Managing MNCs in China Class 2 Professor Paul Gillis PhD CPA - - PowerPoint PPT Presentation

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Managing MNCs in China Class 2 Professor Paul Gillis PhD CPA - - PowerPoint PPT Presentation

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Managing MNCs in China Class 2 Professor Paul Gillis PhD CPA Guanghua School of Management Peking University 1 Case Study Electronics Industry China accounts for 40% of Local challengers global electronics exports Lenovo (up

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Managing MNCs in China Class 2

Professor Paul Gillis PhD CPA

Guanghua School of Management Peking University

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Case Study – Electronics Industry

  • China accounts for 40% of

global electronics exports (up from 5% in 2000)

  • Most China activity is final

assembly

– Largely controlled by foreign companies (Foxconn) – High value components in hands of global giants like Apple, Samsung, Intel

  • Local challengers

– Lenovo – Huawei – Xiaomi

  • H+X 80% quality at 60%

price

  • All private, but L & H state

supported

  • Bottom of the smile
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Chinese companies have only learned how to organize workers, but have not learned how to organize engineers, they can only make a living in the most inhospitable terrain area of manufacturing. Wang Chuanfu - BYD Smiling Curve - Stan Shih - Acer

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How to do a case study

September 26, 2018

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Surviving Cold Calls

– Give a good answer – Bullshit – Ask a counter-question – Answer a different question – Make a joke – Admit you don’t know

From the Fishbowl MBA

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Analyzing cases

  • Getting oriented

– Read opening section – Flip through pages – Read and reread the assignment questions – Define the problem in one or two sentences

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Levendary Cafe

  • What is your evaluation of the way Levendary Café

has entered the China market?

  • What changes (if any) should Mia Foster make?

Specifically, what should she do about Louis Chen? And what changes (if any) would you propose at headquarters?

  • Prepare a specific action program for Foster to help

her deal with the need for continued growth in

  • China. What should be on the agenda for her

meeting with Chen?

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Analyzing Cases

  • Identifying problems

– Read the entire case carefully – Highlight the key material – What concepts are highlighted? – Revise your problem statement

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Analyzing Cases

  • Performing analysis

– What is fact and what is opinion? – What facts contribute to the problem? – How is quantitative data relevant? – Identify useful information, read between the lines – There are usually no correct answers – Have you defined the problem correctly?

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Action planning

  • List possible

recommendations

  • What lessons are

learned?

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Case summaries

  • Submit for each case we discuss

– Done in groups of up to four students.

  • Maximum of four single spaced pages

– Format flexible, needs to adapt to assignment questions

  • Problem statement for each question (but not always)
  • Summarize key facts – perhaps consolidated for all questions
  • Recommendations/lessons learned

– The ideal case summary resembles a report to senior management/board on the issues presented

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Mao Era

  • 1949 Revolution
  • Private property eliminated by 1957
  • Hundred Flowers Campaign/Anti-rightist Campaign
  • Great Leap Forward - 1958

– Mass starvation

  • Cultural Revolution 1966-1976
  • Mao dies 1976

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Deng Era

  • 1980 – 90% of China’s population is rural

– One Child policy – Household responsibility system doubles ag output – TVEs employ 135 million by 1996 – Gradual price decontrol – Tax reform – Currency Reform – State owned enterprise reform – Special economic zones – WTO

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China’s Macroeconomic Performance

  • Private consumption 2015 is 39.9% v. 68% of GDP in

USA

  • Fixed Asset Investment (FAI) is over 40% of GDP –

real driver of growth.

  • Fundamental issues

– Economic growth powered by two things

  • Fix asset investment (By MNCs, SOEs and PIEs)
  • Exports
  • FAI unsustainable, Exports leading to trade tensions, rebalancing

towards consumption essential

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US China trade in services

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Recent Developme nts 2018 Q1-Q2

January 22

Trump imposes tariffs on solar panels and washing machines.

March 8

Trump raises import taxes on steel and aluminum by 25% and 10%, respectively.

April 2

Beijing strikes back against US trade measures - proposes 25% tariffs on 128 US products including wine, pork, and pipes.

April 5

Trump spikes up tensions: “Considering additional tariffs

  • n US $100 Bn of CN imports”.

June 15-A

Trump announces 25% tariffs on US $50 Bn of China goods – US $34 Bn starting July 6th, and proposed new list worth US $16 Bn for further review.

May 19

“We’re putting the trade war on hold” – US Treasury Secretary. China agrees to buy more US

  • products. US delays tariffs.

April 4

China announces list of 106 US goods to respond with 25% tariffs worth US $50 Bn.

April 3

Trump releases list of 1,300 CN exports worth US $50 Bn to hit with 25% tariffs – targets Made in China 2025.

June 15 - B

China responds by issuing a revised list of US $50 Bn in US products starting July 6th targeting US agriculture.

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Lastest

  • On Monday, the US imposed 10% duties on $200

billion of Chinese imports, and said duty would go up to 25% in January.

  • China responded with tariffs on $60 billion of

imports from USA.

  • Trump threatened to impose tariffs on an additional

$267 billion if China retaliated, which it has. That would bring total to $517 billion (everything).

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Impact on MNCs

  • On average, every US farmer exports $10,000 of

produce to China

  • GM China sales accounts for 40% of global output.
  • Qualcomm earns 57% of revenue in China.
  • Intel earns 24% of revenue from China

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China’s perspective

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  • 500
  • 400
  • 300
  • 200
  • 100

100 200 300 400 500 2009 2010 2011 2012 2013 2014 2015

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Were tariffs the right tool?

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Technology

  • Trump appears focused on balance of trade, while
  • thers focus on technology

– Does China steal technology?

  • Forced technology transfers to JVs
  • Cyber theft of intellectual property
  • Acquisitions of US companies

– CFIUS

– Made in China 2025

  • Reduced reliance on foreign technology

– ZTE case

– Thucydides Trap

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What does a negotiated settlement look like?

  • Increased Chinese imports

– Does this just shift BOT deficit to other countries? – Beware of accounting gimmicks

  • Relaxation of export controls
  • Reduction in Chinese tariffs

– Autos – China already agreed to drop from 25% to 15%

  • Market opening

– Most industries open since WTO – Opening financial services does not create US jobs

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What does future look like?

  • Jack Ma says trade war might go on for 20 years.

– The new cold war

  • Will tensions survive Trump?

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How should MNCs respond?

  • Can production be returned to America?

– How quickly? – At what cost? – Are supply chains too difficult to relocate?

  • Will companies shift to other countries, and does this

help the US?

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Email: gillis@gsm.pku.edu.cn Twitter: @profgillis Blog: China Accounting Blog