Characteristics and Impacts of the arrival of Chinese and Indian Firms in Europe: first evidence

Christian MilelliFrançoise Hay

Copenhagen Business School 9-10/10/2008

Purpose of the research

Better understanding of the surge of FDI flows from developing countries

Targeting Chinese and Indian firms at the forefront of the rising wave

Purpose of the research

Tackle economic impacts on recipient countries

Europe as a Case-study

Due to well-known limits of macro data on FDI we inclined to a firm-level analysis

Outline

1. A firm-level analysis on Europe’s case1.1 Data collection

1.2 Methodology1.3 Main empirical findings

2. Impacts on European economies2.1 A systematic framework

2.2 Complementary versus Competitive impacts2.3 Four economic domains (FDI, Trade, Employment, Competition)

3. Discussion andDiscussion and Perspectives

1. A firm-level analysis1.1 Data collection

Founded on an exclusive database plus selected face-to-face interviews conducted across Europe (second half of 2007)

Database coverage: time period (since 1980), space (EU), investments (significant operations, i.e. more than 10 employees), amount (1,200 operations)

Methodology: descriptive, inductive, and comparative

1. A firm-level analysis1.2 Methodology

Methodology of the current research: descriptive, inductive, comparative and exploratory

1.3 Main empirical findingsHistory

Number of establishments

1.3 Main empirical findings Modes of entry

Greenfield Buy-out

China 60.5% 32%

Hong Kong 12% 86%

India 46% 49 %

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1.3 Main empirical findings

Geographic distribution

See following maps- Firms from China- Firms from India

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1.3 Main empirical findingsFunctions

China Hong Kong

IndiaProduction 36% 33% 38%

R-D 23% 4% 2%

Services 62% 57% 55%

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1.3 Main empirical findings Sectoral composition

Firms from Mainland China

Equipment 46%Telecommunication 21.7%

Electrical-Electronic 17.6%Machinery 6.6%

Motor Vehicles 10%Transport 6.6%Chemicals and chemical products 6.6%Household appliances 6 %Textile-Clothing 5.7%Finance 1.5%

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1.3 Main empirical findings Sectoral composition

Firms from India Software, Consultancy 42%Chemicals & chemical products 19.3%

Pharmacy 13%Other chemical products 6.5%

Electrical & Electronic 4.5% Motor vehicles 3.5%Food & Beverages 3.5%Machinery 3%

Textile & Clothing 3%

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2. Impacts

Difficult to assess because: Too early to assess what effects might be at play Europe: not a homogeneous bloc as countries

and groups within countries may be affected differentially (producers, workers, consumers)

Impacts may change over time

Direct and indirect effects overlap as they depend on:

the strategies and motives of the investors (access to markets, sale networks, know how, brands, niches, …)

the comparative advantages of the recipient country

the activities, the mode of entry,...

2.1 A systematic framework

Inspired by Kaplinsky & Messner (2008)

Complementary impacts versus Competitive impacts

Focus on economic aspects:- FDI - Trade - Employment - Competition

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FDI

Nature of impacts

Impacts and causal connections

Complementary A fresh source of FDI for European economies

Competitive Compete with FDI from other countries - particularly Developing ones - in Europe,

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Trade

Nature of impacts

Impacts and causal connections

Complementary

FDI from China and India support the imports of cheap consumer goods and inputs (China), and of services (India)

Competitive Chinese and Indian Imports• potentially displace local producers • increase trade deficit (or reduce it when production activities are created)• increase the influence of developing countries upon international organizations (WTO)

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Employment

Nature of impacts

Impacts and causal connections

Complementary Extra jobs (Huawei, COSCO…) Jobs safeguarded (China BlueStar, Hut. Whampoa, Johnson Electric...)Vacant crenels occupied, some industries revived

Competitive Lay-off resulting from relocation (TCL, Fooktin, YGM, Greencool...)Some European activities are disappearing

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Competition

Nature of impacts

Impacts and causal connections

Complementary European firms spurred to adopt more efficient manufacturing processes, and to innovate

Competitive New competitors for European firms- Backed by their State (Chinese firms), low manufacturing costs, large home market, … - Able to absorb and replicate the ’best practices’ and technologies they acquired from Western companies (at home through partnerships or overseas)

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3. Perspectives

Chinese and Indian perspectives in Europe seem to be contrasting (perceived or effective?)

However, complementary impacts (FDI) should increase and be welcomed (even SWFs!)

The same is true for employment with a mild if not a positive impact on Europe’s job levels

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3. Perspectives

The anticipated results for trade are more mixed (with more competitive impacts), particularly from Chinese FDI. Actually, Chinese investments in Europe can contribute to the deepening of the EU trade deficit with China

Last, in competition domain both impacts are at play, with ‘over-competition’ in some industries based on very different strategies. Also, larger choice and lower prices for European consumers (wealth effect)

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END

Thank you …