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Courtnay & Stephanie
Guanxi in Jeopardy: Doing Business with China
Guanxi
Conducting Business in China
The Chinese Economy
Case Overview
Case Assessment
Starbucks in China
Wal-Mart in China
Outline
An intricate web of connects that individuals draw from to secure favors in personal and organizational relations
With no formal legal system it has been used to accomplish tasks for more than 5,000 years.
Relationships promote trust and cooperation
A network which includes close family members at the centre and acquaintances on the outside
Guanxi
“It is critical for businesses in China, whether foreign or local, to understand and properly utilize guanxi in order to gain an edge over competitors."
Guanxi A complex network of relationships in social and personal
relationships
Mianzi or Face A form of social status and pride
Keqi Thoughtful, courteous and refined behaviour
Confucianism An ethical belief system based on the concepts of
relationships, responsibility and obligation (Gorrill, 2009)
Cultural Terms
Don’t Rush the process of building a
long term relationship Use negative language Push formal contracts Show emotion at social or
business functions Cheer, only applaud
performances
Conducting Business in ChinaDo’s and Don’ts
“Business cards are exchanged during an initial meeting. Use both hands when presenting business cards and ensure that the writing faces the person to whom you are presenting your cards (China Knowledge, n.d).”
Do Establish long term relationships Be punctual to all business and
social functions Gain trust Maintain eye contact Address Chinese counterpart with
full name and title Wait for Chinese counter part to
initiate greeting Be patient Engage in small talk before
meetings
2010 - Population of over 1.3 billion people
2011 – GDP(purchasing power parity) - $11.3 trillion
2011 – GDP rose by 9.5% since 2010
2010 - China became world’s largest exporter
2010 – Second largest economy in the world
If the Chinese economy stays on its current path it is predicted to become the world’s largest economy in the next 10 years
Chinese Economy
Small company which started in 1962
Enterprise of the Beijing municipal government
Decision making is slow and difficult
Strong at achieving economies of scale in assembly–line manufacturing of engine control subassemblies
Key Objective - Partner with a foreign company and developing a long-lasting relationship that will work with government policies.
The Team Deng Zan - Factory director; Ai Hwa Chew - Deputy director of supply and distribution Wang Yoo - Minister of finance.
The Case: Motosuzhou
$5 Billion company
Manufacturer of automotive electronic products
Employees approx. 15,000 employees in the United States
Plans to expand into the Asian market
Joint Venture with Chinese Company
Chinese partner will help manufacture, and sell engine management systems that run emission control, fuel nozzle, and igniters systems for Chinese – made vehicles
The Case: Electrowide
Motosuzhou was top choice for Electrowide’s joint venture (JV)
Electrowide team assembled & travels to China Motosuzhou spends weeks trying to build
relationships with Electrowide team• Sightseeing, dinners, entertainment
Electrowide getting restless, anxious to close deal By 5th week, Motosuzhou willing to discuss JV
Case: Stage of Events
Motosuzhou team’s specific questions about JV were limited
Electrowide took this as good sign, felt deal was nearing
In 8th week, Motosuzhou began raising concessions Americans drafted formal contract with lawyer &
presented to Motosuzhou Motosuzhou team offended, ended negotiations
Case: Stage of Events
Where do you think the Electrowide team went wrong?
Do you think they did anything right while in China?
Starbucks entered China in 1998 and its first store open in Taipei of Greater China which includes China, Hong Kong, Macao and Taiwan.
In mainland China the first Starbucks opened in Beijing January of 1999
2010 - 750 locations in Greater and Mainland China
Why does Starbucks succeed when other’s haven’t? Created products to fit Chinese culture Maintain a significantly lower turnover rate than the average Chinese
Business High level of customer service Offer employees good work environments, compensation and career paths Created a new international logo Promoted dine in service over take out
Starbucks in China
Who is the Ai Ni Group? Established in 1993 Operates in Yunnan Province Many coffee processing facilities Two coffee farms Four high end restaurants Manage a large cattle farm
Confident the JV company will be successful in build Yunnan up as a globally recognized premier coffee growing region
The JV company will, Be controlled by Starbucks Purchase and export coffee Operate dry coffee mills in Yunnan
Starbucks Partners with Ai Ni Group
Starbucks’s Objective Increase its coffee-sourcing activities in the region for use in global
blends Build long term relationships with Yunnan’s coffee farmers Support Yunnan’s coffee farmers
Starbucks Partners with Ai Ni Group
“Starbucks collaboration with Yunnan province coffee farmers and suppliers reached a major milestone with the launch of Starbucks® South of the Clouds Blend® in early 2009”
Has anyone ever visited a Starbucks outside of North America?
