The China Venture

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3.2.13.3 Choosing the Partners and Establishment of the Company The potential Swiss partners reacted positively to Feintool`s proposal, as they were not direct competitors to one another and could only benefit from such a joint representative office. The proposal requires each company to pay its share of the total costs. At the same time, they are free to use the connections and guanxi which their former agent had built up over many years. 3.2.13.4 Human Resources All the personnel of the former agent were employed in this new agency set up by Swisstec. This ensured the smooth running of the business operations. New personnel is presently recruited to expand the activities to other pa rts of China. Generally, expatriates are employed only for the start-up phase, and local Chinese are given preference over expatriates for the ongoing business. All new Chinese staff is trained in Switzerland in order to be competent partners for Chinese customers. Wages paid have a high content of provision (up to 50%) to give incentive for active marketing and promotion of the Swiss products. 3.2.13.5 Summary For a comparatively small China business, it was not worth Feintool`s while to set up its own sales agenc y in China. The form of co-operation found with other Swiss SME's brought reduced financial involvement and therefore reduced risk, without having to accept the disadvantages of being represented by large trading houses. This act of "self-help" and entrepreneurial initiative brought advantages to all partners and could be a prototype of co- operation for various other applications. Determining a strategic fit with one`s potential business partners is certainly important. Attracting an appropriate potential partner to become your strategic business partner may need some persuasion. Here, it is important that one is able to fulfil the needs of the potential partner adequately in order to ensure a stable long-term business relationship which is mutually benefic ial. The potential ability of the foreign firm to fulfil the needs of potential Chinese partners provide the foreign firm with its bargaining position vis-a-vis the Chinese partner. Technology, which the Chinese firms and government authorities require, is one 106
factor which makes the foreign firm attractive to its potential Chinese partners. Access to foreign markets is yet another attractive factor. Having something attractive to offer one’s potential partner provides one with a basis for negotiation. Successfully conducting the negotiation and working successfully with the business partners to make the cross-cultural venture a success, requires cultural understanding and knowledge. Matthias Kästner, a doctoral student at HSG and a director of a high-tech company wrote: 3.3 Making a High - Tech Market Entry (by Matthias Kästner) Economic reforms under Deng Xiaoping led to a massive increase in foreign trade and to substantial foreign direct investment in China. Having realised that modern technology is essential for sustainable economic growth, China favours ventures with a high technology content. Multinational companies and overseas Chinese investors were the early movers in this new market. To date many MNCs have established considerable operations in China whereas Western small and medium sized enterprises (SMEs) are still largely underrepresented. Only recently, foreign governments have started to promote China -related trade and foreign direct investment by SMEs through special funds, export guarantees, sino- foreign trade fairs and other means of support. The purpose of this paper is twofold: • First, to identify factors which influence the choice of market entry strategies for high-tech SMEs for the Chinese market. Previous research concentrated mainly on determinants which are relevant for the decision making process within large multinational companies, while it was largely ignored that the market entry choice by SMEs may depend on different factors. Therefore, it is interesting to have a closer look at SME relevant determinants. Special focus is given to the role of technology, which is expected to have a significant impact on the market entry mode decision of SMEs. • Second, to help SMEs understand their strategic assets, strengths and weaknesses in bargaining situations with Chinese authorities, customers and partners. Interviews with Swiss, German and Austrian SME managers revealed that prior to China activities most preparation is spent on the investigation of the Chinese market potential and understanding the legal issues. Both are certainly prerequisites for success, however, they are not sufficient. Usually, little time is spent on evaluating and understanding the company’s 107
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The China Venture: Business Environ
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Table of Contents List of Figures .
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3.2.3.2 Special Funds for Setting U
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3.4.1.1 National Culture ..........
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List of Tables TABLE 2-1: THE AREAS
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GBP Pounds Sterling GDB Guangdong D
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1. Introduction: The China Venture
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After a short discussion with the p
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co-operate with other firms, especi
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The Chinese operating legal system
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First of all, Britain’s predomina
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democratic centralism, all governme
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The courts are the state organs exe
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more than three hundred intermedia
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2.2.8 Company Law China’s first n
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Things seem have to become a lot cl
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2.3.1.1 Financial sector developmen
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securities, trading, initial public
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underdeveloped compared with market
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established in January 1996 by 59 p
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Chinese Banks Foreign Banks Financi
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system formulation has been put on
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The separation of production and co
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swap centres (see also above). From
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investors with little experience an
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them, while a branch with a shortag
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Loans, public offerings of shares,
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is often to acquire foreign capital
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2.3.3.2 Debt financing As getting t
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the approval of special authorities
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control compared to national enterp
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usiness in China and related issues
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3. Pre-Entry Strategic Consideratio
Page 67 and 68: While the testing for the general r
Page 69 and 70: of relevant contacts to suppliers a
Page 71 and 72: partner companies with free servici
Page 73 and 74: strengths which his own company lac
Page 75 and 76: Central Committee of the Communist
Page 77 and 78: environment for foreign investment
Page 79 and 80: legal and regulatory environment of
Page 81 and 82: 3.2.4.3 Legal Framework for Foreign
Page 83 and 84: • China’s entry into membership
Page 85 and 86: • stipulates that advanced techno
Page 87 and 88: Government approval. Foreign invest
Page 89 and 90: Co-operative Joint Venture Status P
Page 91 and 92: Reflecting on these points the foll
Page 93 and 94: Success Factors concerning Products
Page 95 and 96: Success Factors concerning Company
Page 97 and 98: high-technology are eligible for th
Page 99 and 100: Available Distribution Channels A m
Page 101 and 102: Available Distribution Channels Mar
Page 105 and 106: Illustrative Case Studies The follo
Page 109 and 110: Which Aspects should SME's Focus on
Page 111 and 112: Strategy No. 1: Have Cash A comfort
Page 113 and 114: expenses have a detrimental effect
Page 115 and 116: As a conclusion, network oriented m
Page 117: 3.2.13 Case Study: Swisstec, Lyss 3
Page 121 and 122: developed within the SME, its impac
Page 123 and 124: 3.3.1.3 The Role of Technology Mana
Page 125 and 126: Indirect export and direct export a
Page 127 and 128: maintenance or the use of establish
Page 129 and 130: Government Central Exploiting Sales
Page 131 and 132: in the most advanced provinces and
Page 133 and 134: network through which the products
Page 135 and 136: Siemens or Motorola, they may have
Page 137 and 138: Chinese partners. He also began to
Page 139 and 140: orders. However, a country may also
Page 141 and 142: Germany/Switzerland China democrati
Page 143 and 144: 3.4.2.4 Conversation at the first m
Page 145 and 146: only after a certain time and even
Page 147 and 148: 3.4.3 Experiences of European Compa
Page 149 and 150: ones who atte nded a course. They s
Page 151 and 152: Another Chinese tactic is, as menti
Page 153 and 154: 4. Post-Entry Strategic Considerati
Page 155 and 156: and the other one in China. The com
Page 157 and 158: experience in operating production
Page 159 and 160: In these two cases, the companies m
Page 161 and 162: 5. References Aharoni, Y. (1966): T
Page 163 and 164: Dony, A. G. (1998): Market Entry St
Page 165 and 166: Islam, I. / Chowdhury, A. (1997): A
Page 167 and 168: Madura, J. (1993): International Fi
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Semkow, B. W. (ed.) (1995): China F
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6. Appendix 6.1 Fact Sheet People
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