Multinationals Need Closer Ties as Globalization Retreats

Global companies would do well to cultivate relationships in the countries where they operate to counterbalance increasingly powerful governments.

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Globalization is in retreat, and multinationals are on the defensive. Across the world, countries rich and poor have erected trade barriers and set up outright export bans to cope with the pandemic and the war in Ukraine. In 2020, respirators, surgical gowns, medicines, and other lifesaving equipment were hard to come by. Two years later, it’s wheat, palm oil, beef, and other food products — and that’s not including other items related to the sanctions that nations have imposed on Russia.

Citing national interest, governments have reclaimed much of the power multinationals had acquired over decades of almost unfettered globalization. The tilt in the balance of power can be traced back to the 2008 global financial crisis, when banks and corporations had to be bailed out by governments with taxpayers’ money. In the years since, world trade growth has faltered as China has turned inward and the United States has embraced an “America First” policy. The pandemic and Russia’s war in Ukraine, neither of which were thought probable, have added momentum to de-globalization — and government fiat.

As a result, multinational corporations (MNCs), whose very rise was premised on free movement of goods and labor, are at a disadvantage. Accustomed to friendly governments and easy access to overseas markets, they have not cultivated the sophisticated political judgment to manage government and public expectations.

Alibaba founder Jack Ma, for one, openly criticized financial regulations in China in October 2020, crossing a line that led Chinese authorities to scupper his fintech conglomerate’s initial public offering and launch a crackdown on the country’s Big Tech companies. Last year, India’s commerce minister publicly took the country’s largest conglomerate to task for similar intransigence, after Tata Group griped about tough new e-commerce rules.

If conditions for MNCs in their home countries are now less cozy, spare a thought for their operations in foreign countries. Relationships between MNCs and host governments may deteriorate over time, along with the bargaining power that MNCs initially enjoyed on entry. Yet little is known about what makes some MNCs better able than others to deal with host hostility.

To find out, we studied eight MNCs involved in disputes with foreign governments in South America between 2001 and 2012: Cemex in Venezuela; Telefonica, Repsol, Vivendi, and Endesa in Argentina; Telecom Italia in Bolivia; Shell in Nicaragua; and Iberdrola in Guatemala.

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Frontiers

An MIT SMR initiative exploring how technology is reshaping the practice of management.
More in this series

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