#174 I’m leavin’ it: What Apple, BASF, and McDonald’s have in common
What do Apple, BASF and McDonald’s have in common? Apparently nothing. They are three companies from three fundamentally different industries, each with different business models, and yet they have something in common. They all have a global presence and engage in global arbitrage. And now they are all suffering from an area that has been neglected over the past two decades when the global environment seemed relatively stable – geopolitics.
Years ago, the prospects offered by the BRIC (Brazil, Russia, India, China) markets were all the rage. The time was ripe to gain a foothold in these countries – either as a source of cheaper input factors or as promising target markets for their products. But now they are all finding that some environmental conditions are beyond their control and difficult to predict.
There was a time when Apple, now one of the most valuable companies in the world, was on the brink of bankruptcy. In the 1990s, the company was not competitive enough with the industry PC and found its salvation in China. Lower costs and strong support from the Chinese government turned things around. China helped build factories, housing, schools and even airports, and Apple supplied expertise and highly skilled personnel. In recent years, the macroeconomic environment has changed, and while Apple is not leaving China anytime soon, the problems during the pandemic, labor disputes, and ongoing tensions between China and the United States have certainly made China less attractive as a manufacturing base in the long run.
As for another market, McDonald’s has a long love affair with Russia. It took decades of relationship-building and political maneuvering before the first branch opened in Moscow’s Pushkin Square, but eventually, in 1987, then-Russian President Mikhail Gorbachev made McDonald’s Russia a reality in the form of a joint venture between the state and the American company. On opening day in 1990, 30,000 people showed up, kicking off a long period of expansion and significant investment in McDonald’s supply chain, which eventually sourced nearly 100% of its ingredients locally. And then came the Russian invasion of Ukraine. Political pressure and supply chain disruptions caused McDonald’s to quickly move from “I love it” to “I am leaving it.” The company abandoned all 853 stores in Russia in 2022.
In February 2023, BASF announced it would close several plants in Germany – producing ammonia, caprolactam (a chemical used to make fibers and plastics) and TDI (a compound used to make flexible foam), resulting in significant job cuts. The move was in response to rising energy costs in Germany as a result of the invasion of Ukraine. BASF said that much of its production capacity would be moved to China, where it is currently building a €10 billion plant, which could turn a very different leaf as China’s role on the world stage also shifts.
All three companies seem to have made the right decisions at the right time, but all three cases show how vulnerable multinationals are to the geopolitical environment in which they operate. On the other hand, that’s the game they have gotten themselves into.
March 4, 2023 @ 9:04 am
The post emphasizes the susceptibility of multinational corporations to geopolitical risks and the impact that these risks might have on their operations. Changes in the global environment, such as the pandemic, political pressure, and supply chain disruptions, can have enormous ramifications for global investments, as demonstrated by Apple, McDonald’s, and BASF. Companies must be aware of the geopolitical context in which they operate and have contingency plans in place to mitigate these risks. In addition, they must be adaptable enough to react swiftly to changes in the global environment. Yet, these dangers are not exclusive to specific companies or industries; other sectors may potentially face comparable obstacles.
The article underlines the necessity of considering geopolitical risks while making global ventures. Businesses must have a comprehensive awareness of the markets in which they operate and the various dangers that may occur. Flexibility and the capacity to adapt to changing conditions are also essential.
To mitigate geopolitical risks, multinational companies should conduct a comprehensive risk assessment before investing in foreign markets. They should also diversify their supply chains and operations to reduce reliance on specific regions. Additionally, maintaining strong relationships with local governments and communities can provide a buffer against political risks.
March 7, 2023 @ 7:59 pm
Back in 1997 the rage was international expansion and the panic was the war cry ‘Nationalization’. Asia, not just China, but Asia took some of the biggest hits and drop kicked their ‘friends and investors’ during this time. Japan, Malaysia, Philippines and others all got torpedoed as a result. Biggest was the devaluation of their currency as a result in the betrayals and loss of trust for these governments and their crony capitalism.
The more things change the more they stay the same. Maybe the countries will grow up and see that trust is something that builds equity.
March 10, 2023 @ 7:16 am
The three companies possess different business models and core industries, yet they have shown a similar vulnerability to the geopolitical environment in which they operate. In the current “borderless” world, it’s easy for a company to move its operation from one country to another depending on the situation. BASF closed some factories in Germany and would move to China. For me, who used a lot of their products, this comes as shock. It may be more beneficial for them to operate in a country with a considerably “stable” geopolitical environment. It even becomes more “sexy” if such a country offers tax reductions or low-cost labour. If I am in a managerial position for such a company, I may consider a similar option and search for more “unconventional” options. For example, in Indonesia; hardly people know that Indonesia gives much leverage for businesses. Companies can get access to “low-cost” labour and ex-pats can get a considerably easy visa, especially for digital nomads. It is vital for any company to be flexible and proactive in different geopolitical situations. Companies need to look beyond the conventional way to maintain and expand their business. The world is flat; flat which means borderless!