MNCs in the News-2014-05-30

China announced that government computers could not be installed with Microsoft’s latest operating system (OS), Windows 8. China media attributed the move to security concerns as XP, the OS that Microsoft is phasing out, already had a 70% share of the market and is the dominant system in the government. On a related note, the CCTV reported that the Ministry of Industry and Information Technology was pushing XP users to use domestic OS despite its limitations. Chinese OS firms like China Standard Software and NFS China have been salivating at the potential opening that the government’s new policy might create (Michael Barris, “China’s Windows 8 Ban Catches Microsoft off Guard,” China Daily, May 21, 2014, http://www.chinadaily.com.cn/china/2014-05/21/content_17527863.htm; “News Analysis: Windows Ban May Open Door for China’s Domestic OS,” Xinhua, May 25, 2014, http://news.xinhuanet.com/english/indepth/2014-05/25/c_133359877.htm)

In 2011, China began to impose duties as high as 21.5 percent on cars and off-road vehicles with an engine capacity of 2.5 liters or more. China then asserted that US car companies such as General Motors had received government subsidies and dumped cars on the China market, thereby harming China’s auto sector. In response, Washington filed a case with the WTO. The WTO ruled not only that China was wrong in its determination of harm, but also in the valuation it assessed to such harm. This case was one of two that Washington launched during the 2012 presidential campaign (“US wins WTO Luxury Ruling against China,” BBC News, May 23, 2014, http://www.bbc.com/news/business-27542997; James Politi and Shawn Donnan, “US Claims Victory over China in WTO Car Dispute,” Financial Times, May 23, 2014)

As many know, Sino-Japanese tensions have adversely impacted the business activities and sales of Japanese manufacturers, retailers, and consumer product companies in China. Those Japanese companies with brands that are more Chinese or Korean (Aupres) and that are not seen as or known to be Japanese (Uniqglo), a more likely phenomenon outside the major urban markets. Japanese companies have found some succor in the quality of their products while the sales or earnings of some automobile and consumer product companies have yet to recover from the fallout of Sino-Japanese frictions in 2012 (“Geopolitics Cut into Japanese Brands on Mainland Market,” China Daily, May 28, 2014, http://www.chinadaily.com.cn/business/2014-05/28/content_17545779.htm)

State Grid of China, China’s largest utility, said that it plans to seek private capital investment to establish power network and charging stations for electric vehicles. The move was not as ambitious as Sinopec and PetroChina, which both announced plans to sell billions in assets such as pipelines to private investors. Moreover, the scale of distributed power connections is small and it is not that clear that the profit opportunities would be that exciting to outside investors. The move may be more about encouraging EV use and reducing pollution rather than in using private and foreign investment to stimulate efficiencies (Du Juan, “Power Supplier Will Seek Private Capital,” China Daily, May 28, 2014, http://www.chinadaily.com.cn/business/2014-05/28/content_17545784.htm;

The Chinese government has ordered state-owned enterprises (SOEs) to end their ties with prominent US consulting firms such as McKinsey and Bain & Company due to anxieties that they are spying for Washington. The move will hit these and other firms’ bottom lines significantly, but not disastrously, given the importance of China. This directive followed a decision by China’s leaders to require all foreign IT products and services sold in China to be subject to a new security screening process and is part of a trend that likely will see foreign software and hardware eliminated from “sensitive offices and system” (Jamil Anderlini, “China Clamps Down on US Consulting Groups,” Financial Times, May 25, 2014)

In its latest survey on more than 500 European-based companies operating in China, the European Chamber of Commerce reported that such companies were finding the market less attractive due to rising labor costs, a slowing economy, and deficiencies in China’s adherence to the rule of law. European companies also have voiced concerns about market access, retaining staff, and regulatory consistency. Companies expressed doubts about China’s growth prospects and willingness to reform, with the Chamber reporting that “‘European companies are left wondering if the good times in China have already ended’” (Richard Silk, “European Firms are Cooling on China, Survey Shows—Update,” Wall Street Journal, May 29, 2014)

Due to rising labor costs in China, Japan’s biggest apparel retailer UNIQLO has started to make more clothes in Bangladesh, the world’s second largest apparel exporter with a large presence of foreign apparel factories. The presence of foreign firms is boosting local employment, income, and demand, which makes a presence in Bangladesh even more sensible for UNIQLO. In 2010, UNIQLO created a joint venture with Grameen Bank, a Nobel Peace prize-winning micro-lender, to increase local employment and now has 7 shops in Bangladesh. Expansion in Bangladesh also links to the general strategy of Japanese firms to diversify away from China (“UNIQLO challenges in Bangladesh, joint venture ‘Grameen,’” Nikkei, May 27, 2014, http://www.nikkei.com/article/DGXNASGM26003_W4A520C1000000/)

Prior to becoming Prime Minister in the recently concluded Indian national elections, Narendra Modi enjoyed success in attracting foreign investment by relaxing regulations in areas such as infrastructure and simplifying investment procedures. Modi is expected to take advantage of his party’s clear electoral victory to launch massive economic reform. Modi’s election has led to a jump in the stock price of Suzuki Motor Corporation, which is viewed as a bellwether of Japanese firms in India given its 40 to 50% share of the India car market. According to experts, the election offers a great business opportunity for other Japanese firms (“Japan’s high expectation for ‘Modinomics’—money-shift needless fear?” Reuters, May 23, 2014, http://jp.reuters.com/article/vcJPboj/idJPKBN0E30H820140523; and “India Mr. Modi scores a resounding victory, ‘Opportunity for Japanese firms,’” Nikkei, May 30, 2014, http://www.nikkei.com/article/DGXNASFK2903C_Z20C14A5000000/?n_cid=DSTPCS001)

Chevron’s plan for a US $12 billion deep water drilling project finally may be getting some support from the government of Indonesia in order to solve permit issues that have so far stalled forward progress. Indonesia’s Economic Minister and President Bambang Yudhoyono recently met to hammer out a solution to avoid Chevron shifting the project to another country with fewer legal hurdles. Historically, it has take oil and gas firms two and a half years to get approval for a contract, another year to get approval to obtain transportation, and two additional weeks for certification (Khoirul Amin, "$12b Chevron project to get permit assistance,” The Jakarta Post, May 28, 2014, http://www.thejakartapost.com/news/2014/05/28/12b-chevron-project-get-pe...)

Taiwan's Ministry of Economic Affairs has stated that government targets are likely to be met for local investments by Taiwanese companies operating abroad. From January to April of this year, overseas Taiwanese investments are up over 82% from the same time last year, with a total of US$1.16 billion. This puts this type of investment at 65% of the ministry's goal in just four months. Current trends continue the trend of rising overseas Taiwanese investments in recent years, with annual investment totals quadrupling since 2007 (“Ministry upbeat on inflows from firms operating abroad,” Taipei Times, May 31, 2014, http://www.taipeitimes.com/News/biz/archives/2014/05/31/2003591629)

According to Hong Kong Shippers’ Council chairman Lin Sun-mo, low-cost factory locations in the Pearl River Delta are becoming increasingly difficult to secure following political turmoil in two top low-cost production destinations, Vietnam and Thailand. Although these lower-cost countries are more attractive as investment destinations, Lin contends that firms may be better off remaining in Dongguan and investing in vocational training and higher levels of automation than assuming the risks associated with political instability abroad (Denise Tsang, “Vietnam and Thailand woes cause firms to seek new plant locations,” South China Morning Post, May 26, 2014, http://www.scmp.com/business/companies/article/1519583/vietnam-and-thail...)