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1. Business Strategy and the EnvironmentBus. Strat. Env. 18, 380–396 (2009)Published online 31 October 31 2007 in Wiley InterScience(www.interscience.wiley.com) DOI: 10.1002/bse.605An Assessment and Ranking of Barriers to DoingEnvironmental Business with China Turlough F. Guerin* Telstra Corporation Limited, Melbourne, Australia ABSTRACT The transfer of environmental goods and services to China will increasingly be of impor- tance to developed nations as the demand for environmental management services increases in China. A review of the literature on technology transfer to China revealed a range of well recognized and commonly known constraints to transferring technologies to China. There were gaps in the literature in relation to the concerns that environmental professionals have regarding technology transfer to China, as there is limited information on the transfer in environmental goods and services to China. A survey of the non-trade barriers and their practical impact on the transfer of environmental technologies and goods and services to China, focusing on Australian suppliers, was undertaken to address these gaps. The survey, which was developed from barriers to technology transfer already described in the extensive research addressing the wider issues of technology transfer to China, tar- geted environmental professionals but also included other professionals with interests in transferring environmental goods and services to China. From the survey, the highest pri- ority barriers to transferring environmental goods and service to China were identiﬁed, and those that are most likely to limit Australian vendors of environmental goods and services in their technology transfers to China were protection of intellectual property (IP), limita- tions of the rule of law, fragmentation and bureaucracy of the Chinese government and establishing appropriate level of ownership (of environmental goods and services providers in China). Examples of Australian experience were also examined, which conﬁrmed these barriers to providing the needed technology and innovation to manage China’s increasing environmental impacts. The research also shows that the barriers identiﬁed do not appear to be unique to transfer of environmental goods and services but rather generic to the transfer and adoption of Australian technology into China. Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment.Received 27 January 2007; revised 25 August 2007; accepted 27 August 2007Keywords: corporate environmental management, China, technology, freetrade agreement, renewable energy, intellectualproperty, environmental consultants, training, environmental education, marketing, international trade* Correspondence to: Turlough F. Guerin, Telstra Corporation Limited, L33/242 Exhibition Street, Melbourne 3000, Australia.E-mail: email@example.comCopyright © 2007 John Wiley & Sons, Ltd and ERP Environment
An Assessment and Ranking of Barriers to Doing Environmental Business with China 381IntroductionC HINA IS THE WORLD’S MOST IMPORTANT ECONOMY IN RELATION TO NEGATIVE IMPACTS ON THE ENVIRONMENT (Guerin, 2001b; Anonymous, 2006; McDonough, 2006). With long-term growth rates of 8–10%, it is unlikely that the negative environmental consequences of this growth will be offset by adoption of local remedial technologies and innovation. These environmental impacts are now recognized as major threatsand of central importance for businesses to manage when doing business in China. They include water shortagesand contamination, energy demands, soil erosion and pollution. For foreign companies doing business in China,these impacts play out as impacts on reputation, the existence of faulty supply chains, transportation accidents,lost productivity from health impacts, collusion between government ofﬁcials and political instability at a locallevel (Economy and Lieberthal, 2007). China will therefore require an aggressive acquisition program for procur-ing the necessary environmental goods and services (EGSs) to manage air, water and soil pollution, from both apreventative and a treatment perspective (Watson, 2005). There is mounting evidence that China is prepared toacquire this technology (Shanley, 1995; McDonough, 2006). Direct technology transfer is the imparting of knowledge, skills and methodologies from one location to another.This process also includes disseminating information on the end use and adoption of the transferred technologies(Guerin, 1999). The introduction, through exports, of a technology or service into a developing country such asChina is not technology transfer per se, where the client or end user is then left to implement it. Licensing, inaddition to direct technology transfer, can also be used to transfer technology. A license is a contract between aholder of a technology and an end user or distributor (licensee) of a particular technology. A license allows thelicensee to manufacture, market or use that technology (or IP), while the owner or vendor maintains the owner-ship of the technology. With direct technology transfer, the transferor does not necessarily maintain ownership ofthe technology. Regardless of the type of technology or service, there are fundamental barriers to technology transfer, such aslocal capacity, the appropriateness of technology, priorities of the vendor, funding and trade arrangements andattributes of the end users and adopters. From the literature, it is evident that there are numerous barriers towestern countries, and technology providers from these countries, transferring or licensing their technologiesand services to China. An analysis of the literature revealed that there are a cluster of barriers related to legal,technological, ﬁnancial, social and cultural, resource limitations, government, IP and organizational management(Table 1). The literature was organized according to six themes, which were identiﬁed as follows:• rule of law• protection of intellectual property• intercultural sensitivity• modernization of state owned enterprises (SOEs)• establishing the appropriate level of ownership (of foreign companies in China) and• fragmentation and bureaucracy of the Chinese government.These themes were used to organize the literature ﬁndings to facilitate the preparation of a survey described inthe remainder of this paper. Although numerous barriers were identiﬁed, the literature did not provide any rankingof these in relation to their importance, nor did it report studies from the perspective of corporate environmentalmanagers or environmental consultants as to (1) how these stakeholders perceived these barriers and (2) howcompanies transferring environmental technologies to China had overcome these barriers. Nor were there anypublished studies ascertaining whether these identiﬁed barriers were in any way unique to EGSs. The aim of this research was to quantify and rank perceptions of corporate environmental managers(CEMs) and environmental consultants in relation to the non-trade barriers to transferring EGSs to China andto identify any barriers that may be unique to the transfer of EGSs compared with non-EGSs. This article des-cribes the methods employed in the survey, the survey results and discussion, and a brief review of their implica-tions for CEMs and environmental consultants, and for the establishment of an FTA between Australia andChina.Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
