The Challenge for Multinational Corporations in China: Think Local, Act Global
To succeed in China, multinational corporations must turn the aphorism “think global, but act local” on its head. Although they have to master the art of local operation, their behavior must match their global standards, as expected by the Chinese.
The view of multinational corporations in China has changed dramatically since the late 1970s, when the nation opened its economy and welcomed foreign direct investment, and global players such as Volkswagen, Coca Cola and 3M began exploring the market. During the 1980s, other MNCs such as Motorola, Philips and NEC were received with open arms. They enjoyed corporate tax rates half those imposed on local companies, and they paid no duties on their capital goods imports. In general, they were revered by government and consumers alike. Even into the 1990s, as China and its people developed a better understanding of MNCs, the foreign companies were the objects of awe and admiration. At that time, Chinese consumers exhibited an almost unconditional preference for MNCs’ products and services.
However, beginning in 2000, when per capita GDP climbed above US$1,000,1 and especially since 2001, when China joined the World Trade Organization, both the Chinese government and consumers have changed their perceptions of MNCs drastically. MNC projects now are scrutinized much more for their fit with national interests. Furthermore, MNCs increasingly are getting local treatment. The coming equalization of the corporate tax rates (to be phased in as of January 1, 2008) between local and foreign companies attests to this. MNCs are now held to the same, if not stricter, standards than local competitors in terms of areas such as employment standards and environmental standards. And they are finding that those standards are enforced much more rigorously.
Chinese consumers also have become more demanding. As a rule, shoppers no longer see much difference between products made by Chinese companies and those made by MNCs. Indeed, their expressed purchase choices often are cast as negative reflections of how much more they had expected of MNCs. In some ways, China’s consumers feel let down. The cachet of the MNC is no longer there; savvy shoppers now emphasize objective details and product quality.
MNCs clearly have made significant contributions to China’s development. In 2004, 28% of China’s industrial output and 19% of its tax revenue was accounted for by MNCs.2 Furthermore, MNCs produced 57% of all exports from China in that year.3 By the end of 2004, 400 of the FORTUNE 500 companies had offices in China.
1. “China Statistical Yearbook” (Beijing: China Statistics Press, 2006).
2. Ibid.; and “Tax Year Book of China” (Beijing: China Tax Press, 2006).
3. In 2004, China’s total exports reached US$593.3 billion, and MNCs contributed US$338.6 billion to that figure. See “China Statistical Yearbook.”
4. “The Proposal to Raise China’s Capacity in Innovating Independent Intellectual Property Rights” (in Chinese), Mar. 14, 06, www.china.org.cn; and “Each China-Made PC Is Liable to Pay Foreign Companies 30% Royalty, 20% For Each Mobile Telephone” (in Chinese), April 28, 2006, Western China Metropolis Daily.
5. T.X. Li, “McDonald’s New Ad Depicting Customers Begging On Their Knees For Discounts Offends Customers” (in Chinese), Chengdu Commercial Daily, Jun. 17, 2005; and “Chinese Kneeling For Discount in McDonald’s Ad,” China Daily, Jun. 22, 2005.
6. J. Li, “The Beginning and End of Tantrums Caused By Toyota’s Ad Depicting Stone Lions Saluting a Prado” (in Chinese), Star Daily, Dec. 3, 2003; and “Toyota Car Ads Belittle Dignity of the Chinese Nation,” Dec. 6, 2003, http://english.peopledaily.com.cn.
7. B.B. Shou, “Outbursts Created By the Toshiba Incident Not to End Easily” (in Chinese), Nanfang Weekend, Jun. 3, 2000; “Toshiba Notebook Sales Decline Due to Compensation Refusal,” Dec. 20, 2000, http://english.peopledaily.com.cn; and “Toshiba’s ‘Favoring One While Slighting the Other’ Helps Little to Reverse Declining Sales” (in Chinese), Dec. 20, 2000, http://news.zol.com.cn.
8. “CNNIC Released the 16th Internet Report: China Has 103 Million Net Users” (in Chinese), Sohu IT, July 21, 2005, http://it.sohu.com.
9. “Doubts Hanging Over Colgate and Crest: Former Competitors Now Become Fellow Sufferers” (in Chinese), Beijing News, April 19, 2005.
