International political observers were shocked by Brexit and then Donald Trump‘s US Presidential victory. These two events are potent enough to unnerve the contemporary global order: first, in matters relating to security and, second as to trade. By the end of next March, Theresa May will likely invoke Article 50 of the Lisbon treaty and the complex process of Britain’s divorce from the European Union (EU) begins.
Also, it now has been a more than a month into Trump’s administration; and his flurry of Executive Orders have rocked the Washington, DC establishment.
This article examines the future of Multinational Corporations (MNCs) under this new Trump era and – with Brexit clearly on track – how MNCs will respond. Some global firms may arguably be in retreat given the political uncertainty introduced by these changes.
During the 20th century, China was lowering its bulwarks to trade and other exchange and started opening up to the world and the Soviet Union collapsing. The age of ‘Consumerism,’ had begun as Francis Fukuyama wrote in his seminal essay “The End of History.” At that time the idea of a global firm seemed quite attractive and lucrative. There was a vacuum, a space to be filled and the idea of the global firm was to fill this space. Companies grew, businesses sprawled begetting supply chains and creating jobs, trade relationships, luring stakeholders. Their businesses entail supply chains that cover 50% of world trade. Nevertheless, the global arbitrage that international trade has created is starting to shrink. Global business have become so large that it is, at times, difficult to manage the perplex, legal and logistical tapestry of carrying them out. Recalling the recent tax case of Apple Inc., Governments are now cracking on companies accused of tax evasion and as a result MNCs are stashing earnings in off-shore tax havens.
To give the above scenario some perspective, consider these facts: according to the UK Financial Times Stock Exchange (FTSE), the profits of the top 700-odd multinational firms have dropped by 25% and the ROE (return on equity) ratio is down by 7%- from “18% a decade ago to 11%”. The Economist magazine reported research “examining record of 500 large firms which shows “in eight out of ten sectors multinational firms have expanded their aggregate sales more slowly than their domestic peers”. We can see local firms, in some places, over taking or at least starting to take in some cases substantial market share from the MNCs. Take for example Uber’s surrender to the Sino giant Didi, in India and where Reliance mobile competing aggressively against Vodafone. Nevertheless this doesn’t means that global firms are totally in retreat but that their earlier dominance is now facing some heat from the local firms.
However, in some case global firms may have started to sense a change in hospitality by host countries to investment. This may provoke US and EU leaders such as Mr. Trump, Marine La Pen and other rightists and nationalists who are arguably perceived to be eager in targeting a scapegoat with their protectionist agendas. So, we see Mr. Trump’s success in exploiting the sentiments of the US people by peppering his slogans with rightest promises. His policies at face value may appear productive – that is, reducing taxes (now taking the shape of Border Adjustment tax), less regulations and bringing jobs back but they have caused an unnecessary and unwanted surge in the US dollar. This has led Janet Yellen to hint at an interest rate hike when the US Federal Reserve Bank’s FOMC (Federal Open Market Committee) meets next month in its policy setting meeting. It may be argued that a strong US dollar is not good for the US and its trading partners. Donald’s Trump’s proposed “twenty-percent tariff” (against Mexican imports), if implemented, will make the dollar appreciate further causing inflation. Economists will ask how? An article in The Atlantic explains by suggesting that “higher tax on imports paired with lower taxes on exports will theoretically cancel each other out, as demand increases for U.S. exports (such exports would be cheaper) and the U.S. will demand fewer foreign goods (since they’ll be more expensive). Economists assert that this will result in a shift in exchange rates that will offset taxes: in theory, the dollar will strengthen as a result of increased demand for cheaper American-made products. As a result of a stronger dollar, American-made products will be more expensive and foreign goods will become cheaper as a stronger dollar increases purchasing power thus, offsetting the import tax”.
Brexit is another complex facet where uncertainty is growing. Theresa May triggers article 50 by the end of next month financial and equity markets embrace for a long stretch of unpredictable negotiations that may take more than two years. According to many political analysts another key issue remains: immigration. In any case the EU is not going to allow the UK to enjoy preferential treatment without it (UK) allowing the free movement of people. We are going to see new trade deals between UK and other countries. But the UK is going to lose a huge export market in the form of the EU.
While we read through the tale of the slowdown of global businesses as a whole there exists a business, risk solution to this rise in populism and inclination for protectionism: Political Risk Insurance (or PRI). Lloyd’s of London, the oldest insurance market in the world, decided to move its subsidiary in Continental Europe after Brexit eventuated. Inga Beale, CEO of Lloyd’s of London, says “. “I wouldn’t be surprised if we start seeing much more political-risk insurance being bought all over the place,” in an interview. Daniel Wagner, a Managing Director of Risk Solutions at Risk Cooperative, describes in an article for the Huffington Post how he predicted in the 1990’s that the PRI industry will grow in the years to come. He holds the same view today: “The PRI industry stands at a similar precipice today. With the looming possibility of trade wars, deterioration in investment climates, and ever tightening lending standards, there is every reason to believe that, as much as the industry has grown – and that growth has been dramatic over the past 25 years – it also stands to grow dramatically in the coming 5-10 years.”