Barrier identiﬁed Description Reference 382 Rule of law Lack of enforcement or understanding of laws by Chinese counterparts (technology (Martinson and Tseng, 1998; recipients); absence of policing of environmental laws and in consistent interpretation Hongyan et al., 2003; of laws McCubbin, 2004) Protection of intellectual Technological gap between supplier and recipient is wide (Warhurst, 1991) property Lack of understanding of the technology by the Chinese and its application (Guerin, 1998a, 1998b; Limited or ineffective protection of intellectual property leading to illegal reproduction of Guerin, 2001b) technology and disregard for health safety and environment considerations in such (Tackaberry, 1998; Guerin, 2001b; reproduction Liu, 2005; Vicenzino, 2006) Intercultural Excessive focus of Chinese on ﬁnancial return at detriment of environmental protection (Guerin, 2001b; Harris, 2006) sensitivity/social/cultural Lack of appreciation of cross-cultural issues from technology donor (Guerin, 2001b) Cultural and managerial differences between donor organizations and Chinese management (Cummings, 2006; Harris, 2006; styles (Chinese favoring centralized control) Birkin et al., 2007) Knowledge of ecology and environmental issues is usually limited among Chinese from outside of urban areas and to those with high levels of education Vast majority of Chinese are concerned about domestic home environment (and perhaps neighbourhood) but not the surrounding areas Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Chinese have instrumental view of the natural environment (i.e. it exists for the people); Chinese display ambivalent environment behavior; Chinese management value quantity as a more important value than quality Modernization of SOEs Limited ﬁnancial resources to properly implement new technologies and solutions in China (Jagersma and van Gorp, 2003) largely a result of high debt levels among SOEs Lack of skilled resources in China is limiting embedding of sustainable development practices (Guerin, 1998a, 1998b; Guerin, 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 qualiﬁed 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, reﬂecting the government fragmentation Difﬁculties in repatriating proﬁts from China Table 1. A literature review of the barriers to technology transfer to China DOI: 10.1002/bseBus. Strat. Env. 18, 380–396 (2009) T. F. Guerin
An Assessment and Ranking of Barriers to Doing Environmental Business with China 383MethodSurvey DesignA survey was designed after a review of literature on barriers to transferring technologies to China, the results ofwhich are presented in Table 1. The literature revealed numerous items, which were then clustered into six themes.A series of 39 items, which formed the individual options for answering questions in the survey, was developed,that represented each of the six themes. The survey was comprised of a series of closed questions (with forcedranking), which enabled quantiﬁcation of results, as well as open questions enabling respondents to providequalitative responses to each of the questions related to the six constraint themes (described in the sub-section‘Survey Questions’).Survey SamplingThe types of organization sampled and represented in the survey were predominantly Australian-based or operatedcompanies (including individuals, small to medium sized enterprises and corporations), many of which were listedon the Australian Stock Exchange. Approximately 100 companies, likely to be involved in export of EGSs, wereidentiﬁed on publicly available databases, which contained company email addresses (including www.environ-mentdirectory.com.au). A further 100 individuals from companies and organizations likely to be involved in theexport of EGSs, either known by the author or otherwise identiﬁed from internet searches, or through professionalnetworks, were identiﬁed. Finally, a link to the survey was posted on several active Internet listservers, which wereelected based on the range of topics that they covered and their level of activity as described by Guerin and Schaff-ner (2000, Guerin, 2001). The listservers chosen covered soil and groundwater treatment, climate change andgeneral corporate environmental management and sustainability. The listservers represented a population ofapproximately 2000 potential respondents.Description of RespondentsThe response rate, when based on the potential number of targeted organizations and individuals (200), was 29%.The rate dropped to 3% when the listserver populations were used to calculate response rates. The majority (55%)of the organizations responding to the survey were either Australian based or operated, including small andmedium sized enterprises, corporations and universities. Australian government organizations represented 12%of respondents. The remainder of respondents (33%) were organizations (corporations, private consultants/indi-viduals, small and medium sized enterprises, and universities) from outside of Australia. These organizations werenot targeted speciﬁcally, but were a result of the requests sent to potential Australian EGS exporters, the author’sprofessional networks and Internet listservers. Of the 57 respondents, 47% exported to China at the time of thesurvey and 32% of these were organizations doing so from Australia. Of the goods and services being exported,37% were EGSs, representing environmental education and training, consulting, water supply and treatmenttechnologies, energy management and waste management. The majority of roles represented (28%) were environ-mental consultant or manager of an environmental consultancy. The remainder were HSE advisors or managersand corporate environmental managers (19%), sales and marketing roles (10.5%), government representatives(8.8%), export co-ordinators or managers (5.3%), researchers (5.3%), technologists (3.5%) and miscellaneous rolesincluding students, retired individuals, individual business owners, professional architect, strategic planner, busi-ness executive, chief executive ofﬁcer, company director, sustainability manager, safety director and managementconsultant (19.6%).Survey AdministrationThe survey was conducted from August to October 2005. It was administered using an introductory email contain-ing a direct link to the survey. The survey was prepared using an online survey program called Survey Monkey(www.surveymonkey.com).Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
