accounting system in China 269–75
business ethics and guanxi 272–5
corruption 272–5
‘hooking up’ relationships 271–2
Lucent Technologies bribery case 274–5
opening up of auditing and bookkeeping services 41–2
problems in the institutional environment 271–4
reform of the Chinese system 269–71
acquisition see merger and acquisition (M&A)
agrarian values, influence on Chinese negotiation style 128
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 231,232
agriculture
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
industries in which FDI is restricted 34
alliances see international business alliances
American IDC Corporation 82
Amway, direct selling in China 191
animal husbandry
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
architectural services, opening up to FDI 42
The Art of War (Sun Tsu) 126–8
associate (definition) 6–7
AT&T 82
Avon, direct selling in China 191,192
B share scheme 266–7
banking services in China 260–4
domestic banking institutions 260–1
foreign banking institutions 261–2
opening up to FDI 37
problems in the current system 262–3
reform of the Chinese banking system 260–1
repatriation of profits from China 263–4
Beijing Computer Industry Corporation 103–4
BorgWarner, conflict management approach 115–6
branch (definition) 6–7
bureaucracy, and guanxi practice 55
business alliances see international business alliances
business tax see taxation in China
businesses see transnational corporations (TNCs)
Butler (China)
in-house training programmes 215
production facilities location 159
staffing strategy 208
Carrefour 97
distribution problems 197–8
guanxi strategic management 68–9
Celanese Corporation 104
central and local government, importance in guanxi strategic management 66,67,68–9
China see People’s Republic of China
China Unicom Ltd. 82
Chinese business culture see guanxi
climatic variation in China, influence on choice of location 157–8
co-opetition strategy of negotiation 122
Coca-Cola 97
combination of entry modes 91
customization/localization of products 180
distribution strategy 198
product strategy in China 184
production facilities siting 156–7
sourcing in China 165–6
standardization of products 180
use of local heroes in promotion 193
compensation trade 76–77,79,83–84
conflict management in business alliances 111–17
BorgWarner 115–16
business environment effects 113
causes of conflict 112–13
compromising strategy 113–14
conflict resolution approaches 113–17
conflict management in business alliances (cont.)
cultural differences 112–13
effects of transition in China 113
forcing strategy 113–14
Guangzhou Peugeot Automobile Corporation 112
hard-line approach 113–14,115–17
legalistic strategy 113–14
partner-related conflicts 112
problem-solving strategy 113–14
soft-line approach 113–15,116–17
Volkswagen 114–15,116
conformity assessment bodies 26–8
Confucianism
and guanxi practice 56
face (reputation, dignity) 126
family and interpersonal relationships 125
influence on Chinese negotiation style 124–6
influence on Chinese society and culture 56
moral cultivation and the Five Constant Virtues 124–5
principle of harmony and avoidance of conflict 126
respect for age and hierarchy 125
contractual agreements 74–5
contractual joint ventures 74–5
cooperative development 77,79,83
cooperative joint ventures 9,10,29–30,74–5,77,79,81–2
versus equity joint ventures 90
corporate culture, compatibility with guanxi practice 59,60
corporate financial management in China
accounting practices 269–75
banking services 260–4
securities market 264–5,266–9
taxation 253–60
corporate governance structure, compatibility with guanxi practice 59
corporate image, importance in China 195–6
cost reduction
opportunities for transnational corporations 14–15
pressures on transnational corporations 13–14
cross-cultural theory of negotiation 122–4
culture (Chinese) see Confucianism; guanxi; negotiation; political culture; stratagems
culture (corporate) see corporate culture
customs duties 254–5,256–7,258–9
Deng Xiaoping 22,86
influence on China’s economy 3,4
influence on FDI 7–9
pragmatist ways of thinking 131–2,138–9
dental services, opening up to FDI 42
Diagnostic Products Corporation, guanxi strategy in China 60
direct selling in China 191–2
distribution 196–9
choice of channels in China 196–7
effects of fragmented retail sector 197–9
opening up to FDI 39
regulatory restrictions 197
Eastman Kodak, product strategy 185
see also Kodak
economic forces, and guanxi practice 55–6
