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Demise of a corporate form

Demise of a corporate form
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First Published: Mon, May 16 2011. 01 15 AM IST
Updated: Sat, Jul 02 2011. 11 57 AM IST
How do top Indian companies introduce their organizations? The Aditya Birla Group, for instance, introduces itself as a Fortune 500, $30 billion corporation that is anchored by 130,600 employees belonging to 40 different nationalities. The Tata group sees itself as a $67 billion enterprise comprising over 90 operating companies in more than 80 countries across six continents, with nearly 60% of its revenues coming from business outside India. Reliance Industries Ltd presents itself as India’s largest private sector enterprise, with annual revenues in excess of $58 billion, making it a Fortune Global 500 company.Of the new economy giants, Infosys Technologies Ltd thinks of itself as a pioneer that has a global footprint, with 64 offices, 63 development centres and 130,820 employees across the world.
It is interesting to see how things have changed over the years. For instance, all major Indian companies use the dollar and not the rupee to denominate their turnover and revenues. Size, too, is no more defined in terms of the domestic pecking order, but in terms of a global list: Fortune 500 (irrespective of where they figure on the list). These are small but telling indicators of a growing global mindset.
Also, more than their physical assets, companies (especially the old economy ones) are talking more and more about their human assets—their employees. This increasing dominance of human capital is linked to the growth of the knowledge economy and its constituent companies that have brought in such a sensibility.
What is curious apart from all this is why, despite having a “global footprint” in scores of countries on half a dozen continents, none of these companies call themselves multinational or transnational corporations (MNCs or TNCs).
Come to think of it, it has been a while since one last read about an “MNC” or a “TNC”. Both these terms were used extensively in the 1970s and the 1980s to describe companies that conducted operations in more than one country. In fact, it was then widely seen as the highest form of evolution of a corporate entity.
At the same time, many local businesses and the political Left saw MNCs as evil personified. The Leftists in particular would be riled about the power of these MNCs to influence national economic policies, which they saw as an assault on the country’s sovereignty.
Indeed, so preoccupied were people the world over with this aspect of MNCs that films were made and books written about them (examples include Surplus: Terrorized into Being Consumers and The Corporation). That the turnover of some MNCs was more than the gross domestic product (GDP) of some countries attracted a lot of attention, though, strictly speaking, the comparison was not correct.
In many scholarly articles, MNCs were portrayed as the new vehicle for imperialism. No doubt this was driven to some extent by the memories of East India Company, which was arguably the first MNC.
Both the MNC as an organizational model and its heavy political bashing seem passe now. The MNC seems to have been replaced by the global firm at the top of the corporate evolutionary chain.
This demise may well have been caused by globalization. Ironic as it may seem, the institutions that were seen as being precursors to globalization seem to have become its unintentional victims.
In the pre-globalization era, the raison d’être of an MNC buying assets in different countries or setting up facilities there was to transcend national borders and build markets. That is no longer needed. With consumption and production having been globalized to a large extent, markets have overridden borders, and geographies have less “market” relevance.
Hence, the defining characteristic of a company can longer be “multi-national” or “multi-locational”. All are now companies in a global market.
As such, for the new global firm, the emphasis is not on investments made or on production facilities set up in other countries. Nor is the issue of coordinated product offerings, adapting products and services to each individual local market, the focus of strategy or operations. Much of this seems to have become redundant. For an ever-increasing number of products and services, the tastes and preferences of consumers in different nations are beginning to converge on some global norm. This is the globalization of the customer.
Instead, for the global firm, the real emphasis is on cost, technology and efficiency. A company is not a global firm because it has facilities across the globe, but because it produces a product of global standards. It doesn’t matter if the company is located in one remote part of the globe. Globalization, as such, is not about geography any more, but about grade.
Haseeb A. Drabu is an economist,and writes on monetary andmacroeconomic matters from the perspective of policy and practice.
Comment at haseeb@livemint.com
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First Published: Mon, May 16 2011. 01 15 AM IST