Globalization Is Still Paying Off For S&P 500 Multinationals, Despite Russian/Ukraine War

Globalization, the integration of world markets, is still paying off for U.S. multinational corporations, despite the Russian/Ukraine war and the strong U.S. dollar.

According to a recent study from FactSet Geographic Revenue Exposure, earnings and revenues of S&P 500 members with more than half of overseas sales fared better than those with less than half of sales presence.

"The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the S&P 500 for Q2 2022 is 4.8%," said John Butters, vice president and senior earnings analyst at FactSet. "For companies that generate more than 50% of sales inside the U.S., the blended earnings growth rate is 1.2%. For companies that generate more than 50% of sales outside the U.S., the blended earnings growth rate is 10.2%."

Earnings growth comparisons display a similar pattern. "The blended revenue growth rate for the S&P 500 for Q2 2022 is 10.9%," said Butters. "For companies that generate more than 50% of sales inside the U.S., the blended revenue growth rate is 9.4%. For companies that generate more than 50% of sales outside the U.S., the blended revenue growth rate is 14.6%."

That's the second quarter in which earnings and revenue growth follow this pattern, suggesting that this is an ongoing trend rather than an aberration.

Globalization brings many benefits to U.S. corporations. It allows them to expand overseas business opportunities and achieve economies of scale and scope, boosting the top and the bottom lines.

Then there's the lowering of cross-border transaction costs, further boosting these companies' bottom line.

And there's diversification of business operations. According to Connor Ondriska, Co-founder at SpanishVIP, diversification has helped the U.S. multinationals dilute the adverse effects of inflation and political uncertainties at home. "Diversification is the key to avoiding the severe effects of any one country suffering from harsh political climates or inflation," he told International Business Times in an email.

Still, Kunal Sawhney, CEO of Kalkine Group, is concerned about the future of globalization and its impact on U.S. multinationals. "An argument can be made that globalization is retracting based on the parallels between the first wave of globalization around the late 19th century and the present scenario," he told IBT. "Globalization slowed down during the years around the first and second World Wars amid the various geopolitical and economic tensions. Then again, factors like the Spanish Flu pandemic, the Great Depression, and the rise of Joseph Stalin also contributed to the retraction."

He thinks that the world is facing a similar situation these days. "Many economies continue to struggle with the many variants of the COVID-19 pandemic," he adds. "The Russia-Ukraine war has also impacted global markets, especially with the stark rise in fuel prices. "The skyrocketing commodity prices, rising inflation, and persistent interest rate hikes around the world are also significantly impacting globalization."

Despite the apparent similarities, Sawhney thinks it's too early to declare that de-globalization is the new regime for the world’s multinational corporations.