Insight

India, China to produce most multinationals

(Agencies)
Updated: 2010-05-04 10:38

Indian and Chinese firms, seeking resources and new overseas markets as they expand, will lead a host of new multinational firms from emerging economies over the next 15 years, according to PricewaterhouseCoopers.

The number of companies from emerging markets that have set up operations overseas has increased over the last five years as their economies expanded, and with the easing of trade barriers, enabling them to outpace sluggish developed markets, it said.

"This is further evidence that companies from emerging markets will play an important role in the post-recession global economy," said Jairaj Purandare, PWC's India leader for markets and industries.

The report counted 613 new multinational companies from 15 key emerging economies in the year 2008, up from 352 in 2005. China, with its increasing economic clout, had the most MNCs.

Russia, south-east Asia and Korea also added multinationals in large numbers and will continue to do so, the report said.

"Size matters; the countries with the largest economies in the sample, China, India and Korea... also produced the most new multinationals," Purandare said, adding that trade openness also matters, with Singapore and Malaysia outpacing Brazil and Russia.

Indian companies including automakers such as Tata Motors and Mahindra & Mahindra, as well as Tata Tea have entered overseas markets through a series of big-ticket acquisitions in recent years.

More than 2,200 Indian companies are expected to open operations overseas over the next 15 years, overtaking China because of easing foreign investment rules, Purandare said.

"The key drivers are the relative increase in investment intensity and the openness the Indian economy offers," he said.

While some recent deals, including mobile operator Bharti Airtel's with South Africa's MTN have been in other emerging markets, there will be a shift away from this trend, with firms favouring developed markets, Purandare said.

And, despite the current race for oil and mining assets, more firms will operate in high-value manufacturing and services.

China and India will still account for 42 percent of the new multinationals over the next 15 years, perhaps because of the projected fast pace of economic growth for both, with India overtaking China in producing multinationals from 2018, he said.

"The reason that India edges out China, despite slower forecast growth, is its likely relative increase in both investment intensity and openness, which have found to be key drivers of the creation of new multinationals," he said.

By contrast, China's current level of investment intensity is unlikely to be sustainable in the long term, he said, with domestic demand also expected to help hold down trade openness.