Entered Chinese market in 1996 Currently operate 357 stores in China Bought 35% stake in Taiwanese chain, Trust-Mart,
in 2007 Market share in China grew by 7% in 5 years
Fined by Chinese government for: Mislabeling food products Manipulating product prices
Top management quitting Stake in Yihaodian
Wal-Mart in China
Bustillo, M & Burkitt, L. (2011, October 12). Walmart's Chinese Puzzle. The Wall Street Journal. Retrieved fromhttp://online.wsj.com/article/SB10001424052970203633104576624250559835360.html#project%3DCWALMART1011%26articleTabs%3Darticle
Central Intelligence Agency . (2012, February 8). The World Fact book. Retrieved from Central Intelligence Agency : https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
China Australia Consult . (n.d). Guanxi Hierarchy . Retrieved from China Australia Consult : http://www.china-consult.com.au/2010/09/21/the-art-of-guanxi-2/guanxi-hierarchy-3/
China Knowledge. (n.d). Living in China. Retrieved from China Knowledge: http://www.chinaknowledge.com/Business/CBGdetails.aspx?subchap=6&content=27
Choong, E. (2008, April 28). Understanding Mianzi: The Concept of Face. Retrieved from Dragon Business Network: http://www.dragonbn.com/articles/17
Gorilla, J. R. (2009). Doing Business in China. London: Communicaid Group Ltd. Retrieved from Doing Business in China: http://www.communicaid.com/access/pdf/library/culture/doing-business-in/Doing%20Business%20in%20China.pdf
References
Lee, M & Kwok, D. (2011, October 17). Walmart China CEO quits as retailer grapples with pork scandal. Reuters. Retrieved from http://www.reuters.com/article/2011/10/17/us-wal-mart-china-idUSTRE79G08620111017
Lee, M & Kwok, D. (2012, February 20). Wal-mart to take majority stake in China's e-commerce. Financial Post. Retrieved from http://business.financialpost.com/2012/02/20/wal-mart-to-take-majority-stake-in-china-e-commerce/
Lee, M. (2011, October 14). Walmart's pork scandal highlights struggle in China. Reuters. Retrieved from http://www.reuters.com/article/2011/10/14/us-walmart-china-idUSTRE79D1S020111014
McPherson, C. (2006, February 6). Starbucks to Partner with Ai Ni Group to Bring China’s Yunnan Coffee to the World. Retrieved from Business Wire: http://www.businesswire.com/news/home/20120206005771/en/Starbucks-Partner-Ai-Ni-Group-Bring-China%E2%80%99s
No Author. (2011, January 7). Starbucks Logo Evolution. Retrieved from Daily Contributor : http://dailycontributor.com/starbucks-logo-evolution/19692/
PARK, S. H., & LUO, Y. (2001). GUANXI AND ORGANIZATIONAL DYNAMICS:. Strategic Management Journal, 455-477.
References
Rein, S. (2012, February 10). Why Starbucks succeeds in China and others haven't. Retrieved from USA Today: http://www.usatoday.com/money/industries/food/story/2012-02-12/cnbc-starbucks-secrets-of-china-success/53040820/1
Schell, O. (2011, December). How Walmart is Changing China. The Atlantic. Retrieved from http://www.theatlantic.com/magazine/archive/2011/12/how-walmart-is-changing-china/8709/.
Starbucks. (2012). Greater China. Retrieved from Starbucks Newsroom: http://news.starbucks.com/about+starbucks/starbucks+coffee+international/greater+china/
The Economist . (2011, September 24). Becoming number one. Retrieved from The Economist : http://www.economist.com/node/21528987
The World Bank. (n.d). China. Retrieved from The World Bank: http://data.worldbank.org/country/china
Travel China Guide. (n.d). Confucianism. Retrieved from Travel China Guide: http://www.travelchinaguide.com/intro/religion/confucianism/
Walmart. (2012). China Fact Sheet 01-2012. Retrieved from https://docs.google.com/viewer?a=v&q=cache:bYXuoMsACxkJ:walmartstores.com/download/1999.pdf+walmart+in+china&hl=en&gl=ca&pid=bl&srcid=ADGEESheUg18aqWOgIFNY7spMitTRvhjK8CorGBLJjLaM4LRfPB2exhz6zBNkPiHscQWHR201-AFgkJ9MZfkLnqbf9_tVfB9EhgFemmxU2F_OSk5D1f978z_mQDAa-JbwDW5ajKaIy7z&sig=AHIEtbQjmYNYTZwBTQQhSHYxic535fgqJQ&pli=1
References
Questions??