Analysis of the Trade Relationships Between Spanish and Chinese Companies
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Alazne Cristobalena, Matti Muhos, Lingyun Wang, and Pekka Kess Analysis of the Trade Relationships between Spanish and Chinese companies Working Papers in Department of Industrial Engineering and Management 1/2011 UNIVERSITY OF OULU Working Papers in Department of Industrial Engineering and Management Alazne Cristobalena, Lingyun Wang, Matti Muhos, and Pekka Kess Analysis of the Trade Relationships between Spanish and Chinese companies ISBN 978-951-42-9369-6 ISSN 1459-2401 University of Oulu Abstract Department of Industrial engineering and management Authors Type of publication Alazne Cristobalena, Lingyun Wang, Matti Muhos, Working paper Pekka Kess Client University of Oulu Name of the report ANALYSIS OF THE TRADE RELATIONSHIPS BETWEEN SPANISH AND CHINESE COMPANIES Abstract This study is part of the CHISU project. Since the late 80s, establishing trade relations with Chinese companies has become increasingly important for some Spanish companies. Some of them have settled manufacturing plants in China in order to enter the Chinese market and offer more price-competitive products. Most of these firms are located in the coastal region of east China. In some cases, they have not been able to choose their location. The paper is a qualitative study by. The study contains the particular experiences of Spanish firms and their evolution in the Chinese market. The data of the research are collected through several interviews with five Spanish companies that agreed to participate in this research. The study demonstrates that the preferred way to settle manufacturing plants in China is WFOEs, because of the freedom of decision-making on the management. The study provides much detail information on the topics such as the process of settling in China, the necessary investments, common difficulties firms have to deal with, and the relationship with the clients and suppliers. One of the findings breaks the following myth: “what is manufactured in China has lower quality”. The study illustrates that the subsidiaries of the case companies in China are able to manufacture products with superior quality. One of the important findings in this research is there is no relationship between weak IP protection in China and technology transfer to China. The main priority of the case companies is to keep competitiveness when the companies make decision on technology transfer. Keywords Trade relationship, business relationship analysis, Spanish and Chinese companies Other information Name of the series ISSN ISBN University of Oulu Working Papers in DIEM 1459-2401 978-951-42-9369-6 Number of pages Language Confidentiality … + appendices English Public Distributor Publisher University of Oulu, DIEM Table of Contents Abstract Table of Contents Abbreviation 1 Introduction....................................................................................................................9 1.1 Study Background....................................................................................................9 1.1.1 The reasons to China .........................................................................................9 1.1.2 The trade relations evolution...........................................................................10 1.2 Research Questions and Objectives.......................................................................11 1.3 Research Method and Design ................................................................................11 2 Theoretical Background...............................................................................................13 2.1 Regional Differences .............................................................................................13 2.2 FDI in China ..........................................................................................................15 2.2.1 The evolution of FDI in China ........................................................................15 2.2.2 Barriers of FDI in China..................................................................................18 2.2.3 Entry modes of FDI.........................................................................................21 2.2.4 Intellectual Property Rights.............................................................................23 2.2.5 Tax system .......................................................................................................25 2.2.6 Finances...........................................................................................................26 2.3 Supplier-Customer Relationship............................................................................27 2.3.1 IPR issues in the relationship ..........................................................................28 2.3.2 Searching for the right suppliers......................................................................29 2.3.3 The necessity to transfer knowledge ...............................................................30 2.3.4 Expatriates .......................................................................................................32 2.3.5 Quality .............................................................................................................32 2.3.6 Cultural difference...........................................................................................33 2.4 Effects of the Financial Crisis on the Trade Relations...........................................34 2.4.1 Consequences ..................................................................................................35 2.4.2 Measures..........................................................................................................35 3 Empirical Study............................................................................................................36 3.1 Case companies .....................................................................................................36 3.2 Life-Cycle of the Demand-Supply Chain ..............................................................40 3.2.1 Origin of the idea.............................................................................................40 3.2.2 Planning to Settle a Manufacturing Plant in China .........................................41 3.2.3 First Steps of Starting Up ................................................................................42 3.2.4 Evolution of the Entry Mode...........................................................................47 3.2.5 Future Plans.....................................................................................................49 3.3 Expatriates and Chinese employees.......................................................................49 3.4 Materials and Goods Import ..................................................................................51 3.5 Intellectual Property Rights ...................................................................................52 3.5.1 Technology transfer.........................................................................................53 3.6 Experiences of Pro and Con ..................................................................................54 3.6.1 Influence of Chinese Government...................................................................54 3.6.2 Payment Problem from Customers..................................................................55 3.6.3 Benefits from the China Experience ...............................................................56 3.7 The Impacts of the Crisis.......................................................................................57 4 Discussions ..................................................................................................................58 4.1 Theoretical Study...................................................................................................58 4.2 Empirical Analysis.................................................................................................60 4.3 Research Contributions..........................................................................................61 4.3.1 A comparison between the case study and literatures .....................................61 4.3.2 Managerial suggestions for companies ...........................................................63 4.4 Research Limitations and Future Study.................................................................64 5 Conclusions..................................................................................................................65 References.......................................................................................................................67 Appendix A: English version of the questionnaire .........................................................70 Appendix B: Spanish version of the questionnaire.........................................................73 Abbreviation CDTI Centro para el Desarrollo Tecnológico e Industrial COE Collective-Owned Enterprise CEPA Closer Economic Partnership Arrangement CESCE Compañía Española de Seguro de Crédito a la Exportación CJV Contractual Joint Venture CPC Communist Party of China CPO Chinese Patent Office EEUU Estados Unidos EJV Equity Joint Venture ERP Enterprise Resource Planning EU European Union FDI Foreign Direct Investment FICE Foreign-Invested Commercial Enterprise FIFO First In, First Out FITE Foreign-Invested Telecommunications Enterprise FLTR First Levying and Then Rebating Taxes FTC Foreign Trade Corporation GATS General Agreement on Trade Services