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Some macro-data on the regionalisation/globalisation debate: a comment on the Rugman/Verbeke analysis

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Abstract

This paper critiques an earlier contribution by Rugman and Verbeke (2004); and it does so by considering the global distribution of foreign direct investment (FDI). It also adds several new dimensions to the regionalisation/globalisation debate, noticeably by (i) the incorporation of inward multinational enterprise (MNE) activity, (ii) evaluating changes in the geography of FDI between 1990 and 2003, and (iii) the introduction of the concept of revealed investment comparative advantage (RICA) of countries and regions. While broadly supporting the findings of Rugman and Verbeke, our paper shows that much of the explanation for the regional concentration of FDI and MNE activity reflects that of the gross domestic product (GDP) and trade of the countries concerned, rather than any distinctive strategy on the part of investing firms.

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Notes

  1. Rugman and Verbeke note that not all these 500 firms are multinational, but claim the majority produce and/or distribute products and/or services across national boundaries.

  2. The three regions were North America (US, Canada, and Mexico), Europe (including Central and Eastern Europe), and Asia-Pacific. The difference between the share of sales accounted for by these three regions and 100% represents that accounted for by other regions, for example,Latin America, Africa, and the Middle East. In their analysis, Rugman and Verbeke did not consider this group of regions as comprising a fourth, that is,‘other’ region. Yet in the case of some of the firms identified, they recorded more of their sales in this region than in some of the three identified.

  3. Rugman and Verbeke defined global firms as those with at least 20% of their sales in all three regions but less than 50% in any one region.

  4. Apart from that, see one of the authors (Rugman, 2000). Drawing upon their own figures of the global sales of the largest 500 firms and relating these to the estimates of UNCTAD (2005), we believe this is a considerable exaggeration of the true figure.

  5. To give just two examples, the export propensity of parent firms of US and Japanese MNEs was 9% (1999) and 22% (2001), respectively (United States Department of Commerce, 2004; Japan, Ministry of Economy, Trade and Industry, 2004).

  6. Based on the proportion of the global sales, assets, value-added, or employment of firms accounted for by their foreign affiliates.

  7. Most of the data on FDI and activities of MNEs collected by UNCTAD are available from www.unctad.org/fdistatistics. UNCTAD collects these data directly from national governments. For detailed explanation on sources and methodologies of data, see the definitions and sources in the World Investment Reports (www.unctad.org/wir) and country profiles contained in the World Investment Directories (www.unctad.org/fdistatistics). See also the pioneering work undertaken at Erasmus University on both firm and country data (Van Tulder et al., 2001; Van den Berghe and Van Tulder, 2002).

  8. Occasionally, where data are not available for 23 or 24 countries.

  9. Which, in essence, are gravity indices (Petri, 1994).

  10. The few exceptions include the US and Japan.

  11. In their analysis Rugman and Verbeke (2004) did not calculate this particular ratio.

  12. The foreign assets of the largest 100 MNEs accounted for approximately 46% of the total outward FDI stock in 2004 (UNCTAD, 2005).

  13. The concentration of MNE activity among the largest firms would appear to have fallen since 1990. The corresponding transnationality values reported by UNCTAD for that year were 27, 21, and 21%, respectively.

  14. This latter is by no means an ideal measure, as it relates a financial flow to capital expenditure, but it is the best measure we have. Data from the US on the ratio of foreign to total capital expenditure of US firms confirm that all the ratios are similar.

  15. We chose to take an average of a 7-year period, primarily to help even out fluctuations caused by ‘lumpy’ (e.g.,M&A) FDIs.

  16. Both of which are extrapolations of the actual data supplied by some of the leading world international investors.

  17. It should be observed that such multiple measures have two drawbacks. The first is that the different elements of internationalisation represent different dimensions. The second is that they are assumed to be equally important.

  18. Estimated by UNCTAD at two-thirds between 1990 and 2004, with the assumption that one dollar of cross-border M&As is equivalent to one dollar of FDI flows as reported in respective statistics.

