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Doing Business in China: Getting Ready for the Asian CenturyCopyright © Business Expert Press, 2012.All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other except for brief quotations, not to exceed 400 words, without the prior permission of the publisher.
First published in 2012 byBusiness Expert Press, LLC222 East 46th Street, New York, NY 10017www.businessexpertpress.com
ISBN-13: 978-1-60649-344-1 (paperback)
ISBN-13: 978-1-60649-345-8 (e-book)
DOI 10.4128/9781606493458
Business Expert Press International Business collection
Collection ISSN: 1948-2752 (print)Collection ISSN: 1948-2760 (electronic)
Cover design by Jonathan PennellInterior design by Exeter Premedia Services Private Ltd., Chennai, India
First edition: 2012
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
Abstract
Th e Asian Century will bring many changes to world trade and to the global economy. It is predicted that China will be the largest single economy in this new economic era; understanding how business operates in China will hence be central to success in the Asian Century. Th is book will be of particular interest to researchers, managers, and anyone interested in international business in China. It examines the experiences of a wide range of Australian businesses that have internationalized to China, including planning for, establishing and operating a business in China, staff selection and management, the trade and investment environment, legal practices and regulations, politics, corruption and intellectual property protection. Australian businesses were selected for this project because of Australia’s strong economic connection with China and the stability of the Chinese economy over the last 20 years, including during the GFC. China has been Australia’s top trading partner since 2007. Th e consistency of the Chinese economy and the long-term commitment of Australian businesses to operations in China provided a valuable perspective from which to examine foreign business operations in China. Over the last 20 years, the Chinese economy grew tenfold, to become the second largest in the world. Th e longitudinal perspective of many of the participants over this period of change enabled them to off er insightful observations regarding the fundamental drivers of business practices in China. Th e fi ndings presented in this book are based on interviews collected from 40 organizations, ranging from global mining and banking organizations to small manufacturing or service companies, covering a range of industries, and entry modes.
Th is book examines the process of preparing for successful operations in China, the opportunities off ered by the Chinese market, and the obstacles to establishing and maintaining business operations in China. Th e research utilizes a number of frameworks to consider business in China, including foreign direct investment and trade, cultural, political and legal, intellectual property, strategy, market entry, and human resource management frameworks. Th e fi ndings presented in this book are based on a rich and well-considered collection of observations provided by senior executives with long-term experience of operating businesses in
China. Th is book provides generalized fi ndings that can be transferred to other developed country contexts and evaluates the appropriateness of international business and trade frameworks for the Chinese context.
Keywords
Australian business internationalization, China, doing business in China
Contents
Acknowledgments .........................................................................................xi
Foreword ...................................................................................................xiii
List of Abbreviations .................................................................................... xv
Chapter 1 Introduction ............................................................................1
Chapter 2 Exploring the Trade and Investment Environment in China ............................................................................... 15
Chapter 3 Understanding the Cultural Gap Between Australia and China ............................................................................ 37
Chapter 4 Using the Political Structure in China: Can We Ever Make Sense of It? .................................................................. 61
Chapter 5 Th e Legal System: How Can You Use It to Your Benefi t? .................................................................... 81
Chapter 6 Intellectual Property in China—Are the Issues All Th ey Are Cracked Up to Be? ................................................ 97
Chapter 7 Motivations, Planning, and Strategies for China ................ 115
Chapter 8 Entry Mode and Location Choices in China ..................... 135
Chapter 9 Human Resource Management in China: Can You Find Skilled Staff and Retain Th em? .................................. 157
Chapter 10 Conclusions ........................................................................ 175
Notes ....................................................................................................... 191
References ................................................................................................. 207
Index ....................................................................................................... 223
Acknowledgments
Th e authors would like to acknowledge the assistance provided by the Australia China Business Council (ACBC)—Victoria Branch for their active support in completing the project. Th ey would like to thank the members and other individuals who gave us their time and talked with us about their business activities in China. Th ey would also like to acknowledge the fi nancial assistance provided by the Faculty of Business and Law, Deakin University, to complete the project. Th e authors would like to acknowledge the copy editor, Lynn Spray. Dr. Menzies would like to acknowledge the support provided by Dr. Ilan Alon and Th e China Center, at Rollins College, Winter Park, Florida, who hosted Dr. Menzies as part of her sabbatical, which enabled her to devote considerable time to writing this publication to book.
Foreword
China’s popularity as a research topic for both inward and outward trade and investment has increased steadily in the past two decades. Understand-ing the interactions of diff erent countries with China is a vitally important dimension of internationalization, as diff erent contexts can result in a dif-ferent interplay between home and host country variables, such as politics, culture, economics, resource base, legal factors, among many others.
