Globalisation: The Forgotten Strategy

Multinational corporations have employed different global corporate strategies in their efforts to adapt to the growing mobility of capital resources. Originally, the approach was to use economies of scale to compete in foreign countries with large domestic markets. Large firms can use their size to average fixed costs over many more products, bringing overall costs down compared to their smaller domestic competitors. Increasingly, however, there has been a focus on using country-specific advantages in labor, geography, and tax policy to get the most out of one's global strategy. For instance, Rupert Murdoch's News Corporation has its chief markets in the UK, the US and Australia but places its acquisitions in these countries in holding companies headquartered in the Cayman Islands, which does not tax corporate income. The result is an average tax rate of 10% on Murdoch's company's profits, whereas competitors such as Disney are paying close to official tax rates of 30 to 35%. The advantage has allowed Murdoch to expand further into the United States, growing the company and driving up employment. What remains to be seen is whether competition among countries for mobile capital will eventually cause a race to the bottom in labor and environmental standards as well as in tax policy, or if it will spur a race for better national governance in developing countries' efforts to attract foreign direct investment. - YaleGlobal