The technology, communications and electronics industry is undoubtedly a key sector for investment worldwide. This has only been reinforced in the Covid-19 era, with technology playing a crucial role in keeping societies functional during lockdown. With this in mind, Investment Monitor set out to examine where the top tech companies have their subsidiaries.
Companies establish subsidiaries for a variety of reasons; they can allow them to expand into profitable new markets, to increase revenue, and to diversify their holdings to better manage risk. As a vital component to a company’s expansion plans, the establishment of a subsidiary can offer insight into investment trends.
The Monitor Network’s multinational companies database contains information for 2,190 of the world’s top multinational companies (MNCs) by revenue. Of these MNCs, 340 are in the technology, communications and electronics (or ‘tech’) industry, representing 15.5% of all companies. It is the second most popular industry of the companies analysed, preceded by financial services (20.6%), and followed by construction (9.2%).
Where do tech MNCs establish their headquarters?
Of the 340 tech MNCs analysed, 43.2% are headquartered in the US, followed by Japan (12.6%) and China (9.1%). The US remains a prolific tech hub, with countless centres for tech companies countrywide from Silicon Valley, widely considered the mecca for tech innovation, to North Carolina’s Research Triangle and Austin’s Silicon Hills. In addition, six of the ‘Big Nine’, the nickname for the nine tech companies dominating the artificial intelligence landscape, are US-based: Amazon, Apple, Facebook, Google, IBM and Microsoft.
Overall, these 340 tech MNCs operate 22,828 subsidiaries. This comes to an average of 67 subsidiaries per company, although it should be noted that this is not evenly distributed per company. The most common number of subsidiaries for a tech MNC (the mode) is 11.
Taiwan-based Hon Hai Precision Industry, the electronics contract manufacturer better known as Foxconn, has the largest number of subsidiaries, with 819. More than half of Hon Hai Precision Industry’s subsidiaries are in the Asia-Pacific region (55.3%) and more than one-third are based in China (35.9%). US-based companies monopolise the rest of the top ten with Emerson Electric, DXC Technology, Dell, Lumen Technologies and Cisco Systems each registering significant numbers of subsidiaries.
The US is the top destination for tech subsidiaries
The US is the leading destination country for tech subsidiaries. Almost 4,500 subsidiaries are located in the US, representing one-fifth overall. According to CompTIA’s Cyberstates 2020 report, the US tech industry represents 10% of the national economy with an estimated direct economic output of $1.9trn. Net tech employment in the industry exceeds 12 million people, including 1.6 million in software and web development.
The US is followed by China, another major player in the global tech market, which records 2,322 subsidiaries. Three of the Big Nine are China-based tech giants Alibaba, Baidu and Tencent. China’s tech sector has seen remarkable growth in the past few decades and its rising influence has led to economies including the US and India attempting to hinder investment through foreign direct investment (FDI) restrictions. Despite this, China’s tech industry looks set to go from strength to strength through state-led initiatives such as Made in China 2025, which aims to upgrade from labour-intensive to high-tech manufacturing.
The UK is the top European destination for tech MNC subsidiaries with 1,812 entities established. According to Tech Nation’s 2020 report, UK tech investment grew to a record $13.9bn in 2019 and the country is Europe’s top scaling tech nation.
Tech MNCs tend to create more subsidiaries in countries that are also leading destinations for overall greenfield FDI. As the below chart shows, there is a significant correlation between a country’s FDI project numbers (across all sectors) and the number of subsidiaries tech MNCs have established in that country.
The US has attracted the largest number of overall FDI projects of all countries analysed, according to UNCTAD’s 2019 figures (2,015) and the highest number of tech subsidiaries (4,482). This is no surprise given that tech is one of the leading sectors for foreign investment. Moreover, six of the top ten destination countries by number of tech subsidiaries are also in the top ten leading countries for greenfield FDI – the US, the UK, China, France, Germany and India.
Tech MNCs create more foreign than domestic subsidiaries
Overall, the top tech MNCs created 16,263 foreign subsidiaries (71.2%) and just 6,565 domestic subsidiaries (28.2%). This suggests that one of the key motives for tech companies in establishing subsidiaries is to gain access to international markets. There were only three countries that saw more domestic than foreign tech subsidiaries: the US (69.5% domestic versus 30.5% foreign), Japan (65.3%/34.7%) and South Korea (51.2%/48.8%).
In countries with very low rates of taxation, some of which are considered tax havens, there are overwhelmingly more foreign than domestic subsidiaries. Multiple tax haven countries such as the Cayman Islands, British Virgin Islands and Mauritius have no registered domestic subsidiaries despite recording significant numbers of foreign entities.
It remains to be seen what lasting impact Covid-19 will have on where companies choose to establish their subsidiaries. MNCs may reassess before setting up shop in typically favourable countries such as the US and the UK. On the other hand, countries that are have lower numbers of infections or are experiencing quicker returns to normality, such as Australia, New Zealand and Singapore, may become attractive subsidiary destinations.
For further research, see our interactive global MNC subsidiary mapping tool, which is searchable by company, sector, source country and host country.
The interactive graphics in this article were made by Georges Corbineau.