Deadly Sins of International Business Blog

It looks like Honda’s China troubles are over for now. Its Chinese joint ventures, Guangqi Honda Automobile and Dongfeng Honda Automobile, will resume operations after having made significant concessions to workers who went on strike mid-May. There were complaints of working conditions and low wages. Honda agreed to raise wages by 25 %. Yes, twentyfive percent. Such a significant increase can only mean (or at least hint to) that Honda has been doing what many multinationals are often accused of – the exploitation of cheap local resources, such as labor. And in fact, workers at Honda or at similar plants earn as low as 1,000 Renminbi monthly, about 150 US$ and have not received a wage increase in five years. What’s the lesson to be learned? Moving production to a low-cost location is not necessarily a bad thing – after all, there’s very little choice for companies in some industries if they want to stay competitive. Besides, foreign direct investment is also helping the development of local economies. However, creating ever worsening wage disparities at foreign subsidiaries of multinational companies over time makes them less welcome than they may have initially been. Besides, in Honda’s case, the company has ambitious plans of growth in the Chinese market. Last year, it produced about 600,00 vehicles in China, but it is looking to increase its capacity by 30 percent to more than 800,000 cars by 2012. The expansion banks on increases in domestic purchasing power. And this is where being not locally responsible becomes a very short-sighted strategy – not only did Honda nothing to contribute to increases in purchasing power, it is also slaughtering its own image.

Other Japanese multinationals in China have recently announced similar increases in output – Nissan plans to produce more than one million cars by 2012, Sharp will double the number of retail outlets, fashion retailer Uniqlo intends to open 1,000 stores by 2020. What happened to Honda recently provides a good lesson for these Japanese companies and for all multinationals from other countries.

As readers of this blog know, I enjoy reporting the blunders companies make in international markets. But I have to admit that it’s almost as much fun to find examples of multinationals adapting their products for host markets. Such adaptation (a.k.a. local responsiveness) is one of the key choices such firms face (along with decisions regarding the extent to which resources and activities will be shared/integrated). The recent 40th birthday of Sesame Street reminded me of their expansion efforts. If you’d like to read more about this, visit the International BS Blog by Andre Sammartino.

Starbucks leaves Australia. One of the latest international business failures comes from one of the most successful retail companies in the world. Starbucks, which operates more than 15,000 coffee shops worldwide, in July announced that it will close 61. Remaining will be only 23 stores in Sydney, Melbourne and Brisbane. What was going wrong? Many people claim that Starbucks failed to understand Australia’s very sophisticated coffee culture. Others take it a step further and accuse Starbucks of arrogance typical of US-based multinational corporations