After decades of rapid expansion into new markets, multinational companies are feeling the strain. Some are being pulled to breaking point or having to make rapid shifts in their country focus.
TikTok, owned by China’s Bytedance, is blocked in India. In the US, it has been torn between President Trump’s demand that it sell its operations, and Chinese reminders of export controls on key AI technologies, complicating or blocking any sale. Most recently, Oracle, a US tech company whose co-founder Larry Ellison is seen to be close to President Trump, agreed a deal to be TikTok’s technology partner.
This deal will see TikTok hived off into a separate corporate entity, with Walmart and Oracle picking up minority shares in it, and will ensure that data from American users is stored in the US. China, however, still has say on whether it will allow this to proceed or not.
At the same time, President Trump announces a ban on WeChat in the US, which would mean Apple and Google dropping it from their US app stores at a minimum. China announces more details on the implementation of its own ‘unreliable entities list’. These make clear that foreign companies implementing US or European sanctions risk being assessed as ‘unreliable’ by China. And there are reports that Korea’s KakaoTalk and Japan’s Line messaging apps may be unblocked in China, creating potential beneficiaries of the WeChat decision.
Elsewhere, Taiwan’s third-largest company Mediatek needs to seek exemption from new US controls on the use of American semiconductor technology or drop Huawei, its largest customer. Samsung Electronics faces the same challenge.
UK-headquartered HSBC issues a public statement that supports Hong Kong’s controversial National Security Law – and then faces criticism from politicians, media and institutional investors in the UK.
The common element here is China – and the positions that governments around the world are now taking on their relations with China. The choices that the US makes as the world’s largest economy are particularly important.
But this is not just a US issue. And it is also not just a China question, though the two largest economies set the tone: political and nationalist questions have always played a role in multinational business. Now, however, two changes in geopolitics are changing the contours of globalisation.
The end of convergence
The first change can be called the End of Convergence. Following the Soviet Union’s collapse, there was a widespread belief—in the West, at least—that the Washington Consensus of free-market economics, privatisation, individual rights and democracy would win through everywhere.
Fukuyama captured this in the phrase ‘The End of History’. The world was converging on one model of economic and political governance. The norms of global governance reflected this. Trade negotiations focused more on non-tariff barriers within countries, such as regulations, targeted state subsidies and favourable terms for state-owned enterprises.
This missed the different, more state-directed path that countries such as Japan and South Korea had taken to economic development. It also missed the role of authoritarian leaders in South Korea and Taiwan before a hard-won transition to democracy.
China’s success in creating the world’s second-largest economy in a one-party communist state has put an end to this. Vietnam’s strong growth is a further example. President Xi talks of a ‘China model’ that has lessons for the world.
State-owned enterprises remain important in many economies – the future is not all private sector. Countries will seek to create private-sector ‘national champions’ too. South Korea excelled in this and Vietnam is now doing its best to follow. India too will have its own path – and it will be different to China’s or the West’s.
The end of separation
The second change can be called the End of Separation. Starting in the early 1990s, globalisation was driven primarily by a focus on economics and business advantage. It was, for the most part, separate from questions of national security and values.
Following the Cold War, security threats came mainly from non-state actors, radical Islamism and smaller, so-called ‘rogue states’ of limited economic relevance. In terms of values, many western policymakers did indeed hope that economic engagement with China would lead to convergence to western norms of democracy and individual rights. But for businesses, this was not a critical consideration: the opportunity was to grow, serve more customers better, cut costs and raise profits.
Today, questions of economics, security and values are increasingly inseparable. Technology is all pervasive and seen, quite correctly, as both an economic and security issue. Key technologies such as quantum computing and facial recognition are essentially dual-use with both civilian and security applications. More broadly, data collection and analysis can be deployed to both business and security ends.
Beyond technology and data, the definition of security has expanded to food security, resource security, health security and more. The COVID-19 pandemic has shone a spotlight on this. And ultimately, a strong economy has always been key to national security.
