Archive for the ‘Multinational enterprises’ Category

Latin America’s emerging multinationals

April 15, 2009

“Latin American companies have fallen through the cracks,” says Lourdes Casanova, a lecturer in strategy at INSEAD and author of Global Latinas: Latin America’s emerging multinationals.

 

“Latin America has been undersold. This book wants to celebrate the success of the region and its multinationals.” Since 2002, Latin American firms have expanded aggressively on a global scale and investment in foreign countries has jumped accordingly. And commodities now account for less than 30%, with a range of products now accounting for the rest – IT services, steel, electricity, wine, cosmetics, oil and gas.


Until 1980, Latin American countries were the emerging market of choice. Brazil and Mexico had China-like growth. But during the 1980s (the ‘lost decade’ due to the debt crisis) the region’s growth stalled as Russia, China and India stepped up. Prompted by the strict policies imposed in the 1990s by the IMF and World Bank, Latin American governments began the privatisation of state companies, deregulation and tariff cuts.  

 

The deregulation brought a wave of foreign multinationals to compete against domestic firms. Latin American companies had to grow and expand internationally. “These companies had been growing in a protected environment before this,” Casanova says. “Now they felt threatened by foreign multinationals competing against them in their own region. The best defense was to attack.” During the 1990s, Latin American firms grew domestically and expanded into nearby regions and/or with the same language and shared history. NAFTA smoothed the way and enabled cross-border acquisitions. Now they are entrenched.

 

Source: INSEAD, Paris

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Nestlé wins accolades in Vietnam (BEST PRACTICE)

January 15, 2009

 

Michael Porter, in his recent Vietnam address, stressed the need for a Corporate Social Agenda.

 

Somewhat surprisingly, he used the example of Nestlé, which entered the poor Moga region of India in 1962.

 

In this case study, the local milk supply was hampered by small parcels of land, poor soil, periodic droughts, animal disease, and lack of a commercial market. Nestlé therefore established local milk purchasing organizations in each town, and invested in improving the competitive context as follows:

 

§          Collection infrastructure such as refrigerated dairies was accompanied by veterinarians, nutritionists, agronomists, and quality assurance experts to assist small farmers.

§          Medicines and nutritional supplements were provided to improve animal health.

§          Monthly training sessions were held for local farmers.

§          Wells to secure water supply for animals – with financing and technical assistance from Nestlé.

 

Nestlé has now built a productive milk cluster in Moga, buying milk from more than 75,000 farmers through 650 local dairies. Moga has dramatically improved social conditions.

 

Booz study of corporate R&D spend

January 15, 2009

Corporate innovation strategies are becoming more global – multinational companies are spending a significant – and growing – share of their R&D money outside the countries in which they are headquartered.

 

Booz & Company’s annual Global Innovation 1000 study found that in 2007, the top 80 U.S. corporate R&D spenders deployed US$80.1 billion of their $146 billion R&D funds overseas.

 

The top 50 European companies spent $51.4 billion of their $117 billion total outside the continent. In Japan, the top 43 Japanese firms exported $40.4 billion of their total $71.6 billion to other countries.

Go to Beyond Borders: The Global Innovation 1000 by Barry Jaruzelski and Kevin Dehoff

 

US expert predicted Mitsubishi’s exit in Australia

March 8, 2008

Professor Oded Shenkar was the Ford Foundation Professor of Global Business Strategy at Ohio State University in 2001. From our archives, we have idenitifed some very prescient comments he made at a series of talks in Australia as part of the Smartlink project .

Shenkar has a longstanding expertise re engagement with China, globalisation, multinationals, SME development, innovation and auto industry adjustment. Comments included:

