Business in China

1 January 2017

What challenges do foreign firms face when they seek to transfer their home management style to China? 2. Discuss the reform of Chinese state-owned enterprises and related government policy changes. Evaluate the impact within the state-owned businesses and the chinese society. Chinese management Doing business in China requires a throughout understanding of their management philosophy and practices. Their management style is different in many respects from mainstream Western Management and is characterized by a combination of a paternalistic approach and an intuitive, entrepreneurial, and fast-decision making style.

Challenges for foreign firms in China MNEs generally start off with clear advantages in that they have better industry specific technology, know-how and innovation capabilities and also they have higher level of managerial competence in such functions. There are many advantages of operating in China: * Cheap factors of production, especially labour * Benefit from tax breaks * Operating in a low cost base for export to 3d countries * Secure access to market. China has reduced many of import quotas but remain high in some sectors Challenges: Everything is possible, but nothing is easy’.

Disputes with Joint Ventures partners due to differences in management style. Family is hierarchical and extended. Family power distance is evident with most major business organizations. Chinese families retain administrative control and family members hold the top management positions. Western worker will need to balance his or her interdependence within the highly collectivist Chinese business and family structure. * Unfamiliar local HR practices * Insufficient infrastructure (shortages of power and electricity) Many MNEs are equipped with sophisticated marketing and brand building skills.

But in order to deploy their skills, MNEs need specialised inputs like detailed market research that is often poorly supplied in China. If they perform these function skills in-house, they often lack the required skills. * Difficulties in retaining skilled people * Tortuous supply chains Many MNEs rely on strong distribution channels to deliver their products reliably and also educate customers about more subtle advantages they offer. But efficient logistics are new concepts in China. MNEs cannot deploy their competitive advantage of supply chain management.

They are confronted by a lack of component local suppliers. draw value chain * Communication barriers : culture and guanxi Chinese management tend to rely on personalized relationship. These are divided in two groups: trust based relations( in- group) and strangers relations( out-group). Trust based relations are built on intimate and interpersonal trust. These groups are smaller and more family based. Strangers relations mean that it is very difficult for Chinese to build personalized relationships with people they by fate have to work with.

Also, Chinese are used to be masters in their own house and will not accept if the expatriates will treat them as ‘employees=machines’. Moreover, in comparison to west, which tends to have more individualistic relationships, China relies on collectivism, where everyone takes responsibility for fellow members of the group. Guanxi The foreign firms may face difficulties due to different perception of relationships. For firms operating in Chinese society, understanding the role of guanxi is crucial and how it affects all the major dimensions of firms performance. Knowing and maintaining guanxi networks are essential for corporate success.

The concept therefore contains implicit mutual obligation and governs Chinese social and business relationships. –> Russian BLAT is the equivalent. Guanxi bases are divided into blood bases, which is family members and relatives and social bases, which arise from social interactions. 1)Guanxi is transferable. It means that one group maintaining guanxi can recommend one of the members to a friend, and then they also become in a relationship of guanxi.

For example, Avon was unsuccessful until the time when the head of Hong Kong Bank of East Asia recommended it to Chinese government. )Guanxi is intangible and people who share it are committed to each other. Disregarding this commitment can lead to damage of one’s reputation. 3)Guanxi is social capital. It is an investment in a relationship and should be clearly distinguished from the Western conception of networking that is virtually associated with commercial-based relations. Many Western businesses are often in danger of overemphasizing the gift-giving of Guanxi relationship, thereby coming closely to bribery. Guanxi is not similar to a fee for service, it is given to strengthen personal relationship.

Organisational guanxi: Companies suffer when their Chinese staff leave because they take their valuable guanxi with them. To prevent such loss, one Chinese manager designed to transform individual guanxi into organizational guanxi. This was achieved through organizing regular meetings and social activities for the staff of two partner companies. Also, it is important to audit company’s guanxi with its outside stakeholders, such as customers, suppliers, and government bodies. Such an audit will allow to identify strength and weaknesses of guanxi network. * Tough from local Chinese players competition

Local competitors have a better understanding of what will work in the local environment. They are leaner, more flexible and have lower costs. * Salary differences between western and Chinese players * Uncertain political environment and unpredictable policy changes * Lack of reliable statistics and market information Learning market in China is important as sometimes foreign companies fail to understand what Chinese consumer wants. They should do a careful research before entering the market. Example can be the low ales of Apple iPone in China. The reasons for failure were the no wi-fi due to government regulations and also gray market.

The Copycat of Iphone was sold on twice lower price than the original. However, there have been successful cases as well. Wal-Mart learned how to do business Chinese way. The initial problems were that consumers wanted fresh harvested products and no ‘packaged’ products. Then Wal-Mart reacted and began to display fresh meat uncovered, installed fish tanks and began selling live turtles for soup. Conclusion: Foreign firms do face various obstacles in entering the Chinese market, however they can be overcome if the right levels of research is carried out and they come to terms with the differences in business structure and social environment.

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