Recently, both Chinese and American leaders have asserted this more strongly. For President Xi, developing China’s technology capabilities both raise living standards and makes China secure against external threats. He has reasserted the Communist Party’s leading role and warned against the dangers of Western ideas of universal human rights and constitutional democracy.
On the US side, the Trump administration has escalated the rhetoric criticising China and cut off Chinese access to technology, precisely in line with China’s fears.
Today, questions of economics, security and values are increasingly inseparable. Technology is all pervasive and seen, quite correctly, as both an economic and security issue. The COVID-19 pandemic has shone a spotlight on this. And ultimately, a strong economy has always been key to national security.
While much of the current debate for business centres on China, it is not just about China. All countries and governments want control of their security and prosperity. They have different priorities for their societies – some of which build on democratic support and some that are authoritarian. These countries do not want to choose between the US and China: they will do business and have broader diplomatic relations with both, however tense US-China relations are.
Global governance under strain
These geopolitical changes help explain the stresses and strains on global governance today. For many years, the focus of globalisation has been on businesses increasing trade and investment. Global governance set the rules of the game for these economic flows. And the rules were set according to Western norms – in the wake of World War II, when the Soviet empire was excluded, and then globally after the end of the Cold War.
Now is the time to adjust. The stakeholders have changed – see the expansion of the G-7 to the G-20, each with its own characteristics. There are new challenges in areas such as technology and the environment. The US, in particular, is less comfortable with global governance when it is no longer the undisputed leader. President Trump argues that the US does not benefit from being part of global institutions where China is also an active player, engaged in shaping how the institutions fit China’s world view rather than that of the US.
The challenges are greatest where the differences between major countries are greatest—as each takes its own view on integrating economics, security and values—and in new areas where rules of the game have not yet been established.
Today, these questions loom largest with technology and with US-China relations. The US-China tech ‘war’ is the perfect storm and so raises the biggest issues for companies.
A new challenge
This new geopolitics presents a different kind of challenge for multinational corporations. In emerging markets, some firms have always been buffeted by local politics. Multinationals have long explained to governments how they contribute to a country’s development. But mostly, they have gone to great lengths to stand apart from questions of politics, security and differences in values, preferring to focus on shareholder value and job creation.
Now the landscape has changed: the potential for differences and divisions between countries is greater – and the uncertainty about where and when this will strike home for a company’s business is much higher. Companies need to find new strategies to position themselves in this world, both for continued growth and to mitigate downside risks.
The challenges are greatest where the differences between major countries are greatest—as each takes its own view on integrating economics, security and values—and in new areas where rules of the game have not yet been established.
In some cases, that means simply finding ways to carry on profitably without attracting attention. In others, it may mean a complete restructuring of organisational ownership or business lines.
Multinationals need to face up to this reality of the new geopolitics and adapt to it quickly, because there are few signs that things are going to change back to the old, more stable world. This is a new challenge that requires a new response.
* A follow-up piece focussing on how multinational companies can respond to this new challenge can be read here.
Andrew Cainey
Andrew Cainey is a senior associate fellow at the Royal United Services Institute in London and author of Xiconomics: What China’s Dual Circulation Strategy means for global business. Andrew has 30 years’ experience advising governments, companies and non-profit organisations across Asia and Europe. Andrew was previously the managing partner of Booz & Company’s Greater China consulting operations; the partner leading the Rt Hon Tony Blair’s Asian government advisory practice; and the partner in charge of Boston Consulting Group’s Asian financial institutions practice. He has also been a Senior Fellow with Fung Global Institute in Hong Kong; an Associate Fellow in Chatham House’s Asia-Pacific Programme; a Senior Fellow in the Security and Crisis Management Programme (International Centre) at the Shanghai Academy of Social Sciences; and a Policy Advisor in the Conservative Party’s Policy Unit.
