Monday, 13 April 2009

Global businesses; National laws

Businesses are going global. But the laws they have to follow are national. No two countries can agree on any law. The result is a massive blocker to globalisation. Today, I focus on one aspect of the law that affects businesses - anti trust.

My immediate trigger for this post was the hold up by the Chinese competition authorities of Mitsubishi Rayon's takeover of Lucite. This is an interesting case. Neither of these two companies is Chinese. Mitsubishi Rayon is Japanese, Lucite is based in the UK. But both these companies have operations worldwide. So to get approvals for the takeover, they have to go to the competition authorities in each country they operate. They got approval from every authority, bar one. China . Now the deal is in trouble.

In the good old days, there were only two competition authorities that you needed to worry about, in any global deal. The US and the EU. Anywhere else, it didn't matter. The authorities in other countries rarely blocked global deals and even if they did, the operations in those countries were likely to be minor and could be dealt with. But China's competition authority, Mofcom, is now important as well. Last month it blocked Coca Cola's acquisition of Huiyuan, a Chinese juices company . A year ago they interfered in InBev's acquisition of Anheuser-Busch.

Its China flexing its muscles today. No doubt it would be India, Brazil and Russia tomorrow. And the others, the day after. Increasing no global business would exist without major operations in these countries. So no deal can go through without every single authority approving it. Fat chance of that happening.

Global M&A will undergo fundamental changes. Investment Banks, Strategists, Financiers and the like will have a lesser role than Lawyers.

This is a problem business will face increasingly in the future. Business is going global, much faster than the socio political environment it operates in. That is not sustainable, for it will inevitably provoke a conflict. Tomorrow, I will post on the worst example of the impact national laws have on global business - tax.

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