Sweden), Unidanmark
I.4), mainly due to major cross-border M&As: (Denmark) and Christiania Bank og
the largest deal in 2000 (indeed, the largest Kreditkasse. With few exceptions, about half
deal ever worldwide), the acquisition of of the EU countries’ FDI took place within
Mannesmann by VodafoneAirTouch, also drove the region. One exception is Austria, where
up FDI flows into the target country – Germany. FDI flows were remarkably dynamic and
As a result, Germany became the most important reached record levels in 2000, with more than
FDI recipient in the region (figure I.6). In a two-thirds of the outflows directed towards
similar vein, FDI flows to Belgium were the neighbouring countries of Central and
significantly influenced by post-merger Eastern Europe. Inflows into Austria were
restructuring activities, which took place during dominated by the merger of Bank Austria with
the fourth quarter of 1999 and had led to HypoVereinsbank, and Germany therefore
retroactive adjustments of both inward and accounted for about four-fifths of total inflows.
outward flows; inflows into Belgium in 2000 FDI flows into Greece reached unprecedented
were considerably lower but continued the levels in 2000, and the country’s accession to
upward trend that had been observed up to the EMU in 2001 is expected to further assure
1998 (annex tables B.1 and B.2). investors’ 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 retrieved in March 2001.
Notes: Africa includes South Africa. LAC stands for Latin America and the Caribbean.
16 World Investment Report 2001: Promoting Linkages

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

(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI inflows.
CHAPTER I THE GLOBAL PICTURE 17

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 inflows as a percentage of gross fixed capital formation.
18 World Investment Report 2001: Promoting Linkages

investment almost doubled, mainly due to the record level in 1999 ($11 billion). Norway’s
investments in EU markets; inflows decreased outward FDI flows continued their steep upward
over the previous year (when FDI was trend, with more than half of them directed
significantly influenced by the merger between to EU markets, while inflows in 2000 did not
Astra and Zeneca), but were still considerably reach the record level of the previous year,
above their 1998 level. Similarly, the increase when inflows were significantly boosted by
in outflows from France was largely attributed reinvested earnings. While inflows into Iceland
to the acquisition of Orange Plc by France were about the same level as in 1998, outflows
Telecom in 2000, becoming the second largest in 2000 almost doubled, due to several large
outward investor worldwide. acquisitions, in particular, by Ossur, which
became the second largest manufacturer of
Inflows from outside the EU are prosthetics worldwide, as well as in the financial
dominated by the United States but were of sector (i.e., by Landsbanki and Islandsbanki).
less importance in 1999 than before. They were
outperformed by intra-EU flows (figure I.8). c. Japan
Outward FDI of the EU is increasingly While Japan’s economy continued to
directed towards countries in Central and be sluggish, FDI outflows from the country
Eastern Europe, in pursuit of favourable rebounded after two consecutive years of
business opportunities in the EU candidate decline, reaching in 2000 their highest level
countries, 9 and driven by privatization. in 10 years ($33 billion), driven by cross-border
M&As in telecommunications. 10 FDI inflows
Other Western European countries into Japan, on the other hand, dropped by 36
experienced increasing FDI outflows in 2000, per cent to $8.2 billion, from the 1999 record
with Switzerland being the most important player high, reflecting a decline in FDI in the
in both directions. While Swiss firms continue manufacturing sector, 11 although the trend of
to direct about half of their investment to the attracting relatively high FDI inflows is likely
EU (flows to EU countries in 1999 doubled), to continue, prompted by both internal and
an increasing share goes to Central and Eastern external factors.
Europe, the United States and Latin America.
Already in 1997, Switzerland was among the Cross-border M&As played a role in
five most important foreign investors in the the interaction of these factors. The global
EU (Eurostat, 2000b). FDI inflows to this consolidation through cross-border M&As
country slightly declined to $9.3 billion from between 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.
CHAPTER I THE GLOBAL PICTURE 19

companies extends now to Japan in some average inflows during the period of 1990-1999.
industries (e.g. automobiles), fuelling increased The services sector above accounted for more
FDI into Japan. In addition, the structural than half of the outflow.
changes in leading Japanese industries (e.g.
banking) stimulate FDI inflows into Japan, Record FDI inflows into Canada in 2000
which, in turn, accelerate the speed of the (two and a half times greater than in the previous
country’s structural changes, and so on (WIR00, year) mainly reflected one large acquisition.
chapter II). Thus – and in spite of declining At the same time, outward FDI, increasing
FDI inflows in 2000 – the general FDI trend by more than twice, was also significantly
has been upward during the past few years, stimulated by cross-border M&As. For FDI
driven by cross-border M&As in the finance, in both directions, the most important partners
machinery and telecommunications industries. were the United States and European countries.
Greenfield investments in the retail, service The most important industries were food
and software industries are also rising (JETRO, processing, machinery and transport equipment
2001). (inflows) and electrical and electronic
equipment, energy and metals (outflows).
d. Other developed countries
2. Developing countries
In other developed countries, cross-
border M&As with partners based in Europe
Each region of the developing world
and the United States explain the surge in
experienced different FDI developments during
Canadian FDI, which reached unprecedented
2000.
levels in both directions ($44 billion in outflows
and $63 billion in inflows in 2000). Recent
inflows into Australia and New Zealand were a. Africa
closely linked to developments in the Asia-
Pacific region, and further constrained by FDI inflows into Africa (including South
unfavourable exchange rate developments. Africa) declined from $10.5 billion in 1999 to
Being largely commodity-based economies and $9.1 billion in 2000, after an increase of $2
partly linked to economic developments in Japan, billion during the previous year (figure I.9).
Australia and New Zealand have not Consequently, the share of Africa in world FDI
experienced significant FDI inflows in the inflows – already low – became even smaller,
1990s. Inflows in Australia in 2001 might be falling below 1 per cent in 2000. Inflows to
significantly influenced by the planned merger major recipients such as Angola, Morocco and
between Billiton of the United Kingdom and South Africa halved. However, FDI flows into
BHP of Australia, which (if it should take place) these countries – as well as to Africa as a
would create the second largest mining group whole – are still much higher than those at
in the world. 12 Outflows from Australia in 2000 the beginning of the 1990s, mainly due to the
were $5 billion, a turnaround compared to the sustained efforts of many governments to create
previous year and significantly above the a more business-friendly environment after

Figure I.9. FDI inflows and

their share in gross fixed
capital formation in Africa, a
1990-2000

Source: UNCTAD, FDI/TNC

database.
a Including South Africa.
20 World Investment Report 2001: Promoting Linkages

turbulent and (in some countries) lost decades African LDCs in total FDI inflows into all
in the 1970s and 1980s. However, a number LDCs stood at 90 per cent in 1999-2000,
of African countries continue to rank high when increasing from 70 per cent as the average
FDI inflows are placed in relation to their gross for the period 1990-1998.
fixed capital formation (figure I.10). FDI
outflows from African countries continued to Within sub-Saharan Africa, the Southern
be marginal, except for those from South Africa. Africa Development Community (SADC)
has shown (in absolute as well as in relative
On a subregional basis, the year 2000 terms) the most significant increases since
saw some changes as compared to the year the early 1990s. While FDI inflows into
before as far as inflows were concerned: this grouping – due to the developments
in Angola and South Africa – dropped from
• FDI flows to North Africa remained almost $5.3 billion in 1999 to $3.9 billion in 2000,
at the same level as in the previous year this is still substantially above the average
($ 2.6 billion). Flows declined into Morocco level of FDI inflows of approximately $3.0
– where FDI inflows have been particularly billion that today’s SADC members received
volatile over the past few years – and during 1994-1998. While countries such as
Algeria. FDI flows to Sudan (where FDI Lesotho and Mauritius showed strong
is concentrated in petroleum exploration increases, FDI flows to other SADC
activities) increased somewhat from $370 countries declined: for example, Zimbabwe
million to $392 million (figure I.11). Egypt experienced a significant drop in inflows
remained the most important recipient of from $444 million in 1998 to $ 59 million
FDI flows in North Africa, with slightly in 1999 and only $30 million in 2000.
increasing inflows ($1.2 billion compared
to $1 billion in 1999). The overall outlook for FDI into Africa
has not changed much as compared to last
• FDI flows to s u b - S a h a r a n A f r i c a year when a joint UNCTAD/ICC survey among
decreased from $8 billion in 1999 to $6.5 almost 300 TNCs yielded the result that 43
billion in 2000. Although 22 countries per cent of the responding companies saw the
experienced lower inflows in 2000 as investment conditions in Africa improving in
compared to 1999, most of the reductions the period 2000-2003, while 46 per cent saw
were rather small. The overall decline in the investment climate stay unchanged and only
FDI inflows into sub-Saharan Africa was 11 per cent expected a deterioration. As in
caused by a sharp drop of inflows into two the past, much will depend on sustained efforts
countries: Angola and South Africa. In on the part of African governments to improve
Angola, inflows to the country’s petroleum further the prospects of political stability and
industry took a pause from the dynamic economic growth.
development in previous years, while in
South Africa reduced M&A activity played On the FDI outflow side, South Africa
a role in the downturn of inflows. The list accounted for 40 per cent of the region’s total
of major recipients in sub-Sahara remained of $1.3 billion FDI outflows in 2000 (figure
largely unchanged, with oil-producers such I.12); this made South Africa by far the
as Angola, Egypt and Nigeria topping the continent’s most important source of FDI. The
list, followed by South Africa. country has seen a major restructuring of its
industry long dominated under the apartheid
• Due to the decline in Angola, FDI flows regime by quasi-monopolistic conglomerates
into the 34 LDCs in Africa dropped from with interests in a wide range of industries
$4.8 billion in 1999 to $3.9 billion in 2000. and little investments abroad (Goldstein, 2000).
Leaving Angola aside, however, the group For big South African companies, the end of
maintained almost the same level as in the apartheid also meant the beginning of a new
previous year. FDI inflows to the United era of intensified competition, forcing them
Republic of Tanzania were almost to concentrate on core businesses and to divest
unchanged from $183 million to $193 million. from fringe activities. At the same time,
When classified by regions, the group of companies such as South African Breweries
African LDCs was, in fact, the only regional or Sappi in the paper industry realized that an
grouping of LDCs that managed to increase internationalization strategy including
inflows over recent years. The share of acquisitions of companies abroad (table I.3)
CHAPTER I THE GLOBAL PICTURE 21

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

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 1997-1999 FDI inflows as a percentage of gross fixed capital formation.
22 World Investment Report 2001: Promoting Linkages

Figure I.11. Africa: FDI inflows, top 10 countries, 1999 and 2000 a
(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI inflows.

Figure I.12. Africa: FDI outflows, top 10 countries, 1999 and 2000 a
(Millions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI outflows.
CHAPTER I THE GLOBAL PICTURE 23

to explore new markets, and listing on foreign overtook China as the single largest FDI
stock exchanges (most notably in London) to recipient in Asia (figure I.15).
tap into foreign capital sources, was essential
for survival in the new climate of global • FDI inflows into China rose by 12 per cent
competition. 13 during the first four months of 2001
($11 billion), compared to the corresponding
b. Developing Asia period in 2000. It is noteworthy that tax
contributions by foreign affiliates accounted
F D I i n f l o w s into developing Asia for 18 per cent of the country’s total
reached a record level of $143 billion in 2000 corporate tax revenues in 2000 ($27 billion)
(figure I.13). The 44 per cent increase over harvesting some of the benefits created
1999 was primarily due to an unprecedented by some $15 billion of annual average FDI
FDI boom in Hong Kong, China (box I.2). The inflows during the first half of the 1990s.
wave of M&As in the financial-crisis-hit It is also noteworthy that the portfolio of
countries has now tapered off, reflecting both FDI in China has been broadening over
a slow-down in the rate of asset disposals and the past years (box I.3). In its effort to
reduced pressure for further corporate become a member of WTO, China is
restructuring. FDI flows into China, $41 billion considering to adopt a number of new policy
in 2000, remained at a level similar to that of measures relating to FDI. China is also in
the previous year (box I.3). Overall, the role the process of formulating policies to
of FDI in Asian economies, as measured by encourage cross-border M&As.
its share in total investment, varies greatly from
country to country (figure I.14). • Inflows into South-East Asia (ASEAN-
10) remained below the pre-crisis level.
The 2000 Asia FDI boom (figure I.13) The subregion’s share in total FDI in
masks considerable sub-regional variations: developing Asia continued to shrink, from
over 30 per cent in the mid-1990s to 10
• North-East Asia has become the brightest per cent in 2000. This was largely due to
spot for FDI in the developing world. Inflows significant divestments in Indonesia since
to the three economies (Hong Kong, China; the onset of the financial crisis.
the Republic of Korea; and Taiwan Province
of China) reached $80 billion in 2000. Their • FDI inflows into South Asia remained
share of total FDI in developing Asia almost the same in 2000, still below the
increased from an annual average of 16 1997 peak level. India, the largest recipient
per cent during the first half of the 1990s in the subcontinent, received $2.3 billion.
to over 55 per cent in 2000. With $64 billion
of inflows, Hong Kong, China (box I.2) • Inflows into the least developed countries
of the region, which traditionally depend

Table I.3. The ten largest cross-border M&A purchases

by South African firms, 1987-2000
Value in
Company Year Acquired company Country million dollars

Anglo American Corp of SA Ltd . 1999 Minorco SA Luxembourg 2 137

Institutional Investors 1994 SD Warren(Scott Paper Co.) United States 1 600
Old Mutual PLC 2000 United Asset Management Corp. United States 1 456
Dimension Data Holdings PLC 2000 Comparex-Eur Networking Ops Germany 1 347
Sappi Ltd. 1997 KNP Leykam(KNP BT) Austria 1 313
Gencor 1994 Cerro Matoso SA(Royal Dutch) Colombia 1 200
Gencor 1994 Billiton Intl-Certain Assets Australia 1 144
Shareholders a 1999 Liberty International PLC United Kingdom 920
Old Mutual PLC 2000 Gerrard Group PLC United Kingdom 855
Shareholders 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.
24 World Investment Report 2001: Promoting Linkages

Figure I.13. FDI inflows and their

share in gross fixed capital
formation in developing Asia,
1990-2000

Source: UNCTAD, FDI/TNC database.

heavily on FDI from their neighbours, The longer-term investment prospects

remained at a very low level. for developing Asia remain bright. In addition
to the quality of the underlying determinants
Outward FDI from the region doubled for FDI, the intensified efforts of further
in 2000, to a record level of $85 billion. Hong economic integration in various dimensions is
Kong (China), with $63 billion outflows, likely to boost FDI in the region.
continued to be the single largest investor of Box I.2. FDI boom in Hong Kong, China:
the region (box I.2). But FDI from China and what’s behind the numbers?
India is also rising.
Hong Kong (China) has enjoyed an
A new pattern of flows in terms of unprecedented FDI boom over the past two
source and destination countries is emerging. years. Inflows in 2000 skyrocketed to $64 billion,
TNCs from Hong Kong (China), Singapore and four times the inflows to ASEAN and well above
Taiwan Province of China have been very active those into mainland China – traditionally the
over the last two years, but with their single largest FDI recipient in the developing
investments mainly focused on North-East Asia. world. The territory’s share of total Asia FDI
Other Asian TNCs, particularly those based rose from an annual average of 11 per cent
in the Republic of Korea and Malaysia, are during the first half of 1990s to 45 per cent
gradually resuming their overseas business in 2000 (box figure I.2.1). The boom in inflows
operations. In the meantime, outward was accompanied by a tripling of FDI outflows
investment from China and India is gaining ($63 billion).
momentum. Faced with growing protection
against its exports and excess productive Box figure 1.2.1. Trends of FDI inflows into
capacity in low value-added but export Hong Kong, China, 1994-2000
competitive industries (box I.3), Chinese TNCs
engaged in “barrier-hopping” outward
investment, usually in the form of “investment
in kind”.14 Furthermore, the deepening
economic integration of Hong Kong (China)
and Mainland China led to a significant increase
of outward investment from the Mainland to
Hong Kong over the past two years, accounting
for about 20 per cent of the total FDI inflows
to Hong Kong. 15 Most recently, Indian TNCs
began asset-seeking investment via cross-
border M&As, particularly in the software
industry in countries such as the United Source: UNCTAD.
Kingdom and the United States.
/...
CHAPTER I THE GLOBAL PICTURE 25

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

The upsurge in inflows by $40 billion over 57 per cent ($11 billion), respectively.
1999 was underpinned in part by a general
improvement in the local business environment The above cases demonstrate Hong Kong’s
following the strong recovery of the economy predominant role as a funding hub for business
over the past two years. A marked growth in in the region. Indeed, a considerable part of
reinvested earnings was related to the improved the investment flows into and out of Hong Kong
profit position of foreign affiliates in the (China) is related to business ventures in other
economy. The advantageous geographical parts of the region, particularly in the mainland.
location, sound infrastructure and a low tax The issue is further complicated by the “round-
regime continue to position Hong Kong (China) tripping” phenomenon, i.e. capital inflows and
as a bright spot for high value-added FDI and outflows relating to Hong Kong (China) in the
as a business hub in the region. form of FDI via tax haven economies. Statistics
shows that tax haven economies were both one
China’s imminent accession to WTO has of the largest recipients and sources of FDI
been another driving force for attracting FDI related to Hong Kong (China) during 1998-2000.
into Hong Kong (China). TNCs planning to For example, more than half of the territory’s
invest on the mainland have been “parking” outward FDI is routed to such offshore financial
funds there (e.g. can be in the form of long- centres as the British Virgin Islands, the Cayman
term loans to their affiliates in Hong Kong – Islands and Bermuda. However, the actual
one type of FDI), in anticipation of emerging destination of the majority of these funds is
business opportunities in the mainland. This elsewhere. Some of the funds are channelled
was indirectly confirmed by the findings of to mainland China; others to elsewhere in the
a recent survey of over 3,000 foreign TNCs’ world; and a sizeable portion even goes back
regional headquarters and representative offices to Hong Kong (China) or through the territory
in Hong Kong (Hong Kong, China, Census and to the mainland. Perhaps as much as 40 per
Statistics Department, 2001a): 45 per cent of cent of total FDI inflows to Hong Kong (China)
the surveyed firms planned to increase their in 1998 was “Hong Kong-tax haven routing”.
investment in the mainland, and 93 per cent Indeed, the British Virgin Islands became the
considered the investment climate in China to fourth largest source of FDI in China during
be favourable or very favourable over the next 1999-2000, whereas Hong Kong’s outward FDI
five years. directly to the mainland decreased since 1998.
The “Hong Kong-tax haven routing” is now
The dramatic increase in FDI flows was interwoven with the “mainland-Hong Kong
also boosted by a prominent cross-border M&A round-tripping” (Zhan, 1995), sometimes
deal in the telecommunication sector. According involving fund-raising in the Hong Kong stock
to public announcements, China Mobile (Hong market. Such a phenomenon, which can be better
Kong) Ltd. acquired in November 2000 seven termed as “transit FDI” (Zhan, 2001), has
mobile networks in the mainland, with a deal manifested the dynamics of corporate finance
value of $33 billion. a As the deal was partly in the region’s financial centre.
financed by capital raised through new shares
issued to its parent company in the British Virgin It should be mentioned that FDI statistics
Islands, FDI inflows of $23 billion into China of Hong Kong (China) are compiled in
Mobile (Hong Kong) was recorded in parallel. accordance with international standards
This acquisition alone accounted for over one- stipulated in the Balance of Payments Manual
third of the territory’s total FDI inflows and published by the IMF and the Benchmark
more than half of total outflows in 2000. Definition of FDI published by the OECD.
Independently of this deal, both FDI inflows Nevertheless, like other aggregates, FDI data
and outflows relating to Hong Kong (China) hardly reflect the complexity of corporate finance.
still surged by 68 per cent ($17 billion) and

Source: U N C T A D , p a r t l y b a s e d o n H o n g K o n g , C h i n a , C e n s u s a n d S t a t i s t i c s D e p a r t m e n t 2 0 0 1 a a n d
2001b.
a This acquisition was, however, not recorded by the Government of China as an FDI inflow into China.
26 World Investment Report 2001: Promoting Linkages

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

The portfolio of FDI in China has been The prominence of FDI in technology-
evolving over the past two decades. Inflows intensive industries is also manifested in China’s
used to concentrate in labour-intensive industries foreign trade. Exports of high and new
during the 1980s and then moved towards technology products by foreign affiliates
capital-intensive ones during the early 1990s. increased from $4.5 billion in 1996 to $29.8 billion
In recent years, technology-intensive industries in 2000 (box table I.3.1). They accounted for
have been attracting more and more FDI. The one-fourth of the total exports by foreign
old image of the so-called “flying-geese affiliates, and 81 per cent of the country’s total
formation”, with China at the low level of the exports in high-technology products. Since the
value-chain (i.e. mainly spillover from newly second half of the 1990s, China has significantly
industrializing economies to China), is giving reduced its imports of complete sets of advanced
way to that of a rising competitive location equipment and is now relying more and more
for technology-intensive activities for TNCs. on FDI to acquire foreign technology. In fact,
FDI has become the engine of growth of China’s
Today, nearly 400 of the Fortune 500 firms high-technology exports and an essential means
have invested in over 2,000 projects in China. of inward technology transfer.
The world’s leading manufacturers of computers,
electronics, telecommunication equipment, Box table I.3.1. Exports of high-technology
pharmaceuticals, petrochemicals, and power- products from China by ownership of
generating equipment have extended their production, 1996-2000
production networks to that country.
State-owned Foreign
Most recently, even R&D activities have Total enterprises affiliates
emerged as a bright spot for FDI, with over Year (Million dollars) (Per cent) (Per cent)
100 R&D centres established by TNCs.
Microsoft, Motorola, GM, GE, JVC, Lucent-Bell, 1996 7 681 39 59
1997 16 310 .. ..
Samsung, Nortel, IBM, Intel, Du Pont, P&G, 1998 20 251 25 74
Ericsson, Nokia, Panasonic, Mitsubishi, AT&T, 1999 24 704 23 76
Siemens, to name a few, all have R&D facilities 2000 37 040 18 81
in China. Motorola, for example, has established
R&D centres in the area of electronics, based Source: UNCTAD, based on China, Ministry of
on $200 million in investment and 650 research Science and Technology.
personnel. Microsoft invested $80 million in
a Chinese research institute and has announced In parallel with the above trends, the share
the investment of a further $50 million to create of FDI flows into those industries in which
a Microsoft Asian Technology Center in FDI traditionally concentrated (e.g. footwear
Shanghai. The need for the adaptation of and travel goods, toys, bicycles and electrical
technology to the huge local market has been appliances) has been declining. Moreover, driven
one of the push factors for TNCs to locate some by the excess productive capacity in the country
of their R&D activities in the country. The and encouraged by their increased
availability of extensive hard and soft R&D competitiveness in exports, Chinese firms in
infrastructure (particularly well-educated and those industries are now expanding to set up
hardworking researchers at low costs, including processing or assembly plants overseas. The
many graduates returned from abroad) is the Government promotes those outward investments
main pull factor. Furthermore, the Government by providing such incentives as loans at
has introduced policy measures to reform the preferential terms and tax rebates. Special
nationwide science and technology system, guarantees and financial support through official
promoting self-sustained and market-oriented development assistance are also granted to
research institutions. As a result, Chinese R&D the investments in those countries that are
institutions are becoming proactive in seeking identified as high-risk locations.
partnerships with TNCs.

Source: U N C T A D .
CHAPTER I THE GLOBAL PICTURE 27

Figure I.14. FDI flows as a percentage of gross fixed capital

formation in developing Asia and the Pacific, 1990-1999 a
(Percentage)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 1997-1999 FDI inflows as a percentage of gross fixed capital formation.
28 World Investment Report 2001: Promoting Linkages

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

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI inflows.
CHAPTER I THE GLOBAL PICTURE 29

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

(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI outflows.

c. Latin America and unthinkable only a decade ago, there are

differences by country in the industries in which
the Caribbean TNCs invest, as well as FDI prospects.
After tripling during the second half
of the 1990s, annual FDI inflows into Latin More specifically, with inward FDI
America and the Caribbean fell during the first flows of $34 billion (figure I.18), Brazil continued
year of the new century (figure I.17). 16 The to be the region’s largest host country in 2000,
$86 billion in inflows represent a decline of with most FDI going into the services sector.
22 per cent over the previous year. However, The pace of privatization slowed, but remained
this decline does not signal a shifting trend as important, accounting perhaps for up to
it reflects an adjustment to the particularly large 22 per cent of total inflows, down from 28 per
flows in 1999 due to the acquisition of three cent in 1999. The single largest privatization
large Latin American firms by foreign ones deal was the sale of the controlling stake of
that had taken place that year. Moreover, the bank Banespa to the Spanish BSCH for
patterns differ by subregion. Although the $3.6 billion. Mexico, with $13 billion, was the
current volume of FDI represents an amount second largest recipient, a 10 per cent increase

Figure I.17. FDI inflows and their

share in gross fixed capital
formation in Latin America and the
Caribbean, 1990-2000

Source: UNCTAD, FDI/TNC

database.
30 World Investment Report 2001: Promoting Linkages

from the previous year. The manufacturing d. The least developed countries
sector continued to attract half of the inflows,
but the share of financial services jumped to The 49 LDCs – countries with an
31 per cent of total inflows from a 10 per cent average annual per capita GDP under $900
average in the previous five years. This was and low levels of capital, human and
the result of take-overs by Spanish banks that technological development – account for nearly
were triggered (with some lag) by the lifting a quarter of the world in terms of the number
of the remaining restrictions on foreign of countries and more than one-tenth in terms
ownership of banks in 1999. BSCH acquired of population. Meanwhile, their share of annual
Serfin for $1.6 billion; its rival BBVA merged world GDP is less than 1 per cent. To improve
with Bancomer with a capital injection of this situation, and to achieve sustainable
$1.9 billion. The trend continued into 2001 poverty-reducing growth and development,
with the acquisition of Banamex by Citicorp domestic efforts and resources must be
in May for $12.5 billion, the biggest M&A deal reinforced by external resources. Official
in Mexican history. development assistance (ODA) constitutes, of
course, an essential component in this regard.
Argentina and Chile suffered significant During 1998-1999, ODA represented about two-
declines in their FDI inflows, partly because thirds of total capital flows to LDCs. Given
1999 had seen three major M&As (Repsol’s the structural characteristics of LDCs, ODA
purchase of YPF in Argentina; and Endesa will remain the most important source of
España’s purchase of Endesa and Enersis in external finance for these countries. The
Chile). Inflows into some Andean countries, declining ODA trend therefore needs to be
such as Colombia and Peru, were lower than reversed. At the same time, it is important to
those in the previous years, reflecting recent see how official aid can be complemented by
political and economic instability, while inflows other sources of external finance. FDI is of
into Venezuela rose, due to significant purchases particular importance in this respect as it can
in the services sector. These changes are also bring not only much needed additional capital
reflected in FDI inflows in relation to the size but also access to technology and know-how,
of domestic investment (figure I.19). as well as access to international markets. Of
course, FDI cannot substitute for ODA; in fact,
M&As continued to be important in ODA can help to create the conditions to make
2000, and were mainly directed to the services a country more attractive for FDI, e.g. when
sector. The largest transactions included the infrastructure is upgraded.
so-called Operación Verónica , during which
Telefónica de España increased its stakes in The data show that FDI, and the
its affiliates in Argentina, Brazil and Peru to importance of FDI, in the world’s 49 poorest
almost 100 per cent, and acquisitions by Spanish countries is on the rise: 17
banks in Mexico and Brazil. In the electrical
industry, there were important purchases by • FDI to LDCs increased from $0.6 billion
the AES Corporation (United States) in Brazil, in 1990 to $4.4 billion in 2000. This growth
Chile and Venezuela, amounting to $3.6 billion. was broadly based: 24 LDCs experienced
an average annual growth rate of more
On the outflow side, Chile was the than 20 per cent and another 15 of them
largest investor, with outflows of almost $5 between 10 and 20 per cent during 1986-
billion (figure I.20) – an amount higher than 2000 (annex table A.I.3). Among these,
inflows. However, a good part of the African countries were particularly
investments abroad are undertaken by foreign successful in recent years, as noted above.
affiliates in Chile, such as Enersis (the electricity
company owned by the Spanish group Endesa) • Although the LDCs’ share of global FDI
and Entel (the former public telephone is a mere 0.5 per cent, this amount is
monopoly now controlled by Telecom Italia). important for them: as a percentage of total
The single most important investment abroad investment in these countries, FDI rose
by a Latin American company was the acquisition from 4 per cent in 1988-1990 to 7 per cent
by Cemex from Mexico of Southdown in the in 1997-1999. More than 90 per cent of
United States for $2.8 billion, which makes these flows was through greenfield
Cemex the third largest cement company in investment, rather than cross-border
the world and one of the 100 largest TNCs in M&As. Privatizations involving FDI
the world (chapter III).
CHAPTER I THE GLOBAL PICTURE 31

Figure I.18. Latin America and the Caribbean: FDI inflows, top 20 economies, 1999 and 2000 a
(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI inflows.
32 World Investment Report 2001: Promoting Linkages

Figure I.19. Latin America and the Caribbean: FDI flows as a percentage of gross fixed
capital 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 inflows as a percentage of gross fixed capital formation.
b Latin America and the Caribbean.
CHAPTER I THE GLOBAL PICTURE 33

accounted for only 2 per cent of all FDI Major efforts have been undertaken
in the LDCs in the 1990s. But privatizations by LDCs to improve their investment climates. 19
involving foreign investments can be At the national level, legislation in most LDCs
important for individual LDCs, as the case now offers a wide range of guarantees, non-
of the privatization of copper mines in discrimination between foreign and domestic
Zambia shows. investors, protection against expropriation, and
permission for foreign affiliates to repatriate
• There is a growing need to complement profits. Moreover, some leading industries have
ODA with private finance. ODA to LDCs been liberalized and are now open to foreign
declined from $16.7 billion in 1990 to $11.6 investors.
billion in 1999. Bilateral ODA also declined,
from $9.9 billion to $7.2 billion (annex figure The LDCs themselves have also been
A.I.1). In fact, 29 LDCs simultaneously actively promoting their countries to foreign
experienced increases in FDI and investors; investment promotion agencies have
decreases in bilateral ODA during the 1990s been established in 37 LDCs, 25 of which have
(annex figure A.I.2). joined the World Association of Investment
Promotion Agencies (WAIPA, 2001).
The geographical origin of FDI in LDCs
At the bilateral level, as of 1 January
is quite varied. France and the United Kingdom
2001 the 49 LDCs had concluded a total of
are the principal sources of FDI in African
241 BITs, more than 52 per cent of them during
LDCs, where Europe for a long time has played
the 1990s alone. Other important measures
a more important role than the United States.
include the conclusion of 133 DTTs. Finally,
Most (three-quarters) of Japan’s FDI in African
a growing number of LDCs are now signatories
LDCs consists of flag-of-convenience
of relevant multilateral agreements. For
investments in Liberia. In Asian LDCs,
example, as of April 2001, 18 LDCs had
intraregional FDI is substantial, and firms from
acceded to the Convention on the Recognition
Malaysia, Singapore and Thailand are major
and Enforcement of Foreign Arbitral Awards;
investors.
33 had ratified the Convention on the Settlement
of Investment Disputes between States and
Despite the obvious constraints of Nationals of other States; 40 were members
limited purchasing power and scarce of the Multilateral Investment Guarantee
technological and human resources, investment Agency; and 32 were members of the World
opportunities do exist in many areas. Investment Trade Organization.
in the LDCs takes place in many industries.
One of the challenges is therefore to ensure As this discussion shows, LDCs are
that existing opportunities are adequately not unattractive to TNCs, and they have made
communicated to the business community. 18 substantial efforts for this purpose. Although
In fact, as of 1999, 44 of the Fortune 500 FDI inflows have responded, however, much
firms had responded to such opportunities and more needs to be done to advance the
had invested in 31 LDCs (UNCTAD, 2001a). development of this group of countries.

Figure I.20. Latin America

and the Caribbean: FDI outflows,
top 10 economies, 1999 and 2000 a
(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude
of 2000 FDI outflows.
34 World Investment Report 2001: Promoting Linkages

3. Central and Eastern (Poland, Czech Republic and Russian Federation,

in that order) absorbing two-thirds of the
Europe region’s total inflows.
FDI inflows into Central and Eastern The overall surge of inflows into Central
Europe increased in 2000 to a new record level and Eastern Europe in 2000 masks diverging
of $27 billion (figure I.21). 20 Continuing the trends in individual countries. In Poland and
pattern of previous years, Western European Hungary, FDI rose (in the latter slightly), while
countries dominated these inflows, with member in the Russian Federation and the Czech Republic
countries of the EU accounting for the bulk it declined, in the latter despite a continued
of the flows (annex table A.I.5). But inflows increase of greenfield investment (figure
continued to be uneven, with three countries 1.22).21 The most dramatic surge in FDI inflows

Figure I.21. FDI inflows and

their share in gross fixed
capital formation in Central
and Eastern Europe, a
1990-2000

Source: UNCTAD, FDI/TNC

database.
a Composed of countries in
Central and Eastern Europe and
developing Europe excluding
Malta.

Figure I.22. Central and Eastern Europe: FDI inflows, 1999 and 2000 a
(Billions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI inflows.
CHAPTER I THE GLOBAL PICTURE 35

– a sixfold increase – was registered by (Latvia, Estonia and Lithuania, in that order)
Slovakia where the volume of inflows in 2000 ranked high in terms of FDI inflows as a
($2.1 billion) was almost as high as the percentage of gross fixed capital formation
cumulative inflows of the preceding nine years, (figure I.23).
reflecting a series of major FDI deals realized
in 2000. 22 For the first time, inflows into Privatization-related FDI transactions
Yugoslavia (which had not been reported in were a key determinant of FDI inflows, with
previous years) are included in the FDI the exception of Hungary, where the privatization
statistics; they showed inflows of $29 million process has by and large been completed, and
in 2000 (box I.4). The three Baltic countries the 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 payments
of Yugoslavia in two years: 1997 ($740 million) and 1998 ($113 million). Additionally, the Federal
Ministry for Foreign Economic Relations has reported the value of foreign investment contracts
concluded and registered under the Law on Foreign Investments since 1992. a The latter has included
the domestic part of the mixed-company and joint venture projects, which – except in 1997 – has
accounted for one-third to one-half of those figures. Taking 50 per cent of those values registered
by the Federal Ministry for Foreign Economic Relations as an indication of FDI inflows, the following
estimates 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 contracts registered a
($ million) 251 192 125 90 203 1 122 165 247 58
Estimated FDI inflows ($ million) 126 9.6 63 45 102 740 113 124 29
FDI inflows/GFCF (%) 5.7 3.9 2.6 1.5 5.2 31.3 5.9 5.3 ..
FDI stock/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 database, based on information provided by the Federal Ministry for Foreign Economic
Relations and the Yugoslav Chamber of Commerce and Industry.
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 countries
for FDI inflows (box table 1.4.2).

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

Box table I.4.2. Countries of origin of FDI Box table I.4.3. Number of FDI projects in
inflows a into Yugoslavia, 1996-2000 Yugoslavia, by industry, 1995-2000
(Million of dollars) Number Of which 100%
Country Country Industry of projects foreign-owned
Trade 2 156 725
Netherlands 560 Bulgaria 10 Transport services 758 233
Greece 481 Italy 10 Food 462 123
Luxembourg 102 United States 8 Engineering 427 155
Cyprus 82 Austria 8 Textile 225 50
Bahamas 14 Hungary 4 Road transport 208 44
Tourism 151 38
Source: UNCTAD, based on data provided by the Federal Other services 132 31
Ministry for Foreign Economic Relations.
a Approval basis. Source : UNCTAD, based on information provided by the
Federal Ministry for Foreign Economic Relations
and the Yugoslav Chamber of Commerce and
Industry.

Source: UNCTAD, based on information provided by the Federal Ministry for Foreign Economic Relations
and 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 Federal
Republic of Yugoslavia, Nos. 79/1994, 15/1996 and 29/1996.
36 World Investment Report 2001: Promoting Linkages

Figure I.23. Central and Eastern Europe: 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 inflows as a percentage of gross fixed capital formation.
b Central and Eastern Europe.
CHAPTER I THE GLOBAL PICTURE 37

where large-scale privatizations involving largest outward investor in the region (figure
foreign investors have not yet begun. 23 The I.24), the Government provides assistance to
purchase of a majority share in Telekomunikacja the country’s outward investors (box I.5). The
Polska (Poland) by France Telecom for $4 billion bulk of these flows take place within the region
carried out in 2000 was the region’s largest (annex table A.1.7).
privatization and largest FDI transaction to date.
Box I.5. Government support for investors
In the immediate future, privatization from Hungary
will continue to lead FDI inflows into the region.
After 2002, however, most of the privatization Government-owned Corvinus International
process is expected to be completed in some Investment Ltd., established in 1997, provides
economies that are far advanced in the transition both finance (participation in share capital,
process (especially the Czech Republic and loans and guarantees) and advisory services
Poland), and FDI patterns there may well come to potential outward investors. The typical clients
to resemble the picture in Hungary now, where of Corvinus are medium-sized Hungarian
FDI inflows are driven by additional greenfield manufacturing enterprises, although the scheme
investments and, increasingly, by private cross- is open, in principle, to all firms and industries.
Corvinus has undertaken its largest equity
border M&As (annex table A.I.6).
investments into a Romanian bakery, a Romanian
electrical engines and spare-parts production
FDI outflows from the region grew plant, a Slovakian dairy factory, a Chinese fruit
even faster than FDI inflows in 2000 in spite processing plant, a Slovakian timber firm, and
of the fact that some of the transactions carried a Romanian timber firm. (Heti Világgazdaság ,
out by firms in the Russian Federation with 27 February 1999, No. 8, p. 12; 13 May 2000,
the intention of establishing control over No. 19, p. 14; and 24 March 2001, No. 12, p.
companies abroad go unreported, or are 12).
reported under other elements of the balance
of payments. If these outflows are estimated, Source : UNCTAD, based on information provided
the Russian Federation probably becomes a by Corvinus International Investment
major capital exporter. In Hungary, the second Ltd.

Figure I.24. Central and Eastern Europe: FDI outflows, 1999 and 2000 a
(Millions of dollars)

Source: UNCTAD, FDI/TNC database.

a Ranked on the basis of the magnitude of 2000 FDI outflows.
38 World Investment Report 2001: Promoting Linkages

transnationality index of host countries, which

***** is calculated as the average of the following
four shares: FDI inflows as a percentage of
The above review shows that FDI –
gross fixed capital formation; FDI inward stock
and international production – has grown faster
as a percentage of GDP; value added of foreign
than domestic investment and production.
affiliates as a percentage of GDP; and
However, trends in FDI flows and the growth
employment of foreign affiliates as a percentage
of international production differs by region
of total employment. For the 30 developing
and country. Thus, the relative significance
countries for which this index is estimated, it
of FDI in an economy varies among host
ranges between 3 and 54 in 1998 (figure I.25).
countries. This is measured by the

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

(Percentage)

Source : UNCTAD estimates.

a Average of the four shares : FDI inflows as a percentage of gross fixed 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 affiliates as a percentage of
GDP in 1998 (1999 for CEE); and employment of foreign affiliates 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 estimated by applying the ratio of value added
of United States affiliates to United States outward FDI stock to total inward FDI stock of the country. Data on employment are available
only 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 United
States 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 impact
of foreign owned affiliates was estimated on the basis of their per capita inward FDI stocks. For the benchmark data, see annex table
A.I.5. With the exception of the Czech Republic, Hungary and Slovenia, the value added of foreign owned firms was estimated on the
basis of the per capita inward FDI stocks. For the benchmark data, see annex table A.I.6.
CHAPTER I THE GLOBAL PICTURE 39

The most transnationalized host country Richer, more competitive and more advanced
economy was Hong Kong, China, replacing economies naturally receive and make more
Trinidad and Tobago. In the developed world, international direct investment than other
New Zealand held that position. There are seven economies. The marginalization of poor
countries (two developed and five developing countries from FDI flows is a part of their
countries) whose index value exceeds 30 per marginalization in economic activity generally,
cent. In general, the transnationality is higher particularly in the modern industries in which
in developing countries than in developed most TNCs tend to operate.
countries. In Central and Eastern Europe the
transnationality index – prepared for the first This does not mean, however, that the
time – surpassed 10 per cent on average, distribution of FDI inflows to countries or
although it was still lower than the averages regions exactly match that of other economic
for both developed or developing countries aggregates. Clearly they do not – a number
(figure I.25). In Estonia and Hungary, the ratio of location factors not directly related to
was close to 25 per cent, and in the Czech economic conditions influence FDI. Such things
Republic and Latvia it exceeded 15 per cent, as political risk, government policy, international
indicating a high degree of internationalization. perceptions and the regional “image” can affect
On the other hand, it was below 5 per cent in FDI differently from – sometimes more
one-third of the countries covered. intensely than – other aggregates. Thus, there
can be significant variations in national abilities
C. The Inward FDI Index to attract inward FDI, given such factors as
economic size or international exposure.
The absolute FDI data used in the It is interesting, therefore, to examine
preceding sections show a substantial the relative performance of countries in terms
concentration of FDI flows. This, in turn, of attracting FDI, taking into account their
reflects the distribution of world economic relative economic strengths or positions in the
activity and international transactions more global economy. Policy makers, in particular,
generally (see chapter II). For instance, exports, are interested in comparing how well their
domestic investments and technology payments countries are doing in attracting FDI relative
are also highly concentrated: the shares of the to others. For this purpose, this report introduces
top 10, 30 or 50 countries in these aggregates a new index to facilitate such comparisons at
are not very different from their shares in FDI the national and regional levels. The Inward
(table I.4).24 This is to be expected. As a market- FDI Index is the unweighted average of three
driven activity, FDI is similar in its pattern to ratios reflecting the propensity to attract FDI
the patterns of trade, investment, technology after adjusting for the relative economic size
and industrial production among countries. and strength of a host economy in the world.

Table I.4. Concentration ratios of FDI, trade, domestic investment

and technology payments, 1985 and 2000
(Percentages)

Inward FDI Outward FDI Domestic Technology

Item Flows a Stock Flows a Stock Exports b investment c payments
top 10 countries
1985 70.0 70.4 85.0 89.8 58.9 70.7 81.7
2000 73.0 67.7 83.2 81.2 56.2 73.7 80.4
top 30 countries
1985 94.5 92.6 99.3 98.9 82.2 89.9 99.3
2000 93.0 89.2 98.9 98.1 83.6 91.0 98.8
top 50 countries
1985 98.9 97.7 100.1 d 99.8 91.5 96.6 99.99
2000 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 fixed capital formation. 1999 data for 2000.
d Due to negative flows for some countries, the share is more than 100 per cent.
40 World Investment Report 2001: Promoting Linkages

The three ratios take a country’s share in world attractiveness to TNCs after taking account
FDI inflows and divide it by its share in each of their size and export activity.
of three global aggregates: 25 GDP, employment
and exports. This provides a benchmark of a For 1998-2000, the value of the Index
country’s international position as a destination ranges from 17.3 for the highest ranked
for FDI. The Index simply indicates relative economy, Belgium and Luxembourg to –0.8
performance in attracting FDI; it does not for Yemen. Moreover, the rankings have
measure the factors that account for such changed significantly over time. For example,
performance. Singapore has slipped from first position at
the end of the 1980s to thirteenth position a
Higher GDP indicates larger markets, decade later. This reflects relatively slow inward
always a magnet for market-seeking FDI; it FDI growth between the two periods, together
may also reflect a larger resource base, again with a rapid increase (more than doubling) of
a magnet for certain forms of FDI. Employment both GDP and exports. (The relatively slow
is very similar, indicating the size of the labour growth of FDI may reflect the indirect effects
force and potential market size. Higher exports of the Asian financial crisis.) The index for
indicate greater openness to international Brazil, by contrast, rose from 0.5 to 2.0 (annex
markets and greater competitiveness in trade. table A.I.10), mainly as a result of a rise in
Thus, ceteris paribus , a country with higher the FDI share relative to the export share,
shares of these global aggregates may be reflecting the domestic market orientation of
expected to have larger shares of FDI inflows. a good part of recent FDI inflows (into privatized
Countries that receive more FDI than predicted infrastructure).
by these aggregates – for whom the Index
takes a value greater than one – can be In 1998-2000, there were five countries
presumed to have certain other advantages. with an Inward FDI Index of one, with their
shares of FDI inflows exactly matching their
For instance, in comparison with similar average shares of world GDP, employment and
countries, they may offer a more conducive exports (annex table A.I.10). These “balanced”
regime for international investors (or they may countries include Costa Rica, El Salvador,
be tax havens). They may have highly skilled Hungary, Malaysia and Slovakia. In ten more
labour, strong domestic research capabilities countries, the index was close to one (between
or excellent infrastructure. They may have 0.9 and 1.1). This group comprised only one
strong local firms that can become efficient developed country (Australia), six developing
suppliers to TNCs. Or they may, in the countries (including China) and three Central
perception of the international investment and Eastern European countries. There are
community, face good growth prospects. 53 countries with a ratio higher than one and
Similarly, countries with Index values of below 79 with ratios lower than one. The last group,
one may restrict FDI inflows, have competitive which “under-performs” in terms of attracting
weaknesses or poor growth prospects. FDI, includes advanced economies like Japan,
Italy and Greece, newly industrializing
In a world where the determinants of economies like the Republic of Korea, Taiwan
FDI are changing (see above), the Index Province of China and Turkey, oil rich
indicates – in a preliminary form – whether economies like Saudi Arabia and a number of
or not host countries have some of the essential low-income countries. FDI recipients with high
ingredients for attracting new investment flows. values of the Index (the “over-performers”)
It is, in other words, a measure of “revealed include the majority of the developed countries,
competitive advantage” in attracting FDI after Hong Kong (China), Singapore, and some
discounting for size factors and export activity. Central and Eastern European countries.

The Index covers 112 countries in 1988- Interpreting the Index calls for care
1990 and 137 in 1998-2000, with all the values and the use of evidence on other economic
taken as averages for three years to avoid and policy variables. A high value of the Index,
year-by-year variations. The results are for instance, need not always be a good
interesting. There is a large dispersion around economic sign. For instance, it may reflect
unity (figure I.26 and annex table A.I.10): transitory factors (like large one-off
clearly, countries vary greatly in their transactions, say large M&As). It may also
CHAPTER I THE GLOBAL PICTURE 41

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

Source: UNCTAD, FDI/TNC database.

42 World Investment Report 2001: Promoting Linkages

reflect a relative decline in a deflator of the openness to inward FDI (WIR99). The increase
index, i.e. in GDP, employment or international in the number of EU member countries in the
competitiveness, to which FDI inflows have top 20 over the decade reflects, among other
not responded (in the period considered). factors, the large and increasing influence of
Similarly, a country’s Index may fall because regional integration on FDI flows. 26 Large
a temporary crisis affects its FDI inflows countries with more stable economic
differently from its effects on other economic performance and stable FDI-related policies
aggregates. have tended to retain approximately their same
position: the United Kingdom and United States
Nonetheless, the Inward FDI Index can are good examples. An economically stable
provide a starting point for benchmarking the country that becomes more open or attractive
extent to which countries succeed in attracting for cross-border M&As can rapidly increase
FDI. In general, countries with relatively strong its attractiveness for FDI: Germany has moved
and open economies are at the top of the ranking from seventy-second place to the twentieth
by the Index. These countries are leveraging over the decade. And so on.
their economic strength through policies to
attract more than their “normal” share of FDI. Now consider the Index at the regional
There are also a few countries with weak level (table I.5). In both periods, the Index
economies but strong natural resource value for developed countries is about twice
endowments that occupy places at the top of the world average, while the Index values for
the Index ranking. These include LDCs like developing countries and Central and Eastern
Angola and Mozambique. A number of countries Europe are below the world average. However,
at the bottom of the Index ranking are weak in the latter group, the Index value increased
economies in which the influence of other rapidly between the two periods. The main
economic factors and policies apparently pulls difference between the three groups of countries
inward FDI below levels that could be expected arises, not surprisingly, from the employment
on the basis of the elements of economic variable. Both developed and developing
strength embodied in the Index. There are also countries attract FDI roughly in proportion to
others ranked at the bottom of the Index (such their shares in world GDP, but developed
as Japan and the Republic of Korea), that have countries receive far larger shares of FDI than
strong economic positions overall but have their shares of employment, while developing
chosen to restrict inward FDI (at least until countries and economies in transition receive
fairly recently). less.

Many of the changes in the Index over Within the developing world, the Inward
time are in line with changes in economic FDI Index for South America and Central Asia,
performance and policy factors affecting FDI. as well as developing Europe exceeded unity
Take, for example, Ireland, the most dynamic in 1998-2000. In the other regions (and for
country in the developed world in terms of South America in the other period), the Index
recent growth and competitive performance. value was below 1. West Asia, South Asia and
Ireland has targeted and attracted FDI to North Africa show the lowest values for the
upgrade its technological and export structure, Index; the reasons for this may have more to
in combination with enhancing its human do with political factors than economic ones.
resources. It has succeeded in transforming “Other” (sub-Saharan) Africa receives FDI
a backward low-productivity economy into a in line with its GDP share but very little in
centre of technology-intensive manufacturing relation to its share in employment; over time
and software activity. Its Inward FDI Index its FDI index value has declined slightly. For
shows that it has moved in its ranking from the LDC group as a whole, the FDI index value
the forty-sixth position in 1988-1990 to third doubled between the two periods, mostly due
position in 1998-2000, gaining in all the three to increases in the FDI-per-exports and FDI-
ratios making up the Index – the increase in per-GDP ratios. In fact, in the second period,
the ratio with respect to employment share is the Index value for African LDCs exceeded
particularly striking. Similarly, Sweden’s rise 1; their Index value is now almost twice as
on the Index (from twenty-ninth to fourth high as that for sub-Saharan Africa as a whole.
position) reflects partly a deliberate policy The index value for other LDCs has declined
change during the 1990s towards greater over the decade.
CHAPTER I THE GLOBAL PICTURE 43

The Inward FDI Index suggests that In conclusion, the Inward FDI Index
Africa receives less FDI flows than the region’s is a useful addition to the analytical database
relative economic size. The underlying on FDI flows. Carefully used, it can help policy-
economic reality is that sub-Saharan Africa makers to benchmark their economies’
has lost its share in both world FDI inflows performance with respect to competitors and
and other economic aggregates (annex table “role models”, and provide information for
A.I.11); African LDCs have, however, strategy formulation. The present Index is a
maintained their share of FDI but have fallen first attempt, and will be refined over time.
further behind in other economic aggregates.

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

1988-1990 1998-2000
FDI share/ FDI share/ FDI share/ FDI FDI share/ FDI share/ FDI share/ FDI
GDP employment export inward GDP employment export inward
Region 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 1.0

Developed 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 3.0
European Union 1.3 4.8 1.0 2.4 1.6 6.4 1.1 3.0
Other 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 2.3
Other 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 0.7
Africa 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 0.3
Other 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 1.2
South America 0.7 0.5 1.0 0.7 1.2 1.1 2.6 1.6
Other 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 0.6
Asia 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 0.2
Central Asia .. .. .. .. 1.7 0.3 1.3 1.1
South, 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 0.7
Developing Europe 2.2 3.4 0.5 2.1 1.2 1.5 0.6 1.1
Central and Eastern Europe 0.2 0.1 0.2 0.1 0.9 0.4 0.6 0.6

Memorandum: least developed countries d

LDCs: 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 inflows 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 strictly comparable between the two
periods because the number of countries included in each differed substantially between the two periods. The increase in the number
of countries covered by the Index for developing economies in the second period (from 86 to 100) can cause a moderate upward bias
in that grouping's Index in the second period.
44 World Investment Report 2001: Promoting Linkages

Notes
1 WIR98 reviewed the economic and policy than half of the respondents intending to
determinants of inward FDI and analysed them undertake FDI in 2001 (and about 40 per cent
statistically, drawing a distinction between of all respondents planned to do so) are
traditional and new determinants of location. planning to invest in one or more of the
It found that traditional variables continue candidate countries, mainly motivated by cost-
to exercise a significant impact on the or market access considerations, as well as
geographical pattern of inward FDI; domestic to establish sales representative offices. This
market size and growth, in particular, were suggests that German investors are already
important in explaining FDI flows in preparing for the enlargement of the EU (DIHT,
developing countries – but new influences 2000).
were also very important. 10 Three of the five mega cross-border M&As
2 The presence of good infrastructure (e.g. concluded by Japanese firms in 2000 involved
telecommunications, business services, the NTT Group (annex table A.I.4). The $9.8
utilities) is also a precondition. billion acquisition of AT&T Wireless by NTT
3 In fact, in some technology-intensive Docomo in 2000 (which is to be paid out in
industries like electronics, some firms choose 2001) was the largest FDI ever made by a
to specialize entirely in innovation and Japanese company.
marketing, leaving the whole production chain 11 Interestingly, on an ex post facto (or prior
to contract manufacturers. See Sturgeon, 1997. notice) basis, FDI trends in 2000 showed the
4 The changing geography of world industry complete opposite trend. While FDI outflows
and the role of international production on this basis declined by 23 per cent in fiscal
systems are explored in UNIDO, 2001. year 2000 to $50 billion, FDI inflows reached
5 The overwhelming majority of the 62,000 or record levels of $29 billion with a growth
so TNCs operating today are small and rate of 38 per cent. This asymmetric picture
medium-sized enterprises (SMEs) (Fujita, 1998; of FDI flows in 2000 between actual flows
UNCTAD, 1998a). SME TNCs tend to remain (on a balance-of-payments basis) and notified
small even after going international, and many, flows (on an ex post facto basis) reveals well-
as those from Japan, prefer to invest in known statistical problems (e.g. different timing
neighbouring countries. They have a of the recording of FDI, net basis recording
preference for joint ventures and greenfield for the former statistics, and inclusion of
investments. They also tend to have stronger the cancellation of FDI projects in the latter
backward linkages in host economies. statistics).
However, SME investors face high information 12 Financial Times , 19 March 2001, p. 23.
costs, and special efforts need to be made 13 Financial Times , 6 June 2001.
by host countries to attract them. 14 That is, Chinese investors use manufacturing
6 Cross-border M&As for the first six months equipment as equity to form joint ventures
of 2001 declined by 17 per cent, to $300 billion, with local partners (who usually provide land
compared with the corresponding period of and infrastructure) in other developing
the previous year. This amount accounts for countries.
only one-quarter of the total cross-border 15 It should be noted that part of China’s
M&As in 2000. Therefore, considering the outward investment in Hong Kong (China)
fact that M&As constitute a substantial share is round-tripping.
of FDI (chapter II), FDI flows are likely to 16 FDI inflows into Latin American during the
decline in 2001. 1990s can be divided into two different
7 The number of foreign affiliates is probably patterns. In Mexico and the Caribbean Basin,
a substantial underestimation, among other manufacturing TNCs (especially in
reasons because governments have a cut- automobiles, electronics and clothing) sought
off point in assets, sales or net income (in greater efficiency by integrating local
the case of the United States, e.g. it is $3 production facilities into their regional
million for either one) or in the equity share systems, targeting the United States market.
held by foreign firms (in the case of Japan, In South America, however, foreign investors
e.g. it is more than one-third), below which focused on traditional activities based on
foreign affiliates are not recorded in official natural resources and manufactured goods
statistics. produced for local markets or services. As
8 Irrespective of years, “EU” refers to the current a result, FDI did not generate significant
composition of the member states (15 improvements in the international
countries) throughout this report. competitiveness of those countries. However,
9 According to a survey of the Deutscher as significant amounts of FDI have flowed
Industrie- und Handelstag (DIHT), among into services, the long-term overall
9,000 German manufacturing companies, more competitiveness of these economies should
CHAPTER I THE GLOBAL PICTURE 45

be affected positively. See ECLAC, 2001 for Telecommunications ($936 million), MOL’s
a further discussion of these and related (Hungary) share increase in the Slovnaft
issues. refinery ($160 million), Neusiedler’s (Austria)
17 For details, see UNCTAD, 2001a. investment into SCP Ruzomberok (pulp and
18 For this purpose, UNCTAD and the paper, $80 million) and U.S. Steel’s investment
International Chamber of Commerce prepare in VSZ Kosice ($60 million). Information
and publish investment guides for LDCs; see provided by the Ministry of Economic Affairs
UNCTAD-ICC, 2000a, 2000b, 2001a, 2001b of Slovakia.
and forthcoming. 23 In the Russian Federation, for example, foreign
19 UNCTAD, upon the request of countries, investors acquired not more than 3 per cent
undertakes in-depth Investment Policy Reviews of potentially privatizable assets (until end-
for developing countries; for LDCs, see UNCTAD, 1998) (Kalotay and Hunya, 2000, p. 41).
2000d and UNCTAD forthcoming c. 24 Other economic aggregates also show similar
20 Central and Eastern Europe includes in this patterns: the leading 10 countries accounted
section Albania, Belarus, Bosnia and for 76 per cent of world manufacturing value
Herzegovina, Bulgaria, Croatia, the Czech added in 1998, 65 per cent of manufactured
Republic, Estonia, Hungary, Latvia, Lithuania, exports and 91 per cent of industry-financed
the Former Yugoslav Republic of Macedonia, R&D (UNIDO, 2001).
the Republic of Moldova, Poland, Romania, 25 It may have been possible to use other
the Russian Federation, Slovakia, Slovenia, indicators of relative economic size and
Ukraine, and the Federal Republic of strength, but the three used here have the
Yugoslavia (Serbia including Kosovo and broadest base and are the most comparable
Montenegro). across countries.
21 According to CzechInvest, the value of 26 On the other hand, the fall in, and the low
greenfield projects mediated by the agency level of the Index value for Greece indicates
rose from $523 million in 1999 to $1.1 billion that the positive influence of regional
in 2000; see “CzechInvest in numbers”, http:/ integration is probably conditioned by other
/www.czechinvest.org/. competitiveness-related factors.
22 FDI transactions in 2000 included Deutsche
Telekom’s (Germany) investment into Slovak
46 World Investment Report 2001: Promoting Linkages
 CHAPTER II.
MAPPING INTERNATIONAL PRODUCTION

he preceding chapter has II.3). For some developing economies, the

T
reviewed the setting within share of outward FDI in gross fixed capital
which international production is formation is in fact higher than (or
evolving, documented the comparable to) that share for many
growth of FDI in 2000 and developed countries (figure II.4).
examined the performance of
countries in terms of the extent to which But what does the spread of FDI look
they have succeeded in attracting FDI. This like if the size of economies is subjected
chapter turns to the spread of FDI and, in to adjustment? Two measures – GDP and
particular, examines it at the global, population – can be used for such
regional, national and sub-national levels adjustment. Their use reveals different
and also for a few industries and corporate patterns (figures II.5 and II.6). In terms of
functions. As the mapping in this chapter FDI as a share of GDP, several developing
shows, FDI patterns are not uniform. countries are large host countries (figure
International production is spatially II.5) – many more than those that are large
concentrated. in terms of absolute values of FDI. Of the
141 countries in the world hosting more than
A. Global patterns $100 of stock per $1,000 GDP in 1999, 106
are developing countries. 2 However, in terms
of FDI per capita, large recipients in
1. FDI patterns absolute terms such as China, Indonesia,
Mexico and Venezuela appear fairly small
Comparing the world maps for (figure II.6).
inward and outward FDI in 2000 with those
prevailing in 1985 shows that the number While international production has
of countries receiving or investing sizeable spread more widely than ever before the
amounts of FDI increased significantly share of the largest investor or recipient
between these two years (figures II.1 and countries has increased or stayed constant
II.2). Thus, by the end of 2000, 51 countries over the past 15 years. The share of the
reported inward FDI stocks of more than $10 largest ten host and home countries, for
billion, compared with 17 countries in 1985 example, has risen from 70 per cent to 73
(figure II.1). 1 Similarly, in terms of outward per cent for inward FDI flows over 1985-
stocks, 10 countries had invested more than 2000, and remained at 83-85 per cent in the
$10 billion abroad in 1985; this number had case of outward FDI flows (table II.1). In
risen to 33 by 2000 (figure II.2). The maps the developing world, the share of the largest
clearly show the growth in the number of ten host economies has remained stable at
countries that have become major recipients 77 per cent over this period (table II.2). The
or sources of FDI. Among them, the number level of concentration has declined
of developing economies had risen from 7 in marginally for FDI flows at the 30- and 50-
1985 to 24 in 2000 in the case of inward country level. Outward FDI is more
FDI stocks, and from zero to 12 in the case concentrated at every level – for flows as
of outward stocks. Some newly well as stocks – than inward FDI.
industrializing economies – led by Hong
Kong (China), Singapore and Taiwan Concentration also characterizes the
Province of China – have emerged as number of firms that are important players:
important hosts and home economies for even though there are over 60,000 TNCs,
TNCs. As a result, the share of developing only a handful of them accounted, in the
countries as a group in world outward FDI major home countries, for the bulk of
flows rose from 5 per cent at the beginning outward FDI (table II.3). This makes it
of the 1980s, to 9 per cent in 2000 (figure important to track the internationalization
48 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

(Millions of dollars)

a) 1985

b) 2000

Source : UNCTAD, FDI/TNC database.

CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 49

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

(Millions of dollars)

a) 1985

b) 2000

Source : UNCTAD, FDI/TNC database.

50 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

(Percentage)

Source : UNCTAD, FDI/TNC database.

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.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 51

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

(Dollars)

Source : UNCTAD, FDI/TNC database.

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

(Dollars)

Source : UNCTAD, FDI/TNC database.

52 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

of the world’s top 100 TNCs, as well as the The geography of international
50 largest TNCs from developing countries production, especially in the developed
and the 25 largest from Central and Eastern world, is substantially determined by cross-
Europe – and this is done below in chapter border M&As. The completed value of such
III. transactions maintained its momentum in
2000, growing by 49 per cent to reach more
than $1.1 trillion (box II.1 and annex tables
Table II.1. Share of the largest ten countries B.7-10), 3 a figure that corresponds to 3.6
in world FDI flows, 1985 and 2000 per cent of world GDP (figure II.7). This
(Percentage) significant increase in M&As was the
stimulus in the 18 per cent growth rate of
1985 a 2000 b FDI inflows in 2000. Cross-border M&As
Inward FDI have thus become a decisive factor in
United States 33.2 United States 25.1 determining the level as well as direction
United Kingdom 6.2 United Kingdom 9.3
Saudi Arabia 6.2 Germany 8.4
of FDI flows. Moreover, the number of
Canada 4.9 Belgium and Luxembourg 7.5 mega-deals (M&As worth more than $1
France 4.0 Netherlands 4.4 billion) increased from 114 in 1999 to 175
Mexico 3.4 China 4.1
Australia 3.3 France 4.0
in 2000 (and their share in the total value
Spain 3.2 Canada 3.6 increased from 68 per cent to 76 per cent
Brazil 2.8 Hong Kong, China 3.4 (table II.4), such mega-deals can have a
Netherlands 2.8 Sweden 3.3
major impact on FDI statistics of individual
Top 10 total 70.0 73.1 countries.
Outward FDI
United States 20.9 United Kingdom 20.1
M&A patterns are different from those
United Kingdom 15.8 United States 14.6 of FDI per se. Indeed, the concentration of
Japan 10.5 France 11.8 cross-border M&As in developed countries
Germany 8.9 Germany 8.6
Netherlands 7.4 Belgium and Luxembourg 8.1
is higher than of FDI flows in these countries
Canada 6.6 Netherlands 6.0 (figures II.8 and II.9). But this picture is
Switzerland 4.1 Spain 4.0 changing too: in 2000, there were 37
France 4.0 Hong Kong, China 3.5
Italy 3.7 Canada 3.4
developing countries that received more than
Sweden 3.1 Switzerland 3.3 $100 million of investment through M&As;
in 1987, this number was negligible. Still
Top 10 total 85.0 83.4
developed countries continue to be the major
Source : UNCTAD, FDI/TNC database. players both in terms of both sales and
a Average 1983-1985. purchases, and developing countries are
b Average 1998-2000. practically non-existent as large acquirers
(figure II.9).

Table II.2. Share of the largest recipients of

FDI flows among developing economies, Table II.3. The share of top TNCs in outward FDI
1985 and 2000 stock, selected countries, latest available year
(Percentage) (Percentage)
Economy 1985 a Economy 2000 b
Country Year Top 5 Top 10 Top 15 Top 25 Top 50
Saudi Arabia 20.4 China 19.2
Mexico 11.3 Hong Kong, China 16.0 Australia 1996 45.0 57.0 66.0 80.0 96.0
Brazil 9.2 Brazil 14.4
Austria 1998 25.0 35.0 41.0 50.0 63.0
China 7.0 Argentina 6.5
Singapore 6.9 Mexico 5.6 Canada 1995 22.6 33.5 40.1 50.1 64.4
Malaysia 5.5 Korea, Republic of 4.0 Finland 1995 33.0 47.0 56.0 69.0 84.0
Egypt 4.7 Singapore 3.1 France 1995 14.0 23.0 31.0 42.0 59.0
Bermuda 4.6 Bermuda 2.8 Germany 1999 20.1 29.6 36.2 44.0 55.5
Hong Kong, China 4.3 Chile 2.7 Norway 1997 61.7 74.5 80.5 86.1 92.6
Argentina 2.7 Cayman Islands 2.4 Sweden 1999 25.2 41.2 51.2 64.6 80.7
Switzerland 1999 32.0 47.0 56.0 67.0 81.0
Top 10 total 76.6 76.7 United Kingdom 1999 36.0 48.7 55.8 65.3 79.0
United States 1999 13.9 22.6 28.7 37.9 52.1
Source : UNCTAD, FDI/TNC database.
a Average 1983-1985. Source: UNCTAD, based on information provided by
b Average 1998-2000. governments and WIR97, p. 34.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 53

Box II.1. Cross-border M&As in 2000 2. Some comparative patterns

Countries with large acquisitions by or There are interesting differences
of their firms are also large home and host between patterns of FDI and other major
countries for FDI. Thus, the United States macroeconomic variables at the regional
and Germany were also the first and the second
largest “target” countries (annex table B.7),
level. The most obvious one emerges from
while the United Kingdom and France were comparing the inward FDI and technology
the first and the second largest “acquiring” payments pattern: it is entirely dominated
countries (annex table B.8). Among developed by the developed countries which receive
countries, Belgium is a noteworthy country some 86 per cent of such payments while
in which M&A activity by both acquirers and they account for “only” 76 per cent of the
sellers increased dramatically in 2000, as shown world’s FDI inflows and 68 per cent of its
by a number of mega-deals involving firms
located in that country (annex table A.I.4).
exports (table II.5).

While the world economy has been Comparing FDI and domestic
growing at a somewhat slower pace – partly investment patterns4 reveals that the
because of the performance of information developed world and Central and Eastern
technology-related industries – the growth
of cross-border M&As has been led by these Europe account for higher shares of world
industries. This seemingly contradictory FDI flows than world domestic investment
phenomenon is due to the fact that cross-border (table II.5). For the developing world, the
M&As are motivated by a combination of picture is the reverse (table II.5). However,
various factors ( WIR00 ), among which the at least until the financial crisis in 1997-
movement of the business cycle is only one. 1998, developing countries had received
Thus, these industries (included partly under increasing shares of world FDI compared
the transport, storage and communications
industry and partly under the electrical and with their shares of world domestic
electronic equipment industry) constituted the investment, reflecting significant increases
largest target as well as acquiring sector in in their international investment inflows
2000 (annex tables B.9 and B.10). While cross- relative to those in other countries, while
border M&As in pharmaceuticals (included domestic investment in these economies
in the chemical industry) more than halved apparently kept pace with that elsewhere.
in 2000 while M&A activity in automobiles Thus, the share of developing countries in
remained high (annex tables B.9 and B.10).
Financial firms accounted for more than 20 world FDI stock is still somewhat higher
per cent of the total cross-border M&A sales than that in domestic investment (table II.5).
and purchases in 2000.
There are important differences
Source: UNCTAD.
within the developing world. The financial
crisis in Asia reduced the share of South,
East and South-East Asia in FDI inflows,
Figure II.7. Value of cross-border M&As and
its share in world GDP, 1987-2000
pulling it below its share in world domestic
investment. However, in terms of FDI stocks
– which reflect long-term trends – the region
performed better: its share in world FDI
stock in 1999 was higher than its share in
world domestic investment. Latin America
and the Caribbean received relatively high
levels of FDI in relation to its share of
domestic investment in both flow and stock
terms. FDI in Africa matches its (low)
domestic investment rates, confirming the
findings of the Inward FDI Index discussed
in chapter I. In West Asia, the share of
domestic investment far exceeds its share
of FDI (table II.5).

The geographical patterns of FDI and

trade exhibit important similarities. In
Source : UNCTAD, FDI/TNC and cross-border M&A
databases.
particular, recent data on FDI stocks and
54 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

(Millions of dollars)

a) 1987

b) 2000

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

CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 55

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

(Millions of dollars)

a) 1987

b) 2000

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

56 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

one-third of total trade (or half of the TNC

Table II.4. Cross-border M&As with values of
trade) is intra-firm. Thus, the direction of
over $1 billion, 1987-2000
trade is directly affected by the location
Number Percentage Value Percentage strategies and decisions of TNCs ( WIR96 ).
Year of deals of total (billion dollars) of total
Regional patterns of trade and FDI,
1987 14 1.6 30.0 40.3 however, do differ: during the middle of the
1988 22 1.5 49.6 42.9
1980s (as well as at the beginning of the
1989 26 1.2 59.5 42.4
1990 33 1.3 60.9 40.4 1990s (Petri, 1994)), FDI outflows were
1991 7 0.2 20.4 25.2 more concentrated than exports. This is
1992 10 0.4 21.3 26.8 exemplified by the concentration ratios of
1993 14 0.5 23.5 28.3 trade (and FDI) by the top 10, 30 and 50
1994 24 0.7 50.9 40.1
countries, as noted in chapter I (table I.4).
1995 36 0.8 80.4 43.1
1996 43 0.9 94.0 41.4 A decade and a half later, this overall
1997 64 1.3 129.2 42.4 situation had not changed much (table I.3).
1998 86 1.5 329.7 62.0 However, trade intensity 5 had declined with
1999 114 1.6 522.0 68.1 respect to most of the partner regions of
2000 175 2.2 866.2 75.7
North America and Asia during the 1990s
Source: UNCTAD, cross-border M&A database. (figure II.10). At the same time FDI
intensity 6 increased with respect to most of
the partner regions of North America, the
exports show broadly similar patterns (table EU and Asia (figure II.10). The intensity
II.5), not unexpectedly since the factors of both intraregional FDI and intraregional
affecting them overlap a great deal. Thus, trade has grown for the EU, but has declined
advanced countries tend to both trade more somewhat for North America. Intraregional
and engage more in FDI than developing FDI has intensified significantly in Asia, but
countries. Economic liberalization promotes not intraregional trade. It is also noteworthy
both trade and FDI. Moreover, TNCs that, although North America retains strong
increasingly shape trade patterns, accounting FDI and trade links with Latin America and
for about two-thirds of world trade. About the Caribbean, after one decade, their

Table II.5. Geographical distribution of FDI flows, trade, domestic investment

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

Developing countries
and economies 21.4 6.8 27.5 26.2 23.3 13.1 31.3 11.9
Africa 0.8 0.1 1.6 1.5 1.4 0.8 1.5 0.3
Latin America and the Caribbean 9.2 1.5 5.1 5.7 5.9 3.8 9.6 1.9
Asia and the Pacific 11.2 5.2 20.4 18.5 15.8 0.1 20.0 9.7
Asia 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 0.1
Central 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.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 57

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 international
and national sources.
a Calculated as follows : qab=Iab/Ia*
I*b/I**
where q ab = 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.
58 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

intensity has declined somewhat. The EU to rationalization and the upgrading of

has strengthened its links with Central and foreign affiliates, followed by the growth
Eastern Europe in both FDI and trade. EU of new exports. 8 In many cases, such
links with North America are much stronger upgrading has been outside the reach of local
in FDI than in trade. Overall, however, the enterprises.
concentration of both FDI and trade within
regions and neighbouring regions (reflecting With the growing mobility of
historical, cultural or political ties, as well productive resources and trade liberalization,
as geographic proximity) remains a the old debate on whether FDI leads to trade
distinguishing feature. Moreover, within or trade to FDI becomes increasingly
each region, trade links are somewhat irrelevant ( WIR96 ). The real issue now is
stronger than FDI links. where firms choose to locate operations and
how they coordinate flows of products (or
Different types of FDI may affect services) between various locations. If they
trade patterns in different ways. Resource- locate them at home and serve a foreign
seeking FDI is likely to reinforce existing market through exports, it shows up as trade
export patterns of host economies where it in one direction; if they locate them abroad
exploits the same set of competitive and serve the domestic market by imports,
advantages as local firms. It can change it shows up as FDI and trade in another
export patterns where it exploits different direction. Over time, as economies become
resources or changes the level of local more integrated (as within the EU), the
processing. Export-oriented manufacturing distinction between domestic investment and
FDI can, again, reinforce existing advantages FDI on the one hand and FDI and
( s a y, i n l o w - c o s t l a b o u r f o r c l o t h i n g international trade on the other will become
exports), or change them by introducing less relevant for analysis and especially for
technologies, skills, brand names and policies. The important point for policy will
networks not available to local firms. 7 be which locations offer competitive
Moreover, the rise of integrated international conditions for economic activity.
production systems provides striking
examples of how FDI can alter trade patterns As economies integrate, moreover,
rapidly. Many developing countries – like clusters of competitive activity spill over
Malaysia, Thailand, Philippines and Mexico national borders. Thus, a country may have
– have entered areas of technology-intensive a stagnant cluster of activities in one region
export activity previously out of their reach within its boundaries and a dynamic one that
by attracting the labour-intensive end of spreads over a border with a neighbour. With
high-technology TNC manufacturing. In fact, free factor movement, this is more and more
such TNC activity is the main driver of the likely as synergies develop across borders
most dynamic export growth in recent years between similar activities. A quite different
in the developing world (Lall, 2001; UNIDO, pattern of international cluster formation is
2001). also emerging, where countries with
different factor costs form special economic
Domestic market-oriented FDI is, by zones to take advantage of these differences.
its very nature, unlikely to affect export The Singapore, Johor and Riau (SIJORI)
patterns much, at least in the short term “growth triangle” set up by Singapore and
(though it may raise import propensities neighbouring provinces in Indonesia and
where new technologies are introduced Malaysia is an example in South-East Asia
calling for inputs not available in the host (Thant and Tang, 1996). Singapore has high
economy); and, of course, it can replace wages and land costs, in contrast to its
imports. In the long term, however, domestic neighbours, but it is better endowed with
market-oriented affiliates may enter export capital, skills and contacts with international
markets once they have reaped the benefits investors. Setting aside a designated area
of scale, scope and learning economies. They without trade, labour and investment barriers
may also indirectly affect trade, as in the is a good way to exploit such
case of producer and infrastructure services complementarities.
affecting exports. Recent changes in trade
regimes in the developing world have led
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 59

B. Sub-national patterns headquartered in Paris; 6 of the 7 United

Kingdom TNCs in London; and the
headquarters of 5 of the 18 Japanese have
Economic activities have always had the same address of Chiyoda-ku, Tokyo. In
a tendency to cluster geographically. Firms fact, more than a half of the 23,000 Japanese
have been attracted to sites where other foreign affiliates are owned by TNCs based
firms are located to take advantage of in Tokyo (Toyo Keizai, 1998). In Austria,
existing external economies – markets, 45 per cent of the country’s 1,617 TNCs
factors of production, specialized skills and were based in Vienna in 1994 (ONB, 1996).
suppliers, institutions and, especially, Two-thirds of the headquarters of major
innovative capabilities (which were Swedish TNCs included in a recent survey
originally identified as the essence of are located in Stockholm; and this share has
economic clusters by Alfred Marshall, 1936). increased over time (ISA, 1999). The
Natural clusters can be deliberately geographical concentration of headquarters
strengthened by their members to overcome in certain locations is also observed for the
common difficulties or, where the firms largest TNCs based in developing countries
concerned are small, to realize scale as well as in Central and Eastern Europe
economies. Clusters can be promoted by (figure III.1).
policies to raise locational advantages, by
setting up advanced infrastructure, The reasons for such agglomerations
knowledge or skill creation facilities. While are not difficult to find. They relate to the
new information and communication economies of being close to centres of
technologies have reduced certain forces corporate, political and financial decision-
making for proximity, others continue to making, high levels of income, access to
exist and affect location. In fact, with technology and, especially, innovative
growing networking among firms as a means activities, universities, institutions and
to innovate and achieve competitive modern infrastructure (including easy access
advantage, the advantages of certain types to international air transport) and quality of
of clusters have grown. life. Of course, there are also diseconomies
of agglomeration as costs, congestion and
As a result, policy and research social problems rise, leading to some
interest in clusters and industrial districts dispersal of headquarter functions away
has also grown in recent years. 9 It has been from the major centres.
spurred by evidence on the dynamism of
SMEs located in industrial districts (in the Host countries. There are similar
“Third Italy” as well as in many developing patterns in the location of foreign affiliates.
countries), the growth of high-technology Clusters of competitive domestic firms tend
clusters in developed countries and the use to attract foreign firms to their proximity,
of clustering as a tool of industrial strategy. enhancing geographical concentration and
It is therefore to be expected that the specialization. In Austria, a half of all
location of TNCs in home and host foreign affiliates are located in Vienna
economies reflects agglomeration forces. (figure II.11); they accounted for 57 per cent
The following paragraphs focus on such sub- of the capital and 51 per cent of the
national FDI location patterns. employees of all foreign affiliates in this
country. The Tokyo metropolitan area hosts
Home countries. The location of the four-fifths of all foreign affiliates operating
headquarters of the largest TNCs indicates in Japan, and these accounted for some
where global corporate power is 90 per cent of total sales by all foreign
concentrated (figure III.1). Most of the affiliates (figure II.12). Ile-de-France, with
largest 100 TNCs – they account for one- 15 per cent of total FDI flows in this country
third of the assets of the world’s foreign in 1997, is the largest of the 22 regions of
affiliates ( WIR99 ) – are headquartered in France in terms of FDI inflows (figure II.13).
a few countries (United States, Japan, United Three counties in Sweden – Stockholm,
Kingdom, France, Germany, Switzerland). Västra Götaland and Skåne – accounted for
There, they congregate in a few areas. For over 60 per cent of employees of all foreign
example, among these 100 largest TNCs, 10 affiliates in Sweden in 1999 (figure II.14).
of the 11 largest French TNCs are In the United States, California, New York,
60 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

Source : UNCTAD, based on ONB,1996.

Texas, Illinois and New Jersey are the FDI at local levels to formulate relevant
principal magnets; these five states alone policies to attract it. National level factors
account for a half of the production of continue to be important in certain respects,
foreign affiliates (figure II.15). Similar but the cluster-based drivers of investment
examples can be found in other developed operate at lower levels. If international
countries, and in developing and transition investors look for agglomeration advantages
economies (box II.2). when making location decisions, policy
makers must fully understand this. The next
Since clusters are clearly important section takes up these issues at greater
for TNC location, it is necessary to analyse length.

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.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 61

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.

62 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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.

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 foreign
affiliates 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; Glickman
and Woodward, 1988; Head et al., 1995, 1999; Nachum, 2000; Smith and Florida, 1994; Wheeler
and Mody, 1992). In the United States, foreign affiliates (compared to domestic firms) appear
to favour coastal states and states with low unionization rates, low wage rates and the absence
of right-to-work legislation. At the same time, however, several other characteristics of states
influence the location of United States and foreign-owned establishments. These include gross
state product, corporate taxes, per capita income and state budget on international activity (Shaver,
1998). Agglomeration economies (proxied by infrastructure quality, degree of industrialization
and stock of existing FDI) exhibit a high degree of statistical significance and have a large
and 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 benefit
from economies of agglomeration rather than in line with inter-state differences in endowments
of natural resources, labour and infrastructure (Head et al., 1995).

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

In China, coastal provinces and cities account for the bulk of FDI (box figure II.2.1). About
87 per cent of the FDI stock in 1999 was concentrated in 12 coastal regions. Guangdong is
the largest region; it held 29 per cent of all FDI stock that year. Agglomerated cities (proxied
by an accessibility index – the sum of the population of the city concerned divided by the square
of the distance between the city and each of the other major Chinese cities) have been observed
/...
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 63

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

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 approved
FDI during 1987-2000, followed by Krung Thep (Bangkok province) (12 per cent) and Chon
Buri (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: U N C T A D , b a s e d o n C h i n a , M O F T E C , 2 0 0 0 .

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

(Millions of baht)

Source: UNCTAD, based on Board of Investment (BOI), unpublished data.

a Data refer to BOI-approved investment for the years 1987-2000.
64 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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 (around

Rio de Janeiro and São Paulo) than in Mexico (box figures II.2.3 and II.2.4). In Mexico, c ities
in Chihuahua, other border states with the United States and central states absorb almost all
FDI (box figure II.2.4). Within the interior, Guadalajara has become the main city for the electronics
industry, 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

S o u r c e : 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

S o u r c e : 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.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 65

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

In Central and Eastern Europe, in Hungary, both foreign and total economic activity are
highly concentrated in the Budapest area (box figure II.2.5); but the share of foreign activity
concentrated there is almost double the share of total economic activity. * In Poland, too, foreign
investors prefer a limited number of large urban agglomerations, especially Warsaw, Katowice
and 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)

S o u r c e : UNCTAD, based on data provided by the Hungarian Statistical Office.

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 different
economic activities tend to agglomerate in the same areas. TNCs invest there to access location
advantages that are common to any activities (e.g. infrastructure, availability of efficient and
effective production factors). There is a high geographic concentration in specific countries
and in specific areas within the countries.
S o u r c e : UNCTAD.
* Data provided by the Hungarian Statistical Office.
66 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

C. Industrial and inward FDI stock. The shares of the

manufacturing and primary sectors in the
functional patterns world had fallen correspondingly, to 42 per
cent and 6 per cent, respectively, by the end
As TNCs become more dependent on of the 1990s: in developing countries these
other firms for a myriad of functions related shares were 55 per cent and 5 per cent,
to their own operations, and on external respectively (annex table A.II.4). This is a
sources of knowledge for innovation, the significant change from the late 1980s, when
location decisions of different firms become manufacturing accounted for about two-
more interdependent. In fact, as core thirds of FDI in developing countries.
competencies become more knowledge-
intensive, the choice of location for the Several reasons explain this shift.
production, organization and use of these The services sector has been liberalized for
assets emerge as an important competitive FDI participation relatively recently; in most
advantage for firms (Porter, 1994, 1998; countries the process is still under way. This
Enright, 1995). Moreover, as the liberalization has stimulated large flows of investment in
of investment and trade policy allows TNCs activities like financial services, telecom-
greater freedom to choose sites and modes munications and utilities, including in the
of operation, TNCs are increasingly able to context of privatization. The trend also
specialize their operations at the level of reflects the fact that the role of the services
each corporate function on a global scale. sector in economic life has grown. Several
And as new technologies make it possible new services (e.g. software, back-office
to manage far-flung operations economically services, call centres, data entry) are
and efficiently, it also becomes technically emerging in which there is considerable
feasible to implement such location scope for international trade and the location
strategies in practical terms. The following of facilities. Thus, the rise in the relative
sections explore these factors at the importance of services FDI reflects both a
industrial and functional levels, with some “stock adjustment” to liberalization and the
attention to the role of local clusters. emergence of new services, particularly
those that are tradable. This rise is likely
to continue in the foreseeable future.
1. Industrial location and the
role of clusters Within manufacturing, only two
industries – chemicals and motor vehicles
Many location factors tend to be – have experienced a rise in their shares in
industry specific (Moomaw, 1998), though, total FDI. The level of geographic
within each industry, TNCs can and do vary concentration varies by industry. Taking six
in their strategies. Many of the differences industries representing different technological
in patterns of location, concentration or levels: semiconductors and biotechnology
decentralization of investment can be traced in high technology; automobiles and TV and
to industry- and firm-specific conditions and radio receivers in medium-technology; and
perceptions. Several issues arise here. How food and beverages and textiles and clothing
and why do the geographical patterns of in low technology; a cursory examination
activities vary in different industries? Why of the number of foreign affiliates and host
is there an uneven geographical distribution countries suggests that, the more advanced
of FDI by industry? What explains the technology, the higher the level of
geographical shifts of FDI in particular concentration. Thus, biotechnology is the
industries over time? most concentrated, 10 followed by s emi-
conductors and TV and radio receivers. The
At the broad sectoral level, the share food and beverage industry is the least
of services in FDI has risen significantly concentrated (table II.6). Foreign affiliates
between 1988 and 1999, now accounting for in semiconductors are located in 31 countries,
about half of inward FDI stock in the world while those in food and beverages operate
(figure II.16; for details see annex tables in 101 countries. 11 The location of foreign
A.II.1-A.II.4). In developing countries alone, affiliates in these industries shows
it accounted for some one-third of their total considerable geographical variation (figures
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 67

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 for
some countries.
68 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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 technology

TV 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 0.287

Top 5 host countries 0.629 0.710 0.440 0.502 0.353 0.401
Top 10 host countries 0.787 0.852 0.710 0.696 0.561 0.601
Top 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 1445
Total 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.

II.17-22). In high-technology industries, The different degree of concentration

affiliates tend to agglomerate in selected of FDI by industry reveals that the
locations in the world (figures II.17 and distribution of FDI by industry at the
II.18), while foreign affiliates in the food regional and at the national levels is uneven.
and beverage industry are geographically Within countries the locations hosting a
more evenly spread over the globe (figure significant number of affiliates in high-
II.22). technology industries are also limited. This

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

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.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 69

suggests that concentration at the sub- suggesting that the availability of natural
national level is relatively high in high- resources is not by itself sufficient to lead
technology industries. These observations to the development of internationally
confirm that only locations with competitive firms.
technological capabilities can receive high-
technology FDI, and this has not changed The dominance of developed
over the years: the mapping of foreign countries as destinations for FDI has been
affiliates in 1985 show patterns similar to accentuated between 1988 and 1999 in most
those in 1999 (annex figure A.II.1-II.2). On industries (annex tables A.II.3 and A.II.4).
the other hand, in the case of low-technology In electrical and electronic equipment and
industries, foreign affiliates were already in motor vehicles and transport equipment,
quite spread out over the globe in 1985, more developing countries accounted for about
so than those in medium- or high-technology 25 and 37 per cent of world inward FDI
industries (annex figure A.II.3-II.6). This stocks, respectively, in 1988, and for 36 and
spread, however, is not as pronounced today. 12 per cent in 1999. This may reflect the
diminishing role played by the low cost of
Industrial patterns of FDI location unskilled labour and by protected markets
are changing over time. The concentration in attracting new FDI in these industries in
of outward FDI within the Triad has developing countries. It does not mean,
remained stable over time across industries however, that established TNC bases in the
and sectors. However, there has been a large developing world in electronics or
increase of outward FDI in manufacturing automobiles are being closed. It may also
from developing countries between 1988 and reflect M&As in these industries
1999 (annex tables A.II.1 and A.II.2). (particularly automobiles) aiming to
Interestingly, resource-rich developing rationalize and cut back capacity rather than
countries only account for a small share of to expand facilities.
outward FDI in the extractive sector,

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

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
a On the basis of 169 majority-owned foreign affiliates identified.
70 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

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

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
a On the basis of 253 majority-owned foreign affiliates identified.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 71

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

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
a On the basis of 1,455 majority-owned foreign affiliates identified.

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

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
a On the basis of 2,245 majority-owned foreign affiliates identified.
72 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

The industrial distribution of FDI The attraction of TNCs to local

stocks in manufacturing differs considerably clusters also reflects the dynamic
between developed and developing comparative advantages of host countries.
countries. In the former countries, chemicals When clusters lose their competitive
is the largest recipient industry in the advantage, activities may move elsewhere. 12
manufacturing sector, accounting for one-
fifth of total FDI stock in manufacturing in To conclude, traditional explana-
1999, a share twice as high as the second tions for FDI location have largely focused
largest recipient industry, motor vehicles and on the factors affecting national location-
transport equipment (annex table A.II.4). But specific advantages. While these are
the most dynamic industry in the developed certainly important, it is becoming clear that
world is motor vehicles and transport more attention has to be paid to location-
equipment, which tripled its share of total specific features related to clusters at the
manufacturing FDI stocks between 1988 and sub-national level. Agglomeration
1999 (annex tables A.II.3 and A.II.4). Not economies, in other words, have a significant
surprisingly, the share of low-technology impact on the location decisions of TNCs
manufacturing has diminished in importance (Head et al., 1995, 1999; Smith and Florida,
in developed countries. By contrast, inward 1994). It is not only countries as a whole
investment in developing countries remains that compete for FDI, but also particular
concentrated in less technology-intensive geographical sites within them. This has
industries. In Latin America and the important policy implications, addressed
Caribbean food and beverages, as well as below in the conclusions of this part of this
chemicals, are large recipient industries in report.
manufacturing. Chemicals, and electrical and
electronic equipment are the largest
recipients in developing Asia. These 2. The location of corporate
industries continue to dominate inward FDI functions
in manufacturing. Meanwhile, the relative
importance of manufacturing as a whole fell The location factors mentioned above
considerably in Latin America and the also affect the functions performed abroad
Caribbean (from two-thirds of total FDI by foreign affiliates. TNCs, by definition,
stock in 1988 to only one-third by the end place some productive functions in host
of 1990s), while it remained stable in countries: resource-seeking ones locate
developing Asia (at 60 per cent). extraction functions, and manufacturing ones
locate production functions, abroad. TNCs
The evidence suggests that TNCs in serving host country markets place their
some industries tend to cluster in relatively necessary marketing and distribution
small localities, often near local firms and functions abroad, traditionally focused on
other institutions. Biotechnology and specific (limited) market segments.
microelectronics (box II.3) are examples. Historically, strategically critical corporate
TNCs sometimes also develop new clusters functions like design, R&D, strategic and
in host countries that may be joined later financial management or the procurement
by indigenous firms. In the United Kingdom, of core inputs have been kept at head-
for example, Japanese automobile companies quarters. It is possible in theory, however,
formed their own local clusters – Nissan in for a TNC to place each function in a
northeast England and Toyota in Derby different location to take advantage of
(Dunning, 2000). In developing countries, different characteristics and thus optimize
the electronics industry in Penang, Malaysia, efficiency for the company as a whole. There
is an example (box II.4). Or they may join is growing evidence that this is taking place.
existing clusters and come to dominate them
over time. This is illustrated by the City of However, not every function can be
London (box II.5) and by the media cluster located abroad with equal ease. Some are
of central London, which foreign firms have best located in geographical proximity with
helped to transform into the second largest each other (and near advanced economic or
concentration of media activity in the world innovation centres), while others can be
after Hollywood (Nachum and Keeble, efficiently dispersed. Some need to be
2000a, 2000b). located close to the corporate decision-
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 73

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 available
there. Foreign firms investing in this cluster come from countries at various levels of technological
development. Investors establish R&D facilities in the cluster and draw upon the knowledge-
rich environment to upgrade their technological capabilities (Saxenian, 1994; Best, 2000). A
number 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 microelectronics
industry 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 with
greenfield plants close to existing firms, others tapped directly into the knowledge base by
acquiring 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 its
competitiveness by broadening its industry base and contributing to the generation of external
economies (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 interlinkages
of functional and spatial interdependence (Scott, 1992).
S o u r c e : UNCTAD.
74 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

Although the electronics cluster in Penang was initiated by the Government, it was largely
developed by TNCs that have struck roots in the local economy. The cluster began when foreign
electronics firms set up assembly plants in the early 1970s, attracted by the cheap, trainable
and English-speaking labour force (UNCTAD, 2000c). The success of the early investors led
to 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 years
contributed to the development of local suppliers, notably in areas such as metal stamping and
precision tools, contract manufacturing and assembly operations, production of plastics and
packaging materials. Most of these suppliers have been spin-offs from TNCs, with former employees
leaving 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 purchase
contracts, 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. The
Penang Development Corporation is playing a proactive role in attracting investors, supporting
local 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 the
electronics industry in Malaysia, 1999

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

S o u r c e : UNCTAD.

making centre, while others do not. Some networks and new communications and
enjoy large scale-economies and so need to organizational technologies are altering the
reach a critical minimum size to serve global optimal location of each function. The need
or regional needs efficiently; others can be for proximity has diminished with the ability
divided into discrete stages and be located to link sites across the globe in real time.
far apart according to cost considerations. Specialized skills are more readily available,
All these factors are, moreover, changing and in some cases their cost can be far lower,
over time. The maturing of international in some host countries. The need to tap new
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 75

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 London
as a cluster of finance-related activities date back several centuries (Nachum, 2000). Financial
TNCs 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 foreign
firms was to gain access to the intangible (but immobile) assets and externalities contained in
this concentration. Physical proximity was essential for this.