Australia is similar, on many levels, to other Western Anglo-Saxon countries such as the United States or the United Kingdom, though it has a much smaller population (22.6 million people) and its organizations tend to be smaller, have fewer resources, and are less international than their American or European counterparts. Despite the reduced access to resources, Australian organizations have been successful in the Chinese market across many sectors, including natural resources, automotive, education, engineering, building and construction, heavy industries and banking to name a few, all of which are discussed in this book.
Th is book presents research describing the abilities, choices, and mind-sets of managers from Australian organizations when they interna-tionalize to China, from a number of theoretical perspectives. In particular, this book focuses on the motivations, strategies, and entry mode choices that organizations select. Th is book also presents a variety of managers’ perceptions on the frameworks pertaining to trade and investment, cul-ture, politics, law, and intellectual property rights. Th e human resource management issues that these organizations face are also explored.
Th is book makes a unique contribution to a small, but growing, literature on Australian companies in China. Th e authors should be commended on an enjoyable, informative, and absorbing read on entry into the world’s second largest economy—China, the Middle Kingdom.
Dr. Ilan Alon1
Department of International BusinessRollins College
Winter Park, Florida
List of Abbreviations
ACBC Australia China Business CouncilBSA Business Software AllianceCCOIC Arbitration Court of the China Chamber of International
CommerceCIETAC China International Economic Trade Arbitration
CommissionCIT Corporate Income TaxCJV Cooperative Joint VentureCPC Chinese Communist PartyDFAT Department of Foreign Aff airs and TradeEJV Equity Joint VentureFDI Foreign Direct InvestmentFESCO Foreign Enterprise Service CompanyFIEs Foreign Invested EnterprisesFIRB Foreign Investment Review Board FTA Free Trade AgreementGATS General Agreement on Trade in ServicesGATT General Agreement on Tariff s and Trade GDP Gross Domestic Product GDP PPP Gross Domestic Product Purchasing Power ParityGFC Global Financial CrisisHCNs Host Country NationalsHR Human ResourcesHRM Human Resource ManagementIP Intellectual PropertyJV Joint VentureM&A Merger and AcquisitionMNE Multinational EnterpriseNPC National People’s CongressOECD Organization for Economic Cooperation and DevelopmentPBSC Politburo Standing Committee
xvi LIST OF ABBREVIATIONS
PCNs Parent Country NationalsPCT Patent Cooperation TreatyPRC People’s Republic of ChinaR&D Research and DevelopmentRMB Renminbi RBV Resource-based View SEZs Special Economic ZonesSIPO State Intellectual Property Offi ceSME Small to Medium EnterpriseSOE State-owned EnterpriseT&D Training and DevelopmentTCNs Th ird Country NationalsTM Talent ManagementTRIMS Trade-related Investment Measures TRIPS Trade-related Aspects of Intellectual Property Rights WIPO World Intellectual Property Organization WOFE Wholly-owned Foreign EntityWTO World Trade Organization
CHAPTER 1
Introduction
China, also known as the Middle Kingdom or Zhōngguó, has been an attractive emerging market for international businesses that can be expected to off er new opportunities, well into the future. It is predicted that China will grow and fl ourish until it is the world’s largest economy in 2016. Along with its own rapid growth, China off ers many foreign companies great potential for their future growth. Despite the attractive-ness of this country, it is diffi cult to understand how it operates, and there are many minefi elds waiting for the unwary. An understanding of the context, the drawbacks, and issues associated with internationaliza-tion to China, will assist with understanding how entry decisions should be made for this unique market. Th e purpose of this book is to provide an overview of the Chinese business environment, and present the fi nd-ings from research, conducted with Australian managers who either are involved in their organization’s international activities in China or have had the experience of internationalizing their business to China. Th ese viewpoints are invaluable in understanding the dynamics of this market for researchers, would-be investors, and those interested in exporting or participating in international trade.
China has experienced stunning double-digit growth rates in gross domestic product (GDP) for over two decades and, as of 2010, it is the second largest economy in the world.1 It is predicted that China’s economy will surpass that of the United States by 2016 in GDP pur-chasing power parity (PPP).2 Th is is just one dimension of China’s eco-nomic success; however, it is predicted that it may take another 30 years or so for China to “catch up” and become the largest economy in real terms. Th is prediction, however, has changed dramatically since the Global Financial Crisis (GFC). China will have to develop and maintain a range of economic fundamentals in order to reach this goal. However,
2 DOING BUSINESS IN CHINA
serious “Black Swan” events,3 such as the recent GFC and European Debt Crises, may impede China’s future growth.
