Business Structure
When looking at China from a business structure it is important to take a look at their economics and other factors such as: National Output, Labor, Communications, Commerce, Government and more. With the way China emphasizes the whole when making a decision each of the following has an impact on the structure of business.
A ten-year plan for 1976 to 1985 stressed improvement in economic management and a larger role for private and collectively owned (as opposed to state-owned) enterprises. This program was superseded by a more modest ten-year plan for 1981 to 1990, but efforts to attract Western technology and investment continued, as did a program of incentives to increase agricultural production. Policies introduced in October 1984 called for further decentralization of economic planning and for increased reliance on market forces to determine the prices of consumer goods. During the early 1990s the government continued to ease controls on the economy.
National Output
The annual gross domestic product (GDP) of China in the early 1990s was $544.6 billion, or about $460 per capita (Encarta 98). Agricultural output (which also includes some small-scale industries in rural areas, forestry, and fishing) accounted for about 24 percent of domestic income, and industrial output (which includes manufacturing, mining, electricity generation, and building and construction) accounted for 42 percent.
Labor
The Chinese labor force in 1996 was estimated at nearly 584 million people Encarta 98). China has problems with unemployment and underemployment due to rapid population growth rate. In the mid-1990s about one-quarter of the population was 15 years of age or younger; this guarantees that a large number of young people will enter the labor force each year (Encarta 98). It is estimated that about 60 percent of the labor force consists of agricultural workers. The rural family is estimated to receive three-quarters of its income from the collective economy and the remainder from sideline activities.
Prime Sectors
Today agriculture is still the most important part of China’s national economy supporting the vast majority of the population. About 10 percent of China’s nearly 3.7 million acres is farmable and nearly all this land is under cultivation. China has more irrigated land than any other country with half of cultivatable land being irrigated. Because of China’s Longitude and Latitude plus elevation they are able to produce at least some quantity of almost every major agricultural crop. Although new areas are brought under cultivation the loss of cultivated land to nonagricultural uses was even more rapid, and increase in population. To help with agricultural production, the various levels of government operate about 2300 state farms. They are large-scale units run for the purpose of agricultural experimentation and for commercial production of certain economic crops and foodstuffs for urban markets or export.
Food Crops
About 85 percent of the cropable area of China is devoted to food crops. The most important is rice, which occupies about one-fifth of the total cultivated area. In the early 1990s the annual production of rice was about 183.8 million metric tons, the largest in the world (Encarta 98). The second most important food crop is wheat with the wheat crop in the early 1990s was about 96 million metric tons a year (Encarta (98). China also produces maize, kaoliang, millet, barley, oats, and is among the world leaders in soybean and peanut production. Tea is a traditional export crop of China. Still one of the major tea producers, China produces more than 20 percent of the world supply; its annual output was about 542,000 metric tons in the early 1990s (Encarta 98). Other food crops include sweet potatoes, white potatoes, and various fruits and vegetables. Fruit ranges from such tropical varieties as pineapples and bananas, to apples and pears.
Other
China also maintains a large livestock population including cattle, sheep, goats, pigs and horses. China’s forest resources are limited due to centuries of over harvesting for fuel and building materials. Principal species cut are various pines, spruce, larch, oak, and, in the extreme south, teak and mahogany. Other commercial species include the tung tree, lacquer tree, camphor, and bamboo. China’s fishing sector includes fish as well as aquatic plants.
Industry
The industrial sector in China is, for purposes of government planning, composed of manufacturing, mining, electrical-power generation, and building and construction. The industrial sector now contributes 42 percent of China’s GDP (Encarta 98). The country now produces a great variety of steel products, including tungsten steels, stainless steels, heavy steel plate, and seamless pipe.
Tourism
Beginning early in the 1970s restrictions on travel to China has been gradually lifted. In 1979 the Chinese government wanting do develop more tourism, established a five-year plan for the purpose of; the plan called for constructing new hotels and restaurants across the country and training personnel to receive a rapidly increasing number of visitors. In the early 1990s some 38 million tourists visited China annually, spending nearly $4 billion (Quanyu 1994).
Energy
China is one of the world’s leading producers of electricity, with an annual estimated output of 740 billion kilowatt-hours in the early 1990s, and an installed generating capacity of 158.7 billion kilowatt-hours. Unfortunately electricity production is not sufficient to meet needs; especially in the cities development has been given high priority by the government. About 75 percent of China’s annual electrical output is thermally generated in coal-burning installations, with oil-fired plants supplying 20 percent. Hydropower accounts for virtually all of the remainder.
