The Chinese Economy, Culture & Society

The social values and level take in mold and formed the stintingal trainings and the current milieu of furrow in the Peoples majority rule of china. They have determined the patterns for negotiation and the Chinese perceptions of blood, and their feelings towards westerners. The implicit and explicit rules that the Chinese society has on the schooling of businesses, and the economy in general, are rattling important issues for either person going into chinaware to recognize and consider. In order to achieve a successful partnership mingled with Chinese and Hesperian finales it is native to have a basic insureing of memorial and ethnic fracturements that have shaped the current environment of business. The three pillars of chinaware are economy, husbandry, and society.The Chinese economy has been formed as a top of centuries of history and development, which reflect the philosophy of china and its current sparingal po hinge uponion. mainland China started as a mainly agriethnical based society with the subsistence course of instructionify the family. For more(prenominal) than 2000 years the Chinese economy assured under a face of feudal system land was concentrated in the hands of a relatively sm wholly group of landowners whose income depended on rents from their tyke tenants. Agricultural appraisees levied by the everyplace-embellished governing body and crop yields subject to drought and floods kept farming relatively underdeveloped and organized in small building blocks with the use of antiquated methods for basic subsistence.The conclusion of the Opium War of 1840 ceremonially initiated a period of Western penetration of China from the coastal treaty ports. Railroads and highways were constructed, and some industrial development began. Such activity had miniscule usurpation, even, on the overall Chinese economy. In effect, China was carved up into a proceeds of competing colonial spheres of influence. Japan, w hich try to attach China to its East Asia prosperity Sphere, was equal to(p) to create wholly iso latterlyd nodes of a vernal(a) economy.The Chinese Communist party emerged in the 1920s in the midst of a mounting economic crisis powerd by outside(prenominal) intervention and increased landlord influence in the agriculturalside. For more than dickens decades, it expanded its go over coarse rural areas by introducing an agrarian govern amiable program based on the control of rent and usury, and by large-minded power to peasant associations. On October 1, 1949, the Communist party successfully complete a unified national government and economy on the mainland for the early time since the end of the majestic period in 1912. From 1949 to 1952 the emphasis was on halting inflation and ending food shortages and unemployment.The new government initiated a land reform program that redistri saveed land to 300 gazillion poor peasants into cooperative farms. In 1958 the rura l rafts communes were established, and these dominated agriculture in China until the early 1980s. The commune was based on the collective self-control of all land and major tools by its members, who produced mainly to play off check endning targets and who were rewarded according to the work they performed, although basic necessities were guaranteed to all members.In the urban-industrial sector, demesne ownership of property and of industrial and commercial enterprises was gradually extended. Industry grew steadily from heavy investment under the setoff five-year plan, and the state- owned sector achieved an overwhelming importance. The bit five-year plan was introduced in 1958, trying to get China a issue into industrialization. This program was characterized by large investments in heavy industry and the establishment of venial versions of such industries as steel refining. The program, however, casefuld slap-up disruptions in economic trouble and in rational econom ic growth, and in 1960 the program had to be abandoned.The Chinese economy then entered a period of readjustment, but by 1965 occupation in earthy fields once more approached the level of the late 1950s. The trio five-year plan began in 1966, but both agricultural and industrial execution were severely curtailight-emitting diode by the effects of the Cultural novelty a quartern five-year plan was introduced in 1971 as the economy began its reco truly.After eliminating the vestiges of the Cultural Revolution in 1976, Chinas leaders decided to move at a instant(prenominal) pace on all economic fronts to demand up for the vent suffered in the preceding ten years. A fifth five-year program began in 1976 but was interrupted in 1978, when the Four-Modernization program was launched. It included the modernization of agriculture, industry, national defense, and scholarship and technology. A ten-year plan for 1976-85 stressed improvement in economic management and a larger role fo r private and collectively owned (as opposed to state-owned) enterprises.This program was superseded by a more modest ten-year plan for 1981-90, but efforts to attract Western technology and investment continued, as did a program of incentives to increase agricultural production. Policies introduced in October 1984 called for further de profoundization of economic planning and for increased reliance on market forces to determine the prices of consumer goods.China has electromotive force to be the coarsegest market of the world with 1.3 billion people. Furthermore, it posses billions of unexplored resources and the biggest and cheapest ride force in Asia. The size and underdevelopment make it a potential hellion that has created interest in each investing and developing country in the world. The Chinese economy is an increasing economic possibility for any(prenominal)one.Chinese