MNCs in the News-2015-08-07

China’s General Administration of Quality Supervision, Inspection, and Quarantine reported recently that four foreign car companies—Ferrari, FAW-Volkswagen, Jaguar Land Rover, and Volvo—will institute recalls on imported and domestically-produced cars for a variety of reasons. Volvo, for instance, will recall about ten thousand XC90 SUVs, which have airbag problems. Jaguar Land Rover will recall almost 20,000 imported Range Rover that have a brake hose problem which presents serious safety issues. FAW-Volkswagen will recall nearly 900 vehicles due to steering wheel issues. Ferrari is recalling a very small number of imported cars due to defects in these cars monitoring systems (“Four Overseas Companies Announce Major Recalls,” China Daily, August 7, 2015, http://www.chinadaily.com.cn/business/motoring/2015-08/07/content_215315...)

GlaxoSmithKline, a United Kingdom-based pharmaceutical firm, has rehired a former senior Chinese employee Vivian Shi who once headed its China government relations department and was fired for “‘alleged irregularities in her travel expenses.’” A private investigation firm hired by GSK pointed to Ms. Shi as the likely suspect in orchestrating a smear campaign against the firm and providing the information that led to China finding it guilty of bribing doctors and hospital officials and imposing a massive hundred million dollar fine. The case “badly damaged GSK’s reputation and sales in China” and led to investigations by American and British authorities (Andrew Ward, “GSK Rehires Suspected China Whistleblower,” Financial Times, August 3, 2015)

China’s deputy minister of public security Chen Zhimin stated that the government will establish “network security offices” in major Internet firms like Alibaba and Tencent. The purpose of putting police officers into these businesses is to allow the government to “‘be able to find out about illegal Internet activity more quickly’” and perhaps to “‘create an intimidating atmosphere inside the companies themselves.’” The move builds upon a series of recent government initiatives designed to force Internet firms to censor more information, to delete problematic accounts, and to reveal more information about users and their data (Charles Clover, “China to Tighten Grip over Country’s Internet Users,” Financial Times, August 5, 2015)

One long-standing political lightning rod in the US was China’s negative effect on US workers generally and textile workers employment specifically. Now, as a result of rising labor, energy, and other sales (such as logistics) costs, Chinese (and other country) textile firms have begun to move their operations to places such as the US. Making the US even more attractive as an investment destination is access to land, cheap energy and raw materials, a willing workforce, and government subsidies. Chinese companies also worry that trade deals such as the Trans-Pacific Partnership might exclude them from markets such as the US (Hiroko Tabuchi, “Chinese Textile Mills are Now Hiring in Places Where Cotton was King,” The New York Times, August 2, 2015, http://www.nytimes.com/2015/08/03/business/chinese-textile-mills-are-now...)

To meet China’s food security needs and serve their own corporate needs, Chinese firms have been investing aggressively in food companies, dairy and meat businesses, and agricultural land. According to the China Global Investment Tracker, Chinese companies such as Shuanghui International Holdings and state-owned Cofco Corp. have struck billions of dollars of deals abroad in places like New Zealand and the US. One favored investment destination is Australia because of its stability, its abundant land, and suitable climate. Both the Australian national and provincial governments have been welcoming as a way to get investment and to diversify away from mining (Jason Scott, “Chinese Eye Australia’s Outback in $43 Billion Foreign Farming Frenzy,” Bloomberg, August 3, 2015, http://www.bloomberg.com/news/articles/2015-08-03/shanghai-cop-grows-sup...)

Since 1995, Chinese workers forcibly conscripted towards the end of World War II to work at mines, construction sites, and other places in Japan have been filing lawsuits in Japan to seek redress. Failing in Japan, some turned to courts in Hebei, Shandong, and Beijing. In 2014, Mitsubishi Materials, one of the companies that seized Chinese workers, offered a formal apology and offered USD $16,103 in compensation. Analysts believe it took these positive steps out of a sense of ethical responsibility and to avoid trouble for its business in Shandong where it manufactures cement and produces and sells copper alloys (“Explainer: Mitsubishi Materials Looks to Atone for Wartime Atrocities,” Nikkei Asian Review, August 5, 2015, http://asia.nikkei.com/Business/Companies/Mitsubishi-Materials-looks-to-...)