economies of scale 179
and learning effects 14–15
economies of scope 155–6,179
educational services, opening up to FDI 40
engineering services, opening up to FDI 42
entry mode selection for FDI 9,10
contractual agreements 74–5
contractual joint ventures 74–5
cooperative joint ventures 74–5
exporting versus investment 74
factors affecting 72–3
hierarchical classification of entry modes 75–7
hierarchical (sequential) evaluation 73–5
implications for transnational corporations 72–5
literature review 72–5
non-equity entry modes 74–7
simultaneous evaluation 73,74
entry mode selection considerations 85–91
combination of entry modes 91
cooperative versus equity joint ventures 90
direct versus indirect investment 87–8
exporting versus investment 86–7
greenfield investment versus acquisition 89–90
joint venture versus wholly foreign-owned enterprise 88–9
leasing versus processing and assembly 90
licensing versus franchising 90–1
entry modes hierarchical classification 75–7
compensation trade 76–7
exporting or investment 75
foreign direct investment 75–7
foreign indirect investment 75–7
franchising 76–7
international leasing 76–7
licensing 76–7
processing and assembly 76–7
entry modes in China 77–9,80,81,82,83–5
changing composition over time 77–9,80,81,82,83–4
Chinese telecoms cooperative joint ventures 82
compensation trade 77,79,83–4
cooperative development 77,79,83
cooperative joint ventures 77,79,81–2
equity joint ventures 77,79,81–2
exporting to China 77,78
foreign companies limited by shares 77,79,83
foreign direct investment 77,78–9,80,81,82,83
foreign indirect investment 77,78–9,80,83–5
franchising 84–5
growth of foreign investment 77,78
hierarchical model of entry modes 78–82, 83–4
international leasing 77,79,83–5
joint development 77,79
joint ventures 77,79–82
licensing 84
processing and assembly 77,79,83–4
removal of restrictions over time 77
representative office 78
share trading 77,79,83–4
Super 8 Hotels (China) 84–5
wholly foreign-owned enterprises 77,79–81
environment scanning, in relation to guanxi practice 54–60,61
equity joint ventures 9,10,29–30,77,79,81–2
control structures 106–7
versus cooperative joint ventures 90
expatriate managers 218–21,226
American expatriate case study 221
cultural training 224–6
expatriate failure rate 219
learning about Chinese language 225–6
reasons for expatriate failure 219–20,223
selection of expatriates 220–3
training for managers and their families 224–6
training to work and live in China 224–6
expatriate selection criteria 220–3
ability to deal with stress 220–2
ability to develop relationships 222
adaptability 220–2
adjustment to cultural differences 222–3
cultural toughness 222–3
lack of selection procedures 223
other-orientation 222
perceptual ability 222
self-orientation 220–2
willingness to communicate 222
experience curve economies 14–15
exporting to China 77,78
versus investment 74,75,86–7
factor endowments and location 15
FDI see foreign direct investment (FDI)
financial management see corporate financial management in China
financial services and banking, opening up to FDI 37
fishery
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
fixed costs of production facilities, influence on siting 154–5,156
flexible manufacturing 155–6
Ford 97,144
foreign affiliate (definition) 6–7
foreign companies limited by shares 77,79, 83
foreign direct investment (FDI) 5–7,75–7,78–9,80,81,82,83
benefits of technology transfer 9
cooperative joint ventures 9,10
countries of origin 7–9
definition 7
effects of China’s accession to the WTO 11
entry modes 9,10
equity capital component 7
equity joint ventures 9,10
geographical distribution 10–11,12
growth of inflows in China 7–9
industry distribution 9,10
influence of Deng Xiaoping 7–9
intra-company debt transactions 7
intra-company loans 7
reinvested earnings 7
wholly foreign-owned enterprises 9,10
see also transnational corporations (TNCs)
foreign direct investment (FDI) in services in China
accounting, auditing and bookkeeping services 41–2
architectural services 42
banking and other financial services 37
dental services 42
distribution services 39
education 40
engineering services 42
freight-handling services 40–1
hotels and restaurants 39–40
insurance services 37
legal services 41
medical services 42
professional services 41–2
retail and wholesale services 39
securities 38
taxation services 42
telecommunications services 36
tourism 39–40
foreign direct investment (FDI) (cont.)
