In addition to the above mentioned cooperative arrangements, there are other, less visible, channels for knowledge transfer from foreign affiliates to domestic firms in infrastructure, including spillovers of various kinds that may be particularly important in infrastructure industries in which firmspecific advantages are often in soft technology.
Mobility of personnel from foreign affiliates to domestic enterprises is one example of a spillover; the demonstration effect is another. Regarding the latter, in some cases, even when the scope of TNC participation in an infrastructure industry has been limited, it has provided examples of high quality service provision and exposed local competitors as well as regulators to international "best practices" in service provision, network maintenance and quality control.
The influence of the demonstration effect is evident in a number of infrastructure industries in India, including telecommunications and transportation. For instance, in India's port industry, the high performance of TNCs has set a standard for the country's emerging domestic private operators in seaports, such as Reliance, Gammon and Adani, to strive for a similar international "best practice".
Reliance Communications and Tata Communications have emerged as international players, partly as a result of the strong demonstration effect of telecommunications TNCs in the domestic market (Nazareth, 2008). Importantly, for spillovers such as the demonstration effect to occur, existing capable domestic enterprises are essential.
In developing countries, in recent years, an increasing number of domestic private firms, often minority partners in TNC led projects, have acquired the knowledge necessary to operate in infrastructure industries. Even without the direct participation of TNCs, domestic firms can build technological capabilities and improve services provision based on their own efforts, provided they have clear objectives and can invest in the necessary expertise.
For instance, the case of domestic private power producers in Mauritius demonstrates the potential technological capability and viability of local private enterprises (box IV.2). An alternative is to enlist the support of international engineering and design companies such as Atkins (Untied Kingdom), BCEOM (France), Mott McDonald and Parsons Brinkoff (both United States), which have increasingly become important suppliers of skills and know how in infrastructure industries.
For example, all the above-mentioned engineering and design companies have established subsidiaries in India, that serve both domestic and international clients (Nazareth, 2008).
2. Effects on competition and efficiency
Where the potential for competition exists, TNC entry into infrastructure industries through greenfield investments can increase competition, and thus, efficiency. Generally speaking, the higher the contestability of a market for the services provided by an industry or industry segment, the more likely it is that TNC participation could contribute to enhanced efficiency via increased competition. Due to the specific features of infrastructure industries, however, the contestability of the industries is often seriously constrained (section III.A.1), and the effects on competition vary considerably by industry and host country.
In mobile telephony, technological progress - coupled with institutional changes and related market entry opportunities - has eroded the former naturalmonopoly structure of the telecommunications industry.
In many countries, a more or less competitive market structure has been established in the process of telecommunications reforms, including in LDCs such as Cambodia and the Lao People's Democratic Republic, very often as a result of greenfield TNC entry. Table IV.2 provides some examples of the estimated market share ranges of mobile operators - most of which are TNCs - in selected developing countries. TNC entry in the absence of sufficient numbers of domestic competitors has helped enhance competition, contributing to improved economic performance.