Multinationals and their country of origin: separated as friends, but is there any love left?

Four days ago I mentioned in Nationalism in commercials and marketing : here to stay? already the excellent article that Professor Peter Atwater wrote on Minyanville: Pledging Allegeance.

This article discussed what passport multinationals are carrying and to which country they pledge allegiance. What Obama did with his speech “It’s not what your country can do for you…” from last week was forcing love-at-gunpoint from the multinationals.  Unfortunately this delivers seldomly a lasting and warm relationship. It triggered me towards an intriguing thought: do the founding country and city still love the multinational they helped to found? This discussion is topical for me as quite some multinationals have ‘betrayed’ the people that founded them.

Concepts as profit seeking, cost efficiency, tax-breaks offered elsewhere and new markets forced them (partially) out of their places of origin into:

-         the emerging, cost efficient markets of the low-wage countries (in case of companies producing goods)

-         the wild markets of Hongkong, Frankfurt, the London City or Wall Street (in case of financials)

Besides that multinationals did have the nasty habit of threatening local politicians they want special tax-breaks, privileges and subsidies, or else…

To see how much love is left, I will discuss this subject by looking at four world famous multinationals that might have lost a little bit track of their roots:

-         Philips (The Netherlands)

-         Sony (Japan)

-         General Motors (USA)

-         Adidas (German)

 

Philips

 

Philips was founded in 1891 by father and son Frederik and Gerard Philips in Eindhoven. They turned with their factory of light bulbs and later radio’s, televisions and “everything else” the sleepy, rural city into the high-tech heart of The Netherlands and far abroad.

The Philips Natuurkundig Laboratorium (NatLab: Philips Physics Laboratory) was arguably the best research center in the world in the first halve of the 20^th century and responsible for many inventions and patents. Also it offered a home to a number of Nobel Prize-winners (a.o. Gustav Hertz, Simon van der Meer, Hendrik Casimir). Philips was Eindhoven and vice versa. At the pinnacle of business in 1963 about 40,000 people were working for Philips in the Eindhoven region alone.

The love was going through a rough patch when more and more Philips factories in The Netherlands were closed down, for ones in low-wage countries: first in the rest of Europe, but later more and more in Vietnam, Thailand, The Philippines and (especially) China. Also a number of Philips factories would become independent, with NXP (microprocessors) and ASML (chip machines) as the most famous ones.

The absolute low point in the relation between Philips and Eindhoven was reached in 1998 when the headoffice moved from Eindhoven towards Amsterdam, supposedly to be closer to the international business. Eindhoven felt this as a punch-in-the-face. However, this didn’t lead to a catastrophe for the Eindhoven region as the independent firms coming from Philips and the few Philips factories left there still gave the region a boost. But the love for Philips has definitely waned.

Sony

 

Sony in the Tokio region, is maybe THE success story of post-war Japan. Founded by Akio Morita and Masaru Ibuka in 1945, the firm developed from a small manufacturer of transistor radio’s into the fifth largest media conglomerate of the world. In 2009 only 37% (this was 50% in 2005) of the annual production was still produced in Japan and already 33% was produced in China and other low-wage parts of Asia. It is to be expected that the 37% might further reduce in the coming years, as will the love of Japan for Sony.

 

General Motors

 

Nobody that saw the documentary “Bowling for Columbine” of renowned filmmaker Michael Moore and especially the parts about Flint and Detroit, Michigan will doubt that the love between the car industry and Detroit has a great future behind it. Although GM’s headoffice is still in Detroit and they have a small number of factories left there, a lot of activity has moved to low-wage parts of the USA, Mexico and especially Asia. GM have become infamous during this last crisis for begging for subsidies, tax breaks and other privileges in the USA and European countries (Germany) and closing down factories in high-wage countries that didn’t pay enough money (f.i. Belgium). This divide and conquer strategy will probably backfire for GM at some moment in time. Maybe this moment might be now in the USA.

 

Adidas

 

This company founded by Adolf (Adi) Dassler in Herzogenaurach is famous for delivering sport articles for virtually every sport and put this small Bavarian town (22,000 inh.) on the world map, together with sports company Puma (founded by Adi’s brother Horst Dassler). The animosity between Adi’s and Horst’s companies became so grim that it led to a dividing line through Herzogenaurach: Adidas people and Puma people. Only lately the war has been declared ‘finished’.

Unfortunately the war of the sports brands has already been lost by Germany in favor of East Asia and the East European countries. Philip Parrish writes in an research document of 1997:

“Now, the loudest noise to be heard in the town is the crash of an accountant's computer. Apart from its headquarters and an r&d site up the road in even sleepier Scheinfeld, Adidas (the larger of the two) does very little in Germany any more. About 90% of its shoes and apparel products are made in Asia, north Africa and southern Europe”

 The search for the last penny has become so serious for Adidas, that they are going to leave China in favor of Laos, Cambodia, India and Eastern Europe “because the salaries, set by the Chinese government, have become too high”. Germany will not become new factories.  

 

Looking at these four world-famous multinationals, you can conclude that there probably is little love left between the founding cities and the multinationals they helped to found.

Of course not all multinationals have traveled this path: some multinationals sticked to their founding places as they saw it as an obligation to the people there.

But Obama’s speech can be seen as a warning that payback time is arriving for the multinationals and that globalization might have a nasty local consequence.

Ernst