Communications
Thanks to emphasis placed on the use of radio and television by the Chinese Communist government there is an ever-increasing number of both in China. During the mid 1990′s it was estimated that about 21.3 million radios were in use and there were an estimated 35.8 million television sets throughout the country (Quanyu 1994). In Beijing for example there is two sets for every three households is the urban average. In 1986 commercial radio began its move to the forefront of radio broadcasting.
1635 newspapers have a combined circulation exceeding 100′s of million. Considered the most significant newspaper, Renmin Ribao (People’s Daily), daily circulation is about 3 million. Published in Beijing, it is under the direct control of the Communist Party’s Central Committee. Most of the news comes from Xinhua (New China News Agency). Postal and telecommunications services are controlled by the government. Telephone service extends to virtually all localities, but few households have their own telephones. In the early 1990s about 15 million telephones were in use (Quanyu 1994).
Commerce
The circulation of commodities in China, formerly determined by central planning, is now to a large extent determined by market forces. Thanks to change in 1979, state-owned enterprises have been free to obtain some of their supplies and dispose of a part of their product on the market; wider use of advertisement as a source of information has also been evident. This reorganization of commerce in urban centers, has brought about a rapid growth of collectively and individually owned businesses, such as restaurants, teahouses, inns, hairdressing establishments, photography studios, tailor shops, and all types of repair and maintenance services. Rural markets have been reopened where individual households are allowed to dispose of their surplus products or to purchase supplies.
Foreign Trade
Foreign trade in China is completely monopolized by the state. In 1979 China relaxed certain trade restrictions, paving the way for increases in the relatively small foreign investment and trade activity. By the early 1990s yearly exports totaled about $92 billion and imports about $104 billion (Encarta 98). United States, China trade relations were strained in the early and mid-1990s as a result of human rights practices and rampant copyright piracy in China. Due to these strained relations “Most-Favored-Nation” status was in jeopardy. Cancellation of MFN could hurt the economies of both countries if the volume of trade between them declined as a result.
Government
Local government in China is organized into three major administrative tiers: provinces, counties, and administrative towns and villages. Each layer of governmental structure is responsible to the layer above it, but a lot of authority has been vested in small local units. A new constitution was adopted in 1982 and amended in 1993 to embody principles of a socialist market economy. According to the constitution of 1982, China is a socialist dictatorship of the proletariat led by the Communist Party and based on a united front that includes other democratic parties.
To summarize the information from above, China is a Socialists country and their economic structure dictates business structure. China’s system consists of a mixture of state owned enterprises and a growing number private business. Expect every step navigating the structure of state owned businesses to be slow. Be very cautious with private business as there are constantly under the watchful eye of the government.
Interpersonal & Business Relationships
In China interpersonal and business relationships are very intricate. It takes a little time to get the feel of when business is being done and when it is not.
Interpersonal
Important in China is two types of friendship: intimate and common. Intimate friendship is a core circle where a person is viewed as “one of us”(Quanyu 1994). The other is called common friendship, which is outside of the core circle.
Intimate friendship is where Chinese people their interests, hobbies, studies and work connections to divide their relationships into various core circles. Almost every Chinese has several intimate friendship groups. Chinese people call this friendship a “lifer and death friendship” or “friendship in adversity”(Quanyu 1994).
Often intimate friendships are made under adverse circumstances. Within it, there are two kinds: 1) people who are in a difficult situation have to help each other and a friendship develops, 2) When someone is in trouble, others who are not, regardless to risk of themselves, will help. Most of the time these friendships are of the same sex.
Intimate friends will not be sufficient in associations with the Chinese. A person also needs common friends. With limited time you can have only so many intimate friends so it is necessary to have a large numbers of common friends.
The reason for this is, in China the saying, “Neighbors are dearer than distant relatives” (Quanyu 1994). Because China is a country where money does not ensure success, everyone needs somebody to help him or her out. These Common or “Ordinary” friendships are not high maintenance. That is not to say that a person shouldn’t take advantage of all opportunities to interact with a common friend, just that by nature these friendships will remain intact even without lots of contact.
Business
A carry over from interpersonal to business is the idea of the “First Impression.” First impression can open or close a door in China, especially business, very fast.
Some Americans who have done business in China say, “When you associate with people in China they seem to have a two-fold attitude (Quanyu 1994).” Meaning they can be official one moment and personal the next. The line can be defined as official business happens according to official principals and do not let personal considerations interfere with execution of business.