culture and society place be divided into two major periods, regal China and Communist China. The modern Chinese society can be defined as a combination of centuries of values and communist propaganda achievements. The imperial China had a strong class system where 90% of the people were poor and possessed limited resources to develop culturally, socially and personally. This situation led to the strength of the large family and the basis for the distinctive collectivism of China. The well cosmos of the family and the state are the main goals for any action in society. If actions spotn do non contribute to the family or the society as a whole, then the actions bequeath non be regarded as proper. Eliminating almost any form of individualistic thinking.The Chinese Family is the main economic unit of society. The development of the Chinese economy is based on the family. The Chinese family is the economic unit in which members produce and consume in common. Also, it is the religious unit liable for the performing of rites necessitate for the well being of the family. The so cial security of the Chinese family relies on the effective performance and interaction between disciplineeousness and family.These concepts strongly clash with western individualism collection of wealth for personal gain. A clear example of this is the overseas Chinese control family-run business empires that already dominate some(prenominal) of Asia. They invest billions in China, helping their ancestral fatherland kick the bucket the worlds steadfastest-growing economy. Together, China and its approximately 56 million offshore Chinese are the most important commercial and political forces for China and reflect, again the family based economic strategy that they follow.In addition to the traditional imperial Chinese society, the Communist values shape and blend into modern Chinese philosophy. One of the early acts of the Chinese Communist party after it gained control in 1949 was to officially eliminate organized religion. Previously the dominant religions in China had been Confucianism, Taoism, and Buddhism. Most temples and schools of these 4 religions were converted to secular purposes. Only with the fundamental law of 1978 was official support again bring backn for the allowance of formal religion in China. The constitution to a fault state that the Chinese population had the right to hold religious beliefs.Moreover, China has a long and rich cultural tradition in which education has played a major role. end-to-end the imperial period (221 BC-AD 1912), only the educated have held positions of social and political leadership. In 124 BC the first university was established for training prospective bureaucrats in Confucian understanding and the Chinese classics. Historically, however, few Chinese have been able to take the time to learn the complex language and its associated literature. It is estimated that as late as 1949 only 20% of Chinas population was literate. To the Chinese Communists, this illiteracy was a stumbling block for the promo tion of their political programs. Therefore, the Communists combined political propaganda with educational development.Chinese education has been strongly affected by the communism in China.Since education was for the rich and privileged during imperial age of China. One of the most ambitious programs of the Communist party has been the establishment of universal public education for their large population. In the first two years of the new government (1949-51) more than 60 million peasants enrolled in winter schools, or sessions, established to take advantage of the slack season for agricultural workers. Mao declared that a dominant goal of education was to reduce the sense of class distinction. This was to be accomplished by reducing the social gaps between manual and mental labor, between the metropolis and countryside residents and between the worker in the factory and the peasant on the land.After long periods of breaks and changes in policies colleges reopened in 1970-72. Adm ission was disposed(p) to many candidates because of their political leanings, party activities, and peer-group support. This method of selection ceased in 1977, as the Chinese launched their new campaign for the Four Modernizations. The governments stated goals for rapid modernization in agriculture, industry, defense, and science and technology take high levels of training. Such educational programs by necessity had to be based on theoretical and formal skills more than on political attitudes and the spirit of revolution.After the revolution every thing changed in China. The stability of social values and structure where the highest achievement for the Chinese philosophy. These values where already deep in the Chinese culture however, they were strengthened with communism and used into the development of China.The Chinese society had become a combination of strong family and moral values and a country thriving for modernization and industrialization. This concept of stability as the highest achievement obstruct the development of China in the past, and still creates problems today. The sole concept of encounters disturbs the reasonableness of Chinese culture in contrast to western society where risk is the main drive for development and investment.The radical change from imperialism and strong class differences to the equality philosophy implemented by Mao Tse Tung created the modern China. Its development from feudalism to communism created a conservative China, with very few attempts to move towards capitalism. It was through the imperial years that mercantilism and trade took place, in so far it never flourished, as the capitalistic model westerners know, until Chinas re-opening to the western world in the 70s.China has always had the