HIGH EXPORT GROWTH IN DEVELOPING COUNTRIES LINKED TO TNCs, SAYS NEW UNCTAD REPORT
(Reissued as received.)
GENEVA, 17 September (UNCTAD) -- Transnational corporations (TNCs) are playing a pervasive role in the exports of developing countries, UNCTAD finds in the World Investment Report 2002,[1] released today.� In a number of countries they account for a substantial share of all exports, and this is especially true of “winner countries” –- those boasting the largest gains in market share over the past decades.� Their export growth is directly or indirectly linked to the expansion of TNCs’ international production systems.� But although more and more countries are targeting export-oriented foreign direct investment (FDI), high shares in exports are not enough, as the Report points out:� exports must also be upgraded and involve local value added if this investment is to yield longer-term development gains.
While the list of the world's top exporting countries is dominated by developed countries, developing countries and economies in transition accounted for the principal gains in world export market shares between 1985 and 2000 (figure).� Moreover, in countries that have boasted substantial increases in exports of non-resource-based manufactures, TNCs have played a major role, primarily through their foreign affiliates but also by way of non-equity links. The UNCTAD report includes six case studies –- China, Costa Rica, Hungary, Ireland, Mexico and the Republic of Korea -– for which it examines this phenomenon down to the firm level (table 1).� In Costa Rica, Hungary and Mexico, for example, the top three TNC exporters account for 29 per cent, 26 per cent and 13 per cent, respectively, of total exports.� In Mexico's case, the affiliates of the five transnational auto manufacturers brought in $27 billion of the country's exports in 2000.
In most of the countries with the largest gains in export market shares, the role of TNCs in those exports has increased over time.� In China, the share of foreign affiliates in exports rose from 17 per cent in 1991 to 50 per cent in 2001.� In the Republic of Korea, strong export growth was achieved without a strong presence of foreign affiliates, although non-equity relationships with foreign TNCs played a key role.� At the same time, the export repertoire of the
winner countries has generally shifted, from primary to manufacturing products and from low- to medium- and high-technology manufactures.� The role of TNCs is particularly important for those products that have seen the fastest growth in world trade between 1985 and 2000.� They are mostly to be found in non-resource-based manufactures, particularly in the electronics, automotive and apparel industries.
TNCs' role in exports varies greatly between countries, however, from 4 per cent in Japan to 80 per cent in Hungary (table 2).� That role also goes beyond the most dynamic manufacturing products to encompass increasingly internationally traded services as well as natural resources and agriculture.� In Kenya, for example, rapid growth in the exports of flowers has made the country the leading flower supplier of the European Union, with foreign affiliates producing most of these exports.
A key factor behind the shifts in export competitiveness is changing corporate strategies.� These are leading to a specialization within the international production systems of TNCs, with different activities being performed in locations that offer the best conditions in terms of costs, resources, logistics and market access.� As a result, trade in parts and components is assuming greater significance.� In response to a search for more cost-efficient production systems, these changes are also generating new exports from developing countries and economies in transition.
Several concurrent trends are responsible for the transformation of international production systems, the Report finds.� On the one hand, barriers to international transactions are falling, spurred by globalization, liberalization and technological innovation, including speedier transportation (see e-brief of
20 August and www.unctad.org/en/subsites/dite/bit).� This intensifies competitive pressures, forcing corporations to become more efficient and to internationalize their operations.� In the process, many TNCs are focusing more on their core activities and contracting out other functions to independent firms, if not opting out of production altogether.� These changes are resulting in new forms of international production systems and networks, ranging from linkages through FDI to non-equity linkages, posing both opportunities and challenges for developing countries.
Targeting export-oriented FDI
Countries are scaling up their efforts to attract and benefit from export-oriented FDI.� The intense competition for such investment is leading countries to adopt a more targeted approach to FDI promotion, particularly in the framework of their own development objectives.� The basis for successful targeting is a good understanding of a location’s relative strengths and weaknesses and of the corporate strategies driving location decisions.� As a rule-of-thumb, the Report suggests that countries wishing to target export-oriented FDI should consider an approach involving an analysis of existing trade and industry patterns; consultations with existing investors; an analysis of what competing locations are exporting and what they have attracted in terms of export-oriented FDI; and an identification of other factors that may attract export-oriented FDI (such as membership in free trade areas, preferential trade schemes, clusters of economic activity and industrial parks).� UNCTAD emphasizes that any effort to promote export-oriented FDI needs to be well integrated into a country’s overall development strategy.
