Business in China - Research Paper Example

?C&C Industries Inc.’s expansion into China Introduction China is today the world’s fastest growing economy. The country has been growing at the rateof 10% annually for the last three decades and is expected to overtake the American economy within a few decades (Tse, 2009). The major change that has been brought about to facilitate this growth is the elimination of the state control and increasing impetus to the privatization. The country has a major advantage in terms of its flexible, educated and skilled labor force. The country has substantially grown in international presence. By 2009 it was holding the largest foreign currency reserves amounting to $2 trillion and was also the largest holder of US treasury bonds (Tse, 2009). It has also become a world leader in international trade with import export forming 60% of its GDP (Tse, 2009). 1.3 billion Population of the country represents a huge market potential which no company can afford to ignore. Economy Based on the development level, the country is divided into three economic regions which are eastern, middle and western regions (Ma and Li, 2004). Eastern region is most advanced with good infrastructure, advanced cities, good management and administration (Ma and Li, 2004). Special economic zones have been setup by the government in this region to provide better development opportunities. The middle region is not as well developed as the Eastern. However, it has well developed industry and is the main region which produces grain, edible oils and cotton (Ma and Li, 2004). The Western region is still underdeveloped but has huge development potential for trade because it is the passage to other countries (Ma and Li 2004). Industry forms 46.8% of the GDP and industrial production growth rate stood at 11% as per 2010 estimates (cia.gov, 2011). Culture Because of the country’s socialist background, its culture is highly influenced by this ideology. The Chinese put a great emphasis on relationships than transactions and power distance in an organization (secureonlineorder.net, n. d). The Confucian philosophy which they follow focuses on collectivism rather than individualism. They believe in what they call “Guanxi” that refers to a “network of relationships among groups that cooperate and support one another” (secureonlineorder.net, n. d). This is considered as legally valid and not bribery and is indicative of personal closeness through exchanging of gifts and frequent contacts with retailers, suppliers, local government officials and banks. Chinese are not too keen to focus on detail and technical expertise with their leader’s autocratic behavior being accepted in return for security and harmony. Their communication is also less verbal and more through body language. They are never direct at saying “no” to things and rather express it through facial expressions and other roundabout ways (legacee.com, n. d). They feel that business relationships are the foundation of businesses and not any written agreements. Language problem is a barrier to exchange of ideas with the western organizations. Analysis of findings Facility location After having analyzed the economy and culture of China we need to first look at the location of the new facility. As seen earlier, Eastern China is the most developed area hence; there would be stiff competition for resources there. The Western area is now the new focus area for the government hence the new facility should be located there. The region accounts for 71% of China’s total land area and 29% of China’s total population with ready availability of labor force (Tan, 2010). Facility cost here is 50% less than the Eastern region while warehousing, construction and office lease is as low as one third to three quarter of the cost (Reinhardt, 2005). Thus providing facilities to the employees like housing will not be a major issue with respect to cost or availability in any of the Western towns or cities. There will be some problems as infrastructure and communications network are not as well developed as the East. However, the government has realized that the East has now saturated and hence is diverting its resources for the development of Western region. Entry mode and expansion plan The initial phase of expansion would be done through a Joint Venture (JV) with a local firm. The major advantage of this is that the Chinese government gives incentives for this kind of arrangement rather than for a Wholly Owned Subsidiary (WOS). Some of these advantages are – “easier access to local government controlled raw material and supplies, fewer inspections and interference by local governments, lower tax rates on profits and more infrastructure support” (Osland Taylor and Zou, 2001). Once an understanding of the market and local operations is obtained, WOS arrangement can be done over a period of time. Requisite clauses regarding withdrawal from the JV should be made to ensure smooth transition at a later date. Employee issues and their solutions The most important aspect of this expansion is the employee issues. For the initial phase, experts from the parent location will require to be relocated to China. This would require adequate compensation and training. As seen earlier cultural and language differences can be a major hurdle to a smooth expansion process. Hence, the first step would be to provide an understanding of the Chinese culture to the employees who are shortlisted for the initial phase. For this, a good idea would be to use a