For many global companies, China represents a very attractive market in terms of size and growth rate. Yet, it ranks lower in terms of economic freedom and higher in political risk than other countries' markets because it has a communist government. Despite these risks, many popular and reputable companies have established manufacturing operations in China. This is largely because the Chinese government makes sales in China contingent on a company's willingness to locate production there. The government wants Chinese companies to learn modern management skills from other international companies and acquire technology. Some observers believe that when Western companies agree to such conditions, they are bargaining away important industry knowledge in exchange for short-term sales.
Answer the following questions based on the situation described:
- Should companies comply with China's terms?
- Should they risk losing sales by refusing to transfer technology?
This assignment in management is about the topic, “whether multinational companies should open their manufacturing or production units in China”. This question has been a debate in international business community because of the fact that despite the lack of political and economic freedom in the country, many companies want to set up their production houses in China. The concept is discussed in detail in the solution.
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