Strategic Responses To Neo-Populism

BDan Prud’homme, Max von Zedtwitz, and Fernanda Arreola

The rise of Neo-populism presents risks to multi-national corporations in  Western markets. The authors outline practical strategies corporations can take to combat such risks.

 

Populism is no longer a business risk confined to emerging markets. In fact, measured by the share of votes for anti-establishment parties, populism in developed economies is at its highest levels since the 1930s.1 Given the multiplicity of factors driving this “neo-populism” and the type of institutions shaping its evolution, multinational corporations (MNCs) need to respond to it differently than they have to classical populism. Neo-populism is directly or indirectly costing MNCs profit margins, customer loyalty, strategic footholds, and talented employees. It is manifested in Brexit, Italy’s recent elections, the Trump administration’s trade war, and populist party control of parliamentary seats in many European countries.2  It is leading to stringent security reviews of foreign acquisitions in the US and Europe and to fears of tightening immigrant policies. However, little practical advice is available regarding how to navigate these hazards.3 In this article, we discuss several ways that MNCs can weather neo-populism: (1) resetting risk scenario-planning differently than in classic populist regimes, (2) ramping-up creative stakeholder-engagement, (3) timing high-profile M&A better, and (4) localising smarter.

Populism, in the broadest sense, is a movement supporting ordinary people rather than those perceived as “elites” to hold powerful positions within governments.4 There are variants of how populism is more specifically conceptualised in some countries, for example France, compared to others.5 However, for our purposes, we define “neo-populism” as a set anti-establishment, authoritarianism, nativism, and anti-cosmopolitan values that underpin the political views of a growing number of people in the West today.6 Neo-populist sentiment takes the form of public opposition to liberal international trade and investment regimes,7 resistance to mass immigration and cultural liberalisation, and continuous protest against actions that are perceived as a surrender of national sovereignty to international bodies.8 These risks are cited among the top ten faced by MNCs operating in the US and Europe today.9 

Neo-populism can also be seen as a consequence of the significant economic changes driven by businesses over the past few decades. The globalisation of value chains and rise in automation10 – while generally good for firms’ efficiency and productivity – have contributed to increasingly stark income inequality in favor of the higher classes of society.11  It has also resulted in unemployment in industries characterised by repetitive tasks and/or low-skilled labour.12 In the US, for example, the share of national income of the bottom 90% of the population held steady at around 66% from 1950 to 1980 but fell to just over 50% at the start of the financial crisis in 2007.13 This situation has created an identity crisis among many citizens.14 Further, information silos enabled by social media have catalysed and reinforced this upheaval.15 The multiplicity of these factors driving neo-populism in the West today distinguish it from classic populist movements. Trade, foreign investment, and immigration are most often blamed for these woes as they are perceived to create unfairness and because foreigners are attractive scapegoats.16  

Neo-populism can also be seen as a consequence of the significant economic changes driven by businesses over the past few decades.

Another notable difference in neo-populism in developed countries today compared to traditional populism in developing countries is the way in which the ideology is to some extent restrained by relatively robust institutions (e.g., the rule of law, the formal free press, the chance to elect new leaders, and the independence of the academic community). These institutions are not always present in developing countries. At the same time, the grounding-effects that such institutions may have are somewhat offset by the aforementioned effects of information silos and social media, and, in some places, a rising polarisation in the formal free press. This new economic and political environment requires different responses from incumbent MNCs (IMNCs) and MNCs from emerging markets (EMNCs) relative to the strategies they have employed in classical neo-populist regimes. 

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Dan Prud’homme is an associate professor at EMLV Business School (École de Management Léonard de Vinci) (Paris, France). He is also a non-resident senior researcher at the GLORAD Center for Global R&D and Innovation at Tongji University (Shanghai, China).

Max von Zedtwitz is Professor at Kaunas University of Technology and Southern Denmark University, and Director of the GLORAD Center for Global R&D and Innovation. Previously, he was Professor at Tsinghua, Tongji, and Peking Universities in China, as well as Vice President Global Innovation for PRTM Management Consultants based in Shanghai.

Fernanda Arreola is a Professor of Strategy & Entrepreneurship at École de Management Léonard de Vinci where she is chair-holder of Service Innovation Chair as well as head of the Business Research Group. Fernanda has held numerous managerial and possesses a range of international academic and professional experiences that lead many of her research and teaching interests.

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