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Management leadership
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Explore the Home Gift Guide. Amazon Music Stream millions of songs. Amazon Advertising Find, attract, and engage customers. Amazon Drive Cloud storage from Amazon. The reader who is interested in further information is directed to the literature list as an aid. The focus of Chapter 3 is the initial contact with possible Chinese suppliers.
The different possibilities of establishing contact are shown, dealing in particular with the Chinese trade fair market and the behaviour of German buyers at Chinese fairs. For German companies which have already gained buying experience in China the quality of the products supplied is a great problem. Thus, Chapter 4, after describing the quality consciousness of the Chinese, presents practical measures for quality control with regard to procurement in China.
Chapter 5 deals with transport logistics.
It describes the different types of logistics service providers and the potential carriers for inland and export logistics with their opportunities and risks. At the end of the chapter, a checklist gives assistance in choosing a logistics service provider. Some basic values which still determine the course of negotiations today can be found in the roots of Chinese culture.
The reader is also given practical tips for successful negotiations in China. This section presents a short overview of the most important geographical and economic data on China. China has since become the sixth biggest economy in the world. In the same time frame, its export trade volume rose almost six-fold from million to 1. This gives it 3rd place among the trading nations, behind the USA and Germany. In contrast, on the international welfare scale China is in the last third.
GDP per capita passed the dollar threshold for the first time in If one takes into account the different levels of prices in the countries, GDP per capita based on purchasing power can be calculated at approximately dollars. From a German point of view, the Chinese procurement market has increased considerably in significance in the last fifteen years. This is shown by the very dynamic growth in the German imports from China, which more than quadrupled from 8 billion in to In the mid term, it is assumed that by bilateral trade will have doubled.
The growing significance of the Asian supply market is also shown in a study carried out by the University of Applied Sciences in Berlin. The Chinese procurement market is observed by international companies from many different perspectives: Chinese universities currently supply the job market with approximately 3 million highly qualified engineers and natural scientists annually.
The average monthly salary for a young academic is currently at approx. Due to these aspects, in particular the unrivalled low wage costs, China is developing into one of the most lucrative procurement markets. The cost gap is not only unlikely to close within the next 20 years but in some cases may actually increase. Mainly there are 2 reasons for this: First, the growth of wages in China will be limited because of the enormous reservoir of under- and unemployed people. China still has more than million people living in the countryside. They are expected to exert very strong downward pressure on wages for low-skilled positions over the next few decades.
Although there will be more pressure on higher-skilled positions, the supply of candidates for such positions is also very large. Second, the current differential in labour rates is so great that the gap between them will remain substantial for the foreseeable future, even if there are double digit differences in the rates at which they grow see Fig. In fact, the gap in real wages will actually increase in absolute value, at least for the next few years, because the bases are so widely different. If wages increase at an annual rate of 8 percent in China, while in the United States and Germany they increase at annual rates of 2.
In half a million manufacturing sites, it produces approx. Traditionally, Guangdong is a home to light industry, which makes up more than half of industrial output. The most important products are electrical devices such as televisions, audio equipment, copy machines, telephones and other consumer products such as textiles, cigarette lighters, watches, toys and shoes [14].
It is not surprising that numerous western retail companies have settled in the region Wal-Mart, Metro, Otto, Carrefour, Ikea.
Increasing numbers of companies are now following the retail companies, for the focus of production in the region is shifting increasingly towards the high-tech fields of electronics and telecommunications. The supply industry in also growing strongly since the density of factories has attracted an increasing number of competitive suppliers.
The resulting growth in the range of electronic components and assemblies, plastic and metal parts, and pressure die-cast components on offer is also attracting an increasing number of European and American Small and Medium-sized Enterprises SME to the region, which are buying parts for their own manufacturing processes. Exactly as in the Pearl River Delta, the region has a highly developed private sector and is home to more than private companies.
The YRD Region also has numerous companies from the steel industry e.
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Boasteel Shanghai , machine building and the automotive industry e. Shanghai Volkswagen, Shanghai General Motors and more than international supply companies. Other pillars of the region are the textile and chemical industries e. There is a large number of industrial supply companies e.
Shanghai offers an international atmosphere, a high quality of life and a somewhat western lifestyle. Beijing as the capital of China possesses superior advantages since business and politics are still closely connected. Beijing thus plays an important role for foreign entrepreneurs in establishing and maintaining social relations with party functionaries and representatives of state institutions and ministries. However, high-tech companies have also located in the region in the last 20 years.
