Expanding your business to China Essay
Expanding your business to China
There are many advantages to expanding your business to China. Not only is China considered one of the largest economies in the world, it also has a vast emerging market that is still growing (Startup Overseas). Although China has embraced many Western Business ethics and practices, there are still numerous cross-cultural differences that can make it difficult to succeed without sufficient research and knowledge of the culture. Examples of these cross cultural differences include the Chinese’ attitude toward work and workplace, the labor laws, and how Chinese businesses collaborate with other organizations. More differences include how we market and sell a product, and how pricing differs between our two countries. Perhaps the most important differences are those of ethical positions, such as child labor and sexism.
A Chinese worker’s attitude toward the job and the workplace depends on what position they have in an organization. China is considered a collectivist society, which means the majority of people within the society act in the interests of the group and not necessarily themselves (Geert Hofstede, 2010). The United States is considered an individualistic society and emphasizes the importance of the individual. This also applies to the way these countries do business. A collectivist business may have a team of workers contributing to satisfy all the customers, whereas an individualistic business may have several individual representatives who each have their own client list. Another difference in the workplace is how large an organization’s Power Distance is.
Power distance is the acceptance that all individuals in the society are not equal (Geert Hofstede, 2010). China has a very large power distance, which means its’ workers accept the fact that there is a hierarchy within the organization, and they know their place within that organization. They expect power within the business to be distributed unequally. The United States has a lower Power Distance acceptance, which means that workers don’t accept that power is distributed unequally within the organization, and they expect to be treated as equals to even the people in the highest positions of the business. The Chinese also accept that decision making comes from the top, whereas in the U.S., everyone wants their suggestion and opinion to be heard, and they do not always accept decisions that are made within the organization.
The differences between Chinese and U.S. labor laws are subtle, but still worth mentioning. In China, a normal working week is 44 hours, with a maximum of 48 hours (only 4 hours of overtime is allotted). In the U.S., a normal working week is 40 hours, with overtime paid on any hours worked over that 40. Maternity leave is up to 3 months paid in China. In the U.S., Maternity leave is up to 12 months unpaid (at the company’s discretion). Surprisingly, women in China make 80.5% of what men in the same position make, whereas in the U.S., women only make 70% of what men make in the same position (Guo).
In China, businesses tend to put an emphasis on personal relationships between business partners. An initial business meeting will consist of getting to know the personality and lifestyles of the one you are entering into a relationship with (Graf). Chinese business owners will want a loyal friendship when considering associations. This system of social networks and influential relationships that facilitate business and
other dealings is called guanxi (Mah, 2012). In the United States, owners of a business as well as the workers within that organization strive to keep their personal and professional lives different. Though some partners end up being friends, and many workers build friendships outside of the workplace, it is not the intention at the start of a business relationship.
Gift giving is also a large cultural difference. In the United States, if a gift is given at the start of a business meeting, or the start of an association, it can be seen as bribery or a way to make businesses feel obligated in working together. Chinese organizations are much more accepting of gifts although certain etiquettes must be followed in order for the gift to be given in good faith (Culture Crossing Guide). For example, gifts must be nicely wrapped and may not be opened right away unless prompted to do so. Also, do not give any gifts such as clocks, flowers, or cutting instruments as it is considered disrespectful.
Negotiation style is a major difference between the United States and China. In China, social context, personal relations, and non-verbal behavior are very important in negotiation. There are usually many people from the company who attend the meeting to discuss any topics that need negotiation. Americans value legal contracts and documents over personal relationships, and do not put as much stock in body language. American businesses usually only send one or two people do the negotiating on behalf of the entire company.
For the purposes of this paper, let us assume that an American Company has seen great success with its toy product. This company is looking to expand its business to China. There is usually a demand for toys in any country and in China, 17.1% (roughly 223 million) of the nation’s population is under 14 years old (Central Intelligence Agency). Research also shows that the total retail sales of toys in China have increased by 14.2% since 2010 (HKTDC Research, 2014).
The Design of this toy would have to be carefully rethought, particularly if it is a doll or Barbie type toy. The doll would have to be remanufactured to suit the needs of the children in China. Skin Color, Clothing, and accessories would all need to be redesigned. For example, although most girl-intended American Dolls wear pink, pink is considered a gender-neutral color in China. The color white is also associated with death and mourning, so any “wedding dress” dolls would need to be recolored to the traditional Chinese color of red (KaiWen, 2010).
The clothing of the doll would probably have to become more modest. In looking at Chinese dolls, most are dressed in Geisha style robes. The United States dolls tend to show more “skin.” The packaging of the doll would also have to be translated to Chinese. The company would also need to avoid any symbolism that might offend Chinese parents or even the government, such as any American paraphernalia, like the flag, or anything with a religious context, like a cross.
Imagine the price of this toy is $5.00. The value of a $1.00 is equal to 117.78 (¥). That would mean that the exchange rate on the toy would be $588.90. But with the Purchasing Power Parity (PPP) factor, we know that China’s market exchange rate is .6 (World Bank, International Comparison Program Database, 2014). This means that China would actually pay 60% of what the United States would pay for the toy. The price of the toy would be 353.34 ¥. This price could be adjusted depending on competition in the Chinese market. The American company would also need to increase the price based on exporting costs.
