Fast-Moving Businesses ‘Vote With Their Feet’

While government policy still dominates public attention, the key decision-making agent in the global marketplace is rapidly becoming the business firm.

For example, the United States and the European Community may be deadlocked on GATT negotiations. Meanwhile, British Telecom sets up a joint venture with MCI.

While the Clinton Administration is developing its specific position on technology policy, Boeing and the Airbus Industrie consortium--Aerospatiale, British Aerospace, Deutsche Aerospace and Construcciones Aeronautica--are moving ahead on a study of the feasibility of jointly building a “super jumbo” airliner.

While Congress is debating the North American Free Trade Agreement and considering ever more costly environmental statutes, U.S. mining firms are expanding in South America. Facing a contentious two-year battle to get the necessary operating permits here at home, Battle Mountain Gold Co. found that Bolivia provided all the needed paperwork the same day that the company received a go-ahead from its bankers.

While national policy keeps drilling rigs out of the Arctic National Wildlife Refuge--perhaps this country’s best prospect for new oil exploration--Chevron and Mobil, as well as several EC oil majors, are investing billions of dollars in far away Kazakhstan.

The Energy Policy Act of 1992 has extended moratoriums on offshore drilling, and new clean air rules make it more expensive and difficult to refine oil in the United States. Big surprise: the number of drilling rigs searching for oil and gas in the United States has declined from 4,530 at the end of 1981 to about one-tenth of that number today. U.S.-based oil and gas companies in total now invest more overseas than in domestic locations.

Likewise, U.S.-based pharmaceutical firms have introduced new drugs in Europe while waiting for the completion of Byzantine domestic regulatory procedures.

Governmental barriers to international commerce and investment surely are not withering away. National boundaries are still with us. Adjusting to government policies is both time-consuming and expensive.

Nevertheless, companies are learning how to get around, under, or over those obstacles. The response follows a variety of approaches.

In 1991, Monsanto’s low-calorie sweetener NutraSweet was hit with a very high duty in response to a charge of dumping in the European Community. That duty only kept NutraSweet out of the Western European market for a short time. The very next year, the company entered into a joint venture with a Japanese food and pharmaceutical company to build a plant in France to produce for the European market.

The Monsanto experience is not unique. In the 1950s, many American companies were hit by the 18% tariff enacted following the formation of the European Common Market. John Deere responded, as did many other U.S.-based firms, by establishing production facilities in Europe.

Taiwan and South Korea traditionally impede the importation of automobiles from Japan. Honda has responded by shipping to those countries some of the vehicles produced in its factory in Marysville, Ohio. In the specialized area of military production, many countries with their own high-tech engineering and advanced manufacturing abilities are reluctant to import weapon systems produced elsewhere.

Under these circumstances, U.S. aerospace companies, albeit reluctantly, have licensed their designs to local firms.

Thus, McDonnell Douglas has received royalties for the version of its F-15 fighter aircraft produced in Japan by Mitsubishi Industries working with Kawasaki Heavy Industries.

At times, a foreign firm gets the green light to set up a production facility in another country only if it provides some other special benefit. (There is no need to further characterize such arm twisting.)

Before IBM was allowed to expand its operations in Mexico, the company agreed to set up a development center for semiconductors, purchase high-technology components from Mexican companies and produce software for Latin America in Mexico.

Governments, in other words, are learning that they too compete in the global marketplace that is developing for the 21st Century.

We have long known that people often cross national borders by voting with their feet. In this time of rapid transportation and almost instantaneous communication, capital and other vital resources are far more mobile than that. This is a lesson that the Clinton Administration is bound to learn, later if not sooner.