Certainly, the world is in the midst of a change. On political and as well as economic front. The global firms, as aforementioned, are already in for a correction. But Mr. Trump’s protectionism, his tweet-tantrums and talks of trade wars and the uncertainty of the British divorce from the EU, which, according to some, bodes ill for the bloc’s future, may accelerate the process of natural adjustment. Such an acceleration is detrimental to the international trade as a whole. We are standing on what seems the first page of this new chapter, let’s hope that there’s a pleasant quirk somewhere ahead.
BRICS acts as a collective will to safeguard global multilateralism
Authors: Zhou Dong chen &Francis Kwesi Kyirewiah*
On November 13-14, the 11th BRICS Summit was held in Brasilia, capital of Brazil, where Chinese President Xi Jinping alongside the leaders of Russia, India, South Africa and the host country—Brazil—met and discussed the issues of global and regional dimensions. According to the data in 2018, the BRICS member states have already accounted for 23.6% of the world economy (GDP) and nearly 20% of all world trade, in addition to contributing more than half of all global economic growth. Now, as it enters the second decade of cooperation, BRICS aims to enhance intra-bloc cooperation covering all economic, political and security cooperation as well as cultural and people-to-people exchanges. Can the BRICS members stand together in international affairs?
The concept of the “BRIC” came to the limelight in 2001. Since then, it is argued that the relative size and share of those countries in the world economy has risen exponentially, and most likely it would gradually imply that the G7’s economic hegemony would be rearranged. Scholars like Dominic Wilson further echoed this in his study on “Dreaming with BRICS: The Path to 2050”. He put it that, in all likelihood, by 2025 the BRICS could account for over half of the size of the G7 in terms of GDP. And in less than 40 years the BRICS’ economies together could be larger than the G7.
Although it was debatable, the key assumption behind all the discourse is that China and India have risen as the world’s principal suppliers of manufactured goods and services, while Brazil and Russia are already becoming equally dominant as suppliers of raw materials.In addition, what the BRICS have in common is that they all have an enormous potential consumer market, complemented by access to regional markets and to a large labor force. Wilson argues that three key issues the BRICs have to embrace for their partnership development are as follows: Inclusive growth, sustainable solutions and foreign policy consultations in the post-Western world. Echoing his discourse, Andrew Hurrell put it, “since all the BRICS nations are now members of the G20 which is a major symbol of the structure of global governance, the bargaining power of the BRICS vis-à-vis US-dominated global institutions is inevitably growing.”
It is quite coincident that during the 2017 G20 Summit in Germany, the leaders of the BRICS held an informal meeting reaching key agreements on building an open world economy and improving global economic governance. On the occasion, Chinese leader called on that the BRICS itself would establish an open economy, maintain a multilateral trade system and advance inclusive, balanced and win-win economic globalization with a view to making the fruits of economic growth accessible for all people. There is no doubt that the BRICS countries also have their own internal challenges and external divergences on many issues. Yet, the central point of the role of the BRICS in global affairs is not where the world order is now, but where it will be in the near future, say by 2050.Building on the common sense that “a shared voice is stronger than a single shout”, the emerging powers are well-aware of the closer cooperation among them and even beyond in order to push forward their own agenda.
Yet, no matter which theory, realism or constructivism, is used to assess the BRICS, it is unlikely the bloc having moved to a geopolitical organization like NATO, but only a new-typed geo-economic forum that incorporates a strong component of people-to-people relations between institutions and individuals. Two of its main goals are as follows: to bring people closer together through socio-economic means, and to take a constructive part in settling geopolitical flashpoints. As such, the BRICs is generally regarded inclusive and its members are willing to cooperate with other countries or institutions that share their interest in making the world a fairer, and therefore a better place. In line with this spirit, the BRICS, though a grouping of five major emerging national economies, aims from its inception to establish an equitable, democratic and multilateralism-based world order.
If the first decade of the BRICS has formalized its existence and also represented many opportunities for the 21st century, the key concern remains how to turn the bloc into a functional grouping rather than just a global forum in the next decade. Strategically, it is vital for the BRICS to become a knowledge base for other developing countries, such as the areas of solar energy, ethanol products, urban landscape development, slum alleviation and biotechnology use, and share their best practices with southern countries. To that end, it is essential for the BRICS to act and talk differently from the G7 and other Western institutions, which are deemed to retain economic hegemony over the vast developing areas. Put it more bluntly, the BRICS should be committed to multilateralism, human development and social welfare in accordance with UN charters and the relevant resolutions.
