Heading East!(Group 1)

As we begin to think about our upcoming experience in China, we inevitably come up with a few ideas of what we think we’ll expect to encounter:
• We expect to encounter situations where it is extremely difficult to communicate accurately
• We expect to behave politely, in the best way we know how…which can be culturally different. Therefore, we are nervous about how we are perceived.
• We hope to obtain a better understanding of how Chinese culture behaves internally to China, as opposed to Chinese culture outside of China.
• How pronounced is Guanxi and how pronounced do Chinese businesses utilize a family business concept?
• Specifically, how do the Chinese effectively balance competing interests, both internally to their organization and outside their organization?
• How do the Chinese view the outside world?
• What do the Chinese ultimately desire for themselves, their families, their friends, and their country?

Also, hopefully, we’ll get to see some fake brands like some of the below:

The China Dream

Coming into our China Experience, our group identified what we believed were the five salient issues. These issues were government corruption, human rights, environmental considerations, social mobility, and quality standards.  However, besides Jeff’s previous experiences, we didn’t have much of an actual reference on China. As noted in a couple of visits, China for many of us was what we saw portrayed in the media we saw in the media growing up.  But was this necessarily right? As we engulfed ourselves in China through corporate, cultural, and personal visits, we began to see scratch the surface on some of what was true.

Over the past decades, China has experienced a kind of economic growth that has made the world stop and take note.  This has raised much debate and speculation in the international, and especially the business, communities on if China will lead the world or falter by the wayside.  Some corporations, like Citibank believe China has the potential to surpass the US by 2020. China has the Five year plans and the megacities, so why not? They see the market  trends (integration, growth, rapid development, accelerated privatization, rapid urbanization, the rise of the middle class and significant growth), as opportunities for China to leverage globalization, maintain product innovation, fill the status gap, and build on its strengths. However, right now China is facing some real problems that will ultimately determine its success or failure.

Pollution: China Going Green

As many of us experienced, especially me, the air pollution in China is a major factor in the quality of China’s future growth. The level of population and affluence growth has exponentially accelerated the reality of the environmental strain in China right now. However this strain does not just effect China, the whole world shares one environment, one ecosystem and one earth. In this light, the pollution has become a global issue as well. But how do you grow without causing a little ruin. Sadly, China is growing at such a pace after many other nations have had the right to do so already, thus is being punished to maintain an environmental standard not enforced on previous nations. As we have seen at the Urban Planning Museum in Shanghai and throughout our visits, China is actively trying to raise the standards in this arena, and other countries may be able to take note.

The Wealth Gap: Keeping up with the Wangs

Where we travelled in China the people were mostly very rich or at least gave that appearance. However, the poverty pockets, human rights issues, and unemployment, were continually being mentioned as poignant issues for China’s future success. If the government cannot sustain a more even distribution of wealth, even if it can somehow develop a growth image throughout the world, domestically it will ultimately crumble. This is what powers the government’s efforts behind indigenous growth. Is this necessarily the right way, maybe not? However, it shows both the power and some of the immaturity of the government in dealing with China’s future.

The Global Community: Keeping it all in Perspective

As we saw with the parts tourism concept at Ford, for businesses, as the world keeps growing more interconnected, its about keeping the pieces working effectively together. With this interconnectedness and the growth of China (and the other BRICS nations) right now, the global order is being challenged. Now all firms and all nations, must address its future growth from a global perspective.

At many visits, like Jones Day , UPS, and CNN, the speakers alluded to the ease at which government had the ability to manipulate regulations and how this may affect foreign entities especially. However, as recent happenings have demonstrated, the world is one big community now. he earthquakes in Japan affected the whole world. Likewise, what China does and how it chooses to play in the global community, affects the whole world. One of China’s greatest strengths has been its low cost manufacturing, as costs have continued to rise, now it is trying to make the shift from manufacturer to inventor. How this is perceived or played out in the global community is a major indicator of how China will fare in the future.

