MSc BD China Residency Trip Official Report

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MSc BD China Residency Trip Official Report

  1. 1. GGSB  Study  China  Residency  Report  2011                                                     1  
  2. 2. Table  of  Content  A.   MSc  Business  Development  Profiles  ..................................................................................................................  5   1.   Class  Representatives  ................................................................................................................................................  5   2.   Leadership  Team  .........................................................................................................................................................  6   3.   Project  Management  Team  ....................................................................................................................................  8   4.   Event  Management  team  ........................................................................................................................................  9   5.   MSc  Community  Team  ...........................................................................................................................................  10  I.   Current  Issues  in  Chinese  Economy   .............................................................................  12  B.   Foreign  Direct  Investments  in  China  ..............................................................................................................  14  C.   China’s  Outward  Foreign  Direct  Investment  ...............................................................................................  14  II.   Business  and  Politics  .................................................................................................  16  A.   Overview  .....................................................................................................................................................................  17  B.   Business  aspect  ........................................................................................................................................................  18  III.   Future  Trends  in  China  .............................................................................................  20  A.   Future  Trends  in  China  .........................................................................................................................................  21  B.   Trends  in  Transports  Infrastructure  in  China  ............................................................................................  21  C.   The  Future  of  Energy  Consumption  in  China  ..............................................................................................  22  D.   China’s  Future  Human  Resource  ......................................................................................................................  22  IV.   Chinese  Business  Environment  .................................................................................  24  A.   General  Government  factors:  .............................................................................................................................  25  B.   Government  influence  in  companies:  .............................................................................................................  25  C.   New  environment  policy  in  China  ....................................................................................................................  26  D.   New  requirements  for  FDI  in  China  ................................................................................................................  26  V.   Chinese  Business  Practices  ........................................................................................  27  A.   Overview  .....................................................................................................................................................................  28  B.   China  Business  Style  ..............................................................................................................................................  28  C.   Guanxi  business  ethic  code  .................................................................................................................................  29  D.   Conclusion  ..................................................................................................................................................................  30  VI.   Cultural  Issues  in  China  ............................................................................................  31  A.   Overview  .....................................................................................................................................................................  32  B.   Cultural  Influences  in  Chinese  Business  .......................................................................................................  32  C.   Negotiating  in  China  ...............................................................................................................................................  33  D.   Intercultural  Management  ..................................................................................................................................  34  VII.   Company  Visits  .......................................................................................................  36  A.   Michelin  .......................................................................................................................................................................  37   1.   Overview  ......................................................................................................................................................................  37   2.   Key  Findings  ...............................................................................................................................................................  37   3.   Conclusion  ...................................................................................................................................................................  38  B.   Decathlon  ....................................................................................................................................................................  39   1.   Overview  ......................................................................................................................................................................  39   2.   Key  Findings  ...............................................................................................................................................................  39  
  3. 3. GGSB  Study  China  Residency  Report  2011  C.   Sansi  ..............................................................................................................................................................................  41   1.   Overview  .........................................................................................................  Error!  Bookmark  not  defined.   2.   Key  findings  ................................................................................................................................................................  41  D.   Asobio  ..........................................................................................................................................................................  42   1.   overview  .......................................................................................................................................................................  42   2.   Key  Findings  ...............................................................................................................................................................  42   3.   Marketing:  ...................................................................................................................................................................  42   4.   