Given this, looking ahead into the next decade, the BRICS is supposed to follow this line as proposed by Xi when he addressed the current global challenges such as unilateralism and protectionism, and he called on BRICS countries to champion and practice multilateralism. Thus he put three-point suggestions as follows: first, he urged the five members to safeguard peace and development for all, uphold fairness and justice and promote win-win results. Globally, it is vital for the BRICS to uphold the purposes and principles of the UN Charter and the UN-centered international system, which rejects any sort of hegemonic order and power politics and take a constructive part in settling geopolitical issues.
Second, the BRICS en bloc should pursue greater development prospects through openness and innovation. Therefore, it should uphold the WTO-centered multilateral trading system and increase the voice and influence of emerging markets and developing countries in international affairs. In addition, BRICS member states should prioritize development in the global macro policy framework, follow through the UN 2030 Agenda for Sustainable Development and the Paris Agreement on climate change. All in all, the BRICS makes all efforts to promote coordinated progress in the economic, social and environmental spheres. Third, in a long run, the BRICS needs to be more proactive in promoting mutual learning through people-to-people exchanges and take their people-to-people exchanges to greater breadth and depth. Xi did indeed appeal to other four partners that “BRICS Plus” should serve as a platform to increase dialogue with other countries and civilizations to win BRICS more friends and partners.
This is a truly strategic proposal. People agree that the next decade will see accelerating change in global patterns of economic growth, development, and governance. The BRICS can achieve a second golden decade if they can remain united and work together in the face of the challenges and opportunities to come. Although all BRICS members have no intention to challenge the status quo which is still dominated by the U.S.-led globalization system, the first decade of self-discovery of the BRICS has paved the way for the second decade of confident outreaches to other countries and institutions and will predictably see the new bloc becoming a powerful global platform for change by 2029.
In summary, the huge potentials of the BRICS are far beyond the current five powers. In effect, Valdai Club, a Russia’s top think tank, once put it, the BRICS starts by bringing together the regional integration groups that each country is a part of (e.g. Russia, the Eurasian Economic Union, Brazil and Mercosur) through the BRICS+ framework in order to broaden its reach in the most realistic way possible without overextending itself. In view of its one-decade vicissitude, it can say that this visionary outlook is definitely doable since all the BRICS members certainly have the political will to pull it off, plus their combined economic power is attractive enough to naturally make their counterparts interested in cooperating. The BRICS could therefore transform into the core of a larger global reform structure bringing together non-Western countries and even those within the West that are dissatisfied with the U.S.-led status quo, which would then enable it to truly become a global force capable of carrying out meaningful development governance. It has actually exercised a positive impact on each of its five members, so it’s time to spread the benefits beyond the original five. Considering the second decade of its development, the BRICS would aim to make further reform in terms of the fairer governance.
*Francis Kwesi Kyirewiah, a PhD student in International Affairs, at SIPA, Jilin University, China.
CHETRA Eyes Africa for Expansion
CHETRA is a Russian company that sells industrial equipment and spare parts under the brand “CHETRA” produced by the Promtractor plant, as well as supplies spare parts and components from the company. It uses a unique technique in the construction of production sites, seaports, development of natural resources and pipelines in 30 countries and in all climatic zones.
The goal is to provide its partners and customers with modern high-performance equipment for successful projects, even in areas with complex climatic and geological backgrounds. More than 3,000 units of equipment under the brand “CHETRA” are now in operation in the Russian Federation and beyond.
Executive Director Vladimir Antonov has been working in engineering industry for 19 years. He has successful experience in product export to the CIS countries and Ukraine, the Baltic States, Europe, Argentina, Africa and Cuba. He has been leading company as its Executive Director since 2018. During his leadership, the share of the company’s machinery in the Russian market has doubled.
In this snapshot interview, Vladimir Antonov talks about his company’s plans in the direction of Africa. Here are the interview excerpts:
Q:First, tell us briefly about tPlants previous working connection with Africa? What are your products and services, what African regions or countries are keen using products?
A:Our company has a long experience of cooperation with African countries which began in the Soviet times and continues today. Traditionally we collaborate in the African continent with such partner countries of Russia as Egypt, Algeria, Zimbabwe. About 50 units of CHETRA machines have been supplied to these countries over the last ten years. Our goal is to enlarge our footprint in the African continent. Nowadays, we are negotiating cooperation with potential partners in West Africa and the SADC region (Southern African Development Community, South Africa).
Q:Compared to other foreign players, how competitive is the African market? From the previous experience in the African regions, what key problems and challenges the company faces in Africa?
