China: Open For Business
I actually hate the expression "open for business" when referring to a location, but having just spent two days at a rather jingoistic seminar on China, I cannot get it out of my head. Now after having just read, "Starbucks Caffeinates its China Growth," by Dexter Roberts, Business Week's Beijing bureau chief, I am thinking if "open for business" means anything, it probably means what is discussed in this article.
The article's focus is Starbucks' (SBUX) recent decision to buy out its China partner, Beijing Mei Da Coffee, which itself was owned by private equity firm H&Q Asia Pacific and other shareholders, to take control of 60 stores in Beijing and Tianjin. The financial terms of the deal have not been disclosed, but the press release is here. Starbucks now has 190 stores in 19 cities in mainland China and 430 in all of Greater China.
The article asks, "Why go it alone (largely) now? Well, in reality the China market has become a bit easier to navigate in the last few years, particularly since Beijing entered the World Trade Organization in 2001 and began opening its markets, including the retail market." The article notes that going it alone as a WFOE (not a JV) is a China trend:
More and more companies are now moving to take control of their China joint ventures, says an Aug. 30 survey by the Washington (D.C.)-based U.S.-China Business Council. And 75% of new investment is going to wholly foreign-owned enterprises, rather than to ventures with Chinese partners. All told, 81% of the Council's members reported their China operations as being profitable.
Starbucks is now talking of opening 40,000 stores worldwide (by when?) with thousands of those in China. But this article is about more than just Starbucks; it is about how China is changing so much for the better that 75% of all new China investments are going into wholly foreign-owned enterprises (WFOEs) without any Chinese ownership whatsoever. In other words, the joint venture (jv) is dying and American companies in China are thriving on their own.
I hate saying it, but China apparently is indeed open for business.
Comments (8)
Read through and enter the discussion by using the form at the endDavid Li - October 29, 2006 6:47 AM
JV has always been a choice of necessities, either by regulation restrictions or by risk reduction. It shouldn't be a surprise to see business going WFOE.
However, some sectors are getting relaxed treatments such as retailers while other are actually becoming more restrictive, especially those culturally related: games and animations.
By the way, the WTO timetable of China seems to cause Wall Street China hype talks. Yum has also make statement of 20,000 Pizza Hut/KFC/Taco Bell in China from the current 1,700. Along with the RMB revaluation and availability of foreign banks' RMB commercial business in 2007, I guess we are going to see another big wave of China investment.
I wonder how hard Beijing will try to direct this wave toward West regions. One of the most interesting news is Softbank has just announced an USD$150 millions investment in real estate in Chongqing. I don't think Softbank has invested in brick for the past decade.
David Li - October 29, 2006 7:47 PM
Just come cross this very informative segment on NPR titled "China, Wages, and Wal-Mart " (http://www.onpointradio.org/shows/2006/10/20061026_a_main.asp ) discussing about the recent unionization movement targeting mainly at WFOEs and an quick overview of union laws in China.
China Law Blog - October 31, 2006 12:43 AM
Mr. Li --
Thanks for checking in. I did not know that about Softbank. Indeed, I hardly knew they were still around. Guess old names die hard. Just read that Idealabs (remember them?) has a lot of money in a Chinese solar start-up. I do think this whole push West may get interesting but I see it has happening only on the margins. I see it as a push, not a true compulsion.
China Law Blog - October 31, 2006 12:45 AM
Mr. LI (ii) --
Thanks for checking in and thanks for linking over to that NPR segment. I will have to give it a listen. Seems things are getting a little tougher for MNCs in China these days.
David Li - October 31, 2006 5:48 AM
Softbank is doing quite well. The latest return on investment is Shanda network and probably Alibaba's Yahoo deal. Softbank has been focused in Chinese Internet companies and their VC office in Shanghai has been pretty busy partnering in several industrial parks development around here. Idealabs, huh? I am surprised to hear they are still around, let along investing in Chinese solar company.
Interesting how these Internet bubble era companies now all surface in China. ;)
David Li - October 31, 2006 6:33 AM
The NPR program is quite interesting to listen to. MNC is main lobbying force to stop unionization and law for minimum wage in China.
It's interesting to hear, especially while the chairman of ICBC is being accused of hurting shareholder value by giving too much to the employee. ICBC apparently has highest average salary among the 4 major banks and one of the leading in China's SOEs.
Pretty interest contrast. It would actually be interesting to compare about the role of management in China and US. US managements are now compensated using stock market performance measurement and make Wall Street analysts their primary audience. The interesting congressional hearing of Enron CEO Skilling (http://www.time.com/time/nation/article/0,8599,201536,00.html ) shows a CEO doesn't know his business. Chinese SOEs management have been known to rather spreading the profit in the company then turing the profit to the government. With the recent push on the IPOs of the SOE, the Beijing government seem to try to leverage the Wall Street analysts to protect their asset. ;)
China Law Blog - November 1, 2006 12:57 AM
Mr. Li --
Thanks for checking in. Interesting re the internet companies surfacing in China, but not terribly surprising.
m - September 2, 2009 11:24 PM
How do you fight fraudulent transactions in doing business in China? It seems that I became a victim of one of them?
Kind regards,
Mina