April 2013 - UK exports to China reached £1 billion
By 2030 estimates say 38% of the world's middle class will live in China
In 2008, Chinese government injected $586 billion into improving infrastructure and investing in businesses
Costs of production, especially in low-skilled, labour-intensive markets like mass-produced goods are cheaper
e.g. Indorama Venture PLC's PET plastics factory in Cumbria was due to be closed in August 2013 due to the global oversupply of PET Plastics leading to a fall in price (mainly from China) and the significantly lower costs offered in China
Compete by investing in more technology to lower costs though this damages cash flow
China desires to invest overseas, significantly in the African mining industry, also bought out British luxury yacht maker Sunseeker
Risks and Rewards
China is the 91st easiest country to do business with, the UK is 7th and the US is 4th
China is rated so low due to corruption and bureaucracy, also IPR are not enforced rigorously
Chinese company set up fake Apple stores
Another barrier is that many of the larger Chinese businesses have links to the government
e.g. Wahaha
Size of China in terms of population, GDP, potential political influence and growth in GDP
Competition from China - cheaper
Rate of growth is slowing to 7.5%
Dealing with the environmental problems will push costs up so starting a business in China to take advantage of weaker labour and environmental regulations may be a short term benefit and risks higher costs in the future
High level of hidden unemployment - migrant workers are not considered in official figures
Cultural risks - Chinese people tend to save more of their income - 35%
Wages are rising
Inflation at 2.7%
Increasing property prices
Property asset bubble - like Wall Street Crash and before the recession
Abandoned New South China Mall as well as others
Possible political instability - not a democracy
Factors which affect success or failure
7 major differences between business cultures in the West and in China
Relationship based (China) VS Transaction based
Face to face interactions VS Doing business without meeting in person
Negotiate and haggle (China)
Entertaining is part of the business (China)
The perception of 'a deal' - start of negotiations not end
Communication style - Chinese meetings are more structured, quieter and politer
Gifting - Bribes?
Hofstede dimensions of national culture
Power distance
How people within a national culture expect that power is distributed
Individualism VS Collectivism
Individual or as a collective
Masculinity VS Femininity
Masculinity - achievement, heroism, assertiveness and material reward for success
Femininity - co-operation, modesty, caring for the weak and quality of life
Uncertainty avoidance
how tolerant a particular society is of uncertainty in the future or how 'risk adverse' they are
Long-term VS Short-term orientation
Short-term - seeking facts, more scientific, save less for the future and focus on achieving quick results
Long-term - save, persevere more and invest
Difficult to predict the future, implementation may prove far more difficult than imagined, business may not have the resources to see the plan through
Advantages and disadvantages of ways of setting up in China
Exporting
Easy to say you're going to export, no guarantee the people will like the product
Cultural differences
Different currency - adds costs in terms of exchange rate, value changes over time
Cost of transporting and lead time
Time difference
Political intervention - protectionism = local businesses are favoured
Joint ventures
Goals and values may not be the same between the two companies
E.g. GlaxoSmithKline
Joining a large, established business
Safeguarding IP
Precautions
Only use older technology, don't assemble state-of-the-art equipment and don't share blueprints
Taking charge and managing talent
May need new management and to employ the right staff - not just existing staff
Need to be able to respond to change
Mergers and takeovers
Integration
Merger e.g. Chrysler and Daimler-Benz
Takeover e.g. Geely Holding Group took over Volvo 2010