Business  Model:  .........................................................................................................................................................  43   5.   Future  Possibilities:  .................................................................................................................................................  43   6.   Current  Situation  &  Issues  for  Asobio  :  ...........................................................................................................  43   7.   Customer  Loyalty:  ....................................................................................................................................................  44   8.   Conclusion  ...................................................................................................................................................................  44  E.   Aon  Hewitt  .................................................................................................................................................................  45   1.   Overview  ......................................................................................................................................................................  45   2.   Arrival  of  the  Lewis  turning  point  ....................................................................................................................  45   3.   Government’s  Policy  ................................................................................................................................................  45   4.   Adjustment  of  Industrial  Structure  ..................................................................................................................  45   5.   Conclusion  ...................................................................................................................................................................  46  F.   Airbus  ...........................................................................................................................................................................  47   1.   Overview  ......................................................................................................................................................................  47   2.   China  Entry  .................................................................................................................................................................  47   Current  Situation  and  Industry  Issues  for  Airbus  in  China  .............................................................................  47   3.   Rising  Yuan  against  the  US  dollar  ....................................................................................................................  47   4.   Sharing  Technology  ................................................................................................................................................  48   5.   Competition  ................................................................................................................................................................  48   6.   Government  Infrastructure  Investment  .........................................................................................................  48  G.   EDF  ................................................................................................................................................................................  49   1.   Overview  ......................................................................................................................................................................  49   2.   Key  Findings  ...............................................................................................................................................................  49  VIII.   Strengths  and  opportunities  ...................................................................................  51  A.   Overview  .....................................................................................................................................................................  52  B.   Tourism  industry  ....................................................................................................................................................  53   1.   Strengths:  ....................................................................................................................................................................  53   2.   Opportunity:  ...............................................................................................................................................................  53  C.   Real  Estate  &Construction  industry  ................................................................................................................  54   1.   Strengths:  ....................................................................................................................................................................  54   2.   Opportunities:  ............................................................................................................................................................  54  D.   IT  industry  .................................................................................................................................................................  55   1.   Strengths:  ....................................................................................................................................................................  55   2.   Opportunities:  ............................................................................................................................................................  55  E.   Human  resources  ....................................................................................................................................................  55   1.   Strengths:  ....................................................................................................................................................................  55   2.   Opportunities:  ............................................................................................................................................................  56  G.   Key  learning  and  suggestions  ............................................................................................................................  56     3  
  4. 4. GGSB  Study  China  Residency  Report  2011   1.   ...................................................................................................................................................................  56   IT  Industry   2.   Tourism  ........................................................................................................................................................................  57   3.   Construction  ...............................................................................................................................................................  57   4.   Professional  Services  ..............................................................................................................................................  57  IX.   Weaknesses  and  Threats  for  Business  Development  in  China  ...................................  58  A.   General  Challenges  .................................................................................................................................................  58   1.   Cultural  Implications  .............................................................................................................................................  58   2.   Increase  in  Union  Power  .......................................................................................................................................  58   3.   Employee  turnover  ..................................................................................................................................................  58   4.   