A Study of Entrepreneurship Taiwanese Digital Content Companies in China Candidate: Vicki Chihsuan Chiu Faculty of Creative Industries Queensland University of Technology Principal Supervisor: Associate Professor Michael Keane Associate Supervisor: Professor Terry Flew Abstract China’s accession to the World Trade Organisation (WTO) has greatly enhanced global interest in investment in the Chinese media market, where demand for digital content is growing rapidly. The East Asian region is positioned as a growth area in many forms of digital content and digital service industries. China is attempting to catch up and take its place as a production centre to offset challenges from neighbouring countries. Meanwhile, Taiwan is seeking to use China both as an export market and as a production site for its digital content. This research investigates entry strategies of Taiwanese digital content firms into the Chinese market. By examining the strategies of a sample of Taiwan-based companies, this study also explores the evolution of their market strategies. However, the focus is on how distinctive business practices such as guanxi are important to Taiwanese business and to relations with Mainland China. This research examines how entrepreneurs manage the characteristics of digital content products and in turn how digital content entrepreneurs adapt to changing market circumstances. This project selected five Taiwan-based digital content companies that have business operations in China: Wang Film, Artkey, CnYES, Somode and iPartment. The study involved a field trip, undertaken between November 2006 and March 2007 to Shanghai and Taiwan to conduct interviews and to gather documentation and archival reports. Six senior managers and nine experts were interviewed. Data were analysed according to Miller’s firm-level entrepreneurship theory, foreign direct investment theory, Life Cycle Model and guanxi philosophy. Most studies of SMEs have focused on free market (capitalist) environments. In contrast, this thesis examines how Taiwanese digital content firms’ strategies apply in the Chinese market. I identified three main types of business strategy: cost-reduction, innovation and quality-enhancement; and four categories of functional strategies: product, marketing, resource acquisition and organizational restructuring. 1 In this study, I introduce the concept of ‘entrepreneurial guanxi ’, special relationships that imply mutual obligation, assurance and understanding to secure and exchange favors in entrepreneurial activities. While guanxi is a feature of many studies of business in Pan-Chinese society, it plays an important mediating role in digital content industries. In this thesis, I integrate the ‘Life Cycle Model’ with the dynamic concept of strategy. I outline the significant differences in the evolution of strategy between two types of digital content companies: off-line firms (Wang Film and Artkey) and web-based firms (CnYES, Somode and iPartment). Off-line digital content firms tended to adopt ‘resource acquisition strategies’ in their initial stages and ‘marketing strategies’ in second and subsequent stages. In contrast, web-based digital content companies mainly adopted product and marketing strategies in the early stages, and would adopt innovative approaches towards product and marketing strategies in the whole process of their business development. Some web-based digital content companies also adopted organizational restructuring strategies in the final stage. Finally, I propose the ‘Taxonomy Matrix of Entrepreneurial Strategies’ to emphasise the two dimensions of this matrix: innovation, and the firm’s resource acquisition for entrepreneurial strategy. This matrix is divided into four cells: Effective, Bounded, Conservative, and Impoverished. Keywords ：Foreign Direct Investment, International Entry Strategies, Entrepreneurship, Strategy, Digital Content Industry, Guanxi, Chinese Market 2 Table of Contents Abstract 1 Table of Contents 3 Figures 5 Tables 7 Statement of Original Authorship 8 Acknowlegments 9 Part 1: Introduction 10 Chapter 1 10 1.1 The Justification of the Topic 10 1.2 The Research Purpose 11 1.3 The Research Questions 13 1.4 Methodology 14 1.5 Scope and Process of Research 14 1.6 Proposed Chapter Outlines 16 Chapter 2 17 2.1 Definitions of Digital Content and Characteristics of DC Industries 17 2.2 Foreign Direct Investments in China 23 2.3 Entrepreneurial Adaptation to Changing Market Circumstances and Opportunties 25 2.4 Competitive Advantage in Relation to Strategy 32 2.5 Chinese Cultural Understanding: Guanxi 39 Chapter 3 47 3.1 Methodology 47 3.2 Case Selection 49 3.3 Case Profiles 54 3.4 Interview Questions 57 Part 2: Case Study 59 Chapter 4 59 4.1 Entrepreneurship in Taiwan 59 3 4.2 Digital Content Companies and Entrepreneurship 62 4.3 Entrepreneurial Environments in China 67 4.4 Conclusion 85 Chapter 5 88 5.1 