Singapore and Thailand

1. Singapore and Thailand Andrea Goldstein (OECD) & Pavida Pananond (Thammassat University)

2. Outline • Context • The rise of FDI from developing countries • The international expansion of state-linked firms • “Bamboo capitalism” • Research questions • Is technology the only explanation for OFDI? • If not, what about embeddedness and networking? • If so, what about government-linked multinationals? • Case studies • Singapore’s Temasek Holdings • Thailand conglomerates • Conclusions • Policy • Research

3. Context • The rise of FDI from developing countries • 17% of world OFDI • Source: mainly Asia, particularly small economies (Hong Kong, Singapore) and China • The international expansion of state-related firms • 1st and 2nd largest Southeast Asia MNEs -- Petronas and SingTel -- are state-related (WIR 2006) • Natural resource industries, e.g. oil and gas • Services, e.g. banking, telecommunications

4. What do theories have to say? • Focus on technology • Embeddedness • economic action is embedded in structures of social relations • personal relations and networks of relations between and within firms may generate trust and prevent malfeasance • Economic governance systems in Asia (Dixit @ ICRIER) • More on human relations and societal arbitration • Less on organized governamental mechanisms

5. Singapore Inc. Abroad • delocalisation of labour-intensive goods to countries with MFA quotas • Malaysia and Thailand initially • Mauritius later on (Singapore was the second largest investor in 1990-98) • regionalisation strategy • industrial township projects aimed to reduce vulnerability and build a presence in other regional countries that could complement the small size of the domestic economy • after the 1997 Asian crisis • Singaporean MNEs began to use mergers and acquisitions in Asia and beyond to enhance their competitiveness

6. Destination of Singapore’s Outward FDI

7. Composition of Singapore’s Outward FDI by Activity Abroad

8. Singapore GLCs • First-tier GLCs: government ownership (through government holding company or other statutory board) exceed 20% of voting shares • Second-tier GLCs: subsidiaries of 1st tier • GLCs and MNEs contributed 67% of GDP in 2001. • Top six listed GLCs accounted for 25% of total market capitalisation in 2005 • Crowding out domestic capital?

9. Temasek Holdings • Wholly-owned by Ministry of Finance • Hold stakes in 70 large companies, including Singapore Airlines, SingTel, and DBS • Extensive cross-shareholding • CEO is wife of Prime Minister

10. Singaporean Largest Multinationals

11. Temasek’s international expansion • Investment in 2006 approximately US$ 11 billion, with total assets about US$ 70 billion • Acquisitions in over 35 countries in sectors such as logistics and transport, telecommunication, banking, and real estate • Directly and indirectly through its GLCs • Portfolio of overseas investment • real estate (20%) • manufacturing (60%, with a heavy emphasis on electronics and telecommunications) • utilities, media, retailing, and other services (20%)

12. Criticism of Temasek’s investment • Not always successful • Air New Zealand went bankrupt in 2003 • Ansett Airline in Australia facing industrial disputes • low returns from its acquisitions of telecom firms in China, HK, and Indonesia • Overpriced acquisitions • Optus and Ansett in Australia • Political controversy and “economic patriotism” • Korea, India, Malaysia • Most controversial was the acquisition of Shin Corp in Thailand  did Temasek set up a myriad of holding companies to circumvent foreign equity limits in telecommunications?

14. Thai Firms Abroad Total Outflows of Thai FDI, 1980-2005

15. Thai OFDI Stock by Sector (2005)

16. Charoen Pokphand (CP) • long been foremost Thai MNE, although it recently lost its title to PTT, had sales of US$15 billion in 2004 • diversified conglomerate active in agribusiness (it is the world’s largest producer of animal feed and tiger prawns) and services – telecommunications, logistics, and retailing • the first foreign investor to enter the Shenzen special economic zone in 1979 • rising number of free-trade agreements between Thailand and potential trading partners has prompted CP Trading Group Co Ltd to step up its overseas business expansion

17. Siam Cement • one of Asia's best-connected conglomerates — King Rama VI founded it in 1913 and the Crown Property Bureau still owns 36% of the group • third-largest group by sales • 1994-2004 expansion to become industrial leader in the Asia Pacific region  27 projects announced in 1993-97  strain on financial resources + Baht floatation • debt management and organisational restructuring  focus on cement (19% of sales), petrochemicals, and pulp and paper  overseas expansion halted during 1997-2001 • Siam City Cement is the largest cement company in Cambodia, present in Laos and Myanmar, will invest Bt300 million in 2007 to establish two plants in Indonesia and another two in Vietnam • SCG Chemicals has plants in Indonesia, Iran, and China • SCG Paper Business produces packaging paper in The Philippines • SCG Building Materials Business has nine operations in Indonesia, the Philippines, Cambodia, Laos and Vietnam.

18. Petroleum Authority of Thailand (PTT) • Thailand's power-generating capacity currently is overwhelmingly based on natural gas - more than 70% of the generation is gas-based - supplied mainly from Thai fields in the Gulf of Thailand (operated mostly by Unocal of the US). • upstream subsidiary PTT Exploration and Production has the broadest range of international operations • 1990-92: concessions agreements for the Yetagun and Yadana fields in the Gulf of Martaban (operated by Petronas and Total, respectively) • some 25% of total gas supply now provided by Myanmar • also operates projects in Vietnam, Indonesia, Cambodia, and Oman • also present as non-operator investor in some of these countries plus Algeria

19. GLCs • Potential • Main arm of government’s policy to internationalise Singapore and to increase Singapore’s competitiveness • Support from the government may bring benefits such as financial privileges and business information • Pitfalls • strong involvement of former politicians, civil servants, and high-ranking military officials through management positions • State entrepreneurship is perceived as the long arm of the Singaporean state

20. Thai business groups • Potential • belief that they could operate businesses peripheral to their core competencies through partnership with those with experience and/or contacts – rather than previous accumulation of technological skills • firms whose competitive advantages were largely based on networking capabilities were able to expand and seize opportunities in nearby economies characterized by weak market institutions. • Pitfalls • Extensive borrowing and high debt-equity ratios to finance domestic and international expansions became disastrous after the baht was floated in July 1997

21. Key issues raised • State entrepreneurship and international expansion • Political relations among home and host countries • Public policies to support corporate internationalization