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This discussion at Baylor University explores the hypothesis that global US corporations are losing competitiveness due to factors such as short-term thinking, losing against other forms of organization, US regulation and tax policies, restrictive US immigration policy, and the US educational system.
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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”: • Short-term thinking and incentive systems / focus on pleasing analysts …losing against long-term investing but shareholder-friendly Europeans and Asians • Reducing benefits to employees …losing ground to alternative forms of employment / organization • US regulation and tax policy …creating extra costs, inefficiencies , wrong allocation of resources, both re people and capital • Restrictive US immigration policy in light of the rise of other countries …losing share of mind and capabilities, absolutely and relatively • 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”…long-term 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?