Environmental  Concerns  ......................................................................................................................................  59  B.   General  Weaknesses  ..............................................................................................................................................  59   1.   Management  ..............................................................................................................................................................  59   2.   Credit  .............................................................................................................................................................................  59   3.   Quality  Control  ..........................................................................................................................................................  59   4.   Inflation  ........................................................................................................................................................................  60   5.   Government  Protectionism  ..................................................................................................................................  60   6.   Regional  Diversity  ....................................................................................................................................................  60  X.   Key  Industries  Analysis  ..............................................................................................  60  A.   IT  ....................................................................................................................................................................................  60   1.   Weaknesses  .................................................................................................................................................................  60   2.   Challenges  ...................................................................................................................................................................  60  B.   Construction  ..............................................................................................................................................................  61   1.   Weaknesses  .................................................................................................................................................................  61   2.   Challenges  ...................................................................................................................................................................  61   3.   Weaknesses  .................................................................................................................................................................  61   4.   Challenges  ...................................................................................................................................................................  62  C.   Tourism  .......................................................................................................................................................................  62   1.   Weaknesses  .................................................................................................................................................................  62   2.   Challenges  ...................................................................................................................................................................  63  D.   Key  Learning’s  and  Suggestions  .......................................................................................................................  63  E.   Credit  Issues  ..............................................................................................................................................................  63   1.   Human  Resource  Issues  .........................................................................................................................................  63  XI.   References  ...............................................................................................................  65                 4  
  5. 5. GGSB  Study  China  Residency  Report  2011  A. MS C   B U S IN E S S   D E V E L O P M E N T   P R O F IL E S     1. Class  Representatives  The  class  representatives  for  the  2011  MSc  Business  Development  class  for  our  trip  to  Shanghai  and  Beijing  were  responsible  for  coordinating  the  group  and  helping  to  organize  activities  among  other  things.  With  a  large  group  of  34  students,  there  were  many  different  interests  and  personalities  that  needed  to  be  considered  in  all  that  we  did  from  our  trip  to  the  Great  Wall  of  China  to  the  food  we  ate  on  a  daily  basis.  While  there  were  no  major  problems  for  the  group,  the  Class  Reps  ensured  that  all  members  of  the  program  were  well  looked  after  and  sufficiently  involved  in  all  the  class’s  activities  throughout  the  trip.  The  group’s  cohesion  certainly  grew  over  the  length  of  the  trip  to  China  as  all  of  us  became  more  involved  in  each  other’s  lives  and  formed  friendships  that  we  know  will  last  forever.  The  Class  Reps  worked  to  organize  group  outings  while  in  China  to  various  restaurants,  markets  and  other  important  cultural  areas  and  made  sure  that  as  many  students  of  the  class  participated  as  possible.  Our  collective  experiences  with  the  various  presentations  that  we  saw  during  the  trip  were  highly  intriguing  and  served  to  promote  the  group’s  understanding  of  the  business  and  political  realities  of  China-­‐  something  with  which  not  many  of  the  students  were  familiar  with  prior  to  our  experience  in  China.  The  Class  Reps  trip  to  lead  the  way  in  asking  pointed  questions  to  the  presenters  at  the  companies  we  visited  during  the  trip  and  tried  to  represent  the  interesting  and  diverse  mix  of  students  in  the  class  as  well  as  possible.  In  summation,  the  trip  was  an  experience  of  a  lifetime  and  in  our  roles  as  Class  Representatives  we  were  thrilled  to  be  able  to  work  with  our  classmates  in  order  to  gain  a  better  understanding  of  China  and  of  one  another  during  our  time  in  the  Middle  Kingdom.  Class  Representative:  Yehya  El  Oueini  Deputy  Class  Rep:  Sandy  White     5  
  6. 6. GGSB  Study  China  Residency  Report  2011     2. Leadership  Team    China  Residency  Program:  Students  Expectations  Survey  The   student’s   expectations   survey   was   conducted   on   the   flight   to   China   to   understand  the   participants’   individual   objectives   and   learning   expectations   beyond   just   visiting   a  new  country  and  adapting  to  a  different  working  environment.  To   put   it   in   one   word,   a   great   majority   of   participants   described   their   feelings   about   the  China  Residency  Programas  being  “Excited”.  Students   generally   stated   that   being   directly   involved   and   asking   questions   would   be  essential   to   improving   self-­‐confidence   and   leadership   skills   in   an   unfamiliar  environment.   Being   open   minded,   as   well   as   listening   and   observing   are   crucial   to  comprehend   Chinese   culture   and   business   practices.   It   is   also   a   vital   tool   in  understanding   the   differences   and   similarities   between   the   participants   ‘respective  home  countries  and  Chinese  society.    In   terms   of   the   integrated   Live   Business   Cases   that   students   were   working   on,   the  majority  was  expecting  to  receive  significant  creative  input  during  the  China  Residency  Program.   All   students   stated   that   extensive   preparation   was   necessary   to   ask   relevant  questions   during   business   meetings   and   alumni   events.In   addition   it   was   crucial   to  develop   an   improved   analytical   approach   for   each   team’s   respective   content   of   this  report   and   the   Live   Business   Cases.   This   clearly   shows   that   students   were   well   aware  and  prepared  not  only  for  the  individual  business  meetings  in  China,  but  also  to  develop  the  content  of  their  Live  Business  Cases  and  this  report.  As  a  response  to  what  skills  students  are  expecting  to  improve,  the  vast  majority  stated  that   networking   and   building   strong   business   relationships   was   the   key   area   they  wished   to   work   on   (“engaging   with   business   people   in   a   new   cultural   environment”).  Testing   ones’   cultural   flexibility,   building   up   practical   intercultural   management  abilities,   and   strengthening   self-­‐confidence   were   the   key   skills   that   students   were  expecting  to  attain  during  the  China  Residency  Program.       6  
