The China Venture

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influence all activities. A deeper understanding of economic and social connections is virtually impossible without having at least a basic knowledge of the Chinese language, way of thinking, and culture. Only a dedicated preparation well in advance helps to avoid the most common errors when setting up business in China: 104 Type of Risk Consequences Risks from false estimation of the economic environment Risks from intercultural misinterpretations Risks from the human resources environment of the company Risks from the environment of expatriates losses through unforeseen changes of China’s economy politics (e.g. project acceptance, custom and import regulations) false investments due to the fact that market prognoses were wrong, or strategy non-fit (market entry, JV -foundation, technology transfer, product design, marketing) costly errors when evaluating projects, partners and location wrong estimation of Chinese partner’s performance and intents (different wishes and conditions at common projects) Difficulties at the acceptance and realisation of delivery of goods and projects (further negotiations, delay of time, delivery and payments) Unexpected changes concerning priorities, wishes, regulations or conditions of the Chinese partner or involved State partner delivery delays or production stops through unreliable partners or through faults in the Chinese infrastructure technology setbacks through quality deficits mutual mistrust and false estimations insufficient information transfer delays and failures at negotiations and in project planning Too much expectations from Chinese workers and insufficient instructions at the workplace Frustration and early repatriation of expatriates damage of company image in China errors and failures at the search and selection of qualified employees (Chinese workers and expatriates) Management problems when working together because of insufficient preparation and instruction of new employees or new projects Loss of quality because of insufficient training of employees High expatriate costs at "repatriation-actions“ Wrong investment in training and education at high labour fluctuation (Chinese workers very often quickly change jobs) personal load through different life-style and conditions and lack of adaptability at the host location Tense situations and problems within families or partnership Career break in case of failure early repatriation TABLE 3-5: Risk analysis of investments in China 3.2.8 Key Success Factors in Chinese Investments The following tables give an overview of the key success factors for an engagement in China. Some of the factors are valid for any business in China, whereas others are specific for one or the other form of co-operation: 104 China - Wirtschaftspartner zwischen Wunsch und Wirklichkeit, Reisach e t al., 1997, p. 146. 80
Success Factors concerning Products and Markets: 105 Success Factors Success Criteria Chinese clients respectively suppliers knowledge of needs, purchasing power market volumina, market structure (regional, client and product oriented) consumer habits Products market adapted product choice and product spectrum adoption at local consum er habits (e.g. washing of clothes with cold water only) and distribution channels (critical: perishable goods) matching quantity, price and quality Price costs of production, delivery and supply import/export: including customs, transport and insurance joint ventures: incl. compensation and benefits (locals and expatriates) costs for all kind of raw material, auxiliary material and finished products (incl. energy) cost of waste disposal lease for land use and tax write-offs of manufacturing facilities, machines and production facilities travel costs for negotiators, company-own consultants, training and delegation journeys, engineers and salesmen competitor situation Technology & Know -how price sensitiveness of customers technology transfer, adaptability to customer income-situation, needs, and quality degree (power supply irregularities) legal protection of industrial property training need of sales department employees and clients Competition local, regional and international competitors and their product spectrum, distribution channels and strategies For Licensing Agreements and Joint Ventures additionally: toughening up own and future competition Sales & Marketing brand name usable within China or introduction of new brand name for the new China market reputation and image (of quality) of company and brand brand protection take into consideration the Chinese symbolic meaning of certain signs, words, colours and forms Environment trade roots, ports (Shanghai, Hong Kong) infrastructure for transport, warehousing and distribution, delivery times and costs (and security) customs and tax aspects actual foreign economy and trade policy For JV and WFOE’s additionally: long negotiations and permits of state involved persons and offices TABLE 3-6: Key success factors concerning products and markets 105 China - Wirtschaftspartner zwischen Wunsch und Wirklichkeit, Reisach et al., 1997, pp. 139. 81
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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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Page 43 and 44: system formulation has been put on
Page 45 and 46: The separation of production and co
Page 47 and 48: swap centres (see also above). From
Page 49 and 50: investors with little experience an
Page 51 and 52: them, while a branch with a shortag
Page 53 and 54: Loans, public offerings of shares,
Page 55 and 56: is often to acquire foreign capital
Page 57 and 58: 2.3.3.2 Debt financing As getting t
Page 59 and 60: the approval of special authorities
Page 61 and 62: control compared to national enterp
Page 63 and 64: usiness in China and related issues
Page 65 and 66: 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: Reflecting on these points the foll
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 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
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3.4.2.4 Conversation at the first m
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only after a certain time and even
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3.4.3 Experiences of European Compa
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ones who atte nded a course. They s
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Another Chinese tactic is, as menti
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4. Post-Entry Strategic Considerati
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and the other one in China. The com
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experience in operating production
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In these two cases, the companies m
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5. References Aharoni, Y. (1966): T
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Dony, A. G. (1998): Market Entry St
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Islam, I. / Chowdhury, A. (1997): A
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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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