Guanxi in Jeopardy: Doing Business with China

Courtnay & Stephanie

Outline
Guanxi

Conducting Business in China

The Chinese Economy Case Overview Case Assessment Starbucks in China Wal-Mart in China

Guanxi
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 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."

Cultural Terms
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)

Conducting Business in China Dos and Donts

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

Dont
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
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).

Chinese Economy
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 worlds largest exporter 2010 Second largest economy in the world

If the Chinese economy stays on its current path it is predicted to become the worlds largest economy in the next 10 years

The Case: Motosuzhou

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 assemblyline 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: Electrowide

$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

Case: Stage of Events

Motosuzhou was top choice for Electrowides 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 teams 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

Where do you think the Electrowide team went wrong?

Do you think they did anything right while in China?

Starbucks 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 others havent?
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 Partners with Ai Ni Group

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

Starbuckss Objective
Increase its coffee-sourcing activities in the region for use in global blends Build long term relationships with Yunnans coffee farmers Support Yunnans coffee farmers

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?

Wal-Mart in China
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

References
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-worldfactbook/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/guanxihierarchy-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-businessin/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-chinaidUSTRE79G08620111017 Lee, M & Kwok, D. (2012, February 20). Wal-mart to take majority stake in China's ecommerce. Financial Post. Retrieved from http://business.financialpost.com/2012/02/20/wal-mart-to-take-majority-stake-inchina-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-walmartchina-idUSTRE79D1S020111014 McPherson, C. (2006, February 6). Starbucks to Partner with Ai Ni Group to Bring Chinas Yunnan Coffee to the World. Retrieved from Business Wire: http://www.businesswire.com/news/home/20120206005771/en/Starbucks-Partner-Ai-NiGroup-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/201202-12/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-changingchina/8709/. Starbucks. (2012). Greater China. Retrieved from Starbucks Newsroom: http://news.starbucks.com/about+starbucks/starbucks+coffee+international/greater+chi na/ 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=ADGEESheUg18aq WOgIFNY7spMitTRvhjK8CorGBLJjLaM4LRfPB2exhz6zBNkPiHscQWHR201AFgkJ9MZfkLnqbf9_tVfB9EhgFemmxU2F_OSk5D1f978z_mQDAaJbwDW5ajKaIy7z&sig=AHIEtbQjmYNYTZwBTQQhSHYxic535fgqJQ&pli=1

Questions??