Chinese political and economic system and China’s policies on foreign investment.

During the past three decades, China has achieved impressive economic growth after its economic reform in 1978. The Chinese liberalization was gradual, according to transition strategy carried out by China in its economic reform process; the opening to the foreign investment has been developed in a gradual and experimental way.

During the reform process, the foreign investment was employed as an economic development accelerator, developing the economy by using foreign capital. The outcome suggests that the impact of foreign investment on economic growth is positive and statistically significant. The level of development of financial markets shows beneficial effect on economic growth. The liberalization of financial market benefits economic growth, besides it improves the economic growth enhance effect of foreign investment. Restrictions on foreign investment in telecommunications, the internet, culture, and education sectors would be opened. This foreign investment has contributed to China’s flourishing economy.

There are non-discriminatory incentives offered to domestic and foreign investors, including those to attract investment to the Central and Western Regions. The main change would be the abolition of the restrictions. The policy of becoming a global economy has been highly successful because it has achieved a huge acceleration in China’s foreign investment. The country is now one of the world’s largest exporters of capital. This investment outflow has become more sectorally and geographically diversified, and is no longer limited to state-owned enterprises. These flows can be of great benefit to China and the rest of the world, expanding capital to sustain global growth, while also bringing other, benefits such as promoting innovation and cultural interchange. The central government has played the main role in promoting foreign investment by setting out the global policy goal in unambiguous terms and by gradually reducing restrictions allocating credit for major outward investments and providing information about host countries. The outward investment is a well-established trend; the government may wish to consider making improvements to the institutional framework for foreign investments, reducing remaining bureaucratic obstacles, especially the examination and approval process, and improving information.

Five-Year Plan
China defines its economic goals through five-year macro-economic plans. There is a promise to guide more foreign investment to an identified set of strategic and newly emerging industries, biotechnology, advanced equipment manufacturing, new energy sector, new materials, and new-energy vehicles, while limiting environmentally damaging industries; encourage foreign multinationals and research and development centers in China; encourage foreign investment in production.
A major goal of China’s investment policies is to encourage the domestic development of technology and know-how. China’s investment authorities tend to look favorably on investments that transfer technology. China seeks to promote investment in higher value-added sectors, including high technology research and development, advanced manufacturing, clean energy technology, and select services sectors. Foreign investors often must weigh the potential value of accessing China’s market.
China also seeks to spread the benefits of foreign investment by encouraging foreign companies to establish regional head office and operations in Central, Western, and Northeastern China.

Enviar comentario / 17 Mar 2017 por ivieites
MBAftmad /

Establishing a business in China for dummies: 10 things you need to know

If you’re next adventure includes opening a new business in China, and you know nothing about it, this is the right post. Heads up!: it will be like nothing you’ve ever done.

Now, let’s get to the point. I’m not an expert on doing business with China, but thanks to the EOI Business School Business Seminar in Shanghai (march 2017), I’ve learned enough to come up with a 10 point list (for dummies style) to give context for those interested:

Here’s the deal. It is not an easy thing to do. According to the World Bank Group’s Doing Business Ranking, this country holds the 78th position globally, far away from first places New Zealand and Singapore. On the bright side, it is easier than emerging economies such as Brazil (123) and India (130) and, mainly that it is not impossible. Actually, it could be a great idea, depending on the business area you’re focusing on, and there’s the opportunity to gain great support from the Government (see point 7).
Time. It will take 3 to 6 months to establish your company officially in China. This includes the registration of the capital and investment, the business license or permission to operate, the actual operations start and the post-establishment compliance.
Explore. Before investing a lot of time and money on establishing your business in China, you may want to explore a strategy like the Representative Offices figure (ROs). The RO is an extension of a parent company with operations out of China, that has no specific capital requirements and can hire staff through employment agencies. With a RO you can conduct market research, do liaison activities with potential clients and receive delegates from the parent company. The bad news is you can not do direct economical activities like sales, production or service provision.
Invest with a partner. Another strategy frequently used by foreign investors is the Joint Venture (JV). In order to achieve a JV, you will have to possess at least 25% of the equity of a local company. Many firms start by investing on a business with this strategy and then, end up buying the whole operation.
Wholly Owned Foreign Enterprises (WFOE). According to the expert Lorenzo Riccardi, the WFOE is becoming the most common choice for new foreign investment, outing the JV’s because of the decision-making power limitations of the latter.
Be very specific. When using a WFOE strategy you have to define a business scope that has to be very narrow, specific and structured. This means that you will have to detail what is the sector you’re aiming to operate in (trading, manufacturing, services, etc.) and the specific activities. The step is incredibly relevant if you take into account that in the future, you will have to ask for a new business license if your scope was not well defined.
What you want to be focus on. China works with 5 year development plans (here’s a very cool and funny video that explains it) that essentially draw what the future business, social and economic trends are going to be, given the extensive Government’s influence. The current plan (13th) has as its main focus and priority the innovation and greening. Your business opportunities (Government funding!) will increment if you direct your efforts towards those areas. Remember that China wants to be the world’s manufacturer no more.
Western habits. Forget about the western way of doing business for a while and go deep into the China’s way. When negotiating your JV or your first deal, don’t expect the decision maker of your Chinese counterpart to be on the table of negotiation. They believe in the collective intelligence, so they will have a group of representatives talking to you and they will take the decision together. The big chief will only appear when the time to sign the contract comes.
Fast and cheap? Don’t even think about it. If your business plan includes anywhere velocity and low price products as competitive advantages, it is time to go home. China has become well-known for mastering these tricks, so you should be delivering value on what western do best, for example, post sales customer service and high quality products. Chinese people won’t wait for you to pass on the street, even if you have the green light, why would they let you compete on what they do best?
Open your mind to diversity. Establishing a business is not just about money and a great idea. You need to dive into the local culture, habits, ways of doing business, signs of respect, economics, politics, etc. If you’re going to China this is a must for your business to be successful. So, try to learn about their history and you will find why are they so competitive and may appear “rude” sometimes, go on and study how they incredibly managed to turn their economy in just 30 years, try to understand that admirable planning mentality and holistic thinking, and use everything in your favor.

Enviar comentario / 16 Mar 2017 por cbrenes
MBAftmad /

Management of Millenials in China

One of the most impressive things I have heard in China during our lectures has been during the HR management class, and it has been how difficult is to manage millennials in China job environment. Despite being a close country that doesn’t have access freely to internet content, Gen Y or Millenials present same characteristics in China than in occidental society, “they are ambitious, demanding, hypersensitive and almost allergic to criticism” according to professor Brian Schwarz.

This is augmented because Millenials in China has grown under the one-child policy, that can be traduced in an extended family formed by 6 people, their 2 parents and their 4 grandparents, whom have put a lot of effort on taking care them but also a lot of expectations that can be traduced in a huge pressure from kindergarten to entrance exams for university All this generates a lot of expectative to them in a society that is not really good managing emotions.

When this generation has arrived to the offices they have added a lot of emotions due to their huge expectations in their careers, and have raised conflicts, because they have achieved staff positions and their style, more assertive and open, confronts with traditional Chinese style. Millenials want to take the initiative and share at their workplaces but they lack experience, which generates that Gen. X management feels unrespect and unable to deal with them.

Certainly, they are the protagonists of China future and their different mindset will help (or push) to open China. Brainstorming with them will generate for companies’ opportunities that they have never thought about, and with the actual government target of becoming leaders on innovation for sure millennials are going to have a lot to say.

The key point to channel all the energy and ideas is leadership, with proper management to encourage and guide them and with effective training on emotional intelligence, this generation can achieve huge success

…but if they are not well managed frustration can be their worst enemy.

