China is a large country with great potential for development. Over the past few years, China has attracted a large number of foreign direct investments. The country went through various economic reforms during the 1980s and 1990s, leading to an increase in the number of foreign investments. However, foreign companies have started to increasingly face a lot of problems when operating in China. The survey by AmCham China Business revealed that 60 percent of its members felt less welcomed in 2014 compared to 41 percent the previous year (Deresky, 2017). Foreign companies in China can be analyzed by determining the kind of tensions, how companies manage the tensions, adaptation to the Chinese culture, and recommendations for companies to improve their global footprint through the challenges.
Tensions that Could Arise When Operating in China
The different tensions that could operate when a company enters the Chinese market deal with the laws, taxes, politics, and cultural differences. One of the political factors that could create tensions is the ongoing trade war between the United States and China. The trade war has resulted in uncertainty for most businesses. Additionally, the Chinese government has placed various laws and regulations that can make it increasingly difficult for foreign companies to conduct their operations with ease. According to Froese (2019), China is an emerging market that is highly characterized by a fast, weak, and evolving regulatory and institutional environment. There are multiple regulations in different spheres, such as the labor market, digital media content, and the financial sector. For instance, the Chinese government’s regulations regarding running a monopoly have been used to intimidate various companies by imposing strict limits on their prices.
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Managing the Tensions
Foreign companies that want to continue their operations in China can manage the tensions through learning about the Chinese laws and striving to abide by them. The Chinese government has increased the number of laws and regulations that govern foreign companies. Before setting up any venture in China, a company should conduct adequate research about their products and services and various regulations. The foreign company should always strive to strictly follow the regulations. Government actors can potentially exploit the fragility of foreign companies in favor of supporting the needs of domestic firms. One example of a company that has strived to manage the tensions successfully is Walmart. The food chain had to set up its own supply sources and its inspection over other supply chains to abide by the strict regulations (Deresky, 2017). While the move improved the overall costs of the products, it was beneficial in reducing the tensions. Foreign companies may have to incur extra costs to ensure that they can manage the tensions effectively.
Adapting to the Chinese Culture of Unfair Treatment
Foreign companies that enter the Chinese market should first understand the Chinese culture, but this does not mean that they should comply with the culture of unfair treatment. Understanding the Chinese culture will ensure that foreign companies understand different issues that could arise when conducting operations in China. For instance, the company should understand that intellectual property right is not static. However, the issue of copyrights has been evolving, but there have been challenges in copyright issues (Huang, 2017). The foreign company should understand the Chinese culture approach to copyright but strive to seek legal advice on how to approach the issue. Even as it experiences intimidation by seeking legal advice, the foreign company should be ready to stand its ground and go against any such forms of intimidation.
Case Study Companies
The changes in the Chinese laws and regulations about foreign companies have created various tensions. One example of a challenge that companies have faced is in the game censorship and regulations on foreign companies. The Chinese government had placed a 15-year ban on the manufacture and sale of foreign and domestic gaming consoles in the year 2000. The ban was lifted in the year 2015, and it opened up a huge market for technology giants like Nintendo, Microsoft, and Sony. However, the Chinese government placed various restrictions where they had to partner with a domestic game manufacturer, and the games would have to go through thorough inspections. According to Zhang and Chiu (2020), foreign companies in the gaming console industry have experienced a very difficult battle to dominate the industry worth 23 million dollars. The censorship shows the challenges that foreign companies expect when operating in China. The Chinese government can impose various unfair regulations and censorships that strive to improve domestic companies.
Recommendations
The recommendation for foreign companies that want to improve their global footprint is to take time to research the Chinese market and various laws and regulations. The companies may have to establish a legal department that understands various issues in operating a company in the Chinese market. Additionally, the company should ensure that its employees and sales offices abide by the regulations. In most instances, the company may have to incur extra costs in gaining legal advice and carrying out inspections to ensure that their operations abide by the Chinese regulations.
Conclusion
Foreign companies that may want to expand their business and production facilities in the Chinese market may encounter multiple challenges. The challenges that were analyzed were that there could be changes in the legal structure and laws and regulations when operating a company in China. Companies can also be intimidated by government officials. Companies can counter these challenges by understanding the laws and following them strictly. The future of foreign companies in China remains difficult. If foreign companies continually encounter challenges with operating in China, they are likely to shift their production to other countries.
References
Deresky, H. (2017). International management: Managing across borders and cultures . Pearson Education Limited.
Froese, F. J., Sutherland, D., Lee, J. Y., Liu, Y., & Pan, Y. (2019). Challenges for foreign companies in China: implications for research and practice. Asian Business & Management , 18 (4), 249-262. https://doi.org/10.1057/s41291-019-00084-0
Huang, C. (2017). Recent development of the intellectual property rights system in China and challenges ahead. Management and Organization Review , 13 (1), 39-48. https://doi.org/10.1017/mor.2017.2
Zhang, J., & Chiu, C. L. (2020, November). The impact of game censorship and regulations on foreign game consoles in China. In 2020 13th CMI Conference on Cybersecurity and Privacy (CMI)-Digital Transformation-Potentials and Challenges (51275) (pp. 1-8). IEEE. https://doi.org/10.1109/CMI51275.2020.9322695
