Exploring the Challenges of Doing Business in ChinaPublished: June 13, 2007 in Knowledge@Emory
If 19th century journalist Horace Greeley were alive today, he might say, “Go east, young men and women.”
Twenty-seven MBA students from Emory University’s Goizueta Business School did just that early this year, spending nearly three weeks getting an upfront look at China’s booming, rapidly Westernizing economy.
China Lead Week has been part of the Goizueta curriculum since 1998, but for the first time this year, students engaged in hands-on projects that grappled with key issues facing companies operating in China today: fierce competition for customers, surging consumer demand for new and reliable products, and the challenges of tapping foreign markets.
“We wanted our students to have a more intensive experience,” said Nancy Roth Remington, executive director of international programs, who accompanied the students on the trip. “When they can jump into a project and try to make sense of what they see, they’re likely to get a lot more out of the experience.”
MBA teams studied beverage sales at Coca-Cola Shanghai; the workings of Genimex, a family-owned trading company; and operations at two upscale, Western-based hotels. A fourth Goizueta team, composed largely of joint MBA/law students, studied intellectual property rights, a raging point of debate between the United States and China.
Students landed in Hong Kong and traveled to Xi-an and Yangshuo, then spent eight days on their projects in Shanghai, before spending several days meeting with business and government leaders in Beijing before returning to the States.
Goizueta students analyzed sales of specific Coca-Cola products. Fanning out across Shanghai, a teeming metropolitan area now pushing 20 million in population, the MBA students examined consumer buying habits, traffic patterns, marketing campaigns and competitive products.
Michael Gavin 07MBA participated in the Coke study and described how the Goizueta team interviewed company officials, vetted reams of data and ended up making 35 recommendations.
Considering their expertise in the soft-drink trenches, Coke managers and staffers “had already thought of all but one of them,” Gavin said. “But they got very excited about the one they hadn’t.”
The team’s observations of purchasing habits led to more general understanding about life in China: with large grocery stores far from subway stops many shoppers take shuttle buses or transport their purchases by bike; storing bottles in small apartments with much smaller refrigerators than in the U.S. explains variations in package sizes; and use of large bottles for large family dinners during holidays helped explain the preponderance of large “multi-serve” bottles during the January pre-New Year’s shopping period.
Gavin said his Goizueta training proved invaluable on the project. “Fundamentally, it was about synthesizing a whole lot of data into a few coherent stories,” he said. “To me, that’s what business school is all about. It’s about learning how to tease out of a massive amount of data the relevant stories that will have an impact on markets.”
Beyond the specific project, the China project was enlightening in several ways, Gavin said.
“The Chinese government tenuously encourages economic development while allowing entrepreneurs to spread their wings and invent new businesses,” he said. “This is the first generation of Chinese people who are able to see a problem and then create a business (to solve it). The entrepreneurial opportunities are limitless.”
Shanghai-based Genimex gave Goizueta students a glimpse into the workings of an international trading company with roots in different countries. Founded in Taiwan by an Iraqi-born Israeli father and New Zealand-born mother, the firm today is run by their three sons, who are under 30 and who grew up in Taiwan, attended college in the U.S. and speak fluent Mandarin.
Genimex’s primary focus is on helping U.S.-based companies manage the uncertainty of sourcing merchandise from China. The 30-employee firm acts as a go-between with over 400 Chinese factories that produce electronic goods, kitchen appliances, cabinets, gifts and other items. Genimex picks suitable factories, ensures quality control and oversees production of customer-specific merchandise, from the design stage through delivery and after-sales support.
Facing growth challenges, Genimex asked the Goizueta team to be an unbiased third party and assess its strategy, structure and operations of what is “essentially an Oriental firm with an Occidental top management team,” explained Aditya Rao 08MBA.
The Goizueta team viewed hundreds of sample products, interviewed Chinese managers as well as the three brothers, visited a cabinet manufacturing facility on the outskirts of Shanghai, and was permitted to pore over confidential financial documents. The result? A presentation that mapped out ways to improve internal communications, streamline functions and leverage synergies in the company. The team also recommended launching a satellite sales office in Europe or the United States, and implementing a cost-analysis structure to identify and focus on higher-profit categories.
“The technical studies at Goizueta helped a lot,” said Rao, a native of India. “We were able to pinpoint which areas of the business were profitable and which were not, so that the company could concentrate on the profitable parts and not waste too much energy on the others.”
Vivek Bhatia 08MBA, another team member and a former consultant with IBM Global Services, Accenture and Deloitte, was impressed by Genimex’s entrepreneurial and relatively open culture.
“My only perspective had been U.S.-based companies,” Bhatia said. “Here in the U.S., we tend to live in a shell regarding how things are supposed to operate. Getting the perspective of an entrepreneurial firm operating overseas helped me understand that there are extrinsic factors affecting companies that I hadn’t been exposed to before.”