transportation services 40–1
urban planning services 42
foreign direct investment (FDI) regime in China 29–42
banking and other financial services 37
cooperative joint ventures 29–30
effects of accession to WTO 35–42
entry modes 29–30
equity joint ventures 29–30
financial services and banking 37
foreign investment project categories 32–3
geographical control 30–1
gradual liberalization 42
industries in which FDI is encouraged 33,34,35
industries in which FDI is prohibited 33,35
industries in which FDI is restricted 33,34–5
industry entry policies 32–42
insurance services 37
liberalization process 29
location entry policies 30–1
maintaining control of the economy 30
merger and acquisition 30
opening up of pillar service industries 35–42
project types that are encouraged 32
project types that are permitted 32
project types that are prohibited 32,33
project types that are restricted 32–3
securities 38
special zones establishment 30–1
technology transfer 30
telecommunications services 36
wholly foreign-owned enterprises 29–30
foreign exchange regime in China 42–5
control of exchange rate 43–4
limited convertibility of Chinese currency 45
repatriation of profits from China 263–4
foreign indirect investment 75–7,78–9,80, 83–5
foreign investment
growth in China 77,78
opportunities in China 3–4
see also foreign direct investment (FDI); foreign indirect investment
foreign trade regime in China 22–9
accession to the WTO 22,23–4
before 1978 22
conformity assessment procedures 26–8
designated trading 28–9
liberalization process 22,23–4
non-tariff barriers 25,26
right to trade 24
state trading 28–9
tariff rate quotas 25–6,27
tariffs 24–5
technical barriers to trade 26–8
forestry
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
industries in which FDI is restricted 34
franchising 76–7,84–5
opening up to FDI 39
versus licensing 90–1
freight-handling services, opening up to FDI 40–1
friendship and guanxi in negotiations 133–4
Fuji, product strategy 185
game theory (competitive strategy) of negotiation 121–2
General Agreement on Tariffs and Trade (GATT) see World Trade Organization (WTO)
General Motors 97,144
geographical distribution of FDI 10–11,12
geographical issues, effects of size of China 152–3
geographical variation in China, influence on choice of location 157–8
globalization of markets, views of Theodore Levitt 177–9,181
government, guanxi practice at central and local levels 66,67,68–9
gradual liberalization in China 45–7
benefits to China 46
FDI regime 42
opportunities for foreign investors 46–7
reasons for 46
uncertainties and risks for foreign investors 47
greenfield investment, versus acquisition 89–90
Guangzhou Peugeot Automobile Corporation 112
guanxi
and friendship in negotiations 133–4
concept 50–1
importance in Chinese business culture 50
importance of family and interpersonal relationships 125
guanxi practice
business ethics concerns 51,52–3,59,60,64–5,272–5
concept 50–1
effects of allocation of resources 55–6
implications for investors 50,51
influence of bureaucracy 55
influence of Confucianism 56
influence of economic factors 55–6
key characteristics 63–5
personal nature 63
political influences 55
potential for corruption 52,64–5
private and secretive nature 64–5
reasons for 51
reciprocal nature 64
role of friendship and emotion 64
social and cultural influences 56
transferability of guanxi 63–4
use of technological developments 56–7
guanxi strategic management 53
basic policies in relation to strategies 62
business-unit-level strategies 61–2
Carrefour 68–9
central and local government influences 66,67,68–9
compatibility with corporate culture 59,60
compatibility with corporate governance structure 59
corporate-level strategies 61–2
costs to establish guanxi 62–3
detailed programmes, budgets and procedures 62–3
Diagnostic Products Corporation 60
