Note to Self: Six Interesting Questions About Corporate Nationality:

1. Does it matter that a huge hunk of Citigroup is owned by Alaweed
   ibn Saud rather than some guy who lives on Kentucky or Alberta?

2. Does it matter that Applied Materials--the company that makes the
   equipment other companies use to make the chips other companies use to
   make the gadgets other companies use to market the lifestyle--has its
   headquarters in San Jose, California rather than in Stuttgart or
   Shanghai?

3. Does it matter that Applied Materials has its engineers in San
   Jose, California and not in Kuala Lampur or Rio de Janeiro?

4. Does it matter that venture capital firm Kleiner-Perkins is in Palo
   Alto, California and not in Tokyo or Milan?

5. Does it matter that Citigroup's headquarters is in New York rather
   than in London or Bombay?

6. Does it matter that Apple's iPods are made in Shenzhen, China,
   rather than in Austin, Texas, or Window Rock, Arizona?

---

Related Issues:

• National regulation: class A stock
• National regulation: official supervision and merchant management
• Sovereign wealth funds
• IBM and Lenovo
• James Fallows on the :-) and China: resources, assembly, and design
  and marketing
• Political pressure, financial pressure, and post-WWI technology
  transfer from Germany to the U.S.; was political or national financial
  pressure used?
• Peter Drucker and his predictions about pension-fund socialism
• Alto Adige and Trentino
• Gazprom and P&O?

Comments

[Bruce Wilder]

It matters to the wealth and income of barbers, real estate agents and college professors, who live and work close to San Jose or Palo Alto or New York, as opposed to say, the Yazoo Delta of Mississippi or North Korea or Kenya.

[derek]

Since you asked me (I know you didn't) I expect the most important thing is the *size* of corporations relative to nation-states, rather than their locations. By "size" I mean "ability to push around", of course: if a corporation is big enough to push a nation-state around, it's big enough to do it from almost anywhere, not just from inside.

That said, I expect having their main owners inside a country slightly enhances their ability to influence that country's government, via personal contacts. And having their main owner inside the Untied States, with its enormous military power, slightly enhances their ability to push other nation states around, via the United States.

[David]

I think it does matter. The more intertwined the economies of countries are, the less likely those countries are to go to war with each other. After 9/11. Saudi Arabia could have been the first country on the list to be invaded. If they weren't an important part of the global economy (read: huge oil exporter), they might just have been - instead they remained an important ally.

An argument can be made that this also leaves a country more vulnerable - especially if a provider of an important good ends up on the other side of a conflict. But MAeD (mutually assured economic destruction) might just become the new incentive for peace - that or a really lame term.

[wcw]

No, no, yes, yes, yes, no.

And barbers in Shallow Alto (and parenthetically, the peninsula, yikes; if anyone in the city wants an itinerant CFA, drop me a line) make spit. I can get my hair cut across the street from my current place of employ for $20, tip included. The place down the street from our lovely rent-controlled apartment charges $45 before tip for a worse cut. I stopped going to the woman who cuts my wife's hair, here in San Francisco, who exhibits actual skill (my wife always looks like a rock star for three weeks after her 'do) when her rate went north of $60.

The interesting question here is why everyone assumes that wealth of itself begets income for those in service employ like barbers and professors. The economics of hair shearers and mind melders, as far as I can tell, have always been well-divorced from the local niceties. Sure, in Little Rock both make spit, but that's AR vs CA, or country vs city, not local relative median income.

[Bruce Wilder]

It might be useful to add to the list, a couple of questions about whether corporate "immigration" -- when a corporation migrates, or adopts "dual-citizenship".

Does the dual-citizenship of the Dutch-British giant, Unilever, matter?

Does the tri-citizenship of Royal Dutch Shell?

Does it matter if Halliburton migrates to the Persian Gulf?

Does it matter if Sony, Nintendo or Honda becomes, partly, an American company?

[eightnine2718281828mu5]

Would it have mattered if in 1939 the US had bought all of its high-precision ball bearings from a factory in Saltzburg?

[ShortWoman]

Well, Prince Alwaleed is an interesting fellow, now that you mention him. Particularly since in addition to being a major investor in Citi (see questions 1, 5) he also happens to be a major investor in Apple (see question 6). It might take a couple hours, but I could probably put together one or two degrees of separation to Kleiner-Perkins and Applied Materials, making all the questions about him. His royal highness's involvement in Citi only "matters" *if* you think the bank is inadvertantly covering up terrorist money trails in Saudi Arabia.

Unless that's what you're getting at, those are some pretty ecclectic quesions.

[Ponzi Q. Globalization]

Of course all this matters. How could any of this not matter?

Globalizationized neoliberalism has befogged the thinking of some economists so much that they believe that the nation-state doesn't matter! Or maybe these economists just believe the political and the economic each exist in their separate universes.

Jesus Christ! Is there any human being or somewhat sentient humanoid creature such as an economist that really thinks things such as national labor laws, tax laws, social safety nets, and environmental regulations don't matter? This is what is really being asked.

[hot]

Yes, it matters.

