WESTERN MEDIA CORPORATIONS’ RISK AND STRATEGIES IN POST-WTO CHINA
DISSERTATION
Presented in Partial Fulfillment of the Requirements for
the Degree Doctor of Philosophy in the Graduate
School of The Ohio State University
By
Zhan Li, B.A.
*****
The Ohio State University 2004
Dissertation Committee:
Professor John Dimmick, Adviser Approved by
Professor Thomas Schwartz ______Professor Prabu David Adviser Professor Steven Hills Communication Graduate Program
Professor Mona Makhija ABSTRACT
The media industries play a major role in the trend of globalization today.
Western transnational media corporations (TNMCs) have been actively expanding their businesses around the world for maximized profits. China’s accession to WTO in 2001 demonstrated further openness of the economy to international competition. This study aimed to examine Western TNMCs’ risk and strategies in the Chinese media market after
WTO in an attempt to provide insights into the global media giants’ perceptions, positions, and plans regarding the market.
International business theories highlighted the effect of a firm’s external conditions on its strategy. Examination of Western TNMCs’ strategic behavior in transitional and emerging markets revealed that their equity ownership differs by location as affected by the level of risk they perceive in the market. Based on its external conditions, a firm’s perception of risk in terms of uncertainties about the market affects its control strategy in terms of equity ownership. Employing this innovative theoretical model, the study aimed to determine whether China’s WTO entry would lead to Western
TNMCs’ lowered uncertainty perceptions and higher equity ownership in China as compared to before WTO, and a. The primary research method used in this study was interviews. A total of 15 informants from Western TNMCs and 17 from Chinese media organizations and government agencies constituted the final sample. ii Results of the study suggested that Western TNMCs’ risk perceptions showed no major discontinuity in China’s post-WTO era. In addition, their perceptions were basically consistent with the actual conditions of the Chinese media market, as well as those of the Chinese media professionals and policy makers. These findings reflect the
Chinese government’s gradualism strategy in economic reforms and development, and in regulating the media industries. In response to the risk they perceive in a long run,
Western TNMCs have plans for increasing control. A majority of them indicated possibilities to engage in higher forms of ownership. Also, they will continue to develop connections with governments and distributors, localize their products, and differentiate the products vis-à-vis their competitors. All these plans comprise a roadmap for Western
TNMCs’ long-term development in China.
iii Dedicated to my grandparents who raised me, to all my family members who gave me their unselfish love, and to my fiancée, Chen, who taught me how to love and be loved.
iv ACKNOWLEDGMENTS
I wish to especially thank my adviser, Dr. John Dimmick, for the continuous scholarly effort and support he has dedicated tothisdissertationtomakeitpossible,for his emotional encouragement and willingness to take me by hand through difficult times, and for his patience to help me correct stylistic and scientific errors.
I would like to thank Dr. Steven Hills and Dr. Mona Makhija, for helping me polish the theoretical model of this study with their expertise in international business.
I feel indebted to Dr. Thomas Schwartz, for his advice in policy research, and to
Dr. Prabu David for his interest in joining my dissertation committee at the final stage.
I am grateful to Tiedong Zhou, Jonathan Shen and Yuehong Wang for referring me to most of the interview subjects in this research. Without their help, the data collection of this project would not have been possible.
I also owe thanks to all the media professionals who participated as informants of this study for generously providing valuable input to this research effort.
I received support from the Phyllis Krumm Memorial International Scholarship in the process of writing my dissertation. I thank this scholarship for its recognition of academic endeavors with international perspectives.
v VITA
May 2, 1975.……………………………...Born – Beijing, China
!997……………………………………….B.A. English Language and Literature, Beijing Normal University
1997 – 1999………………………………Anchor/Producer, Beijing Television Station
1999 – 2003………………………………Graduate Teaching and Research Associate, The Ohio State University
PUBLICATIONS
Research Publications
1. 1. John Dimmick, Yan Chen, and Zhan Li. (2004). Competition between the Internet and traditional news media: the gratification-opportunities niche dimension. Journal of Media Economics, 17(1), 19-33.
2. Sherry Baker, Scott C. Hammond, Hongmei Gao, and Zhan Li. (2003). The changing shape of Chinese broadcast journalism in the market economy: practitioners’ perspectives at the turn of the century”. 31st University of Manchester Broadcasting Symposium, 2001. S. Ralph, H. Manchester and C. Lees (Eds.). United Kingdom: University of Luton Press, 131-138.
FIELD OF STUDY
Major Field: Communication
vi TABLE OF CONTENTS Page Abstract……………………………………………………………………………………ii Dedication………………………………………………………………………………...iv Acknowledgements……………………………………………………………………...... v Vita……………………………………………………………………………………...... vi List of Tables……………………………………………………………………………...x List of Figures……………………………………………………………………………xii
Chapters:
1. Introduction………………………………………………………………………….1
1.1 Key definitions and concepts……………………………………………………2 1.2 Overview of study……………………………………………………………….4 1.3 Issues on globalization…………………………………………………………..9
2. The SCP paradigm and global industry……………………………………………13
2.1 The basic premise……………………………………………………………...13 2.2 Modification to the original SCP model……………………………………….14
3. International business theories……………………………………………………..17
3.1 Dimensions of analysis………………………………………………………...18 3.2 Early theories…………………………………………………………………..21 3.3 The internalization theory……………………………………………………...22 3.4 The eclectic approach………………………………………………………….23 3.5 Global strategy………………………………………………………………....24 3.6 The integration-responsive model……………………………………………...27 3.7 Summary……………………………………………………………………….28
4. The globalization of media………………………………………………………...32
4.1 International media marketplace……………………………………………….33 4.2 Eastern and Central Europe……………………………………………………34 4.3 Asia…………………………………………………………………………….38 4.4 Summary……………………………………………………………………….41
vii 5. The Chinese media market………………………………………………………....45
5.1 Administrative structure of Chinese media ……………………………………46 5.2 Competition…………………………………………………………………….49 5.3 Technology…………………………………………………………………….50 5.4 Commercialization……………………………………………………………..51 5.5 Internationalization…………………………………………………………….51 5.6 Initial moves……………………………………………………………………52 5.7 Summary…………………………………………………………………….....54
6. Conceptualization………………………………………………………………….57
6.1 Strategic alliances……………………………………………………………...57 6.2 Entry strategies and foreign direct investment…………………………………59 6.3 Pattern of TNMCs’ strategic behavior…………………………………………60 6.4 Risk and environmental uncertainties……………………………………….....67 6.4.1 Government and policies………………………………………………...70 6.4.2 Economy…………………………………………………………………72 6.4.3 Competition………………………………………………………………73 6.4.4 Product market and demand……………………………………………...73 6.4.5 Resources and services…………………………………………………..74 6.4.6 Social and cultural conditions……………………………………………74 6.5 Summary……………………………………………………………………….78
7. Research questions.………………………………………………………………...81
8. Methodology……………………………………………………………………….95
8.1 Case studies and interviews……………………………………………………96 8.2 Approaching research questions……………………………………………...100 8.3 Summary……………………………………………………………………...112
9. Findings…………………………………………………………………………..114
9.1 Overview of Western TNMCs studied……………………………………….114 9.1.1 The Walt Disney Company……………………………………………..116 9.1.2 The News Corporation Limited………………………………………...116 9.1.3 Sony Pictures Entertainment……………………………………………117 9.2 External conditions…………………………………………………………...119 9.3 Western TNMCs’ uncertainty perceptions…………………………………...122 9.4 Uncertainty perceptions of Western TNMCs vs. Chinese media professionals………………………………………..126 9.5 TNMC decision makers’ cognitive models…………………………………..130 9.6 Comparison of cognitive models……………………………………………..133 9.7 Western TNMCs’ pattern of ownership in China…………………………….139
viii 9.8 Western TNMCs’ strategic plans in Chin………………………………….....144 9.9 Utilizing knowledge and experience gained elsewhere in China…………….152 9.10 Summary……………………………………………………………….…...155
10. Discussion………………………………………………………………………...158 10.1 Summary of research……………………………………………………….158 10.2 Limitations……………………………………………………………….....163 10.3 Future research……………………………………………………………. .168
References………………………………………………………………………………171
ix LIST OF TABLES
Table Page
3.1 Summary of international business theories……………………………………....29
4.1 Strategic behavior of Western TNMCs in Eastern and Central Europe…………..36
4.2 Strategic behavior of Western TNMCs in Asia…………………………………...40
4.3 Summary of Western TNMCs’ strategic behavior in Eastern and Central Europe and Asia…………………………….……..……...42
5.1 Strategic behavior of Western TNMCs in China……………………………….....53
6.1 Ordinal scale of TNMCs’ strategic behavior……………………………………...62
6.2 Chi-square analysis of TNMCs’ strategic behavior…………………………….....65
6.3 Summary of uncertainties………………………………………………………....71
8.1 Measurement of external conditions……………………………………………..103
9.1 Descriptive data of Western TNMCs studied……………………………………115
9.2 Western TNMCs’ external conditions in China………………………………...... 120
9.3 Mean values of Western TNMCs’ uncertainty perceptions……………………....124
9.4 Mean values of Chinese media professionals’ uncertainty perceptions………….127
9.5 Comparison of mean changes of uncertainty perceptions between TNMCs and Chinese media professionals………...………………….....129
9.6 Similarity scores of uncertainty perceptions between TNMCs and Chinese media professionals…………………………………………...….....131
9.7 Comparison of similarity scores between TNMCs and Chinese media professionals………………………………...…………….....134
x 9.8 Summary of additional uncertainty factors perceived by TNMCs…………….....136
9.9 Summary of additional uncertainty factors perceived by Chinese media professionals………………………………………………...... 138
9.10 Summary of Western TNMCs’ investment strategies……………………….…...140
9.11 Western TNMCs’ plans for equity ownership…………………………………....142
9.12 Summary of Western TNMCs’ strategies for developing connections with governments and distributors………………………………………………..145
9.13 Summary of Western TNMCs’ product localization strategies……………..……148
9.14 Summary of Western TNMCs’ product differentiation strategies……………...... 150
9.15 Summary of Western TNMCs’ strategies of utilizing knowledge and experience in China……………………………...………………153
xi LIST OF FIGURES
Figure Page
2.1 Framework of analysis for media companies modified from the SCP model..……………………………………………….….16
5.1 Structure of regulatory authorities of Chinese media……………………………..47
6.1 Theoretical outline………………………………………………………………...70
xii CHAPTER 1
INTRODUCTION
Globalization has become a fact of life in international business today and, as a result, unprecedented changes are transforming and integrating the political, economic, and social structures around the world. Western manufacturers and service providers are expanding their activities across national boundaries. To create further sources of revenue, corporations are seeking investment opportunities outside of their domestic markets. The media industries are playing a major role in this trend. Within the past two decades, from Viacom’s expansion around the world to News Corporation’s acquisition of American media companies, a global media marketplace is taking shape at an amazingly high speed.
The Chinese market has always been a major attraction to Western media corporations for its central strategic importance in the Asian media market, its huge market potential, and the foreseeable openness of the media market. Over the past two decades, these media giants have made continuous efforts to try to become players in
China’s media market.
When China adopted its reforms and open-door policy in 1978, it plunged into the throes of adapting to a privatized, consumer-based market economy that caused considerable changes in many sectors, including the media. Enormous potentials lie in the
1 huge Chinese media market. Although foreign investment and ownership in the media sector are not yet officially allowed, the trend toward open competition is inevitable.
China’s recent accession into the World Trade Organization (WTO) is considered by many scholars and media professionals to be a sign marking an accelerated process of opening the domestic media market to international competition. Several initial moves have already been made, as the Chinese authorities have recently allowed foreign investment in the film industry, increased the import quota of foreign movies, and granted cable carriage rights to News Corporation’s Star TV and Time Warner’s partially owned CETV in South China. Moreover, China is lifting its ban on foreign investment in media production to permit international media companies to jointly create television programs and films with local partners (People’s Daily, 2004).
1.1 Key Definitions and Concepts
This study aims to investigate the risk currently confronting Western media corporations in China, as well as the strategies they will undertake in response to the ongoing changes and risk in the Chinese media market. A multinational enterprise
(MNE) can be defined as an enterprise which owns and controls activities in different countries (Buckley and Casson, 1976). Business strategy is concerned with identifying and exploiting the resources and capabilities of the firm in the marketplace for the purpose of gaining competitive advantage and superior financial performance (Tallman &
Yip, 2001). The strategic decision making associated with MNEs is contingent upon economic objectives with little regard to national boundaries.
Media MNEs, or transnational media corporations (TNMCs), play an important role in the global economic landscape of the world today (Albarran & Chan-Olmsted,
2 1998; Gershon, 1997; Herman & McChesney, 1997). Media firms are economic institutions engaged in the production and dissemination of media content targeted toward consumers (Picard, 1989). A major feature that differentiates the TNMC from other types of MNEs is that the principle product being sold is information and entertainment, symbols as opposed to tangible products (Gershon, 1997).
To study the strategies and management issues mass media firms face when they cross borders, the concept of strategic planning is of central concern. Strategic planning is the set of managerial decisions and actions that determine the long-term performance of a business (Gershon, 2000). The need for strategic planning is sometimes caused by triggering events (Wheelen and Hunger, 1998). The triggering event associated with the
Chinese media market is China’s accession into WTO in 2001, which marks the country’s commitment to further opening of its domestic market to create a fair and just environment for foreign industries.
Porter (1980) pointed out that the essence of formulating competitive strategies is relating a company to its environment. According to Porter, the state of competition in an industry depends on five basic competitive forces, the collective strength of which determines the ultimate profit potential in the industry. These forces include the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the threat of substitute products or services, and the rivalry among existing firms.
When applying Porter’s (1980) competitive forces to the media industries, adjustment is needed to fit the economic and technical peculiarities of the media industries. Adopting the Structure-Conduct-Performance (SCP) model in industrial organization economics, Albarran (1996) defined the market structure of the US media
3 industries based on five criteria: the concentration of buyers and sellers in the market, product differentiation, entry barriers, cost structures, and vertical integration. Therefore, although Porter’s model finds its direct applications to manufacturing and service industries in general, it is also feasible to utilize it to study the structure and development of the media industries in terms of market environments, competitive conditions, market entry and penetration strategies, and so forth. The characteristics of the media industries as compared to other industries will be discussed in the following chapters.
1.2 Overview of Study
This study consists of 10 chapters. Since there is no existing theoretical model that could be directly adapted to this research, it is imperative to establish a theoretical framework to allow the establishment of research questions and methodology, and to ensure the performance of rigorous analyses. To accomplish this goal, the first six chapters of the study are devoted to the exploration of an appropriate theoretical model through reviewing relevant literature in media economics and international business, as well as examining Western TNMCs’ actual strategic behavior.
An initial effort is made to adopt an analytical framework to facilitate the review of relevant theories and models in international business with respect to how a firm enters a particular country in a particular way. Realizing that all TNMCs are economic institutions, the study exploits a classic theoretical framework in industrial organization economics, the Structure-Conduct-Performance (SCP) model in Chapter 2. The SCP paradigm illustrates the dynamics of market structure, a company’s conduct, and its performance. It has proven itself in empirical research to be widely applicable to different industrial situations. For a thorough presentation of industrial organizations’ strategic
4 behavior, the original SCP framework is modified to include a company’s internal factors. Based on this framework of analysis, Chapter 3 provides a review with a comparative analysis of important theories and models in international business studies in search for empirical evidence to formulate a theoretical model for this study. All major international theories are analyzed to see how they comprise different parts or linkages of the SCP framework, and to identify important indicators that affect a firm’s new market entry. More importantly, this review aims to find out how international business theories explicate companies’ global strategies, what aspects of a company’s strategic behavior at international locations are being highlighted, and what effects a firm’s internal and external conditions have on its conduct or strategy.
The emphasis turns to the practical level in Chapter 4. Studies of the global media market and Western TNMCs’ strategic behavior in Eastern and Central Europe and Asia are scrutinized in order to identify business strategies that are appropriate for the media industries, and to examine the conduct of major TNMCs in locations with similar social, cultural or geographic backgrounds to China. The purpose underlying such an effort is to pinpoint the characteristics of these media companies’ general global strategies and specific approaches in transitional and emerging economies, along with the factors affecting such strategies. Considering that China is the subject country, Chapter 5 lays particular stress on the Chinese media market. In addition to background information with regard to the regulatory structure and recent development of the market, important external factors associated with the Chinese media market are presented along with
Western media firms’ initial moves in the country. The discussion of China’s media market, incorporated with the information from the previous chapters, makes possible a
5 comparative analysis to summarize Western TNMCs’ external environment conditions and their strategies across the three locations, which contributes further to the construction of a sensible theoretical model for the study. In light of the elements in international business theories with specific reference to firms’ external conditions and
Western media firms’ actual strategic behavior in transitional and emerging markets around the world, the research efforts with regard to a company’s risk and control in the market are retrieved and closely examined in Chapter 6. By this means, an additional amount of theoretical explanations of Western TNMCs’ strategic behavior are obtained for the conceptualization and finalization of the study’s theoretical model. It is widely acclaimed in related research that as a company’s risk in the market increases, its control over the market is likely to decrease, and vice versa. In consistency with this dichotomy, the study’s theoretical model specifies the dynamics of a company’s risk in terms of uncertainty perceptions about the market and its control strategy in terms of equity ownership in the market. Within this paradigm, the independent variable is risk perception based on a firm’s external environment conditions, while the dependent variable is the firm’s control strategy. Concerning the measurement of the variables, the study follows the techniques in empirical research that have been tested and proved valid in studying companies’ risk and strategies in international markets. To suit the peculiarities of the media industries, elements from both international business and media economics are congregated.
In Chapter 7, research questions are formulated on the basis of the literature review and the subsequent theoretical model. The research questions are mainly concerned with the changes of Western media companies’ external conditions in the
6 Chinese media market, their perceptions of risk associated with the market before and after China’s WTO entry, and the corresponding control strategies they plan to adopt in an effort to manage risk and increase equity ownership in the market. In addition, these research questions involve comparison of TNMC decision makers’ risk perceptions to those of their counterparts, Chinese media professionals and policy makers, to examine the accuracy and thoroughness of the Western media companies’ understanding of
China’s media market, along with the similarities or differences between the two groups in perceiving risk in the market. To precisely examine each of the research questions,
Chapter 8 depicts the methods used in the data collection and analysis of this study. The primary methods deployed in the study are case studies of Western TNMCs and interviews with decision makers in these companies, as well as media professionals and policy makers in Chinese media organizations and government agencies. The methods adopted here combine the external data and cognitive approaches that are typical and effective in studying issues related to transnational media management (Hollifield, 2001).
Following the study’s methodological design and data analysis, both quantitative and qualitative data are yielded.
Findings are presented in Chapter 9 in accordance to the research questions. Due to the limited number of decision makers in Western TNMCs and Chinese media organizations and government agencies, the sampling frame is small, causing even smaller final samples. Consequently, hardly any statistically significant results are produced. Hence, the quantitative analyses presented in this chapter should be considered as a way to facilitate description of data. In the mean time, the qualitative data reveal insightful information regarding Western TNMCs’ strategic plans in the Chinese media
7 market. Though the two types of data describe the research questions from different perspectives, they are found to support and complement each other in creating a vivid portrait of Western TNMCs’ risk and strategies in China. In conclusion of the research,
Chapter 10 presents a summary of the entire study, together with comments on its significance and contribution to existing knowledge. Possible limitations of the study are discussed, and suggestions are made for future research on this subject.
It should be noted that this study is an interdisciplinary effort that combines the knowledge in the academic fields of international business, media economics, and communication. In addition, it has effectively applied theoretical concepts and models to actual business settings. Among other innovations in the aspects of conceptualization, methodology and data collection, the study employs a theoretical model to demonstrate the dynamic relationship of risk and control with solid measurement techniques. This model can be considered as a remarkable contribution to the existing knowledge in the above mentioned academic fields. The model measures a company’s risk adopting
Miller’s (1992, 1993) conceptual framework of uncertainty perceptions, whose scale dimensionality and internal consistency have been validated through empirical research
(Werner et al., 1996), and has modified the original scale where appropriate for the media industries. To measure different stages of a company’s control strategy, the model uses a scale to indicate the company’s ownership of business operations from the contractual level to partial and full ownership. While at the same time, external data from related publications and qualitative data from interviews are utilized to flesh out the illustration of the subject. Also worth nothing is that this theoretical model has developed Miller’s model by including the measurement of relevancy of each uncertainty indicator to
8 Western media corporations’ decision-making process so as to systematically explore the cognitive models used by the TNMC informants as compared to the perceptions of the
Chinese informants.
1.3 Issues on Globalization
The issue of globalization has been extensively studied in various industry scenarios and across different academic disciplines. While a large number of scholars consider globalization to be an inevitable trend today shaping new political, economic and social structures of the world, there are strong voices against globalization. Criticism of globalization becomes amplified in the media industries as media products are usually perceived to have deep impacts on countries’ cultural identities. Some argued that market-driven globalization eliminates diversity in terms of national habits, local brands, and distinctive regional tastes (Klein, 2000). Others considered the international dissemination of media products to be a type of contamination or subversion of the indigenous culture with the media being the viral agent (i.e. Bhabha, 1997; Fisher, 1995;
Nye & Owns, 1996). With its media and other products pervasively dispersed around the world, the United States is undoubtedly the center of criticism for cultural dominance, as
Klein called the internationalization of American products “candy-coated multiculturalism,” (p. 117) which simply refers to a milder form of homogenization or dominance. In many globalization critiques, non-American countries are often portrayed as helpless victims of giant American media organizations’ global expansion, if not intrusion. The anti-globalization followers seem to believe that globalization will result in hybridization of culture, eventually leaving one culture in the world with one U.S. media
9 company deciding what the entire world should know and see, and how people of different countries and cultural backgrounds should be entertained.
A lot of other scholars, however, seem to hold the opposite view, claiming that the anti-globalization criticism, especially in the direction of cultural imperialism, is exaggerating the reality. Kellner (1995) held that the globalization process would intensify the efforts to preserve and revive national identities, rather than posing any threat to national cultures. On a similar note, some noted that modernization does not necessarily result in Westernization. Even if some old communities and institutions get destroyed in the globalization process, people, driven by the need for having an identity, would discover new sources of identity (Huntington, 1996). With regard to the role
Western media giants play in the trend of globalization, Caldwell (2002) noted that media corporations are actually aware of different forms of cultural identities, and that they create their own versions of such identities rather than destroying them.
One of the most notable arguments that globalization supporters put forward is the localization of media content and production. The global media contamination is widespread because the types of media content ubiquitously available around the world are those carrying a sense of familiarity that is universally acceptable in nature (Olson,
2002). International media trade in recent years shows that it is no longer a one-way street from the United States to other parts of the world, in that many American media products need to be adapted to local tastes at international locations, and so do the media content imported to America. For instance, some of the most popular reality shows, such as “Survivor” on CBS, “Who Wants To Be A Millionaire?” on ABC, and “Fear Factor” on NBC, that have dominated the U.S. network television were originally imported from
10 Europe. This type of programming meets not only the market needs to export but also local preferences. The format remains unchanged worldwide, but the show is carefully tailored in each country to be integrated with local flavors (Economist, 2002). The same phenomenon can be found throughout the world. In Asia, News Corporation’s Star TV operates in each country of its coverage with a different strategy in terms of localized programming, although the parent company has the ultimate financial control (Caldwell,
2001). Given the arguments supporting globalization, particularly the localization strategies adopted by the majority of global media corporations, it is the belief of this study that the expansion of Western TNMCs to different parts of the world, along with their penetrations into various local media markets, will not put an end to national cultures and identities. Rather, their global development will eventually generate more changes, energy and diversity to the existing structure of the world media market.
As this research was reaching its final stage, a research article concerning the same subject matter was published. In the article, Lin (2004) discussed policy changes and recent developments in China’s media market in relation to China’s WTO accession, along with their implications on foreign investments. The article concluded that foreign investors are making significant inroads into the Chinese media market despite the fact that it is still tightly controlled, and that demands for high-quality programming, rather than WTO, may be the driving force to expedite the opening up process of the country’s media market. While this article provided detailed information and valuable insights into the Chinese media market, several main features distinguish the research effort presented here from Lin’s study.
11 First of all, Lin (2004) approached the subject mainly from a policy perspective by presenting the changes of China’s media policies over time and the implications of such changes to foreign investors. My study, however, provides a macro perspective with a focus on international business and strategies, and narrows down to the classic paradigm of the dynamics between risk and control. This design brings a complete understanding of how a TNMC enters a particular country in a particular way, and how
China fits into the media giants’ international strategic puzzle as an important piece.
Secondly, Lin’s study was based solely on descriptive data collected through a case study method with a focus on the media market in China only, whereas my study establishes a solid theoretical model through review and conceptualization of literature in international business and media economics. The advantages of the model lie in its application of theories to the media industries in a clearly rational fashion and its facilitation of the collection and analysis of data using the methods of multiple case studies and interviews.
In addition, my study covers a wider variety of descriptive information than Lin’s, especially in terms of countries and their media markets included in the analysis. Finally, compared to the secondary data presented in Lin’s study gathered from relevant publications, my study uses mostly primary data collected from interviews with decision makers in Western TNMCs as well as media professionals and policy makers in China.
Moreover, comparison is made in my study between the two sides to present similarities or differences in their perceptions of risk associated with the media market in China. This comparative analysis offers another important dimension of the subject with strategic implications relatable to both Western and Chinese media organizations.
12 CHAPTER 2
THE SCP PARADIGM AND GLOBAL INDUSTRY
In establishing an initial framework of analysis for this study, the Structure-
Conduct-Performance (SCP) model from the industrial organization literature was adopted. The SCP paradigm is a commonly used framework to understand how the market structure of an industry affects a firm’s conduct in a market, which in turn has an impact on the firm’s performance. This model has often been employed in studies of media economics. Because of the universal value of this model and given the fact that all media organizations are economic institutions, this study utilized the SCP model as the fundamental framework of analysis in examining Western TNMCs’ global operations and strategies.
2.1 The Basic Premise
According to Carlton and Perloff (2000), influenced by basic conditions of the market such as consumer demand and production, market structure refers to the number of buyers and sellers, barriers to entry of new firms, product differentiation, vertical integration, and diversification. Market conduct refers to policies and behaviors of the firm and its strategic decisions to deal with market conditions. A firm’s conduct typically involves advertising, research and development, pricing behavior, plant investment, legal tactics, product choice, collusion, and merger and contracts. Market performance
13 involves the ability of individual firms in a market to achieve goals and is usually evaluated from a societal perspective in terms of price, production and allocative efficiency, equity, product quality, technical progress, and profits. Also, the SCP model stresses the importance of government policy and its impact on the entire process.
2.2 Modification to the Original SCP Model
Firms determine their business strategies according to both internal and external assessments of their competencies within an industry setting (Porter, 1981). The ultimate objective of a firm’s strategic plan is to attain a fit between its internal capabilities and external opportunities (Gershon, 2000). A firm’s internal environment has been identified as a very important factor affecting its strategic planning (Porter, 1985; Yip, 2000).
Gershon’s (2000) explication of a media organization’s internal capabilities centers on the nature of its products, including substitutability, technical advantage, and their positions in life cycle, whether the company is producing outdated products. The international strategic process of a firm shares many similarities with its domestic process. The main differences are related to the external forces affecting the international marketplace (Fatehi, 1996). Gershon (2000) proposed three types of environmental factors that are especially associated with today’s TNMCs. They include political and legal factors, competitive factors, and sociocultural factors.
A firm’s globalization strategy plays an essential role in entering and operating in a foreign location. A global industry was defined by Porter (1980) as “one in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions” (p. 275). A global industry is different from a multidomestic industry, in which competition in each country, or a small
14 group of countries, is independent of competition in other countries (Porter, 1986). A global strategy refers to “the special issues that arise when firms compete across nations”
(Porter, 2001, p. 90).
Yip (1992) suggested three essential steps in developing a total worldwide strategy: developing core business strategy, internationalizing the strategy to at least one other country, and globalizing the strategy to a set of countries. According to Yip, a firm has to develop the basis of sustainable competitive advantage for the home country first and then internationalize this core strategy through international expansion of activities and through adaptation. Finally, the firm globalizes the international strategy by integrating the strategy across countries.
While the SCP paradigm has been widely used to analyze the relationships among market structure, conduct and performance, it has been argued that a firm’s conduct is not solely determined by the market structure. Instead, market structure can be taken as part of the external factors that affect a firm’s conduct together with a firm’s internal environment. However, the SCP model can be used as a basic framework of analysis for this study, in that it provides a reasonable mechanism and an important causal step-by- step process of any industrial organization’s operations.
Therefore, following the SCP paradigm while considering a firm’s internal environment as well as external factors related to a mass media firm’s international environment, Figure 2.1 is a modification of the original SCP model based on the previous discussion. The market structure in the original model is considered to be a
15 Organization’s Internal Organization’s External Environment Environment
Organization’s Conduct/Strategy
Organization’s Performance
Figure 2.1: Framework of analysis for media companies modified from the SCP model
component of the organization’s external environment. On the whole, the internal and external environment of a firm set influence on its strategy in the market, which leads to the firm’s overall level of performance.
16 CHAPTER 3
INTERNATIONAL BUSINESS THEORIES
The previous chapter has established and modified the SCP model to be the basic framework of analysis for this study. Based on the SCP model, it is of fundamental importance to identify international business theories to understand the basic structure and operational mechanisms of multinational enterprises, and, more importantly, to find out how a firm makes the decision to enter a particular country in a particular way, what factors are important, and how they affect the strategic behavior of TNMCs at international locations. A vast body of previous literature can be found in international business studies regarding MNEs’ global operations. Based on Rugman’s (2002) classification, they range mainly from theories of the MNE, joint ventures and modes of entry, strategic management, and MNEs in a social and regional context. For the particular purpose of this study, only the prominent theories and models associated with the operations and strategic management of the MNE are emphasized.
Among the theories identified, there are early theories (e.g. Vernon, 1966; Caves,
1971; Johansson and Vahlne, 1977), internalization theories (e.g. Buckley and Casson,
1976; Calvet, 1981), the eclectic approach (e.g. Dunning, 1980, 1988), and integrative theories (e.g. Markusen, 1995; Kogut and Zander, 1993). The strategic management literature mainly consists of global strategy (e.g. Yip, 1992; Porter, 1980; Kobrin, 1991),
17 and the integration-responsiveness framework (e.g. Prahalad & Doz, 1987; Roth &
Morrison, 1990).
