Building and managing successful partnerships in the Chinese market Dr. Ilan Alon Cornell Professor of Int. Bus, Rollins Visiting Scholar, Harvard University
Talk Outline • • • • •
Quiz: What do we know about China? The Economic Environment of China The Institutional Environment of China China’s Globalization Doing Business in China
What do we know about China?
Guangzhou, China Train Station. April 9th 2004 “Endless masses”
True or False: Inside the Mind of the Chinese Consumer • Chinese people, now released from collectivism, are focused on working hard and getting rich • Chinese workers are ambitious, mobilized and engaged • Chinese consumers have a lot of money to spend • There is endless hunger for household basics
Chinese are focused on working hard and getting rich • Only 2% of Chinese held the view of “giving service to society” • Work hard and get rich dropped 15% points in a decade • Self satisfaction and expression • Importance of taste of life and quality of life • The emergence of the “me” generation – Reinforced by the “young emperor” stereotype
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Chinese workers are ambitious, mobilized and engaged • • • •
Efforts are insufficiently rewarded and recognized 68% of employees don’t feel engaged Urban centers hold low opinion in “Made in China” Preferences for domestic good has dropped from 78% to 67%
Chinese Consumers Have a Lot to Spend • China GDP – GDP $12.38 trillion (2012 est.) – Per Capita: 9,100 (2012 est.)
– For Chinese companies, local competitiveness will affect international competitiveness
Endless Hunger for Household Basics • 6% of households own vacuum • 25% own a refrigerator Affinity towards high technology • 52% own a DVD player • 13% computers • 48% mobile phones
The Economic Environment
2050 Largest Economies
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Pudong (1990)
Pudong (2005)
Pudong (2010)
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What are leaders saying about China? “Either you’ll be a big investor in China or your biggest competitor will come from China.” GE CEO Jeff Immelt
The Institutional Environment of China
“To be the leader in the world, you have to be the leader in China.” Eastman Kodak’s Chairman George Fisher “For us it is not a question of how risky it is to invest in China; rather how risky it is not to invest.” VW Asia Pacific President Dr. Martin Posth
Western Fear of China
Institutional Approach to Comparative Management in China • Institutions – rules, norms, values, assumptions about acceptable behavior, socially-constructed reality, shared interactions – Institutions enable “paths of action,” ex. Economic growth – Technology standards (Beta vs. VHS, Blue Ray vs. DVD, High Def vs. Color, 3G vs. 2G) – Types: regulative, normative, cognitive
• Examples: – Sports example: “rules of the game” – Business example: “property rights” – Road example: “traffic rules”
Rules of the Road: Example of Institutionalism • In China, sales of cars is among the fastest growing in the world (80% annually) • Largest number of fatalities, despite low number of passenger miles • 70% due to drivers’ errors
International Business Academic Does anyone here remember Shaomin Li? Depicted the tension in political transition from relations to rule based systems of business governance “Li Shaomin was arrested in Shenzhen, mainland China's border with Hong Kong, late February. He was then transferred and detained in Beijing for months before a Chinese court said he had been convicted for spying for Taiwan. The U.S. academic was then deported from China to the U.S.”
– CNN (July 30, 2001) http://www.youtube.com/watch?v=H0jfOrOlNxs Link
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China: Collapse or Rule? Martin Jacques
Gordon Chang
What is Governance? • Traditions and institutions by which authority in a country is exercised – Process by which governments are selected, monitored, replaced – Capacity of government to effectively formulate and implement sound policies – Respect of citizens and the state for the institutions that govern economic and social interactions among them
(Kaufmann and Kraay, 2007)
1. Voice and Accountability
2. Political Stability
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3. Government Effectiveness
4. Regulatory Quality
5. Rule of Law
6. Control of Corruption
1995: Beijing vs. Geneve ďƒ˜ Who gets the money?
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Competing Ideologies Washington versus Beijing Consensus
China’s Globalization
Washington consensus
Beijing consensus
1. Free markets and important role for the private sector 2. Loans but under strict conditions 3. Projects: use local companies to create employment 4. Transfer of technology, knowledge and experience (capacity building)
1. Important role for the government in the economy 2. No conditions for soft loans 3. Use Chinese companies, employment and technology 4. No transfer of knowledge and experience
Source: van Dijk, M.P. (ed.) 2009. The New Presence of China in Africa. Amsterdam University Press.
China’s Growth of OFDI Flows 中国对外直接投资的增长
Marshall Meyer Theory
Chinese OFDI Position 中国海外投资布局
SOE Motivations for OFDI
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John Child Theory
Doing Business in China
Technological Duality – Old China
Technological Duality – New China
New China
The New Revolution in China: Telecom
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IP Challenges in China: Whose Colonel?
Intellectual Property Protection “Knockoff products come from factories owned, operated or protected by provincial governments, making protection difficult to enforce.�
IP Challenges in China: Whose Slogan?
IP Challenges in China: Whose Swoosh?
Getting Started
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Map of China: Points of Entry
The Golden Rules of China
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1. 2. 3. 4.
Everything is possible in China. Nothing is easy. Patience is the essence of success. The answer "yes" is not necessarily an indication of agreement or confirmation. 5. "You don't understand China" means they disagree. 6. "Provisional regulations" mean they can change the rules anytime they want, even retroactively. 7. "Basically, no problem" means a BIG problem. 8. "Signing a contract" means the beginning of the real negotiation. 9. When you are optimistic, think about rule number two. 10. When you are discouraged, think about rule number one. * Source: Clarence T. Kwan
Approaches to China
Focus
“Either you’ll be a big investor in China or your biggest competitor will come from China.” GE CEO Jeff Immelt
Approaches to China
Approaches to China
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Building your strengths Approaches to China across oceans and cultures HOME
CHINA
CONNECT
Lao Zi (Lao Tzu): Dao De Jing
How Is China Affecting Your Life? • You need to figure out where your talents and the world’s needs meet. That is where you will find your destiny! (Urech, 2004) • In the 21st Century, you need to figure out where your strengths fit with China’s ascendancy. That’s where you will find your fortune!
Questions and Answers
di yi ke dao 第一课道 dao ke dao fei chang dao ming ke ming fei chang ming [道]，可 道， 非 常 道。 名， 可 名， 非 常 名 The Way that can be expressed is not the everlasting way. Names that can be named are not changeless names.
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