Still searching for the pot of gold: doing business in today’s China

Abstract

T he China market continues to attract new foreign multinationals companies, in part because such major players as Motorola, Philips and Unilever have already been successful [1]. Philips, for instance, now has more than 50 alliances with Chinese companies. Many trade and service companies have entered the Chinese market in the tracks of their industrial counterparts. Medium-sized and smaller companies are about to follow their bigger colleagues. The question is whether China is really a genuine market or rather mostly an illusory one. The 381 managers of European and US multinational companies we surveyed have high expectations for China's growth potential[2]. With 1.3 billion consumers who have begun to demand more expensive consumer goods such as washing machines, CD players and cars, China looks more attractive than most other countries as a new market[3].But there is even more to lure businesses. China is also a source of relatively cheap, high quality raw materials and an excellent launching site for the export of inexpensive semi-®nished and ®nished products (think, for instance, of sports shoes such as Nike, Reebok, Adidas, Asics Tiger and Brooks). The growth of the Chinese market has been hovering around 8 percent annually for many years. So it is not unexpected to see that a true``run'' on China has occurred. At the moment, over 450,000 multinational companies are active in China, most of which operate via alliances [4].Foreign companies tend to believe they must simply have a presence in this market and only at later stage must they concentrate on the implications. Foreign companies that worked the Chinese market early on have managed to build up a nice lead in terms of knowledge and experience over the late entrants by now. Foreign companies that underestimated the market potential of this region until a short while ago regret this in mid-2003. Some nuances are in place, however. The average margins are still wafer-thin and most foreign companies still operate unpro®tably in the Chinese market. This is due to the complexity and obscure character of this market [5].Operating cost effectively is often an extraordinary feat. Even though many companies are in danger of drowning in a sea of red ®gures, they rarely consider giving up their positions. Most foreign companies are convinced that it is impossible and unwise to ignore the growth potential of the Chinese market. Many of them therefore look at the Chinese market as a long term investment and accept losses sustained in the short and the medium term (Box 1).

Diverging expectations in buyer–seller relationships: Institutional contexts and relationship norms

“…With recent economic reforms, China is fast becoming the world's largest sourcing hub, as more and more companies turn to Chinese suppliers for components and manufactured goods (Jagersma & van Gorp, 2003). Increasing competition paired with the benefits offered by information technology (IT), steeply decreasing communication and coordination costs across vast distances, are fuelling this process.…”

A study on the key factors influencing international franchisors’ choice of entry modes into China

“…Social cultural distance between home country and host county discourages companies from choosing a wholly-owned entry mode (Sun, 1999). The differences in management orientation naturally following from cultural differences have also been addressed by previous studies (Jagersma and Gorp, 2003;Hofstede, 1980). Accordingly, we develop the first hypothesis as follows: H1 The greater the cultural and geographical distance between China (as the host country) and the home country of a franchisor, the less likely a franchisor to adopt direct international franchising as its entry mode into China.…”

An assessment and ranking of barriers to doing environmental business with China

“…Lack of skilled resources in China is limiting embedding of sustainable development practices (Guerin, 1998a(Guerin, , 1998bGuerin, 2001b;Economy, 2004) Process of modernization of Chinese state owned enterprises (Birkin et al, 2007) Loss of local Chinese jobs (McCubbin, 2004) Increasing trend of small scale local capacity in China (Guerin, 2001b) Establishing the Finding reliable business partners in China and the lack of qualifi ed people in China (Jagersma and van Gorp, 2003) appropriate level of A lack of control of Chinese interests in the business (Jagersma and van Gorp, 2003) ownership Foreign investment restrictions for companies operating in China (Tsang, 1999) Fragmentation and Lack of political will in China to increase environmental protection and lack of government (Hills and Man, 1998;Economy, bureaucracy of the action in this area 2004; Liu et al, 2004) Chinese government Failure of government demonstration projects in China (Jagersma and van Gorp, 2003; Bureaucracy of systems impeding decision making, identifying decision makers and leading Gallagher, 2006) to inconsistencies in applying regulations and determinations Relationships between regulators and businesses tend to favour harmony and consensus building and limit prosecutions and enforcement Absence of stringent and effective environment, energy and importing policies, standards and guidelines Tight control of production by the government in China Fragmented marketplace, refl ecting the government fragmentation…”

“…Modernization of SOEs Limited fi nancial resources to properly implement new technologies and solutions in China (Jagersma and van Gorp, 2003) largely a result of high debt levels among SOEs…”