  7. 7. GGSB  Study  China  Residency  Report  2011  A  majority  of  the  students  were  not  able  to  state  whether  or  not  they  would  like  to  live  and   work   in   China   in   the   future.   In   this   aspect,   the   program   provided   an   excellent  starting  point  to  assess  one’s  personal  preferenceon  location  for  the  future.    China  Study  Residency:  Student  Feedback  Survey  The  feedback  survey  conducted  by  the  ‘Leadership  Mentors  Team’  aimed  at  deriving  a  general   feedback   from   participants   on   what   they   liked   and   disliked,   as   well   as  comprehend  what  actions  should  be  taken  to  improve  the  integrated  Study  Residency  in  future.  How  do  you  rate  the  China  Study  Residency  overall?    The   China   Residency   Program   was   truly   rewarding   for   all   participants,   which   is  reflected  in  the  overall  feedback  the  students  gave  and  insinuates  that  most  expectations  were   fulfilled.   The   key   findings   of   the   feedback   survey   show   that   students   were  particularly  satisfied  with  the  destinations  chosen  within  China  (Shanghai,  Beijing,  and  Tianjin)   and   the   organization.   Most   of   the   company   visits,   especially   Airbus   China  Limited   in   Tianjin,   and   the   intercultural   component   regarding   business,   as   well   as  leisure   were   very   satisfying.   The   program   provided   students   with   exceptional  knowledge   on   current   issues   surrounding   the   politico-­‐economic,   socio-­‐cultural,   and  business  environments,  which  helped  all  teams  in  terms  of  their  Live  Business  Cases.  The   challenges   faced   during   such   an   intensive   study   abroad   week   are   addressed  hereafter   with   clear   focus   on   what   the   participants   suggested   as   thethree   key  improvements  for  future  intakes  of  the  MSc  in  Business  Development  program.  First   of   all,   participants   felt   that   the   schedule   of   the     Residency   Program   was  significantly  compacted  due  to  the  transfers  between  company  visits  and  other  events,  stating   that   the   number   of   visits   should   be   decreased,   however   the   duration   of   each  should  be  increased  and  the  level  of  interaction  intensified  (e.g.  more  relevant  lectures,  business   cases,   team   assignments,   etc.).   Secondly,   participants   suggested   to   brief  companies  in  greater  detail  on  the  background  of  the  Business  Development  curriculum,  so  company  visits  can  provide  more  relevant  information  tailored  to  the  students  needs.  Finally,  several  participants  suggested  implementing  a  student  day  that  is  to  be  fully       7  
  8. 8. GGSB  Study  China  Residency  Report  2011    organized   by   the   group   leaders   (Project   Manager,   Leadership   Mentor,   Event  Management,  Community  Manager,  and  Time  Keepers)  before  leaving  Grenoble.  Oliver   Bruehl   (Manager),   Julien   Picard,   Mantas   Butkus,   Olga   Belmares,   Erick   Villeda,  Michal  Christa   3. Project  Management  Team    To   accomplish   good   team   communication   within   the   members   of   an   organization   it   is  important   that   the   whole   organization   is   aware   of   the   philosophies,   ideologies   and  aspirations   that   prevail   in   the   collective   mind.   It   is   also   vital   to   understand   how   these  forces   affect   any   attempt   at   change.   This   year,   the   Business   Development   program’s  team   spirit   and   team   building   was   affected   a   lot   in   part   because   philosophies,   ideologies  and   aspirations   were   not   as   clear   from   the   beginning   of   the   year   as   they   were   at   the  end  of   the   year.   The  team   building   mission   was   not   as   clear   in   the   past   as   it   is   now,  which   led   to   identity   and   cultural   barriers   that   did   not   allow   the   students   to   feel   like  they  were  a  part  of  a  unit.  Thus,  the  PM  team  struggled  a  lot  to  drive  strategic  changes  that   allowed   for   improvement.   This   demonization   generated   a   vicious   cycle,   in   which  neither  the  PM  team  nor  the  class  wanted  to  be  involved  in  the  team  building  process.  The  PM  team  started  evaluating  on  an  ongoing  basis  the  beliefs,  policies  and  ideologies  established  within  the  class,  in  order  to  separate  the  beneficial  points  from  the  harmful  ones.  This  was  done  for  the  creation  and  implementation  of  strategic  change.  This  would  allow   for  positive   elements   to   be   used   to   build   future   teams,   but   this   can   only   be  accomplished   with   the   participation   of   every   individual   working   together   as   an  organization.  Another   important   element   appeared   second   semester.   The   element   worked   as   the  driver   of   value   systems,   beliefs   and   organizational   standards.   This   element   was   called  "ambition".  The  China  Business  trip  reflected  this  new  found  ambition,  which  gave  the  direction   and   possibilities   of   a   major   change   within   the   group.   The   individual   and  collective   aspirations   of   the   entire   group   within   the   new   organization   and  sub  organizations,  created  in  most  part  by  the  Class  Representative  demonstrated  the  desire  to   meet   the   goals   and   objectives   of   this   trip.   All   of   these   expectations   were   combined  into  a  strong  and  positive  set  of  values,  which  then  received  enthusiastic  support  from  the   members.   However   compromises   needed   to   be   made,   which   is   essential   for   the     8  
  9. 9. GGSB  Study  China  Residency  Report  2011  effective   implementation   of   any   strategic   change.   The   China   business   case   was   the  instrument   through   which   we   could   all   fulfill   our   aspirations  as   team   members   of   a  single  community:  MSc  Business  Development  2010  -­‐  2011.    Each  team  created  plans  that  are  still  in  compliance.    The   PM   team   has   developed   an   important   and   clear   new   vision   on   how   team   building  works.   From   the   very   beginning   this   would   have   been   an   effective   strategy   to   follow:   To  develop  an  efficient  organization,  that  has  taken  into  account  both  the  aspirations  to  be  achieved  and  the  strategies  to  be  undertaken  by  setting  goals,  objectives,  sub  objectives,  etc.  Yazmin  Figueroa  (Manager),  Vasily  Sokolov,  Chandan  Mehta   4. Event  Management  team    The   MSc   Business   Development   Event   Team’s   responsibilities   include   establishing,  growing   and   strengthening   the   sense   of   community   within   the   class   through   festive  social  and  cultural  events  throughout  the  year.  Striving  to  actively  and  creatively  bring  our  community  closer  together  through  these  events  and  to  teach  one  another  about  our  cultural  and  social  traditions  is  also  part  of  the  mission  established.  