Is China or the United States the first destination for technological subsidiaries? Investment Monitor

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The technology and communications industry is a key sector for investment worldwide and plays a major role in the foreign direct investment (FDI) countryside. According to statistics from the business information firm IDC, the global industry is on track to exceed $5.3 billion in 2022. With this in mind, Investment Monitor explores where the world’s top tech companies are establishing subsidiaries.

Earlier in 2022, GlobalData’s database of multinational companies was expanded to include subsidiaries of more than 6,000 international companies. The database previously covered the top 2,000.

In our previous analysis of the technology and communications sector, we evaluated 340 of the leading companies in the sector. With this latest expansion, we will be looking at 980 leading multinationals.

Overall, the technology and communications sector represents the largest share of companies included in the GlobalData database, at 15.8%. It is followed by financial services (14.4%) and construction (11.5%).

More than 30% of the world’s largest technology companies are based in the United States

Of the 980 technology and communication companies analyzed, the WE is the main headquarters. US-based companies account for 30.1% of the world’s largest technology companies, followed by China (25.4%) and Japan (9.5%).

According to CompTIA’s Cyberstates report, the US tech industry is worth more than $2 billion and represents 10.5% of the country’s overall economic value. The sector continues to strengthen, with tech employment in the United States expected to grow twice as fast as overall employment.

More than a quarter of the high-tech companies analyzed were based in China. In early 2022, the Chinese government unveiled plans to increase the share of the digital economy in its GDP to 10% by 2025compared to 7.8% in 2020.

More than 50% of the world’s largest technology companies have 25 or fewer subsidiaries

In total, the 980 technology companies analyzed operate 39,640 subsidiaries. This amounts to an average of 40 subsidiaries per company, although it should be noted that this is not evenly distributed.

In fact, it is the most common (mode) for a technology company to operate between 11 and 25 subsidiaries. More than half of all technology companies analyzed operate fewer than 25 subsidiaries. Less than 10% run more than 100.

Taiwan-based Hon Hai Precision Industry, better known as Foxconn, is the world’s largest technology company by number of subsidiaries, with 756 entities. It is one of the largest technology producers and service providers in the world, making products for giants such as Apple, Google, Microsoft, Huawei and Sony.

The company overwhelmingly favors the international market when it comes to establishing subsidiaries. More than 94% of its subsidiaries are based abroad, including more than a third in China.

Approximately one-third of the company’s subsidiaries are based in low-tax jurisdictions, with 110 entities in the British Virgin Islands, 66 in the Cayman Islands, 55 in hong kong and 15 in the Bahamas.

US-based multinationals dominate the rest of the top ten, with companies such as Emerson Electric, DXC Technology and Dell each registering a significant number of subsidiaries.

Accenture, based in Ireland, is Europe’s leading technology company with more than 500 subsidiaries. The IT company moved its global headquarters to Dublin from Bermuda in 2009 following a repression on companies with significant US operations located in low-tax jurisdictions.

Ireland has long maintained one of the lowest corporate tax rates in Europe at 12.5%, although this figure is expected to rise for 15% for companies with a turnover of more than 750 million euros, in accordance with the proposed global minimum rate for corporation tax.

China is the top subsidiary destination for tech companies

China is the top destination for subsidiaries for the world’s biggest tech companies, narrowly pushing the United States into second place. Of the 7,019 entities based in China, more than two-thirds are domestic subsidiaries and 31.6% were created by foreign companies.

About 2,220 foreign technology subsidiaries are located in China, with Taiwanese, American and Japanese companies making up the largest share.

More than 6,800 technology subsidiaries have been established in the United States, 68% of which are domestic entities. The UK, Japan and Taiwan are the most popular source countries for setting up foreign subsidiaries.

The United Kingdom is the first European destination for technological subsidiaries. Three-quarters of the country’s 2,789 technology subsidiaries were created by foreign companies. Around 45% of UK-based technology subsidiaries are owned by US-based companies. Australian companies represent 4% and French companies 3.8%.

More technology subsidiaries are based in the Asia-Pacific region than in any other part of the world. Over 15,600 subsidiaries are registered in Asia-Pacific, followed by Western Europe (10,285) and North America (7,621). Together, these three regions represent 85% of all technology subsidiaries.

Sub-Saharan Africa, the Middle East, North Africa and South America are the least popular regions in the world for technology affiliates, accounting for 1.9%, 2.3% and 2.4% respectively from the overall share.

Technology companies favor the international market

Overall, the world’s largest technology companies operate more foreign than domestic subsidiaries. Of the 39,640 subsidiaries created, 64.5% were overseas and 35.5% domestic operations, suggesting international growth remains a top priority for multinational tech companies despite rising energy costs and supply chain issues.

According to a survey of technology executives by professional services firm Grant Thornton, approximately 60% plan to invest more in human resources in 2022 to continue their international expansion plans. In addition, 57% aim to bring their products and services to more countries and 52% intend to use more foreign suppliers and contractors.

The main source countries for the creation of subsidiaries massively favor the international market. Of the top ten countries, nine, including the United States, Taiwan and Japan, create more foreign subsidiaries than domestic ones. SwissSingapore-based tech companies have the highest share of international entities, with 89% of their affiliates located overseas.

China is the only country in the top 10 that operates more domestic than foreign technology subsidiaries (77% vs. 23%). This distribution could be attributed to the large domestic market sizemany Chinese enterprises focusing on serving the important domestic market and not depending so much on the international market to expand their business.

Methodology

GlobalData has compiled a list of top international companies based on their revenue. All large companies that did not have a subsidiary were removed from the list. Latest company annual reports (2020 and 2021, where available) and websites were analyzed for a total of 6,186 companies. For a subsidiary to be included, the parent company had to hold a majority stake/control in the subsidiary. Affiliates, associates, joint ventures and joint ventures were included to the extent that ownership criteria were met. Subsidiary information was entered at the national level. Country names have been standardized. A total of 370,320 subsidiaries were captured.

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