Over the years, the foreign players increased their standing and acquired many incumbent
firms. The dominant players in the City are today foreign-owned. The London affiliates typically
occupy central positions within their corporate systems, often having managerial responsibility
for 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 authorized
banks based in the City of London. The combined assets of foreign banks in London in 1999
amounted 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 in
London for over a century, but have arrived in large numbers only since the 1950s. Their presence
has significantly increased from the 1980s onwards; nearly a half of them (44 per cent) were
established 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 agglomeration
that it provided, the competitiveness of this cluster is largely dependent upon the performance
of foreign, rather than indigenous, firms.
S o u r c e : UNCTAD.

sources of innovation can make it imperative automobile industry. A comparison of the

to place advanced technological functions current patterns in the distribution of
in several locations. The old model of TNCs functions in these industries with those
retaining critical functions at headquarters prevailing in 1985 shows a distinct evolution
and letting affiliates reproduce other in the establishment of foreign affiliates
functions in each host country is giving way (annex figures A II.7 and A.II.8). In 1985,
to a more coherent and integrated location few R&D, other professional services and
pattern ( WIR93 ). financial services affiliates were located
abroad in either of the two industries. They
The automobile (figure II.23) and were established only relatively recently.
electronics industries (figure II.24) provide Equipment and part suppliers had followed
good examples. Special service functions automobile companies abroad by 1985, but
like R&D, finance, insurance and so on are they were not as dispersed as today.
being placed in a few locations, while Similarly, only few foreign affiliates were
production is scattered over a larger engaged in distribution, marketing and sales
geographical range in different regions. The in the electronics industry at that time. This
pattern of distribution, marketing and sales suggests that integrated international
differs between the two industries. In production systems were not yet well
automobiles, most marketing affiliates are established in the mid-1980s.
located close to major markets, reflecting
a separation between manufacturing and Regional headquarters. TNCs
sales. In electronics, production units also sometimes separate managerial from other
often undertake sales activities; thus, there functions and establish regional headquarters
are not as many affiliates engaged purely overseas. These regional headquarters are
in the latter function as in the case of the given an important administrative or
76 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 77

Figure II.23. The distribution of foreign affiliates of the largest ten automobile TNCs, a
by function, 1999

R&D and other professional services

Finance and insurance

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.
78 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Figure II.24. The distribution of foreign affiliates of the largest ten electronics TNCs, a
by function, 1999

Production of equipment and parts

Distribution, marketing and sales

CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 79

Figure II.24. The distribution of foreign affiliates of the largest ten electronics TNCs, a
by function, 1999

R&D and other professional services

Finance and insurance

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.
80 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

organizational role in a particular geographic Two of the most successful

area, and are regarded by host countries as economies to attract regional headquarters
a valuable function to attract. Regional in Asia are Hong Kong, China and
headquarters need a strategic location from Singapore: Hong Kong, China was, in 2000,
a communications point of view, in order the regional headquarters for some 855
to keep in close contact with other affiliates, firms. Among them were 212 United States
access to high quality services and a ready TNCs, followed by Japane se, United
supply of advanced skills, especially in Kingdom and Chinese TNCs (table II.8).
information processing. Their need to collect Even firms from Singapore established
information requires interaction with other regional headquarters there, with their
regional organizations, leading to strong number doubling during the past five years.
agglomeration tendencies. Reflecting the economy’s characteristics,
more than 40 per cent of the foreign
The development of the European affiliates with regional headquarters status
Single Market and the rapid growth of were engaged in trade, followed by business
South- East Asian economies have stimulated services and financial services (table II.8).
TNCs to establish regional headquarters in Singapore began to attract regional head-
these areas. United States TNCs have been quarters actively when it introduced, in
establishing European headquarters for some 1996, various incentives under an
time. A number of Japanese TNCs are International Business Hub Programme. 13
following this trend, setting up regional By end-2000, some 200 foreign affiliates
European headquarters. More than 400 of there had regional headquarters status; in
some 23,000 Japanese foreign affiliates in 2000 alone, 20 TNCs were awarded that
the world acted as regional headquarters by status. They include major TNCs such as
1997; the United States, Singapore, the 3M, ABB, BMW, Caltex, Compaq, General
United Kingdom and Hong Kong, China, in Motors, Hilton, IBM, Johnson Controls,
that order, hosted two-thirds of the total Matsushita, Motorola, Nokia, Philips,
(Toyo Keizai, 1998). In the Americas, more Reuters and UPS. 14 A regional headquarters
than 70 per cent of Japanese manufacturing strategy is attractive for a country in that
plants are engaged in some regional it gives it a strategic position in the
management functions (table II.7). corporate systems of TNCs and wins
favourable recognition in
the international
Table II.7. Corporate networks of Japanese affiliates investment community
in the Americas, 1999 a (Dicken and Kirkpatrick,
(Number) 1991).

Regional Final Parts and R&D R&D. While R&D is

headquarters and Sales production materials and design subject to the same factors
Economy managerial offices offices sites production centres
that are driving the
United States 897 877 887 446 580 globalization of other TNC
Canada 39 223 157 48 4 activities, there is a
Mexico 57 138 136 62 26 widespread impression that
Brazil 53 94 77 10 40 there is greater “stickiness”
Puerto Rico - 1 - - -
Dominican Republic - - 1 - -
in relocating innovation
El Salvador - 2 2 - - activity abroad than in
Honduras - 2 2 - - other functions. Not only
Costa Rica - 3 3 2 - are there large transaction,
Panama - 5 - - - communication and
Argentina 18 33 29 1 -
Colombia 1 6 - - -
coordination costs in
Chile 1 8 1 - - reproducing R&D activities
Venezuela 16 19 16 - - abroad, there are strong
Peru 1 3 1 - - synergies between
Barbados - - 1 - - corporate R&D and the
Unspecified - 5 - 1 - science and production
system around it. These
Source : UNCTAD, based on JETRO, 2000.
a
external economies add to
On the basis of 1,223 plants, each of which may be engaged in more than one activity.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 81

the inertia in setting up innovation functions (3-6 per cent) of patents taken out by
abroad (Porter, 1990). affiliates. At the other end, Belgian TNCs
had 95 per cent of patents arising abroad.
However, that impression appears to United Kingdom, Italian and Swedish TNCs
be largely based on evidence from the United ranked in the middle (with 28-31 per cent)
States. It does not necessarily apply to other and United States TNCs had moderately low
home countries. In fact, smaller home shares (7 per cent). In the period 1940-1968,
countries in Europe internationalized their affiliate patenting rose for most of Europe
R&D many decades ago. Taking patents (from 12 to 27 per cent), but not for the
registered by TNCs in the United States by United States (it fell to 4 per cent). After
their head offices and affiliates abroad as 1970, foreign patent shares of United States
an indicator of the international spread of TNCs rose steadily, exceeding those in the
innovative activity, the data show that many inter-war period by 1991. TNCs from
TNCs perform significant proportions of European countries continued to have
R & D a b r o a d ( t a b l e I I . 9 ) . 15 T h e r e w a s generally higher ratios; the average declined
extensive overseas patenting by TNCs even till 1978 but has risen consistently since.
in the inter-war period (Cantwell, 1995). But In contrast, Japanese TNCs have continued
national tendencies differed. French, Swiss to keep most innovation activity at home
and German TNCs had relatively low shares (table II.9).

Table II.8. Regional headquarters of foreign firms in Hong Kong (China),

by home economy and by industry, 1996-2000 a
(Number)

Home economy/industry b 1996 1997 1998 1999 2000

Number of regional headquarters 816 903 819 840 855
By home economy
United States 188 219 194 205 212
Japan 122 121 109 114 127
United Kingdom 90 86 95 82 81
China 85 117 70 69 69
Germany 40 53 59 55 50
Netherlands 30 27 27 32 31
Switzerland 27 30 28 32 29
France 26 35 38 36 28
Virgin Islands 16 21 9 17 22
Canada 12 17 13 19 21
Singapore 10 18 17 20 21
Taiwan Province of China 25 28 26 28 21
Others 158 163 144 139 149
Total c 829 935 829 848 861
By industry
Wholesale/retail, import/export 408 435 412 444 422
Business services 151 167 162 166 187
Finance and banking 113 103 93 107 108
Manufacturing 110 119 84 75 86
Transport and related services 73 88 55 57 55
Construction, architectural and civil engineering 45 41 50 32 33
Real estate 26 34 25 23 20
Telecommunication services 15 12 10 10 16
Insurance 16 13 15 16 14
Restaurants and hotels 9 9 4 6 5
Diversified 3 12 8 10 11
Others 9 11 15 3 19
Total d 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.
82 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

There is a general tendency for TNCs scientists, engineers and technicians,

to set up R&D facilities overseas according proximity to universities and other research
to the technological strengths of host institutions. More important, perhaps, there
countries, initially to adapt technologies to has to be a presence of other innovative
local conditions and later to tap into its enterprises that create cluster benefits.
innovation capabilities and the use of skilled
scientists (Cantwell and Santangelo, 1998). There is also a growing tendency for
One manifestation of this trend is to set up R&D in some industries, such as
affiliates abroad primarily to undertake automobiles, to work jointly with first-tier
R&D: such affiliates now exist in more than suppliers. This increases the tendency to
45 host countries (figures II.25-27), concentrate in established locations.
compared to 26 in 1985 (annex figures Mapping foreign affiliates engaged in R&D
II.A.9-11). and universities shows that the two tend to
cluster close to each other (figures II.25-
While there is a growing tendency 27) . 16
to locate R&D abroad, most such facilities
are concentrated in a few countries, mostly Foreign R&D at the sub-national
highly industrialized. Thus, while Japanese level is more concentrated geographically
TNCs have established R&D centres in four than most other functions. In the United
countries in the Americas, most of them are States, for instance, two-thirds of the
in the United States (table II.7). Data on Japanese R&D facilitie s (157 out of 251 R&D
overseas R&D by United States TNCs in facilities) were located in four states (California,
1994 show that 77 per cent of the R&D Michigan, New Jersey and Massachusetts) in
conducted in developing countries was 1998, while only one-quarter of employees of
concentrated in just four economies: Brazil, Japanese manufacturing affiliates (98,300 of
Mexico, Singapore and Taiwan Province of 422,400 employees) were located there. 17 In the
China ( WIR99). The reasons are clear. United Kingdom, R&D is disproportionately
Innovation concentrates where there is a concentrated in South-East England (Dicken,
high density of specialized resources for 1998; Cantwell and Iammarino, 2000). In the
innovation: a large supply of highly trained developing world, there are almost no clusters
of foreign R&D facilities,
except for Hong Kong,
Table II.9. Share of United States patents of world’s largest firms China, Singapore and
attributable to research in foreign locations, 1969-1995 recently Zhong Guancum,
(Percentage)
a suburb of Beijing (figure
Nationality of parent firm 1969-1972 1973-1977 1978-1982 1983-1986 1987-1990 1991-1995
II.27). 18 There are,
however, many individual
United States 4.96 5.89 6.40 7.53 7.91 8.62 R&D facilities, mainly
Germany 12.77 11.05 12.07 14.47 17.05 20.72 serving production units
United Kingdom 43.08 41.24 40.47 47.09 50.42 55.79 (Reddy, 2000).
Italy 13.39 16.03 13.85 12.59 11.14 16.47
France 8.16 7.74 7.17 9.19 18.17 33.17
Japan 2.63 1.88 1.22 1.26 0.92 1.08
Production. Foreign
Netherlands 50.40 47.37 47.65 53.99 53.96 55.69 production affiliates are
Belgium-Luxembourg 50.36 51.11 49.28 58.15 47.53 53.25 among the earliest – after
Switzerland 44.36 43.63 43.78 41.59 42.99 52.47 sales – to be established
Sweden 17.82 19.90 26.20 28.94 30.60 42.42 in most countries. They
Austria a 5.06 16.76 19.84 11.82 8.00 - are also more dispersed
Norway a 20.00 1.67 12.31 32.50 37.14 20.22 geographically than other
Finland a 18.87 27.11 26.89 18.67 27.94 39.49
Canada 41.19 39.30 39.49 35.82 40.12 43.96
functions (again, apart
Others 28.21 22.22 26.37 30.34 7.54 3.94 from sales). As noted,
Total 10.04 10.53 10.50 10.95 11.28 11.27 traditional location
Total excluding Japan 10.52 11.59 12.25 13.87 15.76 16.53 patterns, serving
Total European countries b 28.01 25.19 24.52 26.95 29.99 34.78 protected markets and
accessing natural
Source : Cantwell and Janne, 1997. resources or low-cost
a Patents less than 50 for several periods.
b Germany, United Kingdom, Italy, France, Netherlands, Belgium-Luxembourg, Switzerland, Sweden,
unskilled labour, are
Denmark, Ireland, Spain, Portugal, Greece, Austria, Norway and Finland. changing. T he need now
 82
Figure II.25. The distribution of R&D facilities and location of major universities in Europe, 1999

World
Investment
Report
2001:
Promoting
Linkages
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.
 CHAPTER II
Figure II.26. The distribution of R&D facilities and location of major universities
in the United States, 1999

MAPPING INTERNATIONAL PRODUCTION

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

83
Note: On the basis of 357 majority-owned foreign R&D facilities and 1,476 domestic R&D facilities identified.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 85

is for competitiveness, efficiency and to scale economies, global systems are not
flexibility. As a result, skills, advanced economical.
infrastructure, state-of-the-art logistics,
supply networks and support institutions are Marketing and sales. Marketing and
becoming key determinants of location. sales operations have to be located close to
(actual and potential) customers, and are the
These determinants vary according most geographically dispersed of all TNC
to industry, and also according to where functions. There is little need to be near
affiliates are in the value chain. In integrated other firms or clusters, though, of course
production systems, where affiliates are part all firms serving a national market tend to
of a complex global production strategy, the locate near major consumer centres. Large
functions entrusted to specific units vary TNCs have sales units in virtually every
greatly. Those in less industrialized locations country (see table II.7 for Japanese
are assigned simpler tasks like assembly and manufacturing affiliates in the Americas and
packaging. Those in advanced locations are figure II.23 for the automobile industry).
assigned more skill and technology intensive Still, there are marketing and sales functions
tasks. Where production involves close of firms selling to other businesses, rather
supply linkages and the operation of just- than final consumers. Such sales operations
in-time delivery, affiliates have to be located may also tend to cluster in areas hosting
in dense networks of efficient suppliers and regional or global purchasing operations of
infrastructure providers. The automobile major firms.
industry provides a prominent example of
an integrated production system. In *****
Thailand, automobile part makers (both
domestic and foreign) are closely linked to
automobile assemblers. Similarly in Brazil, The growing role of international
all automobile makers have invited their production in the world economy is enlarging
core suppliers to be in close proximity to the geographical spread of TNCs’
their plants. international production systems. The
changing strategies of TNCs, including an
Integrated production systems have increasing trend towards organizing trade
grown in regions that have reduced trade and production in integrated international
barriers between member countries and have production systems, especially in certain
strong industrial capabilities. The essence major industries, is changing the patterns
of this organizational form is geographical of FDI. The mapping of FDI patterns – in
specialization by different parts of a TNC the aggregate, by industry and by functional
production system (e.g. components, sub- activity – in this chapter throws light on the
assemblies, semi-finished products). In the location of FDI and its industrial and
EU, for instance, TNCs in the automobile functional distribution across countries.
industry have built closely knit supply International production continues to be
chains across several countries. A similar concentrated geographically – at the
system is emerging in NAFTA, and regional, national as well as the sub-national
increasingly in ASEAN (figure II.28). levels. Cross-border M&As as corporate
strategies of TNCs and clusters as locational
There is a different form of advantages play an increasing role in
integrated system that is more global than determining the location of international
regional. The semiconductor industry, for production and, hence, FDI patterns.
instance, operates an integrated chain from Understanding the patterns of FDI and the
North America and Europe to Israel and driving forces of production location in
South-East Asia. Such systems make different industries, and within international
economic sense where the product has a very production systems, is important for
high value-to-weight ratio and can be formulating effective strategies and policies
produced in enormous volumes. For with respect to FDI.
“heavier” products, or those less amenable
 86
Figure II.27. The distribution of R&D facilities and location of major universities in Asia, 1999

World
Investment
Report
2001:
Promoting
Linkages
Source: UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 155 majority-owned foreign R&D facilities and 432 domestic R&D facilities identified.
CH A P T ER II M A P P IN G IN T ER N AT IO N AL P R O DU CT IO N 87

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.

88 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Notes
1 Stocks are normally expressed in book value. the location advantages of the United
During 1985 and 1999 the import price index Kingdom.
(the deflator commonly used to revalue 8 See, for instance, the case studies in
international transactions) increased by only UNCTAD, 2000b.
8 percentage points. If world FDI stock is 9 The literature is quite extensive. See, e.g.
deflated by this amount to approximate FDI Bell and Albu, 1999; Markusen, 1996; Nadvi,
stock in real prices, t he figures would not 2001; OECD, 1994; Porter, 1998; Pyke and
change very much. Sengenberger, 1992; Pyke, Becattini and
2 In the absence of appropriate stock variables Sengenberger, 1990; Rabellotti, 1997;
measuring size of economies, GDP – a flow Saxenian, 1994; Schmitz, 1995, 1999.
variable – is used to compare with FDI 10 Biotechnology industry here includes in
stock. vitro/in vivo diagnostic substances industry
3 UNCTAD’s data on cross-border M&As (SIC code 2835) and biological products
include deals resulting in the acquisition industry (SIC code 2836).
of more than 10 per cent equity share only. 11 On the basis of 272 majority-owned foreign
The value is on a completion basis, rather affiliates identified in the semiconductor
than on an announcement basis. However, industry and 2,245 in food and beverages.
the data suffer from other problems that 12 Examples of such shifts include the cutlery
make it impossible to compare the value industry of Sheffield (United Kingdom),
of M&As directly with FDI on a balance- which was displaced by a similar cluster
of-payments basis. These problems include: in Solingen (Germany). Producers of low-
the transaction value of M&As is not and medium-priced watches in the Jura
necessarily paid out in the year a deal area in Switzerland also came under great
is completed; the financing of M&As is pressure, first from Japanese companies
not necessarily cross-border (funds can and then from a cluster of Hong Kong
be raised in domestic as well as companies (Enright, 2000).
international financial markets); and values 13 Under this Programme foreign affiliates
are not on a net basis, i.e. not as differences awarded regional headquarters status are
between gross acquisitions and divestment taxed at a concessional rate of 10 per cent
abroad. For details, see WIR00 , chapter on the income arising from the provision
IV. of approved services for up to 10 years;
4 The differences in the nature of investment an extension is possible. Other income from
between foreign and domestic investment their overseas affiliates may also be eligible
should also be noted in this comparison. for effective tax relief.
The bulk of the former investment in 14 Information obtained from Singapore
developed countries now takes place Economic Development Board (www.sedb.
through cross-border M&As, which have com.sg).
different impacts from domestic – real – 15 Patents as a measure of technological
investment. activity have advantages over R&D
5 This is measured by the ratio of the share expenditures. Patents data are available
of partner region b in total trade (exports for longer periods, in more detail and for
and imports) of region a to the share of more countries. In any case, both give very
the region b in world trade. similar geographical distributions (Patel
6 FDI intensity is measured by the ratio of and Pavitt, 1991).
the share of partner b in FDI stock of region 16 R&D affiliates are defined here as those
a to the share of the region b in world engaged in commercial physical and
FDI stock. biological research (SIC 8731), commercial
7 This may also happen in developed non-physical research (SIC 8732), non-
countries. For example, in the automobile commercial research organizations (SIC
and electronics industries in the United 8733) and testing laboratories (SIC 8734).
Kingdom, local firms (for various reasons) 17 Data provided by United States Department
were unable to take advantage of the of Commerce, Bureau of Economic Analysis.
location advantages of the country. Exports 18 Altogether foreign R&D facilities in
today are dominated by foreign firms developing countries were located in just
(notably Japanese), which were able to 18 countries in 1999.
use their ownership advantages to exploit
 CHAPTER III.
THE LARGEST
TRANSNATIONAL CORPORATIONS

s in earlier years, this report (figure III.1 and chapter II). Similarly, the

A
reviews recent developments location of TNCs based in other groups of
in the universe of the largest economies (developing countries and those
non-financial TNCs 1 ranked by of Central and Eastern Europe) is
their foreign assets: the 100 geographically limited (figure III.1).
largest worldwide (table III.1), However, the role of the largest TNCs from
the largest 50 TNCs from developing developing countries is increasing: as noted
countries (table III.9) and the largest 25 in chapter I, the share of the developing
TNCs from the economies in transition of economies in outward FDI has risen from
Central and Eastern Europe (table III.16). some 3 per cent at the beginning of the 1980s
The role of the top 100 is illustrated by the to some 9 per cent in 2000. The third group
fact that their foreign assets, sales and of TNCs, the 25 largest TNCs from Central
employment in 1999 accounted for roughly and Eastern Europe, underlines some
12 per cent, 16 per cent and 15 per cent of interesting developments in what used to be
the estimated foreign assets, sales and centrally planned economies. A number of
employment of the total number of the TNCs companies of these countries are becoming
in the world, 2 which now comprises more increasingly transnational. They are about
than 60,000 companies. And most of their to establish themselves as prominent players
foreign operations are controlled by TNCs of their own with international production
headquartered in a handful of countries networks.

Figure III.1. Location of the largest 100 TNCs in the world, the largest 50 TNCs in developing
countries 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

Table III.1. The world’s 100 largest TNCs, ranked by foreign assets, 1999
(Billions of dollars and number of employees)
Ranking 1999 by: Ranked in 1998 by: Assets Sales Employment TNI a
Foreign Foreign
assets TNI a assets TNI a Corporation Country Industry b Foreign Total Foreign Total Foreign Total (Per cent)
1 75 1 75 General Electric United States Electronics 141.1 405.2 32.7 111.6 143 000 310 000 36.7
2 22 5 19 ExxonMobil Corporation United States Petroleum expl./ref./distr. 99.4 144.5 115.5 160.9 68 000 107 000 68.0
3 43 3 45 Royal Dutch/Shell Group c The Netherlands/ Petroleum expl./ref./distr. 68.7 113.9 53.5 105.4 57 367 99 310 56.3
United Kingdom
4 83 2 85 General Motors United States Motor vehicles 68.5 274.7 46.5 176.6 162 300 398 000 30.7
5 77 4 76 Ford Motor Company United States Motor vehicles .. 273.4 50.1 162.6 191 486 364 550 36.1
6 82 6 60 Toyota Motor Corporation Japan Motor vehicles 56.3 154.9 60.0 119.7 13 500 214 631 30.9
7 51 9 59 DaimlerChrysler AG Germany Motor vehicles 55.7 175.9 122.4 151.0 225 705 466 938 53.7
8 21 32 27 TotalFina SA France Petroleum expl./ref./distr. .. 77.6 31.6 39.6 50 538 74 437 70.3
9 50 7 54 IBM United States Computers 44.7 87.5 50.4 87.6 161 612 307 401 53.7
10 18 8 21 BP United Kingdom Petroleum expl./ref./distr. 39.3 52.6 57.7 83.5 62 150 80 400 73.7
11 2 10 3 Nestlé SA Switzerland Food/beverages 33.1 36.8 45.9 46.7 224 554 230 929 95.2
12 45 11 51 Volkswagen Group Germany Motor vehicles .. 64.3 47.8 70.6 147 959 306 275 55.7
13 11 - - Nippon Mitsubishi Oil Corporation Japan Petroleum expl./ref./distr. 31.5 35.5 28.4 33.9 11 900 15 964 82.4
(Nippon Oil Co. Ltd.)
14 41 19 52 Siemens AG Germany Electronics .. 76.6 53.2 72.2 251 000 443 000 56.8
15 90 14 73 Wal-Mart Stores United States Retailing 30.2 50.0 19.4 137.6 .. 1 140 000 25.8
16 55 - - Repsol-YPF SA Spain Petroleum expl./ref./distr. 29.6 42.1 9.1 26.3 .. 29 262 51.6
17 13 17 17 Diageo Plc United Kingdom Beverages 28.0 40.4 16.4 19.0 59 852 72 479 79.4
18 59 87 84 Mannesmann AG Germany Telecommunications/engineering .. 57.7 11.8 21.8 58 694 130 860 48.9
19 58 13 63 Suez Lyonnaise des Eaux France Diversified/utility .. 71.6 9.7 23.5 150 000 220 000 49.1
20 32 23 40 BMW AG Germany Motor vehicles 27.1 39.2 26.8 36.7 46 104 114 952 60.9
21 3 15 8 ABB Switzerland Electrical equipment 27.0 30.6 23.8 24.4 155 427 161 430 94.1
22 42 20 41 Sony Corporation Japan Electronics .. 64.2 43.1 63.1 115 717 189 700 56.7
23 9 34 1 Seagram Company Canada Beverages/media 25.6 35.0 12.3 11.8 .. .. 88.6
24 8 12 7 Unilever United Kingdom/ Food/beverages 25.3 28.0 38.4 44.0 222 614 246 033 89.3
The Netherlands
25 49 - - Aventis France Pharmaceuticals/chemicals .. 39.0 4.7 19.2 .. 92 446 54.0
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

26 85 24 81 Mitsubishi Corporation Japan Diversified 24.6 78.6 15.8 127.3 3 437 7 556 29.7
27 6 27 13 Roche Group Switzerland Pharmaceuticals 24.5 27.1 18.1 18.4 57 970 67 695 91.5
28 38 21 34 Renault SA France Motor vehicles .. 46.4 23.9 37.6 .. 159 608 58.2
29 27 18 38 Honda Motor Co Ltd. Japan Motor vehicles 24.4 41.8 38.7 51.7 .. 112 200 64.7
30 73 52 86 Telefónica SA Spain Telecommunications 24.2 64.1 9.5 23.0 .. 127 193 38.0
31 14 22 12 News Corporation d Australia Media/publishing 23.5 38.4 12.9 14.3 24 500 33 800 78.3
32 44 51 62 Motorola Inc United States Electronics 23.5 40.5 18.3 33.1 70 800 128 000 56.2
33 35 33 14 Philips Electronics The Netherlands Electronics 22.7 29.8 31.8 33.5 .. 226 874 59.9
34 68 25 67 Nissan Motor Co. Ltd. Japan Motor vehicles .. 59.7 .. 58.1 .. 136 397 40.7
35 7 69 5 British American Tobacco Plc United Kingdom Food/tobacco 22.0 26.2 16.5 18.1 104 223 107 620 90.7
36 67 38 80 ENI Group Italy Petroleum expl./ref./distr. 20.9 44.3 11.4 29.1 .. 72 023 40.9
37 79 39 91 Chevron Corporation United States Petroleum expl./ref./distr. 20.1 40.7 9.7 35.4 9 426 36 490 34.2
38 48 74 66 Johnson & Johnson United States Pharmaceuticals 19.8 29.2 12.1 27.5 49 571 97 806 54.2
39 52 36 53 Hewlett-Packard United States Electronics/computers .. 35.3 23.4 42.4 41 400 84 400 53.1
40 54 29 56 Elf Aquitaine SA France Petroleum expl./ref./distr. 18.8 43.2 25.7 35.8 .. 57 400 51.7

/...
 Table III.1. The world’s 100 largest TNCs, ranked by foreign assets, 1999 (continued)
(Billions of dollars and number of employees)
Ranking 1999 by: Ranked in 1998 by: Assets Sales Employment TNI a
Foreign Foreign
assets TNI a assets TNI a Corporation Country Industry b Foreign Total Foreign Total Foreign Total (Per cent)
CH A P T ER III

41 33 26 33 Bayer AG Germany Pharmaceuticals/chemicals 18.2 31.4 20.3 29.2 64 100 120 400 60.2
42 26 47 25 Coca-Cola Company United States Beverages 18.0 21.6 12.4 19.8 .. 37 000 65.2
43 25 42 42 Alcatel France Electronics 17.7 34.0 16.4 23.2 85 712 115 712 65.6
44 69 44 77 Texas Utilities Company United States Utility 17.3 40.7 6.8 17.1 8 590 21 934 40.4
45 86 37 78 Mitsui & Co Ltd. Japan Diversified 17.3 56.5 57.8 118.5 .. 31 250 29.1
46 36 40 46 BASF AG Germany Chemicals 17.1 30.0 22.5 29.5 46 455 104 628 59.2
47 80 53 83 Vivendi SA France Utility/media .. 79.3 16.7 39.1 .. 275 591 34.0
48 74 - - Hutchison Whampoa Ltd. Hong Kong, China Diversified .. 48.5 2.1 7.1 21 652 42 510 38.0
49 62 43 65 Peugeot SA France Motor vehicles 15.6 39.8 24.4 37.8 50 300 165 800 44.7
50 72 56 79 Fujitsu Ltd. Japan Electronics 15.3 42.3 17.5 43.3 72 851 188 573 38.4
51 81 50 82 Fiat Spa c Italy Motor vehicles 15.2 80.4 16.5 45.2 98 589 221 319 33.4
52 65 65 88 Veba Group Germany Diversified 15.1 55.8 24.5 39.1 49 590 131 602 42.4
53 97 46 89 Sumitomo Corporation Japan Trading/machinery 15.0 47.6 12.6 103.5 .. 33 057 16.1
54 66 41 69 Du Pont (E.I.) de Nemours United States Chemicals 14.8 40.8 13.3 26.9 36 000 94 000 41.3
55 96 58 97 Hitachi Ltd. Japan Electrical equipment/electronics 14.6 91.5 15.4 77.7 .. 323 827 17.9
56 71 55 72 Matsushita Electric Industrial Co. Ltd. Japan Electronics 13.9 72.5 34.0 68.9 143 773 290 448 39.3
57 1 57 2 Thomson Corporation Canada Media/publishing 13.6 13.8 5.5 5.8 37 000 40 000 95.4
58 60 70 57 Dow Chemical Company United States Chemicals 13.3 33.5 14.5 25.9 21 850 51 012 46.2
59 5 62 6 Holcim (ex Holderbank) Switzerland Construction materials 12.5 13.6 7.3 8.1 36 719 39 327 91.8
60 99 45 96 Itochu Corporation Japan Trading 12.4 55.9 18.4 115.3 .. 40 683 13.7
61 40 92 55 Canon Electronics Japan Electronics/office equipment 12.3 25.4 18.0 25.7 42 787 81 009 57.1
62 78 73 49 Carrefour SA France Retailing 12.3 33.7 14.3 37.7 .. 297 290 34.7
63 24 59 36 McDonald's Corporation United States Eating places 12.1 21.0 8.1 13.3 260 000 314 000 67.1
64 17 64 18 Michelin France Rubber/tires .. 17.3 11.9 13.8 .. 130 434 73.8
65 16 67 20 Glaxo Wellcome Plc United Kingdom Pharmaceuticals 11.8 16.8 11.8 13.8 44 976 60 726 76.6
66 94 66 95 RWE Group Germany Utility/diversified 10.9 57.4 7.9 35.1 .. 155 576 22.9
67 88 68 90 Marubeni Corporation Japan Trading 10.8 54.2 31.9 99.3 .. 8 618 26.0
68 70 78 71 Procter & Gamble e United States Chemicals/cosmetics 10.7 32.1 18.4 38.1 .. 110 000 40.3
69 31 80 37 Ericsson LM Sweden Electronics/telecommunications 10.6 23.8 20.4 25.3 59 250 103 290 60.9
70 46 60 48 Robert Bosch GmbH Germany Motor vehicle parts .. 20.9 18.5 28.0 96 970 194 889 55.3
71 19 63 22 Stora Enso OYS Finland Paper .. 16.2 10.0 10.7 .. 40 226 72.5
72 61 - - AES Corporation United States Utility 10.2 20.9 2.1 3.3 .. 14 500 45.5
73 28 75 30 Compart Spa Italy Food .. 18.6 8.0 11.8 25 177 36 916 63.8
74 100 76 100 SBC Communications United States Telecommunications .. 83.2 .. 49.5 .. 204 530 12.9
75 10 77 16 Akzo Nobel NV The Netherlands Chemicals 10.2 12.0 12.6 15.4 55 100 68 000 82.6
76 53 84 32 Royal Ahold NV The Netherlands Retailing 10.0 14.3 23.3 33.8 59 428 308 793 52.7
77 95 81 98 Southern Company United States Utility 9.6 38.4 1.5 11.6 6 928 32 949 19.8
78 23 72 29 Danone Groupe SA France Food/beverages 9.5 15.1 8.9 13.4 .. 75 965 67.8
79 87 85 84 Merck & Co United States Pharmaceuticals 9.1 35.6 7.0 32.7 23 824 62 300 28.4
80 4 82 4 Electrolux AB Sweden Electrical equipment/electronics 9.1 9.8 13.9 14.5 84 035 92 916 93.2
T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S

81 98 49 92 Nissho Iwai Japan Trading 9.1 38.5 12.9 68.7 .. 18 446 15.8
82 15 86 15 L'Air Liquide Groupe France Chemicals .. 10.5 4.6 6.1 .. 29 000 76.9

/...
91
 92

Table III.1. The world’s 100 largest TNCs, ranked by foreign assets, 1999 (concluded)
(Billions of dollars and number of employees)

Ranking 1999 by: Ranked in 1998 by: Assets Sales Employment TNI a
Foreign Foreign
assets TNI a assets TNI a Corporation Country Industry b Foreign Total Foreign Total Foreign Total (Per cent)

83 91 - - Edison International United States Electronics 8.1 35.0 1.0 9.2 .. 19 570 24.3
84 84 91 87 Petróleos de Venezuela SA Venezuela Petroleum expl./ref./distr. 8.0 47.3 13.3 32.6 .. 47 760 29.8
85 29 79 31 Montedison Group Italy Chemicals/agriindustry .. 16.7 7.9 11.5 21 181 29 550 62.2
86 64 30 50 Viag AG Germany Diversified .. 34.2 11.1 19.6 41 723 81 809 43.3
87 34 54 11 Rio Tinto Plc f Australia/ Mining 7.4 12.1 5.3 9.3 16 829 26 938 60.2
United Kingdom
88 30 83 47 Volvo AB Sweden Motor vehicles .. 17.7 13.4 15.1 28 630 53 600 61.4
89 63 - - Usinor France Steel manufacturing 7.4 15.6 7.0 14.5 22 395 64 118 43.5
90 93 95 94 Atlantic Richfield United States Petroleum expl./ref./distr. .. 26.3 2.0 12.5 .. 16 600 23.3
91 20 - - AstraZeneca Plc United States Pharmaceuticals 7.2 19.3 14.3 15.1 48 300 58 000 71.6
92 89 - - Lucent Technologies Inc. United States Electronics 7.2 32.1 12.2 38.3 36 000 153 000 25.9
93 39 90 35 Crown Cork & Seal United States Packaging 7.2 11.5 3.9 7.7 .. 35 959 57.5
94 76 - - Metro AG Germany Retailing 7.2 19.1 17.3 44.1 55 571 171 440 36.4
95 56 - - Texaco Inc. United States Petroleum expl./ref./distr. .. 29.0 25.2 35.0 .. 18 443 51.2
96 12 - - Cadbury - Schweppes Plc United Kingdom Food/beverages 7.1 8.0 5.3 6.8 29 835 37 425 81.9
97 92 100 93 Toshiba Corporation Japan Electronics 7.1 53.8 17.5 54.2 46 500 190 870 23.3
98 57 88 58 Mitsubishi Motors Corporation Japan Motor vehicles 7.0 25.4 16.8 29.1 .. 26 749 51.2
99 37 93 44 Bridgestone Japan Rubber/tires 7.0 15.7 11.6 18.3 70 000 101 489 58.9
100 47 - - Cemex SA Mexico Construction material 7.0 11.9 2.5 4.8 .. 20 902 54.6

Source: UNCTAD/Erasmus University database.

a TNI is the abbreviation for ‘transnationality index’. The transnationality index 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 Industry classification for companies follows the United States Standard Industrial Classification as used by the United States Securities and Exchange Commission (SEC).
c Foreign assets, sales and employment are outside Europe.
d Foreign assets, sales and employment are outside Australia and Asia.
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

e Foreign assets, sales and employment are outside North-America.

f Foreign employment is outside Europe, Australia and New Zealand.
.. Data on foreign assets, foreign sales and foreign employment were not made available for the purpose of this study. In case of non-availability, they are estimated using secondary sources of information or on the
basis of the ratios of foreign to total assets, foreign to total sales and foreign to total employment.
Note : The list includes non-financial TNCs only. In some companies, foreign investors may hold a minority share of more than 10 per cent.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 93

A. The 100 largest TNCs TNC from the Republic of Korea has had
sufficiently large foreign assets to enter the
worldwide top 100 listing.

Foreign assets. Growth in the total

1. Highlights amount of foreign assets held by the 100
largest TNCs continued in 1999. Total
In 1999, General Electric maintained foreign assets increased by 10 per cent in
its top position among the world’s 1 0 0 1999, to $2.1 trillion (table III.4). The TNCs
largest non-financial TNCs (table III.1) that had the three most important increases
ranked by foreign assets. General Motors in foreign assets were all petroleum
moved back to f o u r t h p o s i t i o n , w i t h companies (ExxonMobil, TotalFina and
ExxonMobil replacing it in second place and Repsol). Other companies that experienced
Royal Dutch Shell remaining in third place. significant increases in their foreign assets
Overall, the ranking remained fairly stable. had a diversified industrial and geographical
Only a few changes occurred among the top background. The same observation applies
10 TNCs: TotalFina moved up from thirty- to the 10 TNCs with the largest decreases
second to the eighth rank and Nestlé moved in foreign assets.
down to the eleventh rank.
TNCs from the United States raised
Thirteen new entries and exits were their share of the overall total of the foreign
registered in 1999 (tables III.2 and III.3). assets held by the world’s 100 largest TNCs
Three departures were caused by M&As by about 6 per cent (table III.5). The share
(Hoechst, Mobil and Rhone-Poulenc). of EU TNCs has remained fairly stable since
Repsol (Spain) appeared for the first time 1990. However, in general the larger
in the list of the top 100, as a result of the countries of the EU (Germany, France and
acquisition of YPF (Argentina). For the first Spain) increased considerably their relative
time since this listing has been established, share within this regional group at the
three firms among the top 100 TNCs, expense of the smaller country members.
Hutchison Whampoa, Petróleos de Venezuela Japan, too, saw its share in ownership of
(PDVSA) and Cemex, were headquartered foreign assets rise in the top 100 TNC
in a developing country. PDVSA, which was listing, by about 28 per cent during the past
also placed in the top 100 TNCs in previous decade, testifying to the sustained outward
years, rose seven places to take eighty-fourth orientation of Japanese companies.
position in the top 100 list. Since 1997, no

Table III.2. Newcomers to the world’s 100 largest TNCs, ranked by foreign assets, 1999
Ranked by
Foreign TNI a
assets TNI a
Corporation Country Industry (Per cent)

13 11 Nippon Mitsubishi Oil Corporation Japan Petroleum expl./ref./distr. 82.4

16 54 Repsol-YPF SA Spain Petroleum expl./ref./distr. 51.6
25 48 Aventis France Pharmaceuticals/chemical 54.0
48 74 Hutchison Whampoa Hong Kong, China Diversified 38.0
71 61 AES Corporation United States Utility 45.5
82 90 Edison International United States Electronics 24.3
88 63 Usinor France Steel manufacturing 43.5
90 20 AstraZeneca Plc United States Pharmaceuticals 71.6
91 88 Lucent Technologies Inc. United States Electronics 25.9
93 75 Metro AG Germany Retailing 36.4
94 55 Texaco Inc. United States Petroleum expl./ref./distr. 51.2
95 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.
94 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Table III.3. Departures from the world’s 100 largest TNCs, ranked by foreign assets, 1999 a
Ranked in 1998 by
Foreign TNI b
assets TNI b Corporation Country Industry (Per cent)

16 43 Mobil Corporation d United States Petroleum expl./ref./distr. 58.6

28 23 Hoechst AG c Germany Pharmaceuticals/chemicals 71.6
31 26 Rhone-Poulenc SA c France Pharmaceuticals/chemicals 69.1
35 28 Cable And Wireless Plc United Kingdom Telecommunications 67.5
48 24 Nortel Networks Canada Telecommunications 70.8
61 74 RJR Nabisco Holdings United States Food/tobacco 36.9
71 9 SmithKline Beecham Plc United Kingdom Pharmaceuticals 82.3
89 61 Broken Hill Proprietary Australia Steel manufacturing 49.3
94 99 GTE Corporation United States Telecommunications 16.0
96 39 Imperial Chemical Industries United Kingdom Chemicals 60.2
97 68 Compaq Computer Corporation United States Computers 42.6
98 10 SCA Sweden Paper 80.8
99 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.

Foreign sales. Total foreign sales of largest TNCs decreased by about 8 per cent,
the world’s largest 100 TNCs amounted to whereas their total employment rose by 4
slightly more than $2.1 trillion in 1999 (table per cent (table III.4). This is a reversal of
III.4), increasing by 3 per cent. TNCs from the previously observed trend of declining
the petroleum industry captured four of the overall employment with rising foreign
ten largest increases in foreign sales, in the employment (figure III.2). However,
range of 20 - 50 per cent. As for the 10 diverging from the overall trend, a number
largest decreases in foreign sales, no clear of TNCs – led by McDonalds, General
pattern can be discerned: TNCs experiencing Motors and Siemens – added considerably
declines came from various countries and to their foreign employment. Despite the
industries . large increases in foreign assets and foreign
sales by a number of petroleum companies,
Over the past decade, the share of
the TNCs from the United States in the total
foreign sales of the world’s 100 largest Table III.4. Snapshot of the world’s
TNCs decreased by about 5 percentage 100 largest TNCs, 1999
points, to around 25 per cent of the total. (Billions of dollars, number of employees
EU TNCs increased their relative share of and percentage)
foreign sales by about 5 percentage points,
to almost 46 per cent. As with foreign assets, Change 1999
vs. 1998
the share of TNCs headquartered in smaller Variable 1999 1998 (Per cent)
European countries decreased (the only
exception being The Netherlands). The Assets
overall relative share of the EU increased, Foreign 2 124 1 922 10.5
mainly due to a large, increase in the German Total 5 092 4 610 10.5
Sales
TNCs’ share in the foreign sales of the top Foreign 2 123 2 063 3.0
100 TNCs: an increase of about 7 percentage Total 4 318 4 099 5.3
points, to almost 18 per cent of the total. Employment
The Japanese relative share increased Foreign 6 050 283 6 547 719 -7.6
slightly to 22 per cent. Total 13 279 327 12 741 173 4.2
Average index of
transnationality 52.6 53.9 -1.3 a
Foreign employment. For the first
time, total foreign employment by the Source: UNCTAD/Erasmus University database.
a The change between 1998 and 1999 is expressed in percentage points.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 95

only one petroleum company, TotalFina, is the top 100 TNC listings has risen gradually
among the TNCs showing the ten largest over the past decade, mostly in favour of
increases in terms of foreign employment. Japan and at the expense of some smaller
No Japanese company saw its foreign industrialized countries like Belgium,
employment rise. Norway and New Zealand. Increasingly,
TNCs from the developing economies (Hong
The 10 TNCs accounting for the Kong (China), Mexico and Venezuela) are
largest declines in foreign employment emerging and rising in the list of the world’s
differed from the 10 with the largest declines 100 largest TNCs.
in foreign sales. One company (Bayer) is
also among those recording the largest Industries . In 1999, the top 100
declines in foreign assets. This suggests that TNCs were dominated by the same four
foreign employment, as much as total industries as in previous years : electronics
employment, evolves somewhat and electrical equipment, motor vehicles,
independently from the overall petroleum exploration and distribution, and
transnationalization strategy of a company. food and beverages (table III.6). Of the top
100 TNCs, 55 were in one of these
National origin. The national origin industries, and 32 in the first two industries.
composition of the top 100 TNCs continued The growth of TNCs in these industries, as
to be fairly stable. Perhaps not surprisingly, represented by Ford, Siemens and Unilever,
91 of the top 100 are headquartered in the shows the dramatic geographic expansion
Triad (EU, Japan and the United States) and increased number of foreign affiliates,
(table III.5). The share of the Triad among especially since the mid-1980s (figures III.3-

Table III.5. Country composition of the world’s largest 100 TNCs by transnationality index
and foreign assets, 1990, 1995 and 1999
(Percentage)
Share in total of
Average TNI a foreign assets of top 100 Number of entries
Economy 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 46

France 50.9 57.6 55.7 10.4 8.9 11.6 14 11 13
Germany 44.4 56.0 49.6 8.9 12.2 12.3 9 9 12
United Kingdom b 44.4 56.0 49.6 8.9 12.2 12.3 12 10 8
The Netherlands b 68.5 79.0 68.2 8.9 8.2 5.3 4 4 5
Italy 38.7 35.8 50.1 3.5 2.3 2.6 4 2 4
Sweden 71.7 80.6 71.8 2.7 1.7 1.3 5 3 3
Finland - - 72.5 - - 0.5 - - 1
Spain - - 44.8 - - 2.5 - - 2
Belgium 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 28

United States 38.5 41.9 42.7 31.5 33.3 33.3 28 30 26
Canada 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 9

Switzerland 84.3 83.6 93.1 7.5 6.6 4.6 6 5 4
Australia b 51.8 - 69.3 1.6 - 1.5 2 3 2
Hong Kong, China - - 38.5 - - 0.3 1
Mexico - - 54.6 - - 0.8 1
Venezuela - 44.4 29.8 - 0.4 0.4 - 1 1
New 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 the
United Kingdom and Australia. In the aggregate for the total of all 100 listed TNCs it is counted once.
96 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

III.5). The relative decline of chemical firms TNCs of large transnational utility, retailing
during the past decade, from 12 in 1990 to and telecommunication companies with their
7 in 1999, is noteworthy. This is partly the traditionally large portfolio of domestic
result of substantial restructuring in the assets has contributed to the decline of the
chemicals and pharmaceuticals industries. list’s average transnationality index. Most
Traditionally, chemicals and pharmaceuticals of these companies entered the list of the
were organized within the structure of largest 100 TNCs during the latter half of
individual companies. Such a combined the 1990s, with an average transnationality
structure was seen to yield synergies. Since index far below the overall average in 1999
the second half of the 1990s, companies (table III.6). If these three industries were
switched increasingly to separating excluded, the index in 1999 would stand at
chemicals from pharmaceuticals and vice 56 per cent. Given the increasing liberal
versa, into distinct corporate structures policy environment in which such companies
emphasizing synergies in areas other than operate, their transnationality can be
production and research. A significant expected to increase over the next decade,
decline in the transnationality index was following the example of the motor vehicle
recorded in trading, which (together with industry (see below).
diversified) is essentially represented by
Japanese Sogo Shoshas. They have been In 1999, as in earlier years, the index
restructuring for some time, but their was led by firms from countries with small
geographical spread established in the past domestic markets. For example, all four
is already extensive, as shown by the Swiss TNCs among the world’s 100 largest
mapping of foreign affiliates of Marubeni TNCs feature in the listing of the top 10
Corporation (figure III.6). companies as measured by their
transationality (table III.7). Meanwhile, only
2. Transnationality two were headquartered in a relatively large
economy (United Kingdom), whose TNCs
The “transnationality index” is the for historical reasons have always
average of three ratios: foreign assets/total maintained an above-average level of
assets, foreign sales/total sales and foreign transnationality (table III.5). Of course,
employment/total employment. It captures TNCs from smaller home countries have to
the foreign dimension of the overall go abroad if they want to overcome the
activities of a firm. Between 1990 and 1999, constraints of their domestic market size,
the average transnationality index of the and to reach the economies of scale needed
world’s top 100 TNCs rose from 51 per cent to make optimal use of their ownership
in 1990 to 55 per cent in 1997 but declined advantages and to stay competitive.
to 53 per cent in 1999 (figure III.7). 3 The Interestingly, however, among the companies
gradual emergence in the listings of top 100 with largest increases and decreases of the
transnationality index, only four are from

Figure III.2. Snapshot of

the world’s 100 largest
TNCs, 1990-1999

Source : UNCTAD/Erasmus
University database.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 97

Figure III.3. Global expansion of Ford Motor Company

By 1970

Note: Based on 65 majority-owned foreign affiliates identified.

By 1985

Note: Based on 140 majority-owned foreign affiliates identified.

By 2000

Note: Based on 270 majority-owned foreign affiliates identified.

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).
98 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Figure III.4. Global expansion of Unilever N.V.

By 1970

Note: Based on 94 majority-owned foreign affiliates identified.

By 1985

Note: Based on 146 majority-owned foreign affiliates identified.

By 2000

Note: Based on 244 majority-owned foreign affiliates identified.

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 99

Figure III.5. Global expansion of Siemens A.G.

By 1970

Note: Based on 84 majority-owned foreign affiliates identified.

By 1985

Note: Based on 165 majority-owned foreign affiliates identified.

By 2000

Note: Based on 416 majority-owned foreign affiliates identified.

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).
100 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Figure III.6. Global expansion of Marubeni Corporation

By 1970

Note: Based on 16 majority-owned foreign affiliates identified.

By 1985

Note: Based on 44 majority-owned foreign affiliates identified.

By 2000

Note: Based on 170 majority-owned foreign affiliates identified.

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-ROM 2000 (Dun and Bradstreet).
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 101

Figure III.7. Average transnationality index Table III.6. Industry composition of the largest
of the world’s 100 largest TNCs, 1990-1999 100 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 86.9

Food/beverages/tobacco 9 12 10 59.0 61.0 78.9
Construction 4 3 2 58.8 67.8 73.2
Pharmaceuticals 6 6 7 66.1 63.1 62.4
Chemicals 12 11 7 60.1 63.3 58.4
Petroleum exploration/refining/
distribution and mining 13 14 13 47.3 50.3 53.3
Electronics/electrical
equipment/computers 14 18 18 47.4 49.3 50.7
Motor vehicle and parts 13 14 14 35.8 42.3 48.4
Metals 6 2 1 55.1 27.9 43.5
Diversified 2 2 6 29.7 43.6 38.7
Retailing - - 4 - - 37.4
Utilities - - 5 - - 32.5
Telecommunications 2 5 3 46.2 46.3 33.3
Trading 7 5 4 32.4 30.5 17.9
Machinery/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
Source : UNCTAD/Erasmus University database. as the average of three ratios: foreign assets to total assets, foreign
sales to total sales and foreign employment to total employment.

smaller countries, suggesting that companies while trading was at the bottom with 18 per
from large home markets are more often cent. The transnationality index of the top
involved in transnational expansion and five firms in all industries that have at least
retreat (figures III.8 and III.9). five entries in the lists of both 1990 and
1999 increased substantially over the period
Transnationality by industry varies 1990-1999 (table III.8). Food and beverages
to a great extent (table III.6). The media firms exhibited the largest gains (28
industry topped the list with 87 per cent, percentage points), and chemical firms the

Table III.7. The world’s largest 10 TNCs in terms of transnationality, 1999

Ranking 1999 by Ranked in 1998 by

Foreign Foreign
assets TNI a assets TNI a Corporation Country Industry TNI a

57 1 57 2 Thomson Corporation Canada Media/publishing 95.4

11 2 10 3 Nestlé SA Switzerland Food/beverages 95.2
21 3 15 8 ABB Switzerland Electrical equipment 94.1
80 4 82 4 Electrolux AB Sweden Electrical equipment/electronics 93.2
59 5 62 6 Holcim (ex Holderbank) Switzerland Construction materials 91.8
27 6 27 13 Roche Group Switzerland Pharmaceuticals 91.5
35 7 69 5 British American Tobacco Plc United Kingdom Food/tobacco 90.7
24 8 12 7 Unilever United Kingdom/
The Netherlands Food/beverages 89.3
23 9 34 1 Seagram Company Canada Beverages/media 88.6
75 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
sales to total sales and foreign employment to total employment.
102 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Figure III.8. The top 10 increases

in transnationality among the
world’s 100 largest TNCs,
1998-1999
(in percentage points)

Source : UNCTAD/Erasmus University

database.

Figure III.9. The top 10 decreases

in transnationality among the
world’s 100 largest TNCs,
1998-1999
(in percentage points)

Source : UNCTAD/Erasmus University

database.

Table III. 8. Averages in transnationality index, assets, sales and employment

of the largest 5 TNCs in each industry, a 1990, 1995 and 1999
(Percentage points, and per cent of top 100 total)
Transnationality Assets Sales Employment
Industry Year index Foreign Total Foreign Total Foreign Total

Petroleum 1990 57.7 15.1 10.6 15.8 11.9 5.5 4.2

1995 64.8 12.9 8.0 13.6 10.0 4.0 3.1
1999 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 14.2
1995 38.6 14.0 17.3 9.6 13.4 9.7 13.5
1999 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 9.6
1995 61.1 11.1 10.4 7.8 6.9 13.2 10.7
1999 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 2.3
1995 68.0 3.8 2.5 2.4 1.7 3.4 2.5
1999 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 5.4
1995 61.1 6.2 3.9 5.0 4.0 5.5 4.9
1999 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 7.6
1995 76.9 6.7 4.8 7.4 5.2 12.9 7.1
1999 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.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 103

smallest (about 2 percentage points). The

Box III.1. Assessing the international spread
top five motor vehicle companies remained of the world’s largest TNCs (continued)
among the least transnationalized during the
whole past decade, whereas the top five food ownership tree structure, the NSI has been
and beverages firms, closely followed by estimated for the top 100 TNCs listed in this
pharmaceutical and electronic firms, became report which are exclusively parent companies.
more transnationalized over the same period.
Only motor vehicle companies maintained The results grouped by the country of
a transnationality index of below 50 per cent origin of each TNCs and by industry are
at the end of the 1990s. All other presented in box tables III.1.1 and III.1.2.
manufacturing industries saw their industry- The country-specific analysis shows TNCs
specific transnationality indices rise from countries with a long history of FDI
substantially above 50 per cent. However, (Switzerland, Netherlands, United Kingdom
the trend towards global consolidation in and France) exhibiting an above average NSI.
TNCs from the two largest economies in terms
the motor vehicle industry during the past
of GNP (United States and Japan) have a lower
years has made that industry the frontrunner
than average NSI, most likely because the
of transnationality in terms of its dynamic size of their domestic economy allows their
evolution: its index grew by 35 per cent TNCs to concentrate more on home markets,
between 1990 and 1999. in comparison with TNCs of similar size from
smaller home countries.
The findings based on the analysis
of the transnationality index are mirrored TNCs in most of the industries included
in the analysis of the Network Spread Index have NSIs ranging from 18 to 22 percentage
(NSI) of the world’s largest TNCs (box points (box table III.1.2). Notable exceptions
III.1). TNCs from small home countries are are found among TNCs operating in the utilities,
generally spread over more countries than media and construction industries, which have
TNCs from large home countries. TNCs from NSIs of below 10 per cent. TNCs in the
industries with a consumer orientation have automotive, metals/mining and
a higher spread than TNCs from other telecommunications industries lie in between,
industries. with NSIs of around 13 per cent.
Industries in which the top TNCs have
Box III.1. Assessing the international a higher NSI (like chemicals/pharmaceuticals,
spread of the world’s largest TNCs electronics and food and beverages) are to
a large extent consumer-oriented industries,
The transnationality index presented in and TNCs operating in such industries follow
WIR since 1995 assesses the degree to which primarily market-seeking strategies with regard
companies gear their activities outside of to their transnationalization. TNCs from the
t h e i r home countries. WIR98 (pp. 43-44) utilities, media, construction/retailing/service
introduced a complementary concept of and industries have a lower-than-average NSI,
measuring the transnationalization of companies, as they are industries that are more domestic-
the Network Spread Index (NSI).ª This index market oriented, partially due to market
focuses on the extent to which companies locate segmentation (utilities), and partially due to
their activities in foreign countries, and thus cultural boundaries (media). Greater
the extent to which they follow strategies of liberalization is increasing the NSIs of TNCs
cross-border geographical diversification. The in all industries mentioned above, and is likely
index is calculated as a ratio of the number to do so even more in the future.
of foreign countries in which a TNC locates
its activities (N) as a percentage of the number Consistent with the industry analyses,
of foreign countries in which it could, the companies with the highest NSI (over 30
potentially, have located (N*). The latter is per cent) are Shell, Nestlé, Unilever, TotalFina,
taken as the number of countries that have Aventis and ABB. At the other end of the
inward stocks of FDI (minus 1, excluding the spectrum, the lowest values for NSI (below
home country of the TNC) in the particular 5 per cent) are found for Wal-Mart, Texas
year to which the calculations refer. In this Utilities, Woodbridge Company, Southern
case the year 1999 was the most recent year Company, Royal Ahold NV, Mitsubishi, Petróleos
for which the data are available. Following de Venezuela and Hutchison Whampoa, AES
the data from this report N* is 187. Using Corporation, Cemax, Edison International and
the Dun and Bradstreet ( Who Owns Whom) Nippon Oil.
/... /...
104 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

B. The largest 50 TNCs. In general, the top 50 TNCs from

developing countries are of a smaller size
transnational corporations than their counterparts in the top 100 list.
The median foreign assets holdings for the
from developing countries top 50 increased slightly from $1.5 billion
in 1998 to about $1.6 billion in 1999, still
The list of the largest TNCs from far below the corresponding figure of $15.2
developing economies in 1999 underlines billion for the top 100 group in 1999. The
the power of the transnationalization overall increase in foreign assets by the top
process, as reflected by the impressive 50 was largely accounted for by the growth
increase in foreign assets and sales after a in foreign assets within the group of the top
slowdown in 1998. What is even more ten companies on the list.
remarkable is that three firms have joined
the group of the world’s largest 100 TNCs. Developing country TNCs have
recovered from the setback of 1998 in the
In 1999, Hutchison Whampoa Ltd. aftermath of the financial crisis in Asia. In
(Hong Kong, China) occupied the first 1999, their assets and sales (total as well
position, sending Petróleos de Venezuela to as foreign) registered a significant increase,
the second rank, followed by Cemex SA from as compared with the levels reached in 1998
Mexico (table III.9). These three TNCs, (table III.10). Total employment, however,
ranked by the size of their foreign assets, declined further, by 26.6 per cent, while
were also among the world’s 100 largest foreign employment decreased only by 4.3

Box III.1. Assessing the international spread of the world’s largest TNCs (concluded)

Box table III.1.1. Network Spread Index of Box table III.1.2. Network Spread Index of
the world’s largest 97 TNCs, the world’s largest 94 TNCs,
by country of origin by industry

Network spread Network spread

(mean) NSI (mean) NSI
Country of origin* (Per cent) Rank Country of origin* (Per cent) Rank

Switzerland 25.80 1 Chemical/Pharmaceutical 21.80 1

Netherlands 21.79 2 Food/Beverages/Tobacco 19.31 2
United Kingdom 19.59 3 Electronics/Electronical
France 19.93 4 Engineering 18.90 3
Germany 18.89 5 Oil/Petroleum 16.52 4
Italy 17.16 6 Diversified 16.44 5
Sweden 17.11 7 Telecommunication 13.77 6
Japan 14.29 8 Metals/Mining 13.37 7
United States 13.18 9 Other 12.83 8
Finland 12.30 10 Automotive 12.83 9
Canada 8.56 11 Retailing/Trading/Services 10.46 10
Australia 6.42 12 Construction/Construction
Spain 5.88 13 Materials 8.02 11
Venezuela 2.67 14 Media/Printing/Paper 6.77 12
Hong Kong, China 1.07 15
Utility 4.01 13
Mean NSI 15.63
Mean NSI 15.63
Source : Ietto-Gillies, 2001, based on this report.
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 of
94.
S o u r c e : Unpublished research by Grazia Ietto-Gillies and Marion Frenz, South Bank University,
London, May 2001.
ª See Ietto-Gillies, 1998, The NSI for 1996 presented in WIR98 is not fully comparable to the one presented here
because the current one is calculated on the basis of majority-owned affiliaties (“subsidiaries”) and not all affiliates
as in WIR98. This is due to changes in the type of information given by the Dun and Bradstreet database.
 Table III.9. The largest 50 TNCs from developing economies, ranked by foreign assets, 1999
(Millions of dollars, number of employees)

a
Ranking by Assets Sales Employment TNI
CH A P T ER III

Foreign
a b
assets TNI Corporation Economy Industry Foreign Total Foreign Total Foreign Total (Per cent)

1 24 Hutchison Whampoa Ltd. Hong Kong, China Diversified .. 48 157 2 096 7 108 .. 42 510 38.0
2 30 Petróleos de Venezuela Venezuela Petroleum expl./ref./distr. 8 009 47 250 13 332 32 600 15 000 47 760 29.8
3 10 Cemex SA Mexico Construction 6 973 11 896 2 504 4 841 .. 20 902 54.6
4 39 Petronas - Petroliam Nasional Berhad Malaysia Petroleum expl./ref./distr. .. 31 992 .. 15 957 .. 18 578 19.8
5 34 Samsung Corporation Korea, Republic of Diversified/Trade 5 127 21 581 6 339 37 180 1 911 4 600 27.4
6 13 Daewoo Corporation Korea, Republic of Diversified/Trade .. 16 460 .. 18 618 .. 12 021 49.4
7 22 Lg Electronics Inc. Korea, Republic of Electronics and electrical
equipment 4 215 17 273 6 383 15 590 27 000 50 000 39.8
8 45 Sunkyong Group Korea, Republic of Energy/Trading/Chemicals 4 214 34 542 10 762 43 457 2 273 26 296 15.2
9 43 New World Development Co., Ltd. Hong Kong, China Construction 4 097 14 789 368 2 259 788 22 945 15.8
10 42 Samsung Electronics Co., Ltd. Korea, Republic of Electronics and electrical
equipment 3 907 25 487 5 214 28 024 6 039 39 350 16.4
11 3 Neptune Orient Lines Ltd. Singapore c Transportation 3 870 4 184 4 101 4 276 6 843 8 611 89.3
12 6 Sappi Ltd. South Africa Pulp and Paper 3 643 5 428 3 425 4 422 9 427 20 245 63.7
13 8 First Pacific Company Ltd. Hong Kong, China Electronics and electrical
equipment 3 482 6 797 965 1 232 12 901 22 210 62.5
14 49 Petroleo Brasileiro SA - Petrobras Brazil Petroleum expl./ref./distr. 3 293 33 733 1 542 16 358 993 39 979 7.2
15 19 Jardine Matheson Holdings Ltd. Hong Kong, China d Diversified 2 865 9 904 7 489 10 655 .. 150 000 43.9
16 40 Keppel Corporation Ltd. Singapore Diversified 2 609 19 889 273 2 451 5 273 15 947 19.1
17 46 Hyundai Motor Co., Ltd. Korea, Republic of Motor vehicles 2 595 22 163 2 909 21 346 6 300 87 221 10.9
18 14 Hyundai Engineering & Construction Co. Korea, Republic of Construction 2 577 8 105 1 696 4 999 17 844 22 364 48.5
19 1 Tan Chong International Ltd. Singapore Diversified 2 181 2 388 1 783 1 837 .. 649 93.3
20 44 Singapore Telecommunications Ltd. Singapore Telecommunication 2 078 8 129 10 2 842 .. 12 637 15.8
21 20 Citic Pacific Ltd. Hong Kong, China Diversified .. 7 935 1 042 3 399 .. 10 490 42.2
22 9 Acer Inc. Taiwan Province of China Electronics and electrical
equipment 1 812 3 715 3 864 5 811 .. 33 912 59.7
23 25 South African Breweries Plc. South Africa c Food and beverages .. 4 384 .. 4 299 .. 48 079 37.4
24 2 Orient Overseas International Ltd. Hong Kong, China Transportation 1 631 1 863 2 126 2 139 3 540 4 157 90.7
25 17 Barlow Ltd. South Africa c Diversified 1 587 2 335 1 769 3 502 .. 22 148 44.3
26 27 Companhia Vale Do Rio Doce Brazil Mining/other .. 10 974 … 6 979 .. 10 743 34.0
27 18 Gener SA Chile Electrical services (in 1997) 1 520 3 699 401 835 514 1 185 44.2
28 29 Metalurgica Gerdau SA Brazil Steel and iron 1 468 3 582 535 1 850 3 526 12 021 33.1
29 37 San Miguel Corporation Philippines Food and beverages 1 447 3 410 217 1 934 3 117 14 511 25.0
T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S

30 38 Pérez Companc SA Argentina Petroleum expl./ref./distr. 1 376 5 030 243 1 272 .. 3 731 24.5
31 5 Guangdong Investment Ltd. Hong Kong, China Diversified 1 355 2 179 564 689 14 064 15 233 78.8
32 26 Savia SA de CV Mexico Diversified 1 297 6 658 823 2 843 11 599 19 015 36.5
33 33 Tatung Co. Ltd. Taiwan Province of China Electronics and electrical
equipment .. 5 017 .. 4 471 .. .. 28.1
105
 Table III.9. The largest 50 TNCs from developing economies, ranked by foreign assets, 1999 (concluded)
106

(Millions of dollars, number of employees)

a
Ranking by Assets Sales Employment TNI
Foreign
a b
assets TNI Corporation Economy Industry Foreign Total Foreign Total Foreign Total (Per cent)

34 7 Fraser & Neave Limited Singapore Food and beverages 1 232 3 760 1 075 1 527 8 507 9 750 63.5
35 36 Samsung Sdi Co., Ltd. Korea, Republic of Electronics and electrical
equipment 1 181 4 547 1 037 4 218 2 052 7 900 25.5
36 28 Singapore Airlines Limited Singapore Transportation 1 064 9 573 4 071 5 179 3 021 27 630 33.6
37 11 Gruma SA de CV Mexico Food and beverages 1 061 2 322 988 1 730 9 147 16 513 52.7
38 41 Pohang Iron And Steel Co., Ltd. Korea, Republic of Steel and iron 1 018 11 971 3 875 11 093 .. 28 037 17.3
39 50 Clp Holdings - China Light & Power
Company Limited Hong Kong, China Electric utilities or services 985 5 878 46 3 024 33 4 190 6.4
40 21 Sime Darby Berhad Malaysia Diversified 892 2 389 1 587 2 608 6 585 29 106 40.3
41 47 Reliance Industries Limited India Chemicals and pharmaceuticals .. 6 733 400 4 654 .. 15 912 9.6
42 35 Copec - Compaña de Petróleos de Chile Chile Diversified .. 6 496 .. 3 173 .. 7 805 26.6
43 16 Companhia Cervejaria Brahma Brazil Food and beverages 841 2 874 208 1 776 9 029 9 192 46.4
44 32 Great Eagle Holdings Limited Hong Kong, China Hotel/Property 830 3 607 193 496 .. 3 004 28.3
45 4 WBL Corporation Limited Singapore Electronics and electrical
equipment 805 949 257 417 9 963 10 754 79.7
46 31 Berjaya Group Berhad Malaysia Diversified 739 3 290 792 1 914 .. 21 066 28.8
47 23 De Beers Consolidated Mines South Africa c Mining/ other 646 5 053 4 854 5 344 .. 12 520 38.8
48 15 Hong Kong And Shanghai Hotels Ltd. Hong Kong, China Tourism and hotel 632 2 472 271 463 3 583 6 166 47.4
49 48 Telekom Malaysia Berhad Malaysia Telecommunication 624 6 792 83 2 061 .. 25 442 7.5
50 12 Natsteel Limited Singapore Steel and iron 585 1 280 251 822 14 018 17 363 52.3

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
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Industry classification for companies follows the United States Standard Industrial Classification which is used by the United States Securities and Exchange Commission (SEC).
c Within the context of this list, South Africa is treated as a developing country.
d The company is incorporated in Bermuda and the group is managed from Hong Kong (China).
.. Data on foreign assets, foreign sales or foreign employment were not made available for the purpose of this study. In case of non availability, they are estimated using secondary sources of information or on the basis
of the ratios of foreign to total assets, foreign to total sales and foreign to total employment.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 107

was largely due to the recovery effect after

Table III.10. Snapshot of largest 50 TNCs from
the financial crisis.
developing economies, 1999
(Billions of dollars, percentage and
The overall increase in the
number of employees)
transnationality index (TNI) for the whole
Change group as compared to last year confirms that
Variable 1999 1998 1999 vs. 1998 the top 50 TNCs, in general, pursued their
(Per cent) transnationalization process even during the
Assets crisis years. This increase should be
Foreign 129 109 18.3 interpreted with caution as it is largely
Total 531 449 18.4 driven by the increase in the ratio of foreign
Sales to total employment (figure III.10) which
Foreign 122 109 12.0 in turn was the result of the sharp drop in
Total 367 289 27.1 domestic employment in 1998 and 1999. Yet,
Employment as foreign assets and sales have also
Foreign 383 107 400 475 -4.3 increased, the transnational expansion of the
Total 1 134 687 1 546 883 -26.6
top 50 TNCs is noteworthy. TNCs from a
Average wide range of economies and industries are
index of continuing with their trans-nationalization
transnationality 38.9 36.6 2.3 a
push of recent years. Companies such as
Source : UNCTAD, FDI/TNC database. South African Breweries and Barlow of
a The change between 1998 and 1999 is expressed in percentage South Africa, Mexico’s Cemex, San Miguel
points. from the Philippines, Pérez Companc of
Argentina, Singapore Telecommunications
and LG Electronics from the Republic of
per cent reflecting, thus, a sharper drop in Korea – to name only a few – all recorded
domestic employment. This reduction in increases in their TNI-index of 15 percentage
employment is perhaps a result of a points or more since 1995. The mapping of
restructuring of industries after the crisis. the global expansion of Cemex SA provides
a good example of the rapid
On the other indicators, the top 50 transnationalization process of these
showed a more positive development. This companies (figure III.11).

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.
108 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Figure III.11. Global expansion of Cemex SA

1995

Note: Based on 6 foreign affiliates identified. The first foreign affiliate was established in 1992 (Spain).

2001

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.

Table III.11. The top five TNCs from developing economies in terms of transnationality, 1999

Ranking by
Foreign TNI a
TNI a
assets Company Economy Industry (Per cent)
1 19 Tan Chong International Ltd. Singapore Diversified 93.3
2 24 Orient Overseas International Ltd. Hong Kong, China Transportation 90.7
3 11 Neptune Orient Lines Ltd. Singapore Transportation 89.3
4 45 WBL Corporation Ltd. Singapore Electronics and electrical equipment 79.7
5 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
sales to total sales and foreign employment to total employment.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 109

As in previous years, the top had an impact on the list, as the take-over
companies in terms of transnationalization of Argentina’s YPF and Chile’s Enersis by
come from Asia (table III.11). In the case Spanish companies resulted in the departure
of Hong Kong (China) and Singapore, it is of these companies from the list. On the
not surprising that the small size of their other hand, the merger with another domestic
economies pushed companies to expand company helped Savia of Mexico to be
abroad. Industry-specific factors also included in the top 50 for the first time
contribute to the composition of the list. (tables III.12 and III.13).
Shipping companies, such as Neptune Orient
Lines as well as Orient Overseas The industry composition of the top
International, have almost by definition most 50 list has remained unchanged (figure
of their assets “overseas”. 4 On the other III.12). Conglomerates with interests in a
hand, petroleum companies as well as TNCs wide range of industries accounted for the
in the utilities, tend to have lower values lion’s share in the combined foreign assets
of TNI, as much of their business is either as well as foreign employment of the top
still concentrated on the exploration of 50 group. Foreign sales were largely
domestic resources, or because expansion concentrated on companies from “other
abroad had only recently been made possible industries” which are to a large extent Asian
by the deregulation of telecommunications. companies in the electronics industry.
Companies whose business is more focused
This year’s top 50 list features 12 on any particular industry, such as
new companies that were not on the list last construction, food and beverages, as well
year. This figure is rather high as compared as petroleum exploration, refinery and
to previous years, which recorded only five distribution have declined in importance
to seven new companies. The information since 1993, as shown by their respective
for the list in this report is less complete, shares in foreign assets, sales and
as data for TNCs from China were not employment. In terms of absolute numbers,
available. On the other hand, improved and most companies on the top of the list – as
more complete data for companies from the in previous years – are diversified
Republic of Korea led to the insertion of companies. Due to the inclusion of new
four Korean companies that did not figure firms, in particular from the Republic of
on the list in preceding years. Overall, the Korea, the electronics and electrical
changes in the composition of the list equipment industry now accounts for the
remained in line with previous years. M&As second largest group of companies, followed

Table III.12. Newcomers to the largest 50 TNCs from developing economies, 1999

Ranking by
Foreign TNI a
Number assets TNI a Corporation Economy Industry (Per cent)

1 46 31 Berjaya Group Berhad Malaysia Diversified 28.8

2 47 23 De Beers Consolidated Mines South Africa Mining/ Other 38.8
3 44 32 Great Eagle Holdings Limited Hong Kong, China Hotel/Property 28.3
4 17 46 Hyundai Motor Co., Ltd. Korea, Republic of Automotive 10.9
5 11 3 Neptune Orient Lines Ltd. Singapore Transportation 89.3
6 24 2 Orient Overseas International Ltd. Hong Kong, China Transportation 90.7
7 38 41 Pohang Iron And Steel Co., Ltd. Korea, Republic of Iron and Steel 17.3
8 5 34 Samsung Corporation Korea, Republic of Diversified 27.4
9 32 26 Savia SA de CV Mexico Diversified 36.5
10 20 44 Singapore Telecommunications Ltd. Singapore Telecommunication 15.8
11 19 1 Tan Chong International Ltd. Singapore Automotive /Trading 93.3
12 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
sales to total sales and foreign employment to total employment.
110 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Table III.13. Departures from the largest 50 TNCs from developing economies, 1999

Ranking by
Foreign TNI a
Number assets TNI a Corporation Economy Industry (Per cent)

1 47 5 Asia Pacific Breweries Ltd. Singapore Food and beverages 74.8

2 36 42 China Harbor Engineering Company China Construction 16.1
3 15 17 China National Chemicals Import &
Export Corporation China Trade 41.4
4 37 32 China National Metals and Minerals
Imp and Exp Corp. China Trade 25.1
5 12 31 China State Construction Engineering
Corporation China Construction 26.8
6 35 23 Dong-Ah Construction Ind. Co., Ltd. Korea, Republic of Construction 34.8
7 20 28 Enersis, SA Chile Electric utilities or services 28.2
8 49 41 Sadia SA Industria e Comercio Brazil Food and beverages 16.2
9 24 44 Shougang Group China Steel and iron 14.4
10 45 33 Souza Cruz, SA Brazil Diversified 24.6
11 50 1 Want Want Holdings, Ltd. Singapore Food and beverages 97.9
12 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
sales to total sales and foreign employment to total employment.

by food and beverages as well as the together with some of the other diversified
petroleum industry (table III.14). A novelty conglomerates on the list, this demonstrates
in the list are two telecommunications that TNCs from developing countries can
companies, Singapore Telecommunications also make substantial inroads into dynamic
Ltd. and Telekom Malaysia Berhad. With and highly competitive industries.
top 50 leader Hutchison Whampoa also Interestingly, most of the telecommunication
having significant interests in this industry, companies expand their operations, as do

Figure III.12. Major industry groups as per cent of largest 50, 1993 and 1999

Source: UNCTAD, FDI/TNC database.

CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 111

their developed countries’ counterparts, in companies have also transnationalized their

developed and developing markets business. A comparison with the petroleum
simultaneously. companies on the top 100 list – which score
much higher on the TNI index – also shows
As for the most transnationalized that in this industry there is (in principle)
industries (figure III.13 and table III.14), as much potential for developing-country
the picture has changed little. Among the TNCs to further transnationalize as there
industries most frequently represented on is in other industries. 5
the list, food and beverages ranks highest,
followed by diversified companies, Despite the aforementioned increase of
electronics and electrical equipment and the transnationality index in general, and
construction. This suggests that the trend in the case of some companies in particular,
towards transnationalization includes both the top 50 remain less transnationalized than
companies that primarily invest abroad in the top 100. But the degree of
search of foreign markets (such as food and transnationality differs widely by home
beverages) as well as those where efficiency- country, with smaller Asian economies such
seeking is the prime motive for FDI (as is as Hong Kong (China), Singapore and
the case of electronics and electrical Taiwan Province of China showing much
equipment companies). The somewhat lower higher levels of TNI, than larger countries
transnationality index for petroleum and such as India or China. In Latin America,
mining companies on the top 50 list Mexican companies are on average the most
suggests, on the other hand, that companies transnationalized. The rapid increase in the
for which natural-resource seeking is the TNI for Mexican TNCs in recent years may
principal reason for outward investment suggest that the opening up of the country
might find it more difficult or would have (including its integration in the framework
fewer incentives to transnationalize their of NAFTA) has encouraged the
operations. The increasing TNI for the transnationalization of Mexican companies .
petroleum companies (table III.14) South African companies, too, have stepped
d e m o n s t r a t e s t h a t o v e r t h e y e a r s these up their transnationalization process. The

Figure III.13. Major industry groups of the largest 50 TNCs and their
average transnationalization index, 1993 and 1999

Source: UNCTAD, FDI/TNC database.

112 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Table III.14. Industry composition of the largest 50 TNCs from developing

economies, 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 44.3

Food and beverages 7 8 5 15.6 32.8 45.0
Construction 4 3 3 28.8 47.4 39.6
Petroleum expl./ref./distr. 3 6 5 3.1 19.4 21.6
Electronics and electrical equipment 7 5 6 28.1 35.6 41.5
Electric Utilities or Services 1 .. 2 2.0 .. 25.3
Steel and iron 5 1 3 11.6 37.6 34.2
Trade .. 4 .. .. 44.6 ..
Transportation 1 4 3 23.2 54.1 71.2
Chemicals and pharmaceuticals 1 1 1 17.0 7.7 9.6
Other 4 5 .. 23.6 38.1 ..
Pulp and paper 2 .. 1 26.0 .. 63.7
Tourism, hotel and property 3 2 2 33.1 33.2 37.9
Automotive 1 .. 1 .. .. 10.9
Media 1 .. .. .. .. ..
Mining .. .. 2 .. .. 36.4
Telecommunications .. .. 2 .. 59.4 11.7
Average/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.

end of the apartheid era in 1994 opened for American countries registered declining
many South African firms (the only African shares (table III.15), while the share of
companies on the list) new possibilities to African firms stabilized at the same low
invest abroad as well as increased level as in previous years. While in Asia,
international competition compelled them foreign assets – on average – increased for
to do so. TNCs from all major countries (except for
China for which – as mentioned – data were
The top 50 list shows a gradual shift not available this year), Mexican and
towards Asian TNCs over time. The number Venezuelan TNCs were the only ones that
of Asian companies has increased from 32 (as a group) managed to increase their assets
in 1996 and 1997, to 35 in 1999. This trend abroad (figure III.14). While the
continued in 1999 as some Latin American improvement of Asia’s p o s i t i o n i s a
companies departed from the list due to take- reflection of the economic recovery in the
overs by firms from developed countries and region, the decline of foreign assets of most
due to relatively high increases of the Latin American TNCs represented in the list
foreign assets of TNCs from the Republic might be explained by the industry
of Korea, Hong Kong (China), Singapore composition of the two sets of firms
and Malaysia. Asia increased its share in involved and the aforementioned
the total foreign assets owned by the top acquisitions of some firms by companies
50 companies, from 66 per cent (1998) to from developed countries.
more than 70 per cent in 1999. All Latin
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 113

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 72.1
China .. 30.0 .. .. 8.2 ..
Hong Kong, China 36.5 50.7 45.4 22.0 20.4 26.4
India 6.4 7.7 9.6 0.4 0.8 0.7
Korea, Republic of 20.2 45.6 27.8 24.8 24.4 23.2
Malaysia 20.0 34.4 24.1 4.7 3.2 7.0
Philippines 6.9 16.1 25.0 1.4 0.9 1.1
Singapore 43.0 38.1 58.9 5.3 3.7 11.2
Taiwan 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 21.9

Argentina .. 19.5 24.5 .. 2.6 1.1
Brazil 17.4 13.1 30.2 12.0 6.2 5.6
Chile 12.1 29.0 35.4 1.0 3.6 1.8
Mexico 12.5 48.7 48.0 16.9 7.5 7.3
Venezuela .. 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

Source : UNCTAD, FDI/TNC database.

114 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

C. The largest 25 TNCs For most firms on the list, the growth
of foreign activities (assets, sales and
from Central and Eastern employment) was faster in 1999 than that
of the domestic activities. These
Europe developments are reflected in an increasing
transnationality index (table III.16).
A successor to the lists of the top 25 Transportation (7 firms), petroleum and
non-financial TNCs based in Central Europe natural gas (5 firms) and pharmaceuticals
published in WIR99 and WIR00 , the ranking (3) are the industries in which firms figure
presented in this section (table III.16) shows, most frequently among the top 25. They
for the first time, the largest TNCs of the are headquartered in nine countries: Croatia
Russian Federation together with those from (5 firms), Slovenia (5) , Hungary (4),
the rest of Central and Eastern Europe. It Russian Federation (3), Czech Republic (2),
is based on 1999 data provided by the firms Poland (2), Slovakia (2), Latvia (1), and
responding to the UNCTAD survey of the Romania (1) (figure III.1). Notably absent
largest TNCs in Central and Eastern are firms from Estonia, despite increasingly
Europe. 6 With the exception of Gazprom , important FDI outflows from that country
most of the leading outward investors of the (annex table B.2). This is due to the fact
Russian Federation are included in the list. that more than 60 per cent of Estonia’s
With its annual sales above $10 billion 7 in outward FDI stock was in finance in 2000,
1999 and its extensive international network i.e. undertaken by firms in an industry not
(table III.17), Gazprom is likely to be one covered in this survey (Kilvits and Purju,
of the top Central and Eastern European 2001, p. 248). Moreover, the leading outward
TNCs. However, consolidated information investing Estonian banks are foreign owned
on its international activities could not be (Hansapank is owned by Sweden’s Swedbank
obtained. and Ühispank by Sweden’s SEB, idem. , p.
255).
Compared with the ranking of the top
Central European TNCs presented in The internationalization efforts of the
WIR2000 , five firms exited from the top 25 top 25 firms of Central and Eastern Europe
list for the following reasons: are fairly recent, and focus heavily on the
European continent. In the case of Pliva
• A take-over by other firms. the core Group, a pharmaceuticals company based
business of VSZ a.s. Kosice (Slovakia) was in Croatia, the parent company (Pliva d.d.)
taken over by U.S. Steel, and Pilsner did not expand outside its home base over
Urquell (Czech Republic) was acquired by the first 53 years of its existence (1921-
South African Breweries; in other words, 1974). It established its first foreign affiliate
they became foreign affiliates. in New York, and its first representative
office in Moscow, both in 1974 (figure
• Change in the declared nationality of the III.15). Then, after a pause of 18 years, it
firm . Graphisoft changed its declared restarted international expansion, on a large
nationality to the place where its holding scale and at a fast pace. By June 2001, the
company is registered (The Netherlands), number of foreign affiliates and
instead of the place where top management representative offices expanded to 14 each.
is located (Hungary). With the exception of Pliva USA Inc., all
the foreign affiliates are on the European
• Displacement by others. Moldova Steel continent. As for the representative offices,
Works (Republic of Moldova) and Budimex there are two non-European locations:
Capital Group (Poland) were displaced due Beijing (opened in 1998) and Mumbai
to larger firms not previously on the list (opened in 2000). A salient feature of the
taking their place in the ranking. current expansions is the acquisition of
production and R&D capacities in the Czech
The five newcomer firms are: Lukoil Republic, France, Germany and the United
Oil Co., Primorsk Shipping Co. and Far Kingdom.
Eastern Shipping Co. (Russian Federation);
Petrom SA National Oil Co. (Romania); and
Intereuropa d.d. (Slovenia).
 Table III. 16. The largest 25 non-financial TNCs based in Central and Eastern Europe, a ranked by foreign assets, 1999
(Millions of dollars and number of employees)
Ranking by Transnationality
Foreign Transnationality Assets Sales Employment index b
CH A P T ER III

assets index b Corporation Country Industry Foreign Total Foreign Total Foreign Total (Per cent)

1 15 Lukoil Oil Co. Russian Federation Petroleum & natural gas 3 236.0 8 422.0 4 642.0 d 10 903.0 10 000 120 000 29.8
2 1 Latvian Shipping Co. Latvia Transportation 459.0 470.0 191.0 191.0 1 124 1 748 87.3
3 23 Hrvatska Elektroprivreda d.d. Croatia Energy 296.0 2 524.0 10.0 780.0 .. 15 877 4.3
4 12 Podravka Group c Croatia Food & beverages/ pharmaceuticals 285.9 477.1 119.4 390.2 501 6 898 32.6
5 6 Primorsk Shipping Co. Russian Federation Transportation 256.4 444.1 85.3 116.5 1 308 2 777 59.4
6 11 Gorenje Group Slovenia Domestic appliances 236.3 618.1 593.3 1 120.6 590 6 691 33.3
7 8 Far Eastern Shipping Co. Russian Federation Transportation 236.0 585.0 134.0 183.0 263 8 873 38.8
8 7 Pliva Group Croatia Pharmaceuticals 181.8 915.9 384.7 587.6 2 645 7 857 39.7
9 10 TVK Ltd. Hungary Chemicals 175.4 553.2 248.9 394.3 927 5 225 37.5
10 2 Motokov a.s. c Czech Republic Trade 163.6 262.5 260.2 349.1 576 1 000 64.8
11 19 Skoda Group Plzen c Czech Republic Diversified 139.1 973.4 150.7 1 244.5 1 073 19 830 10.6
12 4 Atlantska Plovidba d.d. Croatia Transportation 138.0 154.0 46.0 d 46.0 .. 509 63.2
13 21 MOL Hungarian Oil & Gas Plc. Hungary Petroleum & natural gas 126.3 3 131.0 582.4 3 129.6 833 20 684 8.9
14 9 Krka d.d. Slovenia Pharmaceuticals 120.7 447.0 209.0 283.0 429 3 218 38.1
15 3 Adria Airways d.d. Slovenia Transportation 116.3 129.2 103.4 104.6 19 597 64.0
16 20 Petrol d.d. Slovenia Petroleum & natural gas 90.4 574.9 105.7 d 924.4 75 235.6 10.1
17 16 Slovnaft a.s. Slovakia Petroleum & natural gas 82.8 1 367.1 627.5 1 035.7 119 7 540 22.7
18 5 Zalakerámia Rt. Hungary Clay product & refractory 69.0 125.0 39.0 64.0 2 022 3 066 60.7
19 18 Matador j.s.c. c Slovakia Rubber & plastics 51.9 305.0 34.0 203.4 5 3 878 11.3
20 13 Malev Hungarian Airlines Ltd. Hungary Transportation 43.3 206.3 274.1 367.5 49 3 162 32.4
21 22 KGHM Polska Miedz SA Poland Mining & quarrying 34.0 1 266.0 265.0 1 155.0 25 28 300 8.6
22 14 Croatia Airlines d.d. Croatia Transportation 29.9 288.6 60.2 d 77.9 39 842 30.8
23 25 Elektrim SA c Poland Diversified 21.0 1 228.0 42.0 874.0 62 26 475 2.2
24 24 Petrom SA National Oil Co. Romania Petroleum & natural gas 19.0 2 970.0 211.0 2 041.0 67 82 054 3.7
25 17 Intereuropa d.d. Slovenia Trade 16.0 168.0 17.0 136.0 511 2 103 15.4
Averages 265.0 1 144.2 377.4 1 068.1 1 011 15 254 32.4 e
Change (in per cent) 19.7 3.3 36.2 8.3 64.0 0.8 5.8

Source : UNCTAD survey of the largest TNCs in Central and Eastern Europe.
a Based on survey responses.
b The index of transnationality 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 1998 data.
d Including export sales by parent firm.
e Unweighted average.
T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S
115
116 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

There are two reasons why the an offer to take over all the remaining shares
potential pool of enterprises that could be of that firm.
listed in the top 25 is small. First, in the
case of Central and Eastern Europe, it is Some of the top 25 firms have been
often foreign affiliates that undertake FDI active in cross-border M&As. Between 1997
abroad. 8 The second reason is that some of and May 2001, 6 firms carried out 21
the top 25 firms become targets of transactions (table III.18). These
acquisitions, as in the case of VSZ Kosice transactions are not necessarily limited to
mentioned above or in the case of Slovnaft, neighbouring countries. In fact, Lukoil was
taken over by MOL Hungarian Oil & Gas the first Russian company to acquire in 2000
Plc. in 2000 (UNCTAD, 2000, pp. 92-93). an oil company in the United States (box
In May 2001, MOL, which already owned III.2).
32.9 per cent of the shares of TVK, made

Table III.17. Gazprom: selected equity investments outside the Russian Federation by 2001
Share
Target firm Host country (Per cent) Activity

GHW Austria 50 Gas trading

Belgazprombank Belarus 34.99 Banking
Brestgazoapparat Belarus 51 Gas equipment manufacturing
Topenergo Bulgaria 50 Gas trading and transport
Eesti Gaas Estonia 30.6 Gas trading and transport
Gasum Oy Finland 25 Gas distribution and transportation
North Transgas Oy Finland 50 Construction of a pipeline beneath the Baltic Sea
FRAgaz France 50 Gas trading
Ditgaz Germany 49 Gas trading
Verbundnetz Gas Germany 5.3 Gas transportation and marketing
Wingas Germany 35 Gas transportation and storage
Wintershall Erdgas Handelshaus Germany 50 Exclusive trader until 2012 for all the gas
exported by Gazeksport (Russian Federation)
Zarubezgas Erdgashandel Germany 100 Gas trading
Prometheus Gaz Greece 50 Marketing and construction
Borsodchem Hungary 25 a Petrochemicals
DKG-EAST Co. Inc. Hungary 38.1 Oil and gas equipment manufacturing
General Banking and Trust Co. Ltd. Hungary 25.5 Banking
Panrusgas Hungary 40 Gas trading and transport
TVK Hungary 13.5 a Petrochemicals
Promgaz Italy 50 Gas trading and marketing
Volta Italy 49 Gas trading and transport
Latvijas Gaze Latvia 16.25 Gas trading and transport
Stella-Vitae Lithuania 30 Gas trading
Gazsnabtransit Moldova, Republic 50 Gas trading and transport
Peter-Gaz Netherlands 51 Gas trading
Europol Gaz Poland 48 Gas transport
Gas Trading Poland 35 Gas trading
WIROM Romania 25 b Gas trading
Slovrusgaz Slovakia 50 Gas trading and transport
Tagdem Slovenia 7.6 Gas trading
Gamma Gazprom Turkey 45 Gas trading
Druzhkovskiy zavod gazovoi apparatury Ukraine 51 Gas equipment manufacturing
Institut Yuzhniigiprogaz Ukraine 40 ..
Interconnector United Kingdom 10 Bacton (United Kingdom)-Zeebrugge (Belgium )
pipeline
JugoRosGaz Yugoslavia 50 Gas trading and transport
Progress 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.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 117

Figure III.15. Global expansion of Pliva d.d.

