Notwithstanding a temporary lull during the financial crisis, global industry restructuring is driving a dramatic increase in cross-border acquisitions, and some countries are selling a lot more than buying—notably the U.S., the UK, and Canada. While individual sales can benefit the selling country, a net loss of corporate ownership control is worrisome. Inbound foreign investment is good for an economy when it results in more capital projects, increased innovation, improved productivity, and job creation. However, the sale of the controlling interest of a company achieves none of these ends in and of itself.
Whether foreign investment creates value or simply changes ownership control is a distinction worth making. As a country sells off corporations, especially large ones, the shift in head-office functions abroad is inevitably followed by a migration of their supporting professional and business infrastructures. The ripple effects can be severe: After all, the headquarters of large corporations and their associated capital markets and services are core to the New York, London, and Toronto economies.
The Flow of Cross-Border Acquisitions
As the map shows, the U.S. is the world’s largest net seller of billion-dollar corporations. The UK is a close second, followed by Canada and then the Netherlands. The rest of the developed countries are staying even or gaining, including small countries now home to global giants in industries such as mining and brewing.
Ownership and domicile of global companies provide direct economic benefits, and corporate leadership enhances a country’s international influence. The U.S., the UK, and Canada will fall behind if they do not address the growing imbalance in global industry restructuring. Protectionism isn’t the answer—the globalization of the economy and the formation of large companies with international value chains arguably benefit all countries—but action on three levels is needed.
At the public policy level, if these three countries are to continue to welcome foreign investments, they must press for equal access, otherwise ownership control will tend to amass in more protectionist countries. At the governance level, corporate boards are increasingly folding to pressure from hedge funds and private equity firms for short-term takeover gains. Directors need to recognize when the long-term interests of the corporation are better served on the buy side of consolidation and when to say no to the short-term sale gain. At the executive level, corporate leaders need to recognize that to the extent that they allow their companies to fall behind in international acquisitions they are ceding their firms’ competitive advantage in the global economy. Companies that are not developing a global leadership position, even companies that are leaders at home, will eventually be targets or mere regional players in the global market.