Wang Film: Labour-intensive Firm in China 88 5.2 Artkey Art Licensing Center: Art Licensing in China 104 5.3 Conclusion 119 Chapter 6 122 6.1 CnYES: Taiwanese Financial News Website in China 122 6.2 Somode: E-magazine Content Provider in China 130 6.3 iPartment: Friend-Making Website in China 137 6.4 Conclusion 153 Part 3: Synthesis 156 Chapter 7 156 7.1 Entrepreneurship in China and Taiwan 157 7.2 Taiwanese DC Firms’ Strategies in China 165 7.3 Entrepreneurial Guanxi 175 7.4 Conclusion 193 Chapter 8 195 8.1 Conclusion 195 8.2 Limitations and Recommendations 200 Appendixes 203 References & Bibliography 227 4 Figures Figure 1.1: Data Analysis Process 15 Figure 2.1: Digital Content Value Chain 20 Figure 2.2: Content Material Value Flow Sheet 21 Figure 2.3: Environmental Variables 29 Figure 2.4: Aspects of the Entrepreneurial Process 30 Figure 2.5: Basic Steps of Strategic Planning 33 Figure 4.1: Strategy of Digital Content Industry Promotion Office 68 Figure 4.2: The Orientation of Digital Content Institute 69 Figure 5.1: Wang Film’s Animation Products 90 Figure 5.2: Animation Pictures of Legend of Nezha 96 Figure 5.3: Animation Pictures of The Adventures of Little Carp 97 Figure 5.4: The Main Characters in Wang Film Self-produced Film Fire Ball 99 Figure 5.5: Qi Baishi’s Original Artwork and Its Value-added Products 108 Figure 5.6: Cherries Created by Qi Baishi 112 Figure 5.7: The Evolution of Suzhou Wang Films’ Entrepreneurial Strategies 120 Figure 5.8: The Evolution of Artkey’ Entrepreneurial Strategies in China 121 Figure 6.1: The Teaching Process of Hair Style with Flash Motion 133 Figure 6.2: Wo Girl - The Most Popular Module of Wo Style Magazine 134 Figure 6.3: The Organization Figure of Somode 137 Figure 6.4: Some Objects in China iPartment’s Homepage 142 Figure 6.5: One of Luxury Suite in iPartment 143 Figure 6.6: One Bustling Animal Room in iPartment 144 Figure 6.7: Popular Singer Sun Yanzi’s Star Suite 148 Figure 6.8: Chinese Friend-Making Websites PV per day in February 2007 150 Figure 6.9: iPartment White-collar Users’ Visiting Frequency 151 Figure 6.10: The Evolution of CnYES’s Entrepreneurial Strategies 153 Figure 6.11: The Evolution of Somode’s Entrepreneurial Strategies 154 Figure 6.12: The Evolution of iPartment’s Entrepreneurial Strategies 155 Figure 7.1: The Taxonomy of Entrepreneurial Strategies 172 5 Figure 7.2: The Application of ‘Taxonomy of Entrepreneurial Strategies’ 175 Figure 7.3: The Relationship between Entrepreneurial Guanxi with Other Theories 179 Figure 7.4: Entrepreneurial Guanxi Taxonomy Matrix 185 Figure 7.5: Fei’s Different Order in Chinese Society 185 Figure 7.6: The Mental Process of Resources Allocation 186 Figure 7.7: The Different Order of Entrepreneurial Guanxi 187 Figure 8.1: The Application of ‘Taxonomy of Entrepreneurial Strategies’ 199 Figure 8.2: Entrepreneurial Guanxi Taxonomy Matrix 200 6 Tables Table 1.1: Scope of Research 14 Table 3.1: Case Study Tactics for Four Design Tests 47 Table 3.2: The List of Collected Documentation 49 Table 3.3: The List of Interviewees 50 Table 3.4: The Levels of Entrepreneurship Among Five Cases 51 Table 3.5: Organizational Performance Among Five Cases 53 Table 3.6: The Background of Five Cases 53 Table 3.7: The Connection between Interview Questions and Research Questions 57 Table 4.1: The Limit of Accumulative Total Investment Amount in China 79 Table 5.1: Suzhou Wang Film Animation Productions up to 2004 93 Table 7.1: Five Cases’ Functional Strategies 169 Table 8.1: Five Cases’ Functional Strategies 197 7 Statement of Original Authorship The work contained in this thesis has not been previously submitted to meet requirements for an award at this or any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made. Signature: Date: 15 December 2008 8 Acknowledgements This thesis would never have been possible without the support of these people. First of all, I want to thank my supervisors Michael Keane and Terry Flew who guided and encouraged me with insightful comments. I am very grateful to those examiners in every critical stage during my PhD journey: David Ahlstrom, Ringo Ma, Donald Lamberton, Greg Hearn, Yang Xiaohua, Jason Potts, Caroline Wong and Sue Carson. Furthermore, I want to thank the interviewees who gave several hours of their time for this study: George Chang, Cheng Yiwei, Jamy Lin, Bob Deyou, Alex Guo, Bonny Hu, Zhu Chun-Yang, Li Ben-Qian, Yang Chih-Hung, Edwin W.K. Lo, Claire Hsu, Huang Chung-Kuang, Eric Shan, and Jack Jiang. I also warmly acknowledge the assistance of the QUT Creative Industries Faculty and the sponsors of International Postgraduate Research Scholarship provided by Australian Department of Education, Science and Training and QUT. In addition, I am very indebted to the supervisors of my master thesis at Taiwan Ming Chuan University: Chen Yaw-Chu and Yang Chih-Hung who helped me to build the foundation of my research skills.