The Myth of Globalization?

A series of surveys by Alan Rugman, professor of international business at the Kelley School of Business, Indiana University, and senior research fellow in strategic management at Templeton College, Oxford, suggest that only a small proportion of the largest companies that call themselves multinational have an effective global presence. Most companies, the research found, do business in only one of three dominant “clusters” — the European Union, Japan and North America.

In a recent study (undertaken with Templeton graduate student Stéphane Girod), Rugman applied the Templeton Global Performance Index (a measure of the profitability of a company's foreign operations) to retail firms that describe themselves as multinational. He concludes that only one of the world's 49 largest retail multinational enterprises (MNEs) is truly global — luxury goods retailer Christian Dior/LVMH, which has 35% of its sales in its home base in the European Union, 31.3% in Asia and 26% in North America. Only five other MNEs have more than one-fifth of their sales in a region beyond their home location. The most recent report, “Retail Multinationals and Globalization,” funded by Britain's Economic and Social Research Council, is scheduled to appear in the February 2003 issue of the European Management Journal.

Giant American retailer Wal-Mart, often cited as an example of a company with a global approach, is not one of the five. “Wal-Mart [has] only 9.6% of its stores outside its home region [which includes the United States' NAFTA partners Canada and Mexico],” Rugman and Girod write. “Only 16.3% of Wal-Mart's revenue is international, and, again, most of this is in the North American region.”

The two researchers conclude that the likelihood that a retail firm will act globally is determined to a great extent by the size of its primary market. Eighty-three percent of the study's domestic-only firms come from the United States, a fact the authors attribute to the size of the U.S. market. “Most [U.S.] firms do not have to go abroad to generate growth,” they explain. The biregional MNEs, by contrast, come mainly from small European nations and have larger sales in North America than in Europe. “This was a strategic choice carried on through acquisitions since the 1960s,” they write. “These companies acted as locals as much as possible, not using European names in North America.”

What conclusions do Rugman and Girod draw from their study? “While the retail industry is becoming more ‘international’ and there is overall a need for firms to expand abroad to generate new growth, this is not ‘global’ activity,” they write. “Most of the international activity is within the local home region of the retail MNE.” As a result, Rugman advises, managers should not be so quick to buy into “the myth of globalization,” but rather concentrate on building strategies that create advantage in their major regional markets.