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MSc BD China Residency Trip Official Report MSc BD China Residency Trip Official Report Document Transcript

  • GGSB  Study  China  Residency  Report  2011                                                     1  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • 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  
  • GGSB  Study  China  Residency  Report  2011    C. N E W  E N V IR O N M E N T  P O L IC Y  IN   C H IN A     • Raising  the  share  of  non-­‐fossil  fuels  in  primary  energy  consumption  to  11.4%;   • Reducing  energy  consumption  and  carbon  dioxide  intensities  by  16%  and  17%   respectively;   • Water  consumption  per  unit  of  value-­‐added  industrial  output  to  be  cut  by  30%;   • Cutting  the  discharge  of  main  pollutants  by  8-­‐10%;   • Increasing  forest  stock  by  600  million  cubic  meters  and  forest  coverage  to  21%.  D. N E W  R E Q U IR E M E N T S  F O R   FDI  IN   C H IN A   • No  polluting   • High-­‐tech  industries   • High-­‐end  manufacturing   • Environmentally  friendly   • No  energy  or  resources  consumption   • New  “green”  energy       26  
  • GGSB  Study  China  Residency  Report  2011  V. C HINESE   B USINESS   P RACTICES           Chinese  business  practices  are  vastly  different  from  the  Western  methods  that  most  of  us   may   be   used   to.   But   with   the   Chinese   economy   opening   up,   joining   of   WTO   and   the   hosting   the   Olympics   in   2008,   many   Chinese   business   practicesare   now   beginning   to   align   with   more  conventional  methods.                                           27  
  • GGSB  Study  China  Residency  Report  2011  A. O V E R V IE W    We  perceived  that  people  in  China  have  a  strong  national  and  culture  pride  thus  it  is  of  no  surprise  that  the  Chinese  tend  to  carry  out  their  business  according  to  their  beliefs  and   values.   For   example,   the   Chinese   places   a   high   importance   on   respect   in   society.  Hence,  at  the  workplace,  for  instance  Frank  T  Gallo  Consultant  of  AON  Hewitt,  provided  a   picture   of   how   the   Chinese   have   a   high   respect   for   their   superiors   and   their   co-­‐workers.   Thus,   foreign   investors   would   need   to   recognize   that   that   they   need   to   be  respectful  when  talking  to  the  Chinese  during  business  meetings.  He  also  used  examples  in  the  workshops  of  Chinese  executives  that  are  prepared  to  become  managers.  On  the  other   hand,   Mr.   Gallo   inferred   that   if   the   Chinese   feel   that   the   foreigners   are  unknowingly  disrespectful,  the  foreign  company  might  not  be  able  to  strike  a  deal  with  the  locals.    On  the  other  side,  not  many  companies  understand  the  Chinese  business  environment.  In  China,  the  locals  are  very  concerned  about  building  up  good  relationships  with  their  partners   and   clients.   Therefore,   the   Chinese   will   put   in   a   lot   of   effort   and   time   to  socialize  with  their  clients  before  settling  on  a  deal.  Even  though  the  business  deal  might  not  be  successful,  the  Chinese  would  still  want  to  keep  that  relationship  strong  for  future  benefits.    B. C H IN A   B U S IN E S S   S T Y L E    An   example   of   Business   style   provided   by   the   manager   at   SANSI,   is   how   the   Chinese  prefer   to   work   with   someone   familiar   as   it   minimizes   any   disagreements   or   problems  that   might   occur.   Furthermore,   being   familiar   with   someone   would   allow   the   parties  involved   to   have   more   trust   with   one   another.   additionally,   as   foreign   investors   are   new  to  the  Chinese  market,  they  might  not  have  the  network  or  Guan  xi1,  to  gain  the  trust  of  the   Chinese   companies.   This   will   most   likely   create   complications   when   the   foreign  companies  are  trying  to  establish  their  enterprise  in  China.                                                                                                                   1Establishing relationships with others is referred to as having “Guanxi” with people. Guanxi (relationship)     28  
  • GGSB  Study  China  Residency  Report  2011  During  the  visit  with  the  French  Chamber  of  Commerce,  we  understood  the  importance  of   foreign   companies   partnering   up   with   a   local   individual   or   organization   that   will  allow   them   to   gain   an   easier   way   to   an   inside   network.   The   locals   would   be   more  familiar   with   the   way   things   work   in   China   and   they   would   be   in   a   better   position   to  negotiate   matters   with   the   other   domestic   companies.   Although,   there   are   foreign  companies   that   are   by   themselves,   during   all   of   our   company   visits   we   realized   the  foreign  companies  were  also  working  with  local  organizations;  for  example  Airbus,  EDF  and  ASOBIO.  During  the  GGSB  alumni  meeting,  we  had  the  opportunity  to  talk  and  have  dinner  with  French   executives   working   in   China.During   this   time,   they   shared   their   experiences   of  doing   negotiations   with   Chinese   executives   and   explained   how   China   has   a   different  style   of   negotiating.   Despite   years   of   business   management   and   negotiation   tactics,  international   firms   may   be   at   the   losing   end   when   dealing   with   the   locals.   Firstly,   the  Chinese   do   not   have   a   lot   of   actions   and   facial   expressions   when   they   talk,   therefore  foreign   investors   have   to   infer   their   true   response   during   the   negotiation   process.  Furthermore,   being   in   a   collectivist   society,   the   behavior   and   characteristics   of   the  Chinese   would   not   be   the   same   as   those   in   other   countries,   especially   westerners.  Additionally,   companies   that   do   not   understand   the   business   conduct   in   negotiations  will  think  negotiating  with  Chinese  is  easy  because  of  the  good  relationship  that    Chinese  people   create.   However   in   the   long   run,   companies   will   find   that   these   business   deals  requires  a  long  time  and  many  discussions  in  order  to  solidify  a  business  deal.    C. G U A N X I  B U S IN E S S  E T H IC  C O D E    Maintaining   good   relationships   in   China   would   help   foreign   companies   in   entering   the  Chinese   market.   In   addition,   establishing   relationships   with   others   is   referred   to   as  having   “Guanxi”   with   people.   Guanxi   (relationship)   is   an  important   element   in   achieving  successful   business   deals   in   China.   With   a   good   relationship   with   others,   a   company  would  benefit  in  many  different  ways.  First,  a  trust  between  the  different  parties  would  have   long   been   established   thus   the   parties   would   be   very   comfortable   working   with  each  other.  Next,  if  a  company  would  to  encounter  any  problems  in  any  field,  knowing     29  
  • GGSB  Study  China  Residency  Report  2011  someone  who  is  an  expert  in  that  field  would  help  explain  matters  and  may  even  help  to  resolve  any  problems.    D. C O N C L U S IO N    The  government  in  China  is  highly  concerned  in  developing  a  sustainable  policy  in  order  to   provide   a   higher   quality   of   life   to   the   society.   For   example,   developing   projects   to  stimulate     social   programs,   provide   environmental   protection,     and   reducing   energy  consumption   have   been   established.   The   government   still   possesses   a   considerable  influence   upon   the   country.   For   that   reason,   companies   should   focus   their   strategy   on  the   government   environment   before   attempting   to   enter   the   market.   On   the   other   hand,  we   understood   how   Chinese   companies   are   willing   to   learn,   establishing   relationships  and  partnerships  with  international  firms.  However  foreign  companies  must  understand  the   business   ethic   code   in   china   in   order   to   create   successful,   long-­‐term   relationships,  otherwise  their  business  strategy  in  China  will  most  likely  be  unsuccessful.     30  
  • GGSB  Study  China  Residency  Report  2011  VI. C ULTURAL   I SSUES  IN   C HINA           Culture   plays   an   important   role   in   the   everyday   lives   of   the   Chinese   people   and   it   has  an  enormous  influence  upon  the  business  environment.  Cultural  factors  are  vast   and   their   impact   is   extensive.   For   that   reason,   it   is   crucial   to   understand   them   in   order  to  develop  a  successful  foreign  business  venture  in  China.                                           31  
