PMGM7014 Chap.3 Political Risk for Foreign Firms in China
Political Risk for Foreign Firms in China
Two cases, one structural problem
The syllabus assigns two political-environment cases for group discussion: Google's handling of censorship in the Chinese market, and Nike, seen through both the NBA controversy of 2019 and allegations about forced labour in cotton supply chains. On the surface one is about software and the other about shoes.
Underneath, both firms need something that only the Chinese state can grant, such as a licence, broadcast access or a steady supply base, while their standing with customers, employees and lawmakers at home can be damaged by the price they pay for it.
This chapter reads each decision as a choice between costs, not between right and wrong answers.
Google: from filtered entry to redirect to a second try
Google wanted its servers inside China to escape the delays that the national filtering system imposed on its offshore site. That required a government licence for the local domain, and the condition was that results be filtered under Chinese law.
The service launched in January 2006. Its leaders never fully agreed on the bargain, and China brought in only a small fraction of revenue even while Google's search share there was climbing. In early 2010, after cyberattacks aimed at activists' email accounts, Google said it would stop filtering and moved mainland users to its Hong Kong site.
A second, secret attempt, known as Dragonfly, surfaced in 2018 and was declared terminated in 2019 after sustained opposition from the company's own staff.
Nike and the NBA: silence has a price too
In October 2019 a single social media post by a basketball executive in support of Hong Kong protesters led Chinese broadcasters to drop NBA games and several Chinese sponsors to suspend ties.
Nike, the league's uniform supplier and a brand known for social-cause advertising at home, said nothing publicly and removed the team's goods from its China stores. American politicians then criticised both the league and Nike.
The case lets you weigh a real commercial stake in China against a reputation built on speaking out.
Supply chains carry political risk as well as markets
The second Nike case turns from selling in China to sourcing there.
A large share of the world's cotton comes from Xinjiang, where reports of forced labour were mounting by 2019, while the Chinese government described its facilities in the region as vocational training centres. Nike's long supplier relationships and its membership of labour-standards bodies are set against the difficulty of verifying anything in a layered and closely controlled supply chain.
Note that the case opens with an invented scene; rely on its data, not its drama.
What the chapter equips you to do
The paid chapter gives a four-question test for any foreign firm under political pressure, a dated timeline of Google's decisions, a diagram of the pressures from each country in the NBA dispute, and a finished answer for a brand whose China supplier is attacked by a home-country campaign.
Each tool asks you to price every option for the host state, home stakeholders and the firm itself.
What this chapter covers
- 01
Licences as the host state's main lever over entry
- 02
Self-censorship as the price of operating onshore
- 03
Google's 2010 withdrawal and the Hong Kong redirect
- 04
Why the Dragonfly project collapsed from inside Google
- 05
The NBA dispute and sanctions from Chinese partners
- 06
Home-country backlash against staying silent
- 07
Forced-labour allegations as a supply-chain political risk
- 08
Stay, reduce or exit: comparing irreversible choices
Worked example · free
Decide whether to accept a filtered local licence
- 3Identify the host-state lever and what the licence buys, such as speed, local payment and access to schools.
- 3Identify the home-side stakeholders who could punish acceptance, and how they would find out.
- 2Set out the mitigations that shrink the conflict, drawing on what Google tried at entry.
- 2Recommend, and state the trigger that would lead the firm to exit.
Key terms
- Great Firewall
- The system of laws and filtering technology that requires Chinese Internet providers to block listed foreign sites and keywords, which slowed or blocked searches routed to Google's offshore servers.
- Self-Censorship Condition
- A requirement, attached to a licence or market access, that a foreign firm itself removes content the host government deems unacceptable; for Google it was the price of an onshore Google.cn licence.
- Project Dragonfly
- Google's confidential plan, revealed in August 2018, to build a filtered search engine for China, which drew protests from employees and rights groups and was declared terminated in July 2019.
- Home-Country Pressure
- Demands placed on a multinational by stakeholders in its country of origin, such as legislators, shareholders, employees and activists, which can conflict with what the host government requires.
- Supply-Chain Political Risk
- Exposure that arises because suppliers sit in a region or country under political dispute, so that sourcing decisions can trigger sanctions, import bans, boycotts or reputational damage.
- Fair Labor Association
- A multi-stakeholder body founded in 1998, with Nike among its founding members, that accredits company labour-compliance programmes against a workplace code which prohibits forced labour.
Political Risk for Foreign Firms in China FAQ
Did Google get its Google.cn licence in 2006 or 2007?
The first Google case says in its main text that the licence was acquired in 2006 after Google agreed to filter results, while its chronology exhibit lists June 2007. The launch date of 27 January 2006 is not in dispute. In an answer, give the launch date, and if you need the licence year, cite the text and flag the exhibit.
Did Google close its China search site in 2010 or redirect it?
The two Google case files word it differently. The first says Google.cn users were redirected to the uncensored Hong Kong site from 22 March 2010, with results still filtered by the national firewall. The second says the mainland site was shut and users directed to Hong Kong. Redirected, with the date, is the more precise description.
Why did Nike stay silent when the NBA controversy broke?
The case records the silence and the removal of Rockets goods from Nike's China stores without giving a company explanation, so any motive you state is an inference. The strongest reading uses the exposure figures: China supplied a sizeable, fast-growing slice of revenue, and Chinese partners had just shown how quickly they would cut ties with the league.
Is the fictional opening of the Nike human rights case a problem for my presentation?
Only if you treat it as history. The authors invented the opening situation, including a pseudonymous executive, to make the decision vivid. The supply-chain data, the dates of the Fair Labor Association and the figures on Xinjiang cotton are presented as factual, so cite those and describe the scene as a teaching device.
Should my advice to foreign firms be to avoid China when politics gets difficult?
Rarely. Both cases show that exit is the least reversible option and removes any influence the firm had. A stronger answer compares staying, reducing exposure and leaving, prices each for the host state, home stakeholders and the firm, and names a trigger that would justify withdrawal later.
Exam move
Take the four-question test from this chapter and apply it to a foreign firm in a recent news story involving China that the course cases do not cover. On one page, name the state that holds the lever, the audience that punishes speech and the one that punishes silence, what the firm can actually verify, and which of its options cannot be undone.
Then rewrite your recommendation from the host government's point of view and check whether it still holds. Bring the page to the group presentation as a comparison case.
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