3.1 Dimensions of Analysis
Based on the modified SCP framework of analysis discussed in Chapter 2 and given the specific focus of this study on the media industries, the theories and models in international business were analyzed along the following dimensions.
1. The extent to which the model takes into account of the firm’s internal
environment factors affecting its cross-border business activities;
2. The extent to which the model takes into account of the firm’s external
environment factors affecting its cross-border business activities;
3. The extent to which the model shows a dynamic process of a firm’s strategic
planning, involving the evaluation of the firm’s environment, conduct and
performance;
4. The extent to which the model highlights government related factors, given the
Chinese government’s high level of restriction and control over media.
5. The extent to which the model is applicable to the situation of the media
industries.
The first three dimensions are associated with the modified SCP framework presented previously. A firm’s internal environment typically involves the internal structure of the organization, management process, employees, and corporate culture
(Yip, 1992), and economics of the firm such as size and capital/labor ratio (Dunning,
1980). A firm’s external environment consists of the market structure and conditions of the host country in the case of international operations.
18 The last two dimensions are directly related to the purpose of this study. Up to the present, the majority of Chinese industries have opened for foreign investment, whereas the media industries remain controlled exclusively by the government. Although trends of internationalization and commercialization have affected the operations and management of media organizations in China in significant ways and a large portion of media organizations have become financially independent, all of them still have to follow the political guidelines of the government in providing their services (Chen et al., 1998).
Media organizations have been serving the Chinese Communist Party (CCP) and the government as their “throat and tongue” (Liu, 1998). Therefore, whether and to what extent the Chinese government allows the operations of Western media companies in
China are essential factors determining these companies’ current and future positions in the Chinese media market.
Regarding the last dimension of analysis, since most previous studies of international business deal with manufacturing or service industries, it is important to determine how these international business theories are relevant to the media industries.
Several major differences separate the media industries with other industries. First of all, in mass media industries researchers usually define specific populations based on the technical apparatus being used, such as radio and television, rather than using the
“common sense” definition of organizational populations, such as manufacturing, in industrial organization economics (Dimmick, 2002, p. 27). Furthermore, most media products are public goods and are intangible in nature. The ownership of media content, such as news and TV shows, often cannot be transferred from one individual consumer to another. In many cases, consumers of media products (e.g. TV programs) do not pay
19 monetary prices. Instead, they spend time, which is considered a resource consumed along with media products (Dimmick, 2002).
Therefore, unlike most of the products of other industries in the SCP model, external conditions and concepts associated with the issue of costs, such as reduction of transaction costs and economies of scale, do not always apply to media products.
Consequently, the media market is a dual product market made up of consumers of the media content and advertisers (Picard, 1989). Besides, the media industries are oftentimes referred to as cultural industries for their considerable impact on the value and ideological systems of the audience and the society. Since the social implications of the media industries are stronger than other industries, media are typically subject to a higher level of control by the host country government. Concerns over foreign media ownership include the control over the international marketplace of ideas, challenges to national sovereignty, the potential loss of national culture, and technological and product dependency (Gershon, 1997). Therefore, owners of media organizations have different concerns than those of the manufacturing or service industries when they operate transnationally. As such, the theoretical model of analysis for this study needs to fit the peculiarities of the media industries.
Most international business theories and models were found dealing with different aspects and processes of the SCP model. Some emphasize the internal and external environments of a firm (e.g. Dunning, 1980, 1988; Porter, 1990), some focus on the firm’s strategy and conduct (e.g. Prahalad & Doz, 1987), while some others pay special attention to the evaluation of a firm’s performance (Porter, 1985). To give an overview of
20 important theories and models in international business, an effort was made to identify the “locations” of these theories and models on the bigger “map” of the SCP paradigm.
3.2 Early Theories
Vernon’s (1966) product cycle theory is of considerable importance in international business research. It was actually an attempt to advance the theory of international trade beyond its traditional scope of comparative advantage. The basic premise of the product cycle theory is that many products go through a cycle during which developed nations are initially exporters, then lose their export market and finally become importers of the products. Advanced countries, which have the competence to innovate as well as high-income levels and mass consumption are initial exporters of goods. However, as the products gradually become mature and standardized, they lose their exports to developing countries and subsequently to less developed countries and eventually become importers of these goods.
The product cycle theory puts emphasis on factors such as timing of innovation, the effects of scale economies, and the roles of ignorance and uncertainty in influencing trade patterns (Vernon, 1966). It was indeed a remarkable endeavor to generalize patterns of trade based on empirical data. Taken from a less macro perspective, product maturity and standardization, or life cycle, in this framework can be considered as external forces driving a firm’s market conduct. The model does not include any internal factors that may affect a company’s strategy. Nor does it specify any government factors or strategic planning process. Therefore, it shows the linkage between the firm’s external environment and its conduct in the SCP model. It is primarily production oriented with low applicability to the media industries.
21 Johanson and Vahlne’s (1977) knowledge development model focuses on the role of knowledge in firms’ internationalization process. The model holds that as a company’s accumulation of experiential knowledge of a foreign market increases, the firm would commit more resources in that particular market. It emphasizes the effects of gradual acquisition, integration, and use of knowledge about foreign markets and operations on firms’ organizational structure as well as resource commitment in international markets.
This model stresses the importance of knowledge acquisition, which can be considered as an external factor such as R & D, and its impact on both the firm’s internal structure and its conduct in the market. Evaluation of the firm’s performance is not indicated. Government influence is not highlighted. On another note, the model doesn’t seem to be industry specific and can be widely applied across industries.
3.3 The Internalization Theory
In Buckley and Casson’s (1976) classic study, they proposed that the imperfection of the external market causes a firm to internalize its markets through horizontal and vertical integrations, and that an MNE exists where markets are internalized across national borders (p.45). They also argued that the internalization of knowledge and the resulting integration of production and marketing R & D create the pattern of growth and profitability of the MNEs (p. 56). Buckley and Casson also pointed out that the incentive for an MNE to internalize is contingent upon the interplay of four types of factors (p. 45).
These include industry specific factors, such as the nature of the product and the structure of the external market; region-specific factors, referring to the geographical and “social” distance between the regions involved; nation-specific factors, such as the political and
22 fiscal relations between the nations involved; and firm-specific factors, such as the degree of professionalisation of management.
The internalization theory shares some similarities with Johanson and Vahlne’s
(1977) knowledge development premise, in that both stress the importance of internal transfer of knowledge. The knowledge development model concentrates on the influence of the firm’s acquisition of market knowledge on its conduct, while the internalization theory is more concerned with the effect of knowledge transfer across nations. The theory covers both internal and external factors influencing a firm’s conduct. Though market performance of a firm is not emphasized, political factors are highlighted. The theory, taken as a whole, serves to explain the manufacturing industries better than the media industries. However, the factors affecting firms’ internalization proposed in the theory can be applied to analyze the situations of the media industries.
3.4 The Eclectic Approach
Dunning’s (1980, 1988) eclectic framework has been widely cited and used to analyze international business activities. The framework integrates several strands of international business theories on cross-border business activities. In his view, a firm’s international business activities are influenced by three types of factors: country-specific factors, such as size, status of development, and political risk; ownership-specific factors, including conditions associated with the industry such as the level of technology and the overall market competition; and internalization factors, including such variables as transaction costs, economies of vertical integration, and control of markets.
The eclectic framework encompasses both internal and external factors affecting a firm’s international business conduct. Similar to the previous models, it is centered
23 around the linkage between a firm’s environment and its strategy. Also taken into consideration is the political risk in the host country. Among all the factors mentioned in his study, internal determinants, such as the level of technology, and external factors, including size and political risk of the local market, seem to be especially pertinent to the media industries.
3.5 Global Strategy
Several global strategy theories and models have been gaining popularity in international business related studies. Among them are the value-chain model (Porter,
1985), the diamond model (Porter, 1990), and Yip’s (1992) five dimensional globalization model.
Porter’s (1985) value-chain model involves “an interdependent system or network of activities, connected by linkages” (p. 41). According to Porter, such linkages can be an important source of competitive advantage when managed carefully. Based on the assumption that companies are collections of discrete activities, in which competitive advantage resides, the value-chain model groups a firm’s activities into two basic categories: primary activities and supporting activities. The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and after-sales service. The supporting activities include firm infrastructure, human resource management, technology development, and procurement. Through the primary and supporting activities, value is created.
The value-chain model mainly focuses on the connection between a firm’s conduct and performance in the context of its external environment by showing how its value-added activities contribute to the growth and profitability. The model does not
24 contain specific environmental factors influencing the company’s strategy. It has been used in studies of international media operation to evaluate performance related issues.
For example, Pathania-Jain (2001) performed a value-chain analysis of the outcome of collaborative strategies of media firms in India.
Porter’s (1990) diamond model was designed to evaluate a country’s sources of locational competitive advantage that determine the context for a company’s growth, innovation, and productivity. The sources of locational competitive advantage include factor (input) conditions, the context for strategy and rivalry, demand conditions, and related and supporting industries. Factor conditions refer to a country’s human, natural and capital resources. Domestic rivalry exists to help firms keep innovating and striving for improvement. Demand conditions include the composition and pattern of demand for the products or services in the domestic economy. Finally, if the related and supporting industries of a certain domestic industry are internationally competitive, then this industry is more likely to be internationally competitive.
The model stresses the quality of a firm’s operating environment and its linkage to the firm’s conduct driven by the globalization incentives. While it does not measure performance and is designed for manufacturing industries, some sources of competitive advantage such as the context for strategy and rivalry, which encompasses government factors, and demand conditions are applicable to the media industries. The four environmental attributes in the model were used by Carveth (1992) to analyze the structure of the global media marketplace and how U.S. media firms can achieve international success.
25 Yip (1992) proposed five strategic dimensions, or “global strategy levers,” along which an MNE makes strategic choices. These include market participation, product offering, location of value-added activities, marketing approach, and competitive moves.
Yip noted that strategies should be also developed in line with the “industry globalization drivers,” (p. 739) which include market factors, cost factors, governmental factors, and competitive factors. These industry globalization drivers, together with the position and resources of the business and the organization’s ability to implement the strategy, affect the potential for a multinational business to achieve the benefits of global strategy. These benefits may include cost reductions, improved quality of products and programs, enhanced customer preference, and increased competitive leverage.
Yip’s (1992) globalization model encompasses both internal and external factors affecting a firm’s strategy in the market. In addition, it presents the dimensions of a firm’s strategy from which implications can be drawn about the firm’s performance. This framework has been utilized to diagnose the global strategy potential of the world chocolate confectionery industry (Yip and Coundouriotis, 1991) and to identify key strategies for MNEs to operate in different locations in Asia (Yip, 2000). As such, demonstrated in this model are linkages from internal and external environment factors to a firm’s strategy, and from a firm’s strategy to its performance. Though the model provides no measures of growth and profitability, it covers most of the linkages of the
SCP model. Government factors are emphasized. Since the factors included in Yip’s model are in general terms, such as market, cost, competition, etc., they can be widely applied across industries.
26 3.6 The Integration-Responsiveness Model
The Integration-Responsiveness model proposed by Prahalad and Doz (1987) highlights the importance for a firm to respond to two imperatives: meeting local demands and capitalizing on worldwide competitive advantage. In short, the essence of an international strategy, according to the model, is the management of the pressures for global integration and for local responsiveness. Such pressures impact the structure of different industries, the competitive positioning within industries, as well as the configuration of an organization. Prahalad and Doz pointed out that when managerial perceptions of industry pressures indicate the need to respond to both pressures simultaneously, “multifocal” business strategies are adopted where firms coordinate their collective operations while maintaining high responsiveness to local contexts.
Porter (1980) and Yip (1992) held views similar to the integration-responsiveness model about an MNE’s level of globalization, claiming that companies need to adjust between a multilocal strategy, where all production activities are conducted in a single country, and a true global strategy, where production activities are distributed across countries. In testing the integration-responsiveness framework, Roth and Morrison (1990) suggested that groups of businesses within a global industry emphasize different competitive attributes. This finding coincides with the strategic group concept proposed by Porter (1980), which refers to a set of firms within an industry that are pursuing the same or similar strategies.
The model’s basic premise rests on firms’ strategy formulation process, what adjustment needs to be made along the two dimensions in given situations. The model itself does not present linkages of such a strategic process to a firm’s environment or
27 performance. No government-specific variables were proposed. The model exhibits a strategic planning process that is a universal concern to most firms engaged in international business activities.
3.7 Summary
The above overview of international business literature shows that most of the models bear on different aspects of the larger framework, the SCP paradigm. Vernon’s
(1966) product cycle theory links the external factor of product standardization with conduct. Johanson and Vahlne’s (1977) knowledge development model links the external factor of knowledge acquisition with the firm’s internal structure and with strategy.
Buckley and Casson’s (1976) internalization model, Dunning’s (1980, 1988) eclectic model, and Porter’s Diamond model connect both internal and external factors with the firm’s conduct. Prahalad and Doz’s (1987) integration-responsiveness framework deals with the formulation of strategy. Porter’s (1985) value-chain model centers on how a firm’s conduct affects its performance. Finally,Yip’s (1992) five dimensional globalization framework encompasses firms’ internal and external environments as well as the strategic planning process to achieve benefits of globalization. Table 3.1 provides a summary of the above reviewed theories from macro and micro perspectives.
Based on the modified SCP framework, a firm’s conduct or strategy is affected by its internal and external environment, and the strategy, in turn, affects the firm’s performance. Given that the operations of Western media organizations in China are still at a preliminary stage due to the government restrictions on foreign media ownership, performance of the global media firms cannot be fully evaluated. In addition, data regarding a firm’s internal structure are usually difficult to obtain, partially due to most
28 Macro – pattern of development -Product cycle (Vernon, 1966) -Knowledge development (Johanson and Vahlne, 1977) -Internalization theory (Buckley and Casson,1976) -Integration-responsive model (Prahalad and Doz, 1987) Micro – factors affecting international development -Industry-specific factors *Nature of product, structure of external market (Buckley and Casson, 1976) *Level of technology, market competition (Dunning, 1980, 1988) *Industry globalization drivers (Yip, 1992)
-Country/region-specific factors *Geographical and social distance, political and fiscal relations (Buckley and Casson, 1976) *Size, status of development, political risk (Dunning, 1980, 1988) *Factor (input) conditions, context for strategy and rivalry, demand conditions, related and supporting industries (Porter, 1990)
-Firm-specific factors *Degree of management professionalisation (Buckley and Casson, 1976) *Transaction costs, economies of vertical integration, control of markets (Dunning, 1980, 1988) *Global Strategy levers (Yip, 1992) *Primary activities, supporting activities (Porter, 1985)
Table 3.1: Summary of international business theories
companies’ sensitivity with their strategies, and the consequent confidential nature of related information. The study, therefore, will focus on the linkage between a firm’s external environment and its market conduct or strategy in the SCP model.
All of the reviewed international business theories point out the effect of a firm’s external environment on its strategy. From the macro perspective, several theories deal with the overall pattern of international business development. From the micro perspective, previous theories identified three main types of factors that affect a firm’s development at international locations. The factors linking a firm’s external environment
29 and its strategy include industry-specific factors and country- or region-specific factors as presented in Table 3.1. Industry-specific factors generally include the structure of the market and level of competition, while country- or region-specific factors refer to the political and legal environment of a country, level of government restrictions, and characteristics of the host country’s culture as compared to the home culture.
In accordance with the external conditions, an MNE needs to adjust its conduct or strategy in building its market share, distributing value-added activities across locations, deciding its product offering, whether and to what extent its products and services should be standardized or differentiated, and confronting the challenges from both domestic and international competitors. In addition, the firm has to determine its pricing policies, engage in research and innovation to improve its products and services over time, make investment based on available resources, use legal tactics to protect its products through the use of patent and copyright, etc. Meanwhile, an MNE engaged in global production needs to make timely adjustments between gaining global competitive advantage and meeting the needs of different local markets.
In addition to the emphasis on external environment, these international business theories also stress the importance for companies to minimize risk and maximize capabilities at international locations. In this study, such importance is examined with a focus on the linkage between a firm’s external conditions and its strategy in the SCP model. In other words, the study looks at how factors in the TNMCs’ external environment would affect the risk they encounter and the capabilities they possess at different locations. Among the above external conditions and aspects of strategy mentioned in previous international business studies, not all are applicable to the situation
30 of the media industries. The following chapters of this study will review relevant literature regarding TNMC strategies in the global media marketplace, as well as some important strategies TNMCs have adopted in Eastern and Central Europe and Asia.
31 CHAPTER 4
THE GLOBALIZATION OF MEDIA
The previous chapter presents an overview of theories and models in international business research pertaining to the operations and strategies of MNEs. These theories and models deal with different aspects of the general SCP framework, and highlight the importance for firms to minimize risk and maximize capabilities at international locations. With a specific focus on the linkage between a firm’s external factors and its strategy, this chapter aims to present how the international business theories within the
SCP framework apply to actual business practices. It starts with observations of the global media marketplace in general, followed by specific descriptions of Western media’s strategic behavior at different international locations. Two locations are given particular attention in this study. One is Eastern and Central Europe, whose historical background and recent political changes share many aspects in common with the Chinese economic and political situation. The other is Asia, which has direct cultural and geographical reference to the Chinese media market.
Compared to other forms of media, the visual entertainment media (e.g. television and film) are more pervasive and capable of instant and simultaneous communication
(Hao, 2000). Due to the fact that the television and film media carry stronger power of publicity than other forms of media, they have always been under tight control.
32 Paradoxically, from importing overseas TV programs to co-producing films with foreign partners, the television and film media were also pioneer carriers of Western media products in China. This may be owing to the fact that both television and film provide entertainment-oriented products to the public, which are less vulnerable to government restrictions than hardcore news. As such, the visual entertainment media may be generally subject to less government-initiated entry barriers than other types of media.
Therefore, in analyzing Western TMNCs’ strategies in China, special attention will be paid to the visual entertainment media, mainly including television and film.
4.1 International Media Marketplace
In studying the international media marketplace, it is important to understand the general situation of media globalization, who the dominant players are, where and to what extent the media industries have globalized, and what strategies firms should take to gain success in the global media market. Studies regarding the structure of international media operations throw light on strategies for TNMCs to achieve global success. In an attempt to size up the global market from the U.S. perspective, Dupagne (1992) discussed two broad strategies for U.S. media companies: cooperative agreements and creative pricing. Carveth (1992) reviewed the changing role of the U.S. media in the global media marketplace and suggested that confronted with the eroding competitive advantage, U.S. media firms need to adopt cooperative business strategies, such as the formation of joint alliances, to reclaim dominance in the global marketplace. Hoskins et al. (1997) conducted a comprehensive study of the global film and television market and, on a similar note with the previous two studies, they proposed international co-production as a business strategy for U.S. media firms.
33 It seems that co-production and strategic alliances were highlighted in previous studies as an appropriate strategic choice for U.S. transnational media firms. Cooperating with local partners would benefit both partners in pooling financial resources and shortening the cultural distance (Hoskins et al., 1997). Moreover, cooperative strategies would help the company overcome many of the changes currently taking place in the international media marketplace (Carveth, 1992) and become more attuned to international opportunities in order to expand their program sales and meet financial challenges (Dupagne, 1992).
Having reviewed the theories and arguments concerning the situation of the global media market from a home country’s perspective, the focus needs to be switched to what the large media firms’ international business expansion strategies are and how they are implemented in different parts of the world. Of particular interest and relevance to this study, the media companies’ operations in Asia and Eastern and Central Europe are given priority for review.
4.2 Eastern and Central Europe
The post-socialist countries in Eastern and Central Europe have experienced political and economic changes as a result of the collapse of the communist system. They have been in transition from centrally planned economic systems to market economies in the influx of rapid social, ideological and economic changes over the past two decades. In some sense, the social conditions in these countries are at a further stage of evolution than those in China. Therefore, learning Western TNMCs’ presence and strategies in these countries provides significant insights into how these media giants have approached such markets and what needs to be done in the same manner or differently in China.
34 The media market in the post-communist transitional environment in Eastern and
Central Europe is characterized by an insecure legal situation, a history of socialist media policy, and a commercial market with established international and domestic broadcaster and unlicensed local broadcasters (Volkmer, 1999). However, these areas are targets of international media operators because of their population density and promising economic potential.
Sparks and Reading (1994) identified the changes in the TV broadcasting systems of the Visegrad Group, which includes Poland, Hungary and the Czechoslovak Federal
Republic. They stated that conditions did not exist in these countries for non-private broadcasting to break free of political and economic dependence. Commercialization and privatization of media have been taking gradual steps with limited progress.
Commercialization is officially permitted but unofficially disadvantaged because of transitional government monopolies (Volkmer, 1999). It is still not likely that countries in
Eastern and Central Europe will privatize their state networks. Instead, the area saw a dramatic increase in the number of private broadcasting stations co-existing with state- owned systems (Caristi, 1996). Hungary appears to be at the forefront of media privatization. According to Caristi, by privatizing some of its newspapers and a state television network, MTV2, the country claims to create a dual system of public and private broadcasting in order to protect free expression.
Purchase of Western media products by media organizations in Eastern and
Central European countries dates back to the early 1980s. A vast number of broadcast stations largely depend on imported programs. For instance, by the late 1980s, 41% of entertainment programs and 36% of cultural programs in the Czech Republic were
35 Company Subsidiary Strategic behavior Time Warner CNN -License for a commercial TV channel in Poland HBO -Film co-production projects in Hungary (1996) -Joint venture with Sony in Poland -Ownership of HBO Hungary Turner -50% interest in Channel 6 in Moscow, Russia Broadcasting Bertelsmann RTL -Ownership of RTL TV in Hungary and RTL 7 in Poland Central European N/A -Ownership (66%) of Nova TV in Czech Republic Media (1995) Enterprises -Joint venture with a local publisher and a sports (CME) promoter to develop Pro TV in Romania (1995) -Joint venture with ITI to develop a television system in Poland (1995) -Joint venture with two independent TV operations to form POP TV in Slovenia (1995) Disney ABC -License for a commercial TV channel in Poland GE CNBC -Joint venture with Dow Jones to run CNBC Europe News Fox Kids -Distribution agreements with NTV Plus, Russia, to Corporation launch a kids’ channel (1999) Viacom MTV -Joint venture with Russian partners L.P., Biz Enterprises and others to run MTV Russia (1998) -Joint venture with European cable giant UPC to run MTV/VH1 Polska via cable throughout Poland with local-language services(2000) Nickelodeon -Joint venture with Hungarian Broadcasting Corp. to run Hungary’s first kids channel (1998)
Table 4.1: Strategic behavior of Western TNMCs in Eastern and Central Europe
36 imported (Tesar, 1989). With more experience and the general trend of privatization,
Western TNMCs’ strategies in Eastern and Central Europe have gone through the export and contractual stages and come to an investment- and equity-based level. The strategic behavior of major TNMCs in this region is summarized in Table 4.1 based on relevant business and academic publications.
The key component in the success of media operations in the privatization process in Eastern and Central Europe was partnerships (Caristi, 1996). Based on limited data, this trend can still be seen in Table 4.1. One of the prominent players in this market is the
Central European Media Enterprises (CME), formed in 1991 and controlled by Ronald
Lauder, heir to the Estee Lauder cosmetics company. As of 1995, the company owned
66% of Czech Republic’s Nova, the first private national commercial TV station in
Eastern Europe. Further attempts made by CME to purchase Czech’s electronic media was stopped by the government for the concern of media concentration (Caristi, 1996).
To avoid government intervention, the organization started to form partnerships with local corporations in this region.
Other examples of Western TNMCs’ conduct in Eastern and Central Europe include Turner’s partnership with Channel 6 in Moscow, MTV’s joint ventures with local partners in Russia and Poland, and several international TV channels’ distribution agreements with local operators. Some firms, such as CNBC, formed joint ventures with non-local companies. It is also shown that TNMCs’ strategies in these countries have become increasingly investment oriented. Yet it seems that they still need to take caution in ownership acquisition in order to avoid government intervention in foreign media
37 ownership. Few Western media companies were found to engage in film co-production projects in Eastern and Central European countries.
4.3 Asia
Asia is becoming another important emerging market for Western media giants.
Its vast population and fast developing economies offer a promising potential for TNMCs to achieve success. Due to the geographical, social, and cultural affinity, Western media companies’ entry and operational strategies in other Asian countries can offer direct reference to the Chinese market. Overall, Asia has become one of the fastest-growing broadcast environments in the world.
With the continuous economic development in most of the Asian countries, a remarkable external force in this market is the development of new technology, marked by the advent of direct broadcasting by satellite. Another important external force is the increased level of domestic and international competition. Shrikhande (2001) identified an emerging number of broadcasters in the Asian market, including CNBC and ABN as international all-news channels, and national-level television such as TVBS in Taiwan, and News 1 and News 2 in Hong Kong, indicating an increased level of competition in the Asian TV market. Government regulations also play an essential role in most Asian media markets, as many governments in Asian countries are apprehensive of uncontrolled information flow (Hao, 2000). In a study regarding Star TV’s accessibility in Asia, Chan
(1994) identified two important variables affecting its strategy in Asia: the national regulation policy, and the competition from territorial television in terms of program quality and cultural affinity.
38 Table 4.2 lists the strategic behavior of different TNMCs in Asia based on information in relevant business and academic publications. To differentiate China from other Asian countries, Asia in this context is defined as the Asian countries with emerging economies other than China. Since the transitional and emerging economies in this area are of special relevance to China, Japan is excluded from discussion because of its developed economic status. Similar to the Eastern and Central European market, formation of strategic alliances is a notable phenomenon in Asian media markets. Most of such alliances take forms of distribution agreements and joint ventures between TNMCs and broadcasters or cable carriers at both state and local levels across Asia. Pathania-Jain
(2001) conducted a value-chain analysis of collaborative strategies of international media firms in India and found that such strategies benefited the TNMCs in gaining local access, distribution channels and overall experience, as well as the local companies in obtaining advanced managerial, production and marketing related skills. Similar to the situation in Eastern and Central Europe, not all companies chose to have a local partner when entering the Asian market. As shown in Table 4.2, companies such as ESPN, MTV and Star TV formed joint ventures with other foreign partners.
Another important aspect of these companies’ strategies in Asia involves the localization of content. The media content provided by CNNI, BBC World, Star TV and
MTV has been customized to various degrees to meet regional needs by adding local programming, using local on-air talents, and creating subtitles in different Asian languages. Star TV distinguishes itself among foreign broadcasters in Asia with localized program content for the Chinese audience (Hao, 2000). MTV’s services are offered in
English, Chinese Mandarin, Hindi, Korean, and other Asian languages. Few Western
39 Company Subsidiary Strategic behavior Time CNN -Strategic alliances with broadcasters (e.g. Doordarshan, Warner International India; YTN and MBN, Korea) and cable carriers (e.g. Cablevision, Singapore; Cable view services, Malaysia) HBO -Joint venture with Sony to run HBO Asia Turner -Joint venture with Zee Telefilms Ltd. in India (2001) Broadcasting -Joint Venture with Tom.com to operate CETV in Hong Kong BBC BBC World -Distribution agreements with Asian countries and regions like India, Taiwan (TV Time) and China Disney ESPN -Joint venture with Star TV to run Star Sports Walt Disney -Film distribution agreement with Modi Films Pictures International, India GE CNBC -Joint venture with Dow Jones to operate CNBC Asia Liberty Discovery -Distribution agreement with International Broadcasting Media Channel Corp. (cable distributor) in Thailand (1994) News Star TV -Joint venture with two Hong Kong-based companies to Corporation operate the Phoenix Chinese Channel -Joint venture with Sony, Warner, Bertelsmann and Thorn EMI to develop its music channel, Channel V (1995) Sony Sony Pictures -Joint venture with a local firm in Korea to offer an Entertainment animation-related cable channel (2001) Viacom MTV -Licensing agreement with Star TV until 1994 -Joint venture with PolyGram to run MTV Asia (1995) Nickelodeon -Distribution and co-production agreements in Philippines, Korea, India, and Pakistan (1998-2002)
Table 4.2: Strategic behavior of Western TNMCs in Asia
40 TNMCs have been reportedly involved in film co-production projects with Asia. Many of them export films to Asia through distribution agreements with local partners.
4.4 Summary
Since all previous international business theories reviewed in this study indicated the effect of a firm’s external environment on its strategy, as well as the importance for a firm to minimize risk and maximize capabilities at international locations, this chapter has examined Western TNMCs’ global strategic behavior in transitional and emerging economies in Eastern and Central Europe and Asia to present how some important implications from theories about firms’ external conditions and strategies are manifested in actual situations. As shown at the beginning of this chapter, studies of international media operations revealed that formation of strategic alliances and engagement in co- production projects seem to be the best ways for U.S. media firms to achieve international success. This argument is supported in the media markets of Eastern and
Central Europe and Asia. These markets are characterized by fast economic development and further policy openness. A summary of TNMCs’ key strategies in emerging and transitional markets of these two regions is shown in Table 4.3.
Due to limited resources available and the relative scarcity of related research, instead of providing a detailed and complete picture of Western media companies’ strategies, only a glimpse of the strategic behavior of several major Western TNMCs in television and film industries is caught and presented here. However, this limited sample should still be able to provide some helpful inferences of the general pattern of TNMCs’ strategic behavior worldwide.
