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The China Opportunity is Over, Feels More and More American Companies


12/09/2016


The China Opportunity is Over, Feels More and More American Companies
The time when China was seen as the world’s biggest business opportunities by a lot of American companies may be over.
 
Following Yum Brands’ ' decision to do something similar and spin off its China operations into a new firm called Yum China last month, this week, McDonalds was reportedly in talks to sell its China unit and license its name to a Chinese company instead.
 
International Paper said in March that it's spinning off its China and Southeast Asia corrugated packaging business and Coca-Cola  announced plans to sell its China bottling business in November.
 
"The trend is that opening retail business on the ground in China as a foreigner is difficult and expensive," said Dan Harris, lawyer at Harris Bricken and author of the China Law Blog.
 
"We have for years tried to push a lot of our clients not to do that, but instead do what McDonald's and Yum Brands are doing, which is … monetize your name and your knowledge without actually being the one who does all the work to make it work in China," Harris said. "China is a tough, tough market."
 
It was looking for "strategic partners" for key Asia markets, McDonald's said in March. A "rigorous review of strategic options" preceded its decision to spin off its China unit, Yum Brands said last year.
Nearly three decades ago, fast food companies were early major entrants to China. The opportunities for tapping the Chinese consumer market appeared to grow exponentially as individual Chinese grew wealthier. While other companies have had intellectual property such as trademarks stolen, U.S. fast food chains struggled with food safety scandals in China and these were roadblocks to business in China.
 
"We have seen a lot of U.S companies struggling [with] their China" operations, said Siva Yam, president of the Chicago-based U.S.-China Chamber of Commerce. "The market is much more mature. We have seen a significant drop of U.S. companies going to China. … On the contrary, they are coming back here." 
 
32 percent of member companies surveyed do not plan to expand investments in China, a percentage that's higher than during the financial crisis in 2009, found an annual report from the American Chamber of Commerce in China last year.
 
According to the survey, published in January while the number of business which have moved or plan to move business operations out of China was one-quarter of the respondents, relocating to the U.S., Canada or Mexico were 38 percent of the group.
 
Analysts said that rising labor and land costs increased challenges for foreign companies further even as Chinese firms have often had the advantage of local business know-how or government support in China. From double-digits a few years ago to just above 6 percent officially, China's economic growth is also slowing.
 
In an attempt to ride the economic boom in China, commodities-sensitive U.S. firms such as Caterpillar invested heavily there and trying to target Chinese consumers were consumer-oriented companies like Apple.
 
Caterpillar is on track for its first four-year decline in sales and revenues as copper prices, often seen as an indicator of China's industrial health, are down more than 40 percent from a 2011 peak. And compared to double-digit growth previously, Apple has reported year-over-year declines of more than 25 percent in Greater China sales since the fiscal second quarter of this year.
 
"If you're waiting for the booming Chinese consumer ... it's just not on the way. The upside is just not what some consumer firms were hoping for," said Derek Scissors, chief economist at China Beige Book International, which regularly surveys Chinese businesses.
 
"Chinese business people and Chinese businesses have a lot of money, and they can afford to buy" major U.S. companies' Chinese units, said Geoffrey Sant, partner in the trial department of Dorsey & Whitney and a former professor of U.S. law in Beijing.
 
(Source:www.cnbc.com)