Multinationals and the shifting equilibrium

I’d like to share a story I heard from a colleague about a Swedish multinational with offices in India. Discussing a New Year message to employees, the expat country head dissuaded the Indian communication team from using the term ‘family’ while referring to colleagues in the organization. When the team persisted, pointing out that it was a figurative manner of speech which added an emotional touch, he clarified, “My family is my family, and my colleagues are my colleagues. The two are quite distinct.” Without going into the merit of either argument, this simple instance reflects the vastly differing organizational cultures across nations.

Why am I referring to this here?

We all know that the world of business is tilting eastwards. With the growth rates in countries like India and China expected to be 9.7 and 10.5 per cent as against just 2.6 per cent in the US, companies from the Western world are looking eastward for market opportunities. More and more western companies are acquiring assets in emerging markets. Reuters reports that in 2010 U.S. companies spent nearly double the amount buying assets in emerging markets than they did in 2009.

I believe this shifting equilibrium has the potential to transform the very nature of multinationals as we have known them. It may be argued that this is distant thunder. But there are three factors that are clearly working this change.

The first cause of change is the dramatically younger demographic profile in emerging economies like India as compared with the ageing Baby Boomer population in several countries of Europe and North America. Evidently, the workforce would reflect this age difference. And the expectations of a younger workforce are quite distinct from the previous generations – as we are witnessing with the increasing percentage of Gen Y employees in our organisations.

Collaborative and exploratory by nature, these digital natives render command and control management methods ineffective. They seek empowerment and responsibility, working far better in communities of mutual interest rather than pyramid structures.

The second factor contributing to this change is that emerging markets present very different customer, community and even government expectations as compared with markets in the US or Europe. There is huge diversity in infrastructural and economic conditions within each market - as compared to a fairly uniform landscape in the West – and this redefines corporate responsibility here.

According to the Edelman 2010 goodpurpose® Study, consumers in developing countries are leading the way in their drive to buy from companies that are sustainable, and demonstrate a global consciousness. Consumers in Brazil, China, India and Mexico are all more likely to purchase brands that support good causes. They outpace their peers in the west, with eight out of ten emerging market consumers expecting brands to donate a portion of their profits to support a good cause.

In India, in fact, the government policy too reflects this sentiment, expecting greater public-private partnership. It has recently proposed legislation that requires the largest corporations to contribute 2% of their net profits to corporate social responsibility activities.

These are clearly very different expectations as compared with those in traditionally capitalistic economies of the West. Understandably, they demand a shift in business models and mindset.

The third and unforeseen factor catalyzing this change is the birth of home grown multinationals in emerging economies.

Until recently, the term multinationals typically referred to a company headquartered in a developed country of the West that forged into emerging economies as and when they lowered their trade barriers or their markets seemed ready.

Now, new multinationals from China, India and several other emerging economies are propelling outwards. In fact, a large part of cross border mergers and acquisitions today do not necessarily involve the borders of the US or Europe.

As BusinessWeek magazine pointed out, this is a “new breed of ambitious multinationals” rising on the world scene. These new multinationals are far different from what we have seen so far and are a significant influence of change.

Moreover, with the shift of global economic growth patterns, these new multinationals now have a home ground advantage. With a sound knowledge of the local environment, their DNA is geared to the unique attributes of these cultures.

This competitive pressure is likely to hasten the process of change as multinationals of the West find their way around the new markets.

I find this shifting business kaleidoscope fascinating and am watching it with keen interest. How about you? What changes do you foresee in multinationals of the future?