By 1990

Note: There were 2 foreign affiliates established in 1974 (Russian Federation and United States).

By 2001

Note: Based on 28 foreign affiliates identified, 14 of which are representative offices.

Source : UNCTAD, based on data provided by Pliva d.d.

 Table III.18. Selected publicly announced cross-border mergers and acquisitions involving the largest 25 firms, January 1997 to May 2001
118

Value of Share
transaction acquired
Year Acquirer Country Acquired firm Country Industry of acquired firm (million $) (Per cent)

1997 MOL Hungarian Oil & Gas Plc. Hungary Amoco Romania Petroleum Romania Gasoline stations .. 100.0
1997 TVK Ltd. Hungary Plastico SA Romania Plastic Products .. 67.5
1997 Zalakerámia Rt. Hungary Cesarom Romania Clay product & refractory 9.0 62.0
1997 Zalakerámia Rt. Hungary Inker Croatia Clay product & refractory 6.5 85.8
1997-2000 Pliva Group Croatia Polfa Krakow a Poland Pharmaceuticals 167.8 89.2
1998 Lukoil Oil Co. Russian Federation Petrotel SA Romania Petroleum & natural gas 56.0 51.0
1998 Pliva Group Croatia Fermenta Trebisov b Slovakia Yeast 1.3 100.0
1998 TVK Ltd. Hungary Plastico SA Romania Plastic products 1.6 19.5
1998 Zalakerámia Rt. Hungary Keramika Horni Briza c Czech Republic Clay product & refractory 13.7 36.2
1999 Lukoil Oil Co. Russian Federation Neftokhim Bulgaria Petroleum & natural gas 101.0 e 58.0
1999 Lukoil Oil Co. Russian Federation Odessa Oil Refinery Ukraine Petroleum & natural gas 6.5 51.9
1999 Pliva Group Croatia Farmacom Poland Pharmaceuticals 4.8 100.0
1999 Pliva Group Croatia Mixis Genetics France Pharmaceuticals 3.3 100.0
1999 Podravka Group Croatia Podravka Kft (Cerere s.r.l. Italy’s share) Hungary Food & beverages .. 50.0
1999 TVK Ltd. Hungary Hamburger Unterland d Austria Plastic products 27.2 f 74.0
1999-2000 Pliva Group Croatia Lachema a.s. Czech Republic Pharmaceuticals 32.2 95.9
2000 Lukoil Oil Co. Russian Federation Getty Oil Plc. United States Petroleum & natural gas 71.0 100.0
2000 MOL Hungarian Oil & Gas Plc. Hungary Slovnaft a.s. Slovakia Petroleum & natural gas 262.0 36.2
2000 Pliva Group Croatia Lachema a.s. Czech Republic Pharmaceuticals 4.9 26.0
2000 Pliva Group Croatia Pharmascience UK Ltd. United Kingdom Pharmaceuticals 5.0 100.0
2001 Pliva Group Croatia AWD Germany Pharmaceuticals 42.6 100.0
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Source : UNCTAD, based on firm reports.

a Renamed Pliva Krakow in 1998.
b Resold in 2000.
c Subsequently reclassified as financial investment.
d Resold in 2001.
e Plus tax arrears of about $ 260 million.
f Estimate.
CH A P T ER III T H ELA R G ES T T R A N SN AT IO N AL CO R P O R AT IO N S 119

Box III.2. Lukoil’s acquisition of Getty Petroleum

Lukoil purchased Getty Petroleum Marketing Inc. for $71 million at the end of 2000. The
First Vice President of Lukoil stressed in this respect that “This is the first acquisition of a
publicly held American company by a Russian corporation, and it is the first step in our expected
expansion into the U.S. market. It is an excellent opportunity for LUKOIL because it gives us
entree 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 heating
oil and other petroleum products. The principal shareholders of Getty (which collectively owned
approximately 40 per cent of Getty’s common stock) agreed to the transaction, subject to certain
conditions. 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 the
United 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 capabilities
as a world class integrated oil company is going to create a formidable new company,” said
the chairperson and chief executive officer of Getty Petroleum Marketing (Lukoil, 2000, p. 2).
Source: Lukoil, 2000.

Notes

1 Financial firms are not included because 6 These data were collected through a
of the different economic functions of assets questionnaire survey organized by UNCTAD
of financial and non-financial firms and that took place in February-June 2001 and
the unavailability of relevant data for the covered close to 100 firms from 15 Central
former. and Eastern European countries. The
2 These estimates are based on the estimates integration of Russian firms into this list
of the 1999 sales, assets and employment has been made possible by improved
of foreign affiliates of TNCs, as given in reporting and improved response rate by
table I.1. These ratios, especially those firms from that country to the survey
relating to sales and assets, should be questionnaire.
treated with caution, as the data on the 7 As reported in the top 500 list of the
foreign assets and sales of the top 100 Financial Times, http://specials.ft.com/
TNCs, mostly obtained through a ft500/may2001/eastern.html.
questionnaire completed by firms, may 8 Apart from the Estonian cases already
not necessarily correspond exactly to the mentioned, the most salient example is
definition of foreign assets and sales used the investment of Hungary's Matav, majority
in table I.1. controlled by Deutsche Telekom, into
3 The average transnationality index of the Maktelekom (TFYR Macedonia), carried
world's top 100 TNCs is the average of out at the end of 2000. Another case is
the 100 individual transnationality indices. an investment by German-Austrian
4 It should also be noted that many shipping controlled Dunapack (Hungary) into
companies have registered their fleets Romania. Similarly, the Czech affiliate of
(which often represents a substantial part Germany's RWE Entsorgung has invested
of their total assets) in so-called "flag-of- in Romania, and Swedish-owned Czech
convenience" countries for tax or other Pramet in Bulgaria, while United States-
reasons. owned Europharm Brasov has invested
5 The TNIs for the top 100 group were in from Romania in the Republic of Moldova.
1999 higher in all industry categories shown
in table III.14 than the corresponding figures
for the top 50 group.
120 W orld Inve stm ent R e port 2001: P rom oting Linka g e s
 CONCLUSION

orld FDI flows are industrializing developing countries and

W
expanding unabated. Their transition economies. Within countries, FDI
pace of growth surpasses tends to be fairly concentrated
that of most other economic geographically, responding to the same
aggregates. As a result, agglomeration economies that influence
the role of international local firms. These economies relate to
production in the global economy is on the proximity to markets and factors of
rise. FDI liberalization, too, proceeds with production, and the availability of
a multitude of favourable changes in national specialized skills, innovatory capabilities,
regulatory regimes and supporting treaty suppliers and institutions.
making at the international level. With the
growing knowledge intensity of economic The geographical concentration of
activity, TNCs play a key part in creating international production reflects the
and applying advanced technologies and locational attractions of particular sites.
managerial practices across the globe. They These attractions arise from several factors:
also account for a large proportion of world natural resources, larger markets and
trade; about a third of world trade is in the competitive complementary inputs for TNC
form of intra-firm trade. In addition, they activity. The even stronger concentration of
influence international trade indirectly by outward FDI means that only a few home
setting up extensive networks of countries have so far created the competitive
procurement and subcontracting relations advantages needed for a significant number
with other firms. of their firms to invest abroad. Together,
these are the regions, countries and sub-
The location of TNC operations and national areas that benefit more from, and
functions is changing in response to new exercise control over, international
technologies, more liberal policies and production.
intensified competition. During the past two
decades, the geographical spread of The geographical concentration of
international production has expanded FDI often reflects the size and economic
noticeably. Nevertheless, it is far from strength of the recipient economies. Low
evenly distributed across the globe in absolute amounts of FDI inflows into small
absolute terms. Developed countries and, in economies, like the least developed
particular, the Triad continue to dominate, countries, may represent relatively high
receiving over three-fourths of global FDI shares of their incomes or total investments.
inflows and originating over four-fifths of The Inward FDI Index provides a
outward FDI flows in 1998-2000. comparative picture of how host countries
Developing countries have increased their fare with respect to inward FDI after
participation in international production – adjusting for their size, measured by GDP;
both as recipients of FDI and as outward labour force, measured by number of
investors – during much of the 1990s, but employed persons; and their competitive
their share as recipients has fallen during advantages as revealed in export
the past two years. The world’s top 30 host performance. Ranking by the Index shows
countries account for 93 per cent of inward that, in 1998-2000, the top economies in this
FDI flows and 90 per cent of stocks; the respect were Belgium and Luxembourg,
top 30 home countries account for around Hong Kong, China, Ireland, Sweden, and
99 per cent of outward FDI flows and stocks. The Netherlands. The value of the Index
The latter are mainly industrialized varies widely among individual countries.
economies and a few large or newly Although differences diminish to some
122 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

extent when groups of countries are The geography of FDI can also be
considered, there are also some noticeable extended to the level of such corporate
differences among them: the Index shows functions as R&D and financial management.
that South America, Central Asia and the Efficiency considerations, coupled with
African LDCs receive FDI in line with or technological advances enabling real-time
above their average shares of global GDP, links across long distances and the
employment and exports, but the majority liberalization of trade and FDI policies,
of developing regions do not. The patterns encourage a greater spread of all corporate
suggest that there are economic factors other functions. In some industries, this has led
than those captured by the Index that to the growth of integrated international
influence a country’s international position production systems spanning regions (as in
with respect to inward FDI. They also automobiles) or continents (as in
suggest that government policies can lead semiconductors). Within these complex
to much higher FDI inflows than those systems, the functions transferred to
predicted by a country’s economic size and different locations vary greatly. Less
strength. industrialized locations are assigned simpler
tasks like assembly and packaging, while
Large TNCs dominate international industrially advanced locations are assigned
production. Some 90 per cent of the world’s more skill- and technology-intensive
largest 100 TNCs are headquartered in the functions.
Triad. The electrical and electronic
equipment, motor vehicle, and petroleum International production tends to
exploration and distribution industries cluster in particular locations in home and
account for over a half of the world’s top host countries, often near other firms and
100 TNCs. The top 50 TNCs from institutions. Major reasons for clustering are
developing countries originate in 13 newly proximity to innovative and dynamic firms
industrializing economies of Asia and Latin and research centres and pools of knowledge
America (and South Africa) only. The largest and skills created by agglomerations. TNCs
of these TNCs from developing countries may also develop new clusters in host
are as large as the smallest of the top 100 countries that are later joined by indigenous
worldwide. They congregate in construction, firms. As developing countries move up the
food and beverages, and diversified value chains of international production, the
industries. The largest TNCs from Central role of clusters in attracting and retaining
and Eastern Europe are more evenly international production tends to increase.
distributed among home countries: nine
countries of the region figure in the list of The drivers of FDI location have
the region’s top 25 TNCs. Transport, mining, important policy implications at the regional,
petroleum and gas and chemicals and national and local levels. Natural resources
pharmaceuticals are the most frequently and unskilled labour – and perhaps even
represented industries in the list of the top national markets – are decreasing in
25 TNCs based in that region. significance. The new drivers are skills,
technological capabilities, supply networks,
The locational patterns of good logistics and strong support institutions
international production differ not only by to attract FDI. Their development becomes
country but also by industry, and they change key to attracting international production.
over time, partly in response to the changing
industrial composition of FDI. Within This raises important policy
manufacturing, geographical concentration challenges for the developing world. Many
is related to the technological level of the countries, in particular the poorer and least
activity: the more advanced a technology, developed ones, are increasingly marginal to the
the higher the level of concentration. In less dynamics of international production.
technology-intensive activities and where Simply opening an economy is often no
proximity to customers matters – as with longer enough to attract sustained inflows
many service industries – FDI is more of FDI and to upgrade its quality.
dispersed. In some industries, trade Governments need to take a more active and
liberalization has allowed firms to reduce targeted approach, especially if they seek
the number of production sites.
CO N CLU SIO N 123

to attract competitive and export-oriented from it need to develop differentiated and

FDI. And part of such an approach is that efficient clusters that offer real and
countries need to identify and develop, over identifiable locational advantages to
time, distinct configurations of locational international investors and eventually
advantages. become brand names recognizable to any
national or international investor seeking
Different configurations of locational this particular configuration of advantages.
advantages attract different corporate Bangalore in India has such a “brand name”
functions, and these may be either industry for the development of software, as do
specific or cut across industries. They offer Singapore and Hong Kong, China for
several efficiency benefits to firms located financial services and regional headquarters.
in them. In some high-technology industries
like electronics it may be possible to attract Using clusters to attract FDI calls for
final-stage assembly on the basis of cheap new promotion policies, going beyond the
semi-skilled labour and efficient export- first and second generations of investment
processing facilities. In other activities, promotion policies. In the first generation
production facilities may require developed of investment promotion policies, countries
supply chains within an economy, a wide simply liberalize their FDI regimes: they
range of skills, interacting with other firms reduce barriers to inward FDI, strengthen
and knowledge-producing institutions in standards of treatment for foreign investors
close proximity. Some back-office activities and enhance the functioning of markets
may require specialized skills (e.g. in (WIR94). Virtually all countries – to be sure,
accounting). High value functions like R&D in varying degrees – have, over the past
or regional headquarters are particularly decade or so, undertaken steps in this
demanding of advanced skills and direction. The assumption was that, once an
institutions. This is why many activities enabling framework is in place, FDI inflows
(natural resource extraction apart) tend to will increase. Many countries, especially
agglomerate in specific locations, a process those with weak institutions, can go a long
further helped when firms concentrate on way in attracting FDI in this manner, if the
core activities, outsourcing others. basic economic determinants for obtaining
FDI are right ( WIR98 , ch. IV).
Investors – domestic and foreign
alike – seek to take advantage of such In the second generation of investment
clusters. In joining a cluster, they often add promotion policies, governments go further
to its strength. Where agglomeration and actively seek to attract FDI by
economies are significant, the rest of the “marketing” their countries (Wells and Wint,
country might be of little relevance to their 1990). This approach finds its typical
locational decisions. Hence, attracting FDI expression in the establishment of national
in these activities depends increasingly on investment promotion agencies. In 2001,
the ability to provide efficient clusters. An over 160 of such national agencies existed,
international bank’s location choice is not of which over 100 were members of the
so much a choice between the United World Association of Investment Promotion
Kingdom and Germany as between London Agencies, established in 1995. Again, of
and Frankfurt. course, the success of proactive efforts
depends, in the end, on the quality of the
In today’s highly competitive world basic economic FDI determinants.
economy, successful firms differentiate
themselves from their competitors by The third generation of investment
developing clearly identifiable products with promotion policies takes the general
recognizable brand names. The ability to enabling framework for FDI and a proactive
attract FDI, especially high quality FDI, approach towards attracting FDI as a starting
increasingly needs a similar “investment point. It then proceeds to target foreign
product”: the world market for FDI is just investors at the level of industries and firms
as competitive as that for goods and services. and in light of a country’s developmental
One implication of this is that countries that priorities. The objective is to match the
want to attract high quality FDI and benefit immobile locational advantages of a country
124 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

with the mobile competitive advantages of policies across various administrative levels
firms, with a view towards upgrading the in a country. If that is not done, there is a
former. Such a strategy is greatly helped if risk that competition among regions within
a country can nurture specific clusters that a country leads to “fiscal wars” and results
b u i l d o n t h e c o u n t r y ’s c o m p e t i t i v e in waste as far as the welfare of the country
advantages, that capitalize on the natural as a whole is concerned.
inclination of firms to agglomerate, and that
eventually acquire a brand name. 1 Thus, Regardless of the level at which FDI
investment promotion increasingly needs to is promoted – and regardless of the precise
improve – and market – particular (sub- mix of the three basic investment-promotion
national) clusters that appeal to potential strategies outlined above that is pursued –
investors in specific activities. Of course, the competitiveness of the domestic
a country’s general economic, political and enterprise sector (including a pool of skilled
regulatory features also matter because they people) is the key to the “product”. Strong
affect the efficiency of the clusters within local firms attract FDI; the entry of foreign
it. But the key to the success of such new affiliates, in turn, feeds into the
investment promotion strategies is that they competitiveness and dynamism of the
actually address one of the basic economic domestic enterprise sector. The strongest
FDI determinants. channel for diffusing skills, knowledge and
technology from foreign affiliates is the
It must be recognized, however, that backward linkages they strike with local
such a targeted approach, and especially the firms. This can contribute to the growth of
development of locational brand names, is a vibrant domestic enterprise sector, the
difficult, costly and takes time. Moreover, bedrock of economic development. For
a more targeted and fine-tuned approach – developing countries, backward linkages are
which, in the end, seeks to match the specific therefore particularly important. The
functional needs of corporate investors with challenge then is how to promote backward
specific locational products – requires fairly linkages – regardless of the type of
sophisticated institutional capacities. It is, investment promotion policies that a country
however, facilitated by the proliferation of pursues. This is the topic of Part Two of
sub-national agencies (of which a minimum this report .
of 240 exist today), and also even by
municipal investment promotion agencies Note
that as a rule, seek to market more specific
investment products. But this gives rise to 1 Jamaica is considering a branding strategy
another challenge: the need to coordinate for attracting FDI; see Bloom et al., 2001.
 PART TWO

PROMOTING LINKAGES
BETWEEN FOREIGN AFFILIATES
AND DOMESTIC FIRMS
 INTRODUCTION

ith the growing importance tend to be of greater competitive significance

W
of FDI in economic life, than those among domestic firms because
host countries seek not just of the stronger knowledge and skills base
more such investment, but of many foreign affiliates. Linkages with
are also increasingly foreign affiliates can therefore be of great
interested in its quality, in importance to the dynamism and
terms of benefits for sustainable economic competitiveness of the domestic enterprise
development. Perhaps the most important sector – the bedrock of economic
way to tap these benefits is through production development. Foreign affiliates, in turn, can
linkages between foreign affiliates and benefit from backward linkages as they can
domestic firms. Such linkages can take several reduce costs and enhance access to local
forms: backward , forward or horizontal tangible and intangible assets. Hence there
(table IV.1). Backward linkages exist when is a substantial mutual interest between
foreign affiliates acquire goods or services foreign affiliates and domestic firms to create
from domestic firms, and forward linkages and deepen backward linkages.
when foreign affiliates sell goods or services
to domestic firms. Horizontal linkages Foreign affiliates, of course, do not
involve interactions with domestic firms only link to domestic firms but also link,
engaged in competing activities. Linkages, and quite frequently so, to other foreign
broadly defined, can also involve non-business affiliates in a host country. However,
entities like universities, training centres, backward linkages to other foreign affiliates,
research and technology institutes, export while often unquestionably important, do
promotion agencies and other official or not offer the same type of benefits for host
private institutions. developing countries as those between foreign
affiliates and domestic (i.e. domestically
The focus of Part Two of this report owned) enterprises. The main reason is that
is on the backward linkages of foreign domestic firms in developing countries are
affiliates with domestic firms in host generally behind foreign affiliates as regards
developing countries. These are defined technology, human resources and other
as transactions that go beyond arm’s length, competitiveness-related factors, and hence
one-off relations (as in buying standardized would benefit more in terms of capacity-
products off the shelf) and involve longer- building than would other foreign affiliates.
term relations between firms. In fact, a Linkages with domestic firms are therefore
very large proportion of intra-industry the primary focus of Part Two. The
transactions in every country involves linkages discussion, furthermore, ignores linkages
in this sense, marked by sustained exchanges between domestic enterprises and foreign
of information, technology, skills and other firms that have no local direct investments
assets. Linkages are of particular significance (e.g. foreign buyers with supply contracts
to developing host economies, because they in developing countries). While these can
provide a means of diffusing valuable also be channels for transfers of technology,
knowledge throughout the economy – through information and skills, they involve different
direct flows to the linked firms as well as mechanisms and policies that are not the
spillovers to and from the latter. The benefits focus of analysis here.
provided through linkages with foreign affiliates
128 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Linkage promotion is not a new policy promote inefficient linkages, for instance,
issue for developing countries (see, for by forcing their formation under protected
example, Lall, 1980; UNCTC, 1981), but conditions, such that the linked supplier
it deserves renewed attention. To begin with, enterprises never become internationally
FDI has become much more important in competitive. This is costly for the host
virtually all developing countries (see Part economy, breeding inefficiency and high-
One); hence the issue of how to benefit cost production structures. More generally,
from it has also become more important. there are trade-offs between deeper linkages
Moreover, the economic setting is changing, and greater dependence of suppliers on
and with it TNC procurement and supply buyers.
chain management strategies. Intensified
competition, policy liberalization and new Chapter IV provides the background
organizational practices are leading firms to the policy discussion, outlining the
to raise their reliance on external suppliers significance of backward linkages for host
of goods and services. This opens up new economies and the determinants of linkage
possibilities for greater (and often higher formation. It also reviews the evidence on
quality) linkages and makes the availability foreign affiliate initiatives to create and
of suppliers a more important factor in deepen backward linkages in host developing
attracting FDI (Part One). At the same countries – without claiming that this review
time, it imposes more stringent technological, is exhaustive or that the cases presented
managerial and scale demands on suppliers are representative. Still, it is clear that foreign
(and on their support institutions and affiliates and domestic firms, in their own
infrastructure). self-interest, are forging linkages, and that
best practices in this area can be emulated.
Confronted with this changed At the same time, it is also clear that
landscape, governments need to adapt their whatever the current level of backward
policies. This is all the more necessary as linkages of foreign affiliates, linkages can
the ability of governments to promote efficient be increased or deepened further, with a
linkages is subject to new constraints that view towards augmenting the capabilities
reduce their policy space. In particular, some of domestic firms. This is why policies aimed
frequently used measures to promote linkages, at promoting linkages are important –
like local content requirements, are no longer precisely the topic of chapter V, the key
permissible in the context of the WTO or chapter of this Part. The conclusions in
other international agreements. It is still chapter VI highlight the main policy options
possible to promote linkages, but tools are available to host country governments and
different from those used in the past. Given provide the elements of a linkage promotion
the rising significance of linkages for domestic programme. In focusing on concrete policy
competitiveness, it is important to be aware measures and ways to combine them into
of these tools. The objective, of course, programmes, this report seeks to identify
is not just to create linkages for their own pragmatic ways in which the contribution
sake, but only when they are economically of FDI to the development of host countries
desirable and they enhance the efficiency can be enhanced.
of domestic enterprises. It is possible to
 CHAPTER IV.
BACKWARD LINKAGES: IMPACT,
DETERMINANTS AND TNC EXPERIENCE

A. Why backward managerial capabilities and market

diversification in supplier f irms. They can
linkages matter often promote exports by linked enterprises
and, under the right conditions, domestic
ackward linkages are important firms may develop to become global

B to both foreign affiliates and suppliers and/or TNCs in their own right
domestic (linked) enterprises. 1 (box IV.1). The strengthening of suppliers
Take them in turn, starting with can in turn lead to various indirect effects
affiliates. Most productive and spillovers for the rest of the host
enterprises buy a large economy. Spillovers can take place through
proportion of inputs - goods as well as demonstration effects, mobility of trained
services - from other firms. 2 The ability to labour, enterprise spin-offs and competition
source these locally can matter. If foreign effects (table IV.1). 4
affiliates can procure inputs locally,
particularly in host economies in which Box IV.1. ENGTEK: from a backyard
l a b o u r c o s t s a r e l o w, they can lower business to a global supplier
production costs (some service inputs, for
example, may be very expensive to import). Eng Teknologi Holdings Bhd (ENGTEK),
If they can subcontract directly to local headquartered in Penang, Malaysia, is a global
suppliers, they can increase their supplier for the computer hard disk drive and
specialization and flexibility, and adapt the semiconductor industries. This holding
has nine companies in four countries (China,
technologies and products better and faster
Malaysia, the Philippines and Thailand). Some
to local conditions. Technologically
2,000 employees generated a total revenue
advanced suppliers can provide affiliates of about $63 million during the fiscal year
with access to a pool of external 2000, while cumulative capital investment
technological and skill resources, feeding reached more than $34 million in that year.
into their own innovative efforts. The trend ENGTEK is run by a professional management
to greater outsourcing and to concentration team and has been quoted on the Kuala Lumpur
on core competencies raises the competitive Stock Exchange since 1993, moving to its main
benefits of having efficient support firms board in 1999.
close by. This is why strong supplier clusters
are of growing importance in the location Some 25 years ago, in 1974, the company
decisions of firms, particularly for high started with a seed capital of $200, as a tiny
value activities and functions (see Part One). family-run venture that produced jigs and fixtures
in a make-shift backyard facility. What are
the main reasons for this exemplary growth
Domestic suppliers can also benefit
from a no-name small and medium enterprise
from linkages with foreign affiliates. First,
(SME) to a high-precision manufacturer that
linkages raise output and employment in supplies competitive, quality value-added
linked supplier enterprises. The indirect products and services to several global players
effects on supplier capabilities are probably in the electronics industry?
more important. Linkages can be powerful
channels for diffusing knowledge and skills First of all, there is the entrepreneurial
between firms. 3 Inter-firm linkages nearly drive and the commitment of the founder family,
always entail an exchange of information, including the vision of becoming the “best-
technical knowledge and skills. Strong in-class” technology corporation, the continued
linkages can promote production efficiency, technological and managerial upgrading of
p r o d u c t i v i t y g r o w t h , technological and the company to achieve this goal, as well as
/...
130 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Knowledge diffusion through

Box IV.1. ENGTEK: from a backyard linkages with foreign affiliates can offer
business to a global supplier specific long-term (or dynamic) benefits to
(concluded) host developing countries. Where, as in
industrial countries, both buyers and
the uncompromising stand on product quality, suppliers are technologically strong and
price and reliability concerning on-time delivery. capable, knowledge flows run in both
Secondly, ENGTEK grew up in a policy directions. Their focus is then often on new
environment conducive to enterprise technologies, products and organizational
development. Under Malaysia’s Vendor methods. Where, as in most developing
Development Programme, TNCs have been countries, local suppliers are relatively weak
encouraged to assist local suppliers to become in technological terms, the flows are likely
competitive at the global level. In addition, to be more one-sided, from foreign affiliates
the Government accorded pioneer status to to their domestic suppliers. They are also
select local SMEs, which entitled them to likely to contain more basic technological
generous tax rebates, thus strengthening their and managerial knowledge, in that the
investment base. ENGTEK has benefited from suppliers are likely to lag behind
both factors. Thirdly, ENGTEK has engaged international best practice frontiers. At a
in closely-knit partnerships with TNCs. For
time when the international competitive
example, Intel provided financial as well as
setting makes it imperative for developing
technical assistance needed for the company
to produce semi-automated wire bonders in
country enterprises to upgrade technology
1981. With partners such as Advanced Micro and skills to best practice levels, this is of
Devices, Bosch, Fujitsu, Hewlett Packard, particular importance.
Maxtor, Readrite and Seagate, ENGTEK has
been involved in designing products, bringing There is another advantage of
in its specific experience in product development linkages between foreign affiliates and
and gaining a competitive edge vis-à-vis potential domestic firms: they increase the local
competitors. As a first-tier supplier company, integration and “rooting” of TNCs and make
ENGTEK has been able to link up to the global them less footloose. Since backward linkages
production systems of its TNC clients, moving involve cost and effort by affiliates, stronger
up the value chain over time. Partnerships linkages make it more difficult for them to
also helped ENGTEK to internationalize and divest. Moreover, TNC linkages with SMEs
to become a TNC on its own. Finally, ENGTEK can promote the formation and upgrading
realized very early the risks related to an of industrial clusters in host economies, an
undiversified portfolio both of partners and important component of competitiveness
products. To avoid dependence on one single (see Part One; Altenburg and Meyer-Stamer,
customer, ENGTEK consciously put efforts 1999).
into absorbing technology from a number of
clients. It widened its range of products, However, not all linkages are equally
diversifying, e.g., from precision tools into beneficial for a host economy; some may
manufacturing of disk-drive components. be harmful. For instance, firms may strike
Moreover, it developed is own technology for
considerable linkages in protected industries
original equipment manufacturing and achieved
in which there is inadequate incentive to
original design manufacturing capabilities,
which further reduced its dependency on any
invest in technological capabilities. Where
particular foreign affiliate. such linkages lead to an uncompetitive
supplier base, there is a net economic cost
S o u r c e : U N C T A D , b a s e d o n E N G T E K ’s to the host economy. 5 This does not mean
presentation at the workshop on that there is no scope for promoting infant
Technological and Managerial industries. But there is a difference between
Upgrading of SMEs through Linkages judicious, highly selective and temporary
with TNCs, Penang, 8-9 August 2000, protection to foster technological learning
organized by UNCTAD and INTEL;
interview with Alfred Teh Eong Liang,
(say, in strongly export-oriented regimes)
CEO, ENGTEK, 10 August 2000; and open-ended protection to firms –
www.engtek.com ; a n d R a s i a h , 1 9 9 9 , domestic or foreign – that deters learning
pp.238-242 and upgrading.
CH A P T ER IV BACKWARD LIN KAG ES:IM PACT,
DET ER M IN AN TS AN D T N C EXPER IEN CE 131

Linkages may also involve excessive such as first-tier suppliers in developed

costs for a host economy even under countries, interact increasingly with
relatively open conditions. The reason lies customers in developing new technologies
in the size and market power of foreign and products.
affiliates. Exclusive linkages with large,
monopsonistic foreign affiliates can lead to Foreign affiliates may be in a strong
anti-competitive practices and unfair terms bargaining position with respect to suppliers,
and conditions for suppliers (Altenburg, and so apportion to themselves a large share
2000). The distribution of benefits between of the benefits of the relationship. For
buyers and sellers is subject to bargaining. example, some foreign affiliates exact
Much depends on the technological content periodical price cuts from their suppliers
of, and value added by, the activities (Brimble, 2001). Suppliers of simple price-
undertaken by suppliers. Suppliers of high sensitive inputs may, in addition, have to
value-added and sophisticated products and compete with each other by cutting costs,
services are generally better placed to making it difficult for them to raise revenues
benefit from linkages than those selling and pay higher wages. Such suppliers may
simple products. Not only may the former be forced to bear a high share of the risk
receive higher shares of the revenues of market fluctuations. Moreover, where
generated by their buyers, they may also employees in supplier firms have lower
have greater scope for enhancing their levels of job security and lower rates of
technological and organizational capabilities unionization than employees in affiliates,
via linkages. The most advanced suppliers, there is another risk: outsourcing may be

Table IV.1. Backward linkages and other relationships between foreign affiliates and
local enterprises and organizations a

Relationship of foreign affiliate to local enterprise Relationship of foreign affiliate

to non-business institution
Backward Forward Horizontal
Form (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 or

linkage intermittent purchases intermittent sales
(on contract) (on contract)

Longer-term • Longer-term (contractual) • Longer-term • Joint projects with • R&D contracts with local
linkage arrangement for the (contractual) relation- competing domestic firm institutions such as universities
procurement of inputs for ship with local distri- and research centres
further processing butor or end-customer • Training programmes for firms
• Subcontracting of the • Outsourcing from by universities
production of final or inter- domestic firms to • Traineeships for students in
mediate products foreign affiliates firms

Equity • Joint venture with supplier • Joint venture with • Horizontal joint venture • Joint public-private R&D
relationship • Establishment of new distributor or end- • Establishment of new centres/training
supplier-affiliate (by customer affiliate (by existing foreign centres/universities
existing foreign affiliate) • Establishment of new affiliate) for the production
distribution affiliate (by of same goods and
existing foreign affiliate) services as it produces

“Spillover” • 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.
132 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

used as a means to reduce employment in will occur. Moreover, linkages with large
affiliates and to transfer pressure onto foreign affiliates, like those with all large
employees in supplier firms where terms of firms, raise risks - such as the possibility
employment and remuneration may be less for domestic suppliers of facing
formalized (ILO, 2001a, pp. 41-48; Blum, anticompetitive practices, unequal
2001; Harrison, 1994); this is especially the bargaining positions and excessive
case with respect to lower-tier suppliers. dependence.
However, the tendency of larger and stronger
firms to try to shift the burden of adjusting Box IV.2. Linkages to first-tier
to falling demand to suppliers with limited foreign suppliers
bargaining power, or to source from
enterprises with no, or less formal, Many foreign investments are followed
employment arrangements to reduce labour by an inflow of FDI by key foreign suppliers.
costs, applies regardless of ownership. This phenomenon (“sequential investment”)
is particularly marked in the automobile and
Where affiliates are “footloose” and automobile-parts industry, and in some segments
prone to shift to lower cost locations as of the electronics industry (UNCTAD, 2000a).
wages rise, local suppliers may again be In Brazil, for example, foreign component
forced to bear a high risk. The risk this time suppliers have located operations close to the
is of closure rather than of lower returns. final assembly plants of the leading carmakers
Finally, there is a risk that local firms are that have invested in the country. In 2000,
displaced by first-tier suppliers that follow General Motors opened a new factory in
the lead firm to a new location (box IV.2). Gravatai, Brazil. The plant was designed and
Even where TNCs stay, there is a risk to developed jointly by General Motors and 16
suppliers that become “locked in” to large of its global suppliers. a Given the increasing
need to rely on local sourcing, associate
buyers. Their fortunes become tied to those
investments by the supplier TNCs were necessary
of their main customers, exposing them to
for General Motors’ investment to function.
potential pressure from them and to losses However, while all but one of General Motors’
if the latter lose competitiveness. The same first-tier suppliers to the Gravatai plant are
risks arise, of course, from being locked into foreign-owned, all use Brazilian suppliers at
large domestic buyers. the second- or third-tier of the supply chain.
Similar developments have been observed for
In sum, backward linkages of foreign other car manufacturers and in other parts of
affiliates matter for host developing the world (Humphrey, 1998; Mortimore, 1997;
countries because they provide opportunities Pries, 1999). Similarly, in the TV industry
for production and employment by domestic in Tijuana, Mexico, foreign components
suppliers. More importantly, they constitute suppliers, notably from Asia, established
a direct channel for knowledge diffusion that operations in Mexico to follow United States
can assist in upgrading domestic suppliers, and Japanese TV assembly TNCs (Carrillo,
technological and other capabilities, with 2001, p.9).
spillover effects on the rest of the economy.
Such knowledge diffusion is of particular Technological and scale factors often mean
importance for domestic firms that are still that first-tier suppliers to final assemblers
catching up with internationally competitive in industries such as automotives are foreign-
practices. The ability of foreign affiliates’ owned. In some cases, domestic supplier firms
linkages to contribute to domestic supplier are taken over by foreign firms. However,
development cannot, however, be taken for linkages between first-tier foreign affiliate
granted. It depends on the markets in which suppliers and domestic firms tend to develop
at the second- and third-tier levels.
foreign affiliates operate and therefore the
incentive that they have to set up Source : UNCTAD, based on various sources.
internationally competitive operations. It a Tim Burt, “Components of an output revolution”,
also depends on the capabilities of domestic Financial Times, 10 April 2001 and company
firms. Where these are weak, few linkages interview.
CH A P T ER IV BACKWARD LIN KAG ES:IM PACT,
DET ER M IN AN TS AN D T N C EXPER IEN CE 133

B. Linkage determinants upgrading and monitoring external suppliers.

For affiliates with valuable proprietary
technologies, internalization also reduces
A firm in any location has three the risk of parting with valuable
options for obtaining inputs. It can import technological assets that can then leak out
them, produce them locally in-house or to competitors.
procure them locally from other (foreign or
domestic) suppliers (figure IV.1). The extent However, producing inputs in-house
to which foreign affiliates actually develop also involves several costs. There is the
linkages with domestic firms differs capital cost of setting up production
considerably (box IV.3). Foreign affiliates facilities. There are further costs in
tend to be in a different position from local managing the production process. If inputs
firms: they come with international supply enjoy scale economies and a firm is unable
chains and with established suppliers that to reap them as fully as an independent
know their technical, quality, scale and cost supplier (that serves a number of customers),
needs and have the capability to keep up it will suffer from higher costs. If a firm
with changing technologies. As a result, has to undertake activities very different
TNCs often find it economical to import from its main area of specialization, it may
inputs from these suppliers rather than buy face inefficiencies and overextend its
locally. Where they need to procure inputs organizational and technological capacity
locally, they may find it more efficient to (Richardson, 1972; Penrose, 1959). Large
“internalize” them (produce in-house) firms – particularly foreign affiliates in
because of their technological advantages developing countries – may also have to pay
over local firms. There may be other much higher wages than small domestic
advantages in internalization: to avoid the firms.
costs of searching for, negotiating with,

Figure IV.1. Strategic options for foreign affiliates with regard to obtaining inputs

Source : UNCTAD.
134 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Box IV.3. Evidence on backward linkages

The extent to which foreign affiliates establish backward linkages with domestic suppliers
is 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 backward
linkages with domestic firms:

- Local content indicates the share of total outputs - components or intermediate products
and ancillary products and services - produced locally. This includes inputs produced
by local (foreign and domestic) suppliers, i.e. local sourcing, as well as those produced
in-house by the foreign affiliates.
- Local sourcing indicates the share of inputs supplied by firms in a host country, but
very often there is no information available on the ownership of suppliers (domestically
owned or foreign-owned).
- Finally, sometimes the definition of local content, for the purpose of determining eligibility
under rules of origin in the context of preferential trade arrangements, also includes
inputs from other countries belonging to the same preferential trade area.

Bearing in mind these caveats, local content and local sourcing are the most commonly
used proxies for backward linkages. The following examples review some evidence on local
content (and local sourcing), based on relevant literature.

Several studies have noted that the propensity to source locally is often lower among
foreign than domestic buyer firms. This has given rise to concerns in host countries that foreign
affiliates have too limited interactions with the rest of the host economy. In Nigeria, foreign
affiliates had a higher propensity to import than their local counterparts (Landi, 1986). Similar
findings 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 share
of inputs procured from Hungarian suppliers was markedly higher in the case of domestic
producers (59-62 per cent) than that of foreign affiliates (39 per cent) (Tóth, 2000). In a
sample 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 cent
of their inputs locally (UNCTAD, 2000a, p.105).

In selected developed host countries, affiliates source between 10 and 20 per cent of
their inputs locally (i.e. supplied by domestic or foreign-owned suppliers). The average percentage
of local sourcing observed in studies of various United Kingdom regions, for instance, ranges
from 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 in
non-food manufacturing increased from 16 per cent in 1986 to 19 per cent in 1994; and in
a sample of affiliates in the electronics sector, the percentage of raw materials and components
procured 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 procurement
in basically all host country regions, primarily by buying more from other Japanese companies
in the respective host countries (Japan, METI, 2001).

In developing countries, the share of locally-sourced inputs by foreign affiliates varies

by industry and region. Local sourcing by foreign affiliates is particularly low in the garments
industry – between 5 and 10 per cent (UNCTAD, 2000a). In the Dominican Republic and
Costa Rica, for example, very limited subcontracting was observed, essentially restricted to
firms located in the industrial processing zone. Weak linkages were mainly attributed to the
tariff regime of the main destination market, the United States. In Morocco, similarly, the
share of inputs from domestic and foreign-owned suppliers of the garments industry’s principal
export items was estimated at only 10 per cent in the late 1990s. As in the case of the Dominican
/...
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Box IV.3. Evidence on backward linkages (concluded)

Republic and Costa Rica, the trade regime, which allows for the duty-free import of intermediate
goods 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, sourced
about 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-procured
components by foreign affiliates in the electronics and electrical industries comprised 62 per
cent 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 supplied
mainly by foreign-owned companies rather than domestic ones (UNCTAD, 2000a, p. 71). In
the hard disk drive industry, the level of local content provided by affiliates and domestic
firms 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 the
past two decades, with all the major automobile producers, and their component suppliers,
locating in developing countries. Assemblers have been moving increasingly towards “global
sourcing” 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-owned
supplier firms (UNCTAD, 2000a, pp. 148, 152, 162; Barnes and Kaplinsky, 2000). Local
sourcing in the automobile industry has increased in host countries that have become global
export bases for components. For instance in Mexico, local content from Mexican-owned suppliers
and subcontractors stood at 30 per cent by 1995. Conversely, in Brazil, where local content
in the automobile industry had been at a very high 85 per cent in 1990, local input shares
fell throughout the 1990s. Imports of components rose from 8 to 24 per cent of production
between 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, the
automobile industry’s local content is estimated at 19 per cent for passenger and heavy commercial
vehicles and 25 per cent for pick-up trucks a (UNCTAD, 2000a, p. 161). Local content in the
production by foreign affiliates in the Malaysian automobile industry was around 30-40 per
cent in 1996 (UNCTAD, 2000a, p. 165). In China, a policy of “localization” stipulated that
foreign 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 invest
in China. For example, the share of Shanghai Volkswagen Company’s local sourcing from affiliates
stood at 26 per cent in 2000, measured as purchases from foreign-invested suppliers in total
local purchases (Xia and Lu, 2001, pp. 8-14).

In many of the transition economies in Eastern Europe, FDI has only been present since
the 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 that
75 per cent of inputs were then sourced from local firms, compared to 65 per cent at the
time 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 based
in 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 the
United States, United Kingdom, Germany, Italy and France (Skoda Auto, 2001). The degree
of local sourcing – again, not necessarily from domestically owned firms – is much related
to policies pursued in the preferred destination market of the European Union.

Source: UNCTAD, based on various sources.

a The official figure is higher: 45 – 60 per cent, depending on the car model. See UNCTAD 2000a, p. 160.
136 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Excessive internalization can associations serve as a venue for the

therefore lead to a loss of flexibility, higher exchange of business information, which can
labour costs and diversion into unrelated include specific data on subcontracting
technologies. The global trend is to focus opportunities, or on opportunities for
on core competencies and to contract out deepening linkages. 6
other components and services, reflecting
both the cost and complexity of In many developing countries the
technological change and intensifying effort required may be particularly great
competitive pressures. Specialization is just because of the lack of efficient domestic
as much a feature of international production suppliers - the main obstacle to the creation
systems. TNCs are combining the spread of of more linkages (Halbach, 1989; Altenburg,
facilities abroad under their management 2000; Battat et al., 1996; UNCTAD, 2000b;
control with a growing web of supply Crone, 1999 and 2000). 7 Where the costs
relationships with independent firms at each and risks are particularly high but proximity
stage of production. In fact, in some is important for efficiency, TNCs may
industries, firms are subcontracting out the encourage foreign suppliers to establish
entire manufacturing process to independent local facilities or they may decide to produce
“c o n t r a c t m a n u f a c t u r e r s ”, retaining for in-house. Where the costs and risks are
themselves only such functions as R&D, lower, they may make efforts to identify
design and marketing (Kagami and Kuchiki, potential domestic suppliers and assist them
2000). Most contract manufacturers hail in reaching the efficiency and quality
from industrial countries; however, some are standards needed. 8 Where proximity is not
appearing in industrializing developing important, foreign affiliates may retain
countries like Singapore. sourcing links with independent suppliers
abroad or with other plants in their TNC
The decision to source locally in a systems. 9 Centralized or pooled group-
host country depends on the cost, quality, sourcing arrangements may encourage
reliability and flexibility of local suppliers affiliates to use foreign sources even when
relative to suppliers abroad. Proximity local suppliers are available. 10
matters in many sourcing choices. Being
near suppliers can make procurement more While the extent of local linkages
flexible and easier to negotiate and monitor. generally and those with domestic firms in
It is essential where much information and particular reflects the balance of these
technical interchange is required for benefits and costs in the short term, TNCs
efficiency. Where the input is a constantly may display differences in their sourcing
used service, again, it is more efficient to behaviour in similar situations. Apart from
have the provider nearby. An efficient differences in firm-level perceptions and
network of suppliers allows affiliates to strategies, this may reflect the business
reduce risk or disruptions in input supply practice and culture of their home countries.
and to adjust capacity utilization more For example, Japanese TNCs, which
readily to market conditions. Trust, which emphasize close inter-firm collaboration,
plays an important role in all transactions, seem to find it more difficult to establish
is easier to develop with face-to-face local linkages abroad than United States
interaction. firms, which are more market-oriented in
their procurement. 11 United States affiliates
However, establishing linkages can in Malaysia rely more on local supplies than
be an expensive process. In any setting, do firms from either Japan or the European
efforts are needed to identify suitable Union. On the other hand, Japanese
suppliers and ensure that they can meet the companies, once they enter into supply
exacting needs of buyers. Sometimes this relationships with local firms, seem to
can be facilitated by meso-institutions such establish deeper and more long-term
as chambers of commerce, business relationships than their United States
associations or providers of business counterparts (Institute of Developing
development services (Doner and Schneider, Economies, 1994).
2000). For instance, some business
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Still , local sourcing patterns change foam rubber packaging materials, metal
over time and as experience grows, stamping, die-making and simple assembly
suggesting that the nationality of TNCs (Ganiatsos, 2000, Yoon, 1994; Carrillo,
should become less important in comparison 2 0 0 1 ; U N C T A D , 2 0 0 0 a ) . 15 However,
with other TNC-related factors in explaining domestic suppliers that manage to survive
local linkages. What are these other factors? in this competitive environment enjoy
The main ones are the following: increased productivity, technology upgrading
and export growth (box IV.1).
Investment motives and strategies.
The propensity of foreign affiliates to forge Technology and market position.
local linkages is affected by the motive for Linkages reflect the technology used and
investing in a h o st c o un try . Do mest ic- the market position of TNCs. Foreign
market-oriented affiliates generally purchase affiliates making standardized products with
more locally than do export-oriented firms. 12 mature, non-proprietary technologies tend
Domestic suppliers find it easier to serve t o p r e f e r e x t e r n a l i z e d , a r m ’s length
activities aimed at domestic markets, procurement: there are many suppliers to
particularly where quality and technical choose from, and it is not necessary to
requirements are lower (as in protected develop special capabilities in any supplier.
markets). They also have the advantage of Where products are specialized and
knowing local consumer preferences. In technologically advanced, on the other hand,
some developing countries, local sourcing affiliates tend to prefer in-house production
by affiliates may also be motivated by the or to retain relationships with a few selected
desire to avoid exchange rate risks. On the s u p p l i e r s . 16 T N C s i n p r i c e - s e n s i t i v e
other hand, cost and quality requirements segments respond more to wage differences
are much more stringent in export-oriented than those in markets where innovation and
activities (and host countries also tend to quality are important. The former are
impose fewer controls on sourcing of inputs generally relatively footloose and less
in export-oriented affiliates). In particular, willing to invest in local skills and supplier
foreign affiliates that are part of upgrading. 17
international production systems are likely
to be more dependent on global corporate Role assigned to affiliates. The
sourcing policies and, thus, less able to degree of autonomy given to affiliates
choose suppliers freely. While such affiliates affects sourcing: greater autonomy allows
(e.g. in the automotive and electronic more development of local suppliers. In turn,
industries) source large numbers of affiliates with stronger local links are likely
components, sub-assemblies and services to be given more autonomy (Zanfei, 2000).
locally, with major opportunities for firms In Mexico, for example, the lack of local
that qualify as suppliers they tend to reduce autonomy as regards purchasing was found
the number of first-tier suppliers and enter to be an impediment to linkage
into closer relationships with those that development. 18 Affiliates considered to be
remain. 13 “centres of excellence”, with regional or
global mandates for complete products,
These core suppliers are expected to services or technology, tend to be more
have a capability to manufacture and supply integrated with local suppliers (Frost et al.,
– on a global basis – complex systems, to 1999; Holm and Pedersen, 2000).
have independent design capacity and to
solve problems jointly with the assembler. Age of foreign affiliates. Many
Such stringent requirements make it more studies have found that local procurement
difficult for domestic suppliers in host by foreign affiliates tends to increase over
countries to enter the supply chain. 14 Hence, time. 19 The more experience a TNC gathers
domestic firms in developing countries in a foreign country, the more managers are
supplying to affiliates that are part of recruited locally and the more knowledge
integrated production systems typically it gains about local suppliers, the lower the
belong to a lower tier and provide relatively costs of sourcing locally. 20
simple inputs – cardboard boxes, plastic and
138 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Mode of establishment. For similar

reasons, affiliates established through M&As Box IV.4. Linkages in the Peruvian
are likely to have stronger links with mining industry
domestic suppliers than those established
through greenfield investment ( W I R 0 0 ; In 1998, Peru’s mining industry purchased
goods and services for $1.37 billion, of which
Scott-Kennel and Enderwick, 2001). The
$800 million were acquired locally and $570
latter take time and effort to develop local million were imported (Peru, SNMPE, 1999,
linkages while the former have “ready-made” p. 13). The production capacities of domestic
linkages that are likely to be retained if they firms in goods and services that are inputs
are efficient. For example, a study of for the mining industry and, hence, their ability
Japanese TNCs concluded that acquired to supply, vary considerably (UNCTAD, 2000c,
affiliates had significantly higher local p. 63).a Until recently, the local supply capacities
content levels than those established through have not been fully utilized, mainly because
greenfield investment due to their pre- there has been little incentive for local firms
acquisition embeddedness in the local to upgrade as the markets have been virtually
economy (Belderbos et al., 2001). Similarly, monopolized and protected. As a result, their
costs and quality have not kept abreast with
affiliates of Swedish TNCs and affiliates in
the standards required by large-scale mines
Central and Eastern European countries have that can purchase inputs from more competitive
been found to rely more on imports of inputs sources abroad.
when established via greenfield investment;
in the case of the Swedish TNCs’ affiliates, For certain inputs, however (e.g. power
this difference persisted also in the longer- generation and technical services), domestic
term. If, on the other hand, existing linkages firms already have strong capabilities. In Peru,
are inefficient, M&As may lead to a switch relatively few users need to rely on self-
to foreign suppliers ( WIR00). generated power (Peru, SNMPE, 1999, p. 40).
This is a favourable factor for mining firms
Size of affiliate. Large foreign as they are able to save the capital costs of
setting up power generation facilities, and
affiliates have been found to source less
can benefit from the economies of scale in
locally than small ones: they can internalize power generation. Significant local capabilities
their operations better, and local suppliers have developed in technical services, too. This
find it difficult to supply very large is supported by undergraduate and post-graduate
volumes. 21 courses in geology, mine engineering,
environmental engineering and metallurgy,
The linkage potential also varies by offered at local universities. Domestic firms
industry (box IV.3). It is easier to source are able to conduct technical and feasibility
externally when the technology is divisible studies, and have the necessary capabilities
into discrete stages and services than when in related civil and structural engineering and
it is a continuous process. construction. The Peruvian environmental
engineering design and monitoring services
are considered to be of particularly high
• In the primary sector the scope for linkages
standards.
between foreign affiliates and local
suppliers is often limited. Production Source: UNCTAD, based on UNCTAD, 2000c.
processes tend to be continuous and capital a The variation of local supplier capabilities is
intensive. 22 Still, possibilities exist, for confirmed by concrete case studies in gold and
copper mining. A case study on gold mining joint
example in mining (see box IV.4). venture Minera Yanacocha S.A. (Kuramoto, 2000)
has found that, sub-national variations set aside,
• The manufacturing sector has a broad local sourcing is substantial in both goods and
services, but more developed in the latter. Another
range of linkage-intensive activities, but case study on Southern Peru Copper Corporation
there are large variations by industry. Food has found that in 1998, this firm sourced more than
processing involves high ratios of 60 per cent of its purchases locally (Torres
Zorrilla, 2000, pp. 45-46). The most important
intermediate inputs to total production and items sourced exclusively from within Peru were
extensive backward linkages between diesel oil, fuel oil and ball bearings. On the other
foreign affiliates and domestic suppliers hand, rubber tyres and tubes, transportation
equipment and parts, and earth-moving equipment
of raw and packaging materials. By were mostly imported (Torres Zorrilla, 2000, p.
47).
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contrast, textiles and clothing show

Box IV.5. Sourcing in the food retailing
relatively low local linkages; the textile industry: Carrefour and McDonald’s in
industry needs considerable sophistication Argentina
and size to provide the variety and quality
of fabrics needed by foreign affiliates that Foreign affiliates in food retailing are
generally produce clothing for export. 23 typically oriented towards the domestic market,
Engineering activities offer linkage and hence rely to a high degree on locally
opportunities because processes are procured inputs. The Argentinean retail sector
provides some illustrations of typical strategies
divisible. However, where technical needs vis-à-vis local suppliers.
are stringent, as in machinery and precision
instrument s, subcontracting tends to be Carrefour’s sourcing strategy differs by
limited. product groups.ª Since the merger with Promodès
in 2000, Carrefour has begun centralizing its
• The tertiary sector, led by finance, trading, sourcing in response to growing competition
tourism and utilities, accounts for growing with other retailers, such as Ahold, Wal-Mart
Stores and Casino. For processed food products,
shares of FDI in developing countries. The one central procurement office serves all retail
scope here for dividing production into outlets in Argentina; in fact, in some cases,
discrete stages and subcontracting out large one supplier delivers a particular product to
parts to independent domestic firms is also all outlets in the MERCOSUR area. Thus,
limited. Still, some service industries such suppliers need to operate a sufficient scale
as retailing and construction offer to meet the demand of the entire network. In
considerable potential for linkages with the area of fresh and staple foods , local
suppliers, producing local brands with strong
physical input supplier (box IV.5). market recognition for individual retail outlets,
Similarly, foreign hotel operators can make predominate; many of these were originally
significant local purchases of foodstuffs, domestic brand-name food firms that had been
furniture and fittings (Dunning, 1993). acquired by TNCs since the late 1990s.
Increasingly, the services component of
McDonald’s uses a similar sourcing
some activities is being subcontracted to
strategy in most of its affiliates in different
reduce wage costs. (“Back office” services countries, with minor local adaptations. b In
by airlines, banks or retailers are good Argentina, about 87 per cent of McDonald’s
examples.) Developing countries like India basic food products are sourced locally. Once
are making inroads into this market; 24 but, a supplier and McDonald’s have agreed on
at this time, this subcontracting is primarily standards and quality guarantees along the
international. It may spread locally as food chain, c contracts tend to be long-term.
services within developing countries are Moreover, McDonald’s then transmits its
international know-how to its supplier. As a
upgraded and telecommunications improve.
consequence, supplying to McDonald’s is often
considered an indication of quality and reliability
The above review shows that the and can lead to new contracts with other buyers.
degree of linkages is affected by a number As in the case of Carrefour, supplier firms
of factors, with notable differences between to McDonald’s are today predominantly foreign
industries, activities and TNCs. Basically, affiliates, following mergers with or full
the extent of linkages established depends acquisitions of previously locally owned firms.
on the balance of costs and benefits Some greenfield investments have also been
involved. Still, the creation and deepening undertaken. For example, McCain (United States)
established a large plant to produce frozen
of linkages are sometimes of mutual interest
fries in the main potato-gro wing area of
to foreign affiliates and local firms. Argentina.
Unsurprisingly, then, there are examples of
TNCs that make considerable efforts in order S o u r c e : UNCTAD, based on Green and Tozanli,
to foster local linkages, while others do not. 2001.
Some evidence on such efforts is reviewed ª Carrefour had 364 retail outlets in Argentina, with
a turnover of 2.2 billion euros in 2000.
in the next section. b The company had 173 outlets in Argentina at the
beginning of 2001.
c This includes standards regarding employment,
food processing and preservation, as well as with
respect to environmental concerns such as
provisions for the recycling of packaging
materials.
140 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

C. Creating and deepening 1. Finding new local suppliers

linkages: what companies do In host developing countries and
economies in transition, where supply chains
Many TNCs have specialized are generally not well developed, there is
organizational units and procedures to deal a particular need for efforts to identify
with suppliers and subcontractors. Some potential suppliers. This may be especially
even have special supplier development important for affiliates that depend on inputs
programmes. 25 A survey of TNCs in the that cannot be imported easily or produced
automobile and electronics industries found in-house. There are many ways for foreign
that 16 out of 18 automotive TNCs had affiliates to do this, of which the most
adopted a strategy for global supplier common ones are as follows:
development, while the corresponding data
for electronics TNCs was 8 out of 15 • Making public announcements about the
(Handfield and Krause, 1999). For instance, need for suppliers and the requirements
in Malaysia, four of eleven electronics that firms must meet on costs and quality,
affiliates surveyed had such programmes ability to undertake continuous
(Giroud, 2001a); a survey in Northern improvement, technological capabilities
Ireland found 38 per cent of foreign affiliates and delivery. Provision of such information
with similar programmes (Crone and Roper, is quite common. For example, it is an
1999). 26 However, what matters for the important part of Nestlé’s activities related
present discussion is not so much the to the selection of suppliers (box IV.6).
frequency of such efforts. The point is that,
whatever some TNCs have done can be
• Supplier visits and quality audits are
commonly used to evaluate and develop
emulated by other firms that seek to create
new (as well as existing) suppliers in
and strengthen linkages with local suppliers.
developed and developing countries. For
Some examples are given in this section and
example, in the United Kingdom and
the annex to this chapter. They are not
Singapore, about 60 per cent of the
necessarily representative and are mostly
affiliates conduct site visits to audit the
based on experiences in economically more
quality of suppliers (PACEC, 1995; Tan,
advanced developing countries. Still, they
1990). The corresponding figure in
do give an insight into what companies can
Northern Ireland is 47 per cent (Crone and
do. 27
Roper, 2001). Regular follow-ups on
delivery, inventory performance, quality
Whether as part of special supplier
rating and cost improvements are relatively
development programmes or not, efforts to
common.
create and deepen linkages involve steps for
finding suppliers and ensuring efficient As noted, efforts in finding new
supply through technology transfer, suppliers are likely to be the most frequent
providing training, sharing business in foreign affiliates that are highly dependent
information and/or giving financial support. on having access to a dynamic base of local
The ultimate objective usually is to expand suppliers. Factors that affect the behaviour
the number of suppliers that meet the of foreign affiliates in this respect include
requirements of foreign affiliates in terms host country trade policies, the nature of
of cost, quality and timely delivery, and/ inputs required and the competitive aspects
or to help existing suppliers improve their of the supply structure of the foreign
capabilities in one or more areas. For some affiliates.
TNCs, efforts to upgrade supplier activities
are part of a corporate strategy taking 2. Transferring technology
broader economic and social considerations
into account. Activities that foreign affiliates To ensure that the inputs procured meet
undertake to implement their programmes their stringent technical requirements,
and achieve their objectives are reviewed foreign affiliates often have to provide
briefly below; additional details and suppliers not just with specifications but
examples are contained in the annex to this sometimes also with assistance in raising
chapter.
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Box IV.6. Nestlé’s supplier development programme in China

Nestlé operates 18 factories in China, producing a large variety of products including

beverages, 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 packaging
is required to transport products and store under difficult climatic conditions, taking safety,
health and environmental considerations into account. Nestlé initially had major difficulties
in finding packaging of the required quality. In 1992, much of the company’s supplies were
imported. To expand the number of viable suppliers, Nestlé decided in 1994 to engage in
active 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 as
packaging materials, Nestlé develops “specification sheets” that state the requirements to
which every procured product or service must conform. The selection of suppliers is based
on various criteria, including the acceptance of Nestlé’s specifications, acceptance of audits
and inspection, the existence of a well-structured quality assurance system, technical competence
in their field of activity, good quality record, reliability and economic viability.

Nestlé’s approach in China to develop suppliers of packaging materials was pragmatic

and directed to concrete needs. When possible and economically feasible, the company worked
with local suppliers to help them meet quality standards by providing information, technical
assistance and sometimes also financial support.

• Information provision. The main contribution was to help suppliers improve their understanding
of specifications required, and to improve certain commercial and quality aspects. Suppliers
were given the information needed to meet the quality standards of Nestlé. Information
has also been given to help suppliers contact Nestlé affiliates in other countries.
• Technical assistance. Nestlé staff visited the suppliers’ premises before buying and again
later whenever needed, and gave advice on technical aspects of production. Production
assistance is given by specifying and improving quality assurance elements, helping
to avoid and analyse defects in first deliveries, giving the chance to deliver in small
quantities, etc. Nestlé’s Quality Assurance Department gave assistance in production
control 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 the
laminate and heat sealability.

Nestlé’s efforts to establish proper quality control procedures contributed to an improvement

of the competitiveness of suppliers of packaging materials, and some of them subsequently
exported to Russia, the Republic of Korea and elsewhere in Asia. So far, Nestlé has dealt
with 154 suppliers of packaging materials, 45 of which are foreign affiliates or joint ventures
with 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, major
efforts were undertaken in China to help develop local growers of coffee. During the first
two years of operation of a Nescafé factory established in 1991 (of which Nestlé controlled
60 per cent and a Chinese state company the remaining 40 per cent), all green coffee was
imported. To facilitate a switch to local supplies, Nestlé set up an Agricultural Technical
Assistance Service (ATAS) to promote the cultivation of coffee in China. The ATAS in China
began its activities in 1990 and, by 1996, employed 17 agronomists and agro-technicians
and 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 for
coffee plantations; how to terrace the land and select the coffee to be planted; and how to
plant, use fertilizers, prune, fight pests and diseases, etc. In 1995, Nestlé created a Professional
Training 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 individuals
interested in entering the business. Some agronomists have been trained as trainers, in order
to be able to extend the training to more people.

Source: UNCTAD, based on Nestlé, 2001 and company interviews.

142 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

suppliers’ technological capabilities. 28 local supplier firms, 89 per cent of the

Such assistance tends, for obvious reasons, foreign affiliates reported providing
t o b e more prominent in developing technical support as part of their efforts to
countries. develop their suppliers (Tan, 1990). In the
electronics industry of Malaysia, foreign
A number of studies throw light on the affiliates were found to have provided
extent or incidence of technology transfer significant technical support to their local
– broadly defined to include the transfer of suppliers (Ismail, 1999; UNDP, 1993). Such
proprietary technology as well as technical support included solving specific technical
support or assistance of various other kinds problems (Capannelli, 1999) and assisting
– from foreign affiliates to local supplier in factory layout, production planning and
firms. 29 For example, a survey of 30 large machinery installation (Ismail, 1999).
foreign-affiliate manufacturing plants in the
United Kingdom found that 67 per cent made The extent of technology transfer
contractual arrangements on product appears to rise the more affiliates are
specification, 60 per cent provided technical committed to long-term relationships with
assistance on quality assurance and suppliers, the greater the technical
organizational issues through visits, and 27 complementarity between their activities,
per cent of the foreign affiliates provided and the more specialized or custom-made
management advice to their local suppliers (rather than standardized) are the inputs
(PACEC, 1995). Similar results were noted supplied. 30 Transfers of knowledge are also
in a Northern Ireland study, with 18 per cent likely to be positively influenced by the size
to 76 per cent of the respondents indicating of affiliates and their export-orientation. 31
knowledge transfer activities of one kind Needless to say, the extent of technology
or another (Crone and Roper, 1999, table transfer also depends on the host economy
7.5). In both of these studies, at least half and the level of development of local firms.
of the managers of the foreign affiliates TNCs invest in building local capabilities
surveyed were of the view that the only when the investment can be expected
knowledge transfers had had a positive to yield a return in a reasonable period.
impact on their suppliers’ competitiveness Where potential suppliers lack the minimum
in terms of price, quality or delivery base of skills and know-how needed to
conditions (Crone and Roper, 1999). absorb technologies and management
practices (and support institutions are
In developing countries, a number of lacking or weak), TNCs may find it too
studies on the electrical and electronics expensive or risky to try and bring them up
industries have focused on the transfer of to the standards needed. Given minimum
technology by foreign affiliates to their levels of capability, moreover, affiliates
suppliers. For example, a study carried out differentiate their technological relations
among eight foreign affiliates and 16 local according to individual suppliers. Primary
subcontracting firms in the electronics sector attention is typically given to a limited
in Singapore showed that significant number of key suppliers that provide the
technology transfer took place through most complex and strategically important
learning opportunities provided by the inputs, the production of which requires
exposure to foreign affiliates, e.g. through close interaction between the buyer and
testing and diagnostic feedback (Wong supplier. Highly ranked suppliers receive
1992). Direct transfer of technology was larger and higher value-added orders, along with
stated to be of moderate importance and took greater technical assistance and know-how .
place mainly through technical support, such
as the advice or training in quality Technology transfer by foreign
management systems and other good affiliates to suppliers can be categorized
manufacturing practices. The types of according to the area of technology
technologies transferred were mostly related involved; an affiliate may engage in several
to processes, especially in quality-control simultaneously (boxes IV.7 and IV.8).
techniques. I n a n o t h e r s t u d y i n t h e
electronics industry in Singapore, focusing The first area of technology transfer
on original equipment manufacturing relates to product technology. Forms of
arrangements between foreign affiliates and transfer include the following (see also the
annex to this chapter):
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• Provision of proprietary product know-how. manufacturing processes, quality control

The incidence of transfer of proprietary methods, inspection and testing methods.
technology is relatively low. When it Affiliates may also advise supplier firms
occurs , such transfers seem to concentrate on the selection/use of process equipment/
on a few “preferred suppliers” (see e.g. technologies.
box IV.9) (Wong, 1992; Yoon, 1994;
Handfield et al. 2000). • Visits to supplier facilities to advise on
layout, operations and quality. Personnel
• Transfer of product designs and technical of foreign affiliates visit suppliers’
specifications. Such transfers can take the premises in order to provide advice on
form of detailed technical specifications factory layout, installing machinery,
and designs to enable local suppliers to production planning, production problems
manufacture the required inputs. Some and quality control. Such visits may take
studies have found this to be the main form place weekly or monthly or whenever the
of transfer of product-related technology need arises. Sometimes it may also involve
(Wong, 1992; Ismail, 1999). seconding affiliates’ engineers to the
supplier’s factory for a certain number of
• Technical consultations with suppliers to days (Ismail, 1999).
help them master new technologies. Some
affiliates provide advice to local suppliers • Formation of “cooperation clubs” for
on product characteristics or parameters. interacting with or among suppliers on
Such technical support activity helps local technical issues. Such clubs are particularly
suppliers in adopting and absorbing new common in Japanese TNCs and sometimes
product-related technology. arrange for activities such as quality control
• Feedback on product performance to help presentations, discussions of case studies
suppliers improve performance . Such on quality improvement, value analysis and
feedback reports often include diagnostic cost reduction activities; and also organize
measures. Regular feedback to suppliers workshops on technical guidance and
has been found to be more frequent in training (see box IV.10; also see box V.5). 32
foreign affiliates that have implemented
special programmes on supplier • Assistance to employees to set up their own
development (Crone and Roper, 1999). firms. Employees of foreign affiliates are
sometimes given support to start their own
• Collaboration in R&D. Such buyer- business and become suppliers. Having
supplier relationships typically require a worked in an affiliate, the employee-turned-
critical minimum level of research entrepreneur has a better understanding of
capability of the host countries involved. the requirements of the affiliate. In addition
In some cases, collaboration in R&D may to procurement guarantees, affiliates
involve local universities or research provide know-how, equipment and
institutes (see e.g. box IV.8). technical assistance to such start-up
firms. 33
The main forms of transfer of process
technology are (see also the annex to this chapter):
Organizational and managerial
• Provision of machinery and equipment to know-how can be transferred in the following
suppliers. Foreign affiliates sometimes ways (see also the annex to this chapter):
transfer machine-embodied process
technology by providing machinery/ • Assistance with inventory management and
equipment to local suppliers. Such the use of just-in-time and other systems.
equipment may be related to the Such assistance is of particular importance
manufacturing of the product to be where the continuous supply to suit a
purchased or testing equipment for quality foreign affiliate’s production schedule is
control. vital. This applies, for example, to the
automotive industry.
• Technical support on production planning, • Assistance in implementing quality
quality management, inspection and assurance systems (including ISO
testing. Such support includes assisting certification). Some foreign affiliates
supplying firms in improving their provide support to their suppliers in
144 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

to develop suppliers three years before even

Box IV.7. Cooperation between foreign starting productive operations. The teams,
affiliates and local suppliers: the case of with experts in several disciplines from India
LG Electronics in India and abroad, provided assistance on raw
Some foreign affiliates use advanced and material evaluation, engineering and
systematic techniques for transferring technology technical services, information technology
and information to linked enterprises, based support, packaging materials development
on their experience elsewhere. For instance, and logistics management. Each team
the Indian affiliate of the Korean TNC, LG worked with suppliers to develop cost and
Electronics, uses techniques for supplier business models, to train a largely illiterate
development such as “early supplier labour force; and to educate firms in
involvement” to implement the Six Sigma system management concepts. Moreover, the teams
of statistical analysis for quality and productivity acted as intermediaries to help firms obtain
improvement. It helps them with process redesign loans, where needed, from financial
and re-engineering and direct on-line supply. institutions. Four years after the first teams
It provides them with global cost benchmarks,
data not easily available to local counterparts. were sent to India, 80 per cent of the raw
Suppliers are provided with assistance in “factory material requirements were indigenized.
innovation” to improve quality and profits. Moreover, several suppliers began supplying
Some are helped to set up facilities close to other TNCs in India.
the buyer to improve logistics. Selected vendor
employees are sent to overseas plants, invited There are thus various ways in which
to regular meetings and presented with awards. technology linkages between foreign
They can participate in LG’s t r a i n i n g affiliates and domestic suppliers can be
programmes and are instructed in e-commerce formed and strengthened. The realization of
techniques. By being exposed to global quality the full potential benefits derived from such
and cost standards, they can meet export market
linkages by the recipients also involves the
demands directly; LG helps them to enter export
markets.
transfer of capacity to understand, use and
improve a given technology (Komoda, 1986).
Source : UNCTAD, based on Kalyankar, 2000. It involves adapting the acquired
technology, as well as its absorption by the
recipients (Baranson and Roark, 1985).
designing and implementing quality Complete absorption at the firm-level
assurance systems or total quality control involves the recipient gaining the capability
systems. The nature of such systems are to undertake innovative activity
often industry-specific. independently to improve upon products and
production processes (Baranson and Roark,
• Introduction to new practices such as 1985; Narayanan, 1999). The transfer of
network management or financial, proprietary technology usually comes with
purcha se and marketing techniques. restrictions on its usage. Therefore, efforts
Foreign affiliates can offer important on the part of a recipient firm to absorb
advice related to various other acquired technologies and to improve upon
management-related areas, with important them further become even more crucial.
positive effects on supplier performance
(see, e.g. boxes IV.9 and IV.10).
3. Providing training
The technology transfer and
upgrading process can take a long time and The human resource base of supplier
may, in some cases, precede actual supply firms is vital to the success and
activity. For example, when the French sustainability of linkages. Assistance in
company Saint Gobain decided to set up a human resource development therefore often
float glass plant in Chennai, India, it had forms part of linkages, and expands the
major technical problems with potential scope for deeper spillovers of skills and
local suppliers. Firms were disorganized and knowledge. While evidence on skill linkages
scattered. Their technological capabilities is difficult to collect, what exists suggests
were limited and they lacked ability to reach that they can be significant. In the Malaysian
minimum standards unaided (Saint Gobain, electronics industry, for example, the
2001). Saint Gobain set up specialized teams majority (10 out of 11) of foreign affiliates
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Box IV.8. Upgrading supplier capabilities in the food processing industry in India

The food industry is of special interest as it is one of the most linkage-intensive industries
and also of great importance in many developing countries. It generates extensive and strong
local 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 ownership
in many countries, can make it necessary for foreign affiliates in food processing to rely
on sourcing from domestic producers and to engage in efforts to develop new and upgrade
existing suppliers.

Field research (conducted by UNCTAD in India in 2001) involved interviews with four
leading 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 that
each firm on average sourced locally 93 per cent of their raw material (tomato, potato, basmati
rice, 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 companies
to assist in the development of local suppliers.

In order to improve the sourcing of key produce in terms of reliable quantities and consistent
quality, the four companies have undertaken a number of measures to strengthen their relationships
with suppliers:
• Collaboration in product development. All four affiliates are engaged in product development
with local research institutes or universities to develop hybrid varieties of crops and
vegetables 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/hybrids
of 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 tons
per hectare. In addition, Pepsi R&D has developed 15 new agricultural implements to
facilitate planting and harvesting in India.
• Technology transfer and training. New hybrid varieties, implements and practices are
transferred to suppliers (primarily farmers) through Farmer Training Camps. Pepsi provides
its 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 extension
services team that imparts training to potential and existing suppliers on new techniques
in planting, harvesting, quality control and post-transplantation care of cocoa crop through
technical bulletins, video demonstrations, slides and charts and live demonstrations on
the use of various agricultural implements.
• Introduction of contract farming. Growers are contracted to plant the processors’ crops
on their lands and to deliver to the processors, at pre-agreed prices and quantities of
output based upon anticipated yields and contracted acreage. Towards this end, a processor
usually provides the farmers with selected inputs like seeds/seedlings, information on
agricultural 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 arrangement
to sell it in the open market.
• Financial assistance is provided to growers through the involvement of agricultural development
banks. For example, GlaxoSmithKline Beecham acts as a guarantor enabling its suppliers
to 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 based
on the impact of a number of food processing projects by foreign affiliates indicated that
foreign affiliates had contributed to better farming practices (e.g. hybrid seeds, transportation
innovation) that resulted in increased incomes and yields (McKinsey & Company, 1997).
Source: UNCTAD, based on field research.
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Box IV.9. Unilever in Viet Nam

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 suppliers
initially often lack the necessary financial resources, technology, quality control, safety standards
and environmental awareness to qualify as suppliers, Unilever assists its local suppliers directly
in a number of ways to develop their supply capabilities.
For its five key suppliers, Unilever provides extensive training programmes and offers
financial support to upgrade their equipment. Direct technology transfers are made in the
form of equipment and machinery, formulations and processing, quality assurance and analytical
methods and other best practices. Unilever managers provide on-ground support to help raise
efficiency, quality control and consistency of the products supplied. For example, Bicico Chemicals
Cosmetic Enterprise became a supplier of detergent paste to Unilever in 1996. When the company
showed an interest in expanding its capabilities, Unilever assisted in the start-up and building
of a liquid detergent plant in 1997. A second plant was added in 1999. In addition, Unilever
provided technology for a powder bleach plant, a detergent paste plant and quality assurance
equipment. Business growth and jobs created at Bicico have developed favourably. According
to 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 employees
from 12 to 250.
In the case of its 76 suppliers of raw materials and 54 suppliers of packaging materials
in Viet Nam, Unilever defines quality standards required, establishes the technology input
needed to achieve these requirements and, where appropriate, provides the financial support
to ensure long-term growth. In addition, Unilever conducts training on quality standards, inspection
and testing methods and warehousing specifications. In 1997, for example, Quang An 1 Company
became a supplier of plastic bottles for Unilever’s factory in Hanoi. Unilever established
quality 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, Quang
An’s improved capabilities enabled it to win new business from other TNCs and local companies.
Source: UNCTAD, based on Unilever, 2001.

Box IV.10. Fostering linkages with local suppliers: the case of Toyota Motor Thailand

Toyota Motor Thailand (TMT ) has established an extensive network of linkages with
supplier firms within the country. TMT’s first-tier suppliers in January 2001 comprised 575
firms, 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 companies
accounted for 55 per cent of firms and 79 per cent of the value of supplies. Thai firms with
Japanese technical assistance and other Thai firms accounted for 27 per cent of the number
of 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 14
per cent of the supplied value. It is estimated that the second- through fourth-tier suppliers
of TMT’s supply chain comprise around 1,500 largely Thai-owned firms, but the actual number
may be lower since the economic crisis of 1997-1998 caused serious financial problems for
many smaller suppliers.
During the economic downturn following the East Asian financial crisis, TMT gave significant
financial 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 payments
for tooling expenses.
Toyota has declared its intention to procure all parts and components locally (100 per
cent 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 announced
a special project in 2000 (the so-called “Thai for Excellent Project”) and explained the plan
to its suppliers. Toyota decided to aim for 100 per cent local procurement in the anticipation
of the automotive liberalization foreseen by the ASEAN Free Trade Area in 2003, and in
response to high competition with other automobile companies.
This is the first time that Toyota seeks full local procurement. Eventually this approach
could also be extended to other ASEAN countries. The reason why this approach was pioneered
/...
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Box IV.10. Fostering linkages with local suppliers: the case of Toyota Motor Thailand
(concluded)
Box table IV.10.1. Local procurement by Toyota Motor Thailand, 2001,
by type of supplier and type of 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 78
Thai firms with Japanese technical assistance 17 7 3 2
Non-Japanese joint ventures 6 2 71 6
Pure Thai firms 19 1 264 14
Firms in ASEAN under the ASEAN BBC prog ramme a 19 11 - -
Total 134 100 441 100
S o u r c e: Information provided by Toyota Motor Thailand.
a Brand-to-brand complementation scheme.

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 components
are generally produced by Toyota’s affiliates (not by domestic firms). The major remaining
parts 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 strengthen
its local suppliers’ capabilities. TCC is an association of suppliers to TMT, with a current
membership of 92 first-tier suppliers. Suppliers eligible to apply for membership must have
annual sales of five million baht to TMT and at least a three-year relationship. There are
currently six major types of activities at the TCC: (1) annual conferences; (2) TCC Executive
Committee meetings; (3) Quality Assurance Kaizen (steady improvements) activities; (4) Cost
Kaizen 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 limited
to first-tier suppliers, while activity (6) is open to all suppliers. Although TMT was involved
in the establishment of the suppliers’ association, the major players in the activities of the
Association are its key suppliers. The Executive Committee of TCC consists of representatives
from 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 to
diffuse 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 related
to cost-efficiency, quality assurance and delivery. There are also study groups on, e.g. plant
operation 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 and
guidance. Toyota’s approach is to encourage suppliers to make their own efforts to improve
their competitiveness, in a voluntary learning process (“jishiuken”).
The TCC has not only provided opportunities for suppliers to learn best practices from
each 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 necessary
information for its suppliers. This includes prototypes of all major parts, lists of suppliers
and their performance for each month, and information on specifications of major parts and
components.
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 suppliers
by themselves and to be responsible for them, and in part due to a lack of resources (both
financial and personnel) on the part of TMT. With some exceptions, TMT efforts are limited
to encouraging first-tier suppliers to work with their own suppliers in a similar manner to
that adopted by TMT with its first-tier suppliers. Innovative ways of involving lower-tier
suppliers in some of the higher-level activities of the TCC are needed to upgrade capabilities
and understanding. Government support to such activities could help to reach local suppliers.
Source: UNCTAD, based on Brimble, 2001.
148 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

in a 1996 study provided some training to enhancing areas related to organizational

local suppliers on quality testing and process and managerial practices. Since training
yields, product testing and problem spotting, courses require considerable expenditure
new management techniques and production and organizational effort, they are likely
process (Giroud, 2001a). In Costa Rica, to be offered only when there is an
according to a survey of suppliers to Intel, expectation of high returns to both sides
35 per cent of service providers and 17 per due to a sustained long-term relationship.
cent of goods providers received training Courses may also be offered in cooperation
from that TNC (Larraín et al., 2001). In with meso-institutions such as industry
Indonesia, where skilled labour is very groups or public sector agencies at the local
scarce, a few suppliers among those level as, for example, the Penang Skills
interviewed for an assessment of the supply- Development Centre (box IV.11).
side situation in a number of industries
mentioned the training assistance they had • Offering access to internal training
received from their TNC clients (Battat et programmes in affiliates or abroad.
al., 1996). In India, three out of four large Foreign affiliates that have internal training
foreign affiliates covered by a case-study courses of their own or are part of TNC-
of the food-processing industry provided systems with internal training courses
training to their suppliers’ personnel (see sometimes also open them up to their
box IV.8). In Mexico, according to the suppliers’ employees. (see e.g. box IV.11).
results of a questionnaire-survey, all the
• Sending teams of experts to suppliers to
foreign-owned automobile-assemblers
provide in-plant training. The purpose of
surveyed provided support to suppliers for
such visits can be to provide training on
training, mainly related to quality control
improvements in technology or process
(Altenburg, 2000, p. 28). Such support was,
management.
however, largely confined to first-tier
suppliers, which were generally also • Promotion of cooperative learning among
affiliates of foreign firms. 34 suppliers, through associations and clubs.
Such events can promote the exchange of
There is some evidence to suggest business information among suppliers and
that the impact of linkages on training (and foreign affiliates (box IV.10). 35
labour management) tends to be higher the
longer the duration of a relationship and the In addition, informal exchanges
smaller the size of a supplier firm relative between affiliates and suppliers can be a
to an affiliate (PACEC, 1995). Skill transfers valuable source of ideas and information on
seem to be higher for suppliers in human resource development, particularly
manufacturing than in services. In some in more developed host countries in which
cases, TNCs also extend their training the gap between suppliers’ and affiliates’
assistance to potential suppliers (boxes IV.11 skill levels is small.
and IV.12; Saint Gobain, 2001).
The size, range and content of
In developing host countries, local foreign affiliates’ training programmes in
firms often face financial, skill and terms of the various kinds of activities
institutional constraints in improving human mentioned vary. Several factors explained
resources. Many are unaware of their skill these variations. They include the
gaps or of means to remedy them. Given characteristics of the TNCs and their
their knowledge of skill needs and training affiliates as well as of the domestic
methods, foreign affiliates can play a suppliers: size, resource-base, capabilities
significant role in helping suppliers to audit and business culture. Strategies and
their human resources and mount effective objectives matter as does the nature of their
upgrading programmes. They can use a activities. The duration and closeness of the
number of methods to do so: relationship is an important determinant.
Finally, the costs of providing training and
• Training courses in affiliates for suppliers’ the inducement provided by governments,
personnel. Some foreign affiliates organize provincial authorities and interested civil-
training courses for local suppliers’ society groups, can influence the extent and
personnel. These can take several forms nature of training provided.
and can include broad productivity-
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4. Sharing information rises with accelerating innovation, rapid

market changes and intensifying
A continuous flow of information competition. 36 A p a r t f r o m p r o v i d i n g
from buyers is necessary for linked firms suppliers with information on their own
to coordinate production and investment business plans, foreign affiliates can assist
plans, reduce transaction costs and optimize suppliers by giving access to a broad range
delivery. The importance of information of technical, market and business

Box IV.11. The SMART model of Intel Malaysia

Intel Malaysia has developed one of the most comprehensive programmes for supporting
supplier development and upgrading. Local suppliers are used by Intel in the areas of subcontracting,
tooling and fabrication, equipment service support, transportation and packaging, operating
supplies, 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 suppliers
that are willing and capable of participating in the programme. Potential candidates are sought
via open houses and links with business organisations like the Small and Medium Industries
Development Corporation and various Chambers of Commerce. Intel analyses a candidate
from 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 step
is to allocate business to suppliers at the level of complexity appropriate to their capabilities
and the needs of Intel. Intel then helps raise supplier capabilities by continuous training
and coaching. The ultimate and fifth step is to develop firms into global suppliers, with the
ability to meet international standards and export directly. The goal is that Intel should not
account for more than 20 per cent of any supplier’s sales.

Continuous training of suppliers is provided partly by inviting them to send their staff
to Intel’s internal training courses and partly through courses in the Penang Skills Development
Centre (PSDC). PSDC analyses gaps in the capability of the suppliers’ workforce and provides
courses to plug these gaps. While the PSDC assumes responsibility to package and deliver
the courses, most courses are contributed by Intel and other foreign affiliates in Penang.

Coaching involves regular supplier reviews and continuous dialogue. Through the supplier
reviews, Intel shares new information on technical roadmaps and expected future technical
and business requirements early in the process. When appropriate, teams of engineers or relevant
experts from Intel are sent to suppliers to assist.

A number of suppliers have participated in Intel’s programme. According to the company’s

estimates, 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 per
cent. 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 TNCs
in 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 important
in 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 Government
and agreed on a financial support package, from which it benefits if it meets certain agreed
criteria, including one relating to supplier development. Currently, according to Intel, the
tax 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 with
government institutions and PSDC.

Source: UNCTAD, based on Intel, 2001; Wong, 2000 and company interviews.
150 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Box IV.12. Motorola’s backward linkage programme in China

Since its establishment in China in 1987, Motorola has become one of the country’s
largest inward investors, with a direct investment stake of more than $3.4 billion, two wholly
owned 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 provide
high-level training to selected state-owned enterprises. The main objective of the programme
is to develop Motorola’s supplier base by strengthening especially quality, production and
productivity through classroom and on-site instruction as well as outreach activities. Motorola
and the SDPC have developed a three-step model for that purpose: training of participants
for 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); and
provision of finance, jointly with the SDPC, to selected firms. This final step has so far not
been 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 and
productivity management for the chief executive officers, managers and technical staff of
selected Chinese state-owned enterprises. They recruit and train professors from major universities
in Beijing and Tianjin to provide courses in areas such as leadership development, strategic
planning, marketing, quality control (Six Sigma), internal controls, finance, and human resource
development. By early 2001, 449 enterprises from 23 provinces, covering 1,516 chief executive
officers, middle level managers and technicians, have participated in the programme. The
trainees come from a wide range of industries, including electronics, telecommunications,
computer hardware, software, media, and general trading or commercial enterprises. Motorola
and the SDPC plan to expand this programme to reach 1,000 enterprises over the next few
years.

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 executive
officers, middle level managers and technicians from 85 enterprises had participated in the
programme 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 with
Chinese companies, it contributes to the reform of state-owned enterprises, a priority objective
of the Government of China. Taking this programme outside Beijing serves the Government’s
objective of promoting more balanced growth. The successful reform of the state-owned-enterprise
sector contributes, in turn, to a more favourable business environment.

At the same time, the programme supports Motorola’s efforts to expand its supplier base
and achieve localization goals, which helps Motorola minimize costs, control inventory and
reduce new product cycle time, all of which are critical factors for success in an industry
characterized by rapid technological change. Moreover, the programme has generated goodwill
and enhanced corporate access to central and provincial government leaders.

The programme has been adjusted over time. Initially, the plan was to undertake the
training effort together with four or five other TNCs. However, after about a year, these plans
were scrapped because each company had its own training priorities and corporate culture
and it was difficult to make the programme work for multiple firms. The content of the programme
is also continuously updated and new training methods are introduced, such as e-learning
as 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-plus

Chinese firms currently supplying Motorola. Companies that become certified suppliers to
Motorola continue to receive various types of support to ensure they remain qualified. By
2000, the average percentage of locally manufactured parts and components in a cellular phone
manufactured in a Motorola plant in China had reached 65 per cent. It is expected that Motorola’s
local procurement will exceed $1.5 billion, and the number of local suppliers will exceed
1,000 by the end of 2001.

Source: UNCTAD, based on Motorola, 2001.

