Research Paper: International Trade China - United

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[. . .] Protecting Intellectual Property

Intellectual Property (IP) is regarded as a major deterrent for foreign companies wishing to establish themselves in the Chinese market. It is projected that as much as 90% of business software sold in China is derived from pirated copies. This problem remains widespread despite recent changes to China's IP policy. It is uncertain if this problem will lessen in the future. Many of the roots causes for imitation goods arise from the dishonesty of local government officials and a large population living in poverty that use pirated goods as a means to sustenance.

The problem of IP rights serves as a major problem for U.S. investors looking to expand to international markets. It serves as a major deterrent for any organization to form a partnership with a Chinese firm in any market. If such a partnership did manifest, then the outside partner would always hoard any proprietary information. If they shared any proprietary practices then the Chinese firm may very well collect this information and send it back to China for its own personal use. Thus this would serve as a major obstacle for any firm to expand into a new market through the means of a partnership.

However, at the same time, many companies choose to do just that. Apple's supply chains originate in China where entire cities are built around Apple's supplier's production facilities consisting of hundreds of thousands of people working on iPhones, iPads, and iPods. However, to maintain control over IP in this instance, Chinese partners use brute force. Suppliers have come under criticism for using child labor, having unsafe working conditions, and being guilty of other human rights abuses (Moore 2010). There have also been many complaints about Apple's suppliers breeching environmental regulations (Meyer 2011). One case even highlighted the harsh conditions that these employees must endure by telling the story of an employee who worked at Foxconn, one of Apple's largest suppliers, who committed suicide while undergoing a beating for being accused of stealing an iPad.

Working with Government Bureaucracy

China has been called one of the world's most corrupt regions of the world in which to do business. Today's problem stems from a new cultural development which leads many people to pursue personal gain before any other consideration, a significant move away from socialist ideal. Additionally, the government also maintains the control over the access to resources Corruption can take the form of any one of the following forms; demands for payments of unauthorized fees, payment for services that should be provided as part of a bureaucrat's job, or a payment or kickback for awarding a business contract or preferential treatment.

The Economic Co-operation and Development (OECD) and five other countries have recently signed the OECD Convention on Combating Bribery. All countries struggle to ensure that corruption be eliminated by establishing legislation in all contributing nations. In addition, some research suggests that international agents may improve communications between their stakeholders and the foreign entity thereby increasing cooperation. Communication has been show to significantly increase the sense of group effectiveness, cohesion, mutual obligation and interdependence all of which may act to deter corruption in international business deals.

International Management Considerations

Measuring a potential business endeavor has many facets which the international manager must be conscious of in order to deliver the correct information back to the decision makers. Being unaware to any of the aspects can lead to an incorrect representation of the project, and hence an uninformed decision being permitted. In order for a business to survive it must grow and in China's case this requires massive amounts of resources. For growth to be ideal, management must first be able to identify the most attractive prospective leads. The country as a whole, specifically geography, government, and financial aspects must be considered in order to produce the most accurate analysis of the market that a company may wish to enter. Awareness of various issues should be based on than gathering reliable facts that are backed up by more than one source.

The success of the multinational corporation lies on the shoulders of its management. International management has three essential duties: direct supervision, development of the organization's strategy, and management of the organization's internal boundaries. Top management's obligation at and beyond the organization's precincts is largely a communication requirement. Within even some of the largest world class organizations, the process used is disorganized and unpredictable; especially in the light of language and cultural barriers. Furthermore, the Chinese language and culture are vastly different from that of the traditionally recognized developed countries. Thus this translates as a significant barrier for Chinese entrepreneurs.

Modes of Market Entry into China

There are four mechanisms that represent foreign market entry modes. These modes are exporting, licensing, joint venture, and also direct investment. Generally organizations choose a joint venture motive entry to achieve one of five objectives. The first is market entry as in our case with China. However organizations may also choose a joint venture to share risks and rewards or to engage in joint product development. The other two objectives are technology sharing and also a joint venture to be chosen to conform to a foreign government's rules and regulations.

Many other advantages can be acquired through a joint venture such as access to key product distribution channels or knowledge of the local customs and intricacies within the international marketplace. Although many of the same benefits can be gained through acquisition, a joint venture often has an advantage by ensuring both organizations work towards their common strategic goals. Also sharing resources they provide access to quantities of scale in different arenas that he could not access individually.

There are also many potential problems associated with a joint venture. One potential problem is a constant struggle over proprietary information. This occurs when one company refuses to share where hordes if knowledge management or acquired best practices. Disconnects create mistrust between the two organizations. Cultural clashes can also produce barriers to collaboration. This is definitely a problem Chinese firms will have to work to overcome since the conditions surrounding the state of intellectual property rights is so volatile in domestic China.

Recommendations for International Expansions

It is recommended that U.S. firms explore the joint venture avenue first and foremost. This will help them overcome the cultural divide that they might otherwise struggle with if they tried to enter a market by themselves. It would also serve to help them navigate the governance restrictions and local regulations that would otherwise require a rather sharp learning curve since they are so different than that of the U.S. regulatory environment. This is true especially in light of the IP voids in China and any over exposure to IP risk could be catastrophic for U.S. firms. It is not recommended to be as brutish as Apple is in regards to human rights, however some measure would have to be taken.

The second best route for U.S. firms to gain control over supply chains would be through the form of acquisition. If U.S. investors acquired an existing organization then it could keep most of the existing staff. This would also help them overcome the cultural issues that will serve as obstacles in their business endeavors. This staff would undoubtedly already be familiarized with the regulatory environment and could maintain their operations roughly to the standard in which they have in the past. The only key difference in this scenario is that the ownership of the firm would be from foreign origins as opposed to the domestic ones. Then the U.S. ownership could have some flexibility in the amount of control in which they wish to influence over the arrangement. Ideally, management could operate virtually independent as long as they adhere to the key strategic requirements of the parent company.

If neither of the first two options is feasible, then Chinese firms could always stick to importing raw materials from foreign firms. Although, under this scenario they would have limited control over their supply chains they would also have little risk in regards to market entry and ownership issues. This currently represents the most common form of raw material imports for the Chinese. However, as the market becomes more competitive for sources of raw materials then it is reasonable to suspect that the Chinese will wish to exert more control over their supply chains.

Direct market entry serves as a future option, however at the present time it is not recommended for Chinese firms. The cultural and social differences would carry to much risk. Into the future however, the effects of globalization might make this option more feasible. Also, it seems like Chinese planners might already be training the next generation of business leaders right now. As previously mentioned, there are more English speaking Chinese people in China than English speaking people in the United States. It is doubtful that this… [END OF PREVIEW]

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