9 1 Netflix in China Week 2 and 3 JOANA OLIVEIRA VERONEZI SOUTHERN STATES UNIVERSITY BU536: GLOBAL STRATEGY AND MANAGEMENT DR. KIM, RACHEL 04/28/2019 Political, Economic and Legal Environment of China China is a communist country with twenty-two regions, being five independent regions, four municipal cities and two specials regions Hong Kong and Macau. (Statista, 2019). The main language is Mandarin, and it is the largest population in the world being about 1.4 billion in 2019. The large population situation is a topic that was always discussed since 1970’s where they created the country’s family planning policy restricting families to have more than one child. This plan made “China’s population growth rate decreased to 0.51% in 2015. And for the demographic not to change that much, the one children policy was relaxed in 2016, allowing families to have two children.”. (Statista, 2019). As the years past by, the age distribution in China from 2007 to 2017 has been shifting to older age during the past decade. See graph below from Statista: Also, because of the birth control in China, the population growth in China have decreased over the past decade with an annual population growth of below 0.5%, as the graphic below demonstrate, and its ranked the lowest worldwide. (Statista, 2019) China was the second largest economy in terms of GDP, around U$ 10.93 trillion by 2015. And the GDP per capita was around U$7,999 which was 14% of the GDP per capita of the U.S.A in 2015. China is very economically strong on the industrial sector. “Its high productivity, low cost labor and relatively good infrastructure have made China a global leader in manufacturing”. (Statista, 2019). China enter on the WTO (world trade organization) in 2001 and it had a trading power with a surplus of $ 593 billion dollars in 2015. (Statista, 2019). It was considered the primary trade partner of many countries in the whole world. And as Statista (2019) shows in their research, “China wants to reduce reliance on merchandise exports and focus on domestic’s consumption of its manufactured goods and facing the lack of demands on the global market.”. “China is the biggest producers and consumers of agricultural goods in the world but is lacking cultivable lands because of the country size. And those agricultural lands are transforming into industrial land. The fast industrialization and urbanization of China made the country the largest producer of CO2 in the world. And this turn out to be a challenge for China’s government to balance its economic development and environment maintenance.” (Statista, 2019) The Legal process of China is very different from other countries. In other countries there are common law and civil law. In China, it can be considered a mix of those two. Nowadays, changes are going to happen in the Legal department of China, but how still works is that basically law are discussed based on what Kings have said. As for t.

1. 9
1
Netflix in China
Week 2 and 3
JOANA OLIVEIRA VERONEZI
SOUTHERN STATES UNIVERSITY
BU536: GLOBAL STRATEGY AND MANAGEMENT
DR. KIM, RACHEL
04/28/2019

2. Political, Economic and Legal Environment of China
China is a communist country with twenty-two regions,
being five independent regions, four municipal cities and two
specials regions Hong Kong and Macau. (Statista, 2019). The
main language is Mandarin, and it is the largest population in
the world being about 1.4 billion in 2019.
The large population situation is a topic that was always
discussed since 1970’s where they created the country’s family
planning policy restricting families to have more than one child.
This plan made “China’s population growth rate decreased to
0.51% in 2015. And for the demographic not to change that
much, the one children policy was relaxed in 2016, allowing
families to have two children.”. (Statista, 2019). As the years
past by, the age distribution in China from 2007 to 2017 has
been shifting to older age during the past decade. See graph
below from Statista:
Also, because of the birth control in China, the population
growth in China have decreased over the past decade with an
annual population growth of below 0.5%, as the graphic below
demonstrate, and its ranked the lowest worldwide. (Statista,
2019)
China was the second largest economy in terms of GDP,
around U$ 10.93 trillion by 2015. And the GDP per capita was
around U$7,999 which was 14% of the GDP per capita of the
U.S.A in 2015. China is very economically strong on the
industrial sector. “Its high productivity, low cost labor and
relatively good infrastructure have made China a global leader
in manufacturing”. (Statista, 2019).
China enter on the WTO (world trade organization) in
2001 and it had a trading power with a surplus of $ 593 billion

