Ph D. Academy of Earth Sciences Leader of Ph.D. Academy: Gábris, Gyula D.Sc.,Professor
Geography-Meteorology Ph. D. program Leader of Ph.D. program: Nemes-Nagy, József D.Sc., Professor
CSIKI, ANITA
Expansion and Localization strategies of U.S. Transnational Corporations from a sales data perspective between 1983 and 2007
Thesis of Dissertation
Supervisor: Dr. Bernek, Ágnes Professor
Eötvös Loránd University Faculty of Sciences Department of Regional Science
BUDAPEST, 2010 1
I. Introduction
The dissertation focuses on the global network of U.S. TNCs. The research topic is timely and relevant because these companies carry great importance nowadays. Despite the globalization process, the research of the territoriality and spatiality of TNCs are increasingly more important. And what is more, the globalization is the phenomenon that results in changes in spatial structure of global economy. Although globalization leads towards the homogenization in several areas of life, it doesn’t mean complete homogenization. The TNCs decision on localization is just based on differences in countries. It became necessary to narrow down the research theme due to its extensive nature. The reason for analyzing sales data was the fact that the structure of production can be depicted mainly with this indicator. The examination of U.S. TNCs has two decisive reasons: 1. More detailed and complex US corporate sales databases are available. 2. U.S. TNCs significant role in the global economy was an important factor as well. (UNCTAD (2007, 2008) data shows that U.S. TNCs account for about 20% of total sales of TNCs. It clearly means that the U.S. corporations’ role in the world economy is absolutely significant.)
II. Objectives
The main objective of the dissertation is to present the operation of U.S. TNCs abroad. The research is based on sales data analysis. The dissertation stresses the expansion and localization of foreign affiliates of U.S. TNCs. Examined thesis of the dissertation: 1. Transnationality of U.S. TNCs has been rising recently. 2. The localization of the foreign affiliates of U.S. corporations is geographically less concentrated. 3. In the global network of U.S. TNCs the role of regions and countries has changed. 4. The regional distribution of affiliates’ output is determined mainly by the economic development of countries (economies). (Development indicator: GDP per capita.) 5. The industrial concentration of U.S. corporations has decreased, too. The regional
concentration of each industry has also changed. 2
6. The foreign affiliates of U.S. TNCs have been producing more and more for export; therefore, export-oriented production has been intensified.
The export to “third
countries1” has been growing faster than the export to the USA. It indicates that the role of export platform-FDI has become more important. 7. U.S. TNCs might choose to locate production-oriented and distribution-oriented affiliates in different countries related to the U.S. tax treatment of foreign source income. 8. The ratio of intra-firm sale has also grown. The increasing complexity of production is also expressed in rising intra-firm sales among affiliates; it means that the intensity of the cooperation among affiliates has become stronger.
Related to the above mentioned thesis, I searched for answers for the following research questions. 1. Has the transnationality of U.S. corporations intensified during the examined period? 2. How have the changing conditions in the world economy influenced the localization of foreign affiliates? Can it be verified that the geographic concentration of American corporations has decreased? 3. Which countries and regions are the main producing areas? Has the relative position in the global network of U.S. TNCs of each country and region changed? 4. What kinds of factors influence the geographic differentiation of affiliates’ output? 5. What are the main characteristics of industrial distribution of affiliates’ output? What are the features of the localization of each industry? Which industries are geographically more concentrated, which ones localize more evenly? 6. What are the main characteristics of the geographic orientation of affiliates’ output? (What is the ratio of export sales?). Concerning the export-oriented affiliates, can the growing importance of the export platform-FDI be justified? Which countries are oriented towards selling to their host market (local market) and which ones are oriented towards selling to export markets? 7. Are the wholesale affiliates (distribution-oriented affiliates) and the productionoriented affiliates localized in different countries? Which countries are oriented towards selling through wholesale affiliates and where is the priority of productionoriented affiliates?
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“third country”: is not the USA and not the host country „export to “third countries” : Sales by Affiliates to Foreign Countries Other Than the Host Country and the USA
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8. Has the ratio of intra-firm sales to total sales changed during the examined period? What are the main features of intra-firm sales? In which countries has the role of intrafirm sales grown?
III. Methodology and the source of data
The starting point for my analysis is the large academic literature on localization of transnational corporations. In the focus of my empirical research, is an analysis of sales data of U.S. TNCs. The data on the sales of foreign affiliates are from the Bureau of the Economic Analysis of the United States. The analysis combines the BEA data on U.S. TNCs with a number of country-varying characteristics and with the list of TOP 100 non-financial TNCs ranked by UNCTAD. In the framework of my empirical research, I analyzed the data on sales of U.S. TNC; I did ratio-analysis and other statistical examinations (such as regional an industrial concentration-analysis, calculation of the Pearson’s correlation matrix, measuring of the center of gravity). I also formed a multiple linear regression model to identify the determinants influencing the localization of TNCs.
