Stateless companies, metanationals, or denationalized firms are all terms that have been used in the past two decades to denote a new type of global firm (see The Economist, Foreign Policy, Quartz, and Financial Times). One that is not bounded by its geography. A firm that is headquartered in one country, has its top management team in another, financial assets in a third, and employees in several others. Allegiance to or even affiliation with a political state is considered unnecessary, and even a distinct disadvantage. Some of the largest firms – GE, ExxonMobil, Amazon, Alibaba – are increasingly being seen as more powerful than many nation states. Tax considerations have led Facebook and Google to base their European arms in Ireland, and Pfizer to consider merging with Allergan (and incorporate itself in the low-tax country).
Recent events, however, seem to have brought that narrative to a screeching halt. Corporate nationality is back, whether by design or default. No longer can firms deny or overlook their nationality. Indeed, being blasé about corporate nationality has at least three implications: (a) managers will be ill-equipped to deal with hostility in foreign markets that has little to do with their firm or business, (b) firms will fail to leverage potential advantages of their nationality, or (c) companies neglect changes in perception of corporate nationality.
First, some firms have faced increased hostility in foreign markets not because of corporate actions but because of their corporate nationality. Take the case of Apple in Turkey. Two years ago, the Turkish President fighting a coup attempt appealed to his supporters using Apple’s video chat app FaceTime. But as the relations between the US and Turkey have deteriorated, stemming from the detention of an American pastor in Turkey, the Turkish President has in recent weeks called for a boycott of Apple phones and products in the country.
Qualcomm – an American chip maker – has a similar story to tell. In 2016, the company proposed the takeover of its Dutch counterpart NXP. The takeover received the required regulatory green light in eight jurisdictions, including the European Union and South Korea. But the lone holdout – China – let the clock run out on the proposed deal in July 2018, forcing Qualcomm to pay NXP a $2 billion break-up fee. Although the Chinese state media reported that the actions reflected the enforcement of antitrust laws, Qualcomm CEO Steve Mollenkopf highlighted geopolitical considerations. Indeed, China’s actions come right on the heels of what is potentially the most significant trade war between the US and China in recent history. In March 2018, the US blocked a $117 billion takeover of Qualcomm by its Chinese rival Broadcom. This was followed by a crippling ban on the Chinese telecommunications company ZTE in April. Although the American government eventually struck a deal allowing ZTE to continue operations, the US imposed tariffs on Chinese goods worth $34 billion. China responded in kind, but President Trump then threatened to target an additional $200 billion worth of Chinese products. Set against this background, Chinese actions in the Qualcomm case may not have been surprising. But, as Mollenkopf acknowledged in a Reuters report, “We obviously got caught up in something that was above us, so I don’t know if I would conclude anything about our own business, our ability to invest [in China] or partner with Chinese companies”.
American firms are not the only ones to have face increased hostility due to their corporate nationality. China’s Huawei has been subjected to increased scrutiny in their foreign investments. The most recent example of this challenge is in Australia. In August 2018, the Australian government banned Huawei from supplying equipment for the country’s planned 5G mobile network. Although Huawei’s Australian arm strongly denies being controlled by the Chinese government, Australian authorities continue to worry about the company’s Chinese roots open the possibility of the equipment being used for espionage, unauthorized access, or foreign interference.
While the previous illustrations allude to increased hostility in foreign markets stemming from corporate nationality, the opposite is also true in some cases. And perceptive firms are actively wearing their corporate nationalities on their sleeves to take advantage of a perceived national advantage. Indian aluminum and metals company Hindalco is one such example. In July 2018, the company announced a deal to acquire an Ohio-based aluminum maker Aleris for $2.6 billion. This deal has to be approved by US officials before it can be finalized. Yet, this is where things got sticky for Aleris a few months ago. The US administration blocked the sale of the company to a Chinese firm controlled by the metals magnate Liu Zhongtian. In spite of this history, the Indian company does not anticipate running into the same difficulties as the Chinese buyer. In this sense, their Indian nationality is a competitive advantage.
Another way firms can take advantage of their corporate nationalities is through the network of international agreements their home countries have signed. Of interest here is the recently announced restrictions by New Zealand of foreign home ownership. The country has been grappling with a housing crisis that has seen the average prices, for example, in Auckland almost double in the past decade. The new restrictions on foreign ownership are thought to ensure the growth of a domestic housing market and a boost to first-time home buyers. But, don’t fret the rules if you are Singaporean. Singaporeans are exempt from the foreign ownership ban under a free trade agreement between the two countries.
Finally, it is important to note that corporate nationality can turn from an advantage to a disadvantage (or the other way around). Take the case of Alrosa, the Russian state-controlled diamond giant. The company made a big push, especially in the American market, to highlight its Russian roots and mines. They gambled that discerning consumers will care (and perhaps even pay more) for rings and jewelry that don’t hold a conflict or blood diamond from Africa. And that the Russian firm will trigger associations with romance, classical music, and ballet. But then the relations between Moscow and Washington began to unravel. The conflicts in Ukraine and Syria, US sanctions on some Russian banks and commodities, and the Mueller investigations have resulted in considerable increase in tensions between the two countries. And Brand Russia is no longer the force it might have been in marketing diamonds.
Although nationality was always a key facet of the corporate entity, its relevance for multinational firms has waxed and waned over time. In the context of current events though, the relevance of corporate nationality is back – by design or by default. Identifying and developing strategies to best manage this new environment is the challenge of the next decade.