MNCs in the News-2014-12-19

VW has been seeking to increase its stake in its China FAW-VW JV, in which it, its subsidiary Audi, and FAW Group (Changchun) all have stakes.  VW specifically would like to boost Audi’s stake to 19 percent, which would reduce FAW’s stake to 41 percent.  However, FAW is unwilling to accept such a change without VW and Audi transferring traditional fuel vehicle and new energy vehicle technologies to FAW.  VW, though, is not enthusiastic about transferring vital core technologies given the value of such patents.  “The setback to VW’s ambitions in China…comes as Beijing seeks to promote national brands” (“Talks Stall on VW’s Bid To Raise Stake in Chinese JV,” WantChinaTimes.com, December 14, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141214000079&cid=1202)

The US Securities and Exchange Commission (SEC) fined Avon Products, a world-renowned cosmetics firm, US $135 million to settle a corruption probe relating to its activities in China.  The SEC charged with violating the FCPA by distribution millions of dollars of cash, gifts (e.g., Gucci bags and Louis Vuitton merchandise), free trips, and other benefits such as entertainment to influence Chinese officials engaged in the approval and monitoring of direct selling activities in China.  Aside from the monetary penalty, Avon will have to “retain an independent monitor to review its compliance program with the FCPA” (“Avon Pays Fine of $135m to Settle Bribery Allegations,” China Daily, December 19, 2014, http://www.chinadaily.com.cn/business/2014-12/19/content_19122629.htm).

Western nuclear firms have been facing an increasingly challenging market in China, one of the world’s most promising markets for nuclear power plant construction, as a result of China’s efforts to localize, shrewd efforts to leverage its markets to obtain vital technologies, and the failures of Western firms to deliver goods that meet requirements.  For example, Westinghouse transferred the specifics of its “most advanced, commercially available reactor, the AP1000” as part of the terms of its entry into China which is enabling Chinese firms to become key component suppliers as well as to offer competing nuclear power plants for exports (Brian Spegele, “China Wants ‘Made in China’ Nuclear Reactors,” The Wall Street Journal, December 15, 2014, http://www.wsj.com/articles/china-moves-to-keep-nuclear-work-local-1418669373)

For some time, but especially after Edward Snowden’s revelations of extensive US government spying abroad, China has been striving to develop homegrown technology.  Recent successful tests of domestic operating system software, servers, and so on may push China, the world’s second largest technology market, to more aggressively “purge foreign technology from banks, the military, state-owned enterprises, and key government agencies.”  Already, the government has banned Windows 8 from government computers and iPads from procurement lists.  In certain cases, those companies that share their core technologies or give Chinese security inspectors the right to examine their products may avoid the axe (Steven Yang, Keith Zhai, and Tim Culpan, “China is Planning to Purge Foreign Technology and Replace with Homegrown Suppliers,” Bloomberg, December 18, 2014, http://www.bloomberg.com/news/print/2014-12-17/china-said-to-plan-sweeping-shift-from-foreign-technology-to-own.html)

ITT Corp., an American manufacturing conglomerate, runs, in conjunction with the Youth League Committee of Science and Technology Daily and TusPark Co. Ltd, which operates Tsinghua University’s Science Park, a program called the “ITT Golden Gear Academy,” which offers training, scholarships, and internships to expand the city’s population of talented engineers.  The program helps address the lack of talented staff, which is facing the city’s manufacturing sector.  An ITT representative noted that the program also might serve as a model for ITT outside China.  Many participants as well as the Youth League Secretary stressed the practical value of the program (Du Juan, “ITT Program Builds Talent Pipeline,” China Daily, December 17, 2014, http://www.chinadaily.com.cn/business/2014-12/17/content_19104738.htm)

State-owned enterprises China General Nuclear Corporation (CGN) has purchased three UK wind farms from French utility EDF.  In the view of observers, this is not only about CGN’s interest in alternative energy, but also improved relations since UK Prime Minister David Cameron visited China in 2013, China’s interest in getting involved in Britain’s next planned nuclear power plant (which is witnessing multiple disagreements over the division of construction and supply contract shares), and China’s interest in diversifying its energy mix at home.  Chinese firms also have poured money into renewables in Norway, Portugal, and Spain (Chris Adams, “Chinese Nuclear Group to Buy UK Wind Farms,” Financial Times, December 14, 2014). 