3. dollars in 2015. (Statista, 2019). It was considered the primary
trade partner of many countries in the whole world. And as
Statista (2019) shows in their research, “China wants to reduce
reliance on merchandise exports and focus on domestic’s
consumption of its manufactured goods and facing the lack of
demands on the global market.”.
“China is the biggest producers and consumers of
agricultural goods in the world but is lacking cultivable lands
because of the country size. And those agricultural lands are
transforming into industrial land. The fast industrialization and
urbanization of China made the country the largest producer of
CO2 in the world. And this turn out to be a challenge for
China’s government to balance its economic development and
environment maintenance.” (Statista, 2019)
The Legal process of China is very different from other
countries. In other countries there are common law and civil
law. In China, it can be considered a mix of those two.
Nowadays, changes are going to happen in the Legal department
of China, but how still works is that basically law are discussed
based on what Kings have said.
As for the culture of China, there is a Hofstede Chart
below that makes it easier to understand:
The power distance in considered high in China, with 80
points. So, Chinese people cares about permissions and
statements that are given. China is a collectivism country; They
are more about family. As the graphic show above, it has only
20 points on individualism. In masculinity China has higher
points (66), which means people are more self oriented, they
live to work and money and things are important. China is a
country that can be considered to accept changes, as the graph
shows, the uncertainty avoidance is considered moderate. China
has a high long term orientation, they are very focus on the
future and their indulgence is considered low, whereas it means
they are more likely to be a restraint society. “Whereas

4. gratification needs to be curbed and regulated by strict norms.”
(Hofstede insights, 2019).
The HDI (human develop index) of China is low. It doesn’t
matter if GDP is higher of if it’s the second largest economy in
the world. We can say in simple words that GDP is quantity and
HDI is quality. China, as it was said above, has high
productivity and lower labor cost. Which means, they work
much more for less.
Strategy Fundamentals and Corporate Strategy
The strategy fundamentals have steps, which are
“developing vision and mission, perform external and internal
analysis, establish long-term objectives, generate, evaluate and
select strategies, implement strategies in management,
implement strategies in marketing, finance, accounting, R&D
(research and development) and measure and evaluate
performance.” (David & David, 2017).
There are types of corporate level strategies to enter global
market, being them: Merge and aquistion, alliances, equity,
greenfield, licensing, joint venture, turkey project, exporting,
franchising and subsidiary.
Being said the fundamentals of strategy and also all the
Political, economic and legal situation of China. Now it’s time
to put in practice the idea of my project, which is, Netflix to
enter Chinese market.
Netflix is working in almost every country, except for
China, Crimea, North Korea and Syria because of law
enforcement. Since the law is having some changes in China,
the idea of being part of the most populated country’s market is
huge for Netflix. However, going into Chinese market means be
ready for competition. There is a journal from Forbes (2018),
whereas it is written: “A fiercer competition is underway. Local
companies are spending billions competing for a bigger slice of
the country’s fast-growing online video market by developing
their own original programs.”. (Armstrong and Wang, 2018).

5. According to a research from IHS Markit (2019), “video
streaming in China will more than quadruple from $3.5 billion
in 2015, to $17.6 billion in 2020.”.
As Armstrong and Wang (2018) mention, the online video
platform that is in charge in China is called iQiyi. The Chinese
company already had licensed two streaming from Netflix,
being Black Mirror and Mindhunter. iQiyi have their own
production show called The rap of China which is a huge
success and the only access for this content is by monthly
payment membership. They have more than 500 million active
users, with 50.8 million fully paid-up subscribers.
Right behind iQiyi, comes Tencent Video and Youku
Tudou. Both companies have had success with their own
productions, bringing 4.8 million activate users for Tencent
Video and 4.2 million for Youku Tudou. (Armstrong and Wang,
2018). All those video streaming companies are very equal to
Netflix model and their strategy is actually producing original
programs, because licensing shows are getting more expensive
to get. (Armstrong and Wang, 2018).
Even though with all this rapid growth of users, iQiyi’s
expenses are also growing and the company has been in the red
since 2010. Also, Youtu Tudou and Tencent Video are in the
same situation. (Forbes, 2018). Studies shows that Chinese are
not willing to pay much and this make the monthly membership
not enough to cover production costs for now. For example:
While Netflix charges about $11, most Chinese companies ask
for only $3 per month. (Forbes, 2018).
With all this information about companies that are in the
same segment as Netlfix and being said that licensing movies
for them are getting expensive and their actually revenue is on
red, I have reasons to believe that the best corporate strategy for
Netflix to get inside of Chinese Market is buying a inside
Company, for example, buying iQiyi. In other terms, this would
be considered an acquisition.
Netflix has already a lot of productions of their own, and
paid a lot of license to stream TV shows and movies in their