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information. For instance, they often have of capacities of suppliers with the
extensive knowledge of international and requirements from foreign affiliates buyers.
domestic market potential, market and price Foreign affiliates that have implemented
trends, and sources of raw materials. supplier development programmes tend to
Information can flow from a foreign affiliate be the most active in terms of providing
to its domestic suppliers either informally market- and technology-related information
or through contractual arrangements. Foreign to their suppliers (Crone and Roper, 1999).
affiliates can use the following methods to
inform local suppliers (see the annex to this
chapter for examples):
5. Extending financial support
Finance is a necessary part of all
• Informal exchanges of information on
linkages between affiliates and suppliers.
business plans and future requirements.
The primary financial linkage is pricing, but
Representatives of foreign affiliates visit
it can also include financial assistance from
their local suppliers to inform them about
buyers to suppliers. In developing countries,
new market developments or future
the shortage of finance is often a major
strategies. This kind of information assists
constraint for local firms. Studies suggest
domestic suppliers in making decisions on
however, that there is relatively low
capital investments and business plans to
incidence of financial support to suppliers
match the needs of their buyers.
by foreign investors (Lall, 1980; Halbach,
1989; Battat et al., 1996, Carrillo, 2001). 37
• Provision of annual purchase orders
In this respect, foreign affiliates may not
(confirmed periodically). Information in
be all that different from other buyer firms.
advance on purchasing orders is likely to
Nevertheless, in a survey of SMEs in
be important for most suppliers. It is
E u r o p e , 38 T N C s w e r e t h e l e a s t - o f t e n
particularly helpful for just-in-time
mentioned group of slow payers, when
arrangements, where the strict delivery
compared with local firms, both public and
schedules demanded by foreign affiliates
private. When it does occur, financial
tend to entail additional costs for suppliers,
support appears to take place in the case
who have to build up higher levels of
of suppliers with whom affiliates have
inventories before receiving purchasing
established close cooperation.
orders in order to avoid late delivery
penalties (Sison, 2000).
Foreign affiliates with relatively
strong financial positions can help domestic
• Provision of market information,
suppliers in various ways (see the annex to
particularly on foreign markets. For
this chapter for examples):
example, information on global market
trends can help SME suppliers diversify
• Providing special or favourable pricing
their customers and/or markets, thus
for suppliers’ products. Under normal
reducing their dependence on a single large
circumstances, buying firms have an
buyer or market. In some cases, foreign
interest in fixing prices at a level below
affiliates actively assist their vendors in
arm’s length prices, as a trade-off for long-
finding new customers in other parts of
term security and stability. Foreign
the TNCs’ network (see e.g. box IV.6).
affiliates are no exception. Some foreign
affiliates stipulate future price reductions
• Encouraging suppliers to join business
in line with anticipated technical
associations, participate in fairs and
progress. 39 At the same time, affiliates may
facilitate networking (see box IV.10). These
sometimes offer preferential prices to new
can provide a framework for foreign
suppliers to help them get established
affiliates to communicate with a large
(UNCTC, 1981).
number of suppliers, giving information
on different aspects of their activities.
• Helping suppliers’ cash flow through
advance purchases and payments, prompt
Sharing of information with their
settlements and provision of foreign
suppliers is a common feature of linkage
exchange. Advance payments or purchases
programmes that some TNCs implement.
can help the liquidity situation of suppliers,
This is an essential element for the matching
particularly during financial crises (see e.g.
152 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

box IV.10). This could also be helpful in that it has become more difficult for
addressing exchange rate fluctuations domestic firms in host developing countries
which might affect suppliers, notably if to qualify as suppliers to foreign affiliates,
they are sourcing inputs from overseas to in particular to affiliates that are a part of
meet the buyers’ requirements. 40 integrated international production systems.
In such cases, TNCs tend to focus their
• Longer-term assistance through the supplier development efforts on key
provision of capital; guarantees for bank suppliers providing the most important
loans; the establishment of funds for inputs. On the other hand, when TNCs have
working capital or other supplier needs; a strong self-interest in developing their
infrastructure financing; sharing of the supplier base in a host country, foreign
costs of specific projects with suppliers; affiliates can extend considerable support
and leasing. When the procurement of new to enhance the competitiveness of their
equipment necessary to produce the domestic suppliers.
stipulated amount and quality of goods is
too costly for a domestic supplier, a foreign The transfer of information on
affiliate can buy the equipment and lease technical specifications and production
it to its supplier. requirements is, of course, a necessary part
of all linkages; beyond this, there are
In general, finance can be a serious generally considerable flows of advice,
bottleneck for the development of the information, assistance and support from
productive capacities of suppliers, or for buyers to suppliers. The shape linkages take
funding their current operational costs. The varies by location, activity, firm, the state
financial and cash flow situation of suppliers of domestic and other local firms, the nature
can be improved and strengthened if there of activities, the duration and closeness of
is a commitment on the part of the the buyer-seller-relationship and the costs
financially stronger buyer-partners to and risks involved. The general picture is
provide short-term and/or long-term support however, clear: TNCs invest in linkages if
through various channels. In practice, in the and when they are expected to yield a
context of backward linkages, foreign positive (and competitive) return. 42 Indeed,
affiliates provide finance to their suppliers a survey of 84 companies in Japan, the
relatively infrequently, suggesting that the Republic of Korea, United Kingdom and
tangible benefits for themselves that they United States in a wide range of industries
perceive from such support are often lower showed that most, but not all, buying firms
than their expected costs. 41 However, a found that, supplier development activities
number of them are involved in supporting did improve suppliers’ cost, quality, delivery
suppliers in various ways, raising the performance and cycle time (Handfield et
possibility that the extent of such assistance al., 2000). 43
could be increased.
The development, management and
D. Conclusions evaluation of supplier relations are a
necessary part of supply chain management
by any enterprise. TNCs transfer this
The evidence, scattered as it is, function, with its range of search,
suggests that a number of TNCs take various evaluation, interaction and other functions,
steps to develop linkages between their to their affiliates in most host economies.
foreign affiliates and suppliers in host As more effective supply chain management
developing countries or economies in becomes essential to their competitiveness
transition. Some affiliates provide assistance and dynamism, TNCs seek broader, more
in a broad range of areas, whereas others efficient and responsive supplier networks
may only support suppliers on an ad hoc wherever they locate. As they shift more
basis, if at all. The most intense facilities, and a larger variety of functions
relationships are those affecting the abroad, the range of potential linkages
technological status of suppliers and their increases. With technical progress and its
ability to meet the scale, quality and cost rising information intensity, the
needs of the buyer. Meanwhile, it is clear technological and skill content of many
CH A P T ER IV BACKWARD LIN KAG ES:IM PACT,
DET ER M IN AN TS AN D T N C EXPER IEN CE 153

linkages becomes higher. With the between firms that increase the
rationalization of production across regions, competitiveness of the firms involved can
they also have greater scale requirements. ultimately contribute to the performance of
the economy as a whole. The role of
Forming and maintaining linkages governments in creating and deepening
involve costs and risks, which clearly vary linkages between foreign affiliates and
according to local supply capabilities and domestic firms is hence the topic of the next
infrastructure. This is why a TNC making chapter.
the same product in different host countries
may have very different local sourcing Notes
patterns. The available information does not
allow the quantification of linkages by 1 Defined as enterprises in which no single
location. The broad picture, however, is that foreign equity participation is more than 10
local linkages, especially with domestic per cent of capital. At the level of the economy
firms, rise with the level of local or industry, the efficient use of domestic
development, particularly in complex resources and capabilities may be a more
activities. It is more likely that foreign important consideration than the question of
affiliates source from domestic suppliers and the ownership composition of the suppliers
engage in supplier development when the with whom the linkages are established.
However, countries also see backward linkages
technological and managerial gaps between as a means to strengthen domestic enterprises
them and their local suppliers are not too and to support domestic entrepreneurship.
wide. 2 On average, a manufacturing firm spends more
than half of its revenues on purchased inputs
The lack of comprehensive (Burnes and Whittle, 1995, cited in Handfield
information makes it difficult to assess fully et al., 2000). A growing proportion of inputs
supplier development efforts by TNCs. is now knowledge-or information-intensive.
3 In an enclave situation, in which foreign
Clearly, companies undertake such activities
because they make sense from a business affiliates have basically no direct links with
perspective. Whether supplier development domestic firms, the dissemination of TNC-
programmes are effective or not depends specific knowledge to the host economy as
a whole depends entirely on externalities and
furthermore not only on efforts made by spillovers. Where local inputs substitute for
foreign affiliates, but on the efforts made imported ones, linkages also benefit the balance
by local suppliers. It is obvious that, in order of payments.
for linkages to be favoured and for 4 While there is a large empirical literature on
assistance through linkages to contribute to FDI and spillovers (e.g. Kokko, 1994; Katz,
an improvement of the competitiveness of 1987; Gerschenberg, 1987; Aitken and Harrison,
domestic enterprises in a host country, strong 1991; WIR95), there are hardly any empirical
commitment on the part of the supplier firms studies in the literature that analyse explicitly
is required. the link between linkages and spillovers
(Blomström et al., 2000, p. 116).
5 See, for example, Barnes and Kaplinsky, 2000;
Finally, although companies have a
Battat et al., 1996; UNCTAD, 2000a.
self-interest in establishing and 6 For example, the Brazil Auto Parts Association
strengthening links with local suppliers, it (Sindipeças) intermediated between suppliers
is clear that various government policies can and manufacturer (Doner and Schneider, 2000).
promote linkages between foreign affiliates 7 For example, 70 per cent of the foreign
and domestic firms and help to increase the electronics firms in Scotland that attempted
willingness of foreign affiliates to assist to increase local sourcing were constrained
their linked partners. While most TNC by the lack of efficient local suppliers of key
supplier development efforts are organized inputs (Turok, 1993). Similarly, in the electrical
and implemented by parent firms and equipment and electronics industries in Mexico
especially their foreign affiliates, some and the Republic of Korea, the main constraint
involve close collaboration with public, or to local procurement by foreign affiliates was
the inadequate technological level of local
semi-private, institutions. Well-designed enterprises. Common concerns among foreign
government policies can further stimulate affiliates included the lack of quality control,
such efforts. Indeed, this is in a host inability to deliver on time and high prices
country’s economic interest, since linkages charged by local suppliers (UNCTAD, 2000a,
154 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

p. 66; Yoon, 1994). considerable intra-regional wage differentials

8 In Mexico, IBM assisted the local firm Ureblock (Altenburg, 2000, p. 40).
to start producing packaging materials that 18 Brannon et al., 1994; Lowe and Kenney, 1999.
were not available from any supplier in the After NAFTA came into force, foreign affiliates
country at the time. Now Ureblock has a appear to have been given a higher degree
200m 2 building in the IBM plant and its of autonomy (Carrillo et al., 1999, p. 56).
responsibilities in the production process range 19 Driffield and Mohd Noor, 1999; Mair et al.,
from cleaning the final product to labelling, 1988; Turok, 1997; Castellani and Zanfei,
packaging and final delivery to the IBM 1998; Halbach, 1989; Yoon, 1994; McAleese
distribution department (Dussel, 1999). and McDonald, 1978; O’Farrell and O’Loughlin,
9 In some regions of the United Kingdom, for 1981; Görg and Ruane, 1998; Scott-Kennel
instance, one in seven foreign affiliates obtained and Enderwick, 2001.
more than half of its material inputs from 20 For example, the number of domestic suppliers
group sources (Crone, 2000). to Honda of America gradually increased from
10 See, for example, Phelps, 1993; Crone, 1999; about 30 in 1983 to more than 400 in 1997
Kelegama and Foley, 1999; Carrillo and (Handfield and Krause, 1999).
Gonzalez, 1999. 21 An Irish study shows that large and expanding
11 Lim and Fong, 1991; Iannone, 1989; Driffield foreign affiliates had relatively low levels
and Mohd Noor, 1999; UNCTAD, 2000a. Low of local procurement (Görg and Ruane, 1998).
linkages between Japanese affiliates and local In Mexico the small size of local suppliers
firms may also be related to the Japanese was found to be an obstacle to linkage creation
preference for greenfield investment when by large foreign electronic and auto-parts firms
expanding abroad (Belderbos et al., 2001). (Carrillo et al., 2001). Other studies confirm
12 Reuber et al., 1973; UNCTAD, 2000a; that larger affiliates tend to have weaker local
Altenburg, 2000; Belderbos et al., 2001. linkages (Schachmann and Fallis, 1989; Halbach,
13 During the 1990s, for example, the number 1989; Barkley and McNamara, 1994).
of suppliers to Fiat’s manufacturing plant in 22 Studies of the mining industry in Chile – the
Betim, Brazil, was more than halved from leader in mining-support industries in Latin
500 to around 200 (Borges Lemos et al., 2000); America (UNCTAD, 2000c) – found that
the number of suppliers to Fiat’s Polish plant foreign-owned mining companies operate in
fell by 33 percent between 1992 and 1996 an “enclave” with few links to local industry
(Balcet and Enrietti, 1998); and to its Turkish (UNCTAD, 2000a; Culverwell, 2000).
plant by 56 percent between 1992 and 1999 23 A survey of garments production in Costa
(Balcet and Enrietti, 2000). Similar Rica, the Dominican Republic and Morocco
developments have been noted for other showed local sourcing by affiliates of between
carmakers (also see box IV.2). 5 and 10 per cent (UNCTAD, 2000a, chapter
14 Suzuki’s affiliate in Hungary, for example, 4).
only negotiates with potential suppliers that 24 As The Economist , 3 May 2001, noted, India
are already ISO9000 and QS9000 certified is becoming the “Back office to the world”
(company interview). by undertaking a variety of services for foreign
15 Even in developed economies like the United banks, airlines, insurance companies, travel
Kingdom and the United States, products agents and so on. Most of the work is done
sourced locally by foreign affiliates are often in captive (wholly owned) facilities, saving
of a standardized or technically unsophisticated the companies involved around 40-50 per cent
nature (Turok, 1993; Crone and Roper, 1999; of the cost. Some independent subcontractors
Crone and Watts, 2000; Chung et al., 1994). are entering the field (e.g. in medical
16 This may explain why technology-intensive transcription and call centres), but almost
Japanese TNCs have relatively low local content all their work is for companies located abroad.
abroad, particularly in developing countries 25 Examples of companies having such programmes
(Belderbos et al., 2001). An analysis of inward in developing countries are Anglo-American,
FDI in Ireland suggests that foreign BASF, Cadbury, Daewoo Corporation, Fiat,
manufacturing affiliates with the largest GlaxoSmithKline Beecham, Hitachi, IBM, Intel,
purchasing linkages tend to have a relatively LG, Matsushita, Motorola, Nestlé, Pepsi Foods,
low R&D intensity and therefore may have Philips, Saint Gobain, Siemens, Toshiba, Toyota,
the least to offer to a local supplier in terms Unilever and Volkswagen. This list is by no
of technology and knowledge transfer means exhaustive, but represents responses
(Breathnach and Kelly, 1999). provided by firms to a joint UNCTAD-ICC
17 In the Central American apparel industry, some request for case studies as well as examples
Asian investors relocated from higher-wage referred to in the literature. These cases are
to lower-wage countries while United States part of the analysis below.
brand-name companies rarely relocated despite 26 Other studies show a lower frequency of such
CH A P T ER IV BACKWARD LIN KAG ES:IM PACT,
DET ER M IN AN TS AN D T N C EXPER IEN CE 155

efforts. For example, a survey of the South assistance) from the respective foreign affiliates
African automotive industry found that supplier for their employees, but less than a fifth of
development efforts by foreign carmakers and locally owned firms (generally second- or third-
their first-tier suppliers were very modest and tier suppliers) received training for their
that they had become rarer in recent years employees from the buyers (foreign affiliates
(Barnes and Kaplinsky, 2000). or locally owned) to whom they supplied
27 The information on companies has been (Carrillo, 2001).
compiled from responses to a survey of affiliates 35 See the section on technology transfer.
in developing countries and economies in 36 “Information is one of the most important
transition conducted by UNCTAD and the hurdles standing in the way of the more
International Chamber of Commerce in 2000/ widespread adoption of backward linkages.
2001. The whole concept of subcontracting revolves
28 Expertise and skills can be transmitted between around the idea of information dissemination,
buyers and suppliers in both directions, and since subcontracting is expected to facilitate
in developed host countries they probably the matching of capacities of the small-scale
are. But this also happens in the more advanced firms with demand emanating from the large
developing countries. For example, in Singapore, firms. There is thus a need for effective
local SMEs were found to play an important institutional arrangements for the collection
role in transferring knowledge on local technical and dissemination of business information
specifications, standards, management styles relevant to the large and small units operating
and local culture, as well as soft technology in the respective industrial sectors” (ITC, 1998,
to their TNC customers (Chew and Yeung, pp. 11-12).
2001). 37 For instance, eight of 11 foreign affiliates
29 Technology transfer to suppliers generally in a survey of the Malaysian electronics industry
takes the form of technical support rather did not provide any financial support to
than the transfer of proprietary know-how suppliers (Giroud, 2001a). Affiliates that
(Wong, 1992; Hobday, 1995; Ernst, 1997). provided financial support mentioned that it
Proprietary knowledge refers to product and/ was limited in time and scope, and was not
or process related know-how developed and a part of regular company practice. In Singapore
owned by a TNC and usually protected through in the mid-1980s, only 19 per cent of the United
a patent or copyright or industrial design or States-owned affiliates and 12 per cent of
trade secret. One reason for the limited transfer the Japanese-owned ones provided financial
of proprietary technology may, of course, be assistance to suppliers, but the practice was
that the foreign affiliate does not itself possess more common for European affiliates, with
the know-how to produce a part or component more than 50 per cent providing such assistance
it procures externally. (Tan, 1990).
30 For example, in Thailand, technology transfer 38 The survey was conducted by Grant Thornton
(both direct and indirect) took place in 38 International (GTI, 1997). It should be noted
per cent of the cases involving low-specificity that the survey report drew attention to the
products and 57 per cent of medium-specificity possibility that some respondents might have
products, whereas the corresponding figure lumped foreign affiliates and large local firms
for high-specificity products was 80 per cent together.
(Supapol, 1995). See also Chung et al., 1994. 39 Suzuki in Hungary sources items from exclusive
31 See Giroud, 2001a; Halbach, 1989; Supapol, suppliers and stipulates price reductions of
1995; Gultom-Siregar, 1995; Wong, 1992. 2-4 per cent per year (company interview;
32 The first “Supplier Associations” date back Schweitzer, 2001) According to a survey in
to 1939 when Toyota created one in Japan India in the early 1990s, 2 out of the 10 foreign
with its ten most important suppliers (Handfield affiliates mentioned professional costing and
and Krause, 1999). “worked out prices” with suppliers as their
33 Such spin-offs have become important players method to determine a mutually agreed price
in the support industry in the electronics sector (Kumar, 1995).
in Malaysia (Hobday, 1999), Singapore 40 In the Mexican maquiladora industry, for
(Mathews, 1999) and the Republic of Korea example, contracts are signed in Mexican pesos
(Bloom, 1992; Kim, 1999). even if suppliers purchase raw materials in
34 In the television-manufacturing industry of dollars. When they get paid a month or more
Mexico, a somewhat similar situation seems later, payments do not take exchange rate
to prevail: nearly half of the foreign-owned changes into account, often at significant costs
local suppliers (to foreign-affiliate to suppliers (Carrillo et al., 2001).
manufacturers) covered by a questionnaire 41 Foreign affiliate-local firm financial
survey received training (along with technical arrangements are likely to be more prevalent
156 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

in forward linkages, especially if the relationship a number of suppliers have chosen not to
is governed by a franchising agreement. In participate in the programme (Borges Lemos
the food and beverages industry, for example, et al., 2000). Varity Perkins, a producer of
companies such as Coca-Cola and Unilever diesel engines, similarly expects to share the
often provide preferential credit lines and benefits a supplier enjoys as a result of supplier
equipment free of charge to retailers. But development efforts. However, instead of
these arrangements are often challenged on requiring an equal split on savings, Perkins
grounds of anti-competitive effects, as, in requires that a supplier agrees not to raise
exchange for these contributions, retailers prices the following year, unless it has to
are required to distribute exclusively the respond to increases in raw material prices
products of the TNC of foreign affiliates (Handfield et al., 2000).
supplying the product for distribution. 43 The survey and field interviews showed that
42 For example, in the case of its so-called RC5 in most cases, pitfalls were related to a lack
programme in Brazil, Fiat explicitly states of commitment or of technical and human
that it expects to benefit through price resources on the part of suppliers to implement
reductions on a participating supplier’s output the improvements required (Handfield et al.,
or to share the pecuniary gains the programme 2000).
helps to achieve. In fact,mainly for this reason,
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DET ER M IN AN TS AN D T N C EXPER IEN CE 157

Annex to chapter IV. Supplier development activities

by foreign affiliates

The following are additional Those in the first two categories are given
examples of measures taken by foreign assistance by representatives of Skoda Auto
affiliates to strengthen their backward Slovensko – to bring them to the required
linkages with local firms: levels. The suppliers who finally meet the
criteria start receiving order demand quotes
and enter the process of competing for a
1. Finding new local suppliers contract. 1 In Hungary, the affiliate of
Suzuki carries out a full-fledged supplier
• Making public announcements about the audit (on management and accounting
requirements that firms need to meet to practices, technology and working
qualify as suppliers . In Slovakia, the methods) of suppliers. 2
Development of Suppliers Department (set
up by a local Volkswagen sales affiliate,
Skoda Auto Slovensko) informs potential 2. Transferring technology
suppliers on standards they have to fulfil
to become suppliers; all suppliers must first Product-related technology
get a VDA 6.1 quality certificate (QS 9000
level) required for the supplies to the • Provision of proprietary product know-how.
German automotive industry (Ferencikova Some foreign affiliates transfer their
and Koperdan, 2001). Intel Malaysia is product-related proprietary knowledge to
another example (box IV.11). One part of their local supplier firms by licensing
its supplier development strategy is to know-how or granting supplier firms
search for and help domestic enterprises permission to use it. For instance, Astra
to reach the stipulated quality standards Research Centre India (ARCI) licensed its
and upgrade their various activities in order product know-how for reagents (which are
to qualify as suppliers to Intel. The most used in DNA research) to a newly formed
important characteristic of a local firm is local firm, Gene India. This firm produces
that its top management is committed to these reagents and supplies to ARCI as well
learning, to investing resources, time and as to other research institutes in India and
effort to work with Intel Malaysia with a abroad. Prior to such technology transfer
view to upgrading its capabilities and skills by ARCI, these reagents were imported
(Wong, 2000). Another kind of information (Reddy, 2000).
support is to help potential suppliers
establish themselves a presence close to • Transfer of product designs and technical
the affiliate’s own plant. In Hungary, for specifications. The provision of product
example, Suzuki’s affiliate is collaborating design specifications was noted as one of
with local authorities to inform potential the main channels for technology transfer
suppliers on how to establish themselves to local suppliers in the electronics
in the region by, among other actions, industries of Thailand, China, Indonesia,
organizing outreach events and providing Republic of Korea and Thailand (ESCAP/
material containing information on UNCTAD, 1995). In a study focusing on
infrastructure and financing possibilities Japanese foreign affiliates and their local
(box V.1). suppliers in the electrical and electronics
industry in Malaysia, 70 per cent of the
• Supplier visits and quality audits. In foreign affiliates were frequently
Slovakia, the Development of Suppliers interacting with local supplier firms to
Department maps the potential of local provide them with product-related technical
suppliers through visits and analysis of specifications, 32 per cent to provide tools
technology, capacity, quality management and 5 per cent to provide information on
systems and financial performance. This plant establishment (Giroud, 2000, p. 584).
is followed by a special audit, classifying In some cases, a foreign affiliate may
candidates into three groups: ready to change the design of an input specifically
supply, conditional supplier and rejects. to suit a local supplier’s production
158 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

capabilities (Giroud, 2001a). Affiliates also affiliates. Through such cooperation in

provide advance technical information R&D, there is scope for transfer of
about changes in their products. Provision application knowledge and methodologies
of such information appears to be more involved in product and process
prevalent in some industries, such as development to local supplier firms and/
automobiles and electronics, than in others. or research institutes (Reddy, 2000).
For instance, Fiat’s affiliate in Brazil
provides the specifications for new Transfer of process technology
products to local suppliers in advance
(Borges Lemos et al., 2000). Although the • Provision of machinery and equipment to
source of such specifications may be the suppliers. Magyar Suzuki, the Hungarian
TNC headquarters, local suppliers need to affiliate of Suzuki of Japan, installed
be involved in adapting the product to local production equipment in the industrial park
conditions, as well as adjusting of Esztergom, adjacent to its own site, to
customization to specific markets. This be shared with suppliers (Suzuki, 2001).
facilitates technological cooperation Foreign affiliates in the food processing
between foreign affiliates and local supplier industry in India are another illustration
firms, enabling the latter to develop of the provision of embodied and
components for a new product. disembodied technologies to local suppliers
(box IV.8).
• Technical consultations with suppliers to
help them master new technologies. In a • Technical support for production planning,
survey of 33 foreign affiliates in Northern quality management, inspection and
Ireland, a majority of the affiliates (76 per testing. In a study of the electronics
cent) was observed to have provided such industry in Singapore, focusing on original
support through monthly contacts for equipment manufacturing arrangements
discussion of technical issues (Crone and between foreign affiliates and local
Roper, 2001). supplier firms, 89 per cent of the foreign
affiliates reported providing technical
• Feedback on product performance to help support as part of their efforts to develop
suppliers improve performance. After the their suppliers (Tan, 1990). In the
supply of a product by the supplier(s), electronics industry of Malaysia, foreign
foreign affiliates can provide feed-back on affiliates have given significant technical
its performance, which helps suppliers in support to their local suppliers (Ismail,
further improving the product (see Crone 1999; UNDP, 1993). Such support included
and Roper, 2001; box IV.6). solving specific technical problems
(Capannelli, 1999) and assisting in factory
• Collaboration in R&D. Some affiliates layout, production planning and machinery
collaborate with their local suppliers in installation (Ismail, 1999). In a Northern
product development through joint R&D. Ireland survey, 31 per cent of the foreign
Collaboration in product development was affiliates covered advised their suppliers
observed, for example, in 44 per cent of on the selection and use of process
the foreign affiliates covered by a Northern equipment, and 34 per cent assisted
Ireland study (Crone and Roper, 2001). suppliers in improving their manufacturing
Such collaboration may also involve local processes (Crone and Roper, 2001). In
research institutes or universities. In India, China’s automobile industry, two foreign
Singapore and Malaysia, foreign affiliates affiliates are reported to provide technical
have been found to be involved in R&D assistance through quality control to their
cooperation in product-related technologies local suppliers (Xia and Lu, 2001).
with local firms and research institutes
(Reddy, 2000; Hobday, 1999, p. 95). • Visits to supplier facilities to advise on
Research institutes were involved in layout, operations and quality. Some
supplying specific R&D inputs to affiliates. affiliates form special teams to assist
The local firms involved in R&D suppliers in process know-how or in
cooperation with foreign affiliates, in operating equipment. For instance, Pepsi
addition to developing products, may also Foods, India formed an extension team to
manufacture them for supply to foreign advise its contract farmers in improved
CH A P T ER IV BACKWARD LIN KAG ES:IM PACT,
DET ER M IN AN TS AN D T N C EXPER IEN CE 159

methods of cultivation and the use of • Assistance in implementing quality

advanced agricultural implements (Pepsi assurance systems (including ISO
Foods, 2000). Such visits are of special certification). In the United Kingdom, a
importance to the supplier firms, because survey of 30 large foreign-affiliate
they facilitate transfer of “tacit knowledge” manufacturing plants found that 60 per cent
related to production process and quality performed visits for the provision of
control (Ernst, 1997). technical assistance on quality assurance
and organizational issues (PACEC, 1995).
• Formation of “cooperation clubs” for In Northern Ireland, 48 per cent of the
interacting with suppliers on technical foreign affiliates surveyed reported that
issues. The activities organized by such they provide such assistance (Crone and
clubs have contributed to significant Roper, 2001). The experience of Hei Jiya
improvements in the quality of supplies and Electronics Co, a local manufacturer of
delivery schedules, as well as in cost liquid crystal displays and modules in
reductions for the suppliers (UNCTAD, China, illustrates such assistance. The
2000a, p. 161). company entered into a supplier
relationship with an affiliate of Motorola,
• Assistance to employees to set up their own which assisted the local company by
firms. For instance, in the Republic of sending teams of technical and managerial
Korea, recognizing the dependence of the personnel to its premises to advise on
Korean electronics industry on imported improving its production management,
mouldings, Motorola set up a moulding technology and quality system. Hei Jiya
production division within its factory and was certified as a qualified Motorola
trained its employees at its headquarters supplier in 1997 for supply of components
in the United States. When some of these for pagers. Due to this technical assistance,
employees wanted to set up their own Hei Jiya obtained ISO 9001 certification
mould-making firms, Motorola encouraged in 1999 and became a supplier to other
them by offering to procure their product electronics manufacturers (Motorola,
and allowed them to use Motorola’s 2001). Similarly, in the Republic of Korea,
equipment and facilities at low prices. By Halla Electronics, an automobile parts
offering such incubation facilities, manufacturing joint venture of Ford,
Motorola contributed to the creation of assisted nine local supplier firms in their
about ten spin-off firms, including Hanmi, efforts to obtain ISO 9002 certification
Kookje, Micron and Crown Precision, (Kim, 1999).
which became leading semiconductor-
moulding producers in the Republic of • Introduction to new practices such as
Korea (Kim, 1999). network management or financial,
purchase and marketing techniques . In a
Organizational and managerial know-how Northern Ireland survey, a quarter of the
affiliates are reported to be involved in
• Assistance with inventory management and introducing new managerial and
the use of just-in-time and other systems. organizational techniques to local supplier
For instance, foreign affiliates provided firms (Crone and Roper, 2001).
technical training to local automobile-parts
suppliers in Mexico in just-in-time 3. Providing training
procedures, and this led to improved
performance by the suppliers (Peres Nunez,
1990). Such assistance in inventory • Training courses in affiliates for suppliers’
management techniques, which enable personnel. In Penang, Malaysia, several
suppliers to tailor their products to order, foreign affiliates and large domestic firms
is integrated by Japanese foreign affiliates provide training courses offered at the
in the Republic of Korea into their Penang Skills Development Centre (PSDC).
assistance in introducing the Total Subject areas for the courses include total
Productive Maintenance Approach (Kim, quality management, project management,
1999). occupational safety and health (Wong,
160 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

2000, p. 74; Intel, 2001). In Viet Nam, • Sending teams of experts to suppliers to
the local affiliate of Unilever conducts provide in-plant training . A number of
training in quality standards, inspection electronics foreign affiliates in Malaysia
and testing methods, and warehousing gives such assistance (Giroud, 2001a). One
specifications for its suppliers. Training purpose of such visits was to provide
is conducted by Unilever and its key training on improvements in technology.
suppliers, and financed by Unilever. In a somewhat different context, the food-
Supplier employees receiving training processing affiliate of Pepsi Foods in India
include staff involved in quality assurance has established, under the direction and
and safety and hygiene, and machine tool management of the Punjab Agro Industries
operators (Unilever, 2001). In Slovakia, Corporation, a procurement and extension
the local manufacturing affiliate of services team for providing training in
Volkswagen provides, in collaboration with world-class mechanized agro-technology
the Suppliers Development Department of to local farmers who are contracted to
Skoda Auto Slovensko, training for supply fruits and vegetables to Pepsi.
suppliers in human resource management Training is conducted through technical
and quality standards (Ferencikova and bulletins, video demonstrations, slides and
Koperdan, 2001). In Brazil, the car- charts of new techniques, and live
manufacturing affiliate of Fiat in Belo demonstrations on the use of various
Horizonte provides training to its suppliers agricultural implements and on operations
(now largely foreign-owned) in just-in-time such as crop transplanting. 3 Similarly,
methods so that disruption of deliveries Nestlé provides training for upgrading
is minimized (Borges Lemos et al., 2000). dairy-farming methods to suppliers in Latin
In India, Maruti, an affiliate of Suzuki that America and China (box IV.6). 4
manufactures cars, provides training to
technical personnel of its suppliers (Juneja,
2000). Most of the examples cited above 4. Sharing information
involve large-scale operations in highly
competitive areas in which supplier • Informal exchange of information on
capabilities can make a big difference to business plans and future requirements can
costs and standards. take place through meetings and visits. For
• Offering access to internal training example, in India, during the 1980s, a
programmes in affiliates or abroad. Fiat leading truck manufacturer, Ashok Leyland
Poland invites its local suppliers to (majority-owned by British Leyland)
participate in the Fiat Group’s internal provided each supplier with schedules of
training programmes. The programme anticipated six-, three- or one-month
covers training of the sales force, purchasing orders (Lall, 1980). 5
management development, support to the
reengineering of the production system and • Consultation on future strategies. Some
to the introduction of new products, and suppliers consult regularly with their
technological training (Fiat, 2001). Some buyers about their own future strategies
of the electronics foreign affiliates included and requirements. In Northern Ireland,
in a study of Malaysian electronic firms foreign affiliates give suppliers advance
provided practical training related to notice of production plans (Crone and
manufacturing processes at their own Roper, 2001). In Poland, an affiliate of Fiat
facilities (Giroud, 2001a). About 80 per provides local suppliers with new
cent of the training provided by Intel Costa information on future business
Rica to its suppliers of services also took requirements (Fiat, 2001).
place at Intel’s Costa Rican facilities
(Larraín et al., 2001). Pepsi Foods India’s • Provision of annual purchase orders. In
Procurement and Extension Services Team Singapore, the likelihood of foreign
organizes farmer training camps to take the affiliates sharing their production and
farmers on a tour of the PepsiCo Research purchase forecasts with local SME
and Development Centre. suppliers is high when the length of buyer-
supplier relationships exceeds two years
(Chew and Yeung, 2001).
CH A P T ER IV BACKWARD LIN KAG ES:IM PACT,
DET ER M IN AN TS AN D T N C EXPER IEN CE 161

• Provision of market information. Some • Advance and prompt payments. Toyota

foreign affiliates in the United Kingdom Thailand raised its advance purchases and
pass on knowledge on market trends to early payments when its local suppliers
their local partners (PACEC, 1995). In the faced severe liquidity problems in the Asian
MERCOSUR area and in China, Nestlé financial crisis (Muramatsu, 2000; box
actively assists selected suppliers in IV.10). Siemens in the Republic of Korea
becoming regional suppliers to Nestlé. 6 had a policy of paying small and medium-
Hitachi’s semiconductor Malaysian affiliate sized suppliers promptly instead of the
exchanges information on market trends usual deferred payment of 30 days (Yoon,
with its SME suppliers and assists them 1994). Another example is from a survey
in expanding their business scope by of electrical and electronics TNCs and
introducing them to other Hitachi suppliers in India, according to which some
affiliates. 7 According to some successful suppliers benefited from advance payments
suppliers in Asia, once their reliability is from their foreign affiliate buyers for
proven to one large foreign affiliate, buying raw materials, or from direct
reference is provided to other assemblers supplies of raw materials from foreign
or manufacturers within the same business affiliates, although they were not in a
network or other foreign affiliates, liquidity crisis (Kumar, 1995).
generating further opportunities (Sison,
2000; ESCAP/UNCTAD, 1995; Moran, • Medium and long-term finance . Unilever
1999). in Viet Nam offered financial support to
five key suppliers to upgrade equipment
• Encouraging suppliers to join business and cover the costs of extensive training
associations or fairs and facilitating (Unilever, 2001). It also bought equipment
networking. One example of a business and provided it to a supplier on leasing
association involved in information terms. Another example is that of Nestlé
provision is the International Disk Drive China, which financed the tooling costs of
Equipment and Materials Association a tin can supplier for sweetened condensed
(IDEMA) in Thailand. IDEMA has milk (Nestlé, 2001). In Ecuador, Nestlé’s
supported the development of a Thailand- Servicio de Fomento Agropecuario (SFA)
based group of hard disk drive offers preferential credit lines to milk
manufacturers that aims at promoting farmers for the purchase of cows,
business networking, facilitating machinery and fertilizers (for fodder
information sharing through education production). In Malaysia, Intel offered
programmes and technical symposia/ capital to Eng Hardware in 1981 to enable
conferences, and also provides a forum for it to become a supplier of precision
the global discussion of technical issues machine tooling (box IV.1). Foreign
faced by the industry. IDEMA Thailand’s affiliates can assist suppliers by providing
activities are planned by leading guarantees to facilitate access to bank
international companies, such as Seagate, lending; one example of such assistance
Fujitsu, Read-Rite, KR Precision, IBM, is that of GlaxoSmithKline Beecham in
ENGTEK and Magnecomp, and India, which has established links with a
information is shared between TNCs and local agricultural bank to enable its milk
their suppliers. suppliers take loans from that bank against
its guarantees. Some foreign affiliates
provide capital to local suppliers through
5. Extending financial support public institutions. One example is Fundo
Fiat (Fiat Fund), created by Fiat Brazil to
• Pricing. In Brazil, Fiat agrees on target finance private investments in the Brazilian
prices and gives “some guarantees automobile-parts industry and managed by
regarding quantities” under one type of a state-owned financial institution (Borges
contract which covers the duration of the Lemos et al., 2000). Another example is
lifetime of a car model, but no co-funding by Fiat (together with the
commitments of any kind on other types Government and UNIDO) of a programme
(Borges Lemos et al., 2000). in India to strengthen the automotive
162 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

component manufacturing industry (box Notes

V.6). When the main bottleneck to the
expansion and modernization of suppliers’ 1 The Supplier Development Department has
capacities is in the underlying visited some 160 companies, of which, 42
infrastructure, foreign affiliates participate companies are now supplying to the concern.
in the financing of such infrastructure. It Of the 42 companies, 12 companies were
was reported that Nestlé’s SFA in Ecuador previously not supplying for the Skoda brand.
2 Information obtained through interview with
co-financed the construction of rural roads
to facilitate market access for small Suzuki, Hungary.
3 Based on information obtained from Pepsi
suppliers. 8 Some foreign affiliates also
share the cost of improving the skills and Foods Ltd. India.
4 Based on information obtained from Nestlé.
capacities of suppliers, as with financing 5 In addition, this truck manufacturer and its
trainers at PSDC in Penang; trainers are suppliers had intensive discussions to ascertain
seconded by foreign affiliates and paid by whether or not a buyer’s future needs matched
them. The Korean automotive company, suppliers’ capacities based on long-term business
Daewoo Corporation, has sometimes plans of both sides.
helped to finance suppliers’ improvement 6 Information obtained from Nestlé.
7
projects in the Republic of Korea, See “Experiences in SME linkages”, presentation
Indonesia and Poland, e.g. by providing given by Leow Teik Thye, at the International
collateral to allow them to borrow funds Workshop on Technological and Managerial
at reduced rates for new equipment, or by Upgrading of SMEs through Linkages with
assisting in the procurement of raw TNCs, organized jointly by UNCTAD and Intel
in Penang, Malaysia, August 2000.
materials (Handfield and Krause, 1999). 8 Source: http://www.nestle.com.ec/ecuador/campo/
sfa.htm.
 CHAPTER V.
POLICIES TO STRENGTHEN LINKAGES

A. The role of government important area at the intersection of

enterprise development and FDI policies.
policy The focus of the policy discussion is narrow:
it is limited to the relationship between
foreign affiliates and local firms (figure
s there a need for governments V.1). This is not to minimize the importance

I
to promote actively the creation of other policy areas: for example, without
and deepening of linkages? foreign affiliates (and, hence, a policy to
There are certainly conditions attract FDI) and domestic firms (and, hence,
under which the benefits of a policy that promotes their growth and
linkages are so clear to competitiveness), the preconditions for
enterprises that no policies are needed to linkages do not exist. Indeed, the more
encourage firms to strike them. However, policy measures aimed at promoting linkages
markets may fail to create efficient linkages, are consistent with, and embedded in, a
raising the cost to both parties of entering broad range of policies that facilitate
into long-term supply relationships and enterprise development (figure V.2), the
reducing the ability of domestic firms to higher the chances for linkage-promotion
become competitive suppliers. Failures can policies to succeed.
arise at several levels. TNCs may be unaware
of potential suppliers, or may find it too Care must be taken, however, when
costly to locate or deal with them. They may drawing lessons from the experience of
be reluctant to invest in building local different countries. Not all measures
capabilities because the benefits leak out reviewed in this chapter have always yielded
to other buyers. Local capabilities may be positive results in terms of promoting
too far below the levels needed to make it efficient linkages, if for no other reason than
feasible for TNCs to invest in improving that they may have been applied to meet
them. Or domestic suppliers may not have different policy objectives. Success also
access to technology or finance. depends on whether other policies are in
place. For instance, the promotion of supply
Hence, governments can encourage links may be successful because it is
the creation and deepening of backward complemented by a general policy of
linkages by lowering the costs and raising technology upgrading or industrial training.
the rewards of linkage formation for both A certain strategy may work only in a
TNCs and local firms. The objective is, as specific historical, cultural, institutional or
stated earlier, not to create linkages for their political context, making it difficult to
own sake, but rather to stimulate linkages transpose it to a different setting. In other
that raise the efficiency of production and words, many linkage promotion measures
contribute to the diffusion of knowledge and are context-specific, and the role of the
skills from TNCs to the local enterprise enterprise and industry determinants
sector. The assumption is that, whatever discussed in chapter IV needs to be taken
productive linkages there are, there is room into account. Moreover, the description of
for encouraging the creation of more and a policy per se does not capture the way it
deeper linkages. has been implemented in a particular
country, if only because proper
This chapter reviews, therefore, implementation may require strong
policy measures taken in different countries institutional capacities; not every
to promote linkages, with a view to government may have adequate resources
establishing a “menu” of instruments that for this purpose. Hence, if the same policy
countries can use for this purpose, in this is implemented elsewhere, but without the
164 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Figure V.1. Policy focus for the promotion of backward linkages

Source : UNCTAD.

Figure V.2. The linkages policy environment

Source : UNCTAD.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 165

same efficiency, flexibility or participation This chapter reviews policy measures

of stakeholders, it may yield quite different of relevance for linkage formation. Section
– and perhaps disappointing – results. B discusses some broad policy measures,
notably in the areas of trade and investment,
Given this caveat, there are that can influence the behaviour of foreign
nevertheless important lessons to be learned affiliates, against the backdrop of recent
from the policy experience of different developments in the international regulatory
countries. Many of the problems of linkage environment. The analysis then turns, in
creation are generic. Market failures tend section C, to specific measures that can be
to occur across countries – even though the generally applied with a view to facilitating
exact nature and incidence of such failures more and deeper linkages. Section D shows
can vary by level of development and the how a number of countries have combined
specific national context. Governments have several of t h e s e m e a s u r e s i n t o t a r g e t e d
to make a broad strategic choice on the level comprehensive linkage programmes.
at which they tackle such failures. Some can
be addressed at a broad level – for instance,
by encouraging information exchange or B. Trade and investment
skill creation. Others are better addressed
at more specific sectoral or activity levels, measures influencing
by targeting linkage policies to industries linkages
in which TNCs are most active. Still others
can be geared to particular geographical
locations, such as dynamic clusters of Many host country policies affect the
interest to foreign investors. Many operations of foreign affiliates in various
governments have policies at all levels, with ways. Some of them can – often indirectly
the differences in emphasis and nuance and incidentally, but also, at times, through
rather than strategy. deliberate use for this purpose – encourage
linkages. The focus of this section is
It is important to note, however, that specifically on various trade and investment
the policy space available for national measures of relevance to linkages.
linkage policies is narrowing. A number of
the direct measures used in the past to High tariffs on imports required by
increase local purchases are being phased foreign affiliates could in theory lead to an
out, as a result of autonomous liberalization increase in local sourcing of needed inputs
by host countries, the decline of by affecting their relative costs from
interventionist policies and rules agreed in different sources. However, import-
the context of the WTO and other substitution policies of this kind have been
international agreements. This does not mean generally discontinued.
that the role of policy is less important -
on the contrary. But more attention needs Rules of origin determine the national
to be given to policies that are in line with origin of a product for the purpose (among
market forces and that build, in particular, others) of granting preferential treatment.
on the mutual interests of both foreign Rules of origin based on the level of
affiliates and domestic firms (see chapter domestic value added or local content, and
IV) to create and deepen linkages and foster implemented as part of preferential trade
competitiveness and economic growth. The arrangements, 1 can have important effects
challenge for each country is to identify on FDI and linkage creation in the
which kind of measures are appropriate preference-receiving countries (UNCTAD,
under its specific circumstances. The 1999). In general, these effects are the more
ultimate aim is to strengthen productive significant, the higher the preferential
capacities of suppliers and, in particular, margin and the lower the administrative
help them to produce higher value-added costs associated with origin compliance. On
goods and services in an internationally the other hand, excessively stringent rules
competitive environment. In the process, some tied to a minor preferential margin have
domestic suppliers may expand limited impact.
internationally and become TNCs in their
own right (see box IV.1.)
166 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

In the case of the Japanese bulk of parts and components, especially

automobile manufacturer S u z u k i ’s sophisticated ones, are produced by foreign
investment in Hungary, for example, rules affiliates (Carrillo, 2001). This suggests that,
of origin under the Association Agreement where local supply capacity is weak, foreign
with the European Community were a factor affiliates are likely to meet local content
in the firm’s decision to locate there, create provisions contained in rules of origin either
local linkages and increase local value through internalized production or host
added, so as to enjoy duty-free access for country-based foreign-owned suppliers
car exports to the European Union (box V.1). rather than domestic ones. 2 In addition,
However, while rules of origin can lead to rules of origin have other shortcomings,
a relocation of activities to developing host including the way in which they are designed
countries, they do not necessarily lead to and implemented. 3
more or deeper linkages with local (let alone
domestic) firms in those countries. Mexico, Traditionally, the most prominent
for instance, has attracted new FDI in tool to encourage foreign affiliates to link
electronics and television sets from firms up with local firms has been local content
wishing to have preferential access to requirements , either mandatory or in return
NAFTA’s two northern partners; but the for incentives. Local content requirements
impact on the share of local suppliers – like rules of origin – do however not
appears to have been negligible so far; the necessarily lead to linkages, as foreign

B o x V. 1 . S u z u k i ’s l o c a l s o u r c i n g i n H u n g a r y

Magyar Suzuki started commercial production in Hungary in 1992. Suzuki’s decision to

locate in Hungary and to source from domestic suppliers is partly the result of the preferential
treatment given to goods, including cars, of Hungarian origin by the EU; its plant was largely
oriented, from the outset, towards that market. Between 1992 and 1999, Magyar Suzuki exported
62 per cent of its cumulative output, mostly to the EU. In order for Magyar Suzuki cars to be
considered of Hungarian origin (and enjoy EU duty free treatment), Magyar Suzuki had to rely
on 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, which
seeks 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 by
the 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 Suzuki

is a major employer in the medium-sized town of Box table V.1.1. Magyar Suzuki and its
Esztergom. It purchases a wide range of raw materials, supplier network, 2001
parts and components from primary and secondary Item No. of enterprises Employees
suppliers, and its indirect impact creates employment
to 31,000 persons in 263 companies (box table V.1.1). Magyar Suzuki 1 2 100
In 2000, it had a high share of local value added Primary suppliers 55 10 400
compared to most of the other major foreign affiliates Secondary suppliers 208 20 800
in Hungary; only some electronics firms established Total 264 33 300
through acquisitions (General Electric, Electrolux) Source: Magyar Suzuki.
matched its share (Hungary, 2001a, p.3).

In 2000, to promote further its local embeddedness, Magyar Suzuki prepared a cluster-focused
subcontracting promotion plan, the Mid-Hungarian Automotive Cluster. Magyar Suzuki decided
to provide information on infrastructure and financing facilities to potential suppliers, both foreign
and Hungarian. In the same year, Magyar Suzuki organized international seminars (for 47 potential
foreign suppliers) and produced, jointly with the local authorities, other public relations materials
to 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, available
for potential newcomers.
Source: U N C T A D , based on information provided by Magyar Suzuki.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 167

affiliates can decide to internalize the greater familiarity of joint venture

production within their host country partners with local suppliers. But, again,
operations. Although it is not clear how the evidence is mixed: some studies
widely local content requirements have been concluded that even voluntary joint
used in the past, 4 they (together with other ventures are not more likely to strike
trade-related investment measures (TRIMs) linkages than wholly owned affiliates
are now being phased out as a result of (Moran, 1998; Driffield and Mohd Noor,
c h a n g e s i n h o s t c o u n t r i e s ’ economic 1999).
strategies (from protectionist to open
strategies) and of international • Export performance requirements may not
commitments, in particular the 1995 WTO always lead to a substantial increase in
TRIMs Agreement (box V.2). Only a limited linkages; but where they lead to linkages,
number of countries have requested an these tend to have a higher quality –
extension of the transition period for the precisely because export markets are more
TRIMs they had notified under Article 5.1 exacting and hence foreign affiliates need
of the Agreement (table V.1). 5 In any case, to upgrade suppliers where this is needed.
the experience with local content Such requirements seem to have played a
requirements is mixed (box V.3). role in pushing TNCs when automotive and
electronics industry firms incorporated
There are other host country production facilities in developing
operational measures (UNCTAD, countries and economies in transition into
forthcoming a) that can lead to linkages, their international sourcing strategies,
even though this may not be among their creating new patterns of international
principal objectives. In particular: 6 production (Moran, 1998, p.50). Foreign
affiliates in these industries, in turn, formed
• Joint venture requirements can lead to strong backward linkages with domestic
higher levels of local sourcing, reflecting suppliers, 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 Article
2 that,“[w]ithout prejudice to other rights and obligations under GATT 1994, no Member shall
apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT
1994” (WTO, 1995). An illustrative list in the annex of the Agreement describes measures that
are inconsistent with Articles III (4) and XI (1). These cover essentially the following types
of measures: local content requirements; trade-balancing requirements; foreign exchange balancing
requirements; 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 only
to 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 from
the obligations of the Agreement, as provided for in Article XVIII of GATT and related WTO
provisions on safeguard measures for balance-of-payments difficulties. With regard to transition
periods, 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 notified
TRIMs. Furthermore, upon request, the transition period could be extended for developing and
least developed countries that demonstrate particular difficulties in implementing the provisions
of the Agreement. (WTO members that, as of June 2001, had sought extensions of the transition
period 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 than
five years after the date of its entry into force (Article 9). In this context, several proposals
have been circulated, including the following: maintaining the present list of restrictions or
even reducing the coverage of such list; extending the phase-out period to allow developing
countries more time to address their specific needs regarding economic, financial or social policies;
and increasing the coverage of the list of prohibited TRIMs.
S o u r c e : UNCTAD, forthcoming a.
168 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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-balancing

21 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 balancing
4 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 content
tools, equipment, spare parts
accessories, consumer goods;
transport and marine insurance
Cyprus f 30 October 1995 Cheese and groundnuts products Local content
Dominican
Republic 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 exportation
22 December 1995;
18 March 1996;
11 April 1996
Indonesia 23 May 1995; Automotive industries, utility Local content
28 October 1996 boilers, soyabean and fresh
milk products
Malaysia 31 March 1995; General and automotive industries Local content
14 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 content
and other milk products
Philippines 31 March 1995 Automotive industries and Local content and foreign-exchange
coconut-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 content
munication equipment, tea and
coffee
Thailand 30 March 1995 Automotive industries, Local content
manufacture of milk and dairy
products, aluminium sheets,
TV picture tubes, transformers,
air-conditioners and paper products

Uganda 17 June 1997 General Not specified

/...
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 169

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 content
30 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 General
Council in April 1995 provided that governments that were not members of the WTO on 1 January 1995, but were entitled to become original
members within a period of two years after 1 January 1995, should make notifications under Article 5.1 within 90 days after the day of their
acceptance 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, the
Philippines, 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.

Box V.3. Experiences with local content requirements

The issue of the economic efficiency of local content requirements in creating linkages
between foreign affiliates and local firms has been much debated. Some studies have argued
that, under certain circumstances, mandatory measures can be useful in giving local firms
the opportunity to build supply capabilities (Balasubramanyan, 1991; Halbach, 1989). Evidence
suggests that local content requirements contributed to the development of supplier industries
in 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 found
that local content and other market reservation schemes had a positive influence on the development
of 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 requirements
and 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 attractiveness
of the host countries involved as FDI locations, particularly when local suppliers are not
competitive. Some evidence suggests that local content requirements discouraged manufacturing
investment from Japan and the United States (Hackett and Srinivasan, 1998). In liberalized
trade regimes, they may make foreign affiliates uncompetitive and reduce their export potential
or even their ability to survive. The prolonged use of local content requirements can also
lead 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 protected
markets is not only extremely costly, but also quite ineffective” (Moran, 1998, p. 5). Another
recent study (Xia and Lu, 2001) showed that local content requirements in China did promote
the development of domestic suppliers but at the cost of low efficiency, high costs of production
and hence a loss of competitiveness of the enterprises concerned.
The case for local content requirements rests essentially on the need to promote infant
supply firms by providing support (in the form of assured demand) during their learning
periods. 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 access
to the technology and skills they need to improve their capabilities, they can foster efficient
suppliers. Where used in a protected setting, with few pressures to invest in building competitive
capabilities, they can result in inefficient suppliers that saddle the economy with high costs,
outdated technologies or redundant skills.
S o u r c e : UNCTAD.
170 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

of technical and managerial improvements V.2). In contrast to the TRIMs Agreement,

and benefited from economics of however, such agreements in some cases
agglomeration, scale and scope (Moran, allow these additional measures (or some
1998, chapter V). It is difficult, however, of them) in so far as they are linked to
to generalize, on the basis of these industry incentives (UNCTAD, forthcoming a). In
experiences, that export-performance contemplating linkage-enhancing measures,
requirements invariably produce favourable governments need therefore to be aware that
outcomes as regards linkages to domestic some countries (or groups of countries) have
suppliers in host countries. already agreed to prohibit these in some
investment agreements, suggesting, perhaps,
While these two kinds of measures that the same issues may eventually be raised
are not prohibited by the TRIMs Agreement, at the multilateral level.
a number of interregional, regional and
bilateral agreements (or drafts thereof) While the measures described in the
explicitly probibit, condition (e.g. on preceding paragraphs are prescriptive,
incentives) or discourage them (and other countries can also offer incentives to foreign
host country operational measures) (table affiliates to encourage the creation of

Table V.2. Examples from international agreements (or attempts thereof) that prohibit, condition a
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 BIT
or 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 requirements
may be subject to national treatment and most-favoured-nation treatment provisions.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 171

linkages (provided that relevant international any event, the use of incentives must be
obligations are observed) . Direct and compatible with the TRIMs Agreement and
targeted measures are tax exemptions for the Agreement on Subsidies and
affiliates from corporate income tax, value- Countervailing Measures. Hence, particular
added tax or sales tax. 7 Thus, some care needs to be taken in the design and
governments, like that of Indonesia, exempt implementation of linkage-related incentive
exporters from value-added tax to encourage schemes. Under the TRIMs Agreement, local
the use of local inputs (Felker and Jomo, content requirements and other trade-related
2000). In other cases, affiliates are allowed investment measures mentioned in the
to treat the costs related to linkages Agreement, are prohibited if they are a
formation as tax-deductible expenses. For condition “to obtain an advantage”. In other
example, in Malaysia, large companies words, an incentive linked to a local content
participating in an Industrial Linkage requirement is not considered permissible.
Programme (ILP) can claim expenditure Incentives are also covered by the
incurred for the training of employees, Agreement on Subsidies to the extent that
product development, testing and factory they fall within the definition of a subsidy
auditing (to ensure the quality of vendors’ contained in the Agreement. And again, the
products), as a deduction in the computation use of subsidies contingent upon the use of
of income tax (Malaysia, MITI, 2001). domestic over imported goods (“import
Linkage creation is also used as one of the s u b s t i t u t i o n s u b s i d i e s ”) i s f o r b i d d e n ,
criteria to grant “pioneer” or similar status although transition periods are provided for
to foreign investors. “Pioneer” status usually developing (five years) and least developed
entitles firms to various types of fiscal or countries (eight years) (table V.3). On the
financial incentives, or to other benefits. other hand, while forgoing local content
In Malaysia, for example, pioneer status is requirements, developing countries may find
granted to companies proposing to it useful to encourage linkages through well-
manufacture promoted products or undertake targeted incentives to foreign affiliates (or
promoted activities, taking into domestic firms for this purpose) that engage
consideration the value added, level of in linkage creation and deepening activities,
technology and industrial linkages involved such as technology upgrading and the
in the projects (Malaysia, MIDA, 2001). The training of local suppliers. But incentives
Thai Board of Investment also offers a of this kind are currently open to challenge
variety of incentives to promote investment (“actionable”). Thought should therefore be
projects that use domestic resources and given to adapting the relevant WTO rules
develop basic and support industries to render this category of development-
(Thailand, BOI, 2001). Moreover, related subsidies non-actionable. To avoid
sometimes changes of the tax system itself free riding, affiliates receiving incentives
can facilitate linkages. 8 could be required to commit matching
resources.
It is difficult to isolate the impact
of incentive measures on linkage formation Issues pertaining to performance
from that of other measures that usually form requirements and incentives often arise in
part of an incentive package, or from the the context of concrete negotiations between
impact of economic conditions in a host governments and TNCs, especially of large
economy. Some studies have found that FDI projects. Contractual arrangements
incentives can be important in developing with foreign investors can offer host
subcontracting relations; on the other hand, governments an opportunity to encourage
if local suppliers are not able to meet the the formation of local linkages by including
needs of foreign investors efficiently, this element in their award procedures.
incentives alone are unlikely to have an Under the Umbrella Subcontracting Scheme
impact on linkages. 9 Furthermore, special of Malaysia, for example, the Government
attention needs to be given to avoid granting granted procurement contracts without
incentives in situations in which linkages competitive tendering to a furniture market
would be forged even in the absence of intermediary company in exchange for its
incentives, which would then simply result marketing the products of medium-sized
in windfall gains for foreign affiliates. In local companies (Meyanathan, 1994).
172 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Privatization transactions may also offer developing countries to form linkages with
opportunities to keep linkage consideration domestic and international partners. It will
in mind. For example, when Volkswagen facilitate knowledge transfer and improve
bought Skoda (Czech Republic) in 1991, one access to the information and markets
of the best-effort commitments it made was necessary to compete in a global economy”
to rely increasingly on domestic suppliers. 10 (United Kingdom, 2000, pp. 61-62).

Finally, thought could be given to the

possibility that home countries encourage * * * * *
their TNCs through fiscal, financial and
other incentives to forge local linkages in Developments in the global economy
developing countries. Some developed and changes in the international policy
countries give support in the form of loans, framework, including commitments in WTO
government-sponsored insurance and equity and other international arrangements, have
financing for FDI in developing countries changed the scope for national policy
and economies in transition (UNCTAD, options. Some measures that were applied
2001b). In some cases, such assistance is in the past are now considered less relevant
limited to SMEs. So far, however, the or non-permissible in this new environment.
development of linkages between foreign However, there is flexibility within the
affiliates and local firms does not appear existing framework, e.g. in the form of
to have been emphasized in these extension of transition arrangements and
programmes, although there is progress in differential treatment of countries at
this direction. The Government of the different level of development. Moreover,
United Kingdom published, in December some agreements are subject to further
2000, a White Paper on International review. The challenge for policy makers is,
Development which noted that “[e]ven with therefore, how to adjust to this new
good policies in place, it can be difficult international policy framework, make use
for some developing countries to stimulate of the options allowed within this framework
domestic investment and attract foreign and use other policy measures which are not
investment”. O n e o f t h e m e a s u r e s t h e subject to multilateral rules to integrate FDI
Government of United Kingdom announced more deeply into their national economies
to deal with this situation is that it would and, in particular, benefit from backward
establish a “Business Linkages Challenge linkages. Some of these other measures are
Fund” which “will support enterprises in discussed below.

Table V.3. The WTO Agreement on Subsidies a

Developed Developing
Type 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 their
GNP 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.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 173

C. Specific measures to often stressed by TNCs, is the “right attitude”

towards continuous improvement a n d , i n
assist the creation and particular, a commitment to upgrade quality
deepening of linkages on the part of suppliers; this is regarded by
some as more important than the actual level
of quality at any given point in time (Yoon,
The discussion so far has dealt with 1994; Belderbos et al., 2001; Altenburg,
certain broad policy measures that can 2000). 11
influence the behaviour of foreign affiliates
in terms of linkage development. Beyond The process of linkage formation is
these, there are two basic (mutually not also affected by the availability of
exclusive) approaches that can be pursued. supporting meso-institutions. Public and
One involves encouraging linkages in private providers of financial, technological
general, regardless of the industries and training support often play key roles
involved. This is a broad approach – it in the process of fostering the development
basically seeks to make the regulatory of viable suppliers. Without this kind of
framework more conducive for linkage institutional support, domestic firms may
formation. The discussion below provides be unable to get a required quality
a menu of policy measures that can be certificate, training or capital needed to
considered under this approach. The other become competitive. Moreover, the costs
approach, discussed in section D, goes incurred for foreign affiliates may simply
further in that it involves the establishment be too high for them to get engaged in
of a specific linkage promotion programme supplier development activities.
dedicated to increasing and deepening
linkages between foreign affiliates and Support of another kind may also be
domestic firms. important. Domestic suppliers – because
they are typically small in size and
The linkage process is affected by economically weak – can be at a
a host country’s overall policy environment, disadvantage when negotiating with buyers,
including its economic and institutional especially when a single firm is the only
framework, the availability of human or main customer. Governments can help to
resources, infrastructure and the degree of a certain extent to balance the negotiating
political and macroeconomic stability. positions of buyers and suppliers. For
Moreover, it is evident that the volume and example, guidelines, model contracts or
nature of inward FDI determine the potential similar instruments setting out minimum
for linkage formation; for this reason, requirements may be useful. In the Republic
targeting foreign investors with linkage of Korea, the 1984 Act on Fair Transactions
potential can be a part of a general FDI and Subcontracting gave the Government
targeting strategy and hence an element in supervisory authority to monitor buyer-
linkage promotion. But perhaps the single supplier transactions (Meyanathan, 1994).
most important host country factor In India, policy measures have been
influencing linkage formation is the implemented to strengthen the legal and
availability of local suppliers with institutional framework for linkage
competitive costs and quality. This is, of formation, including a proposal to prevent
c o u r s e , r e l a t e d t o a c o u n t r y ’s level of large enterprises from abusing their
development. The technological and p o s i t i o n . 12 T h e r e l a t i o n s h i p b e t w e e n
managerial capabilities of domestic firms domestic suppliers and their buyers is often
also determine to a large extent the ability a delicate one and therefore requires
of a host economy to absorb and benefit from constant attention and care.
the knowledge that linkages can transfer.
In particular, the tendency for foreign This section focuses first on
affiliates to source the most sophisticated measures related to information provision
and complex parts and components either and matchmaking to help domestic firms link
internally or from a preferred (foreign-owned) up with foreign affiliates. It then examines
supplier within or outside a host country various means to strengthen existing
depends essentially on the capabilities of linkages in the areas of technology
local companies. Another key requirement, upgrading, training and financial assistance.
174 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

In each of these areas, specific measures that, unless it fulfils these criteria, its
are presented as they have been taken by usefulness may be limited.
governments. They represent a “menu” of
sorts from which governments can choose • Matchmaking. Matchmaking implies a
in light of their specific circumstances. more active government role and focusing
Typically, these measures do not distinguish on the specific capabilities and needs of
between foreign affiliates and domestic individual buyers and suppliers and
firms and they can be applied across working closely with them to reach supply
industries. arrangements. It can take many forms:
facilitating one-to-one TNC-supplier
encounters and negotiations, acting as
1. Information and honest broker in negotiations, supporting
matchmaking supplier audits, providing advice on
subcontracting deals, sponsoring fairs,
exhibitions, missions and conferences.
The first set of policy measures to Governments can also organize meetings
help domestic firms link up with foreign to bring suppliers and buyers in particular
affiliates involves the provision of industries together, to enable them to show
information and matchmaking. Such efforts their products, make contacts and initiate
may be needed to help overcome information deals. They can try to establish the input
failures as regards linkage opportunities. The needs of foreign affiliates and identify parts
most prominent ones are: and components for local supply. They can
monitor linkages and act as trouble-
• Provision of information. Governments can shooters when problems arise. The Irish
act as facilitators by gathering and National Linkage Programme, for example,
disseminating information on linkage helps with bureaucratic processes and
opportunities and by guaranteeing the institutions in subcontracting arrangements
accuracy of the information provided. The and with resolving problems and disputes
information may include details about in linkage relationships (box V.8). The most
prices paid for particular components, common types of matchmaking activity
qualities and even the products and consist of arranging individual meetings
processes used. It may consist simply of and visits to plants. The “Meet the Buyer”
a list of inputs and materials available Programme in the Czech Republic arranges
locally. Or it may include the names, meetings between foreign investors and
locations and profiles of the supplier firms potential Czech suppliers as part of
and some company information, along with CzechInvest support measures (Czech
data on the characteristics and structure Republic, 2001; box V.10). In Thailand,
of supplier industries. The information can the Unit for Industrial Linkage
be made available through simple hand- Development (BUILD) of the Board of
outs or brochures, but the recent tendency Investment arranges for visits to assembly
in most programmes is to use electronic plants by potential suppliers. Since the
databases. Of course, the more detailed and initiation of the Vendors’ Meet Customer
complex the data, the more useful they are Programme in 1997, there have been about
to users – but the higher the cost of 50 visits to factories (Thailand, Office of
providing the information. (Governments the Prime Minister, 2001; see annex E to
may charge a fee for the use of the this chapter). In Mexico’s state of Baja
information services.) Information can also California Norte, a variety of trade fairs
be provided through public announcements, bring supplies and buyers together (see
linkage-information seminars and missions, annex D to this chapter).
and by international exhibitions. Instead
of direct intervention, governments can Many linkage-promotion efforts put
support information exchanges by private emphasis on overcoming the information
institutions; some are promoted by gap. In many countries such institutions as
international organizations like UNIDO. 13 chambers of commerce or industry
It must be recognized, however, that associations can be valuable sources of
maintaining a reliable, up-to-date broad- information for foreign affiliates that are
based database is difficult and costly and newcomers in these countries. Based on the
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 175

experience of information and matchmaking In general, however, firms, including foreign

activities in different countries, some lessons affiliates, are hesitant to transfer proprietary
can be drawn. First, public initiatives can technology in an environment in which the
indeed play a role in enhancing the protection of intellectual property is not
availability of information. This may be robust, because of the potential risk of
particularly important with regard to foreign imitation by competitors. 14 Some studies
affiliates that have recently invested in a have found that the intellectual property
host country. Second, matchmaking regime in a host country could affect the
activities, however, make sense only when inflow of FDI and the type of technology
there are viable suppliers. Third, transferred, particularly in high technology
matchmaking initiatives need to be industries such as chemicals,
complemented by efforts at enhancing the pharmaceuticals, machinery and electrical
competence and capabilities of domestic equipment (Mansfield, 1995; Maskus, 1997;
suppliers. Matchmaking cannot remedy UNCTAD, 1993). 15
supplier weaknesses but can be an important
complement. Fourth, matchmaking efforts Against this background, some
should be based on close collaboration with measures that are specifically relevant to
the private sector. The active participation encouraging technology transfer from
of foreign affiliates is a key factor for the foreign affiliates to their local suppliers
success at matchmaking programmes and include:
trade fairs (see, e.g. Carrillo, 2001).
• Technology transfer as a performance
requirement . Technology transfer
2. Technology upgrading requirements are used by governments
(unless they have entered specific treaty
The technological capabilities of obligations to the contrary), sometimes in
local firms are key determinants of their conjunction with the provision of an
ability to qualify as suppliers to firms incentive (e.g. tax incentive), to induce the
operating in increasingly competitive transfer of technologies from TNCs, not
markets. They also influence the extent to only to their foreign affiliates and joint
which suppliers are able to take advantage venture partners, but also to local firms
of the opportunities for further technological that are subcontractors of foreign affiliates.
improvement that linkages may provide. The Republic of Korea used technology
More and more foreign affiliates demand transfer requirements to domestic firms in
that their suppliers comply with quality the 1960s (Kim, 1999) but subsequently
standards such as ISO9000, QS9000, discontinued their application in 1989, as
HACCP and VDA. Accordingly, the the measure did not produce the expected
technological upgrading of local supplier result. 16 More recently, agreements in
firms is a priority for host countries, and China’s automobile and autoparts industries
several governments have adopted measures stipulated a certain degree of transfer of
to encourage technology transfer from buyer technology (Xia and Lu, 2001). However,
firms to supplier firms and to strengthen such arrangements may be phased out in
technological cooperation between the two. the light of China’s accession to WTO.
These measures may be general or focus
particularly on suppliers to large firms, • Partnerships with foreign affiliates. Some
including foreign affiliates. Often, they are governments use foreign affiliates as
part of comprehensive programmes to partners in technology upgrading
promote backward linkages (see section programmes. Singapore’s Local Industry
V.D). They are, moreover, implemented Upgrading Programme (box V.4) gives
against the background of increasingly open responsibility to managers seconded by
policy frameworks for FDI and also growing affiliates to the Economic Development
pressure — including through the TRIPS Board to identify potential suppliers, and
agreement — to strengthen intellectual evaluate their capabilities and design
property regimes. The issue may be of less programmes to remedy their weaknesses.
relevance for buyer-supplier transfers as they Foreign affiliates participating in the
typically do not seem to involve the transfer programme then transfer technology and
of proprietary technology (see chapter IV). skills to suppliers to upgrade the
176 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

capabilities of the latter. (Box V.4 also Some governments give similar
illustrates the success of one local firm incentives to universities and research
in upgrading its technology through institutes to cooperate in R&D with firms
participation in the programme.) The (again, both domestic and foreign). The
Government provides organizational and Government of India gives incentives
financial support. (bonuses and royalty shares from new
products) to national laboratories to
The ultimate aim of encouraging strengthen linkages with enterprises. At the
technology transfer, including to suppliers, same time, it has reduced budgetary support
is to strengthen the innovatory capacity of for laboratories, forcing them to raise funds
firms in developing countries. In this regard, from corporate sources (Reddy, 2000, p. 79).
incentives to encourage innovation in Institutes with a strong research base are
domestic firms and R&D cooperation play subcontracting R&D work from industry.
a critical role. Some governments offer TNCs like Intel and Motorola are using the
incentives to firms (foreign and domestic) research capabilities of the Indian Institutes
for R&D cooperation with other firms or of Technology for developing semiconductors
research institutes. This creates another – and chip designing methodologies.
and potentially valuable – form of backward
linkages (which may also include direct Besides the measures implemented
input by suppliers). For example, starting by host country governments, h o m e
in 1991, Brazil gave fiscal incentives to countries too, can take measures to
information technology companies that encourage technology transfer by foreign
invested at least 5 per cent of local sales affiliates to local suppliers in host countries.
in R&D, and 46 per cent of the expenditure Some international agreements, including
was on projects developed jointly with TRIPS, encourage technology transfer from
Brazilian universities or research centres. home to host countries. To the extent
Between 1993 and 1998, 272 companies measures to that effect are successful and
(including affiliates of leading TNCs like foreign affiliates establish technology
Ericsson, NEC and Compaq) availed linkages with domestic firms, they contribute
themselves of these incentives (Galina, to a strengthening of the technological
2001). Motorola drew upon this incentive capacities of domestic host country firms.
to establish a Brazilian centre for Home country incentives can be useful in
semiconductor component development this respect – building for example on the
which it built into a global research centre provisions of the TRIPS Agreement. One of
in collaboration with local universities the Agreement’s o b j e c t i v e s i s t h a t “the
(Galina, 2001).

Box V.4. Singapore’s Local Industry Upgrading Programme

The Economic Development Board (EDB) of Singapore was established in 1961 as a government
agency replacing the Industrial Promotion Board of 1957. Its initial aim was to increase employment
by attracting FDI. The composition of FDI targeted by the Board has subsequently followed
a pattern of technological upgrading, both in terms of industry and of corporate function. It
moved 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 industries
requiring specialist skills, such as integrated circuits, computers, industrial electronic equipment
and speciality chemical products since the 1980s.

The EDB added a linkage programme to its FDI targeting strategy in 1986 when it established
the Local Industry Upgrading Programme (LIUP) to upgrade, strengthen and expand the pool
of local suppliers to foreign affiliates, by enhancing their “efficiency, reliability and international
competitiveness” (Singapore, EDB, 2001a, p. 2). Simultaneously, the EDB created the Small
Enterprise Development Bureau to provide support to SMEs. This was corroborated by the 1988
SME Master Plan, which promotes and develops selected SMEs, such as those that are innovative
start-ups or possess critical mass, capability and commitment to innovate and grow. From its
inception, the LIUP has been part of a wider development vision and industrial policy. Most
recently, under its “Industry 21” initiative, the EDB seeks to develop Singapore into a “hub
/...
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 177

Box V.4. Singapore’s Local Industry Upgrading Programme

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 according
to 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 and
inventory 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 LIUP
is to offer organizational and financial support to upgrade and develop vendors. It operates
with the involvement of foreign firms, and TNCs are encouraged to enter into long-term contracts
with local suppliers and assist them to upgrade their products and processes (see box). While
the initiative was initially launched for the electronics cluster, the LIUP now covers medical
products, petroleum and petrochemicals, marine, transportation and logistics, education and
information technology clusters (Singapore, EDB, 2001a).

The LIUP’s activities include a variety of support measures. For instance, the EDB contributes
to the salary of a foreign affiliate’s representative seconded to a local supplier to make the
affiliate’s supplier more competitive. Specific benefits are offered to those TNCs that enrol
themselves in the vendor development programme. Thus,
the Government of Singapore can maintain its influence
over the character and content of the capital upgrading FJ Industrial and Hewlett Packard
process.
FJ Industrial, a domestically-owned
Local suppliers are encouraged to expand firm in Singapore, started its operations
internationally, e.g. follow their TNC customers when as a small manufacturer of aluminium
they establish plants elsewhere, notably in South-East and plastic nameplates. It graduated to
Asia. This extends the LIUP programme beyond a become the first local firm to manufacture
conventional local linkage development programme. membrane switches and circuits, which
are technologically more advanced and
are aimed at replacing the mechanical
Over time, the economy has developed substantial push-buttons on computer keyboards,
contractual buyer-supplier arrangements, with knowledge copy machines, calculators microwave
transfers flowing in both directions (Chew and Yeung, ovens, etc. Under the LIUP, Hewlett
2001). For example, in 1999, about 30 foreign affiliates Packard’s affiliate in Singapore assisted
and 11 large local enterprises, government-linked FJ Industrial in diversifying into these
companies and government agencies were partnering technologically sophisticated products.
some 670 vendors under the LIUP. Most of these were It helped its supplier to set up production
in the electronics or electrical industries. In the mid- facilities with process control equipment
1990s, among the suppliers that had participated in and sanitized rooms. FJ’s factory manager
the programme, productivity had increased by an average and an engineer were provided training
of 17 per cent, and value added per worker by 14 per on the manufacture of membrane switches
cent (Battat et al., 1996). Some local firms, such as and circuits at the Olin Hunt Specialty
Advanced Systems Automation and Manufacturing Products factory in Los Angeles, Hewlett
Integrated Technology, have managed to evolve from Packard placed a large order on FJ
domestic suppliers to internationalized companies Industrial for switches and circuits for
performing highly complex functions (Mathews, 1999). incorporation in its new generation
Both these companies are today preferred global first- calculators and computers.
tier suppliers to their TNC customers . This would suggest
Source: UNCTAD, based on Lim and
that Singapore’s approach, combining a targeted FDI Fong, 1991, pp. 130-131.
promotion strategy with a linkage programme, has had
positive effects on economic deepening.
Source: UNCTAD, based on Singapore, EDB, 2001a; Battat et al., 1996; Chew and Yeung,
2001; Mathews, 1999; Tan 1990; and communications from John Mathews (May 2001).
178 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

protection and enforcement of intellectual and/or comprehensive supplier development

property rights should contribute to the programmes, to programmes or measures
transfer and dissemination of technology” targeting learning interrelationships between
(Article 7). In addition, some clauses refer supplier- and client-enterprises in particular
specifically to the promotion of transfer of industries. Government training programmes
technology to LDCs. The Agreement that are targeted solely at SMEs or local
recognizes the special needs and suppliers – implemented by several
requirements of its least developed members countries, including, with considerable
by providing for assistance to them by the success by a few developing countries – not
developed country members on the issue of involving buyers, can strengthen training and
technology transfer. More specifically, skills-development interaction between
Article 66(2) requires developed country foreign affiliates and their domestic
members to “provide incentives to suppliers. But the measures considered here
enterprises and institutions in their are those that are related more specifically
territories for the purpose of promoting and to the promotion of training and educational
encouraging technology transfer to least assistance for suppliers’ employees by (or
developed country members in order to involving) buyer (or potential) buyer firms,
enable them to create a sound and viable including especially foreign affiliates.
technological base”. Further, Article 67
s t a t e s t h a t , “i n o r d e r t o f a c i l i t a t e t h e However, only a few countries
implementation of this Agreement, provide fiscal or financial incentives to firms
developed country Members shall provide, (including foreign affiliates) for this
on request and on mutually agreed terms and purpose. The Republic of Korea gives tax
conditions, technical and financial incentives to large firms (domestic as well
cooperation in favour of developing and as foreign) to compensate partly for
least developed country Members”. 17 expenditures on human resource
development in SMEs (including suppliers).
In conclusion, the experience of (These expenditures are eligible for a tax
firms (see chapter IV) and of selected c r e d i t o f u p t o 1 0 p e r c e n t . 18 ) Some
countries suggests that the most successful countries provide financial support to firms,
technological linkage measures are two- including suppliers to affiliates, that send
pronged, directed at both suppliers and workers for training or incur training
buyers. Policies aimed only at inducing or expenses. In Singapore, the Skills
encouraging foreign affiliates to transfer Development Fund of the Singapore
technology have generally not been very Productivity and Standards Board gives
effective. Those addressing only local financial assistance to companies for
supplier firms have done better, but training their workers. Thailand grants a 150
comprehensive policies addressing both per cent tax deduction for training expenses
sides of the equation have turned out best. recognized by the Ministry of Labour; in
Partnerships with foreign affiliates in the past, this has been relatively hard to
upgrading supplier capabilities have been obtain, although improvements have been
particularly effective. made recently (Brimble, 2001). In Malaysia
and Hungary, training costs can be
subsidised.
3. Training
On the whole, however, the main
Developing countries attach a high focus of the measures pursued by host
priority to human resource development countries for strengthening inter-firm
(particularly in SMEs). They pay particular linkages in the area of training and skills
attention therefore to strengthening the is on assisting buyer and supplier linkages
human-resource-development dimensions of in general, and although few of them
supplier linkages, including those with specifically and exclusively target foreign
foreign affiliates. Policy instruments in this affiliates and their domestic suppliers, they
area range from measures that form part of are also of direct relevance to linkages
broad-based policies for SME development between them. Host country measures
include:
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 179

• Promoting supplier associations. Supplier management assistance and training from

associations established with government big firms through this system. 19 The
support can help build training linkages. “Source Wales” Programme of the Welsh
For instance, the Republic of Korea Development Agency also uses a supplier
encourages big companies (including association as a forum to exchange skills
foreign affiliates) to help organize SME and techniques between clients and
supplier associations and participate in suppliers, with major customers or
their training and other programmes. In consultants hired by the programme, acting
1999, 6,100 subcontractors received as tutors for SMEs (Morgan, 1997; box V.5).

Box V.5. Source Wales

The Welsh Development Agency – one of the sub-national development agencies in the
United Kingdom – runs a programme called “Source Wales”. Since it combines matchmaking
and supplier upgrading activities, it is in essence a linkage programme. It is not exclusive
to foreign affiliates, but Source Wales works closely with foreign affiliates, and they are major
players in the different programme activities.
In terms of matchmaking, Source Wales runs a custom-built supplier database that records
the capabilities of Welsh enterprises. a This helps firms elsewhere in the United Kingdom as
well as foreign affiliates to find suitable Welsh suppliers. The buyers’ commercial, technical
and quality requirements and the selection criteria by which they choose potential suppliers
are also disseminated.

Source Wales sponsors or is involved in various business improvement programmes, covering

a broad range of activities:
• The Winning Business Programme targets ambitious, growth-oriented companies operating
in medium or fast-growth market segments and young entrepreneurial companies producing
niche products or services. b The Programme offers practical help by improving the understanding
of the situation of each business, identifying marketing performance indicators, providing
marketing tools and transferring necessary skills and expertise to ensure sustainable improvement.
• The Lean Methodologies Programme aims at increasing a company’s productivity, quality
and delivery. The Programme trains companies in the use of a fact-based diagnostic process
to identify the non-value-adding activities within the business. A tailor-made action plan
is then designed to abolish these.
• A Strategic Direction Programme develops business strategies by helping companies use
such 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 current
situation and ideas for the future. A trained assessor then performs a benchmark test to
establish the current position, highlighting strengths and weaknesses and areas in need
of improvement. At the end of the Programme, the company has a comprehensive strategy,
with measurable achievement targets. Approximately one year after the Programme has
been completed, a second benchmark is carried out to measure progress. c
• The Workplace Management Programme provides training in tools and techniques to help
overcome 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 and
use of analysis tools. d
• The Activity Based Management Programme aims to help Welsh companies improve customer
service levels by analysing the complete cost structure of a business and eliminating costs
that do not add value. The Programme tackles issues such as sales and marketing strategies,
organization and process development, cost reduction, performance measurement, reduction
in quality costs and management reporting systems.
Another modality is that of “Supplier Associations”, a forum in which new skills and
techniques are exchanged among clients and suppliers, and in which the major subcontractors
act 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
/...
180 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Box V.5. Source Wales (concluded)

annual or bi-annual strategy meetings among contractors and supplier firms; the second consists
of periodical conferences and seminars. Costs of speakers, of organizing the meeting venue
and of incidentals are absorbed by Source Wales (Izushi, 1999, p. 743).
In terms of supplier development, major original equipment manufacturers are engaged
either on a one-to-one basis or among a network of firms. In either case, the programmes
are delivered by third-party consultants and managed by Source Wales. For example, Source
Wales has worked on supplier development programmes with large foreign affiliates of Ford
(Bridgend plant), Sony (Bridgend plant) and Robert Bosch (Llantrisant plant). The latter are
referred to as “sponsors” or “lead companies”. Sometimes lead companies are the most advanced
in terms of best-practice capabilities. In other cases, lead companies actually learn from participating
suppliers, if these are more capable. According to an evaluation undertaken in 1996 , the Source
Wales 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 dialogue
with major industrial buyers.
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.

• Support for private sector training outlined above. Experience with some
programmes. Government agencies may p r o g r a m m e s , s u c h a s t h o s e o f Wa l e s ,
assist large firms, including foreign Singapore and Penang in Malaysia, suggests
affiliates, to undertake training targeted that the returns to well-conceived initiatives
at SMEs. 20 Public support for training to promote learning and skills development
linkages between affiliates and suppliers among local suppliers can be high. Best
can also be provided at the local level. The practice involves mobilizing the cooperation
Penang Skills Development Centre in of buyer enterprises to overcome resource
Penang plays an important role in putting and organizational constraints, and staff
together training courses contributed by targeted for training, and periodic evaluation
TNCs to upgrade skills in the supplier of training programmes and follow-up.
workforce (Intel, 2001). In Singapore, Furthermore, in many cases, governments
public-private-sector cooperation for can rely on external partners for the
training is an important part of the Local provision of the required training.
Industry Upgrading Programme.

• Collaboration with international agencies. 4. Finance

International agencies can participate in
training efforts for suppliers in host Financial relationships are a
countries. The UNIDO partnership necessary part of linkages between foreign
programme, in its first phase aimed at the affiliates and their domestic suppliers. They
automotive component industry in western r a n g e f r o m t h e p r i c i n g o f a s u p p l i e r ’s
India, began in 1999 as a collaborative product to the provision of long-term
effort of the Government of India, Fiat and finance. While possibilities to help suppliers
non-governmental institutions and groups in pricing negotiations in a market-based
within India (see box V.6). 21 economy are limited, there may be a need
for legal protection against unfair
Insufficient information makes it contractual arrangements and other unfair
difficult to evaluate the different kinds of business practices. Competition policy has
government measures in the area of training an important role to play here. A government
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 181

can also sponsor legal assistance systems contribute to reducing the cost of finance
for suppliers negotiating contracts with large for them, and/or reduce the uncertainty
firms and provide suppliers with information surrounding the sustainability of financial
on benchmark prices and alternative business flows. It can be encouraged by various
opportunities, or encourage business government measures (which, as in other
associations to do so. areas, do not necessarily have to distinguish
between foreign affiliates and domestic
In developing countries, where firms):
shortage of finance is a major constraint
facing domestic suppliers (in particular Short-term finance
SMEs), the challenge is mainly to encourage
the provision of financial support by foreign • Governments can encourage a shortening
affiliates to their domestic suppliers, since of payment delays through tax measures.
the former are generally likely to be in a In the Republic of Korea, for example, tax
better financial position than the latter. Such reductions of up to 10 per cent of the total
support, when it occurs, can directly increase corporation or income tax are offered to
financial resources available to suppliers, encourage prompt payments to suppliers. 22

Box V.6. Partnership for training: the UNIDO Partnership Programme to strengthen the
automotive component manufacturing industry in India

The UNIDO Partnership Programme is jointly implemented by UNIDO, the Government

of India, selected TNCs and other large corporations, research institutions and civil society
organizations. a Its objective is to create a pool of competent and internationally competitive
domestic component suppliers in India’s automotive industry. That is expected, in turn, to
result in the formation of strong linkages between foreign affiliates and domestic suppliers
in the industry. The programme is targeted at SMEs that are second- and third-tier suppliers
in the industry – suppliers that do not supply directly to car manufacturers but rather to firms
that do. Target firms are characterized by an employment size ranging from 20 to 80 employees
and also by specific difficulties in accessing technology, human resources, information and
finance 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 region
of western India.
Training is a major component of the programme. Training activities are jointly designed
by the project partners (including target companies) based on inputs provided by the TNCs
among them – FIAT in phase I and FORD in phase II – on requirements which suppliers are
expected to fulfil. Four international experts (two specialists in automobile manufacturing;
one in plastics; and a fourth expert with extensive experience in rubber and rubber-extrusion
products, identified through the participating institutions, including FIAT) are responsible
for the design and implementation of the enterprise-oriented shop-floor training and training
of junior engineers . In addition, experts from Automotive Research Association of India and
Automotive Component Manufacturing Association of India, provide technical and managerial
training and expose managers of participating enterprises to international best practices. Each
participating 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 will
pay a fixed price for specific services, also depending on the number of managers or employees
trained. So far 300 Indian firms – an average of about 15 persons per firm – have received
training under the programme. The core activity of the programme is shop-floor training in
world-class manufacturing methods such as the 5Ss (abbreviated from the Japanese words
Seiri , 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. In
addition, UNIDO software for financial planning and business performance assessment is installed
and training given on how to use these tools. A UNIDO survey of participating companies
and survey results revealed significant improvements in productivity, training for continuous
improvement and quality standards.
Source: U N I D O , 2 0 0 0 , a n d o t h e r i n f o r m a t i o n p r o v i d e d b y U N I D O .
a The budget for the programme was $305,000, funded equally by Fiat, the Government of India and UNIDO.
182 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

• Governments can limit payment delays financing of loans and improving operating
through legislation. Again, in the Republic capabilities. This is done on a cost-sharing
of Korea, the Fair Subcontract Transactions basis, with half the costs covered by the
Act mandates a time limit (60 days) on firms. From 2000, consultants working for
delayed payments. In India, the Interest first-tier suppliers providing support for
on Delayed Payments to Small Scale and leasing by SMEs can also apply for
Ancillary Industrial Undertakings Act of financial assistance. In the Mexican
1993 stipulates that payment to Programa de Desarrollo de Proveedores,
subcontractors should be made within 30 the national development bank finances
days. suppliers to large companies (again, most
of which are foreign affiliates).
• Governments can make arrangements to
guarantee the recovery of delayed • Mandatory transfer of funds from foreign
payments. In the Republic of Korea and affiliates to local suppliers. Although such
Taiwan Province of China, public guarantee a scheme has not yet been tried in practice,
funds offer up to 100 per cent coverage on in theory, it could emulate the mechanisms
promissory notes. The Government of of the Foster Father Business Partner
Hungary has two non-refundable facilities programme in Indonesia (initiated in 1992),
(the Economic Development and the Small while avoiding its shortcomings. The latter
and the Medium-sized Enterprises “strongly encouraged” all large firms to
Development Targeted Allocations) to re- allocate 1-5 per cent of their profits to small
finance borrowings by subcontractors. enterprises. One of its weak points was
that it did not link the use of those
• Governments can offer indirect financing resources to improvements in the
to suppliers channelled through their production and supplying capabilities and
buyers. In Mexico, for example, a State- economic efficiency of supplier SMEs
owned development bank operates an benefiting from the scheme. Another
“AAA Trust Fund” that provides the most shortcoming was that most of the
creditworthy large firms (categorized as beneficiaries of the scheme were selected
“triple A”) with funds to finance by the authorities, without sufficient
preferential credit lines to their suppliers. 23 consideration of their potential as suppliers
to large firms. Due to a lack of tangible
Medium- to long-term finance benefits for them, foreign affiliates showed
little interest in participating, making the
• Governments can offer tax credits or scheme non-enforceable (Altenburg, 2000,
reductions and other fiscal benefits to firms p. 50; Kian Wie, 1994, pp. 106-107;
providing long-term funds to suppliers. An Swisscontact, 1996, p. 10-11).
example is the Fundo Fiat in Brazil (Borges
Lemos et al., 2000). Finally, as in the case of other linkage areas,
home country governments can take
• Governments can co-finance supplier measures to encourage financial support by
development programmes along with the their TNCs to local suppliers in developing
private sector. This is the case with the countries. Examples include:
Penang Skills Development Centre, the
UNIDO programme for upgrading • Two-step loans . Credit lines may be
automotive component manufacturers in provided to foreign affiliates or local banks
India, and the Government of India’s co- for loans to local suppliers. For instance,
financing and subsidization of the Japan Bank for International
subcontracting exchanges. Cooperation offers credit lines to local
state-owned banks in host countries for
• Governments may take a direct role in loans to local firms including suppliers to
providing finance to local firms to improve Japanese affiliates. Additionally, during the
their capacities. For example, the Asian financial crisis, as part of emergency
Government of Hungary provides firms that measures, the Bank authorized Japanese
are suppliers to large firms (a good number affiliates in Thailand to use its loans for
of which are foreign affiliates) financial working capital so that they could also
support for new investments, the re- extend financial assistance to crisis-hit
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 183

local suppliers in the form of advance limited number of industries and firms.
purchases and advance payments. (Under Targeting is almost inevitable when
normal circumstances, loans by this bank govenments allocate scarce resources for
can be used for the purchase of machinery industrial development, and it is
and equipment only.) 24 economically justifiable when different
activities offer varying scope for
• Using official development assistance technological learning, skill building or
(ODA). ODA resources can be used to fund spillover benefits. Governments use various
(together with firms and host governments) means for selecting targets for linkage
supplier development programmes in a host c r e a t i o n ( b o x V. 7 ) . S o m e t i m e s , t h e s e
economy. In Mexico, for example, the programmes are organized at the national
Tijuana Development Council manages and level. In other cases, they are part of sub-
coordinates the Fondo Tijuana (with national strategies. These latter programmes
resources from the Inter-American are characterized by a cluster approach,
Development Bank) to finance local some running in parallel to nationwide
suppliers in the electronics cluster. The linkage efforts, others being stand-alone
five-year budget (2000-2005) of the Fondo initiatives (annex table V.2).
has $2.7 million for technical cooperation
and $12 million for a venture capital fund. Not surprisingly, most specific
(See the text on Mexico in the annex of linkage programmes are in countries with
this chapter.) a significant FDI presence and a strong local
supplier base. 25 Most of these countries
***** have institutions for SME development and
FDI promotion, as well as the skills and
Governments have an important role financial resources to staff and fund linkage
to play in countries that do not have a well- programmes.
functioning capital market. One of the
things they can do is to encourage foreign Common objectives of such
affiliates to extend financial support to their programmes are to increase domestic
domestic suppliers through measures to production and employment; improve the
influence the regulatory framework for current account; make TNCs more rooted
financial linkages or through the provision in the local economy; and, above all,
of co-financing or guarantees in financial upgrade the capabilities of domestic
arrangements between foreign affiliates and enterprises. The relative importance of these
local suppliers. However, direct financial objectives varies and has shifted over time.
participation can be costly for governments, For example, the programmes in Ireland (box
and the benefits derived from it need to be V.8) and Singapore (box V.4) were initially
assessed carefully relative to its costs. triggered by the need to increase
employment; subsequently, technology
upgrading took precedence.
D. Specific government
Three elements are common to the
linkage promotion special national-level linkage programmes:
programmes • the provision of market and business
information;
The above review has highlighted • matchmaking by such means as trade fairs
various measures to bring suppliers and or data bases;
foreign affiliates together and to strengthen • support to local enterprises through
their linkages, regardless of the industries provision of managerial and technical
involved. Some countries have taken a more assistance, training, audits and,
proactive approach by setting up specific occasionally, by financial assistance or
linkage promotion programmes dedicated to incentives.
increasing and deepening linkages between
foreing affiliates and domestic firms. These The relative weight assigned to each of these
programmes combine several of these elements depends upon the objectives of the
specific measures and typically focus on a individual programme. It also depends on
184 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

the level of enterprise development, the The earliest programmes (table 2 in

involvement of the private sector in the annex to this chapter), dating from the
determining the needs of firms and the mid-1980s, were undertaken in Ireland,
financial and human resources available for Singapore and Malaysia (box V.9). The Thai
the programmes. Programmes aiming mainly linkage programme started in 1992.
at facilitating the establishment of linkages Programmes in the Czech Republic (box
tend to emphasise matchmaking between V.10) and Hungary date from the mid-1990s
domestic firms and foreign affiliates. Those and that in Costa Rica began in 2000. 26
aiming mainly at upgrading the technological
capabilities of domestic firms place a Linkage programmes at the sub-
stronger emphasis on technical and other national level focus on subregions or
support to domestic firms with supplier industries. 27 Their objectives go beyond
potential. This often includes strategic simply creating linkages, increasing
decisions on the activities to be covered in employment and balancing trade and
the programme. include:

Box V.7. Targeting potential local suppliers

Targeting potential suppliers implies, first, the identification of industries in which local
firms 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 and
plastic components industries, although other industries (such as printing, packing, automation
equipment, electronics manufacture assembly, and system testing equipment) were also explored
for potential local sourcing (Battat et al., 1996; Crone, 2001).
Governments have used various criteria to select local firms with the potential of becoming
suppliers 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 eagerness
to improve their firms and benefit from government support. Thus, in Ireland, a prime consideration
for selecting companies as beneficiaries of government support is the attitude of the management
of the local firm. In identifying potential domestic suppliers, some governments work closely
with foreign affiliates to ensure that they identify market requirement properly (especially as
to demand, supply capacities and quality and other requirements) and, from the beginning, involve
the 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’s
Provee 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 programme
aimed at enhancing their capabilities. For example, in the case of the Irish National Linkage
Programme, only 70-80 suppliers out of an estimated 750 on its database were selected to be
included in its supplier development programme (Crone, 2001; Ireland, 2001a). In Hungary,
the Government has classified local suppliers in four categories: already suppliers; ready to
become suppliers; suppliers that require assistance in specific areas to become suppliers; firms
that cannot become suppliers in the short term. Half of the Government’s resources are provided
to the first category of firms on a cost sharing basis, while not more than 40 per cent are devoted
to 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 UNIDO
Partnership Programme (box V.6) for the development of autoparts suppliers in western India
targets second- and third-tier suppliers according to the following criteria: 50 per cent ISO9000
or 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.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 185

Box V.8. Ireland’s National Linkage Programme

Since the mid-1980s, Enterprise Ireland has been operating various linkage programmes
designed to improve the integration of foreign enterprise into the Irish economy. The current
National Linkage Programme (NLP) was introduced in 1998. Enterprise Ireland is a government
organization, established in 1985 under the Ministry of Finance. a Its enterprise development
activities 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 with
client companies to develop a sustainable competitive advantage, leading to a significant increase
in 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 create
new partnerships; second, to assist international investors to source and identify key suppliers
in Ireland.
With a staff of about 15 people, the NLP functions primarily as a brokerage service
with the aim of promoting local sourcing by foreign affiliates in Ireland. Under its linkage
programme, NLP representatives initially visited foreign affiliates to determine their sourcing
requirements 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 and
capacities to meet the standards set by foreign affiliates. The programme hence increasingly
turned 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 were
identified in metal and plastic components, while such industries as printing and packaging,
automation equipment, electronics manufacture assembly and system testing equipment, were
also 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 identify
the domestic firms that show the greatest potential. A key criterion used for selecting companies
to participate in the supplier development programme is the attitude of the management teams
of 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 support
programmes, conducts development activities and assists suppliers entering into subcontracting
arrangements with foreign affiliates. A wide range of services is currently offered to potential
suppliers. 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” supplier
companies, rather than focusing on single-component providers to the foreign affiliates.
As each company has its own distinctive ambitions, capabilities and needs, the agency
aims 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 professional
staff member helps suppliers to assess their needs and capabilities, formulate an agreed “growth
plan” 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 companies
overcome limitations imposed by their size), eight networks were set up in industries, ranging
from 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 sales
of 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 million
to support marketing capabilities focussed on SMEs, as these often fail to undertake market
development on their own, due to a lack of expertise, financial resources and the perceived
risks involved. The supplier development programme has focused on 70 to 80 firms, ranging
from 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 strategy
options, product development and design upgrading of skills;
/...
186 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Box V.8. Ireland’s National Linkage Programme (concluded)

• sectoral and company promotional activities, such as trade fairs, advertising, literature
and public relations;
• training in areas including that of supply chain management
Enterprise Ireland also runs a sophisticated electronic database, covering supplier firms
in 20 industries, called the supplier search facility (Enterprise Ireland, 2001). Searches can
be 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 (such
as the foodstuffs, timber) and services (such as print and packaging, process control and
instrumentation and telecommunications). Any firm in Ireland is eligible for inclusion. The
site covers approximately 750 supplier companies.

