Case of Doing Business China

“A set of processes leading to the integration of economic, cultural, political, and social systems across geographical boundaries” Globalisation is the single, most influential driver of change in the 21st century. Management out of necessity are forced to align their business operations with the emerging global economy in order to merely survive in today’s environment.

The global market place is intrinsically linked to technology as a means to close the gap of time, culture and geography. A few major recent historic converging events are regarded as core drivers of globalisation as we know today and are investigated below. Although the internet was around for some time, Netscape Navigator, released in 1994 is regarded as bringing the web to life by allowing ordinary users to interact with content easily.

Netscape triggered massive attention during the mid 1990s, the so called ‘dot com boom’ as investors scrambled to cash in on the newly established, ‘information revolution’. Huge investments during this time were placed on network providers such as Lucent, Cisco and Nortel. With such a rapid increase in capital, an estimated $1trillion was spent during this time laying thousands of miles of fibre optic cable, establishing high speed infrastructure links between the United States, Asia and Europe.

Over-investment at this time lead to the ‘dot com bubble’ and the as a consequence, the ‘dot com burst’. While the ‘dot com burst’ paved way for a more conservative approach to IT investment as the public perceived the information revolution extinguished, this was merely the end of the beginning as the investments in fibre optics effectively made Asia and the United States next door neighbours overnight, allowing more people than ever before communicate virtually for free.

Another major contributing factor occurred in the 1990s which saw extraordinary development in a plethora of software applications which when combined with high speed data exchange, had the effect of creating a multiplicity of forms of collaboration. This instance during the 1990s is regarded as the genesis of globalisation and the flattening of the world. Outsourcing has also contributed to the flattening world as managers realised the potential for coordinating business operations online to radically cut costs, leveraging foreign location economic conditions.

Similarly, the rise of ‘offshoring’ practices has also emerged. We see a wide range of open-source software development collaborations as a result of globalisation, a powerful form of collaboration. The Firefox web browser created by a 24 year old from New Zealand and a 19 year old from Stanford University was downloaded over ten millions times during the first month of release, acquiring some 5% of Microsoft’s market share. The Linux Apache community have also demonstrated the power of open-source which holds some 15% of the web server market share today.

Supply chain management is also regarded as a major contributing factor and in itself, an entirely new form of collaboration. The largest organisation in the United States, Wal-Mart, manufactures nothing, but focuses exclusively on managing their supply chain down to the last atom of efficiency. ‘Your World Synchronized’, the UPS logo, strives to do just that and the company is regarded as another major supply chain player which is gaining business on areas which seem counter intuitive.

‘Insourcing’ (the process of undertaking business operations from third party organisations) Toshiba’s entire laptop repair service and charging Toshiba once laptops have been delivered back to customers demonstrates the ability of organisations to undertake radically different forms of business operations as a result of the ‘flat world’. The convergence of all of the above technologies and forms of collaboration are being rapidly accelerated by more recent developments in technology such as VOIP, file-sharing, ubiquitous computing and wireless communications.

Such technologies are now allowing people to collaborative anytime, anywhere and with any device on the move. Much like the electricity revolution, the information revolution truly emerges once a variety of factors reach a pivotal tipping point, resulting in exponential and sudden gains in productivity. Infrastructure fuelled the development of software, which in turn fuelled outsourcing, offshoring, open-sourcing, ‘insourcing’, and ‘supply-chaining’.

All of these factors have very recently contributed largely to the flattening of the world as we know it today by creating a global, web-enabled platform for sharing multiple forms of sharing knowledge and work across time, distance, geography and language. Furthermore, government deregulation, free markets, cheap air travel, global warming regulations/legislation and other factors are regarded as other contributing factors. The convergence of all forms of technology and collaboration can be used as a framework for sense-making for a large proportion of things which we see today.

Today, value is created in interactions which cut across departments and organisations in a horizontal fashion rather than the traditional vertical silo structure. The ability for organisations and IT project managers to restructure their organisation and integrate with third parties in this fashion will ultimately result in the necessity of survival. Russia, China and India, some 3billion people are not becoming, but are major players in the global business environment. Broadband penetration in total in these areas, some 10%, equates to roughly 300million new entrants (greater than the total broadband enabled population of the U.

S) over the traditional powers of the west, which have access to the same tools, resources and education are poised to shape the brief history of the 21st century. When the ‘dot com bubble’ burst, it was said that globalisation was over, yet this statement could not be further from the truth as it was conversely the catalyst of the globally integrated environment which we have created and know today. Large organisations are sensitive to this change and have radically restructured and reinvented operations as a result of a change of mindset.

IBM last year stated that they expect that 50% of their new product innovations will come from outside their organisation and as a result have rolled out a highly modern open platform for innovation and learning which constitutes loose forms of collaboration and rapid prototyping by leveraging ‘Web 2. 0’ technologies (blogs, wikis, test beds, social networks & others) to develop and test ideas across all distributed geographic regions of the organisation. Xerox has similarly undergone an extensive change as a result of the flattening world.

