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Multinational firms in China move up the global value chain

2020-1-29 13:04


Major players embracing transformation into modern service industries, high-end manufacturers


The operations of multinational companies in China have changed over time, moving up the global value chain as the country has diverted its focus.


China is no longer the world's factory. Today, it is a cradle embracing and nurturing advanced technologies, a production base for more sophisticated and higher value-added products, and one of the best choices for regional headquarters and research and development centers, said experts.


In early July, Japanese electronics company Nintendo Co Ltd said it would start making its Switch video game consoles in Vietnam this year, transferring some of its production operations from China. But only one month later, Nintendo announced that it would team up with China's leading technology giant Tencent Holdings Ltd, which would power Nintendo's online services in China, operate a localized version of the Switch online shop and provide electronic payment services for the games.


In early December, Nintendo announced that its signature Switch consoles would be officially available in China on Dec 10.


Dong Yan, a research fellow at the Chinese Academy of Social Sciences, finds such moves reasonable for business operations, as traditional manufacturing in China, including digital camera production, has been influenced by the fast development of the digital economy and the internet. Vietnam is a better choice given its lower production costs and large young labor force, he said.


After a successful second fiscal quarter last year, Brian Goldner, chief executive officer of the world's largest toymaker Hasbro, announced in late July that the company would reduce its toy production in China and keep it under 50 percent this year due to global trade uncertainties. India and Vietnam would be the new production powerhouses, he said.


But Goldner also stressed that China will continue to be a major producer of quality toys and will remain "an important constituent of the company's global network".


Giovanni Pino, director of the Australian sourcing service provider Sourci, said China would be producing more high-quality equipment, more higher priced and higher value goods as the country moves up the value chain and its manpower develops greater technical skills.


Pino's observation has been proved by events in the consumer sector in China. World leading footwear giant Adidas has halved production of footwear in China since 2010, shifting manufacturing of this category to Vietnam and Indonesia.


But as noted by business media Quartz, China has started to move up the value chain to produce more pricey products instead of churning out Nike and Adidas shoes as it did a decade ago. Luxury brands such as Burberry, Armani and Prada have transferred parts of their production operations to China, according to Quartz.


As explained by Cherrie Shi, senior counsel of legal firm FenXun Partners, major reasons for multinational companies moving their manufacturing bases from China to counties in Southeast Asia include China's rising labor costs, overcapacity in heavy industry, and stricter rules and regulations on environmental protection. On the other hand, technology development and skills of the labor force have improved over time in China.


"Therefore, the transfer has been quite noticeable in heavy and labor intensive industries such as manufacturing and consumer products," she said.


But she also pointed out that most Southeast Asian countries will not be able to build a complete supporting industrial chain or system in the near term. Meanwhile, China's central government has been making continued efforts to attract foreign capital to invest in high-end manufacturing and modern service industries in the country.


"In this sense, manufacturing of low-tech and low value-added products will be moved out of China at a faster pace in the short term. But for high-end manufacturing and high value-added products, there is no sign of transfer to Southeast Asia at this moment," she added.


Since 2015, the central government has promoted the country's manufacturing transformation and upgrading, aiming at a higher production level not only for the consumer goods sector, but also large equipment.


Statistics from the National Bureau of Statistics showed that the added value of the high-tech manufacturing sector increased 9 percent year-on-year during the first half last year. The growth rate for emerging and strategic industries was 7.7 percent. Both sectors have registered faster growth than the 6 percent industry average.


Meanwhile, China has never stopped its efforts to attract foreign investment and multinational companies. The negative list mechanism, which was promoted from the China (Shanghai) Pilot Free Trade Zone to the whole country in 2018, the Foreign Investment Law, which took effect on the first day of this year, and the ongoing financial opening-up have all facilitated multinational companies' deeper reach into the country.


According to the Ministry of Commerce, the actual utilized foreign capital was more than 683.2 billion yuan ($98.1 billion) for the first three quarters of last year, up 6.5 percent from a year earlier. Of the registered foreign capital, 29.8 percent was invested in high-end technologies.


As the frontier for many of the country's first reform and opening-up attempts, Shanghai has always attracted many multinational companies. Shanghai rolled out the first batch of favorable policies to attract the regional headquarters of multinational companies 17 years ago. So far, a total of 710 multinational companies have set up their regional headquarters in Shanghai while another 453 firms have built their R&D centers in the city, according to the Shanghai Municipal Commission of Commerce.


The Shanghai facility of German heating and sun roof solutions provider Webasto now works as the company's regional management headquarters and R&D center. Zhang Lihua, deputy president of Webasto Roof Systems China Ltd, said the company's China R&D team is working together with its clients for the development of luminous glass, the first time that China will lead in the development of a product.


"Shanghai working as a hub for both management and technology talents is one of the major reasons for establishing regional headquarters here," he said.


French industrial group TLD chose to build its regional headquarters in Shanghai in early August. Shanghai's good transport connections to other parts of the Asia-Pacific region, the large scale of the Chinese market, and the sufficient supply of manufacturing talents in Shanghai, have made the city the perfect choice for the regional headquarters for TLD, said Thomas Dorn, the company's Asia chief executive officer.


"Multinational companies have shown their confidence in China's human resources supply and investment environment by setting up R&D centers in the country.

China's world-leading position in mobile internet and emerging technologies such as artificial intelligence is a major attraction to multinational companies," said economist Song Qinghui.





7月初,日本电子公司任天堂(Nintendo Co Ltd)表示,今年将开始在越南生产Switch游戏机,将部分生产业务从中国转移。但就在一个月后,任天堂宣布将与中国领先的科技巨头腾讯控股有限公司(Tencent Holdings Ltd .,简称:腾讯控股)合作。腾讯将为任天堂在中国的在线服务提供动力,运营Switch在线商店的本地化版本,并为游戏提供电子支付服务。


中国社会科学院(Chinese Academy of Social Sciences)研究员董岩认为,这些举措对企业运营来说是合理的,因为包括数码相机生产在内的中国传统制造业受到了数字经济和互联网快速发展的影响。他说,鉴于越南较低的生产成本和大量的年轻劳动力,越南是一个更好的选择。

在去年第二财季取得成功后,全球最大的玩具制造商孩之宝(Hasbro)的首席执行官布赖恩戈德纳(Brian Goldner)在7月底宣布,由于全球贸易的不确定性,该公司今年将减少在中国的玩具产量,并将其控制在50%以下。他说,印度和越南将成为新的生产大国。


澳大利亚采购服务提供商Sourci的董事乔瓦尼•皮诺(Giovanni Pino)表示,随着中国向价值链上游移动,其人力资源开发出更多的技术技能,中国将生产更多高质量的设备、更多价格更高、价值更高的商品。



据芬迅律师事务所高级法律顾问施嘉丽(Cherrie Shi)解释,跨国公司将制造基地从中国转移到东南亚国家的主要原因包括中国劳动力成本的上升、重工业产能过剩以及更严格的环保法规。另一方面,随着时间的推移,中国劳动力的技术发展和技能得到了提高。












法国工业集团TLD选择在8月初将其地区总部设在上海。TLD亚洲首席执行官托马斯•多恩(Thomas Dorn)表示,上海与亚太地区其它地区的良好交通联系、中国市场的规模以及上海充足的制造业人才供应,使上海成为TLD地区总部的最佳选择。



原作者: Shi Jing 来自: china daily