  • GGSB  Study  China  Residency  Report  2011  A. O V E R V IE W    In  order  to  do  business  in  China  one  needs  to  taken  into  account  that  it  is  a  broad  and  diverse  country.  With  56  different  Chinese  ethnic  groups  within  31  provinces,  there  are  numerous   cultural   and   linguistic   idiosyncrasies   to   consider.   This   is   important   to   the  extent  that  if,  for  example,  one  wants  to  target  a  Chinese  market  in  Beijing  and  Shanghai,  you   will   have   to   use   different   marketing   strategies   as   people   in   these   cities   have  different   habits,   characteristics,   consuming   behaviors   and   purchasing   processes.   This  fact  was  clearly  stated  at  the  Michelin  company  visit  in  Shanghai.    Contrary   to   Western   countries   which   have   open   economies   and   markets   with   little  governmental  intervention,  the  Chinese  government  plays  a  pivotal  role  in  the  Chinese  economy.   It   is   said   that   Chinese   government-­‐owned   companies   control   80%   of   the  goods   sold   in   China.   For   this   reason   it   is   necessary   to   learn   to   work   with   the   central  government  and  municipal  and  regional  governments  throughout  the  country.    The   main   differences   to   address   when   conducting   business   in   China   are   language   and  culture.   The   official   language   of   China   is   Mandarin;   however   there   are   10   other  languages  spoken.  In  order  to  diminish  this  language  barrier  it  is  necessary  to  have  the  service  of  a  professional  interpreter  especially  for  negotiations  and  contracts.  Equally,  in  the   Chinese   culture,   people   are   extremely   sensitive   to   body   language   and   facial  expressions  and  one  must  be  cautious  of  how  they  carry  themselves.    China’s   business   community   makes   uses   of   guanxi   or   connections   when   there   is   a  problem  or  issue  that  needs  to  be  resolved.  Guanxi  refers  not  only  to  business  network,  but   also   to   family   networks   and   government   networks.   Its   practice   also   includes   the  concept  of  mutual  reciprocity  also  known  as  hui  bao.  People  who  ignore  huibao  are  seen  as  uncultured.    B. C U L T U R A L   I N F L U E N C E S  IN   C H IN E S E   B U S IN E S S    Chinese   traditional   business   culture   is   rapidly   becoming   more   practical,   efficient,  rational   and   international.   However,   there   is   a   challenge   in   this.   The   more   capable   the  Chinese   become   in   conducting   international   business,   the   more   competitive   they   will     32  
  • GGSB  Study  China  Residency  Report  2011  become   as   well.   There   are   many   cultural   factors   which   continue   to   influence  professional   behavior   in   China   which   are   crucial   for   Western   businesspeople   to  understand.  The   type   of   business   relationships   that   the   Chinese   establish   must   contribute   to   their  collective   well-­‐being   and   the   benefits   of   these   relationships   must   be   obvious.  Furthermore,  the  relationship  must  benefit  not  only  the  commercial  goals  of  the  Chinese  company,   but   also   related   government   ministries   and   China   as   a   whole.   Foreign  companies  are  well-­‐advised  to  keep  this  point  in  mind  and  to  emphasize  the  long-­‐term  prospects  of  the  relationship  they  are  proposing.  In   China,   there   exists   a   holistic   way   of   looking   and   reacting   to   situations.   In   business  dealings   there   is   no   such   thing   as   an   absolute   yes   or   no;   nothing   is   ever   carved   in   stone.  The  Chinese  style  of  understanding  is  not  peaceful  or  fair-­‐minded.  The  goal  is  harmony  within  a  specific  group,  not  in  general.      C. N E G O T IA T IN G  IN   C H IN A    The   distinctive   style,   in   which   the   Chinese   government   and   companies   negotiate,   as  compared   to   the   Western   technique,   is   one   of   the   biggest   cultural   challenges   faced   in  China.  The  mindset  of  the  Chinese  people  is  what  is  behind  their  negotiating  approach.  The  concept  of  ‘maintaining-­‐face’  dominates  the  negotiating  table.  The  emphasis  on  the  importance   of   image   is   pronounced   and   is   constantly   being   scrutinized.   Whether   it   be  losing  or  gaining  face,  this  is  an  important  area  to  recognize  when  negotiating.  Friendships,   loyalty   and   trust   are   also   factors   to   consider   when   negotiating.   Generally,  the   Chinese   will   not   do   business   with   an   individual   or   a   company   that   they   do   not  already   have   an   established   relationship   with   as   it   is   largely   viewed   that   it   is   the  relationship   is   binding,   not   the   contract.   This   is   usually   why   negotiating   business  relationships  tends  to  be  a  lengthy  process.  Yet  when  faced  with  prolonged  negotiations,  it   is   important   not   to   use   an   ultimatum   in   order   to   try   and   close.   It   is   better   to   set   a  timeline  and  walk  away  point.     33  
  • GGSB  Study  China  Residency  Report  2011  Time   is   not   money   in   China.   Some   of   China’s   greatest   thinkers   have   preached   against  money   being   one’s   primary   objective.   Consequently,   negotiations   will   take   time.   They  have   now   also   learned   that   in   longer   negotiations   that   foreigners   usually   give   away  more  just  in  order  to  close  a  deal  before  they  have  to  leave.  It  is  embedded  in  their  culture  that  the  Chinese  have  long  memories.  This  is  positive  in  the   way   that   if   one   has   granted   a   favor   in   the   past,   it   will   most   likely   be   beneficial   for  them  in  the  future.  On  the  contrary,  grudges  have  been  held  against  some  nationalities  (Britain,  USA,  Japan)  for  historical  wrongdoings.  This  should  all  be  held  in  consideration  when   negotiating.   The   best   way   to   overcome   this   hardship   is   to   use   diplomatic  strategies  and  not  to  give  in  to  unfair  conditions.  Business  logic  is  very  different  in  China.  Their  negotiating  steps  tend  to  involve  thinking  about   the   present   as   well   as   the   future   in   great   detail   instead   of   just   the   immediate  results.   ‘No’   seems   to   be   a   taboo   concept.   They   have   the   tendency   to   say   maybe   instead;  an  idea  that  refers  back  to  the  concept  of  face.  Additionally,  there  is  a  likelihood  of  not  taking  into  consideration  suggestions  from  foreign  management,  which  is  linked  to  the  lack  of  cultural  likeness  and  the  stress  upon  relationships.    D. I N T E R C U L T U R A L   M A N A G E M E N T    In  managing  cultural  differences  that  appear  when  doing  business  in  China,  the  key  is  to  observe,   watch   what   others   do,   and   then   decide   if   you   are   comfortable   to   proceed.  Communication  and  respect  from  both  sides  are  the  keys  for  a  good  relationship.  Handshaking   is   a   common   practice   for   both   men   and   women   in   China   unless   you   are  meeting   people   from   ethnic   minority   groups   in   China.   Once   you   are   considered   as   a  "friend"  you  will  find  that  men  will  hold  hands  with  men  and  women  would  hold  hands  with  women  and  walk  on  the  street.  This  may  be  considered  strange  in  the  West,  but  it  is  a   common,   friendly   practice   for   young   people   and   adults   in   China.   Eye   contact   should  always  be  maintained  when  speaking  to  one’s  Chinese  associates.    If   you   are   conducting   a   group   discussion/lecture,   you   must   maintain   yourself   as   a  leader,   and   speak   in   a   very   direct   manner   and   be   in   command   of   the   group.   Never   sit   on     34  
  • GGSB  Study  China  Residency  Report  2011  the  table  or  slouch  when  you  are  in  a  discussion  or  meeting.  How  you  present  yourself  as   a   "leader"   when   working   in   the   Chinese   environment   is   very   important.   Chinese  leaders  tend  not  use  a  lot  of  hand  gestures  or  facial  expressions  when  they  speak.  They  are   accustomed   to   reading   from   their   speeches,   and   most   of   the   time,   their   audience  would   not   pay   full   attention   to   these   speeches.   When   you   are   working   with   Chinese  leaders,  always  let  the  leader  fulfill  his/her  role  of  leading.     35  
  • GGSB  Study  China  Residency  Report  2011  VII. C OMPANY   V ISITS           In   order   to   get   a   better   understanding   of   the   Chinese   economy     and   doing   business   in   China,  the  group  visited  multinational  companies  like  Michelin  China,  Airbus  Tianjin,  Sansi   Tech   ,   Aon   Hewitt,   Oxylane   Decathlon,   Asobio   ,   and   EDF   Trading.   This   section   of   the   report   focuses  on  this  aspect  of  the  trip  and  on  the  questions  and  discussions  handled  between  the   group  and  the  company  executives.                                           36  