The China Dream: Harmony

For China one of the biggest issues it faces will inevitably be holding it all together without exploding. But how does China do this in the face of regionalism, unemployment, pollution, the wealth gaps, poverty pockets, and class struggles. From an optimistic standpoint it can done by playing on the strengths of resilience and the government influence. Like a firm, China must clarify its strategy and position, and begin to see all sides of the equation when making decisions. The innovation China is seeking must start at the heart of the matter with its leaders.

At Peking University, we learned about expanding the pie, and in a simple way this is what China needs to happen in order to do in maintain harmony amongst its people, with its neighbors, and with heaven. It needs to step aside from its own personal positions and see what’s at stake and what is really most important.

Ultimately, China is positioned to continue to grow in economic dominance and pure market size. However, its real fate lies with its ability to control its empowered constituents, maintain indigenous growth without excluding its foreign counterparts, and sustain it all within the environment. Can it be done? Sure. Will it be done? We have to wait and see. We believe that while China has its undeniably strengths, the sheer scale of the pitfalls it faces, will not let its see its full potential.  So China will be, and many will argue is, currently a leader on some aspects, however, we don’t see it as overturning the likes of the already established EU and US. But who can really say. Can China continue to grow without government reform? Can it keep its people happy? Can it sustain its environmental impact? Can China bridge the wealth gap? Maybe these are the real questions.

In the Future, China Will Set the Standard!

We have no reason to believe that China, in the midst of its already existing success, will not continue to grow economically along with its world influence.  In our research and experiences in China, we have found that the country currently faces great challenges in terms of political leadership, yet the Chinese business world continues to emulate western practices while still adhering to the laws of the State.  Economically, China is on par and quickly surpassing western countries already.  For example, China owns much of the U.S.’s debt, which makes our eastern trading partner’s political influence more significant on a global basis.  However, to be able to be a world superpower or global leader takes more than just money.  Yes, it’s true that the US and other western nations rely heavily on the economic success of China.  However, other major factors prohibit China from gaining further political influence on a global scale.

The world knows that China has many issues such as human rights, government corruption separation of rich and poor, as well as intellectual property protection.  While these issues are not solely unique to China, they do, in fact, influence the perception that foreign investors and governments have of doing business and carrying out political affairs with China.  While in China, we often asked ourselves why is China this way?  Can’t the government see that these issues are actually largely affecting the world opinion of the country and reversely harming their economy?  Why does the government, or the people, choose to do very little to alleviate such issues? However, China is this way because of a deep-rooted culture and history where the government is an all-power governing body.  They have a hand in every affair, to the point where they even try to control the people’s religion (as noted on Easter Sunday people were arrested for going to church, and the priest is still currently in captivity).  China’s agenda is centered on maintaining stability.  Yet, the way they handle these issues is of sheer force, rather than trying the sustain stability by improving the issues.  They sensor sensitive subjects, so that no one talks about the proverbial white elephant of the room, when the rest of the world is pointing to it and looking to the Chinese government to address it.   The Chinese government is so afraid of any revolution or disruptions that will cause unrest, they squash it before it begins.

While the country is on the road to success, the government must address the voices of the people in order to prosper and to maintain harmony.  Sirna, of Citibank, stressed the importance of the “little man”, stating that even when there were no protests the government was still listening.  “Julia”, a friend that we met in Qingdao, explained to us that revolts were something that people just didn’t do.  She said she loved her country, but the government was the main reason why she wanted to move away to the US.  With the values of the younger generations shifting towards more individualistic views, the likelihood of protests may increase, just as the amount of people who decide to live elsewhere.  While it may signify unrest for people to speak out against the government, it may be enough to cause the Chinese government to realize that change is necessary.  There are others, like Darren, who believes that things are already moving in the right direction and many Chinese people want to have a part in developing their country and in ensuring its success.

In thinking about China from their perspective, they carry a great deal of weigh and burden for the rest of the world.  Because so much consumer goods are produced in China, the rest of the importing world would stop if political instability caused China to shut down their factories.   However, by stifling little revolts here and there, I’m afraid that there will be a large coup d’etat and revolution will blow up like a pressure cooker.  If China is actually taking steps towards creating a better country by addressing and slowly alleviating some of these important issues as they occur, perhaps China will be able to better achieve sustainable stability rather than just maintaining it by stopping revolts and taking on a sense of paranoia.

