SPEAKING
FREELY New globalization battle threatens
Asia By Joergen Oerstroem
Moeller
Speaking Freely is an Asia
Times Online feature that allows guest writers to
have their say. Please click hereif you are interested in
contributing.
The world is
suddenly faced with a new economic policy dispute:
national governments questioning the benefits and
wisdom of cross-border mergers and acquisitions,
versus the imperative of economic globalization
relentlessly pushing such restructuring in the
name of productivity and cost-cutting. The depth
and importance of this battle is not widely
understood, despite its
obvious importance for the
future of globalization.
The battle lines
are visible both in Europe and in the US, and
beginning to be seen in Asia. After the
implementation of the single European market in
1993, the Europeans reaped considerable benefits
from economies of scale, and restructuring of the
continent's enterprises was the next logical step.
A truly European industrial structure, it was
argued, should replace the out-of-date structure
tailor-made to individual national markets but not
the large and now-single European market.
Consolidation got off to a promising
start. A wave of mergers and acquisitions
improving productivity swept through the
individual European nation-states. But
cross-border mergers and acquisitions - which
promised the largest efficiency benefits - proved
a harder nut to crack. Admittedly there have been
some European cross-border mergers and
acquisitions, but not nearly to the extent hoped
for; and the apparent European lag in productivity
compared to the US has been partly ascribed to the
lack of European restructuring.
Recently,
several proposed deals have run into crossfire
from national governments in Europe - for example,
the plan by Italy's ENEL to purchase France's
Suez; a planned merger of German energy and
environmental giant E.ON and Spain's Endesa; the
Indian global steel giant Mittal's attempt to
purchase Luxembourg-based Arcelor, itself one of
the most prominent results of cross-border
European mergers; a prospective union of Italy's
Unicredito and Germany's HVB; and a merger between
the Dutch bank ABN AMRO and Italy's Antonveneta.
That's not to mention the French government's
uproar last summer when rumors circulated that
Pepsi planned to buy the French food giant Danone.
In the US, the China National Offshore Oil
Corporation (CNOOC) was not allowed to buy the oil
company Unocal. Chinese PC manufacturer Lenovo
managed to get the green light to buy IBM's
computer division, but only after a hard struggle.
And now opposition has seemingly revived with the
uproar over the State Department's purchase of
16,000 computers from a Lenovo/IBM wholesaler. An
upcoming case is the French telecom giant
Alcatel's bid for Lucent, where the delicate point
is Lucent's defense and intelligence-related
activities for the US government. A political
majority in the US Congress threw a spanner in the
works for what the Bush administration thought was
a done-deal purchase by a Dubai-based company of a
firm running US ports, when commentators and
politicians began to question the wisdom of
allowing container ports to be managed by a
company based in the Arab Middle East.
A
deeper analysis reveals three motives that
threaten not only restructuring of global industry
but globalization itself.
First, the fear
of losing jobs and income has jumped from
blue-collar workers (factory workers) to
white-collar workers with a higher education.
Globalization implies that no job is 100% safe.
Education, skills and even performance do not
protect jobs from outsourcing. Politically, that
makes a difference, because white-collar workers
have a potentially stronger political influence
than their blue-collar counterparts. They know how
to play the political game, because they form part
of the political elite. Opposition from their side
to globalization is thus far more dangerous for
globalization than resistance from blue-collar
workers and trade unions. White-collar workers
used to be the elite troops of globalization. For
them it was almost entirely beneficial: no risk of
losing jobs, but considerable gains from lower
consumer prices. Now, these professional workers
suddenly realize that their jobs may also be in
danger, and they are reacting similarly to the way
the blue-collar workers and the trade unions did.
If this trend continues, globalization may lose
some of its most vocal supporters.
Second,
governments worry about cross-border restructuring
not because of the potential loss of jobs, which
is manageable, but because of the potential loss
of brainpower. After a merger, the purchasing
company is not generally inclined to run duplicate
planning staffs, strategic offices, research and
development branches, financial headquarters, etc.
These activities of vital importance for the
future of the company must be concentrated in one
or at least a few places to reap the benefits of
interaction. And in cross-border mergers, it is
highly doubtful whether the 'brains' of the
purchased enterprise will stay in its original
home country. Thus, the loss for this county
becomes twofold. First, it loses the brainpower of
the purchased company. Second, it loses the
benefit of other companies either having or
planning to establish brainpower to interact with
the existing one now on its way out. Any ambition
of creating an "industry cluster" or building up a
high-performing group of enterprises can be swept
away.
The government's position to fight
to keep brainpower is logical - it cannot be
brushed aside, labeled as old-fashioned
protectionism pursued by people who don't
understand the imperatives of globalization. It
goes deeper than that. The coalition between
white-collar workers switching their political
view from staunch supporters of globalization to
skepticism and governments strongly motivated to
keep brainpower at home augurs a potentially
formidable and acute threat to globalization.
The third motive is national security.
After the end of the Cold War the most serious
threat to developed, Western countries
disappeared. Instead, terrorism, infectious
diseases and international crime pose a threat
against not the nation but the well-being of our
societies. If and when a cross-border merger and
acquisition is perceived as a security threat, the
politicians slam on the brakes, and after having
stimulated the awareness in the population over
precisely this kind of threat, find it difficult
or political inopportune to run any risks. This
explains the Dubai case and also explains why the
first reaction to the Alcatel/Lucent case was the
raising of questions over national security,
pointing out that Lucent is a provider of
high-tech weapons and intelligence-gathering
systems at the heart of the US defense system.
What are the implications for Asia of this
new pattern of behavior? The new skepticism over
cross-border mergers is emerging precisely at the
moment when many of Asia's largest and most
vibrant companies plan to go multinational, and
many of them look at mergers and acquisitions as
the right way to obtain the expertise and
management know-how they need. CNOOC's failed
attempt to purchase Unocal, in this light, may be
considered an ominous sign. If the Europeans and
Americans start to put the brakes on, Asia may end
up as the big loser, finding its easiest route
into the big leagues of multinational enterprises
full of obstacles or, in the worst case, entirely
blocked.
A warning shot has been fired. If
the momentum of globalization is to be maintained,
both business leaders and politicians must
understand the underlying fear driving opposition
to cross-border mergers and acquisitions. Even
more, they must find ways to deal with that fear
and anxiety to ensure an equitable distribution of
globalization's benefits, as developed-country
economies transition from a manufacturing base
with threatened blue-collar jobs, to a service or
IT economy with white-collar jobs under fire.
Joergen Oerstroem Moeller is a
Visiting Senior Research Fellow at the Institute
of Southeast Asian Affairs in Singapore, and an
Adjunct Professor at the Copenhagen Business
School.
Speaking Freely is an
Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are interested in
contributing.