10. M. Prigg, “Cancer Alert Over Toothpaste,” Evening Standard, April 15, 2005; X.H. Shi, “The Colgate Incident: Conducting Studies Is Not Equivalent to Giving Warning Signs” (in Chinese), People’s Daily, April 20, 2005; W. Shao, “Toothpaste Will Not Be Recalled,” April 21, 2005, www.newsgd.com; and L.X. Gao, “Cancer-Causing Toothpaste: People Become Frightened Under the Butterfly Effect” (in Chinese), China Youth Daily, April 22, 2005.
11. “Internet Survey Indicated That 90% of Net Users Trusted Crest in the Past” (in Chinese), April 18, 2005, http://finance.sina.com.cn; H.F. Xu, “A Market Cold Front Encountered By Colgate Toothpaste Caused Its Sales Turnover to Dive” (in Chinese), Shanghai Daily, April 20, 2005; and Y.F. Zou, “Colgate and Crest in Credibility Crisis: Long- Standing Brand Names Become New Choice” (in Chinese), Sanxia Commercial Daily, April 22, 2005.
12. C. Qin, “Greenpeace Alleges Double Standards Over GM Food Practices,” China Daily, Mar. 15, 2005; K. Xu, “Kraft and Campbell Soup Products Suspected of Involvement in Genetic Modification” (in Chinese), International Finance News, Mar. 16, 2005; and F. Lei, “Kraft and Campbell Soup’s Genetically Modified Food Strategy For China Faces Challenge” (in Chinese), First Chinese Business Daily, Mar. 18, 2005.
13. Y. Liu, “100 Most-Valued Consumer Brand Names Announced: Samsung Tops the List” (in Chinese), Huaxia Times, Dec. 20, 2004; H.T. Fan, “Samsung Chosen As Most-Valued Consumer Brand Name, Haier and Nokia Rank 2nd and 3rd Respectively” (in Chinese), Beijing Youth Daily, Dec. 21, 2004; Q.W. Lu, “Most-Valued Consumer Brand Names Announced” (in Chinese), Jiefang Daily, Dec. 22, 2004; and L.M. Zhang, “Samsung Tops the List Followed By Haier” (in Chinese), Beijing Morning Post, Dec. 22, 2004.
14. Y. Wan, “Invalid Insurance Policy Schemes Again Become Rampant Towards Year End: China Insurance Regulatory Commission Again Vows to Crush the Scam” (in Chinese), China Business News, Nov. 20, 2004; G.Z. Chen, “Overflow of Invalid Insurance Policy Schemes, When Will This End?” (in Chinese), International Finance News, Nov. 26, 2004; P. Zhao, “AIA Hong Kong Forbids Its Agents From Selling Insurance Policies to Mainland Customers: Payment to ‘Invalid Insurance Policies’ Solely Determined By Mr. Edmund Tse” (in Chinese), 21st Century Business Herald, Jan. 30, 2005; and M. Yuan, “AIA China Errs For the First Time: Group Insurance Application Withdrawn As a Result of Long Delay” (in Chinese), Economic Observer, Jun. 5, 2005.
15. “Alcatel-Lucent China Fired Four High-Level Managers Suspected of Involvement in Bribery” (in Chinese), Shanghai Securities Daily, April 8, 2004; W. Wu, “Four Discharged High-Level Managers of Alcatel-Lucent May Throw Light On the Mainland Company’s Corruption Cases” (in Chinese), Nanfang Daily, April 8, 2004; Y.C. Wang and F. Zhang, “Alcatel-Lucent China’s ‘Door to Bribery’” (in Chinese), Caijing Magazine, April 20, 2004; and N. Lu, “FCPA: The Case of Alcatel-Lucent’s Overseas Company in Accepting Bribe Becomes a Known Law in the Realm of Commerce” (in Chinese), Global Entrepreneur, Sept. 5, 2005.
16. C. Chang, N.F. Xiao and Y.L. Wu, “Investigating a Foreign Telecom Enterprise For Bribery” (in Chinese), Asia Pacific Economic Times, July 23, 2004; J. Zeng, “Revealing Secrets of the Telecom Industry On How to Perfect Cases of Bribery” (in Chinese), China Business News, Aug. 16, 2004; and “Investigating Cases of Bribery Involving Foreign Enterprises in China: Has China Become a Tax-Evasion Haven for Multinational Companies?” (in Chinese), International Herald Leader, May 30, 2005.
