why invest in china? hillman, wertheimer, yeap. outline background –culture –political system...
Post on 03-Jan-2016
216 Views
Preview:
TRANSCRIPT
Why Invest in China?
Hillman, Wertheimer, Yeap
Outline
• Background– Culture– Political System– Managerial System– Entrepreneurship– Financial Systems– The Investment Process
• Investment Factors– Strengths & Weaknesses– Opportunities & Threats
• Conclusions & Discussion
Background
Diamond Model
Financial Systems
Managerial Systems Entrepreneurship
Political Systems
Culture
Political System: Economic liberalization with limited political reform
• Constant state of flux & tension between reform and status quo– Desire to continue successful economic reform: stated objective
to become “socialist democracy”– Trying to maintain tight control over political sphere: liberalization
only to maintain power and popularity– Recent transition to fourth generation leadership – Hu Jintao &
Wen Jiabao
• One-party rule by CCP– Executive, national & regional government are all appointed;
with 9 person politburo as focus of power– Local officials are selected by popular election– Complex layers of bureaucracy pervade commercial and private
life: role of SOEs and “units” versus growing private sector– Politics and commercial activity are tightly intertwined
Source: Economist Intelligence Unit – Country Report 03/04
Political System: Economic liberalization with limited political reform
• CCP leadership faces key challenges:– Maintaining & managing strong economic growth, in
face of changing urban population and disenfranchised rural poor
– Managing unprecedented social & political change with losing power base: how much freedom can be allowed?
– Increasingly internationalization of economy forces China to be more outward looking in their foreign policy, as well as meeting WTO obligations
• Foreign investors need to navigate changing and uncertain environment– Continued economic liberalization should make doing
business easierSource: Economist Intelligence Unit – Country Report 03/04
Culture:
Modern façade can cover strong cultural differences Key Cultural Differences:• Community & group harmony
– Strong agrarian roots• Hierarchical with emphasis on relationships
– Confucian heritage• Holistic and circular analysis
– Pictographic language– Educational emphasis on rote learning
• Wariness of foreigners – Emphasis on family & personal connections– Unreliability of “rule of law”
Source: Harvard Business Review (10/03 – “The Chinese Negotiation” Graham & Lam
Culture:
Modern façade can cover strong cultural differences Successful business negotiations requires
understanding of underlying factors:• Guanxi – Personal Connections
– Social network capital & long-term reciprocity
• Zhongjian Ren – The Intermediary– Personal links to establish “trust” and dialogue
• Shehui Dengji – Social Status– Formality and hierarchy counts
• Renji Hexie – Interpersonal Harmony– Build relationships over extended periods
Source: Harvard Business Review (10/03 – “The Chinese Negotiation” Graham & Lam
Culture:
Modern façade can cover strong cultural differences Successful business negotiations requires
understanding of underlying factors:• Zhengti Guannian – Holistic Thinking
– Evaluate each aspect of deal as a whole versus sequentially
• Jiejian – Thrift– Aggressive haggling over price
• Mianzi – “Face” or Social Capital– Making the person look good or not look bad
• Chiku Nailao – Endurance, Relentlessness– High degree of preparation & long bargaining
sessions
Source: Harvard Business Review (10/03 – “The Chinese Negotiation” Graham & Lam
Managerial Systems
Use local knowledge to manage staff and risk
Source: “The Great Transition,” Lieberthal and Lieberthal, Harvard Business Review, Oct. 2003.
• Vital to establish local country management with strong senior staff, to coordinate activities and show a united face for the company
• Understand management goals of the partner in a joint venture– JV company often looks to expand labor force
• Hire managers who can interpret and understand internal issues and devise strategies
• Avoid sharing sensitive technology and data – Chinese are good at pirating ideas
Managerial Systems
Who is the ideal China manager?
Source: “The Great Transition,” Lieberthal and Lieberthal, Harvard Business Review, Oct. 2003.
• During initial entry, an entrepreneurial manager – creative and flexible – experienced with international startups
• During development, a strong senior manager– good ties to home base, communication skills
• During a global integration, a global manager – comfortable working across business divisions
Managerial Systems
Staffing the Chinese organization
Source: "Guide to Doing Business in China(2003 Edition),” tdctrade.com
• Employees are found through two avenues: – job fairs – recruiting agencies
• Placing want ads is less common and requires local government approval
• Employees are usually hired with contracts – terms can be determined individually or collectively
EntrepreneurshipEntrepreneurship suppressed by communism, more
successful at small-scale enterprises
Source:
Financial SystemIncreasing liberalization but still volatile and high-risk
Source:
Investing in ChinaA how-to
• Get guanxi: show respect, network extensively, avoid jewelry and white items
• Pick a production region: find a location geared toward manufacturing, engineering, or sales
• Pick a distribution region: find a location based on internal distribution or export
• Hire staff that can manage the local initiative• Guard intellectual property
Sources: Hong Kong Trade Development Council; BusinessWeek
Investing in ChinaWhere to go?
Source: adapted from BusinessWeek via Mike “Don’t call me Norton” Coppola
Investment Factors
Strengths
Weaknesses
Opportunities
• Be conscious of regional differences when making investment decisions
• Look beyond low-cost manufacturing for competitive advantage:– Engineering and product design capabilities– Enhanced language skills for service sector: data
analysis, software development• How you organize and manage your investment
is crucial to your success– JVs versus WFOEs– Right managerial personnel– Strategy varies with phases of invesment– Need to be flexible
Threats
• Unstable political situation could spill over into commercial sector
• Structural inefficiencies plus overheated economy– Banking sector particularly vulnerable
• Intellectual property issues– Difficult to enforce across all regions, despite WTO
conditions
• Rise of domestic players in key sectors make domestic market more competitive
Conclusions
top related