The Context of China
China’s entry onto the world economic stage occurred in 1978, with the implementation of Deng Xiaoping’s “this Open Door Policy.”4 Since then China has opened its borders and economy to commercialism, indus-trialization, foreign direct investment (FDI) (now both inwards and outwards), and international trade. China’s economic growth has been astonishing in the past 30 years; and its move from a closed-door, com-munist, centrally planned economy to a “socialist market economy,” or what has been termed by others as “the world’s largest capitalist economy” with such success, has been even more astounding. Along with these economic developments, numerous changes have been made on a social, cultural, political, and legal front. As a result, the Chinese people have seen a positive eff ect on the economy, country, standard of living, quality of life, and security in China.5
Culture is a pervasive issue for foreign business in China and is not well understood by foreign managers. For this reason, the theme of Chinese business culture runs throughout this book. Understanding the deeper cultural values is often the key to creating a successful business in China.
In the past, China has been perceived as the “factory of the world” due to its low-cost, endless supply of hardworking labor. China’s comparative advantage as a low-cost manufacturing nation is currently being eroded by increasing wage levels (wage infl ation has ranged between 7% and 25% per annum in recent years)6 and greater worker protection, which increase business costs. In response to this, the government is working to develop the innovation-based segment of the economy, investing in education, a strong patent system/patent portfolios, and an emphasis on research and development. In fact, the focus of China’s 12th fi ve-year plan is the development of an innovation economy.7 Only time will tell whether China will be successful in this respect. Considering its past success in developing other parts of its economy and the power of the
INTRODUCTION 3
government, China is likely to be successful in this endeavor as well. A common saying in the Chinese business community is, “things get done in China, but it is not always easy.”8
The Context of Australia–China Business Relations
China’s growth has been the single largest contributor to global growth over the past 5 years, and this is expected to continue until, at least, 2016.9 In 2011, China accounted for 45.1% of the world’s crude steel output10 and 58.6% of the world’s pig iron output.11 As a major global minerals supplier located close to Asia, Australia has taken advantage of the economic development in China. Today, Australia enjoys a mineral boom because of its supplier relationship with China.12 In 2010, Aus-tralia represented China’s 6th principal import source, with 4.1% of trade imported from Australia.13
China is not only a resources market for Australia; other Australian companies have been pursuing the Chinese market since the introduc-tion of the Open Door Policy in 1978.14 Overall, however, the results of this pursuit have been somewhat inconsistent. Some Australian compa-nies have unquestionably had success in China. For example, the ANZ Bank has one of the most developed Chinese operations of the Australian banks operating in China. It has managed to open a number of branches throughout China and has progressed successfully through the stages, as specifi ed by government regulations, to become an incorporated bank in China in 2010.15 Other Australian organizations have not been so suc-cessful and have had to withdraw from China. For example, the large Australian beer manufacturer, the Foster’s Group, was unable to make a profi t from their Chinese operations and pulled out of China in 2006.16
China is now Australia’s largest trading partner,17 and its importance to the Australian economy has grown alongside China’s increasing eco-nomic, political, and strategic infl uence in the Asia-Pacifi c region and in the global economy.18 In 2011, Australian investment in China amounted to A$16.9 billion,19 making it Australia’s 11th largest investment destination.20
4 DOING BUSINESS IN CHINA
In terms of trade, 3,245 Australian companies were exporting to China in 2006.21 Currently, major areas of opportunity include min-ing and energy; agribusiness; manufacturing; construction; technology; management; consultancy; regional development; and fi nancial, legal, education, engineering, and architectural services.22 Major exports from Australia to China include iron ore, wool, copper ores, and coal.23 In the area of services, Australia’s major exports to China are education and education-related travel and personal travel (e.g., Chinese visitors to Aus-tralia). Th ere are approximately 1,000 Australian exporters entering the Chinese market each year,24 with about 400 Australian businesses operat-ing in China; most of them engaged in manufacturing, property, business services, fi nance, insurance, education, mineral exploration, and informa-tion services.25 Recognizing the signifi cance of these business relation-ships, Australia and China began negotiations for a Free Trade Agreement (FTA) in 2005.26 Th e FTA aims to facilitate Australian exporters and businesses in gaining greater and smoother access to the Chinese market.
Australian-Chinese business relationships are important to Australia, mainly due to China’s demand for resources. However, many other sec-tors of Australian industry have been successful in China, such as the food and beverage, education, and manufacturing industries. Australian organizations have actively participated in China-related activities, but little is known about how these organizations internationalize to China. Hence, it is important to develop our understanding of how they do busi-ness in China.
Th is book presents the fi ndings of this research into Australian organi-zations’ entry strategies into China. It provides an explanation of and insights into how Australian organizations make decisions when entering the Chinese market place and the factors infl uencing those decisions. Forty Australian organizations with business activities in China participated in the research. Senior executives, directors, managers, and consultants famil-iar with their international business activities in China were interviewed to collect the data. In order to illustrate the predominant factors and their impact, a business strategy model was developed for entering the Chinese market. Th is model incorporates all the factors, which were identifi ed as having an impact on an organization’s decision-making process (Figure 1.1). Each aspect of this model will be considered in detail in Chapters 2–9.
