Globalisation is still going just fine for the big boys, thanks

Paul Raven @ 24-08-2009

Everyone’s suffering from the economic downturn, right? Well, not quite everyone; the really big corporations – the ones like IBM who are truly globalized – are doing just fine… and they’re managing it largely through detaching themselves from their parent nation-states, such as the US.

IBM’s world view has meant that hardware is an increasingly small portion of its revenue. It no longer makes personal computers, having sold its ThinkPad division to China’s Lenovo; higher-end servers now constitute only a quarter of its business. The rest is in software and consulting, which are increasingly based outside the U.S., making IBM less sensitive to the U.S. economy even as it remains—technically—an American company. IBM remains highly profitable. In the first six months of 2009, it earned nearly $6 billion in profits, even as the U.S. economy contracted sharply. This past quarter, about two thirds of its revenue came from outside the U.S., and that percentage is growing.

Some of the effects are undoubtedly negative for the U.S. Thousands of IBM employees have recently been offered a choice between losing their jobs in America or moving abroad to stay employed. Companies that once were icons of American power—like IBM and General Motors—will thrive only if they become more wedded to the world and less to the U.S. GM itself is a perfect example of what works and what doesn’t, with a U.S. division that failed and a Chinese division that is wildly successful. A world with more strong foreign markets means less money spent on labor and operations in the U.S., and more spent elsewhere. Companies like Intel and Microsoft are investing billions in R&D facilities in China because they believe that is where their future is.

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IBM is hardly the only example of global business detaching from the U.S. Other technology and consulting companies such as HP and Accenture are charting similar paths. Firms in other industries have moved away from the U.S. altogether, most notably oil-services company Halliburton. Having been reviled in the U.S. for allegedly overcharging the U.S. military in Iraq, it decamped to Dubai, where no one cares. In fact, there is hardly an industry other than utilities that is not seeing its most significant growth outside the U.S. That was true before the crisis, but it is even more clear in financial results this year. In 2006 about 43 percent of the profits of the S&P 500 came from outside the U.S. In 2009 that percentage is poised to surpass 50 percent.

This is the new world of global business, one in which the U.S. becomes simply a market among markets, and not even the most interesting one. IBM is one of the multinationals that propelled America to the apex of its power, and it is now emblematic of the process of creative destruction pushing America to a new, less dominant, and less comfortable position.

Another nail in geography’s coffin. As more nation-states slip into “failed” status – and depending on where you’re looking from, none of them are completely safe from that prospect, no matter how large or formerly powerful – the durability and mobility of the corporation will start to look more appealing to career politicos and rootless would-be citizens alike. Why sign up for citizenship when a zaibatsu-style contract offers you more benefit and opportunity?

Is the economic future of the US that of client status to multinational corporations? [via SlashDot]

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