41 Location Company Subsidiary Partner/Country Strategic behavior Time CNN Poland N/A Eastern& Warner HBO Sony (Poland) Joint venture Central Hungary Wholly owned Europe Hungary Co-production Turner -Channel 6 in Moscow, Russia Joint venture Broadcasting Bertels- RTL -Hungary Wholly owned mann -Poland CME N/A -Nova (Czech Republic) Joint venture -Pro TV (Romania) -ITI (Poland) -POP (Slovenia) Disney ABC Poland N/A GE CNBC -Dow Jones Joint venture News Corp. Fox Kids -NTV Plus (Russia) Distribution agreement Viacom MTV -L. P. and Biz Enterprises Joint venture (Russia) -MTV Networks Europe, UPC (Poland) Nickelodeon -Hungarian Broadcasting Corp. Joint venture Asia Time CNNI -Doordarshan (India) Distribution Warner -YTN and MBN (Korea) agreement -Cablevision (Singapore) -Cableview services (Malaysia) HBO Sony Joint venture Turner -CETV (Hong Kong) Joint venture Broadcasting -Zee Telefilms Ltd. (India) BBC BBC World -Broadcasters in Asia (e.g. TV Distribution Time, Taiwan) agreement Disney ESPN -Star TV Joint venture Walt Disney -Modi Films International Distribution Pictures (India) agreement GE CNBC -Dow Jones Joint venture Liberty Discovery -Int’l Broadcasting Corp. Distribution Media Channel (Thailand) agreement News Corp Star TV -Hong Kong (two local firms) Joint venture -Sony, Warner, Bertelsmann and Thorn EMI
Continued
Table 4.3: Summary of TNMCs’ strategic behavior in Eastern and Central Europe and Asia
42 Table 4.3 continued
Sony Sony Pictures Korea Joint Venture Entertainment Viacom MTV -PolyGram Joint venture Nickelodeon -Broadcasters and cable carriers Distribution in Phillipines, Korea, India, and agreement/co- Pakistan production
Returning to the SCP model, the increased technology, competition from domestic and international rivalries, and government regulations are the major external factors affecting the media firms’ conduct in minimizing risk and maximizing capabilities in these two regions. Faced with an enlarged market as a result of technological innovation, an increasing level of domestic and international competition in both regions, together with various degrees of government restrictions, most of the Western media firms have formed strategic alliances with local partners in both markets. While most
TNMCs have operations in television, some firms have been engaged in co-production projects in the film industry, though this trend has not yet become pervasive. In addition to establishing strategic alliances and joint ventures, some Western TNMCs set up contractual agreements with local partners through distribution agreements in both television and film industries.
Another essential feature of TNMCs’ strategies in Eastern and Central Europe and
Asia is that some TNMCs have made efforts to localize their content. This is especially true with the international television operators in Asia. In such content customization processes, the Western media firms tried to not only localize their media content from their own internationally standardized products, but also differentiate content offerings
43 from their competitors in the market. The degree of customization also varies, as some companies provide content with a regional focus, and some others choose to broadcast in local languages.
In summary, the external environment factors of most media markets in Eastern and Central Europe and Asia include technical innovation, increasing domestic and international competition, as well as various levels of government intervention. The development of new technology leads to an enlarged potential market with visible new opportunities and incentives for Western TNMCs to expand their operations into the emerging markets. Technology advance also partially contributes to a higher degree of competition. Increased competition drives TNMCs to commit more resources and to provide customized media products which differentiate from their own standardized content as well as their competitors’ products. To gain a winning position in competition,
Western TNMCs also formed strategic alliances with media operators in local markets.
Some of these collaborative efforts are more equity-based (e.g. joint ventures) than others
(e.g. distribution agreements). Government intervention plays an essential role in emerging and transitional media markets as one of the main barriers to entry, which is a major motivation for Western TNMCs to establish various forms of strategic alliances with local partners to effectively handle government regulations.
Given the social, cultural, and geographical similarities of the Eastern and Central
European and Asian media markets to the Chinese market, the external conditions, along with their influence on a firm’s behavior may by and large apply to the situation of
China. The next chapter will describe some major external conditions of the Chinese media market and identify initial moves Western TNMCs have made in the country.
44 CHAPTER 5
THE CHINESE MEDIA MARKET
As discussed before, the Chinese media market shares a lot of similarities with the markets of Eastern and Central Europe and Asia. The rapid economic development in the past two decades has made the country one of the largest emerging markets in the world.
Although no foreign media ownership is officially allowed, Western media giants have long been involved in China through different means to explore the potential of the market. A few of them have made remarkable progress. This chapter will provide an overview of the Chinese media market to identify the external factors affecting Western
TNMCs’ strategies. The initial steps these firms have taken will then be presented.
A major attraction of the Chinese market is its size. The total number of television audience in China exceeded 900 million (CCTV, 2002). Recent trends of internationalization and commercialization of Chinese media have brought more favorable policies for foreign media products, as the quota of foreign movie imports has increased from 10 per year in the late 90s to about 40 per year at the present time. Time
Warner and signed contracts with the Chinese government in 2001 to operate China
Entertainment Television (CETV) via cable in southern China, marking a breakthrough for a foreign television institution to be granted cable TV carriage rights in the Chinese mainland (Landler, 2001). News Corporation was granted the same deal to operate its
45 wholly owned Xingkong Satellite Television. It is of considerable strategic importance for Western TNMCs to expand their business into the huge Chinese market.
5.1 Administrative Structure of Chinese Media
The administrative structure of Chinese media is determined by the Chinese
Communist Party’s (CCP) philosophy of mass media, as well as the country’s socioeconomic structures and traditions that evolved around the authority of the Party and the country over individuals. Since the beginning, the Party has been taking effective measures to integrate the broadcasting system into its national management system
(Chang, 1989, p. 163). The established press, along with radio, television, and film, are part of the official media in China, and are therefore directly controlled as any government components (Fu and Cullen, 1996, p. 47). Figure 5.1 demonstrates a general administrative structure of Chinese media. The basic framework of control follows a top- down structure. The Party exercises control over the central government composed of the
State Council and the National People’s Congress, which in turn, governs provincial and local governments. The CCP has apparatus on each level of the government (Lynch,
1999, p. 7). Within this general structure of control, the CCP and the government virtually possess the same authority. While changes have been made over time to the institutions in order to handle emerging problems and to increase the efficiency of government control, none of such changes has really touched the foundation of the control mechanisms. Nor did the switch of ideological guidelines since 1978 signify any changes in the pattern of control.
46 Chinese Communist Chinese Government Party (CCP)
National People’s CCP Central Congress State Council Committee (Parliament)
CCP Central State General Propaganda Administration Administration of Radio, Film of Press and Department China Radio, Film and Television and TV Publishing Group (nominal) (SARFT) (GAPP)
CCTV, CNR, CRI, China Film Group, China Radio Party Print and TV Transmission Non-Party Media Network Print Media Source: Fu & Cullen, 1996, p. 73; Chang, 1989, p. 196; Lynch, 1999, p. 8
Figure 5.1: Structure of regulatory authorities of Chinese media
As presented in Figure 5.1, the media organizations in China have been under the dual leadership of the CCP and the government. From the Party chain, central administration of the media is exercised by the Department of Propaganda of the CCP
Central Committee. The Department determines media related policies and regulations and issues operational directives. Policy control is implemented from the Central
Department of Propaganda to provincial and local level propaganda departments (Chang,
1989, p. 195). From the government chain, different government agencies under the State
Council are responsible for the operational control of media. Same as the Party’s control
47 structure, such operational control is implemented from the central government agencies such as the State Administration of Radio, Film and Television (SARFT) to their provincial and local subdivisions (Lynch, 1999, p. 7). On the whole, this general structure of control over the media has not changed much over the years of the CCP’s regime.
Broadcast media used to be regulated through the Central Broadcasting Bureau under the CCP Central Committee until the Ministry of Radio and Television under the
State Council was established in 1982. Since 1997, broadcast media have been regulated by the SARFT, which reports directly to the State Council (SARFT, 2002). Print media can be divided into Party and non-Party categories. Party print media are regulated through the Party committees of all levels, while non-Party print media used to be regulated by an office under the Ministry of Culture before the General Administration of
Press and Publishing (GAPP) was established in 1987, also reporting directly to the State
Council (GAPP, 2002).
Established in 1998, the SARFT is the industry regulator and the primary executive body responsible for management and operational issues concerning China’s broadcast sector. As a government agency, its major responsibilities include (SARFT,
2002):
Researching and formulating laws, policies and regulations of the radio, film and
television industries and supervising their implementation;
Examining and approving the establishment of new television and radio stations
of all levels around the country;
Managing the technological development of radio, film and television;
48 Controlling the access to satellite and cable networks and supervising their
programming; and
Overseeing the content and imports of radio and TV programs, and films.
The SARFT is both a government agency under the State Council and a propaganda unit under the direct control of the CCP’s Central Propaganda Department, which creates all major media policies. Functionally, it executes policies and directives of both its masters. For instance, the SARFT controls the amount of film imports and the proportion of time allocated for foreign TV programs, so that in line with the CCP
Propaganda Department’s requirements, “the Chinese people are not seeing programs that offend Chinese sensibilities or challenge the CCP’s worldview” (Chinaonline.com,
2002). Moreover, the particular structure of Chinese media also entitles the SARFT to be a chief player in the market for its ownership of China’s national radio and television networks along with the nation’s largest film production and distribution company.
Based on this general administrative structure, the dynamics of the external conditions of the Chinese media market can be understood in four aspects: technology, competition, commercialization, and internationalization.
5.2 Competition
Competition in the Chinese media market has been increasing. In the domestic domain, starting from the mid 1990s most of the provincial TV stations in China have had satellite access to cover the entire country, which puts these provincial and regional
TV stations in direct competition with China Central Television (CCTV), the state broadcaster that was once a monopoly. To gain better ratings, most TV stations in China have committed more capital and human resources to improve the quality of production.
49 From the international prospective, an increasing number of TV broadcasters appeared in the Asian market, covering China with limited access. Several strategic groups have been formed. A strategic group is a set of firms within an industry that are pursuing the same or similar strategies (Porter, 1980). For instance, as stated in the previous chapter, CNBC and Bloomberg News are all-news business channels. TVBS in Taiwan and Star News in
India are national all-news cable channels. CNNI and BBC World are channels providing all types of news (Shrikhande, 2001). As such strategic groups develop and China’s foreign media policies become less restrictive, competition among international media companies in the market is likely to increase.
In reaction to the increasing domestic and international competition, a number of media conglomerates have been formed on both state and provincial levels in China, combining radio, television, cable and film under one organization. The rationale behind of such mergers is to enhance the competency of the media industries through increased size, diversity, and capital resources (People’s Daily, 2001).
5.3 Technology
There has been a great improvement in the level of technology associated with
Chinese media organizations. The competition brought by satellite transmission would not have been possible without technological innovation. Advanced equipment has been installed in major broadcasting organizations in the country to ensure the quality of production and transmission. VCD and DVD players prevail the households in urban areas. While the improvement of technology brings easier transmission of and access to information, it has also created such problems such as piracy. Despite tightened control, bootlegged movies and other pirated media products can still be found in the market.
50 5.4 Commercialization
Similar to the privatization process in Eastern and Central Europe, Chinese media experienced a dramatic trend of commercialization since the adoption of market economy. Under the state ownership, all TV stations in China, except CCTV, have become financially independent (Zhao, 1998). Some believe that further commercialization would make the media prioritize economic interests, thereby distancing from the state (Chen and Chan, 1998). However, it still takes the combinations of democracy, rule of law and private media ownership to support a free press system
(Chan, 1993). Liu (1998) argued that media in China emphasized more economic interests than ideology, though privatization of media was not yet in the picture.
In fact, the country has taken initial steps towards private media ownership.
Although private or foreign ownership of media is not officially allowed, some foreign media companies have developed alternative kinds of private ownership, which is a joint ownership by the government and private investors. News Corp’s News Digital System is one of such investors, who is allowed to invest in hardware equipment, rather than to produce media content (Pavlik and Hu, 2002).
5.5 Internationalization
The importation of Western media products can be traced back to the late 1970s, right after the country’s adoption of the open-door policy. Hong (1998) suggested that the imports of foreign TV programs increased significantly over the past decades. Some foreign media firms have already established business relations with Chinese media organizations. Besides exporting media products to China, the initiatives of cooperation between Chinese and foreign media firms started in the early 1990s, when an cooperation
51 agreement was reached between Murdoch’s News Corp and China’s state-owned newspaper, the People’s Daily, in the establishment of a joint venture to provide online services, digital mapping, and electronic publishing (Mandese, 1995).
As a matter of fact, foreign media products have enjoyed an increasing popularity over the past decades in China. This popularity is partially due to the entertainment functions of visual media that serve the needs of the audience and the market with decreasing government restrictions. The internationalization of Chinese media and the influence of Western media culture on the society have helped create a customer base in
China with high acceptance of international media products.
5.6 Initial Moves
Despite restrictions on media practices as well as restrictions on foreign media ownership, none of the Western TNMCs has neglected the potential of the Chinese media market. A few of them have made effective strategic moves to gain a presence in the market. Table 5.1 gives a summary of major TNMCs’ strategic behavior in China.
In Table 5.1, it is clear that most Western TNMCs’ operations in China are still at a preliminary stage. The most common way of involvement seems to be distribution and co-production deals. Among the various contractual agreements, Viacom’s MTV and
Nickelodeon have successfully cooperated with local partners in producing music and children’s TV programs. CNN’s news sharing cooperation with China Central Television
(CCTV) dates back to 1990. Encore International, a subsidiary of Liberty Media, provides a notable example of reciprocal programming with CCTV. By this agreement,
CCTV airs Encore’s TV shows and TV movies in exchange for its own programs aired in the United States.
52 Company Subsidiary Strategic behavior Time CNNI -Distribution agreement with CCTV’s China International Warner TV Corporation with restricted access (1987) HBO -Distribution agreement with China International TV Corp. with restricted access (1998) Turner -Cable carriage agreement of CETV in Guangdong Broadcasting Warner -Co-production of “Empire of the Sun” with Shanghai Film Bros. Studio Studio (1987) -Distribution agreement with China Film Group (1994) BBC BBC World -Distribution agreement with China International TV Corp. with access to hotels and foreign residencies alike Disney ABC -Co-production of kids’ programs “Panda Club” and “Dragon Club” with local partners ESPN -Distribution agreement with over 20 state and regional TV stations (2002) GE CNBC -Distribution agreement with Hyatt in its hotels around China Liberty Encore -Reciprocal programming agreement with CCTV since Media International 1995 News Star TV -Agreement for a joint venture between Phoenix Chinese Corporation Channel and CCTV (2001) -Cable carriage agreement of Xingkong Satellite Television and Phoenix Chinese Channel in Guangdong Viacom MTV -Co-production of four TV programs with state and local broadcasters such as CCTV and BTV Nickelodeon -Co-production of children’s programming with a local producer in Beijing (2001)
Table 5.1: Strategic behavior of Western TNMCs in China
53 A large portion of the distribution agreements of foreign TV channels have been reached through the state-owned China International TV Corp., CCTV’s commercial branch, which monopolizes distribution of foreign channels in China. Currently there are
31 foreign channels licensed to broadcast in China (Stender et al., 2004), most of which have access only to upscale hotels, foreign residential compounds, and selected government offices and research institutes (Turner Asia, 2001). However, restrictions on foreign broadcasting have been undergoing a gradual loosening process especially after
China’s WTO accession in 2001. This is marked by the recent breakthrough deals reached by News Corporation’s Star TV and Time Warner’s partially owned CETV to launch Chinese language entertainment channels in South China’s Guangdong Province with unrestricted access to all cable subscribers. In addition, a joint venture agreement was signed in 2001 between News Corporation’s partially owned Phoenix Chinese
Channel and the state broadcaster, China Central Television (CCTV) to produce TV programming (Star TV, 2003). These deals signify the beginning of foreign media organizations’ penetration into the Chinese market.
In the film industry, the Warner Bros Studio was among the first to move into the
Chinese film market. The company was engaged in film co-production with a Chinese partner in the 1980s and had a distribution agreement with the state monopoly, China
Film Group, in the mid 1990s. Sony Pictures Entertainment was also reported to have established an office in Beijing.
5.7 Summary
The media organizations in China have been under the dual leadership of the
Chinese Communist Party (CCP) and the government. At this time, broadcast media are
54 regulated through the State Administration of Radio, Film and Television (SARFT), which is both a government agency directly reporting to the State Council and a propaganda unit supervised by the CCP’s Central Propaganda Department. The development in the Chinese media market is seen in four major aspects: enhanced technology, increased competition, commercialized media organizations, and internationalized media content. Contractual agreements and co-production projects mainly constitute TNMCs’ strategic behavior in China. Unlike the situation of Eastern and Central Europe and Asia, few Western media companies have been involved in any form of financial ownership of media outlets in China. This is largely due to the government restrictions against foreign media ownership. However, a gradual opening-up process is seen in the media market, as the government has recently granted cable carriage rights to major foreign broadcasters.
Another significant feature of Western media operations in China is that the firms providing entertainment-oriented content seem to have had deeper market penetrations.
ESPN had distribution deals with more than 20 state and local TV broadcasters. MTV and Nickelodeon have been actively engaged in co-production with local partners. The new TV channels, News Corporation’s Xingkong Satellite Television and Time Warner’s partially owned CETV, in Guangdong also focus on entertainment content. Compared with these operations, international news providers such as CNN and BBC have not been able to gain access to such breadth and depth in the Chinese market.
It is also worth noting that some Western TNMCs have made serious efforts in their product offerings in order to appeal to local tastes. Both Xingkong Satellite
Television and CETV offer locally produced content in Mandarin Chinese. This local
55 adaptation strategy shows their parent companies’ serious commitment to the Chinese media market.
Returning to the SCP model, recall that previous international business theories highlight the importance of a firm’s external conditions and their influence on the firm’s strategy in minimizing risk and maximizing capabilities at international locations. Up to this point, several important external environment factors have been identified to have significant effects on Western TNMCs’ strategies across Eastern and Central Europe,
Asia and China. These factors mainly include the level of government intervention, domestic and international competition, and technological innovation. In response to the external environmental conditions, Western TNMCs have adopted various strategies in these markets, such as localizing their product offerings, differentiating their products from competitors, and forming strategic alliances with local partners. Among all, formation of strategic alliances in terms of licensing and distribution agreements, co- production, and joint ventures seems to be the most prominent strategic behavior of
TNMCs. To further understand the mechanisms of Western media companies’ strategies in entering a particular market in a particular way, the next chapter will review further research related to a firm’s external environment conditions and strategies at a more in- depth level to formulate a theoretical outline for this study.
56 CHAPTER 6
CONCEPTUALIZATION
In the previous two chapters, the strategic behavior of major Western TNMCs in
Eastern and Central Europe, Asia and China, has been reviewed to identify which external environment factors and strategies are prominent at these international locations and relevant to the media industries. Based on the findings from previous literature, this chapter will explore to a greater extent the linkage in the SCP model between a firm’s external environment conditions and its strategies. The purpose is to establish a theoretical outline through reviewing theories and concepts specifically relevant to a firm’s external environment and its strategic control.
6.1 Strategic Alliances
Strategic alliances such as contractual agreements and joint ventures were identified as a major type of strategic behavior Western TNMCs have taken across
Eastern and Central Europe, Asia and China (See Table 4.1, 4.2, 4.3, and 5.1). Also referred to as collaborative alliances or coalitions, strategic alliances can be defined as
“long-term agreements among firms that go beyond normal market transactions but fall short of outright mergers” (Porter, 1985, p.57). Such alliances can take the form of technology licenses, marketing, distribution and supply agreements, and joint ventures.
Joint ventures are a common mode of strategic alliances. A joint venture could be
57 narrowly defined as two or more firms pooling a portion of their resources within a common legal organization (Kogut, 1988). Conceptually, Kogut defined a joint venture as “a selection among alternative modes by which two or more firms can transact”
(p.319). International joint ventures can be broadly defined as “joint ventures that involve firms from different countries cooperating across national and cultural boundaries (Yan and Luo, 2001).
Often the terms cooperative agreements, joint ventures, and strategic alliances are used interchangeably. As mentioned earlier, in this study, both contractual agreements and joint ventures are considered as forms of strategic alliances. A representative form of joint ventures is equity-based ventures, where both or all partners make financial commitment to and share the ownership of the joint venture. In this study, the term “joint venture” refers to an equity-based joint venture as differentiated from cooperative alliances in which partners do not share any ownership of capital resources.
Firms engage in joint ventures for different reasons and motives. Theoretically, the motivations for joint ventures involve three main factors: reducing transactions costs between arms-length parties through joint ownership rights and the mutual dedication of resources, enhancing a company’s competitive positioning and market power, and transferring organizational knowledge (Kogut, 1988). Some practical reasons for joint venture formation include government insistence and pressure, gaining access to overseas markets, risk sharing, reducing costs to tap resources through shared ownership, pooling resources for a common interest or cooperative advantage (Yan and Luo, 2001). Buckley and Casson (1996) listed the following factors affecting a firm’s strategic choice: market
58 size, pace of technological change, rate of interest, cultural distance, government protection, missing patent rights, economies of scope, and technological uncertainty.
In their study of network television’s involvement in the cable industry, Dimmick and Wallschlaeger (1986) found that the most common means for firms to enter new media markets was to establish joint ventures. Their findings indicated that a firm tends to set up joint ventures when there is a high degree of “threat to survival” and uncertainty associated with its expansion into the new media. While forming collaborative alliance is a widely adopted strategy in international business practices, Porter (1990) pointed out that alliances are only transitional devices to enter into a global market. Whenever possible, Porter argued, the global companies should be wholly owned. It should be noted, however, that this development pattern may not necessarily apply to the media industries because they are regulated in a more stringent manner than other industries by many nations around the world.
6.2 Entry Strategies and Foreign Direct Investment
Similar to Porter’s (1990) argument, some scholars hold that firms follow a sequence when entering into a new market. As far as market entry modes are concerned,
Mintzberg et al. (1995) summarized five possibilities: exporting, licensing, franchising, joint ventures, and wholly-owned subsidiaries. In addition, Hill (2000) proposed another entry strategy by the name of turnkey contracts, where a company designs, constructs, and tests production facility for the client firm. These choices can be summarized in three major categories: export entry modes, contractual entry modes, and investment entry modes (Tallman & Yip, 2001). The export entry modes typically involve indirect and direct agent, distributor, or branch. The contractual entry modes include licensing,
59 franchising, technical agreements, service and management contracts, turnkey projects, and co-production agreements. Investment entry modes are characterized by direct entry, acquisition and joint ventures. While previous literature has shown that a firm’s choice of market entry strategy depends on a variety of internal and external factors, some scholars claimed that these entry choices reflect a gradual market penetration process. Johanson and Vahlne (1977) argued that in the postwar era MNEs tended to internationalize following a sequence of exporting, allying, and investing.
According to the International Monetary Fund (1993), foreign direct investment
(FDI) is “the category of international investment that reflects the objective of obtaining a lasting interest by a resident entity in one economy (the direct investor) in an enterprise
(foreign direct investment enterprise) resident in another economy.” Most major MNEs engage in FDI through a process of gradual evolution. Because foreign firms are subject to the laws and policies of the host country, FDI in mass media are strongly associated with the level of openness and political stability of the host country (Gershon, 1997).
6.3 Pattern of TNMCs’ Strategic Behavior
It is reasonable to argue based on the discussions in Chapter 4 and 5 that the external conditions for Western TNMCs in Eastern and Central Europe and Asia constitute more open and less restrictive business environments than those in China. In most media markets of Eastern and Central Europe and Asia, as the economy gradually opened up over the past few decades, governments have loosened regulations on foreign ownership of media and encouraged foreign investment in the media industries, whereas media ownership by foreign entities is still not permitted in China. Also, media organizations in Eastern and Central Europe and Asia started commercialization earlier
60 than China, offering a more mature and stable commercial environment in media industries for foreign investors. This environment drives TNMCs to commit more resources in these markets. Moreover, since Eastern and Central Europe and Asia have had more exposure to international media products, the social and cultural distance between these countries and Western nations has become increasingly shortened.
Therefore, Western media products should be more acceptable in these markets than in
China. As a result, for Western TNMCs, risk has become lower with higher potential of return over time in media markets of Eastern and Central Europe and Asia than in China.
In response to different external conditions, as well as the consequent levels of risk, Western TNMCs need to adopt different strategies. Table 6.1 presents an ordinal scale of the pattern of major media firms’ strategic behavior across the three locations.
Western media firms’ strategic behavior is summarized into three categories in a sequence. Exporting is excluded in the table because it wouldn’t show much variance across locations, as television and film trade is popular at all three locations. The first stage of entry is contractual agreements, which include licensing, distribution and co- production agreements. Following the contractual stage, companies typically involve in joint ventures before they eventually establish wholly-owned subsidiaries. In this study, because of its worldwide recognition and influence, CNN is considered a direct subsidiary of Time Warner, rather than a brand name under Turner Broadcasting.
The most active players in the markets across the three regions, as shown in Table 6.1, include Time Warner, Bertelsmann, and News Corporation. These companies have acquired greater equity ownership than others in most of the regions. Time Warner owns
HBO Hungary. Bertelsmann owns RTL Hungary and RTL Poland. News Corporation is
61 Contractual Joint ventures Wholly-owned agreements subsidiaries Eastern& Central HBO (t), (f) HBO Poland (t) HBO Hungary (t) Europe Turner (t) RTL Hungary (b) Nova (c) RTL Poland (b) Pro TV (c) ITI (c) POP (c) CNBC (g) Fox Kids (n) MTV (v) Nickelodeon (v) Asia CNNI (t) HBO (t) BBC World Turner (t) Disney Pictures (f) ESPN (d) Discovery (l) CNBC (g) Nickelodeon (v) Star TV (n) Sony Pictures (f) MTV (v) China CNNI (t), (r) Star TV (n)* HBO (t), (r) Turner (t) WarnerBros.(t),(f) BBC World (r) ABC (d) ESPN (d) CNBC(g), (r) Encore Int’l (l) Star TV (n) MTV (v) Nickelodeon (v) Notations: b, Bertelsmann; c, Central European Media Enterprises; d, Disney; f, Film Industry; g, General Electric; l, Liberty Media; n, News Corporation; t, Time Warner; v, Viacom; r, Restricted access * Agreement signed, no further reports found
Table 6.1: Ordinal scale of TNMCs’ strategic behavior
62 the first among all Western TNMCs in China to initiate a joint venture deal. Central
European Media Enterprises (CME) and General Electrics also have equity ownership across the three markets. As divisions of the above media organizations, companies such asHBO,Turner,RTL,StarTV,CNBCandMTVareonthewholehigheronthescaleof equity ownership than others. Some of these divisions are owned directly by their parent firms, while others are involved in joint ventures with local or foreign partners. Two reasons may contribute to these companies’ competitive advantage in these markets.
First, since most of these companies provide entertainment-oriented content, rather than content with a sensitive nature such as hard news, they are subject to less government restrictions. Second, companies tend to engage in higher equity ownership in host locations that have a high degree of geographical and cultural affinity with the home country. This tendency is seen in the strategic behavior of the Europe-based CME and
Bertelsmann, both of whom devoted their investment efforts mainly to Europe.
Also strikingly demonstrated in Table 6.1, Western TNMCs’ strategic behavior in
Eastern and Central Europe and Asia is overall on the upper levels of the scale compared to their involvement in the Chinese market. While the formation of joint ventures seems to be the most common strategy in Eastern and Central Europe and Asia, some wholly- owned subsidiaries also exist. Compared with the media markets in these regions, the
Chinese media market is still at a preliminary stage. Though a large number of Western media companies are already present in the China, most of them operate under distribution and co-production agreements. As noted in Chapter 5, most of the distribution agreements confine their access to selected locations only, except for a few broadcasters such as CETV and Xingkong Satellite Television whose access to the
63 general public in South China is authorized. The only would-be joint venture between
Star TV and CCTV has not yet started operating.
To determine the statistical significance of the strategic behavior on this ordinal scale, Table 6.2 shows the chi-square results based on Table 6.1. The categories of “joint ventures” and “wholly-owned subsidiaries” were combined into one category labeled
“equity” to indicate some form of ownership since what is at issue is “ownership” or
“non-ownership”. The category of “contractual agreements” was renamed as “non- equity.” As shown in Table 6.2, the difference between ownership and non-ownership is significant (X2 = 19.81, p<.01). Examination of the computing table revealed that it is
China that is contributing the most to the magnitude of the significant chi-square, in which there are more non-equity operations and fewer equity ownerships than expected by chance. Judging from the contingency coefficient (V2 = .51), there is a moderate relationship between the level of equity ownership and the level of risk as represented by the regions of the world. In addition, it should be noted that the number of ventures does not vary much between regions. It is the land, or equity ownership, of ventures that differs between regions.
The pattern of Western TNMCs’ strategic behavior exhibits the process of knowledge development and transfer as pointed out in previous international business theories (e.g. Johanson &Vahlne, 1977; Buckley & Casson, 1976), which hold that
MNEs gradually acquire more equity ownership in an international market as their knowledge and experience about the market develops, and that their growth and profitability are created through internal transfer of knowledge. This trend is clearly presented in Table 6.1 and Table 6.2 by the difference of TNMCs’ equity ownership
64 Non-equity Equity Total Eastern and Central Europe 1 (7.14%) 13 (92.86%) 14 (100%) Asia 5 (41.67%) 7 (58.33%) 12 (100%) China 12 (92.31%) 1 (7.69%) 13 (100%) Total 182139 X2 = 19.81 p < .01 V2 = .51
Table 6.2: Chi-square analysis of TNMCs’ strategic behavior
across the three locations, as the media firms have achieved higher levels of control with their growing knowledge and experience in the Eastern and Central European and Asian markets than the Chinese market. Following the same pattern of development, Western
TNMCs’ knowledge about operating in transitional and emerging markets is being transferred from Eastern and Central Europe and Asia to China. When entering a new market, TNMCs utilize their knowledge and experience gained in other international markets to acquire higher equity ownership. While operating in the new market, new knowledge is obtained that can be transferred to other markets. Within this cycle, each individual international market is a unique piece of the TNMCs’ overall global puzzle.
As discussed in Chapter 3, international business theories highlight the influence of a firm’s external environment conditions on its strategy. The pattern of TNMCs’ equity ownership across the three locations shown in Table 6.1 and Table 6.2 is largely due to the changing external conditions in these markets. As economies have developed to be more market-based and government policies become more favorable to foreign investors in transitional and emerging markets of Eastern and Central Europe and Asia, the external conditions in the media markets have become more advantageous for foreign investors. In turn, risk associated with these markets has become lower, as reflected in 65 Western TNMCs’ higher degree of equity ownership in these locations. Given China’s accession to the WTO and the observable trend towards a gradually opening media market, it may be expected that Western media firms’ involvement China would become more equity-based in the future to follow the overall pattern of development.
Also found in Chapter 3, previous international business theories emphasize the importance for MNEs to minimize risk and maximize capabilities at international locations. The media firms’ strategies in managing risk and increasing their capabilities in different markets seem to evolve over time with their growing knowledge and experience about local markets and the situation of external conditions. In the early
1980s, Western media firms’ operations in Eastern and Central Europe, Asia and China, were largely confined to exporting media products. With the advent of new technology such as cable and satellite television, various licensing, distribution, and co-production agreements started to appear from the mid 1980s in the transitional and emerging economies in both Eastern and Central Europe and Asia. Formation of joint ventures began to take place in these regions in the early 1990s, marking Western TNMCs’ deeper penetrations into these markets. This gradual penetration process of minimizing risk and maximizing capabilities is strongly associated with the TNMCs’ perceived risk in the media markets. The perception of risk and rewards are mainly determined by the dynamics of external conditions in the market. In examining the effect of a firm’s external conditions on its perception of risk, the firm’s uncertainties about the external environment play an essential role.