The Sofitel Hyland Hotel, where Goizueta students stayed while in Shanghai, and, to a lesser extent, The Portman Ritz-Carlton, were two hotel operations studied by students. Team members also visited a corporate office of the InterContinental Hotels Group.
Steve Tilley 08MBA said students analyzed the many challenges that upscale, multinational hotel chains face in China. Sofitel is based in France, The Ritz-Carlton and InterContinental in the United States.
“We were able to see how different companies work with the Chinese culture and observed vast differences among the hotels,” he said. “We spent many hours studying employee behavior at the front desk, restaurant, lobby and concierge (post).”
Goizueta faculty member Richard Metters, an associate professor of decision and information analysis at Goizueta, put the project in context. “If you have an international brand, you want the customer experience to be the same — no matter whether you’re in France, Boston, Santiago or Shanghai — but you also have to employ people from the local population,” he explained. “In Shanghai, that means employing Chinese people to serve Westerners while adhering to service standards conceived in the West. But a service standard from the West is not necessarily a service standard that’s good in China for Chinese people. So these hotels have to deal with a lot of cultural differences.”
A major problem is finding sufficient numbers of English-speaking employees to staff services. “Someone who speaks English is quite valuable in China and can earn more money in businesses outside the hotel industry,” Tilley said.
The hotels also have difficulties grappling with “the hierarchical mindset of the Chinese worker,” Tilley said. “It appeared challenging for some workers to do jobs outside their set responsibilities, or even stop a lower-priority task for a higher-priority one. For example, it was a challenge for front-desk employees to stop doing paperwork and attend to a guest. I’ve seen guests wait several minutes to be helped.”
Still, the Chinese work force is changing, and in rapid-fire fashion. Metters said younger employees, who never experienced the more repressive aspects of communism, have a far different mind-set than older workers, a reality some hotel managers have yet to grasp.
“Workers in Shanghai today are better educated, more entrepreneurial, and more market-oriented than they were years ago,” noted Metters. “In the past, Shanghai workers felt it was their duty to just do what they were told, but now the culture has changed—they feel they can be more proactive in providing customer service.”
Tilley said Chinese employees want to get ahead and are demanding more from their job than pay. “The trend seems to be toward personal development and training.”
Among its recommendations, the Goizueta MBA team urged the hotels to hire for attitude that matches the company culture; communicate opportunities for growth and training; build their brand to attract employees; and pay more attention to the recruitment and development of lower-level workers, plus seek feedback from them.
The Intellectual Property Team – four students pursuing JD/MBA degrees at Emory and one MBA student – looked at Chinese intellectual property (IP) laws and analyzed how U.S. firms must adjust their strategies when conducting business in China.
For years, American companies have complained of rampant Chinese piracy of music, movies and software. Often the pirating firms operate in remote areas of the country. After meetings with the U.S. Consul General in Shanghai, the Director of the U.S. Commercial Service and numerous lawyers
Jackson Hughes 08 JD-MBA believes that the Chinese central government supports IP protection and that the problem lies elsewhere.
“The central government sees a lot of value in protection of IP,” he said. “It recognizes the value both internally — for predictability of legal outcomes, investment, etc. — and for international trade (purposes).
“But the farther from the central government you get — in terms of geography, influence and size of the local government institution —the less IP rights are valued,” Hughes explained.
IP team members met with business and government officials in Hong Kong, Shanghai and Beijing, and had no problem eliciting candid opinions from them, Hughes said. “One proverb came up more than once in explaining the attitude of more outlying areas to IP protection: ‘The mountains are high, and the emperor is far away.’ ”
The Goizueta students concluded that IP infringement “is extraordinarily difficult to prove and even more difficult to enforce adequately to discourage future infringement,” Hughes said.
Why? “Evidence laws allow for no discovery,” he said. “Criminal penalties for infringement are very low, and civil damages are capped.”
Other factors intrude as well. “Corruption in local judiciaries frequently results in findings for well-connected local infringers,” he said. “And there are public relations problems associated with a huge multinational corporation attacking a small local company.”
In spite of the logistical complexity of planning projects that took place 13,000 miles away from Emory, Metters and Remington were pleased with the level of business knowledge that resulted from the trip.
“When students do a project here at Emory, they often have all semester to do it. These students had only an eight-day period in which to do everything,” Metters said.
The Emory contingent included three native Chinese students and another student from Taiwan. “They were a critical asset,” said Gavin. “They helped us navigate and to understand the culture.”
For Gavin, the awareness of the rising gap between the urban rich and the rural poor and the intellectual ferment of modern China was equally illuminating.Rao, who plans to intern with Deloitte Consulting this summer, believes the project gave him a step up on his career. “The trip gave us good insight into the traditions, history and culture of the country as well as into how business is conducted in one of the world’s fastest-developing economies.”