Please don’t remember us

The effect of past FDI in a given location is an under-investigated aspect of internationalisation. This story from last week raises some interesting questions about legacy. Talking about Aussie bank ANZ it reports that:

ANZ’s mixed history in India could count against it in a three-way race for the some of Royal Bank of Scotland’s Asian assets.

It goes on to discuss the possibility that Indian banking regulators might not be too pleased to see ANZ back on the scene.

ANZ took over the Indian operations of British overseas bank Grindlays back in 1985 and ran them through to 2000 (along with other subsidiaries in Africa and Asia).

The bank was embroiled in a substantial chequing scandal involving an Indian share-trader that dragged on through much 1990s (for some discussion of this see here – although it is a startlingly complex legal affair). Awkwardly the plaintiff bank in the legal proceedings was owned by the Reserve Bank of India, the same body that will have the major say in approving ANZ’s bid (or not).

It begs the questions:

– Can ANZ distance itself sufficiently from a decade-old scandal?
– Can it make it strong case that it has better appreciation for international environments now?

The latter will be difficult as the Grindlays sale substantially reduced ANZ’s exposure to international markets, particularly in the Asian region. Indeed that was one of the main drivers of the sale, coming as it did in the wake of the Asian currency crisis.

The possibility that the article ignores (surprisingly) is whether the Indian officials (and public) might be just as annoyed by the Grindlays sale itself. ANZ could quite rightly be slammed for abandoning a large and viable bundle of assets in a time of economic crisis, and showing little faith in what would soon become one of the fastest growing and promising economies in the world.

To use a teen-flick analogy, ANZ could be seen as the jock who teased the shy, wallflower, promising much but publicly humiliating her. This shrinking violet has now lost the braces, removed her glasses and shaken out her hair to reveal herself as a real beauty. She can afford to play hard to get, and when choosing suitors the brutish Aussie has got a lot of sweet-talking and sorries to say.

Multinationals can’t afford to forget their past, or expect to be able to walk away from (or more importantly, back into) a country without folks remembering who they are and judging them in that light.

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The Aussie Big’uns

You might have noticed I’m a bit of a fan of lists and rankings. I have done work with Fortune magazine’s Global 500 (i.e. the largest firms in the world). Forbes magazine goes even deeper, ranking the 2000 largest.

The latest list is out, and it gives us a chance to look how Australia’s homegrown big boys stack up. Rather than focusing on year-on-year changes (which are strongly determined by exchange rate changes), I thought I’d compare the Aussie performance relative to 2003 (the first year Forbes produced such lists).

Back then Australia had 37 listings. This year it was 46 (including the UK-Aussie pairings of BHP Billiton and Rio Tinto). You could also make a strong case for two more – Lihir Gold and Oil Search – both of whom are effectively managed out of Australia while being officially headquartered in Papua New Guinea. An argument about ‘roots’ might also extend to News Corp which shifted to a US HQ a few years back.

If we take the 46 number, then we’re looking at a 24% increase in representation since 2003 . At the same time, traditional powerhouses such as the US (down 29% to 551 firms), Japan (down 13% to 288 ) and the UK (down 23% to 102) have stumbled.

The big movers? Can you spell BRIC?

Brazil: 13 → 31 (up 138%)
Russia: 6 → 28 (up 367%)
India: 20 → 47 (up 135%
China: 13 → 91 (up 857%!!) If we included Hong Kong the numbers would be 43 → 133 (209%)

So, turning back to Australia, what should we make of this state of affairs? We have the tenth most list members while being the 14th largest economy in the world by unadjusted GDP. On this simple count front we are outperforming bigger economies like Italy (41), Spain (33), Russia (28) and Mexico (18). The only nation to ‘pass us’ relative to GDP ranking is South Korea (61). A couple of northern neighbours are outperforming their GDP status also: Taiwan (45) and Hong Kong (42).

In terms of the top end, there are 12 Aussie firms in the top 500 and five between 501-1000. Back in 2003, the count was 7 and 12. We are slightly ‘underweight’ in these upper echelons.

Who are the biggest Aussie players then?

The big four banks (Commonwealth, nab, Westpac, ANZ) split the prize with our two aforementioned mining giants (BHP Billiton & Rio), and are followed by Telstra, the diversified Wesfamers and retail fave Woolworths.

The biggest winners over the six years:

BHP Billiton (up from #133 to #52)
Rio Tinto (232 → 69)
Commonwealth Bank (141 → 59)
Woolworths (666 → 284)
Wesfarmers (866 → 266)
QBE (834 → 378)
Brambles (1155 → 684)
Insurance Australia Group (1568 → 979)
Woodside Petroleum (1933 → 762)
Origin Energy (nowhere → 732)

Biggest Losers:

Amcor (731 → 1342)
Foster’s (853 → 1389)
CSR (1113 → nowhere)

Most of the big winners have pretty extensive international operations, and I dare say almost all have increased the extent of their internationalisation over the 6 year period (anyone want to check?). Two of the losers have made some pricey and questionable commitments to the US market (much of Amcor and Fosters’ falls happened over the past 12 months).

There is a whole lot more that could be discussed out of these rankings. It really is a rich data source. For now, it does offer some support for an argument that Australian multinationals aren’t doing too badly, but could perhaps learn a lot from their emerging market counterparts.

Please enjoy the firesale

Further to the question about the implications of the Global Economic Crisis on firm boundaries, it would seem that we may be seeing an increase in concentration. As more firms become distressed, the bigger (or more financially sound) players are starting to circle, hoping to pick up some juicy morsels in a fire sale (how’s that for some crude mixing of metaphors?).

A quick perusal of today’s Aussie business headlines throws up some predatory characters:

– Cashed-up Woolies on the prowl (Retailer Woolworths on the lookout)

– Mitchell returns to acquisition mode (Media planning etc giant Mitchell Communications also)

– Hart set on more package deals (NZ billionaire Graeme Hart sniffing around Rio Tinto’s packaging business (and others))

And a more international one:

– ANZ prepares bid for Asian wing of Royal Bank of Scotland

This will not be the end of such manoeuvres. There is clearly a reshaping of competitive environments afoot.