The question of foreign ownership of firms is revisited in today’s Financial Times. The recent takeover of Cadbury ignited nationalistic sentiments among those who incorrectly view domestic ownership as being of fundamental importance. In today’s globalised economy, the notion of defining ownership by nationality is inappropriate and outdated. Ultimately a company needs to be profitable to ensure stability. Political meddling, such as imposing draconian rules of ownership, invariably reduces investment and mitigates potential profits, harming a company’s long term future.

Concerns about foreign ownership generally revolve around the notion that domestic shareholders are more sympathetic to local community concerns than foreign owners would be. Cadbury was no different. Fears of job cuts and production relocation were played upon by those who stood to gain by enforcing domestic ownership. In reality, when tough decisions have to be made, it makes little difference whether the owners are foreign or domestic. British owners lay off British workers as well- Cadbury had a long history of streamlining prior to Kraft’s takeover.

What matters is whether the company will continue to grow, develop and expand. As Carlin and Mayer report, their findings suggest that foreign investors actually “encourage a greater focus on relative profitability in investment appraisals, so benefit rather than detract from the quality of investment decisions.” We only have to look at the recent examples of Rover and Woolworths to see the dangers of not pursuing efficiency. While workers and unionists may stand to gain in the short term by deterring foreign investment, the business will ultimately suffer it the long run.  

Today’s businesses utilise supply chains all over the world- the term “multinational” is as appropriate for a local stationary supplier who manufactures products in Taiwan as it is for IBM or McDonalds. With shareholders, managers, directors and customers dispersed across continents, the relevance of geographical fixation is waning. The most important aspect for any businesses is whether it’s profitable- not the colour of their board members’ passports.