INTRODUCTION 5
The Study
To conduct the study, initially support from the Australia China Busi-ness Council (ACBC) was gained by approaching Th e Honorable Jim Short, who then approached ACBC’s board for their support of the pro-ject. Th e board gave the researchers approval to contact ACBC members to participate in the study—invitations were e-mailed to all members of the Victoria branch. Nonrespondents were followed up with telephone calls to encourage participation. In addition, the research team members’ personal contacts were used to select companies who were not members of ACBC. Th e snowballing method27 of participant recruitment was also used to increase participant numbers. Th is involved asking the interview-ees to identify potential interviewees from other companies they thought would be suitable and available to participate in the study.
Once the participants had agreed to be involved in the research, the aims and background of the study were explained, and confi dentiality and anonymity were assured. An appointment was then made to con-duct the interview. Th e interviews mainly took place at the participants’ offi ces. Most interviews lasted approximately an hour, and the interviews were recorded and transcribed by a professional transcriber. One partici-pant did not want a recording to be made at the interview and notes were taken instead. Th e interview transcripts were then analyzed using a the-matic methodology, which identifi ed the major themes representing the viewpoints of the participants. A total of 43 interviews were conducted
Figure 1.1. Business strategy model for entering the Chinese market.
Trade and investmentframework
Cultural factors
Political factors
Legal and regulatoryenvironment
Intellectual propertyframework
Motivations,strategy, and planning
Entry modeand location
Human resourcemanagement issues
6 DOING BUSINESS IN CHINA
for the 40 Australian organizations (in some cases, more than one partici-pant was interviewed from the organization). To conduct this research, a grant worth $12,000 was provided by Deakin University. Th e ACBC, Victoria branch, supported the research in kind.
The Organizations Involved in the Study
Th e descriptive features of the organizations represented by the partici-pants, including industry, entry mode(s), business activity in China, year started in China, and location(s), are presented in Table 1.1. Th e partici-pants are represented by pseudonyms, which highlight their key features.
Th e largest sector in the sample consisted of organizations in the manufacturing industry (10 out of 40). Other industries investigated in the study were business and property services (5); building, construction, and engineering (3); education (4); agriculture, forestry, and fi shing (4); and fi nance and insurance (3). Th ere were a small selection of organiza-tions that were scattered across various industries, such as accommoda-tion, restaurants and cafés, mining, publishing, information technology, government, administration and defense, and health and community services.
Several types of entry modes were represented in the data, with some fi rms utilizing multiple entry modes. For example, one fi rm engaged in both acquisition and greenfi eld modes. Th e modes identifi ed in the research data included the following: fl y-in-fl y-out mode (8); using representative offi ces (2) or a registered offi ce (1); joint ventures (6); using agents and partner-ships to source customers, or, in the case of education institutions, sourcing students (5); wholly-owned foreign entities (WOFE) (13); licensing (1); supplier relationships (1); exporting (6); and exporting assistance (1).
Th e popular internationalization locations in China amongst the par-ticipants included Shanghai (24), Beijing (15), Guangzhou (9), Shenzhen (4), and Tianjin (6). Various other locations are shown in Table 1.1. Th e organizations represented in the data had participated in China over very diff erent periods of time. One organization established its business rela-tionships in China in the late 1890s, whilst another organization had established its operations there in 2007. Th e majority of companies in the study had internationalized to China in the early 1990s.
INTRODUCTION 7
Tab
le 1
.1.
Cha
ract
eris
tics
of t
he O
rgan
izat
ions
Inv
olve
d in
the
Stu
dy
Cas
eP
seud
onym
Indu
stry
typ
e28E
ntry
mod
e(s)
Key
act
ivit
ies
in C
hina
Yea
r st
arte
d in
Chi
naL
ocat
ion
in C
hina
1La
b C
oB
usin
ess a
nd p
rope
rty
serv
ices
Fly
in fl
y ou
tB
usin
ess c
onsu
ltin
g to
org
aniz
atio
ns
wis
hing
to d
o bu
sine
ss in
Chi
na in
th
e bi
otec
hnol
ogy
indu
stry
—Ea
ster
n se
aboa
rd o
f Chi
na
2B
ank
Co
1Fi
nanc
e an
d in
sura
nce
Who
lly-o
wne
d Fo
reig
n En
tity
(W
OFE
) an
d 2X
acq
uisi
tion
(20
%)
Loca
l and
fore
ign
bank
ing.