Between 1985 and 1987, an estimated 250 foreign affiliates have been actively involved
in the linkage programme. During that period, affiliates operating in Ireland increased their
local purchases of raw materials fourfold, from Irish £438 million to £1,831 million, and
more 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 per
cent 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 successful
international subcontractors; some of the larger domestic supplier companies involved in the
NLP have subsequently been acquired by foreign TNCs.

Surveys aimed at evaluating the impact of the NLP have been undertaken by the National
Policy 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 been
reached. It was unlikely that this indu stry would grow much beyond its current size level
because 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 diminished
over 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, the
resources devoted to the NLP have recently been scaled down, and some activities previously
undertaken by the NLP are now provided in a more targeted fashion by the International Business
Linkages Department of Enterprise Ireland with a staff of eight people.

In summary, the combination of programmes provided by Enterprise Ireland has contributed

to the emergence of suppliers of high-quality goods and services, delivering to affiliates as
well as to other buyers. Some lessons that were drawn from the Irish case are that:
• Matchmaking requires accompanying measures to upgrade the capabilities of potential
and existing suppliers; the need for matchmaking as such may diminish over time as
the composition of affiliates and their motivations for locating in a given country, or
their local knowledge, changes.
• Supplier development efforts should be selective, in order to achieve the best outcomes
from limited resources. For example, efforts should focus on those SMEs that have the
greatest potential for growth. The NLP normally ignored the smallest firms because they
were considered unlikely to grow to a size that is large enough to enable them to win
business 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 involved
in assisting local suppliers are important elements.
Source: UNCTAD, based on the Enterprise Ireland website and information provided by Enterprise
Ireland, as well 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.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 187

Box V.9. National and regional linkage development schemes in Malaysia

In Malaysia, linkage policies have been unified under the umbrella of the Second Industrial
Master Plan (1996-2005), a formulated and implemented by the Ministry of International Trade
and Industry (Malaysia, MITI, 2001). This Master Plan pursues an approach to industrial development
that has strong implications for the creation and deepening of linkages: its core objective
is to move the economy up the value chain, from assembly-based and low value-added activities
towards activities in R&D, product design, distribution and marketing. A related objective
is to support the evolution of internationally competitive clusters; these are to be nurtured
by integrating key manufacturers with their suppliers and with key business services, and by
developing the requisite infrastructure and institutions. The approach seeks to generate backward
and 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, including
foreign and local investment in manufacturing (Malaysia, MIDA, 2001). At the operational
level, two agencies are responsible for the promotion of industrial linkages: the Small and
Medium Industries Corporation, a specialized agency that provides advisory services, guidance
and assistance to enhance the competitiveness of the SMEs in Malaysia, and the Ministry
of Entrepreneur Development.

The Industrial Linkages Programme of the Small and Medium Industries Corporation
offers a number of incentives. d Large companies participating in the Industrial Linkages Programme
can claim tax deductions for expenditure incurred in supplier-related support activities, such
as training, product development and testing, or factory auditing ensuring the quality of vendors’
products. Suppliers (“vendors”), including SMEs, are eligible for incentives if they manufacture
promoted products within an approved Industrial Linkages Programme. This is either a full
tax 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 within
a period of five years. Suppliers in an approved Industrial Linkages Programme, who are capable
of reaching world class standards in terms of price, quality and capacity, are eligible for similar
incentives. e

In a related effort, the Small and Medium Industries Corporation launched a Global Supplier
Programme 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 into
global 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 Human
Resources Development Fund and the training grant provided under the Skills Upgrading
Programme 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 Supplier
Programme.
The Global Supplier Programme currently operates two initiatives. The first is training
in critical skills and the second is an initiative to build linkages with TNCs. The training
initiative 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 technical
personnel with many years of “hands-on” experience. They are therefore in a position to assess
the suppliers’ performance as well as evaluate the effectiveness of the training.

Under the linkage initiative, foreign affiliates “adopt” local companies and guide them
for upgrading in leadership skills and technology. The selection criteria for this programme
are dependent on conditions agreed between the foreign affiliates and the participating local
suppliers. In most cases, this would be a long term commitment of up to two years with regular
/...
188 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Box V.9. National and regional linkage development schemes in Malaysia (concluded)

reviews between foreign affiliates and the local suppliers. Quarterly review meetings are chaired
by representatives of participating foreign affiliates, with participation of the chief executive
officers of the Small and Medium Industries Corporation. The state of Penang, location of
most of the major electronics affiliates in the country, has been actively implementing this
programme. This initiative has been operational since 2000; eight TNCs and nine SMEs are
currently involved.

Neither at the national nor at the state level has there been a systematic assessment of
the 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 various
policy measures on local sourcing in Malaysia. It concluded that investment incentives, such
as those available under the Promotion of Investment Act of 1986, can be effective in fostering
local input linkages as well as technology transfer.

At the firm level, there is some anecdotal evidence of local firms that have forged strong
supplier partnerships with TNCs. These firms have benefited from programmes such as the
Vendor Development Programme (the predecessor to the Global Supplier Programme), but
have also on their own initiative developed their capability to expand their range of products
and services and cultivate new customers. The establishment of the Penang Skills Development
Centre 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 industrial

estates adjacent to the free industrial zones have proven to be a key policy tool in the process
of developing linkages and technology transfer. The physical proximity of firms to their customers
allowed a greater degree of interaction and diffusion of modern manufacturing practices. A
few of these small “backyard” firms have grown into international suppliers of products such
as moulds and dies.

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-substituting
investment, and adopting a cascading tariff structure. The first Industrial Master Plan (1986-1995) contained detailed
targets for technology transfer and local content and was complemented by the 1986 Promotion of Investments Act
which offered a new set of Pioneer status tax holidays. In 1991, this was revamped so as solely to grant pioneer
status 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; and
industrial linkages (see Felker and Jomo, 2000, p. 23 et seq.).
b The industries enjoying support are electrical and electronics, chemicals, petrochemicals, pharmaceuticals, textiles
and 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, includes
representatives of the public and private sectors. Its 19 Industry Cluster Working Groups, co-chaired by the private
sector, identify issues and opportunities for the development of industry clusters.
d An immediate predecessor of the Industrial Linkage Programme was the Vendor Development Programme, introduced
by the MITI in 1993. Under this modality, TNCs and their affiliates offering guaranteed purchasing contracts and
technical 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 on
qualifying 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 outsource
their supplier training programme. To initiate this proposed programme, Motorola invited its suppliers to a Supplier
Resource Transformation meeting at the Penang Skills Development Centre. A comprehensive package on vendor
training was conceptualized in the form of the Global Supplier Programmr. Subsequently, eight other TNCs decided
to 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 core
competencies, comprising presentation skills, meeting and negotiating techniques, time management and project
management. Package 2 introduces to various quality standards and statistical packages and is delivered in 8.5
training 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 engineering
subjects.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 189

Box V.10 The Czech Republic’s National Supplier Development Programme

It is one of the strategic goals of the foreign investment promotion agency of the Czech
Republic, 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. It
is 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 foreign
affiliates operating in the Czech Republic. It has three objectives: to promote modern industrial
technology, to heed environmental protection considerations and to raise qualifications of
the 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 subprogramme
focuses specifically on the electronics and electro-technical industry. For a local supplier
to qualify for the Twinning Programme, annual revenues must exceed $2 million. If the Programme
proves to be successful, the Supplier Development Programme is expected to extend its coverage
to other industries for the 2003-2005 period. At the end of the Twinning Programme, CzechInvest
plans 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 capabilities of

potential Czech component suppliers, so as to enable foreign manufacturers to short-
list and contact potential new suppliers. The profiles of potential suppliers are available
through CzechInvest’s website; it currently covers 1,000 firms .

• Matchmaking, comprising three elements: First, “Meet-the-Buyer” events between foreign

investors and potential Czech suppliers. The sessions focus on identifying the type of
components and services that foreign investors are considering subcontracting. Such meetings
are on offer to incoming manufacturing affiliates as part of CzechInvest’s standard package
of support. Second, seminars and exhibitions are organized with and for Czech suppliers
and foreign affiliates. Third, the matchmaking programme takes the form of concrete
proposals to potential foreign investors, indicating potential suppliers in the Czech Republic. a

• Upgrading of selected Czech suppliers . Since 2000, CzechInvest has organized upgrading
programmes for selected Czech suppliers that meet predefined criteria in high-technology
industries, such as electronics, or for selected engineering firms supplying to a wide
range of industries (e.g. machine spare parts producers, plastic form producers and packaging
firms). The selected firms produce an upgrading plan, tailored to their individual capacities
and requirements. Progress is monitored with quantifiable performance benchmarks that
compare Czech companies with their competitors from the EU. The upgrading process
usually includes consultancy and training support in such areas as the utilization of technology,
general management operations, ISO certification and organizational change. A second
component is training in a wide range of areas, including finance, management, quality
assurance and marketing. b The costs of training are shared evenly by the Government
of the Czech Republic and the EU. Assistance and advice currently cover financial restructuring
and 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 the
aim of promoting the financing of the trained electronics suppliers. These programmes
aim 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 of
the programme (about $3 million for a three-year period), with co-funding from the EU’s Phare
programme. The Government plans to continue the Supplier Development Programme during
the EU accession negotiations, and expects that it would subsequently qualify for the EU’s
Structural Fund programmes. The Ministry of Labour has indicated to CzechInvest that it would
contribute funds to support the development of investment in areas with high rates of unemployment.
CzechInvest periodically evaluates the progress made by the suppliers .

/...
190 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

• intensifying interaction among firms in a suppliers. The main instruments are technology
cluster of industries or in a (spatially policy, with R&D and technical support for
dispersed) network of enterprises; local firms. Emphasis is placed on the good
functioning of such institutions as standards
• creating an environment conducive to and quality bureaux, business networks and
continuous technological upgrading; professional associations. Examples of this
approach are the Global Supplier Programme
• enhancing the quality of FDI and rooting of Penang state, Malaysia, the Mexican
foreign affiliates more firmly in the local national and local level programmes, the
economy. high-technology linkage programme in Costa
Rica, as well as the regional programmes
Cluster-oriented programmes seek to in the United Kingdom, namely that in
build on location specific capabilities and northeastern England, the Source Wales
use “third generation” investment promotion programme and several initiatives under the
strategies. (See conclusion, Part One.) They Scottish Enterprise Network (see box V.5
therefore exploit the two-way interaction and annex to chapter V).
between clusters and FDI, one strengthening
the other. The emphasis is on moving up the There is a third, broader category of
value chain and linking local value chains programmes, which is not within the focus
with global ones. Several programmes that of this chapter but nevertheless merits
began as national programmes have evolved mention. These programmes are not
into cluster-oriented programmes (e.g. that exclusively geared to linking foreign and
of Scotland). local firms, but have an indirect impact on
linkages. Examples range from the supplier
In cluster-oriented programmes, development and “ancillarization” initiatives
linkages between local firms and foreign in India to the SME schemes of most
affiliates are considered an (automatic) by- developing economies.
p r o d u c t , not the primary objective. The
measures used are broader than in the special Linkage programmes can be located
national programmes. They typically in different agencies. Some come under the
encompass matchmaking, institution building auspices of foreign investment promotion
and strengthening the competitiveness of agencies as in Thailand and the Czech

Box V.10 The Czech Republic’s National Supplier Development Programme (concluded)

Institutionally, CzechInvest is linked to other parts of the Government, notably the Ministry
of Industry, one of the SME promotion agencies, an export development agency and a technical
university. Suppliers and foreign affiliates, industry associations (such as the Confederation
of 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 Czech
Export Bank is prepared to finance exports of the Czech electronics industry, and the Czech
Guarantee 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 programme
are an increasing attention to training and financial assistance. Moreover, similar to many
of the other linkage programmes, the creation of clusters and supply-chain management are
receiving more attention.
Source: UNCTAD, based largely on information 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 any
of the potential suppliers, CzechInvest introduces the foreign investor to the potential supplier and negotiates a
deal on behalf of the investor.
b The trainers are drawn from Sheffield Hallam University in the United Kingdom. The training programme has 60
candidate companies, of which 20 had to be selected by October 2001 for full training. The others will have access
to low-cost training in specific areas.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 191

Republic. Others are integral parts of will actively engage in a linkage programme.
economic development agencies such as the Similarly, active programme implementation
Economic Development Board of Singapore, may be helped by the presence of effective
Enterprise Ireland, the Malaysian Ministry domestic and international chambers of
of International Trade and Industry and its commerce, or other groups representing
operational arm, the Malaysian Industrial enterprises (the case of Thailand, for
Development Authority; and the Ministry example), or a strong involvement of the
of Economic Affairs of Hungary. Yet others Government (the cases of Costa Rica,
are part of regional development strategies Malaysia and the United Kingdom).
as in the northeastern England, Scottish and Assessments of the programmes in Singapore
Welsh programmes in the United Kingdom. and Thailand have found these to have been
successful in that they have contributed to
In most instances, as in Ireland, an increased number of linkages, higher
Wales, Singapore or Thailand, the public productivity, more local value added, and/
agency liaises with the private sector, via or improved capabilities and productivity
a joint steering committee or through of local suppliers. 28
consultations. The northeastern England
programme has an interesting variation. It More generally, the main ingredients of
involves the local and national government, successful linkages programmes are:
the business community and trade unions;
interaction with regional universities is • Strong political commitment. Programmes
especially well established. pursued at the sub-national level may have
more impact, particularly in large countries,
Funding sources for linkage programmes since they allow for a focused approach
are mixed. In most special national and and a bundling of resources, and are more
cluster- and network-development programmes, amenable to close interaction among
the bulk of funding is provided by the stakeholders.
government agency concerned. In some
programmes, staff is seconded from within • Clear delineation of the lines of
the agency, but not provided with financial responsibility, with coherence among goals
resources (e.g. the BUILD programme in and measures. Some linkage programmes,
Thailand). Other programmes have notably in the newer generation of cluster-
succeeded in raising considerable finance oriented programmes, tend to have
from international and domestic public conflicting or overlapping lines of
sources (Czech Republic, Mexico, Costa authority, with overall policy responsibility
Rica). and implementation situated in different
ministries and agencies. Such a situation
***** calls for special efforts to coordinate.

It is difficult to make a full • Effective public-private partnerships.

evaluation of government linkage Linkages will only be sustained if they are
programmes. Each takes place in a specific technically viable and commercially
economic environment, and it is not possible profitable for the firms involved. Suppliers
to ascribe the establishment or deepening can induce governments to assist them by
of linkages to any particular measure. There encouraging local sourcing by affiliates.
are always many other factors that may Foreign affiliates and their parent
influence the process. (For a review of companies can help the government
various attempts to measure linkages, see identify the scope for local sourcing and
box V.11). give advice on programmes needed. To be
convincing and generate mutual trust,
linkage programmes need to be staffed by
In general, the effectiveness of a professionals with the appropriate skills
linkage programme is largely context and background.
specific, predicated on the economic
environment and institutional setting. If
local firms have well-functioning linkages Finally, the more linkage promotion
among themselves, it is more likely that they programmes are embedded in policies that
facilitate enterprise development in general
192 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Box V.11. Measuring linkages and their economic impact – an overview

Collecting and analysing evidence on linkages is a crucial prerequisite for evaluating
policies on linkages. Linkages may be measured in different ways. One set of measures relates
to the extent of linkages in an economy. Another focuses on the economic impact of linkages
in 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 linkages is the number of
linkages. One way to do this is to simply count the number of relationships between foreign
affiliates and domestic suppliers. This was one of the indicators used to evaluate the Singaporean
LIUP (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. This
indicator 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; this
was 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 such
sourcing. This measure was used in Ireland to evaluate the National Linkage Programme in
the electronics industry (Crone, 2001). Other studies, for Sweden (Ivarsson, 1996), Malaysia
(Giroud, 2001b), Thailand (Supapol, 1995) and Scotland and Northern Ireland, also used this
indicator.
The share of locally sourced inputs is part of the “retained value” measure, the purpose
of which is to measure the embeddedness of foreign affiliates in the local economy and host
economies’ share in value-added. “Retained value” is the sum of the local wages paid by a
foreign affiliate, inputs sourced locally, profits accruing to local shareholders and local taxes
paid.
A variation of this is the share of value added by local suppliers in total value added
by foreign affiliates. The local content of foreign affiliate production (the inverse of the ratio
of imports to production) is sometimes used to capture the degree to which affiliates link
with 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 also
desirable to measure linkages with locally owned firms rather than with affiliates of foreign
suppliers. Such data, however, are often difficult to collect.
Depth of linkages. This set of measures is more complex. The impact of linkages falls
into two broad categories: macro and micro. At the macro level, the effect of linkages can
be assessed by their contribution to increases in employment, output or exports. These are
difficult to calculate unless a realistic counterfactual (what would have happened in the absence
of the linkages) assessment can be posited.
At the micro level, the contribution of linkages can be measured by the growth in supplier
productivity, improvements in the quality of their products and the shift into higher value
products. Such indicators are also used to measure productivity, technology-intensity and so
on by other types of analysis. The challenge is to distinguish the effects of linkages from
those 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 the
first group of indicators. The number of supplier contracts resulting from linkages supported
by the programmes has been used to measure outreach. Some programmes use evidence on
the 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 and
on those transmitting technical specifications or providing training to suppliers.
Little evidence is available on how agencies that run linkage programmes measure the
economic impact of their programmes. It is difficult to establish a clear link between macro
or micro indicators and linkage programmes. A question related to the cost e ffectiveness of
programmes is whether any increase in linkages would have been achieved in any event, i.e.
without government intervention.

Source: UNCTAD.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 193

(figure V.2), the higher is the likelihood that 3 For example, stringent rules (e.g. with very
they will succeed. It is vital to have well- high domestic content requirements) may
functioning institutions to channel two-way discourage investment, particularly in least
flows of information between governments developed countries. When the same rules
and stakeholders and to provide industrial of origin apply to a number of countries, what
may suit the capacity of some may be difficult
services. At the political level, institutions to achieve for others. To mitigate some of
also comprise business associations of these problems and facilitate the use of trade
various kinds, as well as representatives of preferences, rules of origin may allow for
trade unions and possibly of other local the “cumulation” of inputs originating in other
interest groups. developing countries participating in the
preferential scheme (see UNCTAD, 1998b,
* * * for a more detailed analysis of cumulation
rules). Furthermore, in the case of autonomous
preferential trade schemes, rules of origin
There is clearly scope for government are decided unilaterally by the preference-
support to promote linkages between foreign giving country.
affiliates and local suppliers. The above 4 No systematic recent data are available. A
analysis shows how wide the range of policy 1989 survey of 31 developing countries showed
measures is, although the effectiveness of that 23 had local content requirements (and
the measures used cannot be fully assessed four had trade-balancing requirements). In
with the evidence at hand. Moreover, the nine countries, local content requirements
more specific measures are embedded in applied in all industries and, in one country,
broader policies aimed at strengthening the in all but one industry (mining and petroleum
extraction). These figures do not take into
domestic enterprise sector, the more difficult
account ad hoc local content requirements
it becomes to isolate the specific effects of negotiated with individual foreign investors,
linkage promotion policies. At the same usually in exchange for incentives; thus the
time, the space for policy interventions that actual figures may be higher (United States
directly influence the operations of foreign Trade Representative, “1989 TRIMs Survey”,
affiliates of relevance to linkage formation cited in Battat et al., 1996, table 2, p. 14);
has now become more limited than it was On the other hand, a 1977 benchmark survey
a decade or two ago. In this new context, of United States foreign affiliates found that,
measures that are in line with market forces in that year, only 3 per cent of the foreign
are at a premium, correcting of course for affiliates of United States TNCs were subject
structural weaknesses that are characteristic to minimum local content requirements
(UNCTC, 1991, p.14). Foreign affiliates located
of developing countries. In particular,
in developing countries were subject to such
governments are increasingly relying on requirements twice as often (6 per cent) as
measures that address market failures and the world average. The same survey carried
reduce the costs and risks for linkage out in 1982 found a lower usage of local content
partners. This requires the full involvement requirements, both worldwide (around 2 per
and cooperation of the linkage partners – cent) and in developing countries (2 per cent,
foreign affiliates and domestic suppliers – ibid., p. 15). The two data series are
and their associations. nevertheless not directly comparable since
firms with sales of less than $3 million were
not included in the later survey. In 1982,
Notes a United States International Trade Commission
study of United States-owned motor vehicles,
chemicals and high-technology TNCs revealed
1 Examples include free trade agreements and major differences across industries in terms
autonomous or negotiated preferential trade of being subject to local content requirements
schemes, such as the Generalized System of (ibid., pp. 16-17). In motor vehicles, a high
Preferences (GSP), the Global System of Trade percentage of United States-owned affiliates
Preferences (GSTP) among developing countries, (37) was subject to such requirements. In
the Cotonou Agreement and the Caribbean the meantime, in chemicals, the comparable
Basin Initiative. ratio was 3 per cent and in office equipment,
2 As noted earlier (box IV.2), attracting foreign computers and accounting machines, it was
suppliers can also have advantages. When only 10 per cent.
foreign suppliers are involved, there can be 5 In the context of the Uruguay Round agreements
secondary effects on domestic suppliers if implementation discussions some developing
they source from second- or third-tier suppliers. countries have proposed that they should have
194 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

another opportunity to notify existing TRIMs high, easily imitable technology is at stake,
which they would then be allowed to maintain such as the case of computer software; it is
until the end of a new transition period. also strong in cases where “tacit”, non-codified
6 See also below, the section on technology knowledge is essential to put a technology
upgrading. into operation (Correa, 2000).
7 An example is the Center-Satellite Factory 15 However, as stated by one scholar (Maskus,
System in Taiwan Province of China which 1997, p. 16): “economists cannot be entirely
includes a package of fiscal (tax depreciation) optimistic about the implications of stronger
and financial incentives to encourage large IPRs for technology transfer”.
firms – foreign and domestic – to engage in 16 The measure did provide access to foreign
local supplier relations (Dahlman and technologies, but very often not state-of-the
Sananikone, 1990, pp. 108-109). – art technologies. Over time, the measure
8 A value-added tax can be a source of was perceived to be a liability, as the end-
encouragement for establishing backward result would be a transfer of out-of-date
linkages. Traditional turnover taxes levied technologies, while discouraging foreign firms
on the full value of products and services to invest in the Republic of Korea. (Information
transacted between firms may deter linkages obtained through informal discussion with
(and favour radical integration) by raising an official of the Government of the Republic
tax liabilities on stages of production spread of Korea.)
over independent firms. By contrast, value- 17 See UNCTAD 2000c; UNCTAD 2001c;
added taxes, imposed only on additional value UNCTAD 2001d; UNCTAD forthcoming a;
at each stage may favour linkages. This UNCTAD forthcoming b.
consideration appeared to have played a role 18 Communication from the Government of the
when Thailand introduced a value-added tax Republic of Korea.
(Battat et al., 1996). 19 Information obtained from the Korea Federation
9 Thus, Driffield and Mohd Noor (1999) found of Small Business.
that foreign affiliates that have been given 20 In Taiwan Province of China, the Center-Satellite
pioneer status incentives have stronger backward (CS) Factory System, aimed at strengthening
linkages in the local economy. The success relationships between large enterprises and
of the Centre-Satellite Factory System of Taiwan their “satellite” suppliers, includes training
Province of China has been attributed to the among its programmes (Battat et al., 1996).
incentive package as much as to the fact that Initially, the CS Development Center (CSD)
the island’s SMEs were competitive; the – a government agency – tried to persuade
incentive package was combined with advisory firms to establish a CS factory system. Then,
services to strengthen local suppliers (Altenburg, “center factories” and the CSD assisted satellite
2000, p. 56; Dahlman and Sananikone, 1990, firms draw up plans to help suppliers in various
pp. 108-109). ways, including training key personnel and
10 Up to mid-1996, both the number of domestic increasing awareness of best practice by
suppliers and their share in the supply of parts arranging visits by supplier personnel to plants
and materials of Skoda decreased. On the locally and overseas. In Malaysia and Thailand,
other hand, the absolute value of supplies national productivity councils act as catalyzers
from Czech suppliers increased, and these and organizers in setting up training courses
suppliers became increasingly internationally for suppliers and inducing foreign affiliates
competitive (Zemplinerova, 1996; Havas, 2000). to become involved in the training courses.
11 Some suppliers are unwilling to receive support 21 Information provided by UNIDO.
from a buying firm. This may be because 22 Information on the Special Tax Treatment
they are reluctant to share information related Control Law provided by the Government of
to costs and processes; they may not be aware the Republic of Korea.
of the need for improvement; or there may 23 Information obtained from http://
be a lack of trust between the two firms www.nafin.com.mx/Gran_empresa_y_gobierno/
involved (Handfield et al., 2000). Geg_fide.htm ; see also the text on Mexico
12 Information provided by the Government of in the annex to this chapter.
India on its Ancillary Development Programme. 24 Information obtained from the Japan Bank
13 In 1996, UNIDO helped the Government of for International Cooperation.
India to set up a subcontracting exchange jointly 25 FDI as a share of gross fixed capital formation
with the Indian Small Industries Development has consistently exceeded the respective region’s
Organization (SIDO). By 2000, the exchange average in, for example, Ireland, the United
had included 1,100 subcontractors in its Kingdom, Malaysia, Singapore, Costa Rica,
database. Hungary and the Czech Republic.
14 It is often argued that the relevance of 26 See the annex to this chapter for information
intellectual property protection in connection on the programmes in Thailand, Hungary and
with transfer of technology is strong where Costa Rica.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 195

27 The analytical underpinning of this type of structure, see Felker and Jomo, 2000, p. 22)
linkage programme is based on ideas similar and the Industry 21 Initiative in Singapore
to those in the work on competitive advantage (Singapore, EDB, 2001a).
and on clusters (see Part One). At the political 28 See, for example, Battat et al., 1996 on
level, several of these programmes build on Singapore. On Thailand, Board of Investment
a clear “vision” or development strategy; reply to the UNCTAD 2000 survey; the Thai
examples include the Malaysian Vision 2020 Board of Investment survey examined linkages
Manifesto of 1991 (which had pinpointed the between and among foreign affiliates, local
need to deepen and upgrade the industrial firms and joint ventures.
196 W orld Inve stm ent R e port 2001: P rom oting Linka g e s
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 197

Annex to chapter V. Additional country programmes

This annex contains descriptions of a management tool named the Supplier

other government programmes that promote Capability Assessment Tool (SCAT),
linkages, not included in chapter V. A developed by One Northeast together with
summary of all programmes reviewed is Glasgow University (see box 1).
provided in table 2.
Funding for One Northeast as a whole
averages £6 million per annum, of which
1. United Kingdom: the supplier development activities account
the regional development agency for for around £450,000 (One Northeast, 2001;
the northeast 1 Harding et al., 1996, p. 57). Roughly one-
third comes from the Department of Trade
and Industry, the Invest in Britain Bureau
“One Northeast” is the regional and the Regional Supply Office; one-third
development agency for the northeastern region from the local authority and private sector
of England in the United Kingdom. 2 Its aim contributions, sponsorship and sales of
is to further “the economic development of business services; and the remainder from
the region, by encouraging new investment and the European Union and other donors
entrepreneurial growth, the expansion and (Loewendahl, 2001). One Northeast has 190
development of educational opportunities, and staff members, of whom 10 persons work
the redevelopment of the region’s industrial, specifically on supplier benchmarking and
logistics, and urban and rural infrastructures” development (as of mid-2001).
(One Northeast, 2001, p. 1). The programme
is part of a greater Regional Action Plan and The agency gauges success by the
the Regional Eco nomic Strategy. number of jobs created and by the increases
in the turnover of local firms. According
The objectives of One Northeast are to One Northeast, the expenditure on supply
to link existing FDI with local suppliers and chain programmes has generated
to attract new FDI that matches the local considerable new contracts for the region’s
suppliers’ potential. It works notably with local SMEs (Loewendahl, 2001).
firms tow ards upgrading their productive
capacity, and assists affiliates in identifying
suppliers. Activities include: 2. United Kingdom:
the Scottish Enterprise programme 3
• Information provision . An electronic
database lists regional manufacturing firms The programme of Scottish
(8,500 companies) and summarizes their Enterprise (a government agency that reports
capabilities (One Northeast, 2001). The directly to the Ministry of Enterprise) seeks
focus is on industries and industrial to attract FDI and to foster economic
activities with high potential, including development. 4 S c o t t i s h E n t e r p r i s e i s
chemicals; food and beverages and designed as a “fully integrated economic
agriculture-related industries; the life development agency”. 5 Its activities
sciences; and specialized business services, embrace economic and social goals, notably
tourism and other services. to:
• Consultancy services. One Northeast • support business start-ups and help existing
consultant teams identify potential companies to expand;
suppliers, prepare profiles of their
capabilities and assist them in becoming • make Scotland a more competitive location
suppliers. through the provision of business sites and
premises and in improving the business
• Benchmarking. The agency offers environment;
benchmarking services. To identify and
select suitable local suppliers, sub- • promote and encourage exports;
contracting firms can avail themselves of • attract inward investment;
198 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

increasing attention to second-and third-tier

• develop skills, break down barriers to suppliers. Clusters have been promoted in
employment and ensure that disadvantaged oil and gas, food and beverages, forestry
groups and areas are included. industries, microelectronics (including opto-
electronics), semiconductors, biotechnology
Enterprises, local authorities and
and services (such as tourism and software,
other public institutions, trade unions, as
including multimedia) (Scottish Enterprise
well as educational bodies, are active
Network, 2001).
partners in the agency, brought together via
a set of Local Enterprise Fora created in
The first Scottish Supplier Development
2000. Scottish Enterprise is publicly funded.
Programme dates from 1989, followed by
The annual budget for the entire agency was
the Scottish Supplier Base Forum established
£440 million in 2000/2001. It is expected
shortly thereafter. The original objective was
to generate a proportion of its own revenue
to accelerate growth in the Scottish economy
through returns on investment and the sale
by creating an infrastructure of excellence,
and lease of property. Fifteen of the agency’s
comprising component manufacturing and
staff work directly on supplier development
sub-assembly as well as manufacturing. In
activities.
this initial phase, the industry focus was on
the plastic moulding and sheet metal
Since 1997, Scottish Enterprise has
industries.
been pursuing a cluster-oriented approach
to regional economic development. It targets
Since 1989, surveys have been
those industries in which Scotland is
undertaken periodically to ascertain
particularly strong, so as to strengthen
weaknesses in the Scottish supplier base and
linkages and to encourage investment in
examine the requirements of electronics
leading-edge technologies generated in local
TNCs. Scottish Enterprise finances supplier
universities. The approach includes giving
audits, performed by contracted consultants

Box 1. The Supplier Capability Assessment Tool

The Supplier Capability Assessment Tool (SCAT) guides audits of potential suppliers and
assists both subcontractors and supplier firms in finding linkage opportunities. It provides
procurement managers of inward investor enterprises with comparative information not readily
available. SCAT assesses the potential supplier firms’ culture and gives an indication of the
long-term stability of the management team. The range of skills in companies is profiled, as
are the recruitment and training strategies and staff turnover. Together with the audited accounts
and the firms’ organigramme, this allows a “holistic view” of the audited firms’ performance
and 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, such
as recycling provisions. This assessment entails a tour of the entire plant (manufacturing area,
offices, canteen, rest rooms, reception area and grounds). The assessment is consolidated
electronically. The software allows for an instant comparison among the firms assessed. Both
the potential supplier and clients receive the report; clients also receive a more detailed assessment
which includes a financial appraisal. Typically, three to four companies tendering for a particular
contract from an inward investor or a domestic company would be assessed. It is a client who
then selects a supplier. One Northeast is not commercially involved at any time, but it finances
the process. The client is obliged to inform One Northeast of all ensuing contracts and to register
any increase in jobs. Such information is reported to the Department of Trade and Industry
of the Government of the United Kingdom, and to the European Union, and can also be used
as a tool to assess the programme itself.
Source: UNCTAD, based on Archie Workman, One Northeast.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 199

working to a set of standard questions According to selective interviews

developed at the agency. The audits, which conducted by an academic research team
typically engage three consultants for a one- (Krause and Handfield, 1999), some foreign
month period, are available to current or affiliates require their suppliers to be
potential suppliers to foreign affiliates. involved in Scottish Enterprise programmes.
Based on the consultants’ reports, Scottish This suggests that foreign affiliates assess
Enterprise, together with suppliers and the programme favourably.
foreign affiliates, develops a strategy for
supplier upgrading which continues over a
two-to-three-year period. Monthly meetings 3. Costa Rica’s High Technology
monitor progress. Supplier Project 6

The Supplier Base Forum currently Since the late 1990s, Costa Rica’s
has approximately 100 members: foreign FDI initiatives have focused on the
affiliates and local suppliers that have at development of high-technology industries,
least 50 per cent of their business activities notably semiconductors, health care and
in the electronics sector. Membership is by communication/information industries. 7 In
invitation or by application. The Steering this connection, the country adopted a
Committee is made up of Scottish Enterprise linkages-related programme in 2000, the
as the initiator of the Forum and elected project Costa Rica Provee – Development
members. The Forum organizes supplier of Suppliers for Multinational High
development; moreover, it provides an Technology Enterprises. The overall
opportunity for formal and informal objective of this programme is to develop
networking, and sharing information on the an internationally-competitive local supplier
sourcing requirements and patterns of base, in close cooperation with foreign
foreign affiliates. affiliates in the country and by encouraging
linkages between the high-technology
The Supplier Base Forum was relevant foreign affiliates and domestic
complemented in 1993 by the Scottish suppliers. This interaction is meant to
Electronics Forum. It comprises original expedite the technological upgrading of local
equipment manufactures in the electronics SMEs and to increase local value added in
i n d u s t r y. Va r i o u s a s s o c i a t i o n s p r o v i d e the operations of foreign affiliates in high-
institutional support to this Forum. They technology activities. The project was
include the National Microelectronics triggered by the observation that high-
Institute (owned by major United States and technology affiliates were sourcing only 5-
European semiconductor companies), the 7 per cent of their intermediate inputs from
Scottish Opto-Electronics Association, the local suppliers.
Scottish Advanced Manufacturing Centre,
Edutronic (a specialist industry-led surface The project is sponsored and
mount training facility) and the implemented jointly by a group of public
Microelectronics Imaging and Analysis and private sector institutions: the Costa
Centre (Peters et al., 2000). Rican Investment Board, the Costa Rica
Foreign Trade Corporation, the National
As a means of indirect evaluation, High Technology Center Foundation (a
Scottish Enterprise tracks the share of local private institute with a link to the
purchasing in annual purchasing patterns of Government), the Costa Rica Chamber of
original equipment manufacturers in the Industry and the Ministry of Economy,
electronics industry. The goal is for local Industry and Trade. For the initial three-year
sourcing (from domestically or foreign- period, the Inter-American Development
owned suppliers) to reach 40 per cent for Bank provided financial support ($900,000),
any given product (Krause and Handfield, which complements the $600,000 of local
1999). The agency not only supports local funds.
suppliers but is also active in attracting
foreign suppliers to support foreign The Costa Rica Provee has structured
affiliates’ sourcing needs. the linkage-providing process into three
phases, each consisting of several steps:
200 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

follow-on contract with Tecnimatriz y

A n a l y s i s o f d e m a n d . The project Motrosa, established through Babyliss
reviews all high-technology affiliates located Leogar, to design and produce inputs, at a
in Costa Rica, and pre-selects affiliates, value of about $150,000. Babyliss Conair
based on their size, technological level and is considering continuing cooperation with
whether they have a methodology for Leogar S.A. (Egloff, 2001; IADB, 2001;
supplier evaluation in place. In the first Larraín et al., 2001).
round, of ten high-technology affiliates
identified by the project, six indicated their It is too early for an assessment of
interest in and willingness to participate in the Costa Rica Provee Project as the
the programme. They identified the areas programme became operational only in 2000.
of metals and mechanics, containers, moulds, Nevertheless, the Executive Unit is already
packaging material and plastic products as reviewing the project’s design, reflecting
those where they would be willing to source on the lessons learned during the first
locally. Their sourcing requirements were months of its operation. Only a limited
analysed and matched with Costa Rica number of high-technology foreign affiliates
Provee’s database of local suppliers. appeared in a position to enhance linkages
with local suppliers effectively. O n t h e
Project development. The initial supplier side, domestic SMEs were finding
phase is followed by an evaluation of it difficult to meet the priority needs of high-
potential suppliers, undertaken jointly by technology foreign affiliates and were rarely
Costa Rica Provee and representatives of in a position to outperform competing
the participating high-technology affiliates. foreign suppliers because of their own higher
The affiliates and the suppliers agree upon unit production costs. Moreover, domestic
a series of business development activities. suppliers had problems in terms of access to
A bidding process then identifies providers finance. Therefore, at present, considerations
of technical assistance and training services are under way to redesign the project. The
in response to the suppliers’ requirements. aim is to ensure that the linkage programme
matches the country’s strategic objectives,
Project execution. The supplier and concentrates on the quality of linkages
receives technical assistance and training, in terms of their technological content.
sponsored by Costa Rica Provee, followed
by another audit carried out by the high-
technology affiliate, to assess the suppliers’ 4. Linkage-related programmes in
ability to meet the previously specified Mexico 9
requirements. This then leads to an actual
contract. Recognizing the lack of linkages
resulting from the particular logic of the
The first such linkage activity was maquiladoras programme, 10 the Government
initiated in early 2001. Babyliss Conair, an of Mexico began pursuing a more proactive
affiliate of Conair (United States), needed supplier development policy in the early
a supplier of metallic bodies for its 1990s, notably encouraging foreign affiliates
production of hairdryers. The project’s to source from local companies. The
database identified five potential suppliers. National Industrial Modernization and
The project’s Executive Unit and Babyliss Foreign Trade Programme (1990-1994), for
Conair representatives jointly undertook example, was designed to promote locally-
intensive factory visits (over a three-week embedded industrial clusters. Policy
period), auditing and screening the potential elements included a new standardization and
supplier firms. At the end of the process, quality policy; promotion of total quality
Babyliss Conair selected Leogar S.A. and control through various meso-institutions;
awarded a contract of over $750,000 for the technological modernization based on
supply of 35,000 metallic bodies for the industrial reorganization schemes; and
production of hairdryers during 2001. Costa strategies to favour outsourcing (Sanchez
Rica Provee will provide technical assistance Ugarte, et al. , 1994).
and training to Leogar at an estimated cost
of $20,000. 8 As a result of the contract, In 1993, another programme designed
Leogar’s turnover is expected to increase to facilitate linkages with domestic suppliers
by about 18 per cent. This also led to a was introduced — the empresas integradoras
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 201

Table 1. The main public and private agencies relevant to linkage development in Tijuana, Baja
California Norte, Mexico, 2001

Institution Public Private

Development Council of Tijuana (Consejo de Desarrollo de Tijuana (CDT)) X X

Educational Linkage Committee (Comité de Vinculación Educativa) X X
Ministry of the Economy (Secretaría de Economía) X
Secretariat of Economic Development, State Government (Secretaría de Desarrollo Económico-Gobierno
del Estado de Baja California Norte) X
National Finance Agency (Nacional Financiera-Financiamiento y Asistencia a la Pequeña Empresa ) X
Border Governors Forum (Foro de Gobernadores Fronterizos) X
Entrepreneur Coordination Council (Consejo Coordinador Empresarial (CCE) X
United States-Mexico Chamber of Commerce X
National Industry Chamber (Cámara Nacional de la Industria y la Transformación (CANACINTRA)) X
Maquiladora Industry Association- West Coast (Asociación de la Industria Maquiladora Zona Costa) X
Economic and Industrial Development Council of Tijuana (Desarrollo Económico e Industrial
de Tijuana (DEITAC) X
Western Maquiladora Trade Association X
Japanese Maquiladora Trade Association X
Korean Maquiladora Trade Association X
National Chamber of the Electronics, Telecommunications and Informatics Industries (Cámara Nacional de la
Industria Electrónica, Telecomunicaciones e Informática (CANIETI) X
ProduCen (Productivity Centre for the Electronics Industry of Baja California) X

Source : UNCTAD, based on Carrillo, 2001.

programme. It encourages cooperation supplier database, established in 1997,

among suppliers in the form of joint consolidates information from various
ventures. These enjoy a simplified corporate existing registers. 12
tax system, preferential access to credit lines
of the National Finance Agency and These federal programmes are
assistance in technology and training complemented by a number of initiatives at
(Altenburg et al., 1998). the sub-national level to promote FDI, speed
up paperwork, provide information, create
Complementing this, the Government matchmaking databases and organize
reformed in 1995 the export promotion regional subcontracting fairs. The Secretariat
programmes that had been instituted in the of Industrial Development of the state of
1980s. Inputs from Mexico were exempted Baja California Norte has been particularly
from value-added tax in order to remove active. It cooperates closely with other
disadvantages to local suppliers. public-sector agencies and institutions, such
as employment services, a project on quality
Building on these developments, the and modernization called Calidad Integral
Industrial Policy and Foreign Trade y Modernización, 13 with the National Finance
Programme, introduced in 1996, aimed at Agency, the Bancomex, as well as with the
developing highly competitive regional and private sector, including maquiladora
industrial clusters with increasing numbers associations and local business organization s.
of micro, small and medium-sized firms.
Simultaneously, the Government adopted a In Tijuana, for example, a broad
Programme for the Development of alliance of private and public sector
Suppliers. Some 500 large companies are institutions have coalesced to support the
registered in this programme, among them cluster’s development (table 1). Funding
many major foreign affiliates. This is provided in large measure by the “Fondo
Programme has two main components: first, Tijuana”, coordinated by the Development
financial assistance for suppliers through Council of Tijuana. This fund, a ten-year
the National Finance Agency; and, second, project launched in 2000, is co-financed by
information and matchmaking activities, the Inter-American Development Bank, the
such as databanks and trade fairs where National Finance Agency and private
potential suppliers can present their investors from Mexico as well as from the
products. 11 A comprehensive internet-based United States. It is meant to enable local
202 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

companies (old or newly established ones) enterprises – foreign or domestic – with

to become suppliers in the electronics SMEs. The main objectives are to
cluster. The funding comprises $2.7 million strengthen the assembler and parts supplier
for technical cooperation and $12 million relationship; to promote the development of
in the form of a venture capital fund for suppliers, notably SMEs; to increase
firms that want to become suppliers to the production efficiency and quality; and to
maquila industry. In the first phase, 17 firms promote cooperation among foreign
were to receive support (7 existing firms investors, Thai parts manufacturers and the
and 10 newly established firms). Thai Government towards this end.

In summary, Mexico has a number The programme encompasses five

of measures and programmes for the main activities: providing information about
promotion of supplier linkages. However, subcontracting opportunities, notably via a
these programmes may need to be better comprehensive computerized database;
coordinated to achieve more impact and matchmaking services for individual firms;
become integrated into an overall technical and management assistance to local
framework. With respect to Tijuana, suppliers interested in developing sub-
feedback from various surveys suggests that contracting relationships; provision of
neither foreign affiliates nor Mexican detailed technical and market information
suppliers were sufficiently aware of existing on establishing supplier industries in areas
initiatives (Carrillo et al., 1997; Escamilla, with high potential; and the organization and
2000, pp. 221-222; Carrillo, 2001). There coordination of training courses to upgrade
was a general opinion among private the marketing and technological capability
associations that industrial policy needed of small and medium-sized local suppliers
to be reinforced, with a focus on developing (BOI, p. 7).
specific industries and products and to
increase technological sophistication, To date, BUILD has concentrated its
competitiveness and value-added activities. activities mostly on information provision
In a similar vein, several companies and matchmaking services. Two specific
interviewed mentioned the lack of clarity activities were launched in 1997: 16 the
in customs regulations and maquila status Vendors Meet Customers Programme (VMC)
as obstacles for sourcing inputs from and the ASEAN Supporting Industry
Mexican companies (Carrillo, 2001). 14 It Database (ASID).
may be that these shortcomings will be
addressed as the maquiladora programme The VMC Programme was
is phased out, and the various recent linkage- established to stimulate domestic sourcing
related and supplier development initiatives of parts and components, particularly
come on stream. automotive and electronics parts. BOI acts
as a broker to match buyers or assemblers
and vendors or suppliers. The programme
5. Thailand’s BUILD programme 15 arranges for suppliers to visit assembly
plants. Such visits enable potential suppliers
In the context of its activities on to learn about the product and process
promoting domestic and foreign investment, requirements of assemblers, while
the Board of Investment of Thailand (BOI), assemblers make contact with potential local
situated in the Office of the Prime Minister, subcontractors. It can also be an opportunity
created a linkage programme in 1992. It is for suppliers to agree on strategic alliances
managed by the BOI’s Unit for Industrial or a sharing of orders when the scale exceeds
Linkage Development (BUILD). The their individual firm’s capacity to deliver
programme is designed to “a c t a s a n components to an assembler. As a
intermediary between manufacturers of consequence, a group of roughly 70 domestic
ready-made products and small and medium- suppliers, members of the BUILD
sized manufactures of parts, which will programme, 17 established a Subcontracting
result in the linkage of industries and the Promotion Club in 1999. Members share
transfer of production technology” information on incoming orders and
(Thailand, BOI, p. 6), thus linking large subcontract each other.
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 203

Assemblers submit lists of imported firms for their participation in BUILD

parts to BUILD, allowing parts makers promotion activities.
capable of producing listed parts to
participate in the factory visit, and meet with The BOI of Thailand has assessed
the purchasing department. Since the B U I L D ’s i m p a c t , u s i n g t h e c u m u l a t e d
programme began in 1997, there have been transaction values of business deals as a
close to 50 visits to factories. During its proxy to measure the programme’s success.
first three years, BUILD focused on local Three evaluations have been carried out to
assemblers. In 2001, BUILD started to date through interviews and
expand its activities to overseas markets. q u e s t i o n n a i r e s . 18 T h e B O I s u r v e y e d
In early May 2001, the Unit organized a approximately 400 firms, including 100 per
mission to Germany focusing on the cent Thai-owned companies, joint ventures
automotive industry. Various meetings and wholly foreign-owned companies.
between BUILD members and industry
associations in Germany were arranged. At the time of the first evaluation,
six companies had established industrial
ASID provides information on over linkages, with business deals accounting for
12,000 manufacturers in various ASEAN 120 million baht. By the time of the second
industries, of which roughly 7,000 firms are evaluation, industrial linkage deals increased
in Thailand. It is one of ASEAN’s initiatives to a value of 1,030 million baht, covering
to increase awareness of supplier industries 58 companies. In the third evaluation, 98
in member countries. Investment promotion companies were identified as successful,
organizations in the ASEAN member with business deals accounting for 2,638
countries are responsible for developing this million baht. This amounts roughly to a 200-
web-based database, and updating the data fold increase in the value of contracts
to permit free global access to ASEAN generated over a short period of three years.
industry information. It is also of interest to note that, of the 98
firms that had recorded supplier contracts
With regard to technical and in 1999-2000, a majority (59 firms) were
management assistance, BUILD has informal wholly Thai-owned. These 98 companies had
relationships with various organizations, established business deals predominantly
such as the Industrial Finance Corporation with assemblers which are TNCs (62 per cent
of Thailand, the Market for Alternative of the value of business deals registered).
Investment – which is Thailand’s version Approximately a quarter of the transactions
of the United States NASDAQ – and the established were among members of the
National Science and Technology BUILD database and 10 per cent of deals
Development Agency, to assist supplier was with overseas contractors. These
companies in solving difficulties and comprised wholly Thai-owned firms as well
meeting customers’ demand. BUILD has as joint ventures. Thus, one of the expected
developed formal connections with the benefits to Thailand – to expand industrial
vocational education system, but depends activity through FDI – was met.
on informal connections with most other
government agencies providing services or
support to SMEs. However, to some extent, 6. Hungary’s Integrators’
BUILD is constrained by its inability, and Subcontracting Programme 19
indeed its lack of mandate, to provide direct
support to strengthening the managerial and
technical capacity of Thai suppliers, which In 1998, the Ministry of Economic
is why it relies on other government Affairs of the Government of Hungary
programmes in this area. introduced the Subcontractors Target
Programme. It was subsequently relaunched
The BUILD programme is part of the as the Integrators’ Subcontracting
BOI and has eight full-time staff members Programme and designated as one of the
and a budget averaging some five million central programmes within a national
baht annually. There are plans to make it development plan. 20 The promotion of
self-supporting in the future by charging supplier links is partly driven by the need
204 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

to prepare local industry for competition implications of, and conditions for,
within the European Union before the accession to the European Union; logistics;
country becomes a full member. and e-business and e-commerce. 21

The Programme initially aimed at • Promotion of the international presence

promoting direct linkages between final of Hungarian firms. These activities
assemblers and local SMEs, regardless of organize or catalyse business contacts and
ownership. Currently, its focus is on meetings between potential suppliers and
promoting links between first tier suppliers buyers and facilitate Hungarian
– called “integrators” – and their second- participation in relevant international fairs
and third-tier suppliers (Hungary, 2001a). and exhibitions.
Most of the first-tier firms in the priority
industries are foreign-owned, and roughly • Financial support and grants from the
80 per cent of the second-tier supplier firms Ministry of Economic Affairs. The Ministry
are fully Hungarian-owned. Thus, the of Economic Affairs offers grants to
programme is de facto a programme existing and potential subcontractors. In
promoting linkages between foreign 2001, two additional sources of finance
affiliates and domestic firms. Originally, the were introduced: a grant covering up to
programme focused on the automobile 30 per cent of the costs of quality
industry, electronics and rubber and plastics; management and insurance, expansion of
it subsequently added textiles, furniture, production or product range, development
building materials, services and retail trade of logistics and informatics; and a grant
to the list of priority industries. covering up to 50 per cent of the costs
involved in cluster development. The
The Integrators’ Subcontracting Government also financially supports
Programme gives priority to relatively supplier audits, covering up to 75 per cent
advanced supplier firms: half of the of the cost, with a ceiling of HUF
resources are provided to firms that are 400,000. 22
already suppliers to foreign affiliates, and
another 40 per cent to firms that are very Moreover, innovation centres, as well
close to that status. Specifically, the as universities and research institutes indirectly
following types of services are available: support the Integration Subcontracting
Programme by coordinating relevant aspects
• Access to a national subcontracting of research and development.
database and related information services,
managed jointly by the Ministry of The Integrators’ Subcontracting
Economic Affairs and the Hungarian Programme – and its precursors – have
Investment and Trade Development reached a fairly extensive network of firms.
Agency. The database contains screened In mid-1999, the programme covered 1,438
data on 1,500 potential and existing supplier firms, representing 110,000
subcontracting enterprises in the employees (14 per cent of the total
machinery, vehicles, electronics, rubber and employment in manufacturing). The value
plastics industries. The data are collected of deals contracted and signed through the
by Supplier Information Centres whose then National Subcontracting Information
tasks are to inform participating firms Network reached HUF 1.4 billion ($6
about the Programme, collect information million) in 1999. The duration of contracts
on buyer needs, identify potential and varied between 6 and 12 months. Between
existing subcontractors, and help 1998 and 2000, a number of key foreign
subcontractors logistically and in affiliates (e.g. Opel, Audi, Suzuki, Ford,
improving their management. General Electric, Nokia and Electrolux)
signed 76 supplier contracts under the
• Education, training, consultancy services. programme. The value of 21 of the contracts
The main areas for training and education publicly announced was HUF 5.9 billion
are: strategic business management and ($24.5 million) per annum. 23 According to
management training; quality assurance latest estimates, the share of Hungarian firms
(with special emphasis on the introduction among the suppliers to foreign affiliates
of a new version of ISO 9000); the increased from 16 per cent in 1999 to 21
per cent in 2000 (Peredi, 2000).
CH A P T ER V PO LICIES T O S T R EN G T H EN LIN KAG ES 205

Notes a variety of other fairs have been introduced.

They include: input exhibits by potential
1 suppliers; exhibits by maquila clients; firms
This section is based on information from that completely “dismantle” their products
One Northeast and an abridged version of so that visitors can identify the components;
Loewendahl, 2001. highly specialized exhibits, such as plastic
2 It succeeded the Northern Development injection and packing; and exhibits promoted
Company, established as a tripartite body in by one TNC only, such as Sony (Altenburg
1986, comprising representatives from local et al., 1998; Carrillo, 2001).
political parties, the business community and 12 It provides a computer-based matchmaking
trade unions (Loewendahl, 2001). programme as well as data on size of firms
3 This part A draws largely on information and capacity. However, some firms have been
provided by Scottish Enterprise and Krause hesitant to register in it for fear of disclosing
and Handfield, 1999. too much information.
4 Scottish Enterprise was established in 1991 13 The “Calidad Integral y Modernización”
under the Enterprise and New Towns (Scotland) initiative is designed to address the lack of
Act of 1990, combining the former Scottish competitiveness of local SMEs, resulting from
Development Agency and the Training Agency poor education or management techniques.
in Scotland. The project, launched in 1987 by the World
5 The programme also has social goals, with Bank, trains industrial workers. Since 1993,
a focus on employment and on creating an supplier development has been integrated into
“inclusive society”. The annual report states: the programme and has been carried out jointly
“Our purpose is to help the people of Scotland with regional agencies. Advisory services
create and sustain jobs, prosperity and a high and training in the areas of information,
quality of life” (Scottish Enterprise Network, financing and technology are provided by private
2001, p. 1). consultants and, depending on the size of the
6 Based on information provided by the Costa participating company, subsidized up to 70
Rica Provee, 2001; Monge, 2000; Egloff, 2001; per cent by the project. An example is the
ECLAC, 2000; IADB 2001. cooperation between Volkswagen de Mexico
7 At its inception, the Costa Rican Investment and its suppliers with the initiative.
Board pursued an investment promotion strategy 14 For example, the changes stipulated by Article
focused on textiles. As wage levels increased, 303 of the NAFTA imposes import duties,
and competition from lower-wage emerging as of 1 January 2001, on all components,
markets rose in the early 1990s, it began to materials, equipment and tools imported from
target other industries such as the electrical, outside of NAFTA, but destined to the NAFTA
electronic and telecommunication industries. countries. This eliminated the “no-duty” status
It is against the background of this shift into of the Mexican maquiladora industry which
targeting high-technology that the country had hitherto applied to merchandise exported
successfully attracted Intel in 1996. For a to the United States or Canada.
detailed analysis of the evolution of Costa 15 The following is based on Office of the Prime
Rica’s FDI policy, see for example ECLAC, Minister (BOI), 2001, and on other information
2000. provided by the Board of Investments (BOI).
8 In particular, this will consist in training 16 This became pressing when the economic crisis
regarding electrostatic painting environment, of 1997-1998 offered an opportunity for
environment protection guidelines and new potential suppliers as they had cost advantages
production floor layout, as well as accompanying vis-à-vis imported intermediate inputs as a
workshops and conferences and the result of the currency devaluation. At that
establishment of a permanent information time, subcontracting linkages were also
network with the foreign affiliate. As a result, perceived as a step towards initiating joint
Leogar was able to improve in production venture arrangements, which could serve to
technology which has also enhanced its potential replenish the capital of ailing domestic firms.
to become a supplier to other foreign affiliates 17 Firms register to become members of BUILD;
in the future. there is no screening, and fees are not levied.
9 The following is based on Carrillo, 2001 and The programme foresees, for a later time,
information from SECOFI. classifying participating firms into three
10 The maquiladoras programme, through low divisions.
tariffs on component imports, has favoured 18 Information provided by the BOI.
the processing of these components for re- 19 Based on information provided by the Ministry
exports, with limited opportunities to create of Economic Affairs of Hungary.
linkages with domestic suppliers. 20 “The primary objective of the… subprogram[s]
11 Apart from those organized under the is to loosen up the current dual structure of
Programme for the Development of Suppliers,
206 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

the Hungarian economy, and to continue to 22 In 1999, 28 supplier firms applied for such
strengthen Hungarian SMEs’ links to audits, of which 27 received assistance, for
multinational companies with a foothold in a total value of HUF 5.4 million. Another
Hungary in terms of production, innovation 61 firms applied for assistance, of which 31
and information” Hungary, Ministry of Economic firms received assistance, for the value of
Affairs, 2001, p. 1. HUF 84.9 million.
21 The latter is provided by the Hungarian 23 The value of the other contracts was kept
Investment and Trade Development Agency confidential.
with a view to preparing Hungarian suppliers
for Internet-based bidding for international
contracts .
 Table 2. Key elements in specific linkage programmes
Programme components
Effective coverage Supplier development in cooperation
of database or of with foreign affiliates
the supplier Information Subcontracting
CH A P T ER V

Region/ country/ Agency and institutional development through exchange and Identification Staffing/ Evaluation
element specifics Industry focus programme fairs etc. matchmaking and selection Upgrading Funding programme
National Linkage Enterprise Ireland, Electronics, Database covering ? Identify supply Support through 15 staff ?
Programme, Ireland , government’s engineering, healthcare, firms in 20 industries. opportunities and development
since 1998, replacing enterprise development also pharmaceuticals, affiliate advisers, network
a 1995 programme. agency. natural resource-based requirements. building, and market
products. development.
One Northeast Regional development Automotive, plastics and 8,000 firms in ? Benchmarking and 4 Consultancy Circa 10 staff Measured by
since 1999 agency with private rubber, chemicals, electronic database. auditing activities. on upgrading cf. members and turnover of local
Newcastle Upon sector and trade union consumer white goods, circa £450,000 firm and
Tyne, United Kingdom involvement, also food and beverage and for supplier employment
(succeeding the donor funding. Sub- agro-industries, micro- development. gains.
Northern Development national programme electronics, military
Company 1986-1999). with a cluster element. equipment, life sciences,
various services such
as accounting.
Scottish Enterprise, Government agency Microelectronics, semi- Scottish Supplier Supplier audits 15 staff on
Edinburgh, Scotland . with private sector conductors, energy, Base Forum and consultancy supplier
involvement. Sub- foods, biotechnology. (since 1991). services to develop development.
national programme Scottish Electronics upgrading strategies.
with a cluster element. Forum (1993).
Source Wales, Cardiff, Welsh Development Electronics, aerospace, 4,300 firms in ? Extensive training ?
United Kingdom . Agency, regional automotive services, database. programmes to
development agency. garments industries. mprove quality and
Sub-national programme performance of
with a cluster element. suppliers.
Development of Public sector in High-technology All high-technology Supplier Screening and Technical $900,000 from Continuous
Suppliers for cooperation with industry. foreign affiliates database, auditing of assistance, project the Inter-American project
Multinational High foreign affiliates and visited, 6 currently Analysis of potential suppliers development and Development Bank revision and
Technology Enterprises with donor support. involved in supplier affiliates’ training to suppliers and $600,000 from adaptation.
(Costa Rica Provee), development. requirements. selected by foreign the Government
Costa Rica since 2000. affiliates. Consul- of Costa Rica;
tancy in upgrading. 4 staff.
Industrial Linkage Ministry of International Electrical and electronics SME directory ? Global Supplier Not
Programme of the Trade and Industry; products, chemicals, by region and Programme of the Small systematically.
Industrial Master Plan Malaysian Industrial petrochemicals, pharma- industry. and Medium Industries
(1996-2005), Malaysia Development Authority ceuticals, textiles and Development Corporation:
since 1996. and the Small and apparel, autos, motor- training and upgrading.
Medium Industries cycles, marine and In Penang, Penang
Corporation; private aerospace development; Skills Development
sector participation machinery and equipment, Centre provides skills
via the Industrial resource-based industries. upgrading programmes
Coordination Council. with affiliate
interventions.
National Industrial Public sector with Almost 500 large Industry and Within the Suppliers selected Worker and $1.2 billion
Modernization and private sector companies registered firm specific Programme for receive special Manager Training budgeted for
PO LICIES T O S T R EN G T H EN LIN KAG ES

Foreign Trade involvement. in the Web page of fairs. Development of financing from the under the CIMO 2001 for credit
Programme (IPFTP) the Programme for Suppliers, National Finance (Calidad Integral under the
(1990-1994); Development of matchmaking in Agency. y Modernicazión) Programme for
revamped in 1996, Suppliers. especially initiative (since Development of
and Programme for arranged fairs. 1991) . Suppliers.
Development of
Suppliers (1995),
207

Mexico .
 Table 2. Key elements in specific linkage programmes
208

Programme components
Effective coverage Supplier development in cooperation
of database or of with foreign affiliates
the supplier Information Subcontracting
Region/ country/ Agency and institutional development through exchange and Identification Staffing/ Evaluation
element specifics Industry focus programme fairs etc. matchmaking and selection Upgrading Funding programme
Tijuana Fund, Mexico Public and private. Maquiladora industry, 17 local firms Technical $14.7m in total,
since 2000. in particular the receiving support. assistance co-financed by
electronics sector. and finance. the IADB, the
National Finance
Agency and private
investors from
Mexico and the
United States.
Local Industry Economic Development Electronics, chemicals, 30 foreign affiliates, Small Enterprise Organizational and
Upgrading Programme Board. National engineering, medical 11 large local firms, Development financial support,
(LIUP), Singapore development agency products, petroleum 670 supplier firms. Bureau with the involve-
since 1986. with public-private and related products, ment of foreign
interaction. information technology. affiliates:
- Improvement of
overall operational
efficiency
- Transfer of new
products and
processes to local
enterprises.
- Joint R&D with
foreign affiliates
Board of Investment Investment promotion Electronics, automotive ASEAN Supporting Market Vendor Meets Not directly: 8 full-time Periodical reviews
Unit on Industrial agency, in the office components. Industry Database information; Customer supplier develop- staff; 5 million of participating
Linkage Development of the Prime Minister. (ASID) – computerized plant visits, Programme- ment is provided Thai baht firms, using the
(BUILD), Thailand database of contractors trade fair visits. information on under other annually. cumulated
since 1992. and suppliers, circa subcontracting; ministries, or transaction values
12,000 ASEAN individual through other of business deals.
companies in the matchmaking. service providers.
database, of which
7,000 firms in Thailand.
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Supplier CzechInvest, government Electronics, engineering. circa 1,000 supplier Seminars, “Meet-the buyer” “Twinning Upgrading CZK 100 million. Evaluation of
Development investment promotion firms in the database. exhibitions; events. Programme”: programmes in $3 million, suppliers’
Programme, agency, together with concrete supplier develop- high technology 5 persons, progress.
Czech Republic the Ministry of Industry, matchmaking ment programmes industries. co-funded by the
since 1999. Chamber of Commerce proposals promotion agencies.
and various business
associations.

Integrators’ Ministry of Economic Originally electronics, Screened data on ? Data are Education, ?
Subcontracting Affairs jointly with automobile industry, 1,500 firms in the collected training and
Programme, Hungarian Investment rubber and plastics; database; 1,438 by Supplier consultancy
Hungary since and Trade Development in 2001, textiles, participant supplier Information services, e. g.
1998. Agency. Programme not furniture, etc. added. firms in the programme Centres. on standards,
limited to foreign affiliates. (in 1999). Database e-business,
on CD-ROM. logistics. Also
financial support
and grants.
Source: UNCTAD.
Note: For details, see boxes V.4, V.5, V.8, V.9, V.10 and annex to chapter V.
 CHAPTER VI.
KEY ELEMENTS OF
A LINKAGE PROMOTION PROGRAMME
n conclusion, the extent and may find themselves excluded in the

I
nature of backward linkages increasingly demanding environment of
between foreign affiliates rationalized supply chains. This is
and domestic supplier firms particularly true when it comes to foreign
depend on many factors. affiliates that are part of integrated
Trends in the global international production systems, for which
environment encourage firms to concentrate scale, standards requirements and
on their core activities and rely more on technological demands are particularly high.
other firms for non-core functions and Some activities and TNCs are more
inputs. Where the mutual self-interest of amenable to the outsourcing of inputs than
foreign affiliates and domestic firms with are others, and governments that understand
supplier capabilities leads to the creation the competitive needs and strategies of TNCs
and deepening of linkages, no further can attract new investments more effectively
encouragement by governments is needed. and root them more deeply in their
Indeed, evidence shows that linkages evolve economies.
over time, as foreign affiliates become more
integrated in the local economy. The role of policy is most significant
where there is an “information gap” on the
However, this does not always part of both buyers and suppliers about
happen. In fact, it is a reasonable linkage opportunities, a “capability gap”
assumption that, whatever the given level between the requirements of buyers and the
of linkages, this can be increased in many supply capacity of suppliers and where the
cases. Hence there is a role for judicious costs and risks of setting up linkages or
policy intervention to promote the creation deepening them can be reduced. While the
and deepening of linkages, as a strategic tool international regulatory framework is still
to promote the development of domestic evolving, the challenge for policy makers
enterprises. Governments can promote the is to make use of the options available within
creation and deepening of linkages in many the current framework and use other policy
ways. measures which are not subject to
multilateral rules to encourage and
In formulating linkage promotion accelerate the linkage formation process.
policies, governments need to understand Governments are refocusing their policy
the main determinants involved (chapter IV). intervention towards addressing market
Not all of them are amenable to policy failures and reducing the costs involved for
influence. For example, it is difficult for linkage partners to create and deepen
governments to influence corporate strategies linkages, with the ultimate aim of
or the technical characteristics of the activities strengthening the productive capabilities and
of foreign affiliates. They can, however, competitiveness of domestic suppliers. Such
influence other factors affecting the costs intervention needs to be undertaken in close
and benefits of linkage development. partnership with the private sector.

To do so, they must be aware of TNC Whereas there is no universally

procurement strategies and the competitive accepted best practice in linkage promotion
setting of each industry in which firms policy, important lessons can be drawn from
operate. The increased concentration of past experience. Linkage promotion policies,
TNCs on core activities creates new like other development policies, are often
opportunities for independent suppliers, but highly context-specific and need to be
it also raises greater challenges for domestic adapted to the particular circumstances
firms. Uncompetitive domestic suppliers prevailing in each host country. They need
210 W orld Inve sm ent R e port 2001: P rom oting Linka g e s

to be an integral part of broader development specific linkage promotion programme

strategies, and their success often depends combining a number of the measures just
on factors that may not appear in a narrow mentioned. This is a proactive approach
assessment of linkage policies. Much also which is typically focused on a selected
depends on how policies are designed, number of industries and firms dedicated
coordinated and implemented in practice. to increasing and deepening linkages
between foreign affiliates and domestic
There are two basic (mutually not firms. As with other policies that span a
exclusive) approaches through which range of productive factors, activities and
linkages can be promoted. One involves enterprises, it is advisable for policy makers
encouraging linkages through various that choose this approach to “start small”
measures to bring domestic suppliers and (perhaps with a pilot scheme) and to build
foreign affiliates together and to strengthen policy monitoring, flexibility and learning
their linkages in the key areas of into any programme. The need for starting
information, technology, training and small is all the greater when resources are
finance. This is a broad approach – it scarce. Moreover, it is essential for any
basically improves the enabling framework programme to seek close collaboration with
for linkage formation. A range of measures the private sector, both foreign affiliates and
can be utilized here among which local suppliers, in design and implementation.
governments can pick and choose in light
of their objectives and circumstances. (Table The general features of a specific
VI.1 contains a number of measures that are Linkage Promotion Programme are set out
relevant here.) below. This programme should be seen more
as a set of building blocks that countries
The other approach goes further in might “mix and match” according to their
that it involves the establishment of a specific 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 tax
exhibitions and missions. • Incentives for R&D including training. measures.
cooperation. • Support for private • Limiting payment delays through
Matchmaking: • Home-country sector training legislation.
•Acting as honest broker in incentives. programmes. • Guaranteeing the recovery of
negotiations. • 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 firms
missions and conferences. providing long-term funds to
•Organizing meetings, suppliers.
visits to plants. • Co-financing development
programmes with the private
sector.
• Direct role in providing finance to
local firms.
• Mandatory transfer of funds from
foreign affiliates to local
suppliers.
Home country measures
• Two-step loans.
• Using ODA.
Source: UNCTAD.
CH A P T ER V I KEY ELEM EN T S O F A LIN KAG EP R O M O T IO N P R O G R A M M E 211

made prescription that all countries can A. Setting policy objectives

apply. Clearly, the choice of measures and
the way they are combined must reflect the
level of development, policy capabilities, The starting point is a clear vision
resources and objectives of each country – of a development strategy, supported by a
indeed it must take into account the principal coherent set of economic policies in the
determinants outlined earlier (chapter IV). areas of investment, trade, technology and
Even countries at similar levels of development enterprise development. In particular,
may choose different c onfigurations of policy linkage programmes are at the intersection
according to their enterprise and institutional of two subsets of programmes and policies:
capabilities. those geared towards enterprise development
(especially SME development) and those
The starting point for an effective related to FDI promotion. The former are
linkage programme is a clear vision of how desirable in and by themselves, as a vibrant
FDI fits into the overall development enterprise sector is the bedrock of economic
strategy and, more specifically, a strategy growth and development; in the context of
to build production capacity. The vision has the promotion of linkages, the capabilities
to be based on a clear understanding of the of local firms are the single most important
strengths and weaknesses of an economy and determinant of success. FDI promotion, in
of the challenges facing it in a globalizing turn, increasingly focuses not only on the
world. A linkage programme should, in quantity of FDI, a country attracts but also
particular, address the competitive needs of on its quality, including linkage
domestic enterprises and the implications opportunities.
they have for policies, private and public
support institutions and support measures Linkage programmes can have two
(including skills- and technology- broad objectives: to increase domestic
upgrading). sourcing by foreign affiliates (i.e. create new
backward linkages) and to deepen and
A precondition for linkage formation upgrade existing linkages, both with the
is of course that there is inward FDI and ultimate aim of upgrading the capacities of
that there are capable suppliers (or suppliers local suppliers to produce higher value-
with the potential for upgrading). Where this added goods in a competitive environment.
is the case, the steps that need to be followed These objectives are interdependent:
in designing a linkage programme include: deepening may spin off new linkages, and
spreading linkages may change their quality
1. setting the policy objectives of a linkage and depth.
programme;
A government’s objectives should be
2. identifying the specific measures to be shared with all principal stakeholders, as
adopted; their active participation is needed for the
success of any programme. Active dialogue
3. identifying the targets of the programme; and consultations are advisable right from
the very beginning. This requires first and
4. setting up an appropriate institutional and foremost:
administrative framework to implement and
monitor the programme. • Initiating a public-private sector dialogue
(perhaps in a “Linkage Forum”) with
Naturally, experience with respect to stakeholders, including foreign affiliates
programmes of this sort in other countries (and especially their procurement officers),
can be helpful when considering the actions supplier industry associations, chambers
to be taken in connection with each of these of commerce, banks, service providers,
steps. (The principal characteristics of trade unions and government agencies
linkage programmes in a number of countries (such as investment promotion agencies,
are summarized in chapter V.D). Moreover, development corporations, industrial zone
at each step of the implementation of a authorities, industry development
programme, the government needs to have agencies).
a clear idea about the costs involved and
the resources available.
212 W orld Inve sm ent R e port 2001: P rom oting Linka g e s

• Disseminating “best practice” experiences to establish beneficial linkages. Beyond

based on companies’ programmes and that – and as part of their FDI promotion
actions and experiences of government – governments can target TNCs that are
programmes and measures in other particularly interested in developing strong
countries. supply links with domestic enterprises. The
linkage programme may even support local
managers of foreign affiliates in lobbying
B. Identifying the targets their head offices to allow greater
autonomy in sourcing. In-depth
Governments, in cooperation with consultations with foreign affiliates can
private sector institutions, need to define then identify their specific linkage needs.
the targets of a programme in terms of the
industries and, within them, the foreign • Suppliers can be selected on the basis of
affiliates and domestic suppliers to be their commitment and capabilities (or
involved. potential capabilities) to meet the needs
of foreign affiliates. “Commitment” can
• Industries can be selected according to: be tested through certain self-improvement
requirements, with some external guidance
- the sectoral development priorities of and minimal support during the initial stage
a country, taking into account the extent of selection. Other criteria that can be used
of the presence of foreign affiliates and involve technological benchmarking and
capable domestic firms; skills audits. Specific criteria that have
been used include the size of firms,
- the degree of match between local production capabilities, ISO certification
capabilities and the input requirements and the age of firms. However, one of the
of foreign affiliates; most important elements to take into
account is the commitment of key managers
- the nature of international production (and especially the chief executive officer)
systems within the industry selected, to the idea of continuous improvement and
which partly determines the degree of their willingness to upgrade their
autonomy of foreign affiliates with operations to meet international standards
respect to local sourcing (foreign required for successful linkages. The active
affiliates that are part of integrated cooperation of chambers of commerce,
international production systems are business associations, support centres,
likely to be more dependent on global service providers and other private sector
corporate sourcing policies); institutions is very important here, as is
the cooperation of SME development
- the technology content of the activity programmes, be they local or international.
and the scope for moving up the value- (UNCTAD’s EMPRETEC programme is an
added chain. example of the latter.) “Linkage
Workshops” for representatives of foreign
Such an analysis is essential for any linkage affiliates and local enterprises could
strategy – without it, a government cannot provide the mechanism through which
decide how to allocate scarce resources. eventual programme participants can be
It also has to take into account trends in narrowed down. Subsequent “Business
the growth and spread of international Clinics” for Linkage Workshop participants
production networks and their implications could allow for one-to-one consultations
for domestic producers, drawing, among for pairs of linkage partners. Firms
others, on continuous dialogue with key prepared to go further could thus undertake
stakeholders. operational and management audits to
determine the strengths and weaknesses of
• Foreign affiliates can be selected domestic partners.
according to their willingness and potential
CH A P T ER V I KEY ELEM EN T S O F A LIN KAG EP R O M O T IO N P R O G R A M M E 213

C. Areas for specific The range of measures that can be

taken under each heading is wide. Their
policy measures principal purpose is to encourage and
support foreign affiliates and domestic firms
Governments need to be aware of to strike up and deepen linkages. They were
actions already taken by foreign affiliates outlined – individually and as contained in
and domestic firms. Some of these may need programmes – earlier in this Part of the
to be encouraged and supported. A number report (chapter V and its annex); for ease
of such possible actions were listed earlier of reference, these measures are listed in
in this Part of this report (chapter IV and table VI.1. They constitute a menu from
its annex); for ease of reference, they are which governments can mix and match.
listed in table VI.2. Governments can also Specific choices depend on the results of
act as facilitators and catalysts and ensure earlier consultations with existing support
that private institutions have the incentives institutions and relevant programmes in the
and resources needed. They can be public and private sectors, as well as with
particularly proactive in the following key key stakeholders on the specific needs of
areas of linkage formation: an industry or set of firms. The results of
the Linkage Fora, Linkage Workshops and
• information and matchmaking; Business Clinics mentioned earlier and the
• technology upgrading; identification of promising domestic firms
• training; are also of help here. Governments could
• finance. also encourage participating foreign
affiliates to agree to a coaching and
mentoring arrangement with promising local
firms (see box VI.1).

Box VI.1. Coach an SME!

As part of its efforts to promote backward linkages, a government can encourage foreign
affiliates to adopt promising domestic firms (typically SMEs) that are (or have the potential
to become) suppliers and assist them in the continuous upgrading of management skills and
technology. The specific activities and results of such an effort would be agreed between the
foreign affiliates and the domestic firms. It could be, say, a three-year commitment with regular
reviews to ensure that specific targets are met. This calls for an investment of time and a commitment
by both the foreign and domestic firms.

Possible activities include:

• Participating TNCs give one or a few selected domestic suppliers access to their innovation
centres and corporate training programmes.
• Engineers and management consultants from the foreign affiliates visit the firms on a regular
basis 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 of
services to the firms on a limited basis and increase such opportunities gradually.
• Foreign affiliates assess progress together with the supplier firms; a process of continuous
managerial, technological and human-resource improvement is developed.
• Foreign affiliates share market information and strategy with the supplier firms so that
the latter can pre-position themselves ready for changes ahead.
• Foreign affiliates provide firms with additional business opportunities through business
matching, 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).
Source: UNCTAD.
214 W orld Inve sm ent R e port 2001: P rom oting Linka g e s

These measures can be underpinned D. Organizational and

by efforts to strengthen the negotiating
position of local firms vis-à-vis foreign institutional framework
affiliates. For instance, guidelines or making
model contracts available. Special informal Governments can choose from a
mechanisms can also help resolve problems number of options in designing the
and disputes and contribute to more lasting institutional framework for a linkage
linkage relationships. programme:
The result should be a clear and
feasible programme of actio n. • Making the programme a distinct part of
an existing body or even to set up a special
national-level linkage programme under an
independent body to act as the focal point
for all relevant activities by different
departments and institutions.

Table VI.2. Measures by foreign affiliates to create and deepen linkages

Finding new Sharing Giving financial

local suppliers Transferring technology Providing training information support

• Making public Product technology: • Training courses in ·• Informal •Providing special

announcements • Provision of proprietary product affiliates for exchanges or favourable
about the need know-how. suppliers’ personnel. of information pricing for
for suppliers and • Transfer of product designs and • Offering access to on business suppliers’
the requirements technical specifications. internal training plans and future products.
that firms must • Technical consultations with programmes in requirements. •Helping suppliers’
meet on cost and suppliers to help them master affiliates or abroad. ·• Provision of cash flow through
quality. new technologies. • Sending teams of annual purchase advance purchases
• Supplier visits • Feedback on product performance experts to suppliers orders. and payments,
and quality audits. to help suppliers improve to provide in-plant ·• Provision of prompt settlements
performance. training. market and provision of
• Collaboration in R&D. • Promotion of information. foreign exchange.
cooperative learning ·• Encouraging •Long-term financial
Process technology: among suppliers. suppliers to assistance through
• Provision of machinery and join business the provision of
equipment to suppliers. associations. capital; guarantees
• Technical support on production for bank loans; the
planning, quality management, establishment of
inspection and testing. funds for working
• Visits to supplier facilities to capital or other
advise on lay-out, operations suppliers needs;
and quality. infrastructure
• Formation of “cooperation clubs” financing; sharing
to interact with suppliers on of the costs of
technical issues. specific projects
• Assistance to employees to set with suppliers; and
up their own firms. leasing.

Organization and managerial

know-how assistance:
• Assistance with inventory
management (and the use of
just-in-time and other systems).
• Assistance in implementing quality
assurance systems.
• Introduction to new practices
such as network management
or financial, purchase and
marketing techniques.

Source: UNCTAD.
CH A P T ER V I KEY ELEM EN T S O F A LIN KAG EP R O M O T IO N P R O G R A M M E 215

• Leave the design and implementation of Finally, it is important to have a

the linkage programme to local authorities, monitoring system in place to evaluate the
with central advice, encouragement and success of a programme. Often, in a
support from the central government. This learning-by-doing process, a programme
approach might be preferable in large needs to be adjusted and refined as
countries or where resources for linkage experiences accumulate and situations
programmes are limited or where regions change. The system could include
have distinct combinations of locational benchmarks and surveys of users (see box
advantages to offer. V.11 for an overview of existing approaches
on measuring the impact of linkage
• Involve the private sector as the main programmes). Criteria could include the
executing agency for the linkage following:
programme. Suppliers, affiliates or their
associations may set up such a body. The • Outreach: the number of companies
role of the government would be to act as included in the programme over time.
catalyst and fulfil regulatory and
information functions. • Impact: the impact of the programme can
be judged by such indicators as the number
The size of a programme depends on of suppliers linked up with foreign
the objectives sought and the resources affiliates over time, the value of deals and
available. Some programmes benefit from changes in these over time; the share of
external funding through financial assistance domestic suppliers in procurement by
provided by donor countries. In the longer foreign affiliates, the extent to which R&D
term, the financial sustainability of linkage activities are being undertaken by domestic
programmes, directly run by governments, suppliers over time (including those
requires adequate government funding. resulting in patents); changes in export
Moreover, cost sharing by participating volumes; the improvements in the
firms (both buyers and suppliers) is productivity or value-added at the firm or
desirable, not only for funding purposes but industry level; and whether a local supplier
also for assuring self-commitment of the establishes itself abroad.
participants; this is feasible, especially when
a programme has demonstrated its usefulness • Cost effectiveness: the cost of the
and is recognized for its services. Needless programme in light of the results achieved
to say, to create trust and credibility among and the benefits obtained as defined by the
enterprises, a programme must be staffed objectives laid out at the beginning of the
by professionals with the appropriate programme.
private-sector related skills and background.
*****
Linkage programmes can only work
if they are networking effectively with It is worth repeating that a linkage
efficient intermediate institutions providing programme should be seen as part of a
support in skill building, technology broader set of FDI and SME policies. As
development, logistics and finance. These networks of viable suppliers often prosper
include standards and metrology institutes, in clusters of firms, attention needs to be
testing laboratories, R&D centres and other given to the development of such clusters,
technical extension services, productivity particularly for knowledge-intensive
and management training centres and industries and activities. The third
financial institutions. These can be public generation of FDI promotion policy (see the
or private. It is also important that linkage conclusion of Part One) – targeting foreign
programmes work closely with relevant investors at the level of industries and firms
private associations – chambers of commerce and using clusters to attract FDI and, in turn,
and industry, manufacturers associations, strengthening clusters through it – has a role
investor associations and so on. Trade unions to play here. In fact, the more linkage
and various interest groups are other promotion policies go hand-in-hand with
important stakeholders. SME development and targeted FDI
promotion policies (and, for that matter, a
number of other policies – see figure V.2),
the more they are likely to be successful.
216 W orld Inve sm ent R e port 2001: P rom oting Linka g e s
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AN N EX A 235

ANNEXES
236 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex A. Additional text tables and figures

Page
Tables
A.I.1. Main international instruments dealing with FDI, 1998-2000 .................................................................. 237
A.I.2. Number of parent corporations and foreign affiliates,
by area and economy, latest available year ........................................................................................... 239
A.I.3. Annual average FDI growth rates in LDCs, 1986-1999 ......................................................................... 243
A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000 .......................................... 244
A.I.5. Geographical sources of FDI inflows into selected Central and
Eastern European countries, 2000 .......................................................................................................... 249
A.I.6. Selected private cross-border M&As in Hungary, 1999-April 2001 ....................................................... 251
A.I.7. Geographical distribution of FDI outflows from selected Central
and Eastern European countries, 2000 ................................................................................................... 252
A.I.8. Employment of foreign affiliates in selected Central and Eastern
European countries, 1998 and 1999 ....................................................................................................... 253
A.I.9. Value added of foreign affiliates in the Czech Republic, Hungary
and Slovenia, 1998 and 1999 .................................................................................................................. 253
A.I.10. The Inward FDI Index, by host economy, 1988-1990 and 1998-2000 ................................................. 254
A.I.11. Shares of regions in global FDI inflows, GDP and exports, 1988-1990 and 1998-2000 ..................... 256
A.II.1. FDI outward stock, by industry and by region, 1988 ............................................................................. 257
A.II.2. FDI outward stock, by industry and by region, 1999 ............................................................................. 258
A.II.3. FDI inward stock, by industry and by region, 1988 ................................................................................ 259
A.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 ..................................................................................... 261
A.I.2. Growth trends in FDI and bilateral ODA flows, 1990-1999 ..................................................................... 261
A.II.1. The distribution of foreign affiliates in the semiconductor industry, 1985 ................................................ 262
A.II.2. The distribution of foreign affiliates in the biotechnology industry, 1985 ................................................ 262
A.II.3. The distribution of foreign affiliates in the automobile industry, 1985 ..................................................... 263
A.II.4. The distribution of foreign affiliates in the TV and radio receivers industry, 1985 ................................. 263
A.II.5. The distribution of foreign affiliates in the textile and clothing industry, 1985 ......................................... 264
A.II.6. The distribution of foreign affiliates in food and beverage industry, 1985 .............................................. 264
A.II.7. The distribution of foreign affiliates of the largest 10 automobile TNCs,
by function, 1985 ....................................................................................................................................... 265
A.II.8. The distribution of foreign affiliates of the largest 10 electronics TNCs,
by function, 1985 ....................................................................................................................................... 267
A.II.9. The distribution of R&D facilities and location of major universities in Europe, 1985 ............................ 269
A.II.10. The distribution of R&D facilities and location of major universities
in the United States, 1985 ......................................................................................................................... 270
A.II.11. The distribution of R&D facilities and location of major universities in Asia, 1985 ................................. 271
AN N EX A 237

Annex table A.I.1. Main international instruments a dealing with FDI, 1998-2000
Year b Title Setting Level Form Status

Agreement between the European Communities and the

Government of the United States of America on the
Application 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 Caribbean
1998 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 between
1998 Canada and MERCOSUR Canada & MERCOSUR Regional Binding Adopted
Memorandum of Understanding on Trade and Investment
between 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 Counteracting
1998 Harmful Tax Competition OECD Regional Non-binding Adopted
OECD Council Recommendation Concerning Effective
1998 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 Labour
1998 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 to
Developing 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 European
Union Standards for European Enterprises Operating
in 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 Chamber
1999 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 and
Bribery 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 States

of 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 States

of America and the Government of the Federative
Republic of Brazil Regarding Cooperation Between
Their Competition Authorities in the Enforcement of
1999 Their Competition Laws Brazil- United States Bilateral Binding Adopted

/...
238 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table A.I.1. Main international instruments a dealing with FDI, 1998-2000 (concluded)
Year b Title Setting Level Form Status

Agreement between the European Communities and

the Government of Canada Regarding the Application
1999 of their Competition Laws Canada- Eurpean Union Bilateral Binding Adopted

Agreement between the Government of the United States

of 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 Investment

and Multilateral Enterprises (including the Revised Binding/
2000 Guidelines for Multinational Enterprises and commentaries) OECD Regional non-binding Adopted

Revised United Nations Model Taxation Convention

2000 between Developed and Developing Countries United Nations Multilateral Model Adopted

Agreement between New Zealand and Singapore on

2000 Closer Economic and Partnership New Zealand- Singapore Bilateral Binding Adopted

Protocol VIII: Competition Policy, Consumer

Protection, Dumping and Subsidies amending the
2000 Treaty of Chaguaramas Caribbean Community Regional Binding Adopted

Revised Partnership Agreement between the Members

of the African, Caribbean and Pacific Group of States African, Caribbean and
of 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 instruments listed here are reproduced in whole or in part in UNCTAD, International Investment
Instruments: A Compendium, vols. IV, V and VI (United Nations publication, Sales Nos. E.00.II.D.13. 14, and
forthcoming).
a Bilateral treaties for the promotion and protection of investment (BITs) and for the avoidance of double taxation (DTTs) are not included
in this table. For an up-to-date list of BITs, as of 1 January 2000, see Bilateral Investment Treaties, 1959-1999 (UNCTAD/DITE/IIA/
2), available on the Internet: www.unctad.org/en/pub/poiteiiad2.en.htm. The list of bilateral association, partnership and cooperation
agreements signed by the European Community and/or the European Free Trade Association and third countries, and including investment
provisions, is available in a separate table.
b Dates given relate to original adoption. Subsequent revisions of instruments are not included, unless explicitly stated.

