Small and medium-sized transnational corporations: Trends and patterns of foreign direct investment

This paper provides an analysis of small and medium-sized transnational corporations (TNCs). Statistical evidence is provided on trends and patterns of foreign direct investment (FDI) by small and medium-sized enterprises (SMEs). There are virtually no countries for which consistent and systematic FDI data are available by firm size, but data complied by or made available to the author for the UNCTAD Programme on Transnational Corporations allow an analysis of broad characteristics, trends and patterns.FDI by SMEs is more concentrated in developed countries than that by large TNCs. However, small and medium-sized TNCs, especially those from Japan, are increasingly investing in developing countries. Although absolute size of FDI is still small, SMEs account for a large share in terms of the number of investment cases and the number of parent firms. South and East Asia became the primary host region of small and medium-sized TNCs during the 1980s and early 1990s. The industrial distribution of FDI by SMEs in developing countries is quite wide, but concentrated in electrical goods, chemicals, textiles and some services industries. SMEs also engage in non-equity investments.Transnational Corporations Affairs Officer United Nations Conference on Trade and Development Geneva, SwitzerlandThe author is grateful for advice and comments by Hafiz Mirza     

Japanese transnational corporations' knowledge transfer to Southeast Asia: the case of the electrical and electronics sector in Malaysia

The role of Japanese Transnational Corporations (TNCs) in the economic development of the host Southeast Asian countries is at the heart of contemporary discussion on knowledge transfer. This paper is an empirical analysis of the existence of knowledge transfer from Japanese TNCs to their local suppliers in the Malaysian Electrical and Electronics sector. A logistic regression model enables to define the factors that determine the existence of knowledge transfer between Japanese affiliates and their local suppliers.     

Book Reviews

Book reviewed in this article: United Nations Library on Transnational Corporations, JOHN H. DUNNING(General ed.) Volume I: The Theory of Transnational Corporations, JOHN H. DUNNING (ed.) A Retrospective on the Bretton Woods System: Lessons for international Reform, MICHAEL D. BORDO and BARRY EICHENGREEN Fiscal Policies and the World Economy, 2nd Edition, JACOB A. FRENKEL and ASSAF RAZIN Costs and Productivity in Automobile Production: The Challenge of Japanese EfJiciency, MELVYN A. FUSS and LEONARD WAVERMAN Stabilization and Structural Adjustment: Macroeconomic Frameworks for Analysing the Crisis in Sub-Saharan Afiica, FINN TARP World Financial Markets After 1992, HANS GENBERG and ALEXANDER K. SWOBODA (eds.)     

Joint Ventures as an Internationalisation Strategy for SMEs

For some time believed to be inferior to Wholly Foreign-Owned Enterprises, Joint Ventures have become a popular vehicle for foreign market servicing. Although there are various proponents of the joint venture strategy as a means of enabling SMEs with limited productive resources and/or market knowledge to enter international markets, relatively few have focused on the actual joint venturing activities of SMEs. This article examines the activities of 9 U.K. and 12 German SMEs that have joint ventures in China. Based on a questionnaire survey and in-depth case interviews, it reveals that the initiatives appear to have been successful but that they are not without their problems and in many ways the experiences of the firms involved seem similar to those of the large multi-national enterprises. It argues that the key to success appears to be the choice of the joint venture partner and concludes that, given the limited resources of small firms, assistance is required to help them locate and select appropriate partners.     

跨国公司与东道国关系制度分析

跨国公司与东道国之间的博弈结果是双方受益,因而是一种“正和博弈”。东道国的FDI制度以及跨国公司FDI制度都是这种博弈的均衡结果,通过内生博弈规则和外生规则内部化而完成了作为整体的FDI制度的自我维系过程。由于信息的不对称和国家的多重悖论,加剧了博弈的复杂性,因而形成了动态的、连续的多阶段均衡,其外在表现就是FDI输入既有连续性、规律性,又有波动性、不确定性。     

Managing localization of human resources in the PRC: a practical model

The localization of top management positions is an important objective for many Transnational Corporations (TNCs). Despite its importance, there is little systematic discussion of how the localization process should be managed. Based on a review of related literature and in-depth interviews with six TNCs in the PRC, we developed a three-stage model of the localization process. In this article, we use that model to describe the challenges that TNCs face when localizing top management positions in the People’s Republic of China.     

