The recycling of global capital works in strange ways. Every day, the developed world sends dollars and euros to the developing world in exchange for commodities, natural resources, and manufactured goods. And every day, the cash makes a round trip as foreigners buy assets in the United States and Europe.
The good folks in the West are generally happy to sell real estate to nouveau richeArabs and Asians. After all, cash-flush foreigners generally pay top dollar. In 2004, Lakshmi Mittal, the acquisitive Indian steel baron, dished out $128 million for a residence in London. (And few of the bienpensant clucked when Mittal rented out Versailles for his daughter’s wedding.) There’s no clash of cultures and civilizations when it comes to real estate. Would you like to buy Pebble Beach? How about Rockefeller Center?
But when the purchase involves a corporation that produces an essential industrial product, that we-are-the-world comity disappears. Since January, when Mittal announced a hostile bid for Luxembourg-based steel company Arcelor, the French and Luxembourgians (Luxembourgeoisie?) have reacted harshly. On Jan. 29, Arcelor’s board rejected Mittal’s offer as unacceptable in every way. Arcelor’s Runyonesque CEO, Guy Dolle, has sniffed that his steel is “perfume” while Mittal’s product is like “eau de cologne.” Thierry Breton, France’s finance minister, fretted over the potential clash of civilizations that would ensue if Mittal were to emerge victorious. (Never mind that Mittal’s company has its headquarters in Rotterdam, is owned by a man whose primary residence is in London, and has steel-making operations in the United States and Germany—but not in India.) In response, India’s minister of commerce and industry, Kamal Nath, flung back: “This is an era of globalization, cross-border investment and liberalization, not one in which investors are judged by the color of their skin.” Touché!
There is, as Nath suggests, a fair amount of nativism at work in the opposition to some of these deals. It’s fine if those foreigners with the strange names and cuisines want to buy industrial castoffs. Few in the United States cared when a Chinese firm bought IBM’s personal-computer business, which could no longer compete with Dell. And nobody squawked when Mittal bought International Steel Group, which had been cobbled together from a bunch of bankrupt steel companies. But now that overseas industrialists are starting to buy the good stuff, there’s concern. Orascom, the Egyptian wireless phone company, last year bought a big stake in Italy’s Wind. As the Wall Street Journal noted, in 2005, “companies from the Middle East, Latin America, Asia and other regions spent more than $42 billion on deals” in Europe, more than twice the 2004 figure. Western government officials and corporate executives are generally skeptical about the ability of Indians to manage sophisticated global steel companies, or of Egyptians to manage sophisticated global wireless-phone companies, or of Gulf Arabs’ ability to manage sophisticated global logistics companies.
This prejudice is misplaced, even stupid. The consolidators emerging out of India, the Middle East, and Latin America are far more cosmopolitan and savvy than their European and American counterparts. The managers and entrepreneurs behind companies like Mittal, or Mexico’s cement giant Cemex, or Egypt’s Orascom, are the best and brightest those countries have to offer. They are buying companies run by Europeans and Americans who are, in many cases, certainly not the best and the brightest. Otherwise, their firms wouldn’t be in such poor shape that they might need a foreign bailout. Egyptian managers may not inspire confidence. But then again, Italy hasn’t exactly been a paragon of business genius, what with Parmalat, Fiat, and various banking scandals.
Americans shouldn’t get too smug about the Europeans’ outrage. We exhibit the same bias when our interests are challenged. We saw a variant of the nativist investment strain when the Chinese oil company CNOOC was bidding on Unocal. (Although, as is the case with everything else, Americans tended to see the deal through the lens of national security, not culture.) Today, the shareholders of Britain’s P&O, which controls port operations in Newark, Miami, Baltimore, and Philadelphia, accepted a takeover bid from Dubai’s DP World. I’m sure it will give some pause that a company controlled by an Arab government will run operations at several key U.S. ports.
But perhaps it won’t. Americans are, in general, blasé about foreign ownership of U.S. assets. Where would we be if foreigners wouldn’t buy our debt, after all? And, in recent years, a series of acquisitions of prime U.S. assets by a group of people we consider to be unsophisticated in the ways of management—Europeans—have worked out quite well. Chrysler, which was acquired by Germany’s Daimler several years ago, is clearly the best off of the U.S. automakers.
Besides, many of these foreign entrepreneurs aren’t exactly strangers. Along with dollars and Hollywood movies, management education is a great American export. One of the objections raised by Europeans against Mittal is that he has elevated his son Aditya—an arrogant, 30-year-old Wharton graduate—as the heir apparent.
So, Mittal is willing to place his future in the hands of a young, hotheaded heir with an MBA and global ambitions? Who are we to judge?