economic factors 55–6
effects of different market conditions 57
environment scanning 54–60,61
evaluation and control of strategies 65–6,67,68–9
functional-level strategies 61–2
general (external) factors 54–7
human resources 58–9
industry-specific factors 54,57
key characteristics of guanxi 63–5
level of the strategies 61–2
Newbridge Capital 66
opportunities and risks for businesses 57
organization-specific factors 54,58–60, 61
PEST analysis 54–7
Pierre Cardin 55,65
political forces and bureaucracy 55
potential for involvement in corruption 65–6
repairing the guanxi network 68–9
risks of guanxi-based strategies 65–6
social and cultural factors 56
strategy formulation and implementation 61–5
Suzhou Industrial Park joint venture 67
SWOT analysis 54–60,61
technological factors 56–7
Wal-Mart 68–9
Guidance Catalog of Industries with Foreign Investment 32,33,34–5,106–7
Hewlett-Packard 103–4
hierarchical classification of entry modes 75–7
hierarchical model of entry modes in China 78–82,83–4
hierarchical (sequential) evaluation of entry modes 73–5
holistic thinking and pictographic language 129
hospitality 134–5
hotels and restaurants, opening up to FDI 39–40
HSBC, overseas training programmes 216–17
human resource management
expatriate management 218–21,226
retaining Chinese employees 210–8
staffing 202–10
IBM 97
overseas Chinese managers 206,207
income tax see taxation in China
industry distribution of FDI 9,10
industry entry policies for FDI 32–42
accounting, auditing and bookkeeping services 41–2
architectural services 42
banking and other financial services 37
categories of foreign investment projects 32–3
dental services 42
distribution services 39
education 40
engineering services 42
financial services and banking 37
freight-handling services 40–1
hotels and restaurants 39–40
industries in which FDI is encouraged 33,34,35
industries in which FDI is prohibited 33, 35
industries in which FDI is restricted 33,34–5
insurance services 37
legal services 41
medical services 42
professional services 41–2
retail and wholesale services 39
securities
service industries 35–42
taxation services 42
telecommunications services 36
tourism 39–40
transportation services 40–1
urban planning services 42
infrastructure variation across China 158–9
insurance services, opening up to FDI 37
intellectual property rights (IPR), Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 231,232
intellectual property rights infringement
damage to transnational corporations 230–1
development of an IPR regime 232–3
response of international community 231
roots of the problem in China 229–30
scale of infringement in China 230
intellectual property rights protection measures 244–50
cooperation with the government 247–9
independent action 249–50
IPR protection coalitions 246
prevention first 245–6
Proctor and Gamble’s anti-counterfeiting policy 248
Quality Brands Protection Committee (QBPC) 246,247–8,249
selection of official enforcement routes 246–7,248
use of independent investigators 249–50
zero-tolerance policy 244–5,248
intellectual property rights regime in China 233–4,236,237
administrative enforcement of IPR 237–8
ambiguity in legislation 238–40
judicial enforcement of IPR 235–7
lack of coordination between authorities 244
lack of qualified enforcement officials 244
lack of transparency 243–4
legislation on IPR 233–4,235
protectionism and corruption 242–3
shortcomings 238–44
Toyota’s lawsuit 239
weak judicial enforcement 240–2
international business, significance of the rise of China 3–4
international business alliance control 105–10,111
equity joint ventures 106–7
equity resources 108–10
foreign control by majority equity 106–7
Guidance Catalog of Industries with Foreign Investment 106–7
host-country government regulations 106–7
key success resources 108,109–10,111
non-equity resources 108–10
