The Emerging Giants: Overseas Expansion by Asia

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The Emerging Giants Overseas Expansion by
Asias Leading Firms and the Implications for
Competition Law

• Simon J. Evenett
• www.evenett.com

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Questions posed in this presentation

• What are the overseas expansion strategies of
  firms based in Asia?
• What are the implications of those strategies for
  competition law enforcement
• at home?
• in other developing countries?
• in industralised countries?
• Could any tensions that arise induce pressure for
  new international rules on competition law and
  what form could they take?

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Overseas expansion strategies of firms based in
emerging markets

• During the past two years or so a richer picture
  of how emerging market multinationals are
  expanding abroad has been put togethermainly by
  business consultants and school professors.
• Examples of relevant studies and evidence
• BCG study. January 2008.
• Agtmael book. Free Press 2007.
• Khanna and Palepu. HBR. October 2006.
• Some implications of this evidence for
  competition law have been drawnbut there is
  probably more for policymakers to dwell on.

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Overseas expansion strategies identified in BCG
study

• Low price competition that seeks to
• Assume global category leadership
• Exploit economies to scale and spread RD costs.
• Take brands abroadbilateral, regional, global.
• Can involve MA of distribution channels.
• Acquisition of foreign firms to
• Develop complementary skills e.g. R D.
• Acquire intangible assets e.g. brands.
• Experiment with new business models.
• Secure long-term access to natural resources
  (applies to a small number of firms).

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Three factors underlie their competitive
successKhanna and Palepu (2006)

• Exploit knowledge of local product marketsadapt
  product offerings to specific characteristics of
  customers and the business climate at home.
• Exploit knowledge of local markets for talent and
  capital.
• Fill in legal and information-related
  institutional voidsoften acting as
  intermediaries where information, cultural
  sensitivity, and connections are important.
• Notice the national specificity of all three
  factorsthese factors condition at least in the
  near to medium term how these firms expand abroad
  and where they expand abroad.
• Comment on the role of the state in these firms
  competitive success.

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Implications for competition law and enforcement
(1)

• Implications of low price competition
• Aggressive use of anti-dumping laws by importing
  nations.
• Potential for cartelisation.
• Role for competition advocacy?
• Implied incentives for inward investment into
  such nations.
• More inward MA?
• Predation and Abuse cases.

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Implications for competition law and enforcement
(2)

• Implications of greater MA.
• Apparently horizontal mergers.
• Not clear the number of rival firms is reduced.
• Potential for cost efficiencies could be
  substantial.
• Overall, maybe few concerns about horizontal
  market powerespecially if outsourcing expected
  to follow.
• Vertical mergers.
• Access to raw materials.
• Abuse of national security provisions, Economic
  patriotism and industrial policy.
• Will competition agencies take a stand?

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Implications for competition law and enforcement
(3)

• Looking forward, these considerations imply that
  competition agencies will more so than in the
  past be seen as on the wrong side of many
  policy debates that attract nationalistic
  sentiement, including
• Outsourcing.
• Industrial policy.
• National security concerns.
• The standing and strength of competition agencies
  will probably be tested in the domestic political
  arenawith implied threats to the resources and
  independence of competition agencies.

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Implications for international initiatives on
competition law and enforcement

• Could usefully entrench and reinforce commitment
  to competition principles in enforcement of
  competition law and other policies that affect
  inter-firm rivalry.
• Could raise the technocratic component of any
  national security and industrial policy reviews
  of mergers etc.
• Could reinforce and call for expanded resources
  for the competition enforcement agencies.
• Would need to be binding to have any effect.
• Are we reaching the limits of non-binding
  initiatives? To what extent can they hold the
  line against the pressures identified earlier.

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