Shawn A. Drake
Modes of entry, cross-cultural factors, country risk analysis for China 18 December 2011
For this paper I will identify and assess at least two modes of entry into the country of China. This paper will be based on prior learning and discussions in our class. I will examine the most appropriate mode of entry for a product or service into China. I will look at cross-cultural factors relevant to doing business in China. Lastly, I will address how these factors affect organizational structure, modes of management, staffing, recruiting, training, compensation, and expatriate policy.
Table of Contents
1. Modes of Entry into China
2. Chinese Society and Culture
3. Organizational Structure
4. Modes of Management
5. Recruiting Expatriates
6. Recruiting Chinese Nationals
7. Recruiting Chinese overseas
8. Recruiting Chinese returnees
9. Retention Strategies
MODES OF ENTRY INTO CHINA
In order to do business in China, one must start by looking at the modes of entry into China. This can be by a variety of methods. I will start by listing these below with a brief description of each.
Trading Companies and Local Agents: Beginning December 11, 2004, foreign companies operating in China will be allowed full trading and distribution rights. This is because of China's accession to the WTO. With careful selection, training and constant contact, US firms can obtain good market representation from a Chinese trading company, many of which are authorized to deal in a wide range of products.
Representative Offices: These are the easiest type of offices for foreign firms to set up but the law in regards to performing 'liaison' activities limits them. They cannot sign sales contracts, directly bill customers or supply parts and after-sales services for a fee.
Chinese subsidiaries: A locally incorporated equity or cooperative joint venture with one or more Chinese partners, or a wholly foreign-owned enterprise will avoid import restrictions - including relatively high tariffs - and provides greater control over both marketing and management. Successful joint ventures require good partners, time and patience.
Wholly Foreign Owned Enterprises: Establishing a WFOE helps retain greater management control and IPR protection. The current law requires that firms either provide advanced technology or be primarily export-oriented and restricts or prohibits them in a number of service and public utility sectors. With WTO accession, many of these requirements are being phased out.
Licensing: Technology transfer is another initial market entry approach being used today. It offers short-term profits but runs the risk of creating long-term competitors. Due to this concern and intellectual property considerations and the lower technical level prevailing in the China market, some firms attempt to license older technology, promising higher-level access at some future date.
Franchising: As of yet, China has no laws that specifically address franchising. Many foreign companies are beginning to establish multiple retail outlets under a variety of creative arrangements, including some that function like franchise.
Direct Selling: The US direct selling industry is working pro-actively with various Chinese government departments to construct a fairer business climate in this industry. The implementation of WTO commitments promises to change this method of marketing in a rapidly changing business environment.
E-commerce: The Chinese government has a new attitude toward e-commerce. Investment is risky, however, due to the lack of defined regulatory powers over the industry, effective Chinese certificate authentications systems, secure and reliable on-line settlement systems and an efficient physical delivery system.
CHINESE SOCIETY & CULTURE
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