384 T. F. GuerinSurvey QuestionsThe survey questions asking for demographic information, perceptions on the role of a FTA (in EGS transfer toChina) and the relative importance of Australian EGS vendors, and examples from Australia, are presented inTable 2. The remainder of the survey questions, which contained the items forming each theme (see the six listedbelow), are provided below. For each item, respondents were required to state whether it was ‘a signiﬁcant barrier’,‘a potential barrier’ or ‘not a barrier’.Rule of law. How would you rate the following barriers related to limitations of the rule of law in China?• Lack of transparency of legal systems in China• Inconsistent interpretation of laws and regulations across provincial boundaries• Absence of policing of laws and regulations in a consistent manner across China.Protection of intellectual property (IP). How would you rate the following which relate to problems in the protectionof intellectual property?• Ineffective IP laws in China• Potential rapid illegal reproduction of goods imported or concepts/ideas introduced into China (i.e. pirating)• Absence of exporting organization’s safeguards against IP loss when they introduce their goods or services to China• Health safety or environmental consequences of pirated goods when exported from China (e.g. which do not meet original manufacturer’s intended standards).Modernization of state-owned enterprises (SOEs). How would you rate barriers related to the modernization of state-owned enterprises in China?• The process itself of modernization of Chinese SOEs (which is now occurring at a fast rate in China)• Loss of local jobs of employees employed in China• The increasing trend of small scale of local capacity in China• High debt levels among state-owned enterprises.Fragmentation and bureaucracy of the Chinese government. How would you rate the following barriers related tofragmentation and bureaucracy of the Chinese government?• Inconsistent requirements at each level of Chinese government• Lack of transparency in the application of taxes across China• Difﬁculties in repatriating proﬁts from China• Different bureaucratic rulings within and beyond provinces• Different customs requirements at different ports in China• Inconsistent enforcement of import duties across China• Unclear and conﬂicting standards across provinces in China• Conﬂicting Chinese importing guidelines• Difﬁculty in ﬁnding decision makers at the appropriate location and level in the Chinese government.Establishing the appropriate level of ownership. How would you rate the following barriers related to establishing theappropriate level of ownership (for an Australian-based or operated company planning to do business in China)?• Foreign investment restrictions for companies doing business in China• Difﬁculty in ﬁnding reliable business partners in China• Level of foreign capital investment is not necessarily proportional to the proﬁts shared by partners (under Chinese legal framework)• A lack of control over Chinese interest in the business.Intercultural barriers. How would you rate each of the following intercultural aspects in terms of their potential tobe a barrier (i.e. if they were not recognized and acted upon/embraced they could be a signiﬁcant barrier)?Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
Question grouping Questions Demographics Does your organization currently export any goods and/or provide services to China? Does your organization currently export any goods and/or provide services to China from Australia? Does your organization export environmental goods (e.g. technologies) or provide environmental services (e.g. consulting or qadvice) from Australia to China? Have you or your organization had any indirect involvement in the exporting of environmental goods (e.g. technologies) or providing environmental services (e.g. consulting or advice) from Australia to China? If your organization does export environmental goods (e.g. technologies) or provide environmental services (e.g. consulting or advice) to China how would you best describe these? How would you best describe your organization? How would you best describe your role? Trade barriers Overall how would you rate the following trade barriers for an Australian-based or operated organization exporting environmental goods technologies or services to China?1 What other trade (only) barriers are there for an Australian-based or operated organization exporting goods technologies or services to China? Note: Do not include non-trade barriers as these are addressed in the remainder of the survey. Non-trade barriers How would you rate the following barriers related to limitations of the rule of law in China?2 How would you rate the following, which relate to problems in the protection of intellectual property (IP)?2 How would you rate barriers related to the modernization of state-owned enterprises in China?2 Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment How would you rate the following barriers related to fragmentation and bureaucracy of the Chinese government?2 How would you rate the following barriers related to establishing the appropriate level of ownership (for an Australian-based or operated company planning to do business in China)?2 How would you rate each of the following intercultural aspects in terms of their potential to be a barrier (i.e. if they were not recognized and acted upon/embraced they could be a signiﬁcant barrier)?2 Other trade and non-trade What other signiﬁcant trade or non-trade barriers do you think there are for Australian-based or operated companies exporting barriers environmental goods and services to China?3 Free trade agreement What impact do you think an FTA between Australia and China will have on the roles of corporate environmental managers in Australia? Please describe why you gave the answer you did above What impact do you think an FTA between Australia and China will have on Australian-based or operated environmental consultancies? Please describe why you gave the answer you did above Australian examples What was the environmental good or service involved? What was the value (estimate) in USD of the activity? When did the activity (case studies) occur? Was the overall outcome of the activity a success in terms of goods or services provided and payment received? Regardless of whether the activity was successful or not what were the main barriers that were faced in exporting the goods or providing the services? If the activity was successful, how were the barriers overcome? Relative advantage of Do you think Australian organizations have an advantage (in any way) over any other countries in providing environmental goods Australian EGS and services to China? vendors If you answered yes to the previous question in what way are Australian organizations likely to have an advantage (over either An Assessment and Ranking of Barriers to Doing Environmental Business with China Chinese or other international organizations)? Table 2. Summary of the questions asked in the survey 1 Results not reported in this study. 