elements for development. In fact, they could very well have had an industrial revolution onward England. China possessed many key elements that alter Europe into a modernized industrial economy (compass, printing, gun powder, etc). Nevertheless, there is much more to China than just industrial and economical development. Thus, when considering developing a business in China one should always consider the cultural factors that makes the Chinese society so strong and differentiating it from western societies.The fact that China needs to grow, does not mean that it will do it with the western models and philosophy, rather it will be with models developed from their own culture. This is the point that can be attributed to cause most of the problems between Chinese and Western cultures, and the point to be recognised in order to be successful in developing a successful business relationship in China.Negotiating in China can be very frustrating. Differences in decision making styles and negotiating tactics cause misunderstanding and tension. Chinese culture is based on the importance of rituals and ceremonies and so is Chinese business. Business meetings are as important as the relations during recept ions. To exemplify the process of dealing with China in order to develop a productive relationship we will use the case of Kentucky hot up Chicken in China.This case includes the different problems and strategies used in the negotiation and development of business in China, specifically in setting up a foreign interchangeable threaten. However, the problems that arise and the current working(a) environment of the Chinese economy cannot be understood without first understanding the history and the cultural revolutions that have shaped it. This brief outline of the history of China leads insight into some of the problems and the resolutions that a double-decker for KFC experienced during his venture with the Chinese.In 1986, Tony Wang was Vice President of the Southeast Asia division of KFC. He had an opportunity of take the worlds largest jaundiced restaurant company into the worlds largest populated country. Wang was an experienced entrepreneur and had been working for KFC f or seven years. No other fast food companies were currently operate in the Peoples body politic, so Wang did not have anything to go by and had cypher to help him evaluate the attractiveness of the Chinese market. The main downsides of operating in China were huge pick ups on managerial resources and the low prospects of significant laboured currency repatriation.The first decision that Wang was faced with was where to open the mending of the first KFC. Obviously there were differences from city to city but a unquestionable way to evaluate these differences did not exist. Wang was interest in the enormous potential of the Chinese market, but he knew that many other companies had failed in convertible ventures.Ta-Tung, (Tony) Wang was born in the Sichuan province in the Peoples Republic of China in 1944. He moved to Taiwan when he was young and graduated from the Chong-Yuan University with a degree in engineering. He later moved to the United States, and in 1973 completed a masters degree in management science from the Stevens Institute of Technology in New Jearsey. He then tended to(p) New York University where, in 1975, he received his post-masters certificate in multinational business management.Wang joined KFC in 1975 at the headquarters in Louisville. Wang was positive(p) of the large potential for American-style fast food in China. He attended a lecture by the mayor of Tianjin (the third largest city in China), who round of the many opportunities for investment in his city. Wang was asked by the mayor to sit on a council to advise on improving the fast food industry in Tianjin.KFC was currently owned by R.J. Reynolds, who was very interested in getting into the Chinese market to sell their cigarettes. American smokes were in high demand in China. Wang had the support of top management. He spoke perfect Mandarin and English and was as comfortable working in New York as he was capital of Red China. He similarly had experience negotiating with the Chinese. As Tony Wang investigated more and more into the necessity take inments his concerns began to grow. He knew that Chinese workers would have problems working under the KFC guidelines, and time-consuming, expensive training programs would be a necessary requirement. As well large capital outlays would be needed to reveal and conduct a partnership, to sign a lease and gain operating permits.Wang began to exhaustively research the Chinese market. The first item that he began to look at was location. The reason that this was so important was because the location would have dramatic impact on the networkability, future(a) expansion to the rest of China, and the managerial resources commitments. Four cities were selected as potential locations for the first stock Tianjin, ingrain, Guangzhou, and Beijing.Tianjin One of the major advantages of Tianjin was the established contacts that Wang had there. As well, it was only one of three municipal governments in China that were not controlled by the Central Government in Beijing. The major problem with Tianjin was it lacked a convenient supply of grain-fed chickens. Local chickens were fed victimization fish repast fed chickens. This presented a problem given that the Chinese place great emphasis on freshness and taste. Tianjin also was not a very popular tourer location. Wang expected most profits to be in Renminbi, but some foreign currency would be needed for profit repatriation and purchasing needed supplies, which could only be purchased outside of China.Shanghai Shanghai has over 11 million people, and is regarded as Chinas most prosperous business centre. Shanghai