Bilateral association, cooperation, framework and partnership agreements signed by the

European 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 Community
and its member States
Turkmenistan 25 May 1998 Not yet in force
South Africa 11 October 1999 Not yet in force
Mexico 19 March 2000 ..
European Free Trade Association
and its member States
Palestine Authority 30 November 1998 1 July 1998
The Former Yugoslav Republic of Macedonia 19 June 2000 Not yet in force
Mexico 27 November 2000 Not yet in force
Untied States
Egypt a 1 July 1999 1 July 1999
Ghana 26 February 1999 26 February 1999
Jordan 24 October 2000 ..
South Africa 18 February 1999 18 Febrruary 1999
Nigeria 16 February 2000 ..
Viet Nam 13 July 2000 ..
Source: UNCTAD.
a Investment Incentive Agreement between the Government of the United States and the Government of the Arab Republic of Egypt.
AN N EX A 239

Annex table A.I.2. Number of parent corporations and foreign affiliates,

by area and economy, latest available year
(Number)

Parent corporations Foreign affiliates

Area/economy Year based in economy a located in economy a

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 2 464
Belgium/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 9 494
Germany 1998 8 492 12 042 e
Greece 1991 .. 798
Ireland 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 7 465
Sweden i 2000 5 118 4 324
United Kingdom m 1998 1 094 2 683

Other Western Europe 5 484 b 8 976 b

Gibraltar 1999 .. 14
Iceland 1999 78 47
Liechtenstein 1999 .. 41
Norway 1998 900 n 3 100 n
Switzerland 1995 4 506 5 774

North America 5 109 b 23 665 b

Canada 1997 1 722 4 562
United States 1997 3 387 o 19 103 p

Other developed countries 6 102 b 9 091 b

Australia 1999 610 2 539
Israel 1999 .. 81
Japan 1998 4 334 3 321 q
New Zealand 1998 217 1 106
South Africa 1998 941 2 044

Developing economies 12 588 b 489 504 b

Africa 167 b 4 669 b

Algeria 1999 .. 6
Angola 1999 .. 21
Benin 1999 .. 5
Botswana 1999 .. 8
Burkina Faso 1999 .. 8
Burundi 1999 .. 3
Central African Republic 1999 .. 4
Chad 1999 .. 3
Congo 1999 .. 20
Cote d’Ivoire 1999 .. 91
Democratic Republic of the Congo 1999 .. 4
Djibouti 1999 .. 8
Egypt 1999 .. 99
Equatorial Guinea 1999 .. 1
Ethiopia 1998 .. 21 r
Gabon 1999 .. 33
Gambia 1999 .. 5
Ghana 1999 .. 54
Guinea-Bissau 1999 .. 1
Kenya 1999 .. 96
Lesotho 1999 .. 411
Madagascar 1999 .. 17
Malawi 1999 .. 1
Mali s 1999 3 33
Mauritania 1999 .. 2

/...
240 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table A.I.2. Number of parent corporations and foreign affiliates,

by area and economy, latest available year
(Number)

Parent corporations Foreign affiliates

Area/economy Year based in economy a located in economy a

Mauritius 1999 .. 20
Morocco 1999 .. 156
Mozambique 1999 .. 12
Namibia 1999 .. 2
Niger 1999 .. 5
Nigeria 1999 .. 48
Rwanda 1999 .. 2
Senegal 1999 .. 27
Seychelles 1998 - 30
Sierra Leone 1999 .. 1
Sudan 1999 .. 3
Swaziland 2000 12 53
Togo 1999 .. 5
Tunisia 2000 142 a j 2 086
United Republic of Tanzania 1999 .. 27
Uganda 1999 .. 22
Zambia 1999 2 t 1 179
Zimbabwe 1998 8 36

Latin America and the Caribbean 2 019 b 26 784 b

Antigua and Barbuda 1999 .. 6
Aruba 1999 .. 19
Argentina 1999 .. 635
Bahamas 1999 .. 55
Barbados 1999 .. 42
Belize 1999 .. 4
Bermuda 1999 .. 147
Bolivia 1996 .. 257
Brazil 1998 1 225 8 050
British Virgin Islands 1999 .. 36
Cameroon 1999 .. 47
Cayman Islands 1999 .. 188
Chile 1998 478 u 3 173 v
Colombia 1995 302 2 220
Costa Rica 1999 .. 111
Dominica 1999 .. 7
Dominican Republic 1999 .. 92
Ecuador 1999 .. 121
El Salvador 1990 .. 225
Grenada 1999 .. 8
Guatemala 1985 .. 287
Guyana 2000 4 s 59
Haiti 1999 .. 6
Honduras 1999 .. 30
Jamaica 1998 .. 177
Mexico 1993 .. 8 420
Netherlands Antilles 1999 .. 143
Nicaragua 1999 .. 21
Panama 1999 .. 279
Paraguay 1995 .. 109
Peru 1997 10 w 1 183 x
St. Kitts and Nevis 1999 .. 5
Saint Lucia 1999 .. 15
Saint Vincent and the Grenadines 1999 .. 4
Suriname 1999 .. 9
Trinidad and Tobago 1999 .. 65 y
Uruguay 1997 .. 123
Venezuela 1999 .. 406

Developing Europe 70 b 1 637

Bosnia and Herzegovina 1999 .. 7
Croatia 1997 70 353
Malta 1999 .. 82
Slovenia 1997 .. 1 195 az

/...
AN N EX A 241

Annex table A.I.2. Number of parent corporations and foreign affiliates,

by area and economy, latest available year
(Number)

Parent corporations Foreign affiliates

Area/economy Year based in economy a located in economy a

Asia 10 332 b 456 414 b

South, East and South-East Asia 9 883 b 445 929 b
Afghanistan 1999 .. 3
Bangladesh 1999 .. 161 z
Bhutan 1997 .. 2
Brunei 1999 .. 27
Cambodia 1997 .. 598 aa
China 1999 379 ab 364 345 ac
Hong Kong, China 1998 819 ad 6 247 ae
India 1995 187 af 1 416
Indonesia 1995 313 2 241 ae
Lao People’s Democratic Republic 1997 .. 669 ag
Macau 1999 .. 86
Malaysia 1999 .. 15 567 ah
Maldives 1999 .. 2
Mongolia 1998 .. 1 400
Myanmar 1998 .. 299 ai
Nepal 1999 .. 224
Pakistan 1998 59 644
Philippines 1995 .. 14 802 ak
Republic of Korea 1999 7 460 6 486
Singapore 1997 .. 24 114
Sri Lanka 1998 .. 305 al
Taiwan Province of China 1994 666 am 2 026
Thailand 1998 .. 2 721 an
Viet Nam 1996 .. 1 544
West Asia 449 b 2 227 b
Bahrain 1999 .. 28
Cyprus 1999 .. 118
Iran 1999 .. 16
Jordan 1999 .. 8
Kuwait 1999 .. 6
Lebanon 1999 .. 24
Oman 1995 92 ao 351 ao
Qatar 1999 .. 11
Saudi Arabia 1989 .. 1 461
Syrian Arab Republic 1999 .. 5
Turkey 1995 357 136
United Arab Emirates 1999 .. 59
Yemen 1999 .. 4
Central Asia - 7 669
Armenia 1999 .. 1 604 ap
Azerbaijan 1999 .. 2
Georgia 1998 .. 190 aq
Kazakhstan 1999 .. 1 865 ar
Kyrgzstan 1998 .. 4 004 as
Uzbekistan 1999 .. 4
The Pacific - 589
Fiji 1997 .. 151
Kiribati 1999 .. 1
New Caledonia 1999 .. 1
Papua New Guinea 1998 .. 345 at
Samoa 1999 .. 9
Solomon Islands 1996 .. 56 au
Tonga 1999 .. 4
Vanuatu 1999 .. 22
Central and Eastern Europe 780 b 236 829 b
Albania 1995 .. 2 422 av
Belarus 1994 .. 393
Bulgaria 1994 26 918
Czech Republic 1999 660 t 71 385 ax
Estonia 1999 .. 3 066 ay
Hungary 1998 .. 28 772 az

/...
242 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table A.I.2. Number of parent corporations and foreign affiliates,

by area and economy, latest available year (concluded)
(Number)

Parent corporations Foreign affiliates

Area/economy Year based in economy a located in economy a
Latvia 1999 .. 107
Lithuania 1999 16 ab 1 893
Poland 1998 58 f 35 840 bb
Romania 1998 20 f 71 318 bc
Russian Federation 1994 .. 7 793
Slovakia 1997 .. 5 560 bd
Ukraine 1999 .. 7 362
World 63 312 821 818
S o u r c e : UNCTAD, based on national sources.
a Represents the number of parent companies/foreign affiliates in the economy shown, as defined by that economy. Deviations from the
definition adopted in the World Investment Report (see section on definitions and sources in the annex B) are noted below.
Venezuela, Samoa, Yemen are from Who Owns Whom CD-Rom 2000 (London, Dun & Bradstreet).
b Includes data for only the countries shown below.
c Provisional figures by Banque Nationale de Belgique.
d Directly and indirectly owned foreign affiliates (subsidiaries and associates), excluding branches.
e Does not include the number of foreign-owned holding companies in Germany which, in turn, hold participating interests in Germany
(indirect foreign participating interests).
f As of 1994.
g Refers to the number of foreign-owned affiliates in Ireland which receive assistance from the Industrial Development Authority (IDA).
h Relates to parent companies and foreign affiliates in agriculture and industrial activities (source: REPRINT database, Polytechnics
University of Milano/CNEL.
i As of October 1993.
j Preliminary estimate. The number of foreign affiliates in Portugal as of 1998.
k Includes those Spanish parent enterprises which, at the same time, are controlled by a direct investor.
l Data provided by Sveriges Riksbank. Includes those Swedish parent companies which, at the same time, are controlled by a direct
investor. The number of foreign affiliates relates only to majority-owned firms.
m Data on the number of parent companies based in the United Kingdom, and the number of foreign affiliates 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 conducted
by the Central Statistical Office. On that basis, the numbers are probably understated because of the lags in identifying investment
in greenfield sites and because some companies with small presence in the United Kingdom and abroad have not yet been identified.
n Approximation by Norges Bank. The number of parent companies as of 1997.
o Represents a total of 2,618 non-bank parent companies in 1996 and 60 bank parent companies in 1994 with at least one foreign
affiliate whose assets, sales or net income exceeded $3 million, and 709 non-bank and bank parent companies in 1994 whose affiliate(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 total of 13,108 bank and non-bank affiliates in 1996 whose assets, sales or net income exceeded $1
million, and 5,551 bank and non-bank affiliates in 1992 with assets, sales and net income under $1 million, and 534 United States
affiliates that are depository institutions. Each affiliate represents a fully consolidated United States business entreprise, which may
consist of a number of individual companies.
q Only foreign affiliates that have over 20 per cent stake in their affiliates located in Japan, plus the number of foreign affiliates, insurance
and real estate industries in November 1995 (284).
r Represents the number of foreign affiliates that received permission to invest during 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 this number, 811 are majority-owned foreign affiliates, while 159 affiliates have less than 10 per cent equity share.
y An equity stake of 25 per cent or more of the ordinary shares or voting power.
z Number of investment projects registered with the Board of Investment.
aa Number of projects approved, both domestic and foreign, since August 1994.
ab As of 1989.
ac Cumulative number of registered industrial enterprises with foreign capital.
ad Number of regional headquarters as of 1 June 1998.
ae As of 1996.
af As of 1991.
ag Number of projects licensed since 1988 up to end 1997.
ah May 1999. Refers to companies with foreign equity stakes of 51 per cent and above. Of this, 3,787 are fully owned foreign affiliates.
ai Number of permitted foreign enterprises up to end-February 1998.
aj As of 1999.
ak This figure refers to directly and indirectly owned foreign affiliates.
al Number of projects approved under section 17 of the BOI law which provides for incentives.
am Number of approved new investment projects abroad in 1998.
an Data refer to the number of BOI-promoted companies which have been issued promotion certificates during the period 1960-1998,
aving at least 10 per cent of foreign equity participation.
ao As of May 1995.
ap Accumulated number of joint ventures and foreign enterprises registered as of 1 November 1999.
aq Number of cases of approved investments of more than 100,000 dollars registered during the period of January 1996 up to March
1998.
ar Joint ventures and foreign firms operating in the country.
as Joint venture companies established in the economy.
at Number of applications received since 1993.
au Number of foreign investment projects approved in 1996.
av 1,532 joint ventures and 890 wholly-owned foreign affiliates.
aw The number refers to the registered firms.
ax Out of this number 53,775 are fully-owned foreign affiliates. Includes joint ventures.
ay As of 15 March 1999. Only registered affiliates with the Estonian Commercial Register.
az Data are for the number of investment projects.
ba As of 1998.
bb Number of firms with foreign capital.
bc The number of affiliates established during December 1990-December 1999.
bd Includes joint ventures with local firms.

Note : T he data can vary significantly from preceding years, as data become available for countries that had
not been covered before, as definitions change, or as older data are updated.
AN N EX A 243

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; and
Zambia

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.

 Annex table A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000
244

Value
Rank ($ billion) Acquiring company Home economy Industry of the acquiring company Acquired company Host economy Industry of the acquired company

1 202.8 Vodafone AirTouch PLC United Kingdom Radiotelephone communications Mannesmann AG Germany Radiotelephone communications
2 46.0 France Telecom SA France Telephone communications, except Orange PLC (Mannesmann AG) United Kingdom Telephone communications, except
radiotelephone radiotelephone
3 40.4 Vivendi SA France Water supply Seagram Co Ltd Canada Motion picture and video tape production
4 27.2 BP Amoco PLC United Kingdom Petroleum refining ARCO United States Petroleum refining
5 25.1 Unilever PLC United Kingdom Creamery butter Bestfoods United States Dried fruits, vegetables and soup mixes
6 19.4 Zurich Allied AG Switzerland Life insurance Allied Zurich PLC United Kingdom Life insurance
7 16.5 UBS AG Switzerland Banks, non-US chartered PaineWebber Group Inc United States Security brokers, dealers and
flotation companies
8 14.4 Vodafone AirTouch PLC United Kingdom Radiotelephone communications Airtel SA Spain Radiotelephone communications
9 13.5 Credit Suisse First Boston United States Security brokers, dealers and Donaldson Lufkin & Jenrette United States Commodity contracts brokers and
flotation companies dealers
10 11.8 Cap Gemini SA France Business consulting services, nec Ernst & Young-Consulting Bus. United States Business consulting services, nec
11 11.1 HSBC Holdings PLC United Kingdom Banks, non-US chartered Crédit Commercial de France France Banks, non-US chartered
12 11.0 NTL Inc United States Cable and other pay television services CWC ConsumerCo United Kingdom Telephone communications, except
radiotelephone
13 10.2 Telefónica SA Spain Telephone communications, except Telecommunicacoes de Brazil Telephone communications, except
radiotelephone Sao Paulo radiotelephone
14 9.4 BellSouth GmbH (KPN, BellSouth) Netherlands Telephone communications, except E-Plus Mobilfunk GmbH (Otelo) Germany Radiotelephone communications
radiotelephone
15 8.3 America Online Inc United States Prepackaged Software AOL Europe, AOL Australia Germany Information retrieval services
16 7.7 Chase Manhattan Corp, NY United States National commercial banks Robert Fleming Holdings Ltd. United Kingdom Security brokers, dealers and
flotation companies
17 7.6 ING Groep NV Netherlands Life insurance Aetna-Fin’l Svcs & Int’l Bus. United States Security and commodity services, nec
18 7.1 British American Tobacco PLC United Kingdom Cigarettes Imasco Ltd Canada Eating places
19 7.1 Alcatel SA France Telephone and telegraph apparatus Newbridge Networks Corp Canada Telephone and telegraph apparatus
20 7.1 Nortel Networks Corp Canada Telephone and telegraph apparatus Alteon Websystems Inc United States Electronic components, nec
21 6.7 DaimlerChrysler Aerospace AG Germany Aircraft parts,equipment Aerospatiale Matra France Aircraft
22 6.3 RWE AG Germany Electric and other services combined Thames Water PLC United Kingdom Water supply
23 6.2 Terra Networks (Telefonica SA) Spain Information retrieval services Lycos Inc United States Information retrieval services
24 6.0 ING Groep NV Netherlands Life insurance ReliaStar Financial Corp United States Life insurance
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

25 5.7 NTT Communications Corp Japan Telephone communications, except Verio Inc United States Data processing services
radiotelephone
26 5.4 PowerGen PLC United Kingdom Electric services LG&E Energy Corp United States Electric services
27 5.3 CLT-UFA (Cie Luxembourgeoise) Luxembourg Radio broadcasting stations Pearson Television (Pearson) United Kingdom Television broadcasting stations
28 5.2 Leconport Estates Multi-National Investors, nec MEPC PLC United Kingdom Land subdividers and developers,
except cemeteries
29 5.0 British Telecommurications United Kingdom Telephone communications, except AT&T-Worldwide Assets, Ops United States Telephone communications, except
radiotelephone radiotelephone
30 5.0 WPP Group PLC United Kingdom Advertising agencies Young & Rubicam Inc United States Advertising agencies
31 4.9 Stora Enso Oyj Finland Paper mills Consolidated Papers Inc United States Paperboard mills
32 4.9 Tiscali SpA Italy Telephone communications, except World Online International NV Netherlands Information retrieval services
radiotelephone
33 4.8 Nordbanken Holding AB Sweden Offices of holding companies, nec Merita Oy Finland Banks, non-US chartered
34 4.8 Alcan Aluminum Ltd Canada Aluminum foundries Alusuisse Lonza Group Ltd Switzerland Packaging paper & plastics
film,coated & laminated
35 4.6 Telefónica SA Spain Telephone communications, except Endemol Entertainment NV Netherlands Motion picture and video tape
radiotelephone production
/...
 Annex table A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000 (continued)
Value
Rank ($ billion) Acquiring company Home economy Industry of the acquiring company Acquired company Host economy Industry of the acquired company
AN N EX A

36 4.4 MeritaNordbanken Finland Banks, non-US chartered Unidanmark A/S Denmark Banks, non-US chartered
37 4.4 Tyco International Ltd Bermuda General industrial machinery and equipment Mallinckrodt Inc United States In vitro and in vivo diagnostic
substances
38 4.3 France Telecom SA France Telephone communications, except Global One Co United States Telephone communications, except
radiotelephone radiotelephone
39 4.3 Sema Group PLC United Kingdom Computer related services,nec LHS Group Inc United States Computer programming services
40 4.3 Investor Group France Investors, nec TPSA Poland Radiotelephone communications
41 4.2 National Grid Group PLC United Kingdom Electric services New England Electric System United States Electric services
42 4.0 Alliance Capital Management United States Investment advice Sanford C Bernstein & Co Inc United States Investment advice
43 3.9 BASF AG Germany Industrial organic chemicals, nec American Cyanamid Agri Product United States Pesticides & agricultural chemicals, nec
44 3.7 NTL Inc United States Cable and other pay television services Cablecom Holding AG Switzerland Cable and other pay television services
45 3.6 France Telecom SA France Telephone communications, except MobilCom AG Germany Telephone communications, except
radiotelephone radiotelephone
46 3.6 Koninklijke Ahold NV Netherlands Grocery stores US Foodservice Inc United States Groceries, general line
47 3.6 NTT Mobile Communications Japan Telephone communications, except KPN Mobile (KPN Telecom NV) Netherlands Telephone communications, except
Network Inc radiotelephone radiotelephone
48 3.6 Corning Inc United States Telephone and telegraph apparatus Pirelli SpA-Optical Components Italy Drawing & insulating of nonferrous wire
49 3.5 AXA France Life insurance Sun Life and Provincial United Kingdom Life insurance
50 3.5 Interbrew SA Belgium Malt beverages Bass PLC-Brewing Operations United Kingdom Malt beverages
51 3.4 WPD Holdings UK United Kingdom Electric services Hyder PLC United Kingdom Engineering services
52 3.4 Rodamco North America NV Netherlands Real estate investment trusts Urban Shopping Centers Inc United States Real estate investment trusts
53 3.3 Nortel Networks Corp Canada Telephone and telegraph apparatus Xros Inc United States Telephone and telegraph apparatus
54 3.3 Nortel Networks Corp Canada Telephone and telegraph apparatus Qtera Corp United States Telephone and telegraph apparatus
55 2.9 Hellenic Bottling Co SA Greece Bottled & canned soft drinks and Coca-Cola Beverages PLC United Kingdom Bottled & canned soft drinks and
carbonated waters carbonated waters
56 2.8 Cemex Mexico Cement, hydraulic Southdown Inc United States Cement, hydraulic
57 2.8 Global Crossing Ltd Bermuda Telephone communications, except IPC Communications (Citicorp) United States Information retrieval services
radiotelephone
58 2.8 Investor Group United States Investors, nec Deutsche Telekom AG-North Germany Telephone communications, except
radiotelephone
59 2.8 MeritaNordbanken Finland Banks, non-US chartered Christiania Bank Norway Banks, non-US chartered
60 2.8 Havas Advertising SA France Advertising agencies Snyder Communications Inc United States Business services, nec
61 2.7 Preussag AG Germany Travel agencies Thomson Travel Group PLC United Kingdom Tour operators
62 2.7 Norske Skogindustrier AS Norway Pulp mills Fletcher Challenge Paper New Zealand Pulp mills
63 2.7 Ford Motor Co United States Motor vehicles and passenger car bodies Land Rover (BMW) United Kingdom Motor vehicles & passenger car bodies
64 2.6 Flextronics International Ltd Singapore Printed circuit boards DII Group United States Electronic components, nec
65 2.6 General Sekiyu (Esso Eastern) Japan Petroleum refining Tonen Corp (Exxon Mobil) Japan Petroleum refining
66 2.5 Hanson PLC United Kingdom Men’s footwear, except athletic Pioneer International Ltd Australia Ready-mixed concrete
67 2.5 Dexia Belgium Belgium Security brokers, dealers and Finl Security Assurance Hldgs United States Surety insurance
flotation companies
68 2.5 Pearson PLC United Kingdom Books: publishing, or publishing & printing National Computer Systems Inc United States Computer peripheral equipment, nec
69 2.5 Tyco International Ltd Bermuda General industrial machinery and equipment Lucent Tech Inc-Power Sys Unit United States Electronic components, nec
70 2.5 Carrefour SA France Grocery stores Gruppo GS SpA (Schemaventuno) Italy Variety stores
71 2.5 Bayer AG Germany Medicinal chemicals and botanical products Lyondell Chemical-Polyils Bus United States Petroleum refining
radiotelephone production

/...
245
 Annex table A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000 (continued)
246

Value
Rank ($ billion) Acquiring company Home economy Industry of the acquiring company Acquired company Host economy Industry of the acquired company

72 2.4 Telefónica SA Spain Telephone communications, except Telesudeste Celular Brazil Telephone communications, except
radiotelephone radiotelephone
73 2.4 General Motors Corp United States Motor vehicles and passenger car bodies Fiat Auto SpA (Fiat SpA) Italy Motor vehicles & passenger car bodies
74 2.3 Atos SA France Computer programming services Origin (Philips Electronics NV) Netherlands Prepackaged Software
75 2.3 T-Online International AG Germany Information retrieval services Club Internet (Lagardere Group) France Information retrieval services
76 2.3 General Electric Capital Corp United States Personal credit institutions Toho Mutual Life Japan Life insurance
77 2.3 Unilever NV Netherlands Creamery butter Slim-Fast Foods Co United States Food preparations, nec
78 2.2 Investor Group Belgium Investors, nec EPON NV (EDON,NUON) Netherlands Electric services
79 2.2 Investor Group Hong Kong, China Investors, nec ETSA Utilities,ETSA Power Australia Electric services
80 2.2 Telefónica Internacional SA Spain Telephone communications, except CEI Citicorp Equity Holdings Argentina Offices of holding companies, nec
radiotelephone
81 2.2 Salomon Smith Barney Holdings United States Security brokers, dealers and Schroders-Worldwide Investment United Kingdom Security brokers, dealers and
flotation companies flotation companies
82 2.2 CDC Asset Management Europe France Management investment offices, open-end NVEST LP United States Investment offices, nec
83 2.2 Investor Group United Kingdom Investors, nec Mark IV Industries Inc United States Rubber and plastics hose and belting
84 2.2 Thomson-CSF France Guided missile and space vehicle parts, nec Racal Electronics PLC United Kingdom Electronic computers
85 2.2 BT Hawthorn Ltd United Kingdom Telephone communications, except Esat Telecom Group PLC Ireland Communications services, nec
radiotelephone
86 2.1 Cisco Systems Inc United States Computer peripheral equipment, nec Pirelli-Fibre Optic Operations Italy Optical instruments and lenses
87 2.1 Metsa-Serla Oy Finland Paper mills MoDo Paper AB Sweden Paper mills
88 2.1 Rio Tinto Ltd Australia Iron ores North Ltd Australia Gold ores
89 2.1 Siemens Corp (Siemens AG) United States Communications equipment, nec Shared Medical Systems Corp United States Computer facilities management
services
90 2.0 Cie de Saint-Gobain SA France Abrasive products Meyer International PLC United Kingdom Lumber, plywood, millwork and
wood panels
91 2.0 Finalrealm France Food preparations, nec United Biscuits (Holdings) PLC United Kingdom Frozen specialties, nec
92 2.0 Rexam PLC United Kingdom Sanitary paper products American National Can Group United States Metal cans
93 2.0 Worms et Cie France Life insurance Arjo Wiggins Appleton PLC United Kingdom Paper mills
94 2.0 AXA France Life insurance Nippon Dantai Life Insurance Japan Life insurance
95 1.9 Allianz AG Germany Life insurance PIMCO Advisors Holdings LP United States Investment advice
96 1.9 DaimlerChrysler AG Germany Motor vehicles and passenger car bodies Mitsubishi Motors Corp Japan Motor vehicles & passenger car bodies
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

97 1.9 Nortel Networks Corp Canada Telephone and telegraph apparatus CoreTek Inc United States Telephone and telegraph apparatus
98 1.9 Telenor AS Norway Telephone communications, except Sonofon Denmark Telephone communications, except
radiotelephone radiotelephone
99 1.9 Nortel Networks Corp Canada Telephone and telegraph apparatus Clarify Inc United States Prepackaged Software
100 1.8 Suez Lyonnaise des Eaux SA France Water supply United Water Resources Inc United States Water supply
101 1.8 British Telecommunications PLC United Kingdom Communications services, nec Telfort Netherlands Radiotelephone communications
102 1.8 NTT DoCoMo Inc Japan Telephone communications, except Hutchison 3G UK Holdings Ltd United Kingdom Telephone communications, except
radiotelephone radiotelephone
103 1.8 Netcom AB Sweden Communications services, nec Société Européenne de Commun Luxembourg Telephone communications, except
radiotelephone
104 1.8 Alcatel SA France Telephone and telegraph apparatus Genesys Telecommun Labs United States Prepackaged Software
105 1.8 Koninklijke Numico NV Netherlands Dry, condensed & evaporated dairy products Rexall Sundown Inc United States Pharmaceutical preparations
radiotelephone production

/...
 Annex table A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000 (continued)
Value
Rank ($ billion) Acquiring company Home economy Industry of the acquiring company Acquired company Host economy Industry of the acquired company
AN N EX A

106 1.8 Amvescap PLC United Kingdom Investment advice Trimark Financial Corp Canada Security brokers, dealers and
flotation companies
107 1.7 Clariant AG Switzerland Alkalies and chlorine BTP PLC United Kingdom Industrial inorganic chemicals, nec
108 1.7 Investor Group United States Investors, nec Shoppers Drug Mart(Imasco Ltd) Canada Drug stores and proprietary stores
109 1.7 Publicis SA France Advertising agencies Saatchi & Saatchi PLC United Kingdom Advertising agencies
110 1.7 Elan Corp PLC Ireland Pharmaceutical preparations Dura Pharmaceuticals Inc United States Pharmaceutical preparations
111 1.7 Skandinaviska Enskilda Banken Sweden Banks, non-US chartered Bank fur Gemeinwirtschaft AG Germany Banks, non-US chartered
112 1.7 BAE SYSTEMS North America United States Aircraft engines and engine parts Lockheed Martin-Aerospace United States Search, detection, and navigation
equipment
113 1.7 AES Corp United States Electric services CA La Electricidad de Caracas Venezuela Electric services
114 1.6 Nationwide Mutual Insurance Co United States Fire, marine, and casualty insurance Gartmore Investment Managemen United Kingdom Investment offices, nec
115 1.6 EM.TV & Merchandising AG Germany Motion picture and video tape distribution SLEC Holdings Ltd United Kingdom Offices of holding companies, nec
116 1.6 Fortis (NL) NV Netherlands Life insurance Banque Générale du Luxembourg Luxembourg Banks, non-US chartered
117 1.6 Volkswagen AG Germany Motor vehicles and passenger car bodies Scania AB (Investor AB) Sweden Truck and bus bodies
118 1.6 BP Amoco PLC United Kingdom Petroleum refining Vastar Resources Inc United States Crude petroleum and natural gas
119 1.6 US Foodservice Inc United States Groceries, general line PYA/Monarch Inc United States Groceries, general line
120 1.6 Spirent PLC United Kingdom Electronic components, nec Hekimian Labs Inc United States Electrical apparatus and equip
121 1.6 Banco Santander Central Hispan Spain National commercial banks Cia de Seguros Mundial Portugal Life insurance
122 1.5 Banco Santander Central Hispan Spain National commercial banks Grupo Financiero Serfin SA de Mexico Banks, non-US chartered
123 1.5 Volvo AB Sweden Motor vehicles and passenger car bodies Renault VI/Mack (Renault SA) France Industrial trucks, tractors, trailers
and stackers
124 1.5 British Sky Broadcasting Group United Kingdom Cable and other pay television services KirchPayTV GmbH (Kirch Gruppe) Germany Cable and other pay television
services
125 1.5 Saudi Telecommunications Co Saudi Arabia Telephone communications, except FLAG Telecom Holdings Ltd Bermuda Telegraph and other message
radiotelephone communications
126 1.5 Adecco SA Switzerland Employment agencies Olsten Corp United States Help supply services
127 1.5 Old Mutual PLC South Africa Life insurance United Asset Management Corp United States Investment advice
128 1.5 Cadbury Schweppes PLC United Kingdom Candy and other confectionery products Snapple Beverage Group Inc United States Bottled & canned soft drinks and
carbonated waters
129 1.4 Foster’s Brewing Group Ltd Australia Malt beverages Beringer Wine Estates Holdings United States Wines, brandy, and brandy spirits
130 1.4 Citizens Financial Group,RI United States Savings institutions, not federally chartered UST Corp,Boston,MA United States State banks,member fed reserve
131 1.4 Corning Inc United States Telephone and telegraph apparatus Siemens AG-Optical Fiber,Cable Germany Drawing and insulating of
nonferrous wire
132 1.4 Littauer Technologies Co Ltd Republic of Korea Computer related services,nec AsiaNet(Linkage On-Line) Hong Kong, China Information retrieval services
133 1.4 Investor Group Hong Kong, China Investors, nec Powercor Australia (PacifiCorp) Australia Electric services
134 1.4 Smurfit-Stone Container Corp United States Paperboard mills St Laurent Paperboard Inc Canada Paperboard mills
135 1.4 BNP Paribas SA France Banks, non-US chartered Cie Benelux Paribas SA Belgium Misc business credit
136 1.4 Koninklijke PTT Nederland NV Netherlands Telephone communications, except Hutchison 3G UK Holdings Ltd United Kingdom Telephone communications, except
radiotelephone radiotelephone
137 1.3 Dimension Data Holdings PLC South Africa Prepackaged Software Comparex-Eur Networking Ops Germany Computer programming services
138 1.3 Standard Chartered PLC United Kingdom Investment advice ANZ Grindlays Bank Ltd Australia Banks, non-US chartered
139 1.3 Standard Chartered PLC United Kingdom Investment advice Chase Manhattan-HK Banking Hong Kong, China Banks, non-US chartered
140 1.3 Telia AB Sweden Telephone communications, except NetCom ASA Norway Investors, nec
radiotelephone
141 1.3 AES Corp United States Electric services Gener SA Chile Electric services
142 1.3 BT Bumi Modern Indonesia Crude petroleum and natural gas Gallo Oil Ltd United States Crude petroleum and natural gas
radiotelephone production

/...
247
 Annex table A.I.4. Cross-border M&A deals with values of over $1 billion completed in 2000 (concluded)
248

Value
Rank ($ billion) Acquiring company Home economy Industry of the acquiring company Acquired company Host economy Industry of the acquired company

143 1.3 Vivendi SA France Water supply Elektrim Telekomunikacja Sp Poland Telephone communications, except
radiotelephone
144 1.3 Singapore Power Pte Ltd Singapore Electric services GPU PowerNet Pty Ltd Australia Combination utilities, nec
145 1.3 Eni SpA Italy Crude petroleum and natural gas British Borneo Oil & Gas PLC United Kingdom Crude petroleum and natural gas
146 1.3 Intel Corp United States Semiconductors and related devices Giga A/S (NKT Holding) Denmark Electronic components, nec
147 1.2 Telia AB Sweden Telephone communications, except NetCom ASA Norway Investors, nec
radiotelephone
148 1.2 Infosources SA France Information retrieval services Belgacom Skynet SA Belgium Information retrieval services
149 1.2 Assa Abloy AB Sweden Hardware, nec Williams PLC-Yale Locks United Kingdom Hardware, nec
150 1.2 Reliant Energy United States Electric services Energieproduktiebedrijf UNA NV Netherlands Electric services
151 1.2 Unicredito Italiano Italy Banks, non-US chartered Pioneer Group Inc United States Investment advice
152 1.2 Heidelberger Zement AG Germany Cement, hydraulic Cimenteries CBR (Heidelberger) Belgium Cement, hydraulic
153 1.2 Investor Group Germany Investors, nec Fairchild Aerospace Corp United States Aircraft
154 1.2 GN Store Nord A/S Denmark Radio & TV broadcasting and Photonetics SA France Measuring&controlling devices
communications equi
155 1.2 Morgan Stanley Real Estate United States Real estate investment trusts Fonspa-Non-Performing Loans Italy Personal credit institutions
156 1.2 K-L Holdings Inc (KKR) United States Investors, nec Laporte-Non Speciality Organic United Kingdom Inorganic pigments
157 1.1 Investor Group United States Investors, nec Long Term Credit Bank of Japan Japan Banks, non-US chartered
158 1.1 Danzas Holding AG Switzerland Arrangement of transportation of Air Express International Corp United States Arrangement of transportation
freight and cargo of freight and cargo
159 1.1 Allianz AG Germany Life insurance PIMCO Advisors LP United States Investment advice
160 1.1 Deutsche Telekom AG Germany Radiotelephone communications Polska Telefonia Cyfrowa Sp Poland Communications services, nec
161 1.1 Billiton PLC United Kingdom Miscellaneous metal ores, nec Rio Algom Ltd Canada Uranium-radium-vanadium ores
162 1.1 Danone Group France Fluid milk McKesson Water Products Co United States Bottled & canned soft drinks and
carbonated waters
163 1.1 Thomson Corp Canada Newspapers: publishing or publishing Primark Corp United States Computer related services,nec
and printing
164 1.1 Thames Water PLC United Kingdom Water supply E’town Corp United States Water supply
165 1.1 Falck Holding A/S Denmark Detective, guard and armored Group 4 Securitas (Intl) BV Netherlands Detective, guard and armored
car services car services
166 1.1 Diamond Technology Partners United States Management consulting services Cluster Consulting Spain Business consulting services, nec
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

167 1.1 United Pan-Europe Comm NV Netherlands Communications services, nec Eneco C&T Netherlands Cable and other pay television
services
168 1.1 General Motors Corp United States Motor vehicles and passenger car bodies Fuji Heavy Industries Ltd Japan Motor vehicles and passenger
car bodies
169 1.1 Bipop-Carire Italy Banks, non-US chartered Entrium Direct Bankers AG Germany Information retrieval services
170 1.0 Koninklijke Philips Electronic Netherlands Household audio and video equipment MedQuist Inc United States Data processing services
171 1.0 Amdocs Ltd United Kingdom Computer programming services Solect Technology Group Canada Prepackaged Software
172 1.0 Wengen Acquisition PLC United States Investors, nec Wassall PLC United Kingdom Motor vehicle parts and accessories
173 1.0 Investor Group Spain Investors, nec Cia Energetica de Pernambuco Brazil Electric services
174 1.0 Kyocera Corp Japan Semiconductors and related devices QUALCOMM-Land-Based Wirele United States Radiotelephone communications
175 1.0 Banco Santander Central Hispan Spain National commercial banks Banco Bozano Simonsen SA Brazil Banks, non-US chartered
Source : UNCTAD, cross-border M&A database, based on data provided by Thomson Financial Securities Data Company.
 Annex table A.I.5. Geographical sources of FDI inflows into selected Central and Eastern European countries, 2000
(Millions of dollars)
AN N EX A

Czech Russian
Home region and country Bulgaria a Croatia Republic Estonia Hungary b Latvia c Poland d Romania e Federation f Slovakia g Ukraine h Total

Central and Eastern Europe 53 29 120 -4 -28 133 178 -15 .. 187 27 681
of which:
Croatia .. .. 1 .. .. .. .. 12 .. .. .. 14
Czech Republic .. - .. 1 .. -1 .. -28 .. 31 .. 4
Estonia .. .. .. .. .. 139 .. .. .. .. .. 139
Hungary 2 7 45 - .. .. .. 1 .. 156 .. 210
Poland .. .. 4 2 .. 1 .. - .. .. .. 7
Russian Federation 51 .. - -5 .. -6 174 .. .. .. 27 240
Slovakia .. .. 63 .. .. .. .. .. .. .. .. 63
Slovenia .. 23 6 .. .. .. 4 .. .. .. .. 33

Developed countries 911 808 4 338 386 1 603 221 10 715 555 3 504 1 227 208 24 475

European Union 854 669 3 759 362 1 337 138 8 224 541 1 745 1 180 125 18 936
Austria 89 142 938 -14 19 -5 373 43 22 184 .. 1 790
Belgium 40 - 113 1 185 - 298 -12 .. 25 .. 651
Denmark 1 1 51 5 .. -28 200 -1 15 .. .. 244
Finland .. .. 27 149 98 37 42 - 87 .. .. 439
France 29 3 172 7 65 - 4 046 69 97 12 .. 4 501
Germany 72 68 1 011 13 290 80 -174 189 341 518 8 2 417
Greece 241 .. 3 .. .. 1 500 27 .. .. .. 772
Ireland 1 - 18 -10 47 -38 211 3 23 .. .. 255
Italy 340 65 80 4 -2 1 210 23 31 23 .. 773
Luxembourg 0 306 47 1 15 - 6 18 .. .. .. 392
Netherlands 17 40 1 006 17 474 5 992 154 610 487 61 3 864
Portugal .. .. 1 .. .. - 51 -1 .. .. .. 50
Spain 1 .. 34 - .. - 119 7 .. .. .. 161
Sweden - 22 129 184 42 115 1 239 -11 257 .. .. 1 976
United Kingdom 23 22 130 5 104 -29 113 32 262 -68 56 651

Other Western Europe 19 40 242 23 29 60 162 27 410 - 36 1 047

of which:
Gibraltar .. .. 11 3 .. - 3 265 .. .. 282
Norway .. .. 8 2 .. 50 36 - 16 .. .. 112
Switzerland 15 39 187 6 29 21 123 8 115 .. 36 579

/...
249
 Annex table A.I.5. Geographical sources of FDI inflows into selected Central and Eastern European countries, 2000 (concluded)
250

(Millions of dollars)

Czech Russian
Home region and country Bulgaria a Croatia Republic Estonia Hungary b Latvia c Poland d Romania e Federation f Slovakia g Ukraine h Total

Other developed countries 38 99 337 1 237 23 2 329 -13 1 348 46 46 4 492

of which:
Canada .. .. 119 - 5 5 -50 -7 .. .. .. 73
Israel .. .. 3 .. .. - 78 -3 .. .. .. 77
Japan 1 .. 66 1 15 - 102 - 107 .. .. 292
United States 37 99 149 - 217 20 2 197 -3 1 241 46 46 4 050

Developing countries 29 8 134 11 24 -32 11 44 791 - 206 1 226

Latin America and the Caribbean 14 8 9 5 3 -17 - -11 113 - 30 154

of which:
Virgin Islands .. .. 4 - .. 6 .. 3 65 .. 30 108

Developing Asia 15 .. 125 5 21 -7 1 54 678 - 176 1 069

of which:
Cyprus -11 .. 123 - .. 1 .. 57 678 .. 176 1 024
Turkey 20 .. - .. .. - .. 2 .. .. .. 22

Other and not specified 107 23 2 6 8 -37 -303 -4 135 39 155 130

Total 1 100 868 4 595 398 1 607 285 10 601 581 4 429 1 452 595 26 512

Source: UNCTAD, FDI/TNC database.

a
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

FDI commitment data provided by the Bulgarian Foreign Investment Agency.

b FDI equity paid in cash only. Data for Central and Eastern Europe include data for other Europe.
c Estimated on the basis of the difference between FDI stocks in 2000 and 1999.
d Based on the difference between FDI stocks in 2000 and 1999, on commitment basis.
e Based on the January to October 2000 differences in FDI stocks as recorded in the National Trade Registry.
f Based on Goskomstat data on FDI commitments.
g Based on the difference between stocks in 2000 and 1999.
h Based on the difference between stocks in 2000 and 1999.
AN N EX A 251

Annex table A.I.6. Selected private cross-border M&As in Hungary, 1999-April 2001
Share
Month/ Buyer Seller Target firm Value acquired Notes
Year (million $) (%)

Jan 1999 Gala Italia (Italy) Avonmore Foods Pásztó Tejfeldolgozó not revealed 100.0
Corp. (Netherlands) és-forgalmazó Kft.
(milk and dairy)
Mar 1999 CG Sat/Matel (France) not available Jásztel Rt. (telephone) not revealed 100.0 Previous owners
asked for $ 30 million.
Jun 1999 Friesland Europe Holding not available Mizo-Baranyatej not revealed 40.0
Beheer (Netherlands) (milk and dairy)
Jul 1999 Irisbus (joint venture of not available Ikarus Rt. 19.5 75.0 Irisbus additionally
Iveco Italy and Renault (bus production) spent $ 10 million on
France / Fiat Group) reducing Ikarus’ debts.
Sep 1999 PSINet (United States) not available Elender Rt. (internet 32.0 100.0
service)
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’s
Communications 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 51.0
Enterprises (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
J ul 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 100.0
and 12 Hungarian
branch 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 Supervisory
Authority.
Sep 2000 Media Development Private investors Magyarnarancs.hu not revealed 47.0 Paid in capital: $ 10
Loan Fund (United States- Lapkiadó Kft. thousand.
Czech Republic) (newspaper)
Oct 2000 Schneider Electric not available Prodax Elektromos not revealed 100.0 Sales in 1999: $ 6
Industries 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 $ 7
Entwicklungsgesell-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 Capital
Investors/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.

252 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table A.I.7. Geographical distribution of FDI outflows from selected Central
and Eastern European countries, 2000

Host region and country Croatia Czech Republic Estonia Hungary a Total

Central and Eastern Europe 42.0 100.4 137.4 334.0 613.8

Albania 0.1 .. .. .. 0.1
Belarus .. - -0.1 .. -0.1
Bosnia and Herzegovina 19.9 - .. .. 19.9
Bulgaria .. 0.1 .. .. 0.1
Croatia .. 0.7 .. 3.2 3.9
Czech Republic - .. .. 43.1 43.1
Hungary 0.5 1.5 .. .. 2.0
Latvia .. .. 110.8 .. 110.8
Lithuania .. 0.1 23.5 .. 23.6
Macedonia, TFYR 5.2 .. .. .. 5.2
Poland 16.4 30.3 0.8 4.1 51.6
Romania .. - .. 8.4 8.4
Russian Federation .. 18.7 2.2 10.0 31.0
Slovakia -1.2 44.5 .. 265.2 308.5
Slovenia 1.1 .. .. .. 1.1
Ukraine .. 1.8 0.1 .. 1.9
Yugoslavia - 2.7 .. .. 2.7
Developed countries -9.9 13.2 -7.0 198.3 194.6
European Union 7.9 10.5 -7.0 197.7 209.1
Austria 2.6 1.3 .. 30.1 34.0
Denmark .. .. .. 118.5 118.5
Finland .. -7.5 .. -7.5
France .. -1.5 .. .. -1.5
Germany 0.1 2.6 .. 40.5 43.2
Italy 1.4 - .. 1.4 1.4
Luxembourg -0.3 1.4 .. .. 1.1
Netherlands .. 2.1 0.3 8.7 11.1
Spain .. 0.4 .. .. 0.4
Sweden .. 0.2 0.2 .. 0.4
United 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 -8.1
United 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 3.3
Antigua -1.6 .. .. .. -1.6
Virgin Islands .. 4.6 .. .. 4.6
Developing Asia - -0.6 2.4 24.0 25.8
Azerbaijan .. 0.1 .. .. 0.1
China .. 0.1 .. .. 0.1
Cyprus .. .. 2.4 34.6 37.0
Kazakhstan .. -0.8 .. .. -0.8
Korea, 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

Source: UNCTAD.
a FDI equity paid in cash only. Data for Central and Eastern Europe include data for other Europe.
AN N EX A 253

Annex table A.I.8. Employment of foreign affiliates in selected Central and

Eastern European countries, 1998 and 1999
1998 1999
Employment As a percentage Employment As a percentage
Total of foreign of total Total of foreign of total
Country employment owned firms employment employment owned firms employment

Bulgaria 2 086 291 80 325 3.9 1 994 284 106 822 5.4
Czech Republic 4 865 700 154 223 3.2 4 764 099 196 550 4.1
Hungary 3 697 700 580 701 15.7 3 811 500 584 059 15.3
Latvia 1 043 000 107 000 10.3 1 037 800 107 500 10.4
Macedonia, TFYR 405 726 10 038 2.5 413 205 11 488 2.8
Romania 8 812 600 55 300 0.6 8 419 600 72 600 0.9
Russian Federation 57 860 000 969 000 1.7 60 631 000 1 034 000 1.7
Slovakia 2 032 109 60 243 3.0 1 988 187 72 142 3.6
Slovenia 745 169 40 223 5.4 758 473 40 557 5.3
Total 81 548 295 2 057 053 2.5 83 818 148 2 225 718 2.7

Source : UNCTAD, based on national sources.

Annex table A.I.9. Value added of foreign affiliates in the Czech Republic, Hungary and Slovenia,
1998 and 1999

1998 1999
Value added As a percentage Value added As a percentage
Total of foreign of total Total of foreign of total
Country 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 23.9
Slovenia
(tolar million) 2 790 898 152 401 5.5 3 110 409 126 717 4.1
Source : UNCTAD, based on national sources.
254 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table A.I.10. The Inward FDI Index, 1988-1990 and 1998-2000
1988-1990 1998-2000
FDI inflow share over: FDI inflow share over:
GDP Employment GDP Employment
Economy 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 17.3
Belgium and Luxembourg 3.8 16.8 1.0 7.2 Hong Kong, China 6.3 24.5 1.1 10.6
Seychelles 6.7 9.2 2.4 6.1 Ireland 5.1 20.3 1.2 8.9
Hong Kong, China 5.0 11.8 0.7 5.9 Sweden 4.4 18.8 2.2 8.5
New Zealand 3.9 10.6 2.8 5.8 Netherlands 3.5 13.5 1.3 6.1
Lesotho 7.5 0.9 7.9 5.4 Malta 4.5 9.3 1.2 5.0
Netherlands 3.0 11.3 1.1 5.1 Lesotho 7.4 0.9 6.2 4.8
United Kingdom 3.0 9.7 2.5 5.1 Denmark 1.9 9.3 1.2 4.2
Australia 2.7 9.4 3.2 5.1 Angola 7.7 1.1 2.8 3.9
Spain 2.4 7.5 2.6 4.2 United Kingdom 2.0 7.7 1.7 3.8
Swaziland 6.4 3.0 1.6 3.7 Finland 2.0 8.1 1.2 3.7
Portugal 3.0 3.6 2.1 2.9 Azerbaijan 5.6 0.5 4.9 3.6
Switzerland 1.3 6.6 0.7 2.9 Singapore 2.2 7.5 0.3 3.3
Papua New Guinea 4.9 1.4 2.3 2.9 Argentina 1.3 3.8 3.3 2.8
Belize 4.5 2.5 1.5 2.8 Seychelles 3.1 4.5 0.9 2.8
United States 1.1 4.7 2.2 2.7 Canada 1.8 5.7 1.0 2.8
Malaysia 4.3 2.4 1.1 2.6 Bolivia 3.1 1.0 3.9 2.7
Bahrain 1.9 5.3 0.3 2.5 Trinidad and Tobago 3.0 3.4 1.5 2.6
Chile 3.5 2.1 2.0 2.5 Switzerland 1.1 5.7 0.6 2.5
Fiji 3.5 2.8 1.2 2.5 Germany 1.2 5.3 0.9 2.5
Zambia 4.1 0.8 2.4 2.4 Bahrain 2.1 4.7 0.6 2.5
France 1.1 4.8 1.0 2.3 Norway 1.1 5.4 0.7 2.4
Canada 1.2 4.7 0.9 2.3 United States 0.9 4.3 1.8 2.3
Malta 2.2 3.4 0.5 2.1 Chile 2.4 2.4 2.1 2.3
Trinidad and Tobago 2.3 2.7 1.0 2.0 Mozambique 1.9 0.1 4.2 2.1
Cyprus 1.8 3.2 0.7 1.9 Armenia 2.6 0.5 3.1 2.0
Nigeria 3.7 0.4 1.5 1.9 Czech Republic 2.7 2.3 1.0 2.0
Norway 0.9 4.2 0.5 1.9 Brazil 1.2 1.0 3.7 2.0
Sweden 0.9 3.8 0.6 1.8 France 0.8 3.9 0.7 1.8
Benin 2.5 0.3 2.5 1.8 Nicaragua 2.9 0.3 1.9 1.7
Costa Rica 2.4 1.2 1.4 1.7 Israel 1.0 3.3 0.6 1.7
Argentina 1.1 1.7 2.1 1.7 Spain 1.0 3.1 0.8 1.6
Greece 1.2 2.3 1.3 1.6 Estonia 2.5 1.5 0.7 1.6
Egypt 2.6 0.7 1.4 1.6 Panama 2.3 1.7 0.6 1.5
Guatemala 1.9 0.6 2.1 1.5 Jamaica 2.2 1.2 1.2 1.5
Myanmar 0.5 0.1 4.0 1.5 Swaziland 2.7 1.1 0.7 1.5
Thailand 2.4 0.6 1.4 1.5 Austria 0.8 3.3 0.4 1.5
Denmark 0.8 3.2 0.4 1.5 Qatar 0.7 3.2 0.5 1.5
Botswana 2.0 1.7 0.6 1.4 Kazakhstan 2.1 1.0 1.3 1.5
Gabon 1.2 2.0 0.6 1.3 Sudan 1.0 0.1 3.1 1.4
Mexico 1.3 1.0 1.3 1.2 New Zealand 1.0 2.4 0.8 1.4
Dominican Republic 1.9 0.5 1.1 1.2 Croatia 1.6 1.6 0.9 1.4
Jamaica 1.8 0.8 0.7 1.1 Poland 1.5 1.1 1.3 1.3
Italy 0.5 2.2 0.5 1.1 Bulgaria 1.9 0.7 1.0 1.2
Finland 0.5 2.2 0.4 1.1 Dominican Republic 1.8 0.8 0.9 1.2
Ireland 0.7 2.2 0.2 1.0 Bahamas 1.0 2.1 0.5 1.2
Mauritius 1.5 1.2 0.4 1.0 Venezuela 1.2 1.0 1.3 1.2
Philippines 1.6 0.3 1.1 1.0 Zambia 1.7 0.2 1.6 1.2
Ecuador 1.4 0.6 0.9 1.0 Uganda 1.1 0.1 2.3 1.2
Colombia 1.1 0.5 1.1 0.9 Georgia 1.1 0.2 2.1 1.1
Taiwan Province of China 0.9 1.5 0.3 0.9 Lithuania 1.7 0.8 0.9 1.1
Honduras 1.3 0.3 0.7 0.8 Latvia 1.7 0.8 0.8 1.1
China 1.0 0.1 1.3 0.8 Guyana 2.2 0.5 0.5 1.1
Rwanda 0.6 0.1 1.5 0.7 Slovakia 1.5 1.0 0.6 1.0
Austria 0.4 1.6 0.2 0.7 Malaysia 1.6 1.0 0.3 1.0
Bolivia 1.0 0.3 0.9 0.7 Costa Rica 1.5 0.9 0.5 1.0
Malawi 1.1 0.1 0.9 0.7 Hungary 1.2 1.2 0.5 1.0
Bahamas 0.5 1.3 0.2 0.6 El Salvador 1.2 0.5 1.1 1.0
Togo 1.0 0.2 0.7 0.6 China 1.3 0.1 1.3 0.9
Iceland 0.3 1.3 0.2 0.6 Gabon 1.0 1.1 0.6 0.9
Barbados 0.6 0.9 0.2 0.6 Moldova, Republic of 1.8 0.1 0.8 0.9
Israel 0.4 1.1 0.2 0.6 Papua New Guinea 1.6 0.3 0.7 0.9
Chad 0.7 0.1 0.8 0.5 Australia 0.5 1.6 0.6 0.9
Brazil 0.4 0.3 0.9 0.5 Ecuador 1.1 0.5 1.0 0.9
Paraguay 0.6 0.6 0.3 0.5 Portugal 0.7 1.2 0.6 0.8
Indonesia 0.8 0.1 0.6 0.5 Peru 0.7 0.5 1.3 0.8
Morocco 0.6 0.2 0.6 0.5 United Republic of Tanzania 0.9 0.1 1.5 0.8
Tunisia 0.7 0.4 0.3 0.5 Iceland 0.4 1.7 0.3 0.8
Saudi Arabia 0.3 0.9 0.2 0.5 Cambodia 1.3 0.1 1.0 0.8
Pakistan 0.5 0.1 0.8 0.5 Romania 1.1 0.3 0.9 0.8
Turkey 0.5 0.3 0.6 0.5 Colombia 0.8 0.5 1.0 0.8
Germany 0.3 0.9 0.2 0.5 Jordan 1.0 0.7 0.5 0.7
Uruguay 0.5 0.3 0.4 0.4 TFYR Macedonia 0.9 0.8 0.5 0.7
Hungary 0.6 0.4 0.3 0.4 Mexico 0.8 0.7 0.6 0.7
Korea, Republic of 0.4 0.5 0.3 0.4 Togo 1.1 0.1 0.9 0.7
Venezuela 0.5 0.4 0.3 0.4 Namibia 1.0 0.6 0.4 0.7
Senegal 0.6 0.1 0.4 0.4 Honduras 1.1 0.2 0.6 0.6
Syrian Arab Republic 0.4 0.3 0.3 0.4 Mauritius 0.8 0.9 0.3 0.6
Madagascar 0.5 0.0 0.5 0.3 Saudi Arabia 0.3 1.3 0.2 0.6
Guyana 0.7 0.1 0.2 0.3 Tunisia 0.9 0.5 0.5 0.6
Jordan 0.4 0.4 0.2 0.3 Korea, Republic of 0.6 0.9 0.3 0.6
Kenya 0.5 0.1 0.4 0.3 Malawi 1.0 0.0 0.8 0.6
Sri Lanka 0.5 0.1 0.3 0.3 Kyrgyzstan 0.9 0.1 0.7 0.5

/...
AN N EX A 255

Annex table A.I.10. The Inward FDI Index, 1988-1990 and 1998-2000
1988-1990 1998-2000
FDI inflow share over: FDI inflow share over:
GDP Employment GDP Employment
Economy 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 0.5
Namibia 0.4 0.3 0.1 0.3 Myanmar 0.1 0.0 1.4 0.5
Côte d'Ivoire 0.4 0.1 0.3 0.3 Thailand 0.9 0.3 0.4 0.5
Haiti 0.3 0.0 0.4 0.3 Guatemala 0.6 0.2 0.7 0.5
El Salvador 0.2 0.1 0.2 0.2 Zimbabwe 0.9 0.1 0.5 0.5
Ghana 0.2 0.0 0.2 0.2 Nigeria 0.8 0.1 0.6 0.5
Peru 0.2 0.1 0.2 0.1 Paraguay 0.5 0.3 0.5 0.5
Burkina Faso 0.1 0.0 0.2 0.1 Côte d'Ivoire 0.8 0.2 0.4 0.5
Ethiopia 0.1 0.0 0.2 0.1 Chad 0.5 0.0 0.6 0.4
India 0.1 0.0 0.2 0.1 Senegal 0.6 0.1 0.5 0.4
United Republic of Tanzania 0.1 0.0 0.1 0.1 Fiji 0.5 0.4 0.2 0.4
Nepal 0.1 0.0 0.1 0.1 Mongolia 0.7 0.1 0.3 0.4
Poland 0.1 0.0 0.0 0.0 Egypt 0.4 0.2 0.6 0.4
Nicaragua 0.1 0.0 0.0 0.0 Italy 0.2 0.7 0.2 0.4
Kuwait 0.0 0.0 0.0 0.0 Taiwan Province of China 0.3 0.6 0.1 0.4
Algeria 0.0 0.0 0.0 0.0 Benin 0.5 0.1 0.5 0.4
Bangladesh 0.0 0.0 0.0 0.0 Morocco 0.4 0.2 0.4 0.3
Japan 0.0 0.0 0.0 0.0 Uruguay 0.3 0.4 0.3 0.3
Macau, China 0.0 0.0 0.0 0.0 Tajikistan 0.8 0.0 0.2 0.3
Angola 0.0 0.0 0.0 0.0 Philippines 0.6 0.1 0.3 0.3
Uganda 0.0 0.0 -0.1 0.0 Greece 0.2 0.5 0.2 0.3
South Africa 0.0 -0.1 0.0 -0.1 South Africa 0.2 0.4 0.2 0.3
Iran, Islamic Republic of -0.1 -0.1 0.0 -0.1 Slovenia 0.3 0.5 0.1 0.3
Sudan -0.1 0.0 -0.3 -0.1 Ukraine 0.5 0.1 0.3 0.3
Zimbabwe -0.2 0.0 -0.1 -0.1 Cyprus 0.2 0.5 0.1 0.3
Qatar -0.1 -0.3 0.0 -0.2 Belize 0.3 0.3 0.2 0.2
Cameroon -0.3 -0.1 -0.3 -0.2 Botswana 0.3 0.3 0.2 0.2
Panama -2.7 -1.9 -0.6 -1.7 Sri Lanka 0.4 0.1 0.2 0.2
Suriname -24.9 -20.9 -7.3 -17.7 Ghana 0.4 0.0 0.2 0.2
Barbados 0.2 0.3 0.1 0.2
Russian Federation 0.3 0.1 0.2 0.2
Madagascar 0.3 0.0 0.3 0.2
Pakistan 0.2 0.0 0.3 0.2
India 0.2 0.0 0.3 0.2
Uzbekistan 0.2 0.0 0.2 0.2
Belarus 0.4 0.1 0.0 0.2
Japan 0.1 0.3 0.1 0.2
Haiti 0.1 0.0 0.2 0.1
Turkey 0.1 0.1 0.1 0.1
Burkina Faso 0.1 0.0 0.2 0.1
Bangladesh 0.1 0.0 0.2 0.1
Rwanda 0.1 0.0 0.3 0.1
Cameroon 0.2 0.0 0.1 0.1
Kenya 0.1 0.0 0.1 0.1
Kuwait 0.1 0.1 0.0 0.1
Syrian Arab Republic 0.1 0.1 0.0 0.1
Nepal 0.1 0.0 0.1 0.0
Iran, Islamic Republic of 0.0 0.0 0.0 0.0
Algeria 0.0 0.0 0.0 0.0
Eritrea 0.0 0.0 0.0 0.0
Macau, China 0.0 0.0 0.0 0.0
Suriname -0.3 -0.2 -0.2 -0.2
Indonesia -0.7 -0.1 -0.4 -0.4
Yemen -1.3 -0.2 -0.9 -0.8

S o u r c e : UNCTAD, FDI/TNC database.

a The ratio of the economy’s share of world FDI inflows to the economy's share of world GDP.
b The ratio of the economy's share of world FDI inflows to the economy's share of world employment.
c The ratio of the economy's share of world FDI inflows to the economy’s share of world export.
256 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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 68.4

Western Europe 43.3 45.3 32.2 29.6 45.6 41.8
European Union 41.4 43.8 30.6 28.2 42.6 39.4
Other 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 27.5
Africa 1.8 0.8 1.7 1.4 2.4 1.6
North Africa 0.7 0.2 0.9 0.8 1.2 0.7
Other Africa 1.1 0.6 0.8 0.6 1.2 0.8
Latin America and the Caribbean 4.7 9.2 5.2 6.9 4.3 5.1
South America 2.5 6.1 3.7 4.9 2.5 2.4
Other 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 20.4
Asia 10.5 11.1 10.2 12.3 14.6 20.4
West Asia 0.6 0.4 2.4 2.3 4.0 2.9
Central Asia 0.0 0.3 0.2 0.2 0.0 0.2
South, East and South-East Asia 9.9 10.4 7.7 9.8 10.5 17.2
The 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 0.5

Africa 0.4 0.4 0.5 0.3 0.4 0.3
Latin America and the Caribbean 0.00 0.002 0.013 0.013 0.013 0.007
Asia and the Pacific 0.03 0.1 0.3 0.4 0.1 0.2
Asia 0.02 0.05 0.3 0.4 0.1 0.2
The 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 3.8

Africa 0.6 0.3 0.7 0.4 1.0 0.6
North Africa 0.1 -0.0 0.4 0.3 0.5 0.3
Other 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 0.4
South America 0.2 0.5 0.3 0.4 0.5 0.4
Other 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 2.8
West Asia 0.3 0.3 1.7 1.5 3.4 2.1
South, 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 services.
b Middle East and North Africa (MENA) refers to countries in West Asia and North Africa.
 Annex table A.II.1. FDI outward stock, by industry and by region, 1988
(Values in millions of dollars and shares in percentages)

Developing countries
AN N EX A

Developed Latin America

a c d
Sector/industry countries Africa b Asia and the Caribbean Total e World f
Value Share Value Share Value Share Value Share Value Share Value Share
Total 1 004 248 100.0 53 100.0 9 807 100.0 371 100.0 10 583 100.0 1 014 831 100.0
Primary 101 101 10.1 1 2.6 499 5.1 14 3.7 517 4.9 101 618 10.0
Agriculture, hunting, forestry and fishing 2 273 0.2 - - 85 0.9 11 3.0 98 0.9 2 371 0.2
Mining, quarrying and petroleum 98 829 9.8 1 2.6 414 4.2 2 0.6 418 4.0 99 247 9.8
Secondary 462 909 46.1 23 43.8 2 231 22.7 66 17.8 2 467 23.3 465 376 45.9
Food, beverages and tobacco 41 769 4.2 .. .. 25 0.3 57 15.4 119 1.1 41 887 4.1
Textiles, clothing and leather 9 189 0.9 .. .. 45 0.5 - 0.1 70 0.7 9 260 0.9
Wood and wood products 10 601 1.1 .. .. 28 0.3 3 0.7 50 0.5 10 650 1.0
Publishing, printing and reproduction of recorded media 1 145 0.1 .. .. - - - - 4 - 1 149 0.1
Coke, petroleum products and nuclear fuel 65 359 6.5 .. .. - - - - - - 65 359 6.4
Chemicals and chemical products 58 327 5.8 .. .. 95 1.0 3 0.9 141 1.3 58 468 5.8
Rubber and plastic products 9 398 0.9 .. .. 26 0.3 - - 30 0.3 9 428 0.9
Non-metallic mineral products 7 996 0.8 .. .. 18 0.2 1 0.2 17 0.2 8 013 0.8
Metal and metal products 26 260 2.6 .. .. 21 0.2 0 0.1 23 0.2 26 283 2.6
Machinery and equipment 23 600 2.4 .. .. 6 0.1 2 0.5 22 0.2 23 623 2.3
Electrical and electronic equipment 52 788 5.3 .. .. 172 1.8 - - 174 1.6 52 962 5.2
Precision instruments 8 654 0.9 .. .. - - - - 6 0.1 8 660 0.9
Motor vehicles and other transport equipment 38 603 3.8 .. .. 5 0.0 - - - 5 - 0.0 38 598 3.8
Other manufacturing 16 143 1.6 .. .. 18 0.2 - - 20 0.2 16 163 1.6
Recycling - - .. .. - - - - 1 0.0 1 0.0
Unspecified secondary 93 076 9.3 23 43.8 1 771 18.1 - - 1 794 17.0 94 870 9.3
Tertiary 416 618 41.5 28 53.6 6 898 70.3 288 77.8 7418 70.1 424 036 41.8
Electricity, gas and water 1 384 0.1 .. .. - - - - 50 0.5 1 433 0.1
Construction 6 186 0.6 .. .. 85 0.9 1 0.2 95 0.9 6 281 0.6
Trade 97 142 9.7 .. .. 1 044 10.6 12 3.4 1 097 10.4 98 239 9.7
Hotels and restaurants 1 360 0.1 .. .. - - - - - - 1 360 0.1
Transport, storage and communications 12 068 1.2 .. .. 202 2.1 8 2.1 239 2.3 12 307 1.2
Finance 196 261 19.5 .. .. 4 411 45.0 250 67.5 4 707 44.5 200 968 19.8
Business activities 22 827 2.3 .. .. 989 10.1 1 0.2 1 019 9.6 23 846 2.3
Public administration and defence - - .. .. - - - - - - -
Education 87 - .. .. - - - - - - 87 -
Health and social services 787 0.1 .. .. - - - - - 787 0.1
Community, social and personal service activities 1 097 0.1 .. .. - - - - 1 - 1 098 0.1
Other services 48 491 4.8 28 53.6 167 1.7 17 4.4 212 2.0 48 702 4.8
Unspecified tertiary 28 928 2.9 .. .. - - - - - - 28 928 2.9
Unspecified 23 620 2.4 - - 179 1.8 3 0.8 182 1.7 23 801 2.3
Source: UNCTAD, FDI/TNC database.
a Based on outward stock in Australia (1991), Austria, Canada, Denmark (1991), Finland, France, Germany, Iceland, Italy, Netherlands (1986), Norway, Sweden (1992), Switzerland, the United Kingdom
and the United States that accounted for 86 per cent of total outward stock in developed countries in 1988.
b Based on outward stock in Swaziland that accounted for 0.2 per cent of total outward stock in Africa in 1988.
c Based on actual outward stock in India (1987), Kazakhstan (1995), Republic of Korea, Singapore (1990) and Thailand, as well as outward stock on an approval basis in Taiwan Province of China.
They accounted for 30 per cent of total outward stock in Asia in 1988.
d Based on outward stock in Colombia accounting for 3 per cent of total outward stock in Latin America and the Caribbean in 1988.
e Including other developing countries.
257

f Not including Central and Eastern Europe.

 Annex table A.II.2. FDI outward stock, by industry and by region, 1999
258

(Values in millions of dollars and shares in percentages)

Developing countries
Developed Latin America Central and
a c e
Sector/industry countries Africa b Asia and the Caribbean d Total Eastern Europe World
Value Share Value Share Value Share Value Share Value Share Value Share Value Share
Total 3 313 815 100.0 94 100.0 89 259 100.0 3 202 100.0 93 555 100.0 2 098 100.0 3 408 469 100.0
Primary 285 465 8.6 3 2.9 1 562 1.7 62 1.9 1 626 1.7 30 1.4 287 121 8.4
Agriculture, hunting, forestry and fishing 1 750 0.1 1 0.8 308 0.3 58 1.8 367 0.4 7 0.3 2 125 0.1
Mining, quarrying and petroleum 283 715 8.6 2 2.0 1 253 1.4 4 0.1 1 259 1.3 22 1.0 284 996 8.4
Secondary 1 161 258 35.0 76 80.5 30 787 34.5 321 10.0 31 183 33.3 459 21.9 1 192 900 35.0
Food, beverages and tobacco 153 310 4.6 .. .. 642 0.7 237 7.4 878 0.9 50 2.4 154 239 4.5
Textiles, clothing and leather 23 047 0.7 .. .. 941 1.1 3 0.1 946 1.0 17 0.8 24 008 0.7
Wood and wood products 42 346 1.3 .. .. 461 0.5 136 4.2 597 0.6 21 1.0 42 964 1.3
Publishing, printing and reproduction of
recorded media 4 058 0.1 .. .. - - - - - - 14 0.7 4 072 0.1
Coke, petroleum products and nuclear fuel 26 544 0.8 .. .. 3 - - - 3 - - - 26 547 0.8
Chemicals and chemical products 291 719 8.8 .. .. 1 430 1.6 83 2.6 1 573 1.6 95 4.5 293 327 8.6
Rubber and plastic products 17 018 0.5 .. .. 266 0.3 - - 267 0.3 10 0.5 17 295 0.5
Non-metallic mineral products 10 338 0.3 .. .. 407 0.5 - 171 - 5.4 236 0.3 22 1.0 10 596 0.3
Metal and metal products 88 139 2.7 .. .. 1 012 1.1 5 0.2 1 016 1.1 55 2.6 89 211 2.6
Machinery and equipment 62 529 1.9 .. .. 102 0.1 28 0.9 130 0.1 17 0.8 62 676 1.8
Electrical and electronic equipment 93 886 2.8 .. .. 3 831 4.3 - - 3 831 4.1 18 0.9 97 735 2.9
Precision instruments 18 850 0.6 .. .. 92 0.1 - - 92 0.1 13 0.6 18 954 0.6
Motor vehicles and other transport equipment 163 581 4.9 .. .. 353 0.4 - - 353 0.4 - - 163 935 4.8
Other manufacturing 58 633 1.8 .. .. 144 0.2 2 - 145 0.2 1 - 58 779 1.7
Recycling 47 - .. .. - - - - - - 1 - 47 -
Unspecified secondary 107 212 3.2 76 80.5 21 103 23.6 - - 21 179 22.6 124 5.9 128 516 3.8
Tertiary 1 804 744 54.5 16 16.6 56 158 62.9 2 816 88.0 58 990 63.1 1 606 76.5 1 865 341 54.7
Electricity, gas and water 63 340 1.9 .. .. - - - - - - 93 4.4 63 433 1.9
Construction 13 694 0.4 .. .. 1 153 1.3 22 0.7 1 175 1.3 17 0.8 14 886 0.4
Trade 224 292 6.8 .. .. 11 410 12.8 249 7.8 11 660 12.5 291 13.9 236 242 6.9
Hotels and restaurants 19 623 0.6 .. .. 1 0.0 5 0.1 6 - 32 1.5 19 660 0.6
Transport, storage and communications 171 145 5.2 .. .. 3 609 4.0 443 13.8 4 051 4.3 240 11.4 175 437 5.1
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Finance 897 715 27.1 .. .. 29 780 33.4 2 033 63.5 31 814 34.0 673 32.1 930 202 27.3
Business activities 288 313 8.7 .. .. 5 320 6.0 52 1.6 5 372 5.7 210 10.0 293 895 8.6
Public administration and defence - - .. .. - - - - - - - - - -
Education 134 - .. .. - - - - - - - - 134 -
Health and social services 273 - .. .. - - - - - - 1 - 274 -
Community, social and personal service activities 4 168 0.1 .. .. - - 13 0.4 13 - 18 0.9 4 198 0.1
Other services 96 004 2.9 16 16.6 4 885 5.5 - - 4 901 5.2 30 1.4 100 935 3.0
Unspecified tertiary 26 043 0.8 .. .. - - - - - - - - 26 043 0.8
Unspecified 62 348 1.9 - - 753 0.8 3 0.1 756 0.8 3 0.1 63 107 1.9

Source: UNCTAD, FDI/TNC database.

a Based on outward stock in Australia, Austria (1998), Canada (1998), Denmark (1998), Finland (1998), France (1998), Germany (1998), Iceland, Italy (1998), Netherlands (1998), Norway (1997), Sweden,
Switzerland (1998), the United Kingdom and the United States (1998) that accounted for 84 per cent of total outward stock in developed countries in 1999.
b Based on outward stock in Swaziland that accounted for 0.5 per cent of total outward stock in Africa in 1999.
c Based on actual outward stock in India (1992), Kazakhstan (1998), Republic of Korea (1998), Singapore (1998) and Thailand, as well as outward stock on an approval basis in Taiwan Province of
China. They accounted for 35 per cent of total outward stock in Asia in 1999.
d Based on outward stock in Colombia accounting for 2 per cent of total outward stock in Latin America and the Caribbean in 1999.
e Based on actual outward stock in Czech Republic (1998), Estonia, Latvia, Slovakia and Slovenia that accounted for 16 per cent of total outward stock in Central and Eastern Europe in 1999.
 Annex table A.II.3. FDI inward stock, by industry and by region, 1988
(Values in millions of dollars and shares in percentages)
AN N EX A

Developing countries
Developed Latin America
a c
Sector/industry countries Africa b Asia and the Caribbean d Total e World f
Value Share Value Share Value Share Value Share Value Share Value Share
Total 890 456 100.0 4 513 100.0 65 131 100.0 46 964 100.0 119 016 100.0 1 009 471 100.0
Primary 91 704 10.3 2 338 51.8 8 539 13.1 4 496 9.6 16 309 13.7 108 013 10.7
Agriculture, hunting, forestry and fishing 2 144 0.2 47 1.0 1 419 2.2 601 1.3 2 192 1.8 4 335 0.4
Mining, quarrying and petroleum 89 560 10.1 6 0.1 7 121 10.9 3 895 8.3 11 832 9.9 101 392 10.0
Unspecified primary - - 2 286 50.6 - - - - 2 286 1.9 2 286 0.2
Secondary 350 751 39.4 940 20.8 44 851 68.9 30 908 65.8 77 340 65.0 428 091 42.4
Food, beverages and tobacco 29 867 3.4 .. .. 2 996 4.6 3 283 7.0 6 325 5.3 36 192 3.6
Textiles, clothing and leather 11 465 1.3 .. .. 3 205 4.9 1 151 2.5 4 368 3.7 15 834 1.6
Wood and wood products 9 331 1.0 .. .. 2 002 3.1 960 2.0 3 082 2.6 12 413 1.2
Publishing, printing and reproduction of recorded media 9 598 1.1 .. .. 158 0.2 - - 165 0.1 9 763 1.0
Coke, petroleum products and nuclear fuel 57 295 6.4 .. .. 3 203 4.9 1 204 2.6 4 414 3.7 61 708 6.1
Chemicals and chemical products 42 936 4.8 .. .. 8 303 12.7 6 704 14.3 15 088 12.7 58 024 5.7
Rubber and plastic products 6 028 0.7 .. .. 1 019 1.6 1 036 2.2 2 070 1.7 8 097 0.8
Non-metallic mineral products 11 257 1.3 .. .. 1 437 2.2 868 1.8 2 332 2.0 13 589 1.3
Metal and metal products 27 839 3.1 .. .. 8 032 12.3 2 642 5.6 10 685 9.0 38 523 3.8
Machinery and equipment 29 385 3.3 .. .. 2 379 3.7 4 006 8.5 6 468 5.4 35 853 3.6
Electrical and electronic equipment 36 920 4.1 .. .. 9 024 13.9 3 044 6.5 12 104 10.2 49 024 4.9
Precision instruments 4 815 0.5 .. .. 7 - - - 16 - 4 831 0.5
Motor vehicles and other transport equipment 10 236 1.1 .. .. 1 180 1.8 4 655 9.9 5 978 5.0 16 214 1.6
Other manufacturing 8 152 0.9 .. .. 1 399 2.1 1 356 2.9 2 759 2.3 10 911 1.1
Unspecified secondary 55 628 6.2 940 20.8 507 0.8 - - 1 487 1.2 57 115 5.7
Tertiary 417 975 46.9 1 235 27.4 11 128 17.1 11 540 24.6 24 684 20.7 442 659 43.9
Electricity, gas and water 2 180 0.2 - - 7 - 5 - 309 0.3 2 489 0.2
Construction 4 148 0.5 - - 1 582 2.4 163 0.3 1 747 1.5 5 895 0.6
Trade 128 271 14.4 - - 1 015 1.6 2 054 4.4 3 292 2.8 131 564 13.0
Hotels and restaurants 6 302 0.7 - - 2 822 4.3 14 - 2 847 2.4 9 149 0.9
Transport, storage and communications 6 427 0.7 - - 557 0.9 237 0.5 820 0.7 7 247 0.7
Finance 159 886 18.0 14 0.3 1 723 2.6 3 139 6.7 4 994 4.2 164 881 16.3
Business activities 75 422 8.5 - - 923 1.4 307 0.7 1 331 1.1 76 753 7.6
Education 4 - - - - - - - - - 4 -
Health and social services 323 - - - - - - - - - 324 -
Community, social and personal service activities 1 897 0.2 - - 4 - 1 - 7 - 1 904 0.2
Other services 21 422 2.4 80 1.8 2 422 3.7 5 620 12.0 8 124 6.8 29 546 2.9
Unspecified tertiary 11 692 1.3 1 140 25.3 72 0.1 - - 1 212 1.0 12 904 1.3
Unspecified 30 026 3.4 - - 613 0.9 20 - 682 0.6 30 708 3.0
Source: UNCTAD, FDI/TNC database.
a Based on inward stock in Australia (1991), Austria, Canada, Denmark (1991), Finland (1991), France (1989), Germany, Iceland, Italy, Netherlands (1986), Norway, Sweden (1992), Switzerland (1993),
the United Kingdom and the United States that accounted for 88 per cent of total inward stock in developed countries in 1988.
b Based on inward stock in Cape Verde (1990), Namibia (1990), Nigeria and Swaziland that accounted for 21 per cent of total inward stock in Africa in 1988.
c Based on actual inward stock in Hong Kong (China), India, Indonesia (1992), Kazakhstan (1995), Pakistan, Philippines, Republic of Korea, Singapore and Thailand, as well as inward stock on an approval
basis in Bangladesh, Cambodia (1994), Lao People’s Dem. Rep., Malaysia, Mongolia (1990), Myanmar (1995), Nepal, Republic of Korea, Sri Lanka, Taiwan Province of China, Viet Nam. They accounted
for 73 per cent of total inward stock in Asia in 1988.
d Based on inward stock in Argentina (1989), Bolivia, Brazil, Colombia, Paraguay (1995), Peru and Venezuela accounting for 58 per cent of total inward stock in Latin America and the Caribbean in
259

1988.
e Including other developing countries.
f Not including Central and Eastern Europe.
 Annex table A.II.4. FDI inward stock, by industry and by region, 1999
260

(Values in millions of dollars and shares in percentages)

Developing countries
Developed Latin America Central and
a c f
Sector/industry countries Africa b Asia and the Caribbean d Total e Eastern Europe World
Value Share Value Share Value Share Value Share Value Share Value Share Value Share
Total 2 520 194 100.0 16 567 100.0 796 615 100.0 193 424 100.0 1 014 657 100.0 98 371 100.0 3 633 223 100.0
Primary 144 426 5.7 2 256 13.6 28 072 3.5 23 236 12.0 55 016 5.4 2 419 2.5 201 867 5.5
Agriculture, hunting, forestry and fishing 4 605 0.2 612 3.7 10 736 1.3 1 048 0.5 12 528 1.2 456 0.5 17 590 0.5
Mining, quarrying and petroleum 139 821 5.5 332 2.0 17 336 2.2 22 188 11.5 41 176 4.1 1963 2.0 182 961 5.0
Unspecified primary - 1 - 0.0 1 312 7.9 - - - - 1 312 0.1 - - 1 311 -
Secondary 916 347 36.4 7 196 43.4 479 422 60.2 63 354 32.8 553 004 54.5 42 773 43.5 1 512 124 41.6
Food, beverages and tobacco 68 361 2.7 .. .. 10 754 1.3 10 863 5.6 21 917 2.2 11 514 11.7 101 792 2.8
Textiles, clothing and leather 23 981 1.0 .. .. 9 534 1.2 1 689 0.9 11 254 1.1 1 020 1.0 36 255 1.0
Wood and wood products 36 823 1.5 .. .. 9 848 1.2 3 546 1.8 13 693 1.3 2 835 2.9 53 351 1.5
Publishing, printing and reproduction of recorded media 36 123 1.4 .. .. 451 0.1 140 0.1 606 0.1 1 084 1.1 37 813 1.0
Coke, petroleum products and nuclear fuel 53 567 2.1 .. .. 14 292 1.8 22 - 14 314 1.4 879 0.9 68 760 1.9
Chemicals and chemical products 190 707 7.6 .. .. 32 547 4.1 13 074 6.8 46 802 4.6 4 181 4.3 241 689 6.7
Rubber and plastic products 18 269 0.7 .. .. 2 378 0.3 1 649 0.9 4 186 0.4 949 1.0 23 404 0.6
Non-metallic mineral products 24 116 1.0 .. .. 6 000 0.8 2 979 1.5 9 361 0.9 4 233 4.3 37 710 1.0
Metal and metal products 77 814 3.1 .. .. 23 267 2.9 5 042 2.6 28 371 2.8 1 975 2.0 108 160 3.0
Machinery and equipment 73 017 2.9 .. .. 9 220 1.2 5 085 2.6 14 453 1.4 4 338 4.4 91 809 2.5
Electrical and electronic equipment 81 803 3.2 .. .. 42 205 5.3 3 003 1.6 45 355 4.5 2 207 2.2 129 365 3.6
Precision instruments 48 268 1.9 .. .. 353 - 237 0.1 662 0.1 178 0.2 49 108 1.4
Motor vehicles and other transport equipment 92 338 3.7 .. .. 4 744 0.6 7 658 4.0 12 595 1.2 5 642 5.7 110 575 3.0
Other manufacturing 22 033 0.9 .. .. 7 103 0.9 502 0.3 7 608 0.7 112 0.1 29 752 0.8
Recycling 65 - .. .. - - 13 - 13 - 13 - 92 -
Unspecified secondary 69 061 2.7 7 196 43.4 306 728 38.5 7 853 4.1 321 815 31.7 1 613 1.6 392 490 10.8
Tertiary 1 399 302 55.5 7 114 42.9 267 503 33.6 101 003 52.2 378 727 37.3 49 252 50.1 1 827 282 50.3
Electricity, gas and water 57 938 2.3 - - 6 021 0.8 21 715 11.2 27 749 2.7 3 385 3.4 89 072 2.5
Construction 11 075 0.4 637 3.8 20 093 2.5 990 0.5 21 769 2.1 2 711 2.8 35 556 1.0
Trade 322 803 12.8 75 0.5 32 730 4.1 12 013 6.2 45 379 4.5 12 699 12.9 380 882 10.5
Hotels and restaurants 28 344 1.1 - - 9 542 1.2 528 0.3 10 094 1.0 803 0.8 39 241 1.1
Transport, storage and communications 155 089 6.2 1 702 10.3 18 234 2.3 13 772 7.1 34 873 3.4 9 625 9.8 199 588 5.5
W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Finance 518 841 20.6 3 484 21.0 14 037 1.8 23 834 12.3 42 263 4.2 13 353 13.6 574 456 15.9
Business activities 205 737 8.2 - - 142 263 17.9 27 699 14.3 170 319 16.8 3 231 3.3 379 287 10.4
Public administration and defence - - - - 20 - - - 20 - 50 - 70 -
Education 35 - - - 99 - 1 - 101 - 4 - 140 -
Health and social services 6 320 0.3 - - 4 427 0.6 51 - 4 479 0.4 1 764 1.8 12 564 0.3
Community, social and personal service activities 8 431 0.3 - - 26 - 218 0.1 271 - 279 0.3 8 981 0.2
Other services 70 688 2.8 905 5.5 17 405 2.2 90 - 18 401 1.8 18 - 89 107 2.5
Unspecified tertiary 14 002 0.6 310 1.9 2 606 0.3 92 - 3 008 0.3 1 330 18 340 0.5
Unspecified 60 119 2.4 - - 21 618 2.7 5 831 3.0 27 910 2.8 3 927 4.0 91 956 2.5
Source: UNCTAD, FDI/TNC database.
a Based on inward stock in Australia, Austria (1998), Canada (1998), Denmark (1998), Finland (1998), France (1998), Germany (1998), Iceland, Italy (1998), Netherlands (1998), Norway, Portugal (1996),
Sweden, Switzerland (1998), the United Kingdom and the United States that accounted for 84 per cent of total inward stock in developed countries in 1999.
b Based on inward stock in Cape Verde (1995), Egypt (1995), Namibia (1994), Nigeria (1992) and Swaziland (1993) that accounted for 42 per cent of total inward stock in Africa in 1999.
c Based on actual inward stock in Georgia (1998), Hong Kong (China) 1997, India (1995), Indonesia (1996), Kazakhstan (1998), Pakistan (1997), Philippines, Singapore and Thailand, as well as inward
stock on an approval basis in Bangladesh, Cambodia (1997), China (1997), Lao People’s Dem. Rep., Malaysia (1997), Mongolia, Myanmar (1998), Nepal, Republic of Korea (1998), Sri Lanka (1998),
Taiwan Province of China and Viet Nam (1996). They accounted for 93 per cent of total inward stock in Asia in 1999.
d Based on inward stock in Argentina, Bolivia (1990), Brazil (1998), Colombia, Paraguay, Peru and Venezuela accounting for 58 per cent of total inward stock in Latin America and the Caribbean in 1999.
e Including other developing countries.
f Based on actual inward stock in Belarus (1998), Bulgaria (1998), Croatia, Czech Republic (1998), Estonia, Hungary (1998), Latvia, Lithuania, TFYR Macedonia (1998), Republic of Modova (1998), Poland,
Romania, Russian Federation, Slovakiia, Slovenia (1998), Ukraine (1998), that accounted for 98 per cent of total inward stock in Central and Eastern Europe in 1999.
AN N EX A 261

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 Assistance Committee, International Development Statistics,
online 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 slope of the linear regression for FDI and ODA flows between 1990 and 1999.
262 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex figure A.II.1. The distribution of foreign affiliates in the semiconductor industry, 1985

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 94 majority-owned foreign affiliates identified.

Annex figure A.II.2. The distribution of foreign affiliates in the biotechnology industry, 1985

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 70 majority-owned foreign affiliates identified.
AN N EX A 263

Annex figure A.II.3. The distribution of foreign affiliates in the automobile industry, 1985

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 494 majority-owned foreign affiliates identified.

Annex figure A.II.4. The distribution of foreign affiliates in the TV and

radio receivers industry, 1985

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 105 majority-owned foreign affiliates identified.
264 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex figure A.II.5. The distribution of foreign affiliates in the textile and clothing industry, 1985

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 624 majority-owned foreign affiliates identified.

Annex figure A.II.6. The distribution of foreign affiliates in the food and beverage industry, 1985

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 1,003 majority-owned foreign affiliates identified.
AN N EX A 265

Annex figure A.II.7. The distribution of foreign affiliates of the largest ten
automobile TNCs, by function, 1985

Assembly

Equipment and parts supplies

Distribution, marketing and sales

266 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex figure A.II.7. The distribution of foreign affiliates of the largest ten
automobile TNCs, by function, 1985 (concluded)

Source : UNCTAD, FDI/TNC database, on the basis of Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 688 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.).

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

Assemblers: 3711-3713.
Equipment and parts supplies: 3519-3592, 3824, 3999, 2221-3499, 3613-3699 and 3714.
Distribution, marketing 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.
AN N EX A 267

Annex figure A.II.8. The distribution of foreign affiliates of the largest ten
electronics TNCs, by function, 1985

Production of equipment and parts

Distribution, marketing and sales

268 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex figure A.II.8. The distribution of foreign affiliates of the largest ten
electronics TNCs, by function, 1985 (concluded)

R&D and other professional services

Finance and insurance

Source: UNCTAD, FDI/TNC database, based on Who Owns Whom CD-Rom 2000 (Dun and Bradstreet).
Note: On the basis of 616 majority-owned foreign affiliates identified for ten large electronics TNCs ( Hitachi, Intel, Matsushita, Mitsubishi,
Motorola, NEC, Philips, Siemens, Sony and Toshiba).