The  months  preceding  the  international  residency  trip  to  China  served  as  a  preparation  period   for   exploring   and   understanding   what   we   as   a   community   wanted   to   gain,  socially,   culturally   and   personally,   from   this   extraordinary   and   once   in   a   lifetime  experience   abroad.   A   community   meeting   of   a   Chinese   language   and   culture  introduction,   kindly   lead   by   our   classmates   from   China,   was   organized   by   the   Event  Team.  This  was  done  in  order  to  be  able  to  arrive  in  China  with  a  more  developed  idea  of  what  to  expect  upon  arrival.  This  was  extremely  helpful  for  those  who  had  never  been  to  China   before   and   who   knew   nothing   or   very   little   of   the   traditions,   culture   and   language  beforehand.   This   event   brought   the   entire   community   closer   together   and   aided   the  Event  Team  in  defining  the  overall  needs  for  the  upcoming  trip.  Once   we   arrivedin   China,   the   Event   Team   came   together   to   decide   upon   class   outings  and  extracurricular  activities.  The  goal  was  to  include  everyone  who  was  interested  in  exploring  China  in  our  free  time  and  to  make  them  aware  of  all  of  the  social  and  cultural  options  available.     9  
  10. 10. GGSB  Study  China  Residency  Report  2011  As   Event   Team   Manager,   I   actively   tried   to   include   everyone   in   the   community   for   the  leisure   events.   I   made   sure   that   no   one   got   left   behind,   everyone   had   the   destination  written  properly  in  Chinese  and  that  everyone’s  opinion  was  taken  into  consideration  as  plans  were  being  made.  I  felt  that  after  this  trip  our  sense  of  community  was  stronger  than   ever   and   that   the   Event   Team   did   a   great   job   of   bringing   everyone   together   to  explore  China’s  traditions,  entertainment  and  way  of  life  collectively.  Brittney  Hale  (Manager),  Joanna  Jamilly,  Lina  Rangel,  AndreyKostin,  AyoubMohebbi,  Jean  Sabounji,  Juan  Veliz,  Sergio  Padilla,  SuhasShubhakaran,TarekItani,  Vijay  Arikupurathu     5. MSc  Community  Team    The  Community  team’s  purpose  was  to  create  a  link  between  all  Business  Development  students   within   GGSB,   in   order   to   build   a   professional   network   based   on   the   common  interest   of   acquiring   business   development   expertise   andleadership   skills.   This   was  done  in  order  to  become  successful  professionals.  The  aim  is  to  integrate  the  community  in   a   sustainable   network   that   will   facilitate   knowledge   exchange   and   building   relevant  business  connections  for  its  members.  The   team   focused   on   the   implementation   of   tools   that   would   support   communication  between   members,   ensured   the   availability   of   content   and   the   liveliness   of   the  community.  In  concrete  terms:    a   Facebook   page   was   implemented   to   gather   all   the   Business   Developers   of   GGSB   and  provide  an  easy-­‐to-­‐use  communication  platform  Several   events   were   organized   in   collaboration   with   the   Events   Team,   such   as   the  Teambuilding   event   in   les   Alpes.   The   skiers/snowboarders   of   the   community   taught   the  other   members   how   to   ski/snowboard;   the   objective   was   to   strengthen   the   links  between  the  Community  members  to  improve  the  team  performance  The   residency   trip   in   China   was   an   essential   milestone   for   the   Community   team,   since   it  was   the   best   time   to   create   a   strong   links   between   the   Community   members,   through  group  activities  taking  place  beyond  the  academic  agenda    Further   events   are   about   to   be   planned   in   order   to   ensure   the   liveliness   of   the  Community  long  after  the  end  of  the  academic  year     10  
  11. 11. GGSB  Study  China  Residency  Report  2011  The  Community  Manager  will  keep  in  touch  with  the  future  Community  team,  in  order  to  make  the  network  grow  and  to  develop  new  activities  The   Community   team   managed   to   start   a   network   for   all   the   Business   Developers   at  GGSB.   However,   the   most   important   part   is   yet   to   come:   the   mission   will   be   to   ensure  improvement,  development  and  liveliness  of  the  community.    Team  members:  Caroline   DELMAS   (Manager),   Peter   KRETSCHMAR,   Katherine   HUSHOVD,   Puneet   MALIK,  Wai-­‐Shan  YEUNG,  Flavia  CORTEZ,  Alejandro  CORDERO           11  
  12. 12. GGSB  Study  China  Residency  Report  2011  I. C URRENT   I SSUES  IN   C HINESE   E CONOMY           Not   even   three   decades   ago   China   was   considered   an   underperforming   agricultural   economy.   As   of   today,   China   has   hosted   the   Olympic   Games   of   2008   in   Beijing   and   the   world  EXPO  exhibition  in  Shanghai.  It  has  become  a  major  manufacturing  superpower  and   it   would   be   false   to   think   it   wants   to   remain   only   that.   Chinese   companies   are   already   entering  high  margin  sectors,  not  only  achieving  increasing  added  value,  but  developing  to   become  a  brand  and  technology  superpower.                                     12  
  13. 13. GGSB  Study  China  Residency  Report  2011  Since   initiating   economic   reforms   and   an   opening   policy,   China   has   achieved   an   average  GDP   growth   of   about   9.7   percent   per   annum   since   the   late   1970s,   with   exceptionally  strong  growth  between  2003  till  2007  averaging  about  11%  per  year.  China’s  outward-­‐oriented   economic   policy   has   helped   to   transform   the   country   and   it   has   become   the  world’s   second   largest   economy,   the   world’s   largest   exporter,   and   second   largest  importer  (WorldBank,  2011).            Figure  1:  Source:  IMF,  2011    China’s   growth   has   been   investment-­‐oriented   and   industry-­‐led.   So   far,   the   investment  rate   has   been   higher   in   China   than   in   almost   any   other   country,   and   the   production  structure   is   geared   heavily   towards   industry   (Hansson   &   Kuijs,   2011,   p.   1).   FDI   in   China  has   been   the   catalyst   for   China’s   rapid   growth   and   rapid   increase   in   its   ability   to   expand  its   export   sector.   Among   the   developing   nations,   China   has   ranked   number   one   in   terms  of  FDI  made  abroad  (Mantzopoulos  &  Shen,  2011,  p.  5).  From  1994  until  2010,  the  average  inflation  rate  in  China  was  4.25  percent  reaching  a  historical   high   of   27.7   %   in   October   of   1994   and   a   record   low   of   -­‐2.2%   in   March   of  1999.The   last   reported   inflation   rate   was   5.4%   in   March   of   2011.   High   food   prices   were  the  main  driver  of  price,  largely  because  of  problematic  weather  domestically,  but  with  additional  impact  from  increased  international  food  prices.  China   is   still   a   lower   middle   income   country   with   complex   developmental   needs.   The  country  has  the  second  largest  number  ofpoverty  consumption  in  the  world  after  India,  but   the   economic   growth   has   helped   several   hundred   million   people   out   of   absolute  poverty,   accounting   for   over   75   percent   of   poverty   reduction   in   the   developing   world  over  the  past  20  years.     13  
