Slowbalisation
Multinationals are starting to think very differently about how they do business
Against the backdrop of rising geopolitical tensions, increased economic nationalism, and wider consumer dissatisfaction with capitalism, these are challenging times for multinationals and the global economic model.
At the same time, multinationals are fundamentally dealing with three sets of problems. Two of these — how to remain competitive in their markets, and how to deal with state interference — are not new. But a third challenge, how to deal with the pressures of civil society (for instance from the green lobby) is also something that managers have to think seriously about.
Furthermore, each set of three challenges is multiplied the more countries that a multinational operates in. Levels of competition, state regulations and the make-up of civil societies inevitably varies widely across different countries and regions. Multinationals must reconcile these challenges in building a coherent strategy.
Faced with such a barrage of challenges an over-riding question therefore faces all multinationals today. Namely, what resilience strategies should they be adopting to thrive in such a global environment?
Decoupling
One of the greatest challenges for many multinationals is the fractured geopolitical relationship between the world’s two largest economies, the US and China. The downturn in relations has forced many Western companies to reconfigure their global value chains and reduce the influence of China on those chains.
The fracture also goes well beyond the simple economic impact — it has also broken up networks at the company, educational and social level, a fracture that was also not helped by prolonged lockdowns in China in the wake of Covid-19.
Every Western multinational is now looking very closely at how they run their operations in China and weighing up the different alternatives. Should they spin off their Chinese subsidiary or give it more autonomy? Do they need to further localise their Chinese sourcing channels? Should they be exiting China completely?
One of the greatest challenges for many multinationals is the fractured geopolitical relationship between the world’s two largest economies, the US and China.
No quick fix
Any decoupling won’t happen instantly. For instance, if the multinational has a big manufacturing plant in China or a long-run contract in the country, it cannot just pull out overnight. However, what it can do is plan further ahead and think seriously about where it will make the next major strategic investment in Asia and with whom it will sign the next contract.
What is for sure is that — if the geopolitical situation doesn’t improve - there will be disengagement. And such moves will continue to benefit other countries across the Far East, such as Vietnam or Bangladesh as they compete for business and investment that previously went to China. Don’t forget either that the same applies in the opposite direction as large Chinese players also restrict their operations in the US.
Foresight planning
In the short-term multinationals will undoubtedly need to improve their corporate foresight. In other words, ensure they are on top of all these trends and can see the strategic direction of the firm.
Such foresight planning, which includes political as well as economic risks, is becoming essential.
Longer term, say over the next five to ten years, multinationals will need to adopt different strategies for different countries, assess their reshoring and disinvestment strategies and, crucially, adopt resilience strategies. Again, these are not things that can happen overnight, and they will take several years. Success will be dependent on flexibility and the capacity to innovate.
Changing multinational models
All these trends chime with a fundamental upending of the multinational model, particularly driven by the rise of e-commerce, digitisation, and the platform economy, all three of which are already having a massive impact on multinationals’ strategy.
For instance, digitisation makes it much easier for multinationals to run operations in a country without actually having any physical presence on the ground at all. It may also accelerate the move towards giving management more autonomy in different regions. Multinationals could end up with multiple marketing, sales, and digital teams.
However, this strategy is not without its risks. As well as potentially increasing costs (and causing the loss of economies of scale), it could also damage the consistency of company culture and corporate messaging.
Looking further ahead
If we investigate what I term the ‘long, long-run’ (say maybe more than a decade) then we are inevitably into the realm of speculation. But if the above trends accelerate, whereby companies no longer can run an integrated multinational model, then we could be looking at a very different world, especially if the fractures we have discussed become more permanent.
Don’t get me wrong, globalisation is not in terminal decline and is here to stay, albeit perhaps more as ‘slowbalisaton’. But although it may be slowing down in some regards, in others (e.g., data transfer) it is actually speeding up as multinationals adapt to our brave new world.