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, marketing and sales: 4013-4789, 4813-484, 5012-5013, 5511-5599 and 7513-7515.
R&D and professional services: 8731-8734, 8711-8721 and 8741-8742.
Finance and insurance: 6011-6411.
 Annex figure A.II.9. The distribution of R&D facilities and location of major universities in Europe, 1985
ANNEX A

Source: UNCTAD, FDI/TNC database, on the basis of W h o O w n s W h o m C D - R o m 2 0 0 0 (Dun and Bradstreet).

269

Note : On the basis of 242 majority-owned foreign R&D facilities and 1,055 domestic R&D facilities identified.
 Annex figure A.II.10. The distribution of R&D facilities and location of major universities in United States, 1985
270
World
Investment
Report
2001:
Promoting
Linkages

Source: UNCTAD, FDI/TNC database, on the basis of W h o O w n s W h o m C D - R o m 2 0 0 0 (Dun and Bradstreet).

Note : On the basis of 66 majority-owned foreign R&D facilities and 585 domestic R&D facilities identified.
 Annex figure A.II.11. The distribution of R&D facilities and location of major universities in Asia, 1985
ANNEX A

Source: UNCTAD, FDI/TNC database, on the basis of W h o O w n s W h o m C D - R o m 2 0 0 0 (Dun and Bradstreet).

271

Note : On the basis of 58 majority-owned foreign R&D facilities and 190 domestic R&D facilities identified.
DEFIN IT IO N S AN D SO U R CES 273

Annex B: Statistical annex

Page
Definitions and sources .......................................................................................................... 2 7 5

A. General definitions ...................................................................................................... 2 7 5

I. Transnational corporations ................................................................................ 275

2. Foreign direct investment .................................................................................. 275
3. Non-equity forms of investment ....................................................................... 276

B. Availability, limitations and estimates of FDI data provided

in the World Investment Report ................................................................................ 2 7 6

1. FDI flows .............................................................................................................. 276

(a) FDI inflows ................................................................................................. 277
(b) FDI outlows ................................................................................................ 282

2. FDI stocks ............................................................................................................ 286

C. Data revisions and updates ...................................................................................... 2 8 7

D. Data verification ........................................................................................................... 2 8 7

E. Definitions and sources of the data in annex tables B.5-B.10 ..................... 2 8 8

1. Annex table B.5 and B.6 ................................................................................... 288

2. Annex tables on M&As (B.7-B.10) ................................................................ 289

Annex tables
B.1 FDI inflows, by host region and economy, 1989-2000 ............................................. 291
B.2 FDI outflows, by home region and economy, 1989-2000 ......................................... 296
B.3 FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 ....................................................................... 301
B.4 FDI outward stock, by home region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 ....................................................................... 307
B.5 FDI flows as a percentage of gross fixed capital formation,
by host region and economy, 1989-1999 ..................................................................... 312
B.6 FDI stock as a percentage of gross domestic product,
by host region and economy, 1980, 1985, 1990, 1995 and 1999 ............................. 325
B.7 Cross-border M&A sales, by region/economy of seller, 1987-2000 ...................... 338
B.8 Cross-border M&A sales, by region/economy of purchaser, 1987-2000 .............. 344
B.9 Cross-border M&A, by sector and industry of seller, 1987-2000 .......................... 345
B.10 Cross-border M&A, by sector and industry of purchaser, 1987-2000 ................. 346
 DEFINITIONS AND SOURCES

A. General definitions

1. Transnational corporations

Transnational corporations (TNCs) are incorporated or unincorporated enterprises

comprising parent enterprises and their foreign affiliates. A parent enterprise is defined
as 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 or
more of the ordinary shares or voting power for an incorporated enterprise, or its equivalent
for an unincorporated enterprise, is normally considered as a threshold for the control of
assets. 1 A foreign affiliate is an incorporated or unincorporated enterprise in which an
investor, who is resident in another economy, owns a stake that permits a lasting interest in
the management of that enterprise (an equity stake of 10 per cent for an incorporated enterprise
or its equivalent for an unincorporated enterprise). In the World Investment Report , subsidiary
enterprises, associate enterprises and branches are all referred to as foreign affiliates or
affiliates .

• Subsidiary: an incorporated enterprise in the host country in which another entity directly
owns more than a half of the shareholder’s voting power and has the right to appoint or
remove a majority of the members of the administrative, management or supervisory
body.

• Associate: an incorporated enterprise in the host country in which an investor owns a

total 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 which
is 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 and
one or more third parties; (iii) land, structures (except structures owned by government
entities), 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 a
country 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-term
relationship 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 other
than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign
affiliate). 2 FDI implies that the investor exerts a significant degree of influence on the
management of the enterprise resident in the other economy. Such investment involves
both the initial transaction between the two entities and all subsequent transactions between
them and among foreign affiliates, both incorporated and unincorporated. FDI may be undertaken
by individuals as well as business entities.

Flows of FDI comprise capital provided (either directly or through other related
enterprises) by a foreign direct investor to an FDI enterprise, or capital received from an
FDI enterprise by a foreign direct investor. There are three components in FDI: equity
capital, reinvested earnings and intra-company loans.

• Equity capital is the foreign direct investor’s purchase of shares of an enterprise in a

country other than its own.
276 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

• Reinvested earnings comprise the direct investor’s share (in proportion to direct equity
participation) of earnings not distributed as dividends by affiliates or earnings not remitted
to the direct investor. Such retained profits by affiliates are reinvested.

• Intra-company loans or intra-company debt transactions refer to short- or long-term

borrowing and lending of funds between direct investors (parent enterprises) and affiliate
enterprises.

FDI stock is the value of the share of their capital and reserves (including retained
profits) attributable to the parent enterprise, plus the net indebtedness of affiliates to the
parent enterprise. 3 FDI flow and stock data used in the World Investment Report are not
always defined as above, because these definitions are often not applicable to disaggregated
FDI data. For example, in analyzing geographical and industrial trends and patterns of
FDI, data based on approvals of FDI may also be used because they allow a disaggregation
at 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 of
another business entity through means other than acquiring an equity stake. These are
non-equity forms of FDI, and they include, inter alia , subcontracting, management contracts,
turnkey arrangements, franchising, licensing and product sharing. Data on transnational
corporate activity through these forms are usually not separately identified in
balance-of-payments statistics. These statistics, however, usually present data on royalties
and 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 rights
such as trademarks, copyrights, patents, processes, techniques, designs, manufacturing rights,
franchises, etc., and (ii) the use, through licensing agreements, of produced originals or
prototypes, such as manuscripts, films, etc.”4

B. Availability, limitations and estimates of FDI

data 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 the
text, are on a net basis (capital transactions’ credits less debits between direct investors
and their foreign affiliates). Net decreases in assets (FDI outward) or net increases in
liabilities (FDI inward) are recorded as credits (recorded with a positive sign in the balance
of payments), while net increases in assets or net decreases in liabilities are recorded as
debits (recorded with a negative sign in the balance of payments). In the annex tables, as
well 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 of
the three components of FDI (equity capital, reinvested earnings or intra-company loans) is
negative and not offset by positive amounts of the remaining components. These are instances
of reverse investment or disinvestment.

UNCTAD regularly collects published and unpublished national official FDI data directly
from central banks, statistical offices or national authorities on an aggregated and disaggregated
basis for its FDI/TNC database. These data constitute the main source for the reported
data on FDI flows. These data are further complemented by the data obtained from other
international organizations such as the International Monetary Fund (IMF), the World Bank,
the Organization for Economic Co-operation and Development (OECD), the Economic
Commission for Europe (ECE) and the Economic Commission for Latin America and the
Caribbean (ECLAC), as well as UNCTAD’s own estimates.
DEFIN IT IO N S AN D SO U R CES 277

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 Statistics
Yearbook . The same data are also available in the International Financial Statistics of
IMF for certain countries. Data from IMF used in the World Investment Report were
obtained directly from the CD-ROMs of IMF containing balance-of-payments statistics and
international financial statistics. For this year’s Report , International Financial Statistics
and Balance-of-Payments CD-ROMs, June 2001, were used.

For those economies for which data were not available from national official sources
or the IMF or for those for which available data do not cover the entire period of 1980-2000
that is used in the World Investment Report 2001 , data from the World Bank’s World
Development Indicators 2001 CD-ROM were used. This report covers data up to 1999
and reports data on net FDI flows (FDI inflows less FDI outflows) and FDI inward flows
only. Consequently, data on FDI outflows, which we report as World Bank data, are estimated
by subtracting FDI inward flows from net FDI flows.

For those economies in Latin America and the Caribbean for which the data are not
available from one of the above-mentioned sources, data from ECLAC were utilized. Data
from ECE were also utilized for those economies in Central and Eastern Europe, Central
Asia and selected economies in Developing Europe for which data are not available from
one 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 obtained
from their web databank, are used as proxy for FDI inflows. As these OECD data are
based on FDI outflows to developing economies from the member countries of the Development
Assistance Committee (DAC) of OECD, 5 inflows of FDI to developing economies may be
underestimated. In some economies, FDI data from large recipients and investors are also
used as proxies.

Finally, in those economies for which data were not available from either of the
above-mentioned sources or only partial data (quarterly or monthly) were available, estimates
were 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 and
acquisitions (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 in
the 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 and
Turkey
1985-2000 Burundi and Senegal
1986-2000 Ecuador; Hungary; Poland and the United States
1987-2000 Netherlands
1988-2000 Iceland; Mauritius and Slovenia
1990-2000 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
278 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Period Economy

1992-2000 Albania; Argentina; Estonia; Guyana; Latvia; Republic of Moldova; Russian Federation; Ukraine
and Yugoslavia
1993-2000 Croatia and Mali
1994-2000 Kuwait; Kyrgyzstan; TFYR Macedonia; Norway; Spain and Sweden
1995-2000 Costa Rica
1996-2000 Bosnia and Herzegovina; India and Malta
1997-2000 Uruguay
1998-2000 Greece; Hong Kong, China, Morocco and Uganda
1999-2000 Belgium and Luxembourg; Benin; China; El Salvador; Ireland; Italy and Japan
1989-1999 Armenia
1990-1999 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 Zimbabwe
1992-1999 Burkina Faso; Kazakhstan; Mongolia and Niger
1994-1999 Zambia
1995-1999 Anguilla, Montserrat and Oman
1997-1999 Bahrain
1999 Cambodia
1990-1998 Malawi
1992-1998 Ethiopia
1996-1998 Gambia
1997-1998 Tajikistan
1994-1996 Georgia
1995-1996 Uzbekistan
1994-1995 Turkmenistan
1994 Azerbaijan
1992 Belarus and Lithuania

As mentioned above, one of the main sources for annex table B.1 is the IMF. Those
economies for which IMF data were used for the period, 1980-2000, or part of it, are listed
below.
Period Economy

1980-2000 Panama
1984-1985, 1989 and 1996-2000 Sudan
1989-2000 Myanmar
1993-2000 Belarus; Lithuania
2000 Kazakhstan
1980-1999 Barbados; Cyprus; Fiji; Israel; Jordan; Libyan Arab Jamahiriya; New
Zealand; Nigeria; Papua New Guinea; Saudi Arabia; Solomon Islands
and Vanuatu
1981-1984 and 1986-1999 Bangladesh
1986-1999 Guinea and Maldives
1988-1999 Lao People’s Democratic Republic
1993-1999 Syrian Arab Republic
1995-1999 Azerbaijan
1996-1999 Nepal
1997-1999 Georgia
1980-1998 Belgium and Luxembourg; China; Ireland; Italy; Japan and Suriname
1980-1995 and 1998 Mauritania
1980-1993 and 1995-1998 El Salvador
1986-1998 Cape Verde
1992-1998 Cambodia
1994-1998 Iran, Islamic Republic of
1980-1997 Greece and Morocco
1991-1997 Uganda
1996-1997 Turkmenistan
1980 and 1982-1996 Bahrain
1980-1981, 1986-1988 and 1993-1996 Uruguay
1989-1996 Equatorial Guinea
1994-1996 Tajikistan
1980-1995 Cameroon; Gabon; Malta; Netherlands Antilles and Sierra Leone
1981, 1987-1989 and 1991-1995 Gambia
1987-1995 Comoros
1991-1995 India
DEFIN IT IO N S AN D SO U R CES 279

Period Economy

1992-1995 Djibouti
1980-1994 Central African Republic; Costa Rica and Oman
1980-1984 and 1988-1994 Benin
1981; 1984-1985 and 1990-1994 Brunei Darussalam
1983 and 1985-1994 Kiribati
1984-1994 Chad
1986-1994 Montserrat
1990-1994 Anguilla
1992-1994 Uzbekistan
1994 New Caledonia
1980-1993 Norway; Spain and Sweden
1984-1993 Tonga
1993 Kuwait and Kyrgyzstan
1980-1992 Mali
1980-1991 Algeria; Argentina; Niger and Zambia
1980-1989 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 and
Tobago; Tunisia; United Kingdom; Venezuela; Yemen and Zimbabwe
1980 and 1986-1989 Mozambique
1981-1989 Denmark
1981 and 1984-1989 Belize
1985-1989 Angola
1989 Madagascar and Nicaragua
1980-1988 Congo
1980-1987 Iceland and Mauritius
1980-1981, 1983, 1985 and 1987 Malawi
1982-1987 Liberia
1980-1986 Netherlands
1980-1985 Ecuador; Guyana; Poland and the United States
1982-1985 Somalia
1980-1984 Senegal
1981-1982 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 Congo

1991-1999 Congo and Liberia
1992-1999 Algeria and Nepal
1995-1999 Central African Republic; Lebanon; Tonga and Chad
1996-1999 Cameroon; Comoros; Djibouti; Gabon and Sierra Leone
1996-1997 and 1999 Mauritania
1997-1999 Equatorial Guinea
1999 Gambia; Guinea-Bissau; Malawi
1992-1994 and 1998 Samoa
1997 Kiribati and Uzbekistan
1993-1995 Somalia
1992-1993 Zambia
1990-1991 Ethiopia
1991 Burkina Faso
1988-1989 Viet Nam
1981-1984 Burundi
1989 Czech Republic
280 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Those economies for which ECLAC data were used for the period, 1980-2000, or
part 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 part
of it, are listed below.

Period Economy

1999-2000 Tajikistan
1998-2000 Turkmenistan and Uzbekistan

Those economies for which FDI inflows data were unavailable from the above-mentioned
sources, the estimates of UNCTAD are used by employing the following methodologies:

• Annualized data

Estimates were applied by annualizing quarterly data obtained from either national
official 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

Year Latest quarter Economy

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 which
the data are not available is that OECD data on outward flows from DAC member countries
are used as proxy for FDI inflows. Those economies, for which this methodology is applied
for the period, 1980-2000, or part of it, are listed below (these data were available until
1999 only at the time of the compilation of inflow data).
Period Economy

1980-1999 Bermuda; Cayman Islands; Gibraltar and

United Arab Emirates
1980-1995 and 1997-1999 Iraq
1980 and 1982-1999 Cuba
1980 and 1983-1999 Qatar
1980-1981, 1986-1992 and 1998-1999 Somalia
1980, 1982-1989 and 1998-1999 Virgin Islands
1980-1982, 1987 and 1991-1999 Afghanistan
1982-1983 and 1985-1999 Macau, China
1982-1983, 1987-1988 and 1995-1999 Brunei Darussalam
1983, 1985-1986, 1988-1993, 1995-1996 and 1998-1999 New Caledonia
1987-1999 Democratic People’s Republic of Korea
1994, 1996 and 1998-1999 Tuvalu
DEFIN IT IO N S AN D SO U R CES 281

Period Economy

1996-1999 Netherlands Antilles

1996 and 1999 Occupied Palestinian Territory
1997-1999 Eritrea
1999 Suriname
1984-1992 and 1994-1998 Guinea-Bissau
1987-1989, 1993 and 1995-1998 Sã o Tomé and Principe
1981, 1983-1988, 1990-1991 and 1995-1997 Samoa
1990-1991 and 1995-1997 Bhutan
1995 Bosnia and Herzegovina
1980-1994 Lebanon
1980-1983, 1986-1988 and 1990-1994 Sudan
1994 El Salvador
1980-1993 Iran, Islamic Republic of
1980-1992 Kuwait
1980-1981 and 1983-1992 Syrian Arab Republic
1982-1985 and 1989-1992 Uruguay
1980-1991 Nepal
1980-1987 and 1989-1991 Djibouti
1986-1991 Guyana
1986 and 1991 Mongolia
1991 Albania
1980-1990 India
1980-1981 and 1988-1990 Liberia
1981, 1985-1988 and 1990 Nicaragua
1982-1986 and 1990 Gambia
1980, 1982, 1985 and 1988-1990 Uganda
1989-1990 Congo
1990 Burkina Faso and Haiti
1980-1989 United Republic of Tanzania
1982, 1984, 1986 and 1988-1989 Malawi
1985 and 1987-1989 Namibia
1989 Aruba
1980-1988 Ethiopia and Madagascar
1981-1988 Equatorial Guinea
1980-1987 Yugoslavia (former)
1980, 1983-1984 and 1986-1987 Myanmar
1985-1987 Benin
1981-1982 and 1985-1986 Viet Nam
1980-1985 Maldives
1981-1985 Mozambique
1980-1981 and 1983-1985 Guinea
1980 and 1985 Bangladesh
1985 Lao People’s Democratic Republic
1980-1984 Angola
1980-1983 Chad
1981 Bahrain
1980 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 have
been applied to the economies or the periods if FDI inflow data from the above-mentioned
sources are not available. Those economies, for which estimates of UNCTAD were used
for the period, 1980-2000, or part of it, are listed below.
282 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Period Economy

1995-1996 and1998-2000 Kiribati

1997 and 2000 New Caledonia
1988 and 2000 Djibouti
1999-2000 Iran, Islamic Republic of; S ão Tomé and Principe and Samoa
2000 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’s
Democratic 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; Saint
Vincent and the Grenadines; Saudi Arabia; Sierra Leone; Solomon Islands; Somalia;
Suriname; Syrian Arab Republic; Tonga; Tuvalu; Virgin Islands; Zambia and
Zimbabwe
1999 Cape Verde
1980-1997 Hong Kong, China
1995 Sudan
1989 Ethiopia
1986 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; United
Kingdom and United States
1986-1989 and 1990-2000 Poland
1987-2000 Netherlands and Turkey
1988-2000 Iceland and Mauritius
1990-2000 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 Morocco
1991-2000 Hungary
1992-2000 Argentina; Aruba; Colombia; Estonia; Latvia; Slovakia and Slovenia
1993-2000 India; Croatia; Czech Republic and Russian Federation
1994-2000 Republic of Moldova; Norway; Spain; Sweden and Ukraine
1995-2000 Bulgaria; Costa Rica; Lithuania and Malta
1996-2000 Benin and Mali
1997-1998 and 2000 Uruguay
1998-2000 Belgium and Luxembourg; Greece; Hong Kong, China; Ireland and Japan
1999-2000 El Salvador; Italy and Trinidad and Tobago
1980-1999 Bolivia and Malaysia
1983-1999 Zimbabwe
1990-1999 Bahamas; Bangladesh; Côte d’Ivoire and Nigeria
1991-1999 Cyprus
1992-1999 Niger
1993-1999 Burkina Faso
1994-1999 Kazakhstan
1995-1999 Kenya
1996-1999 TFYR Macedonia
1997-1999 Bahrain and Belarus
1998-1999 Azerbaijan
1999 Armenia
1992-1998 Albania and Mexico
1998 Tajikistan
1992 and 1995-1997 Bosnia and Herzegovina
1995-1997 Peru
1992-1993 and 1996 Guyana
DEFIN IT IO N S AN D SO U R CES 283

As mentioned above, one of the main sources for annex table B.2 is the IMF. Those
economies for which IMF data were used for the period, 1980-2000, or part of it, are listed
below.

Period Economy

2000 Belarus and Kazakhstan

1980-1999 Barbados; Fiji; Israel and New Zealand
1980-1996 and 1999 Jordan
1980-1982 and 1987-1999 Libyan Arab Jamahiriya
1982-1999 China
1995-1999 Paraguay and Syrian Arab Republic
1998-1999 Kyrgyzstan
1999 Georgia
1980-1998 Italy
1997-1998 Dominica
1998 Armenia and Peru
1980-1997 Belgium and Luxembourg and Japan
1988-1997 Cape Verde
1990-1997 Ireland
1991-1997 Morocco
1990-1996 Bahrain
1993-1996 Dominican Republic
1996 El Salvador and Guinea
1980-1995 Cameroon and Netherlands Antilles
1985-1995 Sri Lanka
1980-1994 Costa Rica and Gabon
1980-1983, 1985-1989 and 1991-1994 Chad
1982-1994 Central African Republic
1990 and 1993-1994 Angola
1993-1994 Malta
1994 Kiribati
1980-1993 Norway; Spain and Sweden
1990-1993 Tonga
1980-1991 Algeria; Colombia and Niger
1980-1983 and 1989-1991 Argentina
1989-1991 Czechoslovakia (former) and Equatorial Guinea
1990-1991 Haiti
1980-1990 Papua New Guinea
1985 and 1987-1990 Cyprus
1990 Comoros
1980-1989 Australia; Austria; Brazil; Canada; Denmark; Egypt; France;
Germany; Kenya; Kuwait; Portugal; Senegal; Seychelles; Singapore;
South Africa and Swaziland
1981-1989 Tunisia
1982-1989 Venezuela
1983-1989 Switzerland
1984-1989 Pakistan
1989 Bahamas and Burundi
1982-1988 Uruguay
1986-1988 Mauritania
1988 Lesotho
1983-1987 Trinidad and Tobago
1986-1987 Iceland
1980-1986 Burkina Faso and Netherlands
1982-1986 Yemen
1980-1985 Botswana and Poland
1981-1984 Benin
1981 Nigeria

In the case of unavailability of data from the above-mentioned sources, estimates

were applied by annualizing quarterly data obtained from either national official sources or
the IMF for the economies and the years listed below.
284 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

(a) National official sources

Year Latest quarter Economy

2000 Second quarter Malaysia

(b) IMF

Year Latest quarter Economy

2000 First quarter New Zealand

Third 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 from
net FDI flows. This methodology was used for the economies and years listed below.
Period Economy

1988-1989 and 1992-1999 Uganda

1991; 1995 and 1997-1999 Lao People’s Democratic Republic
1992-1999 Uzbekistan
1994-1999 Myanmar
1997-1999 Ethiopia
1998-1999 Turkmenistan
1999 Tajikistan
1990-1992 and 1996-1998 Mozambique
1990-1993 and 1997-1998 Oman
1990, 1992-1993 and 1997-1998 Rwanda
1991-1992; 1995 and 1998 Papua New Guinea
1992-1993 and 1998 United Republic of Tanzania
1994-1998 Georgia
1996 and 1998 Mongolia
1997-1998 Jordan and Sri Lanka
1995-1997 Azerbaijan
1996-1997 Kyrgyzstan
1986-1988, 1990-1994 and 1996 Saint Vincent and the Grenadines
1991 and 1995-1996 Angola
1993 and 1995-1996 Belarus and Equatorial Guinea
1990-1995 Sierra Leone
1990-1991 and 1995 Saint Lucia
1990 and 1992-1995 Maldives
1992-1995 Mali
1980-1984, 1990-1991 and 1993-1994 Paraguay
1990-1994 Saint Kitts and Nevis and Trinidad and Tobago
1993-1994 Uruguay
1986-1993 Dominica
1989-1993 El Salvador
1990-1993 Grenada
1993 Nicaragua
1990-1992 Madagascar and Solomon Islands
1992 Bulgaria and Lesotho
1990-1991 Honduras
1991 Comoros and Kenya
1990 Mauritania
1980-1981, 1983, 1985-1987 and 1989 Togo
1986-1989 Bangladesh and Tonga
1987 and 1989 Belize
1984-1987 Mauritius
1980-1983 Pakistan
1980 Mexico and Nigeria
DEFIN IT IO N S AN D SO U R CES 285

In the case of economies for which FDI outflows data were unavailable from the
above-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 economies
for which this methodology was used for the period, 1980-2000, or part of it, are listed
below.

Proxy countries/region Period Economy

United States only 1981-2000 Bermuda; Panama and United Arab Emirates
1982-2000 Lebanon
1996-2000 Netherlands Antilles and Nicaragua
1981-1996 and 1999 Saudi Arabia
1981-1991 and 1999 Mexico
1992 and 1997-1998 Dominican Republic
1993-1998 Haiti; Honduras and Virgin Islands
1994-1998 Guatemala
1995-1998 Saint Kitts and Nevis and Trinidad and Tobago
1997-1998 Angola
1980-1997 Liberia
1993-1997 Antigua and Barbuda
1988-1989 and 1994-1996 Oman
1989-1991 and 1995-1996 Uruguay
1993-1996 Ecuador
1995-1996 Gabon
1984-1989 Ireland
1994-1995 Guyana
1995 Central African Republic
1993-1994 Bosnia and Herzegovina
1992-1993 Peru
1981-1986 and 1988-1989 Bahrain
1982-1989 Nigeria
1981-1988 Bahamas
1984-1988 Argentina

United States and Sweden 1997-1998 Saudi Arabia

Germany; Norway; Sweden and

the United States 1997 Greece

European Union and the

United States 1991-1996 Greece
1992-1996 Iran, Islamic Republic of
1980-1992 India
1980-1989 Philippines and Indonesia

Germany 1997-1998 Iran, Islamic Republic of

China; European Union and

the United States 1980-1995 Hong Kong, China

China; European Union; Japan and

the United States 1996 Hong Kong, China

Germany; Sweden and the

United 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.
286 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Period Economy

2000 Kenya and Mexico

1998-1999 Cayman Islands
1999 Peru
1996 and 1998 Ghana
1995-1998 Qatar
1991; 1993 and 1995-1996 Brunei Darussalam
1993 Cambodia

• Estimates of UNCTAD

Those economies, for which information from national and secondary sources and information
were used for the period, 1980-2000, or part of it, are listed below.

Period Economy

1980-1997 and 2000 Cayman Islands

1992 and 1999-2000 Haiti
1994 and 2000 Peru
1995-2000 Chad
1995; 1997 and 1999-2000 Mongolia
1996-2000 Central African Republic and Malawi
1997-2000 Brunei Darussalam Gabon
1997 and 1999-2000 Ghana
1998-2000 Cape Verde
1999-2000 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; Burkina
Faso; 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; TFYR
Macedonia; Turkmenistan; Uganda; Uzbekistan and Zimbabwe
1999 Uruguay
1992 Czech Republic

Up to 1994, the United States data on FDI outflows and outward stocks were adjusted
for the financial sector of the Netherlands Antilles. This is because considerable intra-company
loans between United States parent enterprises and their financial affiliates in the Netherlands
Antilles are in many respects more akin to portfolio investment than to FDI. Since that
year, however, the United States Department of Commerce has changed its methodology in
reporting FDI outward flows to the Netherlands Antilles by excluding investment in the
finance 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 FDI
stocks at book value or historical cost, reflecting prices at the time when the investment
was made.

For a large number of economies (as indicated in the footnotes of annex tables B.3
and B.4), FDI stocks are estimated by either cumulating FDI flows over a period of time or
adding flows to an FDI stock that has been obtained for a particular year from national
official 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 investment
were also used for some countries. Those economies for which IMF data were used for
the period, 1980-2000, or part of it, are listed below.
DEFIN IT IO N S AN D SO U R CES 287

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 may
differ 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 the
balance-of-payments manual of IMF. Because of this, the data reported in last year’s report
may be completely or partly changed in this report.

The country coverage for this year’s World Investment Report was expanded to
include: Bhutan, Eritrea, Occupied Palestinian Territories, São Tomé and Principe, Tuvalu
and Yugoslavia.

D. Data verification
In compiling data for this year’s Report , requests for verifications and confirmation
were made to national official sources for virtually all economies to reflect the latest data
revisions and accuracy. In addition, Web sites of certain national official sources were also
consulted. This verification process continued until end of June 2001. Any revisions made
after this process are not reflected in the Report .

Below is a list of economies for which data were checked through either means. For
the economies, which are not mentioned below, the UNCTAD Secretariat could not have
the data verified or confirmed by respective governments.
288 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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 Republic
of; 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; United
Republic 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; Hong
Kong, China; Iceland; India; Ireland; Italy; Japan; Republic of Korea; Kyrgyzstan; Malta; Morocco;
Mozambique; Namibia; Nicaragua; Netherlands; Norway; Paraguay; Peru; Philippines; Portugal; South
Africa; Spain; Sri Lanka; Swaziland; Sweden; Switzerland; Taiwan Province of China; United Republic
of Tanzania; Thailand; Tunisia; Turkey; United Kingdom; United States and Venezuela.

E. Definitions and sources of the data in

annex 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 gross
fixed capital formation or gross domestic capital formation (annex table B.5) and inward
and outward FDI stock to GDP (annex table B.6), respectively. All of these data are in
current prices.

The data on GDP were obtained from UNCTAD Secretariat. For some economies
such as Taiwan Province of China, the data are supplemented from national sources. The
data on gross fixed capital formation were obtained from IMF's international-financial-statistics
CD-ROM, June 2001.

For economies for which data on gross fixed capital formation were unavailable, the
following 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 unavailable
for the IMF, such as Taiwan Province of China, the data are supplemented from national
sources or World Bank data on gross domestic fixed investment, obtained from the World
Development 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 necessarily
accurately reflect the value of capital formation and that FDI flows do not necessarily
translate into capital formation.

Data on FDI are from annex tables B.1-B.4.

DEFIN IT IO N S AN D SO U R CES 289

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 by
Thomson Financial Securities Data Company. In some cases, these include M&As between
foreign affiliates and firms located in the same host economy. Such M&As conform to the
FDI definition as far as the equity share is concerned. However, the data do include purchases
via 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, corporate
bonds, venture capital etc.) for M&As, it is not possible to trace the origin or country sources
of the funds used. Therefore, the data used in the report include the funds not categorized
as FDI.

FDI flows are recorded on a net basis (capital account credits less debits between
direct investors and their foreign affiliates) in a particular year. On the other hand, M&A
data are expressed as the total transaction amount of particular deals, not as differences
between gross acquisitions and divestment abroad by firms from a particular country. Transaction
amounts recorded in the UNCTAD M&A statistics are those at the time of closure of the
deals, not at the time of announcement. The M&A values are not necessarily paid out in a
single year.

Cross-border M&As are recorded in both directions of transactions; i.e. when a

cross-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 table
B.8). Data showing cross-border M&A activities on an industry basis are also recorded as
sales and purchases (annex tables B.9-B.10). Thus, if a food company acquires a chemical
company, this transaction is recorded in the chemical industry in the table on M&As by
industry of seller (annex table B.9) and also recorded in the food industry in the table on
M&As by industry of purchaser (annex table B.10).

Notes

1 In some countries, an equity stake other than that of 10 per cent is still used. In the United
Kingdom, for example, a stake of 20 per cent or more was a threshold until 1997.
2 This general definition of FDI is based on OECD, Detailed Benchmark Definition of Foreign
Direct Investment , third edition (Paris, OECD, 1996) and International Monetary Fund, Balance
of Payments Manual , fifth edition (Washington, D.C., IMF, 1993).
3 There are, however, some exceptions. For example, in the case of Germany, loans granted by
affiliate 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.
290 W orld Inve stm ent R e port 2001: P rom oting Linka g e s
AN N EX B 291

Annex table B.1. FDI inflows, by host region and economy, 1989-2000
(Millions of dollars)

1989-1994
Host 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 9 374
Belgium and Luxembourg 9 163 10 689 14 064 11 998 22 691 119 693 87 129
Denmark 1 918 3 194 598 2 472 7 328 11 410 15 748
Finland 646 1 063 1 109 2 119 12 144 4 605 8 228
France 12 357 23 675 21 961 23 173 30 984 47 069 44 152
Germany 3 376 12 025 6 572 12 245 24 277 55 940 176 055
Greece 999 1 053 1 058 984 85 560 1 115
Ireland 912 1 447 2 618 2 743 11 035 14 929 16 320
Italy 3 338 4 842 3 546 3 700 2 635 6 749 11 383
Netherlands 7 242 12 322 16 107 11 169 37 948 42 579 55 011
Portugal 1 912 685 1 494 2 478 3 115 1 145 4 263
Spain 11 123 6 161 6 585 7 697 14 214 15 758 36 615
Sweden 3 366 14 453 5 070 10 968 19 564 60 801 21 499
United 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 - 22 a 126 a - 162 a 17 a - 6a
Iceland 8 - 9 84 149 148 61 157
Norway 764 1 470 2 070 2 979 3 331 6 698 6 353
Switzerland 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 63 335
United 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 11 675
Israel 380 1 349 1 387 1 628 1 754 2 363 5 349 a
Japan 969 39 200 3 200 3 268 12 741 8 187
New Zealand 1 940 3 659 2 231 2 624 1 191 1 410 1 477 a
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 1 235
Libyan Arab Jamahiriya 76 - 107 - 135 - 82 - 152 - 128 -a
Morocco 352 335 357 1 079 329 847 201
Sudan - 5 -a - 98 371 371 392
Tunisia 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 1 800 a
Benin 56 13 36 27 38 61 30
Botswana - 29 70 70 100 96 37 30
/...
292 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (continued)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Burkina Faso 7 10 17 13 10 13 12 a
Burundi - 2 - - 2 - 12
Cameroon - 31 7 35 45 50 40 45 a
Cape Verde 1 26 29 12 9 15 a 30 a
Central African Republic - 3 3 5 6 5 13 8a
Chad 13 13 18 15 16 15 50 a
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 75 268 302 450 314 279 290 a
Djibouti - 3 5 5 6 5 5a
Equatorial Guinea 16 127 376 20 24 120 55 a
Eritrea .. .. .. -a - 2a 1a -a
Ethiopia 7 14 22 288 261 68 a 80 a
Gabon - 16 - 113 312 143 211 200 90 a
Gambia 9 8 12 13 14 14 14 a
Ghana 72 107 120 82 56 63 110
Guinea 15 - 24 17 18 63 33 a
Guinea-Bissau 2 -a 1a 10 a -a 3 5a
Kenya 25 32 13 40 42 42 60 a
Lesotho 169 275 286 269 262 136 223 a
Liberia 154 21 17 15 16 10 14 a
Madagascar 15 10 10 14 16 58 29 a
Malawi 12 25 44 22 70 60 51 a
Mali 2 123 47 74 36 51 56
Mauritania 6 7 5 3 - 2 2a
Mauritius 24 19 37 55 12 49 277
Mozambique 21 45 73 64 213 382 139
Namibia 70 153 129 84 77 111 124
Niger 17 16 20 25 9 - 11a
Nigeria 1 231 1 079 1 593 1 539 1 051 1 005 1 000 a
Rwanda 7 2 2 3 7 2 4a
São Tomé and Principe .. -a -a -a -a -a -a
Senegal 19 35 5 177 60 136 107
Seychelles 20 40 30 54 55 60 56
Sierra Leone 8 - 2 5 4 5 1 3a
Somalia - 5 1 .. .. -a 61 a 20 a
Swaziland 67 44 22 - 15 165 90 - 37
Togo 6 38 27 23 42 70 60
Uganda 23 121 121 175 210 222 254
United Republic of Tanzania 15 150 149 158 172 183 193
Zambia 90 97 117 207 198 163 200 a
Zimbabwe 13 118 81 135 444 59 30 a
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 11 152
Bolivia 96 374 426 879 955 1 014 731
Brazil 1 498 5 475 10 496 18 743 28 480 31 362 33 547
Chile 1 220 2 956 4 633 5 219 4 638 9 221 3 674
Colombia 346 1 321 1 880 2 933 4 186 4 002 273
Ecuador 271 470 491 695 831 636 708
Guyana 57 74 93 53 47 48 67
Paraguay 79 98 144 230 336 66 96
Peru 673 2 048 3 242 1 697 1 880 1 969 556
Suriname - 82 - 21 19 - 9 9 - 18 a - 12 a

/...
AN N EX B 293

Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (continued)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Uruguay 63 157 137 126 164 229 180

Venezuela 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 10 b 18 33 21 28 40 48 a
Antigua and Barbuda 36 31 19 23 27 27 31 a
Aruba 34 1 84 196 84 392 - 228
Bahamas 10 107 88 210 147 149 251
Barbados 11 12 13 15 16i 17 14 a
Belize 16 21 17 12 19 56 28
Bermuda 1 553 641 a 3 971 a 2 928 a 5 395 a 6 443 a 6 648 a
Cayman Islands 179 42 a 1 232 a 3 151 a 4 348 a 6 468 a 4 783 a
Costa Rica 202 337 427 407 612 620 400
Cuba 6 5a 19 a 1a 15 a 9a 13 a
Dominica 17 54 18 21 7 18 16 a
Dominican Republic 161 414 97 421 700 1 338 953
El Salvador 12 38 - 5 59 1 104 231 185
Grenada 17 20 19 35 51 46 37 a
Guatemala 88 75 77 85 673 155 228
Haiti 4 - 2 4 4 11 30 13
Honduras 48 69 90 128 99 237 282
Jamaica 144 147 184 203 369 524 456
Mexico 6 571 9 526 9 902 13 841 11 612 11 915 13 162
Montserrat 6 3 - 3 3 8 2a
Netherlands Antilles 22 10 2 826 a 1 038 a 892 a 401 a 777 a
Nicaragua 28 75 97 173 184 300 265
Panama 167 267 410 1 256 1 219 517 393
Saint Kitts and Nevis 25 20 35 20 32 42 38 a
Saint Lucia 39 33 18 48 83 94 75 a
Saint Vincent and the Grenadines 20 31 43 92 89 46 76 a
Trinidad and Tobago 250 299 355 1 000 732 643 662
Virgin Islands 186 470 510 500 1 348 a 3 656 a 1 483 a
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 2 048 329 180 448 500 a
Cyprus 91 82 50 68 56 65 63 a
Iran, Islamic Republic of - 23 17 26 53 24 33 a 36 a
Iraq 1 2a .. 1a 7a - 7a -a
Jordan 6 13 16 361 310 158 300 a
Kuwait - 4 7 347 20 59 72 16
Lebanon 10 35 80 150 200 250 180 a
Oman 119 29 60 65 101 21 62 a
Occupied Palestinian Territory .. .. 4a .. .. 1a -a
Qatar 48 94 a 339 a 418 a 347 a 144 a 303 a
Saudi Arabia 502 - 1 877 - 1 129 3 044 4 289 - 782 1 000 a
Syrian Arab Republic 98 100 89 80 80 91 84 a
Turkey 708 885 722 805 940 783 982
United Arab Emirates 90 399 a 301 a 232 a 253 a - 13 a 100 a
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 52 232 130 133 a
Azerbaijan 22 c 330 627 1 115 1 023 510 883 a
/...
294 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (continued)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Georgia 8c 5 45 243 265 82 197 a

Kazakhstan 677 d 964 1 137 1 321 1 152 1 587 1 249
Kyrgyzstan 24 e 96 47 83 109 35 19
Tajikistan 10c 15 16 4 30 21 24
Turkmenistan 100c 100 108 108 64 80 100
Uzbekistan 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 2
Bangladesh 6 2 14 141 190 179 170 a
Bhutan 1g -a 1a -a .. .. ..
Brunei Darussalam 6b 13 a - 69 a 2a - 20 a - 38 a - 19 a
Cambodia 52 d 151 294 204 121 135 153 a
China 13 951 35 849 40 180 44 237 43 751 40 319 40 772
Hong Kong, China 4 164 6 213 a 10 460 a 11 368 14 776 24 591 64 448
India 394 2 144 2 591 3 613 2 614 2 154 2 315
Indonesia 1 524 4 346 6 194 4 677 - 356 - 2 745 - 4 550
Korea, Democratic
People’s Republic of 119 -a 2a 307 a 31 a - 15 a 108 a
Korea, Republic of 869 1 776 2 325 2 844 5 412 10 598 10 186
Lao People’s Democratic Republic 19 95 160 91 46 79 72 a
Macau, China - 2 2a 6a 2a - 18 a 9a - 2a
Malaysia 3 964 5 816 7 296 6 513 2 700 3 532 5 542
Maldives 6 7 9 11 12 12 12 a
Mongolia 7f 10 16 25 19 30 25 a
Myanmar 135 277 310 387 314 253 240
Nepal 4 8 19 23 12 4 13 a
Pakistan 304 719 918 713 507 531 308
Philippines 879 1 459 1 520 1 249 1 752 737 1 489
Singapore 4 798 8 788 10 372 12 967 6 316 7 197 6 390
Sri Lanka 102 65 133 435 206 177 217
Taiwan Province of China 1 229 1 559 1 864 2 248 222 2 926 4 928
Thailand 1 927 2 004 2 271 3 627 5 143 3 562 2 448
Viet 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 30 a
Kiribati - -a -a 1 -a -a -a
New Caledonia 12 -a -a 10 a -a 4a 5a
Papua New Guinea 116 455 111 29 110 296 200 a
Samoa 5b 3a 1a 20 a 3 2a 8a
Solomon Islands 13 2 6 34 9 10 18 a
Tonga - 2 2 3 2 2 2a
Tuvalu -d .. -a .. -a -a -a
Vanuatu 22 31 33 30 20 20 20 a
Developing Europe 232 477 1 085 1 699 1 608 2 723 2 035
Bosnia and Herzegovina .. -a - 2 1 10 90 117
Croatia 119e 114 511 540 935 1 474 899
Malta 70 132 277 81 267 822 639
Slovenia 71 176 186 321 165 181 181
TFYR Macedonia 24 c 10 12 16 118 32 170
Yugoslavia 95 c 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 33 f 70 90 48 45 41 92
Belarus 12 d 15 105 352 203 444 90
Bulgaria 50 b 90 109 505 537 819 1 002
Czech Republic 563 2 562 1 428 1 300 3 718 6 324 4 595
/...
AN N EX B 295

Annex table B.1. FDI inflows, by host region and economy, 1989-2000 (concluded)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Estonia 153 d 202 151 267 581 305 398

Hungary 1 152 4 453 2 275 2 173 2 036 1 944 1 957
Latvia 95 d 180 382 521 357 348 407
Lithuania 24 d 73 152 355 926 486 379
Moldova, Republic of 20 d 67 24 79 74 39 128
Poland 788 3 659 4 498 4 908 6 365 7 270 10 000
Romania 140 f 420 265 1 215 2 031 1 041 998
Russian Federation 850 d 2 016 2 479 6 638 2 761 3 309 2 704
Slovakia 137 b 195 251 206 631 356 2 075
Ukraine 186 d 267 521 624 743 496 595
Memorandum
Least developed countries h
Total 1 430 2 016 2 450 2 976 3 679 5 176 4 414
Africa 890 1 659 1 657 2 170 3 207 4 774 3 894
Latin America and the Caribbean 4 - 2 4 4 11 30 13
Asia and the Pacific 535 359 788 802 461 373 508
Asia 497 323 748 717 429 340 461
West Asia 300 - 218 - 60 - 139 - 266 - 329 - 201
South, 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 5 915
Africa 1 521 1 339 1 963 2 028 2 233 3 560 2 902
North Africa 87 - 102 - 131 - 75 - 147 - 121 6
Other Africa 1 434 1 441 2 094 2 103 2 380 3 681 2 896
Latin America and the Caribbean 1 253 1 754 3 030 7 231 6 058 4 466 5 480
South America 1 003 1 455 2 674 6 231 5 326 3 823 4 818
Other Latin America and
the Caribbean 250 299 355 1 000 732 643 662
Asia 2 596 3 559 8 205 8 921 4 964 - 2 776 - 2 467
West Asia 1 067 - 800 2 081 4 242 5 340 7 2 102
South, 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 13 536
Developed 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 9 075
Other Africa including
South Africa 2 479 4 727 5 226 8 611 5 976 7 944 6 459
Central and Eastern Europe
and 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 Estimates. For details, see “definitions and sources” in annex B.
b Annual average from 1990 to 1994.
c 1994.
d Annual average from 1992 to 1994.
e Annual average from 1993 to 1994.
f Annual average from 1991 to 1994.
g Annual average from 1990 to 1991.
h Least developed countries 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, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique,
Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan, Togo, Tuvalu,
Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
i Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran,Islamic Republic
of, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab Emirates
and Venezuela.
296 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.2. FDI outflows, by home region and economy, 1989-2000
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

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 3 346
Belgium and Luxembourg 6 126 11 603 8 026 7 252 28 675 122 304 82 977
Denmark 2 195 2 347 1 984 3 715 44 920 12 557 8 561
Finland 1 750 1 497 3 595 5 278 18 637 6 613 23 154
France 20 448 15 756 30 420 35 583 48 612 120 617 172 478
Germany 19 515 39 049 50 804 41 798 88 581 109 795 48 557
Greece - 14 b 66 a - 18 a 4a 262 - 555 - 2 141
Ireland 305 820 727 1 008 3 906 4 267 2 090
Italy 5 634 7 024 8 697 10 414 12 407 6 746 12 098
Netherlands 13 421 20 201 32 115 24 607 37 424 61 264 73 054
Portugal 305 688 784 1 908 3 009 3 340 5 784
Spain 3 125 4 076 5 397 12 626 18 926 42 084 53 716
Sweden 6 796 11 215 4 667 12 648 24 369 21 924 39 481
United 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 74 117 382

Norway 1 146 2 354 4 922 4 221 2 120 4 982 7 368
Switzerland 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 44 047

United 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 5 231
Israel 429 733 1 042 795 972 1 030 2 685 a
Japan 29 576 22 508 23 442 26 059 24 152 22 743 32 886
New Zealand 1 062 - 337 - 1 533 - 45 928 803 1 342 a
South Africa 645 2 498 1 044 2 351 1 779 1 949 564
Developing countries
and 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 51
Libyan Arab Jamahiriya - 47 83 63 282 304 226 271 a
Morocco 23 c 15 30 9 20 18 59
Tunisia 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 1
Botswana 9c 41 - 1 4 4 1 4
Burkina Faso 4d - - 1 5 5 4a
/...
AN N EX B 297

Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (continued)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

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 92 c 56 33 34 36 27 32 a
Equatorial Guinea -f - - .. .. .. ..
Ethiopia .. .. .. 8 171 - 46 44 a
Gabon 13 - 1a - 1a -a -a -a -a
Ghana .. .. 150 a 50 a 30 a 77 a 52 a
Kenya -g 13 25 5 14 30 40 a
Lesotho -h .. .. .. .. .. ..
Liberia 105 - 96 a - 430 a 1 028 a .. .. ..
Madagascar -i .. .. .. .. .. ..
Malawi .. .. 2a - 6 3a 3a
Mali -j - 4 5 27 50 6
Mauritania -k .. .. .. .. .. ..
Mauritius 15 4 3 3 14 6 13
Mozambique -i .. - - - -a -a
Namibia 2c - 4 - 22 1 1 2 2
Niger 9 2 18 8 10 - 6a
Nigeria 538 104 42 58 107 92 86 a
Rwanda -l .. .. - - -a -a
Senegal 8 - 3 2 - 10 6 18
Seychelles 3 16 13 10 3 9 7
Sierra Leone -c - .. .. .. .. ..
Swaziland 18 30 - 11 - 10 23 10 - 14
Togo 4 6 13 4 22 41 23
Uganda 30 119 11 15 20 - 8 9a
United Republic of Tanzania -m .. .. .. - -a -a
Zimbabwe 11 13 51 28 9 9 15 a
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 1 249 912

Bolivia 2 2 2 2 3 3 2a
Brazil 595 1 163 520 1 660 2 609 1 375 2 984
Chile 314 751 1 188 1 866 2 797 4 855 4 778
Colombia 65 285 68 442 1 041 623 625
Ecuador - 2d 2a 1a .. .. -a -a
Guyana -j -a - 1a .. .. -a -a
Paraguay 9c 5 5 6 6 6 6a
Peru 9j 8 - 17 85 24 220 a 110a
Uruguay 3 - 26 a 11a 13 9 11a 9
Venezuela 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 12
Bahamas - - - - 1 - -a
Barbados 2 3 4 1 - 1 1a
Belize 2 3 6 4 6 10 10
Bermuda 107 501 a - 144 a 1 853 a - 139 a 9 737 a 74 a
Cayman Islands 114 450 a 400 a 1 800 a 100 a 100 a 667 a
Costa Rica 4 6 6 4 5 5 3
Dominica - 2f .. .. - 2 2 2a
/...
298 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (continued)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Dominican Republic 7j 15 14 1a 1a 6 3a
El Salvador -f .. 2 .. .. 54 - 7
Grenada -l .. .. .. .. .. ..
Guatemala - 20 n - 24 a 2a 1a 2a 2a 2a
Haiti - 6c 1a 1a -a -a -a -a
Honduras -c - 2a - 2a - 1a - 1a 1a -a
Jamaica 47 c 66 93 57 82 95 74
Mexico 349 - 263 38 1 108 1 363 1 214 a 1 600 a
Netherlands Antilles 1 - - 1 242 a - 2 434 a - 2 712 a 36 a 1 108 a
Nicaragua -o .. - 9a .. .. - 2a -a
Panama 216 329 a 860 a 328 a 1 121 a - 124 a - 1 248 a
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 25
Virgin Islands 3 130 d 2 444 a 1 639 a 3 444 a - 830 a 1 500 a 1 371 a
Asia and the Pacific 20 346 41 147 51 934 49 423 28 680 35 474 85 253

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 48 181 163 131 a
Cyprus 10 16 35 27 57 166 83 a
Iran, Islamic Republic of 25j 3a -a 61 a 17 a 30 a 36 a
Jordan - 13 - 27 - 43 181 121 5 102 a
Kuwait 232 - 1 022 1 740 - 969 - 1 867 23 254
Lebanon 1 - 2a - 2a - 3a - 5a - 1a - 4a
Oman - 1a 1a - - 10 a 3a
Qatar .. 30 a 40 a 20 a 20 a 30 a 23 a
Saudi Arabia - 28 13 a 187 a 195 a - 472 a - 125 a - 134 a
Syrian Arab Republic .. - 100 - 89 - 80 - 82 - 263 - 142 a
Turkey 28 c 113 110 251 367 645 870
United Arab Emirates - 7 1a - 11a - 11a - 33 a - 27 a 61 a
Central Asia 1j 316 - 13 191 329 318 280
Armenia .. .. .. .. 12 13 8a
Azerbaijan .. 175 36 64 137 336 179 a
Georgia - 2n 2 - 14 7 44 1 17a
Kazakhstan -n - - 1 8 4 4
Kyrgyzstan .. .. - - - - -a
Tajikistan .. .. .. .. - 17 6a
Turkmenistan .. .. .. .. 68 - 45 8a
Uzbekistan 2j 139 - 35 118 60 - 8 57 a
South, East and
South-East Asia 20 040 41 824 49 663 49 482 29 985 34 447 83 641
Bangladesh - 2 13 5 30 24 20 a
Brunei Darussalam 26 p 20 a 40 a 10 a 10 a 20 a 13 a
Cambodia 2o .. .. .. .. .. ..
China 2 154 2 000 2 114 2 563 2 634 1 775 2 324 a
Hong Kong, China 9 236 25 000 a 26 531 a 24 407 a 16 973 19 339 63 036
India 19 119 244 113 48 79 336
Indonesia 752 1 319 600 178 44 72 150
Korea, Republic of 1 350 3 552 4 670 4 449 4 740 2 550 3 697
Lao People’s Democratic Republic - q - .. - 5 - - - 2a
Malaysia 681 2 488 3 768 2 626 785 1 640 2 919
Maldives -c - .. .. .. .. ..
/...
AN N EX B 299

Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (continued)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Mongolia .. 1a - 2e - 1a 1a
Myanmar - 12 n - 42 8 - 26 43 59 25 a
Pakistan 5 - 7 - 25 5 - 21 - 11
Philippines 139 98 182 136 160 128 95
Singapore 1 915 3 442 6 827 9 360 555 4 011 4 276
Sri Lanka 4 7 .. - - 5a 2a
Taiwan Province of China 3 578 2 983 3 843 5 243 3 836 4 420 6 701
Thailand 201 835 816 447 124 344 59
The Pacific 12 - 2 10 30 63 53 49
Fiji 15 - 3 10 30 63 53 49 a
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 13 d 6 30 186 97 35 28
Malta -d 5 6 17 15 45 30
Slovenia - 1j 6 8 26 11 38 48
TFYR Macedonia .. .. - 1 1 1 1a
Central and Eastern Europe 125 450 1 049 3 417 2 137 2 118 4 022
Albania 12 j 12 10 10 1 7a 6a
Belarus -o 8 3 2 2 - -
Bulgaria -h - 8 - 29 - 2 - 17 - 2
Czech Republic 77 j 37 153 25 127 90 118
Czechoslovakia (former) 12 g .. .. .. .. .. ..
Estonia 3j 2 40 137 6 83 157
Hungary 22 b 43 - 3 431 481 249 532
Latvia - 22 j - 65 3 6 54 17 8
Lithuania .. 1 - 27 4 9 13
Moldova, Republic of 18 n - - - - - -
Poland 14 42 53 45 316 31 126
Romania 8c 3 2 - - 9 16 - 11
Russian Federation 122 d 358 771 2 597 1 011 1 963 3 050
Slovakia 13 j 8 52 95 146 - 372 23
Ukraine 8n 10 - 5 42 - 4 7 1

Memorandum
Least developed countries s
Total 156 2 - 332 1 065 359 171 169
Africa 162 42 - 354 1 092 286 87 126
Latin America and the Caribbean - 6 1 1 - - - -
Asia and the Pacific - 2 - 41 21 - 27 73 84 43
Asia - 2 - 41 21 - 27 73 84 43
South, East and South-East Asia - 2 - 41 21 - 27 73 84 43
The Pacific - - - - - - -
Oil-exporting countries t
Total 1 905 528 3 427 291 - 1 540 1 032 1 097
Africa 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

/...
300 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.2. FDI outflows, by home region and economy, 1989-2000 (concluded)
(Millions of dollars)

1989-1994
Host region/economy (Annual average) 1995 1996 1997 1998 1999 2000

Latin America and the Caribbean 356 94 509 501 234 783 346
South America 357 93 508 500 233 519 321
Other Latin America and
the Caribbean - 1 1 1 1 264 25
Asia 1 034 249 2 813 - 549 - 2 183 - 67 396
West Asia 274 - 1 090 2 173 - 737 - 2 237 - 159 232
South, East and South-East Asia 761 1 339 640 188 54 92 163
All developing countries
minus China 22 771 46 987 55 470 63 182 35 116 56 203 97 222
Developed Asia 30 005 23 241 24 484 26 854 25 124 23 773 35 572
Developed 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 Estimates. For details, see “definitions and sources” in annex B.
b Annual average from 1991 to 1994.
c Annual average from 1990 to 1994.
d Annual average from 1993 to 1994.
e Annual average from 1990 to 1991.
f Annual average from 1989 to 1993.
g Annual average from 1989 to 1991.
h 1992.
i Annual average from 1990 to 1992.
j Annual average from 1992 to 1994.
k 1990.
l Annual average from 1990 to 1993.
m Annual average from 1992 to 1993.
n 1994.
o 1993.
p Annual average from 1991 to 1993.
q 1991.
r Annual average from 1989 to 1992.
s Least developed countries 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, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,
Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,
Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
t Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republic
of, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab
Emirates and Venezuela.
AN N EX B 301

Annex table B.3. FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a
(Millions 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 27 400

Belgium and Luxembourg 7 306 18 447 58 388 116 570 285 015 b 372 144 b
Denmark 4 193 3 613 9 192 23 801 36 420 52 168 c
Finland 540 1 339 5 132 8 465 18 315 23 037
France 22 862 d 33 636 d 100 043 185 374 240 797 266 653
Germany 36 630 36 926 119 619 192 898 284 899 460 953 c
Greece 4 524 8 309 14 016 e 19 306 e 21 993 e 23 107 e
Ireland 3 749 4 649 5 502 f 11 706f 43 031 f 59 351 f
Italy 8 892 18 976 57 985 63 456 108 542 115 085
Netherlands 19 167 24 952 66 958 112 433 192 578 247 589 c
Portugal 3 665 g 4 599 g 10 571 18 381 22 873 26 560
Spain 5 141 8 939 65 916 130 657 115 495 142 420
Sweden 2 891 4 333 12 461 31 089 74 018 76 980
United 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 98 263 432 391 385

Iceland .. i, j 64 j 147 129 476 518
Norway 6 577 k 7 412 k 12 391 19 513 30 738 l 37 091 l
Switzerland 8 506 10 058 34 245 57 063 77 893 87 232 c

North America 137 195 249 249 507 783 658 734 1 136 615 1 432 948

Canada 54 149 64 634 112 872 123 181 170 983 194 321
United 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 73 644 104 074 123 094 113 610
Israel 1 633 m 2 038 m 2 940 m 6 269 m 18 000 23 350 c
Japan 3 270 4 740 9 850 33 508 46 116 54 303 c
New Zealand 2 363 2 043 7 938 25 574 33 555 31 960
South Africa 16 519 9 024 9 221 15 016 51 777 52 654 c

Developing countries
and 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 1 407

Egypt h 2 260 5 703 11 043 14 102 17 770 19 005
Libyan Arab Jamahiriya h .. i .. i .. i .. i .. i .. i
Morocco h 189 440 917 3 034 5 647 5 848
Sudan h 28 76 54 53 893 1 285
Tunisia 5 835 n 6 876 n 7 259 11 038 12 075 11 566

/...
302 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.3. FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Host region/economy 1980 1985 1990 1995 1999 2000

Other Africa 10 627 15 878 24 168 36 561 56 750 62 034

Angola h 61 675 1 024 2 921 7 098 8 898

Benin h 32 34 159 386 548 578
Botswana 698 n 947 n 1 309 1 126 1 387 1 226
Burkina Faso h 18 24 39 86 138 150
Burundi h 7 24 30 33 36 47
Cameroon h 330 1 125 1 044 1 062 1 232 1 277
Cape Verde .. .. 4o 38 o 102 o 132 o
Central African Republic h 50 77 95 76 105 113
Chad h 123 187 243 305 369 419
Comoros p 2 2 17 19 26 28
Congo h 314 484 569 586 612 618
Congo, Democratic Republic of h 532 444 373 382 387 388
Côte d’Ivoire h 530 699 975 1 624 2 968 3 258
Djibouti q 3 3 6 14 35 40
Equatorial Guinea .. 6r 25 r 239 r 779 r 834 r
Eritrea .. .. .. .. -s -s
Ethiopia h 110 114 128 169 808 888
Gabon h 512 833 1 208 954 1 820 1 910
Gambia h 21 20 36 81 134 147
Ghana h 229 272 315 822 1 143 1 253
Guinea q 1 2 69 131 254 287
Guinea-Bissau t - 4 8 16 31 36
Kenya h 391 481 673 736 873 933
Lesotho u 5 26 155 1 343 2 296 2 519
Liberia h 599 991 2 184 2 246 2 304 2 318
Madagascar h 37 48 104 169 268 297
Malawi h 100 137 185 250 446 496
Mali v 12 33 38 162 371 427
Mauritania h .. i 39 57 92 103 104
Mauritius h 20 37 163 251 404 681
Mozambique h 15 17 42 202 933 1 072
Namibia 1 935 d 1 951 d 2 047 1 708 1 520 1 644
Niger h 188 203 284 361 415 427
Nigeria h 2 405 4 417 8 072 14 065 19 254 20 254
Rwanda h 54 133 213 231 244 248
São Tomé and Principe .. .. -o -o 1o 1o
Senegal h 150 188 268 333 712 818
Seychelles h 54 105 204 321 521 577
Sierra Leone h 77 66 .. i .. i 2 5
Somalia h 29 4 .. i .. i 58 78
Swaziland 243 w 104 336 535 559 414
Togo h 176 210 268 307 469 529
Uganda h 9 7 4 272 1 000 1 255
United Republic of Tanzania h 47 91 93 325 987 1 180
Zambia v 330 425 987 1 256 1 941 2 141
Zimbabwe 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 73 441 c

Bolivia 420 592 1 026 1 564 4 843 5 574 c
Brazil 17 480 25 664 37 143 42 530 164 105 197 652 c
Chile 886 2 321 10 067 15 547 39 258 x 42 933 x

/...
AN N EX B 303

Annex table B.3. FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Host region/economy 1980 1985 1990 1995 1999 2000

Colombia 1 061 2 231 3 500 6 407 19 408 19 682

Ecuador 719 982 1 626 3 434 6 088 y 6 796 y
Guyana h .. i .. i .. i 366 606 673
Paraguay h 218 298 396 884 1 661 1 756
Peru 898 1 152 1 330 5 991 8 890 9 900
Suriname h .. i 40 .. i .. i .. i .. i
Uruguay h 727 794 1 007 1 464 2 120 2 300
Venezuela 1 604 1 548 2 260 6 975 21 736 25 846 c

Other Latin America and

the Caribbean 20 707 37 536 49 979 89 457 190 108 221 198

Anguilla .. .. 11z 69 z 192 z 240 z

Antigua and Barbuda u 23 94 292 437 533 564
Aruba aa .. .. 132 204 959 732
Bahamas h 523 519 562 718 1 313 1 564
Barbados h 102 124 169 225 287 301
Belize h 12 10 73 153 256 284
Bermuda h 5 131 8 053 13 849 23 996 42 733 49 382
Cayman Islands ab 222 1 479 1 749 2 737 17 936 22 719
Costa Rica 672 957 1 447 2 733 y 4 798 y 5 198 y
Cuba h - - 2 40 84 97
Dominica u - 11 71 197 260 276
Dominican Republic 239 265 572 1 707 y 4 261 y 5 214 y
El Salvador 154 ac 181 ac 212 ac 293 1 815 2 001 c
Grenada u 1 13 70 167 319 357
Guatemala h 701 1 050 1 734 2 202 3 190 3 418
Haiti h 79 112 149 153 202 215
Honduras h 92 172 383 646 1 200 1 482
Jamaica h 501 458 727 1 504 2 784 3 240
Mexico 8 105a ad 18 802 ad 22 424 41 130 78 060 91 222
Montserrat .. .. 40 ae 62 ae 75 ae 77 ae
Netherlands Antilles h 539 27 177 293 5 450 6 227
Nicaragua h 109 109 115 354 1 108 1 373
Panama 2 426 g 3 107 g 2 163 g 3 245 6 711 7 104
Saint Kitts and Nevis af 1 32 160 244 373 411
Saint Lucia ag 93 197 315 512 756 831
Saint Vincent and the Grenadines p 1 9 48 181 451 527
Trinidad and Tobago 976 1 719 2 093 3 634 y 6 364 y 7 026 y
Virgin Islands ag 1 39 240 1 622 7 636 9 119

Asia and the Pacific 174 526 242 449 330 459 583 601 1 121 869 1 265 513

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 61 d 399 d 552 2 403 5 408 5 908 c

Cyprus h 460 789 1 146 1 576 1 816 1 879
Iran, Islamic Republic of h 2 609 2 427 1 686 1 944 2 079 2 115
Iraq h .. i .. i .. i .. i .. i .. i
Jordan ah 155 493 615 627 1 471 1 771
Kuwait h 30 33 26 12 510 527
Lebanon v 20 34 53 138 818 998
Oman h 481 1 200 1 721 2 208 2 455 2 517
Occupied Palestinian Territory .. .. .. .. 6ai 6ai
Qatar h 83 77 55 435 1 684 1 987

/...
304 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.3. FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Host region/economy 1980 1985 1990 1995 1999 2000

Saudi Arabia h .. i 21 828 22 500 22 423 27 845 28 845

Syrian Arab Republic h - 37 374 915 1 255 1 338
Turkey 107 360 1 320 5 103 y 8 353 y 9 335 y
United Arab Emirates h 409 482 751 1 769 2 542 2 642
Yemen 195 n 283 n 180 1 882 1 089 888

Central Asia .. .. .. 3 937 14 384 17 088

Armenia .. .. .. 34 m 441 574

Azerbaijan .. .. .. 352 aj 3 627 aj 4 510aj
Georgia .. .. .. 32 292 b 489 b
Kazakhstan .. .. .. 2 895 ak 8 092 ak 9 341 ak
Kyrgyzstan .. .. .. 144 419 b 438 k
Tajikistan .. .. .. 25 aj 96 aj 120 aj
Turkmenistan .. .. .. 200 aj 560 aj 660 aj
Uzbekistan .. .. .. 255 al 856 al 956 al

South, East and

South-East Asia 174 872 212 873 297 282 535 348 1 046 724 1 183 952

Afghanistan h 11 11 12 12 17 19
Bangladesh 63 112 147 am 180 am 703 am 873 am
Bhutan .. .. 2z 2z 3z 3z
Brunei Darussalam h 19 33 30 68 .. i .. i
Cambodia 191 n 191 n 191 n 498 605 758 c
China 6 251 m 10 499 m 24 762 m 137 435 m 305 922 l 346 694 l
Hong Kong, China 138 767 an 144 231 an 162 665 an 188 544 an 405 327 469 776 c
India 1 177 1 075 1 667 am 5 684 am 16 656 am 18 971 am
Indonesia 10 274 24 971 38 883 50 601 65 188 60 638 c
Korea, Democratic
People’s Republic of .. .. 572 o 716 o 1 041 o 1 149 o
Korea, Republic of 1 140 2 160 5 186 9 443 32 143 42 329
Lao People’s Democratic Republic h 2 - 13 211 587 659
Macau, China v 2 10 10 4 3 1
Malaysia 5 169 7 388 10 318 28 732 ao 48 773 ao 54 315 ao
Maldives q 5 3 25 61 105 117
Mongolia .. .. -ae 38 ae 127 ae 152 ar
Myanmar 5ap 5ap 173 ap 1 091 ap 2 287 2 408
Nepal 1 2 12 39 97 111
Pakistan 688 1 079 1 928 5 552 10 303 10 611c
Philippines 1 281 2 601 3 268 6 086 11 199 12 688 c
Singapore 6 203 13 016 28 565 59 582 82 859 b 89 250 b
Sri Lanka 231 517 681 am 1 297 am 2 248 am 2 465 am
Taiwan Province of China 2 405 2 930 9 735 am 15 736 am 22 996 am 27 924 am
Thailand 981 1 999 8 209 17 452 21 717 al 24 165 al
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 358 393 402 e 739 e 831 e 860 e

Kiribati .. -aq -aq 1aq 4aq 5aq
New Caledonia ah 12 12 53 87 100 105
Papua New Guinea 748 683 1 582 1 667 1 911l 2 111l
Samoa h - 1 8 28 54 62
Solomon Islands v 28 32 70 126 184 202

/...
AN N EX B 305

Annex table B.3. FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Host region/economy 1980 1985 1990 1995 1999 2000

Tonga .. -ar -ar 7ar 16 ar 19 ar

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 .. .. .. 66 an 165 b 282 b

Croatia .. .. .. 477 g 4 028 4 927 c
Maltaah 156 286 465 922 2 368 3 007
S lovenia .. .. 666 ac 1 763 2 684 2 865 c
TFYR Macedonia .. .. .. 33 aj 210 aj 380 aj

Central and Eastern Europe .. 49 2 996 36 424 101 968 124 715

Albania .. .. .. 201 al 425 al 517 al

Belarus .. .. .. 50 al 1 153 al 1 243 al
Bulgaria .. .. 108 an 445 an 2 403 3 404 ac
Czech Republic .. .. 1 363 as 7 350 17 552 21 095
Estonia .. .. .. 674 ag 2 441 2 840 ac
Hungary .. 49 an 569 10 007 19 299 19 863
Latvia .. .. .. 616 1 795 2 081
Lithuania .. .. .. 352 2 063 2 334
Moldova, Republic of .. .. .. 93 315 444
Poland .. .. 109 7 843 26 475 36 475 c
Romania .. .. 766 1 150 5 441 6 439 c
Russian Federation .. .. .. 5 465 16 541 19 245 c
Slovakia .. .. 81 1 268 2 817 4 892 c
Ukraine .. .. .. 910 3 248 3 843 c

Memorandum

Least developed countries at

Total 3 422 5 127 8 273 17 014 30 580 34 874

Africa 2 807 4 312 7 182 12 482 24 289 28 183
Latin America and the Caribbean 79 112 149 153 202 215
Asia and the Pacific 536 704 943 4 379 6 088 6 476
Asia 474 609 755 3 976 5 493 5 834
West Asia 195 283 180 1 882 1 089 888
South, 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 ..i
Other 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 39 668
South America 2 323 2 529 3 886 10 409 27 824 32 642
Other Latin America
and the Caribbean 976 1 719 2 093 3 634 6 364 7 026
Asia 7 829 51 438 66 549 82 755 108 887 106 420
West Asia ..i 26 434 27 636 32 086 43 757 45 859
South, East and South-East Asia 10 292 25 004 38 913 50 669 65 130 60 561

All developing countries minus China 234 586 336 739 462 932 711 941 1 434 455 1 632 568

/...
306 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.3. FDI inward stock, by host region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (concluded)
(Millions of dollars)

Host region/economy 1980 1985 1990 1995 1 999 2 000

Developed Asia 4 903 6 778 12 790 39 777 64 116 77 653

Developed 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 countries for which the stock data are estimated by either cumulating FDI flows or adding flows to FDI stock in a particular
year, notes are given below.
b Estimated by adding flows to the stock of 1998.
c Estimated by adding flows to the stock of 1999.
d Stock data prior to 1989 are estimated by subtracting flows.
e Estimated by adding flows to the stock of 1989.
f Estimated by adding flows to the stock of 1986.
g Stock data prior to 1996 are estimated by subtracting flows.
h Estimated by accumulating flows since 1970.
i Negative accumulation of flows. However, this value is included in the regional and global total.
j Stock data prior to 1988 are estimated by subtracting flows.
k Stock data prior to 1987 are estimated by subtracting flows.
l Estimated by adding flows to the stock of 1997.
m Stock data prior to 1997 are estimated by subtracting flows.
n Stock data prior to 1990 are estimated by subtracting flows.
o Estimated by accumulating flows since 1987.
p Estimated by accumulating flows since 1978.
q Estimated by accumulating flows since 1973.
r Estimated by accumulating flows since 1982.
s Estimated by accumulating flows since 1997.
t Estimated by accumulating flows since 1975.
u Estimated by accumulating flows since 1977.
v Estimated by accumulating flows since 1971.
w Stock data prior to 1981 are estimated by subtracting flows.
x Estimated by adding flows to the stock of 1995.
y Estimated by adding flows to the stock of 1990.
z Estimated by accumulating flows since 1990.
aa Estimated by accumulating flows since 1989.
ab Estimated by accumulating flows since 1974.
ac Stock data prior to 1993 are estimated by subtracting flows.
ad Stock data prior to 1990 are estimated by accumulating flows since 1970.
ae Estimated by accumulating flows since 1986.
af Estimated by accumulating flows since 1980.
ag Estimated by accumulating flows since 1976.
ah Estimated by accumulating flows since 1972.
ai Estimated by accumulating flows since 1996.
aj Estimated by accumulating flows since 1994.
ak Estimated by accumulating flows since 1993.
al Estimated by accumulating flows since 1992.
am Estimated by adding flows to the stock of 1988.
an Stock data prior to 1998 are estimated by subtracting flows.
ao Estimated by adding flows to the stock of 1994.
ap Stock data prior to 1999 are estimated by accumulating flows since 1971.
aq Estimated by accumulating flows since 1983.
ar Estimated by accumulating flows since 1984.
as Stock data prior to 1992 are estimated by subtracting flows.
at Least developed countries 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, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,
Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,
Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
au Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republic
of, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab
Emirates and Venezuela.
Note : For data on FDI stock which are calculated as an accumulation of flows, price changes are not taken into account.
AN N EX B 307

Annex table B.4. FDI outward stock, by home region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a
(Millions of dollars)

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 21 100
Belgium and Luxembourg 6 037 9 551 40 636 88 526 256 667 b 339 644 b
Denmark 2 065 1 801 7 342 24 703 37 550 46 111b
Finland 737 1 829 11 227 14 993 33 849 53 046
France 23 599 d 37 072 d 120 179 207 992 348 325 496 741
Germany 43 127 59 909 148 457 258 142 394 254 442 811 c
Greece 853 e 853 e 853 e 865 e 557 e .. b, f
Ireland .. 202 g 2 150 g 4 037 g 13 94 g 16 035 g
Italy 7 319 16 600 57 261 109 176 181 871 176 225
Netherlands 42 135 47 772 102 608 167 556 252 827 325 881 c
Portugal 511h 583 h 900 h 3 173 h 11 385 17 351
Spain 1 931 4 455 15 652 43 685 106 786 160 202
Sweden 3 721 10 768 49 491 73 143 107 331 115 574
United 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 63 i 63 i 75 180 452 698
Norway 561 1 093 10 888 22 514 36 765j 44 133 j
Switzerland 21 491 25 093 66 087 142 479 192 422 232 045 c
North America 243 955 294 161 515 350 817 120 1 317 986 1 445 532
Canada 23 777 43 127 84 829 118 105 187 197 200 878
United 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 83 220

Israel 179 k 661 k 1 169 3 937 7 177 9 862 c
Japan 19 610 43 970 201 440 238 452 248 778 281 664 c
New Zealand 529 l 1 508 l 6 398 l 7 630 7 155 6 906
South Africa 5 722 8 963 15 027 23 305 32 993 33 557 c
Developing countries
and 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 98 156 183 233 233 233
Egypt n 39 91 163 365 582 633
Libyan Arab Jamahiriya o 162 207 517 175 1 050 1 320
Morocco n 116 116 130 247 324 383
Tunisia 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 53
Botswana 440 k 440 k 447 650 597 519
Burkina Faso q 3 3 3 12 23 27

/...
308 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.4. FDI outward stock, by home region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Home region/economy 1980 1985 1990 1995 1999 2000

Burundi .. .. -r -r 2r 2r
Cameroon s 23 53 150 227 227 227
Cape Verde .. .. 1t 5t 5t 6t
Central African Republic u - 2 18 46 71 77
Chad v - 1 36 80 105 111
Comoros p .. .. 1w 2w 2w 2w
Côte d’Ivoire .. .. 31 w 517 w 647 w 679 w
Equatorial Guinea .. .. -r -r -r -r
Ethiopia .. .. .. .. 133 x 177 x
Gabon q 78 103 164 206 203 203
Ghana .. .. .. .. 307 y 359 y
Guinea .. .. .. .. -y -y
Kenya u 18 60 99 112 186 226
Lesotho .. .. -t -t -t -t
Liberia z 48 361 453 717 1 315 1 315
Madagascar .. .. .. -aa - aa -aa
Malawi .. .. .. .. 11ab 15 ab
Mali u 22 22 22 22 107 113
Mauritania .. .. 3ac 3ac 3ac 3ac
Mauritius .. - 2ad 94 ad 120 ad 133 ad
Mozambique .. .. .. -aa -aa -aa
Namibia .. .. 80 20 39 41 c
Niger q 2 8 54 109 145 152
Nigeria v 5 5 193 9 653 10 957 11 256 11 341
Rwanda .. .. -w -w -w -w
Senegal o 7 43 49 96 113 131
Seychelles ae 14 44 61 94 129 136
Swaziland 19 9 38 136 95 95
Togo af 8 8 12 40 120 144
Uganda .. .. .. 255 ag 292 ag 301 ag
Zimbabwe .. 10 ah 88 ah 137 ah 234 ah 249 ah
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 6 128 ai 6 079 ai 6 105 ai 10 696 19 277 20 189 c
Bolivia -aj 1aj 9 18 27 29 c
Brazil 652 1 361 2 397 5 941 ak 12 105 ak 15 089 ak
Chile 42 102 178 2 809 al 13 515 al 18 293 al
Colombia 136 301 402 1 027 3 202 3 827
Ecuador .. .. .. 2am 4am 4am
Guyana m .. .. .. 2an 1an 1an
Paraguay m 126 ao 138 ao 137 ao 179 208 214
Peru 3 38 63 567 494 348
Uruguay m 16 ap 32 42 aq 20 aq 64 aq 73 aq
Venezuela 23 165 1 221 3 427 5 710 6 031 c

Other Latin America

and the Caribbean 1 993 5 703 8 922 23 519 43 258 46 953

Aruba an .. .. .. 10 2 13
Bahamas ar 285 154 1 535 1 286 2 163 2 164 c
Barbados m 5 12 23 32 39 40
Belize .. .. .. 12 aa 37 aa 47 aa
Bermuda as 724 2 002 1 550 2 321 13 628 13 702
Cayman Islands at 10 740 868 1 940 4 340 5 007
Costa Rica v 7 27 44 67 87 90
Dominica .. .. .. .. 5x 7x
Dominican Republic .. .. .. 38 an 59 an 62 an
/...
AN N EX B 309

Annex table B.4. FDI outward stock, by home region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Home region/economy 1980 1985 1990 1995 1999 2000

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 42 308 635 709
Mexico 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 5 510
Saint Kitts and Nevis .. .. - w .. f, w .. f, w .. f, w
Saint Lucia .. .. - w - w - w - w
Saint Vincent and the Grenadines .. .. 1 aw - aw - aw - aw
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 ax 657 ax 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 186 288
Kuwait u 568 930 3 662 2 802 1 729 1 983
Lebanon as 1 40 .. f .. f .. f .. f
Oman as 1 40 7 5 16 19
Qatar .. .. .. 30 am 140 am 163 am
Saudi Arabia as 228 420 1 811 1 685 1 470 1 335
Syrian 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 45
Yemen .. 4 ay 5 ay 5 ay 5 ay 5 ay

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 25 842
Lao 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

/...
310 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.4. FDI outward stock, by home region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (continued)
(Millions of dollars)

Home region/economy 1980 1985 1990 1995 1999 2000

Sri Lanka .. 1ad 8ad 37 ad 42 ad 43 ad

Taiwan Province of China 97 204 12 888 be 25 144 be 42 486 be 49 187 be
Thailand 13 14 404 2 173 2 312 b 2 371 b
The Pacific 13 37 93 139 295 343
Fiji at 2 15 87 132 287 336
Kiribati .. .. .. -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 .. .. .. 13 an 40 an 40 an
Croatia .. .. .. 703 1 024 1 052 c
Malta .. .. .. 5an 87 an 117an
Slovenia .. .. 258 504 607 655 c
TFYR Macedonia .. .. .. .. 4y 5y
Central and Eastern Europe 4 25 358 5 353 13 492 17 377
Albania .. .. .. 48 ag 76 ag 82 ag
Belarus .. .. .. 8an 16 an 16 an
Bulgaria .. .. .. 105 bf 90 88 c
Czech Republic .. .. .. 345 698 784
Estonia .. .. .. 68 h 272 429 c
Hungary .. .. 197 383 1 565 2 012
Latvia .. .. .. 231 244 241
Lithuania .. .. .. 1 26 29
Moldova, Republic of .. .. .. 18 19 19
Poland 4k 25 k 95 539 1 365 1 491 c
Romania .. .. 66 121 133 122 c
Russian Federation .. .. .. 3 015 8 586 11 637c
Slovakia .. .. .. 374 296 ab 320 ab
Ukraine .. .. .. 97 105 106 c
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 3
Asia and the Pacific - 4 11 ..f 113 156
Asia - 4 11 ..f 113 156
West Asia .. 4 5 5 5 5
South, 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 26 830
Africa 343 5 658 10 517 11 571 12 742 13 098
North Africa 260 362 700 408 1 283 1 554
Other 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 6 348
South America 23 165 1 221 3 429 5 714 6 035
Other Latin America
and the Caribbean .. 15 20 21 288 313
Asia 1 431 2 115 6 324 6 975 6 989 7 385
West Asia 1 431 2 066 6 299 5 609 4 649 4 881
South, East and South-East Asia - 49 25 1 366 2 340 2 503
/...
AN N EX B 311

Annex table B.4. FDI outward stock, by home region and economy,
1980, 1985, 1990, 1995, 1999 and 2000 a (concluded)
(Millions of dollars)

Home region/economy 1980 1985 1990 1995 1999 2000

All developing countries minus China 16 445 32 416 77 333 237 060 586 476 683 094
Developed Asia 19 789 44 631 202 609 242 389 255 955 291 527
Developed 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 Europe
and Developing Europe 4 25 616 6 573 15 167 19 129
S o u r c e: UNCTAD, FDI/TNC database.
a For the countries for which the stock data are estimated by either cumulating FDI flows or adding flows to FDI stock in a particular
year, notes are given below.
b Estimated by adding flows to the stock of 1997.
c Estimated by adding flows to the stock of 1999.
d Stock data prior to 1987 are estimated by subtracting flows.
e Stock data prior to 1997 are estimated by subtracting flows.
f Negative accumulation of flows. However, this value is included in the regional and global total.
g Estimated by accumulating flows since 1984.
h Stock data prior to 1996 are estimated by subtracting flows.
i Stock data prior to 1988 are estimated by subtracting flows.
j Estimated by adding flows to the stock of 1996.
k Stock data prior to 1990 are estimated by subtracting flows.
l Stock data prior to 1992 are estimated by subtracting flows.
m Estimated by accumulating flows since 1970.
n Estimated by accumulating flows since 1977.
o Estimated by accumulating flows since 1972.
p Estimated by accumulating flows since 1979.
q Estimated by accumulating flows since 1974.
r Estimated by accumulating flows since 1989.
s Estimated by accumulating flows since 1973.
t Estimated by accumulating flows since 1988.
u Estimated by accumulating flows since 1975.
v Estimated by accumulating flows since 1978.
w Estimated by accumulating flows since 1990.
x Estimated by accumulating flows since 1997.
y Estimated by accumulating flows since 1996.
z Estimated by using the inward stock of the United States as a proxy and accumulating flows since 1994.
aa Estimated by accumulating flows since 1991.
ab Estimated by adding flows to the stock of 1998.
ac Estimated by accumulating flows since 1986.
ad Estimated by accumulating flows since 1985.
ae Estimated by accumulating flows since 1976.
af Estimated by accumulating flows since 1971.
ag Estimated by accumulating flows since 1992.
ah Estimated by accumulating flows since 1983.
ai Stock data prior to 1991 are estimated by subtracting flows.
aj Stock data prior to 1986 are estimated by accumulating flows since 1980.
ak Estimated by adding flows to the stock of 1990.
al Estimated by adding flows to the stock of 1992.
am Estimated by accumulating flows since 1995.
an Estimated by accumulating flows since 1993.
ao Stock data prior to 1995 are estimated by subtracting flows.
ap Stock data prior to 1983 are estimated by subtracting flows.
aq Estimated by adding flows to the stock of 1987.
ar Estimated by using the inward stock of the United States as a proxy and accumulating flows since 1999.
as Estimated by using the inward stock of the United States as a proxy and accumulating flows since 1993.
at Estimated by accumulating flows since 1980.
au Estimated by using the inward stock of the United States as a proxy up to 1991.
aw Estimated by accumulating flows since 1987.
ax Stock data prior to 1989 are estimated by subtracting flows.
ay Estimated by accumulating flows since 1982.
az Estimated by accumulating flows since 1998.
ba Estimated by adding flows to the stock of 1989.
bb 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 from 1984 to 1997.
bc Estimated by using the inward stock of the United States as a proxy up to 1992.
b d Estimated by accumulating flows since 1994.
b e Estimated by adding flows to the stock of 1988.
b f Stock data prior to 1998 are estimated by subtracting flows.
b g Least developed countries 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, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,
Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,
Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
b h Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran,Islamic Republic
of, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab
Emirates and Venezuela.
Note : For data on FDI stock which are calculated as an accumulation of flows, price changes are not taken into account.
312 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
World
inward 4.1 5.3 5.9 7.5 10.9 16.3
outward 4.9 5.7 6.2 7.4 11.6 15.4
Developed countries
inward 3.7 4.4 4.8 6.1 10.6 17.0
outward 5.5 6.7 7.2 8.9 14.7 19.4
Western Europe
inward 5.3 6.6 6.4 8.3 15.6 27.3
outward 7.6 9.7 11.4 14.6 27.0 42.8
European Union
inward 5.4 6.7 6.5 8.1 15.7 27.7
outward 7.5 9.4 10.8 14.0 27.2 42.6

Austria
inward 2.7 3.5 8.2 5.5 9.1 5.9
outward 3.6 2.1 3.6 4.1 5.5 6.5
Belgium and Luxembourg
inward 19.7 17.9 24.3 22.2 40.3 213.4
outward 13.3 19.4 13.9 13.4 50.9 218.0
Denmark
inward 7.5 9.5 1.7 7.5 20.8 33.0
outward 8.6 6.9 5.8 11.3 127.4 36.3
Finland
inward 3.5 5.0 5.1 9.6 50.3 20.4
outward 8.2 7.1 16.6 24.0 77.3 29.2
France
inward 4.8 8.1 7.6 9.2 11.7 17.5
outward 7.9 5.4 10.6 14.1 18.3 45.0
Germany
inward 1.0 2.2 1.3 2.7 5.4 11.8
outward 5.2 7.1 9.8 9.2 19.6 23.1
Greece
inward 5.3 4.8 4.4 4.1 - 2.0
outward - - - - 1.0 -2.0
Ireland
inward 10.9 12.8 19.2 17.0 58.4 92.0
outward 3.9 7.2 5.3 6.2 20.7 26.3
Italy
inward 1.6 2.4 1.6 1.8 1.2 3.1
outward 2.6 3.5 3.8 4.9 5.7 3.1
Netherlands
inward 12.3 15.8 20.6 15.3 50.2 56.4
outward 22.7 26.0 41.1 33.7 49.5 81.1
Portugal
inward 9.9 2.8 5.8 9.6 11.2 4.0
outward 1.5 2.8 3.0 7.4 10.9 11.5
Spain
inward 10.1 5.3 5.6 7.0 10.7 13.1
outward 2.9 3.5 4.6 11.5 14.3 35.0
Sweden
inward 9.4 38.9 12.3 31.1 52.0 153.7
outward 16.3 30.2 11.3 35.8 64.8 55.4
United Kingdom
inward 10.7 10.9 12.5 15.1 28.7 32.5
outward 14.0 23.7 17.4 28.0 49.5 80.6

/...
AN N EX B 313

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999

Other Western Europe

inward 3.7 3.8 5.5 11.2 13.6 20.7
outward 11.0 15.0 22.3 25.3 23.0 46.8
Iceland
inward 0.7 -0.8 5.7 9.6 7.4 3.1
outward 1.2 2.0 4.3 3.5 3.7 6.0
Norway
inward 3.1 4.8 6.2 8.4 9.1 19.7
outward 4.6 7.7 14.7 11.9 5.8 14.6
Switzerland
inward 4.0 3.4 5.1 13.2 17.1 22.0
outward 14.1 18.6 27.0 35.3 35.8 69.6
North America
inward 4.8 5.6 7.1 8.0 11.8 18.0
outward 5.4 8.6 7.4 8.3 9.9 9.1

Canada
inward 5.2 9.4 9.2 9.7 19.2 20.0
outward 5.3 11.7 12.5 19.3 29.5 14.7
United States
inward 4.8 5.3 7.0 7.9 11.3 17.9
outward 5.4 8.3 7.0 7.3 8.5 8.6
Other developed countries
inward 0.8 1.1 0.7 1.4 1.1 1.8
outward 3.0 1.8 2.1 2.6 2.8 1.8
Australia
inward 8.1 14.5 6.7 8.1 6.9 6.7
outward 3.6 4.0 7.8 6.8 3.9 -3.1
Israel
inward 2.7 6.4 6.1 7.3 8.7 11.9
outward 3.0 3.5 4.6 3.6 4.8 5.2
Japan
inward - - - - - 1.1
outward 2.9 1.5 1.7 2.2 2.4 1.9
New Zealand
inward 24.2 29.0 16.0 20.0 11.7 11.4
outward 12.0 -2.7 -11.0 - 9.1 6.5
South Africa
inward - 5.2 3.5 15.8 2.5 7.6
outward 3.2 10.4 4.5 9.7 8.0 9.8
Developing countries and economies
inward 5.2 7.7 9.1 10.9 11.7 13.8
outward 2.4 3.3 3.7 3.9 2.8 3.3
Africa
inward 5.8 6.7 7.6 9.1 8.8 10.4
outward 1.7 1.1 - 3.0 1.4 1.0
North Africa
inward 3.6 2.9 2.8 5.2 4.5 4.9
outward - 0.7 - 1.4 1.0 0.8

/...
314 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Algeria
inward - - - - - -
outward - .. .. .. .. ..
Egypt
inward 5.7 5.3 5.1 6.1 6.1 5.6
outward - 0.8 - 0.9 - -
Libyan Arab Jamahiriya
inward 2.0 -2.5 -2.7 -1.5 -2.8 -2.5
outward -0.9 1.9 1.3 5.3 5.6 4.5
Morocco
inward 5.7 4.7 5.0 15.6 4.1 9.9
outward - - - - - -
Sudan
inward - - - 3.8 14.7 14.6
outward .. .. .. .. .. ..
Tunisia
inward 9.2 8.7 7.7 7.8 13.6 7.0
outward - - - - - -

Other Africa
inward 9.6 11.9 14.4 14.2 14.7 18.9
outward 5.3 1.6 - 4.9 1.8 1.3
Angola
inward 34.1 51.2 31.2 23.1 73.8 191.5
outward - - - - - -
Benin
inward 22.8 3.5 9.2 7.1 9.3 13.9
outward .. .. 3.1 3.2 0.5 5.3
Botswana
inward -3.0 6.4 6.6 8.8 8.0 2.6
outward 0.8 3.7 - - - -
Burkina Faso
inward 1.5 1.8 2.6 1.9 1.4 1.8
outward 1.0 - - - 0.8 0.6
Burundi
inward - 1.9 - - 3.4 -
outward - 0.5 - - 0.7 1.0
Cameroon
inward -1.5 0.6 2.5 3.1 3.1 2.7
outward 1.0 - .. .. .. ..
Cape Verde
inward 1.1 12.6 15.0 6.1 4.5 7.8
outward 0.6 - - - - -
Central African Republic
inward -2.0 2.0 13.5 6.3 3.6 14.8
outward 3.7 4.0 16.6 7.4 4.5 7.1
Chad
inward 12.9 7.8 9.3 6.8 6.6 6.9
outward 10.5 5.1 3.4 2.4 2.8 2.8
Comoros
inward 2.7 2.3 5.0 5.2 5.1 2.6
outward 2.4 .. .. .. .. ..
Congo
inward 0.7 - 1.0 1.8 0.8 1.1
outward .. .. .. .. .. ..
Congo, Democratic Republic of
inward - - - - - -
outward .. .. .. .. .. ..
/...
AN N EX B 315