  • GGSB  Study  China  Residency  Report  2011          A. M IC H E L IN   1. Overview  Michelin  is  currently  a  partner  of  GGSB  and  works  together  with  students  on  a  variety  of  projects   each   year.   Before   commencing   with   what   proves   to   be   an   insightful   and  dynamic  conference,  the  Michelin  team  invited  us  to  lunch  in  a  Thai  restaurant  located  in  the  Michelin  building.  After  lunch  the  official  conference  began.    Fortunately   for   us,   the   ongoing   partnership   between   Michelin   and   Grenoble   Ecole   de  Management  meant  that  it  was  possible  to  secure  the  involvement  of  important  Michelin  employees  working  in  China  with  the  much  appreciated  help  of  our  coach  and  mentor  Mr.   Jose   Tarantini;   Global   Purchasing   Manager,   Energy.       The   employees   who   we   met  included  Mr  Frank  Estoquie,  TB  Director  for  China;  and  Sebastian  Henot,  PC  Director  for  China.       2. Key  Findings  For   the   duration   of   the   meeting,   MSc   Business   Development   students   focused   their  learning  on  the  business  development  challenges  that  the  Michelin  team  faced  in  China.    Other  issues  included  Chinese  consumer  behaviour  and  Michelin’s  environmental  record  in  terms  of  products  and  business.    Furthermore,   students   had   an   excellent   opportunity   to   gain   an   insight   into   Michelin  China’s   business   operations.   At   the   moment,   Michelin   China   boasts   the   biggest  distribution   network   in   China   with   5000   dealer   shops   in   the   personal   car   sector   and  1900  dealer  shops  for  truck  and  bus.  In  addition  to  that,  Michelin  actively  participates  in  educating  Chinese  customers  about  safety,  environment  and  road  traffic.  China   has   a   fast   growing   and   drastically   changing   economy.   The   largest  cities  in  China  represent  92%  of  the  market,  a  trend  which  is  strengthening.  Additionally,  Michelin,  due  to  its  strong  brand  awareness  and  large  distribution  network,  earned  38%  of  the  market  in  the  largest  metropolitan  centers,  known  as  Tier-­‐1  cities.     37  
  • GGSB  Study  China  Residency  Report  2011     3. Conclusion  Michelin,   as   other   companies,   is   facing   many   challenges   in   China   such   as   overloading,  poor   condition   of   infrastructure,   and   the   large   number   of   Chinese   truck   and   bus  manufacturers-­‐  all  of  which  impact  the  original  equipment  side  of  business.             38  
  • GGSB  Study  China  Residency  Report  2011        B. D E C A T H L O N   1. Overview  Decathlon  is   a   major  French   Sporting  goods   chain   with   stores   located   throughout   the  world.   The   company   started   with   a   shop   near   Lille,   France   in   1976.   It   expanded  to  Germany  in  1986,  Spain  in  1992  and  the  UK  in  1999.  The  retailer  stocks  a  wide  range  of   sporting   goods,   from  socks   to   advanced  scuba   diving  equipment   in   its   large  superstores.  Decathlon  Group  also  owns  the  Toboggan  and  Decat  stores,  the  former  sells  sporting  goods  at  discount  prices,  while  the  latter  is  a  smaller  high-­‐street  sized  version  of  the  larger  Decathlon  superstores.  The  company’s  shareholders  are  all  family  members.  In  2007  the  group  was  the  world’s  largest  sporting  goods  retailer  with  a  turnover  of  USD  6,123,000.   2. Key  Findings  Decathlon  entered  the  Chinese  market  in  2003  and  at  present  is  doing  an  incredible  job  in   terms   of   generating   sales   and   revenues.   Decathlon   has   huge   stores   in   China   as   they  have   strategically   positioned   themselves   in   places   where   the   land   is   relatively   cheap.  Each   Decathlon   stores   site  selection  is   based   on   a   strict   and   comprehensive   survey   of  local   market.   It   should   meet   the  requirements   such   as   convenient   transportation,   vital  communication  lines,  large  space  and  low  land  prices.  Decathlon   China’s   corporate   structure   is   formed   by   Chinese   employees   and  management,  since  the  strategy  is  to  have  a  self  managed  division  in  order  to  approach  the   market   with   the   expertise   that   this   structure   allows.   Most   of   their   employees,  including  managers,  are  local  people  although  many  of  them  have  foreign  experience.  The  company  and  its  people  are  committed  to  the  society  and  are  constantly  developing  plans  to  engage  with  the  customers  and  educate  them  about  sports  and  exercise  culture,  emphasizing  the  conditions  and  cultural  characteristics  of  the  Chinese  market.    Their   products   are   usually   designed   by   Decathlon’s   designers   and   designs   are   not  outsourced.   Decathlon’s   products   are   not   modified   on   the   basis   of   location   in   China,     39  
  • GGSB  Study  China  Residency  Report  2011  although   the   range   of   products   is   smaller   than   in   France.   Roughly   40%   of   the   product  line  is  produced  in  China.  The  software  which  is  used  in  stores  was  designed  in  Singapore  and  all  decathlon  stores  are   linked   to   each   other   by   a   global   LAN   network   which   makes   it   easier   for   them   to  communicate  and  access  data.  Decathlon  has  numerous  competitors  in  China  such  as  Speedo,  Nike,  Adidas,  Line,  Antas.  Nike,   Adidas   and   Reebok   are   on   the   higher   segment   of   the   market   yet   they   still   compete  with  Decathlon  as  these  chains  are  beginning  to  cut  down  Decathlon’s  market  share  by  offering  low  prices  for  their  goods.  Other  lower  segment  brands  like  Line  and  Antas  are  also  competitive  as  they  produce  lower  priced  goods  and  innovative  products  to  attract  customers.  Decathlon’s  global  marketing  strategy  is  to  build  big  and  beautiful  buildings  that  appeal  to  people.  Their  strategy  is  such  that  every  new  store  they  open  breaks  even  in  a  year.  As  they   rarely   advertise,   the   company   focuses   on   word   of   mouth   marketing,   with   their  stores   serving   as   their   most   important   marketing   points.   The   business   focuses   on  providing  people  with  low  price,  high  quality  sporting  goods  and  accessories.  Decathlon   is   growing   in   China   as   they   are   opening   stores   in   new   cities,   following   the  demographics   opportunities   that   the   market   arises   all   over   the   country   with   an  expansion  plan  to  open  999  stores  in  China  by  2020.               40  
  • GGSB  Study  China  Residency  Report  2011          C   .S A N S I   1. OVERVIEW  While   most   company   visits   were   held   downtown   in   the   skyscraper-­‐landscape   of  Shanghai  with  all  of  its  Western  shops  and  modern  buildings,  the  group’s  visit  to  Sansi  Technology  was  different.  After  a  45  minute  ride  into  the  suburbs  of  Shanghai,  we  finally  arrived  in  a  very  poor  countryside  with  people  living  in  quite  bad  conditions.  The  only  bright  spot  in  this  part  of  the  town  was  the  modern  factory  of  Sansi  Technology.    Sansi   Technology   is   a   producer   of   LED   based   screens   of   all   kinds.   Their   most   recent  projects   were   for   example   the   Shanghai   Formula   1   Grand   Prix   and   the   2008   Olympic  Games   in   Beijing.   They   combine   both   R&D   and   production   in   their   site   and   have  gathered   international   experience   by   selling   their   products   to   the   US   market   through  distributors.     2. Key  findings  By  combining  both  R&D  and  production,  Sansi  uses  the  cheap  labor  costs  in  2  different  ways  and  thus  creates  a  major  competitive  advantage  for  itself  over  their  competition.  Because  of  the  incredibly  cheap  labour  costs  in  China,  Sansi  is  able  to  stay  competitive  while   not   having   automated   many   of   its   production   steps.   The   international  competitiveness   of   the   company   is   large,   but   the   company   has   failed   so   far   to   find   the  right  partners  to  realize  its  growth  potential.             41  