6. platform. Buying iQiyi, the HR (human resources) will have
less problems, since a lot of workers will continue doing what
they already do, specially will help R&D (research and
development) with cultural analysis of the company getting into
Chinese Market. In the Finance part, Netflix’s annual revenue
has grown from 1.2 billion to over 11.6 billion in just 10 years
and it is estimated 37% of the world’s internet users use
Netlflix. (Statista, 2019).
Netflix produced 300 original contents titles in 2017 and it
is expected to grow much more in the future. And with the
acquisition of iQiyi, Netflix will also maintain Chinese
productions and will continuing producing movies locally in
China, since Chinese people values more their own content.
References

7. Statista. Age distribution in China from 2007 to 2017. 2019
Retrieve from:
https://b113ca75n-mp02-y-https-www-statista-
com.proxy.lirn.net/statistics/270163/age-distribution-in-china/
Statista. Population growth in China from 2007 to 2017. 2019.
Retrieve from:
https://b113ca75n-mp02-y-https-www-statista-
com.proxy.lirn.net/statistics/270129/population-growth-in-
china/
Statista. Netflix – statistcs and facts. 2019. Retrieve from:
https://www.statista.com/topics/842/netflix/
Hofstede Insights. China. 2019. Retrieve from:
https://www.hofstede-insights.com
Country Economy. China human development index. 2019.
Retrieve from: https://countryeconomy.com/hdi/china
David, F and David, F. Strategic management: Concepts and
cases, a competitive advantage approach. 2017. Pearson
Education. 16th edition
Armstrong, P and Wang, Y. (2018). The billion-dollar race to
become the Netflix of china. Forbes. Retrieve from:
https://www.forbes.com/sites/ywang/2018/03/07/the-billion-
dollar-race-to-become-the-netflix-of-china/#3a294d573495
Week 2

8. Political | Economic | Legal Environment of China
· Check Currency of China
· GDP of China
· IBP (purchase power of china)
· Growing population
· Socialism?
· Communism?
· HDI (Human develop index): it measures people health care
and longetivity, education
· Legal Environment: Is it Civil Law or Common Law, PS:
China has a completely different system of law
· Porter’s Diamond of National Competitiveness
Strategy Fundamentals & Corporate Strategy
· What are the strategy fundamentals:
· What Corporate Strategy Netflix uses with other countries and
what would be good to use in China.
In the cut-throat race to dominate people’s screen time, western
tech giants are all making original content and shows -- the key
to rapid growth by video-streaming services like Netflix as
users sign up to watch their exclusive content.

