More and More American Companies Think Their Big China Opportunity is OverPosted: December 8, 2016
’We have seen a significant drop of U.S. companies going to China…On the contrary, they are coming back here,’ says market expert.
For a long time, a lot of American companies saw China as the world’s biggest business opportunity. But that time may be over.
“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.”
— Derek Scissors, chief economist at China Beige Book International, which regularly surveys Chinese businesses
This week, McDonald’s was reportedly in talks to sell its China unit and license its name to a Chinese company instead, following Yum Brands ‘ decision to do something similar and spin off its China operations into a new firm called Yum China last month.
“The trend is that opening retail business on the ground in China as a foreigner is difficult and expensive.”
Coca-Cola announced plans to sell its China bottling business in November, and International Paper said in March that it’s spinning off its China and Southeast Asia corrugated packaging business.
“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…monetise your name and your knowledge without actually being the one who does all the work to make it work in China. China is a tough, tough market.”
— Dan Harris, lawyer at Harris Bricken and author of the China Law Blog
“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 … monetise 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.”
McDonald’s said in March it was looking for “strategic partners” for key Asia markets. Last year, Yum Brands said its decision to spin off its China unit followed a “rigorous review of strategic options.”
Fast food companies were early major entrants to China nearly three decades ago. As individual Chinese grew wealthier, the opportunities for tapping the Chinese consumer market appeared to grow exponentially. But roadblocks appeared: U.S. fast food chains struggled with food safety scandals in China, and other companies have had intellectual property such as trademarks stolen.
“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.”
An annual report from the American Chamber of Commerce in China found last year that 32 per cent of member companies surveyed do not plan to expand investments in China, a percentage that’s higher than during the financial crisis in 2009.
One-quarter of the respondents have moved or plan to move business operations out of China, and of that group, 38 per cent are relocating to the U.S., Canada or Mexico, according to the survey, published in January.
While Chinese firms have often had the advantage of local business know-how or government support in China, rising labour and land costs increased challenges for foreign companies further, analysts said. China’s economic growth is also slowing, from double-digits a few years ago to just above 6 per cent officially.
Starbucks is a notable exception. At an investor conference Wednesday, the coffee chain’s management said it expects to open more than 5,000 stores in China by 2021 and that the market “will eclipse that in the U.S. over time.”
U.S. farmers also continue to do well in China, especially when exporting crops such as….(read more)
Source: South China Morning Post
— CNBC’s Jane Wells contributed to this report.
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