operational control 108–10
Regulations on Guiding the Direction of Foreign Investment 106–7
relative strength of partners 107–10
resource dependence theory 107–10
Shanghai Foxboro Company Limited 110
strategic control 108–10
Suzhou Industrial Park 111
international business alliance partners
capacity fit between partners 101–3
core competencies of partners 101–2
corporate image of partners 102
financial capacity of partners 103
foreign experience of Chinese partner 104–5
human resource management skills 105
learning ability of Chinese partner 104
organizational fit between partners 103–5
organizational leadership of Chinese partner 103–4
ownership structure of Chinese partner 104
partner selection criteria 99–105
personal network and guanxi 102
strategic fit between partners 100–1
international business alliances
conflict management 111–17
definitions 94–5
equity of one partner held by the other 98–9
forms of 96–8
importance in China 94
joint venture 97
long-term joint functional agreement 97
merger and acquisition 98
rates of development in China 96
reasons for forming 94,95–6
short-term joint project agreement 96–7
international business development in China 4–11,12,16
international leasing 76–7,79,83–5
see also leasing
interpersonal trust rather than legal contract 133–4
investment
direct versus indirect 87–8
versus exporting 74,75,86–7
see also foreign direct investment (FDI); foreign indirect investment; foreign investment
IPR see intellectual property rights
Jiangsu Tobacco Company 103–4
joint development 77,79
joint ventures 77,79–82
to localize sourcing 164
versus wholly foreign-owned enterprises 88–9
see also contractual joint ventures; cooperative joint ventures; equity joint ventures
KFC 84,97
combination of entry modes 91
customization/localization of products 180
product strategy in China 183
standardization of products 180
Kodak 98–9,265
distribution strategy 198
see also Eastman Kodak
lean production 155–6
learning effects and economies of scale 14–15
leasing, versus processing and assembly 90
see also international leasing
legal services, opening up to FDI 41
Legend (now Lenova) 97
Levitt, Theodore, views on globalization of markets 177–9,181
licensing 76–7,84
versus franchising 90–1
local and central government, importance in guanxi strategic management 66,67,68–9
local differentiation 14
see also product strategy
local needs, influence on production facilities siting 154,156
location see production facilities location
location economies 15
Lucent Technologies, bribery case 274–5
Lucky Film 98–9,265
M&A see merger and acquisition (M&A)
manufacturing
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
industries in which FDI is restricted 34–5
manufacturing facilities see production facilities
Mao Zedong 2–3
agrarian values 128
bureaucratic heritage 130–1,136–8
market entry modes see entry modes
market structure, variation across China 159
marketing management
computer software industry 183–5
conservatism of Chinese consumers 190–3
corporate image 195–6
cultural differences 182–4,185
customization/localization of products 178–9,181–4,186
differences among Chinese consumers 186
direct selling in China 191–2
distribution 196–9
economic development and consumer behaviour 185–6
economies of scale 179
economies of scope 179
food and beverages 182–3,184
Levitt’s views on globalization of markets 177–9,181
pricing 186–90
product strategy 181–4,186
promotion 190–2,196
public relations 195–6
pyramid selling in China 191–2
respect for Chinese customs and feelings 194–5
respect for Chinese national pride 194–5
standardization of products 177–9,181–2
Mary Kay, production facilities location 158
MBA programmes in China 217
McCormick, selling to Chinese consumers 192–3
McDonald’s 84,97
combination of entry modes 91
customization/localization of products 180
