Multinational corporations (MNCs) have been an essential part of China’s fast economic growth over the last three decades. They introduced new technologies, nurtured local managerial capabilities, created jobs and upgraded China’s export competitiveness. In return, MNCs found a new source of revenue by extending the life cycle of their mature technologies and products.
MNCs, however, got into a new playing field from the mid 2000s, with the preferential market access and tax benefits they previously enjoyed substantially reduced. The challenge from local competitors has become increasingly fierce. MNCs have had to adjust their strategies and market positioning to maintain a competitive advantage. Unfortunately their adjustment to the reality in China has not been working well.
One measure of their failure to adapt to the new reality is the rapid rise in public crises affecting a large number of globally reputable MNCs, causing serious reputational and financial damage. Most are initiated by local stakeholders, accusing MNCs of wrongdoing through the media. The graph below shows a quickly rising trend of such crises, which have almost become a norm rather than an exception for MNCs in China. During the period of our study (2000-2011) at least one out of every four major MNCs with full-scale operations in China was involved in a public crisis.