The wind’s blowing against MNCs

A popular leftist view is that the world is being overrun by multinational corporations which are pushing for globalisation, and they are in cahoots with governments to have their way. Nationalism was a useful tool in this fight. Thus, for a long time, the fear that small retailers will not be able to compete with the might of large chains from overseas effectively protected the Indian market from foreign investment in the retail sector. It was not very clear to me how the same small retailers could cope with domestic retail chains (which have been growing) but would not be able to cope with foreign chains, but let’s leave that aside.

National considerations have appeared in many other places in the recent past, and that too in developed countries which have been lecturing the rest of the world about opening their markets.

Stalled merger

The proposed merger between Britain’s BAE Systems and the Franco-German EADS (which owns Airbus) has stalled because the German government has refused to approve. On purely business grounds, there was a lot of merit to this merger as the firms were entering an era of shrinking Defence budgets and they both needed to share expertise and re-balance their exposure to the civilian and Defense sectors.

The merger got bogged down on issues such as what was the maximum share any one government could own in the merged entity (Germany wanted parity with France and the US, a major client of BAE, had stipulated limits on foreign ownership), and where the headquarters would be located. Although the British and German governments do not hold stock in the enterprises, they retain the power to refuse permission.

Germany decided that its interests would be hurt and refused to approve. The benefits for the two companies take a backseat!

With Britain, France and Germany in the EU and with EU’s close links to the US, you would think an issue like this would have been resolved in the sidelines of the almost daily meetings of their top leaders at some forum or the other.

But most curious is the recent report of a US parliamentary committee recommending against approving investments in the US by Chinese companies — Huawei and ZTE.

Security concerns

The Intelligence Committee of the US House of Representatives issued the report after a year-long investigation that included questioning former employees of Huawei. It is a bi-partisan committee, so one cannot accuse it of timing the report for US election advantage.

The report recommends that the US government should not use equipment made by these companies, nor should contractors to the government do so. They also recommend to the US private sector not to use these companies’ equipment.

The recommendation is based on a fear that the equipment could be used by the Chinese government to spy, a fear coloured by the fact that the governance of these companies is opaque — the founder of Huawei was formerly a member of the People’s Liberation Army and retains close connections with his government. The company also has internal Communist Party Committees. There’s probably more in the classified sections of the report.

Other countries, too, have become shy of Huawei. Australia has not allowed the company to supply equipment to its national broad-band system on similar national security grounds. Canada is said to be reviewing the participation of Huawei in its government network.

The clear message here is that it is time the Chinese companies cut themselves loose from their government. This time around, the fight is not over economic issues — namely the subsidies and other benefits the Chinese companies may get from their government.

The fight is over national security issues. Reports have emerged in the past that Chinese hackers, located at suspected governmental sites, were hacking into US networks and also stealing commercial data.

Message for China

Only recently, another Chinese investment in the US was nixed. The Committee on Foreign Investment in the United States (CFIUS) recommended against allowing a privately-owned Chinese company from building wind turbines close to a Navy installation in Oregon in the US. The CFIUS is a committee that comprises all major departments and agencies of the US government. Reports suggest that there are other wind farms owned by Danish and German companies in the vicinity. If true, there is an even clearer message going to China.

All this, understandably, is getting bad press in China and feeds the domestic psyche that the world is against China’s rise. Huawei and ZTE are particularly upset because they say that all their equipment exported to the US is certified by threat assessment laboratories.

The first order effect of globalisation is when countries jump onto global agreements that promise a glorious future. Then reality, in terms of second-order effects, kicks in when, back home, they have to make decisions that suit their local constituencies. Britain, France and Germany in the case of the proposed BAE-EADS merger, and the US and China in the case of the telecom companies, all have to face the same music as nationalism runs into globalisation.

There may be another message here for China. The time may have come when running two parallel systems — a one-party communist rule with opaque governance in politics, and a capitalist economic environment with globally ambitious companies — has run its course.

(The author is a professor of International Business and Strategic Management at Suffolk University, Boston, US. >blfeedback@thehindu.co.in )

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