C
orpo
rate
ban
king
, com
mod
ity
and
trad
e fi n
ance
, mar
kets
and
co
nsum
er, a
nd c
orpo
rate
serv
ices
1980
sB
eijin
g, S
hang
hai,
Tian
jin, C
hong
qing
, and
G
uang
zhou
3A
rchi
tect
Co
Bui
ldin
g,
cons
truc
tion
, and
en
gine
erin
g
WO
FEA
rchi
tect
ural
des
ign
wor
ks in
Chi
na20
04R
egis
tere
d of
fi ce
in
Tian
jin a
nd b
ranc
h of
fi ce
in S
hang
hai
4Pa
rcel
Co
Tran
spor
t and
lo
gist
ics
Join
t ven
ture
(49
%
Parc
el C
o, 5
1%
Chi
nese
par
tner
)
Prov
ide
logi
stic
s ser
vice
s in
Chi
na
and
inte
rnat
iona
lly in
clud
ing
to
Aus
tral
ia
2005
Shan
ghai
, Hon
g K
ong,
an
d Sh
enzh
en
5H
otel
Co
Acc
omm
odat
ion,
ca
fés,
and
rest
aura
nts
Age
nts
Use
s who
lesa
le tr
avel
age
nts i
n C
hina
to re
crui
t tou
rist
s/cu
stom
ers
for t
heir
Aus
tral
ian
hote
l
—N
orth
Chi
na, S
outh
ern
Chi
na, a
nd T
aiw
an
6R
esou
rces
Co
1M
inin
gEx
port
ing,
join
t ve
ntur
es w
ith
part
ners
an
d W
OFE
.
Expo
rts r
esou
rces
to C
hina
1890
sSh
angh
ai, B
eijin
g, a
nd
othe
r loc
atio
ns
(Con
tinue
d)
8 DOING BUSINESS IN CHINA
Cas
eP
seud
onym
Indu
stry
typ
e28E
ntry
mod
e(s)
Key
act
ivit
ies
in C
hina
Yea
r st
arte
d in
Chi
naL
ocat
ion
in C
hina
7M
etal
Co
Man
ufac
turi
ngW
OFE
Man
ufac
turi
ng fa
cilit
ies a
nd sa
les
offi c
es a
cros
s Chi
na
2000
sSh
angh
ai, S
uzho
u,
Gua
ngzh
ou, B
eijin
g,
Tian
jin, a
nd C
heng
du
8V
at C
oM
anuf
actu
ring
WO
FE (
2001
; or
igin
ally
a jo
int
vent
ure,
199
5)
Man
ufac
ture
s met
al v
ats i
n C
hina
, fo
r sal
es in
Chi
na, a
nd e
xpor
ts to
A
ustr
alia
and
oth
er in
tern
atio
nal
mar
kets
1995
Cha
ngzh
ou, J
iang
su
Prov
ince
9M
arke
ting
Co
Bus
ines
s and
pro
pert
y se
rvic
esFl
y in
fl y
out,
wit
h a
regi
ster
ed o
ffi ce
Prov
ides
mar
keti
ng c
onsu
ltin
g se
rvic
es in
Chi
na
2005
Hon
g K
ong
base
d,
cont
ract
s in
Shan
ghai
10G
ov C
oG
over
nmen
t adm
ini-
stra
tion
and
def
ense
Rep
rese
ntat
ive
offi c
ePr
ovid
es A
ustr
alia
n bu
sine
ss w
ith
conn
ecti
ons a
nd c
onta
cts i
n Ti
anjin
1998
Tian
jin
11A
gri C
o A
gric
ultu
re, f
ores
try,
an
d fi s
hing
Fly
in fl
y ou
tPr
ovid
es in
dust
ry se
min
ars,
educ
a-ti
on, a
nd in
form
atio
n in
Chi
na to
go
vern
men
t and
con
sum
ers.
Prov
ides
in
dust
ry su
ppor
t to
com
pani
es w
ish-
ing
to in
tern
atio
naliz
e to
Chi
na
1999
Bei
jing,
Sha
ngha
i, G
uang
zhou
, Hon
g K
ong,
an
d Ta
iwan
12U
ni C
o 1
Educ
atio
nA
gent
s, re
pres
enta
tive
of
fi ce
Stud
ent r
ecru
itm
ent,
rese
arch
, re
sear
ch c
olla
bora
tion
, man
agin
g re
lati
onsh
ips,
and
deve
lopi
ng a
pr
esen
ce. O
ffi ce
in B
eijin
g
2000
Bei
jing,
Sha
ngha
i wit
h ag
ents
that
hav
e a
broa
d C
hina
reac
h
13Pa
llet C
oM
anuf
actu
ring
Supp
lier r
elat
ions
hip
Sour
ces s
uppl
ies f
rom
Chi
na20
05Sh
angh
ai
Tab
le 1
.1.
