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May 24, 2006

Harvard Business Review on Doing Business In China - blog by Karl Janowski

There are eight articles in this book that were published in HBR.

The Great Translation - Phases of Entering China

The Chinese Negotiation - Eight elements of Chinese negotiation

The Hidden Dragons - China's companies that are global powers

Entering China: An Unconventional Approach - EJVs don't always make it

To Reach China's Consumers, Adapt to Guo Qing - the Chinese market

Trouble in Paradise - Case study of EJV problems

The Forgotten Strategy - Four forms of arbitage

All are listed in the China category of this blog.

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May 19, 2006

The Forgotten Strategy - article by Pankaj Ghemawat - blog by Karl Janowski

This article was published in Harvard Business Review. 

The normal Chinese strategy is to create a mix of local products and services and global products and services to sell in China. The essence of the strategy is to determine the mix.

The forgotten Chinese strategy is to exploit the differences betweem regions. To do this there are four forms of arbitage:

  • Cultural Arbitage - opportunities that pop up because of local cultutre, example: fast food chains that serve both local and American food in foreign countries
  • Administrative Arbitage - legal and political differences open up opportunities, example: tax differences
  • Geographic Arbitage - although the world is getting smaller there are still several ways to use geographic arbitage as a strategy, example: crops or resources found only in one area  
  • Economic Arbitage -  exploit certain economic conditions, example: cheap labor in a country

At the same time companies expoit the differences they should also look to exploit the similarities between regions

Complex Aggregation Strategies - align business model not by having country by country strategies but by regional or business strategies and build global networks

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Trouble in Paradise - article by Katherine Xin and Vladmir Pucik - blog by Karl Janowski

This article was published in Harvard Business Review

This article gives a fictitious story about Mike. Mike is a manger in China who is having problems with the equity joint venture that he has inherited. His home company is not happy with the 4% ROI that they are getting out of the venture. They want to update equiptment and layoff employees to create higher quality products to pursue 20% ROI. Homebase assumes Mike will make this happen. The Chinese partners do not want to layoff anyone, they want to expand. At a dinner the Chinese high level manager gives a speech that sets the expectations that they will expand. What should Mike do? Four authors give their opinions.

Summary of what Mark should do 

Mike needs to determine what the goals of the EJV were when they started and if the goals are still true or if the long term goals of each member of the EJV are different. Is this relationship worth saving?

Mike needs to be honest when communicating with his homebase.  

Mike needs to realize that relationships drive business in China and that senior management from back home needs to be a part of forming these relationships.

4% ROI is pretty poor, what is the problem: the market, the venture, or Mike?

 

 

 

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May 17, 2006

Entering China: An Unconventional Approach – article by Wilfried Vanhonacker - blog by Karl Janowski

This article was published in Harvard Business Review

EJVs are the conventional way to enter China but often they do not give corporations what they need to succeed. 
 
WOFEs are the way to go as long as companies can find guanxi (political and personal connections).
 
China more concerned with what companies bring to the deal not how the deals are constructed
 
Every Chinese company operates under local, regional, and national government regulations which all have their own agendas, not many EJV partners can bring a national presence to the table
 
Conflicting Perceptions
Most Chinese companies lack experience to keep up in fast pace market
Companies do not know how much technology to share in EJVs
Many Chinese seek shorter-term profits (than their partners) due to worry that capitalism may not last

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May 16, 2006

To Reach China’s Customers, Adapt to Guo Qing – article by Rick Yan - blog by Karl Janowski

This article was published in Harvard Business Review.  Guo Qing – “Chinese characteristics”

The Chinese Consumer

Uses consumption as a pleasure

Depend on reputable brands, Are reluctant to pioneer new brands

Have time to browse, “never make a purchase until you have compared three shops”

Don’t like promotional gimmicks, use official media

Like powerful sounding names

Want details about the product

Believe cheap products are never good

Examples of Guo Qing

½ of China’s premium products go to the only child of the family

Prime shelf space is unnecessary, Chinese consumers will hunt for products they've heard of and distrust many western ways of promoting products

 

To start, choose 3 – 5 key cities to market too, then expand.

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May 14, 2006

Short-Term Results: The Litmus Test for Success in China – article by Rick Van - blog by Karl Janowski

This article was published in Harvard Business Review. 

Companies take the long term-approach too far.
 
Long-term results are best achieved through several measurable short-term gains.
 
Equity joint ventures – more managerial power
Cooperative joint ventures – less managerial power
 
Coke Story
When Coke started in China, it was not well received. Coke took control of its joint ventures by gaining majority equity when Pepsi still had cooperative joint ventures. Coke’s plan was simple: direct distribution.  It worked. Early success reinforced long-term commitment. Now Coke is way ahead of Pepsi in China.  

Patience and Longevity aren’t enough
Early moving is not as important as managerial capacity, critical mass scale, and product portfolio
 
Kraft has had a harder time succeeding than Nestle who introduced both global brands and products tailored for the Chinese such as Chinese flavored instant noodles.
 