Enviar comentario / 16 Mar 2017 por igurucelain
MBAftmad /

Technological Development in China

100 years ago, in China anybody was known about modern science and technology and less than 10 people dominated the infinitesimal calculus throughout the country. However, at the beginning of the 21st century, the country was able to visibly reduce the distance between its level and the advanced world standard in high technology research and exploitation domains. More than 60% of the national techniques reach the international advanced level, covering the areas of atomic energy, space technology, high energy physics, biology, computation, computer science, robots similar to man, etc. The launch of manned spacecraft in 2003 and 2005, as well as the successful launch of the moon’s exploration satellite in 2007, mark the accelerated progress-as a phase-burning-of China’s space navigation technology. With the successful launch of the spacecraft «Shenzhou VII» in September 2008, China took its first step in outer space, becoming the third country to make a space walk. On October 24, 2007, China launched «Chang’e I,» its first lunar probe product of research and manufacture with its own efforts, which took the first three-dimensional image of the surface of the Moon. On October 1, 2010, «Chang’e II» was successfully launched. Under the state’s Moon exploration plan, China will crown the work of collecting samples of the lunar surface before 2020.

The Law of Scientific and Technological Progress, in force since 1993, stipulates in all domains the goals, the role, the source of financing, the system of scientific and technological awards, among other aspects, and constitutes the basic legal code that guides the Development of China’s science and technology. The Law of Generalization of Science and Technology, put into effect in 2002, establishes as a norm of conduct the generalization of science and technology and the raising of scientific knowledge of citizens, demanding the whole society to apply them. The various provinces, autonomous regions and municipalities under central jurisdiction have also issued a series of local legal regulations that cover the guarantee for the assimilation of men of value in science and technology, the stabilization of investments in the sector and the development of The high technology.

The document «Reviews of the State Plan for the Development of Science and Technique in the Medium and Long Range (2006-2020)», issued by the Council of State in February 2006, defines 16 special topics to overcome within 15 years, related to domains Such as information and biology, major urgent problems in the energy, resources, environment and people’s health sectors, as well as the research and manufacture of large aircraft, manned space exploration projects and exploration of the Moon, among others. According to this document, by 2020, China’s expenditure on scientific research and testing will occupy more than 2.5% of GDP, much higher than the 1.33% of 2005, and the contribution rate of scientific- Have exceeded 60%.

Enviar comentario / 16 Mar 2017 por cramosmarana
MBAftmad /

Marketing in China

After being 12 days in China attending to different lectures from great professionals, I guess I’m able to explain you briefly how is and how you have to do marketing in China.

First of all, I would liketo write about three main myths that I’m sure they spring to mind after reading my first sentence:

In China you have 1.4B customers. You must know that all the numbers are controlled by the government and they are expected numbers, not the real ones. This means you cannot base your hypothesis and segmentation in numbers as the GDP, for example. Many Chinese people are poor and they have not the same habits as people from the cities.
Easy to succeed fast. You are not allowed to enter in some fields, controlled by the government, and if you have succeed, they can change the law in order to promote their own companies againts yours. The most valuables companies in China are Chinese, and almost all of them with presence of the government.
China as a life guard. You don’t have to think that a product that doesn’t work in other countries will succeed in China. New generations are getting used to the occidental habits and they refuse second-level products.

Then, what do you have to do in order to have a good marketing strategy in China?. Here you have some advices:

Know their culture and don’t offend them.
Adapt the product to their desires
Know yourself to be sure if you should stand out with your foreign brand or fit in the Chinese one.
Take advantage of their lack of brand loyalty and that they prefer foreign companies
Be aware that they can copy you, don’t underestimate them.

I hope all this tips and knowledge will be useful for you, and you will have a great succeed in your Chinese adventure.

Thank you for reading.

André González

Enviar comentario / 16 Mar 2017 por agonzaleziglesias
MBAftmad /

Establishing a WFOE in China

A week ago we returned to our country after a short but intense experience in China. In addition to enjoying cultural and leisure visits, we learned about how to do business in China and other cultural aspects.

It is common to establish a Wholly Owned Foreign Enterprises (WFOE) in China. A WFOE is a wholly foreign company which is established in China in accordance with the laws and wholly owned by one or more foreign investors.

