The transportation framework
The most commonly used form of transport is truck (89 percent). Rail is next (52 percent), followed by water (25 percent) and then air (22 percent). Pipe (8 percent) is the least commonly used, since it can only be used to transport products in liquid form. Other types of land vehicle such as vans, motorcycles, tricycles and carts constitute 3 percent.
Freighting by air is very expensive, while freighting by water is very much cheaper. As such, firms should try using water transport where it is available. However, when using water transport, one must bear in mind that most of the inland ports and waterways have minimal facilities for products that require special handling facilities (Speece and Kawahara, 1995).
Trucking is useful for short-haul traffic or for long-distance shipments of small loads (Speece and Kawahara, 1995). Firms could perhaps improve rail transportation by building their own spur lines to link their rail cars to the rail networks.
Problems in road transport
The problems in using road transport are shown in. Problems faced in road transport related to the lack of cargo tracing services. This problem could be attributed to the lack of telecommunication and information technologies needed to track cargo during delivery and transit. The lack of telephones in China also makes it difficult for the truck drivers to inform their headquarters about their whereabouts and unexpected delays.
Another major problem was poor delivery reliability from the local carriers in terms of not delivering the goods on time. This could be owing to the lack of customer service orientation of the local carriers, or owing to the lack of cargo tracing capabilities, which prevent the firm from monitoring the delivery process or act expeditiously when contingencies occur.
The next three problems related to customs, namely, complicated customs procedures, excessive customs clearing times and non-procedural practices at the customs. Clearly, there is a need for the Government to improve the customs services.
It is useful to note that some of the problems have relatively higher standard deviations. In particular, the lack of carrier selection has the highest degree of standard deviation. This could be due to the fact that the range of carriers available is different in different locations. For instance, in cities such as Beijing, Shanghai and Guangzhou, there are more private and foreign carriers available to serve the larger population of foreign firms investing there (these are the three more popular cities for foreign investment). The standard deviations for excessive customs clearing times and non-procedural practices at the customs were also relatively large. The customs services might be affected by guanxi. Hence the extent of difficulty of clearing customs might be dependent on a firm’s ability to leverage on guanxi. Location can also affect the severity of these problems.
The relatively large variations in the lack of inter-modal service, the unavailability/limited range of transportation services, frequent changes in transportation regulations and robbery/theft problems may also be due to location. The more developed areas generally will provide better transportation services, while highway robbery is generally more prevalent in remote areas. The frequency of change in the transportation regulations (which affect those who have their own vehicles to transport goods) will depend on specific local government regulations and probably differ on a case-by-case basis. Thus firms should consider the related logistics issues carefully before deciding the location of their venture. .( Huu-Phuong et al )
Firms’ actions to minimize problems
Effectiveness of actions taken by firms to minimize transportation problems shows the ranking of the effectiveness of actions taken by the firms to minimize the transportation problems faced. The higher the mean value, the more effective is the action taken. The frequency column shows the number of respondent firms that has taken each action.
The most effective measure cited to minimize transportation problems is the cultivation of relationships with the appropriate parties such as customs officials and staff of the transport services. Knowing whom to approach, especially when problems occur, can be very beneficial. This action should be particularly useful in helping to minimize some of the more serious problems (e.g. ensuring better delivery reliability and clearing customs) .
The use of stronger packaging materials is another effective measure taken by firms. As most loading and unloading are done manually at the ports where modern cargo-handling equipment is scarce, stronger packing can withstand brusque manual handling and prevent damage to goods. This action could be interpreted as a response to the problem of damage to goods during movements (eighth most serious problem).
The measure of hiring someone to monitor the movement of goods can serve as a form of cargo tracing, as well as to minimize theft and pilferage of goods. Other measures consisted of establishing the firm’s own transportation fleet which results in more satisfaction, and sharing transportation fleet and network with other firms, which helps to widen the geographical coverage while minimizing the transportation charges by making use of excess capacity.
The sharing of fleet and network with other firms, while cited as a relatively effective measure, would, however, require the ability to find partner firms that are willing to share the fleet and network, and this might not be easy. Furthermore, if proper coordination is not ensured, then poor delivery and delays could occur.
