International Business Environment assignment: an analysis of the national business system and cultural conditions in China and assessment of how this will affect SuperSam

Résumé du document

Choosing China as a host country for an International Business Environment assignment offers three advantages: first, since 1979, China has faced major economic and political changes. Second, it has been very successful in attracting foreign direct investment, i.e., in 1995, China was the second largest recepient of Foreign Direct Investment (FDI) worldwide (Tse, Pan and Au 1997). Third, it is the most promising market for multinationals in any sector from the car makers to the fast moving consumer goods and the State government has been very keen on acting effectively for the entrance of multinationals (McGregor 2007).

Then, Tse et al (1997), found that US firms were not as internationally oriented as Western European firms, which seems more challenging to study. Indeed, big companies such as Wal-Mart have until now mainly exploited and invested in their domestic market. But such a long-run strategy appears no more relevant as the US and most Western markets have become too competitive and mature, with drop in companies' growth revenue as a consequence.

According to Euro Monitor International (Rigby 2007), the Chinese retailing market is now valued at $ 430bn, and will be worth $596bn by 2010 making it a major one to consider when internationalizing. This report will attempt to analyze and present solutions on how SuperSam, a fictitious US retail company and a major competitor of Wal-Mart, should formulate its entry into the Chinese market.

The following study will answer the main questions that arise at top management levels when considering expanding their business abroad. To do so, a systematic approach and an illustrated in-depth analysis of the major Chinese environmental factors of influence in the entry mode will be achieved, considering the SuperSam superstore chain as a later entrant compared to Wal-Mart's first entrant status into China.

One can argue that over the last decade, China has learned to create a bundle of laws and regulations that encourage FDI. The aim is to reduce the level of risk and uncertainty that could plague foreign companies. US firms have small power distance and weak uncertainty avoidance indices; they are more willing to venture into international investments, accepting risks and flexibility to change. Please refer to appendix 1 p.24; Hofstede's (1980) as cited in Tse et al (1997, pp. 786), and in Hill (2007, pp. 111).

Finally, as the Chinese have a different culture, tastes, and behaviours, SuperSam cannot stick to its US strategy to succeed and gain market shares. A significant investment might be required to enter but the ROI will have to be considered in the long run, difficult to accept for shareholders, who are usually short-term profit focused.

China is still evolving from a pure command economy to an emerging capitalism system but the paradigm of having undifferentiated political and economic goals remain in some degrees: "socialism with Chinese characteristics" (Langlois 2001).

China has agreed to the fundamental principles required to be part of the WTO in 2001, and has been, from 1999, strongly supported by USA within WTO members for its accession (Hongyi 2001). Some of them deal with partners' entry into the Chinese market such as Europe or USA, e.g. the General Agreement on Trade in Services. It should accelerate the changing process in entry mode options by making non-JV strategies more successful and easy to implement (Teng 2004). It also means reduction of import tariff (Hill 2007). Furthermore, USA and China agreed in 2000 on a Free Trade Agreement (FTA), below are presented the main outcomes according to Teng (2004):

• Permit trading rights to foreign firms
• Decrease state control over internal distribution of goods
• Lower trade barriers, i.e., tariffs
• Opening up of more industries to foreign participation, and reform of FDI policy and other industrial policies.


Tags: Business relations between USA and China,SuperSam entry into China

Extraits

[...] Personal power and relationships have always been the rule of the game when doing business and are strongly installed in Chinese informal system. Therefore, competitive advantage to do business in China is to maintain presence and strong relationship with governments to acquire “guanxies”. Evolution and willingness to welcome FDI Some evidences show that China has been trying to delay the arrival of foreign competition for long (Langlois 2001). A protection barrier broken-down: is that China used to require to set- up joint-ventures with a local partner when entering the market until 2005, to keep an eye on foreign supermarket firms' decisions and a degree of decision-power. [...]

[...] Control : Advantages : The company has full ownership and responsibility for the management of operations. Attractive as it enable to have the most control in decision-making. 100% control means all profits are for you. Disadvantages : The whole control means high commitment, requires knowledge about the foreign market entered and expertise. 100% control means all losses are for you and Greenfield investment is then more risky than merger acquisition as SuperSam would start on its own “from the ground”. [...]

[...] Thunderbird International Business Review, vol.46, no.4, pp. 381-400. Tse D. K. ; Pan Y. ; Au K. Y. (1997). How MNCs Choose Entry Modes and Form Alliances: The China Experience. Journal of International Business Studies, vol no pp. 779-805. [...]

[...] Secondary research is then good as a start but do not provide an accurate overview of the entry mode trends in China; neither specific suggestions with regard to SuperSam's industry i.e. retail. Results of a primary research conducted by Teng (2004) are provided in Table Primary research study: Table 2 : Impact of changing business environment in Chinese entry strategies (Teng 2004) In order to evaluate which type of entry mode would best suit to a supermarket chain as SuperSam, Hollensen's (2003) systematic approach seems the most relevant to follow. [...]

[...] To do so, a systematic approach and an illustrated in-depth analysis of the Chinese major environmental factors of influence in the entry mode decision making will be achieved; considering SuperSam superstore chain as a later entrant compared to Wal-Mart first entrant status into China An analysis of the national business system and cultural conditions in China and assessment of how this will affect SuperSam When considering new market entry, SuperSam should consider the national business system and cultural environment of the host country and compare it to its own one in order to measure the degree of difference and how to enter successfully. [...]