A dramatic development is in prospect within the EU economy at the end of this year. In 2001 China joined the World Trade Organisation (WTO) and in its accession protocol was a clause that allowed other WTO members to treat it as a ‘non-market economy’ and thereby protect their home markets from Chinese imports. But there was an expiry clause in the protocol that triggers on December 11th 2016.
Views differ about the meaning of the clause, but it is generally accepted by EU officials that at the end of this year China will gain ‘market economy status’. The impact of this will be enormous – as it will allow China to penetrate the EU market at prices below their production cost. Furthermore the UK has already used its forthcoming departure from the EU as a basis for beginning informal talks with China on its own free-trade agreement. Both the EU and the UK may think that free trade may give them greater access to China’s huge domestic market, but the advantage will almost wholly be with Chinese enterprises.
Today there are over 20,000 companies in China that are poised to become multinational – adding one fifth to the total number of multinationals in the world. Therefore this perfect storm of change will not only affect already vulnerable product sectors such as steel and industrial chemicals, but also engulf major consumer goods – with Chinese brands displacing many household names.
The pace of change is likely to be extremely rapid with exports of rebranded Chinese products being followed by the takeover of weakened and therefore cut-price European competitors and the strategic realignment of supply chains. Chinese companies will be hungry for the best available talent and will be prepared to pay for it. EU companies will be ill prepared for the sheer speed of the assault or its manoeuvres (read ‘The Art of War’) and HRM responses will be conditioned by a past experience and training that no longer has any utility or relevance.