South-Western - Management  
Before You Set Up Shop in China…
Topic Global Management, Entrepreneurship
InfoTrac Reference A140494171
If your textbook came with an InfoTrac passcode, click here to login on InfoTrac.
Key Words Small business in China, investment structure, management
News Story

In spite of the allure of cheap labor and the large market in China today, small business owners looking to expand into this country need to realize that the challenges involved will be many and onerous. Big businesses like Pepsi and Microsoft have underperformed in the country. China’s business environment is still very cumbersome, the legal system is unreliable, and government regulations are vague and subject to the whims of local authorities. Because of all these stumbling blocks, small-business owners need to proceed with caution when entering China. Areas for research include:

  1. Industry: Long-standing restrictions on foreign companies are dropping by the wayside. However, that means that rules and regulations are in a constant state of flux. An owner needs to be aware of the rules that govern the business on a national, as well as local level.
  2. Location: Though big cities like Beijing and Shanghai remain popular with business owners, they may not be the best choice for entrepreneurs to enter the market. China has close to 100 cities with populations topping 1 million. Cities that are off the beaten path may provide government-sponsored incentives, making it more attractive to do business there.
  3. Investment structure: Joint-ventures and wholly foreign-owned enterprises are the most common. For small businesses, though, the paperwork can be daunting. Finding a local Chinese partner can be a much less expensive way to go.
  4. Management: Experts agree that you will want to maintain a permanent presence in China to run the new business. Remote management will not work in this volatile environment. However, sending staff to China can be very expensive and many companies struggle under Western managers who don’t understand the Chinese way of doing business. One solution might be to hire a Chinese manager and a part-time expatriate who has responsibility for visiting the office regularly.
  5. Intellectual-property protection: Piracy is rampant in China, and many companies cite a lack of intellectual-property protection as their biggest stumbling block in China. If this is a big gamble for your small company, you might consider starting out in Hong Kong instead, which is more developed and has few restrictions on trade with China.
  6. Commitment: Experts agree that the challenges involved will test the owners’ conviction to be successful and that full commitment is essential to success.
All this planning is essential, yet, owners should be prepared to be flexible as well. Things are changing fast in this country and survival hinges on the ability to adapt.

Questions
1.

What are the logistical challenges facing small business owners who are planning to set up shop in China? List at least two and describe them.

2.

What are the management challenges facing small business owners who are planning to set up shop in China? List at least two and describe them.

3.

Taking into consideration all of the challenges, what would be the advantages of moving a small business operation to a foreign country like China?

Source “Before You Set Up Shop in China…,” Business Week Online, January 4, 2006, pNA
Instructor Discussion Notes Discussion Notes
These notes are restricted to qualified instructors only. Register for free!

Return to the Global Management | Entrepreneurship Index

©2006  South-Western.  All Rights Reserved     |