Thu Nov 14

Nationalism is surging – changing the way companies do business overseas

Written by Sihong Wu, Lecturer, School of Business, University of Auckland, Waipapa Taumata Rau

The resurgence of nationalism ^[1] across the globe is not just a political issue. It’s emerging as a powerful force that multinational companies cannot afford to ignore.

Recent events such as Brexit, Russia’s war in Ukraine and the United States election can have far-reaching implications for businesses.

These events can influence investor confidence and alter government restrictions on foreign companies.

Managers are increasingly faced with a key question: should they push forward with new initiatives targeting international markets or hang on and wait for acceptance from those local communities?

There is ongoing debate ^[2] over whether going global can directly help a company’s ability to innovate. Entering international markets can allow a business to gain new knowledge through connecting global production networks, accessing global talent and creating diversified global teams.

But what happens when a company’s plans to go global clash with nationalist sentiment – either at home or abroad?

Our research ^[3] looked at how two factors – a country’s focus on technological progress, and its nationalist sentiment – can affect companies’ decisions when it comes to expanding into the global market.

These factors are particularly important when it comes to the spread of new technology that might be perceived to go against national interests.

While it may be obvious that companies need to take the political temperature of a new market, our research highlights the complexity of national sentiments – and how these can alter internal business decisions.

Different reactions

In our study of companies from 27 countries, we found multinationals react differently to nationalist attitudes in their home country versus nationalism in the foreign countries where they operate.

We identified four broad scenarios.

There are more opportunities for a business to adopt innovative strategies when there is little to no competition over who gets the new technology first. This lack of nationalist sentiment allows the company to innovate using ideas from both countries.
When nationalist sentiment is strong in a company’s home country, a company’s technological development efforts tend to align with its government’s priorities.
In foreign countries with strong nationalist sentiments, managers often struggle with bringing new technologies to the market. This is, in part, due to difficulties in gaining acceptance in the local community.
Where nationalism is strong in both a company’s home country and the country it wants to enter, it becomes harder to successfully introduce new technologies. This is often due to local resistance as well as conflicts between nationalist groups and others.

Huawei has struggled to expand in some countries due to fears over national security. Costfoto/Getty Images ^[4]

Progress vs national identity

Over the past two decades, there have been several examples of companies struggling to make inroads due to nationalist sentiment – either at home or abroad. There have also been a few success stories.

While we examined companies from multiple countries, China’s political relations with other nations provide several examples of why considering nationalism is important to multinational companies.

Aluminium company Chinalco, for example, failed in it’s bid to buy Australia’s Rio Tinto ^[5] in 2008. The Chinese company encountered significant resistance due to concerns surrounding its status as a state-owned enterprise.

China’s Huawei has also faced difficulties ^[6] in its efforts to expand its 5G technology. This is, in part, due to nationalist sentiment in concerns in countries such as the US and Australia over threats to national security and the need for technological sovereignty.

Our study also found that when nationalism and technological advances are combined, they can create a sense of techno-nationalism (when a country prioritises technological progress to enhance its global power). This can further influence a multinational company’s decision to stay or expand in a particular market.

Volkswagen, for example, was once a major player in China’s electric vehicle market. It now faces barriers to maintaining its market share in the country. The Chinese government is, instead, focusing on nurturing and supporting domestic manufacturers – sidelining the German company.

Similarly, Intel has responded to the US government’s push for semiconductor self-sufficiency by boosting domestic production, aiming to reduce reliance on foreign partners.

These examples highlight how the combination of nationalism and technological development goals can affect multinational companies.

Gaining local and global acceptance

Throughout our research, we found that to gain acceptance in a foreign market, multinational companies need to build a positive public image and foster genuine relationships.

Partnering with local businesses and non-governmental organisations can help them increase the credibility of their new ideas and acquire support support for developing new projects based on local needs.

When expanding overseas, companies also need to reduce the perception of excessive government involvement or political motives. Increasing transparency can help ease local and global concerns about the development and spread of new technology.