Business in China, Research Paper Example

Introduction

China is one of the fastest moving economies in the world today.  As such most businesses are excited about the prospect of entering a growth economy and doing business.  Despite the attractions this is not without significant entry difficulties particularly from ethical, moral and human rights standpoints. It is important for those entering the business world of China to be fully informed on the important business policies that impact such items as employee welfare, labour relations, and cultural differences. This paper provides the Management of Acme with an improved understanding of these issues.

The Harley Davidson Case Study

In February 2009 America’s big motorcycle manufacturer Harley-Davidson is working with Zongshen  motorcycle group in China as a means of entering a difficult lucrative Chinese motorcycle market.  Harley sees itself at the sturdy end of the market and is hoping that increased wealth in China would change attitudes towards the practicality luxury motorcycles in China.  In this ambition, the executive at Harley seemed to have overlooked a number of significant points: (Beijing News)

1. the engine size most popular in China, is that of 100-150 cc owing to the fact that most of the motorcycles are geared towards urban communities;
2. the Chinese view by not as a luxury that has a necessity in the transport station options in their lives, as such they are looking for economical means of transport, as opposed to automobiles, which they cannot afford;
3. Yamaha of Japan struggles with reducing costs to 800-1000 $ per unit; this despite moving the manufacturing operation into China itself. The simple fact was that the Chinese consumer preferred local brands and was extremely loyal to Chinese manufacturers.  With Harley coming from America as an import luxury bike.  It is considered this would cause them significant problems;
4. Harley Davidson would also be subject to the 50% import duty rule and as such, this would have to be factored into the retail cost of the bike in China, no doubt the uplift in costs would be passed on to the end consumer. (Motorcycle Cruiser)

Local governments in China also limit the amount of motorcycle licenses.  In some cases they are outright bans in many of the larger Chinese cities.  Even working with a Chinese partner Hollywood have to navigate through these difficult waters.

China, in many ways is at a similar point to the Japan motor cycle industry of the 1960s.  It has a low cost, simple machine that paves the way for an exciting future of innovation and technological development.  If the Chinese manufacturing companies managed to build more innovative and technologically advanced motorbikes and at the same time maintain an economic costing model; then they have an exciting future ahead of them.  China is less threatened by the Western economies because of its huge marketing potential in both India and Southeast Asia.  In addition to China to Western manufacturers will also have to consider market losses.  In other Southeast Asian countries including India.

The Improved International Outlook

China is set to become the new leader in the world global economy.  This will change the way people view them in terms of international relations.  US based IBM has already made arrangements to train 100,000 software specialists in China. Microsoft is committed to spending over $750 million by the build and construction of a new technology centre in China.  The courier company UPS is spending in excess of $500 million for the build of new warehouses and operations in China.

The Business Issues

Human Rights –  China has an appalling human rights record in accordance with reports issued by Amnesty International – It is reported that some 500,000+ people are held in detention in China  with redress to a proper legal system or trial.  (Amnesty International).  Although this is largely targeted at dissidents it equally points to the risk and dangers of foreigners doing business in China. There is also the moral issue of supporting a country in business that has slim regard for human rights issues. (Global Issues)

Labour relations – China has an ongoing serious record of labour disputes throughout the country (Table 1 refers).  This illustrates the large number of cases and the workers involved between 2001-2005.  The country also allows a large number of migrant workers and these have been exploited for cheap labour and in many cases not paid for their work –  the issues relating to unpaid wages for migrant workers remains a problem because of the large numbers in China.  (Wu).

Employee Welfare – It is widely held that things are improving in China and the Government is making steps to try and align itself with the international community in the concept of globalization. Nevertheless, there are wide disparities between pay and benefits. “ Recent changes in regulations have seen the amount of hours limited in terms of what can be allocated to overtime. A 40 hour week is the usual standard for factory workers.  In general terms a limit of 5 hours overtime per week and 4 hours on a Saturday. However as other people have pointed out it seems that anything is generally negotiable in China. (China unique).

Import / Export Restrictions

Certain countries set trade restrictions to China because of the human rights violations. The entry to the World Trade Organization in 2001 has however helped to lift a lot of barriers.  China exported $1.2 trillion worth of goods around the globe in 2010. The USA caters for 17.7% of its export market. The US and many other countries maintain a trade deficit with China whilst China maintains a deficit with a number of Asian countries including Japan, South Korea and Taiwan.  It is the cost of low labour in China that makes it very attractive to the import / export market. (China Daily)

China has also entered the outsourcing market and is tipped at providing India with severe competition in this area. CIOs are beginning to see China as a cheaper alternative to India for outsourcing business IT requirements. It is considered that China will have maneuvered itself into an IT giant in less than a decade into the future.   In the last five years there have been remarkable changes in China that reflect upon both economic and political struggles that have contributed to the phenomenal growth in China. This has in particular seen the IT services market expand by in excess of 42% and the projection for 2006 was $8.9 billion.  The investment by Western Companies like IBM and Microsoft have propelled the number of IT students graduating from Chinese Universities and this has started to create an infrastructure that is rivalling that of India and other technical advanced South East Asian countries (Shan)

A poll that was conducted in 2004  indicated that some approximately 8% of Senior IT Managers were considering some degree of technology outsourcing to China.  A year later this figure had risen dramatically to over 40% , providing serious competition to India in this business area.    There is a big differentiation between  that of China and India. For example India is dominated by a small number of very large firms.  This differs to China where the IT sector has been distributed amongst many smaller firms, thereby eliminating the large monopolistic situation created  in India. Historically, China lacked the infrastructure of India but that has been changing rapidly and the Chinese have made great progress in this area. The growth of infrastructure in China is happing at a faster rate than India and is not hampered by taking on board old legacy systems. (Shan)

Conclusion

There is no doubt that the Company would prosper from a trade relationship with China but there does remain a significant amount of ethical questions to consider.  This also impacts existing client relationships and as such entry to this market would need to be carefully weighed against the disadvantages. Despite these early setbacks there are no doubt that the Chinese Government is trying to modernise in order to make itself attractive to the global marketplace and its western trading partners.  Cultural change has always been  a relatively slow process in China and there is no doubt that technological change is moving faster than China’s abilities to deal with social and human rights issues.

References

Amnesty International. Amnesty International. n.d. 17 11 2011 <http://www.amnestyusa.org/our-work/countries/asia-and-the-pacific/china?id=1011134>.

Beijing News. Harley-Davidson in China. 2011. 18 11 2011.

China Daily. China’s WTO entry ‘changing the world’. 10 12 2006. 18 11 2011 <http://www.chinadaily.com.cn/china/2006-12/10/content_754916.htm>.

China unique. Human Resource issues in China. 2011. 17 11 2011 <http://www.chinaunique.com/business/hr_main.htm>.

Global Issues. China and Human Rights. 12 5 2010. 17 11 2011 <http://www.globalissues.org/article/144/china-and-human-rights>.

Motorcycle Cruiser. Harley-Davidson Takes Aim at Chinese Motorcycle Market. 2 2009. 18 11 2011 <http://www.motorcyclecruiser.com/newsandupdates/harley_davidson_chinese_market/index.html>.

Shan, S.S. IT Outsourcing in China: How China’s Five Emerging Drivers Are Changing. 2006. 17 11 2011 <http://www.outsourcing.com/china_trends/pdf/IT_Outsourcing_China.pdf>.

Wu, Victorien. Labour Relations in Focus. 2011. 17 11 2011 <https://www.chinabusinessreview.com/public/0611/wu.html>.