The least used actions include the switching of production site, the use of unorthodox delivery vehicles and the sharing of transportation fleet/network with other firms. The reason for not switching the production site could be the problems associated with relocation. One may have to go through a long and difficult process of negotiation to gain approval from the relevant authorities to set up the plant in a new area. The infrequent use of unorthodox delivery vehicles could be due to the fact that firms do not perceive this as an effective way of minimizing their transportation problems, or that firms have not thought of this action before.( Huu-Phuong et al )
DISTRIBUTION
Developing and managing effective distribution channels is an important success factor for foreign companies operating in China. That is why companies should have in consideration:
- In the formation of channel relationships with third-party distributors, a highly formalized and clearly defined business relationship is necessary and important. Congruency with their selected distributors in domain conceptions (e.g. range of product, population to be served and functions to be performed, etc.) and perception of reality (e.g. market size, needs and trends, etc.) need to be achieved as much as possible.
- Over-dependence on one or more distributor should be avoided. Developing direct sales force to work in conjunction with designated distributors in the distribution of products is one way to prevent the over dependency.
- Although international relationships are very important in business dealings in China, they need to be built on the basis of a formal business relationship. Over reliance on interpersonal relationships can result in an undesirable burden, and subsequently, lead to destructive partnerships and unsatisfactory relational outcomes. Hence, ensuring a strong business relationship is the premise to influential co-ordination of channel relationships.
- International conflict management is an ad hoc learning process that is relatively independent of prior international experiences. The implication is that although international experiences can, to some extent, help foreign companies settle in China, no standard practice is entirely adaptable from other countries or even from different regions of China to others. After all, China is a country of many different regional markets that each bears unique environmental characteristics and historical backgrounds.
The uses of non-threatening coercive power sources (i.e. Promise and Legalistic pleas) would strengthen the intra-channel business relationships and contribute to more satisfactory relational outcomes. Certainly, the premise of employing these power sources is that a highly formalized and clearly defined contractual working relationship, as well as strong comparative advantages, are in place (Hong Liu)
In China the relationship is (nearly) everything
China is a huge place* – over 1,000 million people spread over a vast land area. It is difficult for those of us in the west and especially people in Europe to comprehend just how big a market China represents. Nevertheless, as Cui and Liu report, the extent of foreign direct investment into China has matched the size of the country in recent years.
Interaction of guanxi approaches
The effectiveness
The effectiveness of guanxi development lies on the various perceptions of relationship types, namely: six “C” dimensions – contact, conflict, compromise, centrality, control and change.
Contact with a Chinese businessman normally takes a longer time to find the right person, particularly, the right decision makers. Conflict avoidance or solution is by means of renqing (favor). The willingness to accept a favor may mean that, in future, there will probably be a long-term beneficial relationship through repeated exchanges of favors. Compromise is one of the mutual adaptive behaviors. Centrality, one of the unique Chinese features in dealing with foreigners, may tend to encourage the Chinese to treat foreigners as outsiders. On account of the lack of institutional trust, Chinese people tends to over-emphasize self-protection and pragmatism in deals with western partners, as the Chinese may be conditioned to believe that their nation’s economy influences its survival and well-being. One of the best ways to handle this cultural conflict is to have empathy with Chinese people. Empathy in the form of Convergence of yin and yang thinking assists westerners to understand the hidden needs of their Chinese partners, for example, knowing how to resolve conflict lies in the ability to harness the motion inherent in an aggressor’s attack. This is regarded as “fighting without fighting”, an important element in business negotiations. Chinese people have always been flexible in taking various alternatives creatively. Creativity is to take non-resistant action by compensating for weakness through creating harmony with attacks. Chinese businessmen know the best time to let aggressors lose their balance and become vulnerable to counterattack. ..( Y.H. Wong)
Initial contact
In summary, bonding takes place if the initial contact is converted from conflict to a long-term mutual compromise. To understand central defensiveness, we need to appreciate the values and attitude by means of creative convergence of apparent conflicting ideas through empathy. Contact, conflict and compromise variables are regarded as a “mind” approach. While centrality, convergence and creativity are regarded as a “heart” approach. How can this self-contradictory issue of “mind” and “heart” be handled by Chinese people? The issue is composed of two polar opposites like the ancient Chinese symbols of yin and yang, which are themselves self-sufficient and fuse to form a harmonious dynamism..( Y.H. Wong)
Planning a China strategy
Cui and Liu suggest that businesses investing into China and seeking to develop consumer markets need to “plan nationally and act locally” – “… focusing the overall market trend while paying attention to regional differences.” The authors point out that a successful strategy in one region of China will not necessarily transfer to another region, especially given the problems with distribution.
