Monday, November 09, 2009

"De-Globalization" vs. "The Wal-Mart Effect" in India and Beyond

A few weeks ago, Jim Valderrama from Grant Thornton and I presented at an international roundtable event at the University of Chicago Booth School of Business - our theme was whether we have been seeing a "de-globalization" of US mid-market companies that will extend beyond the recession. (Thus, the tie-in to the photo caption - "Robinson (American) falling into sea near Nice")

We looked at data on US direct foreign investment and cross-border acquisitions into many parts of the world, and there has clearly been a major drop in activity over the past 18 months. Yet, more of a drop in cross-border activity than in overall economic activity? Hard to tell, though I referred to evidence from some of our own clients and contacts that there has been a scaling back in ambitions among mid-market companies. For example, many have found that China has been more expensive and a greater drain on senior management than expected, and mid-market companies do not have the same level of resources to handle such far-flung expansion as do larger companies.

Surely much of the cross-border expansion among mid-market companies and otherwise will be returning in strength as the US economy thaws. Many of course are more motivated than ever to take advantage of higher growth rates in BRIC economies and elsewhere and the "portfolio effect" of multiple bets in multiple countries.

Wal-Mart is one of the many examples of companies placing great faith in international expansion, as is evidenced by recent moves in India. We have reported in the past on Wal-Mart's tie-up with Bharti in India to establish retail stores, though foreign retailers remain restricted in India from owning equity in "multi-brand" retailing (I was formerly the legal head of Kmart's international expansion in China and many other countries, and our blog entries have noted that market openings for retailing often lag behind other sectors - India's economy is otherwise quite open for most sectors).

As reported in the November 6th issue of the Economic Times of India, Wal-Mart's chairman recently met with Prime Minister Manmohan Singh in New Delhi to lobby for more access to the Indian market, the company's CFO recently noted that Wal-Mart is stepping up growth in its international operations to take advantage of growing economies and opportunities in emerging markets such as China and Brazil, and the head of its international operations referred to a US$5 billion fund set aside for its international expansion and "India can use as much as it wants."

We hope that the next tier of companies is paying attention to such aggressive faith in global markets and will not sit out the next round of revenue and profit opportunities outside of the US.

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