Dinosaurs were big too
Published by Yazad Jal May 13th, 2005 in EconomicsSwaminathan Aiyar has a revelation for the anti-globalisation, MNC bashing crowd:
…size should not be mistaken for financial power, and MNCs are not financial superpowers. The global market system is not rigged by them. On the contrary, the global market provides plenty of opportunities for good, small companies to beat the biggest giants.
He takes the automobile industry as an example,
Anti-globalisers and socialists demand special curbs on multinational corporations, saying these are far bigger than entire countries and so have too much power. Well, General Motors has long been the biggest MNC in the world in terms of sheer assets ($479 billion). It has been so equated with American prosperity that a popular slogan in the 1950s went “What’s good for General Motors is good for you.”So, the ordinary reader may be surprised to hear that mighty General Motors lost a whopping $1.1 billion in the last quarter, and looks like losing more. In consequence, its bonds have been downgraded to junk status by rating agencies. Worse, the rating agency says the future outlook is negative. Translation: the company may lurch into bankruptcy unless it does something drastic.
General Motors is not alone. Its old rival Ford has also been demoted to junk status. Both companies have steadily lost market share to nimbler, smaller companies. All this has happened without any special measures to curb these giant corporations. Global competition alone has done it. So much for the myth that the size of MNCs makes them dangerous superpowers.
Even as General Motors and Ford have sagged, Tata Motors has zoomed. There lies a lesson. The global system is not rigged in favour of giant MNCs and against newcomers.
but the lessons are true across industries.
“Anti-globalisers and socialists demand special curbs on multinational corporations, saying these are far bigger than entire countries and so have too much power.”
Another point. When we say MNCs are bigger than entire countries, we compare a company’s topline with country’s GDP. Not right.
You calculate GDP by adding total “value” of output. So, the comparable figure for a company is actually its bottomline, because profit is a better measure of the value an organisation adds.
I am not for bashing MNCs, but the example of Tata Motors and GM is not at all helpful. In FY04 Tata Motors total sales were Rs. 13000 crores or about 3 billion USD. AY 2004 sales for GM were about 193 billion dollars. GM tuned a profit of about 2.8 billion dollars last year alone.
When the government introduced FDI in print, the Times of India group opposed it tooth and nail. Swaminthan Aiyar, long a Times employee, argued in support of Times. FDI in every other sector is good but not where it might possibly end his (erstwhile) employer’s near-monopoly-like domination? That is sheer hypocrisy and it is people like Aiyar who are giving capitalism a bad name.
And dodo’s were small:)
Not all big companies fail, not all small companies succeed.
I guess that Indian manufacturers have it lucky that we have such a large internal market place. international competition as such has only really hit the upper and middle income segments.
check out Blade Runner - there were around 10 top brands of that time featured in the film. All these brands were international giants. Of them only coca cola survives:)
The phrase “what’s good for General Motors is good for America” is famous because it was uttered by a Cabinet member who had previously worked for GM; I wouldn’t describe it as a “popular slogan”.
If Aiyar argued against FDI in print, then my respect for him just dropped a few points.
Of them only coca cola survives
To extend Harini’s point, most of the brands mentioned in Tom Peters’ famous book, In Search Of Excellence, have also suffered serious reversals in their fortunes.
Mr. Aiyer,
How about a GM/FORD Vs Small company in the US comparison?
A lot more in that argument has to do with globalization, Asia uprising, innovation, etc. Also, anybody here in the States would agree that the likes of GM,Microsoft,FORD,Goldman Sachs have a lot of clout in the White House!! A very THIN argument by Mr. Aiyer.