New Internationalist

What makes a Multinational tick?

Issue 085

Louis Turner provides some answers to when and why big companies have looked for growth, and what motivates those in charge.

The simple answer to ‘What makes a multinational tick?’ is ‘Money’. Like all corporations, multinationals are tuned to relentless growth and to the steady increase of their profits. This does not mean that they will not, on occasion, turn down potentially profitable investments in politically unstable parts of the world. Nor does this mean that every large company in the world follows identical strategies (there are national and industrial differences). What it does mean, though, is that the typical multinational of today is run by unsentimental business-school graduates who are more concerned with the bottom line - profits - and the company’s market rating, than about what precisely the company is actually doing … and in which part of the world. Earlier this century, the forerunners of the companies we now know as multinationals were more committed to doing business with the countries of Africa, Asia and Latin America than today. Partly, this was a result of the absence of a decent global communications infrastructure (with no computers; inadequate international telephone and cable services; airlines only just starting to establish inter-continental services, etc) which meant that all overseas investments were risky operations. If a firm like ICI was faced with the choice between competing in the USA with competitors like Du Pont or with following the British Empire round the globe and investing in colonies from which all non-British competition could be excluded, it was the Imperial option which was by far the least risky. (And some argue that it was the easy markets of the British Empire which left British industry so unready when tariff barriers fell in Western Europe after 1945).

The second reason why the early multinationals were so heavily interested in the ‘peripheral’ countries was that they were primarily concerned with securing the raw materials needed to support the industries of the ‘central’ economies. If you were in the banana business, it was almost inevitable that you would follow the United Fruit Company’s route of building up your own plantation in the Tropics. So resource-based companies like the oil majors, the big mining companies like Anaconda and agriculture/ plantation-based companies like Unilever fanned the world looking for supplies.

With the rise of economic nationalism in the Third World, such companies have been driven out of their old investment havens and simultaneously have become much more sophisticated in their thinking about how to secure raw material sources - watch the oil companies coming to terms with OPEC’s national companies like National Iranian Oil and Petroleos de Venezuela. Today the Japanese are probably the closest in spirit to the pre-1945 multinational philosophy of scouring the world to guarantee resource supplies with their investments in resource-rich countries like Australia, Brazil and even Iran.

The growing importance of manufacturing companies, like the auto-makers, in relation to resource-based companies, like the oil companies, brought a subtle change to the motivations of the leading multinationals. Firms like Ford, General Motors and later their European and Japanese competitors did not inevitably have to invest abroad. After all, they could have chosen to concentrate on the national markets they knew well and have simply diversified their product lines and moved into products like chemicals, steel or other consumer durables.

The trouble with this product­divesifying strategy was that it would inevitably have run them into anti-trust problems, and forced them to compete against other companies which were already well-established in the field. Therefore manufacturing companies generally chose the alternative route of going multinational with their existing product lines. It was far easier to take a product or technological innovation developed in the United States or Western Europe and to exploit this innovation to the full throughout the world before foreign competitors had time to respond - a process best described through the ‘International Product Cycle’ theory developed at the Harvard Business School.

The growing dominance of the manufacturing multinationals means that the Third World has become much less central to the thinking of the average multinational manager. After all if you are IBM, with a stranglehold on the world computer market, you are going to be more interested in investing in the World’s richest markets like Western Europe and Japan, than in the average Third World country which will only occasionally purchase major computer systems. It is only as Third World countries start approaching the wealth of the poorer industrialised countries that they will trigger much enthusiasm among sales managers within the manufacturing multinationals.

So, what generalizations can we make about the motivations of today’s average multinational? Firstly, despite the rhetoric there is precious little idealism or ideology going into its planners’ equations. Although this has probably always been true, the multinationals genuinely did once view the world through more nationalist (imperialist?) eyes than they do today. After all, one only has to think back to Iran in the early 1950s, Zaire in the early 1960s and Chile in the early 1970s to come up with instances of corporations convinced that, if a government turned against them, then they were justified in calling for and helping in the overthrow of the government in question. Today, I would point out to the oil companies, which have been through a total revolution of their industry during the I970s without apparently giving any serious thought to maintaining their position through judicious skulduggery. In fact, the way the oil companies have come to terms with regimes as militant as those of Iran, Iraq and Libya should demonstrate that they cannot now afford the luxury of being overly ideological. Although the way the American banks attacked Iranian financial assets at President Carter’s behest shows that some parts of the corporate community will still put patriotism ahead of commercial commonsense - but the non-American banks are lining up to punish the Americans for this naivety. Finally, what motivates the multinationals’ managers themselves? Clearly, we are dealing with an elite which is both extremely competent and well rewarded. On the one hand, they receive the psycho­logical and material satisfaction that any top manager gets from doing his job well in today’s society. His pay will be good, the expense-account lunches readily available, as will be the perks - from free gymnasium facilities to help with the children’s education. What the genuinely multinational manager gets as well is the broadening experience of international travel. The real high-flier is unlikely to spend more than three or four years in any one country, but, unless he or she is stuck in some punishment posting, they will have the resources given them to live well above the standards of most local citizens and to make the most out of the leisure opportunities open to them and their family. In particular, most managers will use the travelling that goes with the job as a spring-board for vacations which are beyond the pocket of their contemporaries; if you are an American executive posted to the Middle East, you will choose which way round the globe you return to corporate headquarters by whether you want to see more of West Europe or of places like Bali and Hawaii.

In the old days, it was possible for managers to go ‘native’. It was quite easy to find oil men who had spent most of their careers dealing with the Middle East, and had become genuinely knowledgeable about the cultures of the region. Today, with a more rigorously plotted rotation of postings, this kind of deep enthusiasm for host societies may be rarer. In general the multinational manager will only relate to the societies to which he is posted on a fairly superficial level. His friends will come from within his company or from fellow nationals posted to the same country.

So, what should we think of such managers? Their motivation is generally materialistic, and they are unlikely to question the direction of their companies at all deeply. By nature, they will be most relaxed with authoritarian modernizing regimes, such as those of the Shah’s Iran or of Singapore. They are likely to be antagonistic to social experiments such as of Cuba or Tanzania. They will generally feel more sympathetic with white, rather than with black, Africa.

If this makes them seem rather unattractive to the average New Internationalist reader, then so be it. However, they have one virtue which is still in short supply. For all their failings, they are internationalists by instinct . . . and that is a characteristic we should not despise.

Louis Turner is a Research Fellow at the Royal Institute of International Affairs. He has written books on multinational companies, tourism, and the Middle East.

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