In this final section of my blog on doing business in China I review:
*Innovation & Value-adding Preferences
* Technology Utilisation & Management Practices
Some Chinese businesses lack entrepreneurial ability due to cultural and recent political history (Zhang, 2010, pp.44-45), such as the Cultural Revolution. But a number of business do show attributes of entrepreneurial behavior in the diverse range of products that they produce and the way that they market their products on sites such as Alibaba.com.
There is a risk with dealing with a private company as entrepreneurs are not viewed highly in China (Liao & Sohmen, 2001, p.29). This is reflective of Confucianism philosophy where bureaucracy is viewed as the highest position in society whereas being a shop owner is the lowest role.
Innovation & Value-adding Preferences
Chinese companies are great imitators but have limited innovation skills in the past (Linden, 2004, p.6). Some of this is due to limited investment in innovation and R&D within organizations, low technological infrastructure and difficulties in knowledge transfer (Zhang, 2010, p.43). However this is starting to change, especially with returnees from overseas who are bringing new skills and innovation back to China (Linden, 2004, p.7).
Another reason, according to Li et al (2007, p. 81) is that most Chinese CEOs are only paid and rewarded for short rather than long term targets, which can thwart innovation in companies.
Foreign buyers can choose to assist Chinese suppliers in innovation by asking for product enhancements sourced by reviewing competitor models or from customer feedback. You can also encourage your supplier to move towards first generation complete participation (Li, 2010) in the relevant market. This means that the Chinese supplier commits to conduct R&D on the product, is able to imitate other brand developments and has the ability to create value adding features to the product that other companies will find hard to imitate, at the same time containing costs.
Technology Utilisation & Management Practices
Technology usage is starting to grow in China according to Zhang (2010, pp. 1-11) driven mainly through mobile phones and internet usage. There is a growing population that is technology savvy with 300 million internet users who are developing applications and building communities online. These people will drive technology usage and innovation in the future.
Another factor is SHRM. The ‘iron rice-bowl’ policy of a job for life has been abolished and this for the first time has allowed staff to be dismissed (Hassard et al, 2004, pp. 315-316), within the constraints of the Labour Contract Law. This has also lead to the introduction of western style SHRM into Chinese business. At some Chinese suppliers this signifies that they can hire people on contract for a set period of time and then terminate their services. It also allows for performance management to ensure quicker turnaround times and better quality output. While this benefits them in being able to respond to market conditions it can also lead to the inability to source new staff quickly.
Purchase and Fulfilment Process
Curt Shi, Venture Capitalist for IIP Capital, has advised that with any purchase transaction from China that someone who is trusted by the exporting organization reviews the products prior to shipping the stock. The process recommended is:
1. Agree on product specifications, trading terms, payment and price inclusive of delivery to the foreign nation
2. Production commences with QA completed across the order and documentation provided
3. Once the shipment has been produced, representatives from your company check the products including start up, test drive and QA
4. If entire shipment is at an acceptable standard then authorize to ship and seal the container, if not replace poor product and repeat the process
5. Double check in the final port and if all is in order release the letter of credit of bill of lading
6. For the next shipment employ a local person who you trust to complete step 3. Alternatively employ a trusted buying agent located in the region
7. It is recommended to regularly visit China, not only to check quality but to continue to develop guanxi (Duo, 2005, p.82) at least every 12-18 months.
I hope this blog has assisted you in buying and doing business with a Chinese supplier. Any feedback would be great and I am happy to provide any other research notes or comments.