Cha
ract
eris
tics
of t
he O
rgan
izat
ions
Inv
olve
d in
the
Stu
dy (
Con
tinu
ed)
INTRODUCTION 9
Cas
eP
seud
onym
Indu
stry
typ
e28E
ntry
mod
e(s)
Key
act
ivit
ies
in C
hina
Yea
r st
arte
d in
Chi
naL
ocat
ion
in C
hina
14A
uto
Inte
rior
C
oM
anuf
actu
ring
Join
t ven
ture
(70
%
Aut
o In
teri
or C
o, 2
0%
Cus
tom
er, a
nd 1
0%
Gov
ernm
ent)
Man
ufac
ture
s int
erio
r com
pone
nts
for s
ale
to a
utom
otiv
e m
anuf
actu
rers
lo
cate
d in
Chi
na
2005
Wu
Hu,
Anh
ui
Prov
ince
, Cha
ngsh
a,
Hun
an P
rovi
nce
15Fl
ower
Co
Agr
icul
ture
, for
estr
y,
and
fi shi
ngJo
int v
entu
rePr
oduc
es fl
ower
s in
Chi
na fo
r sal
e an
d ex
port
s to
othe
r int
erna
tion
al
loca
tion
s
2004
Kun
min
g, Y
unna
n Pr
ovin
ce
16B
uild
Co
Bui
ldin
g co
nstr
ucti
on,
and
Engi
neer
ing
WO
FED
esig
ns, c
onsu
lts,
and
build
s ste
rile
ph
arm
aceu
tica
l pla
nts a
nd o
ther
s19
932
staf
fed
offi c
es in
Sh
angh
ai a
nd B
eijin
g,
2 re
gist
ered
offi
ces i
n Su
zhou
, and
Har
bin
wit
h pr
ojec
ts a
roun
d C
hina
17La
w C
oB
usin
ess a
nd p
rope
rty
serv
ices
Rep
rese
ntat
ive
offi c
eA
dvis
es c
orpo
rate
clie
nts a
bout
le
gal i
ssue
s whe
n do
ing
busi
ness
in
Chi
na
1997
Shan
ghai
offi
ce
18A
uto
Com
pone
nts
Co
Man
ufac
turi
ngW
OFE
Man
ufac
ture
s pro
duct
s in
Chi
na fo
r sal
e to
Tie
r 1 a
utom
otiv
e m
anuf
actu
rers
2006
Cha
ngch
un
19Fi
bre
Co
Agr
icul
ture
, for
estr
y,
and
fi shi
ngFl
y in
fl y
out
Mar
kets
and
edu
cate
s con
sum
ers o
n in
dust
ry p
rodu
cts
1998
—
20IT
Co
Info
rmat
ion
tech
nolo
gyFl
y in
fl y
out
IT c
onsu
ltin
g in
larg
e ba
nks
1999
Bei
jing
and
Shan
ghai
(Con
tinue
d)
10 DOING BUSINESS IN CHINA
Cas
eP
seud
onym
Indu
stry
typ
e28E
ntry
mod
e(s)
Key
act
ivit
ies
in C
hina
Yea
r st
arte
d in
Chi
naL
ocat
ion
in C
hina
21Im
port
/Exp
ort
Co
Bus
ines
s and
pro
pert
y se
rvic
esEx
port
ing,
fl y
in fl
y ou
tIm
port
s and
exp
orts
pro
duct
s in
clud
ing
food
, min
eral
s, cl
othi
ng,
and
also
pro
vide
s adv
ice
and
cons
ulti
ng
1986
—
22W
ool C
oM
anuf
actu
ring
Expo
rtin
gEx
port
s nic
he, w
ool p
rodu
cts t
o C
hina
, and
att
ends
trad
e sh
ows
—Sh
angh
ai
23B
ook
Co
Publ
ishi
ngLi
cens
ing
Lice
nses
a st
ate-
owne
d en
terp
rise
to
pro
duce
thei
r boo
ks, f
or sa
le in
C
hina
. Wri
tten
in M
anda
rin
2004
Shan
ghai
24En
gine
erin
g C
oB
uild
ing
cons
truc
tion
, an
d en
gine
erin
gW
OFE
Prov
ides
des
ign,
pla
nnin
g, a
nd
build
ing
serv
ices
in C
hina
1990
Offi
ces i
n H
ong
Kon
g,
Bei
jing,
Gua
ngzh
ou,
Shen
zhen
, and
Mac
au
25U
ni C
o 2
Educ
atio
nA
gent
s R
ecru
its C
hine
se st
uden
ts, b
uild
s in
tern
atio
nal l
inka
ges,
enga
ges i
n ac
adem
ic a
nd re
sear
ch e
xcha
nges
, de
velo
ped
an a
lum
ni a
ssoc
iati
on,
prov
ides
car
eers
, and
em
ploy
men
t se
rvic
es
—N
anjin
g an
d al
l ove
r
26So
ftw
are
Co
Info
rmat
ion
Tech
nolo
gyJo
int v
entu
re (
95%
so
ftw
are
co a
nd 5
%
loca
l Chi
nese
par
tner
)
Prod
uces
soft
war
e in
Chi
na, f
or th
e C
hine
se m
arke
t in
Chi
nese
2005
Che
ngdu
(H
Q),
Bei
jing,
Sh
angh
ai, G
uang
zhou
, an
d H
ong
Kon
g
Tab
le 1
.1.
