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business newsMultinational Corporations: Prepare for Intense Return to Localism
By
Peter Atwater
Mar 29, 2011 10:30 am
American-style globalization peaked in 2000 and has been in decline ever since. In periods of stress, everything is local.
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Nobody likes to hear me when I say that in presentations, but I truly believe it. As I offered a few months back in my article entitled State of the Economy: "Endless Possibility" Replaced With "Limited Reality," when we are frightened we care about the “here and now” and as our confidence level grows, so too does our world -- measured by both time and space. And at the top we are global, if not intergalactic, forever.
To these eyes, at least as measured by P/Es and market valuations, American-style globalization peaked in 2000 and has been in decline since.
A lot of folks talk about how a multi-polar world will evolve with the waning of American global dominance. And while I agree that that will likely be the ultimate consequence, I’d offer that what we have been experiencing and are likely to continue to experience for some time is first a period of intense nationalism/localism as individual countries (dare I suggest states) exert their own independence before forming/reforming more strategic longer-term alliances.
And one need look only at this morning’s papers to see “local” thinking in action.
In my hometown paper, I see headlines of “S. Carolina Talks of Seceding From Federal Light-Bulb Law” (and I recall seeing a similar article last week on Utah’s passage of its own form of a gold standard -- and then of course there was Caterpillar’s (CAT) headquarters shopping among Texas, Virginia, South Dakota, and Nebraska).
But what got my attention this morning was page A15 in the Wall Street Journal. Talk about mounting localism in global real-time 3-D.
The lead article on the page discusses Zimbabwe’s decision to implement an existing “indigenization law” that would force foreign mining companies to sell their majority stakes in local mines to local investors by September 25. (Interestingly too, and to the multi-polar comment above, the article also discusses how Chinese firms will be exempted from the law, likely as a consequence of a $700 million pledge of loans from China announced last week during a visit from Chinese Vice Premier Wang Qishan.)
Another article on page A15 details Brazilian President Rousseff’s decision on Monday to increase the taxes on what Brazilians buy abroad.
And the final article discusses the likely “retrenchment” by German Chancellor Angela Merkel following Sunday’s elections in Baden-Wurttemberg with conservatives now “expected to push Ms. Merkel to take a tough stance” on bailed out European nations.
All of these stories are just the latest examples of local self-interest taking precedence over broader collective solutions.
As I have written before, I believe these changes pose a significant challenge to the world’s largest multinational corporations who have heretofore been able to move labor (see Pledging Allegiance: Multinationals in an Increasingly Nationalist World and capital (see The Global Interconnectedness of Inventory) effortlessly from one jurisdiction to another.
But to these eyes, what we are witnessing is the economic equivalent of the aftermath of a political regime change. How orderly this transition will be is anyone’s guess. To me, it is largely dependent on the ability of global businesses and political leaders to unwind and rewind the current interconnectedness of global financial and capital markets in a calm orderly sequence, rather than violently in parallel.
For those in leadership in multinational organizations (both public and private), I can not emphasize enough the importance of strengthening national/local leadership teams. Trying to handle the situation in Greece, Portugal, and Ireland -- not to mention Tunisia, Bahrain, Egypt, Syria, and now Japan -- using traditional multinational strategies is fruitless.
To come full circle, in periods of stress everything is local. And judging by news headlines increasingly that is where we are.
Welcome to the here and now. Are you prepared?
Lasting through April 15, 100% of the donations made to The Ruby Peck Foundation for Children's Education will be channeled to the children of Japan as they attempt to find their footing following this natural disaster; and to kick off this drive, we'll pledge $5000 to get it started. Please do what you can, as it will add up, and thanks.
Position in SPY, SH, JPM
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