MNCs' Strategic Retreat in China's Non-emerging Markets
Although the number is large, the attractiveness of multinationals is declining for job selectors. "Chinese local companies have seen rapid growth in recent years. Compared with some multinational companies, they are more likely to grow. Some local companies can not only afford to pay, but even offer higher prices than multinational corporations to attract local talents. They are more flexible in their processes and attract talents more than multinationals," said a Shanghai-based executive of a company in Shanghai to China Economic Weekly. The company he serves is from Germany and has more than 100 years of operating history.
Ms. Li, a staff member of a French bank in Shanghai, recalled that the thrilling layoffs not long ago were still lingering. "Originally thought it was an iron rice bowl, but suddenly discovered that everything was not guaranteed." Without warning, the bank suddenly announced a month ago to abolish a third of Chinese employees. "On the evening, my supervisor gave I read the abolition list with my name on it, but fortunately the supervisor replaced me temporarily to keep the job."
For those Chinese talents with bilingual capabilities, cross-cultural backgrounds, and the ability to cope with the domestic and international business community, the attractiveness of foreign companies is gradually decreasing.
Multinational companies in "strategic retreat"
On December 5, 2011, Xu Jie, a spokesman for Danone Dairy China, announced that Danone Dairy Shanghai Co., Ltd. had temporarily stopped production. Two days later, Nestle spokeswoman He Wei said that at the end of December 2011, NestlÃ© would stop its ice cream retail business in East China and stop its ice cream production operations in the region. He Jun said, "Nestle is constantly evaluating the ice cream business and making corresponding adjustments to maintain the long-term development of the business."
The ingenious modification of the above two spokespersons cannot conceal the predicament of their business setbacks. Compared to Danone and NestlÃ©â€™s veiled â€œprovisional suspension of productionâ€ and â€œcorresponding adjustmentsâ€, PepsiCo China appears to be more accommodating and directly announces its withdrawal from its core bottling business.
Better than Pepsi China is Best Buy. On February 22, 2011, Best Buy announced that it would close all retail outlets in mainland China and withdraw from China. Although Best Buy in September of the same year expressed its readiness to return to the Chinese market, there has been no major progress that can be made public.
In the list of multinational companies that announced their withdrawal from China last year, there are also Mattel's Barbie flagship store, Europe's largest building materials distributor, France's Saint-Gobain Group's building materials distributor, "Masson Paris," and toy giant Sinba Toys Group.
More and more high-end American-funded manufacturing industries are quietly retreating from Chinaâ€™s real economy: American toy maker Wham-O has begun to shift orders for 50% of the Frisbee and hula hoops to domestic producers in the US, and these orders were previously included. The Ford Motor Company, which was originally produced in countries and regions such as China, which originally outsourced the production of some auto parts to China, is withdrawing this part of its production operations to the United States; the American ATM giant NCR has transferred some of its ATM production from China to the United States. Columbus, Georgia.
These changes are even more apparent in the field of IT and home appliances. Many brands that had been active in the Chinese market have contracted to the Chinese Front in recent years: In 2008, Whirlpool and Suning signed an agreement to entrust air-conditioning to Suningâ€™s exclusive sales; in 2010, Philips sold TV production and sales to TPV; Panasonic Sanyo's white electricity division was sold to China's Haier Group for a price of 10 billion yen; in September 2011, Electrolux and Gome signed an agreement to commission Gome to OEM and sell their products in China.
Although many actions have been described as a â€œstrategic withdrawalâ€ in response to rising costs such as human resources, these companies that announced or adjusted or exited the Chinese market have undeniably reached a difficult time in their business in China.
China is no longer an "emerging market"
From the macro data, the speed of foreign capital inflows to China began to slow down. According to statistics from the Ministry of Commerce of the People's Republic of China, China's actual use of foreign investment (FDI) for the year increased by 9.72% year-on-year in 2011, compared to 17.4% in 2010.
With the loss of traditional advantages, the giants of transnational corporations conducting business in China are worried. A report from the Economist said that although China is full of exciting opportunities, the operating environment of the company will become increasingly difficult. The Economist Intelligence Unit surveyed 328 multinational corporations that have conducted business in China and found that during the process of transition from China to the new and high-tech economies, the business model of the company will be under increasing pressure, and corporate earnings data. There are few. Some people believe that for many industries, China is no longer an â€œemerging market.â€ The days when companies maintain high profit margins (15%-20%) are gone forever.
On the other hand, the increase in policy entry barriers and the cost changes brought about by the cancellation of preferential policies have also made transnational companies operating in China more difficult than before.
Lin Ruiming, chief researcher of the Samsung Instituteâ€™s strategic management group, found that the investment thresholds in the eastern Yangtze River Delta cities such as Suzhou and Wuxi have been raised. There are not only special preferential policies for new foreign-funded enterprises, but even their industry types, Energy conservation and emission reduction put forward high requirements.
An executive from an internationally renowned multinational corporate public relations department also admitted to the China Economic Weekly that on December 1, 2010, it consolidated the maintenance tax on building and education and the surtax on education fees for domestic and foreign-funded enterprises and individual cities, and consolidated domestic and foreign investment in 2007. Corporate tax rates have increased the company's taxes and fees, but he declined to disclose specific data.