I am from one of the "headquarter is not in" countries. A gripe common heard around here is the fact that why the overseer who is send in from headquarter makes about 10 times the salary of the locals, while hardly having any good reason for doing so. The fact is that corporation pays its locals much better than those who are hired overseas, even though they are working in the same role.

[Aniruddha G. Kulkarni]

A character in Sydney Pollack’s “The Interpreter”

“Despite all the flags fluttering on First Avenue, there are no nations any more. Only companies. International companies. It’s where we are. It’s what we are”

[Doctor Jay]

All these questions are about influence, perhaps undue influence, strategic value, and security. These are things that economists have a hard time putting numbers on. And there's a fair few people who think that if something can't be measured, it doesn't exist.

[Joe S.]

No. Yes. Yes. Yes. Yes. No.

Manufacturing does not add much value any more. Nor does automated manufacturing incur major labor costs. (Cars built in first-world Japan are competitive with cars built in third-world countries like Alabama. You pay a bit more; you get a bit more.) Nor are transportation costs all that relevant, except for things like steel or concrete.

Headquarters should not make much of a difference. But people being people, it does. Management gets much of the returns, and tends to spend them in headquarters.

Engineering adds tremendous value, but management/shareholder/financial types are good at expropriating the value added by engineers. (I should know. I was a poorly-paid techie, and am now a well-paid financial services lawyer. This is frequently cited as a reason for spinoffs--it is the only way top techies can get paid near marginal value. It also explains the prevalence of foreign techies in the US.) Nevertheless, the location of engineering still matters, because engineering is/should be closely linked to design-marketing-mgmt. With good modern transportation, manufacturing is not.

[corvid]

Answer to all 6 questions: Only if your country matters to you.

[Cranky Observer]

> Manufacturing does not add much
> value any more.

That's what people who work in or for New York financial services entities tend to think, anyway. Those of us who still work in US-based manufacturing tend to see things a bit differently. Knowledge comes from doing, not from viewing on a computer screen - and certainly not from viewing financial statements on a computer screen. When that knowledge is gone (or transferred to others) the capabilities follow very shortly. And, I and many others (including many German policy analysts) would argue, the underlying economy some time thereafter.

Seriously - when all the value-adding work is moved to China and India what exactly is the US going to do? England is a cute tourist destination - perhaps we will do the same?

I would suggest reading (1) the history of Hewlett-Packard's calculator division, including the decision to outsell the whole thing to China and what happened when they tried to bring it back in-house (2) Boeing's recent experience and statements with super-outsourcing major structural components of the 787.

ERP Expert

[Walt]

I think that the finance literature has already clearly documented that the answer to 4 is yes. There is a home bias in venture capital: venture capitalists are more likely to fund projects located near them.

[Oriscus]

For most of them, you know better than I, but for Trentino vs. Alto Adige, there we're talking the possiblility of different mixes of dirt under an agricultural product (wine) that responds to differences in mixes of dirt. A subtly different balance of terroir, if you will.

[Doug]

"why the overseer who is send in from headquarter makes about 10 times the salary of the locals"

Because he can. This has been another edition of simple answers to simple questions.

In re question #4 and Walt's comment, VCs I talk to get involved in the companies they invest in. Like everyone else, they only have 24 hours in their days. That means they have to have a very good reason to travel to the companies in their portfolio, and the more they travel, the fewer companies they can engage with. There's probably a plottable relationship between the number of companies in a given VC's portfolio and the amount of traveling to any given one that he or she can afford to do. But it definitely means home bias.

[Cristian Mitreanu]

Does it matter? Does it matter for the U.S.? Sure. It matters for individuals. An increasing portion of the population is directly impacted by these developments (i.e., lay-offs, stagnant wages). It also matters for the economy. These developments indicate that the economic growth resulting from geographical expansion is reaching a plateau.

So, a better question would be: What does it mean?

It means that a majority of the economic activity, and thus a majority of the corporate revenue, is generated by highly commoditized offerings. Any economy naturally tends to move toward this general state of affairs. However, commoditized offerings mean standardized business processes, which typically translate into outsourcing. Commoditized offerings also mean consolidation, or mergers and acquisitions, which ultimately leads to a concentration of the national wealth.

A model of Business Cycle, which I developed recently, shows that an economy tends to naturally "escape" this state of affairs as a result of widespread waves of innovation (i.e., personal computer in the '70s and '80s, the Internet in the '90s). Nonetheless, the model shows that an economy also "escapes" this state of affairs if significant political and/or social changes occur (i.e., war, natural disasters).

(More on this new model of Business Cycle at http://www.bizbigpic.com/picture001/2007/11/a-new-take-on-t.html)

Now, there seems to be at least two significant waves of innovation looming on the horizon: nanotechnology and "green/clean" technology. And that begs the question: Will the U.S. economy (society) have the resources to "wait" for a major wave of innovation to occur?

[jaim klein]

Prof. DeLong has levitated to such ethereal heights where You and Me are One. Does it matter who owns Citi? Does it matter who owns your home? Does it matter who is your boss? Does it matter who writes the exam and who is grading it?