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Divergent answers to the two questions indicate that the company must make some nuanced
decisions; managers are likely to be exposed to political constraints and geopolitical
maneuvering from host governments or at home. The company can use its understanding of
how the host and home governments may prescribe its opportunities to develop the right
approach. To avoid conflict, it could find ways to align its strategy with the prevailing
policies. It could offer only products that are of little interest to the state. The company could
also decide to stay home.
The government of the United Arab Emirates, eager to assure people that the staples of
everyday life will remain affordable, sets price ceilings for manufacturers and retailers.
Several consumer goods manufacturers, such as Unilever and Kraft, reported that some
vendors stopped supplying them when state-imposed prices rendered their businesses
unviable.
Many emerging market governments, worried about the flow of information, keep tech companies under their thumb.
Edward Snowdens accusation that U.S. intelligence officials use data gathered by tech
companies to spy on users has helped the Chinese government justify efforts to protect
consumers from American technology firms.
Telecommunications is seen as a highly strategic industry.
In some Arab countries, technology providers must make available data that governments
deem relevant for national security in return for market access. In 2010 the UAE and Saudi
Arabia threatened Canadian firm Research in Motion (RIM) with a ban because they were
unable to monitor messages sent on its BlackBerry Messenger system. Eventually, RIM
negotiated an agreement with state-controlled telecom operators and government regulators.
Many countries rely on the domestic banking system to finance budget deficits, so they fear deregulation will have a destabilizing effect.
In Indonesia, less than 30% of the countrys 240 million people have access to banks. Yet
officials have pressured the central bank to restrict the activities of foreign banks, and new
policies may require them to become locally incorporated entities.
Politicians may try to use multinationals to promote personal agendas or to deflect public anger.
Foreign participation in Indias retail sector is highly politicized because of the large number
of people employed in mom-and-pop stores. The government announced in 2011 that it
would allow foreign investment in multibrand retailing, but a backlash forced a policy
reversal a month later. In September 2012 the government did another backflip and opened
up the sector. Fierce political opposition will intensify in 2014, an election year.
Challenges to foreign companies can now come from state-backed investigative journalists.
A report filed in December 2012 by CCTV, Chinas state-owned television network, claimed
that chicken sold in China by Kentucky Fried Chicken was loaded with antibiotics. A public
outcry reverberated through Chinas social media, and in January 2013 KFCs month-onmonth sales fell by more than 40%. Volkswagen, McDonalds, and Carrefour have received
the same treatment, as have Mead Johnson, Danone, and Nestl for allegedly fixing the price
of baby formula.
The developed world poses similar risks. Chinese companies often complain about the hurdles they face overseas.
Telecom giant Huaweis bids to acquire U.S. companies 3Com in 2008 and 3Leaf Systems in
2011 were turned down. And when Shuanghui International, a Chinese food company, made
a bid (which ultimately succeeded) for Smithfield Foods, U.S. politicians urged Congresss
Committee on Foreign Investment in the United States (CFIUS) to treat food supplies as
critical infrastructure while evaluating the takeover.
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Companies in industries that are strategically important to the home government can consider
the following approaches:
Stay home.
While the importance of keeping out of foreign countries is obvious for companies in the
defense industry, the strategy is spreading to other sectors, such as retail, which has become
politically sensitive in many emerging markets. If a company enters a strategic sector in a
foreign country, it should develop a playbook that maps the policy changes that would force it
to leave and describes the possible exit options.
During a damage-control trip to the UAE in November 2012, Britains prime minister, David
Cameron, offered to dispatch RAF fighters to a base in Abu Dhabia sign that his
government understood the threats that Iran posed to the UAEs security and that it was
willing to ignore public criticism of this offer of help. A month later, Abu Dhabi quietly
invited BP to bid for another onshore oil concession. Such strategies will become more
important as politicians capitalize on public resentment in order to score points at the expense
of foreign companies.
Companies in industries that are strategically important to host governments face a different
set of challenges. Many of them have discovered that theres no such thing as free market
entry anymore. Choosing which carrot to offer the host government is what matters.
Strike alliances.
Although joint ventures havent been popular for some years, many companies will need to
partnerand share profitswith local players in return for safe passage. Partnerships can
help in many industries. Consider movies. China has become too big a market for Western
filmmakers to ignore, but the Chinese government allows a limited number of foreign films
into the country every year; in 2012 it increased the number of foreign-made movies that
could be shown on the mainland from 20 to 34.
A partnership with a Chinese film company can help shed the foreign label. Cloud Atlas, a
German-made movie, was launched as a locally produced movie in China because 20% of the
funding came from local investors. Of course, when the product involves intellectual and
artistic content, the state pays close attention. In China, the government ensures that all
scripts for radio, film, and television contain messages that are in harmony with state
directives and dont tempt the peoples degeneration. Local investors can also help Western
producers navigate the corridors of power.
To overcome its many challenges in China, Pfizer is taking a three-pronged approach to
alliances. It has teamed up with a local company, Zhejiang Hisun, to tap into low-cost
manufacturing capabilities and a generic drugs portfolio. It has also allied with Chinas
Jointown Pharmaceutical Group to extend its reach to hospitals in the countryside. And Pfizer
has invested $50 million in Shanghai Pharmaceutical Industry, which has vast R&D
capabilities. This strategy has helped Pfizer become the largest multinational pharmaceutical
company in China.
spanning different sectors and time horizons. In some instances, it is trading away its
intellectual property; the company knows it can sell certain products in China only if it allows
local partners to adopt its technologies. The company has no illusions: It makes new
investments as old ones become less attractive. Even if alarm bells go off in one sector, or for
a specific investment, constant diversification ensures that China remains one of GEs most
lucrative markets.