The global community’s agreement with Iran over its nuclear program will lead to a relaxation of international sanctions. As a result, international delegations from all over the world including Asia are traveling to Iran in search of investment and trade deals. Japan is joining the rush by sending Daishiro Yamagiwa, vice-Minister of Economy, Trade, and Industry, to Iran in early August to convey Japan’s “strong desire to quickly normalize economic relations once sanctions are lifted.” Iran has been dangling the prospect of almost USD $200 billion of projects by 2020 (Osamu Tsukimori, “Japan to Send Vice-Minister to Iran to Build Economic Ties,” Reuters, August 7, 2015, http://www.reuters.com/article/2015/08/07/us-iran-nuclear-industry-idUSK...)

The Korean Economic Research Institute (KERI), which is affiliated with the Federation of Korean Industries, observed inward foreign direct investment (FDI) into Korea was far less than it should be given the fact it was Asia’s 4^th-largest economy. KERI attributed the poor performance in absolute and relative terms to “excessive regulation and insufficient administrative support.” Jung Jin-sup a professor at Chungbuk National University and author of the report argued the government should “‘lessen regulations restricting corporate activities…[and] offer extensive administrative help so that foreign investors can get all the help they need in one place and in a prompt manner’” (Lee Hyo-Sik, “Korea Lags Behind Peers in Drawing Foreign Investment,” Korea Times, August 6, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/08/123_184332.html)

Starbucks Coffee Korea has made a special effort to create jobs as well as to hire groups—e.g., handicapped, undereducated, senior citizens, single moms, and housewives without experience—that normally do not have good job prospects in Korea. As one Starbucks representative put it, “‘we don’t discriminate against applicants with things that have nothing to do with their performance at work.’” The government has recognized Starbucks Coffee Korea’s contribution by naming it a “‘Best Employer’” for three years since 2013. Starbucks Coffee Korea has aggressive expansion plans across South Korea and employs 7500 full-time workers (Park Si-Soo, “Starbucks Committee to Job Creation,” Korea Times, August 4, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/08/123_184194.html)

The Adani group (India) has plans for a USD $12 billion coal mine, rail, and port project not far from the Great Barrier Reef. Although the government gave approval for the project, an Australian federal court recently overturned the approval saying Australia’s environment minister had “not properly considered advice about two threatened species…when he granted approval.” Adani will resubmit the project for consideration and is confident the project will be reapproved. Adani, which has been battling environmentalists opposed to the project, has already spent almost USD $1 billion on the first stage of the project and says it remains committed (Jamie Smyth, “Australian Court Overturns Adani Mine Approval,” Financial Times, August 5, 2015)

Indonesia will issue a new tax holiday policy soon with Haris Munandar, Director General for Research and Development with the Industry Ministry, saying tax holidays would be a “good fiscal incentive to attract new investors in pioneer and strategic industries to come to Indonesia.” Indonesia instituted its tax holiday policy in 2011, but there was much uncertainty about it given only three companies, all Indonesian, got tax breaks and the Finance Ministry seemed unwilling to approve projects. Incentives are to be given to firms that create jobs, invest amounts above a certain threshold, and in favored areas like marine infrastructure (Satria Sambijantoro, “New Tax Holiday Will Lure Foreign Investors: Govt,” The Jakarta Post, August 4, 2015, http://www.thejakartapost.com/news/2015/08/04/new-tax-holiday-will-lure-...)

At the M&A Forum, Vietnamese Deputy Minister of Planning and Investment Dang Huy Dong emphasized the government was trying to create a more welcoming environment for foreign investment by passing a Public Investment Law, amended Investment Law, and amended Enterprise Law. Furthermore, it has “issued a decree enabling larger room for foreign investment in various areas.” While it did poorly in attracting investment in the past, Vietnam has been drawing increasing M&A activity because of favorable government policies and efforts to marketize SOEs, improved infrastructure, the growth of wealthier consumers, Vietnam’s role in the ASEAN Economic Community, and other factors (“Viet Nam Ranks High in M&A,” Viet Nam News, August 7, 2015, http://vietnamnews.vn/in-bai/274134/viet-nam-ranks-high-in-ma.htm)

Vo Van Quyen, director of the Vietnamese Ministry of Industry and Trade’s Domestic Market Department, observed at the “Proud of Vietnamese Goods” conference held in Hanoi that foreign firms were helping to promote (as producers, sellers, and distributors) the sale of Vietnamese goods abroad and through domestic venues like supermarkets. The government hopes foreign firms will help to connect domestic firms and also develop support industries in Vietnam. Samsung, one of the lauded firms, highlighted that the company wanted to be a contributor to the country’s economic development by participating in exports and domestic business and partnering with Vietnamese firms (“FDI Enterprises Promote Use of Vietnamese Goods,” Viet Nam News, August 1, 2015, http://vietnamnews.vn/in-bai/273872/fdi-enterprises-promote-use-of-vietn...)