2 Items under each of these six groupings of constraints are shown on the y axes in Figures 1–6. After each of these questions, respondents were asked if there were any additional barriers; however, no additional barriers were identiﬁed. 3 There were no additional barriers identiﬁed from this ‘catch-all’ question. DOI: 10.1002/bseBus. Strat. Env. 18, 380–396 (2009) 385
386 T. F. Guerin• Basic understanding of the language• Harnessing the interpersonal networks in China (‘social networks’ rather than ‘markets’)• Speaking and questioning so as to ensure understanding• Group setting and group context in training• Flexible in your dealings with the Chinese• Developing an alliance with the Chinese customer (over a long period)• The ‘work unit’ (as opposed to the individual worker) in China• Being non-judgmental• Tolerance for ambiguity• The capacity to communicate respect• The capacity to personalize one’s knowledge and perceptions• The capacity to display empathy• The capacity for taking turns (in conversation)• Establishing trust• Autocratic control of information.In addition to the questions asked above, a further catch-all (i.e. an open) question was asked: ‘What other sig-niﬁcant trade or non-trade barriers do you think there are for Australian-based or operated companies exportingEGS to China?’. No answers were provided in response to this question. A question was also asked for the purposeof rating the importance of trade barriers to transferring EGSs to China. The purpose of the question was to ensurethat respondents were made aware of the difference between trade and non-trade barriers. These questions, andthe results of these questions, are not included in the survey results.Results and DiscussionStatistical AnalysesAnalysis of variation (ANOVA) tests were conducted between each of the six themes of barriers to the transfer ofEGSs to China. These analyses were conducted on the ‘signiﬁcant barrier’ responses. The p values that wereobtained from the outputs from the ANOVA tests between each of the barrier themes (Table 3) showed that therewere two main groupings of the barriers:• protection of IP; rule of law; fragmentation and bureaucracy of the Chinese government and establishing the appropriate level of ownership (30–50% of respondents thought these were signiﬁcant barriers) and• intercultural barriers and modernization of SOEs (less than 25% of respondents thought these were signiﬁcant barriers).Barriers 1 2 3 4 5 61. Protection of IP – – – – – –2. Rule of law 0.56 – – – – –3. Fragmentation and bureaucracy of the Chinese government 0.08 0.3 – – – –4. Establishing the appropriate level of ownership4 0.09 0.16 0.64 – – –5. Intercultural sensitivity 0.0007 (S) 0.007 (S) 0.02 (S) 0.16 – –6. Modernization of SOEs 0.006 (S) 0.008 (S) 0.009 (S) 0.03 (S) 0.12 –Table 3. Results of ANOVA comparing non-trade barriers11 An (S) after the calculated p value from ANOVA tests indicates that the comparison between barrier themes (or groups) (listedas numbered text in rows 1–6 in the ﬁrst column) compared to the same group of barriers (listed 1–6) in the correspondingcolumns, were signiﬁcant at α = 0.05.Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
An Assessment and Ranking of Barriers to Doing Environmental Business with China 387Non-Trade BarriersProtection of IPOn average for this theme (which contained four items), 50% of all survey respondents were concerned that theirIP would not be protected. Three of the individual items of this constraint, health, safety, environment and secu-rity concerns from pirated goods, absence of safeguards against IP loss when exporting to China and the illegalreproduction of goods imported into China, were each perceived to be signiﬁcant barriers by 58%. Only 27% ofall respondents considered that the fourth item, ineffective IP laws in China, was a signiﬁcant barrier (Figure 1). Respondents strongly expressed their concerns with IP protection, which was expected. One stated ‘The majorissue is lack of conﬁdence in the IP protection system. We are technology providers. We have no conﬁdence ourtechnology rights will be protected’. While there are laws in place, enforcement of these represents a greaterconcern. Of critical concern are the health, safety and environmental problems posed by pirated goods. Theseresults are not surprising. China is plagued by a history of lax enforcement of laws on IP rights (Guerin, 2001;Liu, 2005). The risk of technology or IP ‘leakage’ is greatest when the Chinese partner is in the same line of busi-ness as the Australian technology vendor (Guerin, 1998, 2001). Foreign vendors must be ready for this and takeappropriate protective action. Enforcement of IP rights is largely the preserve of an administrative, rather than a judicial, system in China,and this reﬂects the high incidence of IP infringements. Of the 43 000 infringement claims in China during2003–2004, over 40 000 were processed by the State Administration for Industry and Commerce. This leavesforeign companies at risk of ‘home town’ determinations, especially at local levels of government (McCubbin,2004). McCubbin (2004) states that China is serious, however, about reform of IP protection, not necessarilybecause of its WTO commitments, but rather because China now produces more than 350 000 technologicallytrained engineers annually. According to the OECD, it is third in the world in gross expenditure on R&D at $US>100 billion. It also has 750 000 researchers, which is second only to the US. China is therefore rapidly learningthe value of technology, and the need to protect it. Companies that previously moved their manufacturing opera-tions to China to take advantage of a low cost base are now also moving their R&D operations to China to takeadvantage of this skill base (Lo and Tang, 1994; McCubbin, 2004; O’Connell, 2007). The Chinese government ispromulgating new laws to combat the IP protection problem (McCubbin, 2004), but this is a ‘deep-seated’ culturalissue that will not be changed easily, even with training of the local Chinese partners or the wider Chinese markets(von Krogh and Haeﬂiger, 2007). The Chinese do not necessarily see protection of IP as a problem so change isonly likely to occur when the Chinese become victims of such IP loss themselves, causing economic loss. This constraint, in conjunction to that of the rule of law (discussed in the following sub-section), is of criticalimportance in the licensing of technologies in China and therefore to technology transfer. In China there is limitedevidence that IP rights of individuals or organizations are enforced and Australian organizations are clearly Health safety or environmental consequences of pirated goods when exported from China Absence of exporting organizations safeguards against IP loss Potential rapid illegal reproduction of goods imported or concepts/ideas Ineffective IP laws in China 0.0 25.0 50.0 75.0 % A Significant Barrier A Potential Barrier Not a BarrierFigure 1. Problems in the protection of IPCopyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