Organisations are pulling customers more and more into the supply chain as a means to reduce costs and enhance focus on core competency. Design, distribution and advertising we see are increasingly being undertaken by consumers. It can be said in this way that if you buy an electronic flight ticket with Ryanair for example, that, if you value your time, you are paying Ryanair to work for them. There are cases of organisations adopting an extreme approach - where every business operation is outsourced, allowing total flexibility and speed for change.

Such organisations may be regarded as branding shells which emphasise brand strength and awareness through the utilization of highly specialized competencies of third part providers. The flat world dictates greater consolidation as a necessity for large organisations to acquire high technology SMEs which have accumulated a large number of users or high technology (intellectual property) goods/services. As a consequence, managers must develop new and align existing IT projects to cope with this potentially large contrast in culture, organisation structure, existing IT infrastructure and customer preferences.

It is estimated that in the future almost every product and service will become a commodity as vendors flood into the global market and compete exclusively on price performance. Furthermore, markets we expect will become more complex, will have more opportunity and will comprise a large number of product/market niches. As a result, how can organisations gain sustained long term sustained competitive advantage? Managers must acquire a portfolio of projects, strategically focused, almost exclusively on innovation and idea generation, something which is seen to be impossible to commoditise.

Organisations must adopt a proactive approach to embrace the emerging flattening world and encourage open communication and collaboration, share knowledge and receive insight by reciprocated knowledge with all. Managers must encourage open collaboration both internally and increasingly externally, as a core component of an organisation’s overarching business strategy. China & ‘The Flat World’ China’s role in the global economy appears to be set. The country is regarded as the most important nation today for both developing and developed countries.

China can do not only high-quality, low-cost manufacturing but increasingly, high-quality, high-cost manufacturing. Organisations such as Google and Microsoft have relocated research and development operations close to Tsinghua University in Beijing as a means to acquire fresh talent from the country’s greatest science and technology institution. Despite substantial losses, Microsoft has taken the seemingly counter intuitive stance of sustained funding in China, implicitly signifying their intensions of the future of the Chinese economy.

In 2005, both the Microsoft and Google labs accumulated 12 out of a total 110 computer science and technology PHD studies which have been developed into prototype ventures. In this way, we see that China is increasingly being utilized for more than purely cost based economies of scale. The Chinese government is also supportive of such objectives and is keen to maximise China’s full potential given their shifts in policy from the so called ‘open door’ policy, to ‘made in China’ and to today’s slogan of ‘created in China’.

China to this end has adopted a proactive stance to the flattening of the world by allowing itself to connect to more people than ever before through the adoption of cheap broadband and mobile services and the correct physical roads, airports and other transportation systems. Educating the population as a whole to be thinking in more creative and innovation ways and furthermore, to adopt reliable rules of law and fiscal policies to allow people to connect to the global information platform in the most productive way possible is vitally important for the continued growth of the Chinese economy.

Between China, India and Russia, roughly 12% of their combined populations have broadband access, equating to some 340million people. These people have access to the same resources, education and tools as people in western countries and are therefore considered to be new and equal entrants into the global playing field. Although broadband penetration in these regions is low, this 340million is greater than the entire population of the U. S, some 300million, of which there is roughly 75% broadband penetration.

The implications of this trend are outstanding and will pave the way for the changes which we will see in the coming years as China grows from a manufacturing base to an intellectual hub. In order to facilitate the economic, social and political transition to accommodate the flattening of the world, she must overcome a few major barriers which are particular to China; protecting intellectual property, working with government bureaucracy and developing effective business relationships. Protecting Intellectual Property

Intellectual Property (IP) is regarded as a major deterrent for foreign and domestic companies wishing to establish themselves in the Chinese market. It is estimated that as much as 90% of business software used in China is derived from pirated copies. Furthermore, it is estimated that the American entertainment industry lost some US$1billion to piracy in China in 1997. Heinz also discovered that 36 of their products we copied along with SC Johnson estimating that two thirds of their products were available on the black market. While this problem today remains rampant despite recent

changes in IP policy, it is unclear if this problem will subside in the future. Many of the roots causes for counterfeit goods arise from the corruption of local government officials. Organisations today may protect their IP by not excessively building their brand name in China. By doing so, products will gain substantial sales revenues yet will not experience the popularity to warrant unwanted pirate attention. Organisations may furthermore allow customers to send pirated goods to the official manufacturer by which organisations may track down pirates to prosecute them.

Joint Ventures are also regarded as a potential for IP theft. Organisations often sign a confidentiality clause with their counterparts but such a contract usually takes years to resolve if exercised given the inefficiency and bureaucracy of the Chinese legal system. Furthermore companies may study the reasons pertaining to technology and IP leaks which occur within the Chinese market as a means to discover mitigation strategies. Organisations can also determine the ways in which they may effectively build relationships with customers and entities as a means to gain loyalty among the local market.

