MNCs in the News-2014-07-25

In 2013, Venezuelan President Nicolas Maduro signed a number of agreements during a visit to China. One of these agreements was for 2,000 buses from Zhengzhou Yutong Group. Pursuant to this accord and in tandem with a visit early in the week by Chinese President Xi Jinping to Venezuela as well as ongoing efforts by the Venezuelan Land Transportation Ministry’s efforts to enhance public transportation, Yutong Group announced it would build a new joint bus manufacturing plant in Venezuela and increase parts and after-sales services there. Venezuela has become vital for Chinese firms trying to escape cutthroat competition at home (“China’s President Xi Jinping Signs Venezuela Oil Deal,” BBC News, July 21, 2014, http://www.bbc.com/news/world-latin-america-28414623; Zhong Nan and Qi Xin, “Bus Maker Gains Foothold in Venezuela,” China Daily, July 21, 2014, http://www.chinadaily.com.cn/business/2014-07/21/content_17862567.htm)

During the Sixth Annual China-US CEO and Former Senior Officials’ Dialogue, Chinese Premier Li Keqiang stressed to delegates that “‘China is willing to be a participant and contributor to the new international economic and trade system’” and stated Beijing expected Washington to “‘create more favorable conditions for deepening Sino-US cooperation with a more open stance.’” While observing various positive trends, US Chamber of Commerce President and CEO Thomas J. Donahue noted diverse political and economic challenges and said that US delegates would push for the conclusion of a bilateral investment treaty with a “negative list” (Li Jiabao, “Li: The US Should Adopt ‘Open Stance,’” China Daily, July 23, 2014, http://usa.chinadaily.com.cn/2014-07/23/content_17909859.htm)

The Chinese military has cancelled all unscheduled or private aircraft flights and ordered commercial airlines to cut their flights in and out of most major airports in eastern China because of plans for a three-week long military exercise that will involve live-fire rocket artillery and air defense drills. Military closure of airspace is a common occurrence in China and causes a lot of problems for airlines because it often happens with little or no warning. The disruptions will worsen conditions in an air system that already has a record of delays and cancellations that is the “worst in the world” (Jamil Anderlini, “China Air Rage as Military Manoeuvres Force Flight Cancellations,” Financial Times, July 24, 2014).

The current visit of Italy’s economy minister to China is likely to be followed by a multi-billion euro investment by China State Grid in Italy’s grid network. The investment will give the Chinese state-owned enterprise a 35 percent stake in the Italian grid, which currently is entirely owned by Italy’s state financing agency, which, in turn, is controlled by the Italian Treasury. The investment has been eased and expedited by Italy’s privatization plans coupled with a greater receptiveness to Chinese investment by capital-desperate European governments. Chinese investors already have made noteworthy investments in a number of Italy’s biggest state-controlled companies (Rachael Sanderson, “China to Invest €2bn in Italy’s Power Grid,” Financial Times, July 24, 2014).

China’s National Development and Reform Commission (NDRC) has decided that Qualcomm Inc., an American chipmaker, is a monopoly and has charged excessive licensing fees. Government policy is that the overall patent royalty for all handset and mobile chipmakers should not exceed more than 10 percent, yet Qualcomm’s royalties alone hit half that figure. The NDRC eventually may impose a fine of US $1 billion or more and pressure Qualcomm to lower its licensing fees. To assuage Chinese concerns, Qualcomm has contributed around $150 million to Chinese startup companies and is working with a Chinese firm to manufacture chips in China (Gao Yuan, “NDRC Confirms Qualcomm’s Monopoly,” China Daily, July 24, 2014, http://www.chinadaily.com.cn/business/2014-07/24/content_17917258.htm; Charles Clover, “China a Step Closer to Sanctioning Qualcomm,” Financial Times, July 24, 2014)

A TV investigation of Shanghai Husi Food Co. Ltd., a unit of US-based OSI Group LLC, revealed that the firm was using expired and dirty meat in its products. The scandal hit KFC, McDonald’s, Burger King, and even Starbucks who sourced beef, chicken, and/or pork directly or indirectly from the firm. China’s food safety regulator shut down the flawed plant and called for inspections of all of OSI’s sites. It also ordered McDonald’s, Pizza Hut, and other foreign brands in China to seal boxes of potential tainted meat. Some firms such as Papa John’s International severed ties with Shanghai Husi (Adam Jourdan, “China Food Scandal Spreads, Drags in Starbucks, Burger King, and McNuggets in Japan,” Reuters, July 22, 2014, http://www.reuters.com/assets/print?aid=USKBN0FR07K20140722)

The expanding Shanghai Husi Food Co. Ltd. scandal spread to Japan as a result of the fact that McDonald’s Co. Japan and FamilyMart Co., a Japanese convenience store, sold products using chicken imported from Shanghai Husi. According to estimates, these companies have imported about 6,000 tons of processed meat this year from Shanghai Husi. In response to the widening scandal, the Japanese government has suspended food imports from the company and strengthened inspections. A deputy director of China’s food safety agency charged the illegal conduct was not that of certain individuals but was company orchestrated (“Companies scramble to recover from trained meat debacle,” The Japan Times, July 23, 2014, http://www.japantimes.co.jp/news/2014/07/23/national/companies-work-repa...)

