The China Venture

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On each axis of the diagram a scale of 1 to 10 gives an indication to what extent the property is realised within the respective partnering company. An ideal profile for installing a successful business is defined as value 10 on each single dimension: Available Distribution Channels Market Knowledge Relationship (Guan Xi) Financial Power & Capital 10 9 8 7 6 5 4 3 2 1 0 Quality of Infrastructure Available Management Resources Suitability of Product & Services Portfolio Production Know-how FIGURE 3-6: Ideal profile of a company investing in China 3.2.9.2 Dimensions of the Profiles Financial Power and Capital This dimension expresses a company’s ability to raise capital for an investment in China. Fund raising is a major problem for SME’s: generally European banks’ do not want to get involved into an engagement with an SME having highly risky strategies like setting up a production facility in China. Also potential Chinese partners being state owned companies with rather unsatisfying performance rarely can afford the funds to invest into such projects. Therefore successful SME’s would either be capable of financing the project completely from their cash flow or would look for other non-Chinese partner companies to raise the necessary capital. Another source of funds may be Government programs to support small and medium enterprises with venture capital. However, usually only innovative and projects involved in 84
high-technology are eligible for these schemes. Hence access is limited to a fairly small number of SME’s. Available Management Resources SME’s rarely have enough human resources to allow their managers to dedicate themselves completely to setting up the new business in China. Therefore it is crucial to plan well in advance an expansion into the Chinese market in order to provide in time the absolutely necessary management manpower for such a project. The person in charge of the China project does not necessarily have to be of European origin - in fact it is very helpful to employ a Chinese for this task as he will not have to overcome the barriers of language and mentality. According to opinions of SME’s having set up business in China successfully management resources is among the most important factors deciding over success or failure of the enterprise. Suitability of Product and Service Portfolio The products and/or services to be manufactured in China should sell well on the Chinese domestic market. Chinese Government does not appreciate manufacturing for export only as this would not benefit the Chinese economy to the desired extent. An exception to that rule are goods requiring a high-tech production lines as in this case the Chinese economy benefits from technology and know-how transfer from the foreign investor. Also total production costs of the goods (raw materials, energy, labour, taxes, etc.) are comparatively high so that - in case one looks for cheap production only - investment in a different country would be more recommended. Production Know-how This dimension describes the level of know-how for manufacturing specific goods. Generally this know-how is very high in SME’s, but may be at a comparatively low level at the Chinese partners. It is a pre-requisite for joint ventures that the SME is willing to share its know -how with the Chinese partner. In case the manufacturing technology should not be disclosed for strategic reasons the SME should only invest into a wholly foreign owned company in China. 85
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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
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 and 92: Reflecting on these points the foll
Page 93 and 94: Success Factors concerning Products
Page 95: Success Factors concerning Company
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
Page 143 and 144: 3.4.2.4 Conversation at the first m
Page 145 and 146: 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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The China Venture

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