Partnering in China

How Chinese companies are set up?

China is a modern economic «Klondike». Many international companies successfully conduct business in China, being competitive players in its market sector. A wide range of manufactured products makes this country an interesting and promising partner and low prices, quality of goods and ease of transport, allows one to create a profitable business. However, many companies have suffered from failure in this country, often because of immense differences of Chinese business model in comparison with the Western one. To begin with, Chinese businesses are influenced by country’s traditions as any business model is; therefore, the role of the family is immense. In family-owned companies in China the leader of the family has the right of the final vote. [Pranee, 2009] In fact, such a decision can be ineffective and not logical to a Western partner, but it may be the crucial one in the Chinese company. Another important difference is geographical. In Chine the way of doing business varies depending on a region, as there is no single national market in China. In Hong Kong or Macao the companies are set in classical European way, in special economic zones, e.g. in Shanghai or Guangzhou, the business atmosphere is also more free market oriented. [Leong, 2007] However, in the rest of China the administrative economy leads to immense difficulties to build an effective partnership. Finally, specific business etiquette is important for Chinese businessmen and its violation may lead to the fail of the negotiations. [Pranee, 2009] The whole hierarchy in the Chinese company is established according to these informal rules.

Is it expedient to partner with a Chinese company?

The disadvantages of partnership with a Chinese company are obvious, as the foreign partner will possess the certain level of control or block certain decisions. However, the specific business model of this country may require the Western company to spend a lot of time and money on researching Chinese traditions and legal differences of administrative economics. There cannot be a universal solution to these problem and in every specific situation the Western company should decide, whether it should take the risk and create the business from scratch in the communist country. However, there can be two typical situations that define the more or less obvious solution. If the Western company wishes to carry out technologically complex business processes involving mining, machinery construction or certain strategic industries, e.g. energetic industry, which are traditionally situated in a mainland China, it is rational to find a Chinese partner. In such industries the full power of administrative economy’s legislative system can be a serious hurdle to enter the market and the risk of nationalization is quite high. On the other hand, supporting the Chinese partner can grant the Western companies certain subsidies and other types of support of the Chinese government, especially if the business is set up in the depressive region.

Quite the opposite is the situation with the setting the business in the special economic zone. In such zones taxes and …
Posted by: Krystle Hadley

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