9. In China, meanwhile, where none of these major video
platforms is readily available due to strict censorship, a fiercer
competition is underway. Local companies are similarly
spending billions vying for a bigger slice of the country’s fast-
growing online video market by developing their own original
programs. With this sense of exclusivity, they are seeking more
paid subscribers, with more people now prepared to pay for
content in a market that has previously been dominated by
rampant piracy. According to research firm IHS Markit, video
streaming in China will more than quadruple from $3.5 billion
in 2015, to $17.6 billion in 2020. Membership payment will
take up a bigger share of the pie, increasing over 500% to $2.6
billion, with the rest coming from advertising revenue.
Currently leading the charge in China is iQiyi, the online video
platform backed by search giant Baidu. The company, which
also distributes in China certain Netflix programs such as Black
Mirror and Mindhunteras part of a licensing deal signed last
year, is behind hit titles like The Rap of China, the country’s
first hip-hop music show that had been streamed almost three
billion times online as of September last year. iQiyi says its
success is in part due to Baidu's expertise in artificial
intelligence -- the video platform uses AI-based algorithms to
analyze user preferences and then push appropriate content.
They now have more than 500 million active users, with 50.8
million fully paid-up subscribers. While free content is still
available to those users who don't pay, this excludes exclusive
iQiyi productions like The Rap of China.
IPO
Now, iQiyi is seeking to raise up to $1.5 billion in a U.S. IPO,
tapping international capital to develop more shows while
keeping its dual-class share structure -- an arrangement that
gives company executives more voting power than average
shareholders but isn’t allowed in Chinese bourses.
Chinese rapper GAI performs on the stage during Jiangsu

10. Television New Year Gala on December 31, 2017 in
Guangzhou, China.(Getty Images)
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But iQiyi’s position isn’t unassailable, as Tencent Video and
the Alibaba-owned Youku Tudou follow close behind. With
their equally powerful backers, both have had successes with in-
house productions, allowing Tencent Video to grow its monthly
active users to 4.8 million in January and Youku Tudou to 4.2
million in the same period, according to Analysys International,
a Beijing-based consultancy. Tencent Video had 43 million paid
subscribers as of November, the company said.
Meanwhile, smaller sites have carved out a niche. For example,
Bilibili, a video site focusing on streaming animated content
and cartoons, is also targeting a U.S. IPO. The company, which
has 72 million monthly active users that are mostly in their 20s,
is seeking to raise up to $400 million to expand its content
offering in China.
“China’s video streaming sites are all going after the Netflix
model,” says Zhang Xueru, an analyst at Shanghai-based 86
Research. “A big part of their content strategy is producing
original programs, especially when licensing shows from others
is getting more and more expensive.”
Not all good news
Despite rapid growth in its number of users, iQiyi's costs are
also mounting: It has been in the red since 2010, posting a net
loss of $574 million last year, according to its prospectus.
Tencent Video and Youtu Tudou also have losses in the same
range, Zhang estimates. Though many Chinese users have
started to pay for content, they aren’t willing to pay much --
meaning membership subscription isn’t enough to cover

11. production costs for now. According to IHS Markit, Chinese
users spend an average of $27 on online video on a yearly basis
-- far less than the $123 spent on average by U.S. users. While
Netflix charges about $11 for a monthly membership, most
Chinese companies ask for just $3, worried that users would be
turned away should they demand more.
“I pay for Tencent Video because we don’t have cable TV at
home,” Tian Ye, 32, who works for a marketing firm in Beijing,
tells Forbes. “Sometimes I pay extra to watch NBA games on
Tencent, but I don’t think I will pay more than 100 yuan ($15) a
month.”
What’s more, China’s video-streaming services face rising
licensing costs, as a big part of their budget still goes to
acquiring programs from local and foreign studios. For example,
it costs Tencent Video $1.4 million for the exclusive right to
stream each episode of Chinese historical drama Ruyi’s Royal
Love in the Palace -- which has quickly added up to more than
$100 million as the show has more than 70 episodes, according
to local media reports.
Still, there is a silver lining. Subscription payment has room to
grow as people in remoter parts of the country sign up.
Advertisers are also shifting online as video streaming is fast
replacing television as China’s prime pastime. According to
consultancy eMarketer, digital video ads in China will overtake
spendings on traditional TV in three years, reaching $17.6
billion by 2021.
“The shift is already quite prominent,” says Wilson Chow, who
leads PricewaterhouseCooper's technology, media and
telecommunications practice. “Thanks to emerging
technologies, advertisers can actually grab customer data and
understand customer needs by advertising online.”
The Alibaba Group Holding Ltd. app icon, center left, and the
Youku Tudou Inc. app icon, center right, sit displayed on an
Apple Inc. iPhone smart device screen .(Xaume
Olleros/Bloomberg)

