Scorched Earth: Will Environmental Risks in China Overwhelm Its Opportunities?

Of all the risks of doing business in China, the greatest is the threat posed by environmental degradation. And yet it's barely discussed in corporate boardrooms. This is a serious mistake. Multinationals may be more concerned with intellectual property rights violations, corruption, and potential political instability, but the Chinese government, NGOs, and the Chinese press have been focused squarely on the country's energy shortages, soil erosion, lack of water, and pollution problems, which are so severe they might constrain GDP growth. What's more, the Chinese expect the international community to take the lead in environmental protection. If that doesn't happen, multinationals face clear risks to their operations, their workers' health, and their reputations. In factoring environmental issues into their China strategies, foreign firms need to be both defensive, taking steps to reduce harm, and proactive, investing in environmental protection efforts. Coca-Cola, for example, installed state-of-the-art bottling plants in China that operate with no net loss of water resources. Mattel increased the safety of its Barbie-manufacturing process to protect workers' health. With its efforts to reduce greenhouse gas emissions, GE is shrinking its environmental footprint in China; more proactively, GE is working closely with the Chinese government and scientists to develop clean coal, water purification, and water reuse technologies. In considering the value of such efforts, companies can not only factor in reduced risk but also increased opportunity, as they use innovations designed for the Chinese market in the rest of the world. The bottom line: How well multinationals address environmental issues in China will affect their fortunes in one of the most important economies in the world.

• Multinational corporations
• Emerging markets
• Strategy formulation
• Risk management
• Government policy and regulation
• International business