Could the most important business activity in recent decades be in big trouble? In 1987 KFC opened its first outlet in Tiananmen Square and by 1990 McDonald’s was flipping burgers for 30,000 Muscovites, daily. The era of the global corporation had begun in earnest and companies around the world were clamouring for a piece of the pie.
The political environment allowed companies to grow as governments around the world provided subsidies and tax breaks to attract them. In the built environment, opportunities to improve infrastructure opened up and domestic firms could tender for large-scale projects in an even bigger market.
There is a very different political landscape in 2017. This year will likely be remembered for an increase in nationalism and political instability. Nationalism has followed an upward trend in the last 12 months. Political figures such as French presidential candidate Marine Le Pen, Nigel Farage and Austrian far-right leader Norbert Hofer have experienced increased influence and success. The latter only narrowly missing out in the Austrian general election.
Aligning politics and performance has always been the challenge of an international CEO but is nationalism a threat or a saviour to the international corporation?
The growth of multi-national corporations
With the collapse of the Soviet Union and China opening up, there was a sense of opportunity for Western companies. Global companies, run by global managers and owned by global shareholders was a vision that became a reality.
A plethora of global projects became available in the built environment as governments looked to improve former Soviet states. Western expertise was used to improve infrastructure and these companies benefited from cheap labour in developing countries to increase margins. At one point, bosses at successful multinationals such as IBM were calling for firms to act independently of governments, allowing them to transcend borders to improve supply chain efficiency.
Is globalisation over?
During the last five years, the profits of the top 700 multinational firms have dropped 25% according to FTSE while profits of domestic firms rose 2%. Foreign profits are down 17% and there has been a reduction of foreign direct investment by multinationals by 15% according to figures from the IMF and UNCTAD.
This evidence points towards the failure of multinationals to continue to grow. Compared with their domestic peers, multinationals have expanded their aggregate sales more slowly than domestic companies.
This could be partly due to the economic crash in 2008 but more recently, moods towards global companies may have changed. They have created jobs abroad but not domestically and Donald Trump is not afraid to name and shame these companies. The new President is leading the nationalistic charge; ‘putting America first’, unafraid to embarrass companies on Twitter. Only recently, Ford Motors shelved plans to create jobs in Mexico, instead opting to create 700 jobs in Michigan.
What this means for multinationals
Multinationals are beginning to sense that nationalism could be the next big business model. Firms are beginning to focus on their core markets. In the aggregates industry, LafargeHolcim, a cement maker plans to sell its businesses in South Korea, India, Saudi Arabia and Vietnam.
JP Cement is another company looking to liquidate its cement assets following India’s decision to amend the Mines and Mineral Act 2015. India has experienced a growth in nationalism and this particular act prevents companies selling mine reserves to other companies if the reserve was not bought through a government auction. This is another example of a government’s increasingly nationalistic goal to harness the power that global firms have.
The retreat of global firms gives governments a greater sense of control but a rapid retreat of multinational companies could be chaotic. CEOs will be required to stress test supply chains and carry out succession planning to navigate risks both domestically and internationally.
Chad Harrison International is a globally trading company that will also be monitoring changes across the world. Talent acquisition is an integral, yet fragile element that is impacted by changing legislation and increased nationalism. However, in many ways, as much as the political landscape has changed since the beginning of globalisation, so has the talent pool in domestic countries.
Countries such as China, India and the Eastern Bloc now have a wealth of well-educated, subject matter experts. As a result, there is an increased selection of global and domestic talent to choose from. Increased nationalism could result in global business leaders using their knowledge more effectively to create jobs domestically whilst foreign countries benefit from an increase of their own domestic trade as opportunities open for those citizens. Could it be that globalisation and nationalisation have benefitted business over recent years and that both business models compliment the other?
Time will tell whether nationalism overhauls the current model. It’s highly unlikely that global businesses will retreat with reckless abandon but there may be a shift in focus on creating jobs and wealth closer to home.