17. Z.S. Zheng, “MaXan Faces the Pain of Losing Control Over Its Brand Name After 7 Years in a Joint Venture” (in Chinese), Market Daily, Jun. 14, 2001; L. Yu, “MaXan: The Illusion of Staging a Comeback” (in Chinese), Chinese Business Daily, Jan. 30, 2005; and F. Yao, “MaXan: From Being Ignored to Achieving Breakthrough” (in Chinese), 21st Century Business Herald, Mar. 30, 2005.
18. “CISCO Accuses China of Infringement on Its Intellectual Property Rights” (in Chinese), Reuters, Jan. 24, 2003; “CISCO Files Legal Action Against Chinese Companies for Infringement on Its Patent Rights” (in Chinese), Wall Street Journal, Jan. 24, 2003; H.H. Qiu and M.G. Li, “CISCO Sues China As Backing” (in Chinese), 21st Century Business Herald, Jan 25, 03; L. Yang and S.K. Yu, “CISCO Sues China” (in Chinese), Beijing Youth Daily, Jan. 25, 2003; and C.Q. Zhang, “CISCO’s Legal Action Against China on Intellectual Property Rights Infringement Ends” (in Chinese), Guangming Daily, July 30, 2004.
19. L. Zhou, “Philips Files Action in Hong Kong Against Orient Power Electronics Alleging the Latter’s Refusal to Pay DVD Royalties” (in Chinese), Oriental Morning Post, May 26, 2005; J. Huang, “Philips Invoking Its Patent Rights to Crush China’s DVD Companies: Orient Power Is Sued” (in Chinese), National Business Daily, May 27, 2005; and Z. Wang, “Philips Counterclaims Orient Power: Chinese Party to Submit New Pleadings Against 3C Alliance” (in Chinese), First Chinese Business Daily, May 27, 2005.
20. Z.P. Liang, “China MP3 Export Troubled By Royalty: No Optimism For the Future” (in Chinese), First Chinese Business Daily, Feb. 4, 2005; Y.B. Sun, “Actions Semiconductor, Involved in a MP3 Royalty Dispute, Counterattacks By Launching a Section 337 Investigation” (in Chinese), First Chinese Business Daily, Mar. 29, 2005; and R. Huang, “First Legal Action Raised in China on MP3 Core Chip Patent Rights” (in Chinese), Oriental Morning Post, April 22, 2005.
21. X.D. Fang, “Project Venus: Good Fortune Or Misfortune?” (in Chinese), Nanfang Weekend, Mar. 12, 1999; X.D. Fang and J.X. Wang, “Analysis: The Shadow of Intellectual Imperialism” (in Chinese), Guangming Daily, Jun. 2, 1999; “See Through Microsoft’s China Strategy” (in Chinese), Zhangjiang Daily, Jun. 3, 1999; J.J. Lang and G.Z. Jin, “Microsoft Throws Its Net, Yadu Gnaws Through It to Launch Counterattacks” (in Chinese), Economic Information Daily, Jun. 10, 99; J. Pi, L. Hou and L. Gu, “Microsoft Not Considered By Government Purchase?” (in Chinese), Beijing Times, Jan. 5, 02; H.L. Wang, “Beijing Takes the Lead to Say NO, Microsoft Fails to Bid For Government Projects” (in Chinese), Economic Observer, Jan. 7, 2002; and Y. Zhou, “After 10-Year Struggle of Kingsoft and Microsoft, Will the Situation Be Changed By the Government Purchase?” (in Chinese), China Entrepreneur, Sept. 29, 2002.
22. R.W. Zhang, “60% of the Losses Incurred by Foreign Enterprises Are Abnormal: State Administration of Taxation Kick- Starts Anti-Tax Evasion Activities” (in Chinese), China Business News, May 29, 2005; “China Becomes a Tax-Evasion Haven For Multinational Companies” (in Chinese), Economic Herald, May 30, 2005; “Multinational Companies Seriously Suspected of Tax Evasion: How Much That Ought to Have Been Paid Has Remained Unpaid?” (in Chinese), China Business Times, July 6, 2005; and “China Must Not Serve As a Tax-Evasion Haven For Multinational Companies” (in Chinese), July 11, 2005, www.peopledaily.com.cn.
23. H.W. Chen, “Multinational Companies Fall Into ‘Localization Trap’” (in Chinese), China Economic Times, Jun. 22, 2005.