66 6.4 Risk and Environmental Uncertainties
The term “risk” is used with respect to variation in business performance variables such as revenues, profit and costs. However, there has not been a commonly accepted definition of risk in strategic management literature. In general, risk has been defined as “the possibility of an outcome that is less favorable than the expected outcome” (Herring, 1983, p. 2), and “the possibility of an unforeseen development that influences our welfare” (Cooper, 1983, p. 23). In defining risk, Ting (1988) indicated two types of risk, objective and subjective. According to Ting, objective or statistical risk refers to “the relative variation of an actual outcome of an event from some expected outcome” (p. 188), while subjective risk is the perceptions of objective risk (p. 188). All these definitions emphasize the uncertain and unpredictable nature of the risk concept.
The use of risk as a reference to the probability of financial performance of failure is widely seen in the fields of economics, finance and strategic management. Based on this understanding, Miller (1992) broadly defined risk as “variation in corporate outcomes or performance that cannot be foreseen ex ante” (p. 311). Some studies devoted attention to only one dimension of risk, such as political risk (Howell and Brad, 1994;
Simon, 1982) and financial risk (Stone, 1989). Brouthers (1995) indicated that examining only one perspective while ignoring other aspects of risk would result in incorrect entry mode decisions. Both Brouthers (1995) and Miller (1992, 1993) adopted integrated measurement of risk which includes general environmental, industry-specific and firm- specific variables. This categorization shares a great amount of similarities with that of the factors affecting a firm’s international development discussed in international business theories in Chapter 3 (See Table 3.1).
67 Previous studies in strategic management often link risk to internal and external factors affecting the risk confronting a firm. Miller (1992) pointed out that it is a convention to relate risk to environmental factors that reduce performance predictability.
In international business and strategic management literature, such environmental factors often involve uncertainty variables.
A firm’s perception of external conditions that negatively affects its strategy and performance is referred to as “uncertainty” in relevant literature. A number of previous studies identified uncertainty as an important factor influencing firms’ strategic decision making in various situations (e.g. Buckley and Casson, 1996; Dimmick and
Wallschlaeger, 1986; Kogut, 1988). Uncertainty has been defined in various ways
(Milliken, 1987). It has been used to indicate the unpredictability of environmental and organizational variables that impact corporate performance (Cyert & March, 1963;
Pfeffer & Salancik, 1978). It has also been conceptualized as the inadequacy of information for decision making (Thompson, 1967; Duncan, 1972), or the complexity and ambiguity of the environment (Galbraith, 1973; Milliken, 1987). Uncertainty about a firm’s external or internal environment reduces the predictability of corporate performance and increases risk.
Miller (1992) developed a systematic summary of uncertainties to include general environmental, industry-specific and firm-specific variables. According to Miller, the general environmental uncertainties involve political, governmental, macroeconomic, social and natural factors. The industry-specific uncertainties include such components as input market, product market, and competitive uncertainties. The firm-specific uncertainties consist of operating, liability, R & D, credit and behavioral uncertainties.
68 Based on this study, Miller (1993) created a comprehensive Perceived Environmental
Uncertainty (PEU) instrument to measure risk. The instrument quantifies risk with a conceptualized framework involving various categories of environmental uncertainty items. The categories include political/government policies, macroeconomic, resources and services used by the company, product market and demand, competition and technology in your industry. Using this conceptual construct, Miller (1993) measured risk through the respondents’ perceptions of environmental uncertainties.
The above analysis suggests that uncertainties are firms’ perceptions of the unpredictability of their external environment. As discussed earlier, firms make strategic decisions based on the risk they perceive in the market. In this case, their perceptions of risk can be measured by the uncertainties about the external conditions in the market.
Hence, the theoretical framework becomes clear (See Figure 6.1). Based on the external conditions, a firm perceives risk in terms of uncertainties about the external environment and attempts to manage the perceived risk through the selection of appropriate control strategies. Such strategies are usually reflected in the firm’s level of equity ownership in the market. The perception of risk varies with the level of control. When firms perceive high risk in an international market, they tend to choose non-equity based control modes, such as exporting and contractual agreements. As the perceived risk becomes lower, risk is balanced against opportunity and firms would seek greater control over their operations in an international market (Root, 1994, p.74). In turn, the level of control is likely to become higher with the companies’ increasing equity ownership through joint ventures or wholly-owned subsidiaries.
69 External Conditions Uncertainties about LevelofControl(in (objective situation the External terms of equity of the market) Environment ownership strategy) (subjective perception of the market)
Figure 6.1: Theoretical outline
Given the emphasis of this study on the effect of external environment factors on a firm’s strategic decision making, the study will pay particular attention to the variables affecting the firm’s strategic risks. According to Brouthers (1995), strategic risks are
“those that may effect [sic] the future long-term profitability of the firm,” (p. 10) including entry mode strategy. Therefore, this study will focus on general environmental and industry aspects of uncertainties, rather than firm-specific variables. Combined with the earlier review of a media firm’s external environment conditions that affect its strategies, and mainly based on Miller’s (1992, 1993) studies, the external factors that constitute uncertainty sources in a firm’s decision making process involve the following categories: government and policies, economy, competition, product market and demand, resources and services used by the company, as well as social and cultural conditions.
Each of these categories encompasses several measurement items as shown in Table 6.3.
6.4.1 Government and policies
As demonstrated in Western media firms’ operations in Eastern and Central
European, Asian and Chinese markets, government and policies play a critical role in determining TNMCs’ involvement in the market. Given the peculiarities of the media
70 1. Government and policies a. Ability of the party in power to maintain control of the government b. Threat of armed conflict c. Tax policies d. Monetary policy e. Prices controlled by the government f. National laws affecting international media business g. Legal regulations affecting the media business sector h. Tariffs/quotas on imported media products i. Enforcement of existing laws j. Adequacy of public service provision 2. Economy a. Inflation rate b. Exchange rate with dollar c. Interest rate d. Results of economic restructuring 3. Competition a. Changes in competitor’s prices b. Changes in the markets served by competitors c. Changes in competitors’ strategies d. Entry of new media firms into the market e. Domestic competitors f. Foreign competitors g. Innovations in quality of media products h. Innovations of media transmission devices 4. Product market and demand a. Product differentiation in the media market b. Customer preferences c. Demand for the media products 5. Resources and services a. Transmission/distribution system within the country b. Availability of trained labor 6. Social and cultural conditions a. Social beliefs and attitudes towards cultural intrusion of foreign media products b. Changing social concerns c. Social unrest, riots, and demonstrations
Table 6.3: Summary of uncertainties
71 industries in spreading a wide variety of information and cultural values, many governments are concerned with the deterioration of national sovereignty and information control (Gershon, 2000). As a result, governments would make attempts to regulate foreign media firms’ operation. Besides national laws and legal regulations affecting international business, which is the international media business in this case, other factors relating to government and policies in Miller’s (1993) categorization are also sources of uncertainties affecting a firm’s market control strategies. Related to the media industries, these items include the overall political stability, tax and monetary policies, the effectiveness of law enforcement, tariffs and quotas on imported media products, and the adequacy of public services provided in the host country in terms of public utility, communication and transportation.
6.4.2 Economy
The general economic conditions of a country are an essential category of factors contributing to uncertainties about the media market. Fluctuations in the level of economic activity create uncertainties for new entrants. Selected from the items presented in Miller’s (1992, 1993) studies, variations in a country's overall economic situation relevant to the media industries include inflation rate, interest rate, foreign exchange rate, and consequences of economic restructuring. Investments won’t be made if the overall economic environment in the host country is unstable with an unpredictable potential of return. In addition, the economic variations may lead to uncertainties due to the fact that they may well increase the costs of operation for a TNMC in the country.
72 6.4.3 Competition
The existing domestic and international competition is another major aspect of uncertainties in media markets. Porter (1985) stated that one of a firm’s primary concerns is the intensity of competition within its industry. In the media industries, competition is extensive at both domestic and international levels, between TNMCs and local media firms in the host country, and among TNMCs themselves. While most countries have existing infrastructures for the operation of television and newspaper, advanced information service and telecommunications remain controlled by a small number of firms (Gershon, 2000). In some countries, uncertainties about competition are closely related to government policies. If a national broadcaster monopolizes the country’s TV market, such as CCTV in China, entry of other domestic and international competitors into the market would be difficult, and their operations in the market would be highly unpredictable. Based on Miller's (1992) typology, the factors contributing to competition- related uncertainties include rivalry among existing competitors and potential entrants into the industry, as well as technology uncertainties in terms of product innovations and process innovations. Relevant to the media industries, competition among various types of media content and products in the market and innovations in product quality or transmission devices form uncertainty sources for TNMCs in international markets.
6.4.4 Product market and demand
Concerning product market and demand, a firm’s entry and operations are likely to be difficult and uncertain if existing products in the market are highly differentiated
(Porter, 1980). Uncertainties may also exist in terms of customer preferences or product demand (Miller, 1993). The same is true with the media industries. A TNMC operating in
73 an international market is usually confronted with the challenges of learning about the degree of local customers’ demand for their content and products, the optimal approach to satisfy these customers’ tastes and needs, and the situation of existing media content and products offered by their competitors.
6.4.5 Resources and services
With regard to resources and services, uncertainties arise if distributors do not readily exist (Porter, 1980), or the availability of trained labor is low in the host country
(Miller, 1993). Both these two aspects apply to the media industries. For a TNMC at an international location, it is essential to establish a large network of distributors, local cable carriers, or satellite TV operators in selling its content and products. In both production and sales, a media firm also needs to have a pool of local labor qualified for meeting the firm’s production standards and sales quotas.
6.4.6 Social and cultural conditions
Social and cultural conditions in the host country market also constitute a major category of uncertainties. The entry of foreign media operators is believed to pose challenges to a country’s social beliefs and cultural integrity (McAnany & Wilkinson,
1992; Gershon, 2000). The larger the social and cultural distance, the more difficult it is for the foreign media firm to formulate proper strategic approaches to determine management styles and product offerings that meet local tastes and preferences. Besides, it would be problematic for a company to operate in the host country market if it is uncertain about the beliefs, values, and attitudes of the population that are not reflected in government policies or business practices (Miller, 1992). Concerning social uncertainties,
Miller pointed out that they are generated from the society at large with respect to
74 changing social concerns, and social unrest, riots, and demonstrations. These factors are especially relevant to the media industries, as they directly influence TNMCs' management and product offering strategies.
As indicated earlier, the categories and items of uncertainties presented in Table
6.3 were summarized mainly based on Miller’s (1992, 1993) studies. While these studies provided a sensible conceptual framework of risk measurement, they did not bear any statistical evidence for the dimensionality of the PEU scales, or whether the existing items listed under each category truly belong to that category.
In analyzing the data generated from a sample of 497 respondents, Miller (1993) used a large part of the framework he established in 1992, and tested item reliability using the ANOVA technique. Among the uncertainty items presented in Miller’s (1993) study, the ones with higher reliability (p<.01) include threat of armed conflict, tax policies, monetary policy, and public service provision under the category of political/government policies; inflation rate, exchange rate with dollar, and results of economic restructuring under the macroeconomic category; availability and prices of inputs, raw materials and components, and transportation system within the country under the category of resources and services used by the company; product demand under the product market and demand category; and changes in competitors’ strategies, entry of new firms into the market, and foreign competitors under the competition category.
In this situation, standard social science procedure would be to conduct a factor analysis to establish unit dimensional scales, which would demonstrate which uncertainty indicators belong to which scales in the construct. However, given the adequacy of data,
Miller (1993) did not perform a factor analysis to show scale reliability in addition to the
75 item reliability, and therefore provided no statistical support for the proposed categorization of uncertainty items.
The dimensionality and internal consistency of Miller’s (1993) PEU measure was tested statistically in Werner et al.’s (1996) study. Using a sample of 80 manufacturing and service firms, they conducted factor analyses in two ways. They first factor analyzed using Miller’s conceptual PEU instrument. For the second analysis, they decomposed
Miller’s framework and treated each item as an individual variable to determine the dimensions statistically. Then they compared Miller’s conceptually determined dimensions with the statistically determined dimensions by assessing the internal consistency, or reliability, of both sets of scales using Cronbach’s alpha. Miller’s conceptualized scales were found to have high scale reliability with its dimensionality reasonably close to the statistically determined scales. The alpha values of the scales in the model ranged from .89 (government policies) to .74 (technology). The rest of the scales, macroeconomic (.86), resources and services (.82), market and demand (.83), and competition (.77), all displayed high internal consistency. Therefore, Werner et al. recommended keeping Miller’s theoretical model with some modifications.
Since statistical evidence was found in support of its scale reliability and dimensionality, Miller’s (1993) PEU framework should be treated as a construct. The categories and items of the framework should, in turn, be treated as scales and indicators within the construct. However, to suit the characteristics of television and film industries for the purpose of this study, modifications to Miller’s construct were necessary.
The construct presented in Table 6.3 was modified based on Miller’s (1992) categorization of uncertainties, Werner et al.’s (1996) study, other relevant literature, and
76 the nature of the two media industries. The scales of political/government policies, macroeconomic, and competition were basically kept intact with only slight changes to the wording of some uncertainty indicators. For instance, the uncertainty item “national laws affecting international business” was changed to “national laws affecting international media business” to increase its relevancy to the media industries.
The scale “technology in your industry” was dropped in Werner et al.’s (1996) refined PEU measure for its low inter-rater reliability (Miller, 1993) and internal reliability. However, realizing the importance of technology innovations in the media industries as related to a company’s competence in the market, two items pertinent to technology were added to the category of competition. This inclusion is consistent with
Miller’s (1992) conceptualization about industry uncertainties.
Concerning the category of product market and demand, two items in Miller’s
(1993) framework were related to the availability of substitute and complimentary products. Considering that these concepts rarely apply to the media industries, they were replaced with a single indicator labeled “product differentiation in the media market.”
The new item is a common concept in business theories that is adaptable to the media industries and close in meaning to product substitutability.
In addition, Miller’s (1993) framework involved various uncertainty items under the category of resources and services used by the company such as quality, availability, and prices of inputs, raw materials and components, as well as transportation systems within the country and to foreign countries. Werner et al. (1996) reduced the number of items under this category. Given the intangible nature of media products as described in
Chapter 3, indicators relating to raw materials or components that would usually be
77 necessary in manufacturing industries may not apply to television and film industries.
Therefore, such indicators were eliminated in Table 6.3. By the same token, the uncertainty items concerning transportation systems in Miller’s (1993) framework were replaced with “transmission/distribution system within the country,” as the latter better depicts the nature of television and film industries. “Availability of trained labor” is the only other item in this category of Miller’s original model that is applicable to the media industries. Therefore, although Werner et al. (1996) dropped this item in the refined model they suggested, it was nonetheless included in the scale as an indicator.
Finally, Miller’s (1993) framework did not include any scales relating to social and cultural aspects of the environment. As discussed in Chapter 2 and 3, the media industries are usually considered as cultural industries for their widespread impact on the society and culture of a country. Among all the environmental factors, sociocultural factors play a crucial role in TNMCs’ worldwide business operations and development
(Gershon, 2000). Moreover, social uncertainties were included as a part of general environmental uncertainties in Miller’s (1992) typology. Hence, the category of social and cultural conditions was included as a conceptual scale in the construct. The uncertainty items in this category were taken from Miller’s (1992) study.
6.5 Summary
Based on the review of international business theories and TNMCs’ strategic behavior in Eastern and Central Europe, Asia and China, this chapter has reviewed further theories relating to MNEs’ global strategies and external conditions to establish a theoretical framework for the study. Realizing that the changing situations of environmental factors create different levels of risk for Western media companies in the
78 three international locations, the study analyzed TNMCs’ strategic behavior across these locations on an ordinal scale. It was found that, in line with theories of knowledge development and transfer in international business literature, these media firms’ entry and penetration into a new market follow a sequence from less equity-based involvement, such as exporting and contractual agreements, to more equity-based involvement, such as joint ventures and wholly-owned subsidiaries. Most TNMCs’ operations in the Eastern and Central European and Asian markets have come to a more equity-based stage than in
China. All international business theories highlight the significant effect of a firm’s external conditions on its strategies of minimizing risk and maximizing capabilities at international locations. TNMCs’ control strategies in increasing their capabilities as reflected in their equity ownership are contingent upon the degree of perceived risk in these markets. The perception of risk is typically determined by the uncertainties companies have about the external conditions in the market. The environmental uncertainties relevant to the media industries can be measured by a construct with the following scales: government and policies, economy, competition, product market and demand, resources and services, as well as social and cultural conditions.
All of the global strategies mentioned in the reviewed international business theories emphasize the necessity for companies to seek international locations to produce and sell at the same time. Therefore, it is important to understand how MNEs make the decision to enter a particular market at a particular time and in a particular way. Given the strategic importance of China in terms of its central geographic location in Asia, huge market size, low production costs, and fast growing economy, it is critical for any firm to develop strategies to approach the Chinese market. In addition, China’s WTO accession
79 in 2001 was a remarkable sign of decreasing restrictions and increasing openness of the country’s economy. Hence, the study set its scope on China to understand the question of how a firm makes the decision to enter a particular country in a particular way.
Specifically, the focus of the study is on how the perceptions of uncertainties about the external conditions in the media market affect the level of control desired by a TNMC when entering China. Taking China’s WTO accession as the point of change, this issue will be examined by comparing two periods in time before and after WTO which differ in terms of uncertainty. In the following chapter, research questions will be formulated on the basis of the information and analysis provided in the previous chapters.
80 CHAPTER 7
RESEARCH QUESTIONS
Previous chapters of this study have established a theoretical framework to examine Western TNMCs’ strategies in China. Based on the rationale that all media firms are economic institutions, the study adapted the SCP (structure-conduct-performance) model of industrial organizations to the analysis of media organizations. According to the
SCP paradigm, the market structure determines a firm’s conduct and strategies that lead to its performance. The original SCP model was modified to replace market structure with both internal and external conditions associated with a firm, with market structure considered as a part of the external environment. Within this general framework of analysis, the study reviewed previous theories and models in international business to answer the question of how a firm makes the decision to enter a particular country in a particular way. While these theories fall into different aspects and linkages of the framework, the focus of the study was narrowed down to the linkage between a firm’s external conditions and its strategy because of the difficulty of obtaining internal data and evaluating performance. Through the review of international business theories, it was found that all of them emphasize the importance for firms to minimize risk and maximize capabilities at international locations. In addition, most of them call attention to the effect of external environment conditions on a firm’s strategies.
81 To examine how previous international business theories apply to actual situations and to determine which external conditions are relevant to the media industries in transitional and emerging economies, TNMCs’ strategies in Eastern and Central Europe,
Asia and China were reviewed. This study sets its focus on the visual entertainment industry, including television and film, because it is widely believed that visual entertainment products, due to their entertainment nature, are on the whole subject to less restrictions and a higher degree of access to the mass of consumers than other forms of media. Review of TNMCs’ strategic behavior in the television and film industries at the three locations indicated that a majority of large media firms have established joint ventures in Eastern and Central European and Asian markets, whereas most of their strategies in China are taking the form of contracts and agreements, rather than equity ownership. This difference may largely be due to the existence of increasingly open external environments for TNMCs in the former two regions, rather than in China.
In establishing the theoretical outline, further theories and concepts specifically relating to MNEs’ strategies and external conditions were examined. An ordinal scale was developed to reflect Western TNMCs’ strategic behavior in markets across the three locations with different external conditions and levels of risk. Compared with their strategies in Eastern and Central Europe and Asia, TNMCs’ strategic behavior in China seems to be at a preliminary stage of a gradual penetration process over time from less equity-based forms, such as distribution agreements and co-production projects, to more equity-based engagement, such as joint ventures and, eventually, wholly-owned subsidiaries. This is consistent with knowledge development and transfer theories. As noted earlier, all international business theories highlight the effect of firms’ external
82 environment factors on their strategies in minimizing risk and maximizing capabilities at international locations. Such strategies are reflected in their level of control, or equity ownership, in the market. The level of control was found largely related to firms’ perceptions of uncertainties about their external environments. Hence, a theoretical framework was formulated to answer the question of how a firm makes the decision to enter a particular country in a particular way. The construct to measure uncertainties relevant to the media industries includes such scales as government and policies, economy, competition, product market and demand, resources and services, and social and cultural conditions.
Similar to other Asian media markets, a major entry barrier in the Chinese media market is concerned with government policies and regulations regarding foreign media ownership and accessibility of foreign media content and products. China’s WTO accession marks further openness of the country’s economy to the international playing field of business competition. Under the WTO principle of free trade and fewer barriers,
China is committed to a series of measures to meet free trade requirements. These include the reduction of customs duties, liberalization of trade and investment, and opening the domestic market to international competition. Although no specific agreements concerning media ownership have been reached, the trends to open up the closely supervised media industries seem to be irresistible. As shown in Table 5.1, some major
TNMCs have already made their initial moves into the market since policies concerning foreign media operation in China started to relax.
Given China’s central strategic importance in the Asian media market, its huge market size and economic potential, and its recent entry into the WTO, the study will
83 focus on China to understand how Western TNMCs make strategic decisions to enter the market and develop their businesses in their particular ways. Specifically, the study aims to find out how the perceptions of uncertainties about the external conditions in the media market affect the level of control desired by TNMCs when entering China. This issue will be examined by comparing the time periods before and after WTO which differ in terms of uncertainty.
Few previous research efforts in the field of international business have tapped the media industries as subjects of analysis. As discussed previously, because of their alleged impact on the value and ideological systems of the audience and the society, the media industries are typically subject to closer government supervision than other industries.
This is especially true in countries such as China where a high level of sensitivity is associated with media content, particularly hard news. While similar attempts have been made by scholars in media economics to study transnational media management in Asia
(e.g. Shrikhande, 2001; Pathania-Jain, 2001), none has concentrated on China.
This study takes an interdisciplinary approach, combining elements of both international business and media economics. Specifically, it attempts to apply theories and models in international business and strategy research to the field of media economics with an emphasis on China. In a few studies of media economics, Western media corporations were studied as economic institutions, and their operations and strategies at international locations were closely examined. However, little effort has been made to study Western TNMCs with an established theoretical framework based on theories and models from international business and strategy literature. Moreover, there are no existing theories, research designs and models, or methodologies that could be
84 used or addressed specifically for the purpose of this study. Therefore, the work presented here is unique.
This study will hopefully generate useful references for related personnel in the
Western media firms in their international business development projects relevant to
China or Chinese issues, and for media practitioners in China to understand Western
TNMCs’ strategic plans in the Chinese media market, so as to design corresponding strategies. Moreover, the study may also provide helpful implications to students and scholars of media economics and international business research in the application of business and economic theories and models to research, and in inspiring joint thinking and research.
Based on the literature review and the theoretical framework outlined in Figure
6.1, the following notions about TNMCs can be proposed:
1. Higher perceived uncertainties about the external conditions leads to less
equity-based strategic behavior in a media market;
2. Lower perceived uncertainties about the external conditions leads to more
equity-based strategic behavior in a media market.
Therefore, the independent variable of this study is the perception of uncertainties about the external conditions in the Chinese media market. The dependent variable is the level of a TNMC’s equity ownership in the Chinese media market. As shown in Figure
6.1, the external conditions are considered as factors that influence companies’ perceptions of uncertainties about the Chinese media market.
China’s WTO membership may result in changes in government policies and regulations on the media industries. Despite the fact that no agreements on foreign media
85 ownership were reached initially, it is the optimistic belief of many media professionals in Western TNMCs and Chinese media organizations that China’s media market will gradually open to international competition after WTO. This process is associated with changes in the Western media firms’ external conditions in China, including a higher level of competition, commercialization and internationalization of the Chinese media.
Given the likelihood of such changes in the external conditions of the Chinese media market, the following research question seems valid.
Research Question 1. Have the external conditions in the Chinese media market changed after China’s WTO accession?
Based on the theoretical framework presented in Figure 6.1, a direct result of the changes in external conditions in the Chinese media market would be corresponding variations in the Western TNMCs’ perceptions of the uncertainties about the external environment. Therefore, the following research question can be developed:
Research Question 2: Have Western TNMCs’ perceptions of uncertainties about the
Chinese media market changed after China’s WTO accession?
The perception of uncertainties about the external environment is essential in a company’s decision making process when entering a new international market. An inaccurate assessment of the external environment conditions would increase the firm’s risk in the market and may lead to serious financial losses for the company. Oftentimes parent companies’ perceptions of the external conditions are different from the real situation or local companies’ opinions. As far as this study is concerned, Western
TNMCs’ perceived uncertainties about the Chinese media market may differ from what the media professionals at major Chinese media organizations and media policy makers
86 in government agencies perceive as uncertainties foreign media firms may encounter in
China. It is not always easy for a potential entrant to obtain a complete view of the market reality. Ralph Alexander, senior vice president of International Distribution at
Sony Pictures Entertainment expressed the frustration they had with the Chinese film market. He said when they tried to promote “Man in Black” in China, they were told that it was not selected by the screening committee and the reason given was that “Chinese people don’t like worms and gross things.” Mr. Alexander believed that there should be a more understandable rationale behind the selection than the given reason. But he could not find out what it would be. Therefore, studyingthedifferencebetweenthemanagersof
Western TNMCs and related personnel in Chinese media organizations and regulatory sectors in their perceptions on TNMCs’ risk in China may reveal essential information for both sides to enhance mutual understanding of each other’s concerns, and thereby possibly facilitating the cooperation between Western and Chinese media firms to create opportunities for common benefits and progress.
Research Question 3. How do the perceptions of uncertainties about the Chinese media market differ between the American and Chinese informants?
In Western TNMCs’ strategic decision making process to enter and operate in the
Chinese media market, it should be noted that the environment of the market is not simply known in the minds of the decision makers. Rather, it has to be perceived, cognized, and measured. The uncertainty categories and indicators summarized in Table
6.3 based on Miller’s (1992, 1993) framework of environmental uncertainties provide the possibilities of what decision makers take into consideration. In an actual situation, decision makers in Western TNMCs may not choose to use a complex framework of
87 cognition encompassing all these possibilities in making strategic decisions. Instead, they may consider some uncertainty categories and items to be more important than others.
Two reasons can explain why all the categories and indicators of uncertainty presented in Table 6.3 may not be taken into account by decision makers in TNMCs.
First, not all of the categories and items are relevant to specific situations in the decision- making process. During several initial interviews with media professionals in U.S. media firms, when asked about their perceptions of uncertainties about the Chinese media market based on the model shown in Table 6.3, the interviewees indicated that some uncertainty categories and items were not important or relevant to their decision making.
The second reason is concerned with the issue of simplification in human beings’ cognitive processing. Heider (1958) argued that human beings are “cognitive misers” and that given a choice, humans tend to engage in processing that is least effortful so as not to expend energy. In addition, Petty and Cacioppo’s (1981) elaboration likelihood model includes “ability to think” as an important influence on cognitive processing. Moreover, other studies of cognitive psychology also indicated that humans have limited capacity to do mental work (i.e. Kahneman, 1973; Kerr, 1973; Miller, 1956). Therefore, a decision maker should not be taken as the rational man with perfect information who considers every possibility of the issue at stake. Rather, people tend to avoid complex models and process only a selected amount of information when making decisions.
Based on the degree of relevance of the uncertainty categories and indicators in
Table 6.3 to TNMCs’ specific situations, and given human beings’ limited mental ability in information processing, decision makers in Western TNMCs are likely to use their own cognitive models in making strategic decisions related to the Chinese media market.
88 Hence, instead of trying to project an existing model upon the real situation, it is crucial to understand what factors constitute the models of cognition decision makers in Western media companies adopt in their decision-making process. Hence, the following research question is proposed:
Research Question 4. What aspects of perceived uncertainties about the Chinese media market shown in Table 6.3 are important to decision makers in Western TNMCs?
It has been argued earlier that differences may exist between the American and
Chinese media professionals in perceiving uncertainties about the Chinese media market.
So would there likely be differences between the two sides in perceiving the uncertainty measurement items that are important in Western media firms’ decision-making process.
The following research question is raised to capture these differences.
Research Question 5. How are the aspects of uncertainties important to decision makers in Western TNMCs similar or different between the perceptions of the American and
Chinese informants?
As discussed previously, changes in Western TNMCs’ perceptions of uncertainties about the external environment will inevitably result in adjustments of their strategies in China. The next research question aims to explore the effect of such changes.
Research Question 6. How will the changes in Western TNMCs’ perceptions of uncertainties associated with the Chinese media market, if any, affect the pattern of their equity ownership in China?
In transitional or emerging economies in other parts of the world, gradually opening media markets have caused a lower level of perceived uncertainties about the environment among international media corporations, which has motivated them to
89 engage in higher levels of equity ownership in those markets. In the Chinese media market, a trend towards an open media market is expected. This will be likely to lower
Western media firms’ degree of uncertainty perception and increase their participation in the Chinese media market, driving their operations from the basic contractual stage to a more equity-based level of penetration. Therefore, it can be expected that
Expectation 1. Western TNMCs will plan to accelerate their engagement in joint ventures with local or foreign partners in the Chinese media market.
Following the sequence of market penetration established in previous literature as shown in Table 6.1, it is reasonable to claim that firms will continuously seek to create an increasingly more equity-based operations until the establishment of wholly-owned ventures. The perception of uncertainties is subject to change over time. To achieve a higher level of market penetration through equity ownership, Western TNMCs would need to take actions to manage risk in order to achieve a higher level of control. Risk management is “the general process of planning for, controlling and reducing the impact of the incidence of risk including activities and events that are considered causes of the occurrence of the risk” (Ting, 1988, p. 219). Risk management typically involves two categories: defensive and integrative. Defensive risk management refers to “any risk- reduction strategy that is undertaken independently of the actual activities of the company with respect to the host country in question”, whereas integrative risk management involves “risk-reduction strategies that are directly linked to the activities of the company in the host country” (p. 199). Ting indicated that an optimum risk-management strategy demands a firm to have a combination of defensive and integrative risk management. As such, the following question needs to be asked:
90 Research Question 7. Will Western TNMCs adjust their strategies in an attempt to manage risk in the Chinese media market?
