The world might seem to be getting smaller every day, but the concept of globalisation does not bear up to scrutiny at least in terms of markets and companies, according to ESRC-funded research.
Alan Rugman, Professor of International Business at the Kelley School of Business, Indiana University and Senior Fellow, Templeton College, University of Oxford, has looked in detail at the commercial transactions of 500 multinational enterprises. The annual Fortune 500 features the 500 biggest multinational enterprises measured by sales. These corporations dominate international business, accounting for over 90% of the world’s stock of foreign direct investment and nearly 50%of the world trade. 430 of them are based in the core ‘triad’ regions of the United States, the EU and Japan.
The Fortune 500 dominate the business world and appear to have a genuinely global presence. Rugman, however, is not convinced of the degree to which these companies truly are international. Globalisation, he reports, has been defined in business schools as the production and distribution of products and services of a homogenous type and quality on a worldwide basis. In other words selling the same products from London, Ontario to East London, South Africa and from Lima, Ohio to Lima, Peru.
He has constructed the Templeton Global Performance Index, created in 2000 by Rugman and Oxford colleagues Michael Gestrin and Rory Knight for each of the past three years. In it, he ranks the leading multinationals according to the profitability of their foreign operations in the previous year. The pharmaceutical industry, for example, has topped the global performance rankings by industry every year in Rugman’s index measure for international sales. Over the three years, however, he says, the gap between the best and worst performing companies has widened dramatically. Indeed, Rugman suggests that rather than seeing a trend towards increased globalisation we are now seeing deglobalisation as companies perform poorly at the global level, struggle to stay profitable and begin to focus parochially on their domestic markets.
According to Rugman’s analysis, very few of the Fortune 500 have any significant presence in all three parts of the triad. In fact, only a handful of companies, such as Nestlé and Unilever, food suppliers with a strong research base can really be said to qualify as ‘global’ multinational enterprises. A much larger subset of the 500 are bi-regional multinationals but this does not point to a strong globalisation of world trade.
Indeed, the lack of evidence for what some have deemed the inevitable process of globalisation in international business is particularly stark in the retail sector, which makes up nearly 10% of the world’s largest 500 multinationals and which includes the biggest corporation by sales, Wal Mart. Of the 49 retailers regarded as ‘global’ in the Fortune 500 list, eighteen operate only in their native land. 24 are highly concentrated domestically, just five are bi-regional, and only one is global, luxury goods retailer Christian Dior/LVMH.
The car industry too is very much a non-global enterprise. More than 85% of all cars manufactured in North America are built in North American factories, over 90% of cars made in the EU are sold in the EU and that figure is 93% for Japan.
Rugman argues that these and other statistics speak for themselves and provide an entirely different perspective of globalisation. The received wisdom that we are living in a globalised world, commercially speaking, needs to be replaced. Multinational companies are not, says Rugman, operating in an integrated and homogeneous world market.
Further reading – The end of Globalization