Challenges Encountered While Expanding American Business to China
Over the past few years, globalization process has generated unprecedented chances for international business trade and investment. A number of multinational firms are trying to expand their business operations internationally using different strategies of entry that include subsidiary and joint venture. With a population of more than 1.3 billion and a huge land equivalent to 9.6 million square kilometers, China has turned to be one of the foreign international firms valued land. Therefore, different companies from different parts of the world are trying to get into the Chinese market using a number of different ways. Moreover, China fruitful access to World Trade Organization in early 2000s offered a number of chances for foreign nations in the country. In the 2005 first quarter the total trade between China and the United States had expanded by about 24%. The number of foreign international companies in China is still growing on daily basis. However. There are a number of challenges experienced by these companies while entering and operating in the Chines market (Wu, 2008). This paper analyzes the challenges encountered while expanding American business to China.
Expansion of American International Business to China
Cultural difference is one of the major challenges experienced by American business in China. Chines business culture is normally guided by three traditional philosophies which include Buddhism, Taoism and Confucianism which have ruled Chinese people for ages, and thus they are regarded more as philosophy than region. Confucianism addresses human relationships that oriented Chinese thinking and behavior. In this case trust, maintaining harmony and avoiding conflict is a concept applied even in business. Therefore, Chinese conducts their business as a group while Americans prefer working as individuals or partners with defined boundaries. This may cause misunderstanding in business negotiation. Taoism is highly regarded for Yin Yang principle where by it is believed that fortune are influenced by their environment and particularly the building position relative to the physical setting, furniture arrangement and the interior layout can affect the events taking place in the building. This concept is also applied in business and it is highly considered to influence business decision. This is quite different to American business culture where business decision cannot whatsoever influenced by the place where the decision was made. Moreover Chinese are guided by the Confucian principle to trust people over any other document. In this regard, they do not treasure or respect any written document and they would rather trust an oral agreement. This is quite different from the Americans way of doing business where a well written and signed agreement is considered as a legal document to safeguard parties’ interest. Therefore, to survive in the Chinese market, American must learn Chinese business culture and try to adjust to fit in it.
Guanxi is another important culture that foreigners should learn to operate successfully in China. The main guanxi idea entails relationships among or between individuals developing duties for continues favors exchange. It is considered as personal technique for maintaining and developing business in China. This culture has turned to be more essential in the Chinese community because many Chinese have developed guanxi and utilize it to conduct business in different manners that include priority, banquet and gifts. However it is no easy to obtain guanxi since developing of strong guanxi is not enough since it cannot influence all decision making processes for successful business attainment. According to Wu (2008) is quite difficult for foreigners to understand and develop strong guanxi in Chinese business setting. Since is also attributed by the government involvement in Chinese business. Chinese government has been taking charge of business operation and economy in the country. In addition, business behaviors and procedures are highly limited by government regulations and laws. In this regard, developing a close and good guanxi in China particularly with Chinese government is essential for foreign multinational firms. Moreover, attaining the government permission would enhance business management and process. In this regard, if the foreign multinational firm anticipated succeeding in their business operation in China they will have to learn guanxi and utilize it in keeping close association with the government.
Foreign companies operating in China are also faced by a number of ethical challenges, corruption being the major one. Based on the 2011 Corruption Perception Index documented by Transparency International, China was ranked in position 75 out of 185 nations. This according to () has been a steady score from 2008. Based on 2010/2011 TI Global Corruption Barometer, 4% of 1000 respondents from China felt the increase in the corruption level in the country, with 33 % blaming the government for being inefficient in fighting corruption in the country (Irwin, 2012). Among the documented sector affected by this corruption, business was leading with a score of 3.6. This makes it hard for foreign companies to maneuver into the country full of corruption in the business sector. It also creates fear of sabotage and lack of transparency based on application of business regulations to foreign companies. Other ethical challenges include women discrimination in the workplace, Human rights challenges where issues such as human trafficking, child labor, as well as low level of political and civil rights are common. Moreover the respect given by Confucian value to superior makes it hard for one to question them. This makes it hard for employees to report unethical practices performed by those that are superior in the organization (Irwin, 2012).
Foreign companies’ experiences labor management challenge in China. Basically, Americans are used to flexible employees who can be delegated responsibilities and work in a flexible line of authority. They also take personal initiative to ensure that they effectively manage to develop excellent result. On the contrary, Chinese workers are used to a more hierarchical structure where every individual contains defined duties. Therefore, they only follow instructions to accomplish what they have been instructed to do. Such great difference can result to a great tension between Chinese employees and American managers. The Chinese labor market also lacks talent. The country lacks young individuals who are efficient, professional, progressing and upward. Science subjects are provided less importance in the country and thus, most companies lack appropriate people to employ. The country also has administrative based human resource management where young qualified people are assigned to their jobs by the state. This makes it hard for foreign companies to compete for effective labor with the state companies in the country (Irwin, 2012).
There are various techniques that foreign companies can use to enter into the Chinese market. However, based on the Chinese traditions, they highly prefer companies with high relation to their own people. It is therefore hard for a company to enter into the country as an individual company and develop effectively without engaging Chinese in the top management. Some of the most probable and successful ways of entering into the Chinese market include acquisition, joint venture and strategic alliance. The Idea is to ensure easy acceptance of a foreign company in the country. Nevertheless, acquisitions are highly discouraged by the government due to their inability to meet essential requirement targeted by the government that include jobs creation, products diversification and increase in tax benefits (Yu, 2011). To be successful in the country, alliance with some Chinese entrepreneurs would be necessary to ensure integration of culture and ease to market penetration.
Normally, most international companies prefer settling in large cities of China that are cosmopolitan to ensure effective penetration and easy customer awareness. However, when intensive manufacturing is needed, these companies may not be licensed to operate in big cities due to the pollution issues. Therefore, these companies are normally faced by a challenge of identifying the right place to set up their business so as to effect penetration and customers’ awareness. Market research is normally done by use of survey (Wu, 2008). Normally involving locals in market research makes it easy for one to identify the level of competition and the need of a product in the market. However, this is normally challenges by language barriers among other things. The companies need also to understand the customers’ behavior and preferences which can be done through observation or survey. However, it is not an easy task since it involves a lot of financing ( Chen et al., 2006).
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