Chinese national who has a good understanding of English to conduct a 10 day cultural training. The expat team should also consist of overseas Chinese nationals who understand the local language and are interested in moving to their own country. Major problem that the expatriates are expected to face is on account of the language. They would need to communicate with their counterparts or JV partners to get things going. The Chinese expect respect for the elders and are usually very particular about the age of the people they are interacting with. Non-Chinese will also not be considered as part of their “Guanxi” because they will not be able to identify with either the Chinese Language or culture. This way of networking is very essential for business success in China. Another problem that expats might encounter is with the external communication i.e. with suppliers, government agencies and customers (Selmer, 2006). The best solution to this problem could be to provide basic language training to the expatriates (for 6 months) and include Chinese nationals in the expat team. Documents required The document requirement for sending expats to China is quite detailed. These include expatriate employment application form, their employment application letter which explains the reason for the sending the expat to China, proofs of all licenses of the employee, the resume of the employee should also be submitted in Chinese language, his qualification copies or experience certificate should also be submitted along with a copy of his passport (Cai Wang and Moore, 2009). There are also formalities related to resident permit and visa issuance. Other Human Resource considerations and action plans The expatriate team would be received by human resource representative (especially hired locally) at the point of arrival and helped with clearance formalities. A company accommodation for the initial month needs to be provided. For this the company would require to hire an accommodation which would provide boarding and lodging facility to the expatriates. Later on, depending on the term of stay of individual team member, the local human resource department can help them arrange for rental accommodation. C&C needs to arrange for medical insurance for the expatriates. Expatriates can choose from many categories of hospitals available in China. They are – private international hospitals, provisional hospitals and so on (Shaw, 2011). Each one has its own characteristic and medical insurance can take care of any health issues that the expat might face. However, the administration team should apprise them of the exact claim procedures and the eligible hospitals for the particular insurance provider. Conclusion From the above discussion we can conclude that there will be major employee issues because of cultural and language differences. Hence, C&C should provide adequate facilities to overcome those problems. An adequate support from the organization is important for the successful transition of the program. Recommendations To facilitate smooth expansion, the company needs to provide adequate support in terms of language and cultural training, legal assistance, localization of operations and housing and medical support for the staff in the new location. To minimize problems, an initial JV arrangement is recommended, with the local partner providing the initial setup advisory and help. References Cai, R, Wang, V and Moore, K. (2009). Procedures and requirements to obtain Chinese work visas for expatriate employee. Retrieved on February 17, 2011 from http://www.dwt.com/LearningCenter/Advisories?find=59007 cia.gov. (2011). The World Factbook. Retrieved on February 17, 2011 from https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html legacee.com. (n. d). Global Leader: Understanding Chinese business culture and business practices. Retrieved on February 17, 2011 from http://www.legacee.com/Culture/CultureOverview.html Ma, K and Li, J. (2004). China Business. Name of the Publisher. Year of Publishing. Osland G. E., Taylor, C. R and Zou, S. (2001). “Selecting international modes of entry and expansion,” Marketing planning and intelligence, 19(3):153-161 secureonlineorder.net. (n. d). Chinese and Western business cultures. Retrieved on February 17, 2011 from http://www.secureonlineorder.net/tpepublic/term-papers/114_Chinese_Western_Business.pdf Shaw, M. (2011). Expat medical treatment in China: accidents and illnesses. Retrieved on February 17, 2011 from http://www.suite101.com/content/expat-medical-treatment-in-china-accidents-and-illnesses-a339820 Reinhardt, J. (2005). Western China: Enhancing industrial competitiveness and employment. United Nations Industrial Development Organization Selmer, J. (2006).” Language ability and adjustment: Western Expatriates in China,” Thunderbird International Business Review, 48(3):347-368 Tan, C. (2010). Investment opportunities in West China. Retrieved on February 17, 2011 from http://www.iesingapore.gov.sg/wps/portal/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gDf4PQMFMD_1A3g2BDI0MPXwtDAwgAykeaxTu7O3qYmPsA-RaWbgae3o6Oxv6uxkb-robE6DawMPL1DfQL9HA0CPVw8XM2NTaAyePX7eeRn5uqH6kfZY6hyigMrioyJzU9MblSvyA3NKI831ERAP8cnDY!/dl3/d3/L2dJQSEvUUt3QS9ZQnZ3LzZfMDgyTU1RTlFIQTBVSEROQzJGMTAwMDAwMDA!/?WCM_GLOBAL_CONTEXT=/wps/wcm/connect/ie/My+Portal/Market+Guide/Market+Information/North+Asia/China/News/Investment+opportunities+in+West+China Tse, E. (2009). The China Strategy: Harnessing the Power of the World's Fastest-Growing Economy. Basic Books. Read More