MNCs in the News-2015-01-16

Facing intense sales targets demands regardless of China’s macro-economic conditions and auto market situation, local automobile dealers are fighting back against global car giants in an effort to force the latter to change their sales targets, subsidies, and other practices. Recently, organized BMW automobile dealers won a huge subsidy payment from BMW. Now, Volkswagen (VW) dealers and Porsche dealers have been banding together to defend their interests, with VW dealers specifically demanding higher payments and lower sales targets from VW. Dealers are not only organizing, but also lobbying the government and conducting campaigns of sorts in local and foreign media (Tom Mitchell, “China’s Car Dealers Discover Union Power,” Financial Times, January 11, 2015).

A China Railway Construction Corporation (CRCC)-led consortium will bid again on a multi-billion high-speed rail line project that will connect Mexico City with a manufacturing center to the North. In November 2014, the CRCC consortium won the original tender, but the tender was cancelled later due to concerns about the integrity of the bidding process, given the close ties between the Mexican companies involved in the consortium and the current Mexican President’s political party. While the initial cancellation led to some frictions, the investment relationship is intensifying of late with Sinohydro Corp. winning a US $386.5 million power construction project (“Mexico Awards $386 mln Hydro Project to China-Backed Consortium,” Reuters, January 10, 2015; “Rail Consortium from China to Bid Again for Mexico Project,” WantChinaTimes, January 11, 2015, http://www.wantchinatimes.com/news-print-cnt.aspx?id=20150111000039&cid=...)

China Telecom plans to form a consortium in order to submit a bid on a Mexican government contract to construct a new national mobile broadband network. The US $10 billion contract is likely to be politically sensitive. First, China Telecom Global (China Telecom’s international subsidiary) wants to be an operator of the network, not just a financier and builder. Second, the coverage of the network will reach up to the US border. Third, many American companies in Mexico would use the network. Finally, the Mexican government seems to want more Chinese investment in order to diversify away from the US (Christine Murray, “Exclusive: China Telecom Plans Bid to Build Mexico Broadband Network-Sources,” Reuters, January 16, 2015, http://www.reuters.com/assets/print?aid=USKBN0KP1SB20150116).

General Nice, a large Chinese coal and iron ore importer with stakes in Russia and South Africa, has purchased full ownership in a US $2 billion iron ore mine in Greenland, which offers the latter a path to exploiting its vast natural resources and achieving full independence from Denmark. The investment may raise concerns among the US and others given China’s growing natural resource activities in the Arctic and recent decision to become a permanent observer of the Artic Council (Lucy Hornby, Richard Milne, and James Wilson, “Chinese Group General Nice Takes over Greenland Mine,” Financial Times, January 11, 2015).

A Hong Kong-based non-government organization, Students and Scholars against Corporate Misbehavior (SACOM), has accused the giant, Japanese apparel chain Uniqlo of buying supplies from Chinese factories with working conditions. According to SACOM, the factories put workers at risk by having them work in unsafe conditions, which included sewage on the factory floor, extremely high temperatures, and poor ventilation. Uniqlo acknowledged the probe and said it had opened an investigation into the matter. In the future, the activist group said it plans to investigate the practices of other international brands such as Zara, H&M, and Gap (JST, “Uniqlo under Fire for Dealing With Chinese Factories Accused of Putting Workers at Risk”, Japan Today, January 15, 2015, http://www.japantoday.com/category/business/view/uniqlo-under-fire-over-...)

Honda Motors (Japan) has been distancing itself from its US subsidiary, which the US National Highway Traffic Safety Administration slapped with a US $70 million fine at the end of 2014 for gross underreporting of serious accidents involving its cars for more than a decade. A Honda spokesperson in Japan said, “this is above all an issue between American Honda Motor Company and the U.S. authorities.” The penalty could exacerbate feelings that US regulators do not treat Japanese companies fairly and indeed some in the industry assert the US is using this and other cases to weaken Japanese auto firms (Jonathan Soble, “Honda in Japan Distances Itself from Fine on U.S. Subsidiary,” New York Times, January 9, 2015, http://www.nytimes.com/2015/01/10/business/honda-in-japan-distances-itse...)

Japanese auto company Honda will invest US$ 340 million to build fuel-efficient gasoline engines in Ohio as it plans a slate of new electric cars in a push to increase the number of its vehicles with lower emissions. Honda is looking to satisfy US government requirements for cleaner vehicles as well as to boost fuel economy for drivers. Honda added an assembly line at its Ohio plant to build the new turbo-charged, four-cylinder gasoline engines (Jhon Lipper, “Honda Invests $340 Million in Ohio Plant for Fuel-Efficient Cars,” Bloomberg, January 13, 2015, http://www.bloomberg.com/news/2015-01-13/honda-invests-340-million-in-oh...)

According to China’s Ministry of Commerce, annual foreign direct investment by Korean companies into China jumped 29.8 percent year-over-year to reach a US $3.97 billion in 2014. The rapid growth in investment by Korean firms in China offers a striking contrast to investment by Japanese companies, whose direct investment in the world’s second largest economy dropped 38.8 percent to $4.33 billion in 2014. As many know, recent years have witnessed a considerable amount of political tension between China and Japan, which has affected Japanese firms’ willingness to increase China investments (“Korea’s Investment in China Jumps 29.8% in 2014,” Korea Times, January 16, 2015, http://www.koreatimes.co.kr/www/news/biz/2015/01/123_171893.html)

About one week ago, Singapore kicked off its new 26-member International Commercial Court (SICC), which will hear regional commercial disputes. Many are enthusiastic about the SICC because of Singapore’s good legal reputation and the potential of the SICC to expedite cases. Furthermore, some believe the SICC will be more transparent and cheaper than international arbitration. There are some uncertainties about the whether or not court judgments will be enforced but SICC judges believe existing reciprocal agreements and international conventions plus the fact that most cases do not involve enforcement proceedings mean such concerns are unwarranted (Hoe Pei Shan, “Buzz Over New Singapore Court for Cross-Border Disputes,” AsiaOne, January 14, 2015, http://news.asiaone.com/print/news/singapore/buzz-over-new-singapore-cou...)

A draft government regulation that will require foreigners working in Indonesia to master the Indonesian language before they are able to obtain a work permit has fueled criticism from foreign companies operating in the country. Earlier this month, Manpower Minister M. Hanif Dhakiri revealed that foreign workers will have to complete the Test of Indonesian as a Foreign Language, which is currently being developed by the Ministry along with the University of Indonesia’s Language Development Center. He added the government would tighten regulations concerning expat workers in Indonesia in order to protect the local workforce (TISG, “Foreign Workers in Indonesia ‘Must Take Local Language Exam,’” The Independent Singapore, January 14, 2015, http://theindependent.sg/blog/2015/01/14/foreign-workers-in-indonesia-mu...)