The New Mission for Multinationals

Not long ago, many observers worried that ever-expanding multinationals —
many of which had revenues exceeding the gross domestic products of smaller countries — were
going to take over the world. But as globalization marches onward, powerful local companies
are increasingly winning out against multinational competitors. This is especially true in
emerging markets, where multinationals are assumed to enjoy superiority and CEOs are
counting on growth. In China, the ice cream, laundry detergent and appliance markets provide
interesting examples of this phenomenon. Despite the presence of multinationals in these
markets, the market-share leaders are local companies. A similar pattern is being repeated
in other emerging markets. The authors note, however, that in some cases multinationals have
been able to resist the market gains of local competition, whether through first-mover
advantages or by acquiring the leading local players and nurturing their local identity and
strengths. For decades, multinationals were able to make good returns by acting as efficient
global conduits for assets that were difficult to transfer, including intangibles such as
product designs, technologies, management systems and company cultures. Transfers within the
multinational company were more efficient than obtaining those assets through open-market
transactions. However, a number of forces have been eroding that advantage. First, in the
drive to reduce costs, established multinationals increasingly focused on activities with
the highest returns. This meant that lower-value activities were outsourced and often
offshored to emerging economies, creating global markets in which local companies can also
source components and services. The result is that once-closed value chains have been opened
up, enabling local players to source “plug-and-play” modules that can be combined to create
products very similar — and sometimes superior — to those of foreign multinationals. If
multinationals are to succeed against local competition in emerging markets, the authors
write, they need to move beyond the credo of “integrate globally and adapt locally.” They
will need to create new advantages in target markets by integrating their businesses with
the local commercial networks and the society itself. They will need to help shape local
markets, rather than just adapt to them.