388 T. F. Guerinconcerned that Chinese end users of the technology, even under licence, may not co-operate with the terms of thelicence. This is a fundamental issue about which survey respondents are concerned.Rule of LawThis constraint was also identiﬁed as a signiﬁcant or high priority barrier by 44% of respondents (Figure 2). Spe-ciﬁcally, it includes the items of absence of policing of laws, lack of transparency of the legal system and incon-sistent interpretation of laws. A consequence of the weak laws, including those designed to protect the environment,is unfair competition in the EGS markets. The major problem is protectionism in local Chinese markets, largelyby the actions of various government departments. Municipal and provincial authorities protect local markets forlocal ﬁrms and may not enforce environmental protection measures (Economy and Lieberthal, 2007). Obsoleteproducts, technologies and services are then protected with a consequent loss to the environmental protectionindustry and to the economy (Guerin, 1998b; Tackaberry, 1998; Anonymous, 1998; Guerin, 2001b; AIG, 2004;Liu, 2005). While there are laws prohibiting anti-monopolistic and anti-competitive behaviour, the existing lawsrequire consolidation to remove inconsistencies (McCubbin, 2004). Anti-monopoly law is now approved in prin-ciple by the Chinese Cabinet. China lacks an anti-competitive authority charged with the responsibility, andequipped with the sanctions, however, to make the law effective operationally. In effect, the lack of competitionpolicy means that the introduction of new, eco-efﬁcient technologies is limited. Environmental laws are also likelyto become more stringent, but the inconsistent policing of existing laws will act to limit foreign companies ororganizations attempting to transfer EGSS to China. This constraint is likely to have a direct impact on environ-mental protection in China. Overall, the combination of local protection of obsolete and polluting production, theﬂouting of environmental laws and a lack of effective competition policy could be a signiﬁcant barrier for foreignEGS suppliers.The Chinese Government’s Fragmentation and BureaucracyThis constraint was grouped with the ‘signiﬁcant barriers’ group by 35% of respondents (Figure 3). One respondentindicated, however, the ubiquity of this problem more widely in stating ‘This matter is a barrier in Australia letalone China. Government owned enterprises world wide are hard to do business with for these and relatedreasons’. In China, the State Environmental Protection Agency (SEPA) has overall responsibility for environmental man-agement, though its inﬂuence is relatively weak (Economy and Lieberthal, 2007). Typically, there will be morethan one agency involved in decision making for any particular environmental program. Interacting with theChinese government can therefore be complex. Under the former command system, the State Planning Commis-sion in Beijing issued directives to its branches throughout the country, usually based on State Council rulings. Absence of policing of laws & regulations in a consistent manner across China Lack of transparency of legal systems in China Inconsistent interpretation of laws & regulations 0 25 50 75 % A Significant Barrier A Potential Barrier Not a BarrierFigure 2. Limitations of the rule of lawCopyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
An Assessment and Ranking of Barriers to Doing Environmental Business with China 389Difficulty in finding decision makers at the appropriate location and level in the Chinese government Difficulties in repatriating profits from China Inconsistent requirements at each level of Chinese government Different bureaucratic rulings within and beyond provinces Unclear and conflicting standards across provinces in China Lack of transparency in the application of taxes across China Conflicting Chinese importing guidelines Different customs requirements at different ports in China Inconsistent enforcement of import duties across China 0 25 50 75 % A Significant Barrier A Potential Barrier Not a BarrierFigure 3. The Chinese government’s fragmentation and bureaucracyRegulation was ‘top down’. In most industries, the implementation of regulation is now devolved to provinces andmunicipalities (Economy and Lieberthal, 2007). In effect this means that local government authorities regulateenvironmental protection according to their own interpretation. A consequence of the current arrangements isthat problems arise on major projects that require central government approval. It is common to ﬁnd that, havingnegotiated the bureaucratic maze of local and provincial authorities successfully, the National Development andReform Commission (which supersedes the State Planning Commission) in Beijing then declines to approve aproject (McCubbin, 2004). Although these delays can limit technology transfer, central government approval maylead to more stringent environmental requirements for a project (even if it delays a particular proposal). EGS vendors must be ﬂexible and open minded to the bureaucratic and often unpredictable changes in theChinese government. It is important that the Australian or western vendors develop strong relationships with boththe Chinese partners and the local Chinese government so that trust can be built between all parties. Furthermore,vendors need to recognize that there are only very loose connections between government departments, and thisinevitably leads to lack of communication between government departments.Establishing Appropriate Level of OwnershipThis was grouped with the most signiﬁcant group of barriers by 32% of respondents, and it has the potential toimpact foreign investment restrictions (Figure 4). The importance of this constraint was reﬂected in the commen-tary provided by one respondent, who stated ‘You need reliable joint-venture partners that you can trust to lookafter your interests as well as their own, and these are very hard to ﬁnd (in China)’. Establishing the right level of ownership in a joint venture is important, but of equal importance is that forminga joint venture with Chinese partners should not be assumed to be the way to go. Many multinational corporationsremain in ‘unhappy marriages’, as the majority of joint ventures in China continue to lose money. Since the 1990s,there has been a steady decline in foreign direct investment in China through joint ventures (Guerin, 2001b). Oneof the reasons is that many foreign managers have come to perceive their local partner as a disabler rather thanas an enabler, while the Chinese are disappointed about unfulﬁlled expectations in these ventures.Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
