MNCs in the News-2014-06-06

Wal-Mart’s dispute with workers from its closed Changde (Hunan) store has now entered the arbitration phase with Wal-Mart being ordered to submit a settlement plan. The dispute grew out of a disagreement between workers and Wal-Mart over the pay adjustment that Wal-Mart would give workers from the store if they relocated to other Wal-Mart stores or the severance compensation they would receive if they did not. Other than expressing concerns about financial compensation, workers charged Wal-Mart with failing to meet advance notice requirements and communicating with workers. Commentators opined the Changde case could be precedent setting for worker disputes elsewhere (He Dan, “Union Battles Wal-Mart in Dispute over Store Closing,” China Daily, May 28, 2014, http://www.chinadaily.com.cn/business/2014-05/28/content_17547051.htm)

As is well known, Chinese companies have been pouring significant amounts into Africa. Not only have Chinese firms grown in absolute terms there, but also in relative terms given the constraints the 2008 Financial Crisis placed on American and European investors. Sino-African trade has fueled and been fueled by this investment. Partly in response, the US, Europe, and Japan have been working to deepen their links with the continent. The US, for instance, plans to gather dozens of executives from African and American companies for a US-Africa business forum while Japan is looking to support Japanese companies’ investments in Africa (Javier Blas, “US Prepares Investment Push into Africa,” Financial Times, May 28, 2014)

The China Food and Drug Administration has refused to give production permits to approximately 50 of the 133 infant-formula makers that applied, though some firms that did not get permits are seeking further review. Analysts felt the move had two primary purposes. One was to improve quality in the industry, which is still reeling from a major scandal in 2008 that resulted in six infant deaths. Another is to promote consolidation in the industry so it could better meet foreign competition. Yet another was to increase the domestic sector’s ability to charge to the premium prices associated with premium products (Chuin-Wei Yap and Laurie Burkitt, “China Pulls Permits from Some Infant-Formula Amkers,” Wall Street Journal, May 30, 2014, http://online.wsj.com/articles/china-pulls-permits-from-some-infant-form...)

China’s quest for reliable and reasonably priced food is leading Chinese firms, such as state-owned Cofco (China National Cereals, Oil, and Foodstuffs Corp) to make large investments in agricultural, food, and agricultural trading firms. Such investments bolster China’s access to food, which has become a more pressing issue because of rising food demand flowing from rising income and changing diets and supply challenges linked to shortages of clean water and arable land. In tandem, Chinese agricultural and food firms are selling stakes in select units to foreign investors in order to obtain capital, enhance their operations, and bolster corporate governance (Patrick McGee, “KKR Busy into China Pork Producer,” Financial Times, June 6, 2014)

In mid-May, as reported in a previous “MNCs in the News” digest, the US indicated 5 Chinese military officials for stealing trade secrets. Since that time, China has launched several retaliatory initiatives, though it has long been trying to promote domestic technology. Moves include a ban on Windows 8, a ban on the use of IBM servers by Chinese banks, and new security vetting schemes. As well, Chinese media have started slandering American firms such as Apple, Cisco, Google, Intel, and others as American agents. Some Chinese firms are drooling over the openings Chinese government moves may create for them (Edward Wong, “American Businesses in China Feel Heat of a Cyberdispute,” New York Times, May 31, 2014, http://www.nytimes.com/2014/06/01/world/asia/american-businesses-in-chin... Edmond Lococo and Lulu Yilun Chen, “Apple, Microsoft Targets of China Media in U.S. Spat,” Bloomberg, June 5, 2014; and Charles Clover and Richard Waters, “China Denounces US Tech ‘Pawns’ as Cyber Espionage Spat Deepens,” Financial Times, June 4, 2014)

Japan will establish an arms procurement agency to reorganize defense spending, increase arms exports, and take the initiative in arms research. Prime Minister Shinzo Abe believes such an agency will help Japan counter China’s rising military power and increase Japan’s influence in the East China Sea. The moves also link to Japan’s easing of arms export restrictions in March with companies like Mitsubishi Heavy and Kawasaki Heavy Industries seeking to increase overseas arms sales and participate in international defense projects (“New agency to modernize Japanese arms procurement in works,” Japan Times, May 30, 2014, http://www.japantimes.co.jp/news/2014/05/30/national/new-agency-to-moder...)

In contrast to the domestic situation which features slow growth and a housing glut, the International Contractors Association of Korea (ICAK) reports that Korean construction firms are finding huge opportunities overseas, securing US$31.6 billion in contracts in the first five months of the year- up 35% from the same time last year. ICAK attributes the good news to advanced Korean technology, improved competitiveness in bidding among Korean firms, and government support. As for government support, ICAK and the Ministry of Land, Infrastructure and Transport recently paired up to establish a support center for overseas firms that provides builders with information and consulting services (Park Si-soo, “Korean builders find breakthrough overseas,” The Korea Times, June 5, 2014, http://www.koreatimes.co.kr/www/news/biz/2014/06/123_158585.html)

Following a recent court case involving E-Mart, owned by Korea's Shinsegae Group, and one of its biggest shareholders, Singapore’s Aberdeen Asset Management Asia, foreign investors are taking a more active role in pushing the companies in which they invest to become more ethical. A court determined that E-Mart executives were actively working to subvert E-mart labor unions, even going so far as to spy on top candidates picked to head the unions. Officials claim foreign investors often hesitate to raise their voices out of concern about negative public reaction, but this case has helped elevate corporate governance among investor priorities (Bae Ji-sook, “Aberdeen Asset turns blind eye to Shinsegae’s labor fiasco,” The Korea Herald, June 4, 2014, http://www.koreaherald.com/view.php?ud=20140604000460)

New Indonesia mining regulations have driven US mining firm Newmont to place thousands of workers on leave, to shut a major mine, and to declare force majeure. The Indonesian mining regulations at issue include a ban on the export of certain unprocessed minerals and increased taxes on commodities that Indonesian politicians claim are being exploited by foreign firms. Newmont argues that the government’s rules violate the original agreements they had with the Indonesian mines and that a determination of force majeure releases it from the obligation of paying increased taxes (AFP, “Newmont declares ‘force majeure’ at Indonesia mine,” The Taipei Times, June 6, 2014, http://www.taipeitimes.com/News/biz/archives/2014/06/06/2003592081)