The China Venture

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The most common vehicles for commercial transfer of pure technology are various forms of “technology sale”. These forms differ mainly in the payment methods agreed upon. Another vehicle of “pure technology transfer” are training courses offered to Chinese technicians. They are often a mandatory element within a larger contract, e.g. when complicated equipment has been sold for which operators and maintenance staff need instruction. Training as stand-alone vehicle for technology transfer is rare as it is resource intensive and as there is no immediate need on the Chinese side without equipment purchase. Large companies organise seminars on their technology and products, but this is rather a marketing instrument. Chinese buyers and involved engineers are invited to these events which are held in China or even overseas. 3.3.2.3 Objective 3: Exploiting Comparative Cost Advantages Cost effective production mainly for export purposes is usually a step up the ladder in terms of resource requirements. SMEs who have the intention to use lower factor costs to reduce production cost have several options, but should consider that costs incurred for other than low-skilled manual labour are often as high or even higher than in many Western countries. Possible vehicles include contract production (questionable if in the case of high-tech products quality requirements can be met by the subcontractor), equity and co-operative joint ve ntures and wholly owned foreign enterprises. 3.3.2.4 Objective 4: Providing After Sales Service and Maintenance Sooner or later a high-tech SME may be confronted with the need to service equipment and products sold to China. Servicing from the home base is a suitable option as long as response times are acceptable and as long technicians have to visit the Chinese customers only once in a while. With increasing stock of equipment sold to China, the ongoing service requirements grow and with them the need for local responsiveness. The reorganisation of the SME’s service and maintenance strategy in China may become necessary. However, setting up a service and maintenance organisation in China is not as straightforward as in most other countries. Representative offices are limited to a mere representation function by law, wholly foreign owned enterprises (WOFEs) cannot be set up as service -only companies because the Chinese government restricts full ownership of a company to manufacturing enterprises. However, it is possible that a manufacturing WOFE also provides service and maintenance for products produced and sold in China. Two legal possibilities remain: the foundation of a Chinese-foreign joint venture to carry out service and 114
maintenance or the use of established trading companies who are allowed to offer technical service and maintenance. The first option means to share substantial technical knowledge with a Chinese partner, the second option may not offer the same quality of service because technicians employed by the trading house are rarely specialists for one particular machine, they have to service a whole range of technical equipment. 3.3.2.5 Objective 5: Research and Development Little is known about companies venturing into China to benefit from the scientific resources and to carry out R&D. It might be an option in very specific circumstances, where a Chinese partner, be it a University, a state-run research laboratory or a private research organisation, possesses technology that is of interest to a foreign SME. Cases with MNC involvement are known in the field of biotechnological research and in the aerospace industry. A German-Chinese office for the co-ordination of joint fundamental and applied research is currently in the planning stage but negotiations with the Chinese side are lengthy and difficult; it will be funded by the German federal ministry for research and technology and acts on behalf of major German public and private research organisations. 3.3.3 Assessment of Bargaining Situations for SMEs Understanding the “Bargaining Position” In the short run neither internal nor external determinants can be influenced and altered by the SME. They are fixed given facts which determine the choice of the market entry vehicle. However, the decision on the entry mode is made by a human being; thus all determinants are subject to interpretation. Correct interpretation requires good understanding of all determinants, especially of the role of advanced technology in the Chinese context. Understanding alone is not sufficient: the responsible manager must draw conclusions from the set of dete rminants, he must anticipate opportunities and risks. Knowledge about potential “bargaining partners” such as for example local Chinese governments or potential joint venture partners and the position of the own company in negotiations with these partners, knowledge about its strengths and weaknesses and the sources of bargaining power, are imperative to make the best possible choice. Interpreting the determinants, drawing conclusions and understanding the bargaining position of the partner are a matter of preparation. This is a difficult task for a manager with limited time and no or little experience in the Chinese business environment. 115
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The China Venture: Business Environ
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Table of Contents List of Figures .
Page 5 and 6:
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
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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 and 118: 3.2.13 Case Study: Swisstec, Lyss 3
Page 119 and 120: factor which makes the foreign firm
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: Indirect export and direct export a
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
Page 169 and 170: Semkow, B. W. (ed.) (1995): China F
Page 171 and 172: 6. Appendix 6.1 Fact Sheet People
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