Seasoned equity offerings by small and medium-sized enterprises

Most analyses of small firms’ decision to seek outside equity financing and the conditions thereof concern private firms. Knowledge of the risk and return of entrepreneurial ventures for outside investors is consequently limited. This paper attempts to fill this gap by examining the Canadian context, where small and medium-sized enterprises (SMEs) are allowed to list on a stock market. We analyze seasoned equity offerings launched by SMEs over the last decade. These public issuers can be considered low quality firms with poor operating performance. Managers issue equity before a large decrease in operating and stock market performance. Individual investors do not price the stocks correctly around the issue and incur significant negative returns in the years following the issue. This is particularly true for constrained issuers. We confirm that entrepreneurial outside equity attracts lemons and that individual investors cannot invest wisely in emerging ventures. Probably as a consequence of individual investors’ lack of skill and rationality, the cost of outside equity financing of Canadian public SMEs is abnormally low.     

Bank market power and the intensity of borrower discouragement: analysis of SMEs across developed and developing European countries

Small Business Economics - This paper analyzes the effect of bank market power on the financial constraints of small and medium-sized enterprises (SMEs) through the study of borrower...     

International codes of conduct: An analysis of ethical reasoning

Four international codes of conduct (those of the International Chamber of Commerce, the Organization for Economic Cooperation and Development, the International Labor Organization, and the United Nations Commission on Transnational Corporations) are analyzed to determine the ethical bases of the behaviors they prescribe for multinational enterprises (MNEs). Although the four codes emphasize different aspects of business behavior, there is substantial agreement regarding many of the moral duties of MNEs. It is suggested that MNEs are morally bound to recognize the codes and to take them into account when engaging in international business.Kathleen A. Getz is a doctoral candidate at the Katz Graduate School of Business of the University of Pittsburgh.For another interpretation, see William C. Frederick's current paper, Multilateral Compacts as a Source of Normative Corporate Guidelines: The Emergence of a Transcultural Corporate Ethic.     

Joint Ventures in Russia

There is an extensive literature on the role of joint ventures in international business. Most of this has focused on the involvement of multinational enterprises (MNEs) in establishing joint ventures in developing countries. Recent political and economic reforms in Eastern Europe have focused attention on joint venture opportunities in ex-centrally planned economies, including opportunities for small and medium-sized enterprises. This paper examines the experiences of two small, family owned Scottish companies in establishing joint ventures in the largest of the East European countries, the Russian Federation. The cases highlight the important strategic and managerial issues involved in planning, negotiating and implementing joint ventures with Russian partners. Sensitivity to the business development needs of the host organization, the establishment of good personal relationships and flexibility are crucial to the joint venture process.     

Corporate Social Responsibility and International Human Rights Law

The United Nations Special Representative on Transnational Corporations and Human Rights, John Ruggie, has adopted a new framework for considering this issue within the international legal system. This article examines this framework in terms of its coherence, its consistency with international human rights law and how it can be ‘operationalized’ (which is required by the United Nations). In regard to the states legal obligation to protect human rights, it is considered whether this obligation is broader and deeper than is envisaged in the framework, especially if it can include the extra-territorial activities of corporations. The corporate responsibility to respect human rights is examined in terms of its conceptual and definitional problems, and the article also questions whether there will be sufficient legal remedies available to victims under the framework.     