A WFOE is a limited liability company, that is to say, the liability of shareholders is limited in terms of the assets they contributed to the company. A WFOE can make profits and issue local RMB invoices to its customers, which is crucial, as invoices are the basis for obtaining tax deductions in China. You can hire local staff directly, without the obligation to hire employment agency services. Although there is no legal restriction on the number of foreigners who can hire a WFOE, in practice the number of foreign workers depends on the amount of social capital that company invests.

There are three different WFOE configurations:

• Service WFOE

• Trading WFOE

• Manufacturing WFOE

While the three structures share the same legal identity, they differ significantly in terms of configuration procedures, costs and the range of business activities in which they are allowed to participate. Trading WFOEs and manufacturing WFOEs must obtain the majority of their revenues from that core business, but may also offer associated services. However, some service WFOEs may also carry out the business activities related to their services.

The steps for forming a WFOE in China typically consist of the following:

Determine if the proposed WFOE will conduct a business approved for foreign investment by the Chinese government.
Determine if the foreign investor is an approved investor. Basically, any legally formed foreign business entity is authorized to invest in a WFOE in China. China especially welcomes investment that promotes the export of Chinese manufactured products.
Chinese government approval for the project. In China approval of the project by the relevant government authority is an integral part of the incorporation process.
It usually takes two to five months for governmental approval, depending on the location of the project and its size and scope. The investor must pay various incorporation fees, which fees vary depending on the location, the amount of registered capital and any special licenses required for the specific project.

Enviar comentario / 16 Mar 2017 por aperezsalazar
MBAftmad /

How Companies manage their employees in China?

The Human Resources in China are seen from quite a different perspective if we compare it to Western Countries. Companies in China look for candidates differently depending on the position they may be interested to cover.

For low qualified jobs they look among crowds of Chinese people who are competing to leave their home towns in the rural areas to join this companies, having to relocate in the big cities where factories are situated. For them it is actually a great opportunity, since there are no other options to make a living there.

Nevertheless this positive sensations doesn’t last for too long since the conditions in those hand labor jobs are in many cases exceeding the legal regulations stated by the government (As for instance having more than forty working hours per week, living conditions, etc…), psychologically there are also issues regarding the fact that many persons cannot afford visiting their families very often, either due to their contract conditions or their economic situation.

All these factors have to be taken into consideration when we analyze the turnover rate of personnel in these positions, which is very high mainly because at the end of the lunar year cycle this people go back home to celebrate the New Year , leaving the company afterwards in order to find jobs closer to their relatives.

However, this trend has started to change with the introduction of the automation in many production lines, replacing the hand labor jobs with efficient and sophisticated machines. And this fact is going to change how China uses his personnel in the years to come, switching the hand labor factory jobs for more Service or customer oriented positions.

On the other hand, more specialized or managerial jobs are generally covered by Professionals coming from Europe or USA, although there are Chinese as well. First these “expats” come to China to work with different periodicities, for short or long term periods, depending on their ability to cope with the Chinese culture, economic Conditions, State of their career or other personal matters. Their ambition is to invest some time in China and take their careers to the next level, but sometimes they find out that they actually like China, and they decide to stay.

For the second group, the Chinese experts, their mindsets are focused on feeling comfortable in the companies they belong to. In China, people don’t give their opinion publicly and they lack the ability to communicate effectively with a team mates, they are also described as people with low proactivity, mainly because Universities in china are not very demanding and they need to secure their knowledge in order to become more autonomous; this are some of the reasons why for many foreign companies in China is so difficult to manage Chinese employees and why many Chinese employees are starting to prefer joining national companies as those ones get along better, maybe this trend will stop in the future when China may become more internationally standardized in business terms.

Enviar comentario / 15 Mar 2017 por psan
MBAftmad /

NeoBay Visit

During our trip in China we were in many places, making many visits like pudong or the great wall, however, i would like to highlight our visit to neoBay center. NeoBay is a global entrepreneurship and innovation communitiy which was created 2 years ago in Shanghai with the collaboration of one of the most important universities in China and the one where we made the course called »How to do business in and with China» (Jiao Tong University), The Government of Shanghai (Minhang district) and The Shanghai Land Group.