  • GGSB  Study  China  Residency  Report  2011        D. A S O B IO   1. overview  Asobio  is  an  Italian  based  brand  owned  by  Cobest  and  has  its  company  headquarters  in  Shanghai,   China.   The   company   began   in   1994,   by   providing   full-­‐package   services   to  other  fashion  brand  companies  who  wanted  to  outsource  their  fashion  textile  products.  By   2008,   Asobio   had   expanded   its   operations   and   became   its   own   brand   and   opened   its  own   retail   stores.   Mentioned   in   the   meeting   we   had   with   Priscila   Sum,   International  Business  Development  Manager  and  Retail  Director,  the  firm  still  provides  this  service  for   internationally   recognized   brands   but   this   information   could   not   be   disclosed   due   to  its  privacy  policy.  Now  Asobio’s  main  line  of  work  is  in  offering  men  and  women’s  fast  fashion.     2. Key  Findings  At  the  moment  the  company  does  not  sell  or  market  any  brand  other  than  Asobio.  The  brand   places   itself   is   in   the   mid-­‐range   price   market   and   has   three   main   product  offerings:      Asobio  Collection:  the  product  line  that  reflects  the  latest  runway  trends  with  a  focus  on  high  quality  fabrics.  The  target  clientele  is  25-­‐45  year-­‐olds  with  relatively  high  incomes.  Asobio   Hip:a   trendy   line   targeting   a   younger   clientele,   between   18   and   30   years   old,  focusing  on  the  typical  fast  fashion  aspects  Asobio  White:a  line  offering  tailored  pieces  of  high  quality  for  25-­‐50  year-­‐olds  looking  for  timeless,  quality  pieces   3. Marketing:  The   company   utilizes   innovative   marketing   methods,   for   example:   below   the   line  marketing,  social  network  promotion  and  digital  marketing.  Additionally,  the  company  has   found   success   in   using   celebrity   endorsement   ,   Jessica   Stam   for   example,   in   their  advertising   campaigns.   Asobio   prides   itself   on   having   a   detailed-­‐oriented   design   and   a     42  
  • GGSB  Study  China  Residency  Report  2011  price   tag   that   is   20%   lower   than   those   of   comparable   fast   fashion   companies,   like  Spanish  retailer  Zara.  Asobio  also  claims  to  offer  better  quality  than  the  latter.     4. Business  Model:  In  order  to  develop  its  brand,  the  company  manages  two  different  business  models  in  its  retail  industry:  owning  its  own  retail  stores  and  having  franchises  and  distributors.  Both  business   models   have   its   advantages   and   drawbacks.   It   is   worth   mentioning   that   the  selection  of  the  business  model  also  depends  on  the  market  to  be  targeted.  In  addition  to  the  brand  business,  the  group  continues  providing  the  full  package  service  as  long  as  it  provides  the  cash  to  finance  the  retail  store  business.     5. Future  Possibilities:  At  this  point  in  time,  the  company  has  approximately  sixty  (60)  stores  in  China  but  has  developed   an   international   expansion   strategy,   in   which   the   company   aims   to   have   a  portfolio  of  1,000  stores  in  Southeast  Asia,  the  Middle  East  and  Eastern  Europe.  Asobio  plans  to  operate  primarily  through  franchises  in  these  new  markets.  Sum   also   believes   that   fast   growing   economies,   like   that   of   Vietnam,   offer   a   great  potential   for   Asobio   as   there   is   little   competition   and   a   high   market   demand   from  emerging  middle-­‐class  consumers.   6. Current  Situation  &  Issues  for  Asobio  :  Today   Asobio   has   five   manufacturing   factories   in   China,   and   a   logistics   center   in   Europe  in  order  to  cut  costs.  Asobio  only  has  retail  stores  in  China,  and  franchises  in  other  Asian  countries.    Cotton:   Today   the   company   is   dealing   with   cotton   shortage   crisis   that   is   hitting   the  textile  industry  worldwide.  One  consequence  of   this  shortage  is  the  large  increase  of  the  price  of  cotton  fiber,  the  most  important  input  of  its  final  product,  which  has  increased  the   final   price   of   the   garment.   Asobio   is   addressing   this   problem   by   decreasing   its  product  margin.            Brand  Establishment  &  Stock  Turnover:  Another  issue  Asobio  faces  is  forming  a  strong  brand  presence  and  recognition  in  developing  economies.  As  building  brand  image  takes  time,  an  unfortunate  consequence  of  this  is  the  high  amount  of  stock  turnover.  In  order  to  conquer  this  issue,  Asobio  needs  to  invest  resources  wisely  and  enter  markets  early.       43  
  • GGSB  Study  China  Residency  Report  2011   7. Customer  Loyalty:  Like   for   many   fast   fashion   retailers,   the   issue   of   low   client   loyalty   is   a   problem   Asobio   is  faced   with.   In   order   to   be   competitive,   Asobio   frequently   adds   new   collections   in   its  stores.  Gaining  trust,  organizational  challenges  in  the  Chinese  market,  inflation  and  the  growing  price   of   cotton   are   all   contributing   factors   to   the   main   challenges   Asobio   is   facing   in  China.  Key   Business   Development   Success   Factors:Sum   gave   us   some   professional   advice   on  becoming   business   developers,   she   believed   you   need   four   main   qualities   in   order   to   be  successful   in   the   demanding   position   she   has.   The   qualities   she   emphasized   were   that  you  must:  be  self-­‐demanding,  be  willing  to  work  alone,  be  organized  and  have  patience.   8. Conclusion    From   the   meeting   with   the   International   Business   Developer   Manager   at   Asobio,   the  main   ideas   that   can   be   taken   away   are   that   Asobio’s   diversified   business   model   of  establishing   retail   stores   and   developing   franchises   has   brought   much   of   its   success.  Asobio   has   lead   a   strategic   brand   establishment   program   of   entering   the   market   of  developing  economies  early  enough  to  beat  the  competition  and  create  customer  loyalty.  In  conclusion,  Asobio  is  a  prime  example  of  how  a  foreign  brand  has  integrated,  grown  and   developed   in   China.   It   started   off   relatively   small   and   is   now   internationally   known.  It  is  known  for  its  diversified  fast  fashion  clothing  lines.  It  prides  itself  on  having  cheaper  prices   and   higher   quality   than   its   competitors.   As   of   right   now,   retail   and   franchise  stores   are   only   present   in   China   and   neighboring   Asian   countries,   but   they   plan   on  eventually   expanding   worldwide.   By   focusing   upon   creative   marketing   techniques,  strategic  business  development  moves  and  insisting  on  quality,  Asobio  will  continue  to  make  a  name  for  itself  in  China  and  abroad.     44  
  • GGSB  Study  China  Residency  Report  2011      E. A O N   H E W IT T   1. Overview  Aon   Hewitt   helps   companies   and   organizations   to   manage   talent   and   performance  effectively,  to  optimize  costs,  to  control  risks,  grow  the  business  and  to  globalize.  Those  issues  are  the  major  challenges  on  the  Chinese  market  and  once  a  company  was  able  to  improve   those   different   aspects,   it   will   be   operating   successfully   in   China   and  worldwide.   It   is   a   fact   that   global   companies   look   to   China   for   growth.   According   to  Frank  Gallo,  partner  at  Aon  Hewitt,  the  economy  and  society  in  China  is  under  transition.  Transition  in  the  Chinese  economy  and  society     2. Arrival  of  the  Lewis  turning  point    The  Lewis  turning  point  is  where  the  supply  of  surplus  labor  from  the  agricultural  sector  has  been  used  up  leading  to  rapidly  rising  wages  in  the  industrial  sector.  Many  speculate  that  China  has  arrived  at  the  Lewis  turning  point.       3. Government’s  Policy    The  Chinese  government  today  is  increasingly  concerned  about  the  rising  gap  between    therich  and  the  poor.  In  fact,  to  create  a  more  balanced  society,  local  governments  have  set  up  wage  guidance  for  enterprises  and  hasadjusted  minimum  wages.     4. Adjustment  of  Industrial  Structure  The   government   is   trying   to   rebalance   and   redistribute   growth.   This   is   encouraging  more   quality   growth   and   expansion   of   the   domestic   consumer   market   and   service  sector.  There  is  also  a  considerable  effort  to  promote  development  of  Western  China.       45  
  • GGSB  Study  China  Residency  Report  2011   5. Conclusion  By  being  the  leading  provider  of  risk  management  services,  insurance  and  reinsurance  brokerage   and   human   resources   consulting   and   outsourcing,   Aon   Hewitt’s   meeting  provided   us   with   a   very   in   depth   perspective   about   human   capital   management   and  trends   on   the   Chinese   markets.   Multinationals   seek   consulting   firms   like  AonHewittbecause   they   are   continuously   updated   with   current   changes   on   the   market  and   can   also   offer   forecasts   for   the   near   future.   Doing   business   in   China   without   an  efficient  and  strong  human  capital  management  is  a  very  dangerous  step  to  take.           46  