Japan replaced the US as the largest mobile app market in the world in 2013 and ranks first in the world in terms of the number of paid apps installed on smartphones. It is not surprising, then, that Startups Alliance Korea, established by the South Korean government and leading South Korean businesses, including Naver (owner of messaging ap Line), sponsored an event in Tokyo, called the Japan boot camp, in order to seek tie-ups with major Japanese IT firms. 19 Korean IT firms participated in the event, aimed at expanding their businesses into global markets (Yuichi Shiga, “1st Japan, tomorrow the world for South Korean IT startups,” Nikkei Asian Review, July 24, 2014, http://asia.nikkei.com/Business/Trends/1st-Japan-tomorrow-the-world-for-...)

The Seoul Metropolitan Government (SMG) is consulting with the Korea Communications Standards Commission (KCSC) to block the taxi application of Uber, which launched its call taxi services in Korea in June 2013. According to the SMG, Uber’s registration with the KCSC cannot be verified and, as a result, Uber’s operations violate the country’s Passenger Transport Services Act, which only allows registered companies to provide call taxi services. A Korean car rental agency also has been fined for allocating a considerable number of vehicles to Uber (Kim Se-jeong, “Seoul to block Uber taxi application,” The Korea Times, July 21, 2014, http://www.koreatimesus.com/?p=14882)

As challenges posed by shrinking sales in advanced economies and by competition from its Chinese rivals loom large, affiliates of the Samsung Group are looking to step up production in emerging markets to secure cost competitiveness. Most recently, Samsung Electronics made plans to invest $375 million to construct a TV plant in the soon-to-be-launched Dube TradePort special economic zone in South Africa, where MNCs are given benefits such as tax reductions. Samsung Display recently obtained approval from the Vietnamese government to build a $1 billion plant to produce display modules for smartphones that will go on the market next year (Kim Young-won, “Samsung to build TV plant in S. Africa,” The Korea Herald, July 21, 2014, http://www.koreaherald.com/view.php?ud=20140721000807)

After losing a Korea Supreme Court case against its labor union in December, GM Korea decided to integrate bonuses into its base salaries, which would boost workers’ overtime payments and annual raises. This has creating a challenging situation for GM Korea’s peers like Hyundai Motor. Following a favorable Supreme Court ruling, the Hyundai Motor labor union allied with unions at other Hyundai Motor affiliates, including Kia Motors, to demand similar treatment. It warns of fierce struggles if its demands are unmet. Hyundai Motor is likely to continue engaging with its labor unions to prevent strikes from impeding its local production (Lee Ji-yoon, “Hyundai Motor, labor union clash over ordinary wage,” The Korea Herald, July 21, 2014, http://www.koreaherald.com/view.php?ud=20140721000953)

Taiwanese generic drug maker, Standard Chemical & Pharmaceutical Co., announced plans to increase the revenue derived from foreign markets from 13 percent to over 50 percent in the next 5 to 8 years. The firm’s outward focus links to the fact that the firm cannot increase prices at home because the Taiwan National Health Insurance Administration normally sets lower prices for generic drugs, compared to regulatory agencies in foreign countries, because of Taiwan’s indebted national insurance system. Standard Chemical currently in the process of applying for drug certification and permits in the US and China (Camaron Kao, “Standard Chemical plans rise in overseas revenue,” Taipei Times, July 25, 2014, http://www.taipeitimes.com/News/biz/archives/2014/07/25/2003595853)

Political factors have decreased the demand from Chinese buyers for LVMH products in Mainland China and in Hong Kong. According to the company’s chief financial officer, the drop in sales on the mainland relates to a difficult business climate linked to the Chinese government’s effort to fight corruption and conspicuous spending. Furthermore, fewer Chinese tourists have been shopping in Hong Kong due to pro-democracy protests (“LVMH sales slow in Hong Kong as Chinese demand drops globally,” South China Morning Post, July 25, 2014, http://www.scmp.com/business/companies/article/1558885/lvmh-sales-slow-h...)