12. Chow said new revenue streams will also be opened with the
advent of next-generation 5G technology, which promises much
faster Internet speeds than current 4G plans. This potentially
allows premium offerings like virtual or mixed-reality viewing,
as these frontier technologies require a superior connection
speed.
However, others are less optimistic. Kia Ling Teoh, an analyst
at IHS Markit, said it is hard to say when China’s video-
streaming sites will be profitable. 86 Research’s Zhang says this
won’t happen until the market consolidates further. Right now,
it looks like Alibaba’s Youku Tudou is being slowly
marginalized, as the e-commerce giant experiments with other
ways to keep shoppers hooked. When it took over Youku Tudou
in 2015, Alibaba had plans to connect Youku’s audience with its
shopping sites by embedding purchasing links in its online
programs. Now, the company is directly incorporating fashion
video streams into its apps, increasing people's chance of
placing purchases by keeping them longer inside the Taobao
bazaar and Tmall site.
“If Youku Tudou doesn’t have as much synergy with Alibaba’s
core business then it will get less in budget,” Zhang says. “This
will affect content plans a lot.”
Netflix in China – week 1 assignment
Student ID 52769 Joana Veronezi
2
Netflix in China – week 1 assignment
Student ID 52769 Joana Veronezi

13. JOANA OLIVEIRA VERONEZI
SOUTHERN STATES UNIVERSITY
BU536: GLOBAL STRATEGY AND MANAGEMENT
DR. KIM, RACHEL
04/12/19
The company that was chosen for this project is Netflix.
Netflix is already an international company that works almost in
every country of the world. As Netflix itself says: “Netflix is
entertainment at lower cost and greater scale than the world has
ever seen. We want to entertain everyone, and make the world
smile.” (Netflix, 2019). In other words, Netflix provides
movies, TV shows and documentaries for a small amount
payment by users per month. The company is available in
almost every country, with the exception of China, Crimea,
North Korea and Syria, all because of US government
restrictions on American companies. (Netflix, 2019).
Netflix is increasing fast if we look to their background
history. As Netflix company website (2019) cites, “the company
started on 1997 by offering online movie rentals and further on
it launches the first DVD rental and sales website. In 1999,
Netflix founders decided to rent unlimited DVDs for one low
monthly price for subscribers. In 2002, Netflix goes to public
market on NASDAQ with 600,000 users in the U.S., and in 2005
Netflix subscribers rises to 4.2 million. In 2011, the brand was
available on Latin America and the Caribbean and a year later,

14. was available in United Kingdom, Ireland and Nordic Countries
and after a while in 2016 was available everywhere, except for
China, Crimea, North Korea and Syria. From than to nowadays,
Netflix became much more than just offering industries movies
to people watch, but also Netflix becomes producers and
studios, creating TV shows and movies worthy of Oscar.”
The country that was chosen to take Netflix in, is China.
And since China has low uncertainty avoidance, being 30% as
Hofstede insights specified (2019), and is the most popular
country and have advanced technology that people really don’t
leave behind to know what’s new, there are strong reasons to
believe that NETFLIX can easily be a success in China.
As Ahlstrom, D. & Bruton, G. D. (2010), technology is one
of the drivers of internationalization. Innovation in
computerizing, telecommunication, speed of connection, all
made easier for companies to become global. In this case,
Netflix is all about technology and connection. For a customer
to have Netflix, the only need is having internet connection and
also a banking account to make monthly payments. This app can
be watched in cellphone, computer or TV screen.

15. References
Netflix (2019). About netflix. Media center about netflix.
Retrieve from:
https://media.netflix.com/en/about-netflix
Hofstede Insights (2019). Country comparison. Retrieve from:
https://www.hofstede-
insights.com/country-comparison/china/
Netflix (2019). Netflix culture. Retrieve from:
https://jobs.netflix.com/culture
Ahlstrom, D. & Bruton, G. D. (2010). International
management: strategy and culture in the
emerging world. Mason, OH: South-Western Cengage
Learning. (ISBN 0-324-40631-2)