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Entering the Chinese Marketplace

If I were to transition a company such as Starbucks or General Motors (we will use those as sample companies) to China what key economic indicators would either refute or support my argument for company expansion. I understand that we as a company would need to determine if there is a need for the products in the company and to date there is a need for motor vehicles (not the large SUV's due to the space hindrance throughout the country and their emissions of CO2 into the air from what I have gathered) But rather small/compact vehicles which are more environmentally friendly. And for Starbucks I am unsure if individuals within this culture drink coffee like we do - the special blends but I know they drink tea and other herbs. So from what I have read on the country there is the need/desire for the product and market. But what key economic indicators should be researched? Possibly current sales of similar products that are selling in the country but am unsure what else. Also do you see any economic, social, legal, political, technological or cultural factors that might have an impact on business operations as well as any product changes that might be required by cultural factors. What I see is that they have high values on family, respect and are hindered in space. Thus, our products need to conform to their cultures, values and beliefs. For instance, the motor vehicles would need to be smaller in size - compact vehicles but have the ability to seat their entire family on trips and outings. They would also need to environmentally friendly and adequately priced. Then Starbucks would need to focus on their cultural blends and not those within the United States. They should focus on tea if that is what is most drank throughout the country and iced coffee and expresso such as in the United States. But am looking for any/all assistance that can be gathered. Looking for an overview of the Chinese market and various factors affecting all the foreign businesses which would include both businesses mentioned if possible.

Solution Preview

First of all, let us look at some of the peculiar characteristics of the Chinese market or particular issues for foreign companies who wish to do business in China:

There are three different business incorporation vehicles which can be utilised to do business in China. These are:
1. The utilisation of a representative office
2. Seeking a Chinese joint venture partner
3. Establishing a Wholly Foreign Owned Enterprise (WFOE)

Representative Office (RO):
A representative office is just a subsidiary of a foreign company in China. If your are looking for a company, which needs a local presence to manage services or coordinate outsourcing business activities or research developing Chinese market, then a representative office is useful and inexpensive vehicles for establishing a presence in China. Main purposes of a representative office are conducting market research, monitoring purchasing activities, marketing and sales administration for sales conducted between China and your parent company etc. Representative offices cannot write bill for service or sales to their clients in China. However, you can act like a liaison in matter of ordering, shipping, collecting money and so on.

Joint Venture:
Joint venture is business where a foreign firm goes into businesses with local Chinese partners. Joint venture is usually established to exploit the market knowledge, preferential market treatment, and manufacturing capability of the Chinese side along with the technology, manufacturing know-how and marketing experience of the foreign partner.

Wholly Foreign Owned Enterprise (WFOE):
These are 100% foreign owned companies, originally developed for the specific purpose of encouraging foreign investment in manufacturing for export in Special Economic Zones (SEZs) in China, and they were prohibited from selling to the Chinese domestic market. Since a recent change in regulations, from 1 December 2004, WFOE's can now trade within China, and can sell wholly foreign manufactured goods in China. The capital requirements for such companies have also been dramatically reduced.

source: http://www.china-window.com/china_business/doing_business_in_china/do-you-konw-what-kind-of-.shtml

IF Both GM and Starbucks plan to set up a Joint Venture with local partner, they should be careful in selection of the partner and should evaluate various alternatives very carefully in order to make the right choice. The selected partner will possess extensive knowledge of the local market and should have a well developed distribution network.

The choice to establish a wholly owned foreign enterprise will provide more autonomy to GM and Startbucks to explore the market as per its own terms. However, lack of knowledge about the local market will always act as a danger for both the firms.

The importance of Guangxi (relationship) when doing business in China

In China, Guangxi (relationship) is a complicated field. A special feature of doing business in China will be that Guangxi (relationship) in China will have to include relationship with the government body, investors, partners and even relationship with your own staff, so when doing business in China, it is important for foreign investors to learn to coordinate with the China government, especially establishing good relationship with government bodies dealing with foreign trade and economic cooperation.

Governmental procedures for foreign investors in establishing investments in China is extremely complicated, thus if one is unfamiliar of the procedures, one will delay his/her business opportunities. Therefore it is important for one to be familiar with the investment procedures before carrying out his/her investment in China. A safer and more appropriate way will be to seek help from local organizations familiar in the same field of business or consultant firms who are able to provide professional advice and assistance. Willpower and patience may be essential for an investor to be successful, however it is necessary for one to require help from professional bodies to ensure that success will be achieved.

Seeking a suitable local cooperative partner can be a shortcut one undertakes when developing the China market. Many investors had established Sino-foreign joint venture, Chinese-foreign cooperative enterprise, etc. as a stepping stone to enter the China market, thus which investment mode to choose one will have to accord with the enterprise's characteristics and has to be the most suitable for developing the enterprise's business and assisting its march into the China market. Some ...

Solution Summary

Looking for an overview of the Chinese market and various factors affecting all the foreign businesses which would include both businesses mentioned if possible.

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