  • Globalisation is on everyone’s mind – and the Conference Board (the key think tank in the US) has identified globalisation and alliances as the two critical issues.
  • Australia feels threatened by takeovers and, while MNEs might provide jobs, they may not be a ‘thinking’ workforce.
  • In Australia, there will not be four auto manufacturers within five years (i.e. currently Ford, GM, Mitsubishi, Toyota). The future of Mitsubishi will hinge on how well Chrysler does in the US – where it is losing $US500m per quarter at present – people in SA should be praying for Chrysler)
  •  Virtually all nations want foreign investment, and there is tremendous competition. But 85% of FDI is via mergers and acquisitions, and global M&A is now greater than domestic M&A. MNEs are trying to consolidate and not replicate – countries looking to maximise the contributions of MNEs should concentrate on knowledge-based activities – not capital for its own sake – go for back-office activities, education and training, design and tooling etc. that can build value chains. The need is to leverage off MNEs’ requirements.
  • One-third of global trade is internal transfer between the affiliates of the one company – and 60% of MNEs do not pay a cent in corporate tax.
  • SMEs are flourishing despite the growth of globalisation – they drive innovation. MNEs need them to capture innovation – this is why Cisco has bought 70 companies in the last two years. The share of US exports represented by SMEs has grown from 20 to 30% in recent years.
  • How should SMEs respond? – take opportunities as they arise, piggy-back off MNEs, push on exports because ‘if you don’t venture out, someone else will come and eat your lunch’ (i.e. off-shore competitors will encroach in  your domestic market).
  • Re US investor perceptions of Australia – while at pains to emphasise this was his first trip, Prof. Shenkar indicated that from his perspective, Australia is not on the screen – the leisure image works against Australia, and Hawaii suffers the same problem. Australia is seen as downunder and far away – Americans do not realise that Sydney is closer than Hong Kong in flying time. Australia really doesn’t have identifiable brands or specialisation like Sweden – furniture, Germany – cars. Interestingly, Subaru uses Paul Hogan and kangaroos in its 4WD ads in the US, and a fair proportion of Americans probably think the vehicles are made in Australia (and not Thailand etc.)
  • Alliances could help Australia overcome its lack of scale – bilateral alliances are one possibility whereby different aspects of a supply chain could be coordinated – but it requires a different perception of things and a creative government on both sides – need to see it as a value chain.
  • Sometimes we need to be physically close – it is important, and part of human nature. Governments need to recognise this. 

GM technology – the Big 6

February 10, 2008

Biotech companies are using genetically modified (GM) technology to mould climate change into a market opportunity. The aim is to grow plants with stronger, longer roots, develop plants that better conserve water, change the way the plant develops so water can be directed more to grain development etc.   

Monsanto, the biggest of the Big 6 in GM technology, gets much of the attention and flak. It has turnover of around $US9 billion. It is doing field trials in dry areas (Kansas, Nebraska, South Dakota). It spends 10% of sales on R&D ($US2 million/day), and sees drought-tolerance as a key area. Monsanto aims to have its first transgenic drought-tolerant corn seed on the market in 2012 (the development phase generally takes 6-8 years) It is also testing drought-tolerant corn. Monsanto equities were trading at a P/E ratio of 42 prior to Wall Street slide, which is an indication of investor confidence in GM technology!  

Bayer, the German multinational is No. 2 – turnover of $US8.4 billion.

The 3rd player is Switzerland’s Syngenta, which has a significant global reach and turnover of around $8 billion. Syngenta is pursuing “water optimised” corn technology.

The 4th player is BASF, also German ($5 billion turnover in agricultural products) recently announced a $US1.5 billion deal with Monsanto to develop high-yielding, drought-tolerant crops. 

The 5th player is Dupont. It has recently done a deal with Israel’s Evogene Ltd, giving DuPont’s Pioneer unit exclusive rights to genes associated with drought-tolerance in corn, soybeans.

The sixth player is Dow AgroSciences.

 Corn is the focus for virtually all six companies – the raw material for a multitude of processed foods, a major animal feed and used in ethanol production. The downside is that some farmers have mixed feelings about a drought-tolerant corn. Currently, US farmers pay about $US245 for a bag of Monsanto’s “triple-stacked” biotech corn seed, which protects against pests and is immune to weedkiller. A bag of conventional corn seed sells for around $US100.  

Source: SMH and in-house research.  

Singapore steals a march – Novartis announces US$700m investment

December 28, 2007

CANBERRA: 28 December 2007.

The Singapore Government has reaffirmed Swiss pharmaceutical giant Novartis’ biggest ever investment.

It involves a cell-culture production facility in Singapore to support its growing pipeline of biopharmaceuticals. It is due for completion by 2012.

The plant, to be located near Novartis’ existing operation producing drugs from chemically synthesised substances, will support both clinical and commercial production of potential new products including monoclonal antibodies to treat rheumatoid arthritis, oncology, asthma, spinal chord injury etc. At full capacity, it will employ 300 workers and produce drugs using mammalian cell culture technology. The investment is part of the Novartis Biologics unit, which brings together key elements for fast, high-quality R&D activities in biological medicines manufactured via laboratory-created processes involving living cells. Biologics now accounts for 25 per cent of the Group’s clinical research pipeline.Says Thibaud Stoll, Head of Global Biopharmaceutical Operations, Novartis“We have six facilities at the moment in biopharmaceutical operations – five in Europe and one in California. This new one will expand our operations in Asia and also in biopharmaceuticals.”