Overcoming the double hurdles to investing in technology

Technological activities of small and medium-sized enterprises (SMEs) have received considerable attention from researchers and policy makers since the mid-1980s. Small firms could nurture entrepreneurship and facilitate the creation and application of new ideas. In spite of their potential in generating innovations, it is also observed that SMEs shy away from formal R&D activities, and the firm size itself seems to be a barrier for R&D activities. SMEs operating in developing countries face extra hurdles to investing in R&D. Given the massive share of SMEs, it becomes crucial to realize their developmental potential in developing countries. In this paper, we study the drivers of R&D activities in SMEs in Turkish manufacturing industries by using panel data at the establishment level for the 1993–2001 period. Our findings suggest that SMEs are less likely to conduct R&D, but if they overcome the first obstacle of conducting R&D, they spend proportionally more on R&D than the LSEs do. R&D intensity is higher in small than in large firms. Moreover, public R&D encourages firms to intensify their R&D efforts. The impact of R&D support is stronger for small firms.     

SME internationalization: How does the opportunity-based international entrepreneurial culture matter?

We employ the opportunity-based international entrepreneurial culture (IEC) comprehensive notion that draws upon the opportunity-based view (OBV). The OBV supports the idea that entrepreneurs mold the organizational behavior and characteristics of their firms to pursue opportunities abroad. We set out to explore possible attitudinal differences as regards exploitation of opportunities within firms in each of three internationalization dimensions that are previously identified in the literature, notably time to internationalization, country market presence and international mode. We perform eighteen case studies on high-performing internationalized small and medium-sized enterprises (SMEs) in knowledge intensive sectors. The evidence refines the OBV as it manifests how three IEC characteristics (namely risk attitude, market orientation and networking propensity) matter for firms in the three internationalization dimensions. The study further adds to the international entrepreneurship literature that has until now myopically focused on international new ventures as if they were the sole opportunity-driven group of internationalized SMEs.     

Are Small Firms Really Less Productive?

Small and medium-sized establishments (SMEs) account for a large proportion of industrial employment and production in almost all countries. Moreover, the recent literature emphasizes the role SMEs play in nurturing entrepreneurship and generating new products and processes. Although SMEs could be a source of new ideas and innovations, there are substantial productivity differences between small and large establishments. In this paper, we analyze three sources of productivity differentials: technical efficiency, returns to scale, and technical change. Our analysis on the creation, survival, and growth of new establishments in Turkish manufacturing industries in the period 1987–1997 shows that all these three factors play a very important role in determining the survival probability and growth prospects of new establishments.     

The Characteristics and Performance of Affiliates of Small and Medium-Size Multinational Enterprises in an Emerging Market

Little has been reported on the characteristics and performance of affiliates of small and medium-sized multinational enterprises (MNEs) operating in emerging markets. The paper has two research objectives: to assess characteristics of Korean affiliates of small and medium-sized MNEs, and identify the determinants of performance. Seven hypotheses were formulated and tested on a sample of Korean subsidiaries of small and medium-sized MNEs by using a bootstrap method of regression analysis. We found that: affiliates of small and medium-sized MNEs in Korea favored joint ventures with local firms rather than wholly-owned subsidiaries; ownership rate was directly related to the degree of control from the parent firm; and performance was determined significantly by the degree of control exercised by parent firms and their exporting levels. Age, size, and R&D expenditures had no relationship with the performance of affiliates of small and medium-size MNEs in Korea.     

Market reaction to international joint venture announcement: The case of developed versus less developed countries

Joint ventures across national borders are more advantageous than other forms of international diversification because they afford a better control of technology usage, require a minimal level of cash investment, and present a more effective means of avoiding intervention from the host government. All of these characteristics make international joint ventures uniquely suitable for investments in less developed countries. This paper ascertains whether investors agree with the above sentiment by examining the stock market response to 41 announcements of international joint ventures during 1985-1987, using the event study method. It was found that the stock of the multinational corporations announcing international joint ventures generally outperforms the market In addition, the market reaction to the announcement of international joint ventures in less developed countries is, on average, more favorable than its reaction to the announcement of international joint ventures in developed countries.     