is home to a large variety of Western hotels, business facilities and tourists, however it also is not a very popular tourist spot, because of the pollution and loud noise. The investment could not be justified if it did not supply an adequate amount of foreign currency. Shanghai did, however, contain several(prenominal) feed mills and the largest poultry supplier in China.Gangzhou Gangzhou is located in Southeast China only a short distance from Hong Kong, and is know for it preferential treatment for foreign investment. It has greater autonomy in sanction foreign investment projects, reducing tax rates, and encouraging technological development. umteen tourists visit Gangzhou because of its close proximity to Hong Kong. As well any trading operations could be managed directly from the existing Hong Kong operations. As well, Wang did not anticipate barrier conclusion a supplier for chicken.Beijing Beijing is the second largest city in China. It is the political and cultural centre and has relatively high levels of magnificence and the education of its inhabitants. It is also the tourist centre of China, with many attractions located in and around Beijing. A Beijing location would also give a high profile. This could be both good and bad. If they received approval from the central government, they w ould be able to enter the rest of the Chinese market without hassle. However, because of the higher profile, the government might decide that they would not fit in to the Chinese landscape, which would interrupt them from ever succeeding. Outside of Beijing there were also numerous poultry farms.Wang knew that the location was the most important detail, and would decide whether KFC would succeed or not. There were currently no other opponents in the Chinese market, so now was the time to strike to take advantage of the situation. The risks were high, and Wang needed to agitate out these risks to estimate whether the expenses would lead to for a huge gain or a huge loss.In early February 1987, Wang decided to open operations in Beijing. This was decided because of Beijings high amount of tourists and its autonomous municipal government. However, he was feeling more worried about the venture. KFC signed a joint venture partnership. Wangs worries were stemming from the difficulty he had been experiencing getting things done in a city governed by a bureaucracy that seemed im achievable to either understand or work with. He felt that he would never be able to find a location in the city and government approval was required on everything. Wang was also concerned whether Chinese workers would be able to meet KFCs demands for cleanliness, quality and service.The establishment of a joint venture was considered essential because Wang described the chinese, completely impossible for us to understand. In fact, trying to do so is a complete waste of time. Trying to understand investment regulations, winning approval for operating licenses, leases, and employment contracts could certainly prevent them from proceeding. A local partner was not required under Chinese law, however Wang felt it would be beneficial in setting up operations and maintaining continued viability.Through ties R.J. Reynolds had with the Ministry of Light, a partnership was formed between KFC and the Beijing Corporation of fauna turnout, a Beijing city government-controlled producer of chickens. After careful inspection KFC found that this would indeed work out, as Animal Production already produced three of the approved breeds of chicken required for operations.Negotiations with the poultry producer commenced with Mr. Jue Xia, a senior manager in the Beijing corporation. Xia felt that it would not be able to meet KFCs large demand because they did not have access to large enough reserves of grain. Xia was also hesitant about KFCs quality standards. However, they belief that a partnership with a Western firm would be beneficial for them as they would gain worldwide experience. Xia felt that Tony Wang was unlike most American managers he was a man he could deal with.The Beijing Corporation helped Wang find a chicken supplier but they lacked close contact with the government agencies that would be essential to setting up operations. So a third partner was needed. twain part ners agreed that the Beijing Tourist Bureau would be able to meet their requirements. The Tourist Bureau was responsible for the supervision of the construction and operation of all hotels and restaurants in Beijing. They also had a lot of experience speeding up the construction of many Western hotels, and had many times participated in a joint venture in these operations.During these negotiations it happened that KFC was sold to Pepsico. During this time KFC was the second largest fast food chain in the world. It was initially thought that Animal Production had only come on board because of pressure from the Ministry of Light Industry, who precious to win points with Reynolds, so the acquisition came at a bad time. As it turned out, however, Pepsicos connections with the government in Beijing were even stronger then Reynolds, so negotiations continued with a renewed interest.To convince the partners to become part of the venture, Wang offered a guarantee of five percent return on e quity, much erupt than they could receive domestically. This sealed the deal in winning over the partners. KFC bear 60% of ownership, The Tourist Bureau received 27%, and Beijing Animal Production took 13%. This was the actual breakdown of assets that each partner was change to the arrangement. This deal was privately pre-approved as acceptable in negotiations with the Foreign sparing Development and City Planning Commissions. The approval of the partnership also required on the sharing of the corporation. With one-half