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2012 is the second ten years since China joined in the WTO. In the last ten years, multinationals saw great changes to their existence ambience in China and gradually lowered their profiles. Sometimes they even showed the features of “the weak”. How will the changes come out?
First, the Chinese government changed their attitudes. In 2009, China deleted the favorable taxation policies for the foreign companies, placing foreign companies in the same competitive situation with local companies. In addition, Suzhou, Wuxi and other cities in developed areas of China increased their threshold for foreign investment. The local governments of these cities not only deleted the favorable policies, but also put forward the requirements about industries, environment protection and energy-saving.
The second change is caused by the fast rise of Chinese local enterprises. The state-owned enterprises have the strong support from the government and take the dominant places in many industries; the private companies are flexible in their system, operation and capital control and could adapt themselves to the market very quickly. Foreign companies, especially these multinationals, could not compete with state-owned companies in resource or with private companies in flexibility. Thus they are placed between the state-owned enterprises and private companies. In 2011, Best Buy, Home Depot, DHL and several other multinationals chose to quit the Chinese market.
The circulation of talents also reveals the change of multinationals’ position in China. On the one hand, a survey about the college graduates’ options of jobs in 2011 shows that “government organizations, state-owned enterprises and administration institutions” have replaced “foreign companies” as the most ideal place for new graduates. The realistic choice of young men is the most objective signal showing that foreign companies are no longer the primary choices of high-end talents. Many professional executives returned to state-owned and private companies from foreign companies.
These situations mentioned above cannot be changed in 2012. Then what measures will multinationals take to deal with the situation?
One: conducting business service-oriented transformation
With the increasing number of competitors in the Chinese market, foreign companies should increase the industrial threshold to keep their competitive power. Many multinationals which mainly “sold products” in China now turn their core business to“supplying customers solutions” to better meet the customers’demand and foster loyal customers based on their differentiation. Making use of technologies and service specialties to provide bigger value-added services for Chinese customers is what the Chinese local companies cannot do, and fortunately, the way many foreign companies are choosing to adjust their development orientation in the future.
Two: expanding the cooperation with Chinese companies
The changing situation in China made multinationals realize that only the B2C enterprises with clear consumer groups, strong brands and broad distribution channels (such as some luxury product companies) can have persistent and excellent performance in China. The other multinationals need to cooperate with established local companies to spread their business in China and the demand is increasing very year.
The cooperation between multinationals and Chinese companies is not only reflected in the Chinese market. In addition, more and more foreign companies even help their partners go overseas.
In 2012, the haunting environment will not be changed, thus the “win-win” idea based on cooperation with Chinese companies will be accepted by more multinationals. The cooperation is extended into the relationship with Chinese government, suppliers and consumers.
Three: fulfill social responsibility more actively
The weak position of multinationals in China is reflected by the heavier scrutiny of the mass media place over them too. In recent years, the “cases of mergers and acquisitions”, the“fraud of donation” and the “employer-employee disputes”caused by foreign companies in different industries can easily raise the concerns and criticism from the public. In March 2011, the Chinese Academy of Social Sciences published the Blue Book of Corporate Social Responsibility, showing that the development index of corporate social responsibility is lower than average as 80% of foreign companies ignored or looked down upon their corporate social responsibility.
Against this situation, foreign companies need to know the importance of corporate social responsibility in China. When creating their own corporate culture, they should include this element to win the favor of Chinese government and society and draw themselves close to China. Some farseeing foreign companies have already made changes. For example, CISCO from the United States established a Corporate Citizen Department in China to take charge of its corporate social responsibility. It also began to attach more importance to its employees and vulnerable groups.
What’s more important is that foreign companies should enhance the regulation over their operation in China to prevent them from being involved in commercial bribery in this country.
Today’s multinationals are at a disadvantaged place in China, but this does not say that they will no longer recover. The truth is that foreign companies are not so powerful as they were ten years ago.
