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China Briefings

Reports on China issued by Samsung Economic Research Institute

Pulling out of China

Pulling out of China

Samsung Economic Research Institute Beijing Office

May 31, 2013

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Foreign companies have reduced new investments in China and are increasingly pulling out of China as business costs surge due to wage hikes, the yuan appreciates, entry barriers are raised and Chinese companies become more competitive.

Methods of pulling out can be categorized into three general types. The most common type is to transfer or sell the China business. Management buyout is an advanced model where the existing management is maintained. However, this method is rarely used as the environment which includes legal protection is incompatible with China. Liquidation is to close or transfer the whole or a part of the China business. This method is prone to issues as it requires restructuring of workforce.

Each method has a different impact on the market, and therefore requires tailored strategies. Foreign companies should first acknowledge China's legal processes. Those who seek liquidation should put special effort into public relations and internal communication. In an environment where China's laws are changed to protect the labor, a conflict with the labor could inflict serious damage on the company's image.

The pull out of China is not at a serious stage as companies still regard China as an attractive investment destination. For their part, foreign companies need to monitor China's rapidly changing business environment and adjust their global base strategy by reassessing the strategic value of China itself.

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