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18
Yu. E. Kraponina
MANUFACTURING TRANSNATIONAL COMPANIES OF SOUTHERN RUSSIA: VECTOR OF DEVELOPMENT «EAST OR WEST»?
Annotation
Article is devoted to investment attractiveness of South of Russia, its irregularity in distribution by regions. Also the multinationals/TNCs applicable in territory and geography of their home countries were considered in research. Main aim of author is to estimate perspectives of both development vectors — either East, or West.
Keywords
Manufacturing transnational corporation (TNC), multinational corporation (MNC), Foreign Direct Investment (FDI), South of Russia, investment attractiveness, economic development.
In today's conditions of the rapid innovative transformations in the socio-economical life the attention to the strategies of transnational/multinational corporations that have an impact on the special features of the economic, social, cultural and political processes is enforced. In a globalizing world the increasing role of transnational/multinational corporations is a natural result of the development of international economic relations. Indeed, transnational corporations are economic associations, consisting of the parent company and its foreign subsidiaries; the parent company controls the activities of members by ownership of shares (participation) in their capital.
Most of the world's largest corporations are based in the USA, countries of EU and Japan, but the traditional leaders-companies are gradually climbing down, so in a number of branches the role of multinational companies of China, India, Brazil, Russia, South Korea and some other developing countries is rapidly increased. This trend is accompanied by the increasing complexity of relations of nation-states and TNCs. At the same time, TNCs are increasingly turning their attention to untapped markets located mainly in developing countries and countries with economies in transition. By the way, the main reason for making foreign direct investment (FDI) by TNCs in these kinds of countries is the expansion of market places for their products.
In connection with the above, it should be noted that the last few decades the world economy increasingly integrates through the FDI, which became the driving force in the world economy. FDI may determine the level of economic development of the country and accelerate its growth with the help of new technologies and knowledge, which they come laden with. Foreign direct investment market has become highly competitive. Recipient countries have to compete for capital with the help of a favorable investment climate, exploring the motives of foreign investors to invest in a particular country.
Global FDI flows have increased by 36 % in 2015 to about $ 1.7 trillion. This is the highest level since the time of a global economic and financial crisis of 20082009 [8]. As a result of the incident bounce the structure of FDI nowadays by economic grouping tilted in favor of developed countries, which account for 55 % of global FDI inflows in 2015. However, this growth was also achieved with the help of cross-border mergers and acquisitions. The largest region-recipient of foreign direct investment are the Asian developing countries, it accounts one third of global FDI flows on their part. How the size and movement of FDI have dramatically changed over the last decades displays Figure 1.
Figure 1 — FDI inflows: global and by groups of economies 1995-2015
(billions of US dollars) [8]
2000 Developing
1500 ec°n°mies
I000 Transition
500 economies
0 Developed
economies
ov oV nV oV oV nV nV oV
For the further convenience in researching transnational companies that are present in the Southern region of Russia, the author supposes that such areas as aircraft, automobile production, food / beverage / tobacco production, chemicals, diversified production, and others belong to the
manufacturing TNCs, others — to the sector of services.
According to the data presented in Table 1, among the 100 largest non-financial TNCs the manufacturing companies are still dominated — 26 TNCs specialize in services, against 74 in manufacturing.
TNC which economic sector does not belong TNK which economic sector belongs
to service area to area of services
..............................—-—" Amount Amount
..................——" " of companies of companies
Electrical & Electronic 9 Business 1
Equipment services
Aircraft 2 Engineering 1
Chemical industry 2 Software 2
Real estate development 1 Telecommunications 5
Production of electricity, gas and water 2 Warehouse and Logistics 3
Food, beverages, tobacco production 11 Public utilities 5
Gold mining 1 Retail 3
Metals and metal products 1 Wholesale 5
Mining 5 Another services 1
Automobile production 11
Production of non-metallic 2
minerals
Oil production, processing and export 13
Pharmaceutics 9
Textile industry 1
Diversify production 4
Total Group 1: 74 Total Group 2: 26
Table 1 — Sectoral structure of 100 largest non-financial TNCs, 2013 [6]
Immediately denote that in this research paper the definition of «South of Russia» includes not only Southern Federal District (SFD), but also recently joined it Republic of Crimea and city Sevastopol, as well as North Caucasian Federal District (NCFD), which also has a direct relevance to the South of Russian Federation. So, what is South of Russia? South Russia — is 15 administrative subjects with the centers in Rostov-on-Don and Pyatigorsk; this is population with more than 26 million people, which accounting for more than 17 % of Russian population; this is unique
natural and climatic conditions, excellent demographics, multinational, hardworking people [4, 5].
Production/manufacturing TNCs in the Southern Russia. There are a huge number of global multinational companies in southern part of Russia: both TNCs specializing in production and TNCs mainly specializing in providing various kinds of services. To begin with it's necessary to consider in the most detail way the production transnational corporations, their geographical focus and specificity of activity (see. Fig. 2 and Fig. 3).
