Reference no: EM133279654

Assignment:

The country's leaders seek to reassure nervous foreign businesses

THE bosses of foreign firms with operations in China grumble that their lives have got harder of late. China used to be a frontier market offering endless double-digit growth. Officials put out the welcome mat, and were open to wining and dining. Regulators were no more bothersome than in other emerging markets.

Now, growth is slowing: official data released this week confirm that the economy grew by 7.4% last year, the slowest rate in 24 years. A crackdown on official corruption has made it impossible to win friends in government. And antitrust authorities have taken a tough line with foreign carmakers, drugmakers and other firms that had hoped their guanxi (connections) offered them protection. Many foreign bosses are now convinced that the golden age for multinationals in China is over.

That may explain the charm offensive the government launched this week. The prime minister, Li Keqiang, led a delegation of Chinese worthies to the World Economic Forum's meeting in Davos, Switzerland. He promised the assembled global business elite his country would "treat Chinese and foreign companies as equals" and "rigorously reject protectionism".

Ahead of his speech the government unveiled a dramatic proposal to ease its restrictions on foreign investment. Over the past two decades, China has maintained a highly restrictive, complex set of rules on how foreigners can invest on the mainland. In the many industries deemed "strategic", for example, they must invest only through a joint venture and must transfer technology to the local partner. Flows of funds in and out of the country are also tightly controlled.

The draft reforms, which are now open for comment, include scrapping almost all of these cumbersome controls. Foreign firms would supposedly be treated the same way as national ones. The clunky system of case-by-case approvals will be replaced by a simpler "negative list": if your industry is not on it, you do not need permission to invest. Daniel Roules of the Shanghai office of Squire Patton Boggs, an American law firm, believes the new law--if and when it comes into force--could usher in a significant and welcome change in the climate for foreign firms.

Mr Li is also pushing for bilateral investment treaties with the United States and the European Union, which could further reassure foreign investors worried about putting more money into China. His boss, Xi Jinping, agreed a sweeping free-trade agreement with Australia on the heels of the recent G20 summit in Brisbane. This provisional deal, which must now be ratified, goes much further than previous accords in opening up China's service industries to foreign investment.

Taken together, say optimists, there could yet be another golden age for foreign direct investment (FDI) into China. A recent report by King & Wood Mallesons, China's biggest law firm, forecasts that FDI could reach $188 billion in 2020, up from about $120 billion last year.

Nevertheless, foreign businesspeople should not break out the champagne yet. The proposed reforms are a strong signal that foreign money will continue to be welcome in China. However, they may do nothing to help foreign-owned firms compete on equal terms with politically well-connected domestic ones, to end the subsidies lavished on state-backed enterprises, or to rein in regulators keen on bashing outsiders. The areas of business most tempting for foreigners, such as finance and the internet, will still have restrictions on foreign ownership. If China's leaders were to take on all these distortions, then they would get a far warmer round of applause at their next Davos appearance.

Questions:

1. Why have foreign firms have a difficult time in China? What are some of the major factors that make doing business in China difficult?

2. What are some of the proposed reforms? How will these reforms make it easier for foreign firms to do better?

3. Why would local firms still have an advantage despite these reforms? What does that tell you about doing business in other countries?

Answer the following questions

Questions

1. What went wrong in terms of stakeholder management?

2. Compare the task of the initiating phase discussed in this chapter with the activities in the case. What should the organization improve?