  19. See EIU (2003) for an analysis of the significance of these determinants.

  20. Exceptions are where firms and countries that recorded lower-than-average TNI ratios have increased their participation in the global economy faster than those that record higher-than-average ratios. On the other hand, a rising average TNI ratio might conceal the cases of firms and countries whose ratios have not risen at the same rate.

  21. As a result of the wide spread of both TNI0s and TNIis, we have calculated the median rather than the arithmetic mean as the average.

  22. South Africa is a large recipient in Africa for FDI. Thus this country is selected for the analysis and included together with Australia and New Zealand under the ‘other’ category.

  23. In the case of exports from 25 countries, the home region was the largest destination of exports from all 25 countries except two (Australia and New Zealand) in 2002.

  24. The export data also suggest a similar pattern for globalisation and regionalisation. Japan, Korea, New Zealand, and the US are the most globalised (lowest SDs) and Mexico, Poland, and Canada the least globalised (highest s.d.).

  25. By weighting the share of outward FDI stock in particular regions by their GDPs less that of the investing recipient county and recalculating their share of total adjusted FDI stock.

  26. More particularly, each of the major European and North American outward and inward foreign investors recorded either a lower or the same AGI as compared with their CGI.

  27. A similar pattern is also observed for exports from these major host/home countries. The average s.d. is 25.1 for CGI and 24.3 for AGI in 2002.

  28. Especially vertical FDI in the case of developed/developing country FDI and asset acquiring FDI in the case of intra-Triad M&As.

  29. We accept that this could be done in any explanation of the extent of globalisation by countries, but we consider it useful to do so in the description of the data. By contrast, we would consider the particular features of the investing or recipient countries (e.g., their size income levels) as an explanatory variable.

  30. Although, as UNCTAD (2005) shows, such capacity is becoming more dispersed.

  31. According to UNCTAD (2006) private equity and hedge funds accounted for 24% of the value of all cross-border M&As in 2004 and 2005.

  32. See their various World Investment Reports (www.unctad.org/wir) and World Investment Directories as well as other data-related publications (www.unctad.org/fdistatistics).

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Acknowledgements

Arie Y Lewin and two anonymous reviewers provided helpful comments on an earlier version of this article. The authors are also grateful to Lizanne Martinez for statistical assistance. The views expressed in this article are those of the authors and do not necessarily reflect the views of their respective organisation.

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Authors and Affiliations

  1. Reading University Business School, Reading, UK

    John H Dunning

  2. Investment Trends Section, United Nations Conference on Trade and Development, Geneva, Switzerland

    Masataka Fujita

  3. Rutgers University, New Jersey, USA

    Nevena Yakova

Authors
  1. John H Dunning
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  2. Masataka Fujita
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  3. Nevena Yakova
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Corresponding author

Correspondence to John H Dunning.

Additional information

Accepted by Arie Y Lewin, Editor-in-Chief, 14 April 2006. This paper has been with the authors for three revisions.

Appendices

A modified version of those identified by Ronen and Shenkar (1985).

Appendix A

Appendix B: Regional clusters used in Tables A5 and A6

A modified version of those identified by Ronen and Shenkar (1985).

  1. 1)

    Anglo: Australia, Canada, Ireland, New Zealand, South Africa, US, UK.

  2. 2)

    Latin European: Belgium, France, Italy, Portugal, Spain.

  3. 3)

    Nordic and Germanic: Austria, Denmark, Finland, Germany, Netherlands, Norway, Sweden, Switzerland.

  4. 4)

    Latin American: Argentina, Brazil, Chile, Colombia, Mexico, Peru, Venezuela.

  5. 5)

    Far Eastern: China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand.

  6. 6)

    Other (all the rest).

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Dunning, J., Fujita, M. & Yakova, N. Some macro-data on the regionalisation/globalisation debate: a comment on the Rugman/Verbeke analysis. J Int Bus Stud 38, 177–199 (2007). https://doi.org/10.1057/palgrave.jibs.8400241

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