Foreign Companies in China Under Attack

Case Study 4:

Foreign Companies in China Under Attack

Tongfei Wang

11/17/18

Case Study 4:

Foreign Companies in China Under Attack

Introduction

This current paper is a case study about foreign companies in China that are under attack. The article stated that many foreign companies are experiencing a sharp increase in problems while operating in China.

According to AmCham China Business Survey, 60% of foreign companies operating in China feel less welcome than a year ago. The challenges include rising labor costs, inconsistent application of laws, confusing information, pressure from government-owned departments, political tensions, and slowing growth (Deresky, 2017). The article suggested that regulators in China have been targeting various industries, including technology and food processing, as well as car companies, and other high-profile companies. The Chinese authorities claimed that the investigations are to keep competition fair and protect customer rights (Deresky, 2017), however, these acts have raised many complains from the foreign company. The investigations also made it much difficult of doing business in China.

Current paper will analysis factors behind these acts and events and find out whether there have been such problems since this article. This paper will also give suggestions for firms currently operating in China, or considering investment there, to lessen the likelihood of these problems.

Factors Behind the Events

This article was written on July 2014, when many major events occurred internationally and nationally. Thus, various factors from national and international perspectives might intensified Chinese’s regulations on foreign companies in China.

National Factors

        To support local Chinese companies. This is the second year of China’s president Xi’s presidency. Xi has always believed in a major country diplomacy and tried to build a new type of international relationship with other major countries (NYTIMES, 2014). Xi also proposed that China should develop our own technology in all industries especially in technology industry.

        Thus, the first main factor behind the event is that China is trying to protect its local business. Back in ten years ago, China gave foreign companies many preferential policy to attract them entering Chinese market. However, nowadays since President Xi decided to support local companies, the authorities will follow the President’s instruction by eliminating most preferential policies enjoyed by the foreign companies.

        Wild-spread terrorism around the world and in China. Second triggering factor behind these events is the wild-spread terrorism around the world. ISIS, the leading terrorism group in middle east, occupied Syria and part or Iraq, declared war to the U.S. and the whole world. Even though China was not involved in the war with ISIS, China was suffering from terrorism within its own country.

        Xinjiang, an autonomous territory in northwest China, is the home to many ethnic minorities in China, including the Uyghur people. Most Uyghur people are born Muslim and some Islam extremist learned from ISIS, started multiple terrorist attacks in Xinjiang and Kunming, a major city in mainland China. On March 1st 2014, extremists organized a terrorist event in the train station of Kunming, killed more than 30 people and led to more than 20 people’s injury (News.qq, 2014).

        Similar tragedy happened again on April, where 70 people were seriously injured. These series of terrorism events alerted Chinese people and triggered nationalism among Chinese people. Chinese people feel more nationalism than ever in the past 5 years.

        To sum up, this nationalism made Chinese people have negative feelings to all foreign companies at that time. This can be one factor of the harsh regulation towards foreign companies in China.

International Factors

International tension. The territorial disputes in South China Sea started since 2013 and continued to 2014. The dispute involves many countries including Vietnam, Philippines, and the United States, and it caused tension between China and many other foreign countries. The tension might have transferred anger feelings to the government to innocent foreign companies. This tension can be one of the factors led to the restrictions for foreign companies in China.

Refrain from Globalization. De-globalization has intensified since 2014 in many countries including China. Chinese economy was vulnerable from global economy changes. Chinese stock market has been acting lower than usual recent years, which greatly influenced Chinese economy. In order to free Chinese economy from globalization, the government might take actions to reduce international cooperation with international firms. Thus, the act of restricting foreign companies in China might due to a protection of its own economy from globalization.

Initiatives Need to be Taken

Different initiatives need to be taken in order to lessen the likelihood of such problems for the international firms operating in China, or considering investment in China.

Localization

The first initiative need to be done is localization. The international companies need to hire local Chinese people who know the local market the best. Also, the companies should hire consultants who are specialized in Chinese laws and regulations. Hence, the companies can adapt to local regulations easily and with low efforts.

Localization also means adapting to local culture. In China, operating a company requires good relationships with the government and officials. The companies should start building their own PR team dealing with government relationships. In this way, the companies can know about some inside news about the new regulations.

By hiring local Chinese people, and taking care of relationships with local Chinese government, foreign companies can handle any changes in the local environment easily.

Cooperation