One of the most commonly practiced risk-management strategies is known as
“risk avoidance” (Ting, 1988). As a major technique of defensive risk management, risk avoidance refers to “the decision of avoiding exposure to personal, property, and liability risk by not owning, operating, or entering into a certain field of business or activity” (p.
193). This strategy is being used by Western TNMCs as displayed in their tendency to choose to develop their business in China in areas with relatively lower perceived uncertainties, rather than where the uncertainties are still high. For example, Time
Warner’s partially owned CETV sets the focus of its program content on information and entertainment with no news, sex, or violence (Landler, 2001).
A changing pattern of environmental conditions exists in the Chinese media market in different “domains” that cut across the media industries. Domains refer to aspects of media content or forms of media use which define the substitutes available to satisfy the relevant set of gratification utilities (Dimmick, 2003). In the hardcore news domain, government control has not been loosened much, if not tightened, over recent years. Entry into this domain of the market is not feasible for foreign media operators, especially given that the Chinese government has managed to effectively regulate satellite broadcasters in the market (Hao, 2000). In the business news domain and entertainment domain, however, the perceived uncertainties seem to have lowered over time, as foreign investors have had access to co-production projects and less restricted distribution (See Table 5.1). In the attempt to develop more equity ownership, Western
91 TNMCs are likely to commit more resources to the domains with comparatively low perceived uncertainties. Therefore, it can be expected that
Expectation 2. Western TNMCs perceive lower uncertainties in the business news and entertainment domains than in the hardcore news domain of the Chinese media market.
Expectation 3. To achieve a higher level of equity ownership, Western TNMCs will plan to commit more resources to the business news and entertainment domains than the hardcore news domain in the Chinese media market.
Besides the defensive ways of managing risk, Western TNMCs may also take the integrative approach. The integrative risk management is preventive in nature with an emphasis on the causes and activities that may lead to a risk event (Ting, 1988). To achieve higher equity ownership in the Chinese media market, Western media firms need to pursue a series of strategies to reduce risk by trying to counter uncertainties. In response to different uncertainties, a firm does not have the ability to change government regulations, but can work to forge good relations with the government, which will benefit its expansion into the country (Hong, 1994). Doing so may also help the company obtain favorable considerations in economic negotiations. Furthermore, to improve the resources and services used by the firm, it is important for Western TNMCs to forge alliances with local distributors such as cable carriers to gain expanded access to distribution channels
(Langdale, 1997).
In reaction to the existing domestic and international competition, social and cultural conditions, as well as the situation of product market and demand, Western
TNMCs have made serious efforts to localize their products and differentiate their product offerings from competitors. In terms of localization, a number of them have
92 customized their standardized products to meet local needs and tastes at different locations. The product customization happens at different levels, as CNNI included local programming and subtitles in different languages, and Star TV and MTV started to broadcast in local languages at international locations (See Chapter 4). The localization of products helps Western media firms obtain competitive advantage and effectively manage customers’ preferences and demand in the Chinese market. Also, by including local programming and offering programs in local languages, it shortens the social and cultural distance. As far as differentiation is concerned, some Western TNMCs have chosen to differentiate their product offerings from their competitors’ products by competing in different niches in the market. For instance, CNBC distinguishes itself by competing in the business news domain, providing international business news in collaboration with Dow Jones (See Table 4.2). Competing in such a niche market enables a firm to combat the existing situation of product differentiation, where markets have already become well established by other players offering differentiated products in news, sports or entertainment.
Hence, the following expectations can be made based on the above analysis:
Expectation 4. To achieve a higher level of equity ownership, Western TNMCs will plan to increase their efforts to forge relations and ties with governments of all levels and distributors in the media market in China.
Expectation 5. To achieve a higher level of equity ownership, Western TNMCs will plan to increase their product localization in the Chinese media market.
Expectation 6. To achieve a higher level of equity ownership, Western TNMCs will plan to increase their product differentiation vis-à-vis their competitors.
93 Finally, according to Buckley and Casson’s (1976) internalization theory, MNEs achieve growth and profitability through internal transfer of knowledge. Based on the theoretical framework presented in Figure 6.1, in achieving a higher level of control in different international markets, Western TNMCs should take different strategic measures appropriate for the unique conditions of uncertainties associated with each individual market. Thus, the knowledge and experience in minimizing risk and maximizing control they have gained at a particular international location would build on their knowledge for entry and development at another international location. This cycle of internal knowledge transfer proceeds in different international markets. Therefore, the following research question is formulated:
Research Question 8. To manage risk and achieve a higher level of control, how will
Western TNMCs utilize the knowledge and experience gained in other international locations in the Chinese media market?
94 CHAPTER 8
METHODOLOGY
In analyzing and comparing corporate strategies, two approaches can be found in the studies of the aforementioned concept of strategic groups (Dimmick, 2003). The traditional way is to conduct the analysis with external data, such as financial or accounting reports, to define strategic groups and to relate the membership to measures of performance. This approach has been criticized for not being able to reflect the reality of groups derived from cluster analysis. A more recent approach is named the cognitive approach, which relies on reports of industry practitioners and informants, using interviews with industry executives. The rationale behind this approach is that strategic decisions are not always made based on analysis of data, but many times on managerial cognition. Although the primary goal of this study is not to identify these strategic groups, it adopted both of the approaches used to study strategic groups for the analysis of
Western TNMCs’ strategies in China.
Since this study primarily focuses on drawing strategic implications of Western media firms’ operations in China, the cognitive approach seems more appropriate than the external data approach. However, while placing particular emphasis on the cognitive approach, the study also used external data whenever available as a complementary source and a comparison to the information obtained from industry practitioners.
95 8.1 Case Studies and Interviews
The most common methods among previous transnational media studies were case studies and interviews (Hollifield, 2001). Hollifield indicated that the widespread use of the case-study method showed that the research on transnational media management offered rich background and insights into the evolution of transnational business strategies and operations. She also noted there was typically an insufficiency of data collection in the organizations being studied, due to the difficulty of getting access to private organizations (Hollifield, 2001). Therefore, primary data were not very often used in such studies.
In light of the above comments and given the particular nature of this study, case studies and interviews were the primary methods used in the study. Regarding the method of interviews, Hollifield (2001) stated that while interviews are able to provide richer and more detailed data than surveys, they can’t usually allow the researcher to develop generalizations. To try to confront this disadvantage, this study used the case study method with a multiple-case design, as the evidence from multiple cases is often considered more compelling than a single-case design, and therefore optimizing description and generalizability (Herriott & Firestone, 1983).
Concerning the use of a multiple-case design, Yin (1994) indicated that a multi- case design should follow a replication, rather than a sampling, logic. In a multi-case design, when each case is carefully selected so as to produce similar results, it is called literal replication; if cases are selected to produce contrasting results but for predictable reasons, it is called theoretical replication. Based on the research questions and expectations of this study, it is unlikely that Western media firms’ strategies in the
96 Chinese market would be in contrast with each other. Hence, the cases for this study were selected taking the literal replication approach, which expects similar results among multiple cases. However, individual differences across the media firms in their strategies concerning the Chinese market were also compared and analyzed.
In the selection of Western TNMCs for case studies, almost all major media corporations were considered. Initial contacts were made to Time Warner, Walt Disney
Co., News Corporation, Sony Pictures Entertainment, and Viacom in forms of personal referrals and letters. However, Time Warner and Viacom refused to participate in the study due to restraints of company policy. Therefore, the following companies were included in this research – Walt Disney Co., News Corporation, and Sony Pictures
Entertainment. These Western media giants appear to be among the most active players in the Asian and Chinese media markets as is demonstrated in Table 6.1, and, thus, would be most likely to have concrete and well-developed strategic plans in the Chinese media markets to contribute valuable information to this study.
Concerning the interviews, the study employed the technique of utilizing informants in quantitative research. The use of informants is a widely adopted method in anthropology to study characteristics of different cultures, and has also been adapted to research in general social science. In performing participant observation in cultural anthropology, a few key informants, instead of a representative sample, would be capable of providing sufficient information about a culture (Bernard, 2002, p.187). Bernard also stated that the informants should be selected for their cultural competence, rather than for their statistical representativeness (p.187). The same rationale could be applied to social science studies when particular groups of the population to the researcher’s concern or
97 interest are being examined. Campbell (1969) noted that the use of the informants in quantitative studies could produce findings with a high degree of validity and generality.
In his study, Campbell argued that sometimes the careful selection of a few informants might yield results superior to exhaustive sampling. Regarding the selection of informants, he suggested that when using the technique of the informant to obtain information about the group under study, the informant should be “a member who occupies such a role as to be well informed but who at the same time speaks the social scientist’s language” (p. 290).
For this study, using the technique of informants seems to be the most suitable approach. The media professionals who are well informed of TNMCs’ development in the Chinese market are limited in number. However, these media professionals usually hold management-level positions in the company, and thus would be most likely to have the ability and intelligence to provide appropriate answers to the interview questions. In this sense, both Campbell’s (1969) requirements related to the technique of utilizing the informant are fulfilled.
Based on the above analysis, in Western TNMCs, the informants selected for this study included 15 relevant management-level personnel in the previously mentioned three American media firms who are experienced in or responsible for the company’s international business development relating to Asia and China. While on the Chinese side, informants consisted of 17 Chinese media professionals and policy makers who are knowledgeable about international media companies’ operations in China. The media professionals are the personnel holding management-level positions, and are experienced in the trade, contractual agreements, or co-production projects with Western media firms
98 in several major Chinese media organizations, including China Central Television,
Beijing Television, Shanghai Dragon Television, and China Film Group. These media organizations were selected because being the current or potential competitors of Western
TNMCs in China, they provide a best representation of the Chinese visual entertainment industry. On the state level, China Central Television is the only state-run TV station in the country, while China Film Group is the state monopoly of domestic and international film distribution. On the local level, both Beijing Television and Shanghai Dragon television are among the largest local TV stations in the nation. Therefore, a complete illustration of the dynamics of uncertainties about the Chinese media market from the
Chinese perspective can be displayed. In addition, informants on the Chinese side included policy makers and officials in the Chinese government who are responsible for the regulation of international media products and operations in the country. These informants are from the State Administration of Radio, Film and Television (SARFT), the government agency for broadcast and film media directly under the control of the
State Council.
A snowball sampling method was utilized in collecting the sample of the informants for this study. This sampling method is appropriate when the members of a particular population are difficult to locate (Babbie, 1998). Given the understandable difficulty of reaching potential informants through direct contacts, it was the best available method. In implementing this procedure, the author initially collected data with a few media professionals who meet the selection criteria for the study that he knows in person in both countries. These informants were then contacted for interviews and asked to recommend other informants that they might know who also meet the criteria. This
99 referral process continued until names of informants who had already been included in the sample were mentioned. While most of the desired informants were successfully located through the snowball sampling method, cases still existed where potential informants recommended by others refused to participate in the study.
Face-to-face and phone interviews were employed to obtain data from the informants. Bernard (2002) indicated that face-to-face interviews allow the researcher to clarify questions and to use several different data collection techniques (p.242-243). For accuracy and completeness in the acquisition of data, both close-ended and open-ended questions were used in this study. Moreover, since no empirical research was found dealing with this particular topic, a high level of complexity was expected in the informants’ responses to open-ended questions, requiring much work of clarifying and probing on the researcher’s part. Therefore, using face-to-face and phone interviews is the most feasible methodological strategy for this study. Whenever face-to-face interviews were not attainable, phone interviews were arranged. Interviews with the
TNMC informants of the study were mainly conducted in a period from September through November 2003, with the exception of one completed in March 2004. Most of the interviews with the Chinese informants were performed from October 2003 through
January 2004.
8.2 Approaching Research Questions
Based on the above analysis, the research questions were examined using data collected through both the external data approach and the cognitive approach. In the research questions, the uncertainties about the Chinese media market perceived by
Western TNMCs based on the external environment conditions constitute the
100 independent variable, and Western media firms’ strategies of control as shown in the level of equity ownership in China form the dependent variable. The following of this chapter will present how the research questions were approached.
The first five research questions were examined following the structure of a retrospective pretest-posttest pre-experimental design, which studies a group of objects at two different time points to examine the effect of a certain treatment (Campbell and
Stanley, 1969). In the case of this study, the emphasis rests on the effect of China’s WTO entry on the changes in Western TNMCs’ external conditions in the media market and their perceived uncertainties about the market, which, in turn, influence these media companies’ control strategies. Since this study does not involve any experiment or control groups, it adopted the basic framework of this design only to serve the purpose of presenting variations by time. Therefore, despite the possible weaknesses associated with the pretest-posttest design, it seems to be the optimal choice in this situation.
Two time points were selected for the study, one for the pre-WTO period, and one for the post-WTO era, to reflect possible changes WTO membership has brought to
Chinese media industries. The pre-WTO time point is the year of 2000, when the country had moved along the road of a market economy for almost a decade, and right before its
WTO accession. This year was selected because being the closest time point to China’s entry into the WTO in 2001, it best captures the effect of China’s WTO accession by controlling the possible variations between 2001 and any other previous years. In addition, it best ensures the accuracy of retrospective data in that it is easier for the informants to recall the situation in 2000 than any of the previous years. The post-WTO time point is the year of 2003, two years after China’s accession to the WTO. It was a
101 time when the agreements and rules relating to China’s further economic opening had been established with the WTO and would be implemented in a gradual process within time limits.
¾Research Question 1
This research question (Have the external conditions of the Chinese media market changed after China’s WTO accession?) provides the context for the analysis of all the following research questions concerning Western TNMCs’ risk and strategies in China.
External data describing different external conditions were collected from available publications. Based on the construct of uncertainties shown in Table 6.3, selected external conditions were examined as demonstrated in Table 8.1.
The external conditions relating to government and policies can be indicated by the import quota of media products, the percentages of media ownership allowed, and the corruption perceptions index (Transparency.org, 2003). The economy-related external conditions are reflected through the index of economic freedom in China (Heritage.org,
2003), inflation rate, and exchange rate with dollar. Competition in the Chinese media market may be indicated through the number of domestic television stations, and the competitiveness ranking of China (The World Competitiveness Yearbook, 2003). For the external conditions with respect to product market and demand, the number of television channels covering China, hours of programming for domestic television, and the number and box-office income of movies in the Chinese market can be used as indicators. Finally, the number of film distributors in the Chinese media market can reflect the external conditions concerning resources and services used by Western TNMCs. Due to their intangible nature, social and cultural conditions are difficult to quantify. Analysis on the
102 1. Government and policies a. Import quota of TV products b. Import quota of films c. Percentage of TV ownership allowed d. Percentage of film ownership (cinemas) allowed e. Level of corruption (corruption perceptions index) 2. Economy a. Index of economic freedom b. Inflation rate c. Exchange rate with dollar 3. Competition a. Number of domestic TV stations b. Competitiveness ranking 4. Product market and demand a. Number of domestic TV channels b. Hours of weekly programming for domestic TV c. Hours of self-produced weekly programming for domestic TV d. Number of international TV channels e. Number of domestic films f. Box-office income of domestic films g. Box-office income of foreign films 5. Resources and services a. Number of distributors
Table 8.1: Measurement of external conditions
changes of social and cultural conditions was presented in examining Research Question
2, 3, 4 and 5 using data generated from interviews that investigate the American and
Chinese media practitioners’ perceptions of uncertainties in this regard.
Data concerning the above five categories of external conditions were found in internal publications of Chinese media organizations and regulators, as well as from both
Chinese domestic and international media and business journals. Based upon availability, data regarding the external conditions at both the pre-WTO and post-WTO time points were collected and compared to study how these conditions have changed over time.
103 Data Analysis
The collected data concerning the external environment conditions for Western
TNMCs to operate in the Chinese media market across the two time points were analyzed at three levels. First, the change of each indicator of external conditions was examined.
Second, these changes were discussed by category. Based on the first two levels, an overall situation of the changes of external conditions over time was identified to provide a reflection of how favorable the external conditions in the Chinese media market have become for Western TNMCs’ business development.
¾Research Question 2
The second research question (Have Western TNMCs’ perceptions of uncertainties about the Chinese media market changed after China’s WTO accession?) aims to establish a risk profile for the media companies as new or potential entrants into the market. Data concerning Western media firms’ perceptions of uncertainties about the
Chinese media market were collected through face-to-face and phone interviews (when face-to-face interviews were not possible) with relevant persons or managers in the three
American media organizations mentioned earlier.
The perceptions of uncertainties were measured using the construct of uncertainty scales presented in Table 6.3. For each item of uncertainties about the Chinese media market, the informants were first asked, “Do you think this factor affects your business in
China?” If the answer was “yes,” they would be asked to rate their perceptions of that uncertainty indicator at the two time points, 2000 and 2003, on a scale of 1 to 7, 1 being very predictable, signifying low uncertainty, and 7 being very unpredictable, representing high uncertainty. If the answer was “no,” then it was coded 0. For this particular research
104 question, only the items indicated relevant were included for analysis. Therefore, Western
TNMCs’ perceptions of uncertainties about the Chinese media market over time were analyzed by category, while the change of each uncertainty measurement item between the two time points was also identified.
Data Analysis
Since the items of uncertainties are indicators of different scales of uncertainties shown in Table 6.3, informants’ responses to each item of uncertainties were compiled into the uncertainty scales. For each category, the averages of each informant’s responses were calculated by adding the indicated values of all items under that category and dividing the total by the number of relevant items. Provided that only a limited number of people in the Western media companies qualified as informants for this study, the sample size might be too small to have any statistical power. In dealing with small samples,
Brouthers (1995) reported mean values and differences of responses together with the significance of the mean differences in a study regarding international risk and entry mode strategy in the computer software industry. In light of Brouthers’ presentation of data, t-tests were conducted in this study to determine whether the differences between the means of the averages of responses by category for both the pre-WTO and post-WTO time points were statistically significant.
¾Research Question 3
This research question (How do the perceptions of uncertainties about the Chinese media market differ between the American and Chinese informants?) aims to understand possible differences in perceived uncertainties between the two sides based on the dynamics of Western TNMCs’ external environment conditions in China influenced by
105 the country’s WTO accession, along with the ongoing development of the market economy and the foreseeable international competition in the media market.
As indicated in the previous research question, data regarding TNMCs’ perceptions of uncertainties about the Chinese media market were collected through face- to-face and phone interviews with informants in the three American media organizations.
On the Chinese side, face-to-face and phone interviews were conducted with informants in the previously mentioned Chinese media organizations, as well as policy makers and officials in the State Administration of Radio, Film and Television (SARFT). Similar to the technique used to interview American media professionals for Research Question 2, for each uncertainty item, the Chinese informants were first asked, “Do you think this factor affects Western media corporations’ business in China?” If the response was “yes,” then they were asked to rate the level of uncertainty at both time points on a scale of 1
(low) to 7 (high). If they answered “no,” the response was coded 0. Same as the previous research question, the differences of perceived uncertainties between the two sides were measured by scale.
Data Analysis
As stated earlier, the number of qualified informants in Western TNMCs for this study was limited. The same was true with the Chinese media professionals and policy makers who have first-hand information about the external conditions and risk for
Western media firms in China. Using the same technique as in Research Question 2, each informant’s responses to the items of uncertainties were aggregated into averages by scale in the construct. For each informant in both groups (TNMCs and Chinese), changes of the averages between the two time points by category were calculated by subtracting
106 the post-WTO mean values from the pre-WTO ones. These mean changes were then compared between the two groups. T-tests were performed to examine weather the differences between means of the changes of the scale averages for the two groups were statistically significant.
¾Research Question 4
This research question (What aspects of perceived uncertainties about the Chinese media market shown in Table 6.3 are important to decision makers in Western TNMCs?) aims to establish the cognitive models different decision makers in Western media firms use in making strategic decisions. Same as what was done for Research Question 2, data concerning the importance of the uncertainty categories and indicators were collected through face-to-face and phone interviews with media professionals in the three
American media organizations. As described in Research Question 2 and 3, the informants were asked whether each uncertainty measurement item was relevant in their decision-making process, which made it possible to ascertain which categories and items were important in their cognitive frameworks. To capture possible uncertainty indicators the decision makers might deem important other than the ones included in the original construct, a follow-up question was asked after going through the model with the informants, “What other factors not included in this list, if any, are also important to your strategic decision making with respect to the Chinese media market?”
Data Analysis
Based on the original construct with all uncertainty categories and items, the items that were indicated relevant to their decision making by the informants were coded
1, other items were coded 0. Similarity scores were then calculated for each uncertainty
107 item by adding up the number of answers indicating relevancy and dividing the value by the total number of possible answers under each item. From the similarity scores of each uncertainty item, the scores were aggregated by scale and across the scales for the entire construct. The scores indicated which items and dimensions of uncertainties the three
American media companies tend to perceive as important in their decision making.
¾Research Question 5
This research question (How are the aspects of uncertainties important to decision makers in Western TNMCs similar or different between the perceptions of the American and Chinese informants?) identifies the similarities and differences of perceptions between the two parties regarding which dimensions and indicators of uncertainties are important to Western media firms’ decision making. Following the same techniques as used for Research Question 2, 3 and 4, data for this question were collected through face- to-face and phone interviews with informants in both countries. For each uncertainty measurement item, the Chinese media professionals and policy makers were also asked to indicate whether they considered that item would affect Western TNMCs’ business in
China. After identifying the relevancy of all the items in the construct, the Chinese informants were asked a follow-up question to inquire whether there were other indicators not included in the construct that they considered also important in Western media companies’ decision-making process. Based on Research Question 4, Western
TNMCs’ relevant perceived uncertainties about the Chinese media market were compared with those of the Chinese informants.
108 Data Analysis
Adopting the same technique as used for Research Question 4, similarity scores for all the Chinese informants were calculated by item, by category, and for the whole construct. These scores were compared with the American informants’ similarity scores.
A word table was used to summarize and compare the supplementary indicators identified by both sides as important to TNMCs’ business in China.
¾Research Question 6
Research questions 6 through 8 are only concerned with the time point of 2003.
The sixth research question (How will the changes in the perception of uncertainties associated with the Chinese media market, if any, affect the pattern of Western TNMCs’ equity ownership in China?) explores the third part of the theoretical framework demonstrated in Figure 6.1, the level of control in terms of equity ownership. Changes in external conditions and perceived uncertainties were examined in the first two research questions using external data from various sources and interviews with U.S. media professionals. Concerning Western media firms’ strategies in equity ownership, data came from the cognitive approach, face-to-face and phone interviews with informants in
Western TNMCs. The questions were concerned with the three media firms’ strategic plans for obtaining equity ownership in response to the uncertainties they perceive about the Chinese market. The purpose was to learn whether Western TNMCs are planning to move to a higher stage of equity ownership in the form of joint ventures in China as a result of expectedly more favorable external conditions and lower perceived uncertainties. The media companies’ plans for obtaining equity ownership were analyzed at the company level, as well as an aggregated level across the three companies.
109 Data Analysis
To examine Western media firms’ plans for equity ownership in response to the perceived uncertainties, the planned mode of control was coded based on equity ownership. All the non-equity based ownership modes, including exporting and contractual agreements, were coded 1. Partial equity ownership forms, such as joint ventures, were coded 2. Wholly-owned subsidiaries were coded 3. The mean value of the equity ownership Western TNMCs plan to achieve was calculated. In addition, percentages of each form of equity ownership were calculated. It should be noted that the small sample size in this study may not allow total reliance on the statistical interpretation of the results. To offer a complete analysis of the situation, responses from open-ended questions concerning Western media companies’ plans for equity ownership in the
Chinese market were systematically abstracted in a word table to present and compare the strategies across the three companies.
¾Research Question 7
This research question (Will Western TNMCs adjust their strategies in an attempt to manage risk in the Chinese media market?) consists of four main strategies in response to different perceived uncertainties. In face-to-face and phone interviews with Western media professionals, several questions dealt with TNMCs’ plans for resource commitment in different domains of the Chinese media market to find out whether more resources have been and will be committed to those domains with lower perceived uncertainties than others. Moreover, Western TNMCs’ strategies in reaction to the uncertainties were approached with interview questions regarding their current plans for forging relations with governments and distributors, localizing their products, and
110 differentiating their products from competitors. These interview questions revealed whether Western media companies would make increased efforts in an attempt to manage their uncertainties so as to achieve a higher level of equity ownership. These results were examined at the level of each individual firm and in an aggregated manner across the three companies.
Data Analysis
Analysis of this research question relied solely on data collected from open-ended questions. In exploring Western media companies’ strategic plans to manage risk in the
Chinese media market, responses from the informants at Western TNMCs were summarized into different categories based on the type of strategy in a word table.
Analyses of these responses were conducted to see what strategies these companies plan to adopt in China, and which ones are the most prominent. The strategic plans of each individual media company were studied and compared with the other two companies.
The plans were also summarized at an aggregated level across the three companies. The informants’ explanations with respect to the rationales of their companies’ plans were also analyzed and compared for a complete evaluation.
¾Research Question 8
The final research question (To manage risk and achieve a higher level of control, how will Western TNMCs utilize the knowledge and experience gained in other international locations in the Chinese media market?) is concerned with Western media companies’ overall global strategic plans. To examine how China fits into these global media giants’ international puzzle as a large piece, open-ended questions were asked during face-to-face and phone interviews with informants from Western media firms.
111 These questions inquired information with regard to what strategies that Western TNMCs have adopted in other international markets can be used in China, and how these strategies can be implemented similarly or differently in the Chinese media market.
Analysis was conducted specific to each company and aggregated across the three firms in the sample. Differences between the firms were also compared.
Data Analysis
Same as the previous two research questions, data for this research question were generated from open-ended questions. Answers from the informants were summarized in a word table, analyzed at the company level with differences between the companies compared, and in a aggregated manner across the three media firms.
8.3 Summary
In summary, this study adopted a multiple-case design to present the changes of external conditions and uncertainties for Western TNMCs in the Chinese media market affected by China’s WTO accession, as well as their strategic plans in the country. The relationships over time between the independent variable, perception of uncertainties affected by external conditions, and the dependent variable, level of control in terms of equity ownership, are thus demonstrated in a dynamic fashion. To examine external conditions associated with the Chinese media market, external data were collected from existing publications. In studying perceived uncertainties about the Chinese media market, interviews were conducted among media practitioners in three major American media firms as well as media organizations and government agencies in China. Changes in
Western TNMCs’ perceived uncertainties over time were identified together with the aspects of uncertainties that constitute the model of cognition for decision makers in
112 these media companies. Also, data were analyzed to exhibit the differences between the
Chinese and American informants in terms of the changes and relevancy of perceived uncertainties. To examine Western media firms’ control strategies in terms of equity ownership in China, this study used open-ended questions to examine not only the equity ownership strategies, but also what these firms plan to do in an effort to manage risk and achieve a higher level of control. While this study endeavored to explore a general pattern across Western TNMCs’ perceived uncertainties and strategies in the Chinese media market, analysis was also performed when necessary to identify the particular situation of each media company and to recognize the differences between the companies.
113 CHAPTER 9
FINDINGS
Previous chapters provide a clear structure of this research. The study started with a review of relevant theories and models in economics and international business, followed by a detailed account of Western TNMCs’ strategic behavior in transitional and emerging economies in Eastern and Central Europe, Asia and China. Conceptualizing on the basis of previous literature and Western media firms’ actual strategies, the theoretical framework was established. The framework basically evolves around the relationship between risk and control. Higher risk as perceived by a firm in terms of uncertainties is associated with lower control mode in terms of equity ownership, and vice versa.
Research questions were, therefore, developed following this theoretical framework.
Methods used to answer the research questions were specified. This chapter presents the findings of the research. To provide a complete picture of Western TNMCs’ strategies in
China, this chapter will begin with a brief introduction of the background information of the three media companies involved in this study: Disney, News Corporation, and Sony
Pictures Entertainment.
9.1 Overview of Western TNMCs Studied
The three Western media companies involved in this study are widely recognized as major players in the global media market. In examining their risk and strategies in
114 Company Revenue Market value Net income Employees ($ mil.) ($ mil.) ($ mil.) Disney $27,061 $51,088 $1,267 112,000 News Corporation $20,096 $47,681 $1,215 37,000 Sony Pictures Entertainment $6,700 N/A N/A 5,700 Source: Hoovers online, retrieved March 15, 2004, reflecting 2003 information
Table 9.1: Descriptive data of Western TNMCs studied
post-WTO China, it is necessary to present some basic facts and information about these companies in order to bring the readers to a more thorough understanding of the subjects being studied. Table 9.1 provides description of each company with respect to revenue, market value, net income, and the number of employees.
Simply judging from revenue and the number of employees, it is not difficult to tell that Disney and News Corporation are larger corporations than Sony Pictures
Entertainment. In many areas, Disney and News Corporation are remarkably similar to each other. The two companies are almost comparable in terms of revenue, market value, and net income, while News Corporation only has about one-third of Disney’s number of employees. In regard to revenue, Disney has the highest among the three, which almost quadruples the amount made by Sony Pictures Entertainment. In terms of the number of employees, Disney stands out as the largest employer among the three, while Sony
Pictures Entertainment is the smallest. To better understand the background of these companies, a brief overview of each company’s history, path of development, and current status is provided.
115 9.1.1 The Walt Disney Company
Walt Disney and his brother Roy started Disney Brothers Studio in Hollywood,
California, in 1923. Disney first gained its momentum through the animated character
Mickey Mouse in a cartoon named “Plane Crazy” in 1928. Consequently, the company established its reputation as a cartoon maker and an animated film company. Disney went public in 1940, and the first Disneyland theme park opened in 1955. Over the years, the company moved from a studio and production company into building theme parks and merchandizing the characters of the Disney family.
The Walt Disney Company received its current name in 1986. It is the second largest media conglomerate in the world, behind Time Warner. Disney is divided into four major business segments: Studio Entertainment, Parks and Resorts, Media Networks and Consumer Products (Disney Annual Report, 2003). Each division is dominated by certain key brand names. Its film sector, Walt Disney Studios, produces films through several imprints including Walt Disney Pictures, Touchstone, Hollywood Pictures, and
Miramax. In television and radio broadcasting, Disney owns the ABC television network,
10 broadcast TV stations, and more than 70 radio stations (Hoovers Online, 2004).
Another important division of the company’s business, Walt Disney Parks & Resorts, owns North America’s most popular resorts, including Walt Disney World and
Disneyland. Moreover, the company owns Web properties such as ABC.com, Disney
Online, ESPN.com, which are under the leadership of Walt Disney Internet Group.