390 T. F. Guerin Level of foreign capital investment is not necessarily proportional to the profits shared by partners (under Chinese legal framework) Difficulty in finding reliable business partners in China A lack of control over Chinese interest in the business Foreign investment restrictions for companies doing business in China 0 25 50 75 % A Significant Barrier A Potential Barrier Not a BarrierFigure 4. The problem of establishing appropriate level of ownership A fundamental requirement for any EGS technology transfer to China is for vendors to establish a local pres-ence. A ﬁrst step is to establish a partnership with a local organization well established in China. Further, aneffective sales and distribution system for an EGS needs to be developed commensurate with the geographicalregion and the client base aiming to be served. This sales and distribution system must be closely aligned withthe vendor’s networks in the Chinese market place for EGSs.Intercultural SensitivityA lack of intercultural sensitivity on the part of EGS providers was considered to be a signiﬁcant barrier by 23%(Figure 5). Intercultural sensitivity was therefore ranked relatively low as a signiﬁcant constraint, and one explana-tion is that Australians are able to manage the intercultural issues so they do not become barriers. This was alsodemonstrated in the ‘Examples of Australian Experience’ section of this article. Sixty-seven percent of the respon-dents in the survey were Australians. The ﬁndings may also mean that there was a lack of appreciation of thisconstraint by respondents. Given that technology transfer is more than exporting a technology or service into China, but rather a sustainedimplementation, Watson (2005) describes the term ‘absorptive capacity’ of the technology recipients. Interculturalissues and how these are managed will directly impact on the absorptive capacity of the Chinese recipients andshould be considered in any proposed EGS transfer. An implication for transferring technology to China is that training and inductions should focus on skill devel-opment of the Chinese end users, a major reason being that the high availability of labour means less emphasisby the Chinese in applying technology efﬁciently. Also, given the importance of gaunxi1 (Guerin, 2001b) to theChinese, it is likely that changes in technologies that negatively impact the end users or decision makers or theirimmediate family or friends are less likely to be adopted.Modernization of State Owned Enterprises (SOEs)Only 14% of the survey respondents considered modernization of the SOEs to be a signiﬁcant non-trade barrier(Figure 6). Notwithstanding China’s rapidly expanding private sector, the reality is that most of the transactionsundertaken between Australia and China involve SOEs. To provide an indication of the signiﬁcance of the SOEs,every year in China the reform of these organizations creates 14 million unemployed workers (McCubbin,2004).1 This describes the basic force that holds the personalized networks of inﬂuence among the Chinese.Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
An Assessment and Ranking of Barriers to Doing Environmental Business with China 391 Establishing trust Autocratic control of information The capacity to communicate respect Speaking & questioning so as to ensure understanding Basic understanding of the languageHarnessing the interpersonal Networks in China ("Social networks" rather than "markets") Developing an alliance with the Chinese customer (over a long period) Tolerance for ambiguity The capacity to personalize ones knowledge and perceptions The "work unit" (as opposed to the individual worker) in China Flexible in your dealings with the Chinese Being non-judgmental The capacity for taking turns (in conversation) Group setting and group context in training The capacity to display empathy 0 25 50 75 % A Significant Barrier A Potential Barrier Not a BarrierFigure 5. The need for intercultural sensitivity High debt levels among state-owned enterprises Process of modernization of Chinese state owned enterprises Loss of local jobs of employees employed in China The increasing trend of small scale of local capacity in China 0 25 50 75 % A Significant Barrier A Potential Barrier Not a BarrierFigure 6. The implications of modernization of state owned enterprises (SOEs)Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
392 T. F. Guerin Forty-two percent indicated that this was not a barrier; the highest response compared to the other ﬁve themes(or groups of barriers) surveyed. This survey result reﬂects a perception that modernization of SOEs is unlikely tobe a barrier. Rather, it is conceivable that the modernization process will open many opportunities for foreign EGSvendors to meet the needs of these organizations as they are transformed. The reform process of the SOEs willprobably reshape China’s economy and its environmental performance (Watson, 2005). More importantly, thebehaviour of the SOEs will drive market behaviour so signiﬁcantly that it will have a substantial impact on boththe implementation and the compliance with the terms of any Australia–China FTA (McCubbin, 2004). This isalso an opportunity for companies from Australia and other developed nations and is likely to lead to the purchaseof new foreign (including Australian) EGSs.General DiscussionThe problems of enforcing regulations and laws, and protecting IP, were the most important barriers identiﬁedin the current study. There were no new barriers or groups of barriers identiﬁed by the survey respondents, overand above those already ranked as part of the current study. This was the case even though respondents wereprovided with an opportunity to describe additional barriers. The study has also shown that the barriers identiﬁedin the transfer of EGS to China appear to be the same as those encountered when transferring other