  • GGSB  Study  China  Residency  Report  2011          F. A IR B U S   1. Overview  Airbus  is  one  of  the  two  largest  airline  manufacturers  in  the  world.  Its  main  competitor  is   Boeing.   Airbus   prides   itself   on   its   customer   focus,   commercial   know-­‐how,  technological   leadership   and   manufacturing   efficiency.     Airbus   isheadquartered   in  Toulouse,  and   is   owned   by   EADS,   a   global   leader   in   aerospace,   defense   and   related  services.       2. China  Entry  Airbus  established  a  factory  in  the  northern  Chinese  city  of  Tianjin.  The  final  assembly  plants   design,   meanwhile,   is   modeled   after   the   Airbus   assembly   plant   in   Hamburg,  Germany.    Airbus   is   the   first   of   the   worlds   large   two   aircraft-­‐makers   to   have   a   full   production  facility   in   the   China,   as   it   aims   to   meet   fast-­‐growing   Chinese   demand   for   commercial  aircraft.   Producing   aircrafts   in   China   is   less   expensive   than   producing   them   in   Europe  and  the  fact  that  the  aircrafts  are  built  in  China  means  some  import  duties  and  taxes  can  be  avoided.  The   Tianjinfactory   is   51%   owned   by   Airbus,   with   the   remaining   49%   owned   by   a  Chinese  aviation  consortium.    Current  Situation  and  Industry  Issues  for  Airbus  in  China  China  currently  accounts  for  22%  of  Airbus’s  2010  orders  and  China  remains  the  largest  market  for  airplanes  after  the  US.   3. Rising  Yuan  against  the  US  dollar  According  to  Airbus  China  President  Laurence  Barron,  a  rising  Yuan  does  not  affect  its  sales.   Additionally,   Barron   asserts   that   industry   players   need   to   address   foreign-­‐exchange   risk   and   hedging   issues   before   Airbus   can   consider   settling   the   sales   of     47  
  • GGSB  Study  China  Residency  Report  2011  airplanes   in   currencies   other   than   the   dollar.   Furthermore,   a   stronger   Yuan   makes  aircraft   cheaper   for   Chinese   airlines,   since   Airbus   planes   are   sold   in   U.S.   dollars   and  subcontracts  are  also  in  dollars.   4. Sharing  Technology  Airbus   is   taking   a   big   gamble:   it   is   clearly   sharing   technology   with   an   octopus-­‐like  network   of   state-­‐led   enterprises   (some   linked   to   the   military)   that   openly   boast   rival  ambitions.  Yet  it  is  a  risk  that  the  manufacturer  believes  it  must  take  to  win  an  estimated  market  for  2,800  big  jets  and  470  freighters  worth  $300bn.     5. Competition  Alternative   modes   of   transport   like   high-­‐speed   rails   stands   as   a   competitor.   Also,   local  players   like   the   Commercial   Aircraft   Corp.   of   China   (COMAC)   has   made   a   significant  breakthrough  in  the  global  commercial  aircraft  market  by  winning  orders  for  100  single-­‐aisle   C919   passenger   jets   from   domestic   and   international   customers.   However,   COMAC  does  not  currently  stand  as  a  real  challenge  to  Airbus.    Potential/Future  Prospects  in  China     6. Government  Infrastructure  Investment  The  Chinese  government  aims  to  build  56  new  airports  in  China  over  the  next  5  years.  This  will  provide  immense  potential  for  Boeing  to  sell  more  planes,  if  their  production  facilities  can  keep  up  with  demand.                     48  
  • GGSB  Study  China  Residency  Report  2011      G. EDF    Type   SociétéAnonyme     (Euronext:  EDF)    Industry   Energy    Founded   1946    Founder   Marcel  PAUL  Headquarter   Paris,  France    CEO     Henri  PROGLIO   1. Overview  Products   Electricity     generation,   transmission  and   EDF   has   been   present   in   China   for   more   than   distribution;  energy   25   years   and   has   been   accompanying   the   trading   country   on   the   Chinese   nuclear   project.   EDF  Revenue   €  65.17  billion   is   co-­‐owner   of   a   nuclear   plant   for   the   next   65   (2010)     years   and   represents   the   largest   foreign  Profit   €  6.240  billion   (2010)   investor   in   the   Chinese   electricity   sector.   The   company   is   currently   developing   nuclear,  Employees   158,760   thermal,   hydro   and   gas   activities   in   the  Employees  in   380  China   country.     2. Key  Findings    Today   with   more   than   380   employees   in   China,   EDF   could   develop   its   activity   with  nuclear,   thermal,   hydraulic   and   gas   energy   and   become   the   largest   foreign   investor   in  the   Chinese   electricity   sector.   EDF   knew   how   to   transfer   its   technology   and  professionalism   to   China,   the   highest   industry   energy   consumer   in   the   world.   EDF   is  mainly  relying  on  coal,  as  it  is  the  most  abundant  energy  resource  available  in  China  but  developed   13   nuclear   reactors   and   28   planned   for   the   coming   years.   Most   of   the   electric     49  
  • GGSB  Study  China  Residency  Report  2011  plants   have   been   developed   Eastern   China   whereas   the   resources   are   located   in   the  Western  part  with  natural  gas,  coal  and  hydro  resources.      China   decided   to   introduce   its   technology   already   implemented   in   Western   countries  because  they  fit  exactly  to  the  needs  of  China  in  energy.  Since  ten  years,  China  know  an  incredible   growth   and   the   economic   development   lead   to   an   increase   in   energy   need.  China  wants  to  operate  all  over  the  country  and  is  implementing  several  type  of  energy  solutions  such  as  nuclear  or  solar  or  hydro  power.  There  is  a  trend  of  green  energy  and  sustainable   development   even   if   it   seems   far   from   what   we   actually   see   but   today   the  construction   industry   care   about   reducing   the   energy   consumption   which   cost   a   lot   to  the  companies  and  government.      To   enter   China,   EDF   had   to   identify   the   different   players   involved,   understand   the  different  procedures  (both  at  international  and  national  level),  define  the  objectives  and  coordinate  all  the  actions  and  monitor  development  (also  from  an  administrative  point  of  view).    The  company  however  faced  some  big  issues  when  trying  to  enter  the  Chinese  market,  which  are  explained  in  the  following  graph:           50  
  • GGSB  Study  China  Residency  Report  2011  VIII. S TRENGTHS  AND  OPPORTUNITIES           China  has  a  big  potential  for  business  development  in  many  aspects.  This  part  of  our  report   will  focus  on  the  important  industries  that  are  witnessing  continuous  growth.  Whether  it  is   due   to   the   initiatives   of   the   government   or   the   companies   aim   to   contribute   in   the   development  of  these  fields,  understanding  the  different  strengths  and  opportunities  on  the   current  Chinese  market  is  essential  to  enter  this  market.                                         51  
  • GGSB  Study  China  Residency  Report  2011  A. O V E R V IE W    Even  though  China’s  growth  has  been  moderated  and  GDP  growth  declined  from  10  %  in  the   fourth   quarter   of   2010   to   9.6   %   in   the   first   quarter   of   2011,  China’s   continued   rapid  growth   during   the   global   crisis   reflected   a   government   project   of   large-­‐scale   stimulus  and   strong   growth   drivers.The   stimulus   package   implemented   since   the   end   of   2008  helped  encourage  anincrease  in  domestic  demand.      Strong   real   estate   investment   has   prevented   a   more   abrupt   slowdown   in   overall  investment.   In   April   2010   the   government   took   measures   to   contain   housing   prices,  including  higher  minimum  downpayments  for  mortgages,  banning  mortgage  discounts,  and  restricting  financing  of  developers.  Housing  prices  rose  by  0.5  %  month  on  month  from   September   as   sales   in   this   field   recovered.   In   response,   the   government   added  some   measures   in   September,   including   increasing   the   minimum   down   payment   ratio  for  first  mortgages  to  30  %.  New   public   investment   programs   are   also   likely   to   be   started   next   year   to   accelerate  urbanization  in  inland  regions  and  to  promote  strategic  new  sectors.  As  export  growth  has  declined,  Chinese  consumption  stillbenefits  from  a  robust  labor  market  and  private  sector   investment   andthe   World   Bank   Organization   is   projecting   a   GDP   growth   of   8.7   %  by  the  end  of  2011.  With  exports,  domestic  demand  and  imports  declining,  the  external  surplus  is  increasing  once   more.China’s   highly   competitive   exports   have   continued   to   outpace   global  imports.Despite   recent   reduction,   China’s   merchandise   export   volumes   were   up   9.6   %  from   2   years   ago   in   the   third   quarter   2010   and   first   quarter   of   2011,   implying   further  market  share  gains.  The  manufacturing  industry  core  inflation  is  unlikely  to  escalate  because  China’s  labor  market  is  flexible,  and  the  manufacturing  sector  appears  able  to  absorb  substantial  wage  increases.  The  private  sector  will  remain  critical  for  achieving  China’s  development  objectives  over  its   12th   5YP   period   and   beyond.   Private   sector   firms   are   more   productive   than   SOE  (State   Owned   Enterprises)   and   are   crucial   for   job   creation.Expanding   the   role   of   the     52  
