“Even for the most successful multinationals’ profit margins in international markets are, on average, lower than margins in the domestic markets.” Robert Salomon, a professor of international management at the NYU Stern School of Business states, “It’s the liability of foreign markets. By virtue of the fact that you are foreign, you are at a disadvantage.”
When globalization was pitched as the strategic imperative du jour nearly two decades ago, that was not the case. It was supposed to act like a rising tide, lifting all boats in poor and rich countries together. Bolstered by the thought of hundreds of new assembly line jobs at multinationals in emerging nations, the middle class was expected to swell, which, in turn, would increase higher local consumption. New factories would be needed to meet this boost in demand, further raising local standards of living and handing the largest non-domestic companies a vast and enthusiastic expanded customer base.
In the meantime, in the United States and Europe, consumers would have their selection of inexpensive items made by workers thousands of miles away whose wages were much lower than theirs. In time trade barriers would drop to support even more multinational expansion and economic gains while geopolitical cooperation would flourish.
Western corporations—hoping to find new fast-growth revenue channels and inexpensive manufacturing opportunities to amplify mature economies at home—set up shop in regions like China, Brazil, Russia and India, where the greatest GDP (Gross Domestic Product) gains were anticipated, as well as in so-called second tier emerging nations such as Thailand, Malaysia, the Philippines and Nigeria.
Despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals—to wit, should we back out, even rein in, reconsider our global growth strategy?—has become an urgent, if still hushed, discussion. Considering some of the failures involved with globalization, virtually every major company is struggling to find the most productive international business model. Approaches like reshoring or relocating manufacturing operations back to Western factories have emerged. This is largely due to labor costs and productivity measurements. There is still some debate about how much reshoring is actually underway, but there is strong evidence of this trend: GE, Whirpool, Stanley, Black & Decker, Peerless, and many other companies have reopened closed factories, or even built new ones in the United States.
One thing is for certain, there is money to be made for multinationals the world over, but they have to rethink their business strategies for creating it. Globalization is still a barely profitable, complex strategy for most companies.
Globalization at the Crossroads demonstrates how the West successfully revolutionized its legal systems, property laws, and developed the modern corporation. Other nations that have instituted private property and business reforms, such as post- WWII Japan and present-day China, have seen their economies take off and their middle classes grow. Globalization is the new civilization. But unless we include the 80% of humanity currently excluded from the system, they will bring civilization down, as they have brought down other civilizations in the past. Click here to stream the full program from FreeToChoose TV.