non-EGStechnologies to China. No unique barriers associated with EGS were identiﬁed from the study.The Role of Australia in EGS Transfer to China and the Potential Impact of an FTAThis section attempts to focus on Australia’s role and experience in EGS transfer to China. Australian organiza-tions were perceived to have an advantage in providing EGS to China (56%). This is likely to be, as stated by therespondents, largely due to attributes of the intercultural sensitivity of Australians. This has implications for Aus-tralian organizations planning to enter China. Australian organizations can overcome these intercultural barriersthrough their awareness of them and proactively managing the relationship with their Chinese counterparts. The respondents perceive that an FTA between Australia and China will have at least some impact on corporateenvironmental managers and environmental consultants in Australia, both positive and negative (Table 4, Figure7). An FTA would create a favourable context for EGS transfer, and ultimately enhance proﬁts of AustralianCorporate environmental managers (CEMs) Increase the responsibilities of Australian environmental managers to manage facilities in China, which will be quite difﬁcult to do to a standard acceptable in Australia, primarily due to cultural differences Lower the standards that Australian companies work to, in order for Australia to stay competitive (with China) Easier to develop business in China and make more proﬁt Provide short term hope Create a positive context for trade It will become necessary to export best practice to collaborative enterprises in China More Australian manufacturing businesses will diminish as they have done over recent years under the reduction of tariff barriers but at a far greater rate While the FTA provides a rules-based framework for engagement, cultural issues will still dominateEnvironmental consultants (ECs) It sets a scenario that there is a special relationship between Australia and China, which is the basis for developing the required personal and professional relationships Provide Australian consultancies more business opportunities1Table 4. Perceived impacts of an FTA between Australia and China1 This was stated by two consultants.Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
An Assessment and Ranking of Barriers to Doing Environmental Business with China 393 50 CEMs Consultants 40 % Responses 30 20 10 0 Minor Some Unknown None SignificantFigure 7. Perceived Impact of an FTA on Corporate Environmental Managers (CEMs) and Environmental Consultants fromAustraliacompanies. However, Australian corporate environmental managers are concerned about lower operating stan-dards in China (than Australia) and the likelihood of the further diminution of Australian-based manufacturing. The barriers presented in this article, in particular those related to the Chinese regulatory system, will act ineffect as a non-tariff barrier to market access, which a traditional FTA between Australia and China is unlikely toresolve. Any FTA between these two countries will need to incorporate measures that address the less tangiblenon-trade barriers. It is likely that Australia (and other developed countries) have under-estimated China’s technological capacity.Australian manufacturers will need sustained reliance on their innovative skills if they are to remain competitive,with or without an FTA with China. Regardless, progress towards effective IP protection will still be perceived byAustralian companies as an important consideration in determining whether an FTA can deliver real market accessin China.Examples of Australian ExperienceA subset of the survey respondents (30%) was or had been directly or indirectly involved in the transfer of an EGSto China. The majority of the activity (65%) was in provision of environmental consulting services provided toother companies, water supply or treatment technologies or advice, internal environmental consulting or corporateenvironmental advice and renewable energy technologies and advice. The value of EGS transfer activity ranged from $US10 000 to greater than $US1 M for each of the Australianexamples. Of the 19 Australian examples, 15 were valued at $US50K and over. Seventy-ﬁve percent of EGS trans-fers occurred during 1996–98, though 20% were either in progress or completed in 2005. The examples of theAustralian experience were most prevalent during the period 8–10 years ago; however, the total value of the EGStransferred across all the Australian examples represents a total value of more than $US10M, indicating they arelikely to be representative of the range of EGS transfers to China. Of the successful examples of EGS transfer,80% were from Australia, representing more than $US2.5M, indicating the Australia to China transfer activitywas well represented. The responses describing the Australian experience suggest that Australia has an importantrole in assisting China to meet its demand for EGSs. The range of EGSs transferred in the Australian examples is consistent with the needs of China as it expandsand its ecomony continues to grow, particularly general environmental consulting services, which include soil andgroundwater assessment. The demand for ‘end-of-pipe’ treatment technologies for wastewaters from manufactur-ing processes, as well as contaminated site management, and for reducing greenhouse gas emissions, is expectedto continue to increase as environmental legislation in China becomes more effective. As the Australian examplesCopyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
394 T. F. GuerinGetting the Chinese to understand what the technology could and could not doLack of educated persons on the ground who could service the equipment2Availability of skilled Australian personnel in ChinaSeeking capital for the technology transferGraft and corruptionThe Chinese essentially wanted monetary inputDifferences in expectation of work processes between the Chinese and foreignersCompetition from local providers [in China] of notionally similar technology that was markedly inferior but much cheaperInternal and local politics in ChinaUnderstanding the legal processes in ChinaLanguage problemsLack of cultural understanding by both partiesTable 5. Barriers faced in transferring EGSs in the Australian examples11 Respondents were not asked to distinguish between trade and non-trade or non-tariff barriers. These are not ranked as they areindividual responses.2 This was stated by two consultants.Establishing common aims for the projectBy good communication in English and a visit to the customer in ChinaGood communication, testing assumptions and establishing trust with the ChineseSpending time and putting the effort in at the grass roots levelGood will by all