standardization of products 180
unpopular promotion campaign 194–5
McDonnell Douglas 103–4
McKinsey (China), in-house training programmes 214
medical services, opening up to FDI 42
merger and acquisition (M&A)
acquisition versus greenfield investment 89–90
FDI in China 30
international business alliances 98
taxation 259–60
Microsoft
product strategy in China 183–5
production facilities location 159
minimum efficiency scale 155,156
mining
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
industries in which FDI is restricted 34
Motorola 97
combination of entry modes 91
production facilities siting 156–7
public relations promotion in China 195–6
staffing strategy 208–9
MTI (Management Technologies, Inc.), professional training firm 215
negotiation
co-opetition strategy 122
cross-cultural theory 122–4
definition 120–1
game theory (competitive strategy) 121–2
social exchange theory (cooperative strategy) 121,122
negotiation style in China 132–5,140
‘await leisurely the exhausted enemy’ (stratagem) 135
friendship and guanxi 133–4
general principles first 135–6
government behind the scenes 136–7
hospitality 134–5
interpersonal trust rather than legal contract 133–4
large but indecisive negotiation team 137–8
‘make a feint to the east while attacking the west’ (stratagem) 135
red-face and white-face stratagem 135
sensitivity to price 138–9
‘shut the door to catch the thief ’ (stratagem) 135
stratagems (examples) 134–5
sudden changes from stubborn to flexible 138
use of tactics, tricks and ploys 139–40
negotiation style influences in China
agrarian values 128
Confucianism 124–6
contemporary political culture 129–32
cross-cultural theory 122–4
cultural roots 123–32
Deng Xiaoping’s pragmatism 131–2,138–9
face (reputation, dignity) 126
family and interpersonal relationships 125
guanxi 125
Mao Zedong’s bureaucratic heritage 130–1,136–8
moral cultivation and the Five Constant Virtues 124–5
pictographic language and holistic thinking 129
principle of harmony and avoidance of conflict 126
respect for age and hierarchy 125
Sun Tsu stratagems 126–8
Taoist yin-yang principle 127–8
traditional Chinese culture 124–9
negotiation team, careful selection of 143–4,145
negotiation with Chinese partners (guidelines) 140–9
dealing with Chinese stratagems 146–7,148
identify the meaning of a behaviour 141–2
know Chinese style but be yourself 148–9
people-oriented approach 142–3
selection of the negotiation team 143–4,145
tactics, tricks and ploys 146–7,148
talk to top Party and government leaders 145
Newbridge Capital 98,265
guanxi strategic management 66
Nike, unpopular promotion campaign 194
non-equity entry modes 74–7
ownership structure of Chinese businesses 104
parent enterprise (definition) 6
partners see international business alliances
People’s Republic of China
business opportunities for foreign investors 3–4
Communist plan-based economy 2–3
economic and social history 3,4">drivers of rapid economic growth 1–3,4
establishment of 2–3
foreign trading partnersves towards market-based economy 5,6
provinces 10–11,12
rise in world economy 3,4">re-linking with the global market system;4
three regions 10–11,12
WTO accession see World Trade Organization (WTO)
PEST (political, economic, social and technological) analysis 54–7
pictographic language, and holistic thinking 97">Peugeot 129
guanxi strategy in China 84">Pierre CardinprimaryIE>
political culture
influence on Chinese negotiation style 55">and guanxi practice 129–32
post and telecommunications, industries in which FDI is prohibited 35
price sensitivity of Chinese negotiators 138–9
pricing 186–90
adjustment of pricing strategies 187–90
discriminate pricing strategy 188–9
indiscriminate pricing strategy 188
predatory pricing strategy 189
price wars in China 186–7
processing and assembly 76–7,79,83–4
versus leasing 90
Proctor and Gamble Co.