10 8 6 4 2 0
<Ъ "
VW4
V4
□ Excisting factories
□ Projects under construction
Figure 2 — Number of foreign TNCs of manufacturing/industrial type
in South of Russia [1, 3]
Proceeding from the above graphical chart we can make a logical conclusion that the production TNC type distributed extremely unevenly. Krasnodar region is the most attractive for foreign productions, another name of this region is the «Pearl of Russia». And we can easily say this is true: a favorable climate, good infrastructure, and quiet military and political situation, the availability of highly skilled and educated workforce, more diversified and dynamic economy with a high share of small business. The second place by the number of existing foreign production TNCs in the region takes the Rostov region. At present, there are 6 foreign plants, and 3 are under construction now, going to start production at the end of 2016 and in September 2017. Despite the fact that the Rostov region infe-
rior to the Krasnodar Region in the number of present foreign industrial companies, it is actively develops in the direction of innovation. So, today in the Rostov region has already created 7 industrial parks, which are different in scale, geography, «the density of settlement» (from 1-2 to 6-8 residents) and the cost of resources. Residents of Don industrial parks get maximum, subsidies for the creation of engineering infrastructure [7]. There are also existing industrial parks in the Stavropol and Volgograd regions, but they are mostly aimed at attracting national and local investors. Before proceeding to the consideration of the manufacturing multinationals, which present in the South of Russia, it is important to note the geography of their home countries, i.e. the countries the TNCs came from (Table 3).
Figure 3 — Home countries of manufacturing TNCs present in South of Russia [1-3]
Sweden Germany Denmark France Switzerland USA
Amount of existing companies
0
2
4
6
Thus, at the moment the southern region of Russia is attractive only for the USA and EU countries, there is no manufacturing TNCs from any eastern country. All presented manufacturing TNCs can be divided into two subspecies: the first specialized in the production of food products (food, drinks and cigarettes) — Philip Morris, PepsiCo, Coca-Cola, Nestle, Danone, Bonduelle, Mars, Carlsberg, Sucden; second, respectively, produce non-food goods (agricultural equipment, technical and industrial gas, package) — Henkel, Claas, Knauf, Air Products, Guardian Glass, Praxair, Tetra Pak. For example, JSC «Philip Morris Kuban», a modern automated industrial plant full production cycle (from the primary processing of raw tobacco to the production and packaging of high quality cigarettes) is located in Krasnodar city, produces about 30 billion cigarettes a year, providing about 700 job places for the local population. The global giant PepsiCo.Inc — is the second largest in the world and the largest Russian manufacturer of food and beverage. Only in the South of Russia there are 4 plants of different orientation — the plant for bottling beverages/juices in Novorossiysk, the factory for the snack production in Azov, the plant for filling mineral water in Yessen-tuki and dairy plant in Krasnodar. In 2011 PepsiCo acquires the largest Russian producer of juice and dairy products — Wimm-Bill-Dann. That's the deal made the Russian market the second largest for Pep-
siCo in the world [1]. Brewing company «Baltica», one of the factories is located in Rostov-on-Don, since 2008 is a significant part of the Carlsberg Group, and its region of Eastern Europe. The plant in Rostov-on-Don produces 4.5 million hectoliters of beer per year, provides 600 jobs. Today 2 plants are under construction — these are «Mars», the American manufacturer of confectionery, pet food and other food products, and «Sucden», one of the world leaders in sugar processing. Both plants will be built in Rostov-on-Don, moreover, «Mars» has already offered around 200 jobs for the local population, the plant will be specialized in producing pet food.
Speaking about manufacturing TNCs that produce non-food products, it is important to note the activities of the German engineering company «Claas» with a plant in Krasnodar, the capital of Russian agriculture. Today, Krasnodar plant is the most modern plant for the production of agricultural machinery in Europe. Swedish TNC «Tetra Pak» with the factory for the production of packaging material is located in Timashevsk (Krasnodar region). In 2013, in Kochubeevskoe district (Stavropol Region) put into operation a plant for the production of dry building mixtures «Henkel Bautechnik», regular number of employees of the plant is 150 people. Construction of the plant «Guardian Glass Rostov», the newest and most powerful companies of «Guardian industries», began in 2011. The American company was the first investor
who placed its factory in Krasnosulinskiy industrial park. The project has become an indicator of the quality of the region's investment policies. Four large production companies followed by «Guardian» and invested there. The company «Air Products» is part of the world «four» major producers of industrial gases (oxygen, nitrogen, argon, helium and hydrogen), also produces technology and specialty gases, equipment and materials for the electronics industry. Launch of the plant is planned for September-October 2016 in Novoaleksan-drovskiy Industrial Park (Azov district, Rostov region).
Thus, it can be drawn some conclusions about the situation of manufacturing multinational companies in the South of Russia. Firstly, it's their placement. This type of TNCs prefer to have their factories mainly in the Krasnodar region and Rostov region; since it is the most developed southern regions with a steadily growing economy, good policy environment and highly qualified labor power. It is noteworthy that the republics of the North Caucasus neglected by international companies. It is possible to find a logical explanation for this because of cultural and religious characteristics of the region, instability there and the possibility of terrorist acts. Secondly, about investing countries. Based on this research, definitely, the largest share of coming TNCs belongs to Europe and America, there is no Asian companies. Maybe the region is not quite ready to get the newcomers from the East; but mostly the reason is that it's far cheaper to deliver something from Asia, than to open here joint ventures, even despite of logistical costs. So, there
can be the only answer to a given research topic — today the development vector is directed to the «West» and we can't stop this unstoppable movements.
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