partiesDemonstrations of the equipment to the ChineseLack of cultural ‘arrogance’ from the Australian team and awareness (within the Australian team) of the need to be sensitive to different nuances (in the Chinese culture)Table 6. How barriers to transfer of EGSs were overcome in the Australian examplesshowed, it is apparent that renewable energy technologies and advice are also likely to become increasingly impor-tant in the mix of EGS being exported to China from Australia. This is important as Australia has these technolo-gies and experience with these, including solar, wind, geothermal and biofuels. Other successful EGS transfers toChina were in environmental education and training, advice to companies in the area of corporate social respon-sibility, energy management, sustainable agriculture, air pollution control and the development of an environmentinvestment program. The most common barriers observed from the Australian examples were the absence of skilled personnel wherethe EGS was being used, local protectionism and legal, ﬁnancial and intercultural barriers (Table 5). Respondentsovercame the barriers when common aims for the project were established with the Chinese, communicationbetween the Australian and Chinese team members was effective, trust and goodwill was present and the Austra-lians demonstrated intercultural sensitivity (Table 6). These ﬁndings suggest that intercultural sensitivity is impor-tant in ensuring technology transfer occurs effectively.ConclusionsThis survey conﬁrms concerns that Australian companies (and companies from other developed countries) havein relation to China’s lack of safeguards to protect IP, the lack of policing of laws across China, the fragmentationand bureaucracy of the Chinese government and the importance of establishing the appropriate level of ownershipof new businesses (for transferring EGS to China). It also shows quantitatively that these four constraints wereCopyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
An Assessment and Ranking of Barriers to Doing Environmental Business with China 395perceived as signiﬁcant barriers compared with intercultural issues and modernization of SOEs. These perceptionsare the ﬁrst from corporate environmental managers and environmental consultants, providing a new contributionto the literature in this ﬁeld. In terms of how these barriers may be managed, IP loss may be overcome at least tosome extent by only transferring those EGSs that are difﬁcult to replicate such as those involving the provision ofhigh quality consulting and advisory services, and the product of strategic alliances (i.e. synergy generated betweencollaborating vendors or partners in a supply chain). The results also conﬁrm that training and awareness in IPrights will be critical for long-term changes in attitudes to IP rights in China, and Australian and other westernorganizations should have a vested interest in seeing that a proportion of China-derived proﬁts is put back intothis activity locally in China. For companies aspiring to do business in China, a reliable source of advice on thechanging legal landscape in China will also be critical, as will knowing the key players in both the industry andwithin the relevant Chinese government authories (regulating a particular industry). Establishing the appropriatelevel of ownership is important, and ensuring that skilled operators are available at the point of use of the tech-nology. These abovementioned barriers present high priority areas for Australian and other western vendors toconsider when planning their market entry into China, and for the Australian Government to consider whenestablishing the terms of the pending FTA. Intercultural issues and modernization of SOEs were rated as medium priority barriers. A reason for this rankingis that Australians sense the importance of intercultural sensitivity and manage these barriers as part of theirtechnology transfer activity to China. However, it was evident that absence of effective training of both the Aus-tralian team involved in the technology transfer activity and of the local Chinese organization co-ordinating distri-bution, sales or implementation of the EGSs is likely to be a potential constraint in the ongoing success of EGStransfers. This issue of intercultural sensitivity was not examined in depth in the survey and therefore is not dealtwith further here. Modernization of SOEs was not considered by respondents to be a signiﬁcant barrier. Potentially,this transformation in China is perceived as opening a new area for marketing of Australian and other foreignEGSs. From the study, there were no unique aspects of the constraints to EGS technology transfer to China. As such,the barriers identiﬁed and discussed in this article appear to be generic to a range of types of good and service.Further research would be required to ascertain whether there are any unique attributes of the transfer of EGSscompared with that of technologies in general. Further, no new barriers to technology transfer were identiﬁed. Apart from weak laws leading to unfair competition, the impact of the constraints identiﬁed on actual environ-mental protection in China is unclear. If there were any effects of the identiﬁed constraints on environmentalperformance, then this assessment was beyond the scope of the study (including rate, extent and/or type of EGSadopted). Modernization of SOEs is another barrier that may have a direct impact on environmental protection inChina, as the economic incentive to improve the business performance of SOEs will also probably improve envi-ronmental performance of the same organizations if low or non-polluting technologies and services can be imple-mented as the SOE facilities are upgraded. Similarly, intercultural issues and in particular the perception ofenvironmental problems by the Chinese as of minor concern only (Harris, 2006) is also likely to limit transferand adoption of EGSs in China. Further research is required to establish to what extent the identiﬁed constraintsare impacting the protection of the environment.Statement of LimitationsThis article presents the views of the author only and does not necessarily reﬂect those of his employer, TelstraCorporation, or former employer, Shell Australia.ReferencesAIG. 2004. China and Australian Manufacturing – Opportunities and Challenges. http://www.aig.org.au [6 July 2005].Anonymous. 2006. China orders cleanup of 20 chemical plants. Chemical Week 12/19 April: 47.Birkin F, Cashman A, Koh, SCL, Liu Z. 2007. New sustainable business models in China. Business Strategy and the Environment. DOI: 10.1002/bse.568Copyright © 2007 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 18, 380–396 (2009) DOI: 10.1002/bse
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