At home, it's not just profits that matter

Guy Dollé, the embattled chief of the European steelmaker Arcelor, may have been wrong to resist Lakshmi Mittal's takeover attempt. But his opposition to the bid contained a kernel of truth: National ownership really does matter.

It is easy these days to see corporations as the new countries - as vast, ubiquitous entities that make political borders irrelevant. Exxon Mobil's revenues now exceed the total economic output of Saudi Arabia or of Indonesia. Foreign investors care less about where a stock comes from than the return it offers.

Dollé dissented from this widening consensus - but for the wrong reason. He argued the case of national ownership in the outdated language of protectionism. A "company of Indians," as he called Mittal Steel, would not run European steel mills the way Europeans would.

Moreover, only those with local understanding, he suggested, would be able to extract the most economic value from Arcelor's mills. Comments like Dollé's fuel a common perception among the global business elite that all arguments for national ownership are merely protectionist throwbacks.

On the contrary, my work on developing-world corporations, with Krishna Palepu at Harvard, demonstrates that companies rooted in a particular country are more likely than footloose multinationals to make a nation's problems their own.

Indeed, national ownership matters for a reason that Dollé ignored: Companies identified strongly with a particular country more often find it in their interest to invest in public goods for the country - from roads to universities to national branding campaigns.

And because they do so precisely out of economic self-interest, this alternative case for national ownership is about creating more efficiency - not less.

Examples abound. Infosys, the Indian software giant, is a major driver of India's economic success. But it is also hostage to what the larger economy achieves. Thus it has invested considerably to promote Brand India, for example, by sponsoring the "India Everywhere" campaign at the World Economic Forum in Davos, touting Indian democracy and Bollywood. It is hard to imagine IBM, active though it is in India, underwriting that kind of campaign.

For Infosys, the India story is part of its founders' ethic. Westerners' opinions of India will rub off on how they see Infosys - value that would be lost on IBM. Similarly, whether Bangalore has a world-class airport matters to Infosys, but not as much to IBM.

In Thomas Friedman's "flat world," it does not matter whether IBM goes east to employ a thousand software engineers for its clients or Infosys goes west to find clients to employ the same number of people in India. But it cannot be argued that India should be indifferent to the two.

Developing-world companies also have to invest in infrastructure whose paucity constrains them, even if that investment benefits others substantially.

More than a decade ago, Compañía de Teléfonos de Chile (CTC), the Chilean phone company, was the first Latin Amercian company to raise capital on a U.S. stock exchange. This brought it, and Chile, into direct contact with sophisticated financial intermediaries on Wall Street, and catalyzed the development of Chilean capital markets, today among Latin America's best.

A global phone company doing business in Chile would not have had to care as much about Chilean markets.

Schools and universities are a key part of institutional infrastructure. Today, Koc and Sabanci are responsible for impressive universities in Turkey. The availability of educated talent in Turkey matters more to these companies than it might to a European corporation operating in Turkey.

Over the long run, the most important proving ground for emerging-market firms may be the vast, rural hinterlands of the developing world.

Much of the world consists of poor village dwellers, as in India, where they constitute two-thirds of a billion-plus population. Corporations are on the frontlines of catering to the less-fortunate. But it is usually indigenous entrepreneurs, rather than multinationals, who realize that the rural poor constitute an emerging market inside an emerging market.

Commercial interventions in rural areas often spur further development which, in turn, is more likely to benefit local entrepreneurs than multinationals.

ITC has introduced an electronic platform to facilitate rural commerce in India. This platform creates an environment of transparency in the village, spurring markets for agricultural produce, in turn raising the productivity of entire villages.

Indigenous companies are better positioned to capitalize on the broad opportunities that result. ICICI, India's leading private-sector bank, has identified rural financial services as its next big opportunity. As ICICI executive Nachiket Mor told one newspaper, "We can't simply go there and say, 'I'm a financier; I don't know anything else.' If you don't know anything else, the customer is going to give you the residual of whatever happened to his life. If he's not able to sell his sugar cane, if he's not able to sell his grain, if he's not able to get good value for his milk, he suffers and - you know what? - you suffer."

So, in order to collect on its loans, ICICI has resolved to solve the farmer's problems rather than merely mitigate their impact through erudite risk management. With the amount of local knowledge needed, and the patience before seeing returns, it's no wonder multinational banks will think twice about venturing this far afield. And it would be right for them to exercise caution.

Similarly, in China, Ningbo Bird was faster off the block in selling cellphones to rural dwellers than was Motorola, and Wahaha beats Coke and Pepsi in the villages.

The cost structure of multinationals and their need to get the quickest and highest returns available at present makes it much less attractive to them than to indigenous entities to venture outside the major metropolitan areas.

Corporate nationality has important practical implications. The Mittal-Arcelor affair is only the most prominent case of a multinational rooted in emerging markets bidding for a Western firm.

When protectionists claim that corporate nationality matters, their duplicitous motives should not mar their overall point, which is correct: that where companies come from really does count.

And instead of rejecting them on those grounds, the West should embrace the Infosyses of the world as the world's last best hope for solving developing countries' chronic afflictions.

(Tarun Khanna is Jorge Paulo Lemann Professor at the Harvard Business School.)