Working with Government Bureaucracy China is one of the world’s most corrupt regions of the world to do business. Today’s problem stems from Deng Xiaoping’s declaration of ‘to get rich is glorious’ – which lead many people to pursue personal monetary gain, a significant move away from socialist society. Secondly the government also controls access to resources and approvals that managers need to run their business which puts the power of an organisation firmly in the hands of the government.

Corruption usually takes one of the following forms; demands for payments of unauthorized fees, payment for services that should be provided as part of a bureaucrat’s job, or a payment or kickback for awarding a business contract. The future looks bright however for the Chinese corruption situation. The Economic Co-operation and Development (OECD) and five other countries have recently signed the OECD Convention on Combating Bribery. All countries strive to ensure that corruption be governed and eradicated by establishing legislation in all contributing nations home countries in a way which is best suited to their individual legal system.

In addition, research suggests that managers may improve communications between stakeholders thereby increasing cooperation. Communication also increases the sense of group effectiveness, cohesion, mutual obligation and interdependence all of which may deter corruption. Conclusion Given the vast amount of complex challenges which managers and organisations face in China today, it is no surprise that the majority of corporations fail or have limited and varied success. In 1998 it was estimated that as much as one half on companies experienced losses due to ‘black hat’ activity.

While Deng Xiaoping’s efforts have allowed China to radically transform its economy, political and legal reform has unequally developed and has resulted in an imbalance. This imbalance has ramifications for foreign and domestic investors alike whom wish to develop and expand business operations within the Chinese market. Undoubtedly Chinese ascension toward a global superpower will depend on such reforms to be realised. Foreign investment and open door policy have throughout history allowed such barriers to be broken down in the past in similar situations in different nations.

The author speculates that over time, the willingness of China to be open and free to trade will gradually erode such barriers in the future and allow business to further flourish. CASE 1: Starbucks management strategies in China 1. Introduction: history of Starbucks Starbucks calls itself the leading retailer Coffee Company in the world. It has more than 6,000 retail locations in North America, Latin America, The Middle East and the Pacific Rim, wherever there is demand for coffee.

They are committed to offer their consumers the world’s best coffee while conducting their business in ways that produce social environmental and economic benefits for the countries where the shops are located. The first Starbucks shop opened in the 1970’s in Seattle’s historic Pike Place Market by three partners: English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker. Due to the demand for coffee, Starbucks was able to expand beyond Seattle during the nineties.

Starbucks became a publicly traded company and offered stock options to its part-time employees. During the last decade, Starbucks continued its worldwide expansion. As the largest coffee house company in the world, Starbucks has total stores 16,706 as of Dec. 27, 2009 which include 8,850 company-operated stores and 7,856 licensed stores. Next to coffee and espresso Starbucks started to offer tea and other drinks to their consumers. The providing of a great work environment and the embracement of diversity is clearly pointed out in its mission statement.

Starbucks tries to apply the highest standards of excellence for the ingredients of the products and to satisfy their consumers without losing eye for profitability (Starbucks: 2007). In this paper we first outline how Starbucks conquered the Chinese market. An overview is given about the main marketing strategies concerning the product, place, price, promotion and people. Furthermore we try to compare Starbucks to its main competitors. In the last chapter of the paper we end with a conclusion. 2. Starbucks conquers the Chinese market In 1999 Starbucks opened its first shop in China, in Beijing’s China world trade center.

One year later the first shop in Shangai was opened. At this moment Starbucks has over 436 retail shops mostly situated in mainland China, Taiwan and Hong Kong. In mainland China the majority of the stores are located in Shanghai and in Beijing, respectively 95 and 57. In less than 10 years China became the most important market for Starbucks outside the United States. The majority of the shops can be found in cities where the Western culture has already penetrated the Chinese culture significantly. In the beginning Starbucks needed to find local partners to expand the market.

As a result, expansion was very slow. Government regulations forced Starbucks and other international retailers to open stores through partnerships with local firms. Starbucks and other multinationals left many operational activities to be completed by their local partners. This resulted in inconsistencies like in case of Starbucks, big disparities in their products from shop to shop. (Reuters: 2006) Since 2004 it became much easier to conquer the market because the government adapted the law and no more local partners were needed to open a retail shop (Adamy: 2006).

In figure 1 the numbers of Starbucks stores in mainland China, Taiwan and Hong Kong are presented over a time period from 1999 until 2006. The number of new shops each year has been increased significantly because of the less strict regulations since 2004. This result is in line with Starbucks worldwide expansion plans. In the year 2007 the company’s goal is to open 2,400 stores among the United States and other worldwide markets. This expansion is mainly driven by the growth of the company in China.