9.1.2 The News Corporation Limited
News Corporation is a truly global media empire best known through its chairman and CEO, Rupert Murdoch. In 1952, Murdoch inherited two Australian regional
116 newspapers. He launched the “Australian,” the country’s first national daily in 1964, and moved to the UK market in the same year. In the 1970s, Murdoch entered the U.S. market and later bought the “New York Post.” He formed News Corporation in Australia in 1979. Over the past several decades, News Corporation has expanded its operations through acquiring a significant number of media entities throughout the globe to become one of the most recognized media giants of the world.
As it currently stands, News Corporation has business practices in every major media industry. In its publishing division, the company owns newspapers including “The
Times” of London, and books through units such as HarperCollins. It owns 82% of Fox
Entertainment Group, which has considerable holdings in television and film industries, including Fox Broadcasting with 200 affiliates in the United States, and Twentieth
Century Fox. In addition, News Corporationowns35U.S.TVstationsandvariouscable and satellite operations in Asia, Australia, Europe and Latin America (Hoovers Online,
2004). Among all its operations worldwide, News Corporations’ businesses in the United
States generate more than 75% of the company’s sales (Hoovers Online, 2004).
9.1.3 Sony Pictures Entertainment
Sony Pictures Entertainment is the media/entertainment unit of Sony Corporation of America, the U.S. arm of the Japanese electronics giant Sony. It was established in
1989 following Sony’s acquisition of Columbia Pictures Entertainment, which was first founded in 1920 and went public in 1926. The company soon became a major force in the movie industry. In the early 1950s, Columbia created a television production unit by the name of Screen Gems, which later became the Columbia TriStar Television group. Sony started its Sony Pictures Classics unit devoted to independent films in 1992. It also had its
117 business operations in television and cable industries through launching the Game Show
Network, a cable channel aimed to attract game show fans.
Under the Sony Pictures Entertainment umbrella, Columbia TriStar Motion
Picture Group constitutes the company’s movie division. It has production deals with
Revolution Studios and Spyglass Entertainment Group. Through its television arm, Sony
Pictures Television, the company produces and distributes TV programs. Internationally, it has invested in a number of channel and satellite ventures and co-production deals
(Hoovers online, 2004). In addition, Columbia TriStar Home Entertainment enables Sony
Pictures Entertainment to actively engage in the sale and rental of home videos.
Furthermore, Sony Pictures Digital Entertainment is a digital production company that includes a features animation unit and Sony Online Entertainment.
From the above short descriptions of the three Western TNMCs, it is not difficult to detect some trends of these companies’ development. Albarran and Moellinger (2002) pointed out that two broad strategic objectives the top six media companies of the world are pursuing involve content and distribution. All three of the companies in this study seem to offer rich content through a wide variety of distribution channels including broadcasting, cable, satellite, print and the Internet. Another widespread strategy across the three media firms is diversification, which indicates the different segments or divisions that contribute to the revenues or losses of the firm. All three TNMCs being studied have become diversified in the past few decades through a series of mergers and acquisitions. Consequently, each media firm has multiple divisions with media-related activities. Disney also possesses non-media assets such as theme parks and retail stores.
All of these media companies’ strategic moves over time present a trend of expansion.
118 These firms have been expanding themselves to different business practices and locations around the world, and will keep doing so wherever opportunities exist. The Chinese media market after the country’s WTO accession is believed to offer extraordinary opportunities for the Western TNMCs. The following sections of this chapter will focus on the results of the research. That is, how Western media companies perceive risk and what strategies they will adopt in expanding their businesses to China.
9.2 External Conditions
Western TNMCs’ external conditions in the Chinese media market were explored through Research Question 1 (Have the external conditions in the Chinese media market changed after China’s WTO accession?) based on the categories and indicators in Table
8.1. This research question forms the context of the study in that the external conditions reflect the behavior and activities of the government and media industries in China over time. As demonstrated in Table 9.2, some changes are clearly visible. With regard to government and policies, the import quota for television products and films has remained unchanged over time, whereas the quota for international films with shared revenues has increased to a great extent. For such films, the sharing of revenues is usually achieved through a distribution agreement between the film production company and China Film
Group and, after 2000, Huaxia Film Distribution Company, where the production company gets a proportion of the revenues, rather than selling the film at a flat rate.
Although the current number is still small compared with the total number of international movies produced every year, the number in 2003 has doubled that of 2000.
Another obvious change is that starting from 2003, the government allowed foreign investment in the film industry in cinemas. An international media firm can own up to
119 External conditions 2000 2003 1. Government and policies a. Import quota of TV products 50 hours per 50 hours per TV station* TV station* b. Import quota of films 50 (10**) 50 (20**) c. Percentage of TV ownership allowed 0 0 d. Percentage of film ownership (movie 0 49 (or 75*) theaters) allowed e. Level of corruption (corruption Score: Rank: Score: Rank: perceptions index) 3.1/10 63/90 3.4/10 66/133 2. Economy a. Index of economic freedom Score: Rank: Score: Rank: 3.49/5 100/161 3.54/5 127/156 b. Inflation rate -1.30% -.80% c. Exchange rate with dollar 8.28 8.28 3. Competition a. Number of domestic TV stations 354 368 (2002 data) b. Competitiveness ranking 11/59 12/59 4. Product market and demand a. Number of domestic TV channels 1,206 2,124 (2002 data) b. Hours of weekly programming for 83,373 210,540 (2002 data) domestic TV c. Hours of self-produced weekly 61,556 135,115 (2002 data) programming for domestic TV d. Number of international TV 20 31 channels*** e. Number of domestic films 90 140 f. Box-office income of domestic films $49 million $59 million g. Box-office income of foreign films $74 million $59 million 5. Resources and services a. Number of film distributors 1 2 Source: China Broadcasting Yearbook, 2001, 2003; U.S. Federal Reserve Web site, 2004; internal publications of China Film Group and SARFT * In selected major cities only **Films with shared revenues ***Restricted access
Table 9.2: Western TNMCs’ external conditions in China
120 75% of movie theaters in selected cities in China. According to a senior official at China
Film Group, the 75% rule has not been strictly enforced around the country, meaning that there is a grey zone in which an international media company may obtain full ownership of cinemas.
In terms of product market and demand, while the number of domestic TV stations has remained steady, the number of domestic TV channels has boomed over the past four years. Chinese TV stations have engaged in heated competition for occupying channel resources. In Beijing alone, China Central Television, the state monopoly, owned nine channels of programming in 2000. By the end of 2003, it had launched another five to make it a total of 14 channels of programming, each delivering a different type of content, such as news, sports, movies, etc. Likewise, the number of channels owned by
Beijing Television had grown from three to nine, after a merger with the former Beijing
Cable Television. In a sense, these TV channels are similar to the diversity of cable channels available in the U.S. TV market. The differences are that all the Chinese channels may not be nationally available, and that content overlapping is common across the national and local channels.
Also relating to product market and demand, the hours of weekly programming and self-produced weekly programming for domestic television in 2003 are both more than twice as much as those in 2000. These changes demonstrate not only the rapid progress the Chinese television industry has made over the past four years, but the fast growing television market and demand for television products that drive the TV stations to continuously compete for channel resources and expand their amount and scale of production to meet the market needs.
121 Concerning films, the number of domestic films has increased by about 50% over time. So has their box-office income, though not so drastically. However, the box office for international films has clearly dropped despite the increase of the quota for international movies with shared revenues. This may be partially due to the piracy problems affecting the normal sources of incoming revenues for films.
With respect to resources and services, as noted earlier, there are currently two film distributors in China, compared to only one in 2000. The emergence of the second distributor, Huaxia, broke the long-time monopoly by China Film in the market, which is considered by many to be a sign of openness.
There has not been mass of changes in the rest of the items or categories in Table
9.2. In general, the external conditions concerning the overall political, economic and competitive environment of China have somehow remained stable. This may suggest that the Chinese government’s approach to constructing the market economy has been gradualism. China is renowned for its gradual but successful transition from a centrally planned economic system to a market economy. While the country complies with the rules of the WTO, the government seems to be taking slow steps with an even pace, avoiding drastic changes. The data presented here show that the government is playing the key role in the media market. The changes that have taken place seem to be purposefully planned and cautiously monitored by the government which continues with its gradualism strategy.
9.3 Western TNMCs’ Uncertainty Perceptions
Changes of Western TNMCs’ external conditions in the Chinese media market before and after China’s WTO accession occurred mainly in the market and demand of
122 television and film products, in the government regulations regarding the film industry, and, to a lesser extent, in the number of film distributors in the market. The overall situation of the external conditions has been steady. In response to these external conditions, Western TNMCs’ perceptions of uncertainties about the Chinese media market are shown in Table 9.3, which deals with Research Question 2 (Have Western
TNMCs’ perceptions of uncertainties about the Chinese media market changed after
China’s WTO accession?).
Paired t-tests were performed to determine the statistical significance of the mean differences of the informants’ responses at both the pre-WTO and post-WTO time points for each uncertainty category and across all categories. Given a sample of 15 informants, the statistical power (Cohen, 1988) of the t-tests appeared to be low. According to Cohen, for a sample size of 15, at a large effect size (d = .80), the power value is .56; with a medium effect size (d = .50), the power value is .26; at a small effect size (d = .20), the power value is as low as .08. To detect a strong relationship between the variables in the sample, the conventionally acceptable range of the power value should be .8 and higher with a medium effect size. It is obvious that even at large effect size, the statistical power for this small sample is still low. Expectedly, none of the t-tests produced significance, indicating that the mean differences of informants’ responses at the two time points were not large enough to observe any statistically significant t-scores. In light of the insignificance of t-scores mainly due to the small sample size, sign tests were implemented as a non-parametric alternative to the t-tests. As non-parametric tests are usually appropriate for relatively small samples, they may be more likely to yield significance than the parametric tests. However, the sign tests did not provide any
123 Pre-WTO Post-WTO Difference Government and policies 3.47 3.01 -.46 Economy 3.14 3.10 -.04 Competition 2.91 3.21 .29 Product market and demand 2.76 3.20 .44 Resources and services 3.60 2.97 -.63 Social and cultural conditions 2.37 2.46 .09 Mean 3.04 2.99 -.05
Table 9.3: Mean values of Western TNMCs' uncertainty perceptions
statistically significant results as well. Therefore, the means presented in Table 9.3 should not be considered as a statistical test. Rather, the presentation of the means of the informants’ responses by category is to facilitate description of Western TNMCs’ uncertainty perceptions at the two different time points.
It should also be noted that the differences of means as what they exist may be attributable to the cognitive models informants used. In other words, different informants might have deemed different uncertainty items relevant to their decision-making process, which caused the differences of category means. The similarities and differences of the informants’ cognitive models will be discussed later in this chapter.
Western media companies’ uncertainty perceptions do not seem to have changed much before and after WTO. Among all the uncertainty scales in the construct, Western
TNMCs’ perceived uncertainties within government and policies (-.46), as well as resources and services (-.63), have slightly decreased after China’s WTO accession.
Meanwhile, they have become slightly more uncertain about competition (.29) and product market and demand (.44) in the post-WTO time period. These results are on the whole consistent with the situation of Western media firms’ external conditions presented
124 in Table 9.2. As China moves forward in its gradual transition to a market economy, and starts to implement WTO rules, relatively obvious changes of Western TNMCs’ external conditions occurred with regard to government and policies, product market and demand, and resources and services. Accordingly, Western TNMCs have started to feel more confident about factors concerning government and policies, and resources and services.
While at the same time, as the external conditions suggest a slightly higher level of competition, together with rapidly growing product market and demand, these aspects of the Chinese media market have become more unpredictable to Western TNMCs. In general, however, the changes of Western TNMCs’ uncertainty perceptions between the pre-WTO and post-WTO time points are minimal across all scales of the construct. This is basically in line with the overall slow and steady changes of the external conditions, perhaps showing Western media companies’ understanding of the government’s gradualism strategy in the country’s economic development.
Among all the uncertainty indicators, some were perceived to have changed more than others (See Appendix A). The items with comparatively large changes (higher than
1) include inflation rate, exchange rate, and interest rate within the category of economy, and changes in competitors’ prices and markets served by competitors under the competition category. All the changes are positive, exhibiting higher uncertainty about these items after China’s WTO accession than before it. The perceived changes of the indicators of these uncertainty dimensions, along with the category of product market and demand, are mostly positive, meaning that Western TNMCs have become more uncertain about these categories after WTO than before WTO. However, changes are negative for a majority of the indicators of government and policies and social and cultural conditions,
125 as well as both items under the category of resources and services, where Western media firms perceive more certainty at the post-WTO time point than the pre-WTO one. In addition, for both time points, the values for most of the uncertainty indicators range from
3 (somewhat certain) to 4 (neutral), which sugggests that Western TNMCs on the whole tend to be more certain than uncertain about the Chinese media market.
9.4 Uncertainty Perceptions of Western TNMCs Vs. Chinese Media Professionals
Western media firms’ perceptions of uncertainties about the Chinese media market do not appear to have changed much between the pre-WTO and post-WTO time points. Neither have Western TNMCs’ external conditions in China remarkably changed over time. To answer Research Question 3 (How do the perceptions of uncertainties about the Chinese media market differ between the American and Chinese informants?),
Table 9.4 and Table 9.5 present how the Chinese media professionals perceive uncertainties, as well as how the changes of the uncertainty perceptions at the two time points compare between TNMCs and Chinese media professionals.
Similar to the technique used in examining the previous research question, paired t-tests were conducted in an attempt to determine the statistical significance of the mean differences of Chinese media professionals’ uncertainty perceptions between the pre-
WTO and post-WTO time points. Likewise, the statistical power (Cohen, 1988) of the t- tests was still low. For a sample size of 17, if the effect size is large (d = .80), the power value is .62. At a medium effect size (d = .50), the power value is .29. And if the effect size is small (d = .20), the power value is .09. The results suggested that the mean differences of the Chinese informants’ responses at the two time points were not large enough to generate any statistically significant t-scores. Realizing the small sample size,
126 Pre-WTO Post-WTO Difference Government and policies 2.80 2.93 .13 Economy 2.26 2.44 .18 Competition 2.68 2.69 .01 Product market and demand 2.71 2.55 -.16 Resources and services 2.35 2.65 .29 Social and cultural conditions 2.47 2.24 -.24 Mean 2.55 2.58 .04
Table 9.4: Mean values of Chinese media professionals’ uncertainty perceptions
sign tests were performed as a non-parametric alternative to determine the significance of the mean differences. Again, they yielded no significance. Therefore, the mean values presented in Table 9.4 should also be considered as a technique to facilitate description of
Chinese media professionals’ uncertainty perceptions at the two different time points.
The uncertainty perceptions of the Chinese media professionals and policy makers have not changed gravely over time according to Table 9.4. In general, these changes are less noticeable compared with those on the TNMC side presented in Table 9.3. The
Chinese government’s gradualism strategy is again demonstrated here. Among the slight changes that occurred in different scales of the construct, relatively noticeable changes are associated with resources and services (.29), and social and cultural conditions (-.24).
In the Chinese media professionals’ view, the external conditions for Western TNMCs to operate in the Chinese market have become slightly more uncertain in the aspect of resources and services and more uncertain in terms of social and cultural conditions after
WTO than before WTO. In addition, unlike the pattern of Western TNMCs’ uncertainty perceptions shown in Table 9.3, most changes of the uncertainty dimensions perceived by the Chinese between the two time points are positive, indicating that the external
127 environment for Western media companies’ businesses in China have become slightly more uncertain in the post-WTO era than the pre-WTO period. One way to interpret the
Chinese media professionals’ uncertainty perceptions is that as the media market in China gradually opens up to foreign involvement, the external conditions for Western TNMCs in the market may render them more opportunities to develop business. These changes would make the environment of the Chinese media market seem more unpredictable to
Western TNMCs when they expand their business operations in the country.
At the item level, the changes of some uncertainty indicators over time are larger than others (See Appendix B). The items that have exhibited relatively noticeable changes (close to or higher than .80) include monetary policy, legal regulations affecting the media business sector, and enforcement of existing laws under the category of government and policies, and foreign competitors within the competition dimension.
Except monetary policy, all the changes are negative. This shows that in the opinion of the Chinese media professionals, these items have become less uncertain for Western
TNMCs at the post-WTO time point than the pre-WTO one. The changes of the uncertainty indicators of the dimensions of competition, product market and demand, along with social and cultural conditions, are mostly negative, suggesting lower uncertainty in these categories after WTO than before it. In addition, changes are positive, though small, for the uncertainty items under resources and services, indicating less certainty for Western media firms after China’s WTO accession than before it as perceived by the Chinese informants. On the whole, the values of Chinese media professionals’ uncertainty perceptions rest on a range from 2 (certain) to 3 (somewhat certain). Compared with the overall values of Western TNMCs’ uncertainty perceptions,
128 TNMCs Chinese Difference Government and policies -.46 .13 .59 Economy -.04 .18 .22 Competition .29 .01 -.28 Product market and demand .44 -.16 -.60 Resources and services -.63 .29 .93 Social and cultural conditions .09 -.24 -.32 Mean -.05 .04 .09
Table 9.5: Comparison of mean changes of uncertainty perceptions between TNMCs and
Chinese media professionals
whichmostlyspreadbetween3(somewhatcertain) and 4 (neutral), Chinese media practitioners and policy makers seem to be more certain about the environment of the media market than Western TNMCs.
To compare the differences of the changes of uncertainty perceptions over time between the two sides, t-tests with independent groups were performed. Using Cohen’s
(1988) method to compute the harmonic mean for independent groups, the sample size for the t-tests was determined at 15.94 and rounded up to 16. The statistical power of the tests still seemed low given a sample of 16 informants. At a large effect size (d = .80), the power value is .59. If the effect size is at the medium level (d = .50), then the power value is .28. For a small effect size (d = .20), the power value is only .08. Results of the independent group t-tests were still not statistically significant, which suggests that the mean differences of the perceived changes of uncertainties by category over time between the two groups of informants were too small for any significant t-scores to appear. Provided the small sample size, sign tests were once again conducted as a non- parametric alternative to determine the significance of the mean differences. As expected,
129 they generated no significance. Hence, as is true with Table 9.3 and Table 9.4, the numbers shown in Table 9.5 aimed to merely facilitate description of the changes of uncertainty perceptions over time between the two informant groups.
Little difference is observed between the changes of the two groups’ uncertainty perceptions over time across all scales of the construct. The uncertainty categories where slight differences are found include government and policies (.59), product market and demand (-.60), and resources and services (.93). Compared with the uncertainty perceptions of the TNMC informants, Chinese media professionals perceive slightly more uncertainty within the dimension of government and policies, as well as resources and services, and slightly less uncertainty in the aspect of product market and demand.
Basically, the perceptions of uncertainties about the Chinese media market are not remarkably different between the two groups of informants at the two time points. From the preceding analyses, one can argue that Western TNMCs are generally well informed of the market conditions in China, and that their understanding of the market is realistic.
9.5 TNMC Decision Makers’ Cognitive Models
It has been discussed that the differences in Western TNMCs’ perceived uncertainties may be due to the different cognitive models decision makers choose to use.
Similarity scores of uncertainty perceptions among each group of informants were calculated and presented in Table 9.6 to examine Research Question 4 (What aspects of perceived uncertainties about the Chinese media market shown in Table 6.3 are important to decision makers in Western TNMCs?). These scores, ranging from 0 to 1, indicate the importance of each uncertainty indicator as perceived by all informants.
130 TNMCs Chinese 1. Government and policies a. Ability of the party in power to maintain .60 .94 control of the government b. Threat of armed conflict .40 .71 c. Tax policies .73 .82 d. Monetary policy .60 .76 e. Prices controlled by the government .40 .82 f. National laws affecting international media 1.00 1.00 business g. Legal regulations affecting the media 1.00 1.00 business sector h. Tariffs/quotas on imported media products .93 .94 i. Enforcement of existing laws .93 .94 j. Adequacy of public service provision .33 .88
2. Economy a. Inflation rate .53 .82 b. Exchange rate with dollar .53 .82 c. Interest rate .33 .82 d. Results of economic restructuring .67 .94
3. Competition a. Changes in competitor’s prices .53 .88 b. Changes in the markets served by .73 .88 competitors c. Changes in competitors’ strategies .80 .88 d. Entry of new media firms into the market .73 .88 e. Domestic competitors .73 .94 f. Foreign competitors .80 .88 g. Innovations in quality of media products .67 .88 h. Innovations of media transmission devices .60 .94
4. Product market and demand a. Product differentiation in the media market .93 .94 b. Customer preferences .93 1.00 c. Demand for the media products .87 1.00
Continued
Table 9.6: Similarity scores of uncertainty perceptions between TNMCs and Chinese media professionals
131 Table 9.6 continued
5. Resources and services a. Transmission/distribution system within .87 1.00 the country b. Availability of trained labor .80 .94
6. Social and cultural conditions a. Social beliefs and attitudes towards .87 1.00 cultural intrusion of foreign media products b. Changing social concerns .67 .94 c. Social unrest, riots, and demonstrations .47 .94
To Western TNMCs, some uncertainty indicators of the scales in the construct are more important than others based on the similarity scores (higher than .80). Under the category of government and policies, the items related to laws and regulations affecting media business, along with law enforcement, are considered important. In terms of competition, the important indicators include changes of competitors’ strategies, and foreign competitors. All items under the categories of product market and demand, and resources and services are important to decision makers in Western TNMCs. Concerning social and cultural conditions, social beliefs and attitudes towards foreign media products’ cultural intrusion is an important item included in the decision makers’ cognitive models.
Similarity scores of the Chinese informants demonstrate what uncertainty indicators they deemed important to Western TNMCs’ business operations in China. As shown in Table 9.6, the Chinese informants’ scores are on the whole higher than those of the TNMC informants. The uncertainty items that the Chinese informants considered to be more important than others according to the similarity scores (higher than .90) include
132 those regarding media-related laws, regulations, and legal enforcement, together with the ability of the party in power to control the government, within the category of government and policies; results of economic restructuring under economy; domestic competitors and innovations in media transmission under competition; and all items within the categories of product market and demand, resources and services, and social and cultural conditions.
Both groups of informants regarded indicators related to media laws and regulations within the dimension of government and policies as important to TNMCs’ businesses in China. In addition, both groups also focused their attention on items under the categories of product market and demand, and resources and services. Earlier in this chapter, a concern was raised about whether the TNMC decision makers’ selections of cognitive models would affect the mean differences of their uncertainty perceptions.
Provided the relatively high similarity scores of most of the uncertainty indicators, the informants’ selections of uncertainty items included in their cognitive models may not have much effect on the mean differences of uncertainty perceptions by scale between the two time points.
9.6 Comparison of Cognitive Models
Simply through visual inspection, one may find differences in perceiving the importance of uncertainty items between the TNMCs and Chinese media professionals based on the data presented in Table 9.6. The cognitive models between the two parties were compared for Research Question 5 (How are the aspects of uncertainties important to decision makers in Western TNMCs similar or different between the perceptions of the
American and Chinese informants?).
133 TNMCs Chinese Government and policies 69% (104/150) 88% (150/170) Economy 52% (31/60) 85% (58/68) Competition 70% (84/120) 90% (122/136) Product market and demand 91% (41/45) 98% (50/51) Resources and services 83% (25/30) 97% (33/34) Social and cultural conditions 67% (27/45) 96% (49/51) Mean percentage 72% 92%
Table 9.7: Comparison of similarity scores between TNMCs and Chinese media professionals
As indicated by the generally higher similarity scores of the Chinese media professionals compared to those of the TNMC decision makers, a larger portion of the
Chinese informants perceive most of the uncertainty indicators to be important to
Western TNMCs’ decision making. Table 9.7 compares the percentages and ratios of the two groups’ similarity scores by category.
In Table 9.7, the percentages and ratios demonstrate the actual number of indicators within a given scale of the construct informants considered to be affecting
Western TNMCs’ business operations in China divided by the total number of possible responses in that scale. The uncertainty category that informants from Western TNMCs regarded as the most important is product market and demand, followed by resources and services, competition, and government and policies. The least important uncertainty category for TNMCs is economy. On the Chinese side, the most important uncertainty category is also product market and demand. Subsequently, the categories of resources and services, and social and cultural conditions were considered important as well.
Similar to Western TNMCs’ perceptions, Chinese informants believed that economy is
134 the least important category. One obvious difference in the cognitive models between the two sides is that while Chinese informants considered social and cultural conditions to be one of the most critical aspects, TNMC informants did not place much importance on this category. In general, the similarities scores show that the Chinese informants deemed more uncertainty indicators to be important than did TNMC informants. The rankings of category importance of the two groups also share a high level of similarity. A Kendall’s tau rank order analysis suggested that the correlation of percentages of importance between the two groups is .73 (p = .05).
In addition to the uncertainty scales and indicators included for the study, both
American and Chinese informants noted other important factors that would affect
Western TNMCs’ business development in China. These additional factors are summarized in different categories in Table 9.8 and Table 9.9. Among the informants from Western TNMCs, 11 out of 15 responded to the question inquiring additional factors affecting their business operations in China. Most of the factors they mentioned are concerned with government and policies (50%), economy (17%), and the company’s internal environment (19%). The uncertainty factors suggested by more than two people include transparency, censorship standards, Taiwan issues, piracy problems, industry structure, and sound financial strategies.
Among the informants from Chinese media organizations and government agencies, only 6 out of 17 informants responded to the question about factors in addition to the ones on the list that affect Western TNMCs’ businesses in China. Similar to the pattern of responses from Western TNMCs’ informants, most of the Chinese informants noted factors concerning government and policies (55%), competition (14%), and
135 % of item responses N by category Government and policies Transparency 3 Censorship standards 2 Taiwan issues 2 Piracy problems 2 Restrictions on foreign media products 1 Legal protection 1 Importation system 1 Concerns from authorities 1 Filming rights for foreign media firms 1 Regulatory environment in the pace of media reforms 1 International political stability 1 China's image in the international arena 1 Public spending 1 Total 18 50% Economy Industry structure 2 Trade with the United States 1 Protectionism in trade 1 Lack of open market 1 Pace of development 1 Total 6 17% Competition Local monopolies 1 Local partners 1 Total 2 6% Product market and demand Local market 1 Profitability 1 Total 2 6% Social and cultural conditions Transformation of media's role 1 Total 1 3% Other (TNMCs' internal factors) Sound financial strategies 2 Pressures on China from TNMCs 1
Continued
Table 9.8: Summary of additional uncertainty factors perceived by TNMCs
136 Table 9.8 continued
Fear of lagging behind 1 Careful and sensitive with content 1 Keeping with changes 1 Luck 1 Total 7 19% Total number of responses 36 100%
Western media companies’ internal conditions (14%). Some prominent factors (with two or more responses) include level of policy openness, protection of national culture, and gradual opening process.
The information presented in Table 9.8 and 18 shows some similarities and differences in perception between the informants from TNMCs and Chinese media organizations and government agencies. For the categories, both groups of informants tend to hold that factors related to government and policies are playing an essential role in Western media companies’ business operations in China. Meanwhile, these media companies’ internal factors also seem to be important as perceived by informants on both sides. While the TNMC informants mentioned a number of additional factors relating to economy, the Chinese only proposed one factor concerned with this category.
At the item level, Western TNMCs tend to list the factors about which they may not have sufficient information, such as transparency, censorship standards, and piracy problems. In other words, these media companies are in need of information in the specified aspects to be able to successfully operate in the Chinese market. The Chinese informants, however, do not have any information gap in this case. The additional factors from the Chinese media practitioners’ stance are more or less relevant to what they think
137 % of item responses N by category Government and policies Level of policy openness 3 Protection of national culture 2 Gradual opening process 2 Protection of domestic media industries 1 Completeness of media related laws 1 Policies and regulations on media ownership 1 Political stability 1 Labor policies 1 Total 12 55% Economy Economic stability 1 Total 1 5% Competition Enterprization of Chinese media organizations 1 Chinese media’s adoption of new concepts 1 Chinese media’s application of new technologies 1 Total 3 14% Product market and demand Audience’s level of education 1 Total 1 5% Resources and services Existence of cross-cultural talents 1 Total 1 5% Social and cultural conditions Local culture 1 Total 1 5% Other (TNMCs' internal factors) Western media firms' attitude towards China 1 Patience 1 Co-production with local partners 1 Total 3 14% Total number of responses 22 100%
Table 9.9: Summary of additional uncertainty factors perceived by Chinese media professionals
138 Western media companies should understand about the Chinese market. For example, some of these additional factors that they believe are crucial to Western media companies’ businesses in China include gradual opening process, protection of national culture and domestic media industries, and changes in Chinese media organizations. It can therefore be observed that the additional factors listed by the two sides reflect the differences in their cognition from their respective standpoints. While Western TNMCs seek further information about the media market in China, Chinese media professionals think that these companies should focus on understanding the existing market conditions.
A number of Chinese informants specifically remarked that Chinese media industries will follow the same pattern of gradual opening as all the other industries.
By any means, the factors listed in the above two tables shed light on further modification of the construct of perceived environmental uncertainty (PEU) for the media industries. Inclusion of the listed factors may contribute to a more complete representation of risk associated with the Chinese media market. Although some of the factors still appear to be vague and not well defined, a large number of them could be utilized in the existing scales for tests of validity in future studies.
9.7 Western TNMCs’ Pattern of Ownership in China
Western TNMCs have plans for obtaining equity ownership in line with their perceptions of uncertainties about the Chinese media market. These plans were analyzed through Research Question 6 (How will the changes in the perception of uncertainties associated with the Chinese media market, if any, affect the pattern of Western TNMCs’ equity ownership in China?). Table 9.10 exhibits Western media companies’ main investment strategies and domains of business operations. A detailed summary of
139 Company Current Current Future equity Future equity domain domain Disney -No equity -Entertainment -Joint ventures -Entertainment -Rep office and -Family -Co-production -News is distribution in entertainment -Distribution through losing Beijing since -Sport news company's own -Always a 1996 -Movie-related network possibility entertainment -Program trade News -No equity -Entertainment -Joint ventures and -Entertainment Corporation -Rep office -Hard news wholly-owned -News is -Business news subsidiaries highly -Co-production of regulated TV programs, films, -Documentary, and magazines "infotainment" -Launch 24-hour -Print channels publication -Never stop -Hard news investing, depending -Business on media policies news -Nothing more due to tight control over foreign TV stations Sony -No equity Entertainment -Establish Entertainment -Invested $ 5-6 partnerships million in -Co-production television -Joint ventures and -Co-production wholly-owned -Invested about subsidiaries, $50 million in depending on laws films and policies -Noequity,because of piracy, censorship, and unforeseeable changes -No regulated amount, no vast expansion
Table 9.10: Summary of Western TNMCs’ investment strategies
140 informants’ responses can be found in Appendix C. Currently, no TNMCs hold any form of equity ownership in the Chinese media market. While all three companies have established representative offices, none of them has gone public because of government restrictions on foreign media ownership. The only available information about the amount of investment is related to Sony Pictures Entertainment with an estimate of $5 million to $6 million in television and $50 million in films invested in China. Regarding business domains, News Corporation has a subsidiary television company that has tapped hard news and business news domains. Otherwise, all informants reported that their businesses concentrate on entertainment (including family, sport and movie-related entertainment, etc.) at this time.
