A Flexible Response to Guo Qing: Experience of Three MNCs Entering Restricted Sectors of the PRC Economy
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A Flexible Response to Guo Qing: Experience of Three MNCs Entering Restricted Sectors of the PRC Economy C.S. Tsenga and M.J. Fosterb a
City University of Hong Kong Kingston Business School, Kingston Hill, Kingston upon Thames KT2 7LB, UK. E-mail: [email protected] b
This paper examines how foreign-invested enterprises can gain significant earlyentry competitive advantage within their respective sectors in China, even when the sectors are in some measure restricted to foreign entities. The paper looks at the case histories of three companies: AIG (from the US) in insurance, Carrefour (from France) in retailing and Star TV (from Hong Kong) in broadcasting. It is suggested that there are two major requirements for such success: development of an understanding of guo qing, special country (Chinese) characteristics, and flexibility of approach. It is found that even that which initially looks impossible may actually be possible with such a flexibility of approach. It is also found that firms in all three sectors must develop an awareness of the notion of necessary reciprocity in regard to their dealings with China’s government machinery. The conclusion includes a contextualizing model of the Chinese business environment, as observed by a foreign-invested enterprise, within which to locate the debate. Asian Business & Management (2006) 5, 315–332. doi:10.1057/palgrave.abm.9200188 Keywords: FDI; China; guo qing; government; necessary reciprocity
Introduction China has a population of almost 1,300 million people, which is about one-fifth of the world’s population. It has achieved an average growth in GDP of 12% for the past 20 years and in recent years, while other countries in the region suffered economic slowdown, has even managed to achieve 7–8% growth. This powerful record of economic growth has been complemented and facilitated in no small measure by foreign direct investment (FDI). This FDI has had two key strands: overseas Chinese investing in ‘the Mother country’ and western MNCs. The entities resulting from FDI in China are normally referred to as foreign-invested enterprises (FIEs) (See the Appendix for outline data). With China formally joining the World Trade Organization (WTO) in December Received 25 October 2004; revised 7 May 2005; accepted 28 July 2005
C.S. Tseng and M.J. Foster Experience of Three MNCs Entering Restricted Sectors of the PRC Economy
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2001, it is believed that many foreign companies foresee there to be even greater opportunities to make profitable investments in China. WTO rules should remove many structural barriers to entry within 5 years from the accession date. Against this backcloth of opportunity, it is important to understand how best to succeed in this hoped-for market of opportunity. History, over the last 25 years, shows that some western MNCs have been much more successful than others in achieving the levels of market penetration and effective corporate control in China necessary for success (see e.g., Ding, 1997; Vanhonacker, 1997). Especially in the earlier days of
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