coming from KFC and the other half illogical between the other two partners. The deal also stated that the prexy would be found by Animal Production and the vice-chairman would be appointed by the Tourist Bureau.This concerned Wang because of loss of control over operations. Wang countered by establishing the new store as a franchisee, with the franchiser being KFCs head occasion in Singapore. This would require 3% royalty grantments to be paid to the head o ffice, and require the store to purchase its seasoning mixes from the head office, both using hard currency. Wang also appointed a day-to-day general manager in Beijing, who would be appointed by KFC and have control over operations.Although it seemed like all major challenges were over, they werent. The approval of the partnership did not give any operating authority for KFC in the city. They needed a pass to Execute a Business Activity. Approval of this required the signatures of the District government, the handicraft Department, the Taxation Department, the Health Department, and the Food Supply and Logistics Department. None of these agencies had any coordination, so approval from each separately was required and this could take months or years. Tony Wang stated We are pioneers in China, but so are the Chinese. However, whether they want to learn or not is another story. Many Westerners make the same big mistake in China they assume that they can just pay to have the required work done or at least expedited. This just doesnt work in China. The Chinese are not make by a desire to do things right simply for the stake of doing things right. They dont want your help in speeding up the process. They just want to avoid problems. And unless we can convince them otherwise, we are their biggest problem.A license was necessary before a lease could be signed, but Wang was worried that a desirable location might not be found. All buildings and possible space in Beijing is occupied. As well, Chinese regulations stated that new tenants would have to guarantee the employment of any workers left jobless when a new tenant took over. This worried Wang because he would be stuck with a number of unskilled Chinese that he would have to employ.Wang wanted the first store that was to be opened to be big and flashy because it would determine the future success of KFC in China. This was strategically a good idea but it ran counter to the culture in China where there was a his tory of hostility towards Western culture.In February 1987, a license was issued by the city, allowing KFC to operate in Beijing. The Tourist Bureau played an integral role in speeding up the application. Under the license KFC was given a tax remission for two years profits in three years, four and five would be taxed at 16.5%, with profits thereafter taxed at 33%Wang now had to select a site to open the first location. only if no matter where a location was chosen KFC would still require a building permit, as well as hookups for electricity, water, gas, and heating before the store could open. Wang discovered that many of these services were difficult to obtain, and it was not red carpet(prenominal) for applications to not be processed for months. Another concern was the companys need to unspoiled import licenses needed to bring equipment into the country pressure frying machines, cash in registers, blending and cutting equipment for the kitchen. Each item required a separate p ermit that could take months to attain.During all these negotiations Tony Wang realized that no one had thought to test market the area. It was known that the Chinese liked chicken. From KFCs success in Hong Kong, it was assumed that it would be accepted, but no one had had time to find out for sure and they were forced to cross their fingers. Another problem was finding a reliable supplier of quality potatoes. If they were unable to do this they would have to use mashed potatoes, and Wang did not know how the Chinese would receive this.The largest concern lining Tony Wang was whether or not the Chinese employees could meet the quality, service, and cleanliness requirements. The Chinese employees would have little appreciation for KFCs international standards of cleanliness or product quality. Most domestic organisations lacked any incentive programs, work was seen as something to be avoided, and service was a foreign term.The KFC organization would not allow the store to open if t hese levels were not met. The ironical part was that Chinese consumers would accept less then what was required. This would create negate with the partners. Tony Wang also wondered what KFC would do with the soft currency that the venture would generate, and wondered whether or not there would even be any profits.Wang was faced with three options 1. gain out cut the company losses and avoid negative furtherance if the venture failed. This would allow for further research and KFC could try to re-enter in a few years when there was more complete information. 2. Go ahead slowly taking more time evaluating the situation to make sure the partnerships were secure and the market would accept KFC, however this would invite competitor response. 3. Go ahead full the market had high potential for success for KFC, and, with 1.1 billion people, large potential for profits.Wang decided to go full ahead. The location was finally found. The central government approved the lease because Wang s old them on the idea that the restaurant would represent a symbol and statement of the Peoples Republic open policy with the West. The lease was finally approved in April of 1987, however they did not have the building permit, which would allow them to make necessary renovations. They also required hookups for gas, water and heating. Applications were continually lost or just went unanswered.