  • GGSB  Study  China  Residency  Report  2011  private  sector  has  been  part  of  China’s  reform  strategy.  Privatesector  is  key  for  raising  productivity  and  for  China’s  further  development  and  growth.  B. T O U R IS M  IN D U S T R Y     1. Strengths:    Tourism  is  one  of  the  fastest  growing  industries  in  China  and  it  plays  an  important  role  in  China’s  national  economy.  With  the  increase  in  economic  and  financial  activities,  the  country  attracts  a  lot  of  visitors  worldwide  who  wish  to  witness  the  rapid  development  of  the  country.  Apart  from  the  location  and  resources  strengths,  which  provides  it  with  vast  variety  of  landscape,  splendid  culture,  numerous  races  and  historical  heritage,  the  country  is  very  appealing  to  visitors  due  to  its  lower  cost  of  living  in  the  country.  Both  the   government   and   the   private   companies   are   developing   the   country   close   to  international   advanced   level   tourist   facilities,   including   infrastructure,   transportation,  shopping,   entertainment,   and   catering.   All   the   above   strengths   have   set   a   good   platform  for  a  robust  development  of  the  industry.   2. Opportunity:    With  tourism  in  major  cities  stepping  into  saturation  stage,  especially  Beijing,  Shanghai  and   Guangzhou,   we   observe   a   large   development   potential   in   “natural   resources  tourism”   and   “rural   tourism”.   Natural   resources   tourism   such   as   “ski   tourism”,   though  not  a  new  idea,  is  currently  in  an  increasing  demand,  especially  for  the  domestic  tourism  market.  With  the  demand  of  higher  quality  of  life  by  the  middle-­‐income  class  and  their  children,   Chinese   tourists   are   requesting   a   different   kind   of   traveling   experience.   This  market  is  characterized  as  adventurous  seeking.  Since  Chinese  has  limited  experience  in  managing   ski   tourism,   there   is   a   huge   potential   for   experienced   ski   companies   from  Europe  or  the  USA  to  enter  this  boosting  industry.  Besides,  rural  areas  of  China  have  a  rich  cultural  background,  historical  heritage  and  different  ethnics  group  which  would  be  very  attractive  to  visitors  who  prefer  a  more  cultural  and  unique  traveling  experience.         53  
  • GGSB  Study  China  Residency  Report  2011  C. R E A L   E S T A T E   &C O N S T R U C T IO N  IN D U S T R Y     1. Strengths:    With   the   rapid   economic   development   of   China,   the   infrastructure   and   construction  industry  has  been  one  of  the  most  important  industries  in  China’s  national  economy  as  a  result   of   industrialization   and   urbanization.   The   biggest   strength   of   the   market   is   its  size,   and   the   construction   of   infrastructure   is   found   almost   everywhere   across   the  country.   Urbanization   together   with   the   growth   of   populations   provides   continuous  opportunities   for   the   market   in   China.   Additionally,   as   construction   requires   a   lot   of  workers,   China   provides   a   large   amount   of   relatively   cheaper   labor.   Government  support   has   made   the   foreign   investments   easier   and   more   attractive.   In   short,   the  construction   industry   is   one   of   the   fastest-­‐growing   industries   in   China   with   stable  supply  and  sustainable  business.   2. Opportunities:    The   construction   market   in   China,   similar   to   many   other   emerging   markets,  continuously   provides   business   opportunities   for   global   construction   companies   and  service  providers.  There  is  good  opportunity  for  construction  in  rural  areas  in  China  in  both  infrastructure  and  real  estate.  With  the  government’s  gradual  plan  to  urbanize  the  rural   areas,   construction   to   improve   transportation,   public   infrastructure   and   facilities  will  be  in  high  demand.  Additionally,  real  estate  offering  affordable  prices  in  the  nearby  cities   of   the   big   cities   (Beijing,   Shanghai   etc.)   would   have   a   huge   potential.   The   real  estate   prices   have   soared   in   big   cities   like   Beijing   and   Shanghai   and   the   government   has  been   putting   measures   to   control   speculations.   With   the   advancement   of   transportation  infrastructure  in-­‐between  cities,  people  can  easily  commute  to  nearby  smaller  cities  in  order  to  obtain  affordable  housing.             54  
  • GGSB  Study  China  Residency  Report  2011  D. IT  IN D U S T R Y     1. Strengths:    The   IT   industry   has   expanded   rapidly,   Chinese   internet   software   company,   Tecent  Holdings,  was  the  top  ranked  company  leaving  behind  worldwide  famous  names  such  as  Apple   behind.   According   to   BusinessWeek,   Baidu   (search   engine)   and   Shanda  Interactive  Entertainment  (computer  &  online  games)  are  among  the  top  12.    Seeking   technology   innovation   and   market   power,   Chinese   IT   enterprises   look   for  partnerships  with  multinationals.  Those  partnerships  benefit  both  sides  due  to  the  low  manufacturing  cost  Chinese  companies  can  offer.   2. Opportunities:    The   Chinese   government   is   helping   the   IT   industry   to   grow   through   incentives   and  infrastructure   policies.   An   example   of   this   is   the   construction   of   high-­‐tech   parks   such  Zhongguancun,  in  Beijing,  and    Zhangjiang  Hi-­‐Tech  Park  in  Shanghai.  These  parks  attract  big   multinationals   and   push   homegrown   companies   to   grow.   They   are   mostly   located  near  universities  that  supply  them  with  research.  Chinese   consumption   of   IT   products   and   services   is   increasing.   However,   as   domestic  consumers  are  in  general  satisfied  with  IT  services  offered  by  local  companies  (i.e.  Baidu  search   engine),   those   companies   can   offer   products   20   to   30   per   cent   cheaper   than  imported   ones.   The   most   effective   way   to   enter   the   Chinese   IT   market   seems   to   be  toestablish  a  partnership  with  a  Chinese  company.  E. H U M A N  R E S O U R C E S     1. Strengths:    Chinese   companies   that   decide   to   go   abroad   face   challenges   with   human   resource  management.   Due   to   cultural   differences   and   lack   of   experience   in   co-­‐ordinating  international  teams,  companies  face  difficulties  in  establishing  a  management  team  with  the  necessary  skills  and  ability  to  operate  effectively.     55  
  • GGSB  Study  China  Residency  Report  2011  When   entering   the   Chinese   market,   multinational   corporations   search   for   HR  consultancy   companies   to   help   them   deal   with   cultural   differences.   Through  management   training   they   improve   the   communication   and   motivation   between   foreign  and  Chinese  employees.   2. Opportunities:    According   to   professor   Chen   from   Beijhand   University,   theChinese   government   has   goal  of   increasing   growth   in   the   domestic   market   and   as   such   provides   incentives   to   small  and   medium   enterprises   to   become   big   players   in   the   national   and   international  market.The   Chinese   market   still   has   a   lot   of   room   to   grow:   local   companies   seeking   to  gain   technology   and   knowledge   are   willing   to   set   up   partnerships   with   multinational  companies.    Chinese  FDI  overseas  is  a  new  trend.  A  lot  of  Chinese  entrepreneurs  have  been  looking  for   mergers   or   acquisitions   and   distribution   channels   abroad   to   help   them   enter   and  operate  in  the  international  market.    F. K E Y  L E A R N IN G  A N D  S U G G E S T IO N S     1. IT  Industry    The  IT  industry  will  have  a  stronger  and  faster  development  than  any  other  industry  in  the   economy.   The   aim   of   developing   tools   to   demonstrate   the   capacity   of   China   to  become   a   leader   in   Research   and   Development   has   pushed   the   government   to   switch  from  the  importing  of  technology  to  domestically  developing  and  fostering  technological  innovations.   Many   companies   have   also   followed   the   trend   of   establishing   their   R&D  hubs   in   Chinaas   skilled   labor   is   also   available   in   the   country.   For   investors,   there   is   a  high  potential  for  investment  in  the  optical  based  industry  and  bioscience.  For  instance,  consumer  electronics  demand  from  rural  consumers  has  growth  due  to  the  Beijings  13%  subsidy   scheme   for   sales   of   electronics   to   stimulate   internal   consumption   and  contribute  to  the  modernization  of  society.     56  
