The promised returns from globalization just aren't there: poor countries don't have as much to spend, corrupt governments undermine foreign multinationals, domestic rivals hack trade secrets out of multinationals foreign offices and doing business all over the world is complicated and expensive.
Even giants like GM, the biggest bettors on globalization, aren't getting the returns on capital that they expected. There's a sad/promising trend of manufacturing returning to the developed world — sad because decades of globalization have driven down domestic wages, promising because of the return of industry to advanced countries.
“We have believed for some time that a large global footprint is critical to our success and to the success of any company in the auto industry,” said an international executive at a top-six multinational auto company. “But given recent events, we can’t help but wonder if we should be a little more hesitant, less eager and more discerning about where we invest our efforts.”
Or put more diplomatically, General Motors President Dan Ammann told a Detroit investors conference in January that the Chinese auto market “is maturing rapidly . . . [Its] rate of growth will decrease year-to-year.”
This is a surprisingly tepid forecast for an executive whose company has, in essence, gone all-in on globalization, and particularly in China. GM has invested upward of $20 billion on joint manufacturing ventures there, and is No. 1 in auto sales in the country.
However, in 2014 GM made $2.1 billion in China, about a quarter of its earnings in North America, where it sold 130,000 fewer vehicles. The problem is, around half of the vehicles that GM sells in China are Wulings, inexpensive, low-margin minivans designed by one of General Motors’ Chinese partners, targeted mostly at commercial buyers. Indeed, Chinese customers bought 1.6 million Wulings and only 79,000 high-profit Cadillacs in 2014.
The great unraveling of globalization [Jeffrey Rothfeder/Washington Post]
(via Naked Capitalism)