Expectation 1 proposes that Western TNMCs will plan to accelerate their engagement in joint ventures with local or foreign partners in the Chinese media market.
It shows in Table 9.10 that informants across all three companies indicated plans for acquiring more equity ownership in the market in forms of joint ventures and wholly- owned subsidiaries. Table 9.11 further specifies Western media companies’ plans for desired equity ownership in the Chinese media market based on Appendix C. For this particular question, 12 out of 15 respondents provided answers. Combining wholly- owned subsidiaries with joint ventures, it becomes clear that the majority of them (7 out of 12) indicated owning some equity as a part of their companies’ strategic plan. The rest of the informants preferred not to acquire any equity in the Chinese media market in the foreseeable future. Following the coding method described in Chapter 8 (3 for wholly- owned, 2 for joint ventures, and 1 for no equity), the mean value of the responses is 1.92, suggesting that, overall, TNMCs do have plans for obtaining some equity ownership,
141 Type of equity ownership N%ofinformants No equity ownership (e.g. exporting, distribution 542 agreements, co-production) Wholly-owned subsidiaries 4 33 Joint ventures 3 25 Total number of informants 12 100
Table 9.11: Western TNMCs’ plans for equity ownership
instead of owning no equity. In other words, these media companies are ready to move to a higher level of the ordinal scale of ownership (See Table 6.1) through acquiring more equity in the Chinese market when the laws and policies permit. The three media companies’ plans for acquiring more equity ownership reflect their uncertainty perceptions over time about the Chinese media market consistent with the government’s gradualism strategy in opening the media market. In a sense, these plans exhibit hope and confidence they have in the market, although some informants also indicated that the feasibility of establishing joint ventures would depend on government policies. On the whole, the results presented here support the expectation.
As a matter of fact, some Western TNMCs have already acquired equity ownership in the Chinese media market in an alternative form1. Since media ownership is restricted in the market, some Western media corporations have established representative offices in the country. These offices are usually not allowed to conduct any business operations taking in revenues. To legally expand their businesses, some TNMCs have invested in the areas where foreign ownership is permitted, such businesses as advertising and media production. These areas do not belong to the media category as
1 Information presented on this issue was acquired from interviews with informants. 142 defined by the Chinese government. For instance, a TNMC would establish an advertising company and a production company in the form of joint ventures or wholly- owned subsidiaries as affiliations to the representative office. The two companies enable the TNMC to engage in business activities in terms of television or film production, marketing and distributions. Several Western media companies have been operating following this type of business model for years in China. The government seems rather tolerant of this strategy.
Expectation 2 states that Western TNMCs perceive lower uncertainties in the business news and entertainment domains than in the hardcore news domain of the
Chinese media market. Expectation 3 proposes that to achieve a higher level of equity ownership, Western TNMCs will plan to commit more resources to the business news and entertainment domains than the hardcore news domain in the Chinese media market.
As presented in Table 9.10, the three TNMCs plan to operate mainly in the domains related to entertainment (i.e. family entertainment, movie-related entertainment) with little difference from their current business domains. Disney will continue with its operations in sport news, while News Corporation will keep its business practices in hard news and business news. One informant pointed out that the reason for their confinement to the entertainment domain is that the news domain is highly regulated. A Disney informant, however, claimed that the possibilities are open. In general, the informants’ responses to their companies’ business domains render support to the above expectations.
For more detailed information about the informants’ responses, see Appendix C.
143 9.8 Western TNMCs’ Strategic Plans in China
Having examined Western TNMCs’ uncertainty perceptions over time along with their plans for obtaining equity, it is necessary to turn the focus to what the media companies will do in terms of strategies in response to the perceived risk in the market.
To examine Research Question 7 (Will Western TNMCs adjust their strategies in an attempt to manage risk in the Chinese media market?), informants’ responses in this respect are summarized in Appendix C.
Concerning government and distributor relations, TNMCs’ strategies are demonstrated in Table 9.12. Most informants indicated that their companies have established connections with the State Administration of Radio, Film and Television
(SARFT), together with other government departments, at both central and provincial levels at the present time. In addition, all three companies deal with several state-owned television and film companies, such as China Central Television and China Film Group.
Compared across the three media firms, News Corporation seems to have more ties with local governments in China than the other two companies. One informant from Sony pointed out the importance of developing personal relationships with government officials and departments. Regarding connections with distributors, these media companies possess both state and local distribution channels. For film distribution, all of them are connected with the only two official distributors in the country, China Film
Group and Huaxia Film Distribution Company. In terms of television, all companies maintain business relations with TV stations around the country. Disney has established a network with major cable stations at the provincial level, while Sony has a Beijing-based local distributor and other short-term distributors.
144 Company & Current status Future plan Person Disney -Business relations with CCTV and -Continue maintaining and all major cable stations at the developing business relations provincial level -Distributor barter agreement -SARFT at every level -Advertising team relating all -Leaders of children's teaching major buying groups -China Film Group, Huaxia Film -No further connections, enough Distribution Company, Film Bureau channels to get to government for under SARFT problems -Exhibitors and film studios News -Regular meetings with government -Try to find mutually beneficial Corporation agencies, such as SARFT and State strategies through discussions Council's Information Office with government agencies and -Meetings with Shanghai and media Guangdong media organizations -Do business with commercial -Relationship with Radio and organizations, broadcasters, and Television Bureau, Guangdong government-related regulators -China Film Group, Huaxia Film -Continue to improve and develop Distribution Company relationships with all levels of the -Connections with CCTV government Sony -Connections with SARFT and -Maintain important ongoing China Film Group relationships -Connections with local -May consider other distributors governments in Beijing, Shanghai -Always looking for partnerships and Hong Kong -Continuing to make films leads to -Personal relationships with wider relationships government officials and departments -Connections with TV stations in Beijing and Shanghai -Connections with a distributor in Beijing and other temporary ones
Table 9.12: Summary of Western TNMCs’ strategies for developing connections with governments and distributors
145 Expectation 4 states that to achieve a higher level of equity ownership, Western
TNMCs will plan to increase their efforts to forge relations and ties with governments of all levels and distributors in the media market in China. Informants across all three media companies indicated plans to continue maintaining and developing relations with governments and distributors. Among the three companies, News Corporation’s strategy seems to be most ambitious, in that it plans to establish connections with commercial organizations, broadcasters and government-related regulators of all levels, as well as to open up new offices and launch 24-hour channels. One informant also mentioned that they plan to communicate with the government to initiate mutually beneficial strategies.
Disney, on the other hand, appears to plan to focus on distributing its existing products.
Sony is probably the most cautious among the three. Most of the plans portrayed by the informants from Sony seem to be tentative and contingent upon the nature of opportunities and market conditions along with the company’s operations in China.
Overall, support is found for the expectation in the aspect of connections with governments and distributors.
With respect to product localization, all three media companies have more or less localized their products in the Chinese media market, as summarized in Table 9.13. Their means of localization include dubbing or subtitles for television or movies, localizing interesting stories, exploring local sources for stories, using local staff, developing local programming and promotion materials, working on local production and co-production with local and foreign partners, and creating local packaging. Among the three companies,
News Corporation appears to be at the forefront of localization. In addition to dubbing the content, local production is a prominent strategy. The company has hired local staff to
146 produce about 20 television shows and 750 hours of programming each year. Disney has also been localizing through producing several local television shows, though not so large in scale compared to News Corporation’s business. Sony’s localization strategy seems to rest mainly on subtitles and dubbing for its content at the moment, although co- production of films and local programming for television are also occurring.
Expectation 5 proposes that to achieve a higher level of equity ownership,
Western TNMCs will plan to increase their product localization in the Chinese media market. Informants from all three media companies specified plans for further localization in the future. Given the information in Table 9.13, it appears that all three companies will localize their products to a greater extent through such avenues as developing locally relevant content, utilizing local resources, increasing local programming, and co-producing with Chinese partners.
Based on its current status of localization, News Corporation seems to be the most aggressive among the three media companies. In terms of television, it plans to increase the amount of locally produced programming. Regarding movies, the company plans to engage in producing films with Chinese cast members to create content for global viewers. Informants at Disney also mentioned plans for generating content that is both locally relevant and universally appealing. In addition, they will try to have more interactions with local kids and families to enhance brand recognition. They indicated three main product priorities, including feature films, animations, and ABC products, as well as three ways of localizing – dubbing, local sources, and co-production. One Disney informant stated that the company’s business will emphasize more on television and theme parks than films in China, because there are no recognizable benefits in the latter.
147 Company & Current status Future plan Person Disney -"China's Funniest Videos," "Dragon -Localize as a whole, financially Club," foreign (U.S.) programming, feasible, content locally relevant, local hosting, all content dubbed universally appealing -Movies and animations on CCTV, -Increase interactions with local dubbed kids and families -"Magic English," teaching English -U.S. script reshoot in China for kids -Three main product priorities: -ESPN, "Sports Funniest Videos" feature films, animation, ABC -Co-production of films products -Localizing interesting stories -Three main ways: dubbing, local -Exploring local sources for stories sources, co-production -Always been localizing -Focus has been more on TV and theme parks News -Local staff, local programming, -Increase locally produced Corporation local production programming -Films dubbed in Chinese -Co-production with Chinese crews -Promotion materials in Chinese -Create content for global viewers -Not 100% local feed -Comfortable with current situation, already heavily localized -Can't make products unique to each market Sony -Local language and programming -Seek local partners -Releasing VCDs and Region-6 -All products in local language DVDs -Establish local programming -Local packaging model -For films, subtitles, dubbing, and -Include Mandarin tracks in co-production in Chinese products -For TV, subtitles on satellite -Local production channel not specific for China -For films, adopting universal model, localizing format of production -ForTV,noreasontolocalizeas the regulation changes -Create universally appealing films with limited geographic localization
Table 9.13: Summary of Western TNMCs’ product localization strategies
148 Sony’s localization plans are concerned with developing local partners, establishing a local programming model, and local production. For films, the company plans to localize the format of production based on the universal model. One informant noted, however, that the company will focus on making universally appealing films in the globalization process with limited geographic localization. For television, one informant argued that since regulations may change, there is no reason for the company to localize at this point.
On the whole, the results provide support for the expectation about Western TNMCs’ plans for product localization. For further details about these companies’ localization strategies, see Appendix C.
Regarding Western media firms’ product differentiation strategies, Table 9.14 shows that all three companies are alreadyengagedinsuchpracticesbasedonthe informants’ responses. Confronted with competition from both international and domestic media organizations, their current differentiation strategies include branding, producing unique content, providing a wider variety of content than competitors, utilizing expertise and high-quality programming from the parent firm, and committing more resources than competitors. Two informants indicated that each film is considered to be a different product in itself.
According to the informants’ input, Disney boasts for its powerful brand and great reputation in kids and family entertainment. Currently, the Mickey Mouse brand is known in China, whereas the Cartoon and Nickelodeon brands are not known. As far as the products are concerned, Disney adopts “distribution play,” which refers to the company’s practice of distributing its local and universal content to various buyers around the country, as opposed to “platform play,” or establishing platforms of content
149 Company Current status Future plan Disney -Distribution play (as different -Differentiating constantly from platform play by CETV, -High quality family entertainment News Corps, and Viacom) products -Kids and family branding -Through branding, quality of -8 channels and 4 languages with content one feed in Asia, dubbed -Adding Cantonese language -Each film is taken as a different -Increase production product -Not organized to create a Chinese film -Not the first-in, wait 5 years News -Combining expertise and high- -Differentiation by constantly Corporation quality programming of parent developing new programs firm with local production -Continue with local productions -Funds expedition and research -Differentiation by category, exploration movies, TV series, dramas, -Provides alternative entertainment comedies choices -Build digital movie theaters -More flexibility of reporting as a -Can't provide specific things in foreign station each market Sony -From foreign competitors, -Continue to provide a wider range production in local language of products -From domestic competitors, more -No plans, already done as much as money and more production the company can expertise -No specific strategies due to -Higher pricing for quality and absence of serious investments packaging -Wider variety of films and TV programs, including many non- U.S. movies and TV series -Each film is considered a different product
Table 9.14: Summary of Western TNMCs’ product differentiation strategies
150 outlet such as television channels, as some other TNMCs are doing in China. Examples of the platform play include Time Warner with its partially owned CETV, News
Corporation with Xingkong Satellite Television, and Viacom with its MTV. At this point,
Disney offers eight channels with four languages in Asia with one feed. News
Corporation’s differentiation strategy centers on the uniqueness of television content through heavy localization with the parent firm’s expertise and providing choices of programming not available from local channels. Sony differentiates its products mainly through committing more resources and providing wider variety to the market than its competitors. Furthermore, to differentiate from international competitors, the company creates content in the local language, which is the same as what Disney and News
Corporation are doing. One Sony informant believed that the company possesses more production expertise than Chinese competitors.
Expectation 6 proposes that to achieve a higher level of equity ownership,
Western TNMCs will plan to increase their product differentiation vis-à-vis their competitors. As presented in Table 9.14, most informants indicated their companies’ plans for further product differentiation by continuing with their current practices. The three media companies’ strategies for future differentiation include increasing production, improving the quality of content, and constantly developing new programs. News
Corporation appears to have the most concrete plans for differentiation among the three companies. It will constantly develop new television programs to enrich the content. In addition, the company will increase local production of films. One informant mentioned construction of high-quality hardware facilities such as digital cinemas. Though building facilities as a differentiation strategy is not necessarily related to content, it somehow
151 demonstrates the company’s determination to have a presence in the market as much as possible. Disney’s plans evolved around enhancing brand recognition and content quality.
The company does not plan on producing films locally. One informant from Disney raised the concern of government approval for the company’s practices and of piracy control, and suggested that Disney would wait five years in the Chinese market instead of being the first-in. Sony will differentiate by providing a wider variety of films and TV programs to the market. One informant noted that no specific product differentiation plans exist at present because the company has not made any serious investments in the market. Additional details about Western TNMCs’ product differentiation strategies can be found in Appendix C.
9.9 Utilizing Knowledge and Experience Gained Elsewhere in China
The Chinese media market is unique with a huge size and tremendous potential for development, along with restrictions and barriers. At the same time, it is in the process of gradual opening to international competition as is true with many transitional and emerging markets in the world. Western TNMCs may have had a great amount of experience entering and operating in such markets around the world. Research Question
8 (To manage risk and achieve a higher level of control, how will Western TNMCs utilize the knowledge and experience gained in other international locations in the
Chinese media market?) deals with the transfer of knowledge and experience from other markets to China. Table 9.15 lists TNMCs’ views on this issue based on Appendix C.
The informants’ responses to this question were twofold. A group of informants argued that the situation of the Chinese media market is not so different from any other markets, and that some applications such as deal structures can be replicated based on the
152 Company Response Disney -Fundamentally, things are not so different -Replicate deal structures -Standard template (how much to sell for) -Westerners should learn from China, rather than vice versa -Things can be learned from markets of similar cultural backgrounds -China is different than any other markets, locked up, controlled by monopoly -Much to learn, intriguing and frustrating and rewarding News -Adapt a program format that worked elsewhere to local market Corporation -Ways of putting up sponsorship packages -May apply effective business practices elsewhere in Asia to China -May adapt ideas and experiences of TV production in Hong Kong to the mainland -Distribution strategies (e.g. number of films), basic sales and marketing policies -Be analytical with cultural differences -Experience with the former Soviet Union (one group buying) and Vietnam can be used in China Sony -Higher level of cultural sensitivity, producing in local settings and providing locally relevant content -Flexible with local ways of conducting -Discussions with writers and producers about stories for films -China is unique -Need to adopt tailor-made approaches -Difficult to apply experience elsewhere to China -Continue to learn more about the country
Table 9.15: Summary of Western TNMCs’ strategies of utilizing knowledge and experience in China
153 standard form of the company’s business practices. They also indicated that their companies can utilize cultural affinity to apply some of their experience gained in other
Asian markets, or the former Soviet Union to China. However, other informants held that tailor-made approaches need to be taken in the Chinese media market because their experience elsewhere would not be relevant to China given the large amount of regulations and piracy problems in the market. Moreover, they stated that relatively small countries are more profitable than China at the present time. They believed that the issue concerned is not that China is learning from the West. Rather, it centers on Westerners learning from China. In support of this view, most of the informants mentioned the importance of continuous learning about the Chinese media market.
Among the three media companies, News Corporation seems to be the most positive in knowledge transfer. All informants from the company indicated the importance of adapting the knowledge and experience they have acquired from other international markets to China. Such experience includes program formats, ways of putting up sponsorship packages, employee training, distribution strategies, basic sales and marketing policies, and professional expertise in media production. As for Disney, two informants noted that approaches to the Chinese media market can be learned from markets of similar cultural background, while three others indicated that China is different than any other markets due to the fact that the market is locked up and controlled by monopoly. One informant pointed out that the market is intriguing and frustrating and rewarding at the same time. Informants from Sony had divided opinions about utilizing their knowledge and experience acquired elsewhere in China. An informant held the belief that the company can use its experience of producing in local
154 settings and being flexible with local ways of conducting to do business in China.
Another informant was also positive, claiming that there are universal characteristics about making films in China, along with peculiarities that the company continues to learn.
Others argued that it is difficult to approach the Chinese media market with their existing experience in other markets owing to conditions including a high degree of regulations and problems with piracy. But informants from Sony also believed that there are still opportunities in China for the company to develop the business further, and thus Sony will not give it up and want to be at least engaged in the market. For more details about how Western media companies would utilize their knowledge and experience gained elsewhere in China, refer to Appendix C.
9.10 Summary
Findings of the study were presented and analyzed in this chapter. Based on the theoretical framework, Western TNMCs perceive risk associated with the Chinese media market in terms of uncertainties is affected by their external conditions in the market.
Their uncertainty perceptions, in turn, are reflected in their control strategies in terms of equity ownership in the market. Overall, Western TNMCs’ external conditions in the
Chinese media market have not severely changed from 2000 to 2003, although there are clearly visible signs showing changes of regulations on television and film industries.
Accordingly, changes of Western media companies’ perceptions of uncertainties about the Chinese media market over the two time periods are not obvious, either. On the whole,
TNMCs perceive slightly higher uncertainties in the areas of competition, and product market and demand; and slightly lower uncertainties in government and policies, as well as resources and services, after China’s WTO accession than prior to it. The
155 insignificance of changes illustrates the government’s gradualism strategy in its economic development. The uncertainty perceptions of the Chinese media professionals and policy makers do not show much change between the two time points, either. Similarly, no significant differences were found while comparing the changes of uncertainty perceptions between the two groups over time.
In determining the cognitive models used by decision makers, it was found that several uncertainty categories were more important to the informants than others. These categories include product market and demand, resources and services, and competition.
Aside from the factors included in the model, the informants also indicated other factors considered in their decision-making process. Most of them are related to government and policies, economy, and the company’s internal environment.
At least according to the perceptions of the informants in this study, there is no major discontinuity in Western TNMCs’ perceptions of uncertainties about the Chinese media market after China’s WTO accession. This is basically consistent with the situation of their external conditions in the market, as well as the Chinese media professionals’ perceptions. Although some changes of the external conditions have recently occurred in terms of government regulations and product market, they have not yet been reflected in these media firms’ perceptions of risk.
Even with little change to the risk they perceive in the Chinese media market over time, most of the Western TNMCs in the study still have plans for increasing their control in terms of equity ownership as much as the policy allows. The ownership will take the form of both joint ventures and wholly-owned subsidiaries. Moreover, most of these companies plan to operate in entertainment-related domains only because of the existence
156 of a high degree of restrictions in the news domain. As expected, in trying to manage the risk they perceive, Western TNMCs do have plans to establish further connections with governments and distributors, to localize their product offerings, and to differentiate their products vis-à-vis their competitors. Most informants believed that they can utilize the knowledge and experience gained in other areas of the world, such as other parts of Asia, and Eastern and Central Europe to tap the Chinese media market, whereas some of them held that China is unique in a way that is different from the situation of any other countries, and, therefore, it is difficult to adopt any of their existing experience in such a market. Most of the informants, though, mentioned the necessity of continuous learning about the market.
157 CHAPTER 10
DISCUSSION
In the general trend of globalization, Western TNMCs have been actively expanding their business operations around the world for maximized profits. China is a market that cannot be ignored in this process, given its huge population, rapidly growing economy, and tremendous potential of development. China’s accession to WTO was a clear sign of further openness of the economy and commitment to meeting international business standards. This study aimed to examine Western TNMCs’ risk and strategies in the Chinese media market after WTO in an attempt to provide insights into the global media giants’ perceptions, positions, and plans regarding the market. This chapter gives a summary of the study, followed by some comments on limitations, and a few suggestions for future research.
10.1 Summary of Research
The study first laid out a theoretical framework to explore how a company enters a particular country in a particular way. Adopting the structure-conduct-performance
(SCP) model commonly used in economics, international business theories and models were reviewed. All these theories were found to emphasize the importance for a firm to minimize risk and maximize control at international locations. To achieve this goal, the effect of a firm’s external conditions on its strategy plays a crucial role. Therefore,
158 different external environment factors were identified from the literature. To determine the relationship between these external factors and a company’s strategy, Western
TNMCs’ strategic behavior in Eastern and Central Europe, Asia and China was examined. It was found that Western media companies’ equity ownership differs by location as affected by the level of risk they perceive in the market. As such, the final theoretical framework of the study was determined in light of the dynamics of risk and control. Based on its external conditions, a firm’s perception of risk in terms of uncertainties about the market affects its control strategy in terms of equity ownership. At the core, the study expected that China’s WTO entry would create a more favorable external environment for Western TNMCs, which would lead to lowered perceptions of uncertainties as compared to before WTO, and consequently result in a higher level of their equity ownership in the Chinese media market.
The primary research method used in this study was interviews. All participants were treated as informants of the situation and were recruited mainly through the author’s personal contacts and their referrals. A total of 15 informants from Western TNMCs and
17 from Chinese media organizations and government agencies constituted the final sample. The interviews were conducted by phone in situations where face-to-face interviews were not feasible.
Results of the study showed that the external environment of the Chinese media market has not changed gravely over the two time periods before and after WTO, except for several factors related to regulations and product market. Likewise, Western TNMCs’ uncertainty perceptions have not changed to a notable extent over time, either. Nor have there been any significant differences in the changes of perceived uncertainties between
159 the TNMC and Chinese informants. In other words, Western TNMCs’ risk perceptions showed no major discontinuity in China’s post-WTO era, and were basically consistent with the actual external environment conditions in the market, as well as those of the
Chinese media professionals and policy makers. One way to interpret the findings about perceived uncertainties is that they reflect the Chinese government’s gradualism strategy in its economic reforms and development. One of the Chinese informants suggested that the Chinese media industries will eventually open to international competition, in the same fashion as the gradual opening process of all the other industries. From the results of their uncertainty perceptions, it can be argued that Western TNMCs are well informed of the market conditions in China with a good understanding of the government’s gradualism strategy.
Although perceived risk associated with the Chinese media market did not significantly change between the two time points, Western TNMCs have plans for increasing control in response to the risk they perceive in a long run. A majority of them indicated possibilities for their companies to engage in the highest form of ownership possible contingent upon approval of government policies and regulations. In fact, some
TNMCs have already been engaged in an alternative form of equity ownership through establishing advertising or production companies affiliated to their representative offices in China. To try to manage risk and increase their equity ownership, Western media companies will continue to develop connections with governments and distributors, localizing their products, and differentiating the products vis-à-vis their competitors. All these plans constitute a roadmap for Western TNMCs’ long-term development in China.
Whether the informants in these Western media companies consider China to be too
160 unique to approach with their knowledge and experience in other locations of similar social or cultural backgrounds, or vice versa, they are all committed to further learning about the Chinese media market.
This study contributes to the existing knowledge and theories in the fields of both international business and communication in the following ways. First of all, the theoretical model established in the study on the basis of existing theories, models and empirical research is innovative. Though the dynamics between risk and control have been widely cited in previous literature, few research efforts have examined risk in a quantitative manner. This theoretical model enabled quantitative measurement of risk based on Miller’s (1992, 1993) model of perceived environmental uncertainties. As discussed in Chapter 6, the reliability of Miller’s scales has been established (Werner et al., 1996). Despite the intention to test it again in this study, the sample sizes are too small to yield adequate results. In addition to the measurement items in Miller’s model, the study created a new dimension of measurement, relevancy. According to the model, each uncertainty item was rated for its relevancy to Western TNMCs’ decision-making process, and the level of uncertainty perception was rated only if the item was indicated relevant. The relevancy measure in this model shed light on the cognitive models being used by the TNMC decision makers, and how they compared to the perceptions of the
Chinese informants. On another note, while Miller’s (1992, 1993) model have not been applied to the media industries before, this study placed it in the specific settings of global media industries to establish a risk profile of Western TNMCs in China.
Furthermore, no previous studies have juxtaposed the two variables, risk and control, in a measurable theoretical model to delve into the effect of a firm’s risk in the market on its
161 control strategy. By incorporating the dimension of control strategies, the model made a worthy attempt to advance existing methodologies in business research. Results of this study showed that this theoretical model captured the important facets of the risk and control dichotomy in a most comprehensive fashion, which allowed the collection of a rich variety of data to perform rigorous analyses of the research questions.
Secondly, the interdisciplinary endeavor made in this study distinguishes itself to be a unique approach. As discussed earlier, the study’s theoretical model was formulated mainly based on theories and models in international business research, whereas its methodology encompassed two typical approaches, the external data approach and cognitive approach, in transnational media management research in media economics, a sub-division of the field of communication. Also, modifications to Miller’s (1992, 1993) conceptual model were made to reflect the characteristics of the media industries based on media economics literature. International business research has rarely examined theories in the setting of the media industries. Likewise, few studies of transnational media management in media economics have been associated with international business theories and models. This study connected the two fields of knowledge and systematically utilized theoretical elements in both disciplines to create the theoretical model. As a result, a large portion of the theories in both fields were found supporting and complementing each other. Hence, the interdisciplinary approach in this study provides reasonable implications to logically integrate the theories of international business with the knowledge of media economics to study Western TNMCs’ risk and strategies at international locations.
162 Lastly, the research has developed the cognitive approach in studying transnational media management with notable innovations and implications. In discussing the external data approach and the cognitive approach as two main methods commonly adopted in transnational media research, Hollifield (2001) raised the concern of the obstacle in obtaining primary data from corporate decision makers in major media companies due to the assumption that it is too difficult to obtain the media companies’ agreement to participate in such studies. While this concern is certainly valid in actual situations, the data collection process of the study has shown that it is not impossible to get cooperation from these media companies. In spite of the fact that several companies in the initial sampling frame refused to participate in the research project, the study has successfully recruited informants from three major Western TNMCs to constitute the final sample. Two key strategies contributed to this achievement. One approach was to contact the potential informants directly instead of the companies they work with.
Individuals are generally more flexible and interested in studies related to their fields of specialty than companies that are often bound by official policies. The other strategy was to utilize the power of networking and references in the recruiting process. The majority of the informants in this study were located through the author’s personal contacts and their referrals. With the personal connections playing a part, the potential informants generally appeared enthusiastic and willing to cooperate. All in all, the cognitive approach is definitely feasible, though considerable difficulties may also apply.
10.2 Limitations
Despite the efforts made to ensure the best possible quality of the research, some limitations still exist that may have prevented this research endeavor from explaining the
163 exact situation in an impeccable way. First of all, the study would have been a more authentic reflection of reality if more media companies and individual informants in the sampling frame participated in the research. As noted in Chapter 8, the use of a group of carefully selected informants may sometimes be superior to an exhaustive sample when studying a particular culture or group of people (Campbell, 1969). Given the focus of this study on risk perceptions and strategies of large media giants from the views of a limited number of corporate decision makers, the technique of informants is the most appropriate research method. In collecting the sample, snowball sampling was the best available method due to the difficulty in reaching and obtaining consent from potential informants.
An initial group of informants were recruited through the author’s personal contacts.
These informants were then asked to recommend other informants that they know who meet the criteria of selection. This process continued until names of informants already included in the sample were mentioned. The final sample of the study was largely based upon approval to participate from media companies and individual informants. Two of the TNMCs the author initially contacted refused to participate in the study. In addition, a moderate portion of potential informants contacted were not able to participate for various reasons such as scheduling conflicts or simply lack of interest. While the final sample contains five people from each of the three TNMCs and a total of 17 Chinese informants, it would have been more complete with the participation of more Western media companies and individual informants.
Another limitation lies in the completeness of the questionnaire. The questionnaire designed for this study aims to identify changes of the informants’ uncertainty perceptions over two periods of time. A notable situation that occurred to
164 some uncertainty items during several interviews was that sometimes even though the informants’ perceptions of an uncertainty item have not changed over time, they indicated that the valence of that item has changed. For instance, an informant selected
“2” (predictable) for “legal regulations affecting the media business sector” at both time points, and claimed that for the pre-WTO time point, this factor was predictable in a bad way because the regulations allowed a very limited scope for their company’s business.
At the post-WTO point, however, the informant indicated that the factor was still predictable, but in a good way, in that the informant knew with certainty that there would be an open market with fewer restrictions for their business. Hence, the valence of the factor has changed from less favorable to more favorable in this situation while the predictability has remained unchanged.
However, the valence measure was not used because only a small portion of the informants mentioned the difference in terms of favorability between the two time points.
In addition, measurement of valence further complicates the already complex matrix of uncertainty measurement. Further studies on this topic might try to include a mechanism to account for the valence of the uncertainty items, rather than simply using the uncertainty measure, to increase the authenticity of the findings.
A third aspect of the study that could have been improved is the current design of examining the variance of risk. The study follows the structure of Campbell and Stanley’s
(1969) pretest-posttest pre-experimental design to explore the effect of China’s WTO accession on Western TNMCs’ risk perceptions and strategies. The two time points before and after WTO may not be sufficient to fully depict the variance of risk perceptions because significant changes might not have taken place during such a short
165 span of time between 2000 and 2003, especially given China’s reputation of gradualism in its opening up and economic reforms. Moreover, examination of risk perceptions involves retrospective data, which requires the informants to recall the situation of three years ago. This may more or less affect the accuracy of the data.
