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
“Global US corporations are losing competitiveness
due to five factors - some within, some outside their
control”:
1.
Short-term thinking and incentive systems / focus on pleasing
analysts …losing against long-term investing but shareholderfriendly Europeans and Asians
2.
Reducing benefits to employees …losing ground to alternative forms
of employment / organization
3.
US regulation and tax policy …creating extra costs, inefficiencies ,
wrong allocation of resources, both re people and capital
4.
Restrictive US immigration policy in light of the rise of other countries
…losing share of mind and capabilities, absolutely and relatively
5.
US education system / level …may not be sufficient for 21st 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
•
•
•
•
19th century (hunger in Europe -> craftsmen, farmers)
Early 20th century (opportunity seekers, war refugees -> factory workers,
doctors, artists)
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)
But today:
•
•
•
•
Doors virtually closed to skilled labor (e.g., H1B 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
immigration trend in most attractive immigrant segments
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
Language and math skills
Standardized testing vs. critical thinking
Number of expected scientists, engineers, etc. sufficient to
compete with foreign companies?
Long-term consequences of relative loss of top-tier education
(global MBA lists vs. US)?
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?