SPEAKING
FREELY The
new multinational: Lilliputian, not
leviathan By Richard Daniel
Ewing
Speaking Freely is an Asia
Times Online feature that allows guest writers to
have their say. Please click hereif you are interested in
contributing.
In the era of
globalization, multinational corporations (MNCs)
have become more numerous and more powerful. Fed
by advances in production and communication
technology, these corporate giants are increasing
their economic, social, and political impact.
But not all new MNCs are massive
organizations with legions of employees. A new
form of multinational corporation is emerging
that
is exploiting new technology and access to the
global marketplace to become engines for
innovation. Micro-multinationals - tiny
international corporations - are sprouting up
around the globe and changing the dynamics of
global business and the debate over globalization.
Multinational enterprises are often
regarded as the titans of capitalism - major
corporations from the world's developed economies
bestriding the globe in a quest for resources and
revenues. Their sheer size raises questions about
their impact on society. In the 19th century, Karl
Marx warned that the march of new industrial
corporations "becomes a life and death question
for all civilized nations".
More recently,
the United Nations' 2002 World Investment Report
found that 29 of the 100 largest economic entities
in the world were corporations. Oil major
ExxonMobil topped the corporate list, rivaling the
national economies of Chile and Pakistan in size.
Scholars, too, have frequently compared
the influence of the largest global corporations
to nation states. In his recent book
Leviathans, Harvard business historian
Alfred Chandler compares the modern MNC to Thomas
Hobbes' conception of the modern state.
As
Chandler rightly points out, both entities are
self-organized and sovereign creations that act as
an artificial form composed of the sum of
individual members. While this Hobbesian
comparison certainly holds for Wal-Mart and its
1.7 million employees, tiny multinationals seem to
be something different altogether - Lilliputians,
rather than leviathans.
Multinational
corporations are firms that control
income-generating assets in more than one country.
Given this definition, the profile of MNCs has
changed significantly in recent years. To start,
multinationals have become more numerous.
In 1990, the planet hosted about 30,000
MNCs, while today there are more than 60,000.
Second, while the most visible MNCs are massive
corporations from developed countries, emerging
economies are home to more large multinationals
than ever before. Emerging markets now boast some
of the largest MNCs on the globe, and as the UN
reports, international sales and foreign assets of
these firms are on the rise.
Finally,
despite common impressions, most international
firms are relatively small and many have only a
few hundred employees. With new technology and
managerial innovation, the size of MNCs continues
to fall as the ability to communicate and
collaborate increases. Today, many new MNCs have
only one or two dozen employees - about the number
in a local neighborhood business.
Navin
Communications exemplifies this new brand of
micro-multinational. The company has approximately
two dozen employees who are split between its
engineering operations center in Mumbai, India and
its executive headquarters in Mountain View,
California.
Founded in 1999 by Indian-born
and US-educated entrepreneur, Navin Communications
is seeking to revolutionize mobile communications
by integrating voice messaging and data services
for wireless and fixed line telephones. The
company has enjoyed early success and includes
some of India's largest telecommunications
companies in its client base.
Now, Navin
is targeting customers in developed markets. In
short, it is a global company. The firm has been
able to source employees, raise capital, and
pursue customers on a worldwide basis, just as any
major multinational would.
Where are these
micro-multinationals coming from? The earliest
forms of MNCs arose in the 17th century, trading
companies such as the Dutch East India Company,
but the modern form of the multinational
enterprise took root in the post-Industrial
Revolution 19th century. Technological advances
such as the railroad, steam engine and telegraph
dramatically increased both the productive power
of capital equipment and the ability to
communicate and transport goods efficiently over
long distances.
In this era of mass
production and mass distribution, firms such as
American Tobacco, International Harvester and
Singer Sewing Machines had the productive capacity
to overwhelm less efficient local competitors and
quickly dominate their home markets. As they
bumped into the boundaries of the US market, these
national manufacturing champions spilled over into
foreign markets.
First they established
sales organizations abroad to provide an outlet
for their goods. Over time, they moved production
centers and supply chain functions overseas to
secure their positions in these increasingly
important areas. In this way, mass production
coupled with the increased span of control derived
from advances in communication technology, spawned
the modern multinational enterprise.
General Motors typified the pattern of
production-led global expansion. Guided by Alfred
Sloan in the late 1920s, GM began to consolidate a
dominant position in the domestic US market
through its diverse product line. By 1930,
approximately 16% of GM's revenue came from
international sales. After World War II, however,
GM charged into overseas markets. Over the next
several decades, GM established approximately 50
international manufacturing centers throughout
Europe, Latin America and Asia. By 1999, nearly
half of GM's revenue came from foreign sales.
Today, however, a company's path to the
global marketplace can follow a different route.
MNCs no longer need massive production
capabilities to pursue international growth. For
the first time, startup companies are appearing
with operations and sales functions in multiple
countries and competing in the world market. Firms
like Navin Communications, Bridge Pharmaceuticals
and BigWorld have only a handful of employees, but
are undaunted by scale.
Why are these
changes happening now? Simply put, the forces of
globalization are opening markets around the world
and new technology is dramatically reducing
interaction costs among firms and individuals
around the world. Lower internal coordination
costs allow small business to operate more freely
over geographically dispersed areas, giving them a
greater ability to source employees and operations
in more locations than ever before.
Lower
external coordination costs, in turn, are
reshaping firm boundaries. Many firms now find it
easier to partner with a network of specialized
providers than to perform all corporate functions
internally. This has helped narrowed the focus and
raised the expertise of many firms. These
partnerships, moreover, are happening across
borders and continents. In short, small
specialized companies can more easily integrate
their services with other companies in the
industry value chain or market directly to global
customers.
