MultinationalsinChina

PaulGillisPhDCPAGuanghua SchoolofManagement

PekingUniversity

MNCsinChina• MNCsplayedacriticalroleinChina’sdevelopment– Providedtechnologyandexpertise– Providedcapital– Createdjobs– Earnedhardcurrencyfromexports

• MNCsmoreimportanttoChinathananywhereelse

History• 1800Chinahas1/3globalGDP– Dominatesglobaltrade– TradesurplusleadstoOpiumWars

– Chinafailstoindustrialize

– By1980Chinaisoneofworld’spoorestcountries

• 1980ReformandOpening(GaigeKaifeng)– LedbyDengXiaoping– China’straditionaladvantageskickin• Large,relativelywelleducatedpopulation

• Wellestablishedtraditionsinmanufacturingandcommerce

WhyMNCsweretheanswer• Poorcountrieslacktechnologicalcapitalofrichcountries– Mustacquiretechtoaccelerateproductivityofworkforce

– Foreigntechisexpensiveandmustbepaidforinhardcurrency

• SolutionwastoattractMNCstoChina– MNCsbringtechnologyaspriceofadmission

– MNCsexportgeneratinghardcurrency

– SOEsfocusedondomesticmarketanddidnotuseforeigntechbutinsteadpoliticstorigmarkets.

China’sstrategy• AttractMNCswithfavorableregulation,lowtaxes,andlowcosts

• UndervalueRMBtoencourageexports

• Capitalcontrolskeepwealthinthecountry

• Businessmodel– 80%ofqualityat60%oftheprice

– Extraordinarysurrenderofeconomicsovereignty

– Rentoutvastarmyofcheapworkerstoforeigncapitalists

ReformandOpeningUp• KeySuccessFactors

– GoodrolemodelsinTaiwan,SouthKorea,Japan.

– HongKong– gatewaytoWest

– Timing– inventionofshippingcontainerenabledtransformationofglobalsupplychains.

– Infrastructure– selllandtofunddevelopment

CaseStudy– ElectronicsIndustry• Chinaaccountsfor40%

ofglobalelectronicsexports(upfrom5%in2000)

• MostChinaactivityisfinalassembly– Largelycontrolledby

foreigncompanies(Foxconn)

– HighvaluecomponentsinhandsofglobalgiantslikeApple,Samsung,Intel

• Localchallengers– Lenovo– Huawei– Xiaomi

• H+X80%qualityat60%price

• Allprivate,butL&Hstatesupported

• Bottomofthesmile

Chinese companies have only learned how to organize workers, but have not learned how to organize engineers, they can only make a living in the most inhospitable terrain area of manufacturing. Wang Chuanfu - BYD

SmilingCurve- StanShih- Acer

Thiscourse• WewillusecasestudiestoexploreimportantissuesforMNCsinChina

• Iamnotexpertineachoftheseareas,butIdohaveexperiencewitheachofthem– Bewillingtochallengemyviews– Therearemanywaystolookattheseproblems.

• Guestspeakerswillbringdeepexpertiseincertainareas

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Analyzingcases

• Gettingoriented– Readopeningsection– Flipthroughpages– Readandrereadtheassignmentquestions– Definetheprobleminoneortwosentences

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Levendary Cafe• WhatisyourevaluationofthewayLevendaryCaféhasenteredtheChinamarket?

• Whatchanges(ifany)shouldMiaFostermake?Specifically,whatshouldshedoaboutLouisChen?Andwhatchanges(ifany)wouldyouproposeatheadquarters?

• PrepareaspecificactionprogramforFostertohelpherdealwiththeneedforcontinuedgrowthinChina.WhatshouldbeontheagendaforhermeetingwithChen?

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AnalyzingCases

• Identifyingproblems– Readtheentirecasecarefully– Highlightthekeymaterial–Whatconceptsarehighlighted?– Reviseyourproblemstatement

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AnalyzingCases

• Performinganalysis–Whatisfactandwhatisopinion?–Whatfactscontributetotheproblem?– Howisquantitativedatarelevant?– Identifyusefulinformation,readbetweenthelines– Thereareusuallynocorrectanswers– Haveyoudefinedtheproblemcorrectly?