Experts are of the opinion that the region could become the dominant economic force of the whole of north-eastern Asia by It already dominates the steel, automotive, chemical and raw materials industries. The production of software, mobile telephones and electrical household appliances is centred mainly around Beijing and Tianjin. For western buyers who would like to procure components for production at home, the Bohai Region offers only a very limited supply market.
Heavy industry has been built up here intensively since The whole north-eastern lowlands lives from the iron and steel industry, automotive factories and chemical works. Closures and redundancies in the outdated steel works and coal mines has lead to mass unemployment and mass protests in the last few years. A quarter of all Chinese unemployed live in the north-eastern provinces. In Liaoning alone in the last few years three million workers have been laid off and firms closed.
Many cities in the region arose because of state companies. The private sector is only gaining ground slowly. Since , the Chinese government has increasingly supported the structural change of this region. Volkswagen 1 billion Euro, BMW million Euro and foreign know-how are also helping considerably to create new jobs. In the course of the reform process a small but increasing number of local suppliers are setting up procurement bases near production centers.
In contrast to the booming coastal regions the Chinese heartland is defined by its slight economic power, weak foreign orientation and its reform deficit. Only a few well-qualified state-owned companies can be found. Economic development is to be boosted by state support and foreign investment.
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Everywhere in western China large construction projects for highways, railroads, canals, dams, pipelines and electricity cables can be seen. With high levels of investment the government in Beijing is trying to ensure that the west can compensate its greatest disadvantage as soon as possible. In addition to the new infrastructure, the low wage costs — when compared to the coastal regions — and the attractive tax benefits represent further essential incentives for foreign investment. The authors Ming Zeng and Peter J. After competing for decades with global leaders selling products on their home turf, some Chinese companies decided to concentrate on developing and selling products not just in the domestic market but also overseas.
These national champions have tested the waters confidently, because they have successfully kept their multinational rivals at bay at home. But overseas, they do not challenge their larger opponents head on. Instead, they scout for segments that the market leaders have vacated or are not interested in serving because profit margins or volumes are low.
They use their experience in adapting technologies and features to meet the price points of cost-conscious buyers to develop products for those segments. Not surprisingly, low manufacturing costs allow these national champions to turn a profit where their rivals cannot.
Haier exemplifies this strategy. By the early s, the company had battled Whirlpool, Electrolux, Siemens, and Matsushita to become the leader in China's market for household appliances. The company manufactures types of refrigerators, air conditioners, dishwashers, and ovens.
When it entered the U. For five years, it focused on selling only compact refrigerators — units smaller than litres — which could be used as mini-bars in hotel rooms or students could squeeze into dorm rooms. The incumbent leaders had dismissed these market segments as peripheral, but they proved to be quite profitable for Haier, which last year had about half of the mini-fridge market.
The company's second strategy foray was equally cautious: Like Haier, many Chinese companies can deliver such products in both low-tech and high-tech industries. This allows them to surprise their rivals, who are more worried about disruptive technologies and breakthrough innovations. The national champions produce very large unit quantities. Exports are carried out practically along the way; at the same time they have already gained a large share of the world market.
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Since these companies are represented on the world market and most operate sales offices abroad, there are no major procurement problems for European buyers. No direct investment in China is necessary. Despite the lure of the domestic market, some Chinese companies set their sights squarely on the external market when the government opened the economy. These dedicated exporters were probably motivated by the prospect of reaping global economies of scale or the knowledge that competition in their businesses was inherently global.
Some of them attacked the overseas market from the start; others, which were subcontractors to big international players, had to think small at first to ensure that they did not jeopardise their supplier relationships. As they develop expertise with crucial technologies, they migrate to specialised, high-value segments. They are not shy about striking partnerships or acquiring rivals to move up the value chain. Over the next five years, CIMC captured half the world market for refrigerated containers.
By , the Chinese company had developed the ability to design and manufacture a full range of refrigerated containers — for air, sea, road, and rail — and is still the only company in the industry to have done so. In the city of Wenzhou population about 7 million in the Zhejiang province, south of Shanghai, the manufacture of cigarette lighters began in the mids, when locals brought them back from Japan as gifts. The enterprising Wenzhouers broke the gadgets down into components and learned to produce replicas.
By , more than families in the city were making lighters. The intense competition among them soon forced a shakeout. The smaller family businesses switched to make components for the lighters, and the larger companies focused on assembling them. This allowed the Wenzhou network to enter the international market. It sold units based on price at first but earned higher margins as it learned to produce new designs more quickly. There are a number of competitive networks, or clusters, in China, each made up of hundreds of small entrepreneurial companies and their families located in one geographical area and operating as a cohesive, interdependent entity.
Since the networks have few, if any, bureaucratic systems and little, if any, corporate overhead, they are highly flexible, low-cost producers.