Cha
ract
eris
tics
of t
he O
rgan
izat
ions
Inv
olve
d in
the
Stu
dy (
Con
tinu
ed)
INTRODUCTION 11
Cas
eP
seud
onym
Indu
stry
typ
e28E
ntry
mod
e(s)
Key
act
ivit
ies
in C
hina
Yea
r st
arte
d in
Chi
naL
ocat
ion
in C
hina
27Pa
int C
oM
anuf
actu
ring
Expo
rtin
gEx
port
s pai
nt to
bus
ines
s peo
ple
wis
hing
to m
igra
te to
Aus
tral
ia o
n th
e A
ustr
alia
n B
usin
ess M
igra
tion
Sc
hem
e
2002
Shan
ghai
, She
nzhe
n,
Bei
jing,
Gua
ngzh
ou,
Nan
jing,
and
Wuh
an
28B
rake
Co
Man
ufac
turi
ngW
OFE
Man
ufac
ture
s pro
duct
s in
Chi
na, f
or
sale
in C
hina
, and
exp
ort w
orld
wid
e20
05N
orth
Eas
t Chi
na
29Lo
gist
ics C
oTr
ansp
ort a
nd st
orag
eEx
port
ing
Prov
ides
frei
ght s
ervi
ces a
nd
cust
oms d
ocum
enta
tion
2001
Shan
ghai
30M
achi
ne C
oA
gric
ultu
re, f
ores
try,
an
d fi s
hing
Expo
rtin
g Ex
port
s mac
hine
s to
Chi
na a
nd
deve
lops
rela
tion
ship
wit
h bu
sine
sses
to
lice
nse
the
use
of th
eir m
achi
nes
1999
Bei
jing
31M
edic
Co
Hea
lth
and
com
mun
ity
serv
ices
Fly
in fl
y ou
t D
evel
ops r
elat
ions
hips
wit
h cl
ient
s, ed
ucat
es c
lient
s on
thei
r pro
duct
s 20
03Sh
angh
ai, G
uang
zhou
, N
anjin
g, B
eijin
g, T
ianj
in,
Xia
n, a
nd Z
hong
guó
32C
hain
Co
Man
ufac
turi
ngW
OFE
(G
reen
fi eld
and
A
cqui
siti
on)
Man
ufac
ture
s cha
ins a
nd h
eavy
in
dust
ry p
rodu
cts i
n C
hina
, for
the
Chi
nese
mar
ket a
nd a
broa
d
2007
Shan
ghai
and
Han
gzho
u
33R
espo
nsib
ility
C
oB
usin
ess a
nd p
rope
rty
serv
ices
WO
FEPr
ovid
es c
orpo
rate
soci
al re
spon
si-
bilit
y co
nsul
ting
and
risk
adv
ice
2003
Shan
ghai
and
Hon
g K
ong
34R
esou
rces
Co
2M
inin
gW
OFE
, exp
orti
ngEx
port
s res
ourc
es to
Chi
na, h
as o
ffi ce
s in
Bei
jing,
Gua
ngzh
ou, a
nd S
hang
hai
1960
sB
eijin
g, G
uang
zhou
, and
Sh
angh
ai
(Con
tinue
d)
12 DOING BUSINESS IN CHINA
Cas
eP
seud
onym
Indu
stry
typ
e28E
ntry
mod
e(s)
Key
act
ivit
ies
in C
hina
Yea
r st
arte
d in
Chi
naL
ocat
ion
in C
hina
35G
ambl
ing
Co
Cul
tura
l and
re
crea
tion
al se
rvic
esW
OFE
Ope
rate
s gam
ing
and
lott
ery
outl
ets
thro
ugho
ut S
hang
hai
2005
Shan
ghai
36Tr
ade
Fina
nce
Co
Fina
nce
and
insu
ranc
eEx
port
ing
assi
stan
ce
and
fl y-i
n-fl y
-out
mod
ePr
ovid
es e
xpor
t tra
de fi
nanc
e an
d pa
ymen
t met
hods
. Int
erac
ts w
ith
Chi
nese
bus
ines
s and
supp
liers
.
2005
Shen
zhen
, Gua
ngzh
ou,
Don
ggua
n, S
hang
hai,
and
Nin
gbo
37U
ni C
o 3
Educ
atio
nA
gent
s Pa
rtne
rshi
p pr
ogra
ms i
n va
riou
s co
urse
s, ar
ticu
lati
on p
rogr
ams,
recr
uitm
ent,
and
pipe
linin
g of
st
uden
ts. O
ffsho
re le
ctur
ing
2000
Bei
jing,
Jina
n, K
aife
ng,
Cha
ngsh
a, L
iaon
ing,
and
H
uang
38Ta
fe C
oEd
ucat
ion
Age
nts,
join
t ven
ture
Path
way
s pro
gram
for s
tude
nts c
om-
ing
to A
ustr
alia
to st
udy.
