Many multinationals grow hesitant about China

31 August 2010

BEIJING: Many multinational corporations are becoming more hesitant about their prospects in China, despite the rapid growth of the country's economy.

Vodafone, the telecoms giant, appears set to offload its 3% stake in China Mobile, the world's biggest wireless network operator, at the close of an initial "lock-in" period.

This might prove worrying for China Mobile, given mounting concerns relating to stuttering revenues from voice calls, a trend it is attempting to offset by focusing on value-added services.

"In the short term, such a move could hit its share price if investors are already worried about China Mobile's growth," Vincent Deng, an analyst at Phillip Securities, based in Shanghai, said.

"If Vodafone does sell, there's no reason for anyone to buy China Mobile's shares in the short term."

Earlier this year, Jeff Immelt, ceo of conglomerate General Electric, suggested the regulatory environment was creating significant obstacles.

"It's getting harder for foreign companies to do business there," he said "I really worry about China ... I am not sure that in the end they want any of us to win, or any of us to be successful."

Another issue which may force a rethink among global firms is increasing costs, and GE has shifted construction of its hybrid water heaters from China to Kentucky as wages and shipping expenses surge.

Steve Ballmer, chief executive of Microsoft, stated in May that piracy and counterfeiting in China meant its appeal was limited.

"China is a less interesting market to us than India, than Indonesia," he said. "India is not perfect but the intellectual property protection in India is far, far better than it would be in China."

Ballmer conceded some progress has been made, as Microsoft won a court case against a Chinese insurance provider in April, and four people were imprisoned in Suzhou for copying Microsoft software in 2009.

"It's a good start," he continued. "I am not trying to be pessimistic, I want to be optimistic about China."

Jürgen Hambrecht, ceo of BASF, the chemicals manufacturer, also argued when meeting Chinese premier Wen Jiabao that the requirement to share valuable information with indigenous enterprises was questionable.

"That does not exactly correspond to our views of a partnership," he said.

Peter Loescher, chief executive of conglomerate Siemens, similarly warned overseas corporations typically did not "expect to find equal conditions in the fields of public tenders" in the Asian nation.

Shaun Rein, managing director of the China Market Research Group, reported that surveys of senior foreign executives have shown financially strong Chinese businesses are actually emerging as a primary concern.

According to the company's analysis, Google, the search firm, faced considerable difficulties because it was not branded as effectively as local rival Baidu.

To take a further example, Li Ning, the sportswear brand, is gaining ground on Adidas and Nike in the country.

"A lot of westerners say Chinese cannot brand and cannot market. That's not true," Rein said.

"Li Ning is no longer competing just on price ... Its wide range of products appeals to Chinese consumers, while Adidas has been too slow to introduce new products and has been hit hard by a glut of inventory."

Data sourced from Daily Telegraph; additional content by Warc staff