Despite the changes in the situation, the foreign companies could still achieve success in China with right strategies in the next ten years.
First, the Chinese government changed their attitudes. In 2009, China deleted the favorable taxation policies for the foreign companies, placing foreign companies in the same competitive situation with local companies. In addition, Suzhou, Wuxi and other cities in developed areas of China increased their threshold for foreign investment. The local governments of these cities not only deleted the favorable policies, but also put forward the requirements about industries, environment protection and energy-saving.
The second change is caused by the fast rise of Chinese local enterprises. The state-owned enterprises have the strong support from the government and take the dominant places in many industries; the private companies are flexible in their system, operation and capital control and could adapt themselves to the market very quickly. Foreign companies, especially these multinationals, could not compete with state-owned companies in resource or with private companies in flexibility. Thus they are placed between the state-owned enterprises and private companies. In 2011, Best Buy, Home Depot, DHL and several other multinationals chose to quit the Chinese market.
The circulation of talents also reveals the change of multinationals’ position in China. On the one hand, a survey about the college graduates’ options of jobs in 2011 shows that “government organizations, state-owned enterprises and administration institutions” have replaced “foreign companies” as the most ideal place for new graduates. The realistic choice of young men is the most objective signal showing that foreign companies are no longer the primary choices of high-end talents. Many professional executives returned to state-owned and private companies from foreign companies.
These situations mentioned above cannot be changed in 2012. Then what measures will multinationals take to deal with the situation?
One: conducting business service-oriented transformation
With the increasing number of competitors in the Chinese market, foreign companies should increase the industrial threshold to keep their competitive power. Many multinationals which mainly “sold products” in China now turn their core business to“supplying customers solutions” to better meet the customers’demand and foster loyal customers based on their differentiation. Making use of technologies and service specialties to provide bigger value-added services for Chinese customers is what the Chinese local companies cannot do, and fortunately, the way many foreign companies are choosing to adjust their development orientation in the future.
Two: expanding the cooperation with Chinese companies
The changing situation in China made multinationals realize that only the B2C enterprises with clear consumer groups, strong brands and broad distribution channels (such as some luxury product companies) can have persistent and excellent performance in China. The other multinationals need to cooperate with established local companies to spread their business in China and the demand is increasing very year.
The cooperation between multinationals and Chinese companies is not only reflected in the Chinese market. In addition, more and more foreign companies even help their partners go overseas.
In 2012, the haunting environment will not be changed, thus the “win-win” idea based on cooperation with Chinese companies will be accepted by more multinationals. The cooperation is extended into the relationship with Chinese government, suppliers and consumers.
Three: fulfill social responsibility more actively
The weak position of multinationals in China is reflected by the heavier scrutiny of the mass media place over them too. In recent years, the “cases of mergers and acquisitions”, the“fraud of donation” and the “employer-employee disputes”caused by foreign companies in different industries can easily raise the concerns and criticism from the public. In March 2011, the Chinese Academy of Social Sciences published the Blue Book of Corporate Social Responsibility, showing that the development index of corporate social responsibility is lower than average as 80% of foreign companies ignored or looked down upon their corporate social responsibility.
Against this situation, foreign companies need to know the importance of corporate social responsibility in China. When creating their own corporate culture, they should include this element to win the favor of Chinese government and society and draw themselves close to China. Some farseeing foreign companies have already made changes. For example, CISCO from the United States established a Corporate Citizen Department in China to take charge of its corporate social responsibility. It also began to attach more importance to its employees and vulnerable groups.
What’s more important is that foreign companies should enhance the regulation over their operation in China to prevent them from being involved in commercial bribery in this country.
Today’s multinationals are at a disadvantaged place in China, but this does not say that they will no longer recover. The truth is that foreign companies are not so powerful as they were ten years ago.
Despite the changes in the situation, the foreign companies could still achieve success in China with right strategies in the next ten years.