Executive Interviews: Interview with Fang Lee Cooke on The China Factor
November 2007 - By Dr. Nagendra V Chowdary

Dr. Fang Lee Cooke
Full Professor of HRM and Chinese Studies at Manchester Business School
University of Manchester.

Yes, China has been one of the top countries in attracting foreign direct investments. I have already mentioned China's attraction to foreign firms. I just want to add that China is a large country with rich resources, be it human or cultural resources. We can offer different things to MNCs that look for different things in China. China can be a tourist site, amanufacturing company, a head office, a training ground, a conference center, an international fair arena, a supermarket, a bank, anything.

• What do you think is the bestway to enter China? Is it after a thorough market research, through experiential learning sans any research, or should it be likeMicrosoft's (waiting patiently for almost 15 years and becoming successful through 'partnering')?
  There are different entry modes if a firm is seeking to enter China, depending on the size of the firm, the nature of the business it does and its motive of entering China. One can set up an office, a new branch, a solelyowned subsidiary or a joint venture. But whatever it does, it is important that it does its homework thoroughly before taking any decisions. But perhaps not many firms can afford to wait for 15 years before they act.

• You would find two kinds of companies (MNCs) going to China; those shifting their manufacturing bases to China to benefit from the supposedly low-cost advantage and those that primarily want to sell their wares/services to Chinese consumers. Do you foresee an overcrowded market? Would the so-called cost advantage not be evened out in the long run (because the aggregate wage level would eventually increase as a result of extra demand)?
  You are right in that there is a risk of overcrowding of market and the erosion of low-cost labor. Already, certain segments of the product markets are overcrowded and the local firms are doingmuch better than foreign firms; for example, household electronic goods. But there is an increasing hunger fromthe expanding middle-class in China for designer products or products that carry a reputable brand image or new concepts. So, there is always amarket in China for certain types of products. In terms of labor cost, there are emerging signs that plants are relocating to other developing countries that offer even lower wages than China. Some manufacturing plants in China have experienced labor shortages in the last few years, triggering a Mingong huang (shortage of ruralmigrantworkers) in 2004. Part of the reason for thisMingong huang is the low wages, long working hours and poor working and living conditions for workers. This situation of labor shortage is still ongoing in certain areas, such as Guangdong Province where many foreign manufacturing plants are located.

• What is the best way to compete in China? Is it through cost advantage or is it through differentiation; or a combination of these two?
  A lot depends on your productmarket position. It is quite difficult for foreign firms to be able to operate more cheaply than local firms and gain cost advantage. So, differentiation with niche product may be a better choice. Firms can try to source their materials or products in China to reduce cost and develop new products that suit Chinese tastes. Some supermarket giants operating in China are doing that. Whatever you sell, or whichever end of themarket you are in, pricewill always remain a sensitive issue to the Chinese consumers. In general, foreign MNCs in China are in a relatively better competitive position than the majority of Chinese firms. They are able to offer various products that are marked by high quality, innovative design and high brand value. They are also more likely to attract talent because of their prestigious corporate image and better employment prospects. However, the competitive advantage of foreign firms in China over domestic firms is by no means absolute. There are a number of key differences in their operating environment and organizational resources. For example, Chinese firms are more familiar with the local culture, better able to mobilize social networks, including government bodies, to obtain business resources and bypass legal constraints.

• How far should MNCs customize their business models (for instance, Microsoft, Dell, Google, Yahoo, Wal- Mart, etc. tweaked their business models to suit China operations)? Should every company (MNC) customize its business model?
  It is difficult to generalize. However, a level of adaptation and customization is often needed when MNCs operate in different regions due to institutional and cultural differences. There have been cases that some foreign firms do not adapt their products sufficiently to tailor for the Chinese markets. Instead, they transplant their products and programs, which are attractive and affordable to only a small number of affluent Chinese consumers. MNCs should develop sensitivity to price and culture in the Chinese market in order to compete successfully. Local culture is one of the most important influences on marketing efforts and the strong Chinese culture is unlikely to be changed by an innovative Western idea or product if it is perceived impractical.

1. Google's Problems in China Case Study
2. ICMR Case Collection
3. Case Study Volumes