The Challenge for Multinational Corporations in China: Think

Local, Act Global

By Seung Ho Park and Wilfried R. Vanhonacker
July 1, 2007
To succeed in China, multinational corporations must turn the aphorism “think global, but act local” on its head. Although
they have to master the art of local operation, their behavior must match their global standards, as expected by the Chinese.
BUY ARTICLE & PERMISSIONS

The view of multinational corporations in China has changed dramatically since the late 1970s, when the nation opened its economy and welcomed
foreign direct investment, and global players such as Volkswagen, Coca Cola and 3M began exploring the market. During the 1980s, other MNCs such
as Motorola, Philips and NEC were received with open arms. They enjoyed corporate tax rates half those imposed on local companies, and they paid
no duties on their capital goods imports. In general, they were revered by government and consumers alike. Even into the 1990s, as China and its
people developed a better understanding of MNCs, the foreign companies were the objects of awe and admiration. At that time, Chinese consumers
exhibited an almost unconditional preference for MNCs’ products and services.
However, beginning in 2000, when per capita GDP climbed above US$1,000,1 and especially since 2001, when China joined the World Trade
Organization, both the Chinese government and consumers have changed their perceptions of MNCs drastically. MNC projects now are scrutinized
much more for their fit with national interests. Furthermore, MNCs increasingly are getting local treatment. The coming equalization of the corporate tax
rates (to be phased in as of January 1, 2008) between local and foreign companies attests to this. MNCs are now held to the same, if not stricter,
standards than local competitors in terms of areas such as employment standards and environmental standards. And they are finding that those
standards are enforced much more rigorously.
Chinese consumers also have become more demanding. As a rule, shoppers no longer see much difference between products made by Chinese
companies and those made by MNCs. Indeed, their expressed purchase choices often are cast as negative reflections of how much more they had
expected of MNCs. In some ways, China’s consumers feel let down. The cachet of the MNC is no longer there; savvy shoppers now emphasize
objective details and product quality.
MNCs clearly have made significant contributions to China’s development. In 2004, 28% of China’s industrial output and 19% of its tax revenue was
accounted for by MNCs.2 Furthermore, MNCs produced 57% of all exports from China in that year.3 By the end of 2004, 400 of the FORTUNE 500
companies had offices in China. Technology transfer and managerial knowledge are less tangible, but they represent other areas in which MNCs have
had an impact, even though a recent government report declared that... To read the complete article, login or sign-up using the form below.

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One Response to “The Challenge for Multinational Corporations in

China: Think Local, Act Global”
 1. zhangbaoyin Says:
May 14th, 2010 at 10:37 am
useful
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