Influence of Chinese Culture on Foreign Companies in China Term Paper

Pages: 8 (2679 words)  ·  Bibliography Sources: ≈ 15  ·  File: .docx  ·  Level: College Senior  ·  Topic: Business

Foreign Business in China

China has become more amenable to the operation of foreign companies in recent years, part of the effort on the part of the country to gain a more prominent position in world trade and so to enhance its own balance of trade. Outsiders see this as an element in the liberalization of Chinese trade and perhaps Chinese politics, though the Chinese are trying to balance their own interests in a way that bring sin more foreign companies while also imposing certain restrictions and requirements on them that makes them adhere more to Chinese preferences as to business methods. Such efforts are more noticeable with reference to certain types of business and much less so for others, and some foreign companies may be changed more depending on the type of business they do and the degree to which they have to alter their practices to operate in China at all. The method of analysis here is a review of studies and reports on the issue, as developed by means of database searches to find writings explaining how businesses operate in China an what the Chinese may demand of those businesses to allow them to operate.

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An internal certification program exists in China, one which requires that all manufacturers obtain the China Compulsory Certification mark before they can export or sell products covered by the law. This is likely to become an issue in the future. Still, the Chinese requirement does have an impact on many U.S. exporters and constitutes a trade barrier as many goods are held up at the border by Chinese Customs. The cost of certification can be high, as much as several thousand dollars for Chinese companies, and certification must be done by government laboratories and not by third-party testers. Numerous documents also have to be filed, and follow-up inspections may take place every 12 to 18 months at an added cost (China Compulsory Certification [CCC Mark][2006]).

Term Paper on Influence of Chinese Culture on Foreign Companies in China Assignment

China often brings about change in companies that normally resist change, though sometimes this fails. In China, the labor federation threatened to sue unless Wal-Mart agrees to establish unions in its stores. Wal-Mart claims that Chinese officials have assured the company that it is not required to do so, though Article 10 of China's Trade Union Law clearly states that a union "shall be set up" in any enterprise with twenty-five or more workers:

The explanation for the apparent contradiction may be that the government's desire for foreign investment and jobs trumps any concern for workers' rights. That wouldn't be surprising in the Chinese environment, where strikes are forbidden and the official labor grouping actively supports the government's efforts to block the rise of independent unions (Goldstein, 2003, para. 3).

The policy developed by the CEO thus prevails, administered through the HR department in the U.S. And in new markets. The policy remains in force and serves as a strategic decision that contributes to Wal-Mart's success in foreign markets as in the U.S.:

Wal-Mart currently has thirty-one outlets in fifteen Chinese cities, with 16,000 employees. A company spokesman declined to give sales figures, but published reports have put Wal-Mart's total revenues in China at just under $1 billion. (Goldstein, 2003, para. 4)

Fireign direct investment (FDI) has been sought by China for some time, and while China has worked to accommodate such investment, it has also placed restrictions on it that force investor to make changes to satisfy the government. Ghose (2000) studies eight developing countries for what they say about the effects of trade liberalization and FDI on growth and on labor issues. Ghose notes that in theory, developing countries are expected to export labor-intensive manufactures to industrialized countries and to import skill-intensive manufactures from them. This was found to be true in all of the countries studied except China, whose exports appear to be no more labor-intensive than its imports. A closer examination, however, showed that China's exports and imports are not very different from those of India or Malaysia in terms of specific items, thus directing attention to the fact that China's exports are produced very largely by foreign capital in special economic zones, while its import-competing products are produced primarily by state enterprises which are known to be substantially overstaffed. Ghose writes,

It can be plausibly argued that even though China's export-oriented industries are intrinsically more labor-intensive than its import-competing industries, this is not reflected in the relative labor productivity because work motivation and management efficiency are systematically poorer in the import-competing industries... [T]his argument is strongly supported by all the other evidence on labor market changes in China (Ghose, 2000, p. 281).

This is another example of inequality in this case brought about by the conflict between FDI-supported businesses and government-supported businesses in China. This shows again the difference between foreign investment and domestic investment in terms of unequal outcomes.

Zhang (2002) takes particular note of the effect of FDI on the communication sector in China, noting that this is one industry that is treated by the government as in need of protection from outside investment. Zhang says that unlike some other industrial sectors where the idea of competition is close to that of western developed countries, the service sector of telecommunications in China is limited and managed competition, with a solid monopoly by the government that has not been challenged. China has such a large territory and a large audience that the industry has the potential to become the largest telecommunication market in the world. It has a great demand for capital input, then, but at the same time, the Chinese government has reiterated its policy toward the ban on foreign direct investment based on concerns of sovereignty, security, and national interests on the part of the Chinese government. There is also a constraint on domestic rivalry in the service sector of telecommunications which is harder to justify. Differences in how FDI is allowed or discouraged can also contribute to inequality in growth in this and other sectors.

Habib and Zurawicki (2002) note another source of inequality in countries like China, and that would be corruption. Corruption does not deter FDI in absolute terms, and countries like China, with a high degree of corruption, still attract a good deal of FDI. Corruption, however, produces bottlenecks, increased uncertainty, and raises costs. Corruption also creates distortions by giving preferential treatment to some companies, such as giving them access to profitable markets while other companies are denied such access. Corruption creates inequalities in outcome that may not be related to strictly economic factors or other logical differences. It imposes a different sort of inequality that can be regional but that in any case alters the effect that FDI has on the country to which it is sent.

China's entry into the World Trade Organization (WTO) including China agreeing to certain reforms in the way the country treated foreign investors, though this has not always worked out as hoped. Gooley (2003) notes that when China joined the WTO in 2001, hopes were high that China would liberalize the market for transportation and logistics so that foreign-owned service providers could offer customers the same services they offer elsewhere in the world. However, this has not happened as yet:

Although the Chinese government is loosening restraints on some aspects of transportation and logistics, for the next few years at least, China will continue to restrict where, how and with whom foreign-owned providers can conduct business. China's WTO membership agreement, moreover, only partially deregulates transportation and logistics. That not only frustrates providers but it also limits options for shippers in this vast and growing market (Gooley, 2003, para. 2).

As the 1990s came to an end, China was making it more difficult for foreign firms to do business in China, setting the pace especially for how China would deal with communications businesses. At the time, the government warned Western businesses about establishing retail outlets without government permission and banned investment in China's telecommunications networks. Plans were developed to pressure provincial phone companies to buy Chinese-made products, thus curtailing sales of Western telecommunications (Pomfret, 1998).

Some of the most obvious changes in Western business practices when companies operate in China have been seen with technologies related to the Internet. China is not a free society, and companies offering Internet services inside China often have to adhere to Chinese rules on what can and cannot be offered. Google entered the Chinese market in 1996, though the site it launched from the first censored material concerning human rights, Tibet, and other sensitive topics. The rationale offered is the same as has been offered by many other companies altering their normal practices inside China, that it is better to operate with limitations than not to operate at all and that doing so creates the opportunity for change in the future. Google more specifically says that its site expands the pool of information that the Chinese can access, even though some topics are excluded. Some see the reason in Google's approach, such as… [END OF PREVIEW] . . . READ MORE

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