State-owned multinational enterprises have often been viewed as less efficient and effective than their privately-owned international counterparts. But in many parts of the world, they are on the rise and their power to transform emerging market economies mustn’t be underestimated, argues Saul Estrin, Emeritus Professor of Management Economics and Strategy in the Department of Management.
There are approximately 1,500 large state-owned multinational enterprises across the world, according to figures from the United Nations. That is a tiny fraction, 1.5%, of the total number of multinational enterprises - companies that produce goods or deliver services in more than one country.
Yet these state-owned multinational enterprises are growing fast in size and number and, in terms of their assets, now account for about 15% of the world’s top 100 non-financial multinational enterprises.
In an article just published by The Oxford Handbook of International Business Strategy, Professor Saul Estrin, who teaches on the Executive Global Master's in Management, looks at the role of modern state-owned multinational enterprises. The global expert on institutions within emerging markets has found that these companies are too often wrongly written off as inherently poorly managed and commercially inefficient.
“There is an ideological view that state-ownership of multinational enterprises automatically leads to inefficiency and that they don’t have the necessary resources and capabilities to compete with privately-owned international players,” Professor Estrin says. “That is not altogether true, especially for countries like Brazil, China, Russia and some countries in Africa. We certainly shouldn’t be writing them off. They can - and have - played a positive role in some countries economic development,” he says. “You can run state-owned firms as efficiently as privately owned ones - it’s a matter of how you organise them, not what they are.”
Professor Estrin argues that many of the criticisms levelled at state-owned multinational enterprises, such as weak governance, have improved in recent times. State-owned multinational enterprises now also have a broader understanding of their objectives and there is more transparency about the resources the state provides to them, he says. And as for efficiency, “firms can’t really enter into the global economy unless they are internationally competitive so the fact that state-owned enterprises are engaging in the international economy means they are competitive.”
Professor Estrin says that some state-owned multinational enterprises, for example in China, India, Indonesia, Malaysia and South Africa, have been used as policy instruments, while others have emerged with the primary purpose of extending state interests abroad.
He gives the example of Vale SA, a Brazilian multinational corporation engaged in metals and mining and one of the largest logistics operators in Brazil.
“The state has used Vale as part of the development of Brazil,” Professor Estrin says. “A lot of Brazilian development is based on trade with China and Vale has been an instrument through which Brazil has got access to resources for future development.”
Professor Estrin concludes that the theory of state-owned multinational enterprises will “benefit from a better understanding of the nature of state capitalism across countries, the role of different ownership and governance structures … and the importance of international political economy and diplomacy”. “We believe that advancements of the SOMNE (state-owned multinational enterprises) research agenda cannot be achieved without a strong overarching framework designed to better understand institutional dynamics and comparative corporate governance.”
Behind the article: State-Owned Multinational Enterprises: Theory, Performance and Impact was published in print by The Oxford Handbook of International Business Strategy in January 2021.