In addition to cost constraints and policy constraints, the strong challenges from local Chinese companies are also new issues faced by multinational companies. An analysis by Off-Highway Research of Construction Machinery Consulting Ltd. found that although Caterpillar, a US construction equipment supplier, has tripled its sales in the Chinese market from 2005 to 2010, its Chinese market share is in the same period. From 11% to 7%. It is not its dead partner Komatsu but the Chinese local company that seizes its market share.
According to the survey report of the Economist Intelligence Unit, the top executives of multinational corporations in China have listed competition from domestic Chinese companies as the second threat, while the top threat is protection of intellectual property rights.
It is rather dangerous for multinational companies to ignore the competitive threats of Chinese companies: A senior executive who once worked for a multinational company made no secret of his contempt for local Chinese companies. The companyâ€™s management tracks the traditional global competitors every week. The market share has changed, but the competition from local Chinese companies has never been ignored. Until one day the latterâ€™s market share exceeded 50%, they were awake but it was too late.
A similar example also happened on Danone. In the Shanghai market, Danone Dairy was beaten by Mashin, Mengniu, and Yili and other local competitors with brutal prices, and was forced to close its factory in Fengxian County, Shanghai in early December last year.
According to the U.S. Chamber of Commerce, a survey of U.S. multinational corporations in China shows that U.S. corporationsâ€™ greatest concern is that Chinese state-owned enterprises have stolen their markets. The Business Climate Survey released by the American Chamber of Commerce in China in 2011 showed that 26% of the companies surveyed had experienced a decline in business, and 40% were expected to decline in business in the future.
Booz & Co, a market consultancy, recently highlighted the four companies in the recent report: Wanglaoji, Foshan Jingxing Hygiene Products Co., Ltd., Bawang International Shampoo and Hangzhou Hancao Biotechnology Co., Ltd. The authors of the report pointed out that China is breeding a group of powerful local leading companies, and competition with them is a new reality faced by multinational corporations. These local companies are closer to and understand consumers, focus on producing cheaper and better alternative products, attach importance to marketing and distribution strategies, and develop new products and innovative sales models that closely match the needs of Chinese consumers.
Foreign companies must also "move and change"
Although a significant proportion of multinational companies still believe that the Chinese market is crucial to their global strategy, if they cannot adjust their advancement in China, similar adjustments and withdrawals of Best Buy, Mattel, Danone and Sin Ba toys in China will be implemented. Become a replica of more and more multinational companies.
According to Xu Sitao, the head of China's global forecast for the Economist Intelligence Unit, multinational companies need to restructure to meet the challenges of local companies in line with their emphasis on China. Although multinational corporations have not come up with large-scale strategic adjustment plans, the corresponding strategic adjustments have indeed started.
A Shanghai-based executive of a multinational company in the equipment manufacturing industry told the China Economic Weekly that the company's response to environmental changes in the Chinese market is to adjust and optimize product mix, upgrade low-end products, and shift to higher-value-added product R&D and production. In fact, when Danone Dairy China spokesperson Xu Jie confirmed to the â€œChina Economic Weeklyâ€ that Danone Dairy Shanghai had suspended production, it also said that it is focusing on creating â€œBiayouâ€ as a strong brand with high added value.
According to the Economist's survey, only 8% of multinational corporations currently have Chinese CEOs sitting at their global corporate headquarters, and 45% of companies claim that their Chinese CEO reports to regional headquarters. It is worth noting that 40% of large multinational companies have indicated that they have deployed very high-level management personnel to Greater China to improve their understanding of China and speed up the decision-making process at headquarters.
In addition, due to the consideration of high cost pressures in the east, multinational companies are trying to shift their industrial bases in China from first-tier cities in the east to second-tier and third-tier cities. Among the multinational corporations surveyed by the Economist, 33% of respondents said that â€œcurrently companies are shifting to second- and third-tier cities.â€ In this regard, the situation of large-scale enterprises (the annual global revenue exceeds 5 billion U.S. dollars) is slightly different - 45% of them are moving to second- and third-tier cities. Companies that moved to more remote areas also accounted for 12%.
Carrefour Group, which entered the Chinese market in 1995, told China Economic Weekly that due to the saturation of large-scale retailers in first-tier cities, Carrefour has been facing pressure from customers to be diverted. On the other hand, we must also face pressure from suppliers' rising raw material costs.
In response to these pressures, Carrefour took steps to adapt to localization. In 2010, Carrefour organized a â€œpromoting homeâ€ campaign and more than 1,500 Chinese employees were promoted. At present, over 99% of Carrefour China employees are Chinese, 95% are Chinese, and 99% of all Carrefour stores are made in China, purchased in China, and distributed domestically.
Hiring local staff is not a perfect solution. At the end of last year, Carrefour's newly established subsidiary, SOCOMO, transported the first 45 tons of Fuji apples and pears from Shandong Qixia Zhongyi Cooperatives to the European market for sale. After â€œFruit & Fruitsâ€ has set up an office in Shanghai, China will gradually become another important origin of Carrefour in the world, supplying agricultural products to hypermarkets around the world.
In the concept of localized development, innovative measures such as "Farmers Direct Supply" made through fruits and vegetables may be an important layout for Carrefour to emerge from the crisis and participate in local competition.
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