Transcript Managing the Multinational Enterprise

Course structure
Classes 1-4
International business environment
Regional vs. global
Triad and IB activities
Politics, culture, trade and finance
Classes 5-9
Firm-specific advantages and firm management
Organization
Production
Marketing
International HRM
Political risk management
International financial management
Class 10
Country-specific advantages
Classes 11-14
Locational choice and regional management
European Union, North America, Japan, and Emerging Markets
China, P.R. (中华人民共和国)
The Chinese name of China, 中国, means the Middle Kingdom
China
China’s grand “Going out” strategy (cont’d)
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Two overall objectives:
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to help Chinese firms become more competitive
internationally
 2) to assist China in its domestic development effort
China’s massive reform 2013
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Market reform
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Starting in 1978, then-paramount leader Deng
Xiaoping started economic reform away from
Maoism and the Soviet-style planned economic
system. Deng’s reform was a hybrid process,
balancing political pressure from the Communist
Party of China and the economic goals of
modernization.
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In fact, Deng introduced competition and
privatization into the market while maintaining
an autocratic political system, which China terms
“the socialist market economy”.
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Source: Victor Z. Chen (2009) Hybrid enterprises in a hybrid economy. Asia
Pacific Foundation of Canada research report.
China’s massive reform 2013
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Enterprise reform
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In1993, the government under Pres. Jiang
Zemin launched the long-term privatization of
state-owned enterprises (SOEs), which was
officially announced and termed corporatization
reform (to avoid the political sensitive phrase
“privatization”.
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The privatization process was supported by the
two major stock markets in China – Shanghai
SE, established in Dec 1990, and Shenzhen SE,
established in July 1991.
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Foreign strategic (long-term-oriented and
institutional) investors were allowed since 1992.
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Source: Victor Z. Chen (2009) Hybrid enterprises in a hybrid economy. Asia
Pacific Foundation of Canada research report.
China’s massive reform 2013
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Enterprise reform
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The privatization reform accelerated after China joined World Trade Organization (WTO) in 2001.
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Although not all SOEs are listed in the stock markets, most SOEs have sold their assets to private owners via management
buy-out, etc. However, the privatization process has been very partial, and most firms are hybrid.
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Source: Victor Z. Chen (2009) Hybrid enterprises in a hybrid economy. Asia Pacific Foundation of Canada research report.
New leadership, new reform
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Jinping Xi took the positions of the General
Secretary of the Communist Party of China
(CPC) and the chairman of CPC Central
Military Commission from Jintao Hu in 2012
Xi further took the position of the President of
the People’s Republic of China in 2013.
He is also the ex officio chairman of the CPC
Politburo Standing Committee, China’s de facto
top decision-making body. The committee’s total
number of members reduced from 8 under Hu
to only 7 under Xi, suggesting a more politically
concentrated leadership in China since 2013.
Xi’s new reform plan
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Partially because of a more concentrated political leadership,
Xi is able to mobilize allies and put forward a bold reform
plan.
Xi’s new reform plan was disclosed on November 15, 2013 at
the Third Plenary Session of the 18th CPC Central Committee,
and includes four major areas:
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Social equality
Economic dividend
State-owned enterprises
Political stability
Xi’s new reform plan
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Social equality
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Background: there are currently over 27 million migrants
from rural areas into cities in China; about 10 million new
migrants in 2012.
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Include rural residents migrating into small towns and small
cities fully into the Urban Housing and Social Security
System to end discrimination against them in education,
healthcare and other social services.
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Grant farmers more property rights to their lands.
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This requires not only to open migration policy in midsized cities but also to control the size of big cities (e.g.,
some cities have 10s of millions of residents)
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Source: Financial Times China http://www.ftchinese.com/story/001053487.
Xi’s new reform plan
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Economic dividend
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Allowing rural residents to migrate into the cities can
release the rural land for commercial development
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Release the One Child Policy to Two Children Policy
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“Aging before being rich” problem
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Lack of public service to take care of the seniors
Source: Financial Times China
http://www.ftchinese.com/story/001053487.
Xi’s new reform plan
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State-owned enterprises (SOEs)
Market should be the definitive force in
pricing
 Reduce the unfair competitive advantages
of SOEs
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E.g., stop the cheap sourcing of raw materials, public services, and
credit
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SOEs should pay 30% of their profit to the government by 2020,
compared to only 10-30% currently or de facto 0.
Source: Financial Times China
http://www.ftchinese.com/story/001053487.
Xi’s new reform plan
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Political stability
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No need to reduce the role of CPC
Committee in enterprises
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Every SOE has a CPC Committee
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More and more private firms have CPC Committees
No intention to build independent judicial
system
 No intention to allow news media liberty
and political democracy
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Source: Financial Times China
http://www.ftchinese.com/story/001053487.
Next 11 (N-11)
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Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea
and Vietnam – identified by Goldman Sachs and its chairman of asset management,
economist Dr. Jim O’Neill, who also coined the term BRIC.
MIKT (Mexico, Indonesia, Korea, and Turkey) made up about ¾ of the GDP of N-11.
Next 11 (N-11)
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Large, growing, young and diversified population
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Contributed largely into global GDP growth
Relatively unaffected by the global credit crisis
Consumption-driven domestic GDP growth, particularly in luxury
goods consumptions
N-11 & BRIC overtaking G7
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Source: Goldman Sachs Global Economics Paper No. 153.
Keys to emerging-market success
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Source: Shankar, Ormiston, Bloch, Schaus and Vishwanath (2008). How to win in emerging markets. Sloan Management Review, 49(3), 18-24.
A review and Q&A for final
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Final exam:
Friday, December 13, 2013@Friday #142
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8-10:30am for the morning session
2-4:30pm for the afternoon session
Early make-up:
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Wednesday, November 27, 2013@Friday #242
9-11:30am for both sections
A review and Q&A for final
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Final exam
A regular-sized, double-sided cheating sheet is allowed + pen/pencil +
non-programmatic calculator.
35% out of 100%
Part 1: Single choice questions
 1% x 15 = 15%
Part 2: Short essay questions
 5% x 4 = 20%