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Actionplanning

• Listpossiblerecommendations

• Whatlessonsarelearned?

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Casesummaries• Submitforeachcasewediscuss– Doneingroupsofuptofourstudents.

• Maximumoffoursinglespacedpages– Formatflexible,needstoadapttoassignmentquestions• Problemstatementforeachquestion(butnotalways)• Summarizekeyfacts– perhapsconsolidatedforallquestions

• Recommendations/lessonslearned– Theidealcasesummaryresemblesareporttoseniormanagement/boardontheissuespresented

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Courserequirements

• Writtencasesummariesforeachcase– Doneinteamsofuptofour

• Activeparticipationincasediscussions• Researchpaper&presentation

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Researchpapers• InterviewexecutivewithMNCinChina

– Identifykeyissuehis/hercompanyfacesinChina– Reviewextantliterature– Makerecommendationsonappropriateresponses

• Advisemebyemail(paulgillis@me.com)ofexecutiveandMNCbyMarch15.

• TwopagepapersummarizinginterviewdueMarch31.• Aresearchpaperofnotmorethan3,000wordsonanissuerelevant

toMNCsinChina– AdvisemeoftopicbyApril15byemail– About10doublespacedpages

• PaperdueonMay12atmidnight(10%offgradeeachdaylate)• Studentsshouldbepreparedtogiveabriefsummaryoftheirpaper

beginningApril26.

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www.paulgillis.org

Grades

• Classparticipation 20%• Writtencasesummaries 30%• InterviewofMNCexecutive20%• Researchpaper 30%

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ClassSchedule• February23– Introduction• March2- ManagingInternationalOperations–Levendary Café

• March9– NegotiatingwithChinesebusinesspartners

• March16– Samebeddifferentdreams– HBT• March23– Directselling– Amway• March30– Jointventures– NestleandTotole

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PaulGillisPhDCPAGuanghuaSchoolofManagementPekingUniversity

gillis@gsm.pku.edu.cnTwitter@profgilliswww.chinaaccountingblog.com

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Source:USCBC

Hasthegoldenagepassed?

• Businessconditions• Corruption• Anti-monopoly• Intellectualpropertyprotection• People• Pollution

WhatdoMNCsdoinChina?

52%

5% 4%

13%

5%

21% Manufacturing

Utilities

Wholesaleandretail

Realestate

Businessservices

Source:ChinaStatisticalYearbook

MNCsinChinavUSAForeignMNCsinChinaemploy3.3%ofChineseworkers

FDIstockof$1.3trillionis14.6%ofChinaGDP

Sources:ChinaInvestmentYearbook,UNCTAD

ForeignMNCsinUSAemploy5%ofAmericanworkers

FDIstockof$2.7trillionis15.7%ofUSAGDP

Sources:OrganizationforInternationalInvestment,UNCTAD

People

Source:USCBC

Chinahaslostcostadvantage

Beijing/Tianjin/Hebei areaisChina’smostpolluted

Makesup0.4%ofplanetUses4.8%ofthecoal

Corruption

Source:CPC

0

NewCopontheBeat?• FineagainstGSKof$500millionforcorruptionisthirdlargestinworldafterFCPAfinestoSiemens($800m)andHalliburtonKBR($579m)

JPMorgan’sSonsandDaughtersProgram

• ProgramtargetedrecruitingchildrenofChineseofficials

• FairlycommonpracticeofMNCsin1980sand1990s

• SECandDept ofJusticeinvestigatingpossibleFCPAviolation

Anti-monopolyinChina

• In2008Chinaintroducedantimonopolylaws• HighprofileactionsagainstQualcomm,Microsoft,Audi,Chrysler

• PremierLiKeqiang claimsonly10%ofcasesareagainstforeignenterprises

Source:USCBC

Source:AMCHAM

IntellectualProperty

Source:USCBC

Source:USCBC

Source:USCBC

Source:USCBC

GreatFirewall

• 56%ofAmericanMNCssayChina’sinternetrestrictionsimpactabilityofcompanytooperatenormally

• Restrictionsone-commerceareincreasinglyproblematic