India@75: A nation in the making

The return of corporate nationality

In the new global order, corporate nationality may be one of the most significant factors for many companies, whether they have international operations or not

Published: Sep 21, 2022 10:43:57 AM IST
Updated: Sep 21, 2022 10:51:08 AM IST

The return of corporate nationalityU.S. government ordered Nvidia – an American semiconductor chip manufacturer – to stop exporting cutting edge chips used in artificial intelligence to China Image: Shutterstock

In the latest round of the global tech battle, the U.S. government ordered Nvidia – an American semiconductor chip manufacturer – to stop exporting cutting edge chips used in artificial intelligence to China. Shares of Nvidia fell by about 9 percent, wiping out about US$40 billion in market value. The company expects to lose $400 million in sales in a single quarter.

As economic and geopolitical competition heats up, managers should expect more restrictions on where, when, and how their firms can compete. This is a far cry from not too long ago, when politics was opening markets, not closing them. Back then, the concerns were about stateless companies, metanationals, or denationalized firms that were not bound by geography. A firm that was headquartered in one country, had its top management team in another, financial assets in a third, and employees and operations in several others. Allegiance to or even affiliation with a political state was considered unnecessary, a disadvantage, or irrelevant. Some of the largest firms were seen as more powerful than many nation states.

That narrative, however, seems to have come to a screeching halt. Corporate nationality is back, whether by design or default. No longer can firms deny or overlook their nationality. In the new global order, corporate nationality may be one of the most significant factors for many companies, whether they have international operations or not. Managers who don’t consider this aspect of their business will be ill-equipped to deal with geopolitical factors, fail to assess political risks, and underleverage potential advantages.

First, some firms will face increased hostility in foreign markets not because of their corporate actions but because of their corporate nationality. A stark example is the pressure Chinese firms faced in India in 2020. Following a border clash between India and China, more than 300 Chinese apps – including Tencent Holding’s WeChat and ByteDance’s Tiktok – were banned in India. Many of these apps were hugely popular in India prior to the ban. For instance, TikTok was the top downloaded app in India on the Android platform in 2019.  And for ByteDance, India was among the largest markets outside China. Their exit from the country, then, had little to do with the market factors, and everything to do with their corporate nationality.

We can see a similar narrative in the case of Qualcomm, an American chip maker. Their proposed takeover of the Dutch company NXP was derailed in 2018 when China let the clock run out on the deal, forcing Qualcomm to pay a $2 billion break-up fee. Although the Chinese state media reported that the actions reflected the enforcement of antitrust laws, Qualcomm CEO Steve Mollenkopf highlighted geopolitical considerations. Indeed, China’s actions came right on the heels of US action to block a $117 billion takeover of Qualcomm, crippling actions on the Chinese telecommunications company ZTE, and additional tariffs on Chinese goods worth tens of billions of dollars. Set against this background Mollenkopf acknowledged in a Reuters report, “We obviously got caught up in something that was above us, so I don’t know if I would conclude anything about our own business, our ability to invest [in China] or partner with Chinese companies”.  

Second, some firms will find new opportunities because of their corporate nationality. Perceptive firms will wear their corporate nationalities on their sleeves, to take advantage of a real or perceived national advantage. With the U.S. Congress passing the CHIPS Act, foreign companies like Samsung Electronics and Taiwan Semiconductor Manufacturing Company are likely to receive tax breaks and subsidies. These companies may be the most sophisticated memory chip manufacturers in the world, but their success in the U.S. is partly also because they come from South Korea and Taiwan respectively, longstanding U.S. allies.

At the same time, corporate nationality can turn from an advantage to a disadvantage. Take the case of Alrosa, the Russian’s biggest diamond producer. The company made a big push, especially in the American market, to highlight its Russian roots and mines. They gambled discerning consumers will care (and perhaps even pay more) for rings and jewelry that didn’t hold a conflict or blood diamond from Africa. And that the Russian firm will trigger associations with romance, classical music, and ballet. But following the Ukraine conflict, Brand Russia is no longer the force it might have been in marketing diamonds. And the U.S. efforts are underway to officially label Russian diamonds as conflict diamonds.

Also read:  India woos semiconductor makers in quest to become key player

Finally, companies may need to adopt more creative global strategies to balance home and foreign markets. Some are already becoming more resourceful. ByteDance, the owner of TikTok, has segregated its domestic and foreign operations. Douyin, the Chinese social media platform, is controlled from Beijing, but TikTok is owned through a Cayman Islands holding company and has offices in the U.S. and Singapore. Shein, one of the fastest growing fashion companies, does not sell its fashionable clothes in the domestic Chinese market but ships to customers around the world who place orders through mobile apps.  

Although nationality was always a key facet of the corporate entity, its relevance for multinational firms has waxed and waned over time. In the context of current events though, the relevance of corporate nationality is back – by design or by default. Identifying and developing strategies to best manage this new environment is the challenge of the next decade.

Prof Srividya Jandhyala is associate professor of management at ESSEC Asia Pacific

Check out our Festive offers upto Rs.1000/- off website prices on subscriptions + Gift card worth Rs 500/- from Eatbetterco.com. Click here to know more.

Show More
Post Your Comment
Required
Required, will not be published
All comments are moderated