  14. 14. GGSB  Study  China  Residency  Report  2011  Currently,  the  government  vows  to  continue  reforming  the  economy  and  emphasizes  the  need  to  increase  domestic  consumption  in  order  to  make  the  economy  less  dependent  on   exports   for   GDP   growth   in   the   future,   but   China   likely   will   make   only   marginal  progress   toward   these   rebalancing   goals   in   2011.   Two   economic   problems   China  currently   faces   are   inflation   and   local   government   debt,   which   swelled   as   a   result   of  stimulus  policies,  and  is  largely  off-­‐the-­‐books  and  potentially  low-­‐quality  (CIA,  2011).    B. F O R E IG N   D IR E C T   I N V E S T M E N T S  IN   C H IN A    Since   the   1990s,   China   has   grown   to   become   one   of   the   largest   recipients   of   inward  foreign   direct   investment   flow.   As   the   major   manufacturing   hub   of   the   world,   it   has  achieved   to   aggregate   large   investment   sums   in   the   industrialised   sectors   of   its  economy.   Among   the   different   types   of   FDI   allowed   in   China,   the   main   three   types   are  Equity   Joint   Venture,   Contractual   Joint   Venture,   and   Wholly   Foreign   Owned   Enterprises.  Initially   Contractual   Joint   Venture   was   the   most   popular   channel   of   investment   into  China,   however,   in   recent   years;   Wholly   Foreign   Owned   Enterprises   have   increased   in  popularity  (Randall,  Bernard,  &  Minyuan,  2008).    In  2010  alone,  foreign  investment  in  China  increased  by  17.44%,year  on  year  reaching  105.735   billion   USD.   Asia,   U.S.,   and   EU   were   the   main   drivers   of   this   increase.   The   ten  countries/region  that  invested  the  most  are:  Hong  Kong  (USD  67.474  billions),  Taiwan  (USD   6.701   billions),   Singapore   (USD   5.657   billions),   Japan   (USD   4.242   billions),   USA  (USD   4.052   billions),   ROK   (USD   2.693   billions),   UK   (USD   1.642   billions),   France   (USD  1.239  billions),  Netherlands  (USD  952  millions),  and  Germany  (USD  933  millions).  This  shows  that  the  Chinese  economy  is  highly  dependent  on  foreign  trade  (MOFCOM,  2011).    C. C H IN A ’ S   O U T W A R D   F O R E IG N   D IR E C T   I N V E S T M E N T    Successful  or  not,  the  surge  of  China’s  foreign  direct  investment  overseas  has  attracted  the  attention  of  politicians,  business  leaders  and  academic  scholars  alike.  Lenovo,  TCL,  and  Haier  are  only  a  few  of  the  notable  headlines  in  recent  years.  As  mentioned  earlier,     14  
  15. 15. GGSB  Study  China  Residency  Report  2011  China   has   become   one   of   the   largest   recipients   of   inward   FDI   since   the   1990s.   It   has  achieved   to   comprehensive   large   scale   investments   in   the   manufacturing   and  industrialised   sectors   of   its   economy.   However,   on-­‐going   development   of   outward   FDI  (OFDI)   flows   has   picked   up   surprisingly   slow   –   until   recently   (Randall,   Bernard,   &  Minyuan,  2008).    Yan,  Hong,  and  Ren  (2010)  stated  that  the  level  of  Chinese  FDI  is  determined  on  three  major   factors:   firstly,   the   level   of   state   ownership   in   organisations,   secondly   the   host  country’   ethnic   Chinese   population,   and   thirdly,   investor’s   financing   capacity.   In   total,  state-­‐owned   companies   account   for   more   than   half   of   China’s   total   outflow   of   direct  investments.   However,   several   new   policies   attempt   to   counter-­‐act   this   imbalance.   An  international   campaign   was   launched   by   the   Chinese   governments   with   the   slogan  “Made   in   China”,   made   with   the   world   (Ip,   2009).”   Since   the   2002   Chinese   Communist  Party’s  16th  Congress,  a  ‘go  global’  strategy  was  announced  to  improve  the  overall  level  of   opening   up   the   economy.   Since   then,   OFDI   received   a   great   boost   from   creating  incentive   policies,   streamlining   administrative   procedures,   easing   capital   controls,  providing  information  and  guidance  and  reducing  investment  risks  (Gattai,  2010).  With  the  Chinese  Ministry  of  Commerce  introducing  major  support  programmes  for  Chinese  companies,  it  is  expected  that  the  hindering  factors  of  the  past  will  disappear  gradually  (Ebbers  &  Zhang,  2010,  p.  187).  Regarding  the  EU’s  27  countries,  Germany,  France,  Italy,  and   the   UK   are   the   main   targets   accumulating   the   largest   part   of   Chinese   OFDI  (Fontagne  &  Py,  2010).    Cai  (1999)  listed  four  motives  of  Chinese  OFDI:  natural  resources  (1),  market  access  (2),  technology  and  skills  (3),  and  access  to  financial  capital  (4).  Deng  (2004)  identified  two  further   motives   that   were   not   considered   at   that   time:   acquisition   of   strategic   assets   (5)  and  diversification  (6).  Both  points  are  valid  and  evident  in  recent  Chinese  acquisitions  of   e.g.   IBM’s   personal   computer   business   unit   through   Lenovo   (technology   related  acquisition)   or   the   Nanjing   Automobile   Group’s   acquisition   of   the   British   MG   Rover  Group  (brand  related  acquisition).       15  
  16. 16. GGSB  Study  China  Residency  Report  2011  II. B USINESS  AND   P OLITICS           Inevitably   there   is   a   great   deal   of   political   issues   in   China   and   as   the   country   opens   up   more   to   the   rest   of   the   world   there   is   only   so   much   the   government   can   control.   Interestingly,   the   average   Chinese   youth   is   just   as   technologically   savvy,   if   not   more   so,   than  the  average  Westerner  and  this  has  played  an  important  role  in  the  dissemination  of   free  information  throughout  the  country.                                       16  
  17. 17. GGSB  Study  China  Residency  Report  2011  A. O V E R V IE W  On   a   daily   basis,   Chinese   people   who   seek   open   access   to   information   on   the   internet  have  to  deal  with  censorship  quite  often.  However,  it  is  not  uncommon  that  as  soon  as  one   site   is   blocked   by   the   government,   another   one   appears   in   its   place,   and   thus   allows  for  an  almost  free  flow  of  information.  This  situation  creates  a  continual  game  of  cat  and  mouse  for  the  government;  where  the  government  often  comes  out  on  top.    With   this   in   mind,   many   observers   see   China   heading   not   in   the   direction   of   the   U.S.S.R.,  in  the  final  years  under  Gorbachev,  but  more  like  a  hybrid  of  America  and  North  Korea.  Since  the  1970’s,  the  country  has  begun  to  embrace  capitalism  more  than  anyone  could  have   ever   anticipated.   What   this   has   led   to   is   a   situation   where   China   is   no   longer   a  communist   country   in   any   real   sense.   Rather,   China   has   become   the   world’s   first  successful   free-­‐market   dictatorship.   Whether   or   not   it   can   withstand   the   growing  pressures  from  the  outside  world  and  from  its  own  people  in  the  coming  years  will  be  fascinating  to  watch  and  no  one  knows  how  it  will  play  out.      Corruption  is  a  major  issue  in  China.  Since  it  is  next  to  impossible  to  do  business  in  the  country   without   experiencing   a   great   deal   of   bureaucratic   red   tape,   many   secondary  methods   have   been   developed   to   circumvent   the   normal   business   process.   What   this  generally   entails,   by   most   accounts,   is   coaxing   state   officials   by   ‘taking   care’   of   them  financially,  normally  in  the  form  of  bribes.  It  is  an  unfortunate  reality,  but  corruption  is  a  large  part  of  the  Chinese  way  of  business.    However,   this   is   not   to   say   that   these   crimes   go   unpunished.   By   all   accounts,   justice   is  swift   and   brutal   in   China,   where   people   are   often   made   examples   of.   A   common   practice  for  people  who  are  convicted  of  corruption  or  caught  taking  bribes,  are  short  sentences  of   around   one   month,   yet   are   occasionally   executed.   It   is   a   very   harsh   form   of  punishment   and   very   hypocritical   in   fact   when   it   is   well   know   that   corruption   is   so  rampant.  But  it  is  something  that  the  leaders  of  the  country  have  been  chosen  to  be  strict  about,  even  if  they  are  often  involved  in  the  corruption  themselves.    Although   millions   of   Chinese   continue   to   insist   for   more   openness   on   the   part   of   the  government,   the   chances   of   another   revolution   in   China   are   slim   to   none.   China   is   not     17  