Despite these social challenges China is facing, we are able to see how China’s economy has changed such that they are morphing into a mega consumer market, a clear sign that China’s power is on the raise.  China is slowly changing from an export country—that was primarily used as a manufacturing platform for multinational companies—to more of a consumer-driven economy. With the minimum wage rising, China is no longer the go-to country for cheap labor, and with their population growing exponentially they will need their own resources and products to further develop.  After speaking with several of the companies that we visited in China like Citibank, Continuum Innovation, and even Ford, a growing need is evident for customized products and specialized services in the Chinese market.  Citibank and Continuum spoke specifically to the developing and emerging markets of the “individual”, the younger generations that have started to adopt more historically Western values and that are growing in affluence.  With the government’s emphasis on developing domestic companies, they can also promote increased consumption of both domestic and foreign goods and services.  The size of the Chinese market is apparent to the Chinese government and to foreign countries and their companies; foreign investment into China benefits the country as well as those investing in it.  Economically, China is already gaining ground in the global environment and will likely continue to do so—as long as the government continues to support domestic business and does not hinder foreign companies from competing or entering the market.

China’s government may receive much criticism from the West, but there are some strong favorable aspects to consider. The fast paced decision process is one of the main competitive advantages of China.  A clear example was seen at the Shanghai Urban Planning Museum.  Our guide, Eric, was standing in front of the model of the city and was describing the Shanghai Expo 2010.  He proudly told us that the government commanded over one million people to leave their homes and clear the land for the site.  Eric said that people were happy to leave, were not angry that they had to abandon their homes, and they saw this as an opportunity for China to present itself in front of the world.  From our Western viewpoint, few can fully agree with his opinion, but his respect for the Chinese government echoes the high opinion shared by many.  The lack of resistance, coupled with high respect of the populace, to government decisions provides China with the ability to quickly adjust and soar to an influential economic power.

On the other side, some find this practice controversial.  If a government is able to execute such power without any opposition, where is the respect for the people, the respect for the individual?  During our visit to Peking University, we had the opportunity to meet and spend one on one time with several MBA students.  My counterpart, Andrew, was eager to start his studies and strongly stressed that he was most excited for the opportunity to travel and study abroad, mainly the US.  He saw his studies as a way to see the world—something he had wanted to do but had not been able to so far.

Andrew’s statements resonated when we met with another student, Shawn, on our last night in Beijing.  Sitting at a traditional hot pot restaurant, Shawn used his PDA to translate the names of the foods in front of us and the conversation quickly drifted to his business and his future plans.  As a small business owner—manufacturer of the same PDA/scanner/RFID reader device he used to translate for us—he considered himself successful and ahead of many of his classmates.  But when speaking about the future, a clear desire to leave China and come to the US was presented.  He told us he saw many more opportunities for himself, his business, and his family outside of China.  A sadness was present in his voice when discussing how because of government policies, he was not able to easily travel outside of China and how a Chinese national needs a visa to even visit Hong Kong.

The government is currently able to limit and restrict the exposure of Chinese nationals to the outside world, but this is something that will soon change.  With the support of education, specifically emphasized on international business, more individuals will be able to be exposed to the Western world and will eventually demand more from their government.  So, will China become a world leader?  In economic terms, China already is a world power and is at the head of the pack.  But socially, China faces a long windy path.  And while currently it is headed in the right direction, inter-China problems must be faced directly and resolved before outsiders will view it with respect and admiration.