The Report addresses a number of policies that can be considered by governments to facilitate export-oriented FDI in developing countries.� One key issue is to secure better access to developed country markets for goods and services produced in the developing world.� A rise in protectionism could effectively jeopardize the prospects for poor countries to exploit their comparative advantages fully.� The growing use of anti-dumping, increased tariffs on certain products, tariff peaks and targeted subsidies in developed countries is of concern in this context.� Beyond promotional activities, key instruments for host country policies include the provision of improved infrastructure and trade and investment facilitation.� Most of the winner countries identified in the World Investment Report also used export processing zones (EPZs) in their efforts to attract export-oriented FDI.� The Report notes that, in order to comply with WTO rules, many developing countries will have to eliminate the use of export subsidies as of 1 January 2003, with implications for many EPZs.� Although these zones are likely to continue to play an important role in the overall strategy for promoting export-oriented FDI, countries using them need to prepare for these WTO restrictions.
But as the Report stresses, enhanced export competitiveness should be seen as a means to an end:� development.� Longer-term development gains from export-oriented FDI cannot be taken for granted.� The costs and benefits of various approaches must be carefully considered at all policy levels.� UNCTAD warns, for example, that if too many countries seek to corner the same product market, a supply glut may result and prices collapse.� Similarly, intense competition for export-oriented FDI may translate into a race to the bottom in social and environmental standards and a race to the top in incentives –- not least in the context of EPZs.
Sustained competitiveness requires continuous upgrading towards higher value-added activities.� On their own, and in the absence of an adequate policy environment, TNCs may not undertake such upgrading.� Specific promotional measures therefore need to be complemented by broader efforts to strengthen a location’s endowments of skills and technological capabilities and to promote linkages between exporting foreign affiliates and domestic suppliers.� Keeping these broader issues in mind is important to ensure that export-oriented FDI results in development benefits for the host country.� “At the top of the agenda should be the development of domestic capabilities, as this helps not only to attract quality FDI but also to upgrade existing activities”, says Rubens Ricupero, Secretary-General of UNCTAD.
Table 1.� The role of foreign affiliates in the exports of six selected economies
Economy
(Year)
Total exports 2000
(US$ billions)
Share of foreign affiliates in total exports
�(%)
Top three TNC exporters in 2000
Exports
2000
(US$ billions)
China
(2001)
279.6
50
Samsung Electronics
IBM
Nokia
1.5
1.5
1.1
Costa Rica
(2000)
6.7
50
Intel
Dole Food
Del Monte
1.7
0.2
0.1
Hungary
(1999)
25.5
80
Volkswagen
IBM
Philips Electronics
3.2
2.2
2.0
Ireland
(1998)
52.5a
90b
Intel (1998)
Dell Computer (1998)
Microsoft (1998)
4.8
4.3
2.4
Mexico
(2000)
180.4
31c
IBM
DaimlerChrysler
General Motors
9.6
6.9
6.7
Republic
of Korea
(1999)
150.4
15
Amkor Technology
Nokia
Chip PAK
4.7
2.4
2.4
Source: UNCTAD, World Investment Report 2002.
a� Manufactured goods exports only.� Total exports were US$ 64.6 billion.
b �Share in manufactured goods exports.
c� Top 35 foreign affiliate exporters only.
Table 2.� Shares of foreign affiliates in the exports of selected host economies, selected yearsa
Economy
Year
Share in exports
Economy
Year
Share in exports
Developed countries:
Colombia
1995
6
Austria
1993
23
2000
14
1999
26
Costa Rica
2000
50
Canada
1994
46
1995
44
Hong Kong, China
1985
10
b
1997
5
b
Finland
1995
8
1999
26
India
1985
3
1991
3
France
1996
22
1998
21
Malaysia
1985
26
1995
45
Irelandb
1991
74
b
1999
90
b
Mexico
1995
15
2000
31
Japan
1988
4
1998
4
Peru
1995
25
2000
24
Netherlands
1996
44
Republic of Korea
1999
15
b
Portugal
1996
23
1999
17
Singapore
1994
35
b
1999
38
b
Sweden
1990
21
1999
39
Taiwan Province of China
1985
17
1994
16
United States
1985
19
1999
15
Central and Eastern Europe:
Czech Republic
1993
15
b
Developing economies:
1998
47
b
Argentina
1995
14
2000
29
Estonia
2000
60
Bolivia
1995
11
Hungary
1995
58
1999
9
1999
80
Brazil
1995
18
Poland
1998
48
2000
21
2000
56
Chile
1995
16
Romania
2000
21
2000
28
Slovenia
1999
26
China
1991
17
2001
50
Source:� UNCTAD, World Investment Report 2002:�
a�� For certain limitations of the data, see World Investment Report 2002.
b�� Share of manufacturing exports of foreign affiliates in the merchandise exports of host economies.
Figure. World export market shares, 2000, and changes, 1985-2000
For more information, please contact Karl P. Sauvant, Director, Division on Investment, Technology and Enterprise Development, tel: +41 22 907 5797, e-mail: karl.sauvant@unctad.org; Erica Meltzer, Press Officer, tel: +41 22 907 5365/5828; or Alessandra Vellucci, Information Officer, tel: +41 22 907 4641/5828, fax: +41 22 907 0043, e-mail: press@unctad.org.
