Many factors are disrupting the equilibrium multinationals have enjoyed for decades. In response, organizations must adapt both their strategies and their tactics.
The decades following World War II saw a proliferation of multilateral organisations and alliances aimed at aligning interests for efficiency and the greater good: NATO for military and security affairs; the OECD and World Bank for taxation, regulation and finance; international trade organisations; and the World Health Organization. Countries and companies that embraced the order created by these global efforts have thrived. After years of impressive growth, exports now represent about a quarter of global output. Multinational corporations (MNCs) have placed global trade at the centre of their value creation strategies. From 2000 to 2018, US$6.7tn of the US$9.2tn in growth of assets of MNCs has come from foreign affiliates. The average MNC in the OECD is physically present in 28 countries and digitally present in 34.
Of course, the benefits of the global efforts haven’t been shared equally—within countries, within industries or within trading systems. In recent years, those inequities, combined with fundamental changes in the nature of goods and services traded, have led to a growing wave of international backlashes and conflicts over the distribution of value. And there’s more to come, as COVID-19 has sharply amplified the reaction. As we look to 2021 and beyond, it’s clear that companies will be reckoning with a host of territorial disputes surrounding taxation, trade, regulation of vital industries and supply chains. Is localisation the new globalisation?
Global disputes—whether they are physical military conflicts or clashes over trade and tax—have always inevitably been linked to value, from the wars fought by European powers over control of trade routes to the Americas in the 18thcentury to the so-called cod wars of the 1950s and 1960s waged over access to North Atlantic fishing grounds. The good news is that the predominant means of dispute has shifted from physical military confrontations over the control of resources to a more nuanced set of disputes surrounding data, information and other intangible assets.
It’s common to hear people say that data is the new oil. That’s true, and it also reflects a longer shift in value from tangible to intangible assets. In the 1970s and 1980s, the most valuable resources lay in the ground in specific geographic territories, and companies had to be physically present in order to extract value from them. In the 1990s and 2000s, fixed infrastructure networks, like telecommunications networks, became extraordinarily valuable. Again, generally speaking, telecom infrastructure was tied to particular geographic areas and had substantial physical plants.
Today, information, data and technology are the primary sources and stores of value. The most valuable companies in the world don’t really own much in the way of reserves or physical assets. They own intellectual property, patents, R&D and their brands. They distribute their products and services via the internet and mobile networks. Alibaba, Alphabet, Amazon, Apple, Facebook, Mastercard, Microsoft, Tencent and Visa all have immense revenues and cross-border business. A great deal of their vital infrastructure resides in the cloud or is distributed broadly. Consider one of the most valuable single products in the global marketplace: the iPhone, with annual sales of about 200m units. Trade statisticians treat the ubiquitous phone as a good. Most of its value, as we know, lies not in the metal, glass and silicon used to make it, but in the brand, IP, software and other intangibles. The two global superpowers in intangibles today are the US and China. So it’s no surprise they are clashing on a range of trade issues.
Sovereign states, whether they are democracies or authoritarian regimes, work to advance their self-interest on economic development, security and the environment. And with the rise of global trade in data and intangibles, we’re seeing a sharp increase in the measures that countries are taking to try to protect their citizens, their industries and their national security.
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By Tom Seymour & Richard Oldfield
About the authors: Tom Seymour is CEO, PwC Australia; Richard Oldfield is Global Markets Leader, PwC UK.