In Kazakhstan for a visit with Prime Minister Karim Masimov, Chinese Premier Li Keqiang signed a number of agreements calling for cooperation in energy, pipelines, and nuclear cooperation.  Li said China “supports it competitive enterprises to invest in Kazakhstan,” called for more connectivity in structures and people, and pushed for expanded cooperation in terms of locations and the scale of firms involved.  He also called for cooperation in natural resource processing, equipment manufacturing, and agriculture and perhaps joint efforts to target third party markets.  Li also told Kazakhstan’s President that China would help to develop Kazakhstan’s industrial and transportation infrastructure (“China Eye to Eye with Kazakhstan on Enriching Cooperation with 14-bln-USD Deals,” WantChinaTimes, December 15, 2014, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20141215000087&cid=1201)

The premier of Sony Pictures new movie “The Interview” was canceled following the receipt of threats from hackers that people should stay away from cinemas showing the film.  The threats supposedly came from the same hackers group, ultimately traced to North Korea, that took control of Sony’s computers last month.  The movie is a comedy about the assassination of North Korean President Kim Jong-Un.  Carmike Cinemas, operator of 278 theaters in 41 states, informed Sony it would not show the film, even though an official at the U.S. Department of Homeland Security stated it found nothing to substantiate the threat (Jim Finkle and Mark Hosenball, “New York Premier of North Korea Comedy Canceled after Threats,” Reuters, December 17, 2014, http://www.reuters.com/article/2014/12/17/us-sony-cybersecurity-theaters-idUSKBN0JU2J820141217)

Strikes at 29 American west coast ports by almost 20,000 workers associated with the US Pacific Maritime Association have disrupted frozen potato shipments to Japan and thus McDonald’s Japan French fries sales.  McDonald’s Japan has resorted to selling only small-size French fry portions and has compensated customers with discounted prices.  McDonald’s Japan already has been suffering from sales declines due to food safety scandals associated with a China-based meat supplier (Kana Inagaki, “Chips are Down as McDonald’s Japan Ratios French fries,” Financial Times, December 16, 2014).

In 2016, Japan plans to liberate the electric market, which is currently dominated by monopolies.  This reform is considered crucial since the 2011 Tsunami hit Japan and sharply raised electricity prices.  The change will give small consumers greater freedom to choose suppliers and is expected to raise the demand for new power equipment.  Hitachi Ltd. is in talks with a Swiss company, ABB Ltd., on a JV agreement to supply electric power equipment to Japanese households.  ABB, which has strengths in robotics and power technology, is expected to take a majority stake in the JV (Kyodo, “Hitachi, Swiss Firm Consider Tie-Up on Electricity Distribution Equipment,” Japan Times, December 16, 2014, http://www.japantimes.co.jp/news/2014/12/16/business/corporate-business/hitachi-swiss-firm-consider-tie-up-on-electricity-distribution-equipment/#.VJEkwSuUd-x)

A China-Indonesia Investment and Trade seminar was held at the Indonesian Embassy in Beijing this week.  During the seminar, Indonesia encouraged Chinese businessmen to avoid excess caution and invest in the country given the government’s provision of various facilities to speed up FDI.  Chinese businessman have underlined the importance of establishing a China desk at the Indonesian Investment Coordinating Board that can provide guidance for their future investments in Indonesia (Chinese Businessmen Urge Establishment of China Desk in Indonesia,” The Jakarta Post, December 19, 2014, http://www.thejakartapost.com/news/2014/12/19/chinese-businessmen-urge-establishment-china-desk-indonesia.html)