  18. 18. GGSB  Study  China  Residency  Report  2011  the  same  country  it  was  in  the  1920’s  or  1940’s  when  peasant  uprisings  overwhelmed  the   central   leadership   who   was   unable   to   counteract   them.   The   current   Chinese  government  is  now  one  of  the  most  powerful  in  the  world,  and  it  has  an  overwhelming  capability   to   monitor   its   citizens   to   ensure   that   the   central   government   maintains  control   over   every   aspect   of   the   country.   As   for   the   Chinese   people,   while   they   are  definitely   not   happy   about   being   governed   under   such   a   harsh   dictatorship,   as   long   as  the   nation   maintains   its   formidable   economic   growth   the   Chinese   people   will   put   up  with   it.   But   as   growth   starts   to   slow   down,which   inevitably   will   at   a   certain   time,   the  numerous  issues  under  the  surface  are  going  to  boil  up,  and  the  Communist  Party  will  have  to  address  them.    While  the  Chinese  government  is  aware  that  military  conflict,  particularly  over  Taiwan  and  North  Korea  is  possible,  the  Chinese  leadership  is  smart  enough  to  know  that  war  would  be  bad  for  business.  This  is  why  the  Chinese  are  charting  a  course  of  economic,  rather   than   military,   imperialism.   This   is   already   starting   to   happen   through   Chinese  firms  investing  abroad,  as  well  as  the  massive  amount  of  U.S.  treasuries  that  the  country  owns.      B. B U S IN E S S  A S P E C T  China’s   strong   economic   growth   in   recent   years   is   a   complicated   issue.   On   the   one   hand,  the   country   has   seen   astronomical   growth   in   the   past   decade,   but   whether   or   not   this  will  continue,  and  how  the  country  will  be  affected  politically,  is  still  uncertain.      The  Yuan  is  a  very  weak  currency  globally.  Even  though,  many  China  observers  would  argue  that  the  Yuan’s  weakness  is  largely  artificial,  having  been  pushed  down  by  Chinese  central   bank   policies.   If   at   some   point,   the   Chinese   government   either   decides,   or   is  somehow   forced,   to   value   their   currency   at   a   higher   price,   it   would   make   a   significant  impact  on  the  nation’s  economy.    In   the   West,   we   are   concerned   with   intergenerational   growth,   meaning   that   children  generally  expect  to  be  better  off  than  their  parents.  This  reality  in  China  is  very  different,  as   intergenerational   growth   is   a   thing   of   the   past.   What   is   important   now   is   intra-­‐generational   growth,   meaning   that   people   have   to   do   better   than   they   themselves   did     18  
  19. 19. GGSB  Study  China  Residency  Report  2011  merely   several   years   ago.   This   is   only   made   possible   through   the   rapid   expansion   of  China’s  economy.  Where  problems  may  lie  are,  the  fact  that  this  upward  mobility  is  not  possible  for  everyone,  and  that  may  cause  a  great  deal  of  inter-­‐class  hostility  as  well  as  a  huge  division  between  urban  and  rural  populations  in  the  future.    It   is   unlikely   that   China   will   experience   the   same   sort   of   financial   pressures   that   have  been  seen  in  the  West.  While  there  are  many  bubbles  in  the  country,  it  is  still  not  entirely  a  free  market  and  there  is  a  significant  amount  of  economic  regulation.  This  has  lead  to  the  government  not  being  as  loose  with  their  economic  policies  as  the  West  has,  and  this  has   been   an   important   backstop   for   any   Chinese   economic   crisis.   China   already  experiences   massive   growth,   so   has   never   been   a   need   to   loosen   lending   practices   to   an  extreme   degree   like   what   was   done   in   the   West.   But   beyond   that,   with   the   country’s  growth   rates   already   around   10%   annually,   China   is   attempting   to   ‘cool   down’   their  economic  growth  so  as  to  avoid  any  sort  of  financial  collapse.    With   a   population   of   around   1.4   billion   people,   China   may   well   be   set   to   be   the   next  global   economic   powerhouse.   In   examining   the   past   50   years,   it   was   the   American  middle  class’  consumption  that  drove  the  global  economy.  The  American  and  European  middle  classes  were  very  large  consumers  and  spent  a  lot  of  money,  but  there  were  only  about   250   million   of   them.   Now   when   you   compare   that   number   to   China’s   middle   class  of   roughly   200   million   people,   and   it   is   growing   rapidly   every   day,   it   is   almost   certain  that  the  country’s  economic  power  will  eventually  come  to  surpass  the  West.       19  
  20. 20. GGSB  Study  China  Residency  Report  2011  III. F UTURE   T RENDS  IN   C HINA           There  are  several  industries  and  technologies  that  have  been  bustling  in  recent  years  and   that   will   only   continue   to   escalate   in   thanks   to   the   rapid   growth   of   the   Chinese   population   and   theirdesire   to   improve   their   quality   of   life.   Industries   in   the   life   sciences,   such   as   medical,   IT   or   new   technologies   with   production   of   energy,   have   now   become   a   part   of   the   daily  thinking  of  Chinese  business  leaders  and  government.                                         20  
  21. 21. GGSB  Study  China  Residency  Report  2011  A. F U T U R E   T R E N D S  IN   C H IN A  There   are   several   industries   and   technologies   that   have   been   bustling   in   recent   years  and   that   will   only   continue   to   escalate   in   thanks   to   the   rapid   growth   of   the   Chinese  population  and  their  desire  to  improve  their  quality  of  life.  Industries  in  the  life  sciences,  such   as   medical,   IT   or   new   technologies   with   production   of   energy   and   even   the  creativity   industry,   have   now   become   a   part   of   the   daily   thinking   of   Chinese   business  leaders  and  government.  In   the   following   pages   the   teamwill   concentrateon   three   major   challenges   that   the  Chinese   economy   will   face   in   the   coming   years:   Infrastructure,   Energy   consumption,  Human  Resources  and  finally  an  explanation  about  the  Creativity  industry.  B. T R E N D S  IN   T R A N S P O R T S   I N F R A S T R U C T U R E  IN   C H IN A    As   the   Chinese   economy   continues   its   growth   pattern,   many   industries   have   come   to  offer  great  opportunities  for  business  in  China.  One  industry  that  is  offering  high  levels  of   growth   combined   with   high   levels   of   capital   investment   is   the   Transport  Infrastructure  Industry,  because  the  long-­‐term  fundamentals  are  strong.  This  industry  offers  attractive  investment  opportunities  since  the  2009-­‐2010  Five-­‐year  plan  is  heavily  geared  towards  infrastructure  development,  ensuring  that  projects  in  the  pipeline   materialize.   Foreign   expertise   is   needed   in   niche   infrastructure   areas   such   as  maritime,  air  and  highway  infrastructure.  Another  example  is  the  airline  industry;  it  is  one  of  the  industries  that  shows  a  higher  short-­‐term  market  growth.  In  2014,  it  is  forecasted  its  market  volume  will  increase  70%  compared   to   2009,   representing   379.4   million   passengers.   This   represents   vast  opportunities  for  companies  that  focus  on  aeronautic  technology  and  material  suppliers,  services  etc.  The   transportation   industry   in   general   in   China   is   forecasted   to   grow   in   parallel   to   its  economy,   because   transportation   and   infrastructure   are   an   inherent   need   of   a  population   that   is   emerging   and   expanding   its   economy.   This   industry   comprises  thousands   of   direct   and   indirect   business   opportunities   to   invest   in   China,   offering     21  