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Côte d’Ivoire
inward 9.2 20.9 22.4 29.6 15.7 17.2
outward 11.5 4.4 2.4 2.3 1.8 1.7
Djibouti
inward 1.7 7.7 11.2 10.5 13.4 11.0
outward .. .. .. .. .. ..
Equatorial Guinea
inward 43.8 108.4 135.2 6.5 6.2 37.1
outward - - - .. .. ..
Eritrea
inward .. .. .. - -0.6 0.5
outward .. .. .. .. .. ..
Ethiopia
inward 0.8 1.6 1.9 27.5 23.4 6.2
outward .. .. .. 0.8 15.3 -4.2
Gabon
inward -2.2 -10.5 23.7 10.5 11.8 13.5
outward 1.1 - - - - -
Gambia
inward 12.9 10.1 14.4 18.0 18.7 18.2
outward .. .. .. .. .. ..
Ghana
inward 6.1 7.8 8.4 5.0 3.4 4.0
outward .. .. 10.5 3.1 1.8 4.9
Guinea
inward 3.1 - 3.3 2.3 2.6 8.8
outward .. .. - .. .. ..
Guinea-Bissau
inward 2.3 - 2.0 27.3 1.5 6.2
outward .. .. .. .. .. ..
Kenya
inward 1.5 1.7 0.7 2.1 2.2 2.6
outward - 0.7 1.4 - 0.8 1.9
Lesotho
inward 37.0 48.2 52.0 47.8 60.2 31.4
outward - .. .. .. .. ..
Liberia
inward 149.0 21.6 17.6 15.5 16.5 10.3
outward 110.2 -98.7 -444.8 1 064.0 .. ..
Madagascar
inward 4.4 2.8 2.2 3.2 3.4 12.7
outward - .. .. .. .. ..
Malawi
inward 4.0 12.3 19.6 8.9 36.1 26.8
outward .. .. 0.9 - 2.9 1.3
Mali
inward 0.6 20.5 7.6 12.6 5.7 8.4
outward - - 0.6 0.8 4.3 8.1
Mauritania
inward 3.8 3.8 4.0 1.8 - 1.2
outward - .. .. .. .. ..
Mauritius
inward 3.2 1.9 3.3 5.0 1.3 4.2
outward 1.7 - - - 1.4 0.5
Mozambique
inward 4.9 8.2 12.9 10.3 24.3 55.5
outward - .. - - - -

/...
316 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Namibia
inward 13.4 21.4 17.3 14.2 14.0 17.7
outward - - -2.9 - - -
Niger
inward 6.6 8.3 8.4 11.1 3.5 -
outward 3.8 1.0 7.4 3.6 4.0 -
Nigeria
inward 37.3 23.9 35.4 25.2 12.7 16.0
outward 15.8 2.3 0.9 1.0 1.3 1.5
Rwanda
inward 2.4 1.0 1.0 0.9 2.2 0.5
outward - .. .. - - -
São Tomé and Principe
inward -1.4 - 1.7 0.8 2.3 1.6
outward .. .. .. .. .. ..
Senegal
inward 3.2 5.3 0.7 22.4 6.4 16.4
outward 1.2 -0.5 - - 1.1 0.7
Seychelles
inward 21.1 26.2 18.0 31.7 26.3 33.0
outward 2.7 10.4 7.9 5.8 1.4 4.9
Sierra Leone
inward 11.4 -3.1 10.5 29.9 19.2 2.8
outward - -0.6 .. .. .. ..
Somalia
inward -1.2 - .. .. - 29.0
outward .. .. .. .. .. ..
Swaziland
inward 32.0 10.3 6.1 -3.5 116.2 28.9
outward 7.7 7.1 -3.1 -2.3 16.2 3.1
Togo
inward 2.5 19.3 14.1 12.6 20.2 35.8
outward 1.7 2.9 6.7 2.4 10.8 21.0
Uganda
inward 3.5 11.9 12.5 17.1 20.4 22.1
outward 4.5 11.7 1.1 1.5 1.9 -0.8
United Republic of Tanzania
inward 1.4 14.6 13.9 14.0 12.8 13.8
outward - .. .. .. - -
Zambia
inward 23.9 10.5 8.2 14.1 15.6 11.7
outward .. .. .. .. .. ..
Zimbabwe
inward 0.8 6.8 4.2 8.0 44.0 3.8
outward 0.7 0.8 2.7 1.7 0.9 0.6

Latin America and the Caribbean

inward 6.2 9.6 12.3 15.9 17.6 27.3
outward 1.0 1.2 1.4 2.5 2.9 3.1
South America
inward 4.5 7.4 11.3 15.1 18.1 35.4
outward 1.1 1.4 1.4 2.8 3.1 4.1
Argentina
inward 8.6 12.1 14.1 16.1 12.2 47.7
outward 1.1 3.2 3.3 6.4 3.9 2.5

/...
AN N EX B 317

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Bolivia
inward 11.8 35.9 35.6 58.4 49.1 62.3
outward - - - - - -
Brazil
inward 1.7 3.8 7.0 11.7 18.4 31.3
outward 0.7 0.8 - 1.0 1.7 1.4
Chile
inward 13.7 19.0 27.1 27.2 24.4 62.4
outward 3.0 4.8 7.0 9.7 14.7 32.8
Colombia
inward 3.6 6.4 9.0 13.6 24.4 38.6
outward 0.7 1.4 - 2.0 6.1 6.0
Ecuador
inward 10.3 14.1 14.5 18.5 20.1 16.9
outward - - - .. .. -
Guyana
inward 26.3 26.4 30.0 15.9 22.5 17.1
outward - .. - .. .. -
Paraguay
inward 5.5 4.7 6.6 10.6 17.7 3.9
outward - - - - - -
Peru
inward 7.9 15.8 25.7 12.0 13.8 17.5
outward - - - 0.6 - 2.0
Suriname
inward -22.9 -7.7 6.6 -2.9 3.1 -6.1
outward .. .. .. .. .. ..
Uruguay
inward 3.4 6.0 4.8 4.1 4.9 7.5
outward - -1.0 - - - -
Venezuela
inward 7.5 7.7 19.6 33.3 24.6 19.6
outward 3.6 0.7 4.6 3.0 1.3 3.2
Other Latin America and the Caribbean
inward 10.2 18.5 15.7 18.4 16.1 13.5
outward 0.9 - 1.3 1.6 2.4 1.2
Antigua and Barbuda
inward 25.0 17.3 9.0 10.1 10.3 8.9
outward -0.7 -1.1 - -0.9 .. -
Aruba
inward .. .. .. .. .. ..
outward .. .. .. .. .. ..
Bahamas
inward 1.6 15.3 14.3 32.7 22.6 23.5
outward - - - - - -
Barbados
inward 4.7 4.5 5.3 4.4 5.5 5.9
outward 0.7 1.3 1.4 - - -
Belize
inward 12.9 16.0 12.1 8.2 12.4 27.5
outward 1.4 2.0 4.1 2.7 3.6 4.8
Costa Rica
inward 12.8 15.1 20.9 17.3 21.0 20.6
outward - - - - - -
Dominica
inward 28.8 74.6 25.4 26.1 8.6 23.9
outward -2.9 .. .. 1.1 3.2 2.7
/...
318 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Dominican Republic
inward 8.8 18.1 3.9 14.3 19.1 31.0
outward - 0.6 0.6 - - -
El Salvador
inward 1.3 2.1 - 3.3 55.6 11.5
outward - .. - .. .. 2.7
Grenada
inward 21.0 22.5 18.7 30.7 39.9 30.9
outward - .. .. .. .. ..
Guatemala
inward 6.3 3.5 3.7 3.1 20.7 4.8
outward -1.1 -1.1 - - - -
Haiti
inward - -0.7 1.0 1.0 2.4 5.7
outward -3.0 - - .. .. -
Honduras
inward 6.2 7.3 9.5 10.8 6.4 14.2
outward - - - - - -
Jamaica
inward 12.7 8.9 9.8 9.4 18.6 26.1
outward 4.0 4.0 4.9 2.6 4.1 4.7
Mexico
inward 10.1 20.6 16.7 17.7 13.2 11.7
outward 0.5 -0.6 - 1.4 1.5 1.2
Nicaragua
inward 7.8 16.7 19.0 28.3 26.6 31.1
outward - .. -1.8 .. .. -
Panama
inward 17.0 13.0 19.9 54.7 46.4 18.3
outward 49.4 16.0 41.8 14.3 42.7 -4.4
Saint Kitts and Nevis
inward 31.0 24.2 31.2 16.3 25.9 37.8
outward - -2.4 -1.8 -1.7 -0.8 -0.9
Saint Lucia
inward 35.2 31.2 15.1 33.4 70.9 73.8
outward - - .. .. .. ..
Saint Vincent and the Grenadines
inward 33.8 38.5 54.1 106.2 88.3 51.5
outward - .. - .. .. ..
Trinidad and Tobago
inward 32.3 37.0 37.3 65.2 46.9 47.7
outward - - - - - 19.6

Asia and the Pacific

inward 4.9 7.2 8.2 9.3 9.5 9.6
outward 3.0 4.1 4.7 4.4 2.9 3.5
Asia
inward 4.9 7.2 8.2 9.3 9.5 9.6
outward 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 -
Bahrain
inward 24.9 42.5 271.1 43.3 20.7 49.7
outward 6.1 -1.6 40.4 6.3 20.8 18.1

/...
AN N EX B 319

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Cyprus
inward 6.2 4.8 2.8 4.4 3.5 3.9
outward 0.7 0.9 1.9 1.7 3.5 10.0
Iran, Islamic Republic of
inward - - - - - -
outward - - - - - -
Jordan
inward 0.5 0.7 0.8 19.3 18.5 9.7
outward -0.7 -1.4 -2.1 9.7 7.2 -
Kuwait
inward - - 7.9 - 1.4 1.9
outward 8.4 -27.7 39.5 -23.7 -45.4 0.6
Lebanon
inward 0.8 1.0 2.0 3.8 4.2 5.9
outward - - - - - -
Oman
inward 6.9 1.4 2.9 2.3 3.0 0.9
outward - - - - - -
Occupied Palestinian Territory
inward .. .. - .. .. -
outward .. .. .. .. .. ..
Qatar
inward 3.2 3.8 10.7 12.1 11.5 4.5
outward .. 1.2 1.3 0.6 0.7 0.9
Saudi Arabia
inward 2.1 -7.5 -4.7 11.1 16.6 -3.1
outward - - 0.8 0.7 -1.8 -
Syrian Arab Republic
inward 1.5 0.7 0.6 0.6 0.6 0.6
outward .. -0.7 -0.6 -0.6 -0.6 -1.8
Turkey
inward 2.1 2.2 1.6 1.6 1.9 1.9
outward - - - 0.5 0.7 1.6
United Arab Emirates
inward 0.9 3.7 2.7 1.8 1.9 -
outward - - - - - -
Yemen
inward 8.2 -9.0 -4.0 -12.0 -16.2 -24.3
outward .. .. .. .. .. ..
Central Asia
inward 3.8 13.8 15.1 26.6 27.8 21.4
outward - 3.0 - 1.7 2.5 3.1
Armenia
inward 2.0 12.2 6.2 19.5 75.7 42.9
outward .. .. .. .. 3.8 4.3
Azerbaijan
inward 2.5 73.1 67.9 78.0 64.2 38.8
outward .. 38.8 3.9 4.5 8.6 25.5
Georgia
inward 19.4 3.9 16.4 64.6 66.1 23.5
outward -4.9 1.4 -5.2 1.8 11.0 -
Kazakhstan
inward 13.3 25.1 31.4 36.7 30.4 43.3
outward - - - - - -
Kyrgyzstan
inward 14.7 31.2 11.3 37.2 50.3 17.7
outward .. .. - - - -
/...
320 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Tajikistan
inward 2.1 5.1 3.3 0.9 7.5 4.8
outward .. .. .. .. - 4.0
Uzbekistan
inward 1.4 2.0 0.8 5.3 3.6 2.3
outward - 2.3 -0.5 2.2 1.5 -
South, East and South-East Asia
inward 5.9 8.2 9.1 10.1 10.4 11.2
outward 3.5 4.8 5.2 5.2 3.7 4.1
Bangladesh
inward - - - 2.9 3.8 3.2
outward - - - - 0.6 -
Bhutan
inward 1.2 - 1.0 -0.5 .. ..
outward .. .. .. .. .. ..
Cambodia
inward 17.1 23.5 36.1 34.7 28.0 22.2
outward 0.7 .. .. .. .. ..
China
inward 7.9 14.7 14.3 14.6 12.9 11.3
outward 1.3 0.8 0.8 0.8 0.8 -
Hong Kong, China
inward 14.8 14.6 21.7 19.8 29.9 60.2
outward 30.2 58.7 55.1 42.5 34.3 47.4
India
inward 0.6 2.4 2.9 3.8 2.9 2.4
outward - - - - - -
Indonesia
inward 4.0 7.6 9.2 7.7 -1.6 -11.0
outward 1.6 2.3 0.9 - - -
Korea, Republic of
inward 0.8 1.0 1.2 1.7 5.7 9.3
outward 1.2 2.0 2.4 2.7 5.0 2.2
Lao People’s Democratic Republic
inward 19.4 20.7 29.4 19.2 14.6 17.8
outward - - .. -1.1 - -
Macau, China
inward - - - - -1.1 0.6
outward .. .. .. .. .. ..
Malaysia
inward 19.4 15.0 17.0 15.1 13.9 20.1
outward 2.8 6.4 8.8 6.1 4.0 9.3
Maldives
inward 8.6 9.6 12.4 15.2 15.3 16.4
outward - - .. .. .. ..
Mongolia
inward 4.5 3.9 5.9 10.0 7.0 11.4
outward .. - - 0.8 - -
Myanmar
inward 2.8 1.9 1.6 1.6 1.0 0.7
outward - - - - - -
Nepal
inward 0.6 0.9 1.9 2.2 1.2 -
outward .. .. .. .. .. ..
Pakistan
inward 3.7 7.1 8.9 7.3 5.7 6.5
outward - - - - - -
/...
AN N EX B 321

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Philippines
inward 7.5 8.9 7.8 6.2 12.7 5.1
outward 1.1 0.6 0.9 0.7 1.2 0.9
Singapore
inward 30.3 31.2 29.7 35.3 20.6 26.1
outward 11.2 12.2 19.6 25.5 1.8 14.5
Sri Lanka
inward 4.2 1.9 4.0 11.8 5.2 4.1
outward - - .. - - -
Taiwan Province of China
inward 2.9 2.4 3.0 3.4 - 4.4
outward 9.0 4.5 6.1 7.9 6.1 6.7
Thailand
inward 5.0 2.9 3.0 7.2 20.7 13.7
outward - 1.2 1.1 0.9 - 1.3

The Pacific
inward 16.6 44.0 12.1 7.1 29.1 27.2
outward 2.7 - 4.3 12.4 8.8 5.6
Fiji
inward 30.4 27.3 1.1 6.4 56.3 -15.1
outward 8.3 -1.1 4.3 12.4 32.9 24.1
Kiribati
inward 0.8 1.4 3.3 4.8 2.4 2.4
outward - .. .. .. .. ..
Papua New Guinea
inward 12.6 50.6 12.4 3.8 20.9 40.9
outward - - .. .. - -
Tonga
inward 3.9 9.3 9.4 14.0 9.3 9.3
outward - .. .. .. .. ..
Vanuatu
inward 42.0 42.8 54.8 48.0 31.3 32.1
outward .. .. .. .. .. ..
Developing Europe
inward 6.3 3.0 6.4 6.3 9.4 16.4
outward - - - 1.5 0.8 0.8
Croatia
inward 6.5 3.9 12.6 11.0 18.1 31.3
outward 0.7 - 0.7 3.8 1.9 0.7
Malta
inward 9.7 12.7 28.9 9.6 31.1 99.6
outward - - 0.6 2.0 1.7 5.4
Slovenia
inward 1.5 1.8 2.0 3.7 1.8 2.0
outward - - - - - -
TFYR Macedonia
inward 4.6 1.3 1.6 2.4 18.9 5.2
outward .. .. - - - -
Central and Eastern Europe
inward 4.8 9.3 7.0 10.7 13.7 18.4
outward - - 0.6 1.9 1.4 1.7

/...
322 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Belarus
inward - - 2.6 9.9 3.5 9.9
outward - - - - - -
Bulgaria
inward 3.6 4.5 8.1 44.0 37.9 41.4
outward - - -2.1 - - 0.9
Czech Republic
inward 6.4 15.4 7.7 8.0 23.6 44.5
outward 0.7 - 0.8 - 0.8 0.6
Estonia
inward 28.2 21.8 12.9 20.6 38.3 23.6
outward 0.7 - 3.4 10.6 - 6.4
Hungary
inward 15.7 49.7 23.5 21.4 18.3 18.8
outward - - - 4.2 4.3 2.4
Latvia
inward 24.0 26.7 41.0 49.3 21.5 21.3
outward -4.0 -9.7 - 0.6 3.3 1.0
Lithuania
inward 3.4 5.2 8.4 15.2 35.4 20.3
outward .. - - 1.2 - -
Moldova, Republic of
inward 3.7 29.1 7.1 20.5 19.7 17.8
outward 3.4 - - - - -
Poland
inward 5.2 15.5 15.1 14.5 15.9 17.8
outward - - - - 0.8 -
Romania
inward 2.7 5.5 3.3 16.3 25.3 16.6
outward - - - - - -
Russian Federation
inward 2.2 2.8 2.8 8.0 5.7 11.0
outward - - 0.9 3.1 2.1 6.5
Slovakia
inward 3.5 4.0 3.7 2.8 7.8 5.9
outward - - 0.8 1.3 1.8 -6.1
Ukraine
inward 2.2 3.1 5.6 6.2 9.0 8.1
outward - - - - - -

Memorandum
Least developed countries a
Total
inward 5.7 5.2 5.4 5.9 6.2 7.9
outward 1.8 - -1.0 2.8 0.7 -
Africa
inward 6.6 11.4 11.0 12.9 18.3 28.3
outward 3.7 0.8 -5.2 12.9 2.8 0.9
Latin America and the Caribbean
inward - -0.7 1.0 1.0 2.4 5.7
outward -3.0 - - .. .. -
Asia and the Pacific
inward 4.2 1.5 2.6 2.3 1.1 0.7
outward - - - - - -
Asia
inward 4.0 1.3 2.5 2.2 1.0 0.7
outward - - - - - -
/...
AN N EX B 323

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (continued)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
West Asia
inward 8.2 -9.0 -4.0 -12.0 -16.2 -24.3
outward .. .. .. .. .. ..
South, East and South-East Asia
inward 2.1 2.5 2.9 2.7 1.8 1.4
outward - - - - - -
The Pacific
inward 30.0 33.6 41.2 37.2 24.3 24.6
outward - .. .. .. .. ..
Oil-exporting countries b
Total
inward 2.8 3.7 6.6 8.5 7.3 2.8
outward 1.5 - 1.8 - -0.9 0.6
Africa
inward 6.4 5.8 8.2 7.8 7.4 13.5
outward 2.4 1.7 0.9 2.3 2.4 2.2
North Africa
inward - -0.6 -0.8 - -0.8 -0.7
outward -1.9 1.9 1.3 5.3 5.6 4.5
Other Africa
inward 23.6 19.5 29.1 21.6 19.8 38.6
outward 10.4 1.6 0.6 0.6 0.9 1.0
Latin America and the Caribbean
inward 9.5 10.4 19.6 33.0 25.3 20.9
outward 3.1 0.6 3.3 2.8 1.2 3.7
South America
inward 8.1 9.0 18.4 30.6 23.8 19.1
outward 3.3 0.6 3.5 3.0 1.3 2.6
Other Latin America and the Caribbean
inward 32.3 37.0 37.3 65.2 46.9 47.7
outward - - - - - 19.6
Asia
inward 1.7 2.5 5.1 5.4 3.9 -1.9
outward 1.0 - 1.7 - -1.7 -
West Asia
inward 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 Asia
inward 4.0 7.6 9.2 7.7 -1.6 -11.0
outward 1.6 2.3 0.9 - - -
All developing countries minus China
inward 4.7 6.3 7.9 10.0 11.3 14.7
outward 2.6 3.8 4.4 4.6 3.5 4.2
Developed Asia
inward - - - - - 1.3
outward 2.9 1.6 1.8 2.2 2.5 2.0
Developed Pacific
inward 9.8 16.4 7.9 9.6 7.4 7.3
outward 4.5 3.1 5.3 5.9 4.5 -2.0
Africa including South Africa
inward 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

/...
324 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

Annex table B.5. Inward and outward FDI flows as a percentage of gross fixed
capital formation, by region and economy, 1989-1999 (concluded)
(Percentage)

1989-1994
Region/economy (Annual average) 1995 1996 1997 1998 1999
Other Africa including South Africa
inward 5.5 8.9 9.7 14.9 10.1 14.7
outward 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 17.7
outward - - 0.6 1.9 1.3 1.6

Source : UNCTAD, FDI/TNC database.

a Least developed countries 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, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,
Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,
Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
b Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republic
of, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab
Emirates and Venezuela.
AN N EX B 325

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
(Percentage)

Region/economy 1980 1985 1990 1995 1999

World
inward 6.0 7.8 9.2 10.3 17.3
outward 5.3 6.4 8.6 10.2 16.7
Developed countries
inward 4.7 6.1 8.4 9.2 14.5
outward 6.4 7.5 9.8 11.8 19.0
Western Europe
inward 5.5 8.5 11.1 13.6 22.4
outward 6.5 10.7 12.2 16.6 30.8
European Union
inward 5.3 8.3 11.0 13.4 22.2
outward 6.2 10.3 11.7 15.5 29.6
Austria
inward 4.0 5.7 6.2 7.6 11.2
outward 0.7 2.0 2.7 5.1 9.2
Belgium and Luxembourg
inward 5.9 22.0 28.3 40.1 108.3
outward 4.9 11.4 19.7 30.4 97.5
Denmark
inward 6.3 6.2 6.9 13.2 20.9
outward 3.1 3.1 5.5 13.7 21.5
Finland
inward 1.1 2.5 3.8 6.7 14.5
outward 1.4 3.4 8.3 11.9 26.8
France
inward 3.4 6.4 8.4 12.1 17.1
outward 3.6 7.1 10.1 13.5 24.7
Germany
inward 4.0 5.3 7.3 8.0 13.7
outward 4.7 8.6 9.1 10.7 18.9
Greece
inward 11.3 24.9 16.9 16.6 17.7
outward 2.1 2.6 1.0 0.7 0.4
Ireland
inward 19.5 24.5 12.2 18.6 50.7
outward .. 1.1 4.8 6.4 16.4
Italy
inward 2.0 4.5 5.3 5.8 9.4
outward 1.6 3.9 5.2 10.0 15.8
Netherlands
inward 11.1 19.5 23.6 28.4 50.1
outward 24.5 37.3 36.2 42.4 65.7
Portugal
inward 12.8 19.4 15.3 17.6 21.2
outward 1.8 2.5 1.3 3.0 10.6
Spain
inward 2.4 5.4 13.4 23.3 20.5
outward 0.9 2.7 3.2 7.8 19.0
Sweden
inward 2.3 4.3 5.4 13.4 32.7
outward 3.0 10.7 21.5 31.6 47.4
United Kingdom
inward 11.7 14.0 20.8 18.0 26.8
outward 15.0 21.9 23.4 27.4 49.8

/...
326 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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 Europe
inward 8.9 11.0 13.4 16.6 26.3
outward 13.1 16.5 22.0 35.8 55.4
Iceland
inward - 2.2 2.3 1.8 5.6
outward 1.9 2.2 1.2 2.6 5.3
Norway
inward 10.4 11.7 10.7 13.3 21.1
outward 0.9 1.7 9.4 15.4 25.3
Switzerland
inward 8.4 10.8 15.0 18.6 29.9
outward 21.1 27.0 28.9 46.3 73.9
North America
inward 4.6 5.7 8.3 8.7 12.2
outward 8.2 6.7 8.4 10.7 14.1
Canada
inward 20.6 18.6 19.7 21.5 27.9
outward 9.0 12.4 14.8 20.6 30.6
United States
inward 3.1 4.6 7.1 7.6 11.1
outward 8.1 6.2 7.8 9.9 13.0
Other developed countries
inward 2.8 2.7 3.0 3.2 5.4
outward 2.1 3.8 7.3 5.7 7.6
Australia
inward 8.8 15.6 24.9 29.4 31.6
outward 1.5 4.2 10.3 15.0 22.5
Israel
inward 7.5 8.4 5.6 7.2 18.2
outward 0.8 2.7 2.2 4.5 7.2
Japan
inward 0.3 0.4 0.3 0.7 1.0
outward 1.9 3.3 6.8 4.6 5.7
New Zealand
inward 10.6 9.1 18.4 42.6 62.6
outward 2.4 6.7 14.8 12.7 13.3
South Africa
inward 21.3 16.3 8.6 11.2 39.5
outward 7.4 16.2 14.1 17.4 25.2
Developing countries and economies
inward 10.2 14.1 13.4 15.6 28.0
outward 0.9 1.6 2.6 4.8 10.1
Africa
inward 4.6 7.4 11.1 18.2 21.0
outward 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
Algeria
inward 3.1 2.2 2.1 3.3 3.0
outward 0.2 0.3 0.3 0.6 0.5
/...
AN N EX B 327

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

Egypt
inward 9.9 16.4 25.6 23.9 19.2
outward 0.2 0.3 0.4 0.6 0.6
Libyan Arab Jamahiriya
inward - - - - -
outward 0.4 0.7 1.7 0.9 3.7
Morocco
inward 1.0 3.4 3.5 9.2 16.0
outward 0.6 0.9 0.5 0.7 0.9
Sudan
inward 0.4 0.6 0.4 0.7 9.7
outward .. .. .. .. ..
Tunisia
inward 66.7 83.0 59.0 61.2 57.0
outward 0.1 - 0.1 0.2 0.2
Other Africa
inward 4.9 8.7 14.3 23.5 29.9
outward 0.5 5.4 10.4 12.8 10.4

Angola
inward 1.8 9.9 13.2 57.7 121.1
outward .. .. .. .. ..
Benin
inward 2.2 3.2 8.6 19.2 22.8
outward - 0.2 - - 2.1
Botswana
inward 67.4 78.1 38.7 24.6 23.1
outward 42.5 36.3 13.2 14.2 10.0
Burkina Faso
inward 1.4 1.7 1.4 3.7 5.2
outward 0.2 0.2 0.1 0.5 0.9
Burundi
inward 0.7 2.1 2.6 3.3 5.1
outward .. .. - - 0.3
Cameroon
inward 4.9 13.8 9.4 13.3 14.0
outward 0.3 0.6 1.3 2.9 2.6
Cape Verde
inward .. .. 1.3 9.0 17.6
outward .. .. 0.4 1.1 0.9
Central African Republic
inward 6.2 8.9 6.4 6.7 10.0
outward - 0.2 1.2 4.0 6.7
Chad
inward 11.9 18.9 15.1 21.1 23.4
outward - 0.1 2.2 5.6 6.7
Comoros
inward 1.6 1.7 6.8 9.0 13.3
outward .. .. 0.4 0.7 0.8
Congo
inward 18.4 22.4 20.3 27.9 26.9
outward .. .. .. .. ..
Congo, Democratic Republic of
inward 3.6 6.2 4.0 6.0 5.9
outward .. .. .. .. ..
Côte d’Ivoire
inward 5.2 10.0 9.0 16.2 26.4
outward .. .. 0.3 5.2 5.8

/...
328 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

Djibouti
inward 1.0 1.0 1.3 2.8 6.9
outward .. .. .. .. ..
Equatorial Guinea
inward .. 7.0 19.2 145.7 112.0
outward .. .. 0.2 - -
Eritrea
inward .. .. .. .. -
outward .. .. .. .. ..
Ethiopia
inward 2.7 2.0 1.6 3.1 12.4
outward .. .. .. .. 2.0
Gabon
inward 12.0 22.7 20.3 19.2 35.1
outward 1.8 2.8 2.7 4.2 3.9
Gambia
inward 8.5 9.1 11.3 21.1 30.6
outward .. .. .. .. ..
Ghana
inward 5.2 6.0 5.4 12.7 15.0
outward .. .. .. .. 4.0
Guinea
inward - 0.2 2.5 3.6 6.9
outward .. .. .. .. -
Guinea-Bissau
inward 0.1 2.7 3.3 6.4 14.1
outward .. .. .. .. ..
Kenya
inward 5.5 7.8 7.9 8.1 8.2
outward 0.2 1.0 1.2 1.2 1.8
Lesotho
inward 1.3 10.3 24.9 157.7 262.7
outward .. .. - - -
Liberia
inward 53.6 90.5 181.7 1123.0 661.8
outward 4.3 33.0 37.7 358.5 377.7
Madagascar
inward 0.9 1.7 3.4 5.4 7.2
outward .. .. .. - -
Malawi
inward 8.1 12.2 10.2 17.1 24.5
outward .. .. .. .. 0.6
Mali
inward 0.7 2.7 1.5 6.6 13.7
outward 1.3 1.8 0.9 0.9 4.0
Mauritania
inward - 5.7 5.6 8.6 10.7
outward .. .. 0.3 0.3 0.3
Mauritius
inward 1.8 3.5 6.2 6.3 9.6
outward .. - - 2.4 2.8
Mozambique
inward 0.5 0.5 2.0 10.4 22.4
outward .. .. .. - -
Namibia
inward 85.5 137.2 83.8 51.2 49.4
outward .. .. 3.3 0.6 1.3
Niger
inward 7.4 14.1 11.8 21.9 20.1
outward - 0.6 2.2 6.6 7.0

/...
AN N EX B 329

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

Nigeria
inward 2.6 5.5 28.3 50.0 44.5
outward - 6.4 33.9 39.0 26.0
Rwanda
inward 4.6 7.8 8.2 17.4 12.5
outward .. .. - - -
São Tomé and Principe
inward .. .. 0.8 - 2.5
outward .. .. .. .. ..
Senegal
inward 5.0 7.3 4.7 7.4 14.9
outward 0.2 1.7 0.9 2.1 2.4
Seychelles
inward 36.8 62.1 55.4 63.3 95.5
outward 9.4 25.9 16.6 18.5 23.6
Sierra Leone
inward 6.4 5.5 - - 0.2
outward .. .. .. .. ..
Somalia
inward 4.8 0.5 - - 4.3
outward .. .. .. .. ..
Swaziland
inward 41.8 28.9 39.1 42.2 45.7
outward 3.3 2.4 4.5 10.7 7.8
Togo
inward 15.5 27.5 16.5 23.4 31.1
outward 0.7 1.1 0.7 3.0 8.0
Uganda
inward - 0.2 0.1 4.7 15.8
outward .. .. .. 4.4 4.6
United Republic of Tanzania
inward 0.9 1.3 2.2 7.0 11.2
outward .. .. .. .. ..
Zambia
inward 8.5 18.9 30.0 35.9 58.4
outward .. .. .. .. ..
Zimbabwe
inward 2.8 3.3 1.4 4.8 18.6
outward .. 0.2 1.0 1.9 4.1
Latin America and the Caribbean
inward 6.5 10.9 10.3 11.8 25.6
outward 1.3 2.0 1.8 2.9 4.9
South America
inward 6.0 9.0 8.5 8.5 23.3
outward 1.5 1.8 1.4 1.9 3.8
Argentina
inward 6.9 7.4 6.4 9.9 22.1
outward 8.0 6.9 4.3 3.8 6.8
Bolivia
inward 8.4 11.6 21.1 23.3 56.9
outward - - 0.2 0.3 0.3
Brazil
inward 7.4 11.5 8.0 6.0 21.6
outward 0.3 0.6 0.5 0.8 1.6
Chile
inward 3.2 14.1 33.2 26.2 55.2
outward 0.2 0.6 0.6 4.7 19.0

/...
330 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

Colombia
inward 3.2 6.4 8.7 8.0 21.9
outward 0.4 0.9 1.0 1.3 3.6
Ecuador
inward 6.1 8.1 15.2 19.1 32.5
outward .. .. .. - -
Guyana
inward - - - 58.9 93.4
outward .. .. .. 0.3 0.2
Paraguay
inward 4.9 6.5 7.5 9.8 20.6
outward 2.8 3.0 2.6 2.0 2.6
Peru
inward 4.3 6.1 4.1 10.1 15.5
outward - 0.2 0.2 1.0 0.9
Suriname
inward - 4.1 - - -
outward .. .. .. .. ..
Uruguay
inward 7.2 16.8 12.0 8.1 10.5
outward 0.2 0.7 0.5 0.1 0.3
Venezuela
inward 2.7 2.6 4.7 9.0 20.9
outward - 0.3 2.5 4.4 5.5
Other Latin America and the Caribbean
inward 7.2 14.5 14.6 22.6 31.2
outward 0.8 2.4 3.0 6.6 7.5
Anguilla
inward .. .. 54.1 275.9 660.9
outward .. .. .. .. ..
Antigua and Barbuda
inward 20.9 46.5 74.5 88.6 92.1
outward .. .. .. .. ..
Aruba
inward .. .. 15.2 16.5 79.3
outward .. .. .. 0.8 0.1
Bahamas
inward 39.2 22.4 18.1 20.8 33.3
outward 21.3 6.6 49.4 37.2 54.9
Barbados
inward 11.8 10.3 9.9 12.1 13.2
outward 0.6 1.0 1.3 1.7 1.8
Belize
inward 6.3 4.9 18.1 26.0 36.2
outward .. .. .. 2.0 5.2
Bermuda
inward 837.1 774.3 871.0 1176.3 1936.2
outward 118.1 192.5 97.5 113.8 617.5
Cayman Islands
inward .. .. 355.5 395.5 2075.9
outward .. .. 176.4 280.3 502.3
Costa Rica
inward 13.9 24.4 25.3 30.3 43.3
outward 0.1 0.7 0.8 0.7 0.8
Cuba
inward - - - 0.2 0.4
outward .. .. .. .. ..

/...
AN N EX B 331

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

Dominica
inward 0.1 10.7 42.9 88.5 108.0
outward .. .. .. .. 2.2
Dominican Republic
inward 3.6 5.9 8.1 14.3 24.9
outward .. .. .. 0.3 0.3
El Salvador
inward 4.3 4.7 4.4 3.1 14.8
outward .. .. 1.1 0.6 0.5
Grenada
inward 1.7 9.8 31.7 60.6 106.6
outward .. .. - - -
Guatemala
inward 8.9 10.8 22.7 15.0 17.7
outward .. .. .. .. -
Haiti
inward 5.4 5.6 5.0 5.8 5.2
outward .. .. .. - -
Honduras
inward 3.6 4.7 12.5 16.3 22.5
outward .. .. .. .. ..
Jamaica
inward 18.7 22.7 17.1 28.6 45.4
outward 0.2 0.2 1.0 5.9 10.4
Mexico
inward 3.6 10.4 8.5 14.4 16.4
outward - 0.3 0.2 1.4 1.5
Netherlands Antilles
inward 62.3 2.5 11.4 11.9 231.7
outward 1.1 0.9 1.3 0.9 -
Nicaragua
inward 5.1 4.1 11.4 18.8 48.1
outward .. .. .. - -
Panama
inward 68.4 57.5 40.7 41.0 69.9
outward 22.9 40.8 78.8 57.8 70.4
Saint Kitts and Nevis
inward 2.1 40.5 102.0 104.8 122.2
outward .. .. 0.1 - -
Saint Lucia
inward 70.1 90.7 75.7 93.4 119.4
outward .. .. - - -
St Vincent & the Grenadines.
inward 2.0 7.5 24.4 68.9 157.9
outward .. .. 0.6 0.4 0.3
Trinidad and Tobago
inward 15.7 23.7 41.3 68.4 90.9
outward .. 0.2 0.4 0.4 4.1
Virgin Islands
inward 0.2 3.9 15.3 87.2 408.2
outward .. .. .. 468.0 772.9
Asia and the Pacific
inward 14.3 17.5 15.5 17.3 30.2
outward 0.7 1.0 2.7 5.7 13.6
Asia
inward 14.2 17.4 15.4 17.3 30.2
outward 0.7 1.0 2.7 5.7 13.6

/...
332 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

West Asia
inward - 7.5 6.0 7.0 9.3
outward 0.6 1.3 3.3 1.0 1.1
Bahrain
inward 2.0 10.8 13.8 43.8 100.0
outward 20.5 17.7 18.0 19.0 32.2
Cyprus
inward 21.4 32.6 20.6 17.9 20.1
outward .. - 0.2 0.9 4.0
Iran, Islamic Republic of
inward 2.8 3.2 1.8 1.9 2.1
outward .. .. .. - 0.2
Iraq
inward - - - - -
outward .. .. .. .. ..
Jordan
inward 4.0 9.6 15.3 9.5 19.3
outward 0.6 0.5 0.4 - 2.4
Kuwait
inward 0.1 0.2 0.1 - 1.7
outward 2.0 4.3 19.8 10.6 5.8
Lebanon
inward 0.5 0.9 1.9 1.2 5.5
outward - 1.1 - - -
Oman
inward 8.1 12.0 16.3 16.1 15.7
outward - 0.4 - - 0.1
Occupied Palestinian Territory
inward .. .. .. .. 0.2
outward .. .. .. .. ..
Qatar
inward 1.1 1.3 0.8 5.7 16.9
outward .. .. .. 0.4 1.4
Saudi Arabia
inward - 25.2 21.5 17.8 20.0
outward 0.1 0.5 1.7 1.3 1.1
Syrian Arab Republic
inward - 0.2 1.6 1.8 6.5
outward .. .. .. - -
Turkey
inward 0.2 0.5 0.9 3.0 4.4
outward .. .. .. 0.2 0.9
United Arab Emirates
inward 1.4 1.8 2.2 4.4 5.3
outward - - 0.3 0.2 -
Yemen
inward 3.7 4.5 3.8 51.0 16.1
outward .. - 0.1 0.1 -
Central Asia
inward .. .. .. 8.8 32.0
outward .. .. .. - 2.2
Armenia
inward .. .. .. 1.2 23.1
outward .. .. .. .. 1.3
Azerbaijan
inward .. .. .. 14.6 81.4
outward .. .. .. .. 10.6

/...
AN N EX B 333

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

Georgia
inward .. .. .. 1.1 7.0
outward .. .. .. .. ..
Kazakhstan
inward .. .. .. 14.5 51.9
outward .. .. .. - -
Kyrgyzstan
inward .. .. .. 9.7 23.1
outward .. .. .. .. -
Tajikistan
inward .. .. .. 3.9 10.4
outward .. .. .. .. ..
Turkmenistan
inward .. .. .. 4.6 31.9
outward .. .. .. .. ..
Uzbekistan
inward .. .. .. 2.5 6.0
outward .. .. .. .. ..
South, East and Southeast Asia
inward 23.4 21.2 18.4 19.7 34.4
outward 0.8 1.0 2.7 6.8 16.2
Afghanistan
inward 0.5 0.3 0.2 0.3 1.0
outward .. .. .. .. ..
Bangladesh
inward 0.4 0.5 0.5 0.5 1.5
outward .. .. - - 0.2
Bhutan
inward .. .. 0.6 0.7 0.8
outward .. .. .. .. ..
Brunei Darussalam
inward 0.4 0.9 0.8 1.4 -
outward .. .. .. 1.4 2.8
Cambodia
inward 12.0 10.3 13.4 17.0 19.4
outward .. .. .. - -
China
inward 3.1 3.4 7.0 19.6 30.9
outward - - 0.7 2.3 2.5
Hong Kong
inward 487.0 413.6 217.5 135.4 255.5
outward 0.5 6.7 15.9 56.6 202.8
India
inward 0.7 0.5 0.6 1.7 3.6
outward 0.1 0.1 - 0.1 0.2
Indonesia
inward 14.2 28.6 34.0 25.0 46.2
outward .. - - 0.6 1.6
Korea, Democratic People’s Republic of
inward .. .. 3.0 12.0 18.7
outward .. .. .. .. ..
Korea, Republic of
inward 1.8 2.3 2.0 2.1 7.9
outward 0.2 0.5 0.9 2.2 5.5
Lao Peoples Dem. Republic
inward 0.4 - 1.4 11.9 42.8
outward .. .. .. - -

/...
334 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

Macau
inward .. 0.6 0.3 - -
outward .. .. .. .. ..
Malaysia
inward 21.1 23.7 24.1 32.9 65.3
outward 0.8 4.4 6.2 12.8 22.6
Maldives
inward 11.4 3.9 17.1 22.5 30.2
outward .. .. 0.3 0.4 0.3
Mongolia
inward .. .. - 3.9 14.1
outward .. .. .. 0.1 0.5
Myanmar
inward - - 0.7 2.3 4.0
outward .. .. .. - -
Nepal
inward - - 0.3 0.9 2.0
outward .. .. .. .. ..
Pakistan
inward 2.9 3.5 4.8 9.1 17.2
outward 0.2 0.4 0.6 0.7 0.8
Philippines
inward 3.9 8.5 7.4 8.2 14.9
outward 0.5 0.6 0.3 1.6 2.5
Singapore
inward 52.9 73.6 76.3 70.0 97.5
outward 31.7 24.8 20.9 41.2 57.6
Sri Lanka
inward 5.7 8.7 8.5 10.0 14.2
outward .. - 0.1 0.3 0.3
Taiwan Province
inward 5.8 4.7 6.1 6.0 8.0
outward 0.2 0.3 8.0 9.7 14.7
Thailand
inward 3.0 5.1 9.6 10.4 17.5
outward - - 0.5 1.3 1.9
Viet Nam
inward 0.2 0.6 3.6 31.1 55.6
outward .. .. .. .. ..
The Pacific
inward 22.4 24.3 28.8 25.1 35.0
outward 0.3 1.0 1.9 1.8 5.1
Fiji
inward 29.7 34.4 30.5 37.0 50.2
outward 0.2 1.3 6.6 6.6 17.3
Kiribati
inward .. - 1.2 2.5 6.8
outward .. .. .. - -
New Caledonia
inward 1.0 1.4 2.1 2.4 2.8
outward .. .. .. .. ..
Papua New Guinea
inward 29.4 28.2 49.1 33.1 53.5
outward 0.4 0.9 0.2 0.1 0.2
Samoa
inward 0.8 1.3 5.6 17.9 27.8
outward .. .. .. .. ..

/...
AN N EX B 335

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

Solomon Islands
inward 24.2 20.3 33.0 38.5 52.8
outward .. .. - - -
Tonga
inward .. 0.2 0.7 4.5 9.2
outward .. .. - - -
Vanuatu
inward 29.1 52.4 71.9 105.0 141.0
outward .. .. .. .. ..
Developing Europe
inward 13.8 28.2 5.8 7.4 18.8
outward .. .. 1.5 2.9 3.5
Bosnia and Herzegovinia
inward .. .. .. 4.5 6.1
outward .. .. .. 0.9 1.5
Croatia
inward .. .. .. 2.5 20.2
outward .. .. .. 3.7 5.1
Malta
inward 13.8 28.2 20.1 28.4 65.4
outward .. .. .. 0.1 2.4
Slovenia
inward .. .. 3.8 9.4 13.0
outward .. .. 1.5 2.7 2.9
TFYR Macedonia
inward .. .. .. 1.6 6.1
outward .. .. .. .. 0.1

Central and Eastern Europe

inward .. 0.2 1.5 5.2 13.3
outward - - 0.3 0.8 1.8
Albania
inward .. .. .. 8.3 16.0
outward .. .. .. 2.0 2.9
Belarus
inward .. .. .. 0.3 8.3
outward .. .. .. - 0.1
Bulgaria
inward .. .. 0.5 3.4 19.9
outward .. .. .. 0.8 0.7
Czech Republic
inward .. .. 4.3 14.5 33.0
outward .. .. .. 0.7 1.3
Estonia
inward .. .. .. 18.6 47.9
outward .. .. .. 1.9 5.3
Hungary
inward .. 0.2 1.7 22.4 39.9
outward .. .. 0.6 0.9 3.2
Latvia
inward .. .. .. 13.8 26.9
outward .. .. .. 5.2 3.7
Lithuania
inward .. .. .. 5.8 19.7
outward .. .. .. - 0.2

/...
336 W orld Inve stm ent R e port 2001: P rom oting Linka g e s

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

Moldova, Republic of
inward .. .. .. 6.5 28.8
outward .. .. .. 1.3 1.7
Poland
inward .. .. 0.2 6.6 17.2
outward - - 0.2 0.5 0.9
Romania
inward .. .. 2.0 3.2 16.1
outward .. .. 0.2 0.3 0.4
Russian Federation
inward .. .. .. 1.6 4.4
outward .. .. .. 0.9 2.3
Slovakia
inward .. .. 0.6 7.3 14.6
outward .. .. .. 2.2 1.5
Ukraine
inward .. .. .. 2.5 10.5
outward .. .. .. 0.3 0.3
Memorandum
Least developed countries a
Total
inward 2.8 4.3 5.0 9.5 14.2
outward 0.6 2.6 1.1 1.0 1.5
Africa
inward 3.2 5.9 8.0 16.9 27.3
outward 0.6 3.9 2.4 4.2 4.9
America
inward 5.4 5.6 5.0 5.8 5.2
outward .. .. .. - -
Asia and the Pacific
inward 1.5 1.6 1.3 4.3 5.0
outward .. - - - -
Asia
inward 1.4 1.4 1.0 3.9 4.5
outward .. - - - -
West Asia
inward 3.7 4.5 3.8 51.0 16.1
outward .. - 0.1 0.1 -
South, East and Southeast Asia
inward 0.9 0.9 0.8 2.1 3.8
outward .. .. - - -
The pacific
inward 18.1 24.4 34.7 52.6 69.9
outward .. .. - - -
Oil-exporting countries b
Total
inward 1.6 9.0 12.0 13.8 21.2
outward 0.4 1.7 3.9 2.8 3.3
Africa
inward 0.3 1.3 5.0 14.4 18.5
outward 0.2 3.3 8.3 12.3 10.3
North Africa
inward - - - - -
outward 0.3 0.4 0.8 0.7 1.7
Other Africa
inward 3.2 6.8 24.2 46.1 50.9
outward - 6.3 28.5 33.8 23.6

/...
AN N EX B 337

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

America
inward 4.3 5.4 9.3 14.0 26.4
outward - 0.3 2.3 3.4 4.6
South America
inward 3.3 3.5 6.6 10.9 22.7
outward - 0.3 2.5 3.6 4.7
Other America
inward 15.7 23.7 41.3 68.4 90.9
outward .. 0.2 0.4 0.4 4.1
Asia
inward 1.7 13.3 14.4 13.7 20.6
outward 0.6 0.9 2.2 1.2 1.4
West Asia
inward - 8.9 8.0 8.1 11.4
outward 0.6 1.4 3.7 1.5 1.3
South, East and Southeast Asia
inward 13.3 27.5 33.0 24.5 44.5
outward .. - - 0.7 1.6
All developing countries minus China
inward 10.9 15.7 14.1 15.0 27.5
outward 1.0 1.8 2.8 5.2 11.6

Developed Asia
inward 0.5 0.5 0.4 0.8 1.4
outward 1.8 3.3 6.7 4.6 5.7

Developed Pacific
inward 9.0 14.8 24.1 31.4 35.3
outward 1.6 4.5 10.9 14.7 21.4
Africa including South Africa
inward 7.6 8.6 10.5 16.2 25.4
outward 2.0 5.0 7.0 9.3 10.1
Other Africa including South Africa
inward 9.2 10.5 12.1 17.8 33.8
outward 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 13.4
outward - - 0.4 0.9 1.9

S o u r c e: UNCTAD, FDI/TNC database.

a Least developed countries 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, Haiti, Kiribati, Lao People's Democratic Republic, Lesotho, Liberia, Madagascar, Malawi, Maldives, Mali, Mauritania,
Mozambique, Myanmar, Nepal, Niger, Rwanda, Samoa, São Tomé and Principe, Senegal, Sierra Leone, Solomon Islands, Somalia, Sudan,
Togo, Tuvalu, Uganda, United Republic of Tanzania, Vanuatu, Yemen and Zambia.
b Oil-exporting countries include: Algeria, Angola, Bahrain, Brunei Darussalam, Congo, Ecuador, Gabon, Indonesia, Iran, Islamic Republic
of, Iraq, Kuwait, Libyan Arab Jamahiriya, Nigeria, Oman, Qatar, Saudi Arabia, Syrian Arab Republic, Trinidad and Tobago, United Arab
Emirates and Venezuela.
 Annex table B.7. Cross-border M&A sales, by region/economy of seller, 1987-2000
338

(Millions of dollars)

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
TOTAL WORLD 74 509 115 623 140 389 150 576 80 713 79 280 83 064 127 110 186 593 227 023 304 848 531 648 766 044 1 143 816
Developed countries 72 804 112 749 135 305 134 239 74 057 68 560 69 127 110 819 164 589 188 722 234 748 445 128 681 133 1 057 230
Western Europe 13 209 34 274 48 949 67 370 38 520 45 831 40 598 57 262 79 114 88 512 121 548 194 388 370 468 610 647
European Union 12 761 31 012 47 358 62 133 36 676 44 761 38 537 55 280 75 143 81 895 114 591 187 853 357 311 586 521
Austria 8 253 32 189 244 107 417 540 609 856 2 259 3 551 380 574
Belgium 919 793 805 4 469 814 493 2 201 1 026 1 710 8 469 5 945 6 865 24 984 7 318
Denmark - 218 225 496 272 99 590 570 199 459 566 3 802 4 615 9 122
Finland 20 80 229 51 463 209 391 550 1 726 1 199 735 4 780 3 144 6 896
France 1 426 3 018 3 338 8 183 2 623 9 150 8 497 16 290 7 533 13 575 17 751 16 885 23 834 35 018
Germany 1 069 1 300 4 301 6 220 3 407 5 521 2 285 4 468 7 496 11 924 11 856 19 047 39 555 246 990
Greece - 22 - 115 70 413 52 15 50 493 99 21 191 245
Ireland 36 205 735 595 282 81 1 453 242 587 724 2 282 729 4 739 5 246
Italy 621 3 095 3 003 2 165 3 865 3 672 3 754 6 909 4 102 2 764 3 362 4 480 11 237 18 877
Luxembourg 50 5 - 531 82 - 254 380 280 506 3 492 35 7 360 4 210
Netherlands 1 256 1 182 3 965 1 484 3 490 9 362 4 779 2 789 3 607 3 538 19 052 19 359 39 010 33 656
Portugal 9 11 768 213 194 668 356 63 144 793 86 427 211 2 980
Spain 938 723 1 593 3 832 5 373 4 668 1 967 3 615 1 257 1 463 4 074 5 700 5 841 22 248
Sweden 875 192 1 849 4 489 2 478 2 455 1 844 6 016 9 451 3 863 3 327 11 093 59 676 13 112
United Kingdom 5 534 19 917 26 515 29 102 13 020 7 863 9 699 11 807 36 392 31 271 39 706 91 081 132 534 180 029
Other Western Europe 448 3 262 1 591 5 237 1 844 1 070 2 061 1 982 3 971 6 617 6 958 6 535 13 157 24 126
Andorra - - - - - - - - - - - - - 6
Gibraltar - - - - 4 - - - - 9 - 8 16
Guernsey - - - - - - - - - - - - 26 88
World Investment Report 2001:

Iceland - - - - 1 - - - - 4 - - - -
Jersey - - - - - - - - - - - - 31 14
Liechtenstein - - - - - - - - - - - 9 - -
Man Island - - - - - - - - - - - - - 36
Monaco - 669 21 - - - - - 8 - 752 - 276 19
Norway 10 239 601 668 843 487 1 887 397 271 2 198 2 660 1 182 8 703 10 613
Switzerland 438 2 353 969 4 569 997 582 174 1 585 3 692 4 407 3 545 5 344 4 113 13 334
North America 57 918 72 641 79 233 60 427 31 884 18 393 22 291 49 093 64 804 78 907 90 217 225 980 275 884 401 429
Canada 6 153 8 737 10 412 5 731 3 658 2 554 2 313 4 364 11 567 10 839 8 510 16 432 23 950 77 079
United States 51 765 63 904 68 821 54 697 28 226 15 839 19 978 44 730 53 237 68 069 81 707 209 548 251 934 324 350
Other developed countries 1 677 5 834 7 123 6 442 3 654 4 337 6 237 4 464 20 672 21 303 22 983 24 761 34 781 45 154
Australia 1 545 4 380 4 704 2 545 2 592 2 446 3 191 2 975 17 360 13 099 14 794 14 737 11 996 21 699
Israel - 106 134 44 58 293 18 235 303 541 1 097 1 754 2 854 2 346
Japan 27 29 1 612 148 178 230 93 750 541 1 719 3 083 4 022 16 431 15 541
New Zealand 89 1 320 674 3 704 815 1 157 1 430 317 1 828 4 839 1 346 2 316 1 598 4 397
South Africa 17 - - - 10 211 1 506 187 640 1 106 2 664 1 932 1 902 1 171
Promoting Linkages

Developing countries 1 704 2 875 5 057 16 052 5 838 8 119 12 782 14 928 15 966 34 700 64 573 80 755 73 601 69 664
Africa 143 - 1 039 485 37 177 301 154 200 700 1 682 675 1 215 2 028
North Africa 143 - 24 - 1 139 242 100 10 211 680 456 914 956
Algeria - - - - 1 - - - - - - - 42 127
Egypt 143 - 24 - - 131 177 17 10 171 102 48 738 528
Morocco - - - - - - 64 83 - 40 578 5 123 -
Sudan - - - - - 8 - - - - - - - -
Tunisia - - - - - - - - - - - 402 11 301
/...
 Annex table B.7. Cross-border M&A sales, by region/economy of seller, 1987-2000 (continued)
(Millions of dollars)

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
ANNEX B

Other Africa - - 1 015 485 36 38 59 54 191 489 1 002 220 301 1 072
Botswana - - - - - - - - 4 11 4 - - -
Cameroon - - - - - - - - 4 0 - - - -
Cape Verde - - - - - - - - - - - - 83 -
Central African Republic - - - - - - 4 - 2 1 - - 1 -
Chad - - - - - - - - - - - - - 21
Congo - - - - - - - - 61 14 - - - -
Côte d’Ivoire - - - - - - - - 23 15 194 - - 8
Dem. Rep. of the Congo - - - - - - - - - 89 - - - -
Ethiopia - - - - - - - - - - - - 36 -
Gabon - - - 448 - - - - - - 39 - - 22
Ghana - - - - - - - 1 4 48 52 - 38 4
Guinea - - - - - - - - 39 50 - - - -
Kenya - - 15 - - - - - - 25 - - - 18
Madagascar - - - - - - - - - 58 0 - 4 -
Malawi - - - - - - - - - 60 - 10 - -
Mali - - - - - - - - 18 1 - - - 132
Mauritius - - - - - - - - - - 10 - - 261
Mozambique - - - - - - - 40 14 11 - 13 1 -
Namibia - - - - 36 0 - - - - 3 - - -
Nigeria - - 1 000 - - - - - - - - 12 18 15
Rwanda - - - - - - - - - - - - 2 -
Senegal - - - - - - - - - - 107 - 66 6
Sierra Leone - - - - - - 34 - - 0 - - - -
Swaziland - - - 37 - - - - - - 387 - - -
Uganda - - - - - - - - - 55 29 11 - 32
United Rep. of Tanzania - - - - - - 21 12 2 17 1 23 - 415
Zambia - - - - - - - - 18 27 173 150 1 133
Zimbabwe - - - - - 38 - 1 1 7 2 - 24 5
Latin America and the Caribbean 1 305 1 305 1 929 11 494 3 529 4 196 5 110 9 950 8 636 20 508 41 103 63 923 41 964 45 224
South America 196 1 148 322 7 319 2 901 2 109 2 840 7 324 6 509 16 910 25 439 46 834 39 033 35 584
Argentina - 60 27 6 274 302 1 164 1 803 1 315 1 869 3 611 4 635 10 396 19 407 5 273
Bolivia - - 15 26 - - - - 821 273 911 180 232 19
Brazil 196 287 2 217 158 174 624 367 1 761 6 536 12 064 29 376 9 357 23 013
Chile - 38 260 434 338 517 276 891 717 2 044 2 427 1 595 8 361 2 929
Colombia - 764 - 341 49 31 8 1 248 67 2 399 2 516 1 780 302 1 589
Ecuador - - - - - 49 - 44 35 105 27 79 214 153
Guyana - - - 17 7 - - - - - 1 - 23 -
Paraguay - - - - - - - - - 27 2 11 - 65
Peru - - - - 15 174 62 3 082 945 844 911 162 861 107
Uruguay - - 18 - - - 5 40 19 - - 36 - 27
Venezuela - - - 11 2 032 - 62 337 278 1 072 1 946 3 220 276 2 409
Other Latin America and Caribbean 1 110 157 1 607 4 176 628 2 088 2 270 2 627 2 127 3 598 15 663 17 089 2 931 9 640
Antigua and Barbuda - - - - - - - - - - - 24 - 5
Aruba - - - - - 3 - - - - 23 - - -
Bahamas 30 83 27 120 210 915 79 214 2 104 32 28 - 25
Barbados - - - - 189 - - 4 6 64 - - - -
/...
339
 Annex table B.7. Cross-border M&A sales, by region/economy of seller, 1987-2000 (continued)
340

(Millions of dollars)

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Belize - - - - - - - - - - - 62 - 3
Bermuda 1 079 - 214 1 296 50 4 52 50 251 1 277 5 601 11 635 924 3 596
British Virgin Islands - - - 143 6 - - 89 412 254 19 4 13 284
Cayman Islands - 5 374 170 138 41 - - - 245 - - 122 54
Costa Rica - - 64 3 - - 1 17 96 27 28 2 71 21
Cuba - - - - - - - - 299 - 300 38 - 477
Dominican Republic - - - - - - - - 0 46 - 28 673 464
El Salvador - - - - - - - - 40 - 41 978 - -
Grenada - - - - - - - - - - 5 - - -
Guatemala - - - 3 3 - 29 - - 26 30 582 101 13
Haiti - - - - - - - - - - - 2 - -
Honduras - - - - 5 - - 1 - - - 367 - 314
Jamaica - - - 108 - - 62 262 0 12 - 34 - -
Mexico 1 54 395 2 326 10 961 1 864 1 913 719 1 428 7 927 3 001 859 3 965
Netherlands Antilles - - 533 8 0 - - 2 291 - - 86 - -
Nicaragua - - - - - - - - - 23 42 - 11 115
Panama - 15 - - - - 6 73 9 14 652 216 151 130
Saint Kitts and Nevis - - - - - - - - - 78 - - - -
Puerto Rico - - - - - 142 - - - - - - 6 174
Trinidad and Tobago - - - - 17 22 177 2 - - 205 - - -
West Indies - - - - - - - - - - 760 - - -
Developing Europe - - - - - 43 23 86 112 78 238 19 1 473 225
Bosnia and Herzegovina - - - - - - - - - - - - - 45
World Investment Report 2001:

Croatia - - - - - 43 23 45 94 48 61 16 1 164 146

Malta - - - - - - - - - - - 3 250 -
Slovenia - - - - - - 0 41 18 30 133 - 14 -
TFYR of Macedonia - - - - - - - - - - - - 45 34
Yugoslavia .. .. .. .. .. .. - - . - 45 - - -
Asia 256 1 569 2 089 4 073 2 182 3 614 7 347 4 701 6 950 13 368 21 293 16 097 28 839 22 182
West Asia - 59 60 113 131 203 71 49 222 403 368 82 335 970
Abu Dhabi - - - - - 58 - - - - - - - -
Bahrain - - - - - - 4 - - - - - 36 161
Jordan - - - - - - - - 26 - - - - 567
Kuwait - - - - - - 6 - - - - - - -
Lebanon - - - - - - - - - - 168 11 - 54
Oman - - - - 78 - 15 - - 7 - - 28 -
Qatar - - - - 43 - 12 - - - - - - -
Saudi Arabia - - 2 - - 24 - - 8 26 - - - 2
Syrian Arab Republic - - - - - - - - - - - - 3 -
Promoting Linkages

Turkey - 59 58 113 9 116 35 49 188 370 144 71 68 182

United Arab Emirates - - - - - - - - - - 56 - 200 4
Yemen - - - - - 5 - - - - - - - -
Central Asia - - - - - - 9 - 450 3 221 2 340 174 73 107
Armenia - - - - - - - - - - - 173 29 -
Azerbaijan - - - - - - - - - 1 - - - 36
Georgia - - - - - - - - - - 3 1 40 1
Kazakhstan - - - - - - - - 450 3 216 2 337 - - 70
Uzbekistan - - - - - - 9 - - 4 - - 4 -
/...
 Annex table B.7. Cross-border M&A sales, by region/economy of seller, 1987-2000 (concluded)
(Millions of dollars)

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
ANNEX B

South, East and South-East Asia 256 1 510 2 029 3 960 2 051 3 411 7 267 4 652 6 278 9 745 18 586 15 842 28 431 21 105
Bangladesh - - - - - - - - - - - 33 - -
Brunei Darussalam - - - - - - 2 - - - - - - -
Cambodia - - - - - - - - - 0 1 - - -
China - - - 8 125 221 561 715 403 1 906 1 856 798 2 395 2 247
Democratic People’s Republic of - - - - - - - - - - - - 2 -
Hong Kong, China 181 1 046 826 2 620 568 1 674 5 308 1 602 1 703 3 267 7 330 938 4 181 4 793
India - - - 5 - 35 96 385 276 206 1 520 361 1 044 1 219
Indonesia 29 100 150 - 149 233 169 206 809 530 332 683 1 164 819
Lao People’s Dem. Rep. - - - - - - 10 - - - - - - -
Macau - - - - 29 - - - - - - - - -
Malaysia - 20 701 86 128 46 518 443 98 768 351 1 096 1 166 441
Mongolia - - - - - - - 1 - - - - 1 -
Myanmar - - - - - - 10 - 9 - 260 - - -
Nepal - - - - - - 2 - 13 - - - - -
Pakistan - - - 1 - 22 5 - - 1 124 80 2 259 6 6
Philippines 25 45 161 15 63 404 136 828 1 208 462 4 157 1 905 1 523 366
Korea, Republic of - - 68 - 673 0 2 1 192 564 836 3 973 10 062 6 448
Singapore 21 262 114 1 143 237 276 362 355 1 238 593 294 468 2 958 1 532
Sri Lanka - - - 1 - - 30 10 126 35 275 96 22 2
Taiwan Province of China - 38 9 11 - 3 16 16 42 50 601 24 1 837 644
Thailand - - - 70 79 498 42 89 161 234 633 3 209 2 011 2 569
Viet Nam - - - - - - - 2 1 6 63 - 59 19
The Pacific - - - - 28 - 2 37 67 46 257 41 110 5
Cook Islands - - - - - - - - - - - - - 1
Fiji - - - - - - - - - 5 - - 4 -
French Polynesia - - - - - - - - - 2 - - - -
Marshall Islands - - - - - - - - 16 - - - - -
Papua New Guinea - - - - 28 - 2 36 51 39 257 41 106 -
Solomon Islands - - - - - - - 1 - - - - - -
Vanuatu - - - - - - - - - - - - - 4
Central and Eastern Europe - - 27 285 818 2 602 1 155 1 333 5 938 3 601 5 526 5 101 9 148 16 922
Albania - - - - - - - - 1 - - - 4 16
Bulgaria - - - - - - 20 90 32 71 497 61 1 133 582
Czech Republic - - - - - - 226 408 2 366 507 671 362 2 402 1 924
Former Czechoslovakia - - - - 477 780 - - - - - - - -
Estonia - - - - - - - - 28 23 64 149 114 131
Hungary - - 24 226 267 392 382 139 2 106 1 594 298 612 537 1 117
Latvia - - - - - - - 3 23 57 63 11 20 342
Lithuania - - - - - - - 9 - - 12 632 427 173
Poland - - 4 - 74 1 396 197 357 983 993 808 1 789 3 707 9 316
Republic of Moldova - - - - - - - - - - 2 - - 27
Romania - - - - - - - 181 229 94 391 1 284 447 536
Russian Federation - - - 59 - 33 309 63 100 95 2 681 147 180 758
Slovakia - - - - - - 21 83 4 138 38 54 41 1 849
Ukraine - - - - - - - - 66 30 1 0 136 151
Multinational a - - - - - - - 30 100 - - 665 2 162 -
341

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

a Involving sellers in more than two countries.
 Annex table B.8. Cross-border M&A purchases, by region/economy of purchaser, 1987-2000
342

(Millions of dollars)

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

TOTAL WORLD 74 509 115 623 140 389 150 576 80 713 79 280 83 064 127 110 186 593 227 023 304 848 531 648 766 044 1 143 816

Developed countries 71 874 113 413 135 786 143 216 77 635 74 431 72 498 116 597 173 732 198 257 272 042 511 430 706 519 1 094 031
Western Europe 33 068 49 690 74 265 92 567 42 473 49 753 43 010 75 943 92 539 110 628 154 035 324 658 539 242 852 735
European Union 32 617 40 141 71 365 86 525 39 676 44 391 40 531 63 857 81 417 96 674 142 108 284 373 517 155 801 746
Austria - - 21 236 208 62 169 23 157 4 242 302 1 771 2 254
Belgium 20 188 309 813 222 625 181 3 107 4 611 3 029 2 053 2 225 13 357 16 334
Denmark 16 63 261 767 573 258 372 172 152 638 1 492 1 250 5 654 4 590
Finland 58 172 979 1 136 568 8 98 417 471 1 464 1 847 7 333 2 236 20 192
France 3 244 5 486 17 594 21 828 10 380 12 389 6 596 6 717 8 939 14 755 21 153 30 926 88 656 168 710
Germany 1 634 1 857 3 468 6 795 6 894 4 409 4 412 7 608 18 509 17 984 13 190 66 728 85 530 58 671
Greece - - 100 3 16 19 127 21 - 2 2 018 1 439 287 3 937
Ireland 67 548 1 174 730 390 358 457 1 447 1 166 2 265 1 826 3 196 4 198 5 575
Italy 3 327 1 373 1 961 5 314 816 5 167 816 1 622 4 689 1 627 4 196 15 200 12 801 16 932
Luxembourg 59 80 - 734 1 023 415 1 555 244 51 1 037 973 891 2 847 6 040
Netherlands 2 716 2 350 3 292 5 619 4 251 5 304 2 848 8 714 6 811 12 148 18 472 24 280 48 909 52 430
Portugal - - 14 17 181 502 14 144 329 96 612 4 522 1 434 2 657
Spain 212 582 1 318 4 087 2 773 983 1 053 3 828 460 3 458 8 038 15 031 25 452 39 443
Sweden 1 645 3 104 2 645 12 572 2 882 1 813 1 923 3 118 5 432 2 058 7 625 15 952 9 914 21 559
United Kingdom 19 621 24 339 38 229 25 873 8 501 12 080 19 911 26 675 29 641 36 109 58 371 95 099 214 109 382 422
Other Western Europe 452 9 549 2 900 6 043 2 797 5 362 2 478 12 086 11 122 13 954 11 928 40 285 22 087 50 989
Gibraltar - - - - 3 - - - - - - - - 18
Iceland - - - - - 7 - - - - - - - 49
Jersey - - - - - - - - - - - - 6 -
World Investment Report 2001:

Liechtenstein - - - 160 - - - 62 10 - 142 - 8 -

Monaco - - - - 35 113 - 4 - - - - - 318
Norway 53 19 126 1 380 1 301 270 143 643 1 276 3 956 1 212 1 170 1 382 7 376
Switzerland 399 9 530 2 774 4 503 1 458 4 973 2 336 11 378 9 836 9 998 10 574 39 115 20 691 43 228
North America 32 138 38 577 47 862 30 766 20 702 17 190 25 534 33 610 69 833 69 501 99 709 173 039 138 881 198 915
Canada 3 727 14 397 9 002 3 139 4 106 2 155 4 129 5 079 12 491 8 757 18 840 35 618 18 571 39 646
United States 28 412 24 181 38 860 27 627 16 596 15 035 21 405 28 531 57 343 60 744 80 869 137 421 120 310 159 269
Other developed countries 6 668 25 146 13 659 19 883 14 461 7 488 3 955 7 044 11 360 18 128 18 297 13 733 28 396 42 381
Australia 2 513 9 355 5 561 3 806 1 472 676 1 852 1 602 6 145 9 283 11 745 8 147 10 138 10 856
Israel - - - 28 28 61 393 143 106 484 254 791 605 2 361
Japan 3 156 13 514 7 525 14 048 11 877 4 392 1 106 1 058 3 943 5 660 2 747 1 284 10 517 20 858
New Zealand 685 2 253 569 1 854 883 923 252 44 573 1 180 785 997 1 421 1 913
South Africa 315 24 5 146 201 1 436 352 4 196 593 1 522 2 766 2 514 5 715 6 393
Developing countries 2 614 2 180 3 990 7 035 3 057 4 827 10 439 10 164 12 779 28 127 32 544 19 204 57 702 42 135
Africa 100 - - - 229 309 54 25 52 625 34 163 47 266
Promoting Linkages

North Africa - - - - - 309 54 9 11 8 - 3 40 213

Egypt - - - - - - 18 - - - - - 7 213
Libyan Arab Jamahiriya - - - - - 309 - 5 - - - 3 - -
Morocco - - - - - - 36 4 - 8 - - 10 -
Tunisia - - - - - - - - 11 - - - 23 -
Other Africa 100 - - - 229 - - 16 41 618 34 160 7 53
Botswana - - - - - - - - 4 - - - - -
Central African Republic - - - - - - - - - 63 - - - -
/...
 Annex table B.8. Cross-border M&A purchases, by region/economy of purchaser, 1987-2000 (continued)
(Millions of dollars)

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
ANNEX B

Gabon - - - - 229 - - - - - - - - -
Ghana - - - - - - - - 35 506 - 137 - 4
Kenya 100 - - - - - - - - - - - - 3
Liberia - - - - - - - - - 15 - - - -
Mauritius - - - - - - - - - 4 34 7 7 -
Namibia - - - - - - - - - 11 - - - -
Nigeria - - - - - - - - 2 - - - - -
United Republic of Tanzania - - - - - - - - - - - - - 3
Uganda - - - - - - - - - - - - - -
Zambia - - - - - - - - - 15 - - - 43
Zimbabwe - - - - - - - 16 - 4 - 16 - -
Latin America and the Caribbean 142 100 992 1 597 387 1 895 2 507 3 653 3 951 8 354 10 720 12 640 44 767 18 614
South America - 10 91 130 269 594 1 795 682 3 405 5 939 6 038 9 510 3 874 2 191
Argentina - - - 10 181 - 71 62 1 984 321 1 170 3 545 1 313 675
Bolivia - - - - - - - - - 0 - - - -
Brazil - 2 2 - 45 63 439 158 379 1 167 2 357 3 517 1 908 429
Chile - - - - - 443 828 293 794 3 827 1 497 591 322 507
Colombia - - - - - - 11 10 91 272 157 436 102 203
Ecuador - - - - - - - 22 50 45 - - - -
Peru - - - - - - - 7 62 237 44 47 220 62
Suriname - - - - 2 - - - - - - - - -
Uruguay - - - - - 8 - 120 3 - - 25 - 1
Venezuela - 7 89 120 41 80 446 10 42 71 813 1 348 9 314
Other Latin America and Caribbean 142 91 901 1 467 118 1 300 712 2 971 546 2 415 4 682 3 130 40 893 16 423
Bahamas - 83 - 1 - 17 - 9 142 344 23 51 459 -
Barbados - - - - - - - - - - 15 2 - 49
Belize - - - - - - 55 1 25 - - 63 318 -
Bermuda 9 - 24 483 115 130 112 189 17 703 1 189 2 139 35 151 11 492
British Virgin Islands 2 - - - - - 4 44 62 260 56 - 40 489
Cayman Islands - - - - - - 24 530 - 207 99 99 77 24
Costa Rica - - - - - - - - 2 7 3 - - -
Cuba - - - - - - - 8 - - - - - -
Dominican Republic - - - - - - - - - - - - 109 -
El Salvador - - - - - - - - - - - - - 1
Guatemala - - - - - - - - - - 48 - - -
Jamaica - - - 16 - 10 - - 4 - - - - -
Mexico - - 837 680 3 888 309 2 190 196 867 3 154 673 2 216 4 231
Netherlands Antilles 132 8 16 288 - 11 33 - 99 7 7 - 308 2
Panama - - - - - - - - - 17 89 100 2 215 5
Puerto Rico - - - - - - - - - - - - - 125
Trinidad and Tobago - - 24 - - 245 175 - - - - 5 - 5
Developing Europe - - - - - - 7 - - 3 100 1 11 32
Croatia - - - - - - - - - 1 100 1 3 22
Malta - - - - - - 7 - - - 0 - 4 -
Slovenia - - - - - - - - - - - - 4 10
TFYR of Macedonia - - - - - - - - - 2 - - - -

/...
343
 Annex table B.8. Cross-border M&A purchases, by region/economy of purchaser, 1987-2000 (concluded)
(Millions of dollars)
344

Region/economy 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Asia 2 372 2 080 2 998 5 438 2 441 2 624 7 843 6 486 8 755 19 136 21 690 6 399 12 873 22 895
West Asia 170 124 253 2 112 113 105 1 013 1 199 1 697 1 589 3 797 399 1 538 1 750
Abu Dhabi - - - 528 - - - - - - - - - -
Bahrain - - 168 1 537 - - 811 300 - - 1 472 45 563 79
Cyprus - - - - - - - - - 41 1 881 - 73 15
Iran, Islamic Republic of - - - - - - - - - - - - - -
Jordan - - - - - - - - - - - - - 22
Kuwait 170 - 83 - 112 - - - 4 648 - - 119 32
Lebanon - - - - - - 21 - 3 0 58 - - -
Oman - - - - - - - - - - 8 55 - -
Qatar - - - - - - - - - 42 - - - 2
Saudi Arabia - - - - - 100 182 630 1 671 350 334 217 3 1 550
Turkey - - 2 - - - - 11 19 356 43 4 88 48
United Arab Emirates - 124 - 48 1 - - 257 - 153 2 77 655 2
Yemen - - - - - 5 - - - - - - 37 -
Central Asia - - - - - - - - 450 - - - - 6
Kazakhstan - - - - - - - - 450 - - - - 6
South, East and South-East Asia 2 202 1 956 2 745 3 325 2 329 2 518 6 830 5 287 6 608 17 547 17 893 6 001 11 335 21 139
Afghanistan - - - - - 13 - - - - - - - -
Bangladesh - - - - - - - - 12 - - - - -
Brunei Darussalam - - - - - - 202 - 31 189 - - - -
China - 17 202 60 3 573 485 307 249 451 799 1 276 101 470
Democratic People’s Republic - - - - - - - - - - - - - 2
Hong Kong, China 2 166 1 649 773 1 198 1 342 1 263 4 113 2 267 2 299 2 912 8 402 2 201 2 321 5 768
India - 22 11 - 1 3 219 109 29 80 1 287 11 126 910
Indonesia - 260 - 49 3 16 50 32 163 218 676 39 243 1 445
Malaysia - - 27 144 149 148 774 812 1 122 9 635 894 1 059 1 377 761
Macau - - - - - - - - - - - - 450 -
World Investment Report 2001:

Philippines - - - - 14 - 25 42 153 190 54 1 330 75

Pakistan - - - - - - - - - - - - - 6
Republic of Korea - - 235 33 187 72 74 500 1 392 1 659 2 379 187 1 097 1 712
Singapore 7 8 764 438 570 294 849 1 174 892 2 018 2 888 530 4 720 8 847
Sri Lanka - - - - - - - 2 - - - 26 8 -
Taiwan Province of China 29 - 464 1 385 - 131 - 30 122 4 433 628 408 1 138
Thailand - - 269 18 59 1 38 12 144 180 55 43 154 5
Viet Nam - - - - - 6 - 1 - 11 27 - - -
The Pacific - - - - - - 28 - 22 8 - - 4 328
Fiji - - - - - - - - - - - - 4 -
Nauru - - - - - - 28 - - - - - - -
Papua New Guinea - - - - - - - - 13 8 - - - 328
Vanuatu - - - - - - - - 9 - - - - -
Central and Eastern Europe 8 - 6 - 14 22 113 329 59 501 175 1 007 1 542 1 661
Bulgaria 8 - - - - - - - - 3 60 - 797 8
Czech Republic - - 6 - - - 19 51 48 176 60 142 13 775
Former Czechoslovakia - - - - - 4 - - - - - - - -
Estonia - - - - - - - 22 - 15 1 12 5 2
Promoting Linkages

Hungary - - - - - - 62 - 2 - 6 64 118 379

Latvia - - - - - - 18 - - - - - - -
Lithuania - - - - - - - - - - - - 1 -
Poland - - - - 14 - 8 11 8 23 45 465 132 118
Romania - - - - - - - - - - 0 - - -
Russian Federation - - - - - 18 6 245 - 242 2 301 52 225
Slovakia - - - - - - - 1 2 42 1 - 424 24
Ukraine - - - - - - - - - - - 23 - 130
Unspecified 13 30 606 325 4 - - 10 - - 4 - - 7
Multinational a - - - - 3 - 14 10 23 139 83 8 281 5 982
Source: UNCTAD, cross-border M&A database.
a Involving purchasers in more than two countries.
 Annex table B.9. Cross-border M&As, by sector and industry of seller, 1987-2000
(Millions of dollars)

Sector/industry 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
ANNEX B

Total 74 509 115 623 140 389 150 576 80 713 79 280 83 064 127 110 186 593 227 023 304 848 531 648 766 044 1 143 816

Primary 10 795 3 911 1 941 5 170 1 164 3 637 4 201 5 517 8 499 7 935 8 725 10 599 10 000 9 815
Agriculture, hunting, forestry, and fishing 343 1 809 225 221 548 301 406 950 1 019 498 2 098 6 673 656 1 110
Mining, quarrying and petroleum 10 452 2 102 1 717 4 949 617 3 336 3 795 4 568 7 480 7 437 6 628 3 926 9 344 8 705

Manufacturing 42 393 73 727 89 596 75 495 36 176 43 222 43 204 69 321 84 462 88 522 121 379 263 206 288 090 291 654
Food, beverages and tobacco 3 803 14 462 8 719 12 676 5 127 9 398 7 751 13 528 18 108 6 558 22 053 17 001 28 242 50 247
Textiles, clothing and leather 617 812 1 720 1 281 731 760 1 173 1 431 2 039 849 1 732 1 632 5 276 2 526
Wood and wood products 2 013 1 793 9 176 7 765 2 714 1 588 2 031 4 262 4 855 5 725 6 854 7 237 9 456 23 562
Publishing, printing, and reproduction of recorded media 1 196 11 741 6 544 2 305 353 5 192 1 183 2 747 1 341 10 853 2 607 12 798 10 248 4 875
Coke, petroleum and nuclear fuel 3 980 17 868 9 151 6 480 5 676 1 596 1 479 4 216 5 644 13 965 11 315 67 280 22 637 45 015
Chemicals and chemical products 16 836 5 008 18 368 12 275 5 773 5 581 11 393 20 061 26 984 15 430 35 395 31 806 86 389 30 446
Rubber and plastic products 1 696 3 620 1 387 2 745 574 228 265 997 4 313 3 943 2 306 2 264 3 786 4 723
Non-metallic mineral products 1 249 2 452 3 887 5 630 1 113 5 410 2 204 5 201 2 726 2 840 6 153 8 100 12 129 11 663
Metal and metal products 1 459 1 606 6 399 4 426 2 246 2 534 2 252 2 743 2 515 8 728 9 853 8 376 10 825 16 782
Machinery and equipment 832 2 878 2 078 1 750 1 140 1 087 1 661 3 312 5 103 4 301 7 546 8 918 20 850 8 980
Electrical and electronic equipment 7 135 6 998 12 771 6 114 8 361 6 198 3 895 3 432 5 581 7 573 7 897 35 819 51 770 53 859
Precision instruments 1 056 3 596 2 626 3 992 1 112 1 080 4 495 1 882 2 023 3 300 3 322 9 251 7 269 13 518
Motor vehicles and other transport equipment 315 889 5 215 7 390 995 2 211 2 743 4 988 2 657 4 150 4 189 50 767 18 517 25 272
Other manufacturing 208 4 1 556 666 261 360 680 522 575 308 158 1 958 696 186

Tertiary 21 321 37 986 48 851 69 911 43 297 32 384 35 649 52 270 93 632 130 232 174 744 257 843 467 853 842 342
Electric, gas, and water 61 116 1 028 609 1 072 1 847 1 783 2 510 12 240 21 274 29 620 32 249 40 843 46 711
Construction 416 295 813 533 279 651 331 838 1 738 4 410 602 1 434 3 205 5 170
Trade 4 319 10 013 12 377 9 095 7 904 5 703 7 537 8 753 10 159 27 928 21 664 27 332 55 463 34 918
Hotels and restaurants 2 304 6 829 3 316 7 263 1 293 1 408 1 412 2 335 3 247 2 416 4 445 10 332 4 836 2 883
Transport, storage and communications 309 2 182 3 578 14 460 3 757 3 035 6 559 13 540 8 225 17 523 17 736 51 445 167 723 365 673
Finance 7 360 14 471 14 616 21 722 14 188 13 178 12 168 10 568 31 059 36 693 50 836 83 432 126 710 183 665
Business services 6 237 3 009 5 264 11 831 5 100 3 808 3 664 8 406 9 715 13 154 26 480 42 497 52 748 137 416
Public administration and defence - - - - - - - - 605 - 111 395 1 769 8
Education - - 7 5 33 - 421 18 - 4 179 42 66 219
Health and social services - 86 460 469 84 237 261 2 463 946 336 3 396 641 724 751
Community, social and personal service activities 315 984 7 363 3 858 9 554 2 474 1 404 2 319 12 110 6 494 19 656 7 976 13 724 64 855
Other services - 3 30 66 33 44 110 520 3 588 - 19 69 42 73

Unknown a - - - - 76 37 10 1 - 334 - - 101 5

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

a Includes non-classified establishments.
345
 Annex table B.10. Cross-border M&As, by sector and industry of purchaser, 1987-2000
346

(Millions of dollars)

Sector/industry 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Total 74 509 115 623 140 389 150 576 80 713 79 280 83 064 127 110 186 593 227 023 304 848 531 648 766 044 1 143 816

Primary 1 425 4 398 2 976 2 131 1 556 2 978 4 155 5 032 7 951 5 684 7 150 5 455 7 397 8 968
Agriculture, hunting, forestry, and fishing 846 2 078 1 466 47 471 204 65 154 182 962 1 541 1 497 241 1 472
Mining, quarrying and petroleum 579 2 320 1 511 2 084 1 085 2 775 4 090 4 878 7 769 4 723 5 609 3 958 7 156 7 496

Manufacturing 50 308 71 747 95 149 79 908 44 985 35 287 36 837 72 549 93 784 88 821 133 202 257 220 287 126 302 507
Food, beverages and tobacco 4 454 19 774 15 484 13 523 5 212 6 383 7 668 7 872 22 546 9 684 21 439 16 922 33 014 60 189
Textiles, clothing and leather 259 608 1 636 3 363 1 401 406 3 767 332 1 569 778 1 254 3 062 2 122 3 741
Wood and wood products 1 374 3 115 5 637 6 717 2 244 1 743 2 933 2 483 6 466 3 143 6 157 13 131 7 138 18 342
Publishing, printing, and reproduction of recorded media 1 426 8 951 6 518 2 363 689 5 022 1 998 4 866 2 332 7 829 6 774 12 050 13 245 9 365
Coke, petroleum and nuclear fuel 12 624 15 360 9 384 7 051 6 199 1 442 2 243 3 499 6 679 12 994 11 860 67 665 36 939 40 701
Chemicals and chemical products 15 405 4 332 19 335 15 260 4 043 5 142 4 605 31 473 28 186 18 555 38 664 34 822 80 865 24 085
Rubber and plastic products 1 169 3 528 2 609 1 904 411 710 387 176 4 852 659 2 363 2 790 1 105 1 214
Non-metallic mineral products 2 126 1 865 2 983 6 183 911 3 939 2 404 5 232 2 740 4 585 6 965 8 823 12 494 12 881
Metal and metal products 1 654 2 729 5 992 3 076 1 874 2 308 2 046 2 475 1 472 13 395 8 512 7 947 10 974 12 713
Machinery and equipment 2 451 2 288 2 567 1 906 1 171 671 1 239 2 416 3 760 2 463 4 767 4 553 26 325 12 938
Electrical and electronic equipment 5 737 6 474 17 062 7 190 19 346 5 057 4 608 4 822 7 576 6 660 9 093 29 062 40 893 68 284
Precision instruments 920 1 251 1 511 2 861 445 619 1 415 1 135 2 809 3 033 4 757 7 209 4 302 6 195
Motor vehicles and other transport equipment 496 1 470 4 357 8 369 928 1 633 1 437 5 271 2 267 4 411 5 072 48 904 17 038 30 852
World Investment Report 2001:

Other manufacturing 214 3 74 143 113 214 88 497 528 633 5 527 280 672 1 007

Tertiary 22 776 39 221 42 264 68 423 33 985 40 965 42 028 49 519 84 824 132 414 164 457 268 486 471 497 832 303
Electric, gas, and water 66 1 034 771 332 1 072 1 012 1 250 830 10 466 16 616 18 787 27 527 55 111 84 409
Construction 882 2 740 1 181 257 695 316 177 1 350 1 160 6 955 2 546 1 336 1 787 2 921
Trade 3 123 4 109 4 356 6 205 3 739 2 870 6 186 5 636 8 854 15 176 16 515 19 624 29 524 19 399
Hotels and restaurants 331 3 561 1 534 3 066 340 323 569 997 3 402 1 713 2 482 2 799 3 593 2 120
Transport, storage and communications 560 1 062 5 004 4 785 1 367 1 596 4 048 10 480 6 085 11 424 14 735 30 165 163 928 368 954
Finance 11 183 13 218 23 402 43 671 22 395 30 406 24 589 24 268 45 368 61 304 82 616 142 066 174 238 241 282
Business services 5 600 9 888 4 949 6 377 3 100 3 298 3 532 3 972 4 843 17 084 14 721 22 889 35 695 82 790
Public administration and defence 103 1 952 13 667 - - 81 0 31 - 102 - 310 17
Education - - 216 - 4 - 420 - - 1 98 30 54 107
Health and social services - 14 155 530 41 221 203 154 263 265 321 738 35 513
Community, social and personal service activities 928 1 640 678 2 469 1 206 835 906 1 332 3 366 1 857 11 000 19 887 7 214 29 784
Promoting Linkages

Other services - 3 5 66 27 88 69 500 986 20 534 1 426 8 7

Unknown a - 258 - 114 187 50 45 10 34 104 38 488 24 38

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

a Includes non-classified establishments.
 SELECTED UNCTAD PUBLICATIONS ON
TRANSNATIONAL 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 UNCTAD
special 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. 368
p. 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. An
Overview . 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.
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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 Competition
Policy. 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 Competition
Policy. 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. Sales
No. E.95.II.A.9. $45. Selected materials available from http://www.unctad.org/wir/contents/
wir95content.en.htm.
348 World Investment Report 2001: Promoting Linkages

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 International

Production. 290 p. Sales No. E.93.II.A.14. $45. Selected materials available from http://
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World Investment Report 1993: Transnational Corporations and Integrated International

Production. An Executive Summary . 31 p. ST/CTC/159. Free-of-charge. Available also from
http://www.unctad.org/wir/contents/wir93content.en.htm.

World Investment Report 1992: Transnational Corporations as Engines of Growth. 356 p. Sales
No. E.92.II.A.19. $45. Selected materials available from http://www.unctad.org/wir/contents/
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World Investment Report 1992: Transnational Corporations as Engines of Growth: An Executive

Summary. 30 p. Sales No. E.92.II.A.24. Free-of-charge. Available also from http://www.unctad.org/
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World Investment Report 1991: The Triad in Foreign Direct Investment . 108 p. Sales
No.E.91.II.A.12. $25. Full version is available also from http://www.unctad.org/wir/contents/
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World Investment Directory. Vol. VII (Parts I and II): Asia and the Pacific . 646 p. Sales
No. 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. Summary

available 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 available
from http://www.unctad.org/en/docs/poiteipcm1.en.pdf.
Selected UNCTAD Publications on
Transnational Corporations and Foreign Direct Investment 349

Investment Policy Review of Peru . 108 p. Sales No. E.00.II.D. 7. $22. Summary available from
http://www.unctad.org/en/docs/poiteiipm19sum.en.pdf.

Investment Policy Review of Uganda. 75 p. Sales No. E.99.II.D.24. $15. Summary available
from 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 available
from 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-volume
set, Sales No. E.96.II.A.12. $125.

Bilateral Investment Treaties 1959-1999 143 p. UNCTAD/ITE/IIA/2, Free-of-charge. Available

only 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 the

Special 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: Lessons

from Asia . 200 p. Sales No. E.98.II.D.4. $48.

Handbook on Foreign Direct Investment by Small and Medium-sized Enterprises: Lessons

from 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 the
Osaka 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 in

Developing Countries. 283 p. Sales No. E.00.II.D.35. $42.

Integrating International and Financial Performance at the Enterprise Level. 116 p. Sales
No. E.00.II.D.28. $18.
350 World Investment Report 2001: Promoting Linkages

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 Corporate

Environment 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.
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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 Community
and 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. Sales
No. 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.)
Selected UNCTAD Publications on
Transnational Corporations and Foreign Direct Investment 351

World Economic Situation and Prospects 2001. 51 p. Sales No. E.01.II.C.2. $15. (Joint publication
with 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. (Joint
publication 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. (Joint
publication 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, Evidence
and Policy Implications. 108 p. Sales No. E.91.II.A.19. $17.50. (Joint publication with the United
Nations 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 International
Thomson 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. (Published
by 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.

352 World Investment Report 2001: Promoting Linkages

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. [Out
of 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 . 58
p. 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 the

Determinants of Foreign Direct Investment by Transnational Service Corporations . 62 p. Sales
No. 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. Sales
No. 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.
Selected UNCTAD Publications on
Transnational Corporations and Foreign Direct Investment 353

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. Sales
No. 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 of

the 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 version

available also from http://www.unctad.org/fr/docs/poiteiitm24.fr.pdf. (Joint publication with the
International 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 association
with PricewaterhouseCoopers.)

D. Journals
Transnational Corporations (formerly The CTC Reporter ).

Published three times a year. Annual subscription price: $45; individual issues $20.
354 World Investment Report 2001: Promoting Linkages

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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 Division
on Investment, Technology and Enterprise Development, it would be useful to receive
the views of readers on this and other similar publications. It would therefore be greatly
appreciated if you could complete the following questionnaire and return to:

Readership Survey
UNCTAD Division on Investment, Technology and Enterprise Development
United Nations Office in Geneva
Palais des Nations
Room E-10054
CH-1211 Geneva 10
Switzerland

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