anti-counterfeiting policy 248
R&D localization in China 171–2
use of local ‘heroes’ in promotion 193
product attributes, and production facilities siting 153–4,156
product strategy 181–4,186
Coca-Cola in China 184
computer software 183–5
customization/localization 178–9,181–4, 186
differences between Chinese consumers 186
economic development and consumer behaviour 185–6
effects of cultural differences 182–4,185
food and beverages 182–3,184
KFC in China 183
Microsoft 183–5
standardization 177–9,181–2
product value-to-weight ratio, and production facilities siting 153–4,156
production facilities siting considerations 152–7
centralization approach 152–7
Coca-Cola and Motorola comparison 156–7
decentralization approach 152–7
fixed cost to set up 154–5,156
flexible manufacturing capacity (lean production, economies of scope) 155–6
minimum efficiency scale 155,156
needs served by products 154,156
product attributes 153–4,156
product value-to-weight ratio 153–4,156
size of China 152–3
technology attributes 154–6
variation in local needs 154,156
production facilities location 157–62
Butler 159
climatic variation in China 157–8
degree of government support 160–1
geographical influences in China 157–8
infrastructure variation across China 158–9
market structure variation across China 159
Microsoft 159
Seagram 161–2
production operations management
challenges in China 152
processes involved 152
professional services, opening up to FDI 41–2
profits, repatriation from China 263–4
promotion 190–2,196
Amway 191
Avon 191,192
Coca-Cola 193–4
conservatism of Chinese consumers 190–3
direct selling in China 191–2
importance of good public relations 195–6
McCormick 192–3
Proctor and Gamble 193
pyramid selling in China 191–2
respect for Chinese customs and feelings 194–5
respect for Chinese national pride 194–5
use of local ‘hero’ images 193–4
public relations, importance in China 195–6
pyramid selling in China 191–2
Qualified Foreign Institutional Investor (QFII) scheme 267–9
Quality Brands Protection Committee (QBPC) 246,247–8,249
R&D (research and development)
conditions that encourage success 166–7
failure rates of projects 166–7
importance of 166
scope of activities 166
R&D localization 166–70,171–4
benefits for transnational corporations 168–9
choice of location for R&D centres 172–3
coordination with parent company 174
extent in China 169–70
management issues 170,171–4
objectives of R&D centres in China 170,171–2
Proctor and Gamble 171–2
staffing of R&D centres 173–4
trend towards 166–70
Regulations on Guiding the Direction of Foreign Investment 32–3,35,106–7
representative office 78
research and development see R&D (research and development)
resource allocation, and guanxi practice 55–6
restaurants and hotels, opening up to FDI 39–40
retail sector
fragmentation in China 197–9
opening up to FDI 39
Seagram, production facilities location 161–2
securities market in China 264–5,266–9
acquisition of listed companies in China 266–9
B share scheme 266–7
Chinese stockmarket 265,266
opening up to FDI 38
Qualified Foreign Institutional Investor (QFII) scheme 267–9
restrictions on foreign affiliates 265,266
types of securities in China 265
service industries, opening up to foreign investors 35–42
Shanghai Aviation Industrial Corporation 103–4
Shanghai Computer Company 103–4
Shanghai Foxboro Company Limited 110
share trading 77,79,83–4
Shenzhen Development Bank 66,98,265
social and cultural forces, and guanxi practice 56
social exchange theory (cooperative strategy) of negotiation 121,122
sourcing in China 162–6
advising and assisting local suppliers 165–6
Coca-Cola 165–6
cost factors 163
decision to outsource 162–3
factors affecting decision 163–4
make-or-buy decision 162–3
potential difficulties 163–4
support from the government 163–4
through joint ventures 164
sourcing in China (cont.)
