Chief executives have consistently cited backlash against globalization as one of the main risks facing their operations across borders.
We’ve heard about this risk for a decade now. Sometimes they materialize into concrete fights, like the French farmer Jose Bove attacking a McDonalds in Millau in 1999, or rioting in Genoa against the G8 summit in 2001. India has also seen boisterous protests and fights, some of which are detailed in my upcoming book, India’s Open-Economy Policy (London: Routledge, Autumn 2008).
Conventionally, there are two components to mitigating this risk. First, intelligent companies make local-market adjustments, especially on product packaging, messaging, and some times composition, while retaining the advantages of a global brand to the extent possible. Second, they engage in public relations campaigns, either to promote their products and image or to blunt the critics. Sometimes, when things get really bad, they can enlist the protection of the government for their physical properties.
But companies seldom address the structural factors that can minimize local-market risk. In India, for example, the main political risk does not come from physical vulnerability or even cultural imposition. After all, India is one of the most vibrant multi-cultural countries in the world.
The major risk in India and many other emerging markets comes from government regulation and a possible change in political direction toward protectionism–and this even after the government has consistently liberalized the economy and taken a more hands-off approach. Why is this?
Inequality in India is increasing, as is conspicuous consumption by new Indian billionaires. Election outcomes, however, are determined by the poor who are the outstanding majority and most of whom are bypassed by many Indian companies, let alone multinationals. They do not feature in market research, since their wallet size is small.
But they do need to be factor in the political calculations of foreign companies operating in India. Their unhappiness with globalization was one of the main reasons that BJP, a very pro-investment political party, was awarded a thumping defeat in the last national elections.
Confederation of Indian Industry (CII), which is India’s main industry association, is well aware of this risk. A year ago, they wrote in a briefing for the World Economic Forum:
Indian elites have become more globally interconnected, but the poor and lower middle class are still disconnected and not feeling the benefits of globalization and liberalization. The mismatch of interests and/or perceptions of globalization, if negative, could lead to an endogenous backlash, protectionism and social and political tensions.
This is where the problem lies. It is this mismatch of interests that sparks visible anti-globalization backlash. It is also something that democracies such as India will not be able to overlook, especially during election time.
Thinking beyond wallet size. There are ways to mitigate this risk for international businesses. They need innovative PR programs that address what I’m calling their “political market,” which is different from their direct customers. They need to research values and trends in this market. They need to build on and showcase achievements that are consistent with local values and priorities. They need to align their corporate social responsibility efforts with their political marketing efforts.
Systematic strategy and investment in this will pay off by mitigating one of the key long-term concerns that haunt executives. It will also be able to prepare a new market not just through putting up billboards but through being accepted by locals as an organization of value.