The Global Corporation

Unbalanced growth, pockmarked by financial distress. The threat of protectionism brought on by persistently high unemployment, particularly in developed countries. Tensions, in wealthy nations as well as poor ones, around ethnic, religious, and linguistic divides, and talk of a new age of secession or tribalism. These are some of the developments that contradict the story we had just gotten used to—the one about how markets were becoming perfectly integrated across borders, technology was obliterating distance, and national governments were now irrelevant. The aftermath of the financial crisis of 2008 reminds us of the many ways in which differences still matter.

It also calls for a reassessment of what it means to be a global manager or corporation. Much of the management writing on globalism adopts the Enlightenment-era ideal, proposed by the 18th-century philosopher Immanuel Kant, of abandoning all “allegiances to nation, race, and ethnos” in favor of world citizenship. Take the strategy guru Kenichi Ohmae. In 2000 he published his famous book, The Invisible Continent, depicting a world in which businesses largely ignore geographic boundaries when serving markets and building supply chains. This kind of thinking isn’t confined to management experts with an avant-garde view to promote: Forty-eight percent of the respondents to an online survey that HBR conducted for me in 2007 agreed with the proposition “The truly global company has no home base.” And among people with more than 10 years of international experience, 63% agreed.

Unfortunately, enticing though they may be, such beliefs don’t bear up upon closer examination. Of course, they never did.

The Reality of Roots

The vast majority of firms are deeply rooted in their home countries. In 2004 less than 1% of all U.S. companies had foreign operations, and of those, the largest fraction operated in just one foreign country. The median operated in two foreign countries, and 95% in fewer than two dozen. Among the U.S. companies that were in one foreign country, that country was Canada 60% of the time and the United Kingdom 10% of the time.

Even the icons of globalization are less global than the rhetoric suggests. Remember ABB? Back in 1990, when BusinessWeek ran the cover story “The Stateless Corporation,” that company, with its global nomad of a CEO, Percy Barnevik, was the lead example. The boundaries between ABB’s Swedish predecessor ASEA and Swiss predecessor Brown, Boveri had ostensibly been broken down by putting the merged company’s headquarters in Switzerland to balance the Swedish nationality of the controlling investors, the Wallenberg family, as well as of some key managers, particularly Barnevik. But the years after the merger were marked by what one insider characterized as internal warfare between the Swedes and the Swiss. Although things seem to have calmed down since then, it’s more accurate to think of ABB as a company with a global presence but with particularly strong roots in Northern Europe and runners or prop roots in other geographies in which it has significant operations. Not as a company without any particular roots. That much is evident from looking at ABB’s directors and top management (although a U.S. CEO was brought in from GE not long ago) and at its geographic distribution of assets and shareholdings.

Or, for an example in Asia, consider Rupert Murdoch and News Corporation’s satellite TV network, Star TV. Murdoch and News Corporation had some elements of statelessness. They were major players from Australia to the United Kingdom to the United States, and Australian-born Murdoch had already become a U.S. citizen so that he could buy a set of American TV stations. But his experience across English-speaking countries didn’t stop him from making some tremendous blunders in Asia.

Murdoch’s original strategy for Star was to leverage News Corporation’s English-language programming library across Asia, because many Asians of the target demographic spoke English. The company paid no attention to evidence from continental Europe that audiences strongly prefer local-language content, even if they understand foreign languages. Star TV’s travails with language and culture paled in comparison with its political missteps. Shortly after acquiring Star, Murdoch pronounced satellite TV “an unambiguous threat to totalitarian regimes everywhere.” The Chinese government reacted by banning satellite TV dishes. Much of Murdoch’s China strategy has since involved digging out of this hole. The bottom line: Though News Corporation had transcended its Australian origins, it was still deeply rooted in a particular set of Anglo democracies that bore little resemblance to Star TV’s target markets along some important dimensions.

If you’re skeptical about the relevance of a corporation’s nationality or the locations of its owners, ask yourself: Why are large export deals involving private firms often announced at meetings between the heads of national governments? Why do employees of foreign-owned companies often fear their career opportunities will be limited relative to their counterparts from the firm’s home country? Which governments do firms call to represent them in World Trade Organization disputes (and to lead their bailouts in a crisis)? Why do foreign-ownership restrictions persist in industries like media (as well as various others, like airlines)?