A sale price, or discounted price, in China is also different from what a sale price would be considered in the United States. In the U.S., if a product is on sale, the advertisement might say “10% off.” In China, they advertise the percentage of the price that you would pay for, in this example “90%” (Tyson, 2014). Good times for sales would be around National Chinese Holidays, such as the Chinese New Year (Spring Festival), May Day, or the Mid-Autumn Festival.
Several sales channels can be used to promote a product in China. Traditional avenues include major shopping centers, specialty stores, and franchise chains. There is also the internet platform and many sites such as Amazon or Baby.tmall.com. One of the best ways to break into the toy market in China is to have the toy include educational or technological aspects. This would help broaden the available channels of the toys to include museums, zoos, and electronic stores. This is very different from the United States, who tends to promote and market to the different genders. Most American toys are either for girls or for boys; there aren’t very many gender-neutral toys.
Just like in the United States, China has import and trade regulations. Some of these regulations include import inspection (Regulations for the Administration of Inspection of Toy Imports and Exports), attention to the potential danger of toys, China Compulsory Certification (CCC), and standards such as plush toy fillings should be even and of an appropriate softness with no hard objects inside. It is also worth noting the Standardization Law of the People’s Republic of China, where four levels of standards are stipulated: national standards, industry standards, local standards, and enterprise standards.
This company will have to adhere to all of these standard and regulations in order to export the toys from the United States to China. Another option for the company would be to open a factory in China, or use a preexisting Chinese toy factory to manufacture the toys and sell / distribute locally. In order to reach the more rural areas of China, this company might consider making a deal with a Chinese company that already distributes to those small towns and rural areas. If this company does decide to open a factory in China, or utilize a preexisting factory, it will have to deal with ethical issues such as child labor, and sexism. Child
labor has been a widely controversial issue for many years. The PRC Law on the Protection of Minors was first passed in 1991, and the newly revised Minors Protection Law entered the force in 2007. Many International rights documents have also been implemented by the UN (Library of Congress). Although the child labor conditions have been described as “improved” in China, there are actually no statistics or documentation to back it up. We still hear reports of Child Labor issues existing in China. As a company looking to do business in China, it is important to set certain standards within the organization that do not support and do penalize child labor. Although women in China make a higher percentage of what men make (80.5%) than what women in American make compared to men (70%), there is still a lot of sexism in the society and the culture of Chinese businesses.
For example, women must always greet men first, and it is not acceptable for women to look men in the eye. Women are not allowed in higher or executive positions within the organization. Women are still expected to meet a nice man, get married, have children, and take care of the household. Not to mention the fact that having a son is extremely preferable to having a daughter in most Chinese families. While this behavior would be considered abhorrent (mostly) in Western cultures, foreign businesses may actually benefit from China’s oversight in regards to women. Foreign businesses may hire the talented women for executive positions that Chinese businesses have ignored or cast aside (Harris, 2010).
While there are many differences between the Chinese culture and ethics from those of the United States, expanding a business in China can be mutually beneficial and successful. There is a balance between Chinese and American societies and laws that must be found, or all parties may be unhappy. Before growing your business to a foreign country, much research and planning must be done. Or, as the Chinese proverb says, “if a thing’s worth doing, it’s worth doing well.”
Central Intelligence Agency. (n.d.). The World Factbook: China. Retrieved from Central Intelligence Agency: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html Culture Crossing Guide. (n.d.). China. Retrieved from Culture Crossing Guide: http://guide.culturecrossing.net/basics_business_student.php?id=43 Geert Hofstede, G. J. (2010). Cultures and Organizations: Software of the Mind. New York: McGraw-Hill USA. Retrieved from The Hofstede Centre.
Graf, R. (n.d.). 10 Major Cultural Differences Between China and the United States. Retrieved from Hubpages: http://hubpages.com/hub/10-Major-Cultural-Differences—China-and-the-UnitedStates Guo, B. (n.d.). China’s Labor Standards: Myths and Realities. Retrieved from academia.edu: http://www.academia.edu/165449/China_s_Labor_Standards_Myths_and_Realities Harris, D. (2010, 12 16). Sexism in Cina. A Good Thing for Foreign Business? Retrieved from China Law Blog:
HKTDC Research. (2014, 09 18). China’s Toy Market. Retrieved from HKTDC Research: http://chinatrade-research.hktdc.com/business-news/article/China-Consumer-Market/China-s-toymarket/ccm/en/1/1X000000/1X002MRF.htm KaiWen. (2010, 11 09). Ask the Chinese Girl. Retrieved from Blogspot: http://ask-a-chineseguy.blogspot.com/2010/11/colors-in-chinese-culture.html Library of Congress. (n.d.). Children’s Rights: China. Retrieved from Library of Congress: http://www.loc.gov/law/help/child-rights/china.php
Mah, R. (2012, 11 23). Cultural Differences Between America and China. Retrieved from World-Class Business Etiquette: http://www.etiquetteoutreach.com/blog_new-york-etiquetteguide/bid/92662/Cultural-Differences-Between-America-and-China Startup Overseas. (n.d.). Expanding a Business in China. Retrieved from Startup Overseas: http://www.startupoverseas.co.uk/expanding-a-business-in-china# Tyson, K.