The investment follows Novartis’ new tablet facility in Tuas, Singapore (US$180 million), which will manufacture existing Novartis pharmaceutical brands, such as Diovan® – the world’s most prescribed high blood pressure medicine – and new products like Tekturna®/Rasilez®, the first of a new type of high blood pressure medicine. By 2011, the 28,500 sq. m. plant will be manufacturing around 3.3 billion tablets with 160 staff and lean-manufacturing practices.

About Novartis

Novartis was rated No. 1 among pharmaceutical companies worldwide in Fortune’s 2007 ranking of “Most Admired Companies”. Headquartered in Basel, Switzerland, Novartis’ presence in Singapore began in 1971, with the opening of Ciba-Geigy. Following the merger in 1996 between Ciba-Geigy and Sandoz, Novartis was created, with the company establishing its Asia-Pacific head office in Singapore.

Its other local operations include the Novartis Institute for Tropical Diseases (NITD), which holds the mandate for discovering and developing therapies for neglected diseases, including dengue and tuberculosis, and a production facility for the CIBA Vision Business Unit, part of Novartis’ consumer health business platform that also includes over-the-counter medicines and animal health products.

In Singapore, Novartis employs over 800 people, across pharmaceuticals, consumer health and vaccines and diagnostics. Activities include marketing, R&D, manufacturing and regional management.

Why Singapore?

The Singapore Government views these latest investments as a clear signal of the tremendous growth potential for Singapore’s biologics and pharmaceutical manufacturing industry.

In 2006, Singapore’s biomedical sciences output grew 30% to US$15.9 billion. It now boasts 25 pharmaceutical and biologics manufacturing facilities, with other heavyweights GlaxoSmithKline, Genentech, Abbott and Lonza all taking advantage of the region’s business benefits.

The Singaporeans claim it has a reputation as the most competitive and trusted site for pharmaceutical bulk activities and secondary manufacturing, and is now aggressively pursuing investments in biologics. In less than two years, Singapore has attracted five biologics investments totaling over US$1.5 billion.They see Novartis’ investments in Singapore as a significant endorsement of the island state as a value-adding partner to world-class pharmaceutical companies.

Says Lim Hng Kiang, Minister for Trade and Industry:

“The biotechnology facility will be the first biologics manufacturing investment in Singapore by a pharmaceutical company and our fifth commercial scale biologics plant to date…it further reinforces Singapore’s position as a leading location for world-class biopharmaceuticals manufacturing.”

There are 4,000 people employed in the local pharmaceutical/biologics sector, with 2,000 more required over the next three years. Lim says the government has been working closely with companies like Novartis to further augment its pool of skilled manpower to support this industry. A program to develop skilled pharmaceutical workers without prior experience in the industry will be launched soon.

According to Novartis, Singapore was picked as the ideal location for its new facilities after a thorough selection process. Says Tom Van Laar, Head of Global Operations, Novartis Pharma AG, “Singapore is attractive because of its increasingly strong biomedical cluster and proximity to growth markets in Asia. In addition, a solid educational system and favourable socio-economic conditions assure access to local and international talent.”

Australia’s view

The Singapore investment has been greeted with muted dismay by Australian industry analysts.

Novartis Australia is headquartered in North Ryde, in the biotech corridor in northern Sydney, where there is talk about action to create a true cluster to match that of Singapore.

Total employment across Australia is around 500, and Novartis’ annual R&D spend is reportedly around $27 million.

It was envisaged that Novartis would view Australia as its Asia Pacific node and keen to be part of recent talk about Australia becoming a global centre for clinical trials.

As officials are keen to explain, Australia has a much superior R&D base in biotechnology, with a strong history of Nobel Prize winners etc. Singapore is also viewed as an economy with a population smaller than that of Victoria, and artificially sustained by government subsidies.   

However the real problem appears to be that the talk about Australia becoming a global centre for clinical trials has not progressed into any tangible policy or initiatives. Australia’s reluctance to play the subsidy game, as well as its current labour shortages, were thought to have been the other main factors in favour of Singapore.

Swedish analysis of R&D internationalization (RECOMMENDED READING)

October 16, 2007

The National Dialogue on Entrepreneurship has kindly forwarded us details of some quite extraordinary Swedish analysis, ‘The Internationalization of Corporate R&D – Leveraging the changing geography of R&D’. It is from the Swedish Institute for Growth Policy Studies.