Nevertheless, the design used in the study is the optimal technique to study the variance of perceived risk. First of all, if another time point around the early 1990s were added, while it might present the gradual process of market opening, the increased complexity would result in further encumbrance and exhaustion on the informants, which might cause their unwillingness to cooperate and impatience to complete the questionnaire. Second, the setback of using retrospective data is minimized in that the year of 2000 is the closest possible time period prior to China’s WTO accession to demonstrate the variance of risk perceptions over time. Moreover, further support of lowered risk in a long term as a result of the government’s gradualism strategy may be obtained from the findings about Western TNMCs’ control strategies. The fact that most of them have plans to increase their equity ownership in the Chinese media market reveals that these firms may perceive lower uncertainties in the future in the gradually opening process of the market with gradually lowering risk.
A fourth limitation is concerned with the applicability of the construct used in this study to measure perceived uncertainties to the media industries. As mentioned in
Chapter 6, the construct of uncertainty measurement for this study was adopted mainly from Miller’s (1992, 1993) categorization and conceptual model of Perceived
Environmental Uncertainties (PEU). Werner et al. (1996) provided statistical support for the dimensionality and scale reliability of the original model. Since all of these studies
166 were related to manufacturing and service industries, modifications were made to the framework based on relevant literature to incorporate the characteristics of the media industries for the purpose of this study. However, it remains a question as for how well the scales and indicators in this construct apply to the media industries. The study developed Miller’s (1993) PEU model by including the measurement of relevancy of each uncertainty indicator to the decision-making process in the media industries. Due to the limitation of sample size, it is not able to provide statistical evidence to identify the dimensionality and scale reliability of the construct in the setting of the media industries, or to determine whether additional scales or indicators, particularly those with respect to resources and services or cultural conditions, need to be included in the model. Hence, some fine-tuning to the existing construct may be needed to ascertain its validity for the media industries.
Finally, the variety and depth of background and factual information provided in the study are limited due to the difficulty of locating sources for secondary data, especially on the Chinese side. Information about Western TNMCs’ strategies was mainly retrieved from academic databases such as Business and Industry and Business
Source Premier, as well as these companies’ annual reports. However, no established sources are available to provide sufficient information about the Chinese media market.
Data about the Chinese media market were not systematically organized. Inconsistencies also exist across different sources. To collect reliable data, the author consulted a variety of sources including China Broadcasting Yearbook, along with internal publications of different media and government organizations. The inconsistencies detected were double checked with authoritative media professionals or policy makers. With all the efforts
167 made, the secondary data the author managed to locate were still limited to present a complete description of the Chinese media market.
10.3 Future research
The current study can be expanded along three main dimensions: time, location and industry. Along the time dimension, it can be considered as a good starting point to follow up with Western TNMCs in post-WTO China in a longitudinal fashion to closely examine the global media giants’ risk perceptions and strategic behavior in China five years from now, 10 years from now, and so forth. Location wise, research could emphasize Western TNMCs’ risk and strategies in other global locations using a comparative approach. Following the format of summarizing TNMCs’ strategic behavior presented in Table 6.1, further studies could be conducted to compare these companies’ risk perceptions and strategies across several different countries or regions, thus exhibiting the variance by location. Moreover, research efforts could be focused on one of the TNMCs to scrutinize its specific risk and strategies across all international markets the company is involved in to portray a full picture of its globalization endeavors. If applicable, issues such as the effect of a media firm’s internal conditions on its strategies that are not emphasized in this study could be discussed in future studies. With regard to the industry dimension, this study centers on the visual entertainment industry, specifically television and film, because of their entertainment nature that may be subject to less government-initiated restrictions. In fact, the visual entertainment industries and all other media industries are integrated into Western TNMCs’ overall globalization blueprint. Future research should also pay attention to media industries other than
168 television and film and study TNMCs’ risk and strategies in cable, newspaper, or publishing industries.
This study approached Western TNMCs’ risk perceptions and strategies from a macro perspective, covering almost all possible aspects of the strategic decision-making process across different media companies. Future studies may attempt to bring further understanding of the subject matter from a micro perspective. For example, an emphasis could be placed on one of the uncertainty categories, such as government and policies, to study how Western TNMCs perceive risk and generate strategies in this particular area.
With a narrower and more specific focus, this type of research may yield more concrete and in-depth findings about how TNMCs handles each aspect of their external environment in the market.
Another important area of focus for future research is the content. Most Western
TNMCs in this study have plans for localizing their product offerings and differentiating their products vis-à-vis their competitors. Since all their products are media products, their strategies in these aspects are generally manifested in the content these companies provide in the market. Therefore, future studies could direct their attention to studying the content offered by Western media corporations in different markets. From a macro perspective, studies could be conducted to examine what products different TNMCs currently carry across various international markets, whether they are locally produced, whether differentiation efforts are made. From a micro perspective, content analysis could be performed to study these companies’ products in the market. An example of this would be to identify the portion of locally produced programming of a TNMC-owned TV channel in a given market.
169 The media industries are widely believed to be cultural industries, and thus are to a smaller or larger extent protected by individual countries and governments. The rules and restrictions on international media products across different countries presented in this study show evidence of this protectionism. Future studies could therefore concentrate on identifying and defining the governments’ role in Western TNMCs’ global expansion.
Specifically, studies could focus on presenting the dynamics of government protection, what aspects of a country’s culture or media industries are being protected, and how such protection can be achieved. The studies concerning this issue can be quantitative or qualitative using techniques of surveys or interviews with media practitioners and policy makers in each individual country.
Finally, the issue of customer needs and preferences is another essential area of concern raised by informants from Western TNMCs in the study. Whenever a new media product is developed, media companies always run a risk of the product not meeting the consumers’ needs and tastes. Studying these needs and tastes is therefore important. For
TNMCs, knowing customer needs and preferences becomes particularly important in markets with relatively large cultural differences from their home countries. Hence, audience analyses could be conducted to identify the preferences of media product consumers across different markets. The methods for such research could range from surveys to focus groups and interviews.
170 REFERENCES
Summary of informants
Western TNMCs Walt Disney Company Lawrence Kaplan Executive Vice President and General Manager, Buena Vista International Charles Lei General manager, China Operations, Walt Disney Television International, Asia Pacific Doug Miller Senior Vice President and Managing Director, Walt Disney Television International, Asia Pacific Raymund Miranda Managing director, Disney Channel Asia Jo Yan Vice President, Buena Vista International Hong Kong, Theatrical News Corporation Jamie Davis President, News Corporation China Bob Girard Senior Vice President and Supervisor of Asia Pacific, Twentieth Century Fox Shuang Liu Vice President, Phoenix Star TV Ward Platt Executive Vice President, National Geographic Channel International Richard Samuels Senior Vice President and Managing Director, Fox Television International, Asia Pacific Sony Pictures Entertainment Ralph Alexander Senior Vice President, International Distribution, Columbia Tri-Star Film Distributors International Andy Kaplan Senior Executive President, International Networks Tim Meade Regional Director of Asia Licensing, Columbia Tri-Star Motion Picture Group Pietro Ventani Vice President of Licensing, Sony Television International, Asia Gareth Wigan Vice Chairman, Columbia Tri-Star Motion Picture Group
Chinese media organizations and government Media organizations Yujie Chen* Media Director, Tom.com Ke Ding Senior Editor, Overseas Broadcasting Center, Beijing Television Shaojie Guan Senior Editor, Senior Editor, Overseas Broadcasting Center, Beijing Television
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181 APPENDIX A
MEAN VALUES OF WESTERN TNMCS’ UNCERTAINTY PERCEPTIONS BY ITEM
182 Pre-WTO Post-WTO Difference 1. Government and policies a. Ability of the party in power to maintain 2.22 1.67 -.56 control of the government b. Threat of armed conflict 3.50 2.67 -.83 c. Tax policies 3.91 3.09 -.82 d. Monetary policy 2.22 1.67 -.56 e. Prices controlled by the government 4.00 4.00 0 f. National laws affecting international media 3.47 2.93 -.53 business g. Legal regulations affecting the media 3.80 3.07 -.73 business sector h. Tariffs/quotas on imported media products 3.43 3.64 .21 i. Enforcement of existing laws 4.07 3.50 -.57 j. Adequacy of public service provision 3.00 2.40 -.60 2. Economy a. Inflation rate 3.13 4.38 1.25 b. Exchange rate with dollar 3.50 4.63 1.13 c. Interest rate 2.00 4.60 2.60 d. Results of economic restructuring 4.60 3.90 -.70 3. Competition a. Changes in competitor’s prices 3.50 5.13 1.63 b. Changes in the markets served by 2.55 3.73 1.18 competitors c. Changes in competitors’ strategies 3.17 4.00 .83 d. Entry of new media firms into the market 3.64 3.91 .27 e. Domestic competitors 3.27 3.91 .64 f. Foreign competitors 3.00 3.25 .25 g. Innovations in quality of media products 2.90 3.00 .10 h. Innovations of media transmission devices 3.89 3.00 -.89 4. Product market and demand a. Product differentiation in the media market 2.93 3.86 .93 b. Customer preferences 3.43 3.50 .07 c. Demand for the media products 2.46 2.92 .46 5. Resources and services a. Transmission/distribution system within 3.62 3.31 -.31 the country b. Availability of trained labor 3.58 2.83 -.75 6. Social and cultural conditions a. Social beliefs and attitudes towards 2.92 2.62 -.31 cultural intrusion of foreign media products b. Changing social concerns 3.40 3.30 -.10 c. Social unrest, riots, and demonstrations 2.43 3.14 .71
183 APPENDIX B
MEANS VALUES OF CHINESE MEDIA PROFESSIONALS’ UNCERTAINTY PERCEPTIONS BY ITEM
184 Pre-WTO Post-WTO Difference 1. Government and policies a. Ability of the party in power to maintain 1.73 2.06 .33 control of the government b. Threat of armed conflict 2.64 2.25 -.39 c. Tax policies 3.08 3.36 .28 d. Monetary policy 2.83 3.62 .78 e. Prices controlled by the government 2.92 3.50 .58 f. National laws affecting international media 3.19 2.76 -.42 business g. Legal regulations affecting the media 3.31 2.47 -.84 business sector h. Tariffs/quotas on imported media products 3.07 3.63 .56 i. Enforcement of existing laws 3.60 2.81 -.79 j. Adequacy of public service provision 1.73 2.06 .33 2. Economy a. Inflation rate 2.54 1.93 -.61 b. Exchange rate with dollar 2.69 3.21 .52 c. Interest rate 2.85 2.93 .08 d. Results of economic restructuring 2.47 2.56 .10 3. Competition a. Changes in competitor’s prices 3.00 3.07 .07 b. Changes in the markets served by 2.93 2.73 -.20 competitors c. Changes in competitors’ strategies 3.21 2.93 -.28 d. Entry of new media firms into the market 3.57 2.93 -.64 e. Domestic competitors 3.00 3.63 .63 f. Foreign competitors 3.64 2.60 -1.04 g. Innovations in quality of media products 3.14 2.47 -.68 h. Innovations of media transmission devices 2.73 2.25 -.48 4. Product market and demand a. Product differentiation in the media market 3.13 2.63 -.51 b. Customer preferences 2.75 2.59 -.16 c. Demand for the media products 2.88 2.41 -.46 5. Resources and services a. Transmission/distribution system within 2.50 2.59 .09 the country b. Availability of trained labor 2.33 2.56 .23 6. Social and cultural conditions a. Social beliefs and attitudes towards 2.56 2.12 -.44 cultural intrusion of foreign media products b. Changing social concerns 2.60 2.31 -.29 c. Social unrest, riots, and demonstrations 2.40 2.19 -.21
185 APPENDIX C
WESTERN TNMCS’ RESPONSES TO OPEN-ENDED QUESTIONS
186 Company Current equity Current Future equity Future & Person domain domain Disney DM1 No Entertainment N/A Entertainment DM2 No -Family N/A -Always a entertainment possibility -Sport news (ESPN) DM3 -No equity Entertainment -Joint ventures, co- -Entertainment -Rep office for production in Beijing, -Newsislosing "Dragon Club" Shanghai and and Guangzhou distribution, not public DM4 -No equity -Movie-related -Co-productions -Movie-related -Office in entertainment -Distribution through entertainment Beijing since company's own 1996 network DM5 No -Theaters N/A N/A -Exhibitions News Corporation DM1 -No equity Entertainment -Never stop investing, -Entertainment -Rep office depending on media -News is policies highly -Combination of joint regulated ventures and wholly- owned subsidiaries -Explore production of TV programs, films, and magazines DM2 No N/A -Active, just do trade, N/A selling programs
Continued
Table C.1: Investment strategy
187 Table C.1 continued
DM3 -No equity N/A -Launch 24-hour -Documentary, -Rep office channels, depending "infotainment" on regulation -Working with -When laws permit print production and publication channels, may establish joint ventures, and ultimately 100% ownership
DM4 -No equity in -Hard news -Phoenix Building -Hard news television -Business news -Nothing more in the -Business -Owns Phoenix -Entertainment near future due to news Weekly tight control over -Entertainment (magazine, foreign TV stations gray zone) and phoenixtv.com DM5 N/A N/A -Co-finance local N/A films in Hong Kong and mainland China Sony DM1 -No equity Entertainment -Usually establish Entertainment -Invested $ 5-6 partnerships million in -More contract-based televisoin co-production -AXN Asia -Possibilities of joint covers China ventures and wholly- with limited owned subsidiaries, access holding as much equity as the law allows DM2 N/A -Entertainment -No equity, because of N/A -Licensee piracy, censorship, relationship and unforeseeable changes
Continued
188 Table C.1 continued
DM3 -No equity Entertainment -Acquire equity Entertainment -Co-production ownerships as the -No serious ultimate plan, investments depending on laws made due to and policies government -Enter the market with restrictions and partners limited profitability DM4 -No equity in Entertainment -Seek opportunities of -Confined in content co-production and entertainment those that make profit in economic domains DM5 -Invested about Entertainment -No regulated amount, Entertainment $50 million in no vast expansion films -Co-production, no equity
189 Company Current status Future plan & Person Disney DM1 -Business relations with CCTV and all -Continue maintaining and major provincial cable stations developing business relations DM2 -Do our own distributions -Difficult to say, play close to chest DM3 -Political: SARFT at every level -Distributor barter agreement in -Social: leaders of children's teaching; Shanghai and Guangdong media organizations and TV stations -Advertising team relating all major buying groups DM4 -China Film Group, Huaxia Film -No further connections, enough Distribution Company, Film Bureau channels to get to government for under SARFT problems -Deals of building government relations already exists -Government can't change the current system DM5 -SARFT, China Film Group, some N/A relationships with exhibitors and film studios News Corporation DM1 -State: regular meetings with SARFT -Sit down with them for discussing -Local: meetings with the Shanghai their goals and the company's goals and Guangdong media for -Try to work out mutually distribution, co-production, and beneficial strategies syndication -Exchange with CCTV 9 DM2 -Broadcasters, government-related -Do business with commercial regulators organizations, broadcasters, and government-related regulators DM3 -Relationship with all government -Keep improving relationships - bodies Goal is to launch 24-hour channels -Connections with CCTV -Regular meetings with SARFT and State Council's Information Office regarding transmitting channels
Continued
Table C.2: Connections with government and distributors
190 Table C.2 continued
DM4 -Relationship with Social -All levels of the government (e.g. Management Dept., Radio and Ministry of Foreign Affairs, Office Television Bureau, Guangdong of Chinese Expatriats, State -Government has a tolerant attitude Council Taiwan Office) toward foreign media -Continue to develop government -Interviews permitted through State connections Council News Office -Government ignores channel landing DM5 -Connections with government -When the market is large in China, agencies in charge of film, video and openupanoffice television -Media business is a sensitive -China Film Group, Hua Xia Film business Distribution Company, closer ties with SARFT Sony DM1 -Connections with TV stations in -Maintain important ongoing Beijing and Shanghai, and SARFT relationships -Opportunistic situation -Complicated conditions in the government-restricted market DM2 -One Beijing-based distributor, United -May consider other distributors East Audio and Video Co. Ltd. -When there are private distributors, -Establish relationships through MPA competition may force distributors and Ministry of Culture to enhance their performances -No connections with local governments DM3 -Connections with two distributors N/A -Foreign firms not allowed to distribute DM4 -At local level, connections with -Depends on the nature of provincial TV stations to acquire opportunities, not exhausting the content buyers options very soon -At central level, connections with -Room for development because of SARFT and China Film Group changes -Always looking for partnerships DM5 -Personal relationships with -Continuing to make films leads to government officials and departments wider relationships such as SARFT and the Film Bureau -Connections with local governments in Beijing, Shanghai and Hong Kong -Distributors on a film-by-film basis, no long-term commitment 191 Company Current status Future plan & Person Disney DM1 -"China's Funniest Videos," "Dragon -Localize as a whole, financially Club," foreign (U.S.) programming, feasible, content locally relevant, local hosting, all content dubbed universally appealing DM2 -"Dragon Club” is the strongest -Open to original products, possible example, local host co-production -Always been localizing -Increase interactions with local kids and families -Localization depends on what function becomes available DM3 -Movies and animations on CCTV, -Three main product priorities: dubbed 1. feature films -"Dragon Club," local hosts; 2. animation -"Magic English," teaching English 3. ABC products for kids -Script format, "Alias" reshoot in -"China's Funniest Videos" China -ESPN, "Sports Funniest Videos" -Co-production, “Kill Bill” DM4 -General way, dubbed movies -Three main ways: -Localizing interesting stories 1. dubbing -Exploring local sources for stories 2. local sources (e.g. “Mulan”) 3. co-production -Co-production (e.g. “Shanghai Knight,” Disney and Miramax) DM5 -Dubbing -No specific plans -Co-production with Miramax (e.g. -The business has no recognizable Kill Bill) benefits -Focus has been more on TV and theme parks News Corporation DM1 -Local staff, local programming, 20 -Comfortable with current situation, local shows, 750 hours of locally already heavily localized, not much produced programming each year room left -May go on for 1000 hours of locally produced programming per year
Continued
Table C.3: Product localization
192 Table C.3 continued
DM2 No -No production -Selling movies and TV programs in over 100 countries -Can't make them unique to each market
DM3 -Dubbed in Chinese -Production with Chinese crews -Promotion materials in Chinese -Create content for global viewers -Not 100% local feed DM4 -80% local production N/A DM5 -Film dubbing in Mandarin -Eventually, have the say on how to market the film -Possibility of co-producing Chinese films with Chinese cast members Sony DM1 -Local language and programming -Partnering with local partners -All products in local language -Establish local programming model (e.g. choosing stories both the company and local partners feel relevant) DM2 -Dub films with subtitles -As local as it can be -Releasing VCDs -Mandarin tracks included in -Local packaging products -Region-6 DVDs -Local production -12 titles were released, pricing not -Release everything the studio well received in the market markets DM3 -Subtitles and dubbing N/A DM4 -For films, they are dubbed, local -For films, adopting universal model, productions in Chinese localizing format of production -For television, channels with limited -For television, no reason to localize access, subtitles on satellite channels, as the regulation changes not specific for China DM5 -Co-produced films are shot in -Globalizing, try to make films Mandarin Chinese universally appealing -American films are released with -Limited geographic localization subtitles
193 Company Current status Future plan & Person Disney DM1 -Distribution play (as different from -All products are different platform play by CETV, News -Differentiating constantly Corps, and Viacom) DM2 -Powerful brand -True to commitment, high quality family entertainment products DM3 -Kids and family, branding -Not the first-in, wait 5 years -Mickey is known, Cartoon and -Through branding, quality of content Nick not known -Adding Cantonese language -16 channels and 8 languages -Two ways flow: more production on around the world, 8 channels and 4 Disney Channel, government languages with one feed in Asia, (SARFT) approval for Mandarin dubbed Chinese Disney channels, further control of piracy DM4 -Each film is taken as a different N/A product DM5 -Not intentionally -Not organized to create a Chinese film News Corporation DM1 -Local content produced by Chinese -Differentiation by constantly people developing new programs (6 new -Combining expertise and high- programs to be launched, including a quality programming of parent firm talk show, a reality show, a with local production documentary, and a game show, etc.) -None of other foreign media companies is taking differentiation strategy (CETV took foreign programs and dubbed them into Chinese) DM2 -Trying to create difference -Differentiation by category, movies, TV series, dramas, comedies -Can't provide specific things in each market DM3 -Funds expedition and research N/A exploration -Great reputation for delivering unique content
Continued
Table C.4: Product differentiation 194 Table C.4 continued
DM4 -Provides alternative choices (esp. -Further development based on compared with CCTV) current situation -Fast-paced, live broadcasting with spontaneity -More flexibility of reporting as a foreign station -Reporting but not exaggerating -Star reporters, commentators, and anchors, emphasizing individuality DM5 No -To do local productions -Build digital movie theaters, visuals quality passing 35 mm film Sony DM1 -From foreign competitors, -Keep trying to differentiate production in local language -From domestic competitors, more money and more production expertise DM2 -No differentiation -No plans, already done as much as -Higher pricing for quality and the company can packaging DM3 No -No specific strategies due to absence of serious investments DM4 -Wider variety of films and TV -Continue to provide a wider range of programs, including many non-U.S. products movies and TV series -They should be SPE copyrighted -Competitors have limited content DM5 -Each film is considered a different N/A product
195 Company Response & Person Disney DM1 -Fundamentally, things are not so different -Replicate deal structures -Standard template (how much to sell for) -Utilize affinity (Taiwanese producers to work on local Chinese shows) DM2 -Learn from each market -China is different, and each market is different DM3 -Multiple cultural working -Taking all the skills -China is different than any other markets -Westerners should learn from China, rather than vice versa DM4 -Things can be learned from markets of similar cultural backgrounds -China is a unique market, locked up, controlled by monopoly -Much to learn, intriguing and frustrating and rewarding DM5 -Chinese government wants to be unique -Relatively small countries are more profitable than China News Corporation DM1 -Every market has a unique taste -Adapt a program format that worked elsewhere to local market -Ways of putting up sponsorship packages with good graphic design to attract advertising DM2 -Every market is unique, though there are general standards -Trying to sell more efficiently DM3 -China is daunting -May use business applications that work in Asia in China DM4 -Two main stakeholders: News Corps, Bank of China -Distribution in North America via DirecTV -Employee training in Hong Kong -May adapt ideas and experiences of TV production in Hong Kong to the mainland
Continued
Table C.5: Knowledge and experience
196 Table C.5 continued
DM5 -Learn from Asian markets -Close with individuals in China -Launch a better fashion with ideas and influences -Distribution strategies (e.g. number of films), basic sales and marketing policies -Operating internationally for 80-90 years in more than 60 countries -Be analytical with cultural differences -Experience with the former Soviet Union (one group buying) and Vietnam can be used in China -Attraction of Chinese market: more films, greater number, greater variety, box-office take, huge market -Try to improve the deal terms in the market Sony DM1 -Higher level of cultural sensitivity, producing in local settings and providing locally relevant content -Flexible with local ways of conducting -Learning how to operate in China DM2 -Not relevant to Chinese media market -Large amount of regulations in the market, China is the highest regulated country in the world -Difficult to apply experience elsewhere to China -No significant investment by any other Hollywood studios and video companies in China -10 years ago, piracy was not very bad, now it is worse -The company makes a little money in China and does not need to do much work -Not giving it up DM3 N/A DM4 -China is unique -Need to adopt tailor-made approaches -From a content standpoint, if a product is not on the strategy or operation, it may not work in China -China is a challenging environment, but there are still business opportunities and markets to press into, to change and to be able to develop the business further -As an international media company, the company wants to be at least engaged DM5 -Discussions with writers and producers about structuring of stories, cast, etc. -Universal characteristics and peculiarities about making movies in China co-exist -Continue to learn more about the country 197 APPENDIX D
QUESTIONNAIRE (ENGLISH)
198 Western Media Corporations’ Risk and Strategies in post-WTO China
Questionnaire for interviews
Name of Interviewee______Title______Company______Email______Phone______
I. Perceptions of the external environment
In this section, we would like you to evaluate the aspects of the environment of the Chinese media market in which your company operates. We have identified a list of possible factors that may affect your strategic decision making to operate and invest in the 199 Chinese media market. For each factor, please answer the following question(s).
1. Do you think this factor affects your business in China?
If you answer “no,” please circle “0” and go directly to the next factor.
If you answer “yes,” please answer the following two questions about this factor.
2. How do you feel about this factor in terms of predictability after WTO?
Please indicate how predictable you believe this factor to be on a scale of 1 (very predictable) to 7 (very unpredictable).
3. How did you feel about this factor in terms of predictability before WTO?
Please indicate how predictable you believe this factor to be on a scale of 1 (very predictable) to 7 (very unpredictable). 199 Values to the Scale
Not Very Predictable Somewhat Neutral Somewhat Unpredictable Very relevant predictable predictable unpredictable unpredictable 01 2 345 6 7
Do you think this factor affects No Yes your business in China? - How do you feel about this factor in - How did you feel about this factor in terms of predictability after WTO? terms of predictability before WTO? (Please circle.) (Please circle.) Predictable Unpredictable Predictable Unpredictable 1. Government and policies a. Ability of the party in power to 012345671234567 maintain control of the government b.Threatofarmedconflict 012345671234567 200 c.Taxpolicies 012345671234567 d.Monetarypolicy 012345671234567 e. Prices controlled by the 012345671234567 government f. National laws affecting 012345671234567 international media business g. Legal regulations affecting the 012345671234567 media business sector h. Tariffs/quotas on imported media 012345671234567 products i.Enforcementofexistinglaws 012345671234567 j. Adequacy of public service 012345671234567 provision
200 Do you think this factor affects No Yes your business in China? - How do you feel about this factor in - How did you feel about this factor in terms of predictability after WTO? terms of predictability before WTO? (Please circle.) (Please circle.) Predictable Unpredictable Predictable Unpredictable 2. Economy a. Inflation rate 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 b. Exchange rate with dollar 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 c. Interest rate 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 d. Results of economic restructuring 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7
3. Competition a. Changes in competitor’s prices 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 b. Changes in the markets served by 012345671234567 competitors 201 c. Changes in competitors’ strategies 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 d. Entry of new media companies into 012345671234567 the market e. Domestic competitors 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 f. Foreign competitors 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 g. Innovations in quality of media 012345671234567 products h. Innovations of media transmission 012345671234567 devices
4. Product market and demand a. Product differentiation in the media 012345671234567 market b. Customer preferences 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 c. Demand for media products 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 201 Do you think this factor affects No Yes your business in China? - How do you feel about this factor in - How did you feel about this factor in terms of predictability after WTO? terms of predictability before WTO? (Please circle.) (Please circle.) Predictable Unpredictable Predictable Unpredictable 5. Resources and services a. Transmission/distribution system 012345671234567 within the country b. Availability of trained labor 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7
6. Social and cultural conditions a. Social beliefs and attitudes towards cultural intrusion of foreign media 012345671234567
202 products b. Changing social concerns 0 1 2 3 4 5 6 7 1 2 3 4 5 6 7 c. Social unrest, riots, and 012345671234567 demonstrations
Follow-up question: What other factors not included in this list, if any, are also important to your strategic decision making with respect to the Chinese media market?
202 II. Strategies In this section, we would like you to describe your company’s strategies in response to the above factors concerning the environment of the Chinese media market.
1. Have you invested in the Chinese media market? Yes No Can you describe the nature of your investment? Please answer the question below. -How much investment? -How much equity do you hold?
In which domains of the Chinese media has your company
203 invested (i.e., hard news, business news, entertainment, etc.)? Can you describe the nature of these investments?
Do you plan to invest (more) in the Chinese media market? Yes No Can you describe the nature of these strategies? Please specify reasons for not having such a plan in the space below.
In which domains of the Chinese media has your company invested (i.e., hard news, business news, entertainment, etc.)? Can you describe the nature of these investments?
203 2. Have you established connections with governments and distributors in China? Yes No What connections has your company established with Please answer the question below. governments and distributors at either or both the state and local levels in China?
Do you plan to establish (further) connections with governments and distributors in China? Yes No 204 What is the nature of your company’s plan for the establishment Please specify reasons for not having such a plan in the space of connections with governments and distributors at either or below. both the state and local levels in China?
204 3. Have you localized your products in the Chinese media market? Yes No What products has your company localized in the Chinese media Please answer the question below. market?
Do you plan to (further) localize your products in the Chinese media market? Yes No What is the nature of your company’s plan for localizing your Please specify reasons for not having such a plan in the space
205 products in the Chinese media market? below.
205 4. Have you differentiated your product offerings from international and domestic competitors in the Chinese media market? Yes No How has your company done so? Please answer the question below.
Do you plan to (further) differentiate your product offerings from international and domestic competitors in the Chinese media market? Yes No
206 How will your company do so? Please specify reasons for not having such a plan in the space below.
206 5. Do you think the knowledge and experience you have gained in other countries are relevant to the Chinese media market? Yes No How would you utilize/leverage the knowledge and experience Please specify reasons for not utilizing such knowledge and gained in other international markets, such as Eastern and experience. Central Europe and Asia, in the Chinese media market? 207
207 APPENDIX E
QUESTIONNAIRE (CHINESE)
208 西方媒体公司在中国入世后之风风及策略
调调调卷
受访 者姓名______职 位______供职职位______电 子邮 箱______电电______
参与本调调研究是自愿的。您可以在任何时时退出，也可以选选不回答调 卷中的任何调问。您的回答不会与您的姓名 及您所在公司的名称有任何联 系。为 保证 数据记记的精确性，这 个采访 将会被记 音。
209 请谈谈您 国外媒体公司在中国的运作及投资资境。我们 在下表内总总了可能会影响国外媒体公司在中国市场 作决策的 各种 因素。请 您就每 一个因素回答如下调问：
1。您认为这 个因素是否影响国外媒体公司在中国的业业？ 如您回答“否”， 请 圈出“0”并转 至下一个因素。 如您回答“是”，请请请回答右侧 两个调问。
2。 您在中国加入 WTO 以后如何评 价这 个因素的确定性？ 请 在表中以 1（非常确定）至 7 （非常不确定）来表示。
3。您在中国加入 WTO 以前如何评 价这 个因素的确定性？ 请 在表中以 1（非常确定）至 7 （非常不确定）来表示。
209