Topics: Federal government of the United States, Capitalism, Multinational corporation Pages: 6 (3849 words) Published: December 15, 2014

The Globe

Coca-Cola lines a shelf
at a supermarket in
Shanghai in May 2009.

The New Rules of

Photography: AP Images

As more countries
rethink their priorities,
multinationals must
proceed with caution.
by Ian Bremmer


n the past few years, Pfizer has encountered globalization’s new phase. As part of the Indian government’s efforts
to make medicine accessible to as many
people as possible, in February 2013 India’s
Patent Office revoked Pfizer’s patent for the
cancer drug Sutent and granted a domestic
manufacturer, Cipla, the right to produce
a cheaper generic version. India’s Intellectual Property Appellate Board has since set aside the decision and has directed
the Patent Office to reassess the case. In
China, meanwhile, the government has
been slashing drug prices to reduce health
care costs. Beijing established price ceilings on essential drugs in 2009 and lowered the ceiling by around 30% in 2011, and

it has pledged to expand the list of essential drugs to more than 500 medications by 2014. Such moves pose major risks for a
multinational company like Pfizer: Lower
prices create disincentives for quality control, and China’s hospitals, which rely on drug sales for profits, are pushing inexpensive locally made products. Until 2008 going global seemed to make
sense for just about every company in the
world. Western markets were extremely
competitive, population expansion had
slowed and incomes had flattened, and corporate operating costs were rising. Developing nations, by contrast, boasted population growth, rising salaries, relatively low wages, and a welcoming climate for foreign

January–February 2014 Harvard Business Review 103

The Globe

Map Your Industry

The Rise of State Capitalism in
Emerging Markets

State capitalism, which distorts the work­
ings of free markets and thus considerably
alters globalization, has become popular
in emerging markets other than China,
such as Russia, India, and Brazil. Leaders
in those countries know from experience
that the market is crucial to growing the
economy and improving living standards—
and therefore helps autocratic or corrupt
governments stay in power. But they also
realize that if they allow the market to de­
cide which companies win, they risk losing
political power, because they will no longer
control job creation and their citizens’ liv­
ing standards. They may also inadvertently
enrich those citizens who would challenge
their power.
The objective of state capitalism is to
control the wealth that markets gener­
ate by allowing the government to play a

104 Harvard Business Review January–February 2014


has shifted the tectonic plates, as I will de­
scribe. Globalization now comes with new
costs and risks.
In globalization’s heyday, strategic sec­
tors—those in which governments take
an active interest—and nonstrategic ones
were easy to identify. Multinational com­
panies could enter some industries, such
as soft drinks, all over the world; other
sectors, such as aircraft manufacturing,
were off-limits. That’s why Coca-Cola sells
its products in more than 200 countries
today, while Lockheed Martin generates
80% of its revenues from sales to the U.S.
government and employs 95% of its work­
force in the United States. In the new era of
guarded globalization, however, any sector
could prove to be strategic, depending on a
government’s attitudes and policies.
Indeed, between the extremes of a
Coca-Cola and a Lockheed Martin, numer­
ous companies are drawing fresh levels of
official scrutiny, and the state’s reach now
extends well beyond traditionally key sec­
tors such as arms. Companies must realize
that these changes will have an impact on
their strategies, but responding to those
changes will not be easy.

Strategic to host government

investment. As distances shrank because
of modern transportation and communica­
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