Let me start by completing the sentence in the headline. When China bites, sales decline, profits sag, and the future of a foreign enterprise in the country becomes fuzzy, its investment runs into significant jeopardy, and all the assumptions about the nation's potentials go haywire.
Honda, Nissan, and Toyota are finding out how unpredictable China can quickly become, and the experience of these three Japanese auto manufacturers should have cautionary lessons for other foreign companies operating in the country. In recent weeks, some Chinese people have held protests against Japan and have taken out their anger against Japanese companies and business interests. Some of these protests have been violent and resulted in the destruction of buildings, cars, and other goods manufactured by Japanese enterprises. They've not even spared Japanese businesses that have local joint venture owners.
The implications of those protests and the ensuing boycott of Japanese-branded products -- even by Chinese people who don't agree with the protesters -- can be devastating. Today, Honda Motor Co., for example, slashed its fiscal 2012 earnings and sales forecast by 20 percent, citing a slump in demand in China, according to a Wall Street Journal report. Both Nissan and Toyota have also hinted sales in China would decline due to the escalation of problems in China and the growing calls for boycott of Japanese goods in the country.
Bashing Honda
The protesters had no issues with Honda itself; they were irritated with Japan's actions during the second world war and its government's current policies. In fact, many of the vehicles destroyed were seized from Chinese nationals. There was nothing Honda could have done to protect itself, but it is still paying a price for actions it couldn't control. The WSJ report noted above added:
In an early indication of the toll the bilateral standoff is taking on the car maker's bottom line, Honda cut its profit forecast from its joint ventures -- almost all of which comes from operations in China -- to ¥80 billion, below a previous ¥120 billion estimate and down from ¥100 billion last fiscal year.
Earlier this month, Honda said sales in China plummeted 41% in September from a year earlier. Nissan saw its sales tumble 35% and Toyota reported a 49% drop. The fall in sales for Japan's big three auto makers came after the outbreak of sometimes violent anti-Japanese protests in China last month sparked by Japan's renewed claim to some contested East China Sea islets.
OK, let me get this right. The Chinese are willing to boycott Japanese goods, even if they were produced in China by Chinese nationals whose livelihood depends on it, or even when the plant is part-owned by local investors? That shouldn't be news to many business executives who have always been concerned about the potential for dangers from Chinese nationalism. But the attraction of China continues to outweigh its hurdles.
The history of Western engagement with China tells it all. First, Western companies moved manufacturing to China to gain a competitive edge by taking advantage of its lower-cost labor option. Then they began eyeing the potentially huge -- though still emerging -- Chinese middle-class as holding the possibility for future sales growth. As with everything China-related, though, the reality is often much more complicated than most Western CEOs and investors can ever imagine.
If that's the case -- and it certainly is based on the experience of Honda -- then Western companies and especially electronics manufacturers need to be aware of the anomalies inherent in the Chinese experience. I am not asking anyone to abandon China, but it still makes sense to have contingency plans in place for when China bites.
"Isn't that a kind of stupidity? shooting oneself in the foot is not a wise way to protest against unfavourable foreign country policies."
@Hospice: I agree. It does seem stupid to damage your own property and set fire to factories in your own country even if it might be owned by some foreigner. What about all that labor that the factory is giving employment to.
This has to do with China's patriotism and deep sense of nationality. Foreign companies might want to create new brands or divisions, designed for the Chinese market... Nissan has Infiniti as its luxury brand, but it could create a new one that is closer to chinese clients.
You don't live on patriotism and nationality when your economy depends on foreign investments, do you? China may be an attractive market, but the country's industry is not much thing by itself.
Taimoor, I agree with you. Emotional feelings are good and there are different ways to express it. But in China they expressed their emotional feelings in a distructive way by damaging some of the Japanese company’s factory and facilities. From a company point of view, they may lose trust on government and peoples , when such things are happening.
Every nations does this to some extent. The French boycott everyone when they get disgruntled. Argentina stopped buying UK goods when the Malvenas (Falklands) issue flared up. The issue is China is a big potential consumer and everyone is hoping to make hay there. Imagine if the USA boycotted all goods made in China or started smashing up all things Japanese or British etc. It will pass as it always does.
In the case of Chinese anger towards the Japanese, the resentment goes back decades and is not being fueled by a single event. This is why I think Japan has a lot to lose in this case.
@Bolaji - "I think Japan has a lot to lose in this case."
We can say so. But a Japan with no interest in China could be a real threat China's progess, and China should understand that. Both countries should work to safeguard their bilateral relations and leaders should make sure their people understand that (IMHO).
Hospice, That logic or rational thinking is not being displayed in China right now by the people protesting against Japan. Logic and nationalism sometime don't go together.
This has happened even in India where Indians forced Suzuki to shut down the production of their Car plant, Similar protests and shut downs happned in Honda Scooter plant.
These agitations happen in the garb of labor unrest but are actually targeted at these Japanese Auto companies doing good business in India and benefitiing the local industry and employment as well
It's one thing to boycott products - seizing property that belongs to someone else and destroying it goes to another level. It does point to addtiional business volatility beyond the usual marketing mishaps.
It happens everywhere Hospice, especially in my country SL. They take it forcefully whenever they see a bare land for some period of time. After that removing them from that place is virtually impossible.
"It's one thing to boycott products - seizing property that belongs to someone else and destroying it goes to another level"
@Eldredge: When protestors are protesting they're looking to get themselves be noticed and get in the news headlines by doing as much damage as they can. They do not worry about whose property they're damaging and who will ultimately lose.
@Bolaji - Absolutely true! Certainly, doing business in China (either as a supplier, or as a marketplace) offers enormous potential. I am not certain that comapnioes have properly assessed the risks that counterbalance the potential.
@Bolaji - Absolutely true! Certainly, doing business in China (either as a supplier, or as a marketplace) offers enormous potential. I am not certain that companies have properly assessed the risks that counterbalance the potential.
I have heard from some marketers that the more they become invested in the online culture like us, this potential will increase. But keep in mind the differences in policies (censorship, etc).
Bolaji, Chinese people's can boycott any foreign products, including those manufactured in their domestic market because they have duplicates for all such products. But such emotional feelings will obliviously disappoint the foreign investors, who build business on trust of domestic market and people. I think next time onwards companies may have a second thought before investing in China, especially when situations like manpower is not so attractive like older days.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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