Keeping countries company: Deglobalisation does not alter the need for corporate nationality— it actually reinforces it

Economic Times

18-05-2025

Do corporate citizenship and matters like 'nationality' matter for companies, especially those aspiring for 'MNC-hood', in circa 2025? GoI's revocation of security clearance to Istanbul-based Celebi Aviation Holding for providing airport ground handling services in India certainly reinforces the argument that it does. In fact, ironically, they seem to matter more in a globalised economy.By pledging to stand by Islamabad in 'good times and bad' - including during the aftermath of the latest Pakistan-backed terrorist attack in Pahalgam that saw an escalation in India-Pakistan conflict - Turkiye is helping Pakistan extend the life cycle of arms bought from Nato members that have since switched off the supply pipeline. This places Turkiye in the same corner as China from India's national security perspective. Turkish companies operating in India must, therefore, adjust to the evolving geopolitics.Chinese companies face a raft of security obstacles in doing business in India, running the gamut of capital monitoring to outright bans. The Indian response is shaped by strategic relations with China that have deteriorated over border disputes. Some of India's concerns around the links Chinese companies have to the country's military complex are shared by the US.Such developments debunk the notion that companies tend to outgrow their home markets to become stateless economic agents. While governments facilitate cross-border investment, they are unwilling to lose agency over the source of capital, or identity of the vehicle it is transported in. Corporate passports, thus, matter, and investment treaties are structured to improve identification.Corporate structures have become increasingly complex, in part driven by the opportunity to treaty-shop for favourable tax treatment. Yet, broadly, nationality can still be established through management control and beneficial ownership. The idea is to plug tax evasion, and legal interpretations have gone beyond a narrow reading of incorporation.
A large majority of foreign affiliates are easy to identify with both the direct and ultimate owner from the same country. Conduit structures emerge when direct and ultimate owners are in different foreign countries. Round-tripping occurs when the ultimate owner is from the host country and the direct owner is from a foreign country. Domestic hubs arise when the direct owner is from the host country, but the ultimate owner is foreign.In the list above, conduit structures and round-tripping present policy challenges to countries by widening investment coverage to unintended foreign and domestic economic agents. Complex ownership structures, by and large, facilitate tax entities to shift incidence from high-tax to low-tax jurisdictions. Tax avoidance and treaty abuse can be curbed through improved identification of corporate nationality. It also serves national security interests.From a corporate standpoint, presenting nationality is a powerful calling card. It reinforces branding and can be used to gain market access. This matters when supply chains have become globalised where the culture of management and shareholders acts as a differentiator. Since most global investment decisions are designed to optimise taxes, emphasising or de-emphasising national identity can be used as a business strategy.Countries can push their agenda for environment, labour and consumer protection through corporate nationality. Multinationals operating across jurisdictions can act as a harmonising force over standards by their needs to abide by the highest levels available. Governments have cause beyond tax and security to uphold corporate nationality, and this contributes to its abiding importance. It helps direct investment to countries a government is comfortable doing business with.
Deglobalisation does not alter the need for corporate nationality. It actually reinforces it. Markets vacated by foreign companies are filled up by local firms, and this process becomes accretive. This is the premise of governments offering protection to domestic industry through tariffs. Donald Trump is asking Apple to make more iPhones at home. The offer is most certainly available to Samsung as well. But the preference is clearly for the domestic company.
MNCs will try to keep deglobalisation in check, because it doesn't make sense to build everything at home. Their advantage lies, apart from innovation, in scale, and they must be free to seek either where it is available. TikTok has offered to rearrange its corporate structure to satisfy US lawmakers. Yet, investors in the US would prefer that it is bought over by an American company. Companies and countries have a delicate interplay of interests that serve to define corporate nationality. Nations are limited by their borders, but can extend their economic influence through the culture of their companies. This holds true across periods of integration as well as retraction in the world economy. Corporates benefit through their culture that influences organisational behaviour. They shape national engagement with the rest of the world, but are also subject to political changes.
As the global order changes, cross-border acquisitions will change corporate nationality at an accelerated pace. Technology supports this trend. But caution needs to be exercised over determining corporate identity in an era of rising conflict and economic warfare. Global resources are becoming the choice of tool for countries to impose their will on others. Since companies manage most of the world's resources, they will come into the frontline of global conflict. Possessing corporate nationality under these circumstances is better than having none. It is an agent for economic progress, as well as a defence against political turmoil. Globalisation has not obscured the nationality of individuals and economic agents. A pushback will sharpen focus on [e-mail]