use of affiliates in China 164
Volkswagen joint ventures 164–5
special zones, establishment of 30–1
staff retention incentives (Chinese employees) 210–8
bonus schemes 211–2
career development opportunities 213–4
commercial benefits 213
compensation and benefits (C&B) packages 210–3
factors affecting employee commitment 217–8
golden handcuffs (deferred compensation plans) 212
holistic approach 218
importance of ‘intangibles’ 217–8
iron handcuffs (contractual conditions) 213
salary levels 211
social benefits 213
stock options 212
training programmes 213–4,215–7
understanding of Chinese culture and thinking 218
staffing 202–10
ethnocentric strategy 203–4,205–6,207
geocentric strategy 204–5
mixed strategy 205
overseas Chinese managers 206,207
polycentric strategy 204,205
possible staffing strategies 203–5
staffing localization
retaining Chinese employees 210–8
search for local talents 209–10
trend towards 206–9
stratagems
‘await leisurely the exhausted enemy’ 135
dealing with 146–7,148
examples of 134–5
general principles first 135–6
government behind the scenes 136–7
‘make a feint to the east while attacking the west’ 135
of Sun Tsu 126–8
red-face and white-face stratagem 135
‘shut the door to catch the thief ’ 135
use by Chinese negotiators 139–40,146–7,148
subsidiary (definition) 6–7
Sun Tsu, The Art of War 126–8
Super 8 Hotels (China) 84–5
Suzhou Industrial Park joint venture
importance of guanxi 67
joint venture control structure 111
SWOT (strengths, weaknesses, opportunities and threats) analysis 54–60,61
tactics, tricks and ploys
dealing with 146–7,148
use by Chinese negotiators 139–40
Taoist yin-yang principle 127–8
tariffs see foreign trade regime in China
taxation in China 253–60
business tax 254–5,256,258
categories of taxes 254–5
customs duties 254–5,256–7, 258–9
foreign corporate income tax 255, 258
individual income tax 257
merger and acquisition 259–60
preferential tax treatment 257–9
reform of the taxation system 253–4
tax collection 255
taxes applicable to foreign affiliates 255–7
value added tax 254–6,258
taxation services, opening up to FDI 42
technological developments, and guanxi practice 56–7
technology attributes, and production facilities siting 154–6
technology transfer, benefits from FDI 9,30
telecommunications services
cooperative joint ventures 82
industries in which FDI is prohibited 35
opening up to FDI 36
Toshiba, public relations problems in China 195
tourism, opening up to FDI 39–40
Toyota 97
IPR lawsuit 239
unpopular promotion campaign 194
trade see foreign trade regime in China
training programmes for Chinese staff
in-house 214–5
MBA programmes in China 217
outsourcing training 215–6
overseas training 216–7
transnational corporations (TNCs)
associate (definition) 6–7
branch (definition) 6–7
challenges in China 13–17
combination strategy 16
competency-oriented strategy 15,16
cost-oriented strategy 15,16
cost reduction opportunities 14–15
cost reduction pressures 13–14
definition 6–7
differentiation-oriented strategy 15–16
differentiation pressures 13–14
effects of China’s accession to the WTO 11
experience curve economies 14–15
factor endowments and location 15
foreign affiliate (definition) 6–7
four-choice model for overseas expansion 15–17
inflow into China 5–7
learning effects and economies of scale 14–15
local differentiation 14
location economies 15
parent enterprise (definition) 6
pressures on 13–14
strategic options for overseas expansion 15–17
subsidiary (definition) 6–7
see also foreign direct investment (FDI)
transportation and storage services
industries in which FDI is prohibited 35
opening up to FDI 40–1
TRIPS (Agreement on Trade-Related Aspects of Intellectual Property Rights) 231,232
urban planning services, opening up to FDI 42
utilities production and supply
industries in which FDI is encouraged 34
industries in which FDI is prohibited 35
industries in which FDI is restricted 35
value added tax 254–6,258
Volkswagen 97
conflict management 114–15,116
joint ventures to localize sourcing 164–5
Wal-Mart 97
cash management in China 263
distribution problems 197–8
guanxi strategic management 68–9
Wang, Wilson 206,207
Wang Computer 103–4
wholesale services, opening up to FDI 39
wholly foreign-owned enterprises 9,10,29–30,77,79–81
versus joint ventures 88–9
world economy, rise of China 3–4
World Trade Organization (WTO)
accession of China 11,22,23–4
agreement on China’s entry into 107
Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 231,232
effects on China’s FDI regime 35–42
opening up of pillar service industries 35–42
see also foreign trade regime in China
yin-yang principle 127–8