  • GGSB  Study  China  Residency  Report  2011   2. Tourism    The   Chinese   government   has   additionally   supported   the   tourism   sector   due   to   its  attractiveness   to   the   outside   world.   China   will   continue   to   invest   in   developing   and  promoting   International   Trade   Fairs,   Media   and   Championships   Events.   This   is   a   key  opportunity   for   investors   to   interact   with   other   companies   and   customers   from   all  around  the  globe.     3. Construction    As   another   important   player   in   the   development   of   China,   this   industry   has  demonstrated   to   the   world   how   a   planned   economy   can   provide   infrastructure   and  services   to   its   society.   The   construction   industry   has   continuously   provided  opportunities  to  all  types  of  international  suppliers  since  the  Chinese  government  gives  concessions  to  local  companies  to  construct.  However,  these  companies  have  the  chance  of   buying   materials,   components   and   tools   from   other   sources   to   accomplish   their  services.   This   industry   will   grow   as   the   government   develops   more   cities   in   Eastern  China   in   order   to   move   manufacturing   and   production   to   these   areas   that   have   cheap  labor.   4. Professional  Services    As   previously   mentioned,   there   are   numerous   opportunities   for   companies   in   this  industry.   However,   the   shortage   of   highly   skilled   people   is   a   pressing   issue   for   this  industry.   This   problem   not   only   affects   international   companies   working   in   China   but  also   for   Chinese   companies   working   abroad.   As   a   result,   the   industry   of   professional  services   will   growas   the   growth   of   companies   will   drive   demand   for   skilled   Chinese  people  and  for  this,  companies  in  the  services  sector  will  profit  by  providing  HR  services  to  big  corporations.               57  
  • GGSB  Study  China  Residency  Report  2011  IX. W EAKNESSES  AND   T HREATS  FOR   B USINESS   D EVELOPMENT  IN   C HINA     A. G E N E R A L   C H A L L E N G E S   1. Cultural  Implications     Language   and   Communication   Style   have   been   a   key   challenge   for   numerous   multinational   companies   entering   the   Chinese   market.   Another   cultural   issue   is   the   difference  in  communication  style  and  the  confusion  that  arises  from  both  western  and   Chinese   business   partners.   Guanxi   and   the   importance   of   relationships   in   gaining   business   contacts   and   networking   in   order   to   win   a   deal   are   also   major   cultural   implications  that  business  developers  need  to  familiarize  themselves  with  in  order  to  be   successful  in  China.     2. Increase  in  Union  Power     Many  have  the  impression  that  China  is  a  labor  lawless  state,  but  increased  wealth  and   awareness   has   seen   more   workers   vocalizing   their   demands.   Since   the   Labor   Contract   Law   was   implemented   in   2008,   multinational   corporations   have   been   affected   by   an   increased   aggressive   approach   from   labor   unions   exercising   their   rights   and   demanding   more   from   their   employers.   Although   China   has   a   massive   labor   pool,   the   aging   population  and  the  rapid  economic  growth  means  the  country  needs  more  workers  for   the   economy   to   sustain   its   growth.   As   a   result,   studies   suggest   that   firms   can   expect   a   decrease  in  readily  available  workers  and  consequently,  higher  wages.       3. Employee  turnover     In   a   recent   survey   on   employee   retention   73   percent   of   employees   had   resigned   from   previous  jobs,  and  24  percent  had  already  held  three  or  more  jobs,  despite  their  relative   youth.   22   percent   said   they   were   likely   to   leave   their   positions   in   the   next   year.   The   top     58  
  • GGSB  Study  China  Residency  Report  2011  two   turnover   reasons   were   lack   of   growth   and   development   opportunities   with   the  current  employer  and  the  availability  of  better  career  opportunities  elsewhere.       4. Environmental  Concerns    As   global   pressure   on   China   to   reduce   its   pollution   levels   increase,   multinationals   can  expect  amplified  regulations  on  pollution  level  allowances.  Water,  air  and  soil  pollution  are   major   environmental   issues   in   China   today   and   increased   awareness   has   led  toincreased  pressure  to  cut  emission  levels  by  MNC’s.      B. G E N E R A L   W E A K N E S S E S     1. Management    Chinese  management  style  remains  an  important  barrier  to  foreign  business  developers.  There   is   a   significant   lack   of   leadership   emphasis   and   employees   tend   to   require  stronger  managerial  support  in  comparison  to  Western  employees.   2. Credit    A   notable   difference   between   China   and   other   markets   is   the   countrys   lack   of   a  predictable,   systematic   approach   to   credit   and   receivables   management.   Some  companies  claim  that  the  primary  risk  of  doing  business  in  China  today  is  the  difficulty  of  collecting  full  payment  on  time.     3. Quality  Control    Recently   there   have   been   several   issues   in   the   toys   and   baby   food   industry   where  quality   control   was   neglected   and   led   to   the   unfortunate   death   of   children   in   both   China  and   the   rest   of   the   world.   These   sorts   of   events   weaken   foreign   perception   on   quality  and   pose   health,   legal   and   ethical   risks   for   companies   manufacturing   in   China.     59  
  • GGSB  Study  China  Residency  Report  2011   4. Inflation     The  incredible  economic  growth  in  China  leads  consequently  to  inflation  and  a  price  rise   of   raw   material,  workforce,   land,   manufacturing  and  energy.  This  poses  as  a  weakness   for  price  sensitive  industries.     5. Government  Protectionism     The   Chinese   Government   has   a   high   control   over   companies   because   it   is   involved   in   each  foreign  business  in  the  same  way;  a  foreign  investor  has  to  find  a  Chinese  partner   to   set   up   a   company   or   a   business   in   China.   The   Chinese   policy   is   very   protectionist   and   it  is  a  way  for  them  to  own  and  control  foreign  investments.   6. Regional  Diversity     Another  significant  weakness  for  business  developers  in  China  is  the  regional  diversity   which  leads  to  a  strong  need  for  segmentation  and  market  research.  Regional  variation   in  terms  of  legal  enforcement  is  an  additional  issue  to  be  considered  by  new  entrants.    X. K EY   I NDUSTRIES   A NALYSIS     A. IT   1. Weaknesses     A   major   weakness   for   the   IT   industry   in   China   is   the   level   of   IT   know-­‐how.   Gaining   employees  with  high-­‐level  IT  knowledge  is  difficult.     2. Challenges     One  of  the  major  challenges  for  the  IT  industry  is  the  question  of  intellectual  property   rights   and   piracy,   and   most   notably   the   lack   of   government   enforcement   of   those   rights.   Recently  the  Chinese  government  has  strengthened  their  legal  infrastructure  to  protect   intellectual   property,   but   enforcement   of   these   regulations   still   remains   weak   and     60  
  • GGSB  Study  China  Residency  Report  2011  uneven  across  the  different  regions.  Following  this,  corruption  of  local  judiciary  remains  a  real  challenge  for  national  and  international  corporations  alike.    B. C O N S T R U C T IO N     1. Weaknesses    Low  content  of  technology  Because  of  the  low  level  of  technology,  the  construction  industry  is  still  a  labor-­‐intensive  industry.   And   the   poor   health   and   safety   conditions   have   greatly   affected   the   image   of  the  construction  industry.  Also,  because  there  is  a  lack  of  perfect  management  system,  construction  quality  is  not  high.  The  bidding  process  is  in  a  “black-­‐box”  and  corruption  is  a  very  serious  problem  in  this  industry.     2. Challenges    Nowadays,  the  labor  cost  in  China  is  rising  because  of  the  trend  of  population  aging.  The  potential   for   a   shortage   of   labor   will   surely   be   a   challenge   in   the   future   for   this   industry.  Additionally,   national   macro   regulationsandgovernmental   real   estate   policies   will   also  slow  down  the  development  of  construction  industry.  Professional  Services  Industry  in  HR  sector   3. Weaknesses    Employee   turnover   remains   a   significant   weakness   in   the   professional   services   industry  in   China.   As   the   pool   of   skilled   managerial   talent   is   limited   in   the   Chinese   market,  companies   compete   on   salary   which   encourages   further   employee   turnover   and   low  loyalty   among   employees.Another   weakness   for   professional   services   is   the   significant  negative   bias   leaders   in   Chinese   companies   have   for   developing   talent   and  organizational  capability.  However,  once  the  economy  recovers,  consultants  believe  an  increased  competition  for  talent  will  arise.       61  
