MNCs in the News-2014-04-25

Famous European liquor firms, especially those selling premium-brand, high-priced cognacs, have been suffering significant sales declines, running in the high double-digits in some instances, as a result of the Chinese government’s crackdown on corruption, official excess, and “erotic” locales such as bath houses and hostess bars. Reacting to the government crackdown and expecting the campaign to continue and perhaps intensify, Pernod Ricard, Remy Cointreau, and others have been looking to target new consumers, such as the Chinese middle-class instead of big spenders, and new locations in China rather than southern China where a huge amount of premium cognac drinking occurs (Patti Waldmeir and Duncan Robinson, “China’s ‘Erotic Sector’ Crackdown Threatens Global Cognac Industry,” Financial Times, April 20, 2014)

The Chinese government’s urbanization policy, which aims to make permanent urban residents about 60 percent of China’s population by 2020, is influencing not only the direction of China’s domestic administrative, economic, and social structures, but also the production and marketing activities of foreign corporations. Illustrating this, Honeywell International, a US firm, is starting to offer so-called “smart city” and “healthy home” solutions involving water and air purification products, fuel-saving turbochargers, and environmentally friendly refrigerants. Honeywell, which counts China as its second biggest global market, believes this will give it new opportunities among China’s urban dwellers and increasingly health conscious Chinese (Xie Yu, “Honeywell gears up for new era of ‘Smart Cities,’” China Daily, April 19, 2014, http://www.chinadaily.com.cn/business/2014-04/19/content_17447220.htm)

Chinalco Mining, a Hong Kong-listed subsidiary of Chinese aluminum giant Chinalco, which specializes in mining non-ferrous and non-aluminum metals, is looking to Latin America, especially Peru, for copper project acquisition opportunities. Commentators note that Peru is particularly attractive because it offers a very investor-friendly environment to foreign companies and boasts a robust mining development strategy that has the potential to catch up with Chile, the world’s largest copper producer and holder of copper reserves. Chinalco Mining’s Toromocho copper project, just outside of Lima, Peru, is expected to increase its output capacity by almost fifty percent over the next two years (Eric Ng, “Chinalco Mining sets sights on copper projects in Latin America,” South China Morning Post Online, April 25, 2014, http://www.scmp.com/business/commodities/article/1496274/chinalco-mining...)

Dong Yang, the secretary-general of the China Association of Automobile Manufacturers, said foreign auto companies should transform their local joint ventures (JVs) so that such JVs are not reliant on external technology, but also have their own R&D abilities. He added that foreign-invested JVs could do more to help China export as much of 20 percent of its annual vehicle production by 2020. Observers suggest Dong’s remarks were driven by the challenges that foreign imports and production have put on his lobbying group’s members’ revenues and profits, and the difficulties Chinese firms are having developing their own technology and brands (Tom Mitchell, “Head of China’s Car Lobby Warns Foreign Brands over R&D,” Financial Times, April 22, 2014)

Last Saturday, the Shanghai Maritime Court seized a Japanese ship, now owned by Mitsui O.S.K. Lines, as collateral for unpaid compensation due a Chinese company. The seizure represented the first time a Chinese court had seized Japanese assets linked to wartime claims. The roots of the dispute lie in Japan’s seizure of 2 ships that were leased by a Chinese company to a Japanese one in 1937. Ultimately, Mitsui paid approximately US $29 million in fees and damages to get back its ship. Japan maintains its peace treaties with China exempt Japan from having to pay this type of compensation (Aaron Sheldrick, “Japan’s Mistui pays China to release seized ship-court,” Reuters, April 24, 2014, http://ca.reuters.com/article/topNews/idCABREA3N0A920140424)

Foreign companies have expressed dissatisfaction with the consistency of Korea’s fair-trade policy enforcement and have called for less market intervention by Korea’s antitrust regulator, the Korean Fair Trade Commission (KFTC). They argue that the KFTC faces strong pressures to achieve revenue targets which has led to unnecessary or unjustified investigations and fines as well as, in turn, numerous companies fleeing Korea to escape this unfriendly regulatory environment. The KFTC’s response is that there has been an overall decrease in fines since 2011, that businesses often block access to investigating public officials, and fines often are a result of these obstructions (Choi Kyong-ae, “Foreigners call for consistency, less intervention,” The Korea Times, April 22, 2014, http://www.koreatimes.co.kr/www/news/biz/2014/04/123_155925.html)

Because of programs like the Productivity and Innovation Credit, more Singapore small and medium enterprises (SMEs) are able to expand their businesses overseas. One such SME, New City Electrical Trading, has improved operations through this program’s subsidies by acquiring capital for technology that allows for digitizing inventory and enhancing accounting capabilities. This has slashed its overhead costs and given it the space to venture into foreign locals. The Minister of State for Trade argues that these subsidies, along with the development of new business centers that provide free advisory services, are required to allow businesses to upgrade and grow operations (Samantha Boh, “Store travels overseas, via Tampines,” Asia One Business, April 25, 2014, http://business.asiaone.com/news/store-travels-overseas-tampines)

According to the Asia Pacific Investment Climate Index for 2014, Singapore has remained the most attractive location for foreign direct investment for the second year running. Despite government policies aimed at tightening immigration and raising financial barriers to entry for foreign labor, multinational corporations remain attracted to Singapore for a host of reasons, including an open trade regime, a stable political and legal environment, sound economic policies, efficient judicial framework, and a transparent regulatory environment (Malminderjit Singh, “Singapore is most attractive destination for FDI in region,” Asia One Business, April 19, 2014, http://business.asiaone.com/news/singapore-most-attractive-destination-f...)