No one can doubt the raise of China’s power, yet major social changes are occurring within the country and the Chinese people that the government needs to be aware of and capitalize on.  The fact that the Chinese government is an all-powerful body shows that they have the power to control some the challenging situations occurring.  The fact that the government strives to maintain social peace instead of striving to sustain the peace by addressing certain issues as human rights, shows that perhaps despite all their success, perhaps China isn’t’ ready to be a Global Leader.  Especially with the shift from collectivism to individualism as well as the westernization of education and business, the need for sustainable changes is more prevalent now than ever.  China continues to be a leader in the field of technology, science, math and engineering.  However leaders need to be able to think “outside the box” with creative thinking, which is not always encouraged in China.   China, we believe, will get there in the future, but they have a long way to go before they can set the international standard instead of following international standards.

Looking Back on China

These past two weeks in China were extremely interesting and they went by so fast! We have learned so much from this experience and we were right when we said that there is no better way to learn a culture than to be fully immersed into it. China has an incredible historical patrimony, an old gastronomic history, a high-level of hospitality service, and much more to offer. China is working on environmental issues by implementing waste facilities, like at the company Wheelabrator, but also recycling facilities, double-button flush toilettes and light saving systems. We believe that China would be ready to make the big step and become the new #1 economic world power if it wasn’t for its governmental situation and some other underlying issues that we will discuss below.

As we have heard in many company visits, there is a common belief that China’s economy is growing and that it has become one of the biggest economic powers. According to our marketing professor, Dr. Eroglu, a “market” can be described by a very simple function: Market = f (wants/needs + buying power +number population) – now, China reflects very well all of the three parts of the function. In fact, China’s consumers have many needs/wants, have an increasing purchasing power and the consumer base and middle class are growing by the day. During the visit at the US Commercial Service they provided us with data showing the growth of the Chinese territory and how fertile this area is for new business ventures.  Entrepreneurs like David Yu, free-lancers like the creator of Yuanfen Flow, or multinational companies like UPS, Citigroup, and YRC logistics, are aware of this potential and have decided to invest their time and money in the Chinese market. Obviously, they are aware of the cultural differences they have to face by doing business in China, like dealing with a government-controlled business environment and hierarchical society. For instance, they had to learn how to develop the Guanxi, how to maintain long-term relationships, how to negotiate, and how to “play” with the government in order to maintain their business. Nevertheless, besides all of these barriers, all of them are still doing business in China and nobody seems ready to move out of the country.

In terms of the business sector, most of the companies are very optimistic about their businesses’ growth in China. They understand that building up the relationship with the government is very important, and they still see opportunities and potentials for growth. Although China is a communist country, the business market is pretty much capitalist and the government strives to become #1 in terms of commerce.  In fact, the government is trying its best to promote a capitalistic economy to keep the GDP growth above 8%.  A few foreign companies showed frustration about the business regulations, like UPS being unable to compete domestically with the Chinese competitors.  That more or less slows down those foreign companies’ growth, but not China’s economy as a whole.  Harmonization and stabilization are the main concepts that government is trying to carry out.  As long as the government can keep its people under control, the economic situation will be stable.  If there is a move to reform, then China’s economy could crash.

Perceptions are reality.  The outside world’s perception of China will determine whether or not it can become the #1 economic superpower. Trust is a major aspect; therefore, the lack of enforcement of IP rights and product quality will hurt China’s perception as a trustworthy business player if the government doesn’t move to reform these issues.  A major problem with IPR in China is that enforcement is decentralized and up to the discretion of the local officer.  Furthermore, the counterfeit market in China is widespread and very lucrative.  If this industry were to shut down, the economy would take a huge hit.  Lastly, there has been the perception for many decades that goods manufactured in China are of a lesser quality than in developed countries, which would hinder China’s ability to maintain a high status in the business community.  However, as China’s economy improves, the wages are increasing andmanufacturing is moving to other Southeast Asian countries, thus helping China’s quality perception.  Certain companies such as Hisense are also trying to reverse the perception by marketing high-quality products with Chinese-oriented advertising, so that the world will begin to associate better quality with China.