These three institutions wanted to build an incubation platform of innovation and entrepreneuship, using premium resources. Mainly they wanted to focus on startups related with high technology, trying to make shanghai, the new Sillicon Valley.

Once we were inside the building we were visiting different departments like one specialized in 3D printing. All this visit was guided and explained by a neoBay worker who was able to intruce us to all the neoBay world, explaining us the different ways that they had to work there and why they did it in that way.

Finally we went to a conference where we met 4 neoBay startups. The people from these ones were explaining us their beginnings and business models. At the end of the meeting we had the possibility to ask several questions and discuss some topics about neoBay and its startups.

Enviar comentario / 14 Mar 2017 por ggarciacalvo
MBAftmad /

Geography of China

Recently we came back from China, after this gorgeous experience I want to underline some Geographical aspects about China that everybody needs to know to run business-projects or whatever money related activity.

Geography is a science that includes different concepts as climate, elevation, vegetation, population, land use, industries, or state order. I focus my article in the most economic related variables:

Population: They have a huge problem of migration from rural areas to cities.
Land use: They (the gov) build ghost cities to order the territory.
Climate: They have extreme conditions in the western Asia in which they are not able to run the agriculture business.
Elevation: To build a good infrastructure of logistics for commodities and for people they have to employ a lot of resources and time.
Language: They have two main languages Mandarin and Cantonese Chinese, but in the western China they have a lot of dialects and also they have independence and revolt problems in certain areas like Hong Kong due to the different past.
Data: For instance they don’t control properly their own data because Citizens are enrol in different cities than they live. And due to the controlled economic model that they have, it’s too difficult to trust the government reports.

For these reasons, I recommend you to look China with a very specific view, focusing in certain areas and targets, because a niche of the niche of the niche market in China could be as a European country population.

Research a lot about these customers and then try to catch it if the Government allows you to enter in his market.

They are NOT 1.4 Billion People, always remember IT.

Enviar comentario / 14 Mar 2017 por earroyo
MBAftmad /

HR

For my big surprise, my topic is about Human Resources (my professional career area). It was incredible to learn about HR in a totally different environment/culture.

First of all, for analyzing and understanding Human Resources in China we must consider two perspectives: a society level, which involves the labor market and the Chinese culture, and an individual level, related to company policies/practices and how people live their jobs in a day by day basis.

In terms of the labor market, we are speaking about a country with a low amount of high skilled professionals (considering the proportion to the Chinese population) and a significant part of population working in low-skilled jobs gaining very low wages. This is attractive for investors, because the HR costs in China are low. But is this fair? China has a high rate of poverty, and for sure is necessary to develop new macroeconomic policies to create structural changes in terms of education, employment and compensation, in harmony with their strong culture.

When we analyze the culture, we see that Chinese are oriented to family, honor, society (Nation), reputation and status, and professional relations are based in affection; this is different from our Latin culture where we are more oriented to our individual purposes. This values have an impact in the HR practices such as recruitment, where the criteria for selecting candidates has a strong component of sympathy. While in our culture networking is important, in China is absolutely essential to get a job: a company won’t call you if they don’t know you or do not have a nice reference, or if you don’t feel trustful. Also, candidates choose jobs considering stability, the company’s status, reputation and how honorable is, to the society’s eyes, to work there.

About career development, if you are a qualified professional, you can have a very fast career growth, assuming new positions and responsibilities in the short term. This is very attractive for western professionals.

I think that the key to success as a western doing business or working in China, is truly understanding their culture, additionally with their economic and political systems. It would be a mistake to assume HR related projects related to China without learning in certain measure about this fascinating , but different, country. Although It was an amazing experience and a great trip, I must admit that I’m not ready to assume HR projects in China or related to Chinese people (yet!); probably in a couple of years.

Enviar comentario / 18 Mar 2016 por csalas
MBAftmad /