Global US corporations – Are they losing competitiveness? Discussion at Baylor University September 4, 2008
Framing the discussion • “Corporations” in focus of past analyses (e. g. , Williamson’s transaction costs, Porter’s strategy framework, “free agent” discussion because of technology) • • • Corporation vs. other forms of organization SME • Partnerships / Service companies (e. g. , law, consulting) • US based vs. foreign International / global vs domestic • Public vs. private
Hypothesis 1. 2. 3. 4. 5. “Global US corporations are losing competitiveness due to five factors - some within, some outside their control”: Short-term thinking and incentive systems / focus on pleasing analysts …losing against long-term investing but shareholderfriendly Europeans and Asians Reducing benefits to employees …losing ground to alternative forms of employment / organization US regulation and tax policy …creating extra costs, inefficiencies , wrong allocation of resources, both re people and capital Restrictive US immigration policy in light of the rise of other countries …losing share of mind and capabilities, absolutely and relatively US education system / level …may not be sufficient for 21 st century, skill gaps to be filled less and less by immigrants
1) Short-term thinking • Speed and flexibility of management or short-term thinking driven by “wrong” incentives e. g. , quarterly earnings, analysts? • Oil companies…investment vs. shareholder buy-backs? • Life insurance…missing international opportunities? • Foreign companies closing the gap “from the opposite side”…longterm thinking is not anymore a pretext for unfriendly behavior towards shareholders, e. g. , • Chinese and Indian companies (e. g. , natural resources, steel, • banking) European companies (e. g. , water, insurance, solar, chemical)
2) Losing against other forms of organization • Companies taking away exactly the features and benefits that made people join big corporations in the first place • • Job security Pension benefits Medical benefits (current, retirees) Lifestyle (working hours, Blackberry) • Lower upside for options / restricted stocks – people realize that they need to survive and the stock market to prosper in order to benefit • Open questions: Younger generations less and less willing to join Corporate America? Elderly just working for benefits and clogging the system? –> Negative implications for relevant companies?
3) US regulation and tax policy • • Disadvantage due to SOX and other regulation in foreign markets • • US regulation the norm for subs abroad Voluntarily making high US standards the norm (e. g. , IT policies, audit, people policies) …with the result of overspending in local markets Global taxation hindering efficient allocation of resources • • Disadvantage for earnings and earnings repatriation • • • US expats probably the most expensive in the world Less mobility? Less organizational learning? In every recession the same happens– “Bring home the expats to save costs…”
4) US immigration policy • US has always imported skills and capacity 19 th century (hunger in Europe -> craftsmen, farmers) • • After Second World War (US open to global skilled labor; US the only real choice for refugees from communist countries or European emigrants -> scientists, entrepreneurs, professionals) Early 20 th century (opportunity seekers, war refugees -> factory workers, doctors, artists) But today: • • Doors virtually closed to skilled labor (e. g. , H 1 B discussion), for the first time companies are not being heard in Washington, plus overall loss of standing in the world – risk of not being first choice country anymore First time in a century: several attractive alternative countries for skilled labor: Canada, NZ/Australia, Switzerland, Singapore, BRIC All “alternatives” are recruiting actively, offer great upside, solid medical systems, and are perceived to treat foreigners nicely Indians and others are returning home…potential reversal of
5) US educational system • • Education per capita is falling for the first time (Financial Times) • • • Retirement of boomers Higher proportion of unskilled labor Lack of skilled labor immigration to fill gap Many educational challenges for upcoming workforce • • Elite vs. mass education • Long-term consequences of relative loss of top-tier education (global MBA lists vs. US)? Language and math skills Standardized testing vs. critical thinking Number of expected scientists, engineers, etc. sufficient to compete with foreign companies?
Questions for discussion • Are the 5 factors correct? If so, how relevant vs. other factors of competitiveness like FX, economy, products, market access? • Can we test for the hypothesis beyond just anecdotal evidence – performance / event studies across countries? • Will global US corporations overcome the challenges, e. g. , • • • Creating more jobs abroad (Microsoft in Vancouver) Offering education to graduates to fill gap Reinstating benefits to fight brain drain Lobbying Washington successfully on immigration and taxes Selling out to Private Equity?
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