Revisiting the Logic of Being Global

For many companies, the headaches of being global are intensifying, The Economist says. In most sectors domestic peer companies are growing faster than multinationals.

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For more than 30 years, multinational corporations were in a special class, distinguishing themselves in key areas such as financial performance, productivity, and overall influence. Lately, however, large global companies have come under increasing scrutiny and are being viewed as sources of inequality. In recent months, several companies, including United Technologies Corp., have been berated by U.S. President Donald Trump for plans to move jobs out of the country. Others, including Apple Inc., have been criticized for holding billions of dollars of profits in foreign tax havens.

The state of the multinational and how “the world is losing its taste for global businesses” is the subject of a recent cover story in The Economist titled “The Retreat of the Global Company.” In the decades of the 1990s and 2000s, there was a compelling logic to multinational corporations based on scale and efficiency. Instead of conducting all of their activities in one country, companies made the most of global supply chains, produced products where profits were greatest, and minimized their tax bills. But for many multinationals, the article notes, the case for global integration has been hurt by falling profits, lower returns on capital, and increasing pressures from governments looking to protect local jobs and tax revenue. Even China, which has welcomed global investment for many years, is changing its tune. Although some 30% of its industrial output and 50% of its exports have been coming from multinational subsidiaries or joint ventures, it is now pushing for greater amounts of local sourcing and control.

The Economist says that 40% of all large multinationals have returns on equity of less than 10%. There are exceptions: top-tier technology companies (such as Apple) and corporations with strong consumer brands (such as Unilever and Procter & Gamble Co.). But for others, the headaches of being global are intensifying. Indeed, in most sectors domestic peer companies are growing faster than multinationals.

How global businesses will morph their organizations, and what the new configurations will look like remains unclear, the article says. But in the meantime, companies such as General Electric Co. and Siemens AG are establishing supply chains and production facilities that focus primarily on national versus global markets. Other companies are investing in brand development and minimizing physical assets. How the changes play out over time for workers, investors, and consumers is an open question.


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