“The Big Mac Mirage”: America is actually terrible at globalization. 105@Sophia

Coke is so prevalent around the world that non-profits look to its supply chain for help on distributing aid. McDonalds, in 122 different countries, is so widespread that there’s a foreign relations theory that no two countries hosting the burger franchise will go to war, althoughthe strong version of that theory is well dead. And Wal-Mart is the world’s third largest global employer, after the American and Chinese militaries, respectively.

The US must be great at globalization, right?

Unfortunately, no, according to Bhaskar Chakravorti, the director of Tufts’ University’s Institute for Business in the Global Context. He says all these examples represent “the myth of American global market power”—they are outliers that disguise the real failing of American multinationals to succeed around the world, and especially in fast-growing emerging markets. Despite what you might hear, he says “we are extremely under globalized.” Here’s an excerpt from a forthcoming paper he’s written with fellow economist Gita Rao (emphasis mine):

In 2010, emerging markets represented 36% of global GDP; these markets already account for the majority of the world’s oil and steel consumption, 46% of world retail sales, 52% of all purchases of motor vehicles and 82% of mobile phone subscriptions. With two-thirds of global growth coming from these markets, in a decade they will account for the majority of the world’s economic value. Yet U.S. companies derived less than 10% of their overall revenues from emerging markets: about as little as 7%, according to HSBC estimates for 2010. The 100 largest companies from the developed world overall made 17% of their revenues from emerging markets, according to a McKinsey report; in other words, the U.S. lags not only emerging market firms in capturing share in emerging markets, but it lags the developed world overall. By considering the difference between the “absolute potential” represented by the 36% number or, to take a much more conservative benchmark, the global peer average of 17% and the U.S. share of 7%, we derive two measures of the gap – and the degree to which U.S. industry has not participated in global growth.

There are several reasons the US is being held back. Some are the intrinsic challenges of doing business abroad: Besides language and cultural barriers, there are underdeveloped supply chains, incomplete capital markets, corruption, etc. But European companies earn 25% of their revenues from emerging markets, so these must be surmountable. What’s America’s problem?

America doesn’t have a legacy of colonization. Despite a hefty history of foreign interference, the US didn’t set up the same deep linkages that Spanish and Portuguese companies did in South America or European countries have in Africa or South Asia. Chakravorti, who was a McKinsey executive for many years, recalls European competitors in Africa asking, “What are you doing in Africa? Africa belongs to us.” Meanwhile, he says, “the executives I was working with had no understanding of the socio-cultural context of the continent.”

America is actually pretty insular. Because it’s a big country, and has had many decades of consumer-driven growth, US businesses haven’t necessarily had to look over the horizon for new opportunities. After the 9/11 attacks, Chakravorti says, things got even worse, and most businesses stayed home. It doesn’t help that less than 20% of Americans speak a language other than English, while 56% of Europeans speak a second language.

American business is all about standardization. Companies get economies of scale from selling the same product, but many emerging markets are stratified and require different products and price-points in the same country; while American executives want a  “Brazil strategy,” what they really need is a strategy for Sao Paulo state and another for more rural areas.

Chakravorti argues that American companies do have what it takes to surmount these challenges, and they’ll need to if they want to bring more growth back to the US.

His strategy starts with a focus on sectors where America can compete abroad but isn’t taking full advantage of the opportunities, particularly in consumer products and large-scale services such as education, elder- and child-care. American companies need to start thinking about tailoring their strategies to demand abroad—particularly at the bottom of the pyramid— but the market can’t do it alone: The government needs to work more closely to tailor its foreign policy to America’s commercial needs while opening education to a more international view.

“That gap has been closed completely in China, because the most powerful companies are state-owned,” Chakravorti says. “We are still talking about the Asia pivot as though it is something dramatic and new, while China has been pivoting for a while.”

Source: http://qz.com/59506/the-big-mac-mirage-america-is-actually-terrible-at-globalization/

McDonald’s withdrawal from Bolivia: capitalism in action

BBC World’s Latin America section has provided a sympathetic review of a Bolivian documentary titled ‘¿Por que quebró McDonald’s en Bolivia?’ (Why did McDonald’s fail in Bolivia?), which celebrates the departure of McDonald’s from the country. The review adopts the documentary’s overtone, which interprets the Bolivians’ lack of appetite for lukewarm hamburgers as a victory over global capitalism. ‘Culture has won against a transnational [corporation], against the globalised world’, rejoices the movie’s director Fernando Martínez.

It is a strange topic for a documentary, if you keep in mind what the basic storyline is:

  1. A company offers a product.
  2. Consumers don’t want it.
  3. The company leaves the market. End of story.

Does this sound vaguely familiar? That’s because it is the most ordinary and mundane occurrence in a market economy. While you’re reading this, several pubs in London are closing, even though there won’t be a documentary celebrating the people who brought down the mighty pub.

BBC World seems to believe that that buying an empanada from a local street vendor was somehow ‘less capitalistic’ than buying a burger from McDonald’s and that a country without McDonald’s restaurants is less capitalistic than a country with them. This clearly confuses distinct categories. Is buying a hamburger more capitalistic than buying a cheeseburger? Is a beef empanada more capitalistic than a chicken empanada?

Not quite. Broadly speaking, a country is capitalistic to the extent that its government respects the principle of consumer sovereignty, as in the freedom to choose between the local empanada vendor and McDonald’s. On this account, Venezuela, where the government frequently bullies private companies like McDonald’s, is less capitalistic than Bolivia, despite still being full of McDonald’s branches. Bolivians were never prevented by their government from buying burgers; they simply chose not to do so. This is not a victory over capitalism, it iscapitalism.

Presumably, the documentary will be successful on Western campuses, among the anti-globalisation crowd armed with their Naomi Klein books and Tobin Tax flyers. It should not be. If they are smart, they should maintain funereal silence about it. Far from supporting their case, it undermines it.

Since the late 1990s, the anti-globalisation movement has been telling us that Western corporations were like alien invaders, who march into helpless poor countries to stamp out fragile indigenous cultures. The Bolivian case exposes that imagery for the nonsense that it is. If people don’t want to buy hamburgers (or any other foreign product), there is nothing McDonald’s (or any other foreign corporation) can do about it. Nobody has ever been forced into a McDonald’s at gunpoint.

Hence, Western corporations retreating from developing countries is an everyday phenomenon. Just a year ago, the French supermarket chain Carrefour decided to pull out of Thailand and Malaysia, where it had opened 67 stores. Their Asian stores were largely clones of the French ones, an expansion strategy that worked well within Europe, but not beyond. Tesco, in contrast, took a more sensitive approach, teaming up with local suppliers to build up local knowledge step by step. It worked.

It is ridiculous to assume that Western corporations can force people to buy products which are an affront to their cultural identity. Anti-globalisation campaigners, who call upon governments in developing countries to insulate their citizens from foreign influence, are imperialists with reverse signs. Traditional imperialists wanted to force Western norms upon other peoples. Today’s imperialists want to stop other peoples from adopting Western consumption norms. It would spoil the authenticity of their backpacker trips.

source: http://www.iea.org.uk/blog/mcdonald’s-withdrawal-from-bolivia-capitalism-in-action