Problem
For the past 20 years, China's economy has been growing at an average of 9 per centand this phenomenal growth rate is expected to continue. China possesses considerable strengths in mass manufacturing and is currently building large electronics and heavy industrial factories. The country is also investing heavily ineducation and training especially in the development of engineers and scientists. While these advances mean that China poses new threats to western companies, the country provides opportunities. Chinese consumers are spending their growing incomes on consumer durables such as cars, a market that has reached 3 million, and mobile phones where China has the world's biggest subscriber base of over 350 million.Western companies such as Microsoft, Proctor & Gamble, Coca Cola, BP andSiemens have already seen the Chinese market as an opportunity and entered, usuallywith the aid of local joint venture partners.
Although the Chinese economy undoubtedly possesses many strengths, it also hasseveral weaknesses. First, it lacks major global brands. When business people aroundthe world were asked to rank Chinese brands Haier, a white-goods (refrigerators,washing machines, etc.) and home appliance manufacturer was ranked first, andLenovo, a computer company, famous for buying IBM's personal computer division,second. Neither company is a major global player in their respective markets. Second,China suffers from the risk of social unease - resulting from the widening gap betweenrich and poor, as well as corruption. Third, the country has paid a heavy ecologicalprice for rapid industrial and population growth, with thousands of deaths attributedto air and water pollution. Fourth, while still a low labour cost economy, wage levelsare rising fast, particularly in skilled areas, reducing its competitive advantage in thisarea. Finally, bureaucracy can make doing business in China difficult.
Although western companies have made successful entries to the Chinese market,some such as Whirlpool, a US white-goods manufacturer and Kraft, the foodmultinational have made heavy losses. Overseas companies hoping to successfullysell in China need to understand a number of realities of the market there. First, thecountry is very diverse with 1.3 billion people speaking 100 dialects, and covering sucha large geographic area, where the climate is very different across regions. Forexample, parts of the south are humid while the north is more temperate. Also, incomelevels vary considerably between less affluent rural districts and richer cities.
Many western companies enter China by means of a joint venture, but they need to beaware of the different business conditions there. In China there is no effective rule oflaw governing business. Bureaucracy and governmental interference can also bringdifficulties. For example, Thames Water pulled out of a 20-year water treatment projectin Shanghai after the government ruled that the guaranteed rate of return to investorswas illegal.
A key element in Chinese business dealings is the existence of Guanxi networks.Guanxi is a set of personal connections on which a person can draw to obtainresources, or an advantage when doing business. Developing such a network mayinvolve performing favours or the giving of gifts. For example, a business person mayparticipate in a public ceremonial function, or a profession could send books to aChinese university. Favours are 'banked' and there is a reciprocal obligation to return afavour.
An important aspect of Chinese culture is the avoidance of 'loss of face'. This canoccur when a Chinese person finds him/herself embarrassed by, for example,displaying lack of knowledge or understanding. Chinese people like to gather as muchinformation as possible before revealing their thoughts to avoid losing face anddisplaying ignorance. They also value modesty and reasoning. They also regard thesigning of a contract to be only the beginning of a business relationship.
Task
• What are the implications of Guanxi networks for selling in China?
• An important Chinese cultural issue is the avoidance of loss of face. Discuss itsimplications for selling in China.
• Explain the concept of self-reference criteria and its implications for selling in China.
• Jobber and G. Lancaster, Selling and Sales Management, 8th Edition, Instructor'sManual 72 © Pearson Education Limited 2009