Offs
hore
te
achi
ng
1990
sC
heng
du, H
unan
, Sh
enya
ng in
Lia
onin
g Pr
ovin
ce, K
aife
ng,
Zhen
gzho
u, Ji
nan,
Ti
anjin
, and
Lan
zhou
39B
ank
Co
3Fi
nanc
e an
d in
sura
nce
WO
FEB
ranc
hes i
n a
num
ber o
f loc
atio
ns,
offe
rs a
num
ber o
f ban
king
serv
ices
, an
d is
wai
ting
for e
xten
ded
bank
ing
appr
oval
s
1987
Bei
jing,
Sha
ngha
i, an
d H
ong
Kon
g
40R
etai
l Co
Man
ufac
turi
ng/r
etai
l tr
ade
Supp
lier r
elat
ions
hips
Sour
ces r
etai
l pro
duct
s fro
m a
smal
l gr
oup
of su
pplie
rs20
00G
uang
zhou
Tab
le 1
.1.
Cha
ract
eris
tics
of t
he O
rgan
izat
ions
Inv
olve
d in
the
Stu
dy (
Con
tinu
ed)
INTRODUCTION 13
Intended Audiences for This Book
Th is book presents the fi ndings and analysis of a research study investi-gating the internationalization of Australian businesses into China. Th is book will be of considerable value to those researching Australia–China business relationships, as there has been little research conducted in this area, and little is known about the internationalization of Australian fi rms to China. Th is book thus makes a signifi cant academic contribu-tion to this important area of research. A better understanding of this phenomenon is especially important as the Australian government is cur-rently attempting to develop its relationship with China, responding to the anticipated emergence of the Asian Century.29 Th is research also has practical signifi cance for businesses that are new to or are considering entry into the Chinese market and provides observations that would be of interest to practitioners. Th is research is also important for managers who are planning to have careers in China in the future. Th is book provides a thorough background of the Chinese business environment, based on a number of theoretical perspectives, and draws conclusions regarding the key issues identifi ed in the research for organizations internationalizing into China.
Structure of This Book
Th is book fi rst explores the trade and investment climate in China (Chapter 2), and analyzes the perceptions of the participants towards Australia’s negotiations with China on a FTA, and China’s accession to the World Trade Organization (WTO). Chapter 3 is devoted to under-standing the deeper cultural values associated with “doing business in China,” identifi ed by the participants. Th is chapter examines the Chinese business culture and utilizes the research fi ndings to identify a number of approaches, which could be used to address the cultural diff erences that foreign businesses will experience in China. Chapter 4 describes and analyzes the political system in China and specifi cally identifi es how politics in China should be managed. Th is chapter utilizes the fi ndings to identify a number of approaches for dealing with the political condi-tions in China. Chapters 5 and 6 provide an understanding of the legal
14 DOING BUSINESS IN CHINA
and intellectual property (IP) regulatory framework in China. Chapter 5 focuses on the legal system, and the perceptions that managers had of the system, whilst Chapter 6 focuses on an analysis of the IP issues that the participants experienced. Th is chapter utilizes the fi ndings to identify a range of approaches, which organizations could utilize to protect their IP-related assets in China. Chapters 5 and 6 also provide a critical assess-ment of the challenges associated with dealing with the Chinese legal system and IP laws. Chapter 7 focuses on the motivations, planning, and strategies that the participants used to enter China. Transaction cost, OLI (ownership, location, and internalization), internationalization, and the resource-based view theories were utilized in Chapter 8 to examine the entry modes that participants adopted when internationalizing to China and their locational choices. Th e international human resource manage-ment literature was utilized in Chapter 9 to evaluate the human resource management issues that the participants identifi ed as relevant in the Chi-nese environment. Th is chapter focused on staffi ng preferences, dealing with skills shortages, and attracting and retaining staff . Chapter 10 con-cludes this book with a summary of the key fi ndings and analysis of the data. Practitioners will fi nd this chapter of interest as the fi ndings off er suggestions for decision-making processes, which will increase the likeli-hood of success in establishing Chinese foreign business operations.
Conclusion
Deng Xiaoping, the mastermind behind the economic reforms in China, is famous in China for the saying “Search for stones to cross the river.”30 Deng Xiaoping used this statement to indicate that the people of China needed to search for stepping-stones to make the transition from a cen-trally planned economy to a modern day market economy, which is inte-grated with the world. Foreign businesses planning to enter the Chinese market, whether by exporting, FDI, or joint ventures, should also heed this advice and “search for stones to cross the river.” Th is book presents and evaluates some of those “stones.” It is hoped that this book will provide guidance for achieving success and prosperity in the Middle Kingdom, Zhōngguó.
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