Firms fuse nationalities

In the good old days, the identification between a firm and a country was obvious.. IBM was an American company through ownership, management team, value added and source of profits, and Sony was Japanese. One of the remarkable features of globalisation is the emergence of a new breed of firms where the one-to-one link between a firm and a country has become increasingly tenuous. The front page of this newspaper yesterday was dominated by stories which reflected this transition. .

Does ownership define firm nationality? If so, firms like ICICI Bank and HDFC are not Indian any more. When Reserve Bank policies discriminate against Citibank and favour ICICI Bank, it is worth reminding the RBI that the ownership structures of the two firms are not very different. By the yardstick of ownership, Samsung is not a Korean company and Corus is neither British nor Dutch. The modern multinational corporation has a globally diversified shareholding structure, with owners spread all over the world, and is often listed at multiple locations in different countries. It is not meaningful to link a company to a country through ownership patterns.

Does the location of value added or profit define the firm? In a few years, it is likely that more than half of the profits of Suzuki would be in India, through Maruti, and it would sell more cars in India than it does in Japan""indeed, that may already be the case. Would Suzuki, then, be an Indian company? A series of Indian firms are shifting the focus of their investment overseas, partly in order to exploit the gains of globalisation, and partly to avoid policy difficulties in India such as labour law. If things go right for Tata Steel, the bulk of its business would come from outside India. Would that make Tata Steel a non-Indian firm? The modern MNC produces and sells all over the world; it is not meaningful to link a company to a country through either value added or profit.

That leaves the management team. Intuitively, Samsung is thought of as a Korean company because of a management team""in culture, ethos and style""that is primarily Korean. ICICI Bank is an Indian bank because it has a management team which is primarily Indian. By this yardstick, a lot of companies in the world are turning Indian, because even though they have ownership, value added or profits from all over the world, many of their top managers are of Indian origin. Arun Sarin, CEO of Vodafone, is of Indian origin, as is Indra Nooyi at Pepsi. In all the top 20 global financial firms, key second-level managers are already Indian. In a few years, there will be more Indian CEOs of global financial firms. Conversely, Indian firms are beginning to recruit foreigners""especially the new airlines and some of the hotel companies. In a few years, the top management team of ICICI Bank may not look very different from that of, say, JP Morgan, when it comes to nationality.

The last vestige of the national identity of a firm, today, is the culture, ethos, style and nationality of its management team. One could argue that a German company is very different from an Australian one. By this yardstick, Samsung is a visibly Korean company. But looking forward, this vestige may also be erased. India needs to gear up for this world by supporting a much bigger expatriate presence in the workforce of firms operating in India, and by shedding a sense that "Indian" firms are somehow different. Indian firms are going global; they must now think global.