  22. 22. GGSB  Study  China  Residency  Report  2011  opportunities   for   diverse   companies   to   benefit   from   this   economical   and   industrial  context.  C. T H E   F U T U R E  O F   E N E R G Y   C O N S U M P T IO N  IN   C H IN A    The   Chinese   economy   will   have   a   dramatic   impact   on   energy   consumption.       This   will  lead   to   an   increase   in   the   demand   for   coal,   petroleum   products,   natural   gas   and  electricity.   Cleaner   energy   sources   such   as   natural   gas   are   sought   after,   due   to   green  initiatives  being  implemented  by  large  corporations.  This  in  turn  will  lead  to  natural  gas  as  being  the  fastest  growing  energy  sector.    In  2020,  it  is  expected  that  the  demand  for  natural  gas  will  increase  to  20  billion  cubic  meters.  The  estimated  growth  in  the  next  ten  years   is   expected   to   reach   9   to   10%   annually.   The   residential   and   power   generation  segments   will   be   the   largest   consumers   of   natural   gas.   By   2020,   China   is   expected   to  import  75  billion  cubic  meters  from  foreign  companies.    Coal  will  still  be  in  high  demand  because  it  is  the  cheapest  energy  source  available  in  the  Chinese  market.  According  to  the  International  Energy  Agency  the  demand  for  coal  will  rise   by   3.1%   every   year   for   the   next   ten   years.     The   projected   estimates   for   oil   and  electricity  are  minimal  in  comparison  with  the  former  sources.    The  IEA  predicts  that  oil  demand   will   increase   by   4   percent   and   energy   consumption   by   5   percent   in   the   next  decade.   Due   to   shortage   in   oil   supply   China   will   rely   heavily   on   foreign   markets   to  sustain   the   ever-­‐increasing   demand.   This   would   inevitably   drastically   increase   China’s  oil   imports   by   2020.   Several   estimates   indicate   that   the   figure   would   be   around   180  million  tons.  Due  to  the  pronounced  economic  and  population  growth  it  will  be  crucial  and  beneficial  for  China  to  explore  alternative  energy  sources.  D. C H IN A ’ S   F U T U R E   H U M A N   R E S O U R C E    There  is  an  abundance  of  human  resources  in  China,  and  labor  costs  in  China  are  much  lower   than   in   other   industrialized   countries.   Chinas   education   system   is   also   being  dramatically  developed,  thus  more  people  will  achieve  a  higher  level  of  education  than  in   the   past.   With   comparative   advantage   in   cheap   labor   cost   and   increase   of   human  capital   brought   about   by   education,   the   future   of   the   Chinese   economy   can   be   even  brighter  and  more  promising.  China’s  labor  force  will  increase  as  China  is  urbanizing  at     22  
  23. 23. GGSB  Study  China  Residency  Report  2011  such   a   fast   pace,   changing   from   a   rural   and   agricultural   society   to   an   urban   and  industrialized  society.    Through   this   transition,   more   manpower   can   be   utilized.   Urban   infrastructure   will   be  further   enhanced   and   an   increase   in   urban   population   will   bring   about   higher  consumption  level,  thus  driving  the  economy  further.  The  presence  of  such  a  big  market,  coupled   by   the   increase   in   consumption   power   of   the   population   brought   about   by  urbanization,   will   create   greater   prospects   for   almost   every   industry.   The   market   will  become   more   efficient   and   industries   will   grow   even   faster   than   before.   Domestic  demand  for  goods  and  services  will  grow,  creating  better  opportunities  for  production  and  investment.  Now   we   will   conclude   with   a   briefexplanation   about   the   Creative   industry.   This   is   an  industry  that  has  caught  on  quite  quickly  with  the  masses.  This  field  has  seen  dramatic  growth   in   recent   years   and   is   continuingly   increasing.   A   major   factor   that   has  significantly   influenced   this   evolution   is   theencouragement   bythe   government   in  Chinese   Universities.In   addition,   the   government   has   allowed   and   supported  commercial   art   and   cultural   events   in   public   areas.     To   a   certain   extent,   the   change   in  values   has   also   influenced   cultural   characteristics.   For   example,   parents   are   now  starting  to  accept  alternate  forms  of  career  prospects  for  their  children.  More  and  more  youth  arepursuing  careers  in  creativity  and  are  achieving  an  acceptable  life  style  that  is  satisfactory   according   to   their   parents.   Finally,   through   firsthand   observation   and  experience   we   have   concluded   that   the   Chinese   culture   has   retained   a   sense   of  individual  identity,  while  exploring  modern  trends.    TheChinese  economy  and  society  will  continue  being  one  of  the  main  driving  forces  in  the  international  community.    Their  influence  and  reach  has  touched  every  facet  of  life.  “Beware   the   sleeping   dragon.   For   when   she   awakes,   the   earth   will   shake.”   (Winston  Churchill)       23  
  24. 24. GGSB  Study  China  Residency  Report  2011  IV. C HINESE   B USINESS   E NVIRONMENT           This   section   of   the   report   is   going   to   present   the   factors   that   influence   the   way   China   behaves   in   the   business   environment   and   ethics.   Moreover,   this   information   is   sustained   by   the   experience   acquired   from   business   managers   from   different   corporations   during   our   residency  company  visits.                                             24  
  25. 25. GGSB  Study  China  Residency  Report  2011  A. G E N E R A L   G O V E R N M E N T  F A C T O R S :    The   People’s   Republic   of   China   is   a   single-­‐party  state  governed  by  the  Communist  Party  of  China.  The  policy  of  future  developing  of  the  country  is  confirmed  by  five-­‐year  plans.  Therefore,  many  recommendations  were  made  for  developing  the  government  focus  of  China  for  the  next  five  years.  Main  Ideas:   • Orientation  of  economical  priorities  on  initial  demand  than  on  export  and  foreign   investment.   • In  the  national  twelfth  five-­‐year  plan,  for  environmental  protection  as  well  as  in   eleventh  government  giving  significant  attention  to  the  environmental  problems.   Explicitly  points  out  limits  of  CO2  emissions   • Stimulation  of  social  programs  in  both  cities  and  rural  areas.   • Reduce  gap  between  rich  and  poor  people.   • Change  the  model  of  developing.   • Stable  development  of  the  country,  this  way  the  economic  success  and   globalization  benefits  everyone   • Five-­‐year  plan  for  energy  industry  B. G O V E R N M E N T  IN F L U E N C E   IN  C O M P A N IE S :  China  is  still  mainly  focusing  on  eco  problems.  Moreover,  during  business  meetings  the  representatives  of  companies  declared  the  importance  of  having  a  personal  connection  and  relationship  with  the  government.    During  the  GGSB  alumni  meetings  at  the  hotel,  they  explained  how  the  government  has  changed  the  image  of  labor  from  cheap  manufacturing  to  high  tech  and  science  intensive  industries.  Therefore,  the  new  China  is  more  interested  in  gathering  technology  and  attracting  worldwide  companies  than  ever  before.           25  

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