When negotiating, hierarchical relationships are very important right down to sitting arrangement. For example the leaders of each group should sit at the center of the table with their assistants on each side descending in rank. Continuing on negotiations, at the beginning hospitality and entertainment are seen as an important part of doing business. This seems to contradict previous information, but never the less it is important. Chinese see negotiations as three distinct stages in establishing a business relationship: the social aspect, talks leading to the signing of a contract and then really getting down to the give and take of the working relationship after the contract is signed (De Mente 1989).
The third step is where most problems occur. Chinese negotiators are known for their shrewdness. They understand much about the mental and psychological battles that go on during the final stage of negotiating. A negotiator for a Chinese company understands positioning, posturing, pricing, psychology and is effective with the use of timing. So the key for dealing with a Chinese company is to be patient and calm, never use ultimatums or get hostile, always try to maintain a cooperative stance (De Mente 1989).
To conclude about negotiating a company must try to operate within the Chinese system. That means being patient, using connections, taking advantage of opportunities, being clear and precise. When talking about using connections, do not try to create connections through the use of bribes. They are very frowned upon, as they do not show a true friendship. If trying to use a form of a bribe, develop a friendship even if it is common and then present it as a gift.
This section could go on for pages more, but the above information covers a couple of the most important principles.
Product & Marketing Mix
Product
For our product we chose the Black & Decker Automatic Rice Cooker. The rice cooker comes in either white or black. It has a removable 16-cup bowl with cup markings and a heavy-duty glass lid. Switching from cook to warm automatically with bright indicator lights to allow for quick recognition of whether it is cooking or warming. For safety purposes it comes with “cool touch” side handles. Coming with the Black and Decker Automatic Rice Cooker is a convenient scoop and spatula. Priced in the U.S. at $19.99. A side note the rice cooker is made in China.
Distribution
Due to the Black & Decker Automatic Rice Cooker being made in China there is an opportunity for access Ministry of Internal Trade. China’s distribution system is one of the most complicated parts to marketing in China. To be honest we are not sure we understand it correctly. The plan is to enter the product into the preexisting distribution system, which would create from three to four middle groups. This system could possible push price up, but makes it simpler as a whole. After entering into this system the product would pass through a wholesaler and then onto a retailer.
If possible our prime target markets are Hong Kong and Beijing. Hong Kong has an estimated population in the 6.5 million range and Beijing is the capital city with 11.5 million including surrounding metropolitan areas. Also with Hong Kong remaining semi-capitalistic for another few years the income per capita is a little higher. Plus both are directly governed municipalities meaning more of a focused local government. Plus in 1995 the government announced that foreign banks would be allowed to open in ten cities, with Beijing being the first. This could possible give an advantage to obtain any needed financing.
Pricing
Our pricing, we would like the shelf price to be in $10 to $15 range. The range factor comes from of not knowing the mark up through the distribution system. We felt that this was a reasonable price because of a couple of factors: shipping and non-necessity. The first being since it is made in China there is less shipping cost than shipping to the United States. The second, the price markets the cooker towards people with a bit more disposable income needed for what we consider a luxury item.
Promotion
To start with promotion will rely heavily on newspaper, primarily the Renmin Ribao out of Beijing. We will run simple, friendly advertisements focusing on the automatic cook feature and that it makes 16 cups of rice. This will happen every week as much as we think we could afford.
The second area that we will use to promote is TV there are about 35.8 million in China. The advertisements will be simple with a traditional setting showing a mother/wife cooking rice for the family. The ideal would be to get a known friendly female figure of China. Maybe not the most expensive representative, but one the will create a feeling of common friendship.
The third promotion idea is to give live demonstrations at retail outlets. By showing the Automatic Rice cooker at work there is a chance to develop curiosity of how it works and that it produces good tasting rice. Rice is the prime food source for many Chinese. They have a good idea of what good rice tastes like so if we can prove that the rice cooker produces good quality rice in a short amount of time then a good product image will develop.
Works Cited
De Mente, Boye. Chinese Etiquette & Ethics in
Business. Illinois: NTC Business Books, 1989.
Microsoft Encarta 98 Encyclopedia. CD-Rom.
Producer Microsoft 1998.
Quanyu, Huang. A Guide to Successful Business
Relations with the Chinese. New York: Hayworth
Press, 1994.
Yau, Oliver & Steele, Henry. Editors. China Business:
Challenges in the 21st Century. Hong Kong: Chinese
University Press, 2000.