Solving Export Marketing Problems of Small and Medium-Sized Firms from Developing Countries

Abstract

This study shows how networks can be used to solve the export marketing problems manufacturing firms in developing countries are facing. Major export barriers perceived by manufacturing firms in Eritrea are identified and, subsequently, differences in perceptions between footwear and textile manufacturers, and small and medium sized firms are examined. The findings suggest that some problems can be solved through individual action by the firms (market or hierarchy). However, small and medium-sized firms on their own can't solve the most important problems, like the lack of market information, the preparation of proper designs and the fulfillment of minimum quantity requirements. The major conclusion is that export market entry by SMEs in developing countries will not be successful if no horizontal and vertical business networks are established.     

The Determinants of SMEs' Market Share in 1991 – Taiwan Manufacturers

Small and medium-sized enterprises (SMEs) have become increasingly popular in recent decades, having caused concern among scholars of various areas. Our line of research focuses on the determinants of SMEs' market share. This study explores the topic base on Taiwan's manufacturers' data collected in 1991. Our empirical results indicate that Taiwan has witnessed SMEs becoming prosperous in manufacturing industries with higher relative labor productivity, low entry barriers, prosperous subcontracting activities, and young ages. Our results indicate that, in the transitory process of industrial development, Taiwan's SMEs no longer can afford high wage payments when at the same time the quality of labor does not increase accordingly. As Taiwan approaches the status of a developed economy, the beneficiaries of export activities have changed. Unlike 1986, in 1991 there was a smaller share of SMEs in Taiwan's export oriented industries. Furthermore, SMEs benefited from their efforts to increase their automation status. The emphasis on issues concerning environmental protection proved to be another source of entry barrier that kept SMEs from prospering. Certain similarities arise when comparing our conclusions with those of the U.S., Canada, Germany, and Japan, all of whom represent industrialized countries. We can conclude that as Taiwan matures in her industrial development process, SMEs also struggle to a certain maturity in theirs.     

Partnering strategies and performance of SMEs' international joint ventures

The international joint venture (IJV) is an important mode in the internationalization of small- and medium-sized enterprises (SMEs). Internationalization in turn is an entrepreneurial behavior in the pursuit of growth. Partnering strategies in the formation of IJVs can have significant effects on the outcome of SMEs' international expansion. In this study, we examine the performance implications of two types of resources contributed by SMEs' IJV partners, host country knowledge and size-based resources. We develop and test three sets of hypotheses about the longevity and financial performance of a sample of 1117 international joint ventures established in 43 countries by 614 Japanese SMEs that have fewer than 500 employees. Our findings indicate that SMEs' IJVs with local partner(s) may be associated with decreases in longevity, especially when SMEs acquire host country knowledge. The host country experience of Japanese partner(s) does not have any direct effects on IJV profitability but reduces the longevity of IJVs. Finally, the size of Japanese partner(s) increases the longevity of IJVs but may have negative effects on IJV profitability when large Japanese partners have low equity ownership in IJVs. Our findings highlight the differential effects that IJV partners' experience-based and size-based resources have on IJV performance. Our findings also demonstrate that the same strategy could have different effects on different dimensions of performance.     

The Impact of Perceived Ethical Culture of the Firm and Demographic Variables on Auditors’ Ethical Evaluation and Intention to Act Decisions

Studies into corporate social responsibility (CSR) in small and medium-sized enterprises (SMEs) have suggested that small businesses are different to the large companies on which CSR research usually focusses. Extending this argument, this article raises the question what differences in approaches to CSR there are within the SME category. Analysing the CSR strategy and performance of a medium-sized fashion retailer in the United Kingdom through manager interviews as well as customer and employee surveys, the article develops an analytical framework of CSR in small, medium and large firms. The argument is developed that medium-sized firms occupy a transition stage, where some CSR features that are reminiscent of small enterprises are still important but get overlaid with aspects that are more typical of large companies.