China, as we see now, is a hugely attractive place in which foreign companies want to invest because the purchasing power is strong and the market is expanding as more and more people move into the middle class.  We can see that businesses entering China are focusing more on the dollar signs than on the regulations and quality perceptions.  There are hurdles to overcome, but China’s economic benefits often outweigh the risks as with most of the companies we visited.  However, we do not think that China can ever become and remain #1 in the world business arena if its people begin to speak out against the government and demand more autonomous rights in society. Furthermore, the perception of China needs to completely change from the current one of high pollution and low IPR and product quality if it ever wants to gain the credibility and status of a fully developed nation.

China’s Bipolar Condition

After studying and subsequently experiencing China, our group was asked: Based on your experiences, how do you predict the future of China in business? Will China lead the world or fall by the wayside?

During the last two weeks, we experienced Chinese culture and gained a firsthand look at the reality faced by this growing society. After talking to representatives of different local and foreign companies located in Shanghai, Qingdao, and Beijing, we drew our own conclusions about the future of business in China and its ability to become a global superpower. We believe it is a growing economy whose destiny depends on whether it can address key social and economic issues or leverage its current strengths for continued success.

China could certainly falter in the future if circumstances align. From some of our company meetings, we gathered that the Chinese have a tendency in business to “stay inside the box” by maintaining traditional mindsets that won’t serve them to meet the challenges ahead.

• Social issues: By not confronting the present social issues, unrest could ignite. Censorship could cause backlash, and prevents learning from diverse viewpoints. The masses can only be silenced for so long before there is push back. For example, we learned and saw first-hand that the Chinese government flexes its muscles in a show of strength through media censorship. It blacks out CNN news clips that it believes are negatively portraying China despite the fact that viewership is limited to English-speakers, hotels, government and university viewers. Social media is heavily monitored and blocked, however many people still access Facebook using underground software. If that access were to be taken away now that people have had a taste of the entertainment and ability to self-express that Facebook offers, this censorship could add fuel to the flame of unrest.
• Economic issues: There are major wealth disparities in China, however so far China has maintained major, steady GDP growth. Yet these levels of GDP growth may not be sustainable over the long term.  If the growth slows while the Yuan appreciates and inflation continues to rise (a “perfect storm” for uprising), the huge population of the working class will be inordinately more impacted than the upper class. This “perfect storm” could negate the progress the working class has achieved thus far, or even leave them worse off. The population has very limited peaceful means of imposing change, so under the pressures of social and economic issues, a revolution could boil over.

China certainly has the ambition to become a major economic force, however it seems that changes have been short-sighted leading to inconsistent results. For example, the Chinese government took a large step by opening up journalistic regulations, like the ten-day rule, for the 2008 Beijing Olympics. Yet, when faced with the Jasmine Revolution coverage, rather than being consistent and maintaining the open policies, they reverted to the “in the box” old practices that increased negative attention. This stance of control was seen again over the weekend with the detention of the Shouwang church members who gathered for Easter.

Despite the potential downfall, China also has the opportunity to successfully become a world power. In addition to confronting the aforementioned issues, China has distinct advantages that lend to its growth.

• Consumerism: China has 1.3 billion people, and as these people have increasing disposable income, the domestic consumer market is a major opportunity and driver. In looking at a product-market framework, for many companies China is an attractive market where new products can be offered. China is transitioning its economy from an import/export to a consumer focus.  This shift will further China’s self-sustainability because then the complete market cycle (from producing to purchasing) will occur within China. This will keep profits within China, elevating the purchasing power of population and economy as a whole.
• Policy Globalization and Integration: During recent years, China has embraced many policies that align with the rest of the developed world. It has established anti-trust laws that are rooted in European policies. The rule of law increasingly is more important, as shown by the rise of more Western-style contracts. With the growth of more Chinese companies that have developed their own intellectual property, the value of protecting IP is more apparent and more supported by new laws and enforceable dispute resolutions for infringements.

Predicting the future of China as either a world leader or as falling by the wayside involves taking an extreme, polarized stance. We have discussed issues that could lead to either outcome. The reality is likely somewhere in between. Our group (Maria, Stacey and I) believes that in the long term, China will be successful, emerging as one of the world’s leaders. This, however, is a long-term goal that will require perseverance while China learns to think outside the box and confront the tough issues it faces.