A:Today the market of mining and construction equipment in Africa is characterized by high competition, all our competitors work in the region, both from the West and from the East. This has led to the fact that the market applies high requirements to new products. For that reason today we do not just sell our machines to customers: we offer a range of services, which includes commissioning of the machines, training of local staff, organization of after-sales maintenance service at the customer’s site. The main challenge for us today when working in Africa is the need to find a local partner who has qualified staff, equipment, maintenance facilities and not bound by contracts with other manufacturers of similar machines.
Q:What kind of business perceptions and approach could be considered as impediments or stumbling blocks to business between Russia and Africa?
A:Another challenge for us when working in Africa is that many consumers have no free funds to purchase new machines. This often diverts our partner from the renewal of the fleet or makes them buy used machines on the after-market. We are trying to solve this problem by attracting Russian government agencies of export support, such as the Russian Export Center, in order to finance transactions.
Q:Business needs vital information, knowledge about the investment climate and so forth. Do you think that there has been an information vacuum or gap between the two regions?
A:Taking into account the level of development of information technology today there are no particular problems in obtaining information about the investment level of any country or about business situation of a particular company. Besides that, we are in constant contact with Trade missions at the Embassies of the Russian Federation in the countries of our interest, which are also a good source of information about the conditions of the market.
Q:And now how would you envisage the level of investment and business engagement with Africa? Is Sochi an opportunity for expanding business to Africa?
A:In my opinion the Economic Forum in Sochi was organized at the highest level. A lot of guests from Africa visited it. We held a number of meetings with companies that are new to us, and I hope that these will lead to long-term cooperation and geographic growth of supplies of CHETRA machines in Africa.
The Bust: WeWork’s diminishing stature of the perfect “start-up”
Until recently, the globally acclaimed startup, WeWork was transforming the future of office spaces and staff hiring processes. Truly, it was transformational in the sense that the startup was providing a vital service point to many multinationals around the world. However, Mark Dixon, the cofounder of IWG, another workspace solutions company, was not getting the trick. Here was IWG, a decently profitable startup with consistent annual growth, still unable to compete with the superstar of the industry. Soon after SoftBank poured cash into the company, WeWork was valued for more than $40 bn. Then, it was making headlines for overwhelm; now, WeWork is in a state of awe. As market reports suggest, WeWork even lacks the cash to fire its existing employees.
As Adam Neumann, the chastened cofounder of the dwindling company once proclaimed, co-working was the future and that employees would prove to become more productive and efficient. In his own words, different cultures and organizational goals would inspire the entire floor. Much as the concept is about renting an office space, Mr. Neumann deliberately did not elaborate on the nuisances of dealing with office neighbors, as seen from a tenant’s perspective. The idea would have charmed many organizations; it was a great opportunity to redeem operating costs or dealing with unwarranted office culture problems. Or, as many renting executives thought, WeWork would define the ground rules, aptly in accordance with global standards. For many, it was also an experiment for the future. Also, nobody could take away the fact of losing varied insights from “not” participating in what at first seemed like a once in a time revolution.
SoftBank, a Japanese conglomerate investing fund is writing the most important plot in the story. Strangely, both the rise and fall of WeWork has been catalyzed by SoftBank. However, the fact that WeWork was blessed by an investing fund is not strange, or surprising. Amongst sovereign funders, there is competition to stay one foot ahead of another. The Europeans have long stressed on how very few startups from their region go onto becoming a global giant. SoftBank’s associations elsewhere is a testimony to its deliberate strategy of staying ahead in the future. Notwithstanding the fact that the Japanese investors would have loved the idea of co-working space more than others. In early 2017, WeWork’s market value, shot over $40 bn, even though the company was registering profits below what Mr. Dixon’s firm were accounting to. There was a strange gossip in the market around why other investors were not jumping to what the SoftBank deemed as highly profitable. For many like Mr. Dixon and other investors, answers were soon to be found. If it could only be timely, Japanese angels would have anticipated why Mr. Neumann would sell his rights of the name, “We” in WeWork. It was a five million dollar (plus) exit for the charismatic man, whose venture was taken over by those who thought of multiplying their fortunes. SoftBank will be sorry for its decision to trust the hierarchy in Mr. Neumann’s leadership. Nevertheless, post takeover, Mr. Dixon will not be contemplating any further on why it has decided to appoint two CEO’s. Nor will there be any sort of contemplation on why the new appointees have secured their severance package before paying out dues.
As it stands, IWG is not doing a bad business in comparison to WeWork’s downfall. The American start-up was destined for success from its early years. Co-working will still be a grand idea in our times but filthy abundance in a short period of time has brought a winning project to a standstill. There will be other co-working competitors for IWG, but it will learn from the mistakes of a competitor who was bigger than the entire industry. If anything, Mr. Dixon will be smelling opportunities ahead.
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