  • GGSB  Study  China  Residency  Report  2011   4. Challenges    Gaining   well-­‐qualified   local   employees   poses   as   a   significant   risk   for   professional  services.   Management   and   leadership   styles   can   create   a   significant   challenge   for  international   professional   service   industries   in   China.   As   this   industry   is   highly  dependent   on   having   the   right   type   of   people,   gaining   well-­‐qualified   employees   with  extensive  local  knowledge  poses  as  a  challenge  for  this  industry.    Chinese   managers   have   up   until   now   declined   to   focus   on   human   resources   and   its  importance.     In   most   Chinese   companies,   about   30   percent   of   human   resource  departments  are  part  of  the  senior  management  team;  the  remaining  70  percent  define  their  role  primarily  through  service  and  administration,  making  it  more  challenging  for  human  resource  to  be  viewed  as  a  vital  part  of  the  overall  business  strategy  and  model.  It   is   a   significant   challenge   for   professional   services   in   China   to   communicate   to   Chinese  management  the  importance  of  investing  in  human  capital.  Education  and  awareness  of  the   benefits   of   aligning   corporate   strategy   with   a   human   resource   strategy   remains   a  challenge.    C. T O U R IS M     1. Weaknesses    Overexploitation  is  a  key  issue  for  tourism.  The  trend  to  rush  to  launch  the  development  of  tourism  resources,  without  a  thorough  and  meticulous  investigation  and  research,  nor  a  serious  evaluation  and  demonstration  is  a  key  weakness  in  this  industry.  Additionally,  the  management  of  Chinas  tourism  is  troubled  by  a  vertical  administrative  procedures.   Tourist   areas   must   accept   not   only   the   centralized   management   of   a  number  of  departments,  but  also  the  leadership  of  all  levels  of  local  government.  Finally,  in   the   absence   of   high   education   and   training   programs,   tour   guides   tend   to   not   be   good  enough  to  improve  the  tourism  quality.     62  
  • GGSB  Study  China  Residency  Report  2011   2. Challenges    Following   economic   growth,   tourists   are   demanding   for   specialized   tourism  experiences.     Another   challenge   in   this   industry   is   competition   from   foreign   tourism  enterprises  D. K E Y   L E A R N IN G ’ S  A N D   S U G G E S T IO N S    Generally,  firms  entering  the  Chinese  market  are  advised  to  plan  for  the  long  term,  try  to  enter   the   market   before   competitors,   build   trust   and   be   flexible   when   working   with  partners,  appreciate  cultural  differences  and  adapt,  and  to  be  patient.    E. C R E D IT   I S S U E S    To   avoid   the   risk   of   not   being   paid   on   time,   new   entrants   to   the   Chinese   market   can  protect  themselves  by  not  selling  on  credit  andinstead  enforcing  direct  bank  transfers.   1. Human  Resource  Issues    In   terms   of   increasing   salaries,   Hewitt   human   resource   consultants   advise   companies  not   to   increase   salaries   in   order   to   be   competitive   as   it’s   a   ‘self-­‐defeating   game.’   Instead,  consultant   recommend   companies   to   create   other   forms   of   value   for   their   employees  like   incorporate   a   favorable   management   style,   talent   control   and   implement   available  opportunities.   In   terms   of   decreasing   employee   turnover,   Hewitt   recommends  employers  implement  2-­‐year  contracts  with  employees  that  focus  on  offering  attractive  working   environments   and   creating   non-­‐monetary   value   for   employees.   Hewitt  consultants   also   recommend   helping   young   managers   by   offering   extensive  leadershipand  management  training.    Additionally,   although   Chinese   discrimination   laws   are   not   as   developed   as   in   many  western  nations;  multinational  employers  must  endeavor  to  recruit,  hire,  promote  and  generally   administer   all   employee   benefits   fairly   without   regard   to   sex   or   other     63  
  • GGSB  Study  China  Residency  Report  2011  protected   characteristics.   In   addition,   such   practices   support   all   of   the   practices   listed  above  and  will  assist  in  the  hiring  and  retention  of  good,  qualified  candidates  in  China.         64  
  • GGSB  Study  China  Residency  Report  2011  XI. R EFERENCES     • WorldBank.  (2011).  Country  Brief  -­‐  China.  Retrieved  2011  йил  12-­‐04  from   http://web.worldbank.org:   http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/CHINAEXT N/0,,menuPK:318960~pagePK:141132~piPK:141107~theSitePK:318950,00.html   • Hansson,  A.,  &  Kuijs,  L.  (2011).  An  Eye  on  East  Asia  and  Pacific  -­‐  The  Role  of  China  for  Regional   Prosperity.  The  World  Bank,  7,  1-­‐11.   • Mantzopoulos,  V.,  &  Shen,  R.  (2011).  Chinas  economic  restructuring  through  induced  capital   inflows.  Journal  of  International  Business  and  Cultural  Studies,  4,  1-­‐17.   • CIA.  (2011).  The  World  Factbook.  Retrieved  2011  йил  13-­‐04  from  https://www.cia.gov:   https://www.cia.gov/library/publications/the-­‐world-­‐factbook/geos/ch.html   • Randall,  M.,  Bernard,  Y.,  &  Minyuan,  Z.  (2008).  Perspectives  on  Chinas  outward  foreign  direct   investment.  Journal  of  International  Business  Studies,  39,  337-­‐350.   • MOFCOM.  (2011).  Statistics  of  China’s  Absorption  of  FDI  from  January  to  December  2010.  Retrieved   2011  йил  19-­‐April  from  http://english.mofcom.gov.cn/:   http://english.mofcom.gov.cn/aarticle/statistic/foreigninvestment/201101/20110107381641.h tml   • Yan,  D.,  Hong,  J.,  &  Ren,  B.  (2010).  Determinants  of  outward  foreign  direct  investment  by  Chinese   enterprises  -­‐  An  empirical  study  from  institutional  perspective.  Nankai  Business  Review   International,  1  (3),  237-­‐253.   • Ip,  M.  (2009  йил  9).  http://www.landor.com/.  Retrieved  2010  йил  20-­‐12  from  Made  in  China,   Made  with  the  World:   http://www.landor.com/index.cfm?do=thinking.blog&post_id=21772&bhcp=1&bhhash=1&bhha sh=1#top   • Gattai,  V.  (2010).  EU-­‐China  Foreign  Direct  Investment:  A  Double-­‐Sided  Perspective.  Bicocca  Open   Archive  ,  1-­‐11.   • Ebbers,  H.,  &  Zhang,  J.  (2010).  Chinese  Investments  in  the  EU.  Eastern  Journal  of  European  Studies,   1  (2),  187-­‐203.   • Fontagne,  L.,  &  Py,  L.  (2010).  Determinants  of  Foreign  Direct  Investment  by  Chinese  Enterprises   in  the  European  Union.  CEPII-­‐CIREM  Economic  Analysis  in  Support  of  Bilateral  and  Multilateral   Trade  Negotiations,  01,  1-­‐55.   • Cai,  K.  (1999).  Outward  Foreign  Direct  Investment:  A  Novel  Dimension  of  Chinas  Integration  into   the  Regional  and  Global  Economy.  The  China  Quarterly,  160,  856-­‐880.   • Deng,  P.  (2004).  Outward  Investment  by  Chinese  MNCs:  Motivation  and  Implications.  Business   Horizon,  47  (3/May-­‐June),  8-­‐16.   • BBC  World.  (2011).  http://www.bbc.co.uk.  Retrieved  2011  йил  19-­‐April  from  BBC  News  Business:   http://www.bbc.co.uk/news/business-­‐13125707     65  
  • GGSB  Study  China  Residency  Report  2011   • IMF.  (2011).  http://www.imf.org.  Retrieved  2011  йил  12-­‐04  from  World  Economic  Outlook   Database  -­‐  China:  http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx   • N.A.   “Travel   and   Tourism   in   China”.Euromonitor.   4   April   2011.   Web.   19   April   2011.   <http://www.portal.euromonitor.com.proxy.grenoble-­‐ em.com/Portal/Pages/Search/SearchResultsList.aspx>   • N.A.   “Consumer   Electronics   in   China”.Euromonitor.   4   April   2011.   Web.   19   April   2011.   <<http://www.portal.euromonitor.com.proxy.grenoble-­‐ em.com/Portal/Pages/Search/SearchResultsList.aspx>   • N.A   “China   Country   Profile”.The   World   Bank.   2010.   Web.   19   April   2011.   <http://data.worldbank.org/country/china>   • http://www.chinatraveltrends.com/2010/04/when-­‐will-­‐china%E2%80%99s-­‐ski-­‐industry-­‐take-­‐ off/   • SUN   Hongzhe,   ZHU   Jin,   “Study   on   Sustainable   Development   of   China’s   Tourism”.   School   of   Economics  and  Management,  Hebei  University  of  Engineering,  P.R.China  /  School  of  Kexin,  Hebei   University  of  Engineering,  P.R.China   • <www.seiofbluemountain.com/search/detail.php?id=4606   • Boyé  Lafayette  de  Menthe  (2008).  Etiquette  Guide  to  China.  Tuttle  Publishing       66