Very thorough, readable and timely. 300+ pages. Canvasses the driving forces of R&D and why MNEs are distributing their innovative activities and creating global R&D networks. Explains why strategic decisions to locate R&D close to production, markets and knowledge centers are becoming so important. Includes country studies – China, India, Japan, US, Sweden – and studies of different sectors and approaches.

Download The Internationalization of Corporate R&D: Leveraging the Changing Geography of Innovation.

MNEs and innovation systems – Swedish findings

October 16, 2007

 

IKED has been engaged in a number of projects addressing the internationalisation of economies and impacts of globalisation, notably as regards the connection between flows of foreign direct investment (FDI) and innovative capabilities.

This includes a study commissioned by the Swedish Investment Agency (ISA) which, in collaboration with UNCTAD and WAIPA, recently published the anthology “What’s Next”.  

The work makes it clear that the impacts of FDI cannot be taken for granted, but depend on circumstances, including a range of institutions and policies. The same insights are now making an impact on a range of countries. It is striking that governments in some of the poorest countries want not merely the advice how to attract FDI, but require that emphasis is placed on how to create a sensible link between FDI and domestic capacity-building.

IKED has been engaged in several such discussions over the past months (1996), including in Africa (Ethiopia, Morocco), Asia (in the context of ASEM) and the Middle East (Dubai, Saudi Arabia). 

The insight that new technologies represent a critical part of the agenda for development has not yet “sunk in” with regard to most development work. International organisations as well as bilateral donor agencies have a lot more to do to raise their own awareness of the opportunities at hand.

It was interesting to read a recent Bangladeshi report criticising a Poverty Reduction Strategy Paper by the World Bank, which was deemed thoroughly unhelpful due to the lack of inclusion of such perspectives. Developed countries remain much interested in these agendas as well.

A recently completed Nordic project (Nordic Innovation Centre, NIFU-STEP in Oslo with IKED) addressed the significance of Domestic Multinationals. It explored the how the role of domestic multinationals is changing in the Nordic economies, and the policy implications, the determinants of entrepreneurship and innovation, and the implications in terms of significance of national ownership or policy strategies adapted to globalization.  

Read more at the Domus website. 

Don’t expect MNEs to do basic research, says US executive

October 16, 2007

Carl Kohrt, Battelle’s president and CEO made some incisive comments in a 2006 interview with Industry Week.

He argued that an increasing government role (in basic research) is made even more imperative by the business model pressures on the R&D decisions made by established multinational firms. (Kohrt was a former chief technology officer at Kodak).“These marketers typically have a strong historical connection with a brand or an industry in which they compete,” says Kohrt.

As a result, they have an increased tendency to spend more and more resources on innovative extensions of existing product lines. At most, creative ideas are only applied within a field that they self-define. “The tendency is . . . you have wonderful technology . . . you know it can be used for other things, but it’s got to be used for the thing that you’re making money on — now.” Increasingly, says Kohrt, companies are working more on product development, more near-term innovations and less on the basic discovery step. “They now expect to get that from government, universities and networked collaborators in the Procter & Gamble style.”

At the industrial level, Kohrt says R&D practices “have been reduced to a commoditization of existing knowledge and technology through global collaboration.” He makes the point that the old days of corporate basic research have dwindled since a peak in the early 80s. “Back then,” he reminisces, “Kodak had research facilities on four continents.” (Today Kodak has R&D facilities in Rochester, N.Y. and Cambridge UK).

Valencia – more than oranges

October 16, 2007

I returned in late 2006 from participation as an external consultant in an OECD experts group advising the Greater Valencia Region on investment attraction, internationalisation and innovation. 

This was a case study of a series of reviews undertaken by the OECD Programme on Local Economic and Employment Development (LEED).  The project aims at providing policy recommendations to the city governments, its economic development agency and their partners on how to develop an FDI and internationalisation strategy for the city. A final OECD report will be published early next year.

Valencia, south-east of Madrid, is the third largest city in Spain. It has a long tradition of academic excellence, a very substantial manufacturing base (transport equipment, textiles and clothing, ceramics, food, toys), strong lifestyle attributes, and serves as a major transport logistics hub into Europe.

Our discussions revealed concern within Valencia about competing with imports from China and India, the lack of connectivity between the research community and industry, ‘branch plant’ multinationals, and water availability.

These are issues in which certain regions in Australia have some experience, and Adelaide and Perth in particular have a window to collaborate with Valencia, being cities of similar size and located in a mediterranean climate. Valencia is also host to the 2007 Americas Cup – hence another link to Perth. We would be interested in hearing of agencies wishing to be briefed further on this.    

Further information on the LEED Programme and its activities can be found at: www.oecd.org/cfe/LEED