Competing with massive global
corporations is incredibly challenging, yet these
small competitors are leveraging their competitive
advantages to survive and thrive. In general,
micro-multinationals have four advantages:
entrepreneurial networks, global talent
resourcing, scalable products and services, and an
edge in innovation.
To start, global
entrepreneurs with professional networks in both
developed and developing markets drive many of
these startup firms. These diverse relationships
afford a flexibility to understand multiple
markets simultaneously, a capability previously
only available to executives of the largest
international corporations.
Take Sabeer
Bhatia, founder of Navin Communications, as an
example. Born in Bangalore India, Sabeer is the
quintessential global entrepreneur. He completed
his university education at Stanford University in
the US, co-founded Hotmail and then sold the
company to Microsoft in 1997. To launch this
business, Sabeer leveraged his connections with
Silicon Valley venture capital firms to raise seed
money, and he used his network in India to find
colleagues to run the operations.
The
result is a lean, talented organization that sells
products and services to customers in emerging
markets. Sabeer is not stopping there. He has four
other similar ventures also running around the
world.
Second, global resourcing used to
be the sole purview of the world's largest
corporations as it required international offices
and complex coordination. Micro-MNCs can access
raw materials, technology and service providers
around the world. They can also tap the global
labor market to assemble top talent and critical
expertise.
Universities in developing
countries are producing more highly qualified
candidates in areas such as biotechnology,
engineering and computer science and these
graduates can now potentially join a micro-MNC.
Frequently, these firms combine top-flight
managerial experience with highly skilled but
relatively inexpensive technical expertise in
developing economies.
Former US
executives, for example, founded Taiwan's Bridge
Pharmaceuticals. They are leveraging low-cost,
high-skill technicians in Taipei and Beijing to provide
low-cost drug development services to global
pharmaceutical companies.
Third, many
micro-multinationals are focusing on developing
highly scalable products and services tailored for
the knowledge economy. In the 19th and 20th
century, manufacturing businesses like automobile
and chemical manufacturing dominated international
business, in part, because these industries have
high barriers to entry.
Minimal efficient
scale required massive capital investment in plant
and equipment, and those requirements kept smaller
competitors out of the market. However, 21st
century knowledge economy industries such as
software, financial services, and publishing are
different. They have lower barriers to entry and
the products are easily distributable at low cost.
Many micro-MNCs have chosen to compete in
these areas where the lumbering size of their
larger competitors may make them less nimble.
Australia's BigWorld, for instance, is a small
company that creates software for use in massive
multiplayer computer games. As the video game
market explodes in Asia and the rest of the world,
their products can potentially scale quickly
throughout the millions of online gamers.
Finally, these micro-MNCs firms are
gaining an edge in innovation that may pose the
greatest challenge to their larger rivals.
Companies typically respond slowly to new
technology, and it can take years for major
breakthroughs to have full impact on the economy.
Following electrification, for example, it
took managers decades to figure out that radically
redesigning factories and moving them closer to
their markets would boost productivity. Smaller
firms may embrace new technology more rapidly.
Part of the reason is that smaller competitors
have an incentive to experiment since they cannot
win by replicating what larger incumbents are
already doing.
Moreover, these new firms
are not burdened by legacy organizational
structures and can more readily exploit advantages
brought by disruptive new technology. The rise of
voice-over-IP technology, for example, is
threatening traditional telephone carriers who
have large sunk investments in fixed line
infrastructure. New micro-MNCs like Cabridge
Communication, on the other hand, are offering low
cost Internet-based communications services to
small businesses in emerging markets and
challenging the incumbents.
Beyond
technology, micro-multinationals are experimenting
aggressively with new organizational principles
and new ways of collaborating across their
geographically dispersed operations. Their mere
existence testifies to their creativity and
ability to harness virtual work environments.
This growing cohort of nimble, innovative
Lilliputian corporations will soon evolve to rival
today's leviathans of global industry. The exact
number of these new micro-multinationals is
impossible to determine, but their numbers are
certainly rising. Venture capital firms are
spurring their growth by pouring millions of
dollars into these young companies, hoping to
invest in the next Google or Federal Express.
The impact of micro-multinationals on the
global economy is also increasing. To start, these
dynamic players are helping to shape core
industries of the knowledge economy - such as
media, software, and professional services - and
will for decades to come. They will remain engines
of innovation for new business models, products,
and services, and they will help to fuel global
entrepreneurialism.
Talented young
professionals in Bangalore will have more
opportunities to help build a new company rather
than simply serve existing ones. The war for
talent will increase in the developing world,
reshaping labor markets in these countries.
Finally, micro-multinationals have the
potential to recast the debate over globalization
and the power of multinational corporations. The
stark images of the massive global corporation -
the modern leviathan - eclipsing the power of the
nation state, capturing all of the spoils of open
global markets and creating sweatshops in
developing economies has brought protesters into
the streets from Seattle to Genoa.
Now,
however, these black and white images will shade
to grey as the Lilliputians, the tiny corporate
actors that are unleashing entrepreneurial talent
in and for emerging markets, take their place
alongside the corporate giants. In this new wave
of globalization, the discussion must acknowledge
that MNCs are not solely the product of advanced
economies, nor are they massive faceless
organizations. The Lilliputians can be, in a
sense, neighborhood companies gone global.
Richard Daniel Ewing is a
non-resident fellow at the Nixon Center in
Washington, DC.
(Copyright 2006 Asia
Times Online Ltd. All rights reserved. Please
contact us about sales, syndication and republishing.)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