Cui and Liu also warn that firms moving beyond the coastal provinces “… will encounter tremendous regional differences, trade barriers and local protectionism”. These differences mean that some companies are obliged to treat different regions almost as different countries and to negotiate separate partnerships in each area of operation.
The investor who travels to Hong Kong, goes on a whistle stop tour of the South and perhaps flies to Beijing to contact national government officials is not prepared for entry into the country as a whole. This firm’s strategy may work in the South but its success in the North or North East will depend on negotiations with authorities local to that region and with local distribution networks.
Most businesses have simply chosen to ignore the vast interior provinces in favor of richer pickings along the coast. It would not surprise me if the Chinese government began to point new investors in the direction of interior provinces by making investment there a priority. The extent to which the authorities in Beijing are able to direct matters in this way will be a measure of their ability to control dynamic provincial authorities in the South and East.
Investing in China is a long game, not a way to quick profits
Cui and Liu observe that the most successful investments in China have been those that have set out to create stable, long-term markets for consumer goods rather than those seeking export opportunities or driven by a belief that “we have to be in China”.
For the foreseeable future, China will provide cheap labor for manufacturing and, at present, has a co-operative government. But a time will come – fairly soon in the South and East – when wages and economic expectations undermine the cheap labor/high return on investment proposition that has driven much of China’s inward investment.
Firms that have created a stable presence in China stand the chance of sustaining their success when firms motivated by low labor costs seek opportunities elsewhere in Asia or in Africa. Without doubt, any firm planning a long-term presence in China has to consider how they will expand into the less-developed regions of that country.
RECCOMANDATION
The declarations following, combined with the strategic location(economic zone) and the policies of Shenzhen make the entry in the above sectors markets even more attractive and I believe in these sectors must the firm focus their efforts. The only thing is that all the factors described in the previous chapters should be taken under consideration.
SHENZHEN
Special Economic Zones
The Special Economic Zones (SEZ) were established under the experimental policies in the early 1980s. These are pockets of unrestrained laissez-faire dotting the coast. Strategically located across from the epitome of laissez-faire Hong Kong, Shenzhen is probably the most successful of all these zones. In Shenzhen, Guangdong's second largest city, consumers have the highest disposable income in all of China - US$3,900 annually!
Shenzhen's Favorable Policies
The window of opportunity for successful business in Shenzhen is evident in the impressive number of large foreign firms (Samsung, YKK, Wal-Mart, Philips...) operating in Shenzhen and the number of countries (France, Italy, Germany, Switzerland, UK, Belgium, Holland, Canada, US, Korea, Taiwan...). Recently, Shenzhen set a few records, including influx of foreign capital that reached a new height of US$2.422 billion, a 39.59% increase over the previous year! To date, there are 18,000 ongoing projects.
Shenzhen's policy favors high technology industry such as TV, computer hardware, computer software, internet equipment. The liberal economic atmosphere, very conducive to productivity, leads to resurgence in joint ventures. Indeed, 52.95% of projects approved by Shenzhen City in 1996 were in the form of joint venture .
Shenzhen's Strategic Location
Shenzhen is strategically situated across from Hong Kong. That means it is close to a major airport and provides ease of physical contacts for partners of the firm’s joint venture because members of the headquarters will not face the possibility of traveling to the mainland. Also, Shenzhen is very electronically connected, further providing other electronic means of communication between partners in the DragonTrends joint venture.
Opportunities in telecom industry
China agreed1 to cut its average tariff level to 17 percent from 22.1 percent. Before 2003, China will abrogate tariff on semiconductor, PC, computer equipment, telecom equipment and other high-tech products. That decision makes the entry in these sector market even more attractive and I believe these sector must attract the interest of the firm
China will allow 49 percent investment by foreign telecom providers from the date of accession, with the figure increasing to 50 percent after two years.
