Corporate titans take on the world

Companies are learning that business abroad is weird

By James Arnold BBC News Online business reporter

Elephants may be mighty beasts, but they are rarely nimble.

The titans of international business are the same: although second to none when it comes to steamrollering opposition, multinational companies also have a tendency to make crass errors.

The past few weeks have seen a particularly glaring series of blunders from firms - Coca-Cola, Nestle, Cadbury Schweppes and others - that really should know better.

At the same time, the easy money multinationals made from overseas expansion during the 1990s has vanished, and some firms are having second thoughts about the excitement of globalisation.

As the gods of global business prepare to gather in Davos for the annual World Economic Forum, the mood could be better.

Corporate cock-ups

Recent weeks have seen red faces in some of the world's most illustrious boardrooms.

Emerging China: As if business weren't complicated enough

Diageo, the world's biggest booze firm, faces a ban from Taiwan after advertisements that mocked the island's reputation for shoddy merchandise.

In India, soft-drinks makers Coca-Cola and Pepsico were forced to withdraw advertisements painted onto rocks in the ecologically protected Himalaya mountains.

Even crasser was an inexplicable Indian advertisement for Cadbury's Temptations chocolate bar, equating the snack with the war-torn state of Kashmir, because both were "too good to share".

And in Africa, Nestle - generally seen as the global operator par excellence - sparked a storm of protest by insisting that the Ethiopian Government pay it $6m (£3.7m) to make good a 1975 nationalisation.

Could do better

Is this more than merely embarrassing?

After all, global firms like Coca-Cola, no strangers to even the most obscure of emerging markets, should know that graffiti on the Himalayas or satire about Kashmir are a marketing no-no.

But, says Chris Earley, visiting professor of organisational behaviour at London Business School and an expert on multinationals, this sort of lapse is characteristic.

"These firms have been doing business so successfully in so many markets for so long that they get overconfident.

"Complacency starts to creep in."

It chimes with other indicators of underperformance in international business.

Research published last September by Alan Rugman, a professor of international business at Indiana and Oxford universities, showed that the vast majority of multinationals were not pursuing any sort of global strategy - and that increasing numbers of them were losing money overseas.

Going home

Indeed, in the right mood, it is possible to become convinced that cross-border business on the traditional Nestle pattern has had its day.

Coke: A standardised product in a diverse world

Professor Rugman has identified a phenomenon he calls "de-globalisation", as companies pare back their ambitions in the face of tricky operating conditions.

By some measures, this is already happening.

Worldwide inflows of foreign direct investment have fallen by almost two-thirds since 2000, after more than a decade of double growth.

Wal-Mart, the world's biggest retailer, still happily reaps almost all its earnings from its home market, despite modest forays into the outside world.

By contrast McDonald's, whose mushrooming restaurants are the face of globalisation for half the world, has run into trouble; it is now closing restaurants abroad, slowing expansion and rethinking the famously rigid way it presents itself.

Trial and error

But don't be too hard on the multinationals, argues Christos Pitelis, director of the Centre for International Business at Cambridge University's Judge Institute of Management.

"They are making mistakes, but they are learning from their mistakes," says Dr Pitelis.

"What were once rigidly centralised organisations now function far more flexibly."

Over the past few years, multinationals have embraced the "think global, act local" mantra with fervour, thinning down their headquarters bureaucracy, and striving to substitute locals for expat staff.

This decentralisation can lead to unplanned cock-ups like Cadbury's Kashmir fiasco.

But what is lost in terms of head-office control is more than outweighed by the advantages of nimbleness and local savvy.

Driving change

If this sort of flexibility is such a winner, though, does that not mean that multinationals will always lose out to local competition?

Not necessarily, argues Dr Pitelis.

Will the little guy always win in the end?

Quite apart from their function of making money for shareholders, multinationals are the grease for the global economic machine.

First, multinationals co-ordinate product standards across borders, thereby promoting innovations that localised firms may have preferred to ignore.

Second, by using their considerable bargaining power, corporate behemoths can help create the sort of regulatory and legal conditions in which all business can thrive.

They were instrumental in achieving this - so far with mixed results - across Eastern Europe, and are now hoping to tackle China, which may become the world's top investment destination this year.

Survival of the fittest

Above all, the ecosystem of the multinational firm is in a constant state of renewal.

A surprisingly durable business model

A decade ago, some of the world's biggest multinationals - Vodafone, GlaxoSmithKline, Nokia and so on - barely existed.

Last year, Cemex, a Mexican firm, became the first company from the developing world to make the list of the 100 biggest global firms.

Now, as China becomes the consuming interest of international investors, that ecosystem is ready for another shake-up.

Individual elephants may come and go, but it seems the herd goes charging on.