IV. Main findings and conclusions:
The main results of the research are summarized in the following eight points: 1. The research confirms that the transnationality of U.S. TNCs has been rising recently. 2. Nowadays, the geographic concentration of U.S. TNCs has been declining. In spite of this phenomenon, the geographic distribution of affiliates’ output is highly concentrated: in 2007 the share of the top five countries reached 42%, the share of the top 10 countries was 62%. 3. The examination of the localization of U.S. TNCs shows that the shares of some countries and regions have changed, but these changes were not so big as to result in significant geographic realignment.
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Western-European countries and Canada - in spite of their decreasing share - have remained the main producing areas. South-East Asia (NIC I countries: Singapore, Hong Kong, Taiwan, South-Korea), Central-America (especially Mexico and Costa Rica), Central-, East- and SoutheastEurope, China and India have increased their shares. 4. It seems that the main investment factor is the market; the consequence of this is that
the majority of the affiliates are still heavily oriented towards local markets. 5. During the analyzed period, the industrial concentration of American corporations has also decreased. Concerning each industry, changes happened as well in their regional concentration. Among the main industries, the transportation industry, the production of computers and electronic products machinery, the food industry, the metal industry, the wholesale sector, financial and professional services, and the information services are characterized by the biggest regional concentration. The geographical concentration in the mining sector and the chemical industry is average. 6. It can be verified that the foreign affiliates of U.S. TNCs have been producing more and more for export, so the export-oriented production has been intensifying. The research has also proved that the export to “third countries” has been growing faster than exports to the USA. It indicates that the role of export platform-FDI has become more important. a. Among the main industries, the production of computers and electronic products has a high export-orientation. The average level of export-orientation was characteristic for companies within the mining and agriculture sectors, the production of pharmaceuticals and medicines, the wholesale sector, the production of plastics and rubber products, the transportation and textile industries. Local market orientation is characteristic of the food industry, the production of household chemicals (soaps and cleaning compounds), the construction sector, the production of petroleum and coal products, the paper industry, and for the financial and other services. b. The export-oriented affiliates are dominant in the countries which have less population, where the tax environment is more favorable and are the target areas of the outsourcing of production. (Main target areas of the exportoriented-FDI: Ireland, Israel, Barbados, Costa Rica, Bermuda, countries in South-East Asia, Luxemburg, Netherland, Switzerland.) 5
In larger markets (for example: Australia, Brazil, India, China, Mexico, Japan) the local market oriented affiliates are dominant. But, there are also many countries with lower populations, which are characterized with high local market orientation; these ones are located peripherally in their region (for example: Portugal, Greece, and New-Zealand). The empirical analysis of local sales data has yielded an additional result: in the larger countries, sales are performed through producing-oriented affiliates, and the smaller countries are oriented toward selling to wholesale affiliates. c. The export platform-affiliates are concentrated in the smaller counties with favorable production-costs of regional markets (for example: Ireland, Netherland, Singapore). 7. The research has proven that U.S. TNCs choose to locate production-oriented and distribution-oriented affiliates in different countries relates to the U.S. tax treatment of foreign source income. The share of wholesale affiliate’s sales in total sales is above the average in the periphery of EU (Greece, Portugal, and Finland), in the periphery of Asia and the Pacific regions (New-Zealand), in Turkey located on the border of Europe and the Middle-East. The highest values are characterized in Bermuda and the Caribbeanislands. Above all, high-income countries, such as Switzerland, Singapore, Hong Kong and Japan, also have a high share. 8. The ratio of intra-firm sale has also grown. The increasing complexity of production is also expressed in rising intra-firm sales among affiliates; it means that the intensity of the cooperation among affiliates has become stronger. Analyzing intra-firm sales shed light on the importance of the vertical-FDI, but the priority of the horizontal-FDI is henceforward undeniable. The countries strongly integrated into the vertically-integrated production are open, export-oriented, and have a middle or high income and favor tax environment (for example: Ireland, Luxemburg, Israel, Singapore, Costa Rica, Malaysia, Bermuda, and Barbados).
However, the share of intra-firm sales is high in Nigeria where the
petroleum sector is significant.
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VI. The author’s main publications in the topic of the thesis Az amerikai transznacionális vállalatok lokalizációja 1983 és 2007 között. In: Tér és Társadalom. MTA Regionális Kutatások Központja. Győr. (Megjelenés alatt, Befogadó nyilatkozat leadva.) Az amerikai transznacionális vállalatok térszerveződése az 1990-es években. In: Tér és Társadalom. 2004/3. MTA Regionális Kutatások Központja. Győr. 91-110. old. Az amerikai transznacionális vállalatok belső (intrafirm) kereskedelmük tükrében. In: Bernek Ágnes– Farkas Péter (szerk.) (2006): Globalizáció, tőkekoncentráció, térszerkezet. A Harsányi János Főiskola és az MTA Világgazdasági Kutatóintézet közös kiadása. Budapest, 236-1280. old.
VII. Conference presentations Az USA intra-firm kereskedelmének térbeli szerveződése (Harsányi János Főiskola és az MTA Világgazdasági Kutatóintézetének Tudományos Konferenciája, Budapest, 2006. április 6.)
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