Explainer: What explains the underperformance of multinational enterprises?

BEIJING, Sept. 26 (Xinhua) — Well-known multinational enterprises such as Volkswagen, Intel, and PricewaterhouseCoopers have recently downsized due to underperformance, while companies like U.S. Steel and Boeing have experienced large-scale strikes due to poor management and internal conflicts.
Analysts have said that the sluggish global economic recovery after the COVID-19 pandemic has led to decreasing demand, tense geopolitical situations disrupting supply chain stability, and skyrocketing commodity prices pushing up costs.
These macroeconomic factors have put pressure on global business operations. In addition, U.S. moves such as weaponizing trade issues and spillover effects of the U.S. Federal Reserve’s monetary policy have also dampened global economic growth and the business environment.

LACKING VITALITY
In Europe, the manufacturing sector continues to shrink, with German companies being hit the hardest.
Data have shown that the current scale of layoffs in German companies is at its highest level since 2008. In September, Volkswagen announced plans to consider layoffs and the closure of some of its factories in Germany.
Audi, a Volkswagen subsidiary, announced plans to restructure its factory in southern Brussels, Belgium, which led to protests and demonstrations by thousands of workers this month.
Tire manufacturer Continental Group previously announced layoffs of over 7,000 staff, while automotive parts manufacturer ZF Group laid off 12,000.
Additionally, German companies such as Bayer, Müller, and SAP announced a combined 55,000 job cuts.
In the United States, many well-known companies and financial institutions have undergone layoffs since last year. Industry giants such as Google, Amazon, Microsoft, IBM, Tesla, Goldman Sachs, Morgan Stanley, Citigroup, and BlackRock are among them.
According to the business information website Crunchbase, over 191,000 employees of U.S. technological corporations were laid off last year, and the trend has extended into 2024.
According to previous reports, Samsung Electronics of South Korea may undergo large-scale layoffs to cope with reduced demand caused by the global economic slowdown.
German multinational company Bosch Group, in its decision to sack employees earlier this year, said that the significant increase in energy and raw material costs, coupled with economic recession and high inflation rates, has compelled the company to cut costs.
Zhao Jing, deputy researcher at the International Cooperation Center of the National Development and Reform Commission, said that large multinational enterprises face mounting operational pressure and had to respond to the crisis with layoffs and downsizing. Zhao said this is not only a strategic adjustment by enterprises but also reflects the uncertainty of global economic recovery.

DETERIORATING ENVIRONMENT
Experts say tense geopolitical situations, decreasing demand, and fragmented supply chains are dampening the global business environment.
In recent years, major economies such as the European Union and the United States have experienced weak demand. The downward risks in the European economy continue to accumulate, as Germany logged a contraction in the second quarter of this year, and the future direction of the Eurozone economy remains uncertain. In the United States, a long period of high-interest-rate policies has increasingly suppressed demand.
Chong Quan, head of the China Society for World Trade Organization Studies, said continuous geopolitical tensions have led to the rise of “deglobalization,” disrupting global cooperation and weakening market connections. This has made global industrial development increasingly unstable and created a more uncertain international and business environment for enterprises.
A recent report released by the World Bank revealed that the increasingly volatile geopolitical environment further intensifies the uncertainty of the global economy, affecting consumer and business confidence and exacerbating financial market volatility.
The report predicted that global economic growth in 2024 and 2025 will be 0.5 percentage points lower than the average from 2015 to 2019, while the average prices of commodities have risen by nearly 40 percent.
Since the 2008 international financial crisis, the world economy has been struggling to find new sources of growth, said Wang Hongyu, a researcher at the Academy of China Open Economy Studies of the University of International Business and Economics.
The COVID-19 pandemic has severely impacted the global economy, resulting in weak demand and a sluggish recovery and inflicting operational challenges on many multinational companies, Wang said.

U.S. DISRUPTION
According to a report by Standard & Poor’s Global Market Intelligence, the Federal Reserve’s long-term high interest rates have increased the cost of holding extensive inventories, forcing some companies to adopt a “no large inventory” strategy and increasing supply chain risks.
Chong said the United States has weaponized economic and trade issues, frequently resorting to sanctions, abusing trade protectionism, and continuously provoking geopolitical conflicts.
U.S. policies have disrupted the global supply chain and industrial chain, which are oriented toward optimizing resource allocation, thus seriously undermining the global trade order and economic and trade exchanges, said Chong.
Zhao echoed Chong, saying that the United States’ push for “decoupling” severely hinders global economic and technological development, negatively impacting enterprise development.
From the CHIPS and Science Act and the Inflation Reduction Act to the so-called “friendshoring” strategy, the United States is damaging the international multilateral trading system and disrupting global industrial and supply chains, Zhao said.
The Federal Reserve’s prolonged high-interest-rate policy has led to a global liquidity crunch and has impacted the business environment, said Wang, adding that although the Federal Reserve’s policy is shifting, it is difficult to remedy the damage already done.
The “tide of the U.S. dollar” created by the Federal Reserve’s interest rate hikes and cuts has trapped the world economy in a cycle of “boom, crisis and slump,” said Chong.
Chong said U.S. monetary policy is irresponsible for the global economy, as it only considers its domestic economic situation and does not necessarily synchronize with the global economic cycle.
“When the United States catches a cold, the world has to take medicine,” Chong said, explaining that the phenomenon has exacerbated volatility in the global financial markets and ultimately impacted global enterprises, including several U.S. multinational corporations. ■