In 5 years after access WTO, China will progressively abrogate area limitation of foreign investment in pager, mobile phone, fixed telephone service. China will gradually open network service to mobile communication within the first year of access WTO, and finish full-open in 5 years.
Will open CATV and fiber cable in the third year of access WTO and have 6 years transition period.
.
APPENDIX
1. Manufacturing sector ratios
Table 1 Sectoral distribution of contracted FDI inflows in China (%)(1983-95)
Table 2 Industrial distribution of FFEs and DOEs in manufacturing
(end 1995, percent)
Source of table1,2:Calculated from the State Statistical Bureau, Zhongguo Tongji Nianjian 1996 [China Statistical Yearbook 1996].
Note: The calculation is based on the total assets at the year end of 1995.
Table 3 Industrial distribution of FFEs and DOEs by factor intensity
of industry groups (end 1995, percent)
Source: As Table 2.
Source: As Table 3.
Table 4 Spearman’s rank correlation test between the industrial structures
of DOEs and FFEs
Notes: ** indicates 95% significant level of Spearman’s rank coefficient (one-tailed test).
*** indicates 99% significant level of Spearman’s rank coefficient (one-tailed test).
2. China’s seven regional marketstci
Growth market.
Regional markets in the South and East represent China’s “growth markets”. They are more advanced in economic development and have more affluent consumers than hinterland provinces. South China (Hua-nan) includes Guangdong, Fujian, and Hainan Provinces (Figure 1). This regional economy was the first to attract foreign investment with its four original special economic zones (SEZs), and become the most outward-oriented. In recent years, it has embarked on transforming itself from labor-intensive operations to high tech manufacturing. Guangdong has become more integrated with the economy of Hong Kong. Fujian has many investors from Taiwan, and is renewing its ties with the island. This region also represents the culture of the South, i.e. Min-Yue Culture, with plenty of contact with the outside world and great emphasis on mercantile entrepreneurship. Each province has its own main dialect, Cantonese and Fukienese. Consumers in this area, about 7 percent of the country’s population, are among the most prosperous in China. Close to Hong Kong and Taiwan, they have long been exposed to foreign products and tend to emphasize conspicuous consumption (Ariga et al., 1997).
East China (Hua-dong), around the mouth of the Yangtze River, consists of the municipality of Shanghai and the provinces of Zhejiang and Jiangsu (Figure 1). This regional market is densely populated and highly urbanized. The most prosperous in Chinese history, this region is productive in both agriculture and industries. In recent years, it has become China’s industrial powerhouse, boasting 30 percent of the country’s industrial output (Batson, 1996). The delta area is also sprawling with medium-size cities such as Wuxi and Suzhou that specialize in textile and light industry manufacturing. Known as the “head of the dragon,” Shanghai is the industrial and financial center of China and the gateway to the 200 million consumers in East China. Shanghai is also the regional cultural nucleus, representing the “Hai-pai” culture, well-known for having the best amenities and products for enhancing the quality of life. Consumers in this regional market are the most innovative and cosmopolitan, setting trends in fashion and lifestyles.
“Emerging markets”
The “emerging markets” in North, Central and Southwest of China have become increasingly attractive to global companies. North China (Hua-bei), including Beijing, Tianjin, and the provinces of Hebei and Shandong, historically has been the geopolitical base of this country (Figure 1). This regional economy has been growing fast over the last few years and attracted investment from many countries (Batson, 1996). Close to the center, with access to key government agencies, this region is making tremendous investment in industries such as telecommunications, computer technology, and pharmaceuticals (Child and Stewart, 1997). With a number of port cities, this regional economy is increasingly open. Shandong is the biggest agricultural province in China and has some of the best township enterprises in China. Beijing as the nation’s capital also represents the culture of North China – the Jing-pai culture – attaching great value to the Confucian doctrines of hierarchy, stability and control. Consumers here are relatively conservative and emphasize intrinsic satisfaction, yet are still open to new product ideas (Ariga et al., 1997).
Central China (Zhong-yuan) includes the provinces of Henan, Hubei, Hunan, Jiangxi and Anhui, is the heartland of China with heavy emphasis on agriculture (Figure 1). The perennial flood and drought pose a great threat to its natural resources, and make some parts of the region the most impoverished in the country. Despite its industrial base, this region is relatively less developed due to its landlocked location. In recent years, these provinces have been trying to energize their economies and catch up with coastal areas. Headed by the industrial city of Wuhan, they have shown more respectable growth than in the past and emerged as an excellent opportunity for foreign investment. This region also has diverse local cultures in dialects, cuisine, and operative styles, etc. With limited purchasing power, consumers in this region largely follow the trends in major metropolitan and coastal areas.
Of interest to foreign companies
Southwest China (Xi-nan), including Yunan, Guizhou, Guangxi and the most populous province of Sichuan (over 110 million people), has always been of interest to foreign companies (Figure 1). Despite its industrial output and tremendous population, most foreign firms find the consumer market there sluggish (Batson, 1996). The topography of plateau and basin makes this region closed-in and less accessible. Headed by the new municipality of Chongqing, this region is expanding its economic base to develop various industries. Its subtropical forest in the far south is as exotic as the Shangri-La, attracting a huge influx of tourists every year. With rich endowment of natural resources and better transportation infrastructure, this region has great potential as both a manufacturing base and a consumer market. Many of the country’s ethnic minorities reside in this area, making it the most culturally diverse region of the country. Relatively isolated from other parts of China, consumers have a slow pace of life and are less exposed to foreign goods.
Northeast and Northwest remain the “untapped markets”, still waiting to be explored by foreign firms. Northeast China (Dong-bei) refers to the three provinces of Heilongjiang, Jilin and Liaoning, with the port city of Dalian. This region emphasizes heavy industries such as mining, automobile and machinery manufacturing found in its old industrial cities. In the far north of China, this region has the longest winter, limited agricultural output, and little variety in food products. As the “rust belt” of the country, this regional economy has been slow in reforming its economy and state-owned enterprise. People here are still struggling with the remnants of the command economy and have been slow in reaping the benefits of reforms. Manchurian and Koreans are the biggest ethnic minorities in the region and have great impact on local cultures.
Northwest China (Xi-bei) includes Shanxi, Shan’xi, Inner Mongolia, Gansu, Ningxia, Xinjiang, Qinghai and Tibet. Among the high mountains and expanding desert, this region has the largest geographic area yet limited arable land and industrial output. The “Empty Quarter” of the Far West, sparsely populated and the least accessible, is relatively backward and poor (Barnett, 1993). Xi’an, the nation’s ancient capital and a tourist hot spot, is the cultural capital of the region. Mongolians, Muslims, and Tibetans are the major ethnic minorities in the autonomous regions. To close the gap between the interior and the coastal areas, central government has launched a “Fupin” (help the poor) campaign and encouraged more investment in this region. Foreign investors have been given the same privileges previously available only in coastal areas and access to industry sectors restricted in other regions (Verma, 1995).
References
1. Y.H. Wong. Mapping relationships in China: guanxi dynamic approach, The Journal of Business & Industrial Marketing, Vol 15 Issue 1 Date 2000 ISSN 1464-8180
2. Van R. Wood. Evaluating international markets The importance of information by industry, by country of destination, and by type of export transaction. International Marketing Review, Vol 17 Issue 1 Date 2000 ISSN 0265-1335
3. Huu-Phuong. Transportation concerns of foreign firms in China. International Journal of Physical Distribution & Logistics Management, Vol 30 Issue 1 Date 2000 ISSN 0960-0035
4.Geng Cui. Regional market segments of China: opportunities and barriers in a big emerging market . Journal of Consumer Marketing, Vol 17 Issue 1 Date 2000 ISSN 0736-3761
5.Baixia Liao. The Chinese-Foreign Joint Venture: An Opportunity for Foreign Investors in China .
6. Chen Chunlai. The Composition and Location Determinants of Foreign Direct Investment in China’s Manufacturing.
7. http://www.d-trends.com/DragonTrends/shenzhen.html
1 Nov 15, 1999 Press Communique On The Signing Of The Bilateral Agreement Between The Government Of The People's Republic Of China And The Government Of The United States Of America On China's Accession To The World Trade Organization