Diving in and treading water can be just as expensive as getting in late
 
Aiming short term allows you to learn and adapt, plan to have some failures
 
Short-term success is the best litmus test for long-term success

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The Hidden Dragons – article by Ming Zeng and Peter J. Williamson - blog by Karl Janowski

This article was published in Harvard Business Review.  

As of 2002:
 
Corporations normally think of China as cheap labor and a huge market for products but ignore Chinese firms as powerful rivals in the global market
 
China is the fastest growing market on the planet, but there are more regional brands than national brands partly due to economic rivalry between China’s providences, with most of the global companies still state owned.  Still a new breed of Chinese firms are becoming rivals for global businesses
 
4 Types of the “New Breed” of Chinese firms
 
China’s National Champions – own the China market and look for niches abroad where they can use their skills at meeting the low cost needs of the China consumer and become profitable in places where their multinational rivals can’t (Haier example)
 
Dedicated Exporters – knew that competition in their business was global and when China opened up set their sites on the global market, often have low prices (Pearl River Piano example)
 
Competitive Networks – clusters of many small family owned companies located in one geographic area that work together to form one global entity, can change fast due to low bureaucracy (Wenzhou network manufactures lighters for 70% of the world), one weakness is that the networks do not build brands
 
Technology Upstarts – companies started from research firms and technology that were state owned for military development

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The Chinese Negotiation – article by John L. Graham and N. Mark Lam - blog by Karl Janowski

Americans often have difficulty negotiating with Chinese due to cultural differences
 
Americans see Chinese as inefficient, indirect and even dishonest
Chinese see Americans as aggressive, impersonal, and excitable
 
Superficial obedience to the rules of etiquette gets you only so far
 
Americans look to forge a good deal while Chinese look to forge a long-term relationship
 
Chinese Culture
Agrarianism – come from communal farming backgrounds, for some time commerce was looked down upon

Morality – beliefs of Confucious, Taoism, adherence to hierarchical relationships, more concerned with process

Their pictographic language – looking at pictures over letters makes Chinese focus on the big picture over details

Wariness of foreigners – history has taught Chinese not to trust foreigners
 
Eight Elements of Chinese Negotiation
 
Guanxi (Personal Connections)  - individual social capital, depends on reciprocity (hui boo) but for Chinese it does not have to be right away like it normally does for Americans, agrarian roots make Chinese more patient
 
Zhongjian Ren (The Intermediary) – wariness of foreigners means a trusted business partner must introduce new partners, find the personal link, use as a interpreter of cultures
 
Shehui Dengji (Social Status) – Must send high enough ranking person to table, Chinese Senior management may meet but they won't negotiate because it is not their role, they are just checking out the relationship being forged
 
Renji Hexie (Interpersonal Harmony) – harmonious relationships between business partners
 
Zhengti Guannian (Holistic Thinking) – Americans make a list of smaller issues and discuss each one-by-one where Chinese look at the big picture and jump around from issues to issue
 
Jeijian (Thrift) – Culture has taught them to save their money, Chinese use patient and silence as a negotiating weapon against American impatience and volubility
 
Mainzi (Face) – reputation and social status rest on saving face, face can be earned, lost, given, or taken
 
Chiku Nailao (endurance and relentlessness) – hard work ethic, 251 day school year (China) versus 180 day school year (USA)

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May 13, 2006

The Great Translation - article by Kenneth Lieberthal and Geoffrey Lieberthal - blog by Karl Janowski

At the start companies moved to China to manufacture products that they will sell abroad. Now corporations can go after the domestic market.  
 
China’s two main opportunities: domestic market and lower labor costs due to human capital and infrastructure investment
 
Multinationals – china and external company form a venture
 
State owned corporations have stress political skills over managerial skills in Chinese labor
 
Many companies came to China with domestic plans but China forced exporting goods, trade surplus
 
China will remain the fastest growing major economy for the next decade
 
China has created oversupply of capacity to overcome shutting down of state run enterprises
 
EJV- Equity Joint Venture – working 50-50 with a company in China
WFOE – Wholly Owned Foreign Entity – company externally owned
 
3 phases of expansion
 
Entry – establish a presence, build a brand, learn the environment – need management that works well in unstructured environments and that is creative in finding resources
 
Country development -  expand into localities, establish “one face to China” for political negotiations, need senior management with strong ties to home office
 
Global Integration – fully integration of China and global ops, need senior management that can work with several divisions
 
CEO Advice
Focus on nesting China effort into organization as a whole and show “one face” to China
 
Have national and tailored local strategies
 
Have a “Show me attitude” to EJVs – government promotes companies that are down, Chinese many time are more concerned with maintaining a large labor force than downsizing to increase profit,
 
Limit the risks of operating in China – hire China experts, do not put all resources in China for critical operations, keep China out of critical technology
 
Avoid irrational exuberance in response to the opportunities China will present

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