Video #16 - China: Multinational Telecom Firms
Tuesday, January 10, 2006BACKGROUND INFORMATION
The prospect of huge sales and profits has led many multinational firms to invest in Chinese production facilities. Instead, many have found themselves paving the way for stiff competition-from Chinese state-owned enterprises.
The developing corporate China is emerging from overstaffed state-owned enterprises, factory sized sweatshops and troubled joint ventures with Western firms.
It is proving to be a formidable force. In a June, 1998 article, The Economist stated that "...Huawei Technologies...and a handful of equally obscure Chinese firms such as Datang and Great Dragon, have taken nearly half the huge Chinese telecom-equipment market from big foreign companies including Ericsson, NEC and others, which have invested billions in China. Most startling is that they have achieved this not so much by stealing Western technology and producing it cheaply, or even benefiting from the government (although that is how some of them started). ...they have succeeded largely by beating the foreigners at their own game." They are said to have cut costs, improved technology and out marketed the foreigners. Huawei has 70% of the market for broadband access networks, which are designed to fit China's requirements for equipment that can bridge the "last mile" between the network exchanges and housing blocks or hamlets.
China is second only to the U.S. in purchases of telecommunications equipment. It is considered the world's largest market for pagers and the second largest for mobile phones. China's market accounts for about a quarter of the world market for telecom gear and adds what amounts to the entire telephone network of Spain or India each year. In 1998, it already had more telephone lines than any country except the United States.
Analysts affirm that at least 16 large multinational firms are selling telecoms equipment in China, but about half are losing money. According to Dominique de Boisesson, head of Alcatel China: "It is the most competitive market in the world, with the lowest pricing." Chinese firms employ clever young engineers who work with the promise of stock options but earn under $500 a month, less than a tenth of the salary of their Western counterparts. Therefore, Chinese firms are able to charge 10-20% less.
Apparently, foreign companies thought the Chinese would buy older equipment and the cost of research and development would be unnecessary. Instead, each province's telecom authority wanted more advanced networks than their neighbors. Additionally, because of competition, prices for exchanges in China can be as little as half those of neighboring countries. To add insult to injury, local authorities ask the vendor to finance the deal, in return for a share of revenues.
In the past, foreign firms have blamed protectionism for much of their troubles. The Chinese government has restricted the availability of foreign exchange to limit purchases from non-Chinese companies. Such policies are supposed to end, now that China is a part of the World Trade Organization (WTO).
The one area of foreign success in Chinese telecommunications is the mobile market. Daily, more than 25,000 Chinese become new mobile-phone subscribers, and 33,000 buy a new handset.
The next step is for Chinese telecommunications companies to enter the international market. Experts say they do so in growing markets such as Russia, Africa and South America.
SOURCES
"Chinese companies: Silicon Valley, PRC", The Economist, June 6, 1998 big.chalk.com
Barth, Steve, "Risky Business." World Trade Magazine, September 24, 2000 Qiuliang, Luo, "Chinese and foreign businesses compete for China's auto parts market." Hong Kong Trade Development Council, January 27, 2003. tdctrade.com
LESSON PLAN
GRADE LEVEL/SUBJECT:
10-12 grade Economics, International Relations, World History, Geography, International Baccalaureate Programs (IB), Current Events.
PURPOSE:
To present activities to be used in a variety of classroom situations in order to enhance student understanding of the Asian economy and its significance globally.
OBJECTIVES:
Students will be able to:
- Describe recent changes in Chinese economic policy toward foreign companies.
- List industries targeted by multinational companies and Chinese government programs.
- Describe the role of industrial espionage in the development of Chinese technologies.
- Speculate about the future of multinational corporations working within China.
MATERIALS:
- Background information provided.
- Resources on China's toward multinational corporations available at your school's Media Center and the Public Library System in your area.
- Background information available through Internet "search engines."
ACTIVITIES:
May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.
- Use graphs and charts to show the involvement of multinational companies in China.
- Illustrate the growth of specific Chinese industries which have benefited from multinational companies. (telecom, PCs, auto parts, etc...)
- Write an editorial expressing your views about the fate of companies doing business in China.
- Hold a panel discussion including representatives from major corporations, the State Department, and the Chinese government. Debate the pros and cons of doing business with the People's Republic of China.
- Using the information gained in the above activities, prepare a brochure instructing multinational companies on how to do business in China.
EVALUATION:
Individual assignments should be graded by the teacher using established criteria.